UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


x      Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 20092012 or

¨      Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________ to _______________.


.

Commission file number:001-31747


UNIVERSAL SECURITY INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)


MARYLAND 52-0898545
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $0.01 par value AmericanNew York Stock Exchange (Euronext)

Securities registered pursuant to Section 12(g) of the Act:

None
Title of Class

None
Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes¨Nox


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes¨Nox


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. YesxNo¨


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YesYes  x No¨   No x


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x


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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer¨ Accelerated Filer¨ Non-Accelerated Filer¨ Smaller Reporting Companyx


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨Nox


The aggregate market value of Common Stock, $.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the New York Stock Exchange (NYSE AMEX) on September 30, 2008,2011, was $12,419,335.


$11,183,350.

The number of shares of common stock outstanding as of June 10, 200915, 2012 was 2,387,087.


2,336,354.

documents incorporated by reference


To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant’s definitive proxy statement for its 20092012 Annual Meeting of Shareholders (to be filed).


��

UNIVERSAL SECURITY INSTRUMENTS, INC.

2009

2012 ANNUAL REPORT ON FORM 10-K


Table of Contents


  Page
   
PART I
   
Item 1.Business3
Item 1A.Risk Factors6
Item 1B.Unresolved Staff Comments95
Item 2.Properties105
Item 3.Legal Proceedings10
Item 4.Submission of Matters to Vote of Security Holders116
 Executive Officers of the Registrant116
   
PART II
   
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities12
Item 6.Selected Financial Data137
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations15
Item 7A.Quantitative and Qualitative Disclosures About Market Risk218
Item 8.Financial Statements and Supplementary Data2211
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure2212
Item 9A(T).9A.Controls and Procedures2212
Item 9B.Other Information2312
   
PART III
   
Item 10.Directors, Executive Officers and Corporate Governance2413
Item 11.Executive Compensation2413
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters2413
Item 13.Certain Relationships and Related Transactions, and Director Independence2413
Item 14.Principal Accountant Fees and Services2413
   
PART IV
   
Item 15.Exhibits and Financial Statement Schedules2514
   
Signatures 2716


PART I

PART I

ITEM 1.BUSINESS

General


Universal Security Instruments, Inc. (“we” or “the Company”) designs and markets a variety of popularly-priced safety products consisting primarily of smoke alarms, carbon monoxide alarms and related products. Most of our products require minimal installation and are designed for easy installation by the consumer without professional assistance, and are sold through retail stores. We also market products to the electrical distribution trade through our wholly-owned subsidiary, USI Electric, Inc. (“USI Electric”). The electrical distribution trade includes electrical and lighting distributors as well as manufactured housing companies. Products sold by USI Electric usually require professional installation.


In 1989 we formed Eyston Company Limited, a limited liability company under the laws of Hong Kong, as a joint venture with a Hong Kong-based partner, to manufacture various products in the Peoples Republic of China (the “Hong Kong Joint Venture”). We currently own a 50% interest in the Hong Kong Joint Venture and are a significant customer of the Hong Kong Joint Venture (63.2%(45.8% and 68.9%28.8% of its sales during fiscal 20092012 and 20082011 respectively), with the balance of its sales made to unrelated customers worldwide.


We import all of our products from various foreign suppliers. For the fiscal year ended March 31, 2009,2012, approximately 97.3%96.2% of our purchases were imported from the Hong Kong Joint Venture.

Our sales for the year ended March 31, 20092012 were $26,097,596$13,304,602 compared to $33,871,362$13,249,604 for the year ended March 31, 2008,2011. We reported a net loss of $503,288 in fiscal 2012 compared to net income of $817,781 in fiscal 2011, a decrease of approximately 23.0%161.5%. We reported income from continuing operationsThe primary reasons for the decrease were a $1,190,631 (70.4%) decrease in the earnings of $1,442,336 in fiscal 2009 comparedthe Joint Venture due to income from continuing operations of $2,824,749 in fiscal 2008,lower sales to non-affiliated customers, higher selling costs incurred to meet delivery commitments to the U.S. customers, and a decrease of 48.9%.


in investment and interest income due to a decrease in cash invested in short term instruments.

The Company was incorporated in Maryland in 1969. Our principal executive office is located at 11407 Cronhill Drive, Suite A, Owings Mills, Maryland 21117, and our telephone number is 410-363-3000. Information about us may be obtained from our websitewww.universalsecurity.com. Copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on our website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu item, then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly atwww.sec.gov.


Safety Products


We market a line of residential smoke and carbon monoxide alarms under the trade names “UNIVERSAL” and “USI Electric” and “UNIVERSAL” both of which are manufactured by the Hong Kong Joint Venture.


Our line of smoke alarms consists of battery powered, electrical and electrical with battery backup alarms. Our products contain different types of batteries with different battery lives, and some with alarm silencers. The smoke alarms marketed to the electrical distribution trade also include hearing impaired and heat alarms with a variety of additional features. We also market outdoor floodlights under the name “Lite Aide(TM),” carbon monoxide alarms, door chimes and ventilation products.


We have been evaluating and researching

Over the past four fiscal years we developed new smoke, and carbon monoxide, and natural gas detection technologies in an effort to improve reliability and response time of smoke and carbon monoxide alarms.technologies. This effort has resulted in the development of a new smoke alarm sensing technology and many new product features, and we have applied for nine patents on certain of these new technologies and features. To date we have been granted five patents, and we are currently awaiting notification from the U.S. Patent Office regarding the remaining patent applications. Our new technologies and features have been trademarked under the trade name IoPhic®. We have also assisted in the development of a new carbon monoxide sensor which will be capable of detecting several types of gases.  We have initiated the process of obtaining independent certification of a full product lineregularly submitted each of our next generationnew products for independent testing agency approval, and we introduced products into the marketplace as approvals were received. This process began during the fourth quarter of residential smokeour 2011 fiscal year and carbon monoxide alarms.  We plan on completingby the certification processend of the third quarter of our 2012 fiscal year we had completed testing and expect to begin shippingreceived approvals from independent testing agencies for all of the next generation of products that we had submitted for testing.

The Company is continuing its research and development efforts and expects to our customers during the fiscal year ending March 31, 2010.  We expectsubmit additional products to independent testing agencies and expects to incur additional engineering, design, and certification costs of between $500,000$400,000 and $900,000$500,000 during the fiscal year endedending March 31, 2010.2013. In addition, the Company has initiated marketing efforts to educate consumers on the significant benefits and features of the IoPhic® technology and to introduce the new product line to the retail marketplace and expects to incur costs of between $350,000 and $450,000 as a result of this effort.

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Our wholly-owned subsidiary, USI Electric.Electric, Inc., focuses its sales and marketing efforts to maximize safety product sales, especially smoke alarms and carbon monoxide alarms manufactured by our Hong Kong Joint Venture.  USI Electric, Inc. concentrates on marketingVenture, to the electrical distribution and retail trade.


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Import Matters


We import all of our products. As an importer, we are subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions, and currency fluctuations. We have attempted to protect ourselves from fluctuations in currency exchange rates to the extent possible by negotiating commitments in U.S. dollars.


Our inventory purchases are also subject to delays in delivery due to problems with shipping and docking facilities, as well as other problems associated with purchasing products abroad. Substantially all of our safety products, including products we purchase from our Hong Kong Joint Venture, are imported from the People’s Republic of China.


Sales and Marketing; Customers


We sell our products to various customers, and our total sales market can be divided generally into two categories; sales by the Company and sales by our USI Electric subsidiary.


The Company markets our products to retailers, including wholesale distributors, chain, discount, television retailers and home center stores, catalog and mail order companies and to other distributors (“retailers”), and sales by our USI Electric subsidiary to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies). Our productsProducts marketed by the Company have historically been retailed to “do-it-yourself” consumers by these retailers. Products marketed by our USI Electric subsidiary to the electrical distribution trade typically require professional installation. We do not currently market anya significant portion of our products directly to end users.

The Company’s retail

A significant portion of our sales are made directly by our employees and by approximately 1727 independent sales organizations, which are compensated by commissions.commission, which represents approximately 230 sales representatives, some of which have warehouses where USI Electric products are maintained for sale. In addition, the Company has established a national distribution system with 9 regional stocking warehouses throughout the United States which generally enables customers to receive their orders the next day without paying for overnight freight charges. Our agreements with these sales organizations are generally cancelable by either party upon 30 days notice. We do not believe that the loss of any one of these organizations would have a material adverse effect upon our business. Sales are also made directly by us are effected by ourthe officers and full-time employees of the Company and our USI Electric subsidiary, seven of whom are also engaged in sales, management and training.have other responsibilities for the Company. Sales outside the United States are made by our officers and through exporters, and amounted to less than 7.0%approximately 12% in fiscal 2012 and 10% of total sales in the fiscal yearsyear ended March 31, 2009 and 2008.


During fiscal 2007, we began selling home safety products to The Home Depot, Inc., a major national home improvement retailer.  Total sales to Home Depot for fiscal 2009 and 2008 represented approximately 46.6% and 40.2% of our revenues, respectively.

Our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies).  USI Electric has established a national distribution system with 11 regional stocking warehouses throughout the United States which generally enables customers to receive their orders the next day without paying for overnight freight charges.  USI Electric engages sales personnel from the electrical distribution trade and has engaged 27 independent sales organizations which represent approximately 230 sales representatives, some of which have warehouses where USI Electric products are maintained by our sales representatives for sale.

2011.

We also market our products through our website and through our own sales catalogs and brochures, which are mailed directly to trade customers, and our website.customers. Our customers, in turn, may advertise our products in their own catalogs and brochures and in their ads in newspapers and other media. We also exhibit and sell our products at various trade shows, including the annual National Hardware Show.


Our backlog of orders believed to be firm as of March 31, 20092012 was approximately $458,590.$2,128,473. Our backlog as of March 31, 20082011 was approximately $1,863,901.$669,315. This decreaseincrease in backlog is primarily due to lower overall salesthe timing of orders of our safety products.


Hong Kong Joint Venture


We have a 50% interest in Eyston Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of certain of our electronic and electrical products.


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We believe that the Hong Kong Joint Venture arrangement will ensure a continuing source of supply for a majority of our safety products at competitive prices. During fiscal year 2009, 97.3%years ended 2012 and 2011, 96.2% and 85.6%, respectively, of our total inventory purchases were made from the Hong Kong Joint Venture. The products produced by the Hong Kong Joint Venture include smoke alarms and carbon monoxide alarms. ChangesNegative changes in economic and political conditions in China or any other adversity to the Hong Kong Joint Venture will unfavorably affect the value of our investment in the Hong Kong Joint Venture and would have a material adverse effect on the Company’s ability to purchase products for distribution.

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Our purchases from the Hong Kong Joint Venture represented approximately 63.2%45.8% of the Hong Kong Joint Venture’s total sales during fiscal 20092012 and 68.9%28.8% of total sales during fiscal 2008,2011, with the balance of the Hong Kong Joint Venture’s sales being primarily made in Europe and Australia, to unrelated customers. The Hong Kong Joint Venture’s sales to unrelated customers were $13,299,688$12,008,026 in fiscal 20092012 and $9,378,242$17,258,918 in fiscal 2008.2011. Please see Note C of the Financial Statements for a comparison of annual sales and earnings of the Hong Kong Joint Venture.


Discontinued 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 were based in Toronto, Canada and manufactured and distributed 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 June 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.

At the time of our investment in Icon, we projected that our established U.S. sales network would allow us to increase sales of EMT to U.S. customers.  Despite our efforts, Icon suffered continuing losses, and we were not successful in increasing Icon’s sales in the face of competition and a downturn in the housing market.  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 June 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.  Accordingly, the assets and liabilities of Icon are not consolidated in the financial statements of the Company and are classified as assets held in receivership.   Our consolidated financial statements and the related note disclosures reflect the operations of Icon as discontinued operations for all periods presented.

As a result of continuing losses at Icon, we undertook an evaluation of the goodwill from our acquisition of Icon during the third quarter of fiscal year 2008 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, we determined that the value of the goodwill from our acquisition of Icon was impaired, and we recognized an impairment charge of US$1,926,696 at December 31, 2007 for the goodwill.   In addition, as a result of Icon’s receivership and the steps taken to liquidate Icon’s assets, the non-cash assets of Icon were written down to their estimated net realizable value and a further impairment charge of US$7,087,297 was recognized as of March 31, 2008.  These impairments have been recorded in discontinued operations in the consolidated statements of operations for the fiscal year ended March 31, 2008.

On September 22, 2008, Icon’s obligations were settled in the receivership action by Ontario Superior Court order.   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$1,518,375 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 operation to arrive at the gain from discontinued operations of $3,423,021 for the fiscal year ended March 31, 2009.

 At March 31, 2009, the remaining asset of Icon held by the receiver consists of cash of US$202,565.  The liabilities of Icon held by the receiver include a claim by a supplier and other secured amounts payable of US$202,565.   Subsequent to March 31, 2009, the claim by a supplier was settled for CAD$175,000 (approximately US$140,000).

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

Assets March 31, 2009  March 31, 2008 
       
Cash $202,565  $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 $202,565  $2,850,731 
         
Liabilities
        
Accounts payable, trade and other $202,565  $3,344,624 
Notes payable – bank  0   4,478,826 
Liabilities of discontinued operations $202,565  $7,823,450 

In the accompanying consolidated financial statements, the results of Icon for all fiscal years included  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.

Other Suppliers


Certain private label products not manufactured for us by the Hong Kong Joint Venture are manufactured by other foreign suppliers. We believe that our relationships with our suppliers are good. We believe that the loss of our ability to purchase products from the Hong Kong Joint Venture would have a material adverse effect on the Company. The loss of any of our other suppliers would have a short-term adverse effect on our operations, but replacement sources for these other suppliers could be developed.


Competition


In fiscal year 2009,2012, sales of safety products accounted for substantially all of our total sales. In the sale of smoke alarms and carbon monoxide alarms, we compete in all of our markets with First Alert and Walter Kidde Portable Equipment, Inc. These companies have greater financial resources and financial strength than we have. We believe that our safety products compete favorably in the market primarily on the basis of styling, features and pricing.


The safety industry in general involves changing technology. The success of our products may depend on our ability to improve and update our products in a timely manner and to adapt to new technological advances.


Employees


As of March 31, 2009,2012, we had 1816 employees, 1512 of whom are engaged in administration and sales, and the balance of whom are engaged in product development. Our employees are not unionized, and we believe that our relations with our employees are satisfactory.


ITEM 1A. 
RISK FACTORS

An investment in our Common Stock is subject to risks inherent to our business.  The material risks and uncertainties that management believes affect the Company are described below.  Additional risks and uncertainties that management is not aware of or focused on or that management currently deems immaterial may also impair the Company’s business operations.

Risk Factors Relating To Our Business Generally

Our success depends to a very large degree on our relationship with and the success of our Hong Kong Joint Venture.

During fiscal year 2009, 97.3% of our total inventory purchases were made from the Hong Kong Joint Venture.  The products produced by the Hong Kong Joint Venture include smoke alarms and carbon monoxide alarms, and we are currently pursuing the development of additional products to be manufactured by the Hong Kong Joint Venture.  Our purchases from the Hong Kong Joint Venture represented approximately 63.2% of the Hong Kong Joint Venture’s total sales during fiscal 2009, with the balance of the Hong Kong Joint Venture’s sales being primarily made in Europe and Australia to unrelated customers. If the Hong Kong Joint Venture does not maintain profitability, our profitability will be adversely affected.

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In addition, adverse changes in our relationship with our Hong Kong Joint Venture partners would unfavorably affect the value of our investment in the Hong Kong Joint Venture and could have a material adverse effect on our ability to purchase products for distribution.

Our reliance on the Hong Kong Joint Venture exposes us to uncertainties and risks from abroad which could negatively affect our operations and sales.

Our relationship with the Hong Kong Joint Venture and our and the Hong Kong Joint Venture’s sales in other countries expose us to particular risks.  The following are among the risks that could negatively affect our imports and our and the Hong Kong Joint Venture’s sales in foreign markets:

·new restrictions on access to markets,
·currency devaluation,
·new tariffs,
·adverse changes in monetary and/or tax policies,
·inflation, and
·governmental instability.

Should any of these risks occur, the value of our investment in the Hong Kong Joint Venture could be reduced and our results of operations could be negatively impacted.

The lack of availability of inventory could adversely affect our financial results.

We source inventory primarily from our Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China.  Our purchases of inventory are subject to being affected by a number of factors, namely, production capacity, labor unrest and untimely deliveries.  Changes in economic and political conditions in China or any other adversity to the Hong Kong Joint Venture will unfavorably affect the value of our investment in the Hong Kong Joint Venture and could have a material adverse effect on the our ability to purchase products for distribution.

Our Hong Kong Joint Venture is subject to political and economic factors unique to China.

The Chinese government has been reforming the Chinese economic system.  In recent years, the government has also begun reforming the government structure.  These reforms have resulted in significant economic growth and social progress.  Although the majority of the production assets in China are still state-owned, economic reform policies have emphasized autonomous enterprises and the utilization of market mechanisms.  Our Hong Kong Joint Venture currently expects that the Chinese government will continue its reform by further reducing governmental intervention in business enterprises and allowing market mechanisms to allocate resources.  Any adverse changes in political, economic or social conditions in China could have a material adverse effect on the Hong Kong Joint Venture’s operations and our financial results, as well as our ability to purchase products manufactured by the Hong Kong Joint Venture.

We are subject to risks in connection with the importation of our products from foreign countries.

We import all of our products.  As an importer, we are subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.  We have attempted to protect ourselves from fluctuations in currency exchange rates to the extent possible by negotiating commitments in U.S. dollars.  We are also subject to strikes or other labor unrest at points of origin and destination, as well as delays and restrictions which impact shipping and shipping routes.

We rely on our key personnel and the loss of one or more of those personnel could have a material adverse effect on our business, financial condition and results of operations.

Our operations and prospects depend in large part on the performance of our senior management team.  There can be no assurance that we would be able to find qualified replacements for any of these individuals if their services were no longer available.  The loss of the services of one or more members of our senior management team could have a material adverse effect on our business, financial condition, and results of operations.

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Our competition is both intense and varied and our failure to effectively compete could adversely affect our prospects.

In fiscal year 2009, our sales of safety products accounted for substantially all of our sales.  Many of our competitors have greater financial resources and financial strength than we have.  Some of our competitors may be willing to reduce prices and accept lower profit margins to compete with us.  While we believe that our safety products compete favorably with other such products in the market, primarily on the basis of styling, features, and pricing, the safety industry in general involves changing technology.  The success of our products may depend on our ability to improve and update our products in a timely manner and to adapt to new technological advances.  As a result of this competition, we could lose market share and suffer losses, which could have a material adverse effect on our future financial performance.

Our reliance on a single large customer exposes the Company to uncertainties and risk.

During the fiscal year ended March 31, 2009, our sales decreased $7,773,766 due to decreases in new housing construction in the U.S. domestic market.  As our total sales decreased, the percentage of our sales to a single large customer increased to 46.6% of total sales.  Should adverse changes occur in the financial condition, or purchasing pattern of this single large customer, our sales and profitability could be negatively impacted.

The security products marketplace is dynamic and challenging because of the introduction of new products and services.

We must constantly introduce new products, services, and product features to meet competitive pressures. We may be unable to timely change our existing merchandise sales mix in order to meet these competitive pressures, which may result in increased inventory costs or loss of market share.

Adverse changes in national or regional U.S. economic conditions could adversely affect our financial results.

We market our products nationally to retailers, including wholesale distributors, chain, discount, and home center stores, catalog and mail order companies and to other distributors.  Overall consumer confidence, consumer credit availability, recessionary trends, housing starts and prices, mortgage rates, and consumers’ disposable income and spending levels directly impact our sales.  Negative trends, whether national or regional in nature, in any of these economic conditions could adversely affect our financial results.

Our products must meet specified quality and safety standards to enter and stay on the market.

Our products must meet US. and various international standards before they are sold.  For example, in the United States, our products must be certified by Underwriters Laboratories (UL) and similar certifications must be obtained in each country where we compete for market share.  If our manufacturers’ products or manufacturing facilities (including those of the Hong Kong Joint Venture) fail to pass periodic inspections, the approval certificates for the relevant products may be suspended until corrections are made.  Loss of UL or other independent certifications could have a material adverse affect on our sales and financial results.

Our products expose us to the potential of product liability claims.

All of our products are manufactured by the Hong Kong Joint Venture or others.  Nevertheless, we could be named as a defendant in an action arising from damages suffered as a result of one of our products.  While we carry products liability insurance, to the extent we are found liable for damages for which we are uninsured, our profitability may be adversely affected. Any suit, even if not meritorious or if covered by an indemnification obligation, could result in the expenditure of a significant amount of our financial and managerial resources and could create significant negative publicity for us and our products.

We may be unable to successfully execute our merchandising and marketing strategic initiatives.

Our wholly-owned subsidiary, USI Electric focuses its sales and marketing efforts and initiatives to maximize safety product sales, especially smoke alarms and carbon monoxide alarms manufactured by our Hong Kong Joint Venture and marketed to the electrical distribution and retail trade.  If we fail to successfully execute these initiatives, our business could be adversely affected.

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We are and could become subject to litigation regarding intellectual property rights, which could seriously harm our business.

We design most of our security products and contract with suppliers to manufacture those products and deliver them to us.  We have been the subject of lawsuits by third parties which assert against us infringement claims or claims that we have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to them.  If such infringement by our suppliers or us were found to exist, we could be subject to monetary damages and an injunction preventing the use of their intellectual property.  If one of our products were found to infringe, we may attempt to acquire a license or right to use such technology or intellectual property, which could result in higher manufacturing costs.  Any infringement claim, even if not meritorious and/or covered by an indemnification obligation, could result in the expenditure of a significant amount of our financial and managerial resources.

If governmental regulations change or are applied differently, our business could suffer.

The sales of our smoke and carbon monoxide alarms are impacted by local laws and regulations mandating the installation of these security devices in new and sometimes existing homes and buildings.  Changes in these consumer safety regulations, both in the United States and abroad, could impact our business.

Risk Factors Relating to our Articles of Incorporation and our Stock

The liability of our directors is limited.

Our Articles of Incorporation limit the liability of directors to the maximum extent permitted by Maryland law.

It is unlikely that we will issue dividends on our common stock in the foreseeable future.

We have not declared or paid cash dividends on our common stock in over 25 years.  We currently anticipate that we will retain all of our earnings for use in the development of our business and do not anticipate paying cash dividends in the foreseeable future.  As a result, capital appreciation, if any, of our common stock would be the only source of gain for stockholders until dividends are paid, if at all. The payment of dividends in the future will be at the discretion of our board of directors.

The exercise of outstanding options will dilute the percentage ownership of our stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

As of March 31, 2009, there are outstanding options to purchase an aggregate of 97,422 shares of our common stock at per share exercise prices ranging from $3.25 to $16.09.  The exercise of such outstanding options would dilute the percentage ownership of our existing stockholders, and any sales in the public market of shares of our common stock underlying such options may adversely affect prevailing market prices for our common stock.

It may be difficult for a third party to acquire us, which could affect our stock price.

Our charter and Bylaws contain certain anti-takeover provisions pursuant to the Maryland General Corporation Law.  This means that we may be a less attractive target to a potential acquirer who otherwise may be willing to pay a premium for our common stock above its market price.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.


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ITEM 2.PROPERTIES

Effective January 2009, we entered into a 10 year operating lease for a 12,000 square foot office and warehouse located in Baltimore County, Maryland.  The current rental, with common area maintenance, approximates $8,667 per month during the current fiscal year, with increasing rentals at 3% per year. The Company has the right to terminate the lease after five years for a one-time payment of $42,000. In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse space contiguous to our existing warehouse in Baltimore County, Maryland for occupancy in August 2009.Maryland. Monthly rental expense, will increase to $9,937with common area maintenance, approximates $10,800 and increases 3% per month after occupancy of the additional warehouse space.


year.

Effective March 2003, we entered into an operating lease for an approximately 2,600 square foot office in Naperville, Illinois. This lease expireswas renewed in FebruaryMarch 2012 and is subjectincreased to increasing rentals at 3% per year.approximately 3,400 square feet and extends through February 2015. The monthly rental, with common area maintenance, approximates $3,089approximated $3,450 per month during the current fiscal year and is subject to increasing rentals of 3% per year.


The Hong Kong Joint Venture currently operates an approximately 100,000 square foot manufacturing facility in the Guangdong province of Southern China and a 250,000 square-foot manufacturing facility in the Fujian province of Southern China. In addition, the Hong Kong Joint Venture has construction in progress related to an additional 126,000 square foot facility in southern China. The Hong Kong Joint Venture’s offices are leased pursuant to a five year lease with rental payments of approximately $13,250 per month.


The Company believes that its current facilities, and those of the Hong Kong Joint Venture, are currently suitable and adequate.



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ITEM 3.3.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 a patent acquired by Kidde (US 4,972,181).  Kidde was seeking injunctive relief and damages to be determined at trial.  On March 31, 2006, following numerous procedural and substantive rulings which the Company believes were favorable to the Company, Kidde obtained dismissal, without prejudice, of its suit.  On November 28, 2005, prior to the March 31, 2006 dismissal of the original suit, Kidde filed a second lawsuit in the same court (Case No. 05cv1031) based on virtually identical infringement allegations as the earlier case. Discovery is now closed in this second case.  Although the asserted patent is now expired, prior to its expiration, the Company sought and has now successfully obtained re-examination of the asserted patent in the United States Patent and Trademark Office (USPTO) largely based on the references cited and analysis presented by the Company which correspond to defenses raised in the litigation. In September 2008, 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 has just commenced.  The Company believes that it has meritorious and substantial technical defenses to the action and that it is entitled to a number of legal/equitable defenses due to the long period of inaction and acquiescence by Kidde/Maple Chase and its predecessors.  The 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.

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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 alleges that the Company infringes US patent 6,791,453 by communication protocols for interconnected hazardous condition (smoke, heat and carbon monoxide) alarms 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, 2008, the Company filed a motion to amend its Answer and Counterclaims seeking injunctive and antitrust damages which was unsuccessfully opposed by both Kidde and UTC. On March 31, 2009, Kidde filed a defective request for reexamination of the U.S. patent 6,791,453.  On April 9, 2009, after Kidde filed corrected papers, the re-examination request was formalized and is currently pending determination by the USPTO. Kidde has also recently filed a motion to stay the litigation pending the outcome of the reexamination.  The Company is opposing that pending motion.  In April 2009, the Court also issued a schedule requiring the parties to define, present and argue their respective patent claim interpretations over the summer and into the fall of 2009.  Otherwise, the case is in the initial discovery phase.  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.


ITEM 4.SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

There were no submissions of matters to a vote of security holders during the quarter ended March 31, 2009.

EXECUTIVE OFFICERS OF THE REGISTRANT


Set forth below is information about the Company’s executive officers.


NAME AGE POSITIONS
     
Harvey B. Grossblatt 6265 President, Chief Operating Officer and Chief Executive Officer
James B. Huff 5760 Chief Financial Officer, Secretary and Treasurer

HARVEY B. GROSSBLATT has been a director of the Company since 1996. He served as Chief Financial Officer from October 1983 through August 2004, Secretary and Treasurer of the Company from September 1988 through August 2004, and Chief Operating Officer from April 2003 through August 2004. Mr. Grossblatt was appointed Chief Executive Officer in August 2004.


JAMES B. HUFF was appointed Chief Financial Officer in August 2004 and Secretary and Treasurer in October 2004. From December 2003 until August 2004, Mr. Huff was controller of Essex Corporation, a Columbia, Maryland based public company which provides intelligence engineering services to federal government agencies. From August 2002 until November 2003, Mr. Huff served as chief financial officer of Computer Temporaries, Inc., Lanham, Maryland; from August 2000 until July 2002, he was chief financial officer of HLM Architects and Engineering, Inc., a Charlotte, North Carolina based public company; and from January 1990 until November 1999, Mr. Huff was chief financial officer of RMF Engineering, Inc., Baltimore, Maryland.


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PART II

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PART II

ITEM 5.5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock


Our common stock, $.01 par value (the “Common Stock”) trades on the NYSE Amex LLC exchange, formerly the American Stock Exchange under the symbol UUU. As of June 10, 2009,15, 2012, there were 216225 record holders of the Common Stock. The closing price for the Common Stock on that date was $5.40.$5.05. We have not paid any cash dividends on our common stock, and it is our present intention to retain all earnings for use in future operations. The following table sets forth the high and low prices for the Common Stock for each full quarterly period during the fiscal years indicated.


Fiscal Year Ended March 31, 2009    
First QuarterHigh $7.25 
 Low $5.00 
      
Second QuarterHigh $6.65 
 Low $4.60 
      
Third QuarterHigh $5.65 
 Low $2.28 
      
Fourth QuarterHigh $4.34 
 Low $3.01 
      
Fiscal Year Ended March 31, 2008     
First QuarterHigh $36.29 
 Low $29.10 
      
Second QuarterHigh $32.60 
 Low $17.00 
      
Third QuarterHigh $24.60 
 Low $6.65 
      
Fourth QuarterHigh $7.63 
 Low $4.69 

Fiscal Year Ended March 31, 2012     
First Quarter High $7.89 
  Low $6.50 
       
Second Quarter High $7.04 
  Low $4.55 
       
Third Quarter High $6.39 
  Low $4.51 
       
Fourth Quarter High $5.84 
  Low $5.27 
       
Fiscal Year Ended March 31, 2011      
First Quarter High $7.24 
  Low $5.16 
       
Second Quarter High $6.31 
  Low $5.19 
       
Third Quarter High $7.80 
  Low $5.91 
       
Fourth Quarter High $8.80 
  Low $6.75 

Stock Repurchase Program


The following table sets forth information with respect to purchases of common stock by the Company or any affiliated purchasers during the three monthsfiscal quarter ended March 31, 2009:


Period 
Total
Number of
Shares
Purchased
  
Average
Price
Paid per
Share
  
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
  
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs
 
January 2009  18,250  $3.68   62,825   37,175 
February 2009  3,100  $3.65   65,925   34,075 
March 2009  12,922  $3.51   78,847   21,153 
Total  34,272  $3.61   78,847   21,153 

2012:

        Total Number of    
        Shares Purchased  Maximum Number 
  Total  Average  As Part of  of Shares that May 
  Number of  Price  Publicly  Yet be Purchased 
  Shares  Paid per  Announced Plans  Under the Plans or 
Period Purchased  Share  Or Programs  Programs 
             
January 2012  20,398  $5.52   20,398   58,563 
                 
March 2012  10,096  $5.42   10,096   48,467 
                 
Total  30,494  $5.48   30,494   48,467 

In July, 2008,October 2011, 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. AsThe program will terminate when 100,000 shares of June 10, 2009,common stock have been repurchased by the Company completed the repurchase program, buying a total of 99,980 shares at an average cost of $3.71 per share.


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ITEM 6.        SELECTED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with, and is qualified by referencepursuant to the consolidated financial statements and notes thereto and “Management’s Discussion and Analysisprogram (unless increased or decreased by the Board of Financial Condition and Results of Operations” appearing elsewhere in this Annual Report on Form 10-K.  The Statement of Operations data and the Balance Sheet data for the years ended, and as at, March 31, 2005, 2006, 2007, 2008 and 2009 and are derived from our audited consolidated financial statements.  These historical results are not necessarily indicative of results that may be expected in future periods.  All share and per share amounts included in the following financial data have been retroactively adjusted to reflect the 4-for-3 stock dividend paid on October 16, 2007 to shareholders of record on September 25, 2007.
Directors).


  Year Ended March 31, 
  2009  2008  2007  2006  2005 
Statement  of Operations Data:               
Net sales $26,097,596  $33,871,362  $32,934,388  $28,894,101  $23,465,443 
Income before equity in earnings of  Hong Kong Joint Venture and income taxes    371,966     1,351,139     3,608,196     2,394,258     765,742 
Income from continuing operations  1,442,336   2,824,749   6,093,366   4,600,352   3,417,854 
Income (loss) from discontinued operations (net of tax benefit)  3,423,021   (8,393,663)  (560,108)  -   - 
Net income (loss)  4,865,357   (5,568,914)  5,533,258   4,600,352   3,417,854 
Per common share:                    
Basic – from continuing operations  0.58   1.14   2.54   2.06   1.60 
Basic – from discontinued operations  1.39   (3.38)  (0.23)  -   - 
Basic – net income (loss)  1.97   (2.24)  2.31   -   - 
Diluted – from continuing operations  0.58   1.13   2.45   1.89   1.46 
Diluted – from discontinued operations  1.38   (3.35)  (0.23)  -   - 
Diluted – net income (loss)  1.96   (2.23)  2.23   -   - 
Weighted average number of common shares outstanding                    
    Basic  2,466,983   2,484,192   2,398,284   2,228,908   2,136,599 
    Diluted  2,471,807   2,502,017   2,484,606   2,432,705   2,352,632 
                     
Balance Sheet Data:                    
Total assets  27,777,678   30,468,917   36,195,468   20,358,603   16,049,948 
Long-term debt (non-current)  95,324   91,160   -   -   - 
Working capital (1)  11,099,333   7,468,547   14,678,615   9,911,628   6,317,231 
Current ratio (1) 3.99:1  1.68:1  2.27:1  4.60:1  3.00:1 
Shareholders’ equity  23,965,899   19,423,935   24,671,881   17,606,569   12,897,668 
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(1)Working capital is computed as the excess of current assets over current liabilities. The current ratio is calculated by dividing current assets by current liabilities.

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Quarterly Results of Operations (Unaudited)

The unaudited quarterly results of operations for fiscal years 2009 and 2008 are summarized as follows:
  Quarter Ended 
  June 30,  September 30,  December 31,  March 31, 
             
2009            
Net sales $6,192,801  $8,381,379  $5,595,049  $5,928,367 
Gross profit  1,577,066   1,891,273   1,337,785   1,293,846 
Income from continuing operations  457,139   656,301   292,513   36,383 
Income (loss) from discontinued operations  (53,659)  3,434,913   -   41,767 
Income per share from continuing operations:                
Basic  0.18   0.26   0.12   0.02 
Diluted  0.18   0.26   0.12   0.02 
Income (loss) per share from discontinued operations:                
Basic  (0.02)  1.38   -   0.02 
Diluted  (0.02)  1.38   -   0.02 
Net income – basic  0.16   1.64   0.12   0.03 
Net income  - diluted  0.16   1.64   0.12   0.03 
                 
                 
2008                
Net sales  10,449,343   8,967,740   7,776,986   6,677,293 
Gross profit  2,715,334   1,942,354   1,825,486   1,386,882 
Income from continuing operations  1,204,844   802,107   780,207   37,591 
(Loss) from discontinued operations  (413,842)  (483,977)  (2,415,996)  (5,079,848)
Income per share from continuing operations:                
Basic  0.49   0.32   0.31   0.02 
Diluted  0.48   0.32   0.31   0.02 
(Loss) per share from discontinued operations:                
Basic  (0.17)  (0.19)  (0.97)  (2.04)
Diluted  (0.17)  (0.19)  (0.97)  (2.04)
                 
Net income (loss) – basic  0.32   0.13   (0.66)  (2.02)
Net income (loss) – diluted  0.31   0.13   (0.66)  (2.02)

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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements


When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and readers are advised that various factors, including the Risk Factors discussed elsewhere in this Annual Report and other risks, could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. We do not undertake and specifically disclaim any obligation to update any forward-looking statements to reflect occurrence of anticipated or unanticipated events or circumstances after the date of such statements.


General


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. From October 2006 through January 2008, we also were engaged in the manufacture and distribution of EMT steel conduit through Icon, our majority-owned Canadian subsidiary.  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 fiscal years ended March 31, 2009, 20082012 and 20072011 relate to the operational results of the Company and its consolidated subsidiaries only and includes the Company’s equity share of earnings in the Hong Kong Joint Venture. A discussion and analysis of the Hong Kong Joint Venture’s operational results for these periods is presented below under the heading “Hong Kong Joint Venture.”


While we believe that our overall sales are likely affected by the current global economic situation, we believe that we are specifically negatively impacted by the severe downturn in the U.S. housing market. As stated elsewhere in this report, our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies). Every downturn in new home construction and new home sales negatively impacts sales by our USI Electric subsidiary. We anticipate that when and as the housing market recovers, sales by our USI Electric subsidiary will improve, as well.


Discontinued Canadian Operations

In October 2006, we formed 2113824 Ontario, Inc., an Ontario corporation, as a wholly-owned subsidiary

Our operating results for the current fiscal year ended March 31, 2012 continue to be significantly impacted by the continued economic downturn of the Company for the purposeU.S. housing market. In addition, sales of acquiring a two-thirds interest in two Canadian corporations, International Conduits, Ltd. (Icon)our new generation of smoke and Intube, Inc. (Intube).  Icon and Intubecarbon monoxide alarms were based in Toronto, Canada and manufactured and distributed electrical mechanical tubing (EMT) steel conduit.  Icon also sold home safety products, primarily purchased fromdelayed while the Company inpursued obtaining the necessary independent testing agency approvals necessary to begin Canadian market.  The primary purposeand U.S. sales and marketing. By the beginning 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 lawsfourth quarter of Ontario to form one corporation.


 In June 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.

At the time of our investment in Icon, we projected that our established U.S. sales network would allow us to increase sales of EMT to U.S. customers.  Despite our efforts, Icon suffered continuing losses, and we were not successful in increasing Icon’s sales in the face of competition and a downturn in the housing market.  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 June 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.  Accordingly, the assets and liabilities of Icon are not consolidated in the financial statements of the Company and are classified as assets held in receivership.   Our consolidated financial statements and the related note disclosures reflect the operations of Icon as discontinued operations for all periods presented.

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As a result of continuing losses at Icon, we undertook an evaluation of the goodwill from our acquisition of Icon to determine whether the value of the goodwill had been impaired in accordance with FAS No. 142, “Goodwill and Other Intangible Assets”.  Based on that evaluation, we determined that the value of the goodwill from our acquisition of Icon was impaired, and we recognized an impairment charge of US$1,926,696 for the goodwill.   In addition, as a result of Icon’s receivership and the steps taken to liquidate Icon’s assets, the non-cash assets of Icon were written down to their estimated net realizable value and a further impairment charge of US$7,087,294 was recognized as of March 31, 2008.  These impairments have been recorded in discontinued operations in the consolidated statements of operations for the fiscal year ended March 31, 2008.

On September 22, 2008, Icon’s obligations were settled2012, the Company had obtained the necessary independent testing agency approvals and had commenced sales in both the receivership action by Ontario Superior Court order.   AsCanadian and U.S. markets. The Company has commenced efforts to introduce our new technology to the market and we anticipate increased quarterly sales as a result of these efforts and the settlementavailability of Icon’s obligations, a gainour next generation 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$1,518,375 after-tax effect loss recognized by the Company in settlement of its guarantee of Icon’s secured debt and other losses attributableproducts to the Icon discontinued operation to arrive at the gain from discontinued operations of $3,423,021 for the fiscal year ended March 31, 2009.

 At March 31, 2009, the remaining asset of Icon held by the receiver consists of cash of $202,565.  The liabilities of Icon held by the receiver include a claim by a supplier and other secured amounts payable of $202,565.

Assets March 31, 2009  March 31, 2008 
       
Cash $202,565  $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 $202,565  $2,850,731 
         
Liabilities
        
Accounts payable, trade and other $202,565  $3,344,624 
Notes payable – bank  0   4,478,826 
Liabilities of discontinued operations $202,565  $7,823,450 

In the accompanying consolidated financial statements, the results of Icon for the fiscal years ended March 31, 2009 and 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.

market.

Comparison of Results of Operations for the Years Ended March 31, 2009, 20082012 and 2007


2011

Sales.In fiscal year 2009,2012, our net sales decreased by $7,773,766 (23.0%), from $33,871,362 in fiscal 2008are $13,304,602 compared to $26,097,596 in fiscal 2009.  Sales to the electrical distribution trade through our USI Electric subsidiary decreased to $8,619,816, principally due to decreased volume from the U.S. residential construction trade (from approximately $15,178,930 in 2008) and also due to our inability to import GFCI devices because the manufacturer has not yet received certifications for mandated changes to the devices.  The Company’s sales to retail and wholesale customers in the fiscalprior year ended March 31, 2009 decreased to $17,477,780 from $18,692,432 at March 31, 2008, principally as a result of decreased sales to a national home improvement retailer.


In fiscal year 2008, sales increased by $936,974 (2.8%) from $32,934,388 in fiscal 2007 to $33,871,362 in fiscal 2008.  Sales to the electrical distribution trade through our USI Electric subsidiary decreased to $15,178,930, principally due to decreased volume from the U.S. residential construction trade (from approximately $19,916,690 in 2007).  The Company increased its sales to retail and wholesale customers in the fiscal year ended March 31, 2008 to $18,692,432 from $13,017,698 at March 31, 2007, principally as a result$13,249,604, an increase of sales to a national home improvement retailer.

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$54,998, or less than one percent.

Gross Profit. Gross profit margin is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit margin for the fiscal year ended March 31, 20092012 was 23.4%26.4% compared to 23.2% and 31.6%28.4% in fiscal 2008 and 2007, respectively.2011. The decreasesdecrease in 2009 and 20082012 gross margins from the respective prior years aremargin is attributed to our increased salescost of product sold resulting from costs incurred to meet delivery commitments to a national home improvement retailerretail customer in the Canadian market.

Selling, General and our lower gross profit margins on those sales, and due to significantly lower GFCI sales as previously indicated.


Expenses.Administrative Expense. Selling, general and administrative expenses for fiscal 2009 decreased by $826,929 (13.5%),increased from $6,124,213$4,375,241 in fiscal 20082011 to $5,297,284$4,389,818 in fiscal 2009.2012. As a percentage of net sales, these expenses increased to 20.3%were 33.0% for the fiscal year ended March 31, 2009 from 18.1%2012 and March 31, 2011.

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Research and Development.Research and development expense for the fiscal year ended March 31, 2008, primarily due to lower absorption2012 was $570,952, of fixed costs due to the lower sales volume.  The decrease in selling, generalwhich approximately $400,000 was for new product development. Research and administrativedevelopment expense in dollars is principally attributable to lower commissions, selling and freight expenses associated with the reduced volume of sales to the electrical distribution trade due to the decline in new home construction during the period.


Selling, general and administrative expenses for fiscal 2008 decreased by $422,396 (6.5%) from $6,546,609 in fiscal 2007 to $6,124,213 in fiscal 2008.  As a percentage of net sales, these expenses decreased to 18.1% for the fiscal year ended March 31, 2008 from 19.9%2011 was $615,639, of which approximately $400,000 was for new product development. The decrease in overall research and development expense for the 2012 period compared to the 2011 period was due to certain projects reaching a stage of completion during the year.

Investment andInterest Income.Investment and interest income for the fiscal year ended March 31, 2007.2012 consisted of interest earned on cash deposits with our factor. During the fiscal years ended March 31, 2012 and 2011, we earned interest of $56,183 and $32,262, respectively from these deposits. The decrease in selling, general and administrative expense as a percent of sales is attributable to costs that do not increase proportionately with the higher sales volume and a reduction in legal expenses from the 2007 period.  The reduction in legal expense was partially offset by an increase in commissionsthe amount of interest earned from our factor on these deposits during the 2012 period relates to the transfer of excess cash to cash deposits with our factor from investments. Total investment and freight charges;interest income declined for the account classification which was the most significant factor in this dollar increase,year due to oursubstantially reduced balances maintained in assets held for investment as funds were withdrawn and used to build inventory.

Investment and interest income for the fiscal year ended March 31, 2011 was $213,086. Investment and interest income is primarily earned on investments. These assets represent the investment of idle cash resources to obtain higher 2008 sales volume.  Commissions and freight charges, as a percentageyields of sales, while consistent with commission and freight chargesreturn. Amounts were first invested in late March of the priorfiscal year vary directly with sales volume.


Interest Incomeended March 31, 2010 and Expense. Interest expense foraccordingly amounts earned in the fiscal 2009 decreased to $32,198 from $46,349 in fiscal 2008 primarily due toyear ended 2011 represent the timingfirst full year of activity in our line of credit.  on these investments.

Interest expense for fiscal 2008 increased $46,349 from $0 in fiscal 2007 primarily due to the timing of activity in our line of credit.  The majority of the Company’s cash balances are maintained on deposit with the Company’s factor and earn interest at the factor’s prime rate of interest minus 3%Expense. During the fiscal years ended March 31, 20092012 and 2008,2011, we incurred interest expense of $0 and $4,166, respectively. Interest expense for fiscal 2012 decreased to $0 from $4,166 in fiscal 2011. The decrease is due to a reduction in borrowing activity with our factor in fiscal 2012.

Income Taxes.For the Company earned interest of $37,228 and $16,155, respectively.  The company earned interest of $16,155 for the yearfiscal years ended March 31, 2008 compared2012 and 2011, our Federal rate of tax based on statutory rates of approximately 34.0%. The rate of tax indicated by the provision for income tax expense as shown on the Consolidated Statements of Operations for the March 31, 2012 and 2011 varies from the expected statutory rate. Footnote G to net interestthe financial statements provides a reconciliation between the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of $21,991 intax for each fiscal 2007.


Income Taxes.  period.

For the fiscal year ended March 31, 2009,2012, we generated a net operating loss forcarryovers and tax credits to offset future federal and state income taxes of $765,456 and $21,077, respectively. At March 31, 2012, we had net operating loss carryovers and tax credit carryovers of $1,578,107 and $1,605,664, respectively.

For the fiscal year ended March 31, 2011, we generated net operating loss carryovers to offset a federal and state income tax purposesprovision of approximately $600,508.  The loss was generated principally as a result of the payment of the guarantee of the indebtedness of the discontinued Canadian subsidiary.$261,530. Furthermore, we generated foreignadditional tax credits of $157,249$130,497 for the fiscal year ended March 31, 2009.2011. We have elected to carryforwardcarry our remaining net operating loss of approximately $812,651 forward to offset future taxable income. In addition,At March 31, 2011, we have foreignhad tax credits of approximately $1,240,239$1,571,072 available to offset future taxes.


For the fiscal year ended March 31, 2008, we generated

Net Loss and Income.We reported a net operating loss for federal and state income tax purposes of approximately $3,320,000.  The loss was generated principally as a result of the payment of the guarantee of the indebtedness of the discontinued Canadian subsidiary.  Furthermore, we generated foreign tax credits of $132,439$503,288 for the fiscal year ended March 31, 2009.  We have elected2012, compared to carryback our net operating loss forward to offset prior taxable income.  In addition, we have foreign tax creditsincome of approximately $388,744 available to offset future taxes.


During the fiscal year ended 2007, the Company offset the payment of taxes on $3,265,940 of taxable income with the difference between the option price and the exercise price recognized as an employment expense for federal income tax purposes related to employee stock options.  For book purposes, this benefit has been treated as an addition to paid-in capital.  In addition, the Company offset a portion of its federal taxes of approximately $731,395 with foreign tax credits available as a result of foreign taxes paid on the repatriated earnings of the Hong Kong Joint Venture.  At March 31, 2007, we had a foreign tax credit carryforward of $190,887 available to offset future taxes.  After application of the deductions and credits identified above, we had a net tax liability for federal and state income tax purposes of approximately $337,000 with respect to our 2007 fiscal year.  The deductions and the income tax credits for foreign income taxes paid resulted in an effective income tax rate of approximately 19.28% for the fiscal year ended March 31, 2007.

Income from Continuing Operations.  We reported income from continuing operations of $1,442,336$817,781 for fiscal year 2009 compared to income from continuing operations of $2,824,749 for fiscal year 2008,2011, a $1,382,413 (48.9%$1,321,069 (161.5%) decrease. ThisThe decrease in net income resulted from a reduction in U.S. operating income of $979,173 dueis primarily attributed to significantly lower net sales and a reduction of $456,093 in our reported equity in the earnings of the Hong Kong Joint Venture partially offset byprincipally due to lower sales to non-affiliated customers, higher selling costs incurred to meet delivery commitments to U.S. customers and a lower provisiondecrease in 2009 forinvestment and interest income taxes.due to a decrease in cash invested in short-term instruments. Our equity in the earnings of the Hong Kong Joint Venture is calculated by reducing our share of the Hong Kong Joint Venture’s net income by certain items, including our share of the Hong Kong Joint Venture’s profit on sales of inventory to the Company which remain in the Company’s inventory at year end.  We ended fiscal 2009 with a higher amount of inventory purchaseddeclined from the Hong Kong Joint Venture primarily due to higher inventories maintained to service a large national retailer, and also due to the downturn in the U.S. housing market.

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We reported income from continuing operations of $2,824,749 for fiscal year 2008 compared to income from continuing operations of $6,093,366 for fiscal year 2007, a $3,268,617 (53.6%) decrease.  This decrease in net income resulted from a reduction of $1,860,115 in our equity in earnings of the Joint Venture, due to lower sales volume as a result of the downturn in the housing industry, and a reduction in the earnings from continuing operations of $1,408,502 due to sales of lower margin products, partially offset by lower selling, general and administrative expenses of $422,396 as described above, and the income tax effects described above.

