================================================================================

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                For the Quarterly period ended December 31, 2005

                                       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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes |_|  No |X|

At February 13, 2006, the number of shares outstanding of the registrant's
common stock was 1,693,497.

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<PAGE>

                                TABLE OF CONTENTS


Part I - Financial Information                                              Page
                                                                            ----

         Item 1.   Consolidated Financial Statements (unaudited):

                   Consolidated Balance Sheets at December 31, 2005
                   and March 31, 2005                                          3

                   Consolidated Statements of Earnings for the Three
                   and Nine Months Ended December 31, 2005 and 2004            4

                   Consolidated Statements of Cash Flows for the
                   Nine Months Ended December 31, 2005 and 2004                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                                    13


Part II - Other Information

         Item 1.   Legal Proceedings                                          14

         Item 4.   Submission of Matters to a Vote of Security Holders        14

         Item 6.   Exhibits                                                   15

                   Signatures                                                 16


                                      -2-
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

<TABLE>
<CAPTION>
                                  ASSETS                                       December 31, 2005       March 31, 2005
                                                                               -----------------       --------------
<S>                                                                               <C>                   <C>
CURRENT ASSETS
Cash  and cash equivalents                                                        $ 1,070,356           $    59,287
Accounts receivable:
  Trade (less allowance for doubtful accounts of $15,000)                           1,562,472             1,014,757
Employees                                                                              22,283                21,503
                                                                                  -----------            ----------
                                                                                    1,584,755             1,036,260
Amount due from factor                                                              3,561,376             3,394,084
Inventory                                                                           5,096,666             4,834,486
Prepaid expenses                                                                      247,747               145,394
                                                                                  -----------            ----------

TOTAL CURRENT ASSETS                                                               11,560,900             9,469,511

DEFERRED TAX ASSET                                                                    700,384               351,780

INVESTMENT IN JOINT VENTURE                                                         7,136,126             6,131,481

PROPERTY AND EQUIPMENT - NET                                                           66,794                81,690

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

TOTAL ASSETS                                                                      $19,479,690           $16,049,948
                                                                                  ===========           ===========


                   LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable                                                                   $1,879,298           $ 1,725,402
Accrued liabilities:
    Patent litigation reserve                                                         590,893               806,679
    Payroll, commissions and other                                                   556, 239               620,199
                                                                                  -----------           -----------
TOTAL CURRENT LIABILITIES                                                           3,026,430             3,152,280
                                                                                  ===========           ===========

COMMITMENTS AND CONTINGENCIES                                                              --                    --

SHAREHOLDERS' EQUITY
Common stock, $.01 par value per share; authorized 20,000,000 shares; issued
  and outstanding 1,673,498 and 1,652,998 shares at December 31, 2005 and
  March 31, 2005, respectively                                                         16,737                16,530
Additional paid-in capital                                                         11,515,556            11,469,444
Retained earnings                                                                   4,920,967             1,411,694
                                                                                  -----------           -----------
TOTAL SHAREHOLDERS' EQUITY                                                         16,453,260            12,897,668
                                                                                  -----------           -----------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                       $19,479,690           $16,049,948
                                                                                  ===========           ===========
</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                Nine Months Ended
                                                                        December 31,                      December 31,
                                                                  -----------------------            ---------------------
                                                                  2005               2004            2005             2004
                                                                  ----               ----            ----             ----
<S>                                                            <C>                <C>            <C>               <C>
Net sales                                                      $ 7,353,597        $5,849,144     $21,396,507       $17,346,147
Cost of goods sold                                               4,804,297         4,023,316      14,519,415        11,913,828
                                                               -----------        ----------     -----------       -----------

GROSS PROFIT                                                     2,549,300         1,825,828       6,877,092         5,432,319

Research and development expense                                    57,492            61,116         159,306           207,337
Selling, general and administrative expense                      1,675,332         1,703,826       5,264,201         4,526,308
                                                               -----------        ----------     -----------       -----------

Operating income                                                   816,476            60,886       1,453,585           698,674

Other (expense):
   Interest expense
                                                                   (23,783)          (25,789)        (47,160)          (57,243)
                                                               -----------        ----------     -----------       -----------

INCOME BEFORE EARNINGS FROM JOINT VENTURE
                                                                   792,693            35,097       1,406,425           641,431

