**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 June 30, 2008





OR


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


SECURITIES
      EXCHANGE ACT OF 1934





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





**UNIVERSAL
      SECURITY INSTRUMENTS, INC.**





(Exact
      name of registrant as specified in its charter)





**Maryland**
            **52-0898545**(State
                or other jurisdiction of
            (I.R.S.
                Employerincorporation
                or organization)
            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  ̈





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





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





At
      August
      8, 2008, the number of shares outstanding of the registrant’s common stock was
      2,486,567.










**TABLE
      OF CONTENTS**





**Page****Part
                I - Financial Information****Item
                1.**
            Consolidated
                Financial Statements (unaudited):
            
            3Consolidated
                Balance Sheets at June 30, 2008 and March 31, 2008
            
            3Consolidated
                Statements of Earnings for the Three Months Ended June 30, 2008 and
                2007
            
            4Consolidated
                Statements of Cash Flows for the Three Months Ended June 30, 2008
                and
                2007
            
            5Notes
                to Consolidated Financial Statements
            
            6**Item
                2.**
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            10**Item
                3.**
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            13**Item
                4.**
            Controls
                andProcedures
            
            13**Part
                II - Other Information****Item
                1.**
            Legal
                Proceedings
            
            14**Item
                6.**
            Exhibits
            
            14Signatures
            
            15


2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
              1.**
            FINANCIAL
                STATEMENTS





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


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**





June 30, 2008
            
            March 31, 2008**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            3,288,509
            
            $
            3,863,784Accounts
                receivable:Trade
                less allowance for doubtful accounts of $15,000
            
            
            524,619
            
            
            261,678Recoverable
                taxes and other receivables
            
            
            282,054
            
            
            282,083806,673
            
            
            543,761Amount
                due from factor
            
            
            5,689,667
            
            
            5,600,408Inventories,
                net of allowance for obsolete inventory of $40,000
            
            
            6,814,018
            
            
            5,357,488Prepaid
                expenses
            
            
            345,561
            
            
            206,197Assets
                held for sale
            
            
            2,729,142
            
            
            2,850,731TOTAL
                CURRENT ASSETS
            
            
            19,673,570
            
            
            18,422,369DEFERRED
                TAX ASSET
            
            
            1,814,134
            
            
            1,914,136INVESTMENT
                IN HONG KONG JOINT VENTURE
            
            
            10,279,352
            
            
            9,986,579PROPERTY
                AND EQUIPMENT – NET
            
            
            119,035
            
            
            130,347OTHER
                ASSETS
            
            
            15,486
            
            
            15,486TOTAL
                ASSETS
            
            $
            31,901,577
            
            $
            30,468,917**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**CURRENT
                LIABILITIESAccounts
                payable
            
            $
            3,602,218
            
            $
            2,465,292Accrued
                liabilities:Litigation
                reserve
            
            
            401,592
            
            
            401,592Payroll
                and employee benefits
            
            
            215,603
            
            
            158,057Commissions
                and other
            
            
            56,579
            
            
            105,431Liabilities
                held for sale
            
            
            7,816,252
            
            
            7,823,450TOTAL
                CURRENT LIABILITIES
            
            
            12,092,244
            
            
            10,953,822Long-term
                liability – other
            
            
            92,527
            
            
            91,160COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -SHAREHOLDERS’
              EQUITYCommon
                stock, $.01 par value per share; authorized 20,000,000 shares;issued
                and outstanding 2,487,867 shares at June 30, 2008 and March 31,2008
            
            
            24,879
            
            
            24,879Additional
                paid-in capital
            
            
            13,456,871
            
            
            13,453,378Retained
                earnings
            
            
            6,293,503
            
            
            5,890,023Other
                comprehensive (loss) income
            
            
            (58,447
            )
            
            55,655TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            19,716,806
            
            
            19,423,935TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            31,901,577
            