Net Income.  We reported net income of $4,865,357 for fiscal 2009 compared to a net loss of $5,568,914 for fiscal year 2008 and net income of $5,533,258 for fiscal year 2007.  In addition to the discussion above with respect to the decrease in income from continuing operations, net income increased principally as a result of the recognition of $4,910,718 of non-cash gain on the extinguishment of debt in the discontinued Canadian subsidiary.  This gain was partially offset by a loss (net of income tax benefit) recorded by the Company related to the payment of debt of the Canadian subsidiary guaranteed by the Company.  In the fiscal year ended March 31, 2008, the net loss related primarily to impairment charges related to the discontinued Canadian subsidiary.  The increase in net income$1,691,133 in fiscal 2008 over2011 to $500,502 in fiscal 2007 resulted from increased income of our Hong Kong Joint Venture, partially offset by higher selling, general and administrative expenses, the income tax effects thereon, and losses from our discontinued Canadian subsidiary.

2012, a $1,190,631 (70.4%) decrease.

Financial Condition, Liquidity and Capital Resources


Our cash needs are currently met by funds generated from operations and from our Factoring Agreement with CIT Group, which supplies both short-term borrowings and letters of credit to finance foreign inventory purchases. The maximum we may borrow under this Agreement is $7,500,000.$1,000,000. Based on specified percentages of our accounts receivable and inventory and letter of credit commitments, at March 31, 2009,2012, our maximum borrowing availability under this Agreement is approximately $7,000,000.was $1,000,000. Any outstanding principal balance under this Agreement is payable upon demand. The interest rate on the Factoring Agreement, on the uncollected factored accounts receivable and any additional borrowings is equal to the prime rate of interest charged by the factor which, as of March 31, 2009,2012, was 3.25%. All borrowings are collateralized by all our accounts receivable and inventory. During the year ended March 31, 2009,2012, working capital (computed as the excess of current assets over current liabilities) increaseddecreased by $3,630,786,$1,047,596, from $7,468,547$11,540,103 on March 31, 2008,2011, to $11,099,333$10,492,507 on March 31, 2009.  This increase in working capital is due to the dissolution of the Canadian subsidiary which increased working capital by $4,972,719, offset by a decrease in the working capital of the continuing operations of $1,341.933.


2012.

Our operating activities used cash of $2,503,959$3,823,293 for the year ended March 31, 2009.  For2012 principally as a result of increasing inventories by $1,864,529, the earnings of our Hong Kong Joint Venture of $500,502, as previously discussed, lower earnings from domestic operations due to lower gross profit margins, an increase in accounts receivable and amounts due from factor of $384,947 and a decrease in trade accounts payable and accrued expenses of $164,728.

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Our operating activities used cash of $67,168 for the year ended March 31, 2011 principally as a result of lower income due to the impact of declining sales, offset by a decline in accounts receivable and amounts due from factor that provided cash of $2,157,589, which was partially offset by a use of cash associated with lower Joint Venture earnings of $1,691,133. Other items using cash include an increase in deferred tax assets of $125,405, an increase in inventories of $94,105, an increase in prepaid expenses of $168,165, a decrease in accounts payable and accrued expenses of $1,004,757 and an increase in other assets of $19,998.

Our investing activities provided cash during the fiscal year ended March 31, 2008, operating activities provided2012 of $556,870, principally from cash of $2,349,563.  The decrease in cash provided by operating activities was primarily due to increases in the amount of inventories and the operations of the discontinued subsidiary.  These uses were partially offset by decreases in accounts receivable, equity in the earnings ofdistributions received from the Hong Kong Joint Venture, amounts due from factor and decreases in accounts payable and accrued expenses.


Venture.

Our investing activities provided cash of $3,386,451$4,542,130 during fiscal 20092011 principally as a result of the changesale of our investment in net assetsshort-term investments of the discontinued operations of the Canadian subsidiary$4,001,890 and by cash distributions of the Hong Kong Joint Venture.  InvestingVenture of $694,976. In addition, the Company acquired equipment of $65,302 and incurred costs of $89,434 associated with filing patents during the year.

Financing activities used cash of $543,962$275,896 during the fiscal 2008.  During 2009, as in prior years, the Company offset a portion of its distributionsyear ended March 31, 2012, resulting from the Hong Kong Joint Venturerepurchase of the Company’s common stock in accordance with amounts duethe Company’s stock repurchase plan.

No cash was provided or used by financing activities in 2011.

While sales by the Company to the Hong Kong Joint Venture.  The Company offset $0 during fiscal 2009 and $250,000 during fiscal 2008 of amounts due by it to the Hong Kong Joint Venture in lieu of cash distributions.  The Company discloses these payments as a non-cash transaction in its statement of cash flows.


Financing activities in 2009 used cash of $4,462,246.  The use of cash for financing activities resulted principally from the activities associated with the discontinued Canadian subsidiary.  Financing activities in 2008 provided cash of $1,976,693 which was primarily from borrowings from our factor and, to a lesser extent, from exercise of employee stock options (and the related tax benefit).

While sales by our USI Electric subsidiary have been negatively impacted by the severe downturn in the U.S. housing market, we believe that our capital resources are sufficient for our operations. We anticipate that when and as the housing market recovers, sales by the Company and by our USI Electric subsidiary will improve, as well, thereby increasing our capital resources.

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Hong Kong Joint Venture


The financial statements of the Hong Kong Joint Venture are included in this Form 10-K beginning on page JV-1. The reader should refer to these financial statements for additional information. There are no material Hong Kong –to US GAAP differences in the Hong Kong Joint Venture’s accounting policies.


In fiscal year 2009,2012, sales of the Hong Kong Joint Venture were $36,161,337$22,160,107, compared to $30,144,148 and $41,151,055$24,231,557 in fiscal years 2008 and 2007, respectively.  The increase in sales for 2009 was primarily due to increased sales to non-affiliated customers in Europe.2011. The decrease in sales for fiscal 2012 is primarily due to the 2008 period fromdecrease in sales to unaffiliated customers.

Net income was $1,259,210 for fiscal year 2012 compared to net income of $3,339,499 for the 2007 periodfiscal year ended March 31, 2011. The decrease in net income for fiscal 2012 was primarily due to decreased sales to non-affiliatedunaffiliated customers in Europe.


Net income was $4,011,404 for fiscal year 2009 compared to net income of $3,270,926 and $8,377,365 in fiscal years 2008 and 2007, respectively.  The increasewhile fixed costs did not change in the current fiscal year is primarily due to increased sales volumesame proportion as the decline in the European and Asian markets, partially offset by a $646,140 charge to income in fiscal 2009 due to losses on foreign currency exchange.  The decrease in sales for fiscal 2008 from fiscal 2007 was primarily due to decreased sales to non-affiliated customers in Europe.

sales.

Gross margins of the Hong Kong Joint Venture for fiscal 2009 increased2012 decreased to 26.5%22.6% from 25.1%26.6% in the prior fiscal year. The primary reason for this increase was due to variation in product mix.  The primary reason for the change in product mixdecrease is attributed to the large volume of higher margin sales to the non-affiliated customers in Europe.  At March 31, 2008, the Hong Kong Joint Venture’s gross margin decreased to 25.1% from 33.4% at March 31, 2007.  The primary reason for this decrease was lower gross margins on salesselling prices to the Company for sales to the U.S.US. retail market.


Selling, general and administrative expenses of the Hong Kong Joint Venture were $5,298,831, $4,408,855 and $4,789,424 for fiscal years 2009, 2008 and 2007, respectively.2012 were $4,002,052, compared to $3,447,358 in the prior fiscal year. The increase in dollars as compared to the prior fiscal year results from a reversal of value-added tax recorded in the prior fiscal year. As a percentage of sales, these expenses were 14.7%18.1% and 14.2%, 14.6%respectively, for the fiscal years ended March 31, 2012 and 12.0%2011. The increase as a percentage is due to costs that do not decrease at the same rate as sales.

Investment income and interest income, net of interest expense was $458,191 for fiscal years 2009, 2008 and 2007, respectively.year 2012, compared to $387,887 for fiscal year 2011. The increase in dollars of selling, general and administrative expenses for the year ended March 31, 2009 was due principally to increases in foreign currency exchange losses, insurance, management bonus, rent expense and sales commissions.


Interest expenseinterest income net of interest income was $14,516 for fiscal year 2009, compared to $26,932 and $52,181 in fiscal years 2008 and 2007, respectively.  The decrease in interest expense net of interest income for 2009 was due to a increaseincreased investment in investments.  The decrease from 2008 to 2007 is due to variations in the amount of investments in bonds during those fiscal periods.

assets held for investment.

Cash needs of the Hong Kong Joint Venture are currently met by funds generated from operations. During fiscal year 2009,2011, working capital increased by $265,058 from $8,886,141$10,290,546 on March 31, 20082011 to $9,151,199$10,432,351 on March 31, 2009.2012.

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Contractual Obligations and Commitments

The following table presents, as of March 31, 2009, our significant fixed and determinable contractual obligations to third parties by payment date.  Further discussion of the nature of each obligation is included in Note F to the consolidated financial statements.

  Payment due by period 
     Less than   1-3   3-5  More than 
  Total  1 year  years  years  5 years 
Operating lease obligations $1,264,214  $146,754  $294,565  $223,139  $599,756 

Critical Accounting Policies


Management’s discussion and analysis of our consolidated financial statements and results of operations are based upon our Consolidated Financial Statement included as part of this document. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, impairment of long-lived assets, 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.


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We believe that 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 onof these and other accounting policies, see Note A to the consolidated financial statements included in this Annual Report. 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:


In accordance with Statement

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of Financial Accounting Standards (“SFAS”), No. 94, “Consolidationtemporary differences between the tax basis of All Majority-Owned Subsidiaries,”assets or liabilities and their reported amounts in the financial statementsstatements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the Company’s Canadian subsidiary, International Conduits, Ltd. (Icon)assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided whenever it is more likely than not consolidated withthat a deferred tax credit will not be realized. The Company follows the financial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the Company.  As a result of the February 11, 2008 court appointed receivership of Icon’s assets, we no longer controlled Iconposition. Interest and penalties related to income tax matters are recorded as of that date.  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.


income tax expenses,See Note G,Income Taxes.

Our revenue recognition policies are in compliance with Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements” issued by the Securities and Exchange Commission.  Recognition:Revenue is recognized at the time product is shipped and title passes pursuant to the terms of the agreement with the customer, the amount due from the customer is fixed and collectability of the related receivable is reasonably assured. We establishedestablish allowances to cover anticipated doubtful accounts and sales returns based upon historical experience.


The Company nets the factored accounts receivable with the corresponding advance from the Factor, with the net amount reflected in the consolidated balance sheet.The Company sells trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis.

Inventories:Inventories are valued at the lower of market or cost. Cost is determined on the first-in first-outfirst in/first out method. We have recorded a reserve for obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. Management reviews the reserve quarterly.


We currently have a foreign tax credit carryforward and deferred tax assets resulting from deductible temporary differences, which will reduce taxable income in future periods.  We had previously provided a valuation allowance on the deferred tax assets associated with the future tax benefits such as foreign tax credits, foreign net operating losses, capital losses and net operating losses.  A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized.  Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses and losses in recent years.  Management has determined that a valuation allowance on the deferred tax assets is not warranted at March 31, 2009 and 2008.

We are subject

Recently Issued Accounting Pronouncements

Changes 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 changeaccounting principles generally accepted 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.


ImpairmentUnited States 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 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. During fiscal 2008, the company recognized impairment losses on assets held for sale of approximately $3,750,000, which is included in the loss from discontinued operations.

Income Taxes:  In July 2006,America (U.S. GAAP) are established by the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “(FASB) in the form of accounting standards updated (ASU’s) to the FASB’s Accounting for Uncertainty in Income Taxes —  An Interpretation of FASB Statement No. 109” , which clarifiesStandards Codification.

The Company considers the accounting for uncertainty in tax positions. FIN 48 requires that the Company recognize theapplicability and impact of a tax position in the Company’s financial statements if that position is more likely than notall ASU’s. Recently issues ASU’s were evaluated and determined to be sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The provisions of FIN 48 were adopted as of the beginning of the Company’s 2008 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustmenteither not applicable or are not expected to opening retained earnings. See Note F, Income Taxes.


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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 financial statements issued for fiscal years beginning after December 31, 2008.  SFAS 141(R) applies prospectively to business combinations from which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Earlier adoption is prohibited.  The Company is required to record and disclose business combinations following existing GAAP until April 2009.  SFAS 141R will have an impact on our accounting for business combinations once adopted, but the effect on our consolidated results of operations and financial position will be dependent upon the acquisitions, if any, that we make on or after April 1, 2009.

Fair Value Measurements:  In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS No. 157”).  SFAS No. 157 establishes a formal framework for measuring fair value under generally accepted accounting principles.  Although SFAS No. 157 applies (amends) the provisions of existing FASB and other accounting pronouncements, it does not require any new fair value measurements nor does it establish valuation standards.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  In February 2008, the FASB issued FASB Staff Position No. 157-1 (“FSP 157-1”) which excludes SFAS No. 13, Accounting for Leases, and its related pronouncements that address leasing transactions from the scope of SFAS No. 157.  Also in February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”) which delays the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on a recurring basis (at least annually).  FSP 157-2 defers the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities for financial statements issued for fiscal years beginning after November 15, 2008.  The FASB has issued a proposed FASB Staff Position No. 157-c, (“FSP 157-c)”, that would provide guidance on measuring liabilities under SFAS No. 157.  SFAS No. 157 does not have a material impact on the Company’sour consolidated financial position or results of operations.

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 was effective for our fiscal year beginning April 1, 2008.  The Company did not elect the fair value option under SFAS No. 159 for any of the financial instruments upon adoption.

FASB Statement 165, Subsequent Events, incorporates the accounting and disclosure requirements for subsequent events into U.S. GAAP.  Statement 165 introduces new terminology, defines a date through which management must evaluate subsequent events, and lists the circumstances under which an entity must recognize and disclose events or transactions occurring after the balance-sheet date.  Statement 165 is effective prospectively for interim or annual reporting periods ending after June 15, 2009.  As Statement 165 is effective for interim periods, the Company will need to provide the new required disclosures beginning with the June 30, 2009 interim financial statements.  The Company does not anticipate the adoption of this new standard will have a material impact on its disclosures.

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal financial instrument is our Factoring Agreement which provides for interest at the factor’s prime rate (3.25% at March 31, 2009).  We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by us under our Factoring Agreement.  A significant rise in the prime rate could materially adversely affect our business, financial condition and results of operations.  For the fiscal year ended March 31, 2009, the highest amount of borrowing outstanding under the facility was $772,789.  At March 31, 2009, we had no balance outstanding under the facility.  We do not use derivative financial instruments to hedge against interest rate changes or for any other purpose.

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ITEM 8.8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report.

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ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.


ITEM 9A(T)9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures


We maintain a system of disclosure controls and procedures (as such item is defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) 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 (“Exchange Act”), 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 annual report, and have concluded that the system is effective.


effective at the reasonable assurance level.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regardingthe reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.


Our Chief Financial Officer, (withwith the participation of our Chief Executive Officer)Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of March 31, 2009.


Effective February 11, 2008, the assets, liabilities and operations of Icon were placed in receivership and thus are presented in discontinued operations as an unconsolidated subsidiary.   Accordingly, internal control procedures relating to the unconsolidated Canadian subsidiary were not evaluated as a part of management’s review of internal control over financial reporting as of March 31, 2009.

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters.  However, at this time management has decided that considering the employees involved and the control procedures in place, the risks associated with such lack of segregation are insignificant and the potential benefits of adding employees to clearly segregate duties do not justify the expenses associated with such increases.  Management does not deem this rises to the level of a material weakness.  Management will periodically review this situation.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

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2012.

Changes in Internal Control Over Financial Reporting


There have been no changes in our internal control over financial reporting duringthe fourth quarter of fiscal 2009 2012that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


ITEM 9B.    OTHER INFORMATION

ITEM 9B.OTHER INFORMATION

Not applicable.


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PART III

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PART III

ITEM 10.10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Election of Directors” in the Company’s definitive Proxy Statement to be filed pursuant to Regulation 14A and issued in conjunction with the 20092012 Annual Meeting of StockholdersShareholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K. The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings and Committees of the Board of Directors” in the Proxy Statement. The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned “Compliance with Section 16(a) of the Exchange Act” in the Proxy Statement. The information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code of Ethics” in the Proxy Statement.


ITEM 11.11.EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the sections captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.


ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership” and “Information Regarding Share Ownership of Management” in the Proxy Statement. Information required by this item regarding our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation” in the Proxy Statement.


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any, and “Election of Directors” in the Proxy Statement.


ITEM 14.14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants” in the Proxy Statement.


- 24 -

PART IV

ITEM 15.     EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)1. Financial Statements.

- 13 -
 

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Page
(a) 1. Financial Statements.
Report of Independent Registered Public Accounting FirmF-1
Consolidated Balance Sheets as of March 31, 20092012 and 20082011F-2
Consolidated Statements of Operations for the Years Ended March 31, 2009, 20082012 and 20072011F-3
Consolidated Statements of Shareholders’ Equity for the Years Ended March 31, 2009, 20082012 and 20072011F-4
Consolidated Statements of Cash Flows for the Years Ended March 31, 2009, 20082012 and 20072011F-5
Notes to Consolidated Financial StatementsF-6
  
(a)2. Financial Statement Schedules. 
  
Schedule II – Valuation of Qualifying AccountsS-1

(a)3. Exhibits required to be filed by Item 601 of Regulation S-K.

(a) 3. Exhibits required to be filed by Item 601 of Regulation S-K.

Exhibit No.

3.1Articles 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)
3.2Articles 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)
3.3Bylaws, as amended (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed JuneJuly 13, 2008, file2011, File No. 1-31747)
10.12011 Non-Qualified Stock Option Plan as amended (incorporated by reference to Exhibit 10.1the Company’s Proxy Statement with respect to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2003,2011 Annual Meeting of Shareholders, filed July 26, 2011, File No. 1-31747)
10.2Hong Kong Joint Venture Agreement, as amended (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, File No. 1-31747)
10.3Amended Factoring Agreement with CIT Group (successor to Congress Talcott, Inc.) dated November 14, 1999 (incorporated by reference to Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, File No. 1-31747)
10.4Amendment to Factoring Agreement with CIT Group (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the Fiscal Year Ended March 31, 2007, File No. 1-31747)
10.5Amendment to Factoring Agreement with CIT Group dated September 28, 2004 (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2004, File No. 1-31747)
10.6Amended and Restated Factoring Agreement between the Registrant and The CIT Group/Commercial Services, Inc. (“CIT”), dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 26, 2007, file No. 1-31747)
10.710.4Amended and Restated Inventory Security Agreementbetween the Registrant and CIT, dated June 22, 20082007 (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 June 26, 2008,2007, file No. 1-31747)
10.5Amendment, dated December 22, 2009, to Amended and Restated Factoring Agreement between the Registrant and CIT dated June 22, 2007 (substantially identical agreement entered into by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed February 16, 2010, file No. 1-31747)
10.810.6Lease between Universal Security Instruments, Inc. andSt. John Properties, Inc. dated November 4, 2008 for its office and warehouse located at11407 Cronhill Drive, Suites A-D, Owings Mills, Maryland 21117 (incorporated by reference to Exhibit 10.8 to the Company’s Quarterly Report on Form 10-Q for the period ended December 31, 2008, File No. 1-31747)
10.910.7Amendment to Lease between Universal Security Instruments, Inc. andSt. John Properties, Inc. dated June 23, 2009*2009 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2009, File No. 1-31747)
10.1010.8Amended and Restated Employment Agreement dated July 18, 2007 between the Company and Harvey B. Grossblatt (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30,December 31, 2007, File No. 1-31747), as amended by Addendum dated November 13, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2007, File No. 1-31747), by Addendum dated September 8, 2008 (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), and by Addendum dated March 11, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed March 12, 2010, File No. 1-31747)
14Code of Ethics (incorporated(incorporated by reference to Exhibit 14 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, File No. 1-31747)
21Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2007, File No. 1-31747)Registrant*

- 14 -
23.1Consent of Grant Thornton LLP*

- 25 -

23.2Consent of Grant Thornton LLP (Hong Kong)*
31.1Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer*
31.2Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer*
32.1Section 1350 Certifications (incorporated by reference to Exhibit 21 toCertifications*
99.1Press Release dated June 26, 2012*
101Interactive data files providing financial information from the Company’sRegistrant’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007, File No. 1-31747)
99.1Press Release dated June 23, 2009*2012 in XBRL (eXtensible Business Reporting Language) pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets as of March 31, 2012 and 2011; (ii) Consolidated Statements of Operations for the years ended March 31, 2012 and 2011; (iii) Consolidated Statements of Shareholders’ Equity for the years ended March 31, 2012 and 2011; (iv) Consolidated Statements of Cash Flows for the years ended March 31, 2012 and 2011; and (v) Notes to Consolidated Financial Statements*

*Filed herewith


(c)Financial Statements Required by Regulation S-X.

Separate financial statements of the Hong Kong Joint Venture

Independent Auditors’ Report JV-1
Report of Independent Registered Public Accounting Firm JV-1
Consolidated Statement of Comprehensive IncomeJV-2
Consolidated Income Statement of Financial Position JV-3
Consolidated Balance SheetStatement of Financial Position JV-4
Balance SheetJV-5
Consolidated Statement of Changes in Equity JV-6JV-5
Consolidated Statement of Cash Flow StatementFlows JV-7JV-6
Notes to Financial Statements JV-8JV-7

- 15 -

- 26 -

SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 UNIVERSAL SECURITY INSTRUMENTS, INC.
   
June 23, 200928, 2012By:/s/ Harvey B. Grossblatt
  Harvey B. Grossblatt
  President and Chief Executive Officer
(principal executive officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature Title Date
     
/s/ Harvey B. Grossblatt President, Chief Executive Officer June 23, 200928, 2012
Harvey B. Grossblatt and Director  
     
/s/ James B. Huff Chief Financial Officer June 23, 200928, 2012
James B. Huff (principal financial officer and
principal accounting officer)  
     
/s/ Cary Luskin Director June 23, 200928, 2012
Cary Luskin    
     
/s/ Ronald A. Seff Director June 23, 200928, 2012
Ronald A. Seff    
     
/s/ Ira Bormel Director June 23, 200928, 2012
Ira Bormel    

- 16 -
- 27 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Directors of Universal Security Instruments, Inc.


We have audited the accompanying consolidated balance sheets of Universal Security Instruments, Inc. (a Maryland Corporation) and subsidiaries (the Company) as of March 31, 20092012 and 2008,2011, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended March 31, 2009.then ended. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Security Instruments, Inc. and subsidiaries as of March 31, 20092012 and 2008,2011, and the results of their operations and their cash flows for each of the three years in the periodthen ended, March 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.


