**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





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


**THE
      SECURITIES EXCHANGE ACT OF 1934**





For
      the
      Quarterly period ended December 31, 2007





OR


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


SECURITIES
      EXCHANGE ACT OF 1934





**Commission
      file number** **001-31747**





**UNIVERSAL
      SECURITY INSTRUMENTS, INC.**





(Exact
      name of registrant as specified in its charter)





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





**7-A
                Gwynns Mill Court**
              **Owings
                Mills, Maryland**
            **21117**(Address
                of principal executive offices)
            (Zip
                Code)





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





Inapplicable


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





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





Indicate
      by check mark if the registrant is a large accelerated filer, an accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated
      filer ****o Accelerated
      filer ****o Non-Accelerated
      Filer x





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





At
      February 13, 2008, the number of shares outstanding of the registrant’s common
      stock was 2,489,132.












**TABLE
      OF CONTENTS**





**Part I - Financial Information**
            
            **Page****Item
                1.**
            **Consolidated
                Financial Statements (unaudited):**Consolidated
                Balance Sheets at December 31, 2007 and March 31, 2007
            3Consolidated
                Statements of Earnings for the Three Months Ended December 31, 2007
                and
                2006
            4Consolidated
                Statements of Earnings for the Nine Months Ended December 31, 2007
                and
                2006
            5Consolidated
                Statements of Cash Flows for the Nine Months Ended December 31, 2007
                and
                2006
            6Notes
                to Consolidated Financial Statements
            7**Item
                2.**
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12**Item
                3.**
            Quantitative
                and Qualitative Disclosure About Market Risk
            16**Item
                4.**
            Controls
                and Procedures
            16**Part II - Other Information****Item
                1.**
            Legal
                Proceedings
            18**Item
                6.**
            Exhibits
            18Signatures
            20




2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
      1.**  FINANCIAL
      STATEMENTS





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


**CONSOLIDATED
      BALANCE SHEETS**


**ASSETS**
            
            December
                31, 2007
            
            March
                31, 2007CURRENT
                ASSETS
            
            Unaudited
            
            AuditedCash
                and cash equivalents
            
            $
            4,278,484
            
            $
            240,545Accounts
                receivable:
              Trade
                less allowance for doubtful accounts of $55,978
            
            
            2,273,410
            
            
            2,555,895Employees
            
            
            20,400
            
            
            22,0732,293,810
            
            
            2,577,968Amount
                due from factor
            
            
            5,594,034
            
            
            7,158,597Inventories,
                net of allowance for obsolete inventory of $40,000
            
            
            9,063,823
            
            
            11,318,734Prepaid
                expenses
            
            
            320,098
            
            
            237,666TOTAL
                CURRENT ASSETS
            
            
            21,550,249
            
            
            21,533,510DEFERRED
                TAX ASSET
            
            
            637,421
            
            
            808,566INVESTMENT
                IN JOINT VENTURE
            
            
            10,627,300
            
            
            9,072,284PROPERTY
                AND EQUIPMENT - NET
            
            
            4,721,565
            
            
            3,030,060GOODWILL
            
            
            -
            
            
            1,732,562OTHER
                ASSETS
            
            
            15,486
            
            
            18,486TOTAL
                ASSETS
            
            $
            37,552,021
            
            $
            36,195,468**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**CURRENT
                LIABILITIESNotes
                payable
            
            $
            5,053,499
            
            $
            2,254,966Current
                portion of lease obligation
            
            
            110,747
            
            
            74,394Accounts
                payable
            
            
            6,519,077
            
            
            6,777,283Accrued
                liabilities:Litigation
                reserve
            
            
            583,829
            
            
            703,193Payroll
                and employee benefits
            
            
            239,524
            
            
            622,083Commissions
                and other
            
            
            585,297
            
            
            691,981TOTAL
                CURRENT LIABILITIES
            
            
            13,091,973
            
            
            11,355,525LONG-TERM
                OBLIGATIONS:Capital
                lease obligations, net of current portion
            
            
            96,720
            
            
            168,062Long-term
                obligations
            
            
            86,000
            
            
            -COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -Minority
                interest
            
            
            -
            
            
            -SHAREHOLDERS’
                EQUITYCommon
                stock, $.01 par value per share; authorized 20,000,000 shares;
                issuedand
                outstanding 2,489,132 and 2,475,612 shares at December 31, 2007 andMarch
                31, 2007, respectively
            
            
            24,912
            
            
            24,756Additional
                paid-in capital
            
            
            13,454,967
            
            
            13,214,025Retained
                earnings
            
            
            11,036,884
            
            
            11,545,304Other
                comprehensive (loss)
            
            
            (239,435
            )
            
            (112,204
            )TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            24,277,328
            
            
            24,671,881TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            37,552,021
            
            $
            36,195,468




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


3


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


**CONSOLIDATED
      STATEMENTS OF EARNINGS**


**(Unaudited)**





Three Months Ended December 31,2007
            
            2006Net
                sales
            
            $
            9,120,408
            
            $
            8,620,893Cost
                of goods sold
            
            
            6,795,273
            
            
            5,825,551GROSS
                PROFIT
            
            
            2,325,135
            
            
            2,795,342Research
                and development expense
            
            
            94,143
            
            
            85,599Selling,
                general and administrative expense
            
            
            2,389,664
            
            
            1,949,952Impairment
                of goodwill
            
            
            1,926,696
            
            
            -Loss
                on currency translation
            
            
            10,267
            
            
            17,906Operating
                (loss) income
            
            
            (2,095,635
            )
            
            741,885Other
                income (expense):Interest
                income
            
            
            18,370
            
            
            3,141Interest
                expense
            
            
            (101,434
            )
            
            (51,663
            )(LOSS)
                INCOME BEFORE EARNINGS FROM AFFILIATES
            
            
            (2,178,699
            )
            
            693,363Equity
                in earnings of Joint Venture
            
            
            688,017
            
            
            995,097NET
                (LOSS) INCOME BEFORE TAXES AND MINORITY INTEREST
            
            
            (1,490,682
            )
            
            1,688,460Provision
                for income tax expense (benefit)
            
            
            145,107
            
            
            (731
            )NET
                (LOSS) INCOME BEFORE MINORITY INTEREST
            
            
            (1.635,789
            )
            
