**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 September 30, 2008





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
            (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
o





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





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





At
      November 10, 2008, the number of shares outstanding of the registrant’s common
      stock was 2,476,367.










**TABLE
      OF CONTENTS**


**Page****Part
                  I - Financial Information****Item
                  1.**
              Consolidated
                  Financial Statements (unaudited):Consolidated
                  Balance Sheets at September 30, 2008 and March 31, 2008
              
              3Consolidated
                  Statements of Earnings for the Three Months Ended September 30,
                  2008 and
                  2007
              
              4Consolidated
                  Statements of Earnings for the Six Months Ended September 30, 2008
                  and
                  2007
              
              5Consolidated
                  Statements of Cash Flows for the Six Months Ended September 30,
                  2008 and
                  2007
              
              6Notes
                  to Consolidated Financial Statements
              
              7**Item
                  2.**
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              11**Item
                  3.**
              Quantitative
                  and Qualitative Disclosure About Market Risk
              
              16**Item
                  4.**
              Controls
                  and Procedures
              
              17**Part
                  II - Other Information****Item
                  1.**
              Legal
                  Proceedings
              
              17**Item
                  2.**
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              18**Item
                  4.**
              Submission
                  of Matters to a Vote of Security Holders
              
              18**Item
                  6.**
              Exhibits
              
              19Signatures
              
              20




2


**PART
      I - FINANCIAL INFORMATION**





**ITEM
              1.**
            FINANCIAL
                STATEMENTS





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


**CONSOLIDATED
      BALANCE SHEETS**


**(Unaudited)**





September 30, 2008
            
            March 31, 2008**ASSETS**CURRENT
                ASSETSCash
                and cash equivalents
            
            $
            22,298
            
            $
            3,863,784Accounts
                receivable:Trade
                less allowance for doubtful accounts of $95,927 and $15,000 at September
                30, 2008 and March 31, 2008
            
            
            511,644
            
            
            146,022Recoverable
                taxes and other receivables
            
            
            282,695
            
            
            282,083Receivable
                from Hong Kong Joint Venture
            
            
            200,560
            
            
            115,656994,899
            
            
            543,761Amount
                due from factor
            
            
            5,848,088
            
            
            5,600,408Inventories,
                net of allowance for obsolete inventory of $40,000 atSeptember
                30, 2008 and March 31, 2008
            
            
            8,684,870
            
            
            5,357,488Prepaid
                expenses
            
            
            342,790
            
            
            206,197Assets
                held for sale
            
            
            260,009
            
            
            2,850,731TOTAL
                CURRENT ASSETS
            
            
            16,152,954
            
            
            18,422,369DEFERRED
                TAX ASSET
            
            
            2,683,968
            
            
            1,914,136INVESTMENT
                IN HONG KONG JOINT VENTURE
            
            
            10,662,922
            
            
            9,986,579PROPERTY
                AND EQUIPMENT – NET
            
            
            107,722
            
            
            130,347OTHER
                ASSETS
            
            
            15,486
            
            
            15,486TOTAL
                ASSETS
            
            $
            29,623,052
            
            $
            30,468,917**LIABILITIES
                AND SHAREHOLDERS’ EQUITY**CURRENT
                LIABILITIESAmount
                due to factor
            
            $
            625,594
            
            $
            0Accounts
                payable
            
            
            819,977
            
            
            777,342Hong
                Kong Joint Venture accounts payable
            
            
            2,942,011
            
            
            1,687,950Accrued
                liabilities:Litigation
                reserve
            
            
            401,592
            
            
            401,592Payroll
                and employee benefits
            
            
            369,875
            
            
            158,057Commissions
                and other
            
            
            260,772
            
            
            105,431Liabilities
                held for sale
            
            
            260,009
            
            
            7,823,450TOTAL
                CURRENT LIABILITIES
            
            
            5,679,830
            
            
            10,953,822Long-term
                liability – other
            
            
            93,915
            
            
            91,160COMMITMENTS
                AND CONTINGENCIES
            
            
            -
            
            
            -SHAREHOLDERS’
                EQUITYCommon
                stock, $.01 par value per share; authorized 20,000,000 shares;issued
                and outstanding 2,483,867 shares at September 30, 2008 and2,487,867
                shares at March 31, 2008
            
            
            24,840
            
            
            24,879Additional
                paid-in capital
            
            
            13,439,750
            
            
            13,453,378Retained
                earnings
            
            
            10,384,717
            
            
            5,890,023Other
                comprehensive income
            
            
            -
            
            
            55,655TOTAL
                SHAREHOLDERS’ EQUITY
            
            
            23,849,307
            
            
            19,423,935TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            29,623,052
            
            $
            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 September 30,2008
            
            2007Net
                sales
            
            $
            8,381,379
            
            $
            9,689,537Cost
                of goods sold – acquired from Joint Venture
            
            
            4,825,503
            
            
            3,987,325Cost
                of goods sold – other
            
            
            1,664,603
            
            
            3,759,858GROSS
                PROFIT
            
            
            1,891,273
            
            
            1,942,354Research
                and development expense
            
            
            85,184
            
            
            90,777Selling,
                general and administrative expense
            
            
            1,649,290
            
            
            1,520,071Operating
                income
            
            
            156,799
            
            
            331,506Other
                income (expense):Interest
                income
            
            
            23,041
            
            
            -Interest
                expense
            
            
            (26,300
            )
            
            (12,364
            )INCOME
                BEFORE EQUITY IN EARNINGS OF JOINT VENTURE
            
            
            153,540
            
            
            319,142Equity
                in earnings of Joint Venture
            
            
            600,190
            
            
            590,965Income
                from continuing operations before income taxes
            
            
            753,730
            
            
            910,107Provision
                for income tax expense
            
            
            97,429
            
            
            108,000INCOME
                FROM CONTINUING OPERATIONS
            
            
            656,301
            
            
            802,107Discontinued
                operations:Gain
                (loss) from operations of the discontinued Canadian
                subsidiary
            
            
            2,469,041
            
            
            (483,977
            )Income
                tax benefit – discontinued operations
            
            
            965,872
            
            
            -Gain
                (loss) from discontinued operations
            
            
            3,434,913
            
            
            (483,977
            )NET
                INCOME
            
            $
            4,091,214
            
            $
            318,130Income
                (loss) per share:Basic –
                from continuing operations
            
            
            0.26
            
            
            0.32Basic
                – from discontinued operations
            
            
            1.38
            
            
            (0.19
            )Basic
                – net income
            
            
            1.64
            
            
            0.13Diluted
                – from continuing operations
            
            
            0.26
            
            
            0.32Diluted
                – from discontinued operations
            
            
            1.38
            
            
            (0.19
            )Diluted
                – net income
            
            
            1.64
            
            
            0.13Shares
                used in computing net income per share:Basic
            
            
            2.486,176
            
            
            2,483,605Diluted
            
            
            2,486,176
            
            
            2,515,513




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




4




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


**CONSOLIDATED
      STATEMENTS OF EARNINGS**


**(Unaudited)**





Six Months Ended September 30,2008
            
            2007Net
                sales
            
            $
            14,574,180
            
            $
            19,375,195Cost
                of goods sold - acquired from Joint Venture
            
            
            8,097,713
            
            
            8,175,063Cost
                of goods – other
            
            
            3,008,128
            
            
            6,535,929GROSS
                PROFIT
            
            
            3,468,339
            
            
            4,664,203Research
                and development expense
            
            
            171,418
            
            
            160,667Selling,
                general and administrative expense
            
            
            2,893,224
            
            
            3,075,606Operating
                income
            
            
            403,697
            
            
            1,427,930Other
                income (expense):Interest
                income
            
            
            41,876
            
            
            -Interest
                expense
            
            
            (26,300
            )
            
            (70,861
            )INCOME
                BEFORE EQUITY IN EARNINGS OF JOINT VENTURE
            
            
            419,273
            
            
            1,357,069Equity
                in earnings of Joint Venture
            
            
            892,962
            
            
            1,190,715Income
                from continuing operations before income taxes
            
            
            1,312,235
            
            
            2,547,784Provision
                for income tax expense
            
            
            198,795
            
            
            537,876INCOME
                FROM CONTINUING OPERATIONS
            
            
            1,113,440
            
            
            2,009,908Discontinued
                operations:Gain
                (loss) from operations of the discontinued Canadian
                subsidiary
            
            
            2,415,382
            
            
            (900,775
            )Income
                tax benefit – discontinued operations
            
            
            965,872
            
            
            -Gain
                (loss) from discontinued operations
            
            
            3.381,254
            
            
            (900,775
            )NET
                INCOME
            
            $
            4,494,694
            
            $
            1,109,133Income
                (loss) per share:Basic
                – from continuing operations
            