            $
            30,468,917





*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 June 30,2008
            
            2007Net
                sales
            
            $
            6,192,801
            
            $
            10,449,343Cost
                of goods sold
            
            
            4,615,735
            
            
            7,734,009GROSS
                PROFIT
            
            
            1,577,066
            
            
            2,715,334Research
                and development expense
            
            
            86,234
            
            
            69,890Selling,
                general and administrative expense
            
            
            1,243,934
            
            
            1,551,977Operating
                income
            
            
            246,898
            
            
            1,093,467Other
                income (expense):Interest
                income
            
            
            18,835
            
            
            -Interest
                expense
            
            
            -
            
            
            (58.497
            )INCOME
                BEFORE EQUITY IN EARNINGS OF JOINT VENTURE
            
            
            265,733
            
            
            1,034,970Equity
                in earnings of Joint Venture
            
            
            292,772
            
            
            599,750Income
                from continuing operations before income taxes
            
            
            558,505
            
            
            1,634,720Provision
                for income tax expense
            
            
            101,366
            
            
            429,876INCOME
                FROM CONTINUING OPERATIONS
            
            
            457,139
            
            
            1,204,844Discontinued
                operations:Loss
                from operations of the discontinued Canadian subsidiary
            
            
            (53,659
            )
            
            (413,842
            )Income
                tax benefit – discontinued operations
            
            
            -
            
            
            -Loss
                from discontinued operations
            
            
            (53,659
            )
            
            (413,842
            )NET
                INCOME
            
            $
            403,480
            
            $
            791,002Income
                (loss) per share:Basic
                – from continuing operations
            
            
            0.18
            
            
            0.49Basic
                – from discontinued operations
            
            
            (0.02
            )
            
            (0.17
            )Basic
                – net income
            
            
            0.16
            
            
            0.32Diluted
                – from continuing operations
            
            
            0.18
            
            
            0.48Diluted
                – from discontinued operations
            
            
            (0.02
            )
            
            (0.17
            )Diluted
                – net income
            
            
            0.16
            
            
            0.31Shares
                used in computing net income per share:Basic
            
            
            2,487,867
            
            
            2,479,979Diluted
            
            
            2,487,867
            
            
            2,533,733





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


4


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


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(Unaudited)**




Three Months Ended June 30,2008
              
              2007OPERATING
                  ACTIVITIESNet
                  income
              
              $
              403,480
              
              $
              791,002Adjustments
                  to reconcile net income to net cash (used in) provided by operating
                  activities:Operations
                  of discontinued subsidiary
              
              
              289
              
              
              (2,495,581
              )Depreciation
                  and amortization
              
              
              11,312
              
              
              10,423Earnings
                  of the Joint Venture
              
              
              (292,772
              )
              
              (599,750
              )Changes
                  in operating assets and liabilities:(Increase)
                  Decrease in accounts receivable and amounts due from
                  factor
              
              
              (352,171
              )
              
              127,836Increase
                  in inventories and prepaid expenses
              
              
              (1,595,894
              )
              
              (720,031
              )Increase
                  in accounts payable and accrued expenses
              
              
              1,150,480
              
              
              535,715Decrease
                  in deferred taxes and other assets
              
              
              100,001
              
              
              5,380NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (575,275
              )
              
              (2,345,006
              )INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              -
              
              
              (24,916
              )Activity
                  of discontinued operation
              
              
              -
              
              
              (923,012
              )NET
                  CASH USED IN INVESTING ACTIVITIES
              
              
              -
              
              
              (947,928
              )FINANCING
                  ACTIVITIES:Tax
                  benefit from exercise of stock options
              
              
              -
              
              
              44,076Payments
                  net of borrowing from Commercial Bank
              
              
              -
              
              
              (1,222,554
              )Activities
                  of discontinued subsidiary
              
              
              -
              
              
              4,457,012Proceeds
                  from issuance of common stock from exercise of employeestock
                  options
              
              
              -
              
              
              50,778NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              -
              
              
              3,329,312(DECREASE)
                  INCREASE IN CASH
              
              
              (575,275
              )
              
              36,378Cash
                  at beginning of period
              
              
              3,863,784
              
              
              -CASH
                  AT END OF PERIOD
              
              $
              3,288,509
              
              $
              36,378Supplemental
                  information:Interest
                  paid
              
              $
              -
              
              $
              -





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


5





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


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**





**Statement
      of Management**





The
      consolidated financial statements include the accounts of Universal Security
      Instruments, Inc. (USI or the Company) and its majority owned subsidiaries.
      Significant inter-company accounts and transactions have been eliminated in
      consolidation. In the opinion of the Company’s management, the interim
      consolidated financial statements include all adjustments, consisting of only
      normal recurring adjustments, necessary for a fair presentation of the results
      for the interim periods. Certain information and footnote disclosures normally
      included in financial statements prepared in accordance with generally accepted
      accounting principles in the United States of America have been condensed or
      omitted. The interim consolidated financial statements should be read in
      conjunction with the Company’s March 31, 2008 audited financial statements filed
      with the Securities and Exchange Commission on Form 10-K. The interim operating
      results are not necessarily indicative of the operating results for the full
      fiscal year.





**Discontinued
      Operations**





In
      October 2006, we formed 2113824 Ontario, Inc., an Ontario corporation, as a
      wholly-owned subsidiary of the Company for the purpose of acquiring a two-thirds
      interest in two Canadian corporations, International Conduits, Ltd. (Icon)
      and
      Intube, Inc. (Intube). Icon and Intube are based in Toronto, Canada and
      manufacture and distribute electrical mechanical tubing (EMT) steel conduit.
      Icon also sells 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 are secured by all of
      the
      assets of Icon and by the corporate guarantees of the Company and our USI
      Electric subsidiary.





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





At
      the
      time of the investment in Icon, management projected that the established U.S.
      sales network would allow us to increase sales of EMT to U.S. customers. Despite
      our efforts, Icon suffered continuing losses, and we were not successful in
      increasing Icon’s sales in the face of competition and a weakening U.S. dollar.
      On January 29, 2008, Icon received notice from CIT Financial, Ltd. (CIT Canada),
      Icon’s principal and secured lender, that Icon was in default under the terms of
      the Credit Agreement dated 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, the operations of Icon were suspended
      and the assets of Icon are classified as assets held for sale in the
      consolidated balance sheets. Accordingly, the consolidated financial statements
      and the related note disclosures reflect the operations of Icon as discontinued
      operations for all periods presented.





As
      a
      result of Icon’s receivership and the steps taken to liquidate Icon’s assets, we
      have written down the non cash assets of Icon to their estimated net realizable
      value as of March 31, 2008. At June 30, 2008, the assets of Icon held by the
      receiver consist of cash of $1,473,110, trade accounts receivable (net of
      allowance for doubtful accounts of $97,878) of $30,000, inventories (net of
      allowance for excess and obsolete inventory of $247,500) of $199,117, and
      prepaid expenses of $6,893, amounting to total current assets of $1,709,120.
      At
      March 31, 2008, property, plant and equipment is shown at a net realizable
      value
      of $831,555. Management has revised its estimate of net realizable value at
      June
      30, 2008 to $1,020,022. Subsequent to June 30, 2008, the property, plant and
      equipment was sold at auction for approximately $1,034,000. The total value
      of
      assets net of applicable allowances and impairment reserves at June 30, 2008
      is
      $2,729,142.




6


At
      June
      30, 2008, the liabilities of Icon include trade accounts payable to unsecured
      creditors of $3,146,308, and secured notes payable to CIT Financial, Ltd. of
      $4,620,444. Other
      secured payables are $49,500. The total liabilities of Icon at June 30, 2008
      are
      $7,816,252.





As
      noted
      above, the assets held for sale related to the discontinued Canadian operations
      were adjusted to net realizable value based on management’s estimates. The
      process of completing the liquidation of Icon’s assets is continuing and the
      Company believes the process will continue into the second quarter of our 2009
      fiscal year. Accordingly, the actual impairment charges incurred could differ
      based on the results of the liquidation process.





Subsequent
      to June 30, 2008, on July 16, 2008, the receiver in possession of the assets
      of
      International Conduits, Ltd. (Icon) held a public auction to liquidate
      production machinery and equipment held for sale. The assets offered at public
      auction had previously been recorded at their appraised net realizable value
      and
      are recorded on the books and records of Icon at U.S. $831,555 as of March
      31,
      2008. Auction proceeds, net of auction fees, amounted to U.S.
      $1,033,652.





We
      anticipate that Icon’s obligations will be settled in the Ontario receivership
      action during the Company’s fiscal year ending March 31, 2009. Based on foreign
      currency exchange rates at June 30, 2008 and as a result of the settlement
      of
      Icon’s obligations, we expect that the Company will record a gain of between
      $3,750,000 and $4,250,000 due to debt abatement. The debt abatement is expected
      to be realized as the shortfall between the net proceeds of the liquidation
      of
      Icon’s assets and the total obligations of Icon.





In
      the
      accompanying consolidated financial statements, the results of Icon for the
      three months ended June 30, 2007 have been restated and are presented as the
      results of discontinued operations, and certain other prior year amounts have
      been restated in order to conform with the current year’s
      presentation.





**Income
      Taxes**





A
      provision for federal and state income taxes of $101,366 and $429,876 has been
      provided for the three month periods ended June 30, 2008 and 2007, respectively.
      For income tax purposes, this provision is reduced by a $0 and $44,076 benefit
      derived from deductions associated with the exercise of employee stock options
      for the three month periods ended June 30, 2008 and 2007, respectively. Under
      FAS 123, the tax benefit of this deduction has been treated as a credit to
      additional paid in capital and will not require a cash payment for income taxes.
      For the three month period ended June 30, 2008, federal and state income taxes
      are $97,866 and $3,500, respectively. For the three month period ended June
      30,
      2007, federal and state income taxes are $388,469 and $41,407,
      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.





In
      connection with the adoption of FIN 48, the Company recorded an initial
      liability of approximately $86,000 for income taxes, interest and penalties
      related to unrecognized tax benefits. Simultaneously, the Company recorded
      a
      reduction to retained earnings. With the adoption of FIN 48, the Company has
      chosen to treat interest and penalties related to uncertain tax liabilities
      as
      income tax expense. As of June 30, 2008, this liability with imputed interest
      is
      $92,527.





**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
      three months ended June 30, 2008 and 2007:





2008
            
            2007Net
                sales
            
            $
            7,797,035
            
            $
            8,961,882Gross
                profit
            
            
            1,822,409
            
            
            2,338,140Net
                income
            
            
            587,885
            
            
            1,080,789Total
                current assets
            
            
            16,206,245
            
            
            13,793,083Total
                assets
            
            
            25,758,228
            
            
            25,458,275Total
                current liabilities
            
            
            5,780,722
            
            
            6,779,592




7





During
      the three months ended June 30, 2008 and 2007, respectively, the Company
      purchased $5,196,060 and $6,271,324 of products from the Joint Venture. For
      the
      quarters ended June 30, 2008 and 2007, the Company has adjusted its equity
      in
      earnings of the Joint Venture to reflect a reduction of $1,171 and $59,355
      for
      inter-company profit in inventory as required by US GAAP.





**Foreign
      Currency Translation**





The
      financial statements of the Company's foreign subsidiaries acquired in October
      2006 have been translated into U.S. dollars in accordance with Statement of
      Financial Accounting Standards ("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 foreign
      subsidiaries 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. 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 are included in the consolidated
      statements of income. The Company maintains cash in foreign banks to support
      its
      operations in Canada and Hong Kong.





**Net
      Income Per Common Share**





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





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





Three Months Ended
              June 30,2008
            
            2007Weighted
                average number of common shares outstanding for basic EPS
            
            
            2,487,867
            
            
            2,479,979Shares
                issued upon the assumed exercise of outstanding stock
                options
            
            
            -
            
            
            53,754Weighted
                average number of common and common equivalent shares outstanding
                for
                diluted EPS
            
            
            2,487,867
            
            
            2,533,733





Total
      outstanding options to purchase 88,921 and 0 shares of common stock as of June
      30, 2008 and 2007, respectively, are not included in the above calculations
      as
      their effect would be anti-dilutive.





**Stock
      Based Compensation**





As
      of
      June 30, 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.




8


As
      a
      result of adopting SFAS No. 123R, net income for the three months ended June
      30,
      2008 was reduced by $3,494. No portion of employees’ compensation, including
      stock compensation expense, was capitalized during the period.





During
      the three month period ended June 30, 2007, 5,466 shares of our common stock
      have been issued as a result of the exercise of the options granted under the
      plan. The tax benefit, for income tax purposes, of $44,076 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 period ended June 30, 2008 and 2007, no stock options were
      granted.





*Stock
      Compensation Expense.* We have
      elected to continue straight-line amortization of stock-based compensation
      expense over the requisite service period. Prior to the adoption of SFAS
      No. 123R, we recognized the effect of forfeitures in our pro forma
      disclosures as they occurred. In accordance with the new standard, we have
      estimated forfeitures and are only recording expense on shares we expect to
      vest. For the three months ended June 30, 2008 and 2007, we recorded $3,494
      and
      $6,438, respectively of stock-based compensation cost as general and
      administrative expense in our statement of operations. No forfeitures have
      been
      estimated. No portion of employees’ compensation including stock compensation
      expense was capitalized during the period.





As
      of
      June 30, 2007, there was $4,242 of unrecognized compensation cost related to
      share-based compensation arrangements that we expect to vest. This cost will
      be
      fully amortized in the current fiscal year. The aggregate intrinsic value of
      currently exercisable options was $0 at June 30, 2008.





**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.





*Fair
      Value Measurements* :
      In
      September 2007, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 157, *Fair
      Value Measurement (SFAS 157)* .
      This
      standard clarifies the principle that fair value should be based on the
      assumptions that market participants would use when pricing an asset or
      liability. Additionally, it establishes a fair value hierarchy that prioritizes
      the information used to develop those assumptions. SFAS 157 is effective for
      financial statements issued for fiscal years beginning after November 15, 2008.
      The Company has not yet determined the impact that the implementation of SFAS
      157 will have on its results of operations or financial condition.





*The
      Fair Value Option for Financial Assets and Financial
      Liabilities* :
      In
      February 2008, the FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* ,
      including an amendment of FASB Statements No. 115 (SFAS No. 159). SFAS No.
      159
      permits entities to choose, at specified election dates, to measure eligible
      items at fair value (the “fair value option”). A business entity shall report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings at each subsequent reporting period. This accounting
      standard is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2008. The effect, if any, of adopting SFAS No. 159
      on
      the Company’s financial position and results of operations has not been
      finalized.




**Reclassifications**





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


9


**ITEM
              2.**
            MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
                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 months
      ended June 30, 2008 and 2007 relate to the operational results of the Company
      only. A discussion and analysis of the Hong Kong Joint Venture’s operational
      results for these periods is presented below under the heading “Joint
      Venture.” ****





**Discontinued
      Canadian Operations**





As
      previously reported, as a result of continuing losses at our Canadian
      subsidiary, International Conduits, Ltd. (Icon), 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.





As
      a
      result of Icon’s receivership and the steps taken to liquidate Icon’s assets, we
      have written down the non cash assets of Icon to their estimated net realizable
      value as of March 31, 2008. At June 30, 2008, the assets of Icon held by the
      receiver consist of cash of $1,473,110, trade accounts receivable (net of
      allowance for doubtful accounts of $97,878) of $30,000, inventories (net of
      allowance for excess and obsolete inventory of $247,500) of $199,117, and
      prepaid expenses of $6,893, amounting to total current assets of $1,709,120.
      At
      March 31, 2008, property, plant and equipment is shown at a net realizable
      value
      of $831,555. Management has revised its estimate of net realizable value at
      June
      30, 2008 at approximately $1,020,000. Subsequent to June 30, 2008, the property,
      plant and equipment was sold at auction for approximately $1,034,000. The total
      value of assets net of applicable allowances and impairment reserves at June
      30,
      2008 is $2,729,142.





At
      June
      30, 2008, the liabilities of Icon include trade accounts payable to unsecured
      creditors of $3,146,307, secured notes payable to CIT Financial, Ltd. of
      $4,620,444 and other secured amounts payable of $49,500. The total liabilities
      of Icon at June 30, 2008 are $7,816,252.





As
      noted
      above, the assets held for sale related to the discontinued Canadian operations
      were adjusted to net realizable value based on management’s estimates. The
      process of completing the liquidation of Icon’s assets is continuing and the
      Company believes the process will continue into the second quarter of our 2009
      fiscal year. Accordingly, the actual impairment charges actually incurred could
      differ based on the actual results of the liquidation process.





We
      anticipate that Icon’s obligations will be settled in the Ontario receivership
      action during the Company’s fiscal year ending March 31, 2009. Based on foreign
      currency exchange rates at June 30, 2008 and as a result of the settlement
      of
      Icon’s obligations, we expect that the Company will record a gain of between
      $3,750,000 and $4,250,000 due to debt abatement. The debt abatement is expected
      to be realized as the shortfall between the net proceeds of the liquidation
      of
      Icon’s assets and the total obligations of Icon.




10


The
      results of Icon for the three month period ended June 30, 2007 have been
      restated and are presented in our financial statements as the results of
      discontinued operations, and certain prior year amounts have been restated
      in
      order to conform with the current year’s presentation.





**Results
      of Operations**





**Three
      Months Ended June 30, 2008 and 2007**




*Sales.* Net
      sales for the three months ended June 30, 2008 were $6,192,801 compared to
      $10,449,343 for the comparable three months in the prior fiscal year, a decrease
      of $4,256,542 (40.1%). The primary reasons for the decrease in net sales volumes
      was sales of our core product lines to the electrical distribution trade,
      including smoke alarms, carbon monoxide alarms and ground fault circuit
      interrupter (GFCI) units decreased due to a decrease in new home construction
      during the quarter. In addition, we have not been able to import GFCI devices
      because the manufacturer has not yet received certifications for mandated
      changes to the devices.





*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 26.0% of sales for the quarters ended June 30,
      2008
      and 2007, respectively. The decrease in gross profit margin was primarily due
      to
      a lower gross profit margin realized on sales to a national home improvement
      retailer.





*Expenses.* Research
      and development, and selling, general and administrative expenses decreased
      by
      $291,699 from the comparable three months in the prior year. As a percentage
      of
      net sales, these expenses increased to 21.5% for the three month period ended
      June 30, 2008, from 15.5% for the 2007 period. The decrease in dollars spent
      was
      primarily due to a reduction in commissions and freight costs associated with
      lower sales, and the increase in costs as a percentage was primarily due to
      fixed costs that did not decrease at the same rate as sales.





*Interest
      Expense and Income.* Our
      interest income on cash deposits, net of interest charges, was $18,835 for
      the
      quarter ended June 30, 2008, compared to net interest expense of $58,497 for
      the
      quarter ended June 30, 2007. Net interest expense in the prior years quarterly
      period resulted from borrowings by us in support of our Canadian
      subsidiary.





*Income
      Taxes.* During
      the quarter ended June 30, 2008, the Company had a net income tax expense of
      $101,366. For the corresponding 2007 period, the Company has a provision for
      income taxes of $429,876. The decrease in current income tax expense reflects
      reduced taxable income in the period ended June 30, 2008





*Net
      Income.* We
      reported net income of $403,480 for the quarter ended June 30, 2008, compared
      to
      net income of $791,002 for the corresponding quarter of the prior fiscal year.
      The primary reasons for the decrease in net income is a decrease of $306,978
      in
      the Company’s equity in the earnings of the Joint Venture from the same period
      of the prior year and a reduction in earnings due to a decrease in new home
      construction during the quarter.





**Financial
      Condition and Liquidity**





The
      Company has a Factoring Agreement which supplies both short-term borrowings
      and
      letters of credit to finance foreign inventory purchases. The maximum amount
      available under the Factoring Agreement is currently $7,950,000. Based on
      specified percentages of our accounts receivable and inventory and letter of
      credit commitments and reduced by $3,000,000 representing the Company’s
      guarantee of the term loan facility of Icon, we had $4,950,000 available under
      the Factoring Agreement. There are no amounts borrowed under this agreement
      as
      of June 30, 2008. The interest rate under the Factoring Agreement on the
      uncollected factored accounts receivable and any additional borrowings is equal
      to the prime rate of interest charged by our lender. At June 30, 2008, the
      prime
      rate was 5.0%. Borrowings are collateralized by all of our accounts receivable
      and inventory.





Our
      non-factored accounts receivable as of the end of our last fiscal year (net
      of
      allowances for doubtful accounts) were $5,600,408, and were $5,689,667 as of
      June 30, 2008. Our prepaid expenses as of the end of our last fiscal year were
      $206,197, and were $345,561 as of June 30, 2008. The increase in prepaid
      expenses during the first three months of the current fiscal year is due to
      the
      timing of premium payments to various insurance carriers.





Operating
      activities used cash of $575,275 for the three months ended June 30, 2008.
      This
      was primarily due to an increase in accounts receivable of $352,171, an increase
      in accounts payable and accrued expenses of $1,150,480, increases in inventories
      and prepaid expenses of $1,595,894, and earnings of the Joint Venture of
      $292,772. For the same period last year, operating activities used cash of
      $2,345,006, primarily as a result of unremitted earnings of the Hong Kong Joint
      Venture, increases in inventory and prepaid expenses, and the operations of
      the
      discontinued subsidiary.




11


Investing
      activities provided no cash during the three months ended June 30, 2008.
      Investing activities used $947,928 in the prior period, principally as a result
      of the activities of the discontinued operations.





Financing
      activities provided no cash during the three months ended June 30, 2008. In
      the
      comparable three months in the prior year, financing activities provided cash
      of
      $3,329,312, primarily from the activities of the discontinued
      operations.





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





**Joint
      Venture**





*Net
      Sales.* Net
      sales of the Joint Venture for the three months ended June 30, 2008 were
      $7,797,035, compared to $8,961,882, for the comparable period in the prior
      fiscal year. The decrease in net sales for the three month period was due to
      decreased sales of smoke alarm products to non-related customers.





*Net
      Income.* Net
      income for the three months ended June 30, 2008 was $587,885, compared to
      $1,080,789 in the comparable period last year. The 45.6% decrease in net income
      for the three month period was due primarily to reduced sales to non-related
      customers.





*Gross
      Margins.* Gross
      margins of the Joint Venture for the three month period ended June 30, 2008
      decreased to 23.4% from 26.1% for the 2007 period. Since gross margins depend
      on
      sales volume of various products, changes in the sales mix to items sold to
      a
      large U.S. national retailer caused these changes in gross margins.





*Expenses.* Selling,
      general and administrative expenses were $1,218,586, for the three month period
      ended June 30, 2008, compared to $1,245,860 in the prior year’s period. As a
      percentage of sales, expenses were 15.6% for the three month period ended June
      30, 2008, compared to 13.9% for the three month period ended June 30, 2007.
      The
      increase in selling, general and administrative expense as a percent of sales
      was primarily due to fixed costs that did not decrease at the same rate as
      sales.





*Interest
      Income and Expense.* Interest
      expense, net of interest income, was $1,494 for the three month period ended
      June 30, 2008, compared to net interest income of $5,975 for the prior year’s
      period. Net interest expense resulted from an increase in the Joint Venture’s
      borrowings.





*Liquidity.* Cash
      needs of the Joint Venture are currently met by funds generated from operations.
      During the three months ended June 30, 2008, working capital increased by
      $3,645,931 from $6,779,592 on March 31, 2008 to $10,425,523 on June 30,
      2008.





**Critical
      Accounting Policies**





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


12




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





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





Inventories
      are valued at the lower of market or cost. Cost is determined on the first-in
      first-out method. We have recorded a reserve for obsolescence or unmarketable
      inventory equal to the difference between the cost of inventory and the
      estimated market value based upon assumptions about future demand and market
      conditions. Management reviews the reserve quarterly. Shipping and handling
      costs incurred by the Company to deliver goods to its customers are not included
      in costs of goods sold but are presented as an element of selling, general
      and
      administrative expense within the condensed consolidated statements of earnings.
      The Company incurred $175,676 and $189,851 of shipping and handling costs in
      the
      quarters ended June 30, 2008 and 2007, respectively.




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





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





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





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





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





**ITEM
              4.**
            CONTROLS
                AND PROCEDURES





We
      maintain a system of disclosure controls and procedures that is designed to
      provide reasonable assurance that information, which is required to be disclosed
      by us in the reports that we file or submit under the Securities and Exchange
      Act of 1934, as amended, is recorded, processed, summarized and reported within
      the time periods specified in the rules and forms of the Securities and Exchange
      Commission, and is accumulated and communicated to management in a timely
      manner. Our Chief Executive Officer and Chief Financial Officer have evaluated
      this system of disclosure controls and procedures as of the end of the period
      covered by this quarterly report, and 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.


13





**PART
      II - OTHER INFORMATION**





**ITEM
              1.**
            LEGAL
                PROCEEDINGS





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 July 25, 2008, File No.
                1-31747)10.1
            Non-Qualified
                Stock Option Plan, as amended (incorporated by reference to Exhibit
                10.1
                to the Company’s Quarterly Report on Form 10-Q for the period ended
                September 30, 2003, File No. 1-31747)10.2
            Hong
                Kong Joint Venture Agreement, as amended (incorporated by reference
                to
                Exhibit 10.2 to Amendment No. 1 on Form 10-K/A 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)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 September 30,
                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 August 13, 2008*





*Filed
      herewith


14




**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:
                August 13, 2008
            By:
            /s/
                Harvey B. GrossblattHarvey
                B. GrossblattPresident,
                Chief Executive OfficerBy:
            /s/
                James B. HuffJames
                B. HuffVice
                President, Chief Financial Officer




15