            1,689,191Minority
                interest
            
            
            -
            
            
            23,692NET
                (LOSS) INCOME
            
            $
            (1,635,789
            )
            $
            1,712,883Net
                (loss) income per common share amounts:Basic
            
            $
            (0.66
            )
            $
            0.71Diluted
            
            $
            (0.66
            )
            $
            0.68Weighted
                average number of common shares outstanding:Basic
            
            
            2,489,132
            
            
            2,417,972Diluted
            
            
            2,489,132
            
            
            2,514,536




*See
      accompanying notes to consolidated financial statements.*


4


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


**CONSOLIDATED
      STATEMENTS OF EARNINGS**


**(Unaudited)**





Nine Months Ended December 31,2007
            
            2006Net
                sales
            
            $
            35,754,833
            
            $
            24,655,342Cost
                of goods sold
            
            
            28,412,896
            
            
            16,479,066GROSS
                PROFIT
            
            
            7,341,937
            
            
            8,176,276Research
                and development expense
            
            
            254,811
            
            
            223,539Selling,
                general and administrative expense
            
            
            6,456,910
            
            
            5,528,408Impairment
                of goodwill
            
            
            1,926,696
            
            
            -Loss
                on currency translation
            
            
            146,061
            
            
            17,906Operating
                (loss) income
            
            
            (1,442,541
            )
            
            2,406,423Other
                income (expense):Interest
                income
            
            
            18,370
            
            
            31,217Interest
                expense
            
            
            (298,226
            )
            
            (51,663
            )(LOSS)
                INCOME BEFORE EARNINGS FROM AFFILIATES
            
            
            (1,722,397
            )
            
            2,385,977Equity
                in earnings of Joint Venture
            
            
            1,878,733
            
            
            3,164,817NET
                INCOME BEFORE TAXES and MINORITY INTEREST
            
            
            156,336
            
            
            5,550,794Provision
                for income tax expense
            
            
            682,983
            
            
            875,224NET
                (LOSS) INCOME BEFORE MINORITY INTEREST
            
            
            (526,647
            )
            
            4,675,570Minority
                interest
            
            
            -
            
            
            23,692NET
                (LOSS) INCOME
            
            $
            (526,647
            )
            $
            4,699,262Net
                (loss) income per common share amounts:Basic
            
            $
            (0.21
            )
            $
            1.97Diluted
            
            $
            (0.21
            )
            $
            1.88Weighted
                average number of common shares outstanding:Basic
            
            
            2,484,254
            
            
            2,380,163Diluted
            
            
            2,484,254
            
            
            2,499,175




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


5


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**





Nine Months Ended December 31,2007
            
            2006OPERATING
                ACTIVITIESNet
                (loss) income
            
            $
            (526,647
            )
            $
            4,699,262Adjustments
                to reconcile net income to net cash (used in) provided by operating
                activities:Depreciation
                and amortization
            
            
            239,091
            
            
            108,538Impairment
                of goodwill
            
            
            1,926,696
            
            
            -Earnings
                of the Joint Venture
            
            
            (1,878,732
            )
            
            (3,164,817
            )Changes
                in operating assets and liabilities:Decrease
                in accounts receivable and amounts due from factor
            
            
            2,441,403
            
            
            302,094Decrease
                (increase) in inventories and prepaid expenses
            
            
            2,203,775
            
            
            (3,853,840
            )(Decrease)
                increase in accounts payable and accrued expenses
            
            
            (1,454,185
            )
            
            695,424Decrease
                (increase) in deferred tax asset and other asset
            
            
            171,145
            
            
            (458,596
            )NET
                CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
            
            
            3,122,546
            
            
            (1,671,935
            )INVESTING
                ACTIVITIES:Purchase
                of property and equipment
            
            
            (1,930,597
            )
            
            (468,453
            )Dividends
                received from Joint Venture
            
            
            323,716
            
            
            1,274,266Acquisition
                of subsidiaries
            
            
            -
            
            
            (1,784,120
            )NET
                CASH USED IN INVESTING ACTIVITIES
            
            
            (1,606,881
            )
            
            (978,307
            )FINANCING
                ACTIVITIES:Tax
                benefit from exercise of stock options
            
            
            92,926
            
            
            739,000Borrowings
                net of repayments from Commercial Bank
            
            
            2,798,533
            
            
            148,475Payments
                of notes payable acquired in acquisition
            
            
            (231,625
            )
            
            (1,043,389
            )Payments
                of lease obligation
            
            
            (34,989
            )
            
            (31,092
            )Proceeds
                from issuance of common stock from exercise of employeestock
                options
            
            
            140,729
            
            
            451,845Other
                long-term obligations
            
            
            86,000
            
            
            -NET
                CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            2,851,574
            
            
            264,839Impact
                of foreign currency on cash
            
            
            (329,300
            )
            
            (96,206
            )INCREASE
                (DECREASE) IN CASH
            
            
            4,037,939
            
            
            (2,481,609
            )Cash
                at beginning of period
            
            
            240,545
            
            
            3,015,491CASH
                AT END OF PERIOD
            
            $
            4,278,484
            
            $
            533,882Supplemental
                information:Interest
                paid
            
            
            298,226
            
            
            51,663Income
                taxes
            
            $
            200,000
            
            $
            -




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


6


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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**Statement
      of Management**





The
      consolidated financial statements include the accounts of Universal Security
      Instruments, Inc. (USI or the Company) and its majority owned subsidiaries.
      Significant inter-company accounts and transactions have been eliminated in
      consolidation. In the opinion of the Company’s management, the interim
      consolidated financial statements include all adjustments, consisting of only
      normal recurring adjustments, necessary for a fair presentation of the results
      for the interim periods. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with generally accepted
      accounting principles in the United States of America have been condensed or
      omitted. The interim consolidated financial statements should be read in
      conjunction with the Company’s March 31, 2007 audited financial statements filed
      with the Securities and Exchange Commission on Form 10-K. The interim operating
      results are not necessarily indicative of the operating results for the full
      fiscal year.





**Use
      of Estimates**





The
      preparation of financial statements in conformity with US GAAP requires
      management to make estimates and assumptions that affect the amounts reported
      in
      the financial statements. Actual results could differ from those estimates.
      Significant estimates inherent in the preparation of the accompanying financial
      statements include estimates of allowances for doubtful accounts receivable
      and
      inventory obsolescence, impairment of long-lived assets and tax valuation
      allowances.





