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                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, 2006

                                       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. Employer
incorporation 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, or a  non-accelerated  filer. See definition of "accelerated
filer and large  accelerated  filer" in Rule 12b-2 of the  Exchange  Act.
Large accelerated filer |_| Accelerated filer |_| Non-Accelerated Filer |X|

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

At August 14, 2006, the number of shares outstanding of the registrant's  common
stock was 1,809,301.

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<PAGE>

                                TABLE OF CONTENTS

Part I - Financial Information                                             Page

         Item 1. Consolidated Financial Statements (unaudited):

                 Consolidated Balance Sheets at June 30, 2006
                 and March 31, 2006                                          3

                 Consolidated Statements of Earnings for the Three
                 Months Ended June 30, 2006 and 2005                         4

                 Consolidated Statements of Cash Flows for the Three
                 Months Ended June 30, 2006 and 2005                         5

                 Notes to Consolidated Financial Statements                  6

         Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                         9

         Item 3. Quantitative and Qualitative Disclosure About Market Risk   12

         Item 4. Controls and Procedures                                     12

Part II - Other Information

         Item 1. Legal Proceedings                                           13

         Item 6. Exhibits                                                    13

                 Signatures                                                  14

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

              UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (unaudited)

<TABLE>
<CAPTION>
                                  ASSETS                                  June 30, 2006    March 31, 2006
                                                                          --------------   --------------
<S>                                                                       <C>              <C>
CURRENT ASSETS
Cash and cash equivalents                                                 $    2,520,233   $    3,015,491
Accounts receivable:
  Trade less allowance for doubtful accounts of $15,000                          997,286        1,106,435
  Employees                                                                       23,683           23,656
                                                                          --------------   --------------
                                                                               1,020,969        1,130,091

Amount due from factor                                                         4,657,731        4,259,131
Inventories, net of allowance for obsolete inventory of $40,000                5,050,750        4,062,086
Prepaid expenses                                                                 443,500          196,863
                                                                          --------------   --------------

TOTAL CURRENT ASSETS                                                          13,693,183       12,663,662

DEFERRED TAX ASSET                                                               476,384          476,384

INVESTMENT IN JOINT VENTURE                                                    8,193,838        7,140,859

PROPERTY AND EQUIPMENT - NET                                                      59,001           62,212

OTHER ASSETS                                                                      15,484           15,486
                                                                          --------------   --------------

TOTAL ASSETS                                                              $   22,437,890   $   20,358,603
                                                                          ==============   ==============

                   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                                          $    1,257,344   $    1,604,845
Accrued liabilities:
    Patent litigation and settlement reserve                                     669,844          556,787
    Payroll, commissions and other                                               571,255          590,402
                                                                          --------------   --------------

TOTAL CURRENT LIABILITIES                                                      2,498,443        2,752,034

COMMITMENTS AND CONTINGENCIES                                                         --               --

SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares;
    issued and outstanding 1,808,951 and 1,693,952 shares at
    June 30, 2006 and March 31, 2006, respectively                                18,090           16,940
Additional paid-in capital                                                    12,331,843       11,577,583
Retained earnings                                                              7,589,514        6,012,046
                                                                          --------------   --------------

TOTAL SHAREHOLDERS' EQUITY                                                    19,939,447       17,606,569
                                                                          --------------   --------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                $   22,437,890   $   20,358,603
                                                                          ==============   ==============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -3-
<PAGE>

              UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                       Three Months Ended June 30,
                                                          2006           2005
                                                       -----------    -----------
<S>                                                    <C>            <C>
Net sales                                              $ 8,038,437    $ 6,923,810
Cost of goods sold                                       5,257,920      4,874,856
                                                       -----------    -----------

GROSS PROFIT                                             2,780,517      2,048,954

Research and development expense                            52,312         52,178
Selling, general and administrative expense              1,846,813      1,888,060
                                                       -----------    -----------

Operating income                                           881,392        108,716

Other income (expense):
   Interest income                                          16,597          9,667
   Interest expense                                         (7,500)       (17,941)
                                                       -----------    -----------

                                                             9,097         (8,274)

INCOME BEFORE EARNINGS FROM JOINT VENTURE                  890,489        100,442

Earnings from Joint Venture:
   Equity in earnings of Joint Venture                   1,052,979        701,900
                                                       -----------    -----------

NET INCOME BEFORE TAXES                                  1,943,468        802,342

Provision for income tax expense (benefit)                 366,000        (87,428)
                                                       -----------    -----------

NET INCOME                                             $ 1,577,468    $   889,770
                                                       ===========    ===========

Net income per common share amounts
   Basic                                               $      0.91    $      0.54
   Diluted                                             $      0.83    $      0.50

Weighted average number of common shares outstanding
   Basic                                                 1,732,201      1,653,025
   Diluted                                               1,900,779      1,788,428
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -4-
<PAGE>

              UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                  Three Months Ended June 30,
                                                                                     2006           2005
                                                                                  -----------    -----------
<S>                                                                               <C>            <C>
OPERATING ACTIVITIES
Net income                                                                        $ 1,577,468    $   889,770
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
   Depreciation and amortization                                                        3,212          6,911
   Earnings of the Joint Venture                                                   (1,052,979)      (701,900)
   Tax benefit from exercise of stock options                                         366,000             --
   Changes in operating assets and liabilities:
      (Increase) in accounts receivable and amounts due from factor                  (289,478)      (937,856)
      (Increase) decrease in inventories and prepaid expenses                      (1,235,301)       667,381
      (Decrease) increase in accounts payable and accrued expenses                   (253,589)       235,864
      Increase in deferred tax asset                                                       --       (100,000)
                                                                                  -----------    -----------

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES                                  (884,667)        60,170

INVESTING ACTIVITIES:
    Purchase of property, plant and equipment                                              --         (2,400)
                                                                                  -----------    -----------

NET CASH USED IN INVESTING ACTIVITIES                                                      --         (2,400)

FINANCING ACTIVITIES:
    Proceeds from issuance of common stock from exercise of employee stock
        options                                                                       389,409            439
                                                                                  -----------    -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                             389,409            439
                                                                                  -----------    -----------

(DECREASE) INCREASE IN CASH                                                          (495,258)        58,209

Cash at beginning of period                                                         3,015,491         59,287
                                                                                  -----------    -----------

CASH AT END OF PERIOD                                                             $ 2,520,233    $   117,496
                                                                                  -----------    -----------

Supplemental information:
  Interest paid                                                                   $     7,500    $    17,941
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      -5-
<PAGE>

              UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

Statement of Management

The consolidated  financial  statements  include the accounts of the Company and
its  wholly  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,  2006
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.

Income Taxes

A provision for federal and state income taxes of $366,000 has been provided for
the three  month  period  ended June 30,  2006.  For income tax  purposes,  this
provision is entirely offset by the benefit  derived from deductions  associated
with the exercise of employee stock  options.  Under FAS 123, the tax benefit of
this deduction has been treated as a credit to additional paid in capital and is
not a liability for income taxes payable.

Joint Venture

The  Company  maintains  a 50%  interest  in a joint  venture  with a Hong  Kong
corporation ("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 Hong
Kong Joint Venture for the three months ended June 30, 2006 and 2005:

                                       2006           2005
                                    -----------   -----------

        Net sales                   $ 9,043,990   $ 6,013,212
        Gross profit                  3,387,793     2,120,533
        Net income                    2,244,414     1,200,195
        Total current assets         11,706,237     7,320,006
        Total assets                 22,141,256    16,673,743
        Total current liabilities     7,239,877     4,717,636

During the three months ended June 30, 2006 and 2005, respectively,  the Company
purchased  $3,670,969  and  $2,835,861  of  products  from the Hong  Kong  Joint
Venture. At June 30, 2006 and March 31, 2006, the Company had amounts payable to
the Hong Kong Joint  Venture of $500,000.  For the quarter  ended June 30, 2006,
the Company has adjusted its equity in earnings of the Joint  Venture to reflect
a reduction of $69,228 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.


                                      -6-
<PAGE>

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, 2006 and 2005 is as follows:

<TABLE>
<CAPTION>
                                                                         Three Months Ended
                                                                              June 30,
                                                                         2006        2005
                                                                       ---------   ---------
<S>                                                                    <C>         <C>
Weighted average number of common shares outstanding for basic EPS     1,732,201   1,653,025

Shares issued upon the assumed exercise of outstanding stock options     168,578     135,403
                                                                       ---------   ---------

Weighted average number of common and common equivalent shares
outstanding for diluted EPS                                            1,900,779   1,788,428
                                                                       =========   =========
</TABLE>

At June 30, 2006 and 2005, there were no securities  outstanding  whose issuance
would have an anti-dilutive effect on the earnings per share calculation.

Stock Based Compensation

As of June 30, 2006, under the terms of the Company's 1978  Non-Qualified  Stock
Option Plan, as amended, 658,333 shares of our common stock are reserved for the
granting of stock  options,  of which  657,158 have been issued,  leaving  1,175
available for issuance.

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

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

As a result of adopting  SFAS No.  123R,  net income for the three  months ended
June 30,  2006 was  reduced  $8,413.  No  portion  of  employees'  compensation,
including stock compensation expense, was capitalized during the period.

During the three month period ended June 30, 2006,  114,999 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  $366,000  from the
exercise  of these  stock  options is  presented  as a cash flow from  operating
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 quarter ended June 30, 2006, 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,  2006,  we
recorded $8,413 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.


                                      -7-
<PAGE>

As of June 30, 2006, there was $53,897 of unrecognized compensation cost related
to share-based compensation  arrangements that we expect to vest. This cost will
be fully amortized within 3 years.

In prior periods, as permitted under Statement of Financial Accounting Standards
(SFAS) No. 123,  Accounting for Stock-Based  Compensation,  we accounted for our
stock-based  compensation  plan  using  the  intrinsic  value  method  under the
recognition and measurement principles of APB Opinion No. 25. In accordance with
the  provisions  of SFAS No. 148,  Accounting  for  Stock-Based  Compensation  -
Transition and  Disclosure,  the following  table  illustrates the effect on net
income and  earnings  per share if we had  applied  the fair  value  recognition
provisions of SFAS No. 123 to stock-based  employee  compensation  for the three
months ended June 30, 2005.

<TABLE>
<CAPTION>
                                                             Three months ended June 30,
                                                                        2005
                                                                    -----------
<S>                                                                 <C>
Net income, as reported                                             $   889,770

Deduct:  Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects                                              (25,962)
                                                                    -----------

Pro forma net income                                                $   863,808
                                                                    ===========

Earnings per share:
Basic - as reported                                                 $      0.54
                                                                    ===========
Basic - pro forma                                                   $      0.52
                                                                    ===========
Diluted - as reported                                               $      0.50
                                                                    ===========
Diluted - pro forma                                                 $      0.48
                                                                    ===========
</TABLE>

Recent Accounting Pronouncements

In May 2005, the Financial  Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting Standards ("SFAS") No. 154, "Accounting for Changes and
Error  Corrections - a replacement of Accounting  Opinions Board ("APB") Opinion
No.  20  and  FASB  Statement  No.  3."  SFAS  No.  154  requires  retrospective
application to changes in accounting  principles  for prior  periods'  financial
statements,  unless it is impracticable to determine either the  period-specific
effects or the  cumulative  effect of the change.  SFAS No. 154 is effective for
accounting  changes and  corrections  of errors made in fiscal  years  beginning
after  December  15, 2005,  and earlier  adoption is  permitted  for  accounting
changes and  corrections  of errors made in fiscal  years  beginning  after this
statement  was issued.  The Company has adopted  SFAS No. 154 as of its issuance
and will apply its provisions to any changes in accounting  principle that occur
in  future  periods.  The  Company's  adoption  of SFAS  No.  154 did not have a
material  impact on the Company's  financial  condition or results of operations
during the three months ended June 30, 2005.

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB
Statement No. 123R,  "Share-Based  Payment," which requires companies to expense
the value of employee stock options and similar awards. The Company adopted FASB
Statement  No. 123R  effective  April 1, 2006.  See "Stock Based  Compensation,"
above.

The Company  adopted the  requirements  of  Statement  123R using the  "modified
prospective" method in which compensation cost is recognized  beginning with the
effective  date (a) based on the  requirements  of Statement 123R for all awards
granted after the effective date and (b) based on the  requirements of Statement
123R  for all  awards  granted  to  employees  prior  to the  effective  date of
Statement 123R that are unvested on the effective date.


                                      -8-
<PAGE>

The FASB issued FASB  Interpretation  48,  Accounting for  Uncertainty in Income
Taxes:  an  interpretation  of  FASB  Statement  No.  109,  on  July  13,  2006.
Interpretation  48 clarifies  Statement  109,  Accounting  for Income Taxes,  to
indicate a criterion that an individual tax position would have to meet for some
or all of the benefit of that position to be recognized in an entity's financial
statements.  Interpretation  48 is effective  for fiscal years  beginning  after
December 15, 2006 (fiscal year  beginning  April 1, 2007 for the  Company).  The
cumulative effect of applying  Interpretation 48, if any, will be reported as an
adjustment  to retained  earnings at the  beginning of the period in which it is
adopted. The Company is currently working on the potential impact of adoption of
the guidance.

Reclassifications

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


                                      -9-
<PAGE>

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

      As used  throughout  this Report,  "we," "our," "the  Company" 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.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2006 and 2005

      Sales.  Net sales for the three months ended June 30, 2006 were $8,038,437
compared to $6,923,810 for the comparable three months in the prior fiscal year,
an increase of $1,114,627  (16.1%).  The primary  reason for the increase in net
sales was that sales  were up across our core  product  lines,  including  smoke
alarms,  carbon  monoxide  alarms and ground fault  circuit  interrupter  (GFCI)
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  increased  5.0%,  to 34.6% of sales for the quarter  ended June 30, 2006
from 29.6% for the corresponding quarter last year. The increase in gross profit
margin  resulted  from  certain  costs  in  the  gross  profit  calculation  not
increasing at the same rate as sales.

      Expenses.   Research   and   development,   and   selling,   general   and
administrative expenses decreased by $41,247 from the comparable three months in
the prior year. As a percentage of net sales,  these expenses decreased to 23.0%
for the three month period ended June 30,  2006,  from 27.3% for the  comparable
2005  period.  The  decrease in expenses as a percent of sales was due to higher
sales volume and variable costs that did not increase at the same rate as sales,
as well as lower levels of certain  expenses.  Various  factors  resulted in the
lower dollar level of expenses. Most notably, our professional fees decreased by
$438,356  for the 2006 period as compared  to the same  quarter in the  previous
year due to lower legal fees. This decrease was partially offset by increases of
(i) $141,833 in salaries,  wages and employee  benefits  from the same period in
2005,  (ii)  $120,856 in  commission  expense and freight  charges from the 2005
period (which,  as a percentage of sales,  remained  consistent with commissions
and freight  charges of the prior year,  but increased in actual  dollars due to
higher sales volume during the 2006 period), and (iii) $75,000 which we recorded
in compliance  costs for the quarter ended June 30, 2006 in connection  with the
implementation  of  the  provisions  of  the  Sarbanes-Oxley  Act  of  2002.  We
anticipate  $300,000  in  Sarbanes-Oxley  compliance  costs for the fiscal  year
ending March 31, 2007.

      Interest  Expense and  Income.  We recorded  net  interest  income (net of
interest expense) for the quarter ended June 30, 2006 of $9,097, compared to net
interest  expense (net of interest  income) of $8,274 for the quarter ended June
30, 2005. The lower interest expense for the 2006 period resulted primarily from
a reduction in the average  balance of  borrowings,  and our increased  interest
income for the 2006  period  resulted  primarily  from an  increase  in interest
income on investments.


                                      -10-
<PAGE>

      Net Income.  For the reasons  stated above and due to  increased  earnings
from our Hong Kong Joint Venture (as discussed below), we reported net income of
$1,577,468 or the quarter ended June 30, 2006 compared to net income of $889,770
for the corresponding quarter of the prior fiscal year.