/s/ GRANT THORNTONGrant Thornton LLP


Baltimore, Maryland

June 22, 2009

F-1
28, 2012

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


  
March 31
 
  
2009
  
2008
 
ASSETS
      
CURRENT ASSETS      
Cash and cash equivalents $284,030  $3,863,784 
Accounts receivable:        
Trade less allowance for doubtful accounts of $95,927 at March 31, 2009 and $15,000 at March 31, 2008  55,779   146,022 
Other receivables  97,780   282,083 
Receivable from Hong Kong Joint Venture  312,257   115,656 
   465,816   543,761 
         
Amount due from factor  4,610,401   5,600,408 
Inventories, net of allowance for obsolete inventory of $204,309 at March 31, 2009 and $40,000 at March 31, 2008  8,997,231   5,357,488 
Prepaid expenses  255,745   206,197 
Assets held in receivership  202,565   2,850,731 
         
TOTAL CURRENT ASSETS  14,815,788   18,422,369 
         
DEFERRED TAX ASSET  2,141,702   1,914,136 
         
INVESTMENT IN HONG KONG JOINT VENTURE  10,550,373   9,986,579 
         
PROPERTY AND EQUIPMENT – NET  251,366   130,347 
         
OTHER ASSETS  18,449   15,486 
         
TOTAL ASSETS $27,777,678  $30,468,917 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable $794,365  $777,342 
Hong Kong Joint Venture accounts payable  1,967,073   1,687,950 
Accrued liabilities:        
Litigation reserve  401,592   401,592 
Payroll and employee benefits  148,071   158,057 
Commissions and other  202,789   105,431 
Liabilities held in receivership  202,565   7,823,450 
         
TOTAL CURRENT LIABILITIES  3,716,455   10,953,822 
         
Long-term obligation - 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, 2,408,220 shares at March 31, 2009 and 2,487,867 shares at March 31, 2008  24,083     24,879 
Additional paid-in capital  13,186,436   13,453,378 
Retained earnings  10,755,380   5,890,023 
Other comprehensive income  -   55,655 
TOTAL SHAREHOLDERS’ EQUITY  23,965,899   19,423,935 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $27,777,678  $30,468,917 

  March 31 
  2012  2011 
       
ASSETS        
         
CURRENT ASSETS        
Cash and cash equivalents $3,186,274  $6,728,593 
Accounts receivable:        
Trade less allowance for doubtful accounts of approximately $75,000 at March 31, 2012 and 2011  229,027   276,463 
Other receivables  68,230   69,666 
Receivable from Hong Kong Joint Venture  584,594   301,380 
   881,851   647,509 
         
Amount due from factor  1,719,731   1,569,126 
Inventories, net of allowance for obsolete inventory of $70,000 at March 31, 2012 and $100,000 at March 31, 2011  5,398,540   3,534,011 
Prepaid expenses  599,876   519,356 
         
TOTAL CURRENT ASSETS  11,786,272   12,998,595 
         
DEFERRED TAX ASSET  2,394,801   2,002,561 
         
INVESTMENT IN HONG KONG JOINT VENTURE  13,083,493   13,149,614 
         
PROPERTY AND EQUIPMENT – NET  176,144   203,440 
         
INTANGIBLE ASSET - NET  84,962   89,434 
         
OTHER ASSETS  40,134   40,134 
         
TOTAL ASSETS $27,565,806  $28,483,778 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
CURRENT LIABILITIES        
Accounts payable $673,524  $794,014 
Hong Kong Joint Venture accounts payable  449,430   453,480 
Accrued liabilities:        
Payroll and employee benefits  111,974   177,298 
Commissions and other  58,837   33,700 
         
TOTAL CURRENT LIABILITIES  1,293,765   1,458,492 
         
Long-term obligation – other  25,000   25,000 
         
COMMITMENTS AND CONTINGENCIES  -   - 
         
SHAREHOLDERS’ EQUITY        
Common stock, $.01 par value per share; 20,000,000 authorized and 2,336,354 shares outstanding at March 31, 2012 and 2,387,887 shares issued and outstanding at March 31, 2011.  23,364   23,879 
Additional paid-in capital  12,885,756   13,135,198 
Retained earnings  13,337,921   13,841,209 
TOTAL SHAREHOLDERS’ EQUITY  26,247,041   27,000,286 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $27,565,806  $28,483,778 

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


F-2
F-2

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

  Years Ended March 31 
  2009  2008  2007 
          
Net sales $26,097,596  $33,871,362  $32,934,388 
Cost of goods sold – acquired from Joint Venture  19,363,886   22,530,867   14,870,683 
Cost of goods sold - other  633,740   3,470,439   7,634,389 
             
GROSS PROFIT  6,099,970   7,870,056   10,429,316 
             
Research and development expense  435,750   364,510   296,502 
Selling, general and administrative expense  5,297,284   6,124,213   6,546,609 
             
             
Operating income  366,936   1,381,333   3,586,205 
             
Other income (expense):            
Interest expense  (32,198)  (46,349)  - 
Interest income  37,228   16,155   21,991 
   5,030   (30,194)  21,991 
             
INCOME BEFORE EQUITY IN EARNINGS OF JOINT VENTURE  371,966   1,351,139   3,608,196 
             
Equity in earnings of Hong Kong Joint Venture  1,529,752   1,985,845   3,845,960 
             
             
             
Income from continuing operations before income taxes  1,901,718   3,336,984   7,454,156 
             
Provision for income tax expense  (459,382)  (512,235)  (1,360,790)
             
INCOME FROM CONTINUING OPERATIONS  1,442,336   2,824,749   6,093,366 
             
Discontinued operations            
Income (loss) from the discontinued Canadian subsidiary (including impairment loss of $9,013,990 in 2008)  2,481,318   (10,242,663)  (590,139)
             
Income tax benefit – discontinued operations  941,703   1,849,000   30,031 
             
Income (loss) from discontinued operations  3,423,021   (8,393,663)  (560,108)
             
NET INCOME (LOSS) $4,865,357  $(5,568,914) $5,533,258 
             
Income (loss) per share:            
Basic – from continuing operations $0.58  $1.14  $2.54 
Basic – from discontinued operations $1.39  $(3.38) $(0.23)
Basic – net  income (loss) $1.97  $(2.24) $2.31 
Diluted – from continuing operations $0.58  $1.13  $2.45 
Diluted – from discontinued operations $1.38  $(3.35) $(0.23)
Diluted – net income (loss) $1.96  $(2.23) $2.23 
Shares used in computing net income (loss) per share:            
Basic  2,466,983   2,484,192   2,398,284 
Diluted  2,471,807   2,502,017   2,484,606 

  Years Ended March 31 
  2012  2011 
       
Net sales $13,304,602  $13,249,604 
Cost of goods sold – acquired from Joint Venture  9,420,225   7,024,044 
Cost of goods sold - other  373,179   2,463,815 
         
GROSS PROFIT  3,511,198   3,761,745 
         
Research and development expense  570,952   615,639 
Selling, general and administrative expense  4,389,818   4,375,241 
         
Operating loss  (1,449,572)  (1,229,135)
         
Other income (expense):        
Interest expense  -   (4,166)
Investment and interest income  56,182   213,086 
   56,182   208,920 
         
LOSS BEFORE EQUITY IN EARNINGS OF JOINT VENTURE  (1,393,390)  (1,020,215)
Equity in earnings of Hong Kong Joint Venture  500,502   1,691,133 
         
(Loss) income from operations before income taxes  (892,888)  670,918 
         
Income tax benefit  (389,600)  (146,863)
         
NET (LOSS) INCOME $(503,288) $817,781 
         
(Loss) income per share:        
Basic $(0.21) $0.34 
Diluted $(0.21) $0.34 
         
Shares used in computing net income per share:        
Basic  2,374,952   2,387,887 
Diluted  2,374,952   2,395,766 

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


F-3

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY


  Common Stock             
  Shares  Amount  
Additional
Paid-In
Capital
  
Retained
Earnings
  
Other
Comprehensive
Income
  Total 
                   
Balance at March 31, 2007  2,475,612  $24,756  $13,214,025  $11,545,304  $(112,204) $24,671,881 
                         
Recognition of uncertain tax provisions  -   -   -   (86,367)  -   (86,367)
                         
Issuance of common stock from the exercise of employee stock options      12,255       123       126,555       -       -   126,678 
                         
Stock based compensation  -   -   19,863   -   -   19,863 
                         
Comprehensive income:                        
                         
Effect of currency translation  -   -   -   -   167,859   - 
                         
Net loss  -   -   -   (5,568,914)  -   (5,401,055)
                         
Tax benefit from exercise of stock options   -    -    92,935    -    -   92,935 
                         
Balance at March 31, 2008  2,487,867  $24,879  $13,453,378  $5,890,023  $55,655  $19,423,935 
                         
Stock based compensation  -   -   11,230   -   -   11,230 
                         
Comprehensive income:                        
                         
Effect of currency translation  -   -   -   -   (55,655)  - 
                         
Net income  -   -   -   4,865,357   -   4,809,702 
                         
Repurchase of common stock  (79,647)  (796)  (278,172)   -    -   (278,968)
                         
Balance at March 31, 2009  2,408,220  $24,083  $13,186,436  $10,755,380   -  $23,965,899 

F-4

  Common Stock  Additional
Paid-In		  Retained    
  Shares  Amount  Capital  Earnings  Total 
                
Balance at April 1, 2010  2,387,887  $23,879  $13,135,198  $13,023,428  $26,182,505 
                     
Net income  -   -   -   817,781   817,781 
                     
Balance at March 31, 2011  2,387,887  $23,879  $13,135,198  $13,841,209  $27,000,286 
                     
Stock based compensation  -   -   25,939   -   25,939 
                     
Repurchase of common stock  (51,533)  (515)  (275,381)  -   (275,896)
                     
Net loss  -   -   -   (503,288)  (503,288)
                     
Balance at March 31, 2012  2,336,354  $23,364  $12,885,756  $13,337,921  $26,247,041 

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

  Years Ended March 31, 
  2009  2008  2007 
CASH FLOWS FROM OPERATING ACTIVITIES         
OPERATING ACTIVITIES         
Net income (loss) $4,865,357  $(5,568,914) $5,533,258 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:            
Operations of discontinued subsidiary  (3,431,654)  7,904,780   (167,374)
Depreciation and amortization  49,210   46,503   39,449 
Stock based compensation  11,230   19,863   29,411 
Increase in deferred taxes  (227,566)  (1,157,711)  (280,040)
Earnings of the Hong Kong Joint Venture  (1,529,752)  (1,985,845)  (3,845,960)
Changes in operating assets and liabilities:            
Decrease  (increase) in accounts receivable and amounts due from factor  1,067,952   2,329,219   (3,084,166)
(Increase) decrease in inventories  (3,639,743)  3,347,828   (4,643,230)
(Increase) decrease in prepaid expenses  (49,548)  (64,620)  55,286 
Increase (decrease) in accounts payable and accrued expenses  383,518   (2,524,540)  2,994,038 
(Increase) decrease in other assets  (2,963)  3,000   (3,000)
             
NET CASH  (USED IN) PROVIDED BY OPERATING ACTIVITIES  (2,503,959)  2,349,563   (3,372,328)
             
INVESTING ACTIVITIES:            
Cash distributions from Joint Venture  965,958   1,071,549   1,914,535 
Purchase of equipment  (170,229)  (30,778)  (123,309)
Activities of discontinued subsidiary  2,590,722   (1,584,733)  (3,194,185)
             
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES  3,386,451   (543,962)  (1,402,959)
             
FINANCING ACTIVITIES:            
Activities of discontinued subsidiary  (4,187,444)  4,012,046   (2,087,661)
Repurchase of common stock  (278,968)  -   - 
Borrowing from factor  -   -   2,254,966 
Principal payment of notes payable  -   (2,254,966)  - 
Proceeds from issuance of common stock from exercise of employee stock options  -   126,678   585,658 
Increase in long-term debt  4,166   -   - 
Tax benefit from exercise of stock options  -   92,935   1,029,189 
             
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES  (4,462,246)  1,976,693   1,782,152 
             
Effects of exchange rate on cash  -   81,490   (22,356)
             
(DECREASE) INCREASE IN CASH  (3,579,754)  3,863,784   (3,015,491)
             
Cash at beginning of period  3,863,784   -   3,015,491 
             
CASH AT END OF PERIOD $284,030  $3,863,784  $- 
             
Supplemental information:            
Interest paid $32,198  $46,349  $23,750 
Income taxes recovered (paid) $520,558  $(227,000) $(109,500)
             
Non-cash investing transactions:            
Offset of trade payables due the Hong Kong Joint Venture in lieu of cash distributions $-  $250,000  $250,000 

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

F-5

  Years Ended March 31, 
  2012  2011 
CASH FLOWS FROM OPERATING ACTIVITIES OPERATING ACTIVITIES        
Net (loss) income $(503,288) $817,781 
Adjustments to reconcile net (loss) income to net cash used in operating activities:        
Depreciation and amortization  41,522   61,025 
Stock based compensation  25,939   - 
Deferred income taxes  (392,240)  (125,405)
         
Earnings of the Hong Kong Joint Venture  (500,502)  (1,691,133)
Changes in operating assets and liabilities:        
(Increase) decrease in accounts receivable and amounts due from factor  (384,947)  2,157,589 
(Increase) in inventories  (1,864,529)  (94,105)
(Increase) in prepaid expenses  (80,520)  (168,165)
(Decrease) in accounts payable and accrued expenses  (164,728)  (1,004,757)
(Increase) in other assets  -   (19,998)
         
NET CASH (USED IN) OPERATING ACTIVITIES  (3,823,293)  (67,168)
         
INVESTING ACTIVITIES:        
Proceeds from sale of assets held for investment  -   4,001,890 
Cash distributions from Joint Venture  566,622   694,976 
Purchase of equipment  (9,752)  (65,302)
Patent costs capitalized  -   (89,434)
         
NET CASH PROVIDED BY INVESTING ACTIVITIES  556,870   4,542,130 
         
FINANCING ACTIVITIES:        
Repurchase of common stock  (275,896)  - 
         
NET CASH USED IN FINANCING ACTIVITIES  (275,896)  - 
         
(DECREASE) INCREASE IN CASH  (3,542,319)  4,474,962 
         
Cash at beginning of period  6,728,593   2,253,631 
         
CASH AT END OF PERIOD $3,186,274  $6,728,593 
         
Supplemental information:        
Interest paid $-  $4,166 
Income taxes recovered (paid) $-  $- 

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Nature of Business: Universal Security Instruments, Inc.’s (“the Company”) primary business is the sale of smoke alarms and other safety products to retailers, wholesale distributors and to the electrical distribution trade which includes electrical and lighting distributors as well as manufactured housing companies. The Company imports all of its safety and other products from foreign manufacturers. The Company, as an importer, is subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions and currency fluctuations.  During the third quarter of fiscal 2007, the Company acquired two Canadian subsidiaries, International Conduit, Inc. (Icon) and Intube, Inc. (Intube), whose primary business is the manufacture and sale of EMT steel conduit to the commercial construction market in Canada and in the United States.  On February 11, 2008, the assets of Icon were placed under the direction of a court appointed receiver, the operations of Icon were suspended and the assets of Icon are classified as Assets held for sale in the consolidated balance sheet.  Accordingly, the consolidated financial statements and the related note disclosures reflect the operations of Icon as discontinued operations for all periods presented.


Principles of Consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The assets, liabilities and operations of International Conduits, Ltd (the discontinued subsidiary) held in receivership are not consolidated and are shown in the consolidated financial statements as assets and liabilities held in receivership and as the results from discontinued operations. All significant intercompany accounts and transactions have been eliminated in consolidation. We believe that our 50% ownership interest in the Hong Kong Joint Venture allows us to significantly influence the operations of the Hong Kong Joint Venture. As such, we account for our interest in the Hong Kong Joint Venture using the equity method of accounting. We have included our investment balance as a non-current asset and have included our share of the Hong Kong Joint Venture’s income in our consolidated statement of operations. The investment and earnings are adjusted to eliminate intercompany profits.


Use of Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America (US GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents:


Cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase.At times, the Company maintains cash and investment balances in financial institutions, which may exceed federally insured limits. The Company has not experienced any losses relating to such accounts and believes it is not exposed to a significant credit risk on its cash and cash equivalents and investments. The carrying value of cash and cash equivalents approximates their fair value based on their short-term maturities at March 31, 2012 and 2011.

Revenue Recognition: We recognize The Company recognizes sales upon shipment of products, when title has passed to the buyer, net of applicable provisions for any discounts or allowances. We recognize revenue when the following criterion are met: evidence of an arrangement, fixed and determinable fee, delivery has taken place, and collectability is reasonably assured. 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.


Warranties: We generally provide warranties, on the safety products, from one to ten years to the non-commercial end user on all products sold. The manufacturers of our safety 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 have not been historically material and we do not record estimated warranty expense or a contingent liability for warranty claims.

Stock-Based Compensation: As of March 31, 2009, under In October 2011, the terms ofstockholders approved the Company’s 2011 Non-Qualified Stock Option Plan as amended, 1,170,369 sharesauthorizing the issuance of our120,000 options to purchase the Company’s common stock are reserved for the granting of stockstock. At March 31, 2012, 97,000 options of which 1,149,638 have been issued at an exercise price of which 72,422 are presently exercisable.

Fair Value Determination.  Under SFAS No. 123R, we have elected$5.51.

We account for share-based payments using the fair value method. We recognize all share-based payments to continueemployees and non-employee directors in our financial statements based on their grant date fair values, calculated using the Black-Scholes option pricing modelmodel. Compensation expense related to determine fairshare-based awards is recognized on a straight-line basis based on the value of ourshare awards that are expected to vest during the requisite service period on the grant date, of grant. We will reconsider the use of the Black-Scholes modelwhich is revised 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.  actual forfeitures differ materially from original expectations.

The following significant assumptions have been used in the Black-Scholes model:  a risk-free rate of return of .50 to 4%, an expected term of fourstock options granted was based on the Company’s historical option exercise experience and post-vesting forfeiture experience using the historical expected term from the vesting date. The expected volatility of the options granted was determined using historical volatilities based on stock prices over a look-back period corresponding to five yearsthe expected term. The risk-free interest rate was determined using the yield available for zero-coupon U.S. government issues with a remaining term equal to the expected term of the options. The forfeiture rate was determined using historical pre-vesting forfeiture rates since the inception of the plans. The company has never paid a dividend; and, as such, the dividend yield is zero.

Stock Repurchase Program: In October 2011, the Company announced a stock price volatility indexbuyback program under which the Board authorized the purchase of 60up to 65 percent.

Stock Option Activity.  During100,000 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. 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).

The following table sets forth information with respect to purchases by the Company of its common stock during the fiscal year ended March 31, 2009, 25,000 stock options were granted and no options were granted during the fiscal years ended March 31, 2008 or 2007.


F-6
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 fiscal year ended March 31, 2009, we recorded $11,230 of stock-based compensation cost as general and administrative expense in our statement of operations. No forfeitures have been estimated.
As of March 31, 2009, the unrecognized compensation cost related to share-based compensation arrangements that we expect to vest is $45,628, and will be amortized ratably over two years.  The aggregate intrinsic value of currently exercisable options was $108,010 at March 31, 2009.
2012:

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		 
November 2011  11,000  $5.35   11,000   89,000 
December 2011  10,039  $5.08   10,039   78,961 
January 2012  20,398  $5.52   20,398   58,563 
March 2012  10,096  $5.42   10,096   48,467 
Total  51,533  $5.39   51,533   48,467 

Research and Development: Research and development costs are charged to operations as incurred.


Discontinued Operations: We report discontinued operations in accordance with the guidance of SFAS No. 144, “Accounting for the Impairment or Disposal or Long-Lived Assets.”  Accordingly, we report businesses or asset groups as discontinued operations when we commit to a plan to divest the business or asset group and the sales of the business or asset group is deemed probable within the next 12 months.


Discontinued operations include our unconsolidated subsidiary, International Conduits, Ltd. which was placed into receivership in the fourth quarter of 2008.  The results of this business, including the loss on impairment, have been presented as discontinued operations for all periods presented.

The consolidated statements of income include the following in discontinued operations:
  Year ended March 31, 
  2009  2008  2007 
Net Sales $-  $9,729,076  $2,889,000 
Income (loss)  before income taxes (including asset impairment loss of $9,013,990 in 2008)  2,481,318   (10,242,663)  (590,139)
Income tax benefit  941,703   1,849,000   30,031 
Income (loss) from discontinued operations $3,423,021  $(8,393,663) $(560,108)

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

  Year ended March 31, 
  2009  2008  2007 
Assets         
Cash $202,565  $823,550  $240,545 
Trade receivables, net  -   371,793   1,263,177 
Inventories  -   817,022   2,613,418 
   -         
Property, plant and equipment, net  -   831,555   2,883,988 
Other assets  -   6,811   1,880,793 
Assets of discontinued operations  202,565   2,850,731   8,881,921 
Liabilities:            
Accounts payable, trade and other  202,565   3,344,624   3,522,549 
Notes payable – bank  -   4,478,826   - 
Liabilities of discontinued operations $202,565  $7,823,450  $3,522,549 

The consolidated asset impairment loss included a write down of inventories, trade accounts receivable, and other assets to their net realizable value, in addition to the write down of property, plant and equipment and the write down of goodwill.  Specifically, the impairment loss recorded on the books of Icon included the following:

Property plant and equipment $3,750,000 
Goodwill  1,926,696 
Inventory  1,572,249 
Accounts receivable  441,831 
Costs of disposal  1,323,214 
Total $9,013,990 

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 were based in Toronto, Canada and manufactured and distributed 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.

F-7

In June 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.

At the time of our investment in Icon, we projected that our established U.S. sales network would allow us to increase sales of EMT to U.S. customers.  Despite our efforts, Icon suffered continuing losses, and we were not successful in increasing Icon’s sales in the face of competition and a downturn in the housing market.  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 June 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.  Accordingly, the assets and liabilities of Icon are not consolidated in the financial statements of the Company and are classified as assets held in receivership.   Our consolidated financial statements and the related note disclosures reflect the operations of Icon as discontinued operations for all periods presented.

As a result of continuing losses at Icon, we 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, we determined that the value of the goodwill from our acquisition of Icon was impaired, and we recognized an impairment charge of US$1,926,696 for the goodwill.   In addition, as a result of Icon’s receivership and the steps taken to liquidate Icon’s assets, the non-cash assets of Icon were written down to their estimated net realizable value and a further impairment charge of US$7,087,297 was recognized as of March 31, 2008.  These impairments have been recorded in discontinued operations in the consolidated statements of operations for the fiscal year ended March 31, 2008.

On September 22, 2008, Icon’s obligations were settled in the receivership action by Ontario Superior Court order.   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$1,518,375 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 operation to arrive at income from discontinued operations of $3,423,021 for the fiscal year ended March 31, 2009.

 At March 31, 2009, the remaining assets of Icon held by the receiver consist of cash of $202,565.   The liabilities of Icon held by the receiver include a claim by a supplier and other secured amounts payable of $202,565.  The total liabilities of Icon at March 31, 2009 are $202,565.

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

  March 31, 2009  March 31, 2008 
       
Assets        
Cash $202,565  $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 $202,565  $2,850,731 
         
Liabilities        
Accounts payable, trade and other $202,565  $3,344,624 
Notes payable – bank  0   4,478,826 
Liabilities of discontinued operations $202,565  $7,823,450 

F-8

In the accompanying consolidated financial statements, the results of Icon for the fiscal years ended March 31, 2009 and 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.

Business Segments: The electrical and smoke alarm business is operated by management as one segment.

Accounts Receivable: In September, 2000, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (SFAS No. 140), which is effective for transfers of financial assets occurring after March 31, 2001.

In fiscal year 2002, the Company achieved the sales criteria of SFAS No. 140, and, as such, amounts transferred under the Company’s Factoring Agreement are treated as sales.

Beginning in fiscal year 2002, with the achievement of SFAS 140 sales criteria, theThe Company nets the factored accounts receivable with the corresponding advance from the Factor, showingwith the net amount netreflected in itsthe consolidated balance sheet.

The Company sells trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis. Factoring charges recognized on sales of receivables are included in selling, general and administrative expenses in the consolidated statements of income and amounted to $149,597, $223,214$56,943 and $279,692$57,161 for the years ended March 31, 2009, 20082012 and 2007,2011, respectively. The Agreement for the sale of accounts receivable provides for continuation of the program on a revolving basis until terminated by one of the parties to the Agreement.


Financing Receivables. In September 2010, the FASB issued, and the Company adopted, an Accounting Standards Update requiring enhanced disclosure of the credit quality of financing receivables, as defined therein, and the adequacy of allowances for credit losses. Management considers amounts due from the Company’s factor to be “financing receivables”. Trade accounts receivable, other receivables, and receivables from our Hong Kong Joint Venture are not considered to be financing receivables.

The Company sells the majority of its short-term receivables arising in the ordinary course of business to our factor. At the time a receivable is sold to our factor the credit risk associated with the credit worthiness of the debtor is assumed by the factor. The Company continues to bear any credit risk associated with delivery or warranty issues related to the products sold.

Management assesses the credit risk of both its trade accounts receivable and its financing receivables based on the specific identification of accounts that have exceeded credit terms. An allowance for uncollectible receivables is provided based on that assessment. Changes in the allowance account from one accounting period to the next are charged to operations in the period the change is determined. Amounts ultimately determined to be uncollectible are eliminated from the receivable accounts and from the allowance account in the period that the receivables’ status is determined to be uncollectible.

Based on the nature of the factoring agreement and prior experience, no allowance for uncollectible financing receivables has been provided. At March 31, 2012, an allowance of $75,000 has been provided for uncollectible trade accounts receivable.

Shipping and Handling Fees and Costs: The Company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are included in cost of goods sold. Shipping and handling costs associated with outbound freight are included in selling, general and administrative expenses and totaled $528,643, $726,660$356,171 and $1,042,899$308,278 in fiscal years 2009, 20082012 and 2007,2011, respectively.


Inventories: Inventories are stated at the lower of cost (first-in, first-out(first in/first out method) or market. Included as a component of finished goods inventory are additional non-material costs. These costs include overhead costs, freight, import duty and inspection fees of $953,895$571,219 and $452,856$398,397 at March 31, 20092012 and 2008,2011, respectively. Inventories are shown net of an allowance for inventory obsolescence of $204,309$70,000 and $100,000 as of March 31, 20092012 and $40,000 as of March 31, 2008.


2011, respectively.

The Company reviews inventory quarterly to identify slow moving products and valuation allowances are adjusted when deemed necessary.