**Cash
      and Cash Equivalents**





The
      Company considers all investments with an original maturity of three months
      or
      less to be cash equivalents. The Company maintains cash in foreign banks to
      support its operations in Canada and Hong Kong. As of December 31, 2007 and
      March 31, 2007, $191,273 and $244,510 was held in foreign banks.





**Goodwill**





Goodwill
      represents the excess of the purchase price of our Canadian subsidiary above
      the
      fair value of the net assets acquired. Goodwill is evaluated for impairment
      annually or when events or circumstances occur indicating that goodwill might
      be
      impaired. In accordance with Statement of Financial Accounting Standards (SFAS)
      No. 142, “Goodwill and Other Intangible Assets (SFAS No. 142),” 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.





Due
      to
      lower than forecast sales of mechanical tubing products in the U.S. and Canadian
      markets, operating and cash flow losses have continued at our Canadian
      subsidiary throughout the quarter ended December 31, 2007. Based on that trend,
      future operating results and cash flow forecasts were revised. Accordingly,
      in
      accordance with SFAS No. 142, an impairment loss of $1,926,696 is recognized
      for
      the quarter ended December 31, 2007, and goodwill recorded by our Canadian
      subsidiary has been reduced to zero at December 31, 2007.





**Income
      Taxes**





A
      provision for federal and state income taxes of $145,107 and $682,983 has been
      provided for the three and nine month periods ended December 31, 2007. For
      income tax purposes, this provision is reduced by a $48,748 and $92,926 benefit
      derived from deductions associated with the exercise of employee stock options
      for the three and nine month periods ended December 31, 2007. Under SFAS No.
      123R, “Share-Based Payment,” the tax benefit of this deduction has been treated
      as a credit to additional paid in capital and will not require a cash payment
      for income taxes. For the three month and nine month periods ended December
      31,
      2006, federal and state income taxes (benefit) are $(731) and $875,224,
      respectively.





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




7




In
      connection with the adoption of FIN 48, the Company recorded a liability of
      approximately $86,000 for income taxes, interest and penalties related to
      unrecognized tax benefits. Simultaneously, the Company recorded a reduction
      to
      retained earnings. With the adoption of FIN 48, the Company has chosen to treat
      interest and penalties related to uncertain tax liabilities as income tax
      expense.





**Joint
      Venture**





The
      Company and its co-venturer, a Hong Kong corporation, each owns a 50% interest
      in a Hong Kong joint venture, Eyston Company Limited (the “Joint Venture”), that
      has manufacturing facilities in the People’s Republic of China, for the
      manufacturing of security products. The following represents summarized balance
      sheet and income statement information of the Joint Venture as of and for the
      nine month periods ended December 31, 2007 and 2006:





2007
            
            2006Net
                sales
            
            $
            23,722,803
            
            $
            31,566,816Gross
                profit
            
            
            6,078,838
            
            
            10,859,898Net
                income
            
            
            2,991,477
            
            
            7,096,898Total
                current assets
            
            
            15,962,261
            
            
            13,832,205Total
                assets
            
            
            25,793,201
            
            
            24,958,330Total
                current liabilities
            
            
            5,803,207
            
            
            7,601,540





During
      the nine months ended December 31, 2007 and 2006, respectively, the Company
      purchased $15,157,285 and $12,837,511 of products from the Joint Venture. At
      December 31, 2007 and March 31, 2007, the Company had amounts payable to the
      Joint Venture of $2,319,470 and $3,827,445, respectively. For the quarters
      ended
      December 31, 2007 and 2006, the Company has adjusted its equity in earnings
      of
      the Joint Venture to reflect a reduction of $127,900 and $288,896 of
      inter-company profit in inventory as required by US GAAP.





**Impairment
      of Long-Lived Assets**





The
      Company evaluates the carrying value of long-lived assets and intangible assets
      whenever certain events or changes in circumstances indicate that the carrying
      amount of an asset may not be recoverable. When indicators of impairment exist,
      the estimated future net undiscounted cash flows associated with the asset
      are
      compared to the asset's carrying amount to determine if impairment has occurred.
      If such assets are deemed impaired, an impairment loss equal to the amount
      by
      which the carrying amount exceeds the fair value of the assets is recognized.
      If
      quoted market prices for the assets are not available, the fair value is
      calculated using the present value of estimated net cash flows. The Company did
      not record an impairment charge other than the impairment to goodwill, as
      previously discussed, during the nine months ended December 31, 2007 or
      2006.





**Foreign
      Currency Translation**





The
      financial statements of the Company’s foreign subsidiary acquired in October
      2006 have been translated into U.S. dollars in accordance with SFAS No. 52,
      “Foreign Currency Translation” and SFAS No. 130, “Reporting Comprehensive
      Income.” Translation adjustments are included in other comprehensive income. All
      balance sheet accounts of the foreign subsidiary are translated into U.S.
      dollars at the current exchange rate at the balance sheet date. Statement of
      operations items are translated at the average foreign currency exchange rates.
      Capital accounts are translated at historical exchange rates. The resulting
      foreign currency translation adjustment is recorded in accumulated other
      comprehensive income (loss). The Company has no other components of
      comprehensive income (loss). Gains and losses from foreign currency
      transactions, such as those resulting from the settlement of payables and
      receivables, are included in the consolidated statements of income.





**Business
      Segments**





The
      Company conducts its business through two operating segments based on geographic
      location.





Historically,
      the combined U.S. operations of the Company and its wholly-owned subsidiary,
      USI
      Electric, Inc., are operated from the Baltimore, Maryland and Naperville,
      Illinois offices, respectively, marketing a line of home safety devices such
      as
      smoke alarms, carbon monoxide alarms, and ground fault circuit interrupter
      (GFCI) devices to retail customers and to the electrical distribution
      trade.





The
      Company’s Canadian operations consist of the operations of its majority-owned
      subsidiary, International
      Conduits Ltd. (“Icon”) ,
      acquired by the Company in October 2006 and operated from offices in Toronto,
      Ontario, with sales in both Canada and the United States. The primary product
      line of the Canadian segment is electrical mechanical tubing (EMT) steel conduit
      sold to the electrical distribution trade. Icon also sells home safety devices
      purchased primarily from the Company.




8




For
      the
      three and nine month periods ended December 31, 2007, USI had sales of EMT
      conduit of $247,947 and $1,188,068 through its distribution network. Icon’s
      sales of safety products during the same period totaled $255,932 and $420,736,
      respectively.





For
      the
      period ended December 31, 2007, no inter-company allocation of expenses has
      been
      made between the Company and Icon.





The
      following chart provides segmental information on the U.S. and Canadian
      operations of the Company for the three and nine month periods ended December
      31, 2007 (all figures are presented in U.S. dollars):




Three Months Ended
              December 31, 2007
            
            Nine Months Ended
              December 31, 2007U.S.
            
            Canada
            
            U.S.
            
            CanadaNet
                sales
            
            $
            7,776,986
            
            $
            1,343,422
            
            $
            27,152,181
            
            $
            8,602,652Cost
                of sales
            
            
            5,951,500
            
            
            843,773
            
            
            20,662,492
            
            
            7,750,404Gross
                profit
            
            
            1,825,486
            
            
            499,649
            
            
            6,489,689
            
            
            852,248Selling,
                general and administrative, and research and development
            
            
            1,663,909
            
            
            2,756,861
            
            
            4,900,182
            
            
            3,884,296Operating
                income (loss)
            
            
            161,577
            
            
            (2,257,212
            )
            
            1,589,507
            
            
            (3,032,048
            )Equity
                in earnings of Joint Venture
            
            
            688,017
            
            
            -
            
            
            1,878,733
            
            
            -Interest
                income (expense)
            
            
            18,370
            
            
            (101,434
            )
            
            (52,491
            )
            
            (227,365
            )Net
                income (loss) before taxes
            
            
            867,964
            
            
            (2,358,646
            )
            
            3,415,749
            
            
            (3,259,413
            )Provision
                for income taxes (benefit)
            
            
            87,757
            
            
            57,350
            
            
            625,633
            
            
            57,350Net
                income (loss)
            
            
            780,207
            
            
            (2,415,996
            )
            
            2,790,116
            
            
            (3,316,763
            )





**Net
      Income Per Common Share**





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





A
      reconciliation of the weighted average shares of common stock utilized in the
      computation of basic and diluted earnings per share for the three month period
      ended December 31, 2007 and 2006 is as follows:





Three Months Ended
              December 31,
            
            Nine Months Ended
              December 31,2007
            
            2006
            
            2007
            
            2006Weighted
                average number of common shares outstanding for basic EPS
            
            
            2,489,132
            
            
            2,417,972
            
            
            2,484,254
            
            
            2,380,163Shares
                issued upon the assumed exercise of outstanding stock
                options
            
            
            -
            
            
            96,564
            
            
            -
            
            
            119,012Weighted
                average number of common and common equivalent shares outstanding
                for
                diluted EPS
            
            
            2,489,132
            
            
            2,514,536
            
            
            2,484,254
            
            
            2,499,175





Due
      to
      the loss incurred during the three and nine months ended December 31, 2007,
      no
      incremental shares related to stock options are included in the calculation
      of
      Diluted EPS because the effect would be anti-dilutive. The total of 88,921
      potentially dilutive shares related to outstanding stock options were not
      included in the EPS calculation at December 31, 2007 since their effect would
      be
      anti-dilutive.




9




**Credit
      Facility**





In
      June
      2007, Icon entered into a credit agreement with CIT Financial, Ltd. to provide
      a
      term loan and a line of credit facility.





The
      term
      loan in the original principal amount of US$3,000,000 is repayable in thirty-six
      (36) equal monthly principal installments of US$83,333 plus interest at the
      Canadian prime rate plus .25% (6.25% at December 31, 2007). The loan is
      collateralized by all of the assets of Icon and by the corporate guarantees
      of
      the Company. The balance outstanding at December 31, 2007 is US
      $2,724,627.





The
      line
      of credit facility is in the maximum amount of US$7,000,000, with borrowings
      based on specified percentages of accounts receivable and inventory of Icon.
      Amounts borrowed under the facility bear interest at the Canadian prime rate
      plus .25% (6.25% at December 31, 2007) and are payable with interest upon
      demand. The facility is collateralized by all of the assets of Icon and by
      the
      corporate guarantee of the Company. The balance outstanding at December 31,
      2007
      is US $2,328,872.





Management
      has classified the entire amount of the term loan as current, due to the bank
      exercising a subjective acceleration clause, as noted in the subsequent events
      note below.





**Stock
      Based Compensation**





As
      of
      December 31, 2007, under the terms of the Company’s Non-Qualified Stock Option
      Plan, as amended, 877,777 shares of our common stock are reserved for the
      granting of stock options, of which 873,545 have been issued, leaving 4,232
      available for issuance.





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





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





As
      a
      result of adopting SFAS No. 123R, net income for the three months and nine
      months ended December 31, 2007 was reduced by $3,494 and $16,369, respectively.
      No portion of stock compensation expense, was capitalized during the period.





During
      the nine month period ended December
      31 ,
      2007,
      13,520 shares of our common stock have been issued as a result of the exercise
      of the options granted under the plan. A tax benefit, for income tax purposes,
      of $92,926 from the exercise of these stock options is presented as a cash
      flow
      from financing activities.





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





*Stock
      Option Activity.* During
      the three month and nine month periods ended December 31, 2007, no stock options
      were granted.





*Stock
      Compensation Expense.* We
      utilize the 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 three and nine
      months ended December 31, 2007, we recorded $6,438 and $19,314 of stock-based
      compensation cost as general and administrative expense in our statement of
      operations. No forfeitures have been estimated. No portion of employees’
compensation including stock compensation expense was capitalized during the
      period.





10




As
      of
      December 31, 2007, there was $8,285 of unrecognized compensation cost related
      to
      share-based compensation arrangements that we expect to vest. This cost will
      be
      fully amortized within two quarters. The aggregate intrinsic value of currently
      exercisable options was less than zero at December 31, 2007.





**Subsequent
      Events**





On
      January 29, 2008, Icon received notice dated January 29, 2008 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. Pursuant to the CIT Canada notice,
      the
      indebtedness owed by Icon to CIT Canada is CAD $4,957,327 (US $5,053,499).
      As
      previously mentioned, the Company, and its wholly-owned subsidiary, USI
      Electric, Inc., have guaranteed the obligations of Icon under the terms of
      the
      aforementioned Credit Agreement.





Icon
      has
      ceased operations as of February 11, 2008. On February 11, 2008, a receiver
      was
      appointed to manage the disposition of assets in settlement of the indebtedness
      owned by Icon to CIT Canada. This process is in the initial stage, and the
      Company is currently unable to determine the net realizable value of the assets
      of Icon or the extent of additional losses that may be recorded as a result
      of
      the settlement of the obligations of the Canadian subsidiary.





**Recently
      Issued Accounting Pronouncements**





*Fair
      Value Measurements* :
      In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, *Fair
      Value Measurement (SFAS 157)* .
      This
      standard clarifies the principle that fair value should be based on the
      assumptions that market participants would use when pricing an asset or
      liability. Additionally, it establishes a fair value hierarchy that prioritizes
      the information used to develop those assumptions. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2007.
      The Company has not yet determined the impact that the implementation of SFAS
      157 will have on its results of operations or financial condition.





*The
      Fair Value Option for Financial Assets and Financial
      Liabilities* :
      In
      February 2007, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      including an amendment of FASB Statements No. 115 (SFAS No. 159). SFAS No.
      159
      permits entities to choose, at specified election dates, to measure eligible
      items at fair value (the “fair value option”). A business entity shall report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings at each subsequent reporting period. This accounting
      standard is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007. The effect, if any, of adopting SFAS No. 159
      on
      the Company’s financial position and results of operations has not been
      finalized.


11


**ITEM
              2.**
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS




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





**Forward-Looking
      Statements**





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





**Overview**





We
      are in
      the business of marketing and distributing safety and security products which
      are primarily manufactured through our 50%-owned Hong Kong Joint Venture. Our
      financial statements detail our sales and other operational results only, and
      report the financial results of the Hong Kong Joint Venture using the equity
      method. Accordingly, the following discussion and analysis of the three and
      nine
      month periods ended December 31, 2007 and 2006 relate to the operational results
      of the Company only. A discussion and analysis of the Hong Kong Joint Venture’s
      operational results for these periods is presented below under the heading
      “Joint Venture.”





For
      the
      three and nine month periods ended December 31, 2007, we realized overall
      increases in sales of our core product lines. However, while our sales to the
      retail trade increased largely due to sales to a national home improvement
      retailer, our sales of our core product lines to the electrical distribution
      trade decreased significantly as U.S. economic conditions saw a slowdown in
      new
      home construction and sales. In addition, we were not able to import ground
      fault circuit interrupter (GFCI) devices because the manufacturer has not yet
      received certifications for mandated changes to the devices.





During
      October 2006, we acquired a majority interest in International
      Conduits Ltd.
      (“Icon”), our Canadian subsidiary which manufactures and distributes electrical
      mechanical tubing (EMT) steel conduit. For the three and nine month periods
      ended December 31, 2007, our U.S. operations had sales of $247,947 and
      $1,188,068 from EMT conduit products, while our Canadian subsidiary generated
      $2,115,673 and $9,553,549 in EMT conduit sales and $255,932 and $420,736 in
      safety product sales. For the quarter, our Canadian operations had a gross
      profit margin of (37.2%) and reported an operating loss of $2,257,212 and a
      net
      loss of $2,415,996. Included in the net loss of our Canadian operations is
      a
      charge of $1,926,696 for impairment of goodwill taken in the quarter, in
      accordance with SFAS No. 142, based on the downward operating trend and revised
      future operating results and cash flow forecasts .
      For the
      nine month period, our Canadian operations had a gross profit margin of 9.9%
      and
      reported an operating loss of $3,032,048 and a net loss of $3,316,763 of which
      $1,926,696 represents the recorded impairment of goodwill. Our Canadian
      subsidiary’s losses for the three and nine month periods were primarily due to
      an insufficient volume of sales because of lower
      than forecast sales of mechanical tubing products in the Canadian
      markets and an
      increase in the Canadian dollar that impacted sales to the U.S.
      market .





**Results
      of Operations**





**Three
      Months Ended December 31, 2007 and 2006**




*Sales.* Net
      sales for the three months ended December 31, 2007 were $9,120,408 compared
      to
      $8,620,893 for the comparable three months in the prior fiscal year, an increase
      of $499,515 (5.8%). The primary reasons for the increase in net sales volumes
      was that our sales included $2,831,301 of sales by our U.S. operations to a
      national home improvement retailer, partially offset by a decline in sales
      of
      our Canadian subsidiary. Sales of our core product lines to the electrical
      distribution trade, including smoke alarms, carbon monoxide alarms and GFCI
      units, decreased by $2,724,924 due to a decrease in new home construction during
      the current quarter and due to the inability to import GFCI units as previously
      indicated.





12


*Gross
      Profit Margin.* Gross
      profit margin is calculated as net sales
      less cost of goods sold expressed as a percentage of net sales. Our
      gross
      profit margin was 25.5% and 32.4% of sales for the quarters ended December
      31,
      2007 and 2006, respectively. The decrease in gross profit margin was primarily
      due to lower gross margins on high volume sales to a national home improvement
      retailer.





*Expenses.* Research
      and development, and selling, general and administrative expenses, including
      currency losses, are comparable to the corresponding three months in the prior
      year. Selling, general and administrative expenses for the three months ended
      December 31, 2007 include $393,240 of other selling, general and administrative
      expenses of our Canadian operations and a charge of $170,014 to write off
      specifically identified uncollectible trade accounts receivables. As a
      percentage of sales, these expenses were 27.3% for the three month period ended
      December 31, 2007 and 23.8% for the comparable 2006 period.




*Interest
      Expense and Income.* Our
      interest expense net of interest income was $83,064 for the three months ended
      December 31, 2007, compared to net interest expense of $48,522 for the three
      months ended December 31, 2006. This increase in interest expense resulted
      primarily from borrowings by our Canadian subsidiary incurred to expand
      production capacity.





*Income
      Taxes.* During
      the three months ended December 31, 2007, the Company recorded an income tax
      expense of $145,107. For the corresponding 2006 period, the Company has a tax
      benefit of $731. The increase in income tax expense resulted from an increase
      in
      taxable income on U.S. operations and the elimination of deferred tax assets
      in
      Canada.





*Net
      (Loss) Income.* We
      reported a net loss of $1,635,789 for the three months ended December 31, 2007
      compared to net income of $1,712,883 for the corresponding period of the prior
      fiscal year. The primary reasons for the decrease in net income are the
      operating losses incurred in our Canadian operations and lower net income from
      our Hong Kong Joint Venture (discussed below). While net sales of our core
      product line increased (as discussed above), the increase in sales was primarily
      due to sales by our U.S. operations to a national home improvement retailer
      for
      which we realized lower gross profit margins (as discussed above). Accordingly,
      this increase in net sales did not produce a corresponding increase in net
      income. Our reported net loss included the recorded impairment of goodwill
      of
      $1,926,626 for the three months ended December 31, 2007.





**Nine
      Months Ended December 31, 2007 and 2006**





*Sales.* Net
      sales for the nine months ended December 31, 2007 were $35,754,833 compared
      to
      $24,655,342 for the comparable nine months in the prior fiscal year, an increase
      of $11,099,491 (45.0%). The primary reason for the increase in sales was that
      our sales included $8,602,652 in sales by our Canadian operations and
      $10,131,752 of sales by our U.S. operations to a national home improvement
      retailer. Sales of our core product lines to the electrical distribution trade,
      including smoke alarms, carbon monoxide alarms and GFCI units, decreased by
      $7,634,913 due to a decrease in new home construction during the period and
      due
      to the inability to import GFCI devices as previously indicated.





*Gross
      Profit Margin.* The
      gross profit margin is calculated as net sales
      less cost of goods sold expressed as a percentage of net sales. The
      Company’s gross profit margin decreased from 33.2% for the period ended December
      31, 2006 to 20.5% for the current period ended December 31, 2007. The decrease
      in gross profit margin was primarily due to a lower gross profit margin realized
      by our Canadian operations and lower gross margins on sales to a national home
      improvement retailer.





*Expenses.* Research
      and development, and selling, general and administrative expenses increased
      by
      $1,087,929 from the corresponding nine months in the prior year. Selling,
      general and administrative expenses for the nine months ended December 31,
      2007
      include $1,957,600 selling, general and administrative expenses of our Canadian
      operations and a charge of $170,014 to write off specifically identified
      uncollectible trade accounts receivables. As a percentage of sales, these
      expenses were 19.2% for the nine month period ended December 31, 2007 and 19.2%
      for the comparable 2006 period.




*Interest
      Expense and Income.* Our
      interest expense net of interest income was $279,856 for the nine months ended
      December 31, 2007, compared to net interest expense of $20,446 for the nine
      months ended December 31, 2006. The
      increase in interest expense resulted primarily from borrowings by our Canadian
      subsidiary.





*Income
      Taxes.* During
      the nine months ended December 31, 2007, the Company recorded an income tax
      expense of $682,983. For the corresponding 2006 period, the Company had a tax
      expense of $875,224. Income taxes result primarily from taxable income in the
      U.S. and are not offset by losses recorded by the Canadian
      subsidiary.





13


*Net
      (Loss) Income.* We
      reported a net loss of $526,647 for the nine months ended December 31, 2007
      compared to net income of $4,699,262 for the corresponding period of the prior
      fiscal year. The primary reasons for the decrease in net income are the
      operating losses incurred in our Canadian operations and lower net income from
      our Hong Kong Joint Venture (discussed below). While net sales of our core
      product line increased (as discussed above), the increase in sales was primarily
      due to sales by our U.S. operations to a national home improvement retailer
      for
      which we realized lower gross profit margins (as discussed above). Accordingly,
      this increase in net sales did not produce a corresponding increase in net
      income. Our reported net loss included the recorded impairment of goodwill
      of
      $1,926,626 for the nine months ended December 31, 2007.





**Financial
      Condition and Liquidity**





The
      Company has a Factoring Agreement which supplies both short-term borrowings
      and
      letters of credit to finance foreign inventory purchases. The maximum amount
      available under the Factoring Agreement is currently $10,000,000. Based on
      specified percentages of our accounts receivable and inventory and letter of
      credit commitments and reduced by $3,000,000 representing the Company’s
      guarantee of the term loan facility of Icon, we had $3,403,000 available under
      the Factoring Agreement. There were no amounts borrowed by our U.S. operations.
      The interest rate under the Factoring Agreement on the uncollected factored
      accounts receivable and any additional borrowings is equal to the prime rate
      of
      interest charged by our lender. At December 31, 2007, the prime rate was 8.0%.
      Borrowings are collateralized by all of our accounts receivable and
      inventory.





Icon,
      our
      majority-owned Canadian subsidiary, has a line of credit facility with CIT
      Group/Commercial Services, Inc. This facility, in the amount of US$7,000,000
      is
      payable on demand, bears interest at the bank’s prime rate of interest plus .25%
      (effective rate 6.25% at December 31, 2007) and is collateralized by all of
      the
      assets of the Canadian subsidiaries and by the guarantees of the Company and
      its
      wholly owned subsidiary, 2113824 Ontario, Inc. Advances under the line of credit
      facility are based on specified percentages of trade accounts receivable and
      inventory. At December 31, 2007, the Canadian subsidiaries had borrowed CAD
      $4,957,327 (U.S. $5,053,499) of the total amount available under the terms
      of
      the line of credit facility.





Our
      non-factored accounts receivable at December 31, 2007 (net of allowances for
      doubtful accounts) were $2,273,410, and were $2,555,895 as of March 31, 2007.
      The decrease in non-factored trade accounts receivable during the first nine
      months of the current fiscal year is due to the reduction of accounts receivable
      of our acquired Canadian subsidiaries. Our prepaid expenses as of the end of
      our
      last fiscal year were $237,666, and were $320,098 as of December 31, 2007.
      The
      increase in prepaid expenses during the first nine months of the current fiscal
      year is due to the timing of premium payments to various insurance carriers,
      and
      the prepayment of estimated federal and state income taxes.





