UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x   Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 20152016 or

¨   Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to ________..

Commission file number:001-31747

UNIVERSAL SECURITY INSTRUMENTS, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes¨Nox

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes¨Nox

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. YesxNo¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yesx No¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or other information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.x

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer¨   Accelerated Filer ¨   Non-Accelerated Filer¨   Smaller Reporting Companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨Nox

The aggregate market value of Common Stock, $.01 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the New York Stock Exchange (NYSE MKT LLC) on September 30, 2014,2015, was $10,501,401.$11,278,438.

The number of shares of common stock outstanding as of June 15, 2015August 31, 2016 was 2,312,887.

documents incorporated by reference

To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant’s definitive proxy statement for its 20152016 Annual Meeting of Shareholders.

UNIVERSAL SECURITY INSTRUMENTS, INC.

20152016 ANNUAL REPORT ON FORM 10-K

Table of Contents

PART I

ITEM 1.         BUSINESS

General

Universal Security Instruments, Inc. (“we” or “the Company”) designs and markets a variety of popularly-priced safety products consisting primarily of smoke alarms, carbon monoxide alarms and related products. Most of our products require minimal installation and are designed for easy installation by the consumer without professional assistance, and are sold through retail stores. We also market products to the electrical distribution trade through our wholly-owned subsidiary, USI Electric, Inc. (“USI Electric”). The electrical distribution trade includes electrical and lighting distributors as well as manufactured housing companies. Products sold by USI Electric usually require professional installation.

In 1989 we formed Eyston Company Limited, a limited liability company under the laws of Hong Kong, as a joint venture with a Hong Kong-based partner, to manufacture various products in the Peoples Republic of China (the “Hong Kong Joint Venture”). We currently own a 50% interest in the Hong Kong Joint Venture and are a significant customer of the Hong Kong Joint Venture (41.8%(52.0% and 38.9%41.8% of its sales during fiscal 20152016 and 20142015 respectively), with the balance of its sales made to unrelated customers worldwide. We import all of our products from foreign suppliers. For the fiscal year ended March 31, 2015,2016, approximately 87.3%97.0% of our purchases were imported from the Hong Kong Joint Venture.

Our sales for the year ended March 31, 20152016 were $9,891,554$13,740,840 compared to $12,577,127$9,891,554 for the year ended March 31, 2014.2015. We reported a net loss of $2,137,792 in fiscal 2016 compared to a net loss of $3,704,985 in fiscal 2015, compared to a net loss of $4,450,244 in fiscal 2014, a decrease in net loss of $745,259 (16.7%$1,567,193 (42.3%). The decrease in the net loss is primarily due to a non-cash chargeincreased sales and the increased gross profit obtained on sales of $2,310,835 includedthe Company’s new line of sealed battery smoke, carbon monoxide, and combination alarms. Sales of these products have increased as the new line of products achieved independent certification and began selling throughout the fiscal year. The improvement in the operating resultsnet loss of the fiscal year ended March 31, 2014 that established an allowance for unrealizable deferred tax assets offsetCompany also reflects a $386,713 decrease in our loss from investment in the Hong Kong Joint Venture. Increased purchases by an approximate $969,000 increase in equity inthe Company of our new sealed battery alarms from the Hong Kong Joint Venture, as mentioned above, was a primary contributor to reducing the net loss of the Hong Kong Joint Venture and lower gross profit due to the decline in sales as mentioned above.Venture.

The Company was incorporated in Maryland in 1969. Our principal executive office is located at 11407 Cronhill Drive, Suite A, Owings Mills, Maryland 21117, and our telephone number is 410-363-3000. Information about us may be obtained from our websitewww.universalsecurity.com. Copies of our Annual Report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, are available free of charge on our website as soon as they are filed with the Securities and Exchange Commission (SEC) through a link to the SEC’s EDGAR reporting system. Simply select the “Investor Relations” menu item, and then click on the “SEC Filings” link. The SEC’s EDGAR reporting system can also be accessed directly atwww.sec.gov.

Safety Products

We market a line of residential smoke and carbon monoxide alarms under the trade names “UNIVERSAL” and “USI Electric” both of which are manufactured by the Hong Kong Joint Venture.

Our line of smokesafety alarms consists of batteryunits powered by replaceable batteries, ten year sealed battery powered, electricalbatteries, and electrical with battery backup alarms. Our replaceable battery products contain different types of batteries with different battery lives, and some with alarm silencers. The smoke alarms marketed to the electrical distribution trade also include hearing impaired and heat alarms with a variety of features. We also market carbon monoxide alarms, door chimes and ventilation products.

Over the past sixseveral fiscal years we have added significantly to our intellectual property portfolio. Since 2010 the United States Patent and Trademark Office has awarded eight patents to the Company, many being applied to our “Smart Alarm Technology” developed to significantly reduce nuisance alarms. This “Smart Alarm Technology” is being incorporated into our new smoke, carbon monoxide, and natural gas detection technologies which wesealed battery alarms. In addition, certain of our detector designs have also been awarded patents. We consider these patented enhancements to form a core part of the Company’s “next generation” safety product line. The Company has also been awarded foreign patents for its technology. The Company has actively pursued development of an array of unique packaging and source identifiers with the intent of promoting consumer association with our safety products,Company’s “next generation” product line. These efforts have resulted in eight new Trademark registrations being granted by the United States Patent and we have applied for thirteen patents on these new technologies and features. In addition, we have developed a line of sealed battery alarms utilizing our next generation technologies. Most of our new technologies and features have been trademarked under the trade name IoPhic^®. To date we have been granted tenpatents (including six for the new technologies and features), and we are currently awaiting notification from the U.S. Patent Office regarding the remaining patent applications.Trademark Office.

We also submitted each of our new products for independent testing agency approval, and have introduced products into the marketplace as approvals were received. This process began during the fourth quarter of our 2010 fiscal year and continues with the development and testing of our sealed battery alarms. Currently, we have received independent testing agency approvals on certain sealed battery products and we are awaiting approval of additional models of our sealed battery products before our entire line of new products will have been introduced to the market by the end of our fiscal year ending March 31, 2016.2017.

Our wholly-owned subsidiary, USI Electric, Inc., focuses its sales and marketing efforts to maximize safety product sales, especially smoke alarms and carbon monoxide alarms manufactured by our Hong Kong Joint Venture, to the electrical distribution trade and to foreign customers.

Import Matters

We import all of our products. As an importer, we are subject to numerous tariffs which vary depending on types of products and country of origin, changes in economic and political conditions in the country of manufacture, potential trade restrictions, and currency fluctuations. We have attempted to protect ourselves from fluctuations in currency exchange rates to the extent possible by negotiating commitments in U.S. dollars.

Our inventory purchases are also subject to delays in delivery due to problems with shipping and docking facilities, as well as other problems associated with purchasing products abroad. Substantially all of our safety products, including products we purchase from our Hong Kong Joint Venture, are imported from the People’s Republic of China.

Sales and Marketing; Customers

We sell our products to various customers, and our total sales market can be divided generally into two categories; sales by the Company to retailers, including wholesale distributors, chain, discount, television retailers and home center stores, catalog and mail order companies and other distributors (“retailers”), and sales by our USI Electric subsidiary to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies) and foreign customers. Products marketed by the Company have historically been retailed to “do-it-yourself” consumers by these retailers. Products marketed by our USI Electric subsidiary to the electrical distribution trade typically require professional installation. We do not currently market a significant portion of our products directly to end users.

A significant portion of our sales are made by approximately 4536 independent sales organizations, compensated by commission, which represents approximately 230 sales representatives, some of which have warehouses where USI Electric products are maintained for sale. In addition, the Company has established a national distribution system with nineeight regional stocking warehouses throughout the United States which generally enables customers to receive their orders the next day without paying for overnight freight charges. Our agreements with these sales organizations are generally cancelable by either party upon 30 days’ notice. We do not believe that the loss of any one of these organizations would have a material adverse effect upon our business. Sales are also made directly by the officers and full-time employees of the Company and our USI Electric subsidiary, seven of whom have other responsibilities for the Company. Sales outside the United States are made by our officers and through exporters, and amounted to approximately 9.9%4.8% in fiscal 20152016 and 17.5%9.9% of total net sales in fiscal 2014.2015.

We also market our products through our website and through our own sales catalogs and brochures, which are mailed directly to trade customers. Our customers, in turn, may advertise our products in their own catalogs and brochures and in their ads in newspapers and other media. We also exhibit and sell our products at various trade shows, including the annual National Hardware Show.

Our backlog of orders as of March 31, 20152016 was approximately $231,000.$631,000. Our backlog as of March 31, 20142015 was approximately $691,873.$231,000. This decreaseincrease in backlog is primarily due to the timing of orders of our safety products.

Hong Kong Joint Venture

We have a 50% interest in Eyston Company Limited, the Hong Kong Joint Venture, which has manufacturing facilities in the People’s Republic of China, for the manufacturing of certain of our electronic and electrical products.

We believe that the Hong Kong Joint Venture arrangement will ensure a continuing source of supply for a majority of our safety products at competitive prices. During fiscal years 2016 and 2015, 97.0% and 2014, 87.3% and 92.4%, respectively, of our total inventory purchases were made from the Hong Kong Joint Venture. The products produced by the Hong Kong Joint Venture include smoke alarms and carbon monoxide alarms. Negative changes in economic and political conditions in China or any other adversity to the Hong Kong Joint Venture will unfavorably affect the value of our investment in the Hong Kong Joint Venture and would have a material adverse effect on the Company’s ability to purchase products for distribution.

Our purchases from the Hong Kong Joint Venture represented approximately 41.8%52.0% of the Hong Kong Joint Venture’s total sales during fiscal 20152016 and 38.9%41.8% of total sales during fiscal 2014,2015, with the balance of the Hong Kong Joint Venture’s sales being primarily made in Europe and Australia, to unrelated customers. The Hong Kong Joint Venture’s sales to unrelated customers were $8,502,710 in fiscal 2016 and $9,162,424 in fiscal 2015 and $11,644,850 in fiscal 2014.2015. Please see Note DC of the Financial Statements,consolidated financial statements, and management’s discussion and analysis of financial condition and the financial statementsresults of the Hong Kong Joint Venture included with this filingoperations, for a comparison of annual sales and earnings of the Hong Kong Joint Venture.

Other Suppliers

Certain private label products not manufactured for us by the Hong Kong Joint Venture are manufactured by other foreign suppliers. We believe that our relationships with our suppliers are good. We believe that the loss of our ability to purchase products from the Hong Kong Joint Venture would have a material adverse effect on the Company. The loss of any of our other suppliers would have a short-term adverse effect on our operations, but replacement sources for these other suppliers could be developed.

Competition

In fiscal years 20152016 and 2014,2015, sales of safety products accounted for substantially all of our total sales. In the sale of smoke alarms and carbon monoxide alarms, we compete in all of our markets with First Alert and Walter Kidde Portable Equipment, Inc. These companies have greater financial resources and financial strength than we have. We believe that our safety products compete favorably in the market primarily on the basis of styling, features and pricing.

The safety industry in general involves changing technology. The success of our products may depend on our ability to improve and update our products in a timely manner and to adapt to new technological advances.

Employees

As of March 31, 2015,2016, we had 15 employees, 1210 of whom are engaged in administration and sales, and the balance of whom are engaged in product development. Our employees are not unionized, and we believe that our relations with our employees are satisfactory.

ITEM 1B.UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.PROPERTIES

Effective January 2009, we entered into a ten year operating lease for a 12,000 square foot office and warehouse located in Baltimore County, Maryland. In June 2009, we amended this lease to include an additional 3,000 square feet of warehouse space contiguous to our existing warehouse in Baltimore County, Maryland. Monthly rental expense, with common area maintenance, currently approximates $12,170$13,000 and increases 3% per year.

Effective March 2003, we entered into an operating lease for an approximately 2,6001,800 square foot office in Naperville, Illinois. This lease was renewed in March 2015 and increased to approximately 3,400 square feet and extends through February 2017. The monthly rental, with common area maintenance, approximated $3,457$5,000 per month during the current fiscal year and increased to $5,113 upon renewal in March 2105 and is subject to increasing rentals of 3% per year.

The Hong Kong Joint Venture currently operates an approximately 100,000 square foot manufacturing facility in the Guangdong province of Southern China and a 250,000 square-foottwo manufacturing facilityfacilities in the Fujian province of Southern China. In addition, the Hong Kong Joint Venture has construction in progress related to an additional 126,000China totaling approximately 300,000 square foot facility in southern China.feet. The Hong Kong Joint Venture’s offices and warehouses are leased pursuant to a fivetwo-five year leaseleases with rental payments of approximately $18,000$22,000 per month.

The Company believes that its current facilities, and those of the Hong Kong Joint Venture, are currently suitable and adequate.

ITEM 3.         LEGAL PROCEEDINGS

From time to time the Company is involved in various lawsuitsclaims and legalroutine litigation matters. It isIn the opinion of management, basedafter consultation with legal counsel, the outcomes of such matters are not anticipated to have a material adverse effect on the adviceCompany’s consolidated financial position, results of legal counsel, that there are no outstanding material claims outside the ordinary course of business.operations, or cash flows in future years.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is information about the Company’s executive officers.

HARVEY B. GROSSBLATT has been a director of the Company since 1996. He served as Chief Financial Officer from October 1983 through August 2004, Secretary and Treasurer of the Company from September 1988 through August 2004, and Chief Operating Officer from April 2003 through August 2004. Mr. Grossblatt was appointed Chief Executive Officer in August 2004.

JAMES B. HUFF was appointed Chief Financial Officer in August 2004 and Secretary and Treasurer in October 2004.

PART II

Market for Common Stock

Our common stock, $.01 par value (the “Common Stock”) trades on the NYSE MKT LLC exchange, under the symbol UUU. As of August 6, 2015,March 31, 2016, there were 219160 record holders of the Common Stock. The closing price for the Common Stock on that date was $6.40.$4.12. We have not paid any cash dividends on our common stock, and it is our present intention to retain all earningscash flow for use in future operations. The following table sets forth the high and low prices for the Common Stock for each full quarterly period during the fiscal years indicated.

Forward-Looking Statements

When used in this discussion and elsewhere in this Annual Report on Form 10-K, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project” or similar expressions are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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, including Risk Factors discussed in earlier filings, and other risks could affect our financial performance and could cause our actual results for future periods to differ materially from those anticipated or projected. 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.

General

We are in the business of marketing and distributing safety and security products which are primarily manufactured through our 50% owned Hong Kong Joint Venture. Our consolidated financial statements detail our sales and other operational results, and report the financial results of the Hong Kong Joint Venture that is accounted for using the equity method.method of accounting. Accordingly, the following discussion and analysis of the fiscal years ended March 31, 20152016 and 20142015 relate to the operational results of the Company and its consolidated subsidiariessubsidiary only and includes the Company’s equity share of earnings in the Hong Kong Joint Venture. A discussion and analysis of the Hong Kong Joint Venture’s operational results for these periods is presented below under the heading “Hong Kong Joint Venture.”

While we believe that our overall sales are likely affected by the current global economic situation, we believe that we are specifically negatively impacted by the severe downturn in the U.S. housing market.market that occurred in 2008. Although there has since been improvement in the industry, it has not returned to pre-2008 performance. As stated elsewhere in this report, our USI Electric subsidiary markets our products to the electrical distribution trade (primarily electrical and lighting distributors and manufactured housing companies); every downturn in new home construction and new home sales negatively impacts sales by our USI Electric subsidiary. Our operating results for the current fiscal years ended March 31, 20152016 and 20142015 continue to be significantly impacted by the economic downturnconditions of the U.S. housing market. We anticipate that when and as the housing market recovers,continues to improve, sales by our USI Electric subsidiary will improve, as well.

We further believe that our fiscal 2016, and to a lesser extent our fiscal 2015, retail sales were positively impacted by the movement of the smoke and carbon monoxidealarmretailmarkets toward ten-year sealed alarms to comply with new laws passed in several states, including California and New York. In May 2014, the Company previewed eleven new sealed smoke and carbon monoxide alarms at the International Hardware Show in Las Vegas, and the Company believes thatCompany’s prospective customers’ responses were very positive. TheAs the Company believes that based on projected salescontinues its introduction of theits new line of sealed battery units, the Company will begin to return to profitability after theexpects increased sales and higher gross profit margins. The complete line of sealed units is expected to be available for sale later thisby the end of our fiscal year.year ending March 31, 2017.

Comparison of Results of Operations for the Years Ended March 31, 20152016 and 20142015

Sales.In fiscal year 2015,2016, our net sales are $9,891,554$13,740,840 compared to sales in the prior year of $12,577,127, a decrease$9,891,554, an increase of $2,685,573 (21.4%$3,849,286 (38.9%). Our lowerThe increase in sales areis primarily attributable to delays in engineering and independent approvals causing delays in the introduction during the current fiscal year of the Company’s new sealed battery safety alarms.

Gross Profit. Gross profit marginpercentage is calculated as net sales less cost of goods sold expressed as a percentage of net sales. Our gross profit marginpercentage for the fiscal year ended March 31, 20152016 was 23.5%27.5% compared to 22.6%23.5% in fiscal 2014.2015. The increase in 20152016 gross margin is attributed to the mix of products sold that includes a higher percentage of the Company’s new productssealed battery safety alarms that generally have higher margins.

Selling, General and Administrative Expense. Selling, general and administrative expenses decreased from $4,251,274increased to $4,480,330 in fiscal 2014 to2016 from $4,175,584 in fiscal 2015. As a percentage of net sales, these expenses were 32.6% for the fiscal year ended March 31, 2016 and 42.2% for the fiscal year ended March 31, 2015 and 33.8% for the prior fiscal year.2015. The decreaseincrease in dollars primarily reflects a lowerhigher audit costs, associated with lower sales,an increase in rebates and commissions, and increased insurance expense incurred during the fiscal year ended March 31, 2016, and the increasedecrease as a percentage is due to the fixed nature of certain selling, general and administrative expenses.a comparison to higher sales in fiscal 2016.

Research and Development.Research and development expense for the fiscal year ended March 31, 2016 was $665,278, of which approximately $500,000 was for new product development. Research and development expense for the fiscal year ended March 31, 2015 was $776,778, of which approximately $600,000 was for new product development. Research and development expense for the fiscal year ended March 31, 2014 was $592,488, of which approximately $450,000 was for new product development. The increasedecrease in overall research and development expense for the 20152016 period compared to the 20142015 period was due to the costcompletion of independent testing of additionalcertain new products in development.

Interest IncomeExpense.For the fiscal year ended March 31, 2016, the Company incurred interest expense of $29,768 related to borrowing costs principally associated with amounts incurred on extended trade payables due to the Hong Kong Joint Venture. Amounts borrowed from the Hong Kong Joint Venture are restricted to the purchase of the Company’s new sealed battery alarms and Other Income.bear interest at 3.25%, are for a term of ninety (90) days, and are unsecured.

Interest Income. Interest income for the fiscal year ended March 31, 2015 consisted of interest earned on cash deposits with our factor. During the fiscal years ended March 31, 2015, and 2014, we earned interest of $22,826 and $23,316, respectively from these deposits.

Interest Expense. During the fiscal years ended March 31, 2015 and 2014, we incurred no interest expense.

Income Taxes.For the fiscal years ended March 31, 20152016 and 2014,2015, our statutory Federal tax rate of tax iswas 34.0%. The income tax rate of tax indicated by the provision for income tax expense as shown on the Consolidated Statements of Operations for the fiscal years ended March 31, 20152016 and 20142015 varies from the expected statutory rate. Footnote H to the financial statements provides a reconciliation betweenof the amount of tax that would be expected at statutory rates and the amount of tax expense or benefit provided at the effective rate of tax for each fiscal period.

For the fiscal year ended March 31, 2015 and 2014, we generated net operating loss carryovers to offset future federal and state taxable income of approximately $2,497,000 and $1,430,000, respectively. At March 31, 2015 and 2014, we had net operating loss carryovers of approximately $6,370,000 and $3,687,000, respectively. The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements. These temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and valuation allowances are provided whenever it is more likely than not that a deferred tax asset will not be realized. Accordingly, the Company has a full valuation allowance of $3,727,908 and $3,120,203 on its deferred tax asset at March 31, 2015 and 2014, respectively, to recognize that certain tax credits expiring in future fiscal years are not likely to be realized. See “Critical Accounting Policies” below for further discussion regarding the need to reserve the previously established deferred tax assets.

Net Loss.We reported a net loss of $3,704,985$2,137,792 for the fiscal year 2015,2016, compared to a net loss of $4,450,244$3,704,985 for fiscal 2014,2015, a $745,259 (16.7%$1,567,193 (42.3%) decreaseimprovement in net loss. The decreaseimprovement in the net loss is primarily due to a non-cash charge of $2,310,835 included in the operating resultsincreased sales of the fiscal year ended March 31, 2014 that established an allowance for unrealizable deferred tax assets.Company’s new line of sealed battery safety alarms and generally higher gross profit associated with the sale of those products.

Our equityloss from investment in the Hong Kong Joint Venture decreased to $741,846 in fiscal 2016 from a loss of $1,128,559 in fiscal 2015, a $386,713 (34.3%) improvement in the loss. See “Hong Kong Joint Venture” below for further discussion regarding the operations of the Hong Kong Joint Venture increased to $1,128,559 in fiscal 2015 from a loss of $159,947 in fiscal 2014, a $968,612 (605.6%) increase in the loss.Venture.

Financial Condition, Liquidity and Capital Resources

ForThe Company had net losses of $2,137,792 and $3,704,985 for the fiscal yearyears ended March 31, 2016 and 2015, the Company reported losses from domestic operations in the amountrespectively. Furthermore, as of $2,601,426 on sales of $9,891,554. Furthermore, during the fiscal year ended March 31, 2015,2016, working capital (computed as the excess of current assets over current liabilities) decreased by $2,543,227$1,147,951 from $8,154,779 on March 31, 2014, to $5,611,552 on March 31, 2015.2015, to $4,463,601 on March 31, 2016.

Our operating activities used cash of $822,957 for the year ended March 31, 2016 principally as a result of a net loss of $2,137,792. The net loss was partially offset by the non-cash loss of the Hong Kong Joint Venture of $741,846, and an increase in accounts payable and accrued expenses of $659,222. Our operating activities used cash of $1,369,660 for the year ended March 31, 2015 principally as a result of a net loss from operations of $3,704,985. The operatingnet loss was partially offset by the non-cash loss of the Hong Kong Joint Venture of $1,128,559, and decreases in accounts receivable and amounts due from factor of $554,699. $554,699, decreases in inventories of $288,131, and an increase in accounts payable and accrued expenses of $363,468.

Our operatinginvesting activities usedprovided cash of $851,941 for$822,367 during the fiscal year ended March 31, 2014 principally as a result2016 resulting from the withdrawal of a loss from operations of $4,450,244. The operating loss was partially offsetfunds held by a non-cash allowance for unrealizable deferred income tax assets of $2,310,835, and decreases in accounts receivable and amounts due fromthe factor of $630,310$631,906 and decreases in prepaid expensesdividends received from the Hong Kong Joint Venture of $192,672.

$190,461. Our investing activities used cash of $631,906 during the fiscal year ended March 31, 2015 related toresulting from the deposit of funds held by factor and provided $382,792 during fiscal 2014, principally as a result of cash distributions of the Hong Kong Joint Venture of $416,275.factor.

Financing activities provided cash of $81,250$313,891 during the fiscal year ended March 31, 20142016 as a result of cash advances against factored trade accounts receivable with our factor. There were no financing activities during the sale of common stock to an employee in exercise of a stock purchase option.year ended March 31, 2015.

Management believes that sales by the Company and by our USI Electric subsidiary have been negatively impacted by the ongoing downturn in the U.S. housing market and delays in commencing sales of the Company’s new line of sealed smoke and carbon monoxide (CO) alarms. The new line of sealed smoke and carbon monoxide alarms began selling during the current fiscal year and management has noted an improvement in sales related to these items. Management believes that with an improved housing market and sales of our new sealed products, the Company will start to return toimprove profitability. The Company has completed and received approval of its complete line of sealed ionization models, and is continuing to develop its line of sealed photoelectric products that it expects to be completed later thisduring the fiscal year.year ending March 31, 2017.

Our sealed products will compete on price and functionality whenas we continue to introduce them to the market with similar products offered by our larger competitors. While we believe there will be market acceptance of our new products we cannot be assured of this. Should our products not achieve the level of acceptance we anticipate, this will have a significant impact on our future operations, will cause a continued decline inand our sales andmay decline, potentially impactimpacting our ability to continue operating in our current fashion.

Our short-term borrowings to finance operating losses, trade accounts receivable, and foreign inventory purchases are provided pursuant to the terms of our Factoring Agreement with Merchant Factors Corp. (Merchant). The Company previously reported that advancesMerchant. Advances from the Company’s factor, wereare at the sole discretion of Merchant based on their assessment of the Company’s receivables, inventory and financial condition at the time of each request for an advance. Subsequent to that report, management has entered into discussions with Merchant to stipulate that Merchant will provide advances unless the Company is in default or the Company’s dilution percentage changes substantially. Management anticipates that our agreement with Merchant will be modified to reflect these changes but we are not certain Merchant will agree to such changes. In addition, we have also secured 90 dayextended payment terms onfor purchases up to $2,000,000 from our Hong Kong Joint Venture for the purchase of the new sealed battery products inventory, of $1,000,000 from our Hong Kong Joint Venture. Thisproducts. These amounts are unsecured, inventory financing bearsbear interest at 3.25%, and providesprovide for repayment terms of ninety days for each advance thereunder. The combined unused availability of these facilities totaled approximately $2,977,000$3,338,000 at March 31, 2015. 2016.

The Company’s recentCompany has a history of operating losses, declining revenue,sales that are insufficient to generate profitable operations, and over reliance on our credit line raises substantial doubt about our ability to continue as a going concern. Our consolidated financial statements included in this Report do not include any adjustments that might result from the outcomehas limited sources of this uncertainty. Our auditors have included an explanatory paragraph to this effect in their audit report.financing. Management’s plan in response to these conditions includes increasing sales resulting from the delivery of the Company’s new line of sealed battery ionization smokesafety alarms, and carbon monoxide products, decreasing payroll expenses, and obtainingseeking additional financing on itsour existing credit facility. The Company has seen positive results on this plan during the fiscal year ended March 31, 2016 due to the release of certain of its sealed battery products and management expects this growth to continue going forward. Though no assurances can be given, if management’s plan iscontinues to be successful over the next twelve months, the Company anticipates that it should be able to meet its cash needs. ManagementCash flows and credit availability is in discussions with Merchantexpected to amendbe adequate to fund operations for one year from the factoring agreement to provide access to working capital when needed. However no assurances can be given regarding management’s plan including the timingissuance date of sales, the reduction of expenditures, or the availability of financing under the facilities discussed above.this report.

Hong Kong Joint Venture

The financial statements of the Hong Kong Joint Venture are included in this Form 10-K beginning on page JV-1. These financial statements are presented in accordance with International Financial Reporting Standards as issued by the International Financial Standards Board (IFRS) and there are no IFRS to US GAAP differences in the Hong Kong Joint Venture’s accounting policies.

In fiscal year 2015,2016, sales of the Hong Kong Joint Venture were $15,753,815$17,581,195 compared to $19,054,691$15,753,815 in fiscal 2014.2015. During the fiscal years ended March 31, 2015 and 2014, sales to the Company declined approximately $822,041 and $2,235,000, respectively due to decreased purchasing by the Company in line with decreased demand in the U.S. domestic market, and sales to unaffiliated customers declined approximately $2,484,441 and $744,000 respectively due to the European economic slowdown.

Net loss was $2,418,189 for fiscal year 2015 compared to a net loss of $437,940 for the fiscal year ended March 31, 2014. The increase in the net loss for fiscal 2015 was primarily due to lower2016, sales to the Company and unaffiliated customers and higher costs for salaries and wages included in selling, general and administration expenses.increased compared to the prior year by approximately $2,493,000 principally due to sales of the new sealed battery product line.

Gross margins of the Hong Kong Joint Venture for fiscal 2015year 2016 decreased to 15.3%13.3% from 23.3%15.3% in the prior fiscal year. The primary reason for the decrease is the increasedecrease in included labor in production costs.margins realized on sales to unaffiliated customers and product mix.

Selling, general and administrative expenses of the Hong Kong Joint Venture for fiscal 20152016 were $5,245,720,$4,338,438, compared to $5,310,546$5,245,720 in the prior fiscal year. The reasons for the decrease were due to lower labor costs, gains on investment sales, lower depreciation and classification of production costs in the current year to more accurately reflect their contribution as production costs. As a percentage of sales, these expenses were 33.3%24.7% and 27.9%33.3%, respectively, for the fiscal years ended March 31, 20152016 and 2014.2015.

Investment income and interest income, net of interest expense, was $537,048 for fiscal year 2016, compared to $674,961 for fiscal year 2015, compared to $681,8832015.

Net loss was $1,584,012 for fiscal year 2014.2016 compared to a net loss of $2,418,189 for the fiscal year ended March 31, 2015. The improvement in the net loss for fiscal 2016 was primarily due to increased sales to the Company of new sealed battery safety alarms.

Cash needs of the Hong Kong Joint Venture are currently met by cash on hand. Working capital increased to $6,144,962 as of March 31, 2016 from $5,387,534 as of March 31, 2015.

Related Party Transactions

Pursuant to its written charter, the Audit Committee of the Board of Directors of the Company reviews and approves all transactions with related persons that are required to be disclosed under applicable regulation. During the fiscal year 2015, working capital decreased from $9,287,873 onended March 31, 20142016 and 2015, inventory purchases and other company expenses of approximately $493,000 and $385,000, were charged to $5,387,533 oncredit card accounts of Harvey B. Grossblatt, the Company’s Chief Executive Officer and certain of his immediate family members. The Company subsequently reimbursed these charges in full. Mr. Grossblatt received mileage benefits from these charges and the Company utilized some of these benefits. The maximum amount outstanding and due to Mr. Grossblatt at any point during the fiscal year ended March 31, 2015.2016 and 2015 amounted to $66,884 and $65,420, respectively, and the amount outstanding at March 31, 2016 and 2015 is $66,884 and $20,206, respectively.

Critical Accounting Policies

Management’s discussion and analysis of our consolidated financial statements and results of operations areis based upon our Consolidated Financial Statementsconsolidated financial statements included as part of this document. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates, including those related to bad debts, inventories, income taxes, impairment of long-lived assets, 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 that 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 of these and other accounting policies, see Note A to the consolidated financial statements, included in this Annual Report. 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:

Income Taxes: The Company recognizes a liability or asset for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements. These temporary differences may result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. The deferred tax assets are reviewed periodically for recoverability and a valuation allowance is provided whenever it is more likely than not that a deferred tax asset will not be realized. The Company established an initial valuation allowance of $300,000 on its deferred tax assets during the year ended March 31, 2013 to recognize that certain foreign tax credits expiring in future periods will likely not be realized. Upon furtherAfter a review of updated projected taxable income and the components of the deferred tax asset in accordance with applicable accounting guidance at September 30, 2013, it was determined that it is more likely than not that the tax benefits associated with the remaining components of the deferred tax assets will not be realized. This determination was made based on continued taxablethe Company’s recent history of losses during fiscal 2014, which were not in line with projections, as well as product offering delays which causefrom operations and the uncertainty as to whether the Company will generate sufficient taxable income to use the deferred tax assets prior to their expiration. Accordingly, a valuation allowance was established to fully offset the value of the deferred tax assets. Our ability to realize the tax benefits associated with the deferred tax assets depends primarily upon the timing of future taxable income and the expiration dates of the components of the deferred tax assets. If sufficient future taxable income is generated, we may be able to offset a portion of future tax expenses.

The Company follows ASC 740-10 that giveswhich provides guidance tofor tax positions related to the recognition and measurement of a tax position taken or expected to be taken in a tax return and requires that we recognize in our consolidated financial statements the impact of a tax position, if that position is more likely than not to be sustained upon an examination, based on the technical merits of the position.  Interest and penalties, if any, related to income tax matters are recorded as income tax expenses. The Company has recorded a long-term liability of $0 and $25,000 at March 31, 2015 and 2014, respectively, for an uncertain income tax position, tax penalties, and any imputed interest thereon. See Note F, Income Taxes.

Revenue Recognition:Revenue We recognize sales upon shipment of products net of applicable provisions for any discounts or allowances. The shipping date from our warehouse is recognized at the time product is shippedappropriate 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 title passes pursuantthe 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. However, the terms of theCompany has entered into an agreement with a customer to grant pre-approved rights of return of up to fifty percent of products sold on certain invoices to provide for and gain acceptance within certain markets. When a pre-approved right of return is granted, revenue recognition is deferred until the customer, the amount due from the customer is fixed and collectabilityright of the related receivable is reasonably assured.return expires. We establishhave established allowances to cover anticipated doubtful accounts and sales returns based upon historical experience. The Company netsreflects the factored accounts receivable as Amount due from Factor with the corresponding advance from the Factor with the net amount reflected in the consolidated balance sheet.separately as Line of Credit – Factor. The Company assigns trade receivables on a pre-approved non-recourse basis to the Factor under the Factoring Agreement on an ongoing basis.

Inventories:Inventories are valued at the lower of marketcost or cost.market. Cost is determined on the first in/first out method. We evaluate inventories on a quarterly basis and write down inventory that is deemed obsolete or unmarketable in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

Off-Balance Sheet Arrangements.We have not created, and are not party to, any special-purpose or off balance sheet entities for the purpose of raising capital, incurring debt or operating parts of our business that are not consolidated into our financial statements and do not have any arrangements or relationships with entities that are not consolidated into our financial statements that are reasonably likely to materially affect our liquidity or the availability of our capital resources.

Recently Issued Accounting Pronouncements

Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updatesAccounting Standards Updates (ASU’s) to the FASB’s Accounting Standards Codification.

The Company considers the applicability and impact of all ASU’s. Recently

In August 2014, the FASB issued ASU No. 2014-15,Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern, which is included in Accounting Standards Codification (“ASC”) 205, Presentation of Financial Statements. This update provides an explicit requirement for management to assess an entity's ability to continue as a going concern, and to provide related footnote disclosure in certain circumstances. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The Company has elected to early adopt ASU 2014-15 which did not have a material impact on our consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts with Customers: Topic 606.ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605,Revenue Recognition,and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35,Revenue Recognition—Construction-Type and Production-Type Contracts.In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360,Property, Plant, and Equipment,and intangible assets within the scope of Topic 350,Intangibles—Goodwill andOther)are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obligations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. This guidance is effective for annual periods beginning on or after December 15, 2017, including interim reporting periods within that reporting period and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. The Company is currently assessing the impact that adopting this new accounting standard will have on the consolidated financial statements and footnote disclosures.

Other recently issued ASU’s were evaluated and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

The financial statements and supplementary data required by this Item 8 are included in the Company’s Consolidated Financial Statements and set forth in the pages indicated in Item 15(a) of this Annual Report.

Not applicable.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures (as such item is defined in Rules 13a-15(e)13a – 15(e) and 15d-15(e)15d – 15(e) of the Exchange Act) 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, (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and regulationsforms 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 in accordance with applicable Securities and Exchange Commission guidance as of the end of the period covered by this annual report, and have concluded that disclosure controls and procedures were not effective because of the material weaknessesweakness in internal control over financial reporting as discussed below.

Material weaknesses arose in our oversight of the accounting function and disclosure controls and procedures of the Hong Kong Joint Venture (HKJV) that by virtue. The HKJV is a material component of the Hong Kong Joint Venture’s materiality to the Company extends the material weakness to our system of disclosure controls and procedures. Under the terms of the Joint Venture Agreement, the Company does not have operating control over the daily operations of the HKJV.Company’s consolidated financial statements. The Company has discussed these weaknessesthis weakness with management of the HKJV and will monitoris monitoring implementation of suggested improvements. In addition, material weaknesses arose in our domestic operations in the reconciliation of account balances and period end cut-off procedures, as well as the application of period costs to the inventory as burden.

Management’s Annual Report on Internal Control over Financial Reporting

Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles (GAAP). Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with US GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Our Chief Financial Officer, with the participation of our Chief Executive Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 1992 framework inInternal Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of March 31, 20152016 for the reasons described above. As noted above, material weaknesses related to our oversight of the internal controls and accounting functions of our domestic operations and our Hong Kong Joint Venture were identified.

Changes in Internal Control Overover Financial Reporting.

During the current fiscal year management remediated a material weaknessweaknesses related to our domestic operations noted in the prior year’s evaluation of the effectiveness of our internal control over financial reportingreporting. These weaknesses related to revenue recognition when a substantial right to return exists. The remediation involved additional procedures used to identify and track sales to a customer when that customer has a substantial right of return. Except for the remediation of the material weakness noted and the recognition of material weaknesses in our domestic operations in the reconciliation of account balances and period end cut-off procedures, as well as the application of period costs to the inventory as burden,burden. The remediation involved additional procedures implemented to review reconciliations and cut-off procedures of account balances and modification to and the standardization of the application of period costs to the inventory as burden. Except for the remediation of the material weakness related to our domestic operations, there have been no other changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting except as discussed above.during the quarter ended March 31, 2016.

Not applicable.

PART III

The information with respect to the identity and business experience of the directors of the Company and their remuneration set forth in the section captioned “Election of Directors” in the Company’s definitive Proxy Statement filed pursuant to Regulation 14A and issued in conjunction with the 20142016 Annual Meeting of Shareholders (the “Proxy Statement”) is incorporated herein by reference. The information with respect to the identity and business experience of executive officers of the Company is set forth in Part I of this Form 10-K. The information with respect to the Company’s Audit Committee is incorporated herein by reference to the section captioned “Meetings and Committees of the Board of Directors” in the Proxy Statement. The information with respect to compliance with Section 16(a) of the Exchange Act is incorporated herein by reference to the section captioned “Compliance with Section 16(a) of the Exchange Act” in the Proxy Statement. The information with respect to the Company’s Code of Ethics is incorporated herein by reference to the section captioned “Code of Ethics” in the Proxy Statement.

The information required by this item is incorporated herein by reference to the sections captioned “Director Compensation” and “Executive Compensation” in the Proxy Statement.

The information required by this item regarding security ownership is incorporated herein by reference to the sections captioned “Beneficial Ownership” and “Information Regarding Share Ownership of Management” in the Proxy Statement. Information required by this item regarding our equity compensation plans is incorporated herein by reference to the Section entitled “Executive Compensation” in the Proxy Statement.

The information required by this item is incorporated herein by reference to the sections captioned “Transactions with Management”, if any, and “Election of Directors” in the Proxy Statement.

The information required by this item is incorporated herein by reference to the section captioned “Independent Registered Public Accountants” in the Proxy Statement.

PART IV

(a)1. Financial Statements.

(a)3. Exhibits required to be filed by Item 601 of Regulation S-K.

*Filed herewith

(c)      Financial Statements Required by Regulation S-X.

Separate financial statements of the Hong Kong Joint Venture

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Shareholders

of Universal Security Instruments, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheet of Universal Security Instruments, Inc. and Subsidiary (the “Company”) as of March 31, 2016, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Universal Security Instruments, Inc. and Subsidiary, as of March 31, 2016, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

/s/ Marcumllp

Marcumllp

Philadelphia, Pennsylvania

September 28, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Universal Security Instruments, Inc.

We have audited the accompanying consolidated balance sheetssheet of Universal Security Instruments, Inc. (a Maryland Corporation)corporation) and subsidiariesSubsidiary (the “Company”) as of March 31, 2015, and 2014, and the related consolidated statements of operations, comprehensive loss, changes in shareholders'shareholders’ equity, and cash flows for the yearsyear then ended. Our audits of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits.audit.

We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform anand audit of the Company’s internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Universal Security Instruments, Inc. and subsidiariesSubsidiary as of March 31, 2015, and 2014, and the results of their operations and their cash flows for the yearsyear then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has a history of operating losses and declining revenue, along with other matters as set forth in Note B –Financial Condition, Liquidity and Capital Resources”that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note B. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Grant Thornton LLP

McLean, VA

August 25, 2015

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIESSUBSIDIARY

CONSOLIDATED BALANCE SHEETS

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

UNIVERSAL SECURITY INSTRUMENTS, INC. AND SUBSIDIARIESSUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS