ITEM 1. DESCRIPTION OF BUSINESS
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 four 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.
In 2010 we realized revenues of $5,368 from sales. We have incurred losses for the fiscal years ended December 31, 2010 and 2009 in the approximate amounts of $2.2 and$4.6 million, respectively, and have an accumulated deficit of $45.4 million as of December 31, 2010. At December 31, 2010, we were in default on certain debt obligations totaling approximately $428,240, in addition to accumulated interest of approximately $652,920. We require approximately $1.2million 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 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.
INDUSTRY BACKGROUND
The tragic events of September 11, 2001 redefined a new age of public safety and security, not only for the United States, but also for the entire world. In the wake of the tragedy, the world was shocked to learn of another nontraditional, deadly asymmetric weapon was being deployed: lethal bioagents. A week after 9/11, envelopes containing anthrax, delivered by the U.S. Postal Service, were sent to five news media outlets, and on October 9th, two U.S. Senate offices.
By November 2001, 22 people in four states and the District of Columbia contracted anthrax, many of them through the tainting of letters via the postal sorting machines. In all, the bioterrorism attacks claimed six lives.
The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism, led by an independent U.S. congressional committee, asserts that a large scale biological attack, expected to hit somewhere in the world by the end of 2013, has yet to be seen.
Along with the grave predictions in the December 2008 report, World at Risk, the Commission listed recommendations on how the government can reduce the risk of a biological attack. In January 2010, the commission issued a report card following up on those recommendations. For its efforts to “enhance the nation’s capabilities for rapid response to prevent biological attacks from inflicting mass casualties,” the government received an “F” letter grade.
The United States Department of Homeland Security was formed to consolidate the federal government's efforts to secure the U.S. homeland, with the primary goal being an America that is stronger, safer, and more secure. The private sector also has responded to the need for preparedness against bioterrorism by developing numerous anti-terror products and services. As a result a market for anti-terror products and counter-attack products in the bioagent, nuclear, physical and radiological spheres has developed and continues to expand.
OUR SOLUTIONS
Universal Detection Technology is a supplier of equipment and services used for detection of:
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Chemical threats
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Biological threats
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Radiological and Nuclear threats
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Explosives
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Mold
The chemical detection kits offered by Universal Detection Technology serve to equip first responders and military personnel with tools that rapidly identify the presence of a chemical agent threat, such as extreme levels of acidity or basicity, chlorine/fluoride, hydrogen sulfide and sulfur dioxide. Designed for use in the field for first responders or military personnel, the "Chameleon" detection system offers hands-free detection for harmful chemical agents and eliminates the need for a liquid sample. Users wear a portable chemical detection kit on their forearm. Each armband has a cassette holder containing up to ten (10) small cassettes, each of which can detect a unique chemical agent and identify its presence through a clear color-changing indicator. The Chameleon armband is fully functioning in extreme temperatures (-30 C to 50 C or -22 F to 122 F), and can operate while fully immersed in water. The Chameleon armband is a hand-held chemical detection device which we market and sell to first responders. We purchase and distribute the Chameleon device from Morphix Technologies under an open-ended supply and distribution agreement. To date, we have sold a nominal number of such units resulting in insignificant revenue amounts. We have no exclusive rights under the distribution agreement and the agreement may be terminated upon 30 days prior notice by either party, or immediately upon a breach of the agreement. Under the terms of the Agreement, we are permitted to sell these products within the United States only.
The Company’s biological detection equipment gives first responders the ability to immediately identify the presence of deadly agents in a sample. These biological detection kits are handheld assays capable of detecting anthrax, ricin toxin, botulinum, plague, SEBs, and tularemia. The Company is in the process of adding more biological agents to the list of the threats that these handheld kits can identify. The detection kits are sold as TS-10-5, TS-10-T-5, ANT-12, RIC-12, BOT-12, PLA-12, SEB-12, TUL-12. We purchase and distribute these kits from Advnt Biotechnologies, LLC under a one year VAR and distribution agreement. During 2010, we have sold approximately 80 of such units. A majority of our revenues in 2010 were derived from the sales of these units. We have no exclusive rights under the distribution agreement. The agreement may be terminated by either party upon 60 days prior notice by either party or immediately upon a breach of the agreement. Under the terms of the agreement, we are permitted to sell these products throughout the world with no geographic restrictions.
In February 2011, The Company entered into a reseller agreement with Mirion Technologies Inc. Through the agreement, the Company offers nuclear detection and monitoring devices created and made by Mirion that include electronic dosimetry and teledosimetry devices. We have no exclusive rights under the distribution agreement. Under the terms of the original agreement, we are permitted to sell these products in the United States only. However, we have amended the agreement via various items of correspondence with Mirion such that we can sell these products in other parts of the world, including Japan. In addition to electronic dosimetry and teledosimetry, other best-in-breed solutions include contamination and clearance applications, personnel and vehicle/cargo gateway monitors and portable survey meters. The Company, under its agreement with Mirion, also provides innovative passive dosimetry systems for measurement of cumulative radiation exposures. Radiation detection product lines include:
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Active Dosimetry, Teledosimetry and Portable Instruments
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Contamination and Clearance
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Passive Dosimetry Systems
UDT’s Mold detection kit utilizes a highly accurate testing technology called immunochromatographic assay, also known as a rapid test or Hand-Held Assay (HHA). These devices have been used for over 30 years in the medical field for detecting disease, fertility, drugs of abuse and respiratory disorders. Designed to rapidly detect the presence of specific substances in field-collected samples, HHA’s have proven to be an indispensable tool for saving countless lives while reducing the time it takes to acquire results. Unlike the ATP test which detects any and all living cells, regardless of what those cells are, UDT’s kits detect only specific species of Aspergillus, Penicillium and Stachybotrys such as Stachybotrys chlorohalonata, Stachybotrys microspora, Stachybotrys echinata and Stachybotrys chartarum, in addition to certain Aspergillus and Penicillium sub-species. Each kit is individually packaged and includes everything necessary to run the test. No additional collection kits, readers or electronics are required. The Mold detection kit is sold as the MDK-2. We purchase and distribute MDK-2 from Advnt Biotechnologies LLC under the agreement described above. During 2010, we did not sell any MDK-2 units.
Universal Detection Technology has also situated itself to provide various counter-terrorism services. Such services include training courses for first responders, event security, threat evaluation & consulting, and DVDs aimed at providing information and training regarding combating terrorism and managing emergency situations. Through a reseller agreement with Detrick Lawrence Corporation and its division, the Emergency Film Group, we market and sell a series of DVD’s related to combating terrorism and handling emergency situations and first response. To date, we have sold only a nominal amount of these services and products and the resulting revenue for 2010 was insignificant.
MARKETING AND SALES
Our sales and marketing plan includes strategic partnership agreements and retention of our in-house staff and outside consultants. The Company has retained the services of consultants to market its products in the United States and internationally. In the United States, we plan to continue presenting our technologies at industry events and trade shows. We also retain domestic distributors and consultants to arrange meetings with and presentations to building owners and operators, government officials in charge of decisions for safety and security of government and private venues and buildings, homeland security officials, and security companies. In 2010 we continued to aggressively use the internet to market and promote Universal Detection Technology and its products and services to the public. This strategy includes creation of an interactive and informational presence through our website and use of various third parties to bring traffic to our website. We have hired an outside consultant to help expedite the changes and enhancements to our website. We have been successful in generating traffic to the Universal Detection website. We intend to do more internet marketing and search engine optimization activities in 2011.
We also plan to develop brand recognition for our Company and for our product through attendance at national and international defense related exhibitions, use of print and video promotional materials, and by granting interviews to national and international news media.
In October 2010, we registered as supplier in Raytheon Corporation's supplier network database. That registration allows us to post, in that database, a selection of the products we are authorized to resell. To date, we have generated no purchase orders from this data base registration and we can make no assurance that any sales will be generated through this database listing.
In September of 2010, we sold approximately $2,000 of biological weapons detection kits and training test kits to Boeing Corporation under a stand-alone purchase order. The order was for 10 training test kits and 20 five-agent biological weapons detection kits. To date, Boeing has not ordered any other product form us and we can make no assurances that Boeing will ever order additional product from us in the future.
We currently sell and plan to sell our products through a combination of unsolicited telephone orders, electronically generated sales via our website and in follow up to customer meetings or tradeshows.
MANUFACTURING
Currently, we do not have any manufacturing capabilities. In the past we have used original equipment manufacturers to manufacture our products. In addition to our own brands we also market third party brands that are related to our field of business. We are not obligated to continue to work with any of our current suppliers. As such, we may choose to work with other suppliers in the future. Should any of our supply and distribution agreements be terminated, we believe we can source adequate replacement supply parties and products without causing any material disruption to our business.
EMPLOYEES
As of December 31, 2010, we had a total of three employees. We also employ outside consultants from time to time to provide various services. None of our employees are represented by a labor union. We consider our employee relations to be good.
COMPETITION
We face intense competition from a number of companies that offer products in our targeted application areas. Our competitors may offer or be developing products superior to ours. Our competitors may be significantly better financed than us. There are various technological approaches available to our competitors and us that may be applicable to the detection of pathogens in the air or on surfaces, and the feasibility and effectiveness of these techniques has yet to be fully evaluated or demonstrated. Several companies provide or are in the process of developing instruments for detection of bioterrorism agents. Such technologies include a diverse range of products from PCR and DNA analyzers to handheld immunoassay technologies. For example, Northrup Grumman supplies a system called the BDS, which is a large machine that collects air samples from areas that are being monitored and after performing DNA amplification tests for the DNA of the anthrax bacteria. The bio-detection kits we sell, on the other hand, are small handheld assays that work based on sandwich immunoassay technology.
We also expect to encounter intense competition from a number of new development-stage companies that continue to enter the bioterrorism detection device market. Our competitors may succeed in developing or marketing technologies and products that are more effective or commercially attractive than our potential products or that render our technologies and potential products obsolete. As these companies develop their technologies, they may develop proprietary positions that prevent us from successfully commercializing
our products.
INTELLECTUAL PROPERTY
The Company does not own any intellectual property rights with respect to the products it markets and sells. As such, the Company may be at a competitive disadvantage with respect to protecting its ability to continue to market and sell any particular device, even if such device is in high demand. In contrast, many of the Company's competitors develop proprietary technologies and devices which compete with the products marketed by and sold by the Company. As such, such competitors can control the marketing, sales and further development of their product offerings in a manner that the Company cannot. Because the Company is a re-seller of products developed by other parties, it cannot control its product offerings as well as its competitors may be able to.
GENERAL
The Company was formed on December 24, 1971 in the State of California under the name Pollution Research and Control Corporation. It has operated continuously since that date. In August, 2003 the Company changed its name to Universal Detection Technology.
ITEM 1A.
ITEM 1A. RISK FACTORS
YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. SOME OF THE INFORMATION CONTAINED IN THIS DISCUSSION AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS ANNUAL REPORT, INCLUDING INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGIES FOR OUR BUSINESS, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. YOU SHOULD REVIEW THE "RISK FACTORS" SECTION OF THIS REPORT FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER.
OUR INDEPENDENT AUDITORS' REPORT EXPRESSES DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Our independent auditors' report, dated April 15, 2011 includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern, due to our working capital deficit at December 31, 2010. We have experienced operating losses since the date of the auditors' report. Our auditor's opinion may impede our ability to raise additional capital on terms acceptable to us. If we 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. If we are unable to continue as a going concern, your entire investment in us could be lost.
WE ARE IN DEFAULT OF A SUBSTANTIAL PORTION OF OUR DEBT AND DO NOT HAVE ADEQUATE CASH TO FUND OUR WORKING CAPITAL NEEDS. OUR FAILURE TIMELY TO PAY OUR INDEBTEDNESS MAY REQUIRE US TO CONSIDER STEPS THAT WOULD PROTECT OUR ASSETS AGAINST OUR CREDITORS.
If we cannot raise additional capital, we will not be able to repay our debt or pursue our business strategies as scheduled, or at all, and we may cease operations. We have been unable to pay all of our creditors and certain other obligations in accordance with their terms, and as a result, at December 31, 2010 we are in default on a portion of our debt totaling approximately $428,240 excluding accumulated interest of approximately $652,920. In the aggregate, as of December 31, 2010, we have approximately $1.9 million in debt obligations, including interest, owing within the next 12 months. We cannot assure you that any of these note-holders will agree to extend payment of these debt obligations or ultimately agree to revise the terms of this debt to allow us to make scheduled payments over an extended period of time.
We have nominal cash on hand and short-term investments and we do not expect to generate material cash from operations within the next 12 months. We have attempted to raise additional capital through debt or equity financings and to date have had limited success. The downtrend in the financial markets has made it extremely difficult for us to raise additional capital. If we are unable to raise capital successfully, or reduce our debt through other means, we may be unable to continue operations.
THE COMPANY DOES NOT OWN ANY PROPRIETARY OR INTELLECTUAL PROPERTY RIGHTS IN THE PRODUCTS IT MARKETS AND SELLS
The Company does not own any intellectual property rights with respect to the products it markets and sells. The Company is a "reseller" of products available to it under supply and distribution agreements. As such, the Company may be at a competitive disadvantage with respect to protecting its ability to continue to market and sell any particular device, even if such device is in high demand. The Company cannot assure the availability of the products it sells or any improvements on such products. In addition, should such products become the subject of infringement claims by third parties, the Company may be unable to continue selling such products while such claims are unresolved. The Company would be forced to rely on the efforts of the owners of the products and underlying technologies to defend such suits should they arise. Such legal challenges, should they arise, would be detrimental to our operations. The Company believes it could source other suppliers of products should any of its suppliers become unable to sell product for any reason, however there can be no assurance that such replacement suppliers can be found timely or upon terms acceptable to the Company, if at all.
WE HAVE NO ABILITY TO FINANCE SIGNFICANT ORDERS OF OUR PRODUCTS OR TO PREPAY FOR ORDERS THAT MAY REQUIRE SUCH PAYMENT; WE MAY BE UNABLE TO TIMELY FULFILL ORDERS, IF AT ALL
The Company is a "reseller" of products available to it under supply and distribution agreements.When we obtain products for resale to our customers, we must be able to finance the purchase of such products. When the quantities and/or unit prices are low or nominal, we can finance that acquisition through existing cash, or require pre-payment from our customers, or request that the supply invoices be payable at a point in the future subsequent to the collection of the purchase price from our customers. The products we offer vary in price from several hundred dollars per unit to several thousand dollars per unit. From time to time, our management has made loans to the Company the proceeds of which are used for general operations including the acquisition of limited amount of product for demonstration and resale. Currently, we believe that none of our accounts receivable would be attractive to commercial finance lenders or factors as a means to finance product acquisition. Should we be successful in generating significant purchase requests for the products we market and sell, we may be unable to process those orders due to a lack of financing opportunities and a lack of cash on hand. While we may attempt to structure such orders, should they arise, in a way that provides for payment in advance from customers, or payment of invoices after customer collection, or upon a factoring or other finance arrangement, there can be no assurance that we can structure the financing terms in a manner that supports product acquisition in large quantities, if at all. In addition, we have no control over how quickly our suppliers will make product available to us. Even assuming we can finance orders of all sizes, we must rely upon our suppliers to provide product and ship product in a timely manner. However, we cannot control the timing and shipment of the products that we resell. If we are able to generate purchase orders, we may be unable to fulfill them timely and upon financing terms acceptable to us or our suppliers and customers, which would be detrimental to our operations.
THE SECRETARY OF STATE OF CALIFORNIA HAS ASSIGNED A "SUSPENDED" STATUS TO OUR CORPORATE ENTITY WHICH MAKES US VULNERABLE TO CHALLENGE AND UNABLE TO TAKE ACTIONS THAT CORPORATIONS IN GOOD STANDING MAY TAKE
Due to a failure to timely file certain state and franchise tax returns in the State of California, the Secretary of State of California has suspended our corporate status. We have since made all filings required by the Franchise Tax Board in the State of California, together with all fees, taxes and penalties due. We fully expect the status of the corporation to be restored to "active" and for the Company to be in good standing in the State of California. Until restored we have limited abilities to function as a corporation under the laws of the State of California and we are vulnerable to suit and challenge of our activities since our suspended status became effective. We if are unable to promptly restore our good standing, our operations will be adversely affected, which would be detrimental to our shareholders.
WE HAVE A HISTORY OF LOSSES AND WE DO NOT ANTICIPATE THAT WE WILL BE PROFITABLE IN FISCAL 2011.
We do not anticipate generating significant sales. We have not been profitable in the past years and had an accumulated deficit of approximately $45.4million at December 31, 2010. We have had little revenues from sales of our products since the beginning of fiscal 2002, the commencement of our entry in the counter terrorism market. During the fiscal years ended December 31, 2010 and 2009, we had losses of $2.2 and$4.6 million, respectively. During fiscal 2010, we had gross revenues of $5,368. Achieving profitability depends upon numerous factors, including our ability to develop, market, and sell commercially accepted products timely and cost-efficiently. We do not anticipate that we will be profitable in fiscal 2011.
IF WE OBTAIN FINANCING, EXISTING SHAREHOLDER INTERESTS MAY BE DILUTED.
If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our shareholders will be diluted. In addition, any convertible securities issued may not contain a minimum conversion price, which may make it more difficult for us to raise financing and may cause the market price of our common stock to decline because of the indeterminable overhang that is created by the discount to market conversion feature. In addition, any new securities could have rights, preferences and privileges senior to those of our common stock. Furthermore, we cannot assure you that additional financing will be available when and to the extent we require or that, if available, it will be on acceptable terms.
MANAGEMENT HAS LLIMITED EXPERIENCE IN SALES AND DISTRIBUTION. WE MAY NOT BE ABLE TO MARKET AND DISTRIBUTE PRODUCTS EFFECTIVELY, WHICH COULD HARM OUR FUTURE PROSPECTS.
If we are unable to establish a successful sales, marketing, and distribution operation, we will not be able to generate sufficient revenue in order to maintain operations. We have limited experience in marketing or distributing new products. We have limited experience in developing, training, or managing a sales force. If we choose to establish a direct sales force, we will incur substantial additional expense. We may not be able to build a sales force on a cost effective basis or at all. Any direct or internet marketing and sales efforts may prove to be unsuccessful. In addition, our marketing and sales efforts may be unable to compete with the extensive and well-funded marketing and sales operations of some of our competitors. We also may be unable to engage qualified distributors. Even if engaged, they may fail to satisfy financial or contractual obligations to us, or adequately market our products.
OUR PRODUCTS MAY NOT BE COMMERCIALLY ACCEPTED WHICH WILL ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
Our ability to enter into the bioterrorism detection device market, establish brand recognition and compete effectively depends upon many factors, including broad commercial acceptance of our products. If our products are not commercially accepted, we will not recognize meaningful revenue and may not continue to operate. The success of our products will depend in large part on the breadth of information these products capture and the timeliness of delivery of that information. The commercial success of our products also depends upon the quality and acceptance of other competing products, general economic and political conditions and other factors, all of which can change and cannot be predicted with certainty. We cannot assure you that our new products will achieve market acceptance or will generate significant revenue.
EXISTING AND DEVELOPING TECHNOLOGIES MAY ADVERSELY AFFECT THE DEMAND FOR OUR PRODUCTS.
Our industry is subject to rapid and substantial technological change. Developments by others may render our technologies and planned products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Competition from other companies, universities, governmental research organizations and others diversifying into our field is intense and is expected to increase.
SHARES ISSUED UPON THE EXERCISE OF OUR OUTSTANDING OPTIONS AND WARRANTS, OR UPON THE CONVERSION OF PROMISSORY NOTES, MAY DILUTE YOUR STOCK HOLDINGS AND ADVERSELY AFFECT OUR STOCK PRICE.
If exercised, our outstanding options and warrants will cause immediate and substantial dilution to our stockholders. We have issued options and warrants to acquire our common stock to our employees, consultants, and investors at various prices, some of which are or may in the future be below the market price of our stock. As of December 31, 2010, we had outstanding options and warrants to purchase a total of 539,750shares of common stock. Of these options and warrants, all have exercise prices at or above the recent market price of $0.001 per share (as of April 8, 2011) and none have exercise prices at or below this price. In addition, because of our financial condition and substantial indebtedness and our need to raise capital, from time to time we have converted outstanding debt obligations into common stock. During 2010, we converted debt at conversion prices ranging from $.006 to $.0038 per share. Our conversion of outstanding debt obligations to common stock, as well as the exercise of outstanding options and warrants to purchase common stock, which the Board of Directors may authorize and undertake from time to time, may dilute the stockholdings of current shareholders.
THE LOSS OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER WOULD DISRUPT OUR BUSINESS.
Our success depends in substantial part upon the services of Jacques Tizabi, our President, Chief Executive Officer and Chairman of the Board of Directors. The loss of or the failure to retain the services of Mr. Tizabi would adversely affect the development of our business and our ability to realize profitable operations. We do not maintain key-man life insurance on Mr. Tizabi and have no present plans to obtain this insurance.
WE MAY BE SUED BY THIRD PARTIES WHO CLAIM THE PRODUCTS WE SELL INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS. DEFENDING AN INFRINGEMENT LAWSUIT IS COSTLY AND WE MAY NOT HAVE ADEQUATE RESOURCES TO DEFEND OURSELVES.
We may be exposed to future litigation by third parties based on claims that the products we sell infringe on the intellectual property rights of others or that we have misappropriated the trade secrets of others. This may be true even if we do not own the technologies embedded in the products we sell. This risk is compounded by the fact that the validity and breadth of claims covered in technology patents in general and the breadth and scope of trade secret protection involves complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial and managerial resources, and could harm our reputation.
WE HAVE NOT PAID ANY CASH DIVIDENDS AND NO CASH DIVIDENDS WILL BE PAID IN THE FORESEEABLE FUTURE.
We do not anticipate paying cash dividends on our common stock in the foreseeable future, and we cannot assure an investor that funds will be legally available to pay a dividend or that even if the funds are legally available, that a dividend will be paid.
THE APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE STOCK.
As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common stock, and may result in decreased liquidity for our common stock and increased transaction costs for sales and purchases of our common stock as compared to other securities.
OUR STOCK PRICE IS VOLATILE.
The trading price of our common stock fluctuates widely and in the future may be subject to similar fluctuations in response to quarter-to-quarter variations in our operating results, announcements of technological innovations or new products by us or our competitors, general conditions in the terrorism detection device industry in which we compete and other events or factors. In addition, in recent years, broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. These broad market fluctuations also may adversely affect the future trading price of our common stock.
OUR STOCK HISTORICALLY FLUCTUATES WIDELY IN TRADING VOLUME AND PRICE. THEREFORE, SHAREHOLDERS MAY NOT BE ABLE TO SELL THEIR SHARES FREELY OR AT PRICES AND AT TIMES THAT THEY DESIRE TO SELL SHARES.
The volume of trading in our common stock historically has fluctuated and a limited market presently exists for the shares. We have no analyst coverage of our securities. The lack of analyst reports about our stock may make it difficult for potential investors to make decisions about whether to purchase our stock and may make it less likely that investors will purchase our stock. Our stock trades in a wide fluctuation of volume that we cannot predict or control. We cannot assure you that our trading volume will increase, or that our historically light trading volume or any trading volume whatsoever will be sustained in the future. Therefore, we cannot assure you that our shareholders will be able to sell their shares of our common stock at the time or at the price that they desire, or at all.
POTENTIAL ANTI-TAKEOVER TACTICS AND RIGHTS AND PREFERENCES GRANTED THROUGH THE ISSUANCE OF PREFERRED STOCK RIGHTS MAY BE DETRIMENTAL TO COMMON SHAREHOLDERS.
We are authorized to issue up to 20,000,000 shares of preferred stock. The issuance of preferred stock does not require approval by the shareholders of our common stock. Our Board of Directors, in its sole discretion, has the power to issue preferred stock in one or more series and establish the dividend rates and preferences, liquidation preferences, voting rights, redemption and conversion terms and conditions and any other relative rights and preferences with respect to any series of preferred stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion and other rights, any of which rights and preferences may operate to the detriment of the shareholders of our common stock. Further, the issuance of any preferred stock having rights superior to those of our common stock may result in a decrease in the market price of the common stock and, additionally, could be used by our Board of Directors as an anti-takeover measure or device to prevent a change in our control.
WE ARE SUBJECT TO THE REQUIREMENTS OF SECTION 404 OF THE SARBANES-OXLEY ACT. IF WE ARE UNABLE TO TIMELY COMPLY WITH SECTION 404, OUR PROFITABILITY, STOCK PRICE AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Management, including our Chief Executive Officer ("CEO"), who is also our acting Chief Financial Officer ("CFO"), 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 reporting period covered by the Company's Annual Report on Form 10-K, December 31, 2010. The term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management performed such an evaluation and based on such evaluation, our Chief Executive Officer and Acting Chief Financial 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 Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
* Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
* Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
* Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
As of December 31, 2010 Management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of the end of the period covered by this report, such internal controls over financial reporting were not effective to control deficiencies that constituted material weaknesses. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.
Our failure to maintain adequate disclosure controls and procedures and internal control over financial reporting may mean that prospective investors and partners will lack confidence in our financial statements, which could cause us to lose financing opportunities or business opportunities, each of which could have a material adverse effect on our business and on our stock price and trading. While our management is working to remedy the material weaknesses there can be no assurance that such actions will be successfully implemented or that we will be able to fully overcome such material weaknesses.
OUR ISSUANCE OF ADDITIONAL COMMON STOCK, OR OPTIONS TO PURCHASE OUR STOCK, WOULD DILUTE YOUR PROPORTIONATE OWNERSHIP AND VOTING RIGHTS.
We are entitled under our articles of incorporation to issue up to 20,020,000,000 shares of capital stock which includes 20,000,000,000 shares of common stock, 20,000,000 shares of Preferred Stock. Our Preferred Stock may be designated in a senior position to our common stock. After taking into consideration our outstanding common stock at April 15, 2011 of 3,587,599,829 shares, we will be entitled to issue up to 16,412,400,171 additional shares of common stock and 20,000,000 of Preferred Stock. Our board of directors may generally issue stock, or options or warrants to purchase those shares, without further approval by our stockholders based upon such factors as our board of directors may deem relevant at that time. It is likely that we will be required to issue a large amount of additional securities to raise capital to further our development or convert outstanding indebtedness to equity. It is also likely that we will be required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our stock plans. We cannot give you any assurance that we will not issue additional common stock, or options or warrants to purchase those shares, under circumstances we may deem appropriate at the time.
Item 1B.
Item 1B. UNRESOLVED STAFF COMMENTS
Not applicable for Smaller Reporting Companies.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
We currently do not own any real property. As of June 2009, we moved our corporate headquarters to 340 N. Camden Drive, Suite 302, Beverly Hills, CA 90210, USA. Our offices are still at this address. Our lease for this premises expires on June 1, 2012. The base monthly rent is $6,896. We believe this operating space is adequate for the Company's needs for the foreseeable future.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
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 December 31, 2010, $411,500 has been accrued.
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 December 31, 2010, we have accrued $559,303 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 UDT for breach of an engagement letter in the amount of $93,448.54. Also, Plaintiff alleged that UDT had failed to issue warrants to it pursuant to a written agreement. After completing the initial stages of litigation and conducting extensive mediation, Plaintiff and UDT reached a settlement wherein commencing December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six percent per annum was fully paid. In exchange, Plaintiff would release all of its claims against UDT. UDT has not been current on all of its agreed payments to Plaintiff. As of December 31 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 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. A Motion for Summary Judgment was 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 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 UDT and our CEO, Jacques Tizabi, as a result of a personal guarantee. UDT and our CEO dispute that the fees are owed and intends to oppose the suit.On December 15, 2010, Defendants filed an Answer which asserts several defenses. The parties have exchanged initial disclosures, and the matter has been set for trial commencing on December 5, 2011. Formal discovery has not yet commenced.
ITEM 4.
ITEM 4. REMOVED AND RESERVED
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded on the OTC Bulletin Board under the symbol “UNDT.” The following table sets forth the high and low bid information of our common stock on the OTC Bulletin Board for each quarter during the last two fiscal years, as reported by the OTC Bulletin Board. This information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
HOLDERS OF RECORD
As of April 15, 2011, we had 1,321 shareholders of record of our common stock. Our Transfer Agent is OTR located at 1001 SW Fifth Avenue, Suite 1550, Portland, OR 97204-1143. OTR's phone number is (503) 225-0375.
DIVIDEND POLICY
We do not currently pay any dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the payment of dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors including the General Corporation Law of the State of California, which provides that dividends are only payable out of retained earnings or if certain minimum ratios of assets to liabilities are satisfied. The declaration of dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Set forth in the table below is information regarding awards made through equity compensation plans through December 31, 2010.
(1)
The Company has individual compensation arrangements with Messrs. Amir Ettehadieh and Nima Montazeri. Under these arrangements Messrs. Ettehadieh and Montazeri help the company with matters related to research, business development, and administration. For their services, Messrs. Ettehadieh and Montazeri receive the equivalent of $7,000 worth of common shares of the Company per month, which shares are issued under the then-current equity incentive plan, including those plans listed above.
(2)
Represents total number of shares of common stock originally authorized for stock grants. Stock option grants were not authorized.
(3)
Consists of the second and third plans.
(4)
Consists of the fifth and sixth plans.
On February 13, 2006, our Board of Directors adopted the 2006 Stock Compensation Plan (the "Plan"). The Plan authorizes common stock grants to our non-executive employees, professional advisors and consultants. We reserved 7,500,000 shares of our common stock for awards to be made under the Plan. The Plan is to be administered by our Board of Directors, or by any committee to which such duties are delegated by the Board.
On June 29, 2006, our Board of Directors adopted the 2006 Consultant Stock Plan (the "2006 Plan"). The 2006 Plan authorizes common stock grants 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. We reserved 25,000,000 shares of our common stock for awards to be made under the 2006 Plan. The 2006 Plan is to be administered by a committee of one or more members of our Board of Directors.
On November 22, 2006, our Board of Directors adopted the 2006-II Consultant Stock Plan (the "2006-II Plan"). The 2006-II Plan authorizes common stock grants 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. We reserved 37,500,000 shares of our common stock for awards to be made under the 2006-II Plan. The 2006-II Plan is to be administered by a committee of two or more members of our Board of Directors.
On April 17, 2007, the Board of Directors adopted the 2007 Consultant Stock Plan (the “2007 Plan”). The 2007 Plan grants 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. We reserved 375,000 shares of our common stock for awards to be made under the 2007 Plan. The 2007 Plan is to be administered by a committee of two or more members of our Board of Directors.
On June 5, 2007, the Board of Directors adopted the 2007 Equity Incentive Plan (the “2007-II Plan”). The 2007-II Plan grants 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 150,000 shares of its common stock for awards to be made under the 2007-II Plan. The 2007-II Plan is to be administered by a committee of two or members of the Board of Directors.
On June 27, 2007, the Board of Directors adopted the 2007 Equity Incentive Plan (the “2007-III Plan”). The 2007-III Plan grants 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 145,000 shares of its common stock for awards to be made under the 2007-III Plan. The 2007-III Plan is to be administered by a committee of two or members of the Board of Directors.
On July 13, 2007, the Board of Directors adopted the 2007-2 Equity Incentive Plan (the “2007-IV Plan”). The 2007-IV Plan grants 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 450,000 shares of our common stock for awards to be made under the 2007-IV Plan. The 2007-IV Plan is to be administered by a committee of two or more members of the Board of Directors.
On October 10, 2007, the Board of Directors adopted the 2007-3 Equity Incentive Plan (the “2007-V Plan”). The 2007-V Plan grants 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 600,000 shares of common stock for awards to be made under the 2007-V Plan. The 2007-V Plan is to be administered by a committee of two or more members of our Board of Directors.
On November 1, 2007, the Board of Directors adopted the 2007-4 Equity Incentive Plan (the “2007-VI Plan”). The 2007-VI Plan grants 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 750,000 shares of common stock for awards to be made under the 2007-VI Plan. The 2007-VI Plan is to be administered by a committee of two or more members of our Board of Directors.
On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 1,500,000 shares of common stock for awards to be made under the 2008 Plan. The 2008 Plan is to be administered by a committee of two or more members of our Board of Directors.
On April 29, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan II (the “2008-II Plan”). The 2008-II Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 1,650,000 shares of common stock for awards to be made under the 2008-III Plan. The 2008-II Plan is to be administered by a committee of two or more members of our Board of Directors.
On July 1, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan III (the “2008-III Plan”). The 2008-III Plan grants 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 2,500,000 shares of common stock for awards to be made under the 2008-III Plan. The 2008-III Plan is to be administered by a committee of two or more members of our Board of Directors.
On September 2, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan IV (the “2008-IV Plan”). The 2008-IV Plan grants 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 3,800,000 shares of common stock for awards to be made under the 2008-IV Plan. The 2008-IV Plan is to be administered by a committee of two or more members of our Board of Directors.
On February 22, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan grants 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 10,000,000 shares of common stock for awards to be made under the 2009 Plan. The 2009 Plan is to be administered by a committee of two or more members of our Board of Directors.
On May 14, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan II (the “2009-II Plan”). The 2009-II Plan grants 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 60,000,000 shares of common stock for awards to be made under the 2009-II Plan. The 2009-II Plan is to be administered by a committee of two or more members of our Board of Directors.
On November 5, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan III (the “2009-III Plan”). The 2009-III Plan grants 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 200,000,000 shares of common stock for awards to be made under the 2009-III Plan. The 2009-III Plan is to be administered by a committee of two or more members of our Board of Directors.
With respect to each of the above Plans, and subject to the provisions of each Plan, the Board and/or committee shall have authority to (a) grant, in its discretion, stock awards; (b) determine in good faith the fair market value of the stock covered by any grant; (c) determine which eligible persons shall receive grants and the number of shares, restrictions, terms and conditions to be included in such grants; (d) construe and interpret the Plans; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions and inconsistencies in the Plans or any grants; (f) consistent with the Plans and with the consent of the participant, amend any outstanding grant; and (g) make all other determinations necessary or advisable for the Plans’ administration. The interpretation and construction by the Board of any provisions of the Plans shall be conclusive and final.
SALES OF UNREGISTERED SECURITIES
During fiscal 2010, we issued the following securities which were not registered under the Securities Act. We did not employ any form of general solicitation or advertising in connection with the issuance of the securities described below. In addition, we believe the purchasers and recipients 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 2010, we issued 996,977,751 shares of common stock to various note holders to convert outstanding debt obligations valued at approximately $1,289,370 as follows:
On January 27, 2010, we issued 50,053,381 shares of common stock to convert outstanding debt obligations valued at $150,160.
On March 24, 2010, we issued 24,380,000 shares of common stock to convert outstanding debt obligations valued at $56,074.
On March 24, 2010, we issued 28,750,000 shares of common stock to convert outstanding debt obligations valued at $66,125.
On March 22, 2010, we issued 48,887,490 shares of common stock to convert outstanding debt obligations valued at $112,441.
On April 09, 2010, we issued 44,075,000 shares of common stock to convert outstanding debt obligations valued at $167,485.
On April 09, 2010, we issued 18,671,500 shares of common stock to convert outstanding debt obligations valued at $70,952.
On May 19, 2010, we issued 30,510,000 shares of common stock to convert outstanding debt obligations valued at $67,122.
On May 19, 2010, we issued 25,000,000 shares of common stock to convert outstanding debt obligations valued at $55,000.
On May 19, 2010, we issued 3,155,620 shares of common stock to convert outstanding debt obligations valued at $6,942.
On May 19, 2010, we issued 3,360,000 shares of common stock to convert outstanding debt obligations valued at $7,392.
On May 19, 2010, we issued 734,770 shares of common stock to convert outstanding debt obligations valued at $1,616.
On August 25, 2010, we issued 67,260,000 shares of common stock to convert outstanding debt obligations valued at $53,808.
On September 13, 2010, we issued 75,000,000 shares of common stock to convert outstanding debt obligations valued at $75,000.
On October 19, 2010, we issued 32,372,093 shares of common stock to convert outstanding debt obligations valued at $29,135.
On October 19, 2010, we issued 38,025,000 shares of common stock to convert outstanding debt obligations valued at $34,223.
On November 01, 2010, we issued 81,000,000 shares of common stock to convert outstanding debt obligations valued at $64,800.
On November 10, 2010, we issued 80,505,000 shares of common stock to convert outstanding debt obligations valued at $48,303.
On November 15, 2010, we issued 79,560,000 shares of common stock to convert outstanding debt obligations valued at $55,692.
On November.15, 2010, we issued 76,931,050 shares of common stock to convert outstanding debt obligations valued at $53,852.
On November 30, 2010, we issued 89,354,486 shares of common stock to convert outstanding debt obligations valued at $53,613.
On December 20, 2010, we issued 99,392,361 shares of common stock to convert outstanding debt obligations valued at $59,635.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable for Smaller Reporting Companies.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements provided in this annual report on Form 10-K. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein.
The forward-looking information set forth in this annual report is as of the date of this filing, and we undertake no duty to update this information. More information about potential factors that could affect our business and financial results is included in the section of this annual report entitled "Risk Factors."
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 four parties enabling us to supply a host of products and services for detection of hazardous materials. 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.
Universal Detection Technology has also situated itself to provide various counter-terrorism services. Such services include training courses for first responders, event security, threat evaluation & consulting, and DVDs aimed at providing information and training regarding combating terrorism and managing emergency situations. To date, we have sold only a nominal amount of these services and products and the resulting revenue for 2010 was insignificant.
Our business operations are more fully described under "Description Business" in Item 1 of Part I of this Report.
Results of Operations
The following discussion is included to describe our consolidated financial position and results of operations. The audited consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.
Revenue - Total revenue for the year ended December 31, 2010 was $5,368 as compared to $19,467 the prior fiscal year, a decrease of $14,099. The decrease is primarily due to a reduced number of detection unit sales.
Operating Expenses -Total operating expenses for the year ended December 31, 2010 were $1,289,287. Total operating expenses for the year ended December 31, 2009 was $2,485,754 representing a decrease of $1,196,467(48%). The decrease is primarily attributable to a decrease in marketing expense current year and the impairment of patent prior year.
Other income(expense). Other income (expense) amounted to ($907,740) for the year ended December 31, 2010 as compared to ($2,148,913)for the year ended December 31, 2009 The change is principally related to the loss recognized on the settlement of shares issued for debt.
Net loss. Net loss for the year ended December 31, 2010 was $2,196,195, as compared to a net loss of $4,626,644 for the same period in the prior fiscal year, representing a decreased loss of $2,430,449. The primary reason for this is a decrease in loss recognized on settlement of shares issued for debt and a decrease in marketing expense.
PLAN OF OPERATION
In 2010 we have continued to diversify our activities. We plan to engage more in value added services to complement our bioterrorism detection technologies. We supply chemical, biological, radiological, nuclear, explosive (CBRNE), and mold detection equipment.
We plan to continue expanding our product base and to sell our products to more users inside and outside the U.S. There is no guarantee that we will succeed in implementing this strategy or if implemented, that this strategy will be successful.
LIQUIDITY AND CAPITAL RESOURCES
We require approximately $4.5 million in the next 12 months to repay debt obligations and execute our business plan. We do not anticipate that our cash on hand is adequate to meet our operating expenses over the next 12 months. Also, we do not believe we have adequate capital to repay all of our debt currently due and becoming due in the next 12 months. We anticipate that our uses of 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 testing or manufacturing; and
·
expenses of professionals, including accountants and attorneys.
Our working capital deficit at December 31, 2010 was $4,546,133. 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, 2010. We require approximately $1.9 million to repay indebtedness including interest in the next 12 months. The following provides the principal terms of our outstanding debt as of December 31, 2010:
o One loan from three unaffiliated parties, 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 December 31, 2010, we have $559,303 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 December 31, 2010, there was $161,000 principal amount (and $96,147 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 us and this third party, we agreed to pay a total of $130,800 pursuant to a scheduled payment plan through July 2005. At December 31, 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.
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 December 31, 2010 we owed $58,500 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 on June 27, 2007 with an interest rate of 12.5% per annum. As of December 31, 2010 we owed $672 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.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $4,000 due on January 9, 2010 with an interest rate of 12% per annum. As of December 31, 2010 we owed $960 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.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $8,000 due on January 13, 2010 with an interest rate of 12% per annum. As of December 31, 2010 we owed $8,000 in principal and $1,920 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.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $5,000 due on January 16, 2010 with an interest rate of 12% per annum. As of December 31, 2010 we owed $1,200 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $13,000 due on February 11, 2010 with an interest rate of 12% per annum. As of December 31, 2010 we paid the principal balance in full, and we owed $390 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $12,000 due on February 20, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $360 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $17,000 due on February 11, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $510 in interest.
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% per annum. As of December 31, 2010, we owed $2,087 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $1,638 due on March 31,2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $344 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $1,420 due on March 31, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $298 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $12,500 due on April 16, 2011 with an interest rate of 12% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $375 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $4,475 due on April 23, 2011 with an interest rate of 12% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $134 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $9,000 due on May 1, 2011 with an interest rate of 12% per annum. As of December 31, 2010, we owed $1,800 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on May 6, 2011 with an interest rate of 12% per annum. As of December 31, 2010, we paid in the principal balance in full, and we owed $75 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $13,677 due on June 16, 2011 with an interest rate of 12% per annum. As of December 31, 2010, we paid in the principal balance in full, and we owed $410 in interest.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $18,940 due on June 06,2011 with an interest rate of 12% per annum. As of December 31, 2010, we owed $3,599 in interest.
o 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% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $900 in interest.
o 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% per annum. As of December 31, 2010, we owed $6,263 in interest.
o 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% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $300 in interest.
o 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% per annum. As of December 31, 2010, we paid the principal balance in full, and we owed $898 in interest.
o 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% per annum. As of December 31, 2010, we owed $4,410 in interest.
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% per annum. As of December 31, 2010, we owed $124 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $45,000 due on November 2, 2009 with an interest rate of 12% per annum. As of December 31, 2010, we owed $6,750 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $20,000 due on October 15, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $2,900 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on November 27, 2009 with an interest rate of 12% per annum. As of December 31, 2010, we owed $7,000 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $90,000 due on December 23, 2009 with an interest rate of 12% per annum. As of December 31, 2010, we owed $11,700 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $25,000 due on January 16, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $3,125 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $23,000 due on May 4, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $2,530 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on March 26, 2010 with an interest rate of 12% per annum. As of December 31, 2010, we owed $3,000 in interest. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $31,000 due on May 17, 2010 with a late charge of 15%. As of December 31, 2010, we owed $2,000 in principal and $4,650 in late charge. We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.
o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $35,000 due on May 12, 2011. As of December 31, 2010, we owed $2,450 in interest.
Management continues to take steps to address the Company's liquidity needs. Management continues to seek extensions with respect to debt past due. Management also may seek additional extensions with respect to these notes and the Company's debt as it becomes due. In addition, management may continue to convert some portion of the principal amount and interest on our debt into shares of common stock. During 2010, the Company issued 996,977,751 shares of its common stock for an aggregate value of $1,289,370 to satisfy outstanding debt and accrued interest.
Historically, we have financed operations through private debt and equity financings. In recent years, financial institutions have been unwilling to lend to us and the cost of obtaining working capital from investors has been expensive. We principally expect to raise funds through the sale of equity or debt securities. During the years ended December 31, 2010 and 2009, the Company received gross proceeds of approximately $0.1 million and $0.6 million, respectively, from the sale of equity and debt securities. 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.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable for Smaller Reporting Companies.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and related notes are set forth at pages through.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Universal Detection Technology and Subsidiaries
We have audited the accompanying consolidated balance sheets of Universal Detection Technology and Subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, stockholders' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Universal Detection Technology and Subsidiaries as of December 31, 2010 and 2009, and the results of its consolidated statements of operations, stockholders' equity, and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s significant operating losses and insufficient capital raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KABANI & COMPANY, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Los Angeles, California
Date: April 15, 2011
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
See accompanying notes to consolidated financial statements.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
See accompanying notes to consolidated financial statements.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2010 AND 2009
See accompanying notes to consolidated financial statements.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 1 - BUSINESS ACTIVITY
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.
GOING CONCERN AND MANAGEMENT'S PLANS
As of December 31, 2010, the Company had a working capital deficit of $4,546,133. During the year ended December 31, 2010, the Company incurred net losses of $2,196,195 and had an accumulated deficit of $45,433,551 as of December 31, 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.
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 2009 and 2010, the Company entered into various agreements to sell shares of its common stock to third parties in order to convert the Company's debts to the respective parties. In 2009, 691,572,602 shares were issued in the aggregate amount of $3,312,396. In 2010, 996,977,751 shares were issued in the aggregate amount of $1,289,370.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated 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.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
REVENUE RECOGNITION
The Company’s revenue recognition policies are in compliance with ASC 605 (previously Staff accounting bulletin 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. Service revenue is recognized when services are performed and amounts are due.
The Company receives rent under a month to month sublease agreement with a third party. The Company recognized $11,250 and $8,750 in Other Revenue under this agreement in 2010 and 2009, respectively.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost (first-in first-out) basis or market.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current year’s presentation, none of which had an impact on total assets, stockholders’ equity (deficit), net loss, or net loss per share.
ADVERTISING EXPENSES
The Company expenses advertising costs as incurred. During the years ended December 31, 2010 and 2009, the Company did not have significant advertising costs.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment, consisting of office furniture and equipment, leasehold improvements and lab testing equipment, is recorded at cost less accumulated depreciation. Depreciation and amortization is provided for on the straight-line method over the estimated useful lives of the assets, generally three to five years or over the term of the lease.
Total depreciation expense was $10,938 and $19,571 for the years ended December 31, 2010 and 2009, respectively.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
STOCK BASED COMPENSATION TO OTHER THAN EMPLOYEES
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718 (previously Statement of Financial Accounting Standards No. 123), “Accounting for Stock-Based Compensation,” and the conclusions reached by the ASC 505-50 (previously Emerging Issues Task Force in Issue No. 96- 18), “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services” (“ASC 505-50”). Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50 (previously EITF 96-18). In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.
EARNINGS PER COMMON SHARE
The Company computes earnings per common share in accordance with ASC 260-10-45 (previously Statement of Financial Accounting Standards No. 128), "Earnings per Share". The Statement requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. The computation of diluted loss per share is similar to the basic loss per share computation except the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, the numerator is adjusted for any changes in income or loss that would result from the assumed conversions of those potential shares. However, such presentation is not required if the effect is antidilutive. Accordingly, the diluted per share amounts do not reflect the impact of warrants and options or convertible debt outstanding for -539,750 and 539,750 shares at December 31, 2010 and 2009, respectively, because the effect of each is antidilutive.
CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all short term, interest bearing deposits with original maturities of three months or less to be cash equivalents.
IMPAIRMENT OF PATENTS AND LONG-LIVED ASSETS
Patents and other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. In accordance with ASC 350 (previously Statement of Financial Accounting Standard No. 142), goodwill and other intangible assets ("ASC 350"), the company periodically evaluates its long-lived assets by measuring the carrying amounts of assets against the estimated undiscounted future cash flows associated with them. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 (ASC 360). SFAS 144 (ASC 360) requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
As per the Statement of Financial Accounting Standards (“SFAS”) No. 142 (ASC 350), “Goodwill and Other Intangible Assets (“SFAS 142”) (ASC 350),” the Company assess finite-lived intangible assets and other long-lived assets, excluding goodwill, for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. If it is determined that the carrying value of intangible assets or other long-lived assets may not be recoverable, the impairment is measured by using the projected discounted cash-flow method. Based upon the future cash flow, the Company recorded $78,573 in impairment of patent as of December 31, 2009.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the short maturity of these items.
INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial statement amounts at the end of each reporting period. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the current period and the change during the period in deferred tax assets and liabilities. The deferred tax assets and liabilities have been netted to reflect the tax impact of temporary differences. At December 31, 2010, a full valuation allowance has been established for the deferred tax asset as management believes that it is more likely than not that a tax benefit will not be realized.
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 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 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.
CONCENTRATION OF CREDIT RISK
Generally, the Company required no collateral when it extends credit to its customers. The Company's credit losses in the aggregate have not exceeded managements' expectations. The Company maintains all cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts.
SEGMENT REPORTING
ASC 280 (previously SFAS No. 131), Disclosures about segments of an enterprise and related information, which superseded statement of financial accounting standards No. 14, Financial reporting for segments of a business enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. In 2010 and 2009, the Company operated in one segment.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2010, the FASB issued amended guidance related to Business Combinations. The amendments affect any public entity that enters into business combinations that are material on an individual or aggregate basis. The amendments specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. Early adoption is permitted. The Company will assess the impact of these amendments on its consolidated financial statements if and when an acquisition occurs.
In December 2010, the FASB issued amended guidance related to intangibles-goodwill and other. The amendments modify Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with the existing guidance and examples, which require that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not believe that this guidance will have a material impact on its consolidated financial statements.
The FASB has issued amended guidance for subsequent events. The amendment removes the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB also clarified that if the financial statements have been revised, then an entity that is not an SEC filer should disclose both the date that the financial statements were issued or available to be issued and the date the revised financial statements were issued or available to be issued. The FASB believes these amendments remove potential conflicts with the SEC's literature. All of the amendments were effective upon issuance (February 24, 2010). The adoption of this guidance did not have a material impact on the Company's consolidated financial statements.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 3 - PATENTS
As of December 31, 2009, the patent value is as follows:
Total amortization expense was $5,435 for the year ended December 31, 2009. There were no additional patent costs for the year ended December 31, 2010.
NOTE 4 - ACCRUED LIABILITIES
The accrued liabilities consist of the following at December 31, 2010 and 2009:
The loan fees payable $68,600 as of December 31, 2010 and 2009 is the value of 300,000 shares payable to third parties in connection with certain loan fees. In 2004 a judgment was entered against the Company for $411,500 in connection with a lawsuit against a former wholly-owned subsidiary. The lawsuit was filed to collect past due rent. The Company has accrued $411,500 in connection with this matter.
NOTE 5 - ACCRUED PAYROLL - OFFICERS
Accrued payroll - officers as of December 31, 2010 and 2009 is comprised of accrued payroll to the officer of the company amounting to $783,410 and $548,126, respectively. This payable is interest free, unsecured and due on demand.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NOTE 6 - NOTES PAYABLE, RELATED PARTY
During the year ended December 31, 2010, the Company borrowed a total of $318,828 from its president and chief executive officer under various written and oral agreements by the Company. The loans have interest rates ranging from 0% to 15%. The Company repaid notes totaling $20,826 and interest of $526. As of December 31, 2010, $340,075 in principal and $639 in interest was due.
During the year ended December 31, 2009, the Company borrowed a total of $77,082 from its president and chief executive officer under promissory notes executed by the Company. The notes had interest rates ranging from 12% to 12.5%. The Company repaid notes totaling $62,709 and interest of $363. As of December 31, 2009, $15,523 in principal and $1,685 in interest was due.
NOTE 7 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 2010:
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
Notes payable consisted of the following at December 31, 2009:
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The interest expense for the years ended December 31, 2010 and December 31, 2009 is $154,664 and $118,079, respectively.
The Company entered into a contingent settlement agreement on July 26, 2004 related to $440,765 of notes payable to individuals and related accrued interest. In July 2004, the Company paid a total of $73,333 towards the debt and agreed to pay a total of $298,667, including interest through January 2006 in full payment. The Settlement Agreement provides for an accelerated payment schedule at the Company's option, which would reduce the total payment made by the Company by approximately $12,000. The Company defaulted on the two remaining payments totaling $80,000 at which time the entire remaining balance became due, including default interest and legal fees. The Company currently has accrued $463,563 for interest and legal fees (included in the accrued interest of $725,692 as of December 31, 2010) in addition to the $95,740 principal balance (included in the notes payable of $874,394 as of December 31, 2010).
During August 2004, the Company entered into an agreement to settle a note payable in the amount of $200,000 plus accrued interest. The parties agreed to settle the debt for $261,000 payable as follows: Twelve consecutive payments of $12,500 payable monthly commencing August 31, 2004 and ending July 31, 2005; a lump-sum payment of $95,000 payable on July 31, 2005; and a one-time interest payment of $16,000 on July 31, 2005. This agreement includes an additional $7,500 as inducement to the note holder to enter into the extended agreement, which was amortized as a loan fee over the term of the agreement. Scheduled payments were not made on the note and the company is currently in default. The Company currently has accrued $96,147 for interest (included in the accrued interest of $725,692 as of December 31, 2010) in addition to the $161,000 principal balance (included in the notes payable of $874,394 as of December 31, 2010).
During August 2004, the Company entered into an agreement to settle a note payable in the amount of $100,000 plus accrued interest. The parties agreed to settle the debt for $130,800 payable as follows: Twelve consecutive payments of $6,000 payable monthly commencing August 31, 2004 and ending July 31, 2005; a lump-sum payment of $50,500 payable on July 31, 2005; and a one-time interest payment of $8,300 on July 31, 2005. The Company has recognized a $38,610 gain on forgiveness of accrued interest related to this transaction. Scheduled payments were not made on the note and the company is currently in default. The Company currently has accrued $34,709 for interest (included in the accrued interest of $725,692 as of December 31, 2010) in addition to the $71,500 principal balance (included in the notes payable of $874,394 as of December 31, 2010).
NOTE 8-STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue up to 20,000,000 shares of preferred stock, $.01 par value per share in series to be designated by the Board of Directors.
COMMON STOCK
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
CONVERSION OF DEBT
During 2010, the Company entered into various agreements to convert $474,549 of principal and $50,495 of accrued interest into 996,977,751 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $1,289,370. The Company recorded a loss on settlement of debt of $764,326.
During 2009, the Company entered into various agreements to convert $1,123,789 of principal and $145,691 of accrued interest into 691,572,602 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $3,312,396. The Company recorded a loss on settlement of debt of $2,039,584.
STOCK ISSUED FOR SERVICES
During the year ended December 31, 2010, the Company issued an aggregate of 145,777,780 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $243,266.
During the year ended December 31, 2010, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, professional and public relations services. As compensation for the services rendered, the Company issued 90,222,220 shares of common stock, valued at $160,976, the fair market value of the stock on the day of issuance.
During the year ended December 31, 2009, the Company issued an aggregate of 172,471,654 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $779,052
During the year ended December 31, 2009, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, professional and public relations services. As compensation for the services rendered, the Company issued 120,720,424 shares of common stock, valued at $992,380, the fair market value of the stock on the day of issuance.
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 3,000,000 shares of 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 reserved 330,000,000 shares of common stock for awards to be made under the Plan. 326,854,165 of the shares reserved under this plan have been issued.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
On July 1, 2008, the Board of Directors adopted the 2008-3 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of 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 2,500,000 shares of 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 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 3,800,000 shares of 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. 200,000,000 of the shares under this plan have been issued.
The company granted 44,000 restricted shares during the year ended December 31, 2010 vesting over a six month period. The Company recognized marketing expenses over a straight-line basis over the vesting periods based on the market price of their stock at grant date.
The Company granted 100,800,000 restricted shares during the year ended December 31, 2009. Of the shares granted, 100,000,000 shares vested immediately and 800,000 shares vest over a six-month period. The Company recognized marketing expense on a straight-line basis over the vesting periods based on the market price of their stock on the grant date. The Company recognized $0 and $898,429 in marketing expense during the years ended December 31, 2010 and 2009 respectively, due to the restricted shares.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
WARRANTS
There were no warrants granted during 2010 and 2009.
The following table summarizes the activity of options and warrants under all agreements and plans for the two years ended December 31, 2010 and 2009:
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 year ended December 31, 2010 includes compensation expense for all stock-based compensation awards vested during year ended December 31, 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 year ended December 31, 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.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The following table summarizes information about stock options and warrants outstanding at December 31, 2010:
NOTE 9 - INCOME TAXES
The income tax provision (benefit) for the years ended December 31, 2010 and 2009 differs from the computed expected provision (benefit) at the federal statutory rate for the following reasons:
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The components of the deferred tax assets and (liabilities) as of December 31, 2010 and 2009 were as follows:
The components of the deferred tax (expense) benefit were as follows for the years ended December 31, 2010 and 2009:
As of December 31, 2010, the Company has net operating losses carryforwards of approximately $ 33,600,000 expiring in 2011 through 2025.
NOTE 10- COMMITMENTS AND CONTINGENCIES
LITIGATION
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 December 31, 2010, $411,500 has been accrued.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
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 December 31, 2010, The Company has $559,303 accrued for including interest relating to this matter which is part of notes payable and accrued interest in the accompanying balance sheet as of December 31, 2010.
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. UDT has been current on all of its agreed payments to Plaintiff. As of December 31, 2010, $28,098 was due under the agreement which is included in the accounts payable in the accompanying balance sheet as of December 31, 2010.
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. A 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.
e)
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 UDT and our CEO, Jacques Tizabi, as a result of a personal guarantee. UDT and our CEO dispute that the fees are owed and intends to oppose the suit.On December 15, 2010, Defendants filed an Answer which asserts several defenses. The parties have exchanged initial disclosures, and the matter has been set for trial commencing on December 5, 2011. Formal discovery has not yet commenced.
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.
EMPLOYMENT AGREEMENTS
In September 2001, the Company entered into an employment agreement with its President and Chief Executive Officer. Under the agreement, base salary is $250,000 to be adjusted on an annual basis. The Company granted options to purchase 5,750 shares of its common stock exercisable at $60 per share.
On August 23, 2004, the Company entered into an amendment of the employment agreement with its President and Chief Executive Officer. The amendment provides that $100,000 of the Officer's annual salary shall be accrued as payable until such time as the Company has the financial resources to pay any or all of the accrued amount. The agreement also provides for salary increases of 5% per year commencing January 1, 2006, and an extension of the term of the agreement until December 31, 2011. In addition, automobile cost is limited to a maximum of $2,500 per month and the Company will reimburse the officer for individual life insurance premiums up to $1,000 per month and for health insurance premiums and related expenses.
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
The Company is obligated to make certain minimum salary payments as follows:
YEAR ENDING DECEMBER 31,
LICENSE AGREEMENT
On September 30, 2003, the Company entered into a license agreement with CalTech whereby CalTech granted the Company an exclusive, royalty-bearing license to make, use, and sell all products that incorporate the technology that was developed under the Technology Affiliates Agreement with JPL and is covered by related patents. In addition, the grant includes a nonexclusive, royalty-bearing license to make derivative works of the technology. The Company is required to make quarterly royalty payments to CalTech, ranging from 2% to 4% of net revenues for each licensed product made, sold, licensed, distributed, or used by the Company and 35% of net revenues that the Company receives from sublicensing the licensed products. A minimum annual royalty of $10,000 was due and paid to CalTech on August 1, 2005 and each anniversary thereof. The minimum royalty will be offset by the above mentioned royalty payments, if any.
To maintain its license with Cal Tech, a minimum annual royalty of $10,000 was due Caltech on August 1, 2005, and is due on each anniversary thereof, regardless of product sales. Any royalties paid from product sales for the 12-month period preceding the date of payment of the minimum royalty will be credited against the annual minimum. Pursuant to the terms of the license, the Company must pay four percent royalties on product sales in countries where a patent is issued and two percent royalties on product sales in countries where a patent is not issued, as well as 35 percent of net revenues received from sub-licensees. As of the date of this report the Company has not paid the $10,000 royalty due Caltech on August 1, 2007. The Company and Caltech entered into a second amendment to the Company’s license agreement, dated December 1, 2006, and which provides that the overdue amounts shall be paid to Caltech in ten monthly installments of $8,632. To date, the Company has made four of the monthly installments called for in the second amendment to its license agreement with Caltech. On June 23, 2009, Caltech sent a letter to the Company asserting certain breaches by the Company of the License Agreement between Caltech and the Company and attempting to terminate the Agreement. The Company disagrees with the various assertions made by Caltech in the letter and has requested that Caltech submit to arbitration all matters in dispute. To date, no further action has been taken and the Company does not continue to perform under the License Agreement.
OPERATING LEASES
On June 1, 2009, the Company entered into a lease agreement to lease office space commencing June 1, 2009 through May, 31, 2012.
Minimum annual lease payments under this lease are as follows:
Rent expense was $87,024 and $87,204 for 2010 and 2009, respectively.
NOTE 11 SUBSEQUENT EVENTS
During the first quarter of 2011, the Company entered into agreements converting $196,833 in principal and accrued interest into 1,437,180,095 shares of its common stock. During the first quarter of 2011, the Company issued 1,334,580,095 of the shares valued at $671,475. 102,600,000 shares valued at $30,780 are still pending.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. 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 acting Chief Financial Officer ("CFO"), 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 reporting period covered by the Company's Annual Report on Form 10-K, December 31, 2010. For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Based on such evaluation, our Chief Executive Officer and Acting Chief Financial 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 Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Report on Internal Control over Financial Reporting
Our Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
* Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
* Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
* Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2010 Management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of the end of the period covered by this report, such internal controls over financial reporting were not effective to control deficiencies that constituted material weaknesses. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affect our internal controls and that may be considered to be a material weakness. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.
The matters involving internal controls over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board included the lack of a fully functioning audit committee resulting in ineffective oversight in the establishment and monitoring of required internal controls over financial reporting. In addition, our Chief Executive Officer and Acting Chief Financial Officer identified a lack of sufficient internal accounting and book keeping staff and accountability. Because of the Company's severe cash constraints, there are no employees or contractors dedicated solely to the functions of book keeping or accounting. In addition, the Company's current personnel lack sufficient skills, training and experience in the review process in order to ensure the complete and proper application of generally accepted accounting principles. In addition, the Company can only afford to retain its outside accountants to review the books and records of the Company on a quarterly basis and in connection with the annual audit of financial statements, whereas more timely and increased periodic reviews would be beneficial to the Company's internal controls over financial reporting pending development of an internal accounting staff. These material weaknesses were identified by our Chief Executive Officer and Acting Chief Financial Officer in connection with the review of our financial statements as of December 31, 2010.
In addition, Management has identified the following internal control deficiencies:
·
We did not have formal policies governing accounting transactions and financial reporting processes;
·
We did not have a consistent process involving the entry of transactions into the Company's financial recordation system by dedicated personnel;
·
We did not perform adequate oversight by management of certain accounting functions of our employees and maintained inadequate documentation of management review and approval of accounting transactions and financial reporting processes.
Management is in the process of developing and implementing remediation plans to address its material weaknesses. Management has identified specific remedial actions to address the material weaknesses described above:
o Augment existing Company resources with additional consultants or employees to improve the recording of accounting transactions. The Company plans to hire additional personnel once the Company has achieved further commercialization of its products and is generating more revenue, or has raised significant additional working capital;
o Improve oversight by management by creating a system of periodic and monthly reviews of financial transactions and the recordation of transactions into the Company's financial recordation system;
o Adopt an audit committee charter delineating the committees duties with respect to the review and oversight of the Company's financial statements, auditors and audit process; and
o Retain the services of the Company's outside accountants for periodic and intermittent review of the Company's financial data outside of the quarterly and annual procedures for the preparation of quarterly and annual reports and financial statements, upon the Company obtaining capital or generating additional revenue.
Changes in Internal Controls Over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the names, ages, positions and business experience of our directors, executive officers, and key employees as of April 15, 2011:
Name
Age
Position
Jacques Tizabi
President, Chief Executive Officer, Acting Chief Financial Officer, Director, and Secretary
Matin Emouna (1)
Director
Tom Sepenzis
Director
(1) Member of Audit and Compensation Committees.
All directors hold office until the next annual meeting of our shareholders and until their successors have been elected and qualified. Officers serve at the pleasure of the board of directors.
There are no family relationships among any of our directors, executive officers, or persons nominated or chosen as our directors or executive officers.
Business Experience
JACQUES TIZABI has been the Chief Executive Officer, President and Chairman of the Board of Directors of our Company, and Acting Chief Financial Officer since October 2001. Mr. Tizabi spends on average 40-50 hours per week providing services to us. He oversees all material aspects of the Company’s operations.
MATIN EMOUNA has served as a director of our Company since October 2001. Since 1997, Mr. Emouna has maintained his own law practice in New York, where he represents foreign and domestic clients in a broad range of real estate transactions, with emphasis on new constructions, commercial real estate transactions, shopping center development, financing, international business matters, and commercial leasing. He holds B.S. degrees in Business Administration and Spanish from New York State University at Albany and a J.D. from Benjamin N. Cardozo School of Law. His experience in both law and international trade are helpful to the Company.
TOM SEPENZIS became a director of our Company in April of 2009. Mr. Sepenzis worked for over a decade on Wall Street, becoming one of the most highly respected telecommunications analysts, earning the #1 ranking by Forbes magazine one week before his departure. Starting his career as an equities trader at Punk, Ziegel in 1993 he later moved to the firms Soundview Financial (1996), Piper Jaffrey (1998), CIBC World Markets (2000), and Think Equity (2002) as a telecommunications analyst. Switching careers to the entertainment business, he now is the CEO and founder of Ascension Pictures, in which capacity he produces and directs commercials, music videos, documentaries and full length feature films.
Involvement in Certain Legal Proceedings
None of the directors or executive officers have, during the past ten years:
·
Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
·
Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
·
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
(i)
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
(ii)
Engaging in any type of business practice; or
(iii)
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
·
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;
·
Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated ;
·
Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated.
·
Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
(i)
Any federal or state securities or commodities law or regulation; or
(ii)
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
(iii)
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
·
Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
COMMITTEES
Our Audit Committee currently consists of Mr. Matin Emouna. Mr. Emouna is independent within the meaning of the applicable NASDAQ listing standards and applicable rules and regulations promulgated by the Securities and Exchange Commission. Our Audit Committee currently does not have a financial expert within the meaning of the applicable SEC rules as management does not believe one is necessary in light of the Company's current stage of product development.
Our Compensation Committee determines matters pertaining to the compensation and expense reporting of certain of our executive officers, and administers our stock option, incentive compensation, and employee stock purchase plans. Our Compensation Committee currently consists of Mr. Matin Emouna.
CODE OF ETHICS
We have adopted a Code of Business Conduct and Ethics which is designed to set the standards of business conduct and ethics and help directors and employees resolve ethical issues. The Code applies to all directors and employees, including the Chief Executive Officer and Chief Financial Officer and other persons performing similar functions. The Code covers topics including, but not limited to, conflicts of interest, confidentiality of information, fair dealing with customers, supplies and competitors, and compliance with applicable laws, rules and regulations. The purpose of the Code is to ensure to the greatest possible extent that our business is conducted in a consistently legal and ethical manner. Upon written request to the Company, we will provide a copy of the Code free of charge. Any such request should be directed to the Company at the address set forth on the cover page of this annual report.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership, and reports of changes in ownership, of our common stock and other equity securities of ours. Executive officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports that they file. To our knowledge, based solely representations from our executive officers and directors that no other reports were required during the fiscal year ended December 31, 2010, we believe our executive officers, directors and greater than ten percent shareholders of our common stock, complied with all Section 16(a) filing requirements applicable to them.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following executive compensation disclosure reflects all compensation awarded to, earned by, or paid to the executive officers below for the fiscal years ended December 31, 2010 and 2009. The following table summarizes all compensation for fiscal years 2010 and 2009 received by our Chief Executive Officer. No other executive