            
            0.45
            
            
            0.81Basic
                – from discontinued operations
            
            
            1.36
            
            
            (0.36
            )Basic
                – net income
            
            
            1.81
            
            
            0.45Diluted
                – from continuing operations
            
            
            0.45
            
            
            0.80Diluted
                – from discontinued operations
            
            
            1.36
            
            
            (0.36
            )Diluted
                – net income
            
            
            1.81
            
            
            0.44Shares
                used in computing net income per share:Basic
            
            
            2,487,017
            
            
            2,481,802Diluted
            
            
            2,487,017
            
            
            2,523,316




*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)**




Six Months Ended September 30,2008
              
              2007OPERATING
                  ACTIVITIESNet
                  income
              
              $
              4,494,694
              
              $
              1,109,133Adjustments
                  to reconcile net income to net cash (used in) provided by operating
                  activities:Operations
                  of discontinued subsidiary
              
              
              (3,428,897
              )
              
              (2,942,808
              )Depreciation
                  and amortization
              
              
              22,625
              
              
              24,705Earnings
                  of the Joint Venture
              
              
              (892,962
              )
              
              (1,190,715
              )Changes
                  in operating assets and liabilities:(Increase)
                  decrease in accounts receivable and amounts due from
                  factor
              
              
              (698,818
              )
              
              1,734,038(Increase)
                  decrease in inventories and prepaid expenses
              
              
              (3,463,975
              )
              
              1,890,127Increase
                  (decrease) in accounts payable and accrued expenses
              
              
              1,663,855
              
              
              (2,937,262
              )(Decrease)
                  increase in deferred taxes and other assets
              
              
              (769,832
              )
              
              95,678NET
                  CASH USED IN OPERATING ACTIVITIES
              
              
              (3,073,310
              )
              
              (2,217,104
              )INVESTING
                  ACTIVITIES:Purchase
                  of property and equipment
              
              
              -
              
              
              (30,778
              )Activity
                  of discontinued operation
              
              
              2,590,722
              
              
              (1,813,739
              )Dividends
                  received from Joint Venture
              
              
              216,619
              
              
              323,716NET
                  CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
              
              
              2,807,341
              
              
              (1,520,801
              )FINANCING
                  ACTIVITIES:Purchase
                  and retirement of common stock
              
              
              (13,667
              )
              
              -Tax
                  benefit from exercise of stock options
              
              
              -
              
              
              72,752Borrowing
                  from (payments to) factor
              
              
              625,594
              
              
              (2,254,966
              )Activities
                  of discontinued subsidiary
              
              
              (4,187,444
              )
              
              6,279,738Proceeds
                  from issuance of common stock from exercise of employee stock
                  options
              
              
              -
              
              
              155,036NET
                  CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
              
              
              (3,575,517
              )
              
              4,252,560Impact
                  of foreign currency on cash
              
              
              -
              
              
              189,405(DECREASE)
                  INCREASE IN CASH
              
              
              (3,841,486
              )
              
              704,060Cash
                  at beginning of period
              
              
              3,863,784
              
              
              240,545CASH
                  AT END OF PERIOD
              
              $
              22,298
              
              $
              944,605Supplemental
                  information:Interest
                  paid
              
              $
              26,300
              
              $
              70,861




*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, 2008 audited financial statements filed
      with the Securities and Exchange Commission on Form 10-K. The interim operating
      results are not necessarily indicative of the operating results for the full
      fiscal year.





**Discontinued
      Operations**





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





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





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





At
      the
      time of the investment in Icon, management projected that the established U.S.
      sales network would allow us to increase sales of EMT to U.S. customers. Despite
      the Company’s efforts, Icon suffered continuing losses, and the Company was not
      successful in increasing Icon’s sales in the face of competition and a weakening
      U.S. dollar. On January 29, 2008, Icon received notice from CIT Financial,
      Ltd.
      (CIT Canada), Icon’s principal and secured lender, that Icon was in default
      under the terms of the Credit Agreement dated September 22, 2007 between Icon
      and CIT Canada and demanding immediate payment of all of Icon’s obligations to
      CIT Canada under the Credit Agreement. On February 11, 2008, the assets of
      Icon
      were placed under the direction of a court appointed receiver, the operations
      of
      Icon were suspended and the assets of Icon were classified as assets held for
      sale in the consolidated balance sheets. Accordingly, the consolidated
      statements of earnings and the related note disclosures reflect the operations
      of Icon as discontinued operations for all periods presented.





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




7





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





At
      September 30, 2008, the assets of Icon held by the receiver consisted of cash
      of
      US$260,009, and its liabilities include post-receivership accounts payable
      of
      US$87,009 and a pre-receivership trade account payable of approximately
      US$173,000. The pre-receivership trade account payable is subject to settlement
      in accordance with a “claim process” administrated by the receiver. To the
      extent any portion of the pre-receivership account payable is ultimately
      disallowed, that portion will reduce the gain from discontinued
      operations.





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





September 30, 2008
            
            March 31, 2008AssetsCash
            
            $
            260,009
            
            $
            823,550Trade
                receivables, net
            
            
            0
            
            
            371,793Inventories
            
            
            0
            
            
            817,022Property,
                plant and equipment - net
            
            
            0
            
            
            831,555Other
                assets
            
            
            0
            
            
            6,811Assets
                of discontinued operations
            
            $
            260,009
            
            $
            2,850,731LiabilitiesAccounts
                payable, trade and other
            
            $
            260,009
            
            $
            3,344,624Notes
                payable - bank
            
            
            0
            
            
            4,478,826Liabilities
                of discontinued operations
            
            $
            260,009
            
            $
            7,823,450





In
      the
      accompanying consolidated financial statements, the results of Icon for the
      three and six months ended September 30, 2008 have been restated and are
      presented as the results of discontinued operations, and certain other prior
      year amounts have been reclassified in order to conform with the current year’s
      presentation.





**Income
      Taxes**





A
      provision for federal and state income taxes on continuing operations of
      $198,795 and $537,876 has been provided for the six month periods ended
      September 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 six month periods
      ended September 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. An income tax benefit of
      $965,872 is recognized on the settlement of the Company’s guarantee of the
      discontinued subsidiary’s debt on the U.S. portion of the loss from discontinued
      operations. The benefit is presented in the discontinued operations section
      of
      the accompanying consolidated statements of earnings. For the three month
      periods ended September 30. 2008 and 2007, federal and state income taxes from
      continuing operations are $97,429 and $108,000, 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.





8


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 September 30, 2008, this liability with imputed
      interest is $93,915.





**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
      six months ended September 30, 2008 and 2007:





2008
            
            2007Net
                sales
            
            $
            19,667,762
            
            $
            15,773,412Gross
                profit
            
            
            5,146,125
            
            
            4,103,552Net
                income
            
            
            2,382,837
            
            
            1,871,242Total
                current assets
            
            
            17,985,028
            
            
            13,218,715Total
                assets
            
            
            27,998,136
            
            
            24,745,290Total
                current liabilities
            
            
            6,674,648
            
            
            5,817,827





During
      the six months ended September 30, 2008 and 2007, respectively, the Company
      purchased $13,789,174 and $10,394,619 of products from the Joint Venture. For
      the quarters ended September 30, 2008 and 2007, the Company has adjusted its
      equity in earnings of the Joint Venture to reflect a reduction of $265,437
      and
      $195,739 for inter-company profit in inventory as required by US
      GAAP.





**Net
      Income Per Common Share**





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





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





Three Months Ended
            
            Six Months EndedSeptember 30,
            
            September 30,2008
            
            2007
            
            2008
            
            2007Weighted
                average number of common shares outstanding for basic EPS
            
            
            2,486,176
            
            
            2,483,605
            
            
            2,487,017
            
            
            2,481,802Shares
                issued upon the assumed exercise of outstanding stock
                options
            
            
            0
            
            
            31,908
            
            
            0
            
            
            41,514Weighted
                average number of common and common equivalent shares outstanding
                for
                diluted EPS
            
            
            2,486,176
            
            
            2,515,513
            
            
            2,487,017
            
            
            2,523,316





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





**Stock
      Based Compensation**





As
      of
      September 30, 2008, under the terms of the Company’s Non-Qualified Stock Option
      Plan, as amended, 877,777 shares of our common stock are reserved for the
      granting of stock options, of which 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.





9


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 six months ended September
      30, 2008 was reduced by $6,987. No portion of employees’ compensation, including
      stock compensation expense, was capitalized during the period.





During
      the six month period ended September 30, 2008, no shares of our common stock
      have been issued as a result of the exercise of the options granted under the
      plan.





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





*Stock
      Option Activity.* During
      the six month periods ended September 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 six months ended September 30, 2008 and 2007, we recorded $6,987
      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
      September 30, 2008, there was $749 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 September 30, 2008.





**Stock
      Purchase Program**





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





**Recently
      Issued Accounting Pronouncements**





*Business
      Combinations* :
      In
      December 2007, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 141(R), “Business Combinations,”
(“SFAS No. 141(R)”),which replaces SFAS No. 141 and issued
      SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
      Statements,” (“SFAS No. 160”), an amendment of Accounting Research
      Bulletin No. 51. These two new standards will change the accounting
      for and the reporting for business combination transactions and noncontrolling
      (minority) interests in the consolidated financial statements, respectively.
      SFAS No. 141(R) will change how business acquisitions are accounted
      for and will impact financial statements both on the acquisition date and in
      subsequent periods. SFAS No. 160 will change the accounting and
      reporting for minority interests, which will be re-characterized as
      noncontrolling interests and classified as a component of equity. These two
      standards will be effective for the Company for acquisitions undertaken and
      financial statements issued for fiscal years beginning after December 31,
      2008.




10




*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.




**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 and
      six
      months ended September 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**





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





11


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





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





At
      the
      time of the investment in Icon, management projected that the established U.S.
      sales network would allow us to increase sales of EMT to U.S. customers. Despite
      the Company’s efforts, Icon suffered continuing losses, and the Company was not
      successful in increasing Icon’s sales in the face of competition and a weakening
      U.S. dollar. On January 29, 2008, Icon received notice from CIT Financial,
      Ltd.
      (CIT Canada), Icon’s principal and secured lender, that Icon was in default
      under the terms of the Credit Agreement dated September 22, 2007 between Icon
      and CIT Canada and demanding immediate payment of all of Icon’s obligations to
      CIT Canada under the Credit Agreement. On February 11, 2008, the assets of
      Icon
      were placed under the direction of a court appointed receiver, the operations
      of
      Icon were suspended and the assets of Icon were classified as assets held for
      sale in the consolidated balance sheets. Accordingly, the consolidated
      statements of earnings and the related note disclosures reflect the operations
      of Icon as discontinued operations for all periods presented.





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





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





At
      September 30, 2008, the assets of Icon held by the receiver consisted of cash
      of
      US$260,009, and its liabilities include post-receivership accounts payable
      of
      US$87,009 and a pre-receivership trade account payable of approximately
      US$173,000. The pre-receivership trade account payable is subject to settlement
      in accordance with a “claim process” administrated by the receiver. To the
      extent any portion of the pre-receivership account payable is ultimately
      disallowed, that portion will reduce the gain from discontinued
      operations.





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





September 30, 2008
            
            March 31, 2008AssetsCash
            
            $
            260,009
            
            $
            823,550Trade
                receivables, net
            
            
            0
            
            
            371,793Inventories
            
            
            0
            
            
            817,022Property,
                plant and equipment - net
            
            
            0
            
            
            831,555Other
                assets
            
            
            0
            
            
            6,811Assets
                of discontinued operations
            
            $
            260,009
            
            $
            2,850,731LiabilitiesAccounts
                payable, trade and other
            
            $
            260,009
            
            $
            3,344,624Notes
                payable - bank
            
            
            0
            
            
            4,478,826Liabilities
                of discontinued operations
            
            $
            260,009
            
            $
            7,823,450





12


In
      the
      accompanying consolidated financial statements, the results of Icon for the
      three and six months ended September 30, 2008 have been restated and are
      presented as the results of discontinued operations, and certain other prior
      year amounts have been reclassified in order to conform with the current year’s
      presentation.





**Results
      of Operations**





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




*Sales.* Net
      sales for the three months ended September 30, 2008 were $8,381,379 compared
      to
      $9,689,537 for the comparable three months in the prior fiscal year, a decrease
      of $1,308,158 (13.5%). The primary reasons for the decrease in net sales were
      (i) lower sales volumes of our core product lines, including smoke alarms and
      carbon monoxide alarms, to the electrical distribution trade due to a decrease
      in new home construction during the quarter, and (ii) our inability to import
      ground fault circuit interrupter (GFCI) units because the manufacturer has
      not
      yet received certifications for mandated UL changes to the units.





*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 22.6% and 20.0% of sales for the quarters ended September
      30,
      2008 and 2007, respectively. The increase in gross profit margin was primarily
      due to changes in the mix of products sold.





*Expenses.* Research
      and development, and selling, general and administrative expenses increased
      by
      $123,626 from the comparable three months in the prior year. As a percentage
      of
      net sales, these expenses increased to 20.7% for the three month period ended
      September 30, 2008, from 16.6% for the 2007 period. The increase in costs as
      a
      percentage of net sales was primarily due to fixed costs that did not decrease
      at the same rate as sales.





*Interest
      Expense and Income.* Our
      interest expense on cash deposits, net of interest charges, was $3,259 for
      the
      quarter ended September 30, 2008, compared to net interest expense of $12,364
      for the quarter ended September 30, 2007. Net interest expense in the prior
      year’s quarterly period resulted from higher borrowings by us in support of our
      Canadian subsidiary.





*Income
      Taxes.* During
      the quarter ended September 30, 2008, the Company had a net income tax benefit
      of $868,443 due to net operating losses generated principally as a result of
      the
      loss recognized on the settlement of the Company’s guarantee of the debt of its
      Canadian subsidiary. For the corresponding 2007 period, the Company has a
      provision for income taxes of $108,000.





*Net
      Income.* We
      reported net income of $4,091,214 for the quarter ended September 30, 2008,
      compared to net income of $318,130 for the corresponding quarter of the prior
      fiscal year. The primary reason for the increase in net income is the gain
      of
      $3,434,913 recognized as a result of the settlement of the obligations of our
      Canadian subsidiary.





**Six
      Months Ended September 30, 2008 and 2007**





*Sales.* Net
      sales for the six months ended September 30, 2008 were $14,574,180 compared
      to
      $19,375,195 for the comparable six months in the prior fiscal year, a decrease
      of $4,801,015 (24.8%). The primary reason for the decrease in net sales was
      lower sales volumes of our core product lines, including smoke alarms and carbon
      monoxide alarms, to the electrical distribution trade due to a decrease in
      new
      home construction during the period.





*Gross
      Profit Margin.* The
      gross profit margin is calculated as net sales
      less cost of goods sold expressed as a percentage of net sales. The
      Company’s gross profit margin decreased from 24.1% for the period ended
      September 30, 2007 to 23.8% for the current period ended September 30, 2008.
      The
      decrease in gross profit margin was primarily due to a change in the mix of
      products sold.





13


*Expenses.* Research
      and development, and selling, general and administrative expenses decreased
      by
      $171,631 from the comparable six months in the prior year. As a percentage
      of
      sales, these expenses were 21.0% for the six month period ended September 30,
      2008 and 16.7% for the comparable 2007 period. The primary reason for the
      increase in expenses as a percentage of sales is that these expenses did not
      decrease at the same rate as sales.




*Interest
      Expense and Income.* Our
      interest income net of interest expense was $15,576 for the six months ended
      September 30, 2008, compared to net interest expense of $70,861 for the six
      months ended September 30, 2007. Interest
      expense in the comparable period of the last year resulted primarily from
      borrowings to support the Canadian subsidiary.





*Income
      Taxes.* During
      the six months ended September 30, 2008, the Company recorded an income tax
      expense from continuing operations of $198,795. For the corresponding 2007
      period, the Company had a tax expense of $537,876.





*Net
      Income.* We
      reported net income of $4,494,694 for the six months ended September 30, 2008
      compared to net income of $1,109,133 for the corresponding period of the prior
      fiscal year. The primary reasons for the increase is the gain of $3,381,254
      recognized as a result of the settlement of the obligations of our Canadian
      subsidiary.





**Financial
      Condition and Liquidity**





The
      Company has a Factoring Agreement which supplies both short-term borrowings
      and
      letters of credit to finance foreign inventory purchases. The maximum amount
      available under the Factoring Agreement is currently $7,950,000. Based on
      specified percentages of our accounts receivable and inventory and letter of
      credit commitments, we had $4,188,000 available under the Factoring Agreement.
      There is $625,594 borrowed under this agreement as of September 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 September 30, 2008, the prime rate was 5.0%.
      Borrowings are collateralized by all of our accounts receivable and
      inventory.





Our
      factored accounts receivable as of the end of our last fiscal year (net of
      allowances for doubtful accounts) were $5,600,408, and were $5,848,088 as of
      September 30, 2008. Our prepaid expenses as of the end of our last fiscal year
      were $206,197, and were $342,790 as of September 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 $3,073,310 for the six months ended September 30, 2008.
      This was primarily due to the operations of the discontinued subsidiary and
      to
      an increase in accounts receivable of $698,818, an increase in accounts payable
      and accrued expenses of $1,663,855, increases in inventories and prepaid
      expenses of $3,463,975, and earnings of the Joint Venture of $892,962. For
      the
      same period last year, operating activities used cash of $2,217,104, 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.





Investing
      activities provided cash of $2,807,341 during the six months ended September
      30,
      2008, principally as a result of the activities of the discontinued operations.
      Investing activities used $1,520,801 in the prior period.





Financing
      activities used cash of $3,575,517 during the six months ended September 30,
      2008, principally as a result of the activities of discontinued operations.
      In
      the comparable six months in the prior year, financing activities provided
      cash
      of $4,252,560, 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.




14




**Joint
      Venture**





*Net
      Sales.* Net
      sales of the Joint Venture for the three and six months ended September 30,
      2008
      were $11,870,728 and $19,667,762, respectively, compared to $6,811,530 and
      $15,773,412, respectively, for the comparable period 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 74.3% and 24.7% respective increases in
      net
      sales by the Joint Venture for the three and six month periods were due to
      higher volumes of sales of smoke alarm products to non-related customers in
      the
      Australian and European market. The Joint Venture’s management believes that
      these increases in net sales to the European market were due to increased market
      share in those markets.





*Gross
      Margins.* Gross
      margins of the Joint Venture for the three month period ended September 30,
      2008
      increased to 28.0% from 25.9% for the 2007 corresponding period. For the six
      month period ended September 3, 2008, gross margins increased to 26.1% from
      the
      26.0% gross margin of the prior year’s corresponding period. Since gross margins
      depend on sales volume of various products, with varying margins, increased
      sales of higher margin products and decreased sales of lower margin products
      affect the overall gross margins. The increase in the Joint Venture’s gross
      margins for the three and six month periods were due to the increase in the
      sales of products to customers in the Australian and European
      markets.





*Expenses.* Selling,
      general and administrative expenses were $1,389,104 and $2,607,670,
      respectively, for the three and six month periods ended September 30, 2008,
      compared to $1,051,125 and $2,296,985 in the prior year’s respective periods. As
      a percentage of sales, expenses were 11.7% and 13.3% for the three and six
      month
      periods ended September 30, 2008, compared to 15.4% and 14.6% for the three
      and
      six month periods ended September 30, 2007. The decrease in selling, general
      and
      administrative expense as a percent of sales was primarily due to variable
      costs
      that remained constant despite increased net sales.





*Interest
      Income and Expense.* Interest
      expense, net of interest income, was $4,267 and $5,761, respectively, for the
      three and six month periods ended September 30, 2008, compared to net interest
      expense of $9,594 and $15,569, 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 six months ended September 30, 2008 were $1,732,256
      and
      $2,382,837, respectively, compared to $790,453 and $1,871,242, respectively,
      in
      the comparable periods last year. The 119.0% and 23.9% respective increases
      in
      net income for the three and six month periods were due primarily to increased
      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 six months ended September 30, 2008, working capital increased by
      $2,356,309 from $8,953,871 on March 31, 2008 to $11,310,380 on September 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.




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, 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 September 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.





16





**ITEM
              4.**
            CONTROLS
                AND PROCEDURES





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




**PART
      II - OTHER INFORMATION**




**ITEM
              1.**
            LEGAL
                PROCEEDINGS





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





On
      June
      25, 2008, Maple Chase Company which was acquired in January 2008 by United
      Technologies Corporation (which also owns Walter Kidde Portable Equipment,
      Inc.), filed a civil suit against the Company in the United States District
      Court for the Northern District of Illinois (Case No. 08cv3641) for patent
      infringement of Re 33920, a patent that expired in March of 2007. This action
      involves the same patent that formed the basis of the suit filed by Maple Chase
      against the Company in February 2004 (Case No. 03cv07205). In that case, the
      Company successfully sought and obtained reexamination of the asserted patent
      in
      the USPTO based on the references cited and analysis presented by the Company.
      In April 2005, the Court dismissed the earlier case subject to the outcome
      of
      the reexamination. After pending for more than three years and after the
      expiration of the patent, a Reexamination Certificate was granted confirming
      patentability of many of the claims and cancelling the remaining claims. The
      recently filed case asserts infringement of the claims emerging out of
      reexamination and is in its preliminary stages. The Company believes that it
      has
      meritorious and substantial technical defenses to the action and that it is
      entitled to a number of legal/equitable defenses due to the long period of
      inaction and acquiescence by Maple Chase and its predecessors, the amount,
      if
      any, of potential loss to the Company is not yet determinable. The Company
      intends to vigorously defend the suit and press its pending
      counterclaims.





On
      August
      21, 2008, Kidde again filed a civil suit against the Company for patent
      infringement (Case No. 08CV2202) but this time in the United States District
      Court for Maryland. Kidde accuses the Company of infringement of US patent
      6,791,453 by communication protocols for interconnected hazardous condition
      (smoke, heat and Carbon monoxide) detectors sold by the Company. The amount,
      if
      any, of potential loss to the Company is not yet determinable. The Company
      believes that it has meritorious and substantial technical defenses to the
      action. The Company also believes that it is entitled to a number of
      legal/equitable defenses due to the predatory litigation campaign against it
      by
      Kidde and its parent corporation United Technologies Corporation, and on
      September 25, 2008, the Company, with its Answer and Counterclaims to Kidde,
      filed a third-party Complaint against United Technologies Corporation and Kidde.
      The Company is seeking injunctive and antitrust damages.  The
      Company intends to vigorously defend the suit and press its pending counter
      and
      third party claims.





17


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
              2.**
            UNREGISTERED
                SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS





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





**Period**
            
            **TotalNumber ofSharesPurchased**
            
            **AveragePricePaid perShare**
            
            **Total Number ofShares Purchasedas Part ofPubliclyAnnounced Plansor Programs**
            
            **Maximum Numberof Shares that MayYet Be PurchasedUnder the Plans orPrograms**July 1, 2008 –
                July 31, 2008
            
            
            1,300
            
            $
            5.01
            
            
            1,300
            
            
            98.700August
                1, 2008 – August 31, 2008
            
            
            -
            
            $
            0.00
            
            
            -
            
            
            98,700September
                1, 2008 – September 30, 2008
            
            
            2,700
            
            $
            5.52
            
            
            2,700
            
            
            96,000Total
            
            
            4,000
            
            $
            5.36
            
            
            4,000
            
            
            96,000





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





**ITEM
              4.**
            SUBMISSION
                OF MATTERS TO A VOTE OF SECURITY HOLDERS.





On
      September 8, 2008, the Company held its Annual Meeting of Stockholders. The
      only
      matter submitted to the stockholders for a vote was the election of one director
      in the Class of 2011. The nominee was Harvey B. Grossblatt. At the Meeting,
      at
      least 1,908,379 shares
      were voted in favor of the nominee, no more than 289 shares
      abstained, were voted against, or were voted to withhold approval of the
      nominee’s election (any
      of
      which has the same effect as a “no” vote) .
      As a
      result, the nominee was elected.





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




18





**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 September 22, 2007 (substantially
                  identical agreement entered into by the Registrant’s wholly-owned
                  subsidiary, USI Electric, Inc.) (incorporated by reference to Exhibit
                  10.1
                  to the Company’s Current Report on Form 8-K filed September 26, 2007, File
                  No. 1-31747)10.4
              Amended
                  and Restated Inventory Security Agreement between the Registrant
                  and CIT,
                  dated September 22, 2007 (substantially identical agreement entered
                  into
                  by the Registrant’s wholly-owned subsidiary, USI Electric, Inc.)
                  (incorporated by reference to Exhibit 10.2 to the Company’s Current Report
                  on Form 8-K filed September 26, 2007, File No. 1-31747)10.5
              Credit
                  Agreement between International Conduits Ltd. (“Icon”) and CIT Financial
                  Ltd. (“CIT Canada”), dated September 22, 2007 (“CIT Canada Credit
                  Agreement”) (incorporated by reference to Exhibit 10.3 to the Company’s
                  Current Report on Form 8-K filed September 26, 2007, File No.
                  1-31747)10.6
              General
                  Security Agreement between CIT Canada and Icon, dated September
                  22, 2007,
                  with respect to the obligations of Icon under the CIT Canada Credit
                  Agreement (incorporated by reference to Exhibit 10.4 to the Company’s
                  Current Report on Form 8-K filed September 26, 2007, File No.
                  1-31747)10.7
              Guaranty
                  made by the Registrant and USI Electric Inc., in favor of CIT Canada,
                  dated September 22, 2007, with respect to the obligations of Icon
                  under
                  the CIT Canada Credit Agreement (incorporated by reference to Exhibit
                  10.5
                  to the Company’s Current Report on Form 8-K filed September 26, 2007, File
                  No. 1-31747)10.8
              Lease
                  between Universal Security Instruments, Inc. and 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
              Second
                  Amended and Restated Employment Agreement dated July 18, 2006 between
                  the
                  Company and Harvey B. Grossblatt (incorporated by reference to
                  Exhibit
                  10.7 to the Company’s Quarterly Report on Form 10-Q for the period ended
                  September 30, 2006, File No. 1-31747)10.10
              Addendum
                  to Second Amended and Restated Employment Agreement dated September
                  8,
                  2008 between the Company and Harvey B. Grossblatt (incorporated
                  by
                  reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                  filed September 8, 2008, File No. 1-31747)31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer*31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Financial
                  Officer*32.1
              Section
                  1350 Certifications*99.1
              Press
                  Release dated November 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:
                November 13, 2008
            By:
            /s/
                Harvey B. GrossblattHarvey
                B. GrossblattPresident,
                Chief Executive OfficerBy:
            /s/
                James B. HuffJames
                B. HuffVice
                President, Chief Financial Officer




20