PINX:UNDT Universal Detection Technology Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________

 

FORM 10-Q

 

SQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2012

 

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 001-09327

 

UNIVERSAL DETECTION TECHNOLOGY
(Exact name of registrant as specified in its charter)

 

California   95-2746949
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     

 

340 North Camden Drive, Suite 302

Beverly Hills, California

 

90210

(Address of principal executive offices)   (Zip Code)

 

Issuer's telephone number: (310) 248-3655

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S  No £

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x     No  o

 

 

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

 

Large accelerated filer £ Accelerated filer £
Non-accelerated filer £  (Do not check if a smaller reporting company) Smaller reporting company S

 

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

 

Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: As of August 20, 2012, there were 920,997 shares of common stock outstanding.

 

 

 

 

FORM 10-Q

 

INDEX

 

      Page No.
PART I. Financial Information  
  Item 1. Financial Statements (unaudited) : 3
    Notes to Financial Statements 7
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 14
       
  Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
       
  Item 4. Controls and Procedures 21
       
PART II. Other Information  
  Item 1. Legal Proceedings 22
       
  Item 1A Risk Factors 22
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 22
       
  Item 3. Defaults Upon Senior Securities 22
       
  Item 4. Mine Safety Disclosures 23
       
  Item 5. Other Information 23
       
  Item 6. Exhibits 23
       
SIGNATURES    

 

 

2
 

 

PART I

FINANCIAL INFORMATION

 

 

ITEM 1. FINANCIAL STATEMENTS

 

 

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS 

AS OF JUNE 30, 2012 AND DECEMBER 31, 2011 

(UNAUDITED) 

 

 

ASSETS   
   As of
   June 30, 2012  December 31, 2011
CURRENT ASSETS:          
Cash and cash equivalents  $2,388   $2,062 
Accounts Receivable,net   1,099    1,099 
Inventory   497    28,560 
Prepaid expenses        
           
Total current assets   3,984    31,721 
           
Deposits   21,300    21,300 
Equipment, net   2,929    3,374 
           
Total assets  $28,213   $56,395 
           
           
LIABILITIES AND STOCKHOLDERS' DEFICIT
          
CURRENT LIABILITIES:          
Accounts payable, trade  $1,182,667   $1,165,974 
Accrued liabilities   629,856    632,960 
Unearned Revenue   5,075    11,878 
Accrued payroll - officers   619,993    902,481 
Notes payable - related party   18,620    466,870 
Notes payable   473,514    443,514 
Accrued interest expense   809,299    745,110 
           
Total current liabilities   3,739,024    4,368,787 
           
Long term notes payable   481,500    309,625 
           
Total liabilities   4,220,524    4,678,412 
           
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,  907,969  and 382,951 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively   39,308,383    38,112,311 
Additional paid-in-capital   5,313,089    5,313,089 
Accumulated deficit   (48,813,783)   (48,047,417)
           
Total stockholders' deficit   (4,192,311)   (4,622,017)
           
Total liabilities and stockholders' deficit  $28,213   $56,395 

 

See accompanying notes to the unaudited consolidated  condensed financial statements.

3
 

 

 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 

 FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(UNAUDITED) 

 

 

  For the six months ended June 30,
   2012  2011
REVENUE, NET  $56,184   $32,813 
COST OF GOODS SOLD   45,345    36,483 
           
GROSS PROFIT   10,839    (3,670)
           
OPERATING EXPENSES:          
Selling, general and administrative   590,155    517,252 
Marketing   9,470    18,325 
Depreciation and amortization   445    2,719 
           
Total expenses   600,070    538,296 
           
LOSS FROM OPERATIONS   (589,231)   (541,966)
           
OTHER INCOME (EXPENSE):          
Interest income (expense)   (66,689)   (50,301)
Other income        
Loss on settlement of debt   (110,446)   (1,085,826)
Total other expenses   (177,135)   (1,136,127)
           
NET LOSS  $(766,366)  $(1,678,093)
           
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:  $(0.97489)  $(9.5043)
           
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   786,102    176,561 

 

 

 Weighted average number of dilutive securities has not been calculated as the effect of dilutive securities would be anti-dilutive

 

See accompanying notes to the unaudited consolidated  condensed financial statements.

 

4
 

 

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES 

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 

FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND 2011 

(UNAUDITED) 

 

  For the three months ended June 30,
   2012  2011
REVENUE, NET  $22,545   $30,508 
COST OF GOODS SOLD   18,161    34,558 
           
GROSS PROFIT   4,384    (4,050)
           
OPERATING EXPENSES:          
Selling, general and administrative   149,402    347,882 
Marketing       17,643 
Depreciation and amortization   223    797 
           
Total expenses   149,625    366,322 
           
LOSS FROM OPERATIONS   (145,241)   (370,372)
           
OTHER INCOME (EXPENSE):          
Interest (expense) / income    (34,641)   (22,917)
Other income        
Loss on settlement of debt       (580,404)
           
Total other expenses   (34,641)   (603,321)
           
NET LOSS  $(179,882)  $(973,693)
           
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:  $(0.19811)  $(4.72121)
           
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING   907,969    206,238 

 

 

 Weighted average number of dilutive securities has not been calculated as the effect of dilutive securities would be anti-dilutive

 

See accompanying notes to the unaudited consolidated  condensed financial statements. 

 

5
 

 

 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND 2011 

(UNAUDITED) 

 

 

   For the six months ended June 30,
   2012  2011
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(766,366)  $(1,678,093)
Adjustments to reconcile net loss to net cash used in operations:          
Stocks issued for services   285,001    50,312 
Loss on settlement of debt   110,446    1,085,826 
Depreciation   445    2,719 
Changes in operating assets and liabilities:          
Inventory   28,063    (4,620)
Accounts receivable         
Prepaid expenses       (52,447)
Deposits        
Stock to be issued       154,048 
Unearned Revenue   (6,803)   60,888 
Accounts payable and accrued liabilities   247,790    183,487 
           
Net cash used in operating activities   (101,424)   (197,880)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of equipment        
Decrease (increase) in restricted cash        
           
Net cash (used) provided by investing activities        
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from notes payable-related party   81,727    256,475 
(Payments on)/proceeds from notes payable   230,000    23,000 
Payments on notes payable - related party   (209,977)   (67,550)
           
Net cash provided by financing activities   101,750    211,925 
           
NET DECREASE IN CASH AND CASH EQUIVALENTS   326    14,045 
           
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   2,062    987 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $2,388   $15,032 
           
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:          
           
Income tax  $   $3,200 
Interest Paid  $   $ 
           
SUPPLEMENTAL DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES:          
           
Shares issued for settlement of debt and accrued interest  $141,071   $1,309,756 
Shares issued for settlement of debt and accrued payroll - related party  $770,000    $ 

 

 

 See accompanying notes to the unaudited consolidated financial statements.

 

6
 

 

 

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1.ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Universal Detection Technology, a California corporation, primarily designs, manufactures and markets air pollution monitoring instruments. Beginning in 2002, the Company has focused its research and development efforts in developing a real time biological weapon detection device. To accelerate development of its initial biological weapon detection device, the Company has developed and is implementing a collaborative partnering strategy. Under this strategy, the Company identifies and partners with researchers and developers. The Company has expanded its services to include security related consulting, event security and counterterrorism training.

 

The Company is a reseller of a range of products, which include rapid anthrax detection test kits, training courses for first responders, event security, threat evaluation and consulting, radiation detection systems, anti-microbial products, and DVDs aimed at providing information and training regarding combating terrorism and managing emergency situations.

 

NOTE 2.ACCOUNTING POLICIES

 

Accounting Principles

 

In the opinion of management, the accompanying balance sheets and related interim statements of income, and cash flows include all adjustments, consisting only of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s 2011 Form 10-K filed on May 10, 2012 with the U.S. Securities and Exchange Commission.

 

Principles of Consolidation

 

The accompanying consolidated condensed financial statements include the accounts of Universal Detection Technology and its wholly-owned subsidiaries Nutek, Inc. (“Nutek”) and Logan Medical Devices, Inc. (“Logan”). The two subsidiaries are currently inactive. All significant intercompany balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements is in conformity with accounting principles generally accepted in the United States of America which requires management to make 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. Certain reclassifications have been made to prior period balances to conform to the current year presentation.

 

Recent Accounting Pronouncements

 

In July 2012, the FASB issued amended standards to simplify how entities test indefinite-lived intangible assets for impairment which improve consistency in impairment testing requirements among long-lived asset categories. These amended standards permit an assessment of qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. For assets in which this assessment concludes it is more likely than not that the fair value is more than its carrying value, these amended standards eliminate the requirement to perform quantitative impairment testing as outlined in the previously issued standards. These amended standards are effective for us beginning in the fourth quarter of 2012; however, early adoption is permitted. We do not expect these new standards to significantly impact our consolidated condensed financial statements.

 

7
 

 

 

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

In September 2011, the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is less than its carrying amount, the two-step goodwill impairment test is not required. The new guidance will be effective for us beginning July 1, 2012. We do not expect the adoption will have a significant impact on our consolidated condensed financial statements.

  

In June 2011, the FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance will be effective for us beginning July 1, 2012 and will have financial statement presentation changes only. We do not expect the adoption will have a significant impact on our consolidated condensed financial statements.

  

NOTE 3.GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has an accumulated deficit of $48,813,783 as of June 30, 2012, including a net loss of $766,366 during the six months period ended June 30, 2012.

 

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.

 

Management has taken certain steps to provide the Company with necessary capital to continue its operations. These steps include: 1) actively seeking additional funding in the form of unsecured indebtedness and 2) seeking to increase revenues from product sales.

 

During the first six months of 2012, the Company sold detection kits under various purchase agreements for $56,184. The Company also entered into various agreements to issue 35,267 shares of its common stock to 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 $141,071. The Company issued 38,500 shares of its common stock to its President and CEO to satisfy outstanding debt and accrued salary valued at $770,000.

  

8
 

 

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 4.NOTES PAYABLE

 

During the six month period ended June 30, 2012, the Company borrowed an aggregate of $230,000 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 21, 2014. No principal or interest payments have been made on these notes. As of June 30, 2012 and December 31, 2011, the Company had total notes payable amounting to $955,014 and $753,139 respectively

 

The interest expense on these notes payable for the six months ended June 30, 2012 and 2011 amounted to $66,689 and $50,301, respectively.

 

NOTE 5.EQUITY TRANSACTIONS

 

Issuance of Common Stock

 

During the six month period ended June 30, 2012, the Company issued an aggregate of 299,750 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 $675,000. A total of 225,000 of the 299,750 shares of common stock were issued to the Company’s president and CEO. The fair market value of the shares issued to the Company’s president and CEO was $450,000.

 

The Company issued 30,000 shares of common stock for an aggregate amount of $60,000 during the six month period ended June 30, 2012 for payment of consulting or other professional fees.

 

During the six month period ended June 30, 2012, the Company entered into various agreements to convert $30,625 of debt and accrued interest into 35,267 shares of common stock. The fair market value of the stock on the dates of agreement and issuances was $141,071. The Company recorded a related loss on settlement of debt of $110,446.

 

In addition to the above issuances, the Company also issued 160,000 shares of common stock to its president and CEO for payment of outstanding debt.

 

Stock Split

 

A majority of shareholders approved a resolution providing the Company’s Board of Directors with the authority to effect a one-for-twenty-thousand (1:20,000) reverse stock split of the Company’s common stock for stockholders of record as of March 13, 2012. The reverse stock split took effect July 5, 2012 which resulted in 919,218 shares outstanding.

 

Stock Options

 

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 15,000 shares of common stock for awards to be made under the Plan. 15,000 shares reserved under this plan have been issued.

 

9
 

  

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

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 reserved 16,500 shares of common stock for awards to be made under the Plan. 16,342 of the shares reserved under this plan have been issued.

 

On July 1, 2008, the Board of Directors adopted the 2008-3 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 125 shares of common stock for awards to be made under the Plan. 125 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 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 190 shares of common stock for awards to be made under the Plan. 190 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 500 shares of its common stock for awards to be made under the Plan. 500 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 3,000 shares of its common stock for awards to be made under the Plan. 2,980 of the shares under this plan have been issued.

 

On November 6, 2009, the Board of Directors adopted the 2009-3 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 10,000 shares of its common stock for awards to be made under the Plan. 10,000 of the shares under this plan have been issued.

 

10
 

 

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

On May 6, 2011, the Board of Directors adopted the 2011 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 30,000 shares of its common stock for awards to be made under the Plan. 30,000 of the shares under this plan have been issued.

 

On October 27, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan (The “2011-II 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 shares of its common stock for awards to be made under the Plan. 60,000 of the shares under this plan have been issued.

  

Common stock purchase options consisted of the following as of June 30, 2012:

 

      Weighted Average   Aggregated
      Exercise   Intrinsic
   # shares   Price   Value
Options:            
Outstanding and exercisable, December 31, 2011                          2   $1,320,000   $       -
Granted                           -                               -
Exercised                           -                               -
Expired           -
Outstanding and exercisable, June 30, 2012                          2   $1,320,000   $        -

 

NOTE 6.INCOME TAXES

 

Our effective tax rates were approximately (0.0%) and (0.0%) for the six months ended June 30, 2012 and 2011, respectively. Our effective tax rate was lower than the U.S. federal statutory rate due to net operating loss carry-forwards available to offset current and future taxable income.

 

11
 

  

UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 7.COMMITMENTS AND CONTINGENCIES

 

The Company was involved in the following litigations:

 

a) On May 15, 2002, Walt Disney World Co. commenced action in the Los Angeles Superior Court against the Company and a former wholly-owned subsidiary (WALT DISNEY WORLD CO. V. POLLUTION RESEARCH AND CONTROL CORP. AND DASIBI ENVIRONMENTAL CORP. (Case No. BC 274013 Los Angeles Superior Court) for amounts due in connection with unpaid rent. A judgment was entered for $411,500. No amounts have been paid in connection with the judgment. As of June 30, 2012, $411,500 has been accrued.

 

b) A. Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection Technology, 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. The Company has accrued for this settlement. The Company entered into a settlement agreement in the third quarter of 2004 with each of these three parties. Pursuant to this agreement, at June 30, 2005, the Company was required to pay an additional $80,000 as full payment of our obligations. The Company did not make this payment and are in default of these notes. As of June 30, 2012 and December 31, 2011 the Company has $636,275 and $610,621, respectively, accrued for including interest relating to this matter which is part of notes payable and accrued interest in the accompanying balance sheet as of June 30, 2012 and December 31, 2011.

  

c) 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. As of September 30, 2011, $28,098 was due under the agreement and is included in the accounts payable in the accompanying balance sheet as of June 30, 2012.

 

d) 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. No payments have been made on this judgment and no actions to enforce the judgment have been taken against UDT.

 

e) On June 24, 2010, Plaintiff Meyers Associates, L.P. commenced an action in the Supreme Court of the State of New York, New York County, entitled Meyers Associates, L.P. v. Universal Detection Technology ("UDT"), case No. 108321/10.  The complaint alleges breach of contract and damages related to performance by Meyers Associates, L.P. ("Meyers") of an investment banking services agreement dated December 22, 2005 and UDT's alleged failure to compensate Meyers for such services under the terms of the agreement. Plaintiff seeks damages in the amount of approximately $116,000 plus an award of court costs and attorneys fees.  In October 2010, Plaintiff filed a Notice of Motion for Default Judgment against UDT and filed a Request for Judicial Intervention in connection therewith. The Company has not received any further communication regarding this action and does not know if a default judgment was granted.

 

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UNIVERSAL DETECTION TECHNOLOGY. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

 

f) On November 1, 2010 the accounting firm of A.J. Robbins, P.C. filed a lawsuit in the District Court, City and County of Denver, Colorado, seeking recovery of fees allegedly owed for accounting services performed during 2004 to 2008. The claims have been asserted against the Company, a second corporate defendant, and our CEO, as a result of a personal guarantee. On December 15, 2010, Defendants filed an Answer which asserted several defenses. The parties have exchanged initial disclosures, and the matter has been set for trial commencing on December 5, 2011. On August 3, 2011 the parties entered into a settlement agreement whereby the Defendants in the case will jointly pay $85,000 to the plaintiffs and the Company will issue $45,000 of the Company’s stock to the plaintiffs.  The cash payments will be made in equal monthly payments over 7 months commencing on August 31, 2011.  In consideration of the settlement, the parties have executed a mutual release and have agreed to withdraw the lawsuit. The releases and withdrawal are contingent upon the Company's full performance of the settlement agreement terms. The Company issued stock with a fair market value of $36,000 on the date of the agreement in full payment of the stock portion of the settlement agreement.

 

As of August 16, 2012, out of the cash payments that the Company was responsible for under the settlement agreement, $8,520.82 is still owed and unpaid. This balance due is for part of the February 28, 2012 payment. Plaintiff has the right to get a judgment for $175,000 minus the payments that were made, if we fail to perform under the terms of the settlement agreement and if they serve us with a notice of default, which they have not.

  

NOTE 8.RELATED PARTY TRANSACTIONS

 

During the six months ended June 30, 2012, the Company issued 225,000 shares of common stock to its president and CEO to convert $450,000 of accrued but unpaid salary to him.

 

During the six months ended June 30, 2012, the Company borrowed an aggregate of $81,726 in principal with no interest due and repaid $529,976 in principal payments to its president and CEO. A total of $209,976 was repaid in cash and $320,000 was repaid through the issuance of 160,000 shares of its common stock. As of June 30, 2012, $18,620 in principal and $1,768 in interest were due.

 

During the year ended December 31, 2011, the Company borrowed a total of $592,256 from its president and chief executive officer under various written promissory note agreements executed by the Company and under oral agreements. The agreement and notes had interest rates of 0%. The Company repaid notes totaling $465,460 and interest of $-0- to its president and chief executive officer. As of December 31, 2011, $466,869 in principal and $1,392 in interest was due to its president and chief executive officer.

  

NOTE 9.SUBSEQUENT EVENTS

 

In July 2012, the Company issued 11,250 shares to a consultant valued at $3,000.

  

In July 2012, the Company effected a one-to-twenty-thousand (1:20,000) reverse stock split that resulted in 919,218 shares outstanding.

 

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

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on 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

Universal Detection Technology (the "Company," “UDT” or "We") is engaged in the marketing and resale of detection devices for chemical, biological, radiological, nuclear, and explosive (CBRNE) threats. Through agreements with various third parties we supply bioterrorism detection kits capable of detecting anthrax, ricin, botulinum, plague, and SEBs, mold detection kits, chemical detection equipment, radiation detection systems, and counter-terrorism training references.

 

We have entered into supply and distribution agreements with various parties enabling us to supply a host of products and services for detection of hazardous materials and training references. By combining our in-house experience and knowledge and outside expertise offered by various consultants and third parties, we have added threat evaluation and consulting services, and training courses to our services. We sell and market security and counter-terrorism products including bioterrorism detection kits, chemical detectors, radiation detection systems, and training references. Some of the products and services we offer have not been sold to date and there is no guarantee that any of them will be demanded and sold in the market in the future. We plan to continue expanding our product base and intend to sell products to more users inside and outside the U.S. Our strategy is to generate sales by enhancing our web presence and marketing the Company as a supplier of complete CBRNE detection equipment. We plan to attend various industry trade shows and to offer products in certain training scenarios so that first responders can become more familiar with our products. Our target customer markets primarily consist of first responders with some emphasis on the bioterror and military defense market. Our geographical customer focus is on the U.S., Europe, and Asia. There is no guarantee that we will succeed in implementing this strategy or if implemented, that this strategy will be successful.

 

Subsequent to the March 11, 2011 earthquake and tsunami in Japan, we saw an increased demand in our radiation detection equipment. In response we formed new alliances with manufacturers of dosimeters and survey meters to supply the Japanese market. We witnessed increased sales of these systems and have shipped several units to Japanese customers since the disaster.

 

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In late 2011 we started research and development on a new line of radiation detectors that can monitor the environment and surfaces for radiation and communicate the results with a smartphone enabling the user to save and share the test results instantaneously. In December 2011 we announced entering into an agreement with Honeywell India (a unit of Honeywell International) to develop a radiation detector which would display radiation data collected via Bluetooth to a smartphone. The product is designed to detect radiation levels on surfaces and food and to automatically send the collected data to a smartphone. According to the agreement with Honeywell, any and all intellectual property including any patents which may be filed will be the sole property of Universal Detection Technology.

 

We named this product RadSmart and we expect to bring it to the market in 2012. In March 2012, we applied for a Federal Trademark for RadSmart with the US Patent and Trademark Office (USPTO). We have received confirmation that the USPTO has received our application and has subsequently assigned a serial number to our submission. In March 2012, the USPTO informed us that in approximately 3 months, an examining attorney will review our application to determine if all legal requirements are met. Currently our mark is not registered and is considered a “pending” application. The overall process from the time of initial filing to registration or final refusal can take 13-18 months or even longer.

 

RadSmart utilizes a Hamamatsu Cesium Iodide (CsI) scintillator for the detection of Gamma rays. Cs(I) scintillators are the most sensitive detection mechanisms for detecting Gamma radiation. The instrument will be sensitive enough to measure normal radiation levels to 100 to 200 times that intensity. With the planned detection range of 0.001 to 9.999 uSv/h the device is expected to be capable of detecting traces of radiation on surfaces, clothing and in particular food contamination, which has become an increasing concern globally after the Fukushima disaster in Japan.

 

In the second quarter of 2012 we realized revenues of $22,545 from sales. We have incurred losses for the three months ended June 30, 2012 and 2011 in the approximate amounts of $179,882 and $973,693, respectively, and have an accumulated deficit of $48.8 million as of June 30, 2012. At June 30, 2012, we were in default on certain debt obligations totaling approximately $328,240 in addition to accumulated interest of approximately $809,000. We require approximately $3.7 million in the next 12 months to repay debt obligations. We do not anticipate that our cash on hand is adequate to meet our operating expenses over the next 12 months. In addition, we do not have adequate capital to repay all of our debt currently due and becoming due in the next 12 months. We principally expect to raise funds through the sale of equity or debt securities. During the past 12 months, management spent the substantial majority of its time on sales and marketing of the Company’s products and services. These activities diverted management from capital raising activities. We will actively continue to pursue additional equity or debt financing in the coming months, but cannot provide any assurances that it will be successful or on terms that are acceptable to us. If we are unable to pay our debts as they become 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 other alternatives including suspending our business operations.

 

General and Administrative Expenses; Selling Expenses

 

During the three months ended June 30, 2012 we spent an aggregate of $149,402 on selling, general and administrative expenses and marketing expenses. This amount represents a 59% decrease over the comparable prior year period. The decrease is principally attributable to a decrease in stock based compensation.

 

During the six months ended June 30, 2012 we spent an aggregate of $590,155 on selling, general and administrative expenses and marketing expenses. This amount represents a 16% increase over the comparable prior year period. The increase is principally attributable to an increase in stock based compensation.

 

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Working Capital Deficit

 

Our working capital deficit at June 30, 2012, was $3,735,040. Our independent auditors' report dated May 8, 2012, which is included in our Annual Report on Form 10-K for the year ended December 31, 2011, 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, 2011. We will require approximately $3.7 million to repay indebtedness in the next 12 months. We can make no assurances that such amount will be available to the Company.

 

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.

 

Three Months Ended June 30, 2012 Compared to the Three Months Ended June 30, 2011.

 

Revenue. Total revenue for the three months ended June 30, 2012 was $22,545, as compared to revenue of $30,508 for the same period in the prior fiscal year, a decrease of $7,963 (26%). The decrease is primarily due to a decreased number of detection unit sales.

 

Operating Expenses. Total operating expenses for the three months ended June 30, 2012 were $149,625, as compared to total operating expenses of $366,322 for the three months ended June 30, 2011, representing a decrease of $216,967 (59.1%) Total selling, general and administrative expenses including marketing expenses for the three months ended June 30, 2012 were $149,402 representing a decrease of $216,123 (59.1%) for the same period in the prior fiscal year. These decreases are principally due to a decrease in stock based compensation.

 

Other income (expense). Other income (expense) amounted to ($34,641) for the three months ended June 30, 2012 as compared to ($603,321) for the corresponding period of the prior year, representing a decrease of $568,680 (94.2%) The decreased expense is principally related to the loss recognized on the settlement of shares issued for debt.

 

Net loss. Net loss for the three months ended June 30, 2012 was $179,882, as compared to a net loss of $973,693 for the same period in the prior fiscal year, representing a decrease in loss of $791,811 (81.5%) The primary reason for this change is a decrease in loss recognized on the settlement of shares issued for debt.

 

Six Months Ended June 30, 2012 Compared to the Six Months Ended June 30, 2011.

 

Revenue. Total revenue for the six months ended June 30, 2012 was $56,184, as compared to revenue of $32,813 for the same period in the prior fiscal year, an increase of $23,371 (71.2%). The increase is primarily due to an increased number of detection unit sales.

 

Operating Expenses. Total operating expenses for the six months ended June 30, 2012 were $600,070, as compared to total operating expenses of $538,296 for the six months ended June 30, 2011, representing an increase of $61,774 (11.4%). Total selling, general and administrative expenses including marketing expenses for the six months ended June 30, 2012 were $599,625 representing an increase of $64,048 (12.0%) for the same period in the prior fiscal year. These increases are principally due to an increase in stock based compensation.

 

Other income (expense). Other income (expense) amounted to ($117,135) for the six months ended June 30, 2012 as compared to ($1,136,127) for the corresponding period of the prior year, representing a decrease of $958,992 (84.4%) The decreased expense is principally related to the loss recognized on the settlement of shares issued for debt.

 

Net loss. Net loss for the six months ended June 30, 2012 was $766,366, as compared to a net loss of $1,678,093 for the same period in the prior fiscal year, representing a decrease in loss of $911,727 (54.3%) The primary reason for this change is a decrease in loss recognized on the settlement of shares issued for debt.

 

 

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LIQUITY AND CAPITAL RESOURCES

 

We require approximately $3.7 million to repay indebtedness including interest in the next 12 months. We do not anticipate that our cash on hand or anticipated revenues from operations will be 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 our available capital during the next 12 months principally will be used for:

 

· administrative expenses, including salaries of officers and other employees we plan to hire;

· repayment of debt;

· sales and marketing;

· product development, testing and manufacturing; and

· expenses of professionals, including accountants and attorneys.

 

Our working capital deficit at June 30, 2012 was $3,735,040. Our independent auditors’ report dated May 8, 2012, which is included in our Annual Report on Form 10-K for the year ended December 31, 2011, 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, 2011.

 

The following provides principal terms of our outstanding debt as of June 30, 2012:

 

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, 2012, we have $636,275 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 30,2012, there was $161,000 principal amount (and $117,911 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 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 30,2012, there was $71,500 principal amount (and $34,709 in interest). 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 30,2012, we owed $76,500 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 $1,500 due June 27, 2007 with an interest rate of 12.5% per annum. As of June 30, 2012, we owed $953 in interest. We did not make our scheduled payment on June 27, 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.

 

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o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $9,940 due on March 31, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $9,940 in principal and $3,607in interest. We did not make our scheduled payment on March 31, 2010. 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 $1,638 due on March 31, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $1,638 in principal and $640 in interest. We did not make our scheduled payment on March 31, 2010. 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 $1,420 due on March 31, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $1,420 in principal and $554 in interest. We did not make our scheduled payment on March 31, 2010. 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 $776 due on September 3, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $776 in principal balance and $264 in interest. We did not make our scheduled payment on September 3, 2010. 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 July 25, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $36,500 in principal and $2,190 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on August 8, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $40,000 in principal and $4,400 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $35,000 due on August 16, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $35,000 in principal and $3,675 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $60,000 due on November 11, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $60,000 in principal and $4,800 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $60,000 due on November 21, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $60,000 in principal and $4,200 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on December 20, 2014 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $50,000 in principal and $3,000 in interest.

 

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o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on January 26, 2015 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $50,000 in principal and $ 2,500in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on January 31, 2015 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $50,000 in principal and $2,500 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $60,000 due on February 16, 2015 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $60,000 in principal and $2,700 in interest.

 

o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on February 21, 2015 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $40,000 in principal and $1,800 in interest.

 

One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on July 15, 2012 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $40,000 in principal and $94 in interest.

 

o One loan from the President & CEO evidenced by a promissory note in the aggregate principal amount of $275 due on September 14, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $275 in principal and $106 in interest. We did not make our scheduled payment on September 14, 2010. 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 the President & CEO evidenced by a promissory note in the aggregate principal amount of $506 due on October 6, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $506 in principal and $153 in interest. We did not make our scheduled payment on October 6, 2010. 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 the President & CEO evidenced by a promissory note in the aggregate principal amount of $174 due on October 8, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $174 in principal and $73 in interest. We did not make our scheduled payment on October 8, 2010, 2010. 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 the President & CEO evidenced by a promissory note in the aggregate principal amount of $5,318 due on March 30, 2010 with an interest rate of 12.0% per annum. As of June 30, 2012, we owed $5,318 in principal and $1,436 in interest. We did not make our scheduled payment on March 30, 2010. 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.

 

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. During the six months ended June 30, 2012, we have entered into agreements to convert $30,625 of debt into 35,267 shares of common stock valued at $141,071.

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 high. We principally intend to raise funds through the sale of equity or debt securities. The more recent price and volume volatility in our 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.

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 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.

 

 

 

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Under the supervision and with the participation of our management, including our Chief Executive Officer ("CEO"), who is also our Principal Accounting Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of a date as of the end of the period covered by this Quarterly Report.

 

Based on such evaluation, our Chief Executive Officer and Principal Accounting Officer concluded that, as of the end of such period, our disclosure controls and procedures are not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

 

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There have been no changes in our internal control over financial reporting during the last fiscal quarter 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 disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) could be significant and still we may not achieve significant improvements in our disclosure 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 effect on the trading price of our common stock.

 

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PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

As previously reported in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, on November 1, 2010 the accounting firm of A.J. Robbins, P.C. filed a lawsuit in the District Court, City and County of Denver, Colorado, seeking recovery of fees allegedly owed for accounting services performed during 2004 to 2008. The claims have been asserted against the Company, a second corporate defendant, and our CEO, as a result of a personal guarantee. On December 15, 2010, Defendants filed an Answer which asserted several defenses. The parties exchanged initial disclosures, and the matter was set for trial commencing on December 5, 2011. On August 3, 2011 the parties entered into a settlement agreement whereby the Defendants in the case will jointly pay $85,000 to the plaintiffs and the Company will issue $45,000 of the Company’s stock to the plaintiffs. The Company was responsible to pay 50% of the cash payments, the other 50% of which was the responsibility of a second defendant. The cash payments were scheduled to be made in equal monthly payments over 7 months commencing on August 31, 2011. In consideration of the settlement, the parties have executed a mutual release and have agreed to withdraw the lawsuit. The releases and withdrawal are contingent upon the Company's full performance of the settlement agreement terms. The Company issued stock with a fair market value of $36,000 on the date of the agreement in full payment of the stock portion of the settlement agreement. As of August 16, 2012, out of the cash payments that the Company was responsible for under the settlement agreement, $8,520.82 is still owed and unpaid. This balance due is for part of the February 28, 2012 payment. Plaintiff has the right to get a judgment for $175,000 minus the payments that were made, if we fail to perform under the terms of the settlement agreement and if they serve us with a notice of default, which they have not.

 

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

 

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

 

There were not issuances to report under this item.

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

We have defaulted upon the following senior securities:

 

·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. As of August 20, 2012, we have $636,725 accrued for including interest relating to this matter.

 

·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 August 20, 2012, 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 August 20, 2012, we owed $117,912 in interest on this note.

 

22
 

 

·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 August 20, 2012, 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 August 20, 2012, we owed $34,709 in interest on this note.

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

We have no disclosure applicable to this item.

 

 

ITEM 5. OTHER INFORMATION

 

(a)We have no disclosure applicable to this item.

 

(b)There were no changes to the procedures by which security holders may recommend nominees to our board of directors.

 

 

ITEM 6. EXHIBITS

 

Exhibit List

 

Exhibit Number Description
3.1 Articles of Incorporation of Universal Detection Technology, as amended *
3.2 Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.4 to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2001, filed on April 15, 2002).
4.1 Amended and Restated 2003 Stock Incentive Plan (incorporated by reference to Exhibit 4.1 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004, filed on March 31, 2005).
4.2 2006 Stock Compensation Plan (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement (File No. 333-131783) filed on February 13, 2006).
4.3 2006 Consultant Stock Plan (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement (File No. 333-135507) filed on June 30, 2006).
4.4 2006-II Consultant Stock Plan (incorporated by reference to Exhibit 4.1 to the Company's Form S-8 Registration Statement (File No. 333-138923) filed on November 22, 2006).
4.5 2007 Consultant Stock Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-142158) filed on April 17, 2007).
4.6 2007 Equity Incentive Plan (effective May 30, 2007) (incorporated by reference to the Company’s Form S-8 Registration Statement filed on June 6, 2007).

 

 

23
 

 

4.7 2007 Equity Incentive Plan (effective June 21, 2007) (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-144084) filed on June 27, 2007).
4.8 2007-2 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-144583) filed on July 13, 2007).
4.9 2007-3 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-146438) filed on October 2, 2007).
4.10 2007-4 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-147097) filed on November 2, 2007).
4.11 2008 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-149169) filed on February 11, 2008).
4.12 2008 Equity Incentive Plan II (incorporated by reference to Exhibit 4.1 to the Company’s Post-Effective Amendment No. 1 to Form S-8 Registration Statement (File No. 333-150400) filed on May 27, 2008).
4.13 2008 Equity Incentive Plan III (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-152297) filed on July 11, 2008).
4.14 2008 Equity Incentive Plan IV (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-153371) filed on September 8, 2008).
4.15 2009 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-157461) filed on February 23, 2009).
4.16 2009 Equity Incentive Plan II (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-159289) filed on May 15, 2009).
4.17 2009 Equity Incentive Plan III (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-162963) filed on November 6, 2009).
4.18 2011 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-174010) filed on May 6, 2011).
4.19 2011 Equity Incentive Plan II (incorporated by reference to Exhibit 4 to the Company’s Form S-8 Registration Statement (File No. 333-177555) filed on October 27, 2011).
10.1 Form of Note Conversion Agreement*
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101 Interactive Data Files
 101.INS  XBRL Instance document**
 101.SCH  XBRL Schema**
 101.CAL  XBRL Calculation Linkbase**
 101.DEF   XBRL Definition Linkbase**
 101.LAB   XBRL Label Linkbase**
 101.PRE   XBRL Presentation Linkbase**

 

* Filed herewith.

 

** Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30-day grace period granted for the first quarterly period in which detailed footnote tagging is required.

 

 

24
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Dated: August 20, 2012  

UNIVERSAL DETECTION TECHNOLOGY 

 

 

/s/ Jacques Tizabi  

Jacques Tizabi,

President, Chief Executive Officer (Principal
Executive Officer), and Acting Chief Financial
Officer (Acting Principal Financial Officer)

 

 

25

 

PINX:UNDT Universal Detection Technology Quarterly Report 10-Q Filling

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