FINANCIAL CONDITION AND LIQUIDITY

      Our cash needs are  currently  met by funds from our  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  $7,500,000.  However,  based on specified percentages of
our accounts receivable and inventory and letter of credit  commitments,  we had
$7,396,000 available under the Factoring  Agreement,  all of which was available
as of June 30, 2006.  The  interest  rate under the  Factoring  Agreement on the
uncollected  factored  accounts  as of June 30,  2006 was 8.0%.  Borrowings  are
collateralized by all of our accounts receivable and inventory.

      The Company has an  unsecured  $250,000  line of credit from a  commercial
bank. Amounts borrowed on this line of credit bear interest at the prime rate of
interest  as  published  from  time to  time by The  Wall  Street  Journal.  The
agreement  requires,  among other  provisions,  that the Company maintain a zero
balance on the facility for thirty  consecutive  days each year. No amounts have
been borrowed or are outstanding on this line of credit.

      Our trade accounts  receivable  record only those receivables for which we
bear the credit risk. We recorded trade accounts  receivable  (net of allowances
for doubtful  accounts) of $1,106,435 as of the end of our last fiscal year, and
$997,286 as of June 30, 2006. The decrease in trade accounts  receivable  during
the first three months of the current fiscal year is due to a reduction in sales
for which we bear the credit risk,  primarily  direct shipments from our foreign
manufacturers  directly to customers.  Our prepaid expenses as of the end of our
last fiscal year were  $196,863,  and were  $443,500  as of June 30,  2006.  The
increase in prepaid expenses during the first three months of the current fiscal
year is  primarily  due to the timing of premium  payments to various  insurance
carriers.

      Operating  activities  used cash of $884,667 for the period ended June 30,
2006.  This was  primarily  due to an  increase  in the  aggregate  of  accounts
receivable  and  amounts due from  factor,  inventory,  and prepaid  expenses of
$1,524,779,  a decrease in accounts  payable and accrued  expenses of  $253,589,
equity in the earnings from our Hong Kong Joint Venture of $1,052,979, and a tax
benefit from the exercise of stock options of $366,000.

      Operating  activities  provided  cash of $60,170 for the period ended June
30, 2005. This was primarily due to a decrease in inventory and prepaid expenses
of  $667,381,  and an  increase in  accounts  payable  and  accrued  expenses of
$235,864,  which were  partially  offset by equity in the earnings from our Hong
Kong Joint  Venture of  $701,900  and an increase  in  accounts  receivable  and
amounts due to factor of $937,856.

      Investing  activities  did not provide or use cash in the current  period.
For the same period last year, investing activities used cash of $2,400.

      Financing  activities  provided  cash of  $389,409  from the  exercise  of
employee  stock  options.  For the same period last year,  financing  activities
provided cash of $439.

      We  believe  that  funds   available   under  the   Factoring   Agreement,
distributions from the Hong Kong Joint Venture, working capital, and our line of
credit  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.

HONG KONG JOINT VENTURE

      Net Sales.  Net sales of the Hong Kong Joint  Venture for the three months
ended June 30, 2006 were $9,043,990,  compared to $6,013,212, for the comparable
period in the prior fiscal  year.  The  increase in sales was  primarily  due to
sales to non-affiliated customers in Germany, Japan and Australia.  Sales of the
Hong Kong Joint Venture to the Company  amounted to  $3,670,969  (40.6%) for the
three month period ended June 30, 2006 and $2,835,861  (47%) for the same period
of the prior year.


                                      -11-
<PAGE>

      Net  Income.  Net income  for the three  months  ended  June 30,  2006 was
$2,244,414,  compared to  $1,200,195,  in the  comparable  period last year. The
87.0%  increase in net income for the quarter was mainly due to increased  sales
in Germany, Japan and Australia and costs that did not increase at the same rate
as sales.

      Gross Margins.  Gross margins of the Hong Kong Joint Venture for the three
month  period  ended  June 30,  2006  increased  to 37.5%  from 35% for the 2005
period.  The increase in the percent of gross  margin is due  primarily to price
increases initiated during the past fiscal year.