Earnings from Joint Venture:
   Equity in earnings of Joint Venture                             525,021           758,472       1,776,326         1,929,753
                                                               -----------        ----------     -----------       -----------


Net income before taxes                                          1,317,714           793,569       3,182,751         2,571,184


Deferred income tax (benefit)                                     (139,095)               --        (326,523)               --
                                                               -----------        ----------     -----------       -----------

NET INCOME                                                     $ 1,456,809        $  793,569     $ 3,509,274       $ 2,571,184
                                                               ===========      ============     ===========       ===========


Net income per common share amounts:
  Basic                                                              $0.87             $0.49           $2.11             $1.62
  Diluted                                                            $0.80             $0.45           $1.93             $1.45
Weighted average number of common shares outstanding
  Basic                                                          1,673,498         1,621,582       1,666,723         1,588,959
  Diluted                                                        1,827,102         1,777,876       1,817,925         1,769,927
</TABLE>



          See accompanying notes to consolidated financial statements.


                                      -4-
<PAGE>


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

<TABLE>
<CAPTION>
                                                                                     Nine Months Ended December 31,
                                                                                     ------------------------------
                                                                                          2005             2004
                                                                                     ------------     -------------
<S>                                                                                  <C>              <C>
OPERATING ACTIVITIES
Net income                                                                           $  3,509,274     $  2,571,184
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
   Depreciation and amortization                                                           20,891           16,300
   Stock issued in lieu of directors' fee                                                      --           10,000
   State income tax refunds                                                                    --           12,200
   Earnings of the Joint Venture                                                       (1,776,326)      (1,929,753)
   Change in allowance for doubtful accounts                                                   --               --
   Changes in operating assets and liabilities:
     Increase in accounts receivable and amounts due from factor                         (715,787)         (16,180)
     Increase in inventories and prepaid expenses                                        (364,533)      (2,158,422)
     (Decrease) increase in accounts payable and accrued expenses                        (125,851)         833,599
     Increase in deferred tax asset                                                      (348,604)              --
                                                                                     ------------     ------------


NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                       199,068         (661,072)

INVESTING ACTIVITIES:
   Cash dividends from Joint Venture                                                      771,677          330,846
   Purchase of property and equipment                                                      (5,994)          (5,221)
                                                                                     ------------     ------------

NET CASH PROVIDED BY INVESTING ACTIVITIES                                                 765,683          325,625

FINANCING ACTIVITIES:
   Proceeds from issuance of common stock from exercise of employee stock                  46,318          215,549
     options
   Principal payments on capital lease                                                         --           (7,224)
                                                                                     ------------     ------------


NET CASH PROVIDED BY FINANCING ACTIVITIES                                                  46,318          208,325
                                                                                     ------------     ------------

INCREASE (DECREASE) IN CASH                                                             1,011,069         (127,122)

Cash at beginning of period                                                                59,287          188,190
                                                                                     ------------     ------------

CASH AT END OF PERIOD                                                                 $ 1,070,356     $     61,068
                                                                                     ============     ============

Supplemental information:
  Interest paid                                                                     $      47,160     $     57,243
  Income tax paid                                                                              --               --

Non-cash financing activities:
  Repayment of trade payables due the Joint Venture in lieu of cash distribution               --          458,940
  Issuance of 950 shares in 2004 of common stock as directors' fees                            --           10,000
</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, 2005
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 a net income tax benefit of $326,523 has been provided for the
nine month period ended December 31, 2005 principally as a result of the
carryforward of prior years' operating losses and the elimination of the
valuation allowance previously established to offset tax benefits associated
with our net operating loss carryforwards and other deferred tax assets. The
previously recorded valuation allowance is heavily influenced by historical
results of operations and management believes recent operating results support
the recognition of the income tax benefits associated with realization of net
operating loss carryforwards and other deferred tax assets.

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 nine months ended December 31, 2005 and 2004:

                                             2005                 2004
                                         -----------          -----------

      Net sales                          $18,610,343          $20,513,915
      Gross profit                         6,495,286            6,777,440
      Net income                           3,559,233            4,150,916
      Total current assets                 7,415,265            7,132,753
      Total assets                        18,056,986           15,486,646
      Total current liabilities            5,192,751            4,819,232

During the nine months ended December 31, 2005 and 2004, respectively, the
Company purchased $9,644,986 and $8,011,032 of products from the Hong Kong Joint
Venture. At December 31, 2005 and 2004, the Company had amounts payable to the
Hong Kong Joint Venture of $500,000. For the quarter ended December 31, 2005,
the Company has adjusted its equity in earnings of the Joint Venture to reflect
the elimination of $137,271 of inter-company profit 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 and nine month
periods ended December 31, 2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                                          Three Months Ended            Nine months Ended
                                                             December 31,                  December 31,
                                                        --------------------           --------------------
                                                        2005            2004           2005            2004
                                                        ----            ----           ----            ----
<S>                                                  <C>             <C>            <C>              <C>
Weighted average number of common
shares outstanding for basic EPS                     1,673,498       1,621,582      1,666,723        1,588,959

Shares issued upon the assumed
exercise of outstanding stock options                  153,604         156,294        151,202          180,968
                                                     ---------       ---------      ---------        ---------

Weighted average number of common
and common equivalent shares
outstanding for diluted EPS                          1,827,102       1,777,876      1,817,925        1,769,927
</TABLE>


At December 31, 2005, and 2004 there were no securities outstanding whose
issuance would have an anti-dilutive effect on the earnings per share
calculation.


Stock Based Compensation

During the nine months ended December 31, 2005 and 2004, the Company granted
options for the purchase of 0 and 6,500 shares, respectively, to employees. The
options granted during the nine months ended December 31, 2004 are exercisable
at an average price of $11.50 per share, expire in 2009, and vest over a four
year period from the date of grant.

The Company uses the intrinsic value method as defined by Accounting Principles
Board Opinion No. 25 to account for stock-based employee compensation. The
Company has adopted the disclosure requirements of Financial Accounting
Standards Board (FASB) Statement No. 123, Accounting for Stock-Based
Compensation, as amended by FASB No. 148 during fiscal 2003. The following table
illustrates the effect on net income and earnings per share as if the fair value
based method had been applied to all outstanding and unvested awards in each
period.

<TABLE>
<CAPTION>
                                                           Three Months Ended             Nine months Ended
                                                               December 31,                  December 31,
                                                           -------------------           --------------------
                                                           2005           2004           2005            2004
                                                           ----           ----           ----            ----
<S>                                                     <C>             <C>          <C>             <C>
Net income, as reported                                 $1,456,809      $793,569     $3,509,274      $2,571,184

Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects
                                                           (25,962)      (19,534)       (77,885)        (47,839)
                                                        ----------      --------     ----------      ----------

  Pro forma net income                                  $1,430,847      $774,035     $3,431,389      $2,523,345
                                                        ==========      ========     ==========      ==========

Earnings per share:
Basic - as reported                                          $0.87         $0.49          $2.11           $1.62
                                                             =====         =====          =====           =====
Basic - pro forma                                            $0.86         $0.48          $2.06           $1.59
                                                             =====         =====          =====           =====
Diluted - as reported                                        $0.80         $0.45          $1.93           $1.45
                                                             =====         =====          =====           =====
Diluted - pro forma                                          $0.78         $0.44          $1.89           $1.43
                                                             =====         =====          =====           =====
</TABLE>


At December 31, 2005 and 2004, there were no securities outstanding whose
issuance would have an anti-dilutive effect on the earnings per share
calculation.

                                      -7-
<PAGE>

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.

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 effective date of
FASB 123R is for interim and annual periods beginning after June 15, 2005.

In March 2005, the SEC issued Staff Accounting Bulletin No. 107 ("SAB No. 107"),
which provides guidance on the implementation of SFAS No. 123R, including
guidance related to share-based payment transactions with non employees,
valuation methods, the accounting for certain redeemable financial instruments
issued under share-based payment arrangements, the classification of
compensation expense, and the accounting for income tax effects of share-based
payment arrangements under SFAS No. 123R.

In April 2005, the SEC delayed the implementation date for SFAS No. 123R until
an issuer's first annual period that begins after June 15, 2005. Therefore, the
Company is required to adopt SFAS No. 123R effective April 1, 2006, using one of
three implementation alternatives. The Company anticipates that the adoption of
SFAS No. 123R will not have a significant impact on the Company's financial
statements. The Company is currently in the process of determining which
implementation alternative to use and what the overall accounting impact of
adopting SFAS No. 123R may be.


Reclassifications

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


                                      -8-
<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 could include: (i) our and our Hong Kong Joint Venture's
respective ability to maintain operating profitability, (ii) competitive
practices in the industries in which we compete, (iii) our dependence on current
management, (iv) the impact of current and future laws and governmental
regulations affecting us and our Hong Kong Joint Venture, (v) general economic
conditions, (vi) other factors which may be identified from time to time in our
Securities and Exchange Commission filings and other public announcements, and
(vii) currency fluctuations. We do not undertake and specifically disclaim any
obligation to update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.

RESULTS OF OPERATIONS

Three Months Ended December 31, 2005 and 2004

      Sales. Net sales for the three months ended December 31, 2005 were
$7,353,597 compared to $5,849,144 for the comparable three months in the prior
fiscal year, an increase of $1,504,453 (25.7%). The primary reason for the
increase in sales was an increase in the volume of smoke alarm and carbon
monoxide alarm units, both to the electrical distribution and retail markets.

      Gross Profit Margin. The 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 3.5%, to 34.7% of sales for the quarter ended December 31, 2005
from 31.2% for the corresponding quarter last year. The increase in gross profit
margin resulted from a change in the mix of products sold, and as a result of
semi-variable costs not increasing at the same rate as sales.

      Expenses. Research and development, and selling, general and
administrative expenses decreased to 24% of net sales for the three month period
ended December 31, 2005, from 30% for the comparable 2004 period. This decrease
in expenses as a percent of sales was due to (i) higher sales volume and
variable costs that did not increase at the same rate as sales, and (ii) a
$326,879 reduction (from $418,329 to $91,510) in legal expenses, a component of
selling, general and administrative expense, principally as a result of the
successful conclusion of previously reported litigation. Since many of these
expenses increase with higher sales volume, the dollar amount of many of these
expenses increased due to our increased sales volume for the quarter. However,
these dollar increases in our research and development, and selling, general and
administrative expenses for the quarter were offset by the reduction in legal
fees as compared to the 2004 period. As a result, our expenses for the 2005
period decreased by $32,118 from the comparable three months in the prior year.

      Interest Expense and Income. Our interest expense, net of interest
income, decreased to $23,783 for the quarter ended December 31, 2005 from
$25,789 for the quarter ended December 31, 2004. The lower interest expenses
resulted primarily from a reduction in the average balance of borrowings.

      Net Income. As a result of the factors described above, we reported net
income of $1,456,809 for the quarter ended December 30, 2005 compared to net
income of $793,569 for the corresponding quarter of the prior fiscal year.
Included in our net income for the quarter was a net tax benefit of $139,095.

                                      -9-
<PAGE>

Nine Months Ended December 31, 2005 and 2004

      Sales. Net sales for the nine months ended December 31, 2005 were
$21,396,507 compared to $17,346,147 for the comparable nine months in the prior
fiscal year, an increase of $4,050,360 (23.4%). The primary reason for the
increase in sales was an increase in the volume of smoke alarm and carbon
monoxide alarm units, both to the electrical distribution and retail markets.

      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 increased .8% to 32.1% for the period ended December 31,
2005 from 31.3% for the period ended December 31, 2004. The primary reason for
this was a change in the mix of products sold, and as a result of semi-variable
costs not increasing at the same rate as sales.

      Expenses. Research and development, and selling, general and
administrative expenses increased by $689,862 from the comparable nine months in
the prior year. As a percentage of sales, these expenses were reduced to 25.3%
for the nine month period ended December 31, 2005 from 27.3% for the comparable
2004 period. The decrease in research, selling and general and administrative
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, and the increase dollar amount
of the expenses is primarily due to our increased sales volume and the resulting
increase in related expenses. Various expense categories contributed to the
increased dollar amount of the expenses; most notably, commissions and freight
charges which, while as a percentage of sales, remained consistent with
commissions and freight charges of the prior year, increased $451,587 due to
higher sales volume during the 2005 period.

      Interest Expense and Income. Our interest expense, net of interest
income, decreased to $47,160 for the nine months ended December 31, 2005, from
$57,243 for the nine months ended December 31, 2004. The lower interest expenses
resulted primarily from a reduction in the average balance of borrowings for the
nine month period.

      Net Income. As a result of the factors described above, we reported net
income of $3,509,274 for the nine months ended December 31, 2005 compared to net
income of $2,571,184 for the corresponding period of the prior fiscal year.
Included in our net income for the nine months ended December 31, 2005 was a net
tax benefit of $326,523.

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
$4,992,124 available under the Factoring Agreement. No funds were borrowed as of
December 31, 2005. The interest rate under the Factoring Agreement on the
uncollected factored accounts receivable and any additional borrowings is equal
to the prime rate of interest charged by our lender. At December 31, 2005, the
prime rate was 7.25%. 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. At December 31,
2005 no amounts have been borrowed or are outstanding on this line of credit.

      Our accounts receivable as of the end of our last fiscal year (net of
allowances for doubtful accounts) were $1,014,757, and were $1,562,472 as of
December 31, 2005. The increase in trade accounts receivable during the first
nine months of the current fiscal year is due to increased sales, primarily
direct shipments from our foreign manufacturers, directly to customers for which
we bear the credit risk. Our prepaid expenses as of the end of our last fiscal
year were $145,394, and were $247,747 as of December 31, 2005. The increase in
prepaid expenses during the first nine months of the current fiscal year is
primarily due to the timing of premium payments to various insurance carriers.


                                      -10-
<PAGE>

      Operating activities provided cash of $199,068 for the period ended
December 31, 2005. This was primarily due to earnings $3,509,274, which were
partially offset by equity in the earnings from our Hong Kong Joint Venture of
$1,776,326, and by an increase in accounts receivable, inventory and prepaid
expenses of $1,080,320. For the same period last year, operating activities used
cash of $661,072.

      Investing activities provided cash of $765,683 in the current period,
primarily from dividends received from our Hong Kong Joint Venture. For the same
period last year, investing activities provided cash of $325,625, primarily from
the dividends received from our Hong Kong Joint Venture.

      Financing activities provided cash of $46,318 from the exercise of
employee stock options. For the same period last year, financing activities
provided cash of $208,325.

      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 and nine
months ended December 31, 2005 were $6,993,903 and $18,610,343, respectively,
compared to $7,436,845 and $20,513,915, respectively, for the comparable periods
in the prior fiscal year. Sales of the Hong Kong Joint Venture to the Company
amounted to $3,630,409 (51.9%) and $9,644,986 (51.9%) for the three and nine
month periods ended December 31, 2005 and $3,312,469 (44.5%) and $8,011,032
(39.1%) for the same periods of the prior year. The 6.0% and 9.3% respective
decreases in net sales for the three and nine month periods were principally due
to reduced volume of product shipped to Germany as a result 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.

      Net Income. Net income for the three and nine months ended December 31,
2005 was $1,360,402 and $3,559,233, respectively, compared to $1,589,425 and
$4,150,916, respectively, in the comparable periods last year. The 14% decrease
in net income for the quarter was due to lower sales and an increase in
professional fees associated with the pursuit of the German legal action
referred to above.

      Gross Margins. Gross margins of the Hong Kong Joint Venture for the three
month period ended December 31, 2005 increased to 35.7% from 34.6% for the 2004
period. For the nine month period ended December 31, 2005, gross margins
increased to 34.9% from 33% for the 2004 period. Since gross margins depend on
sales volume of various products, changes in product sales mix caused these
changes in gross margins.

      Expenses. Selling, general and administrative expenses were $1,059,396 and
$2,767,628, respectively, for the three and nine month periods ended December
31, 2005, compared to $992,921 and $2,519,160, in the prior year's respective
periods. As a percentage of sales, expenses were 15% and 15%, respectively, for
the three and nine month periods ended December 31, 2005, compared to 13% and
12%, respectively, for the three and nine month periods ended December 31, 2004.
The increase in selling, general and administrative expense was primarily due to
increased professional fees associated with the pursuit of the German legal
action referred to above.

      Interest Income and Expense. Interest income, net of interest expense, was
$56,710 and $143,763, respectively, for the three and nine month periods ended
December 31, 2005, compared to interest income of $23,407 and $61,057,
respectively, for the prior year's periods. The increase in net interest income
is primarily due to increased interest income from bonds owned by the Hong Kong
Joint Venture.

