UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: JUNE 30, 2009
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___ to ____
Commission File Number 0-31012
UNIVERSAL DETECTION TECHNOLOGY
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2746949
------------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
340 NORTH CAMDEN DRIVE, SUITE 302
BEVERLY HILLS, CALIFORNIA 90210
--------------------------------------- --------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 248-3655
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one): Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Check whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ] No [X]
Number of shares outstanding as of August 15, 2009: 639,641,678 common shares.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
FORM 10-Q
INDEX
PAGE NO.
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PART I. FINANCIAL
INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited) : 3
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 25
Item 4T. Controls and Procedures. 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 1A Risk Factors 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits 29
SIGNATURES
2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2009 AND DECEMBER 31, 2008
(UNAUDITED)
ASSETS
JUNE 30, 2009 DECEMBER 31, 2008
------------- ---------------
CURRENT ASSETS:
Cash and cash equivalents $ 5,456 $ 1,910
Restricted cash -- 10,477
Accounts Receivable, net 234 1,058
Inventory 5,852 --
Prepaid expenses 7,100 3,666
------------- ---------------
Total current assets 18,642 17,111
Deposits 21,300 10,226
Equipment, net 20,583 32,946
Patent, net 81,305 84,008
------------- ---------------
Total assets $ 141,830 $ 144,291
============= ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable, trade $ 1,084,414 $ 1,030,865
Accrued liabilities 494,966 480,126
Accrued payroll - officers 403,422 809,136
Notes payable - related party 19,647 10,325
Notes payable 1,569,383 1,630,711
Accrued interest expense 671,508 657,110
------------- ---------------
Total current liabilities 4,243,340 4,618,273
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value, 20,000,000 shares
authorized, -0- issued and outstanding
Common stock, no par value, 20,000,000,000 shares
authorized, 435,144,101 shares issued and
outstanding as of June 30, 2009 and 35,286,671
shares issued and outstanding as of
December 31, 2008 30,232,193 28,823,641
Additional paid-in-capital 5,313,089 5,313,089
Accumulated deficit (39,646,792) (38,610,712)
------------- ---------------
Total stockholders' deficit (4,101,510) (4,473,982)
------------- ---------------
Total liabilities and stockholders' deficit $ 141,830 $ 144,291
============= ===============
See accompanying notes to unaudited consolidated financial statements.
3
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
2009 2008
------------- -------------
REVENUE, NET $ 15,482 $ 62,570
COST OF GOODS SOLD 1,868 18,205
------------- -------------
GROSS PROFIT 13,614 44,365
------------- -------------
OPERATING EXPENSES:
Selling, general and administrative 475,192 743,649
Marketing 54,925 7,936
Depreciation and amortization 15,067 15,066
------------- -------------
Total expenses 545,184 766,651
------------- -------------
LOSS FROM OPERATIONS (531,570) (722,286)
OTHER INCOME (EXPENSE):
Interest income 12 102
Interest expense (77,281) (90,637)
Penalties -- (10)
Loss on settlement of debt (427,241) (420,575)
------------- -------------
Total other expenses (504,510) (511,120)
------------- -------------
NET LOSS $ (1,036,080) $ (1,233,407)
============= =============
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED: $ (0.007) $ (0.154)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 157,374,747 8,018,377
============= =============
Weighted average number of dilutive securities has no been calculated as the
effect of dilutive securities would be anti-dilutive
See accompanying notes to unaudited consolidated financial statements.
4
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
2009 2008
------------- -------------
REVENUE, NET $ -- $ 2,194
COST OF GOODS SOLD -- 1,952
------------- -------------
GROSS PROFIT -- 242
------------- -------------
OPERATING EXPENSES:
Selling, general and administrative 291,692 433,949
Marketing 42,500 3,514
Depreciation and amortization 7,533 7,533
------------- -------------
Total expenses 341,725 444,996
------------- -------------
LOSS FROM OPERATIONS (341,725) (444,754)
OTHER INCOME (EXPENSE):
Interest income -- 43
Interest expense (24,906) (48,065)
Penalties -- (10)
Loss on settlement of debt (390,184) (203,095)
------------- -------------
Total other expenses (415,090) (251,127)
------------- -------------
NET LOSS $ (756,815) $ (695,881)
============= =============
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED: $ (0.003) $ (0.069)
============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 260,634,355 10,105,873
============= =============
Weighted average number of dilutive securities has no been calculated as the
effect of dilutive securities would be anti-dilutive
See accompanying notes to unaudited consolidated financial statements.
5
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2009 AND 2008
(UNAUDITED)
2009 2008
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,036,080) $(1,233,407)
Adjustments to reconcile net loss to net cash used in operations:
Stocks issued for services 472,212 445,075
Loss on settlement of debt 427,241 420,575
Depreciation and amortization 15,067 15,066
Changes in operating assets and liabilities:
Deposits (11,074) --
Patent costs -- --
Accounts receivable 824 (50,293)
Prepaid expenses (3,434) (15,000)
Assets held for sale (5,852) --
Accounts payable and accrued liabilities (260,044) 126,457
----------- -----------
Net cash used in operating activities (401,140) (291,528)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase)/Decrease in restricted cash 10,477 (98)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable-related party 32,492 9,600
Proceeds from notes payable 384,887 322,000
Payments on notes payable - related party (23,170) (38,057)
Payments on notes payable -- (9,620)
----------- -----------
Net cash provided by financing activities 394,209 283,923
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,546 (7,702)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,910 9,555
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,456 $ 1,853
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income tax $ -- $ --
=========== ===========
Interest Paid $ -- $ 1,273
=========== ===========
SUPPLEMENTAL DISCLOSURES FOR NON CASH INVESTING AND
FINANCING ACTIVITIES:
Shares issued for settlement of debt and accrued interest $ 936,338 $ 622,306
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Universal Detection Technology and Subsidiaries., pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC") Form 10-Q and
Item 310 of Regulation S-K, and generally accepted accounting principles for
interim financial reporting. The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments) that are,
in the opinion of management, necessary to fairly present the operating results
for the respective periods. Certain information and footnote disclosures
normally present in annual consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been omitted pursuant to such rules and regulations. These
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and footnotes included in the Company's Annual
Report on Form 10-K. The results of the three and six months ended June 30,
2009, are not necessarily indicative of the results to be expected for the full
year ending December 31, 2009.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
STOCK SPLIT
On July 25, 2008, the Company effected a reverse stock split of their common
stock. The reverse split was effected on a one-for-two hundred basis, resulting
in 14,211,953 shares outstanding immediately following the stock split. All
common stock numbers in this Current Report on Form 10-Q, have been
retroactively restated for the effect of the reverse split.
GOING CONCERN
As of June 30, 2009, the Company had a working capital deficit of $4,230,550 and
an accumulated deficit of $39,646,792. The Company incurred a net loss of
$1,036,080 for the six month period ended June 30, 2009. These conditions raise
substantial doubt about its ability to continue as a going concern. Its ability
to continue as a going concern is dependent upon its ability to develop
additional sources of capital and ultimately achieve profitable operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. The Company's financial statements have been
presented on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business.
During the first six months of 2009, the Company sold detection kits under
various purchase agreements and had consulting revenue for $15,482. The Company
also entered into various agreements to issue 250,805,180 shares of its common
stock to a third parties in order to convert outstanding debt to the respective
parties. The value of the stock issued in consideration for the debt conversion
was $936,338.
7
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
RECLASSIFICATION
Certain reclassifications have been made to the prior year balances to conform
to the current year presentation.
REVENUE RECOGNITION
The Company's revenue recognition policies are in compliance with Staff
accounting bulletin (SAB) 104. Sales revenue is recognized at the date of
shipment to customers when a formal arrangement exists, the price is fixed or
determinable, the delivery is completed, no other significant obligations of the
Company exist and collectibility is reasonably assured. Payments received before
all of the relevant criteria for revenue recognition are satisfied are recorded
as unearned revenue.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates include collectibility of accounts receivable, accounts payable, sales
returns and recoverability of long-term assets.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 30, 2008 FASB issued FIN 48-3, "Effective Date of FASB
Interpretation No. 48 for Certain Nonpublic Enterprises". This FSP defers the
effective date of FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, for certain non-public enterprises as defined in paragraph 289, as
amended, of FASB Statement No. 109, Accounting for Income Taxes, including
non-public not-for-profit organizations. However, non-public consolidated
entities of public enterprises that apply U. S. GAAP are not eligible for the
deferral. Nonpublic enterprises that have applied the recognition, measurement,
and disclosure provisions of Interpretation 48 in a full set of annual financial
statements issued prior to the issuance of this FSP also are not eligible for
the deferral. This FSP shall be effective upon issuance. The Company does not
believe this pronouncement will impact its financial statements.
On January 12, 2009 FASB issued EITF 99-20-01, "AMENDMENT TO THE IMPAIRMENT
GUIDANCE OF EITF ISSUE NO. 99-20." This FSP amends the impairment guidance in
EITF Issue No.99-20, "RECOGNITION OF INTEREST INCOME AND IMPAIRMENT ON PURCHASED
BENEFICIAL INTERESTS AND BENEFICIAL INTERESTS THAT CONTINUE TO BE HELD BY A
TRANSFEROR IN SECURITIZED FINANCIAL ASSETS," to achieve more consistent
determination of whether an other-than-temporary impairment has occurred. The
FSP also retains and emphasizes the objective of an other-than-temporary
impairment assessment and the related disclosure requirements in FASB Statement
No. 115, Accounting for Certain Investments in Debt and Equity Securities, and
other related guidance. The FSP shall be effective for interim and annual
reporting periods ending after December 15, 2008, and shall be applied
prospectively. Retrospective application to a prior interim or annual reporting
period is not permitted. The Company does not believe this pronouncement will
impact its financial statements.
8
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
NOTE 3 - PATENTS
As of June 30, 2009, and December 31, 2008, the patent value is as follows:
June 30, December 31,
2009 2008
--------- ---------
Patent Costs $ 117,341 $ 117,341
Accumulated Amortization (36,036) (33,333)
--------- ---------
Patent, Net $ 81,305 $ 84,008
========= =========
Total amortization expense was $2,704 and $2,704 for the six months ended June
30, 2009 and 2008 respectively.
NOTE 4 - NOTES PAYABLE
During the first quarter of 2009, the Company borrowed an aggregate of $92,000
from third parties under various promissory note agreements. The promissory
notes all bear interest at 12.0% per annum, and are due on or before February
11, 2011. No interest or principal payments have been made on the notes.
During the second quarter of 2009, the Company borrowed an aggregate of $318,887
from third parties under various promissory note agreements. The promissory
notes all bear interest at 12.0% per annum, and are due on or before June 29,
2011. No principal or interest payments have been made on these notes.
As of June 30, 2009 and December 31, 2008, the Company had total notes payable
of $1,569,383 and $1,630,711.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company was involved in the following litigations:
9
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
a) A. Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection
Technology, fka Pollution Research and Control Corporation (Superior Court
of the State of California for the County of Los Angeles, North Central
District, Case No. EC042040)
On or about April 16, 2004, Plaintiffs commenced an action against the
Company (Case No. EC 038824) for amounts allegedly due pursuant to four
unpaid promissory notes. On August 2, 2004, the parties executed a
Confidential Settlement Agreement and Mutual Releases (the "AGREEMENT"). On
December 30, 2005, Plaintiffs commenced the above-referenced action against
the Company, alleging the Company breached the Agreement and seeking
approximately $205,000 in damages. A judgment was entered on April 11,
2006. As of June 30, 2009 and December 31, 2008, the Company has accrued
$482,281 and $456,607 respectively for this settlement including principal
and interest.
b) On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in
the Los Angeles Superior Court (TRILOGY CAPITAL PARTNERS V. UNIVERSAL
DETECTION TECHNOLOGY, ET. AL., Case No. SC089929) against the Company.
Plaintiff's Complaint alleged damages against UDT for breach of an
engagement letter in the amount of $93,449. Also, Plaintiff alleged that
UDT had failed to issue warrants to it pursuant to a written agreement.
After completing the initial stages of litigation and conducting extensive
mediation, Plaintiff and UDT reached a settlement wherein commencing
December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000
until a debt of $90,000 plus accrued interest at six percent per annum was
fully paid. In exchange, Plaintiff would release all of its claims against
UDT. UDT has been current on all of its agreed payments to Plaintiff. As of
June 30, 2009, $48,357 was due under the agreement.
c) On November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the
Los Angeles Superior Court (NBGI, Inc. v. Universal Detection Technology,
et. al., Case No. BC361979) against the Company. NBGI, Inc.'s Complaint
alleged breach of contract, and requested damages in the amount of $111,014
plus interest at the legal rate and for costs of suit. UDT strongly
disputes and shall vigorously defend against the allegations of the
Complaint. To date, discovery has commenced, and trial has been set for
October 29, 2007. There is also a Motion for Summary Judgment set for
September 11, 2007. The Summary Judgment was granted in NBGI's favor, and
Judgment has been entered.
From time to time, the Company is a party to a number of lawsuits arising in the
normal course of business. In the opinion of management, the resolution of these
matters will not have a material adverse effect on the Company's operations,
cash flows or financial position.
10
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
NOTE 6- STOCKHOLDERS' EQUITY
During the three month period ended June 30, 2009, the Company issued an
aggregate of 138,031,826 shares of common stock to employees for services
rendered to the Company. The Company recorded the expense at the fair market
value of the shares of $427,233.
During the three month period ended June 30, 2009, the Company issued 7,832,924
shares of common stock as payment for consulting or other professional fees for
an aggregate amount of $32,329.
During the three month period ended June 30, 2009, the Company entered various
agreements to convert $356,699 of indebtedness into 210,073,930 shares of common
stock. The fair market value of the stock on the date of agreement and issuances
was $746,882. The Company recorded a loss on settlement of debt of $390,185.
During the three month period ended March 31, 2009, the Company issued 3,187,500
shares of common stock as payment for consulting or other professional fees for
an aggregate amount of $12,451.
During the three month period ended March 31, 2009, the Company entered various
agreements to convert $152,400 of indebtedness into 40,731,250 shares of common
stock The fair market value of the stock on the date of agreement & issuance was
$189,456. The Company recorded a loss on settlement of debt of $37,056.
COMMON STOCK PURCHASE WARRANTS AND OPTIONS
From time to time, the Company issues options and warrants as incentives to
employees, officers and directors, as well as to non-employees.
STOCK OPTION PLAN
On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive
Plan (the "Plan"). The Plan provides for the granting of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs),
Restricted Stock, Performance Units, and Performance Shares, to our employees,
officers, directors, consultants, independent contractors, advisors, or other
service providers, provided that such services are not in connection with the
offer and sale of securities in a capital-raising transaction. The Company
reserved 1,500,000 shares of its common stock for awards to be made under the
Plan. 1,499,955 shares reserved under this plan have been issued.
On April 29, 2008, the Board of Directors adopted the 2008-2 Equity Incentive
Plan (the "Plan"). The Plan provides for the granting of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs),
Restricted Stock, Performance Units, and Performance Shares, to our employees,
officers, directors, consultants, independent contractors, advisors, or other
service providers, provided that such services are not in connection with the
offer and sale of securities in a capital-raising transaction. The Company
initially reserved 1,650,000 shares of its common stock for awards to be made
under the Plan. 1,634,270 of the shares reserved under this plan have been
issued.
11
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
On July 1, 2008, the Board of Directors adopted the 2008-3 Equity Incentive Plan
(the "Plan"). The Plan provides for the granting of the nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs),
Restricted Stock, Performance Units, and Performance Shares, to their employees,
officers, directors, consultants, independent contractors, advisors, or other
service providers, provided that such services are not in connection with the
offer and sale of securities in a capital-raising transaction. The Company
initially reserved 2,500,000 shares of its common stock for awards to be made
under the Plan. 2,500,000 of the shares reserved under this plan have been
issued.
On September 2, 2008, the Board of Directors adopted the 2008-4 Equity Incentive
Plan (the "Plan"). The Plan provides for the granting of the nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs).
Restricted Stock, Performance Units, and Performance Shares, to their employees,
officers, directors, consultants, independent contractors, advisors, or other
service provider, provided that such services are not in connection with the
offer and sale of securities in a capital raising transactions. The company
initially reserved 3,800,000 shares of its common stock for awards to be made
under the Plan. 3,800,000 of the shares reserved under this plan have been
issued.
On February 15, 2009, the Board of Directors adopted the 2009 Equity Incentive
Plan (the "Plan.") The Plan provides for the granting of the nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs),
Restricted Stock, Performance Units, and Performance Shares, to their employees,
officers, directors, consultants, independent contractors, advisors, or other
service providers, provided that such services are no it connection with the
offer and sale of securities in a capital raising transactions. The company
initially reserved 10,000,000 shares of its common stock for awards to be made
under the Plan. 10,000,000 of the shares reserved under this plan have been
issued.
On May 15, 2009, the Board of Directors adopted the 2009-2 Equity Incentive Plan
(The "Plan".) The Plan provides for the granting of the nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights (or SARs),
Restricted Stock, Performance Units, and Performance Shares, to their employees,
officers, directors, consultants, independent contractors, advisors, or other
service providers, provided that such services are not in connection with the
offer and sale of securities in a capital raising transaction. The Company
initially reserved 60,000,000 shares of its common stock for awards to be made
under the Plan. 20,457,250 of the share under this plan have been issued.
12
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
Warrants:
There were no warrants granted during the three month period ended June 30,
2009.
Common stock purchase options and warrants consisted of the following as of June
30, 2009.
Aggregated
Exercise Intrinsic
# shares Price Value
----------- --------- -----------
OPTIONS:
Outstanding and exercisable, December 31, 2008 539,750 $2 to $66 $ --
Granted -- --
Exercised -- --
Expired -- --
----------- -----------
Outstanding and exercisable, June 30, 2009 539,750 $2 to $66 $ --
WARRANTS:
Outstanding and exercisable, December 31, 2008 53,000 $2 to $140 $ --
Granted -- --
Exercised -- --
Expired (41,640) --
----------- -----------
Outstanding and exercisable, June 30, 2009 11,360 $2 to $140 $ --
Options:
Prior to July 1, 2006, the Company measured stock compensation expense using the
intrinsic value method of accounting in accordance with Accounting Principles
Board (APB) Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES," and
related interpretations (APB No. 25).
The Company adopted SFAS No. 123-R effective July 1, 2006 using the modified
prospective method. Under this transition method, stock compensation expense
recognized in the six months ended June 30, 2009 includes compensation expense
for all stock-based compensation awards vested during the six months ended June
30, 2009, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123-R. As there were no options granted or vested since
the implementation of SFAS 123-R, no expense has been recorded during the six
month period ended June 30, 2009.
Methods of estimating fair value
Under both SFAS No. 123-R and under the fair value method of accounting under
SFAS No. 123 (i.e., SFAS No. 123 Pro Forma), the fair value of stock options is
determined using the Black-Scholes model. Under SFAS No. 123-R, the Company's
expected volatility assumption is based on the historical volatility of the
Company's stock. The expected life assumption is primarily based on historical
exercise patterns and employee post-vesting termination behavior. The risk-free
interest rate for the expected term of the option is based on the U.S. Treasury
yield curve in effect at the time of grant.
13
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
SFAS No. 123-R requires forfeitures to be estimated at the time of grant and
revised in subsequent periods, if necessary, if actual forfeitures differ from
those estimates.
NOTE 7 - RELATED PARTY TRANSACTIONS
During the three months ended June 30, 2009, the Company borrowed an aggregate
of $17,371 in principal with interest rates of 12.0% and repaid $17,371 in
principal payments under various promissory note agreements to its president and
CEO. No interest has been paid under these agreements.
During the three months ended June 30, 2009, the Company issued an aggregate of
12,000,000 shares of common stock directly to its Vice President of Global
Strategies, in connection with the satisfaction of third party debt as
instructed by the note holder. The value of the common stock on the days of
issuance was $35,600.
During the three months ended June 30, 2009 the Company issued an aggregate of
117,386,666 shares of common stock to its president and CEO, in connection with
payment for accrued salary. The value of the common stock on the day of issuance
was $352,160.
During the three months ended March 31, 2009, the Company borrowed an aggregate
of $4,300 in principal with interest rates of 12.0% and repaid $4,300 in
principal payments under various promissory note agreements to its president and
CEO. No interest has been paid under these agreements
During the three months ended March 31, 2009, the Company borrowed an aggregate
of $12,998 in principal with interest rates of 12.0% under various promissory
note agreements to its Vice President of Global Strategies. No principal or
interest has been paid on these notes.
During the three months ended March 31, 2009, the Company issued an aggregate of
11,800,000 shares of common stock directly to its Vice President of Global
Strategies, in connection with the satisfaction of third party debt as
instructed by the note holder. The value of the common stock on the days of
issuance was $46,820.
NOTE 8 - SUBSEQUENT EVENTS
During July 2009, the Company issued an aggregate of 7,291,666 shares of common
stock to employees for services rendered valued at approximately $72,200.
14
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2009
During July 2009, the Company issued an aggregate of 6,500,000 shares of common
stock to various consultants for services rendered valued at approximately
$18,550.
During July and August 2009, the Company entered in various agreements to covert
outstanding debt to 152,715,279 shares of common stock valued at approximately
$529,902. The shares were issued in July and August.
During July 2009, the Company borrowed an aggregate of $25,000 from third
parties under various promissory note agreements. The notes carry interest at
12%. The notes are due on or before July 2010.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
THIS QUARTERLY REPORT OF FORM 10-Q, INCLUDING THE FOLLOWING MANAGEMENT'S
DISCUSSION AND ANALYSIS, AND OTHER REPORTS FILED BY THE REGISTRANT FROM TIME TO
TIME WITH THE SECURITIES AND EXCHANGE COMMISSION (COLLECTIVELY THE "FILINGS")
CONTAIN FORWARD-LOOKING STATEMENTS WHICH ARE INTENDED TO CONVEY OUR EXPECTATIONS
OR PREDICTIONS REGARDING THE OCCURRENCE OF POSSIBLE FUTURE EVENTS OR THE
EXISTENCE OF TRENDS AND FACTORS THAT MAY IMPACT OUR FUTURE PLANS AND OPERATING
RESULTS. THESE FORWARD-LOOKING STATEMENTS ARE DERIVED, IN PART, FROM VARIOUS
ASSUMPTIONS AND ANALYSES WE HAVE MADE IN THE CONTEXT OF OUR CURRENT BUSINESS
PLAN AND INFORMATION CURRENTLY AVAILABLE TO US AND IN LIGHT OF OUR EXPERIENCE
AND PERCEPTIONS OF HISTORICAL TRENDS, CURRENT CONDITIONS AND EXPECTED FUTURE
DEVELOPMENTS AND OTHER FACTORS WE BELIEVE TO BE APPROPRIATE IN THE
CIRCUMSTANCES. YOU CAN GENERALLY IDENTIFY FORWARD-LOOKING STATEMENTS THROUGH
WORDS AND PHRASES SUCH AS "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
"INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
RESULT", AND SIMILAR EXPRESSIONS. WHEN READING ANY FORWARD-LOOKING STATEMENT YOU
SHOULD REMAIN MINDFUL THAT ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON CURRENT EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS OR FUTURE PERFORMANCE OF OUR COMPANY, AND ARE SUBJECT TO RISKS,
UNCERTAINTIES, ASSUMPTIONS AND OTHER FACTORS RELATING TO OUR INDUSTRY AND
RESULTS OF OPERATIONS.
EACH FORWARD-LOOKING STATEMENT SHOULD BE READ IN CONTEXT WITH, AND WITH AN
UNDERSTANDING OF, THE VARIOUS OTHER DISCLOSURES CONCERNING OUR COMPANY AND OUR
BUSINESS MADE IN OUR FILINGS. YOU SHOULD NOT PLACE UNDUE RELIANCE ON ANY
FORWARD-LOOKING STATEMENT AS A PREDICTION OF ACTUAL RESULTS OR DEVELOPMENTS. WE
ARE NOT OBLIGATED TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT CONTAINED IN
THIS REPORT TO REFLECT NEW EVENTS OR CIRCUMSTANCES UNLESS AND TO THE EXTENT
REQUIRED BY APPLICABLE LAW.
OVERVIEW
We are engaged in the research, development, and marketing of bioterrorism
detection devices, radiation detectors, and counter terrorism training
references. In August 2002, we entered into a Technology Affiliates Agreement
with NASA's Jet Propulsion Laboratory, commonly referred to as JPL, to develop
technology for our bioterrorism detection equipment. Under the Technology
Affiliates Agreement, JPL developed its proprietary bacterial spore detection
technology and integrated it into our existing aerosol monitoring system,
resulting in a product named BSM-2000. BSM-2000 is designed to provide
continuous unattended monitoring of airborne bacterial spores in large public
places, with real-time automated alert functionality. The device is designed to
detect an increase in the concentration of bacterial spores, which is indicative
of a potential presence of Anthrax.
Our management continues to gain expertise in anti-terrorism techniques and
solutions. Through partnerships with various third parties, we have commenced
sales and marketing of bioterrorism hand held assays, radiation detection
systems, surveillance cameras, and training references.
During the six months ended June 30, 2009 we spent an aggregate of $530,117 on
selling, general and administrative expenses, research and development expenses
and marketing expenses. This amount represents a 30% decrease over the
comparable year-ago period. The decrease is principally attributable to a
reduction in compensation expenses and professional fees.
16
Our working capital deficit at June 30, 2009, was $4,230,550. Our independent
auditors' report, dated April 14, 2009 includes an explanatory paragraph
relating to substantial doubt as to our ability to continue as a going concern,
due to our working capital deficit at December 31, 2008. We require
approximately $2.25 million to repay indebtedness in the next 12 months.
We plan to engage more in value added services to complement our bioterrorism
detection technologies. We now supply our proprietary bacterial spore detection
system (BSM-2000), bioterrorism detection kits capable of detecting anthrax,
ricin, botulinum, plague, and SEBs, surveillance cameras, radiation detection
systems, and counter-terrorism training references.
We plan to continue expanding our product base and to sell our products to more
users inside and outside the U.S. There is no guarantee that we will succeed in
implementing this strategy or if implemented, that this strategy will be
successful. We plan to seek and find third parties interested in collaborating
on further research and development on BSM-2000. Such research shall be aimed at
making BSM-2000 more user-friendly, developing a less complicated interface and
software, and designing a lighter casing. The ideal third party collaborator
would also assist us in marketing BSM-2000 more aggressively. There is no
guarantee that any such collaborators will be found and, if found, that this
strategy will be successful. The current version of BSM-2000 is functional and
available for sale. To date, we have sold two units to the Government of the
United Kingdom and we intend to develop a more wide-spread use for BSM-2000
through our planned collaborative research, development, sales, and marketing
efforts. On July 28, 2009 we announced that we have been granted a patent from
the U.S. Patent and Trademark Office (USPTO) for BSM-2000. The patent is the
second for the technology licensed from the California Institute of Technology.
On July 25, 2008, we effected a reverse stock split of our common stock. The
reverse split was effected on a one-for-200 basis, resulting in 14,211,953
number of shares outstanding immediately following the stock split. All common
stock numbers in this Quarterly Report on Form 10-Q, reflect the implementation
of the reverse split.
Results of Operations
The following discussion is included to describe our consolidated financial
position and results of operations. The unaudited consolidated financial
statements and notes thereto contain detailed information that should be
referred to in conjunction with this discussion.
SIX MONTHS ENDED June 30, 2009 COMPARED TO THE SIX MONTHS ENDED June 30, 2008
REVENUE. Total revenue for the six months ended June 30, 2009 was $ 15,482, as
compared to revenue of $62,570 for the same period in the prior fiscal year, a
decrease of $47,088. The decrease is primarily due to a reduction in consulting
services.
OPERATING EXPENSES. Total operating expenses for the six months ended June 30,
2009 were $545,184 representing a decrease of $221,467. Total selling, general
and administrative expenses for the six months ended June 30, 2009 were $475,192
representing a decrease of $268,457 (36%) as compared to the same period in the
prior fiscal year. These decreases are principally attributable to a decrease in
professional fees and in stock based compensation.
17
OTHER INCOME(EXPENSE). Other income (expense) amounted to ($504,510) for the six
months ended June 30, 2009 as compared to ($511,120) for the corresponding
period of the prior year. The change is principally related to interest accrued
on the outstanding notes payable and the loss recognized on the settlement of
shares issued for debt.
NET LOSS. Net loss for the six months ended June 30, 2009 was $1,036,080, as
compared to a net loss of $1,233,406 for the same period in the prior fiscal
year, representing a decrease of $197,326. The primary reason for this is a
decrease in compensation related expenses.
LIQUITY AND CAPITAL RESOURCES
We require approximately $2.2 million to repay debt and $300,000 to execute our
business plan in the next twelve months. We do not anticipate that our cash on
hand is adequate to meet our operating expenses over the next 12 months. Also,
we do not believe we have adequate capital to repay all of our debt currently
due and becoming due in the next 12 months. We anticipate that uses of our
available capital during the next 12 months principally will be for:
o administrative expenses, including salaries of officers and other
employees we plan to hire;
o repayment of debt;
o sales and marketing;
o product testing and manufacturing; and
o expenses of professionals, including accountants and attorneys.
Our working capital deficit at June 30, 2009 was $4,230,550. Our independent
auditors' report includes an explanatory paragraph relating to substantial doubt
as to our ability to continue as a going concern, due to our working capital
deficit at December 31, 2008. We require approximately $2.2 million to repay
indebtedness including interest in the next 12 months. The following provides
principal terms of our outstanding debt as of June 30, 2009:
o One loan from three family members, each of whom is an unaffiliated party,
evidenced by four promissory notes in the aggregate principal amounts of
$100,000, $50,000, $50,000, and $100,000, each due June 24, 2001 with interest
rates ranging from 11% to 12%. We entered into a settlement agreement in the
third quarter of 2004 with each of these parties. Pursuant to this agreement, at
June 30, 2005, we were required to pay an additional $80,000 as full payment of
our obligations. We did not make this payment and are in default of these notes.
As of June 30, 2009, we have $482,280 accrued for including interest relating to
this matter.
o One loan from an unaffiliated party in the aggregate principal amount of
$195,000 with interest at a rate of 12% per annum. Pursuant to a letter
agreement dated as of August 10, 2004, we entered into a settlement with this
party and agreed to pay a total of $261,000 pursuant to a scheduled payment plan
through July 2005. Additionally, the Company, in September 2004, issued 206,250
shares of common stock upon the conversion of unpaid interest in the aggregate
amount of $33,000. At June 30, 2009, there was $161,000 principal amount (and
$74,383 in interest) remaining on this note. We did not make our scheduled
payment under this note in July 2005, and are in default of this note.
18
o One loan from an unaffiliated party in the aggregate principal amount of
$98,500, due July 31, 2005, with interest at the rate of 9% per annum. Pursuant
to a letter agreement dated August 10, 2004, between this third party and us, we
agreed to pay a total of $130,800 pursuant to a scheduled payment plan through
July 2005. At June 30, 2009, there was $71,500 principal amount (and $34,709 in
interest) remaining on this note. We did not make our scheduled payment under
this note in July 2005, and are in default of this note.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $100,000 due on March 31, 2006 with an interest
rate of 12% per annum. As of June 30, 2009, we owed $40,500 in interest. We did
not make our scheduled payment on March 31, 2006. We have verbally extended the
unpaid note and the due date and other terms are being renegotiated so the note
is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $14,975 due on August 31, 2006 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $100,000 due on February 14, 2007 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $24,798 in principal and
$12,981 in interest. We did not make our scheduled payment on February 14, 2007.
We have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $50,000 due on March 20, 2007 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $50,000 due on April 5, 2007 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $44,550 in principal and $9,034
in interest. We did not make our scheduled payment on April 5, 2007. We have
verbally extended the unpaid note and the due date and other terms are being
renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on April 13, 2007 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $8,910 in principal and
$7,498 in interest. We did not make our scheduled payment on April 13, 2007. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $60,000 due on November 1, 2007 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on December 7, 2007 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $21,408 in principal. We
did not make our scheduled payment on December 7, 2007. We have verbally
extended the unpaid note and the due date and other terms are being renegotiated
so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on January 11, 2008 with an interest
rate of 12% per annum. As of June 30, 2009, we owed $3,000 in principal and $180
in interest. We did not make our scheduled payment on January 11, 2008. We have
verbally extended the unpaid note and the due date and other terms are being
renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on February 13, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
19
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $25,000 due on March 6, 2008 with an interest rate
of 12.5% per annum. As of June 30, 2009, we paid off the remaining principal
balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $40,000 due on March 12, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $10,000 in principal and
$8,063 in interest. We did not make our scheduled payment on March 12, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $25,000 due on October 3, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $40,000 due on April 11, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $40,000 in principal and
$8,333 in interest. We did not make our scheduled payment on April 11, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $60,000 due on May 30, 2008 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $60,000 in principal and
$11,875 in interest. We did not make our scheduled payment on May 30, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being negotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on November 2, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $20,000 due on January 11, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we paid off the remaining
principal balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $20,000 due on July 8, 2008 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $20,000 in principal and $3,750
in interest. We did not make our scheduled payment on July 8, 2008. We have
verbally extended the unpaid note and the due date and other terms are being
renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $15,000 due on August 4, 2008 with an interest
rate of 12% per annum. As of March 31, 2009, we owed $7,500 in principal and
$2,325 in interest. We did not make our scheduled payment on August 4, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $17,000 due on August 11, 2008 with an interest
rate of 12% per annum. As of June 30, 2009, we paid off the remaining principal
balance.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $20,000 due on August 13, 2008 with an interest
rate of 12% per annum. As of June 30, 2009, we paid off the remaining principal
balance.
20
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on August 27, 2008 with an interest
rate of 12% per annum. As of June 30, 2009, we owed $30,000 in principal and
$4,800 in interest. We did not make our scheduled payment on August 27, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $13,000 due on August 28, 2008 with an interest
rate of 12% per annum. As of June 30, 2009, we owed $13,000 in principal and
$2,080 in interest. We did not make our scheduled payment on August 28, 2008. We
have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $13,000 due on September 6, 2008 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $5,500 in principal and
$1,906 in interest. We did not make our scheduled payment on September 6, 2008.
We have verbally extended the unpaid note and the due date and other terms are
being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $20,000 due on April 2, 2009 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $20,000 in principal and $3,125
in interest. We have verbally extended the unpaid note and the due date and
other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $19,000 due on April 2, 2009 with an interest rate
of 12.5% per annum. As of June 30, 2009 we owed $19,000 in principal and $2,969
in interest. We have verbally extended the unpaid note and the due date and
other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on May 2, 2009 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $30,000 in principal and $4,375
in interest. We have verbally extended the unpaid note and the due date and
other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $35,000 due on May 6, 2009 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $35,000 in principal and $5,104
in interest. We have verbally extended the unpaid note and the due date and
other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $50,000 due on June 13, 2009 with an interest rate
of 12.5% per annum. As of June 30, 2009, we owed $19,090 in principal and $3,490
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $40,000 due on December 24, 2009 with an interest
rate of 12.5% per annum. As of June 30, 2009, we owed $40,000 in principal and
$5,000 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $35,000 due on July 15, 2009 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $35,000 in principal and $4,025
in interest.
21
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $15,000 due on July 17, 2009 with an interest rate
of 13.0% per annum. As of June 30, 2009, we owed $15,000 in principal and $1,869
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $34,000 due on July 22, 2009 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $34,000 in principal and $3,740
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $17,000 due on August 5, 2009 with an interest
rate of 10.0% per annum. As of June 30, 2009, we owed $17,000 in principal and
$1,813 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $23,500 due on August 27, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $23,500 in principal and
$2,350 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $55,000 due on August 28, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $55,000 in principal and
$5,500 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $25,000 due on November 13, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $25,000 in principal and
$2,000 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $18,000 due on November 18, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $18,000 in principal and
$1,260 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $27,000 due on December 2, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $27,000 in principal and
$1,890 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $30,000 due on December 15, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $30,000 in principal and
$1,800 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $25,000 due on October 9, 2009 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $25,000 in principal and
$2,250 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $4,000 due on January 9, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $4,000 in principal and
$240 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $8,000 due on January 13, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $8,000 in principal and
$480 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $5,000 due on January 16, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $5,000 in principal and
$300 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $33,000 due on January 22, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $33,000 in principal and
$1,650 in interest.
22
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $13,000 due on February 11, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $13,000 in principal and
$650 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $12,000 due on February 20, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $12,000 in principal and
$480 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $17,000 due on February 11, 2010 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $17,000 in principal and
$850 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $40,000 due on May 15, 2009. As of June 30, 2009,
we owed $14,000 in principal. We did not make our scheduled payment on May 15,
2009.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $12,500 due on April 16, 2011 with an interest
rate of 12.0% per annum. As of June 30, 2009, we owed $12,500 in principal and
$313 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $4,475 due on April 23, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $4,475 in principal and $90 in
interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $9,000 due on May 1, 2011 with an interest rate of
12.0% per annum. As of June 30, 2009, we owed $9,000 in principal and $180 in
interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $40,000 due on May 6, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $40,000 in principal and $800
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $41,000 due on May 13, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $41,000 in principal and $615
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $52,941 due on May 28, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $52,941 in principal and $529
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $17,450 due on June 4, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $17,450 in principal and $175
in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $13,677 due on June 16, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $13,677 in principal and $68 in
interest.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $23,000 due on June 29, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $23,000 in principal.
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $18,940 due on June 9, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $18,940 in principal and $189
in interest.
23
o One loan from an unaffiliated party evidenced by a promissory note in the
aggregate principal amount of $45,904 due on June 19, 2011 with an interest rate
of 12.0% per annum. As of June 30, 2009, we owed $45,904 in principal and $230
in interest.
Management continues to take steps to address the Company's liquidity needs. In
the past, management has entered into agreements with some of our note holders
to amend the terms of our notes to provide for extended scheduled payment
arrangements. Management is engaged in discussions with each holder of debt that
is in default and continues to seek extensions with respect to our debt that is
past due. In addition, management may endeavor to convert some portion of the
principal amount and interest on our debt into shares of common stock. Since
June 2009 we have converted certain debt into 152,715,279 shares of common stock
valued at $529,902.
Historically, we have financed operations through private debt and equity
financings. In recent years, financial institutions have been unwilling to lend
to us and the cost of obtaining working capital from investors has been
expensive. We principally expect to raise funds through the sale of equity or
debt securities. The more recent price and volume volatility in the common stock
has made it more difficult for management to negotiate sales of its securities
at a price it believes to be fair to the Company. The Company actively continues
to pursue additional equity or debt financings, but cannot provide any assurance
that it will be successful. If we are unable to pay our debt as it becomes due
and are unable to obtain financing on terms acceptable to us, or at all, we will
not be able to accomplish any or all of our initiatives and will be forced to
consider steps that would protect our assets against our creditors.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources, and that would be
considered material to investors.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLSOURES ABOUT MARKET RISK.
Not Applicable
ITEM 4T. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, we evaluated
the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered
by this report. Based upon that evaluation, our chief executive officer and
chief financial officer concluded that our disclosure controls and procedures
are not effective to ensure that the information required to be disclosed by us
in reports filed under the Securities Exchange Act of 1934 is (a) recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms and (b) accumulated and communicated to our management,
including our chief executive officer, as appropriate to allow timely decisions
regarding disclosure.
Internal Control Over Financial Reporting
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal controls over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of
1934, as amended) during the quarter ended June 30, 2009 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.
ADDITIONAL DISCLOSURE CONCERNING CONTROLS AND PROCEDURES.
We currently believe that the Company has material weaknesses in its disclosure
controls and procedures. We will continue to work in the coming weeks and months
to address such weaknesses. We believe that the out-of-pocket costs, the
diversion of management's attention from running the day-to-day operations and
operational changes caused by the need to make changes in our internal control
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")) could be significant and still we may
not achieve significant improvements in our internal controls and procedures. If
the time and costs associated with such compliance exceed our current
expectations, our results of operations and the accuracy and timeliness of the
filing of our annual and periodic reports may be materially adversely affected
and could cause investors to lose confidence in our reported financial
information, which could have a negative affect on the trading price of our
common stock.
25
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about April 16, 2004, Plaintiffs A. Sean Rose, Claire F. Rose, and Mark
Rose commenced an action in the Los Angeles Superior Court against the Company
(A. SEAN ROSE, CLAIRE F. ROSE AND MARK ROSE V. UNIVERSAL DETECTION TECHNOLOGY,
FKA POLLUTION RESEARCH AND CONTROL CORPORATION) for amounts allegedly due
pursuant to four unpaid promissory notes. On August 2, 2004, the parties
executed a Confidential Settlement Agreement and Mutual Releases (the
"Agreement"). On December 30, 2005, Plaintiffs commenced an action against the
Company, alleging the Company breached the Agreement and sought approximately
$205,000 in damages. A judgment was entered on April 11, 2006 for $209,277.58.
The Company has previously accrued for this settlement. As of June 30, 2009, we
have accrued $482,280 for this settlement including principal and interest.
On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the
Los Angeles Superior Court (TRILOGY CAPITAL PARTNERS V. UNIVERSAL DETECTION
TECHNOLOGY, ET. AL., Case No. SC089929) against the Company. Plaintiff's
Complaint alleged damages against Universal Detection Technology ("UDT")for
breach of an engagement letter in the amount of $93,448.54. Also, Plaintiff
alleged that UDT had failed to issue warrants to it pursuant to a written
agreement. After completing the initial stages of litigation and conducting
extensive mediation, Plaintiff and UDT reached a settlement wherein commencing
December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until
a debt of $90,000 plus accrued interest at six percent per annum was fully paid.
In exchange, Plaintiff would release all of its claims against UDT. UDT has been
current on all of its agreed payments to Plaintiff. As of June 30, 2009, $48,357
was due under the agreement.
On November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the Los
Angeles Superior Court (NBGI, Inc. v. Universal Detection Technology, et. al.,
Case No. BC361979) against Universal Detection Technology ("UDT"). NBGI, Inc.'s
Complaint alleged breach of contract, and requested damages in the amount of
$111,014.34 plus interest at the legal rate and for costs of suit. There is also
a Motion for Summary Judgment set for September 11, 2007. The Summary Judgment
was granted in NBGI's favor and Judgment has been entered.
On June 23, 2009, California Institute of Technology ("Cal Tech") sent a letter
to Universal Detection Technology ("UDT"), asserting certain breaches by UDT of
that certain License Agreement between Cal Tech and UDT effective September 30,
2009 as amended (the "License Agreement") including nonpayment of royalties,
failure to pay certain prosecution and legal costs and failure to fully
commercialize the patents and technologies that are licensed to UDT under the
License Agreement. Cal Tech is also asserting its right to terminate the License
Agreement effective June 4, 2009. UDT disagrees with the various assertions made
by Cal Tech in the letter and has requested that Cal Tech submit to arbitration
all matters in dispute. To date, no further action has been taken and UDT
continues to perform under the License Agreement. However, there can be no
assurance that the License Agreement will continue in effect, or that UDT will
be able to continue the use, development and commercialization of the underlying
patents and technologies. Primarily the License Agreement concerns a group of
patents that support UDT's "BSM" technologies and related products. The loss of
these licensed technologies would have an adverse effect on UDT's prospects
until such time as alternate technologies are licensed or developed.
ITEM 1A. RISK FACTORS
Not Applicable.
26
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the second quarter of 2009, we issued the following securities which were
not registered under the Securities Act of 1933, as amended. We did not employ
any form of general solicitation or advertising in connection with the offer and
sale of the securities described below. In addition, we believe the purchasers
of the securities are "ACCREDITED INVESTORS" for the purpose of Rule 501 of the
Securities Act. For these reasons, among others, the offer and sale of the
following securities were made in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act or Regulation D promulgated by
the SEC under the Securities Act:
o During the three months ended March 31, 2009, we issued 40,731,250
shares of common stock to various notes holders to convert outstanding
debt obligations valued at approximately $189,455.
o During the three months ended June 30, 2009, we issued 210,073,930
shares of common stock to various notes holders upon the conversion of
outstanding debt obligations valued at approximately $312,778.
o During July and August 2009, we issued 125,465,279 shares of common
stock to various note holders upon conversion of outstanding debt
obligations valued at approximately $390,927.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
We have defaulted upon the following senior securities
o One loan from three family members, each of whom is an unaffiliated
party, evidenced by four promissory notes in the aggregate principal
amounts of $100,000, $50,000, $50,000, and $100,000, each due June 24,
2001 with interest rates ranging from 11% to 12%. We entered into a
settlement agreement in the third quarter of 2004 with each of these
parties. Pursuant to this agreement, at June 30, 2005, we were required
to pay an additional $80,000 as full payment of our obligations. We did
not make scheduled payments and are in default of these notes.
o One loan from an unaffiliated party in the aggregate principal amount
of $195,000 with interest at a rate of 9% per annum. Pursuant to a
letter agreement dated as of August 10, 2004, we entered into a
settlement with this party and agreed to pay a total of $261,000
pursuant to a scheduled payment plan through July 2005. Additionally,
the Company, in September 2004, issued 206,250 shares of common stock
upon the conversion of unpaid interest in the aggregate amount of
$33,000. At June 30, 2009, there was $161,000 principal amount
remaining on this note. We did not make our scheduled payment under
this note and are in default. As of June 30, 2009, we owed $74,383 in
interest on this note.
o One loan from an unaffiliated party in the aggregate principal amount
of $98,500, due July 31, 2005 with interest at the rate of 9% per
annum. Pursuant to a letter agreement dated August 10, 2004, between
this third party and us, we agreed to pay a total of $130,800 pursuant
to a scheduled payment plan through July 2005. At June 30, 2009, there
was $71,500 principal amount remaining on this note. We did not make
our scheduled payments under this note and are in default. As of June
30, 2009, we owed $34,709 in interest on this note.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
27
During the three months ended June 30, 2009, we issued 210,073,930
shares of common stock to various notes holders upon the conversion of
outstanding debt obligations valued at approximately $312,778.
During July and August 2009, we issued 125,465,279 shares of common
stock to various note holders upon conversion of outstanding debt
obligations valued at approximately $390,927.
On June 23, 2009, California Institute of Technology ("Cal Tech") sent a letter
to Universal Detection Technology ("UDT"), asserting certain breaches by UDT of
that certain License Agreement between Cal Tech and UDT effective September 30,
2009 as amended (the "License Agreement") including nonpayment of royalties,
failure to pay certain prosecution and legal costs and failure to fully
commercialize the patents and technologies that are licensed to UDT under the
License Agreement. Cal Tech is also asserting its right to terminate the License
Agreement effective June 4, 2009. UDT disagrees with the various assertions made
by Cal Tech in the letter and has requested that Cal Tech submit to arbitration
all matters in dispute. To date, no further action has been taken and UDT
continues to perform under the License Agreement. However, there can be no
assurance that the License Agreement will continue in effect, or that UDT will
be able to continue the use, development and commercialization of the underlying
patents and technologies. Primarily the License Agreement concerns a group of
patents that support UDT's "BSM" technologies and related products. The loss of
these licensed technologies would have an adverse effect on UDT's prospects
until such time as alternate technologies are licensed or developed.
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ITEM 6. EXHIBITS.
EXHIBIT LIST
Exhibit Number Description
-------------- -----------
10.1 Form of Note Conversion Agreement
Exhibit 31 Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith
Exhibit 32 Certification Pursuant to 18 U.S.C. Section 1350, As
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, filed herewith.
29
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: August 14, 2009 UNIVERSAL DETECTION TECHNOLOGY
/s/ Jacques Tizabi
------------------------------------
Jacques Tizabi,
President, Chief Executive Officer (Principal Executive Officer), and Acting
Chief Financial Officer (Acting Principal Financial Officer)
30