      Expenses.  Selling,  general and administrative  expenses were $1,029,295,
for the three month  period ended June 30,  2006,  compared to $886,270,  in the
prior year's respective  period. As a percentage of sales,  expenses were 11.4%,
for the three month period  ended June 30, 2006,  compared to 15%, for the three
month period ended June 30, 2005.  The dollar  increase in selling,  general and
administrative   expense  was  primarily  due  to  increased  professional  fees
associated  with the pursuit of legal action  against a company in Germany which
the Hong Kong Joint Venture  believes is infringing on patents and copyrights of
the Hong Kong Joint Venture.  The reduction of these expenses as a percentage of
sales was due to higher sales volume and variable costs that did not increase at
the same rate as sales, as well as lower levels of certain expenses.

      Interest  Income and  Expense.  For the three month  period ended June 30,
2006,  net  interest  income was $72,930,  compared to net  interest  expense of
$6,870 for the prior year's period,  primarily due to increased  interest on the
Hing Kong Joint Venture's bond holdings.

      Liquidity.  Cash needs of the Hong Kong Joint Venture are currently met by
funds  generated from  operations.  During the three months ended June 30, 2006,
working  capital  increased by $1,863,990  from  $2,602,370 on March 31, 2006 to
$4,466,360 on June 30, 2006.

CRITICAL ACCOUNTING POLICIES

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

      We believe the following critical  accounting policies affect management's
more  significant  judgments  and  estimates  used  in  the  preparation  of its
consolidated financial statements.  For a detailed discussion on the application
on these and other accounting policies, see Note A to the consolidated financial
statements  included  in Item 8 of the Form  10-K for the year  ended  March 31,
2006. Certain of our accounting  policies require the application of significant
judgment by management in selecting the appropriate  assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of  uncertainty  and actual  results  could differ from these  estimates.
These  judgments  are  based on our  historical  experience,  terms of  existing
contracts, current economic trends in the industry,  information provided by our
customers,  and information available from outside sources, as appropriate.  Our
critical accounting policies include:

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


                                      -12-
<PAGE>

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

      We currently  have deferred tax assets  resulting  from foreign tax credit
carryforwards and deductible  temporary  differences,  which will reduce taxable
income in future periods.

      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, 2006.

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.

      Management is aware that there is a lack of  segregation  of duties at the
Company due to the small number of employees dealing with general administrative
and  financial  matters.  However,  at this time  management  has  decided  that
considering  the employees  involved and the control  procedures  in place,  the
risks  associated  with  such  lack of  segregation  are  insignificant  and the
potential  benefits  of adding  employees  to  clearly  segregate  duties do not
justify  the  expenses   associated   with  such   increases.   Management  will
periodically review this situation.


                                      -13-
<PAGE>

                           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  3.3 to the
      Company's  Quarterly  Report on Form 10-Q for the  period  ended  June 30,
      2004, 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 10.1 to the  Company's  Annual Report on Form 10-K for the year
      ended March 31, 2003, File No. 1-31747)
10.3  Amended Factoring Agreement with CIT Group (successor to Congress Talcott,
      Inc.) dated November 14, 1999  (incorporated  by reference to Exhibit 10.3
      to the  Company's  Annual Report on Form 10-K for the year ended March 31,
      2003, File No. 1-31747)
10.4  Amendment to Factoring Agreement with CIT Group (incorporated by reference
      to Exhibit  10.4 to the  Company's  Quarterly  Report on Form 10-Q for the
      period ended September 30, 2002, File No. 1-31747)
10.5  Amendment to Factoring  Agreement with CIT Group dated  September 28, 2004
      (incorporated  by  reference to Exhibit  10.5 to the  Company's  Quarterly
      Report on Form 10-Q for the period  ended  September  30,  2004,  File No.
      1-31747)
10.6  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)
10.7  Amended and Restated Employment  Agreement dated July 18, 2005 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, 2005, 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 14, 2006*

*Filed herewith


                                      -14-
<PAGE>

                                   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 14, 2006                By: /s/ Harvey B. Grossblatt
                                         ---------------------------------------
                                         Harvey B. Grossblatt
                                         President, Chief Executive Officer

                                     By: /s/ James B. Huff
                                         ---------------------------------------
                                         James B. Huff
                                         Vice President, Chief Financial Officer


                                      -15-