Operating
      activities provided cash of $3,122,546 for the nine months ended December 31,
      2007. This was primarily due to an decrease in accounts receivable and due
      from
      factor of $2,441,403, a decrease in inventory of $2,203,775, and depreciation,
      amortization and an impairment to goodwill amounting to $2,165,787, offset
      by
      net earnings of the Joint Venture of $1,878,732 and a decrease in accounts
      payable and accrued expense of $1,454,185. For the same period last year,
      operating activities used cash of $1,671,935, primarily as a result of
      unremitted earnings of the Hong Kong Joint Venture and increases in accounts
      receivable, inventory and prepaid expenses.





Investing
      activities used cash of $1,606,881 during the nine months ended December 31,
      2007 as a result of the acquisition of property and equipment, offset by
      dividends received from the Hong Kong Joint Venture. In the same period of
      the
      prior year, investing activities provided cash of $978,307.





Financing
      activities provided cash of $2,851,574 principally as a result of financing
      provided by a commercial lending corporation, net of loan repayments, of
      $266,614 and the issuance of common stock and associated tax benefit from the
      exercise of employee stock options of $233,655. In the comparable nine months
      in
      the prior year, financing activities provided $264,839 from the issuance of
      common stock from the exercise of employee stock options, partially offset
      by
      principal payments on notes payable.





We
      believe that funds available under the Factoring Agreement, distributions from
      the Joint Venture, and our line of credit facilities provide us with sufficient
      resources to meet our requirements for liquidity and working capital in the
      ordinary course of our business over the next twelve months and over the long
      term.


14





**Joint
      Venture**





*Net
      Sales.* Net
      sales of the Joint Venture for the three and nine months ended December 31,
      2007
      were $7,949,391 and $23,722,803, respectively, compared to $16,622,579 and
      $31,566,816, respectively, for the comparable periods in the prior fiscal year.
      Although the Joint Venture’s sales to the Company increased, primarily for
      products purchased by the Company for sale to the Company’s new national home
      improvement retailer customer, the 52.2% and 24.8% respective decreases in
      net
      sales by the Joint Venture for the three and nine month periods were due to
      decreased sales of smoke alarm products to non-related customers. The Joint
      Venture’s management believes that these decreases in net sales were due to a
      decrease in new home construction in the U.S. market and lower sales to the
      European market..





*Gross
      Margins.* Gross
      margins of the Joint Venture for the three month period ended December 31,
      2007
      decreased to 24.8% from 33.6% for the 2006 corresponding period. For the nine
      month period ended December 31, 2007, gross margins decreased to 25.6% from
      the
      34.4% gross margin of the prior year’s corresponding period. Since gross margins
      depend on sales volume of various products, with varying margins, increased
      sales of lower margin products and decreased sales of higher margin products
      affect the overall gross margins. The decline in the Joint Venture’s gross
      margins for the three and nine month periods were due to the increase in the
      sale of products to the Company for resale to the Company’s new national home
      improvement retail customer.





*Expenses.* Selling,
      general and administrative expenses were $982,291 and $3,279,276, respectively,
      for the three and nine month periods ended December 31, 2007, compared to
      $1,205,107 and $3,395,189 in the prior year’s respective periods. As a
      percentage of sales, expenses were 12.4% and 13.8% for the three and nine month
      periods ended December 31, 2007, compared to 10.8% and 11.1% for the three
      and
      nine month periods ended December 31, 2006. The increase in selling, general
      and
      administrative expense as a percent of sales was due to variable costs that
      remained constant despite lower net sales.





*Interest
      Income and Expense.* Interest
      expense, net of interest income, was $4,519 and $20,088, respectively, for
      the
      three and nine month periods ended December 31, 2007, compared to net interest
      expense of $14,192 and $41,430, respectively, for the prior year’s periods. The
      reduction in net interest expense resulted from a decrease in the Joint
      Venture’s borrowings.





*Net
      Income.* Net
      income for the three and nine months ended December 31, 2007 was $1,120,235
      and
      $2,991,477, respectively, compared to $1,990,194 and $6,329,634, respectively,
      in the comparable periods last year. The 43.7% and 52.7% respective decreases
      in
      net income for the three and nine month periods were due primarily to decreased
      sales volume and gross margins as noted above.





*Liquidity.* Cash
      needs of the Joint Venture are currently met by funds generated from operations.
      During the nine months ended December 31, 2007, working capital increased by
      $3,928,388 from $6,230,666 on March 31, 2006 to $10,159,054 on December 31,
      2007.





**Subsequent
      Event**





On
      January 29, 2008, Icon received
      notice from CIT Financial Ltd., Icon’s principal and secured lender (CIT
      Canada), that Icon is 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. Icon’s
      obligations under the Canada Credit Agreement are guaranteed by the Company
      and
      our wholly-owned subsidiary, USI Electric, Inc., pursuant to the terms of a Guaranty
      made by the Company and
      USI
      Electric, Inc., in favor of CIT Canada, dated June 22, 2007. Icon
      has
      ceased operations as of February 11, 2008.





The
      indebtedness owed by Icon to CIT Canada under the Credit Agreement is
      CN$4,998,094 (US $5,039,578). On February 11, 2008, a receiver was appointed
      to
      manage the disposition of assets in settlement of the indebtedness owned by
      Icon
      to CIT Canada. This process is in the initial stage, and the Company is
      currently unable to determine the net realizable value of the assets of Icon
      or
      the extent of additional losses that may be recorded as a result of the
      settlement of the obligations of the Canadian subsidiary.





**Critical
      Accounting Policies**





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





15


We
      believe the following critical accounting policies affect management’s more
      significant judgments and estimates used in the preparation of its consolidated
      financial statements. For a detailed discussion on the application on these
      and
      other accounting policies, see Note A to the consolidated financial statements
      included in Item 8 of the Form 10-K for the year ended March 31, 2007. Certain
      of our accounting policies require the application of significant judgment
      by
      management in selecting the appropriate assumptions for calculating financial
      estimates. By their nature, these judgments are subject to an inherent degree
      of
      uncertainty and actual results could differ from these estimates. These
      judgments are based on our historical experience, terms of existing contracts,
      current economic trends in the industry, information provided by our customers,
      and information available from outside sources, as appropriate. Our critical
      accounting policies include:





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





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





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





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





**ITEM
      3.**  QUANTITATIVE
      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK





No
      material changes have occurred in our quantitative and qualitative market risk
      disclosures as presented in our Annual Report Form 10-K for the year ended
      March
      31, 2007.





**ITEM
      4.**  CONTROLS
      AND PROCEDURES





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





16


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 will periodically reevaluate this
      situation.




17








**PART
      II - OTHER INFORMATION**





**ITEM
      1.**  LEGAL
      PROCEEDINGS





On
      June
      11, 2003, Walter Kidde Portable Equipment, Inc. (“Kidde”) filed a civil suit
      against the Company in the United States District Court for the Middle District
      of North Carolina (Case No. 03cv00537), alleging that certain of the Company’s
      AC powered/battery backup smoke detectors infringe on a patent acquired by
      Kidde. Kidde is seeking injunctive relief and damages to be determined at trial.
      On March 31, 2006, following numerous procedural and substantive rulings which
      the Company believes were favorable to the Company, Kidde obtained dismissal,
      without prejudice, of its suit. On November 28, 2005, prior to the March 31,
      2006 dismissal of the original suit, Kidde filed a second lawsuit 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. This
      development supports and strengthens the Company’s substantive position and its
      defenses to Kidde. The Company and its counsel believe that 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
      August
      16, 2007, Pass & Seymour, Inc. filed a complaint under section 337 of the
      Tariff Act of 1930, 19 U.S.C. § 1337, in the United States International Trade
      Commission against a number of respondents including the Company. Pass &
Seymour asserted infringement of a number of different patents by the
      Respondents for certain ground fault circuit interrupter (GFCI) technologies.
      The allegations against the Company are limited to specific claims of only
      a few
      of the asserted patents. On September 18, 2007, the International Trade
      Commission instituted an investigation into the matter (Investigation
      337-TA-615). The relief requested by Pass & Seymour, Inc. from the
      International Trade Commission action includes (1) a permanent exclusion order
      pursuant to section 337(d) of the Tariff Act of 1930, as amended, excluding
      from
      entry into the United States of GFCI units that infringe any of the asserted
      patents, and (2) a permanent cease and desist order pursuant to section 337(f)
      of the Tariff Act of 1930, as amended, directing respondents, with respect
      to
      their domestic inventories, to cease and desist from marketing, advertising,
      warehousing inventory for distribution, and offering for sale, selling or
      distributing GFCI units that infringe any of the asserted patents.
      Notwithstanding that the Company and its counsel believe that the Company has
      significant defenses relating to the patents in suit, in the meantime due to
      market factors, the Company has discontinued sales of GFCIs. In view of the
      Company’s current discontinuation of sales and importation of GFCIs, any
      decision from the International Trade Commission would have very limited, if
      any, impact on the Company. However, in the event of an unfavorable outcome,
      the
      amount of any potential loss to the Company is not determinable.





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
      6.**EXHIBITS





Exhibit
      No.


3.1
              Articles
                  of Incorporation (incorporated by reference to the Company’s Quarterly
                  Report on Form 10-Q for the period ended December 31, 1988, File
                  No.
                  1-31747)3.2
              Articles
                  Supplementary, filed October 14, 2003 (incorporated by reference
                  to
                  Exhibit 3.1 to the Company’s Current Report on Form 8-K filed October 31,
                  2002, File No. 1-31747)3.3
              Bylaws,
                  as amended (incorporated by reference to Exhibit 3.1 to the Company’s
                  Current Report on Form 8-K filed June 13, 2007, File No.
                  1-31747)10.1
              Non-Qualified
                  Stock Option Plan, as amended (incorporated by reference to Exhibit
                  10.1
                  to the Company’s Quarterly Report on Form 10-Q for the period ended
                  December 31, 2003, File No. 1-31747)10.2
              Hong
                  Kong Joint Venture Agreement, as amended (incorporated by reference
                  to
                  Exhibit 10.2 to Amendment No. 1 on Form 10-K/A to the Company’s Annual
                  Report on Form 10-K for the year ended March 31, 2006, File No.
                  1-31747)10.3
              Amended
                  and Restated Factoring Agreement between the Registrant and The
                  CIT Group
                  Commercial Services Inc. (“CIT”), dated 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)
  18
  10.4
              Amended
                  and Restated Inventory Security 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 10.2 to the Company’s Current Report on Form 8-K
                  filed June 26, 2007, File No. 1-31747)10.5
              Credit
                  Agreement between International Conduits Ltd. (“Icon”) and CIT Financial
                  Ltd. (“CIT Canada”), dated June 22, 2007 (“CIT Canada Credit Agreement”)
                  (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
                  on Form 8-K filed June 26, 2007, File No. 1-31747)10.6
              General
                  Security Agreement between CIT Canada and Icon, dated June 22,
                  2007, with
                  respect to the obligations of Icon under the CIT Canada Credit
                  Agreement
                  (incorporated by reference to Exhibit 10.4 to the Company’s Current Report
                  on Form 8-K filed June 26, 2007, File No. 1-31747)10.7
              Guaranty
                  made by the Registrant and USI Electric Inc., in favor of CIT Canada,
                  dated June 22, 2007, with respect to the obligations of Icon under
                  the CIT
                  Canada Credit Agreement (incorporated by reference to Exhibit 10.5
                  to the
                  Company’s Current Report on Form 8-K filed June 26, 2007, File No.
                  1-31747)10.8
              Lease
                  between Universal Security Instruments, Inc. and National Instruments
                  Company dated October 21, 1999 for its office and warehouse located
                  at 7-A
                  Gwynns Mill Court, Owings Mills, Maryland 21117 (incorporated by
                  reference
                  to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the
                  Fiscal Year Ended March 31, 2000, File No. 1-31747)10.9
              Amended
                  and Restated Employment Agreement dated July 18, 2006 between the
                  Company
                  and Harvey B. Grossblatt (incorporated by reference to Exhibit
                  10.7 to the
                  Company’s Quarterly Report on Form 10-Q for the period ended December 31,
                  2006, File No. 1-31747)31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer*31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer*32.1
              Section
                  1350 Certifications*99.1
              Press
                  Release dated February 13,
                  2008*




*Filed
      herewith




19





**SIGNATURES**





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





**UNIVERSAL
                SECURITY INSTRUMENTS, INC.**(Registrant)Date:
                February 13, 2008
            By:
            /s/
                Harvey B. GrossblattHarvey
                B. GrossblattPresident,
                Chief Executive OfficerBy:
            /s/
                James B. HuffJames
                B. HuffVice
                President, Chief Financial Officer





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