      Liquidity. Cash needs of the Hong Kong Joint Venture are currently met by
funds generated from operations. During the nine months ended December 31, 2005,
working capital increased by $628,747 from $1,593,767 on March 31, 2005 to
$2,222,514 on December 31, 2005.

                                      -11-
<PAGE>

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,
2005. Certain of our accounting policies require the application of significant
judgment by management in selecting the appropriate assumptions for calculating
financial estimates. By their nature, these judgments are subject to an inherent
degree of uncertainty and actual results could differ from these estimates.
These judgments are based on our historical experience, terms of existing
contracts, current economic trends in the industry, information provided by our
customers, and information available from outside sources, as appropriate. Our
critical accounting policies include:

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

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

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

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


ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         No material changes have occurred in our quantitative and qualitative
market risk disclosures as presented in our Annual Report Form 10-K for the year
ended March 31, 2005.

                                      -12-
<PAGE>

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

      In December 2001, Leviton Manufacturing Co., Inc. sued the company in the
United States District Court for the District of Maryland (Case No. 01cv3855).
On January 18, 2006 the Court issued a communication indicating that the trial
would be scheduled before the end of summer 2006. However, no specific no trial
date has been assigned. As discussed below, in connection with Leviton II, the
Court recently made rulings impacting on the pending configuration trade dress
claim. The Company and its counsel believe that the Company has meritorious
defenses to the claims and continues to aggressively defend against the suit.
However, the amount of any loss to the Company from this claim is not yet
determinable.

      In a second suit, filed June 10, 2003, by Leviton Manufacturing Co., Inc.,
Case No. 03cv1701 ("Leviton II"), Leviton reasserted its trade dress and unfair
competition claims which largely correspond to the claim in the "Leviton l" suit
and accused the company of infringement of six reset-lockout ground fault
circuit interrupters (GFCI) patents. Together with the GFCI manufacturer,
Shanghai Meihao Electric, Inc., the Company filed for judgment of
non-infringement of the all of the asserted Leviton patents which was granted on
January 18, 2006. Therefore, the only matter remaining matter for trial in
Leviton II relates to the trade dress infringement allegations. The Court has
instructed the parties to prepare to complete the trial of the Consolidated
Leviton I and II cases by the end of August 2006. As indicated above, in the
event of an unfavorable outcome of the trial on the trade dress counts, the
amount of any potential loss to the Company not yet determinable.

      On March 31, 2005, Leviton filed still another lawsuit in the United
States District Court for the District of Maryland (Case No. 05cv0889) against
the Company ("Leviton III"). In this suit, Leviton accuses the Company of
infringement of US Patent 6,864,766. This case is now pending in the same Court
and before the same Judge as Leviton I and Leviton II. The Company has filed a
counterclaim against Leviton and the case has been consolidated with a
declaratory judgment action filed by the GFCI manufacturer, Shanghai Meihao
Electric, Inc. Discovery has just commenced in that suit. The Company believes
that it has strong 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
determinable at this time.

      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. On November 28, 2005, Kidde filed a motion to dismiss the
pending case and filed a new complaint for patent infringement, again seeking
injunctive relief and damages. Having been prepared to go to trial in October
2005 and preferring to obtain formal rulings in that case and avoid new
pre-trial activities, the Company is opposing Kidde's dismissal motion. Until
the Court rules on the motion the trial schedule remains unsettled. The
Company's position on the merits and its defenses to Kidde's claim remains the
same. The Company and its counsel believe that the Company has significant
defenses relating to the patent in suit. In the event of an unfavorable outcome,
the amount of any potential loss to USI is not yet determinable.


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

      On October 3, 2005, we held our Annual Meeting of Stockholders. Reference
is made to the Quarterly Report on Form 10-Q for our quarter ended September 30,
2005 with respect to the voting results of the Annual Meeting.


                                      -14-
<PAGE>

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. 0-7885)
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. 0-7885)
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. 0-7885)
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. 0-7885)
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. 0-7885)
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. 0-7885)
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. 0-7885)
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.
         0-7885)
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 February 13, 2006*

*Filed herewith


                                      -15-
<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: February 13, 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


                                      -16-