Property and Equipment: Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided by using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives for financial reporting purposes are as follows:

Automotive and truck equipment
-Shorter of term of lease or life of asset
Leasehold improvements-Shorter of term of lease or life of asset
Machinery and equipment-5 to 10 years
Furniture and fixtures
-5 to 15 years
Computer equipment-5 years

F-9

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. During fiscal 2008, the company recognized impairment losses on property and equipment included in assets of approximately $3,750,000, which is included in the loss from discontinued operations.

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided, as necessary.


In July 2006,whenever it is more likely than not that a deferred tax asset will not be realized. The Company follows the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertaintyfinancial pronouncement that gives guidance related to the financial statement of recognition and measurement of a tax position taken or expected to be taken in Income Taxes —  An Interpretation of FASB Statement No. 109” , which clarifies the accounting for uncertainty ina tax positions. FIN 48return and requires that the Companywe recognize in our financial statements the impact of a tax position, in the Company’s financial statements if that position is more likely than not to be sustained on audit,upon an examination, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, measurement, classification, interestInterest and penalties accounting in interim periods, disclosure, and transition. The provisions of FIN 48related to income tax matters are effective as of the beginning of the Company’s 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. income tax expenses,See Note F,Income Taxes.

Recently Issued Accounting Pronouncements:


Business Combinations: In December 2007,Changes to accounting principles generally accepted in the United States of America (US. GAAP) are established by 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(FASB) in the consolidated financial statements, respectively. SFAS No. 141(R) will change how business acquisitions are accounted for and will impact financial statements both onform of accounting standards updated (ASU’s) to 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 financial statements issued for fiscal years beginning after December 31, 2008.  SFAS 141(R) applies prospectively to business combinations from which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Earlier adoption is prohibited.  FASB’s Accounting Standards Codification.

The Company is requiredconsiders the applicability and impact of all ASU’s. Recently issued ASU’s were evaluated and determined to record and disclose business combinations following existing GAAP until April 2009.  SFAS 141R will have an impact on our accounting for business combinations once adopted, but the effect on our consolidated results of operations and financial position will be dependent upon the acquisitions, if any, that we make oneither not applicable or after April 1, 2009.


Fair Value Measurements:  In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, (“SFAS No. 157”).  SFAS No. 157 establishes a formal framework for measuring fair value under generally accepted accounting principles.  Although SFAS No. 157 applies (amends) the provisions of existing FASB and other accounting pronouncements, it doesare not require any new fair value measurements nor does it establish valuation standards.  SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007.  In February 2008, the FASB issued FASB Staff Position No. 157-1 (“FSP 157-1”) which excludes SFAS No. 13, Accounting for Leases, and its related pronouncements that address leasing transactions from the scope of SFAS No. 157.  Also in February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”) which delays the effective date of SFAS No. 157 for all non-financial assets and liabilities, except those items recognized or disclosed at fair value on a recurring basis (at least annually).  FSP 157-2 defers the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities for financial statements issued for fiscal years beginning after November 15, 2008.  The FASB has issued a proposed FASB Staff Position No. 157-c, (“FSP 157-c)”, that would provide guidance on measuring liabilities under SFAS No. 157.  SFAS No. 157 does notexpected to have a material impact on the Company’sour consolidated financial position or results of operations.

F-10

statements.

Foreign currency: The Fair Value Option for Financial Assetsactivity 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 was effective for our fiscal year beginning April 1, 2008. The Company did not elect the fair value option under SFAS No. 159 for anyaccounts of the financial instruments upon adoption.


Subsequent Events:  FASB Statement 165, Subsequent Events, incorporates the accountingHong Kong Joint Venture are denominated in Hong Kong dollars and disclosure requirements for subsequent events into U.S. GAAP.  Statement 165 introduces new terminology, defines a date through which management must evaluate subsequent events, and lists the circumstances under which an entity must recognize and disclose events or transactions occurring after the balance-sheet date.  Statement 165 is effective prospectively for interim or annual reporting periods ending after June 15, 2009.  As Statement 165 is effective for interim periods, the Company will needare translated to provide the new required disclosures beginning with the June 30, 2009 interim financial statements.  The Company does not anticipate the adoption of this new standard will have a material impact on its disclosures.

Foreign currency:US dollars in consolidation. The Company translates the accounts of its subsidiaries denominated in foreign currenciesthe Hong Kong Joint Venture at the applicable exchange rate in effect at the year end date for balance sheet purposes and at the average exchange rate for the reporting period for statement of incomeoperation purposes.  The related translation adjustments in accumulated other comprehensive income in shareholder’s equity are reported in accumulated other comprehensive income in shareholders’ equity. Transaction gains and losses arising from transactions denominated in foreign currencies are included in the results of operations. The Company maintainscurrently does not maintain cash in foreign banks of $1,590 to support its operations in Hong Kong.

Net Income per Share: The Company reports basic and diluted earnings per share. Basic earnings per share is computed by dividing net income for the period by the weighted-averageweighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted number of common shares and common share equivalents outstanding (unless their effect is anti-dilutive) for the period. All common share equivalents are comprised of exercisable stock options.


  March 31, 
  2009  2008  2007 
          
Weighted average number of common shares outstanding for basic EPS  2,466,983   2,484,192   2,398,284 
             
Shares issued upon assumed exercise of outstanding stock options  4,824   17,825   86,322 
             
Weighted average number of common and common equivalent shares outstanding for diluted EPS  2,471,807   2,502,017   2,484,606 

Goodwill:  Goodwill represents Diluted loss per common share for the excessyear ended March 31, 2012 excludes the effect of all stock options, as their effect is antidilutive. As a result, the purchase price aboveweighted average number of common shares outstanding is identical for the fair value of the net assets acquired.  Goodwill is evaluatedyear ended March 31, 2012 for impairment annually or when events or circumstances occur indicating that goodwill might be impaired. In accordance with FAS No. 142, “Goodwillboth basic and Other Intangible Assets,” the evaluation is a two-step process that begins with an estimation of the fair value of the reporting units. The first step assesses potential impairment and the second step measures that impairment. The measurement of possible impairment is based on the comparison of the fair value of each reporting unit with the book value of its assets.

During the third quarter ended December 31, 2007, the Company conducted an evaluation of goodwill acquired with the acquisition of the Canadian subsidiary (Icon) in accordance with FAS No. 142 “Goodwill and Other Intangible Assets.”  Based on the trend of lower than forecast sales of mechanical tubing products in the U.S. and Canadian markets, and continuing operation and cash flow losses, the Company recorded an impairment loss of $1,926,696, reducing goodwill recorded by our Canadian subsidiary to zero at December 31, 2007. The impairment loss was recorded in loss from discontinued operations on the consolidated statement of operations.

F-11

diluted shares.

  March 31, 
  2012  2011 
       
Weighted average number of common shares outstanding for basic EPS  2,374,952   2,387,887 
         
Shares issued upon assumed exercise of outstanding stock options  -   7,879 
         
Weighted average number of common and common equivalent shares outstanding for diluted EPS  2,374,952   2,395,766 

NOTE B -– PROPERTY AND EQUIPMENT


Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided by using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes.

The estimated useful lives for financial reporting purposes are as follows:

Leasehold improvements-Shorter of term of lease or useful life of asset
Machinery and equipment-5 to 10 years
Furniture and fixtures-5 to 15 years
Computer equipment-5 years

Property and equipment consist of the following:


  March 31, 
  2009  2008 
Leasehold improvements $166,147  $73,535 
Machinery and equipment  163,106   163,106 
Furniture and fixtures  251,611   244,994 
Computer equipment  198,637   196,246 
   779,501   677,881 
         
Less accumulated depreciation and amortization  (528,135)  (547,534)
  $251,366  $130,347 

Deprecation

  March 31, 
  2012  2011 
Leasehold improvements $166,772  $166,772 
Machinery and equipment  190,400   189,276 
Furniture and fixtures  256,558   251,611 
Computer equipment  245,944   242,003 
   859,674   849,662 
Less accumulated depreciation  (683,530)  (646,222)
  $176,144  $203,440 

Depreciation and amortization expense totaled $49,210, $46,503$41,522 and $39,449$61,025 for fiscal years ended March 31, 2009, 20082012 and 2007,2011, respectively.


NOTE C - INVESTMENT IN THE HONG KONG JOINT VENTURE


The Company holds a 50% interest in a Joint Venture with a Hong Kong Corporation, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of consumer electronic products. As of March 31, 2009,2012, the Company has an investment balance of $10,550,373$13,083,493 for its 50% interest in the Hong Kong Joint Venture. There are no material Hong Kong – US GAAP differences between the generally accepted accounting principles (GAAP) used in the Hong Kong Joint Venture’s accounting policies.


policies when compared to US GAAP.

The following represents summarized financial information derived from the audited financial statements of the Hong Kong Joint Venture as of March 31, 20092012 and 2008 and for the years ended March 31, 2009, 2008 and 2007.


  March 31, 
  2009  2008 
Current assets $14,299,857  $14,169,626 
Property and other assets  13,003,698   10,334,906 
         
Total $27,303,555  $24,504,532 
         
Current liabilities $5,148,658  $5,215,755 
Non-current liabilities  51,400   82,314 
         
Equity  22,103,497   19,206,463 
         
Total $27,303,555  $24,504,532 

  For the Year Ended March 31, 
  2009  2008  2007 
          
Net sales $36,161,337  $30,144,148  $41,151,055 
Gross profit  9,594,405   7,555,705   13,753,123 
Net income  4,011,404   3,270,926   8,377,365 

2011.

  March 31, 
  2012  2011 
Current assets $14,753,305  $14,127,686 
Property and other assets  17,791,497   17,208,266 
         
Total $32,544,802  $31,335,952 
         
Current liabilities $4,320,954  $3,837,140 
Non-current liabilities  6,014   24,116 
         
Equity  28,217,834   27,474,696 
         
Total $32,544,802  $31,335,952 

  For the Year Ended March 31, 
  2012  2011 
       
Net sales $22,160,107  $24,231,557 
Gross profit  5,011,795   6,444,936 
Net income  1,259,210   3,339,499 

During the years ended March 31, 2009, 20082012 and 2007,2011, the Company purchased $22,861,649, $20,765,906,$10,152,081 and $19,085,353,$8,130,109, respectively, of finished product from the Hong Kong Joint Venture, which represents 97.3%, 79.9%96.2% and 46%85.6%, respectively, of the Company’s total finished product purchases for the years ended at March 31, 2009, 20082012 and 2007.2011. Amounts due the Hong Kong Joint Venture included in Accounts Payable totaled $1,967,073$449,430 and $1,687,950$453,480 at March 31, 20092012 and 2008,2011, respectively. Amounts due from the Hong Kong Joint Venture included in Accounts Receivable totaled $312,257$584,594 and $115,656$301,380 at March 31, 20092012 and 2008,2011, respectively.


F-12

The Company incurred interest costs charged by the Hong Kong Joint Venture of $0, $16,964 and $25,000 during the years ended March 31, 2009, 2008 and 2007, respectively, related to its purchases.  

The Company’s investment in the Hong Kong Joint Venture as recorded oon the Company’s Consolidated Balance sheets has been adjusted by the intercompany profit of the Hong Kong Joint Venture in the Inventory of the Company.


NOTE D - AMOUNTS DUE FROM FACTOR


The Company sells certain of its trade receivables on a pre-approved, non-recourse basis to a Factor. Since these are sold on a non-recourse basis, the factored trade receivables and related repayment obligations are not separately recorded in the Company’s consolidated balance sheets. The Agreement provides for financing of up to a maximum of $7,500,000$1,000,000 with the amount available at any one time based on 85%cash on deposit, 90% of uncollected non-recourse receivables sold to the factor, and 45%50% of qualifying inventory. Financing of approximately $7,000,000$1,000,000 is available at March 31, 2009.2012. Any outstanding amounts due to the factor are payable upon demand and bear interest at the prime rate of interest charged by the factor, which is 3.25% at March 31, 2009.2012. Any amount due to the factor is also secured by the Company’s inventory. There were no borrowings outstanding under this agreement at March 31, 2009.


2012.

Under this Factoring Agreement, the Company sold receivables of approximately $24,601,177$9,979,020 and $34,350,844$10,360,042 during the years ended March 31, 20092012 and 2008,2011, respectively. Gains and losses recognized on the sale of factored receivables include the fair value of the limited recourse obligation. The uncollected balance of non-recourse receivables held by the factor amounted to $4,610,401$1,719,731 and $5,600,408$1,569,126 at March 31, 20092012 and 2008.2011. The amount of the uncollected balance of non-recourse receivables borrowed by the Company as of March 31, 20092012 and 20082011 is $0 and $0, respectively. Collected cash maintained on deposit with the factor earns interest at the factor’s prime rate of interest less three percentage points (effective rate of 0.25% and 3.0%) at March 31, 20092012 and 2008, respectively.


2011.

NOTE FE - LEASES


During January 2009, the Company entered into an operating lease for its office and warehouse location in Owings Mills, Maryland which expires in March 2019. This lease is subject to increasing rentals at 3% per year.In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse.The Company has the right to terminate the lease after five years for a one-time payment of $42,000. In February 2004, the Company entered into an operating lease for an approximately 2,600 square foot office in Naperville, Illinois. ThisDuring fiscal 2012, the lease expires inwas expanded to approximately 3,400 square feet and the lease was extended to February 20122015 with rentals increasing rentals at 3% per year.


Each of the operating leases for real estate has renewal options with terms and conditions similar to the original lease. Rent expense, including common area maintenance, totaled $119,565, $113,357and $107,852$176,575 and $171,080 for the years ended March 31, 2009, 20082012 and 2007,2011, respectively.


  2010  2011  2012  2013  2014  Thereafter 
Future minimum lease payments are as follows: $146,754  $146,783  $147,782  $111,435  $111,704  $599,756 

  2013  2014  2015  2016 
Future minimum lease payments are as follows:  192,534   204,558   53,781   2,997 

NOTE GF – INCOME TAXES


The Company provides for Income Taxesfiles its income tax returns in accordance with Statement of Financial Accounting Standards No. 109,   “Accounting for Income Taxes.”  Accordingly, deferredthe U.S. federal jurisdiction, and various state jurisdictions. Deferred income tax assets and liabilities are computed and recognized for those differences that have future tax consequences and will result in net taxable or deductible amounts in future periods. Deferred tax expense or benefit is the result of changes in the net asset or liability for deferred taxes. The deferred tax liabilities and assets for USIthe Company result primarily from tax credit carryforwards, reserves inventories,and accrued liabilities

For the fiscal year ended March 31, 2012, the Company has an accumulated net operating loss carryover of approximately $1,578,107 that the Company may carry-forward to offset future taxable income. The Company generated no foreign tax credits for the period. At March 31, 2012, the Company has $1,522,886 of foreign tax and changes in$82,778 of research and development credit carry-forward available to offset future federal income taxes.

For the unremitted earningsfiscal year ended March 31, 2011, the Company has an accumulated net operating loss of approximately $812,651 that the Hong Kong Joint Venture.


Company may carryforward to offset future taxable income. The Company generated $113,136 of foreign tax credits for the period. At March 31, 2011, the Company has $1,522,886 of foreign tax credit carryforward and $48,186 of research and development credit available to offset future federal income taxes.

At March 31, 2012, the Company has net operating loss carryforwards and tax benefit carryforwards of $1,578,107 and $1,605,664, respectively, which expire at various dates from 2013 through 2030.  There are certain limitations to the use and application of these deferred tax assets.

Management reviews net operating loss carryforwards and income tax credit carryforwards to evaluate if those amounts are recoverable.  Based on historical results and projections of future operations and taxable income, the recoverability of these deferred tax assets is determined to be more likely than not; and, accordingly, no valuation allowance is deemed necessary at March 31, 2012.

The components of income tax expense (benefit) from continuing operations for the Company are as follows:

  2012  2011 
Current benefit        
U.S. Federal $-  $(21,459)
U.S. State  -   - 
   -   (21,459)
Deferred benefit  (389,600)  (125,404)
Total income tax benefit $(389,600) $(146,863)

  March 31, 
  2012  2011 
Deferred tax assets:        
Financial statement accruals and allowances $68,765  $54,340 
Inventory uniform capitalization  83,098   72,412 
Net operating loss carryforward  637,274   304,737 
Foreign tax credit carryforward  1,522,886   1,522,886 
Research and development tax credit carryforward  82,778   48,186 
Net deferred tax asset $2,394,801  $2,002,561 

The reconciliation between the statutory federal income tax provision and the actual effective tax provision for continuing operations is as follows:

  Years ended March 31, 
  2012  2011 
Federal tax (benefit) expense at statutory rate (34%) before loss carry-forward $(303,582) $225,374 
Non-repatriated earnings of Hong Kong Joint Venture  (18,758)  (338,693)
Foreign tax credit  -   (74,670)
Research and development credit  -   (17,361)
State income tax expense, net of federal tax effect  -   (5,277)
Reduction in uncertain tax position liability  -   (21,459)
Permanent differences  14,551   14,955 
True-up adjustments and other  (81,811)  70,268 
Income tax benefit $(389,600) $(146,863)

The Company adopted the provisions of FIN 48new income tax guidance regarding uncertain tax positions on April 1, 2007. As a result of the implementation, of FIN 48, the Company recognized aan $86,000 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction of the April 1, 2007 retained earnings balance. The total amount of unrecognized tax benefitsattributes as of the date of the adoption was approximately $86,000 and includes both income taxes, tax penalties and tax penalties. In years prior to fiscal 2008, interestimputed interest. Interest and penalties related to adjustments to income taxes as filed, have not been significant. The Company intends to includeincludes any such interest and penalties in its tax provision.


F-13

For During the fiscal year ended March 31, 2009,2011, the Company has an accumulated net operating loss of approximately $1,440,114 that the Company will carryforward to offset future taxable income.  The Company generated $157,249 of foreign tax credits for the period.  In addition, $694,792 in foreign tax credits became available to carryforward as a resultamount of the carryback of net operating losses to prior tax years.  Accordingly, at March 31, 2009, the Company has $1,240,239 of foreign tax credit carryforward available to offset future federal income taxes.

For the fiscal year ended March 31, 2008, the Company generated a net operating loss of approximately $3,320,000 that the Company elected to carryback to offset prior taxable income.  In addition, the Company generated $132,439 of foreign tax credits for the period.  Accordingly, at March 31, 2008, the Company had $388,744 of foreign tax credit carryforward available to offset future federal income taxes.

At March 31, 2007, the Company had foreign tax credit carryforwards of $685,654 available as a result of foreign taxes paid on the repatriated earnings of the Hong Kong Joint Venture.  In addition, the Company generated $236,628 of foreign tax credits during the fiscal year ended March 31, 2007.  Approximately $534,084 of foreign tax credits were used to offset federal taxes at March 31, 2007, resulting in a remaining foreign tax credit carryforward available to offset future taxes of $388,198.

The components of income tax expense (benefit) from continuing operations for the Company are as follows:

  March 31, 
  2009  2008  2007 
Current expense (benefit)         
U.S. Federal $608,794  $581,300  $1,425,522 
U.S. State  64,943   62,300   215,308 
   673,737   643,600   1,640,830 
Deferred expense (benefit)  (214,355)  (131,365)  (280,040)
Total income tax expense (benefit) $459,382  $512,235  $1,360,790 

Significant components of USI’s deferred tax assets and liabilities are as follows:

  March 31, 
  2009  2008 
Deferred tax assets:      
Financial statement accruals and allowances $230,646  $210,297 
Inventory uniform capitalization  123,298   63,052 
Stock option compensation  7,477   7,477 
Net operating loss carryforward  540,043   1,245,112 
Foreign tax credit carryforward  1,240,239   388,198 
Net deferred tax asset $2,141,703  $1,914,136 

The reconciliation between the statutory federal income tax provision and the actual effective tax provision for continuing operations is as follows:

  Years ended March 31, 
  2009  2008  2007 
Federal tax (benefit) expense at statutory rate (34%) before loss carryforward $646,584  $1,134,575  $2,534,402 
Non-patriated earnings of Hong Kong Joint Venture  (114,275)  (282,251)  (635,549)
Foreign tax credit net of gross up for US portion of foreign taxes  (157,249)  (197,311)  (922,282)
Reversal of Canadian net operating loss benefit  -   -   40,410 
State income tax (benefit) expense, net of federal tax effect  64,943   62,568   195,852 
Permanent differences  19,379   13,419   14,543 
Change in temporary differences  -   (218,765)  133,414 
Provision for income tax expense (benefit) $459,382  $512,235  $1,360,790 

The Company files its income tax returns in the U.S. federal jurisdiction, and various state jurisdictions.

F-14

The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, on April 1, 2007.  As a result of the implementation of Interpretation 48, the Company recognized approximately a $86,000 increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the April 1, 2007, balance of retained earnings.  A reconciliation of the beginningattributes were reduced by $21,459, including deemed interest and ending amount of unrecognized tax benefits is as follows:

Balance at April 1, 2008 $236,000 
     
Additions based on tax positions related to the current year  - 
Additions for tax positions of prior years  - 
Reductions for tax positions of prior years  - 
Settlements  - 
     
Balance at March 31, 2009 $236,000 

The total liability for unrecognized tax benefits, as of March 31, 2009, was $245,324.penalties. That amount, if ultimately recognized, would reduce the Company’s annual effective tax rate.

NOTE G - SHAREHOLDERS’ EQUITY

Stock Repurchase Program –The Company has concluded that nonefollowing table sets forth information with respect to purchases of this amount will be paid within the next 12 months.


The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense.  Cumulatively, at March 31, 2009,common stock by the Company has accrued and recognized approximately $9,324 in interest and penalties, of which 4,164 is accrued foror any affiliated purchasers during the fiscal year ended March 31, 2009.

NOTE H - SHAREHOLDERS’ EQUITY

Common Stock2012: - During the year ended March 31, 2008, the Company issued 12,255 shares of its common stock, all of which were issued on the exercise of employee stock options for total proceeds of $126,678.

Stock Repurchase Program –

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		 
November 2011  11,000  $5.35   11,000   89,000 
December 2011  10,039  $5.08   10,039   78,961 
January 2012  20,398  $5.52   20,398   58,563 
March 2012  10,096  $5.42   10,096   48,467 
Total  51,533  $5.39   51,533   48,467 

In July 2008,October 2011, 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, theThe 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).


During

Stock Options – Under the fiscal year endedterms of the Company’s 2011 Non-Qualified Stock Option Plan, 120,000 shares of common stock were reserved for the granting of stock options, of which 97,000 options have been issued as of March 31, 2009, 78,847 shares were repurchased under this program.  Subsequent to March 31, 2009, an additional 21,133 shares were repurchased, resulting in a total of 99,980 shares repurchased at an average price of $3.71 per share.


Stock Options - 2012.

Under the terms of the Company’s now expired 1978 Non-Qualified Stock Option Plan, as amended, 1,170,369 shares of common stock arewere reserved for the granting of stock options, of which 1,149,638 shares haveoptions had been issued as of March 31, 2009. Under provisions ofThere are no options outstanding under the Plan, a committee of the Board of Directors determines the option price and the dates exercisable. All options expire five years from the date of grant and have an exercise price at least equal to the market price at the date of grant. The options usually vest at 25% a year over four years.


1978 Non-Qualified Stock Option Plan.

In March 2009, 25,000 options were issued at $3.25 for restricted shares of the Company’s common stock. These options will bewere not issued under the now expired 1978 Non-Qualified Stock Option Plan and became fully vested after one year with a right to exercise until March 2014.


F-15

The following tables summarize the status of outstandingexercisable stock options at March 31, 20092012 and option transactions for the three years then ended:


Status as of March 31, 2009 Number of Shares 
Presently exercisable  72,422 
Exercisable in future years  25,000 
     
Total outstanding  97,422 
     
Outstanding options:    
Number of holders  16 
Average exercise price per share $10.47 
Expiration dates 
April 2009 to
March 2014
 

Transactions for the Three Years Ended March 31, 2009: Number of Shares  
Weighted Average
Exercise Price
 
Outstanding at March 31, 2007  101,176    
Granted  0   0.00 
Canceled  0   0.00 
Exercised  (12,255)  10.40 
         
Outstanding at March 31, 2008  88,921     
Granted  25,000   3.25 
Canceled  (16,499)  0.00 
Exercised  -   0.00 
         
Outstanding at March 31, 2009  97,422     

Status as of March 31, 2012 Number of Shares 
    
Presently exercisable  25,000 
     
Outstanding options by grant    
Number of holders – grant 1  1 
Average exercise price per share $3.25 
Expiration date:  March 2014 
     
Number of holders – grant 2  19 
Average exercise price per share $5.51 
Expiration date:  December 2013 

Transactions for the Year Ended March 31, 2012: Number of Shares  Weighted Average
Exercise Price		 
Outstanding at April 1, 2011  25,000   3.25 
Granted  97,000   5.51 
Outstanding at March 31, 2012  122,000   5.05 

The following table summarizes information about stock options outstanding at March 31, 2009:


  Options Outstanding     Options Exercisable 
Range of 
Exercise Price
 
Number 
of Shares
  
Weighted
Average
Exercise Price
  
Weighted
Average
Contract Life (Yrs)
  
Number 
of Shares
  
Weighted
Average
Exercise Price
 
                
$3.25  25,000   3.25   5.00   0   3.25 
$7.68 to $9.99  4,666   8.27   0.31   4,666   8.27 
$10.00 to $12.99  39,329   11.27   1.00   39,329   11.27 
$13.00 to $16.09  28,427   16.09   2.00   28,427   16.09 
   97,422           72,422     

2011:

   Options Outstanding     Options Exercisable 
Range of
Exercise Price		  Number
of Shares		  Weighted
Average
Exercise Price		  Weighted
Average Contract
Life (Yrs)		  Number
of Shares		  Weighted
Average
Exercise Price		 
$3.25   25,000   3.25   5.00   25,000   3.25 
$5.51   97,000   5.51   2.00   97,000   5.51 

The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions; no annual dividends, expected volatility of 64.05%57.73%, risk-free interest rate of 0.5%0.3% and expected lives of five years.two years used for options granted in fiscal 2012. There were no options granted in fiscal 2011. The weighted-average fair value of the stock options granted in 2006 was $8.29 per share.


fiscal 2012 approximates $170,000. Fifty percent of the options vest one year after issuance, with the remaining fifty percent vesting twenty-three months after issuance.

As of March 31, 2012, the unrecognized compensation cost related to share-based compensation arrangements that we expect to vest is $144,519. The Black-Scholes option valuation model was developed for use in estimating the fairaggregate intrinsic value of tradedcurrently exercisable options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of normal publicly traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.


was $53,250 at March 31, 2012.

NOTE IH - COMMITMENTS AND CONTINGENCIES


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.


F-16

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 a patent acquired by Kidde (US 4,972,181). Kidde was seeking injunctive relief and damages to be determined at trial.  On March 31, 2006, following numerous procedural and substantive rulings which the Company believes were favorable to the Company, Kidde obtained dismissal, without prejudice, of its suit. On November 28, 2005, prior to the March 31, 2006 dismissal of the original suit, Kidde filed a second lawsuit in the same court (Case No. 05cv1031) based on virtually identical infringement allegations as the earlier case. Discovery is now closed in this second case. Although the asserted patent is now expired, prior to its expiration, the Company sought and has now successfully obtained re-examination of the asserted patent in the United States Patent and Trademark Office (USPTO) largely based on the references cited and analysis presented by the Company which correspond to defenses raised in the litigation. In September, 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 has just commenced. The Company believes that it has meritorious and substantial technical defenses to the action and that it is entitled to a number of legal/equitable defenses due to the long period of inaction and acquiescence by Kidde/Maple Chase and its predecessors. The 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 US patent 6,791,453 by communication protocols for interconnected hazardous condition (smoke, heat and Carbon monoxide) alarms 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, 2008, the Company filed a motion to amend its Answer and Counterclaims seeking injunctive and antitrust damages which was unsuccessfully opposed by both Kidde and UTC. On March 31, 2009, Kidde filed a defective request for reexamination of the ‘453 patent. On April 9, 2009, after Kidde filed corrected papers, the re-examination request was formalized and is currently pending determination by the USPTO. Kidde has also recently filed a motion to stay the litigation pending the outcome of the Re-examination. The Company is opposing that pending motion. In April, the Court also issued a schedule requiring the parties to define, present and argue their respective patent claim interpretations over the summer and into the fall of 2009. Otherwise, the case is in the initial discovery phase. The Company intends to vigorously prosecute its claims.

NOTE JI - MAJOR CUSTOMERS


The Company is primarily a distributor of safety products for use in home and business under both its tradenamestrade names and private labels for other companies. As described in Note C, the Company’sCompany purchased a majority of its products from its 50% owned Hong Kong Joint Venture.


F-17

The

For the fiscal year ended March 31, 2012, the Company hashad one customer, The Home Depot, whichFacilities Maintenance, that represented 46.6%, 37.0% and 11.09%12.3% of the Company’s product sales during the periods ended March 31, 2009, 2008 and 2007, respectively.


sales.

NOTE KJ - QUARTERLY FINANCIAL DATA (UNAUDITED)


Quarterly Results of Operations (Unaudited):


The unaudited quarterly results of operations for fiscal years 20092012 and 20082011 are summarized as follows:

  Quarter Ended 
  June 30,  September 30,  December 31,  March 31, 
             
2012                
Net sales $3,201,302  $3,307,514  $3,186,197  $3,609,589 
Gross profit  872,938   1,000,659   818,527   819,074 
Net income (loss)  581   (309,941)  67,226   (261,154)
Net income (loss) per share:                
Basic  0.00   (0.13)  0.03   (0.11)
Diluted  0.00   (0.13)  0.03   (0.11)
                 
2011                
Net sales $3,681,421  $3,714,378  $2,475,511  $3,378,294 
Gross profit  1,111,242   1,064,144   751,580   834,779 
Net income  281,867   268,376   19,545   247,993 
Net income per share:                
Basic  0.12   0.11   0.01   0.10 
Diluted  0.12   0.11   0.01   0.10 

F-13

  Quarter Ended 
  June 30,  September 30,  December 31,  March 31, 
2009            
Net sales $6,192,801  $8,381,379  $5,595,049  $5,928,367 
Gross profit  1,577,066   1,891,273   1,337,785   1,293,846 
Income from continuing operations  457,139   656,301   292,513   36,383 
Income (loss) from discontinued operations  (53,659)  3,434,913   -   41,767 
Income per share from continuing operations:                
Basic  0.18   0.26   0.12   0.02 
Diluted  0.18   0.26   0.12   0.02 
Income (loss) per share from Discontinued operations:                
Basic  (0.02)  1.38   -   0.02 
Diluted  (0.02)  1.38   -   0.02 
Net income – basic  0.16   1.64   0.12   0.03 
Net income - diluted  0.16   1.64   0.12   0.03 
                 
2008                
Net sales  10,449,343   8,967,740   7,776,986   6,677,293 
Gross profit  2,715,334   1,942,354   1,825,486   1,386,882 
Income (loss) from continuing operations  1,204,844   802,107   780,207   37,591 
(Loss) from discontinued operations  (413,842)  (483,977)  (2,415,996)  (5,079,848)
Income per share from continuing operations:                
Basic  0.49   0.32   0.31   0.02 
Diluted  0.48   0.32   0.31   0.02 
(Loss) per share from discontinued operations:                
Basic  (0.17)  (0.19)  (0.97)  (2.04)
Diluted  (0.17)  (0.19)  (0.97)  (2.04)
Net income (loss) – basic  0.32   0.13   (0.66)  (2.02)
Net income (loss) – diluted  0.31   0.13   (0.66)  (2.02)

NOTE LK – RETIREMENT PLAN


The Company has a retirement savings plan under Section 401(k) of the Internal Revenue Code. All full-time employees who have completed 12 months of service are eligible to participate. Employees are permitted to contribute up to the amounts prescribed by law. The Company may provide contributions to the plan consisting of a matching amount equal to a percentage of the employee’s contribution, not to exceed four percent (4%). Employer contributions were $55,059$62,769 and $61,485$55,029 for the year’syears ended March 31, 20092012 and 2008.


F-18

2011, respectively.

NOTE M – INTANGIBLE ASSETS

Intangible assets consist of legal expenses of $89,434 incurred in obtaining and perfecting patents on newly developed detector technology and are capitalized for financial statement purposes. Upon issuance, patents are amortized over twenty years on a straight-line basis.

The estimated useful lives for financial reporting purposes are as follows:

Intangible patent costs-20 years

SCHEDULE II


UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED MARCH 31, 2009, 20082012 AND 2007


  
Balance at
beginning
of year
  
Charged to cost
and expenses
  Deductions  
Balance at
end of year
 
             
Year ended March 31, 2009            
Allowance for doubtful accounts $15,000  $80,927  $0  $95,927 
                 
Year ended March 31, 2008                
Allowance for doubtful accounts $15,000  $0  $0  $15,000 
                 
Year ended March 31, 2007                
Allowance for doubtful accounts $15,000  $0  $0  $15,000 
                 
Year ended March 31, 2009                
Allowance for inventory reserve $40,000  $164,309  $0  $204,309 
                 
Year ended March 31, 2008                
Allowance for inventory reserve $40,000  $0  $0  $40,000 
                 
Year ended March 31, 2007                
Allowance for inventory reserve $40,000  $0  $0  $40,000 

S-1
Report and Financial Statements
Eyston Company Limited
For the year ended 31 March 2009


Contents
 2011

  Balance at
beginning
of year		  Charged to cost
and expenses		  Deductions  Balance at
end of year		 
             
Year ended March 31, 2012                
Allowance for doubtful accounts $75,000  $0  $0  $75,000 
                 
Year ended March 31, 2011                
Allowance for doubtful accounts $87,851  $0  $12,851  $75,000 
                 
Year ended March 31, 2012                
Allowance for inventory reserve  100,000  $0  $30,000  $70,000 
                 
Year ended March 31, 2011                
Allowance for inventory reserve $100,000  $0  $0  $100,000 

Page
Report of Independent Registered Public Accounting FirmJV-1
Consolidated Income StatementJV-2
Consolidated Balance SheetJV-3
Balance SheetJV-4
Consolidated Statement of Changes in EquityJV-5
Consolidated Cash Flow StatementJV-6
Notes to the Financial StatementsJV-7S-1
Expressed in Hong Kong dollars ("HK$")


Report of independent registered
public accounting firm

To the Board of Directors of Eyston Company Limited

We have audited the accompanying consolidated balance sheets of Eyston Company Limited and subsidiaries ("the Company"), as of March 31, 2009 and 2008, and the related consolidated statements of income, changes in equity, and cash flows for each of the three years in the period ended March 31, 2009.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2009 and 2008, and the consolidated results of its income and its cash flows for each of the three years in the period ended March 31, 2009, in accordance with Hong Kong Financial Reporting Standards.
Grant Thornton
Certified Public Accountants
13th Floor, Gloucester Tower
The Landmark
15 Queen's Road Central
Hong Kong

15 June 2009

JV-1

Consolidated income statement
for the year ended 31 March

  Notes  2009  2008  2007 
     HK$  HK$  HK$ 
             
Turnover  5   281,284,464   235,060,421   320,142,022 
                 
Cost of sales      (206,656,292)  (176,141,949)  (213,147,126)
                 
Gross profit      74,628,172   58,918,472   106,994,896 
                 
Other income  6   2,612,487   5,350,795   4,693,192 
                 
Administrative expenses      (41,204,939)  (34,379,717)  (37,260,187)
                 
Profit from operations      36,035,720   29,889,550   74,427,901 
                 
Finance costs  7   (112,823)  (210,016)  (405,953)
                 
Profit before income tax  8   35,922,897   29,679,534   74,021,948 
                 
Income tax expense  9   (4,541,928)  (4,173,251)  (8,848,735)
                 
Profit for the year  10   31,380,969   25,506,283   65,173,213 
                 
Dividends  11   15,068,948   16,716,167   29,866,722 

JV-2

Consolidated balance sheet
as at 31 March

  Notes  2009  2008 
     HK$  HK$ 
          
ASSETS AND LIABILITIES         
          
Non-current assets         
Property, plant and equipment  12   64,214,954   59,767,941 
Advanced lease payments  13   14,353,995   14,023,266 
Available-for-sale financial assets  14   21,667,859   7,902,216 
Pledged bank balances  19 �� 567,050   - 
       100,803,858   81,693,423 
Current assets            
Inventories  16   27,845,689   28,354,497 
Available-for-sale financial assets  14   -   15,633,540 
Trade and other receivables  17   5,184,715   5,674,634 
Amount due from a shareholder  20   13,940,881   9,392,116 
Cash and cash equivalents  19   63,880,318   50,687,596 
       110,851,603   109,742,383 
Current liabilities            
Trade and other payables      17,231,889   21,499,786 
Obligations under finance lease      21,000   21,000 
Amount due to a related company  20   3,381,063   2,329,153 
Dividend payable  21   11,700,000   11,700,000 
Loans from shareholders  22   2,868,954   2,868,954 
Collateralised bank advances  23   341,250   971,312 
Provision for taxation      4,196,701   1,199,326 
       39,740,857   40,589,531 
Net current assets      71,110,746   69,152,852 
             
Non-current liabilities            
Obligations under finance lease      31,700   52,700 
Deferred tax liabilities  24   366,752   587,877 
Net assets      171,516,152   150,205,698 
             
EQUITY            
             
Share capital  25   200   200 
Reserves  26   171,515,952   150,205,498 
       171,516,152   150,205,698 

JV-3

Balance sheet
as at 31 March
  Notes  2009  2008 
     HK$  HK$ 
ASSETS AND LIABILITIES         
          
Non-current assets         
Property, plant and equipment  12   7,353,332   10,169,509 
Advanced lease payments  13   407,310   668,775 
Available-for-sale financial assets  14   21,667,859   7,902,216 
Interests in subsidiaries  15   106,690,967   94,990,967 
Pledged bank balances  19   567,050   - 
       136,686,518   113,731,467 
Current assets            
Inventories  16   27,845,689   28,354,497 
Available-for-sale financial assets  14   -   15,633,540 
Other receivables      1,612,623   1,033,057 
Amounts due from subsidiaries  18   28,278,839   22,846,582 
Tax prepaid      -   1,083,171 
Cash and cash equivalents  19   47,574,236   31,612,771 
       105,311,387   100,563,618 
Current liabilities            
Trade and other payables      12,437,284   17,513,855 
Obligations under finance lease      21,000   21,000 
Amount due to a related company  20   3,381,063   2,329,153 
Dividend payable  21   11,700,000   11,700,000 
Loans from shareholders  22   2,868,954   2,868,954 
Provision for taxation      1,889,364   - 
       32,297,665   34,432,962 
Net current assets      73,013,722   66,130,656 
             
Non-current liabilities            
Obligations under finance lease      31,700   52,700 
Deferred tax liabilities  24   366,752   587,877 
Net assets      209,301,788   179,221,546 
             
EQUITY            
             
Share capital  25   200   200 
Reserves  26   209,301,588   179,221,346 
       209,301,788   179,221,546 

JV-4

Consolidated statement of changes in equity
  
Share
capital
  
Exchange
reserve
  
Fair value
reserve
  
Retained
profits
  
Total
 
  HK$  HK$  HK$  HK$  HK$ 
                
Balance at 1 April 2006  200   649,522   (750,629)  98,664,880   98,563,973 
                     
Change in fair value of available-for-sale financial assets  -   -   292,456   -   292,456 
Exchange differences arising on translation of a subsidiary  -   2,538,341   -   -   2,538,341 
Profit for the year  -   -   -   65,173,213   65,173,213 
Total recognised income and expense for the year  -   2,538,341   292,456   65,173,213   68,004,010 
Dividends  -   -   -   (29,866,722)  (29,866,722)
Balance at 31 March 2007 and 1 April 2007  200   3,187,863   (458,173)  133,971,371   136,701,261 
                     
Change in fair value of available-for-sale financial assets  -   -   577,549   -   577,549 
Exchange differences arising on translation of a subsidiary  -   4,136,772   -   -   4,136,772 
Profit for the year  -   -   -   25,506,283   25,506,283 
Total recognised income and expense for the year  -   4,136,772   577,549   25,506,283   30,220,604 
Dividends  -   -   -   (16,716,167)  (16,716,167)
Balance at 31 March 2008 and 1 April 2008  200   7,324,635   119,376   142,761,487   150,205,698 
                     
Change in fair value of available-for-sale financial assets  -   -   (44,862)  -   (44,862)
Exchange differences arising on translation of a subsidiary  -   5,043,295   -   -   5,043,295 
Profit for the year  -   -   -   31,380,969   31,380,969 
Total recognised income and expense for the year  -   5,043,295   (44,862)  31,380,969   36,379,402 
Dividends  -   -   -   (15,068,948)  (15,068,948)
Balance at 31 March 2009  200   12,367,930*  74,514*  159,073,508*  171,516,152 

*These reserve accounts comprise the consolidated reserves of HK$171,515,952 (2008: HK$150,205,498) in the consolidated balance sheet.
JV-5
Consolidated cash flow statement
for the year ended 31 March
  2009  2008  2007 
  HK$  HK$  HK$ 
          
Cash flows from operating activities         
Profit before income tax  35,922,897   29,679,534   74,021,948 
Adjustments for :            
Amortisation of advanced lease payments  581,797   427,392   424,328 
Depreciation of property, plant and equipment  8,721,931   10,166,942   5,752,971 
Exchange loss on available-for-sale financial assets  420,648   -   - 
(Profit)/Loss on disposal of  available-for-sale financial assets  (61,620)  34,344   87,565 
Loss/(Gain) on disposal of property, plant and equipment  42,989   (94)  (347,500)
Interest expense  112,823   210,016   405,953 
Interest income  (1,413,626)  (2,384,538)  (2,289,039)
Operating profit before working capital changes  44,327,839   38,133,596   78,056,226 
(Increase)/Decrease in amount due from a shareholder  (10,380,402)  8,427,746   (26,272,135)
Decrease/(Increase) in inventories  508,808   2,086,586   (11,518,178)
Decrease/(Increase) in trade and other receivables  489,919   3,534,879   (928,730)
Increase in pledged bank balances  (567,050)  -   - 
Decrease in loan to a shareholder  -   1,950,000   1,950,000 
Increase /(Decrease) in amount due to a related company  1,051,910   (953,842)  4,199,312 
(Decrease)/Increase in obligations under finance lease  (21,000)  (21,000)  94,700 
(Decrease)/Increase in amount due to director  -   (200,000)  200,000 
Decrease in collateralised bank advances  (630,062)  (1,881,850)  (581,960)
(Decrease)/Increase in trade and other payables  (4,338,444)  (1,186,388)  1,841,637 
Cash generated from operations  30,441,518   49,889,727   47,040,872 
Interest received  1,413,626   2,384,538   2,289,039 
Interest paid  (112,823)  (210,016)  (405,953)
Dividends paid  (9,237,311)  (14,191,182)  (24,349,341)
Hong Kong profits tax paid  (1,782,192)  (8,523,843)  (4,025,500)
Net cash generated from operating activities  20,722,818   29,349,224   20,549,117 
             
Cash flows from investing activities            
Purchase of property, plant and equipment  (9,724,320)  (11,715,474)  (18,006,982)
Addition of land use rights  -   (3,938,000)  (990,000)
Purchase of available-for-sale financial assets  (22,013,993)  -   - 
Proceeds from disposal of available-for-sale financial assets  23,478,000   -   7,659,776 
Proceeds from disposal of property, plant and equipment  -   36,500   363,865 
Net cash used in investing activities  (8,260,313)  (15,616,974)  (10,973,341)
Net increase in cash and cash equivalents  12,462,505   13,732,250   9,575,776 
             
Cash and cash equivalents at beginning of the year  50,687,596   36,853,474   26,322,005 
             
Effect of foreign exchange rate changes, net  730,217   101,872   955,693 
             
Cash and cash equivalents at end of the year  63,880,318   50,687,596   36,853,474 

JV-6

Notes to the financial statements
for the year ended 31 March 2009
1.GENERAL INFORMATION
The company is a limited liability company incorporated and domiciled in Hong Kong.  The address of the company's registered office and principal place of business is B2, 3/F., Fortune Factory Building, 40 Lee Chung Street, Chai Wan, Hong Kong.
The principal activities of the company and its subsidiaries (the "group") are manufacturing and trading of consumer electronic products including smoke, fire and carbon monoxide alarms and other home safety products.  Details of the company's subsidiaries are set out in note 15 to the financial statements.
The financial statements on pages 2 to 39 have been prepared in accordance with Hong Kong Financial Reporting Standards ("HKFRSs") which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA") and the requirements of the Hong Kong Companies Ordinance.
The financial statements for the year ended 31 March 2009 were approved for issue by the board of directors on 15 June 2009.
2.ADOPTION OF NEW AND AMENDED HKFRSs
2.1Impact of new and amended HKFRSs which are effective during the year
In the current year, the group has applied, for the first time, the following new standards, amendments and interpretations (the "new HKFRSs") issued by the HKICPA, which are relevant to and effective for the group's financial statements  for the annual period beginning on 1 April 2008:

HK (IFRIC) – Int 11HKFRS 2: Group and Treasury Share Transactions
HKAS 39 & HKFRS  7
(Amendments)		Reclassification of Financial Assets

The new HKFRSs had no material effect on how the results and financial position for the current and prior periods have been prepared and presented. Accordingly, no prior period adjustment is required.

JV-7

2.ADOPTION OF NEW AND AMENDED HKFRSs (Continued)
2.2Impact of new and amended HKFRSs which are issued but not yet effective
At the date of authorisation of these financial statements, the following new and amended HKFRSs have been published but are not yet effective, and have not been adopted early by the group.
HKAS 1 (Revised)
Presentation of Financial Statements 1
HKAS 23 (Revised)
Borrowing Costs 1
HKAS 27 (Revised)
Consolidated and Separate Financial Statements 2
HKAS 32 & HKAS 1 (Amendments)
Puttable Financial Instruments and Obligations Arising on Liquidation 1
HKAS 39 (Amendment)
Eligible Hedged Items 2
HKFRS 1 (Revised)
First-time Adoption of Hong Kong Financial Reporting Standards 2
HKFRS 1 & HKAS 27 (Amendments)
Cost of an Investment in a Subsidiary, Jointly Controlled Entity or  Associate 1
HKFRS 2 (Amendment)
Share-based Payment – Vesting Conditions and Cancellations 1
HKFRS 3 (Revised)
Business Combinations 2
HKFRS 7 (Amendment)
Financial Instruments: Disclosures – Improving Disclosures about Financial Instruments 1
HKFRS 8
Operating Segments 1
HK(IFRIC) – Int 9 & HKAS 39 (Amendments)
Reassessment of Embedded Derivatives and Financial Instruments: Recognition and Measurement – Embedded Derivatives 5
HK(IFRIC) – Int 13
Customer Loyalty Programmes 3
HK(IFRIC) – Int 15
Agreements for the Construction of Real Estate 1
HK(IFRIC) – Int 16
Hedges of a Net Investment in a Foreign Operation 4
HK(IFRIC) – Int 17
Distributions of Non-cash Assets to Owners 2
HK(IFRIC) – Int 18
Transfers of Assets from Customers 2
Various
Annual Improvements to HKFRSs 2008 6
Notes
1Effective for annual periods beginning on or after 1 January 2009
2Effective for annual periods beginning on or after 1 July 2009
3Effective for annual periods beginning on or after 1 July 2008
4Effective for annual periods beginning on or after 1 October 2008
5Effective for annual periods ending on or after 30 June 2009
6Generally effective for annual periods beginning on or after 1 January 2009 unless otherwise stated in the specific HKFRS

The directors anticipate that all of the pronouncements will be adopted in the group's accounting policy for the first period beginning after the effective date of the pronouncements.
Among these new standards and interpretations, HKAS 1 (Revised) Presentation of Financial Statements is expected to materially change the presentation of the group’s financial statements. The amendments affect the presentation of owner changes in equity and introduce a statement of comprehensive income. The group will have the option of presenting items of income and expenses and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The amendment does not affect the financial position or results of the group but will give rise to additional disclosures.
JV-8

2.ADOPTION OF NEW AND AMENDED HKFRSs (Continued)
2.2Impact of new and amended HKFRSs which are issued but not yet effective (Continued)
The directors are currently assessing the impact of other new and amended HKFRSs upon initial application.  So far, the directors have preliminary concluded that the initial application of these HKFRSs is unlikely to have a significant impact on the group's results and financial position.
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1Basis of preparation
The significant accounting policies that have been used in the preparation of these consolidated financial statements are summarised below.  These policies have been consistently applied to all the years presented unless otherwise stated.
The financial statements have been prepared on an historical cost basis except for the revaluation of certain financial assets and liabilities.  The measurement bases are fully described in the accounting policies below.
It should be noted that accounting estimates and assumptions are used in preparation of the financial statements. Although these estimates are based on management's best knowledge and judgment of current events and actions, actual results may ultimately differ from those estimates.  The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 4.
3.2Basis of consolidation
The consolidated financial statements include the financial statements of the company and its subsidiaries made up to 31 March each year.
3.3Subsidiaries
Subsidiaries are those entities (including special purpose entities) over which the group has the power to control the financial and operating policies so as to obtain benefits from their activities.  The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.  Subsidiaries are fully consolidated from the date on which control is transferred to the group.  They are excluded from consolidation from the date that control ceases.
Business combinations (other than for combining entities under common control) are accounted for by applying the purchase method.  This involves the estimation of fair value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the subsidiary prior to acquisition.  On initial recognition, the assets and liabilities of the subsidiary are included in the consolidated balance sheet at their fair values, which are also used as the bases for subsequent measurement in accordance with the group's accounting policies.

JV-9
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.3Subsidiaries (Continued)
Intra-group transactions, balances and unrealised gains on transactions between group companies are eliminated in preparing the consolidated financial statements.  Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
In the company's balance sheet, subsidiaries are carried at cost less any impairment loss.  The results of the subsidiaries are accounted for by the company on the basis of dividends received and receivable at the balance sheet date.
3.4Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less accumulated depreciation and accumulated impairment losses.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and company and the cost of the item can be measured reliably.  All other repairs and maintenance are charged to the income statement during the period in which they are incurred.
Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight line method, at the following rates per annum :
Buildings
5% or where shorter over 16 - 19 years
Leasehold improvements20%
Plant and machinery20%
Furniture and fixtures20%
Motor vehicles20%
Computer equipment and software50%

Construction in progress represents costs incurred in the construction of buildings.  These costs are not depreciated until such time as the relevant assets are completed and put into use, at which time the relevant costs are transferred to the appropriate category of property, plant and equipment.
The assets' residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
The gain or loss arising on the retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the assets and is recognised in the consolidated income statement.

JV-10

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.4Property, plant and equipment (Continued)
Subsequent costs are included in the assets' carrying amounts or recognized as separate assets, as appropriate, only when it is probable that future economic benefits associated with the items will flow to the group and the cost of the items can be measured reliably.  All other costs, such as repairs and maintenance, are expensed in the consolidated income statement during the period in which they are incurred.
3.5Inventories
Inventories are stated at the lower of cost and net realisable value.  Cost is determined using first-in, first-out method and, in case of work in progress and finished goods, comprise direct materials, direct labour and an appropriate proportion of overheads.  Net realisable value is the estimated selling price in the ordinary course of business less estimated cost  of completion and applicable selling expenses.
3.6Financial assets
The group's accounting policies for financial assets other than investments in subsidiaries are set out below.
Classification of financial assets
Financial assets other than hedging instruments are classified into the following categories: (i) loans and receivables, and (ii) available-for-sale financial assets.
(i)Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.  Loans and receivables are subsequently measured at amortised cost using the effective interest method, less any impairment losses.  Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction cost.
(ii)Available-for-sale financial assets
Available-for-sale financial assets include non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets.  All financial assets within this category are subsequently measured at fair value.  Gain or loss arising from a change in the fair value excluding any dividend and interest income is recognised directly in equity, except for impairment losses and foreign exchange gains and losses on monetary assets, until the financial asset is derecognised, at which time the cumulative gain or loss previously recognised in equity would be recycled to income statement.  Upon disposal, the cumulative gain or loss previously recognised in equity is transferred to the income statement.

JV-11

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6Financial assets (Continued)
(ii)Available-for-sale financial assets (Continued)
The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the reporting date.  The change in fair value attributable to translation differences that result from a change in amortised cost of the asset is recognised in profit or loss, and other changes are recognised in equity.
Management determines the classification of its financial assets at initial recognition depending on the purpose for which the financial assets were acquired and, where allowed and appropriate, re-evaluates this designation at every reporting date.
Recognition and derecognition of financial assets
All financial assets are recognised when, any only when, the group becomes a party to the contractual provisions of the instrument. Regular way purchases of financial assets are recognised on trade date.  When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.
Derecognition of financial assets occurs when the rights to receive cash flows from the financial assets expire or are transferred and substantially all of the risks and rewards of ownership have been transferred.  At each balance sheet date, financial assets are reviewed to assess whether there is objective evidence of impairment.  If any such evidence exists, impairment loss is determined and recognised based on the classification of the financial asset.
Impairment of financial assets
At each balance sheet date, financial assets other than at fair value through profit or loss are reviewed to determine whether there is any objective evidence of impairment.
Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the group about one or more of the following loss events:
-significant financial difficulty of the debtor;
-a breach of contract, such as a default or delinquency in interest or principal payments;
-it becoming probable that the debtor will enter bankruptcy or other financial reorganisation;
-significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor; and
-a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

JV-12

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6Financial assets (Continued)
Impairment of financial assets (Continued)
Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the estimated future cash flows from the group of financial assets. Such observable data includes but not limited to adverse changes in the payment status of debtors in the group and, national or local economic conditions that correlate with defaults on the assets in the group.
If any such evidence exists, the impairment loss is measured and recognised as follows:
(i)      Loans and receivables
If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition).  The amount of the loss is recognised in the income statement of the period in which the impairment occurs.
If, in subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been recognised at the date the impairment is reversed.  The amount of the reversal is recognised in income statement of the period in which the reversal occurs.
 (ii)    Available-for-sale financial assets
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, an amount is removed from equity and recognised in the income statement as impairment loss.  That amount is measured as the difference between the asset's acquisition cost (net of any principal repayment and amortisation) and current fair value, less any impairment loss on that asset previously recognised in the income statement.

JV-13

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.6Financial assets (Continued)
Impairment of financial assets (Continued)
(ii)Available-for-sale financial assets (Continued)
Reversals in respect of investment in equity instruments classified as available-for-sale are not recognised in the income statement.  The subsequent increase in fair value is recognised directly in equity.  Impairment losses in respect of debt securities are reversed if the subsequent increase in fair value can be objectively related to an event occurring after the impairment loss were recognised.  Reversal of impairment losses in such circumstances are recognised in the income statement.
Where the recovery of trade receivables is considered doubtful but not remote, the impairment losses for doubtful receivables are recorded using an allowance account.  When the group is satisfied that recovery of trade receivables is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account in respect of that receivable are reversed. Subsequent recoveries of amounts previously charged to the allowance account are reversed against the allowance account. Other changes in the allowance account and subsequent recoveries of amounts previously written off directly are recognised in income statement.
Impairment losses recognised in an interim period in respect of available for sale equity securities and unquoted equity securities carried at cost are not reversed in a subsequent period.
3.7Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, demand deposits with bank or financial institutions and short-terms highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of change in value, having been within three months of maturity at acquisition.
3.8Impairment of non-financial assets
The group's property, plant and equipment and the company's investments in subsidiaries are subject to impairment testing.
An impairment loss is recognised as an expense immediately for the amount by which the asset's carrying amount exceeds its recoverable amount.  The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risk specific to the asset.

JV-14

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.8Impairment of non-financial assets (Continued)
For the purposes of assessing impairment, where an asset does not generate cash inflows largely independent from those from other assets, the recoverable amount is determined for the smallest group of assets that generate cash inflow independently (i.e. cash-generating units). As a result, some assets are tested individually for impairment and some are tested at the cash-generating unit level.
Impairment losses is charged pro rata to the assets in the cash generating unit, except that the carrying value of an asset will not be reduced below its individual fair value less cost to sell, or value in use, if determinable.
An impairment loss is reversed if there has been a favourable change in the estimates used to determine the asset's recoverable amount and only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment had been recognised.
3.9Financial liabilities
The financial liabilities include trade and other payables, amounts due to group and related companies and borrowings.
Financial liabilities are recognised when the group becomes a party to the contractual agreements of the instrument.  All interest related charges are recognised as an expense in the income statement.
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amount is recognised in the income statement.
Finance lease liabilities
Finance lease liabilities are measured at initial value less the capital element of lease repayments (see note 3.14).
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.  Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.
JV-15

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.9Financial liabilities (Continued)
Trade and other payables
Trade and other payables are recognised initially at their fair value and subsequently measured at amortised cost, using the effective interest method.
3.10Employee benefits
Retirement benefits costs
The company operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the "MPF Scheme") under the Mandatory Provident Fund Schemes Ordinance, for all of its employees in Hong Kong.  The MPF Scheme became effective on 1 December 2000.  Contributions are made based on a percentage of the employees' basic salaries, limited to a maximum of HK$1,000 per month, and are charged to the income statement as they become payable in accordance with the rules of the MPF Scheme.  The assets of the MPF Scheme are held separately from those of the company in an independently administered fund.  The company's employer contributions vest fully with the employees when contributed into the MPF Scheme.  The employees of the group's subsidiary which operates in Mainland China are required to participate in a central pension scheme operated by the local municipal government. The subsidiary is required to contribute certain percentage of its payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.
Short-term employee benefits
Employee entitlements to annual leave are recognised when they accrue to employees.  A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.  Non-accumulating compensated absences such as sick leave and maternity leave are not recognised until the time of leave.
3.11Share capital
Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.
Any transaction costs associated with the issuing of shares are deducted from equity (net of any related income tax benefits) to the extent they are incremental cost directly attributable to the equity transaction that otherwise would have been avoided. The cost of an equity transaction that is abandoned are recognised as an expense.
3.12Foreign currency translation
The consolidated financial statements are presented in Hong Kong Dollars (HK$), which is also the functional currency of the company.

JV-16

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.12Foreign currency translation (Continued)
In the individual financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions.  At the balance sheet date, monetary assets are liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the balance sheet date retranslation of monetary assets and liabilities are recognised in the income statement.
Non-monetary items are carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss.  Non-monetary items that are measured in terms of historical cost in a foreign currency are not re-translated.
In the consolidated financial statements, all individual financial statements of foreign operations, originally presented in a currency different from the group’s presentation currency, have been converted into Hong Kong dollars.  Assets and liabilities have been translated into Hong Kong dollars at the closing rate at the balance sheet date.  Income and expenses have been converted into Hong Kong dollars at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period, provided that the exchange rates do not fluctuate significantly.  Any differences arising from this procedure have been dealt with separately in the exchange reserve in equity.
Other exchange differences arising from the translation of the net investment in foreign entities and of borrowings are taken to shareholders' equity.  When a foreign operation is sold, such exchange differences are recognized in the income statement as part of the gain or loss on the sale.
3.13Accounting for income taxes
Income tax comprises current tax and deferred tax.
Current income tax assets and/or liabilities comprise those obligations to, or claims from, tax authorities relating to the current or prior reporting period, that are unpaid at the balance sheet date.  They are calculated according to the tax rates and tax laws applicable to the periods to which they relate, based on the taxable profit for the year.  All changes to current tax assets or liabilities are recognised as a component of income tax expense in the income statement.

JV-17

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.13Accounting for income taxes (Continued)
Deferred tax is calculated using the liability method on temporary differences at the balance sheet date between the carrying amounts of assets and liabilities in the financial statements and their respective tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, tax losses available to be carried forward as well as other unused tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised.

Deferred tax is calculated, without discounting, at tax rates that are expected to apply in the period the liability is settled or the asset realised, provided they are enacted or substantively enacted at the balance sheet date.
Changes in deferred tax assets or liabilities are recognised in the income statement, or in equity if they relate to items that are charged or credited directly to equity.
3.14Leases
An arrangement, comprising a transaction or a series of transactions, is or contains a lease if the group determines that the arrangement conveys a right to use a specific asset or assets for an agreed period of time in return for a payment or a series of payments.  Such a determination is made based on an evaluation of the substance of the arrangement and is regardless of whether the arrangement takes the legal form of a lease.
(i)Classification of assets leased to the group
Assets that are held by the group under leases which transfer to the group substantially all the risks and rewards of ownership are classified as being held under finance leases.  Leases which do not transfer substantially all the risks and rewards of ownership to the group are classified as operating leases.
(ii)Assets acquired under finance leases
Where the group acquires the use of assets under finance leases, the amounts representing the fair value of the leased assets, or, if lower, the present value of the minimum lease payments, of such assets are included in property, plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligation under finance leases.
Subsequent accounting for assets held under finance lease agreements corresponds to those applied to comparable acquired assets.  The corresponding finance lease liability is reduced by lease payments less finance charges.
Finance charges implicit in the lease payments are charged to income statement over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

JV-18
3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.14Leases (Continued)
(iii)Operating lease charges as the lessee
Where the group has the right to use of assets held under operating leases, payments made under the leases are charged to the income statement on a straight-line basis over the lease terms except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets.
3.15Revenue recognition
Revenue comprises the fair value for the sale of goods, rendering of services and the use by others of the group's assets yielding interest, net of rebates and discounts.  Provided it is probable that the economic benefits will flow to the group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised as follows :
Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have been transferred to customers. This is usually taken as the time when the goods are delivered and the customer has accepted the goods.
Rental income from properties letting under operating leases is recognised on a straight line basis over the lease terms.
Interest income is recognised on a time proportion basis using the effective interest rate method.
3.16Related parties
For the purposes of these financial statements, a party is considered to be related to the group if:
(i)the party has the ability, directly or indirectly through one or more intermediaries, to control the group or exercise significant influence over the group in making financial and operating policy decisions, or has joint control over the group;
(ii)the group and the party are subject to common control;
(iii)the party is an associate of the group or a joint venture in which the group is a venturer;
(iv)the party is a member of key management personnel of the group or the group's parent, or a close family member of such an individual, or is an entity under the control, joint control or significant influence of such individuals;
(v)the party is a close family member of a party referred to in (i) or is an entity under the control, joint control or significant influence of such individuals; or
(vi)the party is a post-employment benefit plan which is for the benefit of employees of the group or of any entity that is a related party of the group.
JV-19

3.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
3.16Related parties (Continued)
Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.
3.17Provisions and contingent liabilities
Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.  Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote.  Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within the control of the group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
Contingent liabilities are recognised in the course of the allocation of purchase price to the assets and liabilities acquired in a business combination. They are initially measured at fair value at the date of acquisition unless the fair value cannot be measured reliably, and subsequently measured at the higher of the amount that would be recognised in a comparable provision as described above and the amount initially recognised less any accumulated amortisation, if appropriate.
4.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The group makes estimates and assumptions concerning the future.  The resulting accounting estimates will, by definition, seldom equal the related actual results.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below :
Depreciation and amortisation
The group and company depreciates the property, plant and equipment on a straight-line basis over the estimated useful lives, starting from the date on which the assets are placed into productive use. The estimated useful lives reflect the directors' estimate of the periods that the group intends to derive future economic benefits from the use of the group's and company's property, plant and equipment.
JV-20
4.CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)
Impairment of receivables
The policy for the impairment of receivables of the group is based on the evaluation of collectibility and ageing analysis of accounts and on the management's judgement. A considerable amount of judgement is required in assessing the ultimate realisation of these receivables, including the current creditworthiness and the past collection history of each debtor.
Net realisable value of inventories
Net realisable value of inventories is the actual or estimated selling price in the ordinary course of business, less further costs of completion and the estimated costs necessary to make the sale. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of competitor actions in response to changes in market condition. Management reassesses these estimations at each balance sheet date.
Current taxation and deferred taxation
The group is subject to income taxes in Hong Kong and the People's Republic of China ("PRC").  Significant judgement is required in determining the amount of the provision of taxation and the timing of payment of the related taxations.  There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.  Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
5.TURNOVER
Revenue, which is also the group's turnover, represents total invoiced value of goods supplied, less discounts and returns.
6.OTHER INCOME

  2009  2008  2007 
  HK$  HK$  HK$ 
          
Gain on disposal of available-for-sale financial assets  61,620   -   - 
Gain on disposal of property, plant and equipment  -   94   347,500 
Interest income  1,413,626   2,384,538   2,289,039 
Rental income, less outgoings  271,985   268,800   268,800 
Sundry income  865,256   2,697,363   1,787,853 
   2,612,487   5,350,795   4,693,192 

7.FINANCE COSTS

  2009  2008  2007 
  HK$  HK$  HK$ 
          
Interest charges on :         
- Discounted bills  112,823   210,016   405,953 
JV-21
8.PROFIT BEFORE INCOME TAX

  2009  2008  2007 
  HK$  HK$  HK$ 
          
Profit before income tax is arrived at after charging/(crediting) :         
Amortisation of advanced lease payments  581,797   427,392   424,328 
Auditors' remuneration  306,505   285,000   270,000 
Cost of inventories recognised as expenses  206,656,292   176,141,949   213,147,126 
Depreciation of property, plant and equipment  8,721,931   10,166,942   5,752,971 
Exchange loss/(gain), net  5,010,006   (203,865)  1,141,163 
(Gain)/loss on disposal of  available-for-sale financial assets  (61,620)  34,344   87,565 
Loss/(Gain) on disposal of property, plant and equipment  42,989   (94)  (347,500)
Operating lease charges in respect of land and buildings  3,169,108   1,861,592   1,343,100 
Retirement benefits scheme contributions  1,723,997   970,426#   563,150# 
Staff costs (excluding retirement benefits scheme contributions)  27,101,257   23,882,056   23,430,733 
# Comparative figures have been reclassified to conform with the current year's presentation.

9.INCOME TAX EXPENSE

  2009  2008  2007 
  HK$  HK$  HK$ 
          
The tax charge comprises :         
Hong Kong profits tax         
- current year  4,649,786   3,908,368   6,480,183 
- under provision in prior years  101,589   16,512   1,549 
             
PRC Foreign Enterprise Income Tax            
- current year  11,678   459,206   1,100,442 
- (over)/under provision in prior years  -   (10,000)  732,849 
   4,763,053   4,374,086   8,315,023 
             
Deferred tax (Note 24)
            
- current year  (187,543)  (200,835)  533,712 
- attributable to reduction in tax rate  (33,582)  -   - 
   (221,125)  (200,835)  533,712 
Total income tax expense  4,541,928   4,173,251   8,848,735 

Hong Kong profits tax has been provided at the rate of 16.5% (2008 : 17.5% and 2007 : 17.5%) on the group's estimated assessable profits arising in Hong Kong for the year.
The Hong Kong SAR Government enacted a reduction in the Profits Tax Rate from 17.5% to 16.5% with effect from the year of assessment 2008 / 2009.  Accordingly, the relevant current and deferred tax liabilities have been calculated using the new tax rate of 16.5%.
JV-22
9.INCOME TAX EXPENSE (Continued)
The PRC enterprise income tax ("EIT") is computed according to the relevant laws and regulations in the PRC.  The applicable income tax rate was 25% for the year (2008: 33% and 25% and 2007: 33%).  Pursuant to the tax law passed by the Tenth National People's Congress on 16 March 2007, the new EIT rates for domestic and foreign enterprises in Mainland China are unified at 25% with effective from 1 January 2008.
Reconciliation between tax expense and accounting profit at applicable tax rates :
  2009  2008  2007 
  HK$  HK$  HK$ 
          
Profit before income tax  35,922,897   29,679,534   74,021,948 
             
Tax on profit before income tax, calculated at the rates applicable to profits in the tax jurisdictions concerned    4,728,140     4,649,735     12,867,002 
Tax effect of non-deductible expenses  841,220   324,620   440,037 
Tax effect of non-taxable revenue  (4,888,010)  (4,110,784)  (6,390,922)
Tax effect on temporary differences not recognised  287,661   715,642   (160,409)
Tax effect on unrecognised tax losses  3,504,910   2,587,526   1,358,629 
Underprovision in prior years  101,589   6,512   734,398 
Effect on opening deferred tax balances resulting from a reduction in tax rate during the year  (33,582)    -     - 
Actual tax expense  4,541,928   4,173,251   8,848,735 

10.PROFIT ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE COMPANY
Of the consolidated profit attributable to the equity holders of the company of  HK$31,380,969, HK$25,506,283 and HK$65,173,213 in 2009, 2008 and 2007 respectively, HK$45,194,052, HK$39,423,630 and HK$74,184,878 in 2009, 2008 and 2007 respectively have been dealt with in the financial statements of the company.
11.DIVIDENDS

  2009  2008  2007 
  HK$  HK$  HK$ 
          
Dividends attributable to the year :         
          
First interim dividend of HK$543,472 (2008 : HK$2,524,985 and 2007 : HK$ HK$1,165,043) per share   1,086,944     5,049,970     2,330,086 
Second interim dividend of HK$1,146,153 (2008 : HK$5,833,098 and 2007 : HK$4,352,339) per share    2,292,306     11,666,197     8,704,677 
Third interim dividend of HK$3,375,558.50 (2008 : Nil and 2007 : HK$4,421,894) per share    6,751,117     -     8,843,788 
Fourth interim dividend of HK$2,469,290.50 (2008 : Nil and 2007 : HK$4,994,086) per share    4,938,581     -     9,988,171 
   15,068,948   16,716,167   29,866,722 

JV-23
12.PROPERTY, PLANT AND EQUIPMENT
Group
  
 
Buildings
  
Leasehold
improvements
  
Construction
in progress
  
Plant and
machinery
  
Furniture
and fixtures
  
Motor
vehicles
  
Computer
equipment
and software
  
 
Total
 
  HK$  HK$  HK$  HK$  HK$  HK$  HK$  HK$ 
At 1 April 2007                        
Cost  38,684,246   10,630,874   609,886   48,310,888   5,204,128   5,589,456   2,130,013   111,159,491 
Accumulated depreciation  (11,297,192)  (9,517,837)  -   (25,594,456)  (3,979,251)  (3,680,666)  (1,919,905)  (55,989,307)
Net book amount  27,387,054   1,113,037   609,886   22,716,432   1,224,877   1,908,790   210,108   55,170,184 
                                 
Year ended 31 March 2008                                
Opening net book amount  27,387,054   1,113,037   609,886   22,716,432   1,224,877   1,908,790   210,108   55,170,184 
Additions  -   -   6,780,946   3,958,891   73,740   790,251   111,646   11,715,474 
Disposals  -   -   -   (34,300)  -   (2,106)  -   (36,406)
Depreciation  (2,256,840)  (463,581)  -   (5,907,397)  (443,656)  (904,600)  (190,868)  (10,166,942)
Exchange differences  1,878,883   -   345,123   679,609   79,145   100,412   2,459   3,085,631 
Reclassifications  427,081   -   (628,941)  194,000   7,860   -   -   - 
Closing net book amount  27,436,178   649,456   7,107,014   21,607,235   941,966   1,892,747   133,345   59,767,941 
                                 
At 31 March 2008                                
Cost  40,995,158   10,630,874   7,107,014   53,262,896   5,407,450   6,609,833   2,249,796   126,263,021 
Accumulated depreciation  (13,558,980)  (9,981,418)  -   (31,655,661)  (4,465,484)  (4,717,086)  (2,116,451)  (66,495,080)
Net book amount  27,436,178   649,456   7,107,014   21,607,235   941,966   1,892,747   133,345   59,767,941 
                                 
Year ended 31 March 2009                                
Opening net book amount  27,436,178   649,456   7,107,014   21,607,235   941,966   1,892,747   133,345   59,767,941 
Additions  -   167,723   7,781,535   1,713,093   7,579   47,660   6,730   9,724,320 
Disposals  -   -   -   -   -   -   (42,989)  (42,989)
Depreciation  (2,379,031)  (266,935)  -   (4,876,238)  (439,574)  (677,036)  (83,117)  (8,721,931)
Exchange differences  1,848,918   -   725,095   780,320   61,157   69,941   2,182   3,487,613 
Reclassifications  63,793   -   (1,245,354)  1,181,561   (2,736)  -   2,736   - 
Closing net book amount  26,969,858   550,244   14,368,290   20,405,971   568,392   1,333,312   18,887   64,214,954 
                                 
At 31 March 2009                                
Cost  42,915,495   10,798,597   14,368,290   56,169,704   5,528,247   6,893,273   2,214,668   138,888,274 
Accumulated depreciation  (15,945,637)  (10,248,353)  -   (35,763,733)  (4,959,855)  (5,559,961)  (2,195,781)  (74,673,320)
Net book amount  26,969,858   550,244   14,368,290   20,405,971   568,392   1,333,312   18,887   64,214,954 
JV-24
12.PROPERTY, PLANT AND EQUIPMENT (Continued)
Company
  
 
Buildings
  
Leasehold
improvements
  
Plant and
machinery
  
Furniture
and fixtures
  
Motor
vehicles
  
Computer
equipment
and software
  
 
Total
 
  HK$  HK$  HK$  HK$  HK$  HK$  HK$ 
At 1 April 2007                     
Cost  2,829,732   2,599,402   12,627,898   1,689,183   1,944,233   1,324,164   23,014,612 
Accumulated depreciation  (2,230,721)  (1,677,075)  (1,195,227)  (1,401,327)  (1,896,528)  (1,147,988)  (9,548,866)
Net book amount  599,011   922,327   11,432,671   287,856   47,705   176,176   13,465,746 
                             
Year ended 31 March 2008                            
Opening net book amount  599,011   922,327   11,432,671   287,856   47,705   176,176   13,465,746 
Additions  -   -   421,454   -   -   80,551   502,005 
Disposals  -   -   (34,300)  -   -   -   (34,300)
Depreciation  (141,487)  (276,861)  (3,036,258)  (107,531)  (47,705)  (154,100)  (3,763,942)
Closing net book amount  457,524   645,466   8,783,567   180,325   -   102,627   10,169,509 
                             
At 31 March 2008                            
Cost  2,829,732   2,599,402   13,015,052   1,689,183   1,944,233   1,399,675   23,477,277 
Accumulated depreciation  (2,372,208)  (1,953,936)  (4,231,485)  (1,508,858)  (1,944,233)  (1,297,048)  (13,307,768)
Net book amount  457,524   645,466   8,783,567   180,325   -   102,627   10,169,509 
                             
Year ended 31 March 2009                            
Opening net book amount  457,524   645,466   8,783,567   180,325   -   102,627   10,169,509 
Additions  -   167,724   575,295   -   -   -   743,019 
Disposals  -   -   -   -   -   (42,989)  (42,989)
Depreciation  (141,487)  (262,945)  (2,976,067)  (79,541)  -   (56,167)  (3,516,207)
Closing net book amount  316,037   550,245   6,382,795   100,784   -   3,471   7,353,332 
                             
At 31 March 2009                            
Cost  2,829,732   2,767,126   13,590,347   1,683,983   1,944,233   1,340,756   24,156,177 
Accumulated depreciation  (2,513,695)  (2,216,881)  (7,207,552)  (1,583,199)  (1,944,233)  (1,337,285)  (16,802,845)
Net book amount  316,037   550,245   6,382,795   100,784   -   3,471   7,353,332 
JV-25
13.ADVANCED LEASE PAYMENTS
The group's advanced lease payments represent up-front payments to acquire long term interests in the usage of land held in Mainland China on leases of between 10 to 50 years.
  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Land use rights  13,946,685   13,354,491   -   - 
Advanced lease payments, net  407,310   668,775   407,310   668,775 
   14,353,995   14,023,266   407,310   668,775 

14.AVAILABLE-FOR-SALE FINANCIAL ASSETS

  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Available-for-sale financial assets :            
Listed outside Hong Kong, at market value  21,667,859   23,535,756   21,667,859   23,535,756 
Less: Portion included in current assets  -   (15,633,540)  -   (15,633,540)
Portion included in non-current assets  21,667,859   7,902,216   21,667,859   7,902,216 

15.INTERESTS IN SUBSIDIARIES
Company
  2009  2008 
  HK$  HK$ 
       
Unlisted shares, at cost  106,890,975   95,190,975 
Less : Impairment  (200,000)  (200,000)
   106,690,975   94,990,975 
         
Amount due to a subsidiary  (8)  (8)
   106,690,967   94,990,967 

At 31 March 2009 and 31 March 2008, the amount due to a subsidiary is unsecured, interest-free and has no fixed terms of repayment and the amounts due from subsidiaries are repayable on demand and accordingly, are classified as current assets (note 18).
JV-26
15.INTERESTS IN SUBSIDIARIES (Continued)
Details of the subsidiaries as at 31 March 2009 are as follows :
NamePlace of
incorporation/
establishment		Nominal value of
issued capital/
registered capital		Percentage of
issued capital
held by the
company directly		Principal activities
Fujian Taisun Electronics Technologies Co., Ltd.The PRCUS$15,000,000100%Manufacture of consumer electronic products
Fujian Taisun Fire Safety Technologies Co., Ltd.The PRCUS$5,000,000100%Manufacture of consumer electronic products (operations not commenced yet)
Sound Well (Hong Kong) Co. LimitedHong KongHK$200,000100%Trading of consumer electronic products and investment holding
Kimbager International LimitedBritish Virgin IslandsUS$1100%Trading of machinery and equipment
Kimbager LimitedHong KongHK$10,000100%Dormant

16.INVENTORIES

  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Raw materials  19,361,203   18,488,454   19,361,203   18,488,454 
Work in progress  4,130,713   3,074,264   4,130,713   3,074,264 
Finished goods  4,353,773   6,791,779   4,353,773   6,791,779 
   27,845,689   28,354,497   27,845,689   28,354,497 

17.TRADE AND OTHER RECEIVABLES

  Group 
  2009  2008 
  HK$  HK$ 
       
Accounts receivable  2,888,368   2,428,718 
Bills receivable  341,250   971,312 
Deposits, prepayments and other receivables  1,955,097   2,274,604 
   5,184,715   5,674,634 
JV-27
17.TRADE AND OTHER RECEIVABLES (Continued)
At each of the balance sheet dates, the group’s trade receivables were individually determined to be impaired.  The group encountered difficulties in collection of certain trade receivables and appropriate provision for impairment has been made against these trade receivables.  The individually impaired receivables are recognised based on the credit history of the customers, such as financial difficulties or default in payments, and current market conditions.  Consequently, specific impairment provision was recognised.  The group does not hold any collateral over these balances.
Ageing analysis of trade receivables (including accounts receivables and bills receivables) that are past due but not impaired is as follows:
  Group 
  2009  2008 
  HK$  HK$ 
       
Neither past due nor impaired  707,850   1,861,234 
0 – 30 days past due  2,521,768   1,538,796 
   3,229,618   3,400,030 

Trade receivables that were past due but not impaired relate to a number of independent customers that had a good track record with the group.
Based on past experience, the management believe that no impairment allowance is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable.  The group does not hold any collateral or other credit enhancements over these balances.
18.AMOUNTS DUE FROM SUBSIDIARIES

  2009  2008 
  HK$  HK$ 
       
Trade *  16,511,520   11,320,559 
Non-trade **  13,404,310   12,501,170 
   29,915,830   23,821,729 
Less : Provision for impairment  (1,636,991)  (975,147)
   28,278,839   22,846,582 

*The amount is unsecured and arises from trading activities of which the settlement period is in accordance with normal commercial terms.
**The amount is unsecured, interest-free and repayable on demand.
JV-28

19.CASH AND CASH EQUIVALENTS

  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Bank and cash balances  57,930,200   35,944,286   41,624,118   16,869,461 
Short-term deposits  5,950,118   14,743,310   5,950,118   14,743,310 
Long-term deposit  567,050   -   567,050   - 
   64,447,368   50,687,596   48,141,286   31,612,771 
                 
Less: Long-term pledged deposit-guarantee for electricity supply  (567,050)    -   (567,050)    - 
   63,880,318   50,687,596   47,574,236   31,612,771 

The effective interest rates of short-term bank deposits of the group ranged from 0.8% to 3.6% (2008: from 5.47% to 7.09%).  These deposits have maturity periods 31 days (2008: 31 days) on inception and are eligible for immediate cancellation without penalty but any interest for the last deposit period would be forfeited.   The effective interest rate of long-term deposit of the group was 1.71%.  The long-term deposit was denominated in RMB and deposited with bank in Mainland China as at 31 March 2009 (2008: Nil) to guarantee for the electricity supply of its manufacturing plant.
Deposits with banks earn interest at floating rates based on daily bank deposit rates.
At 31 March 2009, the group had cash and cash equivalents denominated in Reminbi ("RMB") amounting to approximately HK$6,797,444 (2008: HK$12,107,794), representing deposits placed with banks in Mainland China.
Renminbi is not freely convertible into foreign currencies.  Under the PRC's Foreign Exchange Control Regulations and Administration of Settlement, Sales and Payment of Foreign Exchange Regulations, the group is permitted to exchange RMB for foreign currencies through banks which are authorised to conduct foreign exchange business.
20.AMOUNT DUE FROM/(TO) A SHAREHOLDER / A RELATED COMPANY
The amount is unsecured, interest-free and repayable on demand.
21.DIVIDEND PAYABLE
At a board meeting held on 7 February 2004, the directors declared a final dividend of  HK$5,850,000 per share, totalling HK$11,700,000, which was expected to be payable to the shareholders upon successful initial listing of the company's shares on the Main Board of The Stock Exchange of Hong Kong Limited ("the HKEX").
22.LOANS FROM SHAREHOLDERS
The loans are unsecured, interest-free and repayable on demand by the respective shareholders with the consent of each other and upon successful initial listing of the company's shares on the Main Board of HKEX, whichever is earlier.
JV-29
23.COLLATERALISED BANK ADVANCES
This amount represents the recognition of the bills discounted with recourse at 31 March 2009.
24.DEFERRED TAX
At 31 March 2009, the major deferred tax liabilities recognised in the balance sheets and the movements during the current and prior years :
Group and Company
Accelerated tax
depreciation
HK$
Balance at 31 March 2007788,712
Credit to income statement (Note 9)(200,835)
Balance at 31 March 2008587,877
Credit to income statement (Note 9)(221,125)
Balance at 31 March 2009366,752

  2009  2008 
  HK$  HK$ 
       
Deferred tax liabilities recognised in the balance sheets of the group and company  366,752   587,877 

At the balance sheet date, the major components of the deferred tax asset that has not been recognised is the temporary differences in respect of the tax loss and pre-operating expenses incurred by Fujian Taisun Electronics Technologies Co., Ltd. and Fujian Taisun Fire Safety Technologies Co., Ltd, the PRC subsidiaries of the company, of approximately HK$8,696,145 (2008: HK$5,198,144) and HK$378,689 (2008: HK$278,014), respectively, as it is not certain that future taxable profits will be available against which these deductible temporary difference may be utilised.
25.SHARE CAPITAL

  2009  2007 
  HK$  HK$ 
       
Authorised :      
100 ordinary shares of HK$100 each  10,000   10,000 
         
Issued and fully paid :        
2 ordinary shares of HK$100 each  200   200 
JV-30

26.RESERVES
The amounts of the group's reserves and the movements therein for the current and prior years are presented in consolidated statement of changes in equity on page 5 of the financial statements.
Company
  
Retained
profits
  
Fair value
reserve
  
Total
 
  HK$  HK$  HK$ 
          
Balance at 1 April 2006  112,076,351   (750,629)  111,325,722 
             
Profit for the year  74,184,878   -   74,184,878 
Change in fair value of available-for-sale financial assets  -   292,456   292,456 
Dividends  (29,866,722)  -   (29,866,722)
Balance at 31 March 2007 and 1 April 2007  156,394,507   (458,173)  155,936,334 
             
Profit for the year  39,423,630   -   39,423,630 
Change in fair value of available-for-sale financial assets  -   577,549   577,549 
Dividends  (16,716,167)  -   (16,716,167)
Balance at 31 March 2008 and 1 April 2008  179,101,970   119,376   179,221,346 
             
Profit for the year  45,194,052   -   45,194,052 
Change in fair value of available-for-sale financial assets  -   (44,862)  (44,862)
Dividends  (15,068,948)  -   (15,068,948)
Balance at 31 March 2009  209,227,074   74,514   209,301,588 

27.OPERATING LEASE ARRANGEMENTS
At 31 March 2009, the total future minimum rental receivable under non-cancellable operating leases in respect of land and buildings are as follows :
  Group and Company 
  2009  2008 
  HK$  HK$ 
       
Within one year  77,701   82,581 
In the second to fifth years  90,115   61,935 
   167,816   144,516 
JV-31

27.OPERATING LEASE ARRANGEMENTS (Continued)
At 31 March 2009, the total future minimum lease payments under non-cancellable operating leases in respect of land and buildings are payable as follows :
  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Within one year  1,312,200   1,160,600   991,200   966,000 
In the second to fifth years  2,219,000   3,059,000   2,093,000   3,059,000 
   3,531,200   4,219,600   3,084,200   4,025,000 

The group and the company lease land and buildings under operating leases.  The leases run for an initial period of one to five years, with an option to renew the leases at the expiry dates.  None of the leases includes contingent rentals.
28.CAPITAL COMMITMENTS

  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
             
Contracted but not provided for the construction of the factory premises in the PRC  3,067,505   5,575,352   -   - 
Capital contributions payable to PRC wholly-owned subsidiaries  -   -   49,309,580   61,009,580 
   3,067,505   5,575,352   49,309,580   61,009,580 

29.CONTINGENT LIABILITIES
The current and prior years' tax provisions have been prepared on the basis that the management fees and bonuses are deductible in the determination of the assessable profits of the company and the company is entitled to the offshore claims.  During the year ended 31 March 2006, the company received enquiries from the Hong Kong Inland Revenue Department regarding these deductions and offshore claims.  As at the date of approval of these financial statements, the outcome of the enquiries is uncertain.  In the opinion of the directors, no provision for additional taxes is required.  The total contingent tax exposures to the group and company in respect of the deductions and offshore claims are estimated to be approximately HK$5.0 million and HK$23.3 million, respectively.
Except as disclosed above, the group and company have no contingent liabilities at 31 March 2009.

JV-32

30.DIRECTORS' REMUNERATION
Remuneration of the directors of the company disclosed pursuant to section 161 of the Hong Kong Companies Ordinance is as follows :
  Group  Company 
  2009  2008  2007  2009  2008  2007 
  HK$  HK$  HK$  HK$  HK$  HK$ 
                   
Fees  -   -   -   -   -   - 
Other emoluments  -   -   -   -   -   - 

31.RELATED PARTY TRANSACTIONS
In addition to the transactions and balances disclosed elsewhere in the financial statements, during the year, the group had the following transactions with related parties :
    Group 
    2009  2008  2007 
  Note HK$  HK$  HK$ 
            
Transactions with a related company (i)         
Rental expense    2,864,308   1,581,655   1,080,000 
Management fee expense    4,434,600   4,434,600   4,434,600 
Management bonus expense    3,381,063   2,329,153   7,113,550 
Purchase of motor vehicles    -   788,051   - 
               
Transactions with a shareholder              
Sales    177,267,419   152,324,873   148,477,931 
Purchases    10,733,357   4,508,889   8,451,104 
Sales commission expense    6,901,737   4,791,769   2,250,179 
Interest income    -   103,997   195,000 
Note:
(i)The group entered into those transactions with Taisun Magnetics Limited, in which Mr. Lam Wai Shuen, Shiman and Dr. Lam Wai Wing, Malcolm, directors of the company, had interests.
32.MAJOR NON-CASH TRANSACTION
During the year ended 31 March 2009, HK$5,831,637 (2008: HK$2,524,985 and 2007: HK$5,517,381) of the dividends for the year was settled through the current account with a shareholder.
During the year ended 31 March 2009, amount due to a related company of HK$Nil (2008: HK$3,830,555) was settled by the transfer of the available-for-sales financial assets at fair value.

JV-33

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The group's major financial assets and liabilities include bank balances and cash, available-for-sale financial assets, trade receivables and payables, other payables and amounts due from/to related parties.  Details of these financial instruments are disclosed in respective notes.  The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below.  The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.
Interest rate risk
The group is exposed to interest rate risk through the impact of interest rate changes on cash and cash equivalents. The interest rates of cash and cash equivalent of the group are disclosed in note 19. The group currently does not have an interest rate hedging policy. However, the directors monitor interest rate change exposure and will consider hedging significant interest rate exchange exposure should the need arises.
Interest rate sensitivity
At 31 March 2009, the group was exposed to changes in market interest rates through cash and cash equivalent, which are subject to variable interest rates. The following table illustrates the sensitivity of the profit after tax for the year and retained earnings to a change in interest rates of +1% and -1% (2008: +1% and -1%), with effect from the beginning of the year.  The calculations are based on the group's and the company's bank balance held at each balance sheet date. All other variables are held constant.
  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
If interest rates were 1% (2008: 1%) higher            
Net profit for the year  644,473   506,868   481,413   316,128 
                 
If interest rates were 1% (2008: 1%) lower                
Net profit for the year  (644,473)  (506,868)  (481,413)  (316,128)
JV-34

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Price risk
The group is exposed to equity price risk through its investment in listed securities which are classified as available-for-sale financial assets.  The management manages this exposure by maintaining a portfolio of investments with different risk and return profiles and will consider hedging the risk exposure should the need arise. The group is not exposed to commodity price risk.
At 31 March 2009, if securities prices had increased/decreased by 1% and all other variables were held constant, fair value reserve would increase/decrease by approximately HK$216,679 (2008: fair value reserve would increase/decrease by approximately HK$235,358).  This is mainly due to the changes in available-for-sale financial assets.  This sensitivity analysis has been determined assuming that the price change had occurred at the balance sheet date and had been applied to the group's investment on that date.
Foreign currency risk
The group mainly operates in the Asia Pacific Region and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar, RMB, AUD and GBP.  The HK dollar is pegged to the US dollar at an exchange rate of approximately 7.8, the foreign exchange exposure between US dollar and HK dollar is therefore minimal.  The group's exposure to RMB is minimal as majority of the subsidiaries of the group operates in the PRC with most of the transactions denominated and settled in Renminbi.  The group holds foreign currency time deposits which are exposed to foreign currency risk.  To mitigate the group's exposure to foreign currency risk, the group manages its foreign exchange risk by actively monitoring its foreign currency translations.
(a)Exposure to currency risk
The following table details the group's and the company's exposure at the balance sheet date to currency risk arising from recognized assets or liabilities denominated in a currency other than the group's functional currency.
  2009  2008 
  HK$  HK$ 
Group and Company      
Net financial assets/(liabilities)      
AUD  5,705,970   6,711,953 
GBP  5,950,118   8,033,244 

JV-35

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Foreign currency risk (Continued)
(b)Sensitivity analysis
The sensitivity analysis has been determined assuming that the reasonably possible change in foreign exchange rates had occurred at the balance sheet date and had been applied to the group's exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant.  The stated changes represent management's assessment of reasonably possible changes in foreign exchange rates over the period until the next annual balance sheet date.  A 1% strengthening/(weakening) of HK$ against AUD and GBP at the balance sheet date would increase/(decrease) the group's and the company's profit after tax and retained profits by the amount shown below.  Other components of equity would not be affected by changes in the foreign exchange rates.
  2009 2008 
  
Changes in
foreign exchange
rates
  
Effect on profit
after tax and
retained profits
 
Changes in
Foreign
Exchange
rates
  
Effect on profit after
tax and retained
profits
 
     HK$    HK$ 
Group and Company           
AUD  +1%/-1%  54,129/(54,129)  +1%/-1%  72,766/(72,766) 
GBP  +1%/-1%  58,821/(58,821)  +1%/-1% 
 78,674/(78,674
) 
Credit risks
Credit risk arises from the possibility that the counterparty to a transaction is unwilling or unable to fulfill its obligation with the results that the group thereby suffers financial loss. The carrying amounts of trade and other receivables and cash and cash equivalents included in the consolidated balance sheet represent the group's maximum exposure to credit risk in relation to financial assets. No other financial assets carry a significant exposure to credit risk. The group monitors the trade and other receivables on an ongoing basis and only trades with creditworthy third parties.  In addition, all the group's cash and cash equivalents are deposited with major banks located in Hong Kong and the PRC. Accordingly, the group has no significant concentrations of credit risk.
Fair values
The fair values of the group's current financial assets and liabilities are not materially different from their carrying amounts because of the immediate or short term maturity of these financial instruments.
Liquidity risks
As at 31 March 2009, the group had net current assets of HK$71,110,746 (2008: HK$69,152,852) and net assets of HK$171,516,152 (2008: HK$150,205,698).  The management considered the liquidity risk to be minimal.
The group exercised liquidity risk management policy by maintaining sufficient cash and cash equivalents level deemed adequate to finance the group's operations, investment opportunities and expected expansion.

JV-36

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Liquidity risks (Continued)
Individual operating entities within the group are responsible for their own cash management, including the short term investment of cash surpluses and the raising of loans to cover expected cash demands, subject to approval by the parent company's board when the borrowings exceed certain predetermined levels of authority.  The group's policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and readily realisable marketable securities and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.
The following table details the remaining contractual maturities at the balance sheet dates of the group's and the company's non-derivative financial liabilities, which are based on contractual undiscounted cash flows (including interest payment computed using contractual rate or, if floating, based on rates current at the balance sheet date) and the earliest date the group and the company can be required to pay :
Group
  
Carrying
amount
  
Total
contractual
undiscounted
cash flow
  
On
demand or
within
1 year
  
More than
1 year but
less than
2 years
  
More than
2 years but
less than
5 years
 
  HK$  HK$  HK$  HK$  HK$ 
                
At 31 March 2009               
Trade and other payables  17,231,889   17,231,889   17,231,889   -   - 
Obligations under finance lease  52,700   52,700   21,000   21,000   10,700 
Amount due to a related company  3,381,063   3,381,063   3,381,063   -   - 
Dividend payable  11,700,000   11,700,000   11,700,000   -   - 
Loans from shareholders  2,868,954   2,868,954   2,868,954   -   - 
Collateralised bank advances  341,250   341,250   341,250   -   - 
   35,575,856   35,575,856   35,544,156   21,000   10,700 
JV-37

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Liquidity risks (Continued)
Group
  
Carrying
amount
  
Total
contractual
undiscounted
cash flow
  
On
demand or
within
1 year
  
More than
1 year but
less than
2 years
  
More than
2 years but
less than
5 years
 
  HK$  HK$  HK$  HK$  HK$ 
                
At 31 March 2008               
Trade and other payables  21,499,786   21,499,786   21,499,786   -   - 
Obligations under finance lease  73,700   73,700   21,000   21,000   31,700 
Amount due to a related company  2,329,153   2,329,153   2,329,153   -   - 
Dividend payable  11,700,000   11,700,000   11,700,000   -   - 
Loans from shareholders  2,868,954   2,868,954   2,868,954   -   - 
Collateralised bank advances  971,312   971,312   971,312   -   - 
   39,442,905   39,442,905   39,390,205   21,000   31,700 

Company
  
Carrying
amount
  
Total
contractual
undiscounted
cash flow
  
On
demand or
within
1 year
  
More than
1 year but
less than
2 years
  
More than
2 years but
less than
5 years
 
  HK$  HK$  HK$  HK$  HK$ 
                
At 31 March 2009               
Trade and other payables  12,437,284   12,437,284   12,437,284   -   - 
Obligations under finance lease  52,700   52,700   21,000   21,000   10,700 
Amount due to a related company  3,381,063   3,381,063   3,381,063   -   - 
Dividend payable  11,700,000   11,700,000   11,700,000   -   - 
Loans from shareholders  2,868,954   2,868,954   2,868,954   -   - 
   30,440,001   30,440,001   30,408,301   21,000   10,700 
                     
At 31 March 2008                    
Trade and other payables  17,513,855   17,513,855   17,513,855   -   - 
Obligations under finance lease  73,700   73,700   21,000   21,000   31,700 
Amount due to a related company  2,329,153   2,329,153   2,329,153   -   - 
Dividend payable  11,700,000   11,700,000   11,700,000   -   - 
Loans from shareholders  2,868,954   2,868,954   2,868,954   -   - 
   34,485,662   34,485,662   34,432,962   21,000   31,700 
JV-38

33.FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (Continued)
Summary of financial assets and liabilities by category
The carrying amounts of the group's and the company's financial assets and liabilities as recognised at balance sheet dates may be categorised as follows.  See notes 3.6 and 3.9 for explanations about how the category of financial instruments affects their subsequent measurement.
  Group  Company 
  2009  2008  2009  2008 
  HK$  HK$  HK$  HK$ 
Financial assets            
Pledged bank balances  567,050   -   567,050   - 
Available-for-sale financial assets  21,667,859   23,535,756   21,667,859   23,535,756 
Loans and receivables:                
Trade and other receivables  3,345,818   3,400,030   116,200   - 
Amount due from shareholder  13,940,881   9,392,116   -   - 
Amount due from subsidiaries  -   -   28,278,839   22,846,582 
Cash and cash equivalents  63,880,318   50,687,596   47,574,236   31,612,771 
   103,401,926   87,015,498   98,204,184   77,995,109 
                 
Financial liabilities                
Financial liabilities measured at amortised cost:                
Trade and other payables  17,231,889   21,499,786   12,437,284   17,513,855 
Obligations under finance lease  52,700   73,700   52,700   73,700 
Amount due to a related company  3,381,063   2,329,153   3,381,063   2,329,153 
Dividend payable  11,700,000   11,700,000   11,700,000   11,700,000 
Loans from shareholders  2,868,954   2,868,954   2,868,954   2,868,954 
Collateralised bank advances  341,250   971,312   -   - 
   35,575,856   39,442,905   30,440,001   34,485,662 

34.CAPITAL MANAGEMENT POLICIES AND PROCEDURES
The group's objectives when managing capital are:
(a)To safeguard the group's ability to continue as a going concern, so that it continues to provide returns and benefits for its stakeholders;
(b)To support the group's stability and growth; and
(c)To provide capital for the purpose of strengthening the group's risk management capability.
The group actively and regularly reviews and manages its capital structure to ensure optimal capital structure and shareholder returns, taking into consideration the future capital requirements of the group and capital efficiency, prevailing and projected profitability, projected operating cash flows, projected capital expenditures and projected strategic investment opportunities.  To maintain or adjust the capital structure, the group may adjust the dividend payables to shareholders, issue new shares or raise and repay debts. The group's capital management objectives, policies or processes were unchanged during the year ended 31 March 2009 and 31 March 2008.  Management regards total equity of HK$171,516,152 (2008: HK$150,205,698) as capital, for capital management purpose.

JV-39