- Quarterly Report (10-Q)

Date : 11/19/2010 @ 8:56PM
Source : Edgar (US Regulatory)
Stock : (UNDT)
Quote : 0.0031  0.0 (0.00%) @ 12:00AM

- Quarterly Report (10-Q)



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:   September 30, 2010
 
OR
 
o
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 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) 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 o
 
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  o   No o
 
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 o Accelerated filer o Non-accelerated filer o Smaller reporting company x
     
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o   No x
 
Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: As of November 15, 2010, there were 1,907,781,837 shares of common stock outstanding.


 
 
 
 
 
FORM 10-Q
 
INDEX

     
Page No.
PART I.
Financial Information
3
       
 
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
15
       
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
       
 
Item 4.
Controls and Procedures
22
       
PART II.
Other Information
23
       
 
Item 1.
Legal Proceedings
23
       
 
Item 1A
Risk Factors
24
       
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
24
       
 
Item 3.
Defaults Upon Senior Securities
24
       
 
Item 4.
Removed and Reserved
25
       
 
Item 5.
Other Information
25
       
 
Item 6.
Exhibits
25
       
SIGNATURES
  26
   
 
2

 
 
PART I
FINANCIAL INFORMATION
     
ITEM 1.    FINANCIAL STATEMENTS
  
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
  
   
September 30, 2010
   
December 31, 2009
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 1,506     $ 1,367  
Accounts Receivable,net
    5,119       3,626  
Inventory
    939       4,117  
Prepaid expenses
    8,295       7,678  
                 
Total current assets
    15,859       16,788  
                 
Deposits
    21,300       21,300  
Equipment, net
    8,013       13,376  
                 
Total assets
  $ 45,172     $ 51,464  
                 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
                 
CURRENT LIABILITIES:
               
Accounts payable, trade
  $ 1,101,931     $ 1,035,204  
Accrued liabilities
    656,101       547,502  
Accrued payroll - officers
    696,588       548,126  
Notes payable - related party
    267,347       64,612  
Notes payable
    1,041,465       888,843  
Accrued interest expense
    715,973       629,149  
                 
Total current liabilities
    4,479,405       3,713,436  
                 
Long term notes payable
    -       354,826  
                 
Total liabilities
    4,479,405       4,068,262  
                 
COMMITMENTS AND CONTINGENCIES
               
                 
STOCKHOLDERS' DEFICIT:
               
Preferred stock, $.01 par value, 20,000,000 shares authorized, -0- issued and outstanding
    -       -  
Common stock, no par value,200,000,000 shares authorized, 1,635,239,225  and 1,020,051,351 shares issued and outstanding as of September 30, 2010 and December 31, 2009, respectively
    35,183,116       33,907,469  
Deferred Consulting Cost
    (29,333 )     -  
Additional paid-in-capital
    5,313,089       5,313,089  
Accumulated deficit
    (44,901,105 )     (43,237,356 )
                 
Total stockholders' deficit
    (4,434,233 )     (4,016,798 )
                 
Total liabilities and stockholders' deficit
  $ 45,172     $ 51,464  
   
See accompanying notes to the unaudited consolidated financial statements.
   
 
3

 
 
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
  
   
2010
   
2009
 
             
REVENUE, NET
  $ 1,821     $ 4,415  
COST OF GOODS SOLD
    1,457       9,576  
                 
GROSS PROFIT
    364       (5,161 )
                 
OPERATING EXPENSES:
               
Selling, general and administrative
    317,845       554,895  
Marketing
    42,044       907,368  
Depreciation and amortization
    2,707       4,764  
                 
Total expenses
    362,596       1,467,027  
                 
LOSS FROM OPERATIONS
    (362,232 )     (1,472,188 )
                 
OTHER INCOME (EXPENSE):
               
Interest income (expense)
    (39,549 )     (12,275 )
Other income
    3,750       -  
Loss on settlement of debt
    (54,678 )     (1,058,889 )
                 
Total other expenses
    (90,477 )     (1,071,164 )
                 
NET LOSS
    (452,709 )   $ (2,543,352 )
                 
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:
    (0.00 )   $ (0.00 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    1,483,372,687       614,930,050  
   
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 financial statements.
     
 
4

 
 
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
   
   
2010
   
2009
 
             
REVENUE, NET
  $ 4,878     $ 19,897  
COST OF GOODS SOLD
    3,607       11,444  
                 
GROSS PROFIT
    1,271       8,453  
                 
OPERATING EXPENSES:
               
Selling, general and administrative
    909,765       1,030,087  
Marketing
    103,040       962,293  
Depreciation and amortization
    8,375       19,831  
                 
Total expenses
    1,021,180       2,012,211  
                 
LOSS FROM OPERATIONS
    (1,019,909 )     (2,003,758 )
                 
OTHER INCOME (EXPENSE):
               
Interest income (expense)
    (121,685 )     (89,544 )
Other income
    11,250       -  
Loss on settlement of debt
    (533,405 )     (1,486,130 )
                 
Total other expenses
    (643,840 )     (1,575,674 )
                 
NET LOSS
  $ (1,663,749 )   $ (3,579,432 )
                 
NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:
  $ (0.00 )   $ (0.01 )
                 
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
    1,305,048,817       310,572,145  
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 financial statements.
    
 
5

 
     
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED)
  
   
2010
   
2009
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (1,663,749 )   $ (3,579,432 )
Adjustments to reconcile net loss to net cash used in operations:
         
Stocks issued for services
    356,195       1,692,124  
Loss on settlement of debt
    533,405       1,486,130  
Depreciation
    8,375       19,831  
Changes in operating assets and liabilities:
               
Inventory
    3,178       -  
Accounts receivable
    (1,493 )     (2,569 )
Prepaid expenses
    (617 )     622  
Deposits
    -       (11,074 )
Accounts payable and accrued liabilities
    430,582       (172,133 )
                 
Net cash used in operating activities
    (334,124 )     (566,501 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of equipment
    (3,012 )     -  
Decrease (increase) in restricted cash
    -       10,477  
                 
Net cash (used) provided by investing activities
    (3,012 )     10,477  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from notes payable-related party
    241,901       103,645  
Proceeds from notes payable
    112,000       509,716  
Payments on notes payable - related party
    (16,626 )     (49,116 )
                 
Net cash provided by financing activities
    337,275       564,245  
                 
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    139       8,221  
                 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    1,367       1,910  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 1,506     $ 10,131  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 
                 
Income tax
  $ -     $ -  
Interest Paid
  $ 526     $ -  
                 
SUPPLEMENTAL DISCLOSURES FOR NON CASH INVESTING AND
 
FINANCING ACTIVITIES:
               
                 
Shares issued for settlement of debt and accrued interest
  $ 890,118     $ 2,522,205  
Shares issued for prepaid expenses
  $ 88,000     $ -  
   
See accompanying notes to unaudited consolidated financial statements.
   
 
6

 
  
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
   
NOTE 1 - BASIS OF PRESENTATION
 
The accompanying unaudited consolidated financial statements have been prepared by Universal Detection Technology, 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 for the year ended December 31, 2009. The results of the three and nine months ended September 30, 2010, are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
GOING CONCERN
 
As of September 30, 2010, the Company had a working capital deficit of $4,463,546 and an accumulated deficit of $44,901,105. The Company incurred a net loss of $1,663,749 for the nine month period ended September 30, 2010.  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 nine months of 2010, the Company sold detection kits under various purchase agreements and had consulting revenue for $4,878. The Company also entered into various agreements to issue 419,837,761 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 $890,118.
   
 
7

 
 
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
  
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 ASC 605 (previously 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 collectability 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 collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
   
RECENT ACCOUNTING PRONOUNCEMENTS
  
In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”.  This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.
  
 
8

 
  
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
  
NOTE 3 - NOTES PAYABLE

During the first quarter of 2010, the Company borrowed an aggregate of $53,000 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 May 4, 2010.  No interest or principal payments have been made on the notes.
 
During the second quarter of 2010, the Company borrowed an aggregate of $66,000 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 May 12, 2011.  No principal or interest payments have been made on these notes.
 
As of September 30, 2010, the Company had total notes payable of $1,041,465. As of December 31, 2009, the Company had total notes payable of $1,243,669, out of which $888,843 was current and $354,826 was long term.
 
The interest expense on these notes payable for the nine months ended September 30, 2010 and 2009 was $121,687 and $89,557, respectively.
  
NOTE 4 - COMMITMENTS AND CONTINGENCIES
 
The Company was involved in the following litigations:
 
a)
A. Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection Technology, aka 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 September 30, 2010 and December 31, 2009, the Company has accrued $546,466 and $507,995 respectively for this settlement including principal and interest.
  
 
9

 

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
   
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. As of September 30, 2010, $28,098 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.
 
d)
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. Although the Company disagrees with the various assertions made by Cal Tech in the letter the Company has determined not to pursue litigation and has accepted the termination of the Cal Tech license agreement. Cal Tech has not communicated with the Company since June 4, 2009 and has not asserted any further claims. To date, no further action has been taken. The Company will seek to identify and develop replacement technologies. There can be no assurances that such efforts will produce suitable technologies for the Company's use.
  
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
September 30, 2010
   
NOTE 5 - STOCKHOLDERS’ EQUITY
 
During the nine month period ended September 30, 2010, the Company issued an aggregate of 125,199,788 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 $230,919.
 
During the nine month period ended September 30, 2010, the Company issued 70,150,325 shares of common stock as payment for consulting or other professional fees for an aggregate amount of $154,612.
 
During the nine month period ended September 30, 2010, the Company entered various agreements to convert $329,477 of debt and accrued interest into 419,837,761 shares of common stock.  The fair market value of the stock on the date of agreement and issuances was $890,118.  The company recorded a loss on settlement of debt of $533,405.
 
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.  No options or warrants have been issued for the nine months ended September 30, 2010.
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 300,000,000 shares of its common stock for awards to be made under the Plan. 299,991,072 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 330,000,000 shares of its common stock for awards to be made under the Plan. 326,854,165 of the shares reserved under this plan have been issued.
 
11

 

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
  
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.  59,605,412 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 200,000,000 shares of its common stock for awards to be made under the Plan.  159,350,113 of the shares under this plan have been issued.
  
 
12

 

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
  September 30, 2010
 
Warrants:
 
There were no warrants granted during the nine month period ended September 30, 2010.
 
Common stock purchase options and warrants consisted of the following as of September 30, 2010:
         
Weighted Average
   
Weighted
   
Aggregated
 
         
Exercise
   
Average
   
Intrinsic
 
   
# shares
   
Price
   
Remaining Life
   
Value
 
Options:
                       
Outstanding and exercisable, December 31, 2009
    539,750     $ 6.65       1.39     $ -  
Granted
    -                       -  
Exercised
    -                       -  
Expired
    -                       -  
Outstanding and exercisable, June 30, 2010
    539,750     $ 6.65       0.64     $ -  
                                 
Warrants:
                               
Outstanding and exercisable, December 31, 2009
    -       N/A             $ -  
Granted
    -                       -  
Exercised
    -                       -  
Expired
    -                       -  
Outstanding and exercisable, June 30, 2010
    -       N/A             $ -  
  
Options:
 
The Company adopted ASC 718 (previously SFAS No. 123-R) effective July 1, 2006 using the modified prospective method. Under this transition method, stock compensation expense recognized in the nine months ended September 30, 2010, includes compensation expense for all stock-based compensation awards vested during the nine months ended September 30, 2010, 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 ASC 718, no expense has been recorded during the nine month period ended September 30, 2010.
 
Methods of estimating fair value
 
Under ASC 718 (previously SFAS No. 123-R), the fair value of stock options is determined using the Black-Scholes model. 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
  September 30, 2010
   
ASC 718 (previously 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 6 - RELATED PARTY TRANSACTIONS
 
During the nine months ended September 30, 2010, the Company repaid $16,626 in principal and $526 interest payments under various promissory note agreements to its president and CEO.  During the nine months ended September 30, 2010, the Company borrowed an aggregate of $241,901 in principal with interest rates of 12.0% from it president and CEO.
 
NOTE 7 - SUBSEQUENT EVENTS
 
During October and November 2010, the Company issued 20,071,895 shares of its common stock as partial payment to certain consultants and for payment of professional fees for an aggregate price of $17,365.
 
During October and November 2010, the Company entered in various agreements to convert outstanding debt to 151,397,093 shares of common stock valued at approximately $128,157.
  
 
14

 
   
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 have been engaged in the research, development, marketing and sales of bioterrorism detection devices. Our strategy is to identify qualified strategic partners with whom to collaborate in order to develop, market, and sell commercially viable detection devices for chemical, biological and radiological threats. Consistent with this strategy, 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. The device was designed to detect an increase in the concentration of bacterial spores, which is indicative of a potential presence of Anthrax. On June 23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the Company asserting certain breaches by the Company of the License Agreement between Cal Tech and the Company. Prior to the June 23, 2009 letter, Cal Tech had sent UDT notices that UDT was in monetary breach of the license agreement between UDT and Cal Tech. The Company disagreed with the various assertions made by Cal Tech in the letter, including that the license had been terminated, and requested that Cal Tech submit to arbitration all matters in dispute.

On, September 30, 2010, the Company decided not to go through arbitration and to accept the termination of the Cal Tech license. This was due in part to the Company's decision to seek other spore detection technologies to be used in the BSM-2000, which would make the Cal Tech license unnecessary. The Company is in talks with other parties to develop and incorporate more cost efficient methods of detecting bacterial spores. Under the method with the Cal Tech license, spore detection involved lysing spores and measuring luminescence which the company feels would add to the cost of the systems and would not be feasible for the end user. As of November 15, 2010 we are no longer reliant on the license with Cal Tech, or with JPL, and are not using either entity's technology in our development process.
  
 
15

 
   
As such, we are continuing our efforts to further develop a bacterial spore monitor or to seek and find third parties interested in collaborating on further research and development on our bacterial spore detector. Through extensive field testing and customer feedback we concluded that the method used in BSM-2000 for bacterial spore detection through lysing the spore and measuring the luminescence of the DPA-Terbium complex through a spectrometer was cost prohibitive. We are exploring alternative technologies in the bacterial spore detection field that we can license and use to develop into a rapid airborne anthrax detection system, which we believe we can market at a lower cost. There can be no assurances that we will develop such technologies, or establish viable partnerships to do so, or that any technologies developed with be commercialized or result in revenues.

Through partnerships with various third parties we supply bioterrorism detection kits, capable of detecting anthrax, ricin, botulinum, plague, and SEBs, radiation detection systems, chemical detection equipment, industrial chemical detection devices, and counter-terrorism training references.

General and Administrative Expenses; Selling Expenses

During the three months ended September 30, 2010 we spent an aggregate of $359,889 on selling, general and administrative expenses, research and development expenses and marketing expenses. This amount represents a 75.4% decrease over the comparable prior year period. The decrease is principally attributable to a decrease in compensation expenses and marketing fees.

During the nine months ended September 30, 2010 we spent an aggregate of $1,012,805 on selling, general and administrative expenses, research and development expenses and marketing expenses.  This amount represents a 49.2% decrease over the comparable prior year period.  The decrease is principally attributable to a decrease in compensation expenses and marketing expenses.
 
Working Capital Deficit
 
Our working capital deficit at September 30, 2010, was $4,463,546.  Our independent auditors' report, dated April 12, 2010 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, 2009. We will require approximately $2 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 September 30, 2010 Compared to the Three Months Ended September 30, 2009.

Revenue.   Total revenue for the three months ended September 30, 2010 was $ 1,821, as compared to revenue of $4,415 for the same period in the prior fiscal year, a decrease of $2,594. The decrease is primarily due to a decreased number of detection unit sales.

Operating Expenses. Total operating expenses for the three months ended September 30, 2010 were $362,596  representing a decrease of $1,104,431. Total selling, general and administrative expenses for the three months ended September 30, 2010 were $317,845 representing an decrease of $237,050 (42.7%) as compared to the same period in the prior fiscal year. These decreases are principally attributable to a decrease in marketing fees and in stock based compensation.
 
16

 
   
Other income(expense). Other income (expense) amounted to ($90,477) for the three months ended September 30, 2010 as compared to ($1,071,164) for the corresponding period of the prior year.  The decrease is principally related the loss recognized on the settlement of shares issued for debt.

Net loss.   Net loss for the three months ended September 30, 2010 was $452,709, as compared to a net loss of $2,543,352 for the same period in the prior fiscal year, representing a decrease of $2,090,643.  The primary reasons for this are a decrease in stock based compensation, marketing fees and loss recognized on the settlement of shares issued for debt.

Nine Months Ended September 30, 2010 Compared to the Nine Months Ended September 30, 2009.

Revenue.   Total revenue for the nine months ended September 30, 2010 was $4,878, as compared to revenue of $19,897 for the same period in the prior fiscal year, a decrease of $15,019. The decrease is primarily due to a reduced number of detection unit sales.

Operating Expenses. Total operating expenses for the nine months ended September 30, 2010 were $1,021,180  representing a decrease of $991,031.  Total selling, general and administrative expenses for the nine months ended September 30, 2010 were $909,765 representing a decrease of $120,322 (12%) as compared to the same period in the prior fiscal year. These decreases are principally attributable to a decrease in stock based compensation and marketing expense.

Other income(expense). Other income (expense) amounted to ($643,840) for the nine months ended September 30, 2010 as compared to ($1,575,674) for the corresponding period of the prior year.  The decrease is principally related to the loss recognized on the settlement of shares issued for debt.

Net loss.   Net loss for the nine months ended September 30, 2010 was $1,663,749, as compared to a net loss of $3,579,432 for the same period in the prior fiscal year, representing a decrease of $1,915,683.  The primary reasons for this are decreases in stock based compensation, in marketing expense and in loss recognized on the settlement of shares issued for debt.
  
LIQUITY AND CAPITAL RESOURCES

We require approximately $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 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 uses of our available capital during the next 12 months principally will be 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.
   
 
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Our working capital deficit at September 30, 2010 was $4,463,546.  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, 2009.  We require approximately $2 million to repay indebtedness including interest in the next 12 months.

The following provides principal terms of our outstanding debt as of September 30, 2010:
 
 
·
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 September 30, 2010, we have $546,466 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 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 September 30, 2010, there was $161,000 principal amount (and $92,519 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.

 
·
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 September 30, 2010, 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.

 
·
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 September 30, 2010, we owed $55,500 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.

 
·
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 September 30, 2010, we owed $625 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.

 
·
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 September 30, 2010, we owed $4,000 in principal and $840 in interest.  We did not make our scheduled payment on January 9, 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.

 
·
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 September 30, 2010, we owed $8,000 in principal and $1,680 in interest.  We did not make our scheduled payment on January 13, 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.
 
 
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·
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 September 30, 2010, we owed $5,000 in principal and $1,050 in interest.  We did not make our scheduled payment on January 16, 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.

 
·
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 September 30, 2010, we paid off the remaining balance.

 
·
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 September 30, 2010, we owed $13,000 in principal and $2,600 in interest.  We did not make our scheduled payment on February 11, 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.

 
·
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 September 30, 2010, we owed $12,000 in principal and $2,280 in interest.  We did not make our scheduled payment on February 20, 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.

 
·
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 September 30, 2010, we owed $17,000 in principal and $3,400 in interest.  We did not make our scheduled payment on February 11, 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.

 
·
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 September 30, 2010, we owed $9,940 in principal and $1,789 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.

 
·
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 September 30, 2010, we owed $1,638 in principal and $295 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.

 
·
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 September 30, 2010, we owed $1,420 in principal and $256 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.

 
·
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 September 30, 2010, we owed $12,500 in principal and $2,188 in interest.

 
·
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 September 30, 2010, we owed $4,475 in principal and $761 in interest.
 
   
 
19

 
 
 
·
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 September 30, 2010, we owed $9,000 in principal and $1,530 in interest.

 
·
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 September 30, 2010, we owed $2,500 in principal and $5,675 in interest.

 
·
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 September 30, 2010, we owed $13,677 in principal and $2,120 in interest.

 
·
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 September 30, 2010, we owed $18,940 in principal and $3,030 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on August 24, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $30,000 in principal and $3,300 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on September 10, 2011 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $40,000 in principal and $5,063 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $10,000 due on September 15, 2011 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $10,000 in principal and $1,250 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $29,920 due on August 12, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $29,920 in principal and $4,039 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $25,940 due on July 23, 2011 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $25,940 in principal and $3,632 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $45,000 due on November 2, 2009 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $45,000 in principal and $5,400 in interest.  We did not make our scheduled payment on November 2, 2009.  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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $20,000 due on October 15, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $20,000 in principal and $2,300 in interest.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on November 27, 2009 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $50,000 in principal and $5,500 in interest.  We did not make our scheduled payment on November 27, 2009.  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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $90,000 due on December 23, 2009 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $90,000 in principal and $9,000 in interest.  We did not make our scheduled payment on December 23, 2009.  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.
 
 
    
 
20

 
   
 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $25,000 due on January 16, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $25,000 in principal and $2,375 in interest.  We did not make our scheduled payment on January 16, 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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $23,000 due on May 4, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $23,000 in principal and $1,840 in interest.  We did not make our scheduled payment on May 4, 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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on March 26, 2010 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $30,000 in principal and $2,100 in interest.  We did not make our scheduled payment on March 26,2010.  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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $31,000 due on May 17, 2010 with a late charge of 15% per annum.  As of September 30, 2010, we owed $24,000 in principal and $4,650 in late charge.  We did not make our scheduled payment on May 17, 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.

 
·
One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $35,000 due on May 12, 2011 with an interest rate of 12.0% per annum.  As of September 30, 2010, we owed $35,000 in principal and $1,400 in interest.
 
 
·
Various loans from the Company’s President & CEO evidenced by verbal and written promissory notes in the aggregate principal amount of $267,347 due on demand with interest rates between 0% and 12% per annum.  As of September 30, 2010, we owed $267,347 in principal and $451 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. During the nine months ending September 2010, we have entered into agreements to convert 419,837,761 shares of common stock valued at $890,118.

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 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.

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 DISCOLSOURES ABOUT MARKET RISK.

Not Applicable

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 (the "Evaluation 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 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.
  
 
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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 September 30, 2010, we have accrued $546,466  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.  As of September 30, 2010, $28,098 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. No payments have been made on this Judgment and no actions to enforce the Judgment have been taken against UDT.
 
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 was also asserting its right to terminate the License Agreement effective June 4, 2009. Prior to the June 23, 2009 letter, Cal Tech had sent notices that UDT was in monetary breach of the license agreement between UDT and Cal Tech. Although the Company disagrees with the various assertions made by Cal Tech in the letter the Company has determined not to pursue litigation and has accepted the termination of the Cal Tech license agreement. Cal Tech has not communicated with the Company since June 4, 2009 and has not asserted any further claims. To date, no further action has been taken. The Company will seek to identify and develop replacement technologies. There can be no assurances that such efforts will produce suitable technologies for the Company's use.
 
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.  UDT disputes Meyer's claims including the asserted damages. UDT intends to defend the action.
   
 
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On November 1, 2010, Plaintiff AJ Robbins, P.C. commenced an action in the District Court, City and County of Denver, Colorado. Plaintiff is seeking $162,587.73 for accounting services performed in 2005, 2006, 2007, 2008. The Company disputes this amount. AJ Robbins, P.C. was the Company's former auditor.

Under Colorado Law, an answer to the complaint is due by December 1. The Company has retained Counsel in Denver Colorado and plans to vigorously defend itself in this action. Counsel has obtained an extension until December 15,2010 to file an answer. Such answer is being prepared by Counsel at this time and the Company plans to the answer before December 15. This case is the preliminary stages.  No discovery has commenced, and no trial date has been set.
 
ITEM 1A.    RISK FACTORS
 
Not Applicable.
 
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
During the third quarter of 2010, 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:
  
 
During the three months ended September 30, 2010, we entered into agreements to issue 142,260,000 shares of common stock to various notes holders to convert outstanding debt obligations valued at approximately $128,808 as follows :

 
On August 25, 2010, we issued 67,260,000 shares of common stock to convert outstanding obligations valued at $53,808.  The price per share of the conversion was $0.0008.
 
On September 13, 2010, we issued 75,000,000 shares of common stock to convert outstanding obligations valued at $75,000.  The price per share of the conversion was $0.001.

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 September 30, 2010, we have $546,466 accrued for including interest relating to this matter.
  
 
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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 September 30, 2010, 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 September 30, 2010, we owed $92,519 in interest on this note.
 
 
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 September 30, 2010, 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 September 30, 2010, we owed $34,709 in interest on this note.
  
ITEM 4.    REMOVED AND RESERVED.

 
ITEM 5.    OTHER INFORMATION.

 
ITEM 6.    EXHIBITS.

Exhibit List

Exhibit Number
 
Description
10.1  
Form of Note Conversion Agreement
31  
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith
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.
   
 
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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.

  UNIVERSAL DETECTION TECHNOLOGY  
       
Dated: November 19, 2010
By:
/s/ Jacques Tizabi  
   
Jacques Tizabi,
President, Chief Executive Officer (Principal Executive Officer),
and Acting Chief Financial Officer (Acting Principal Financial Officer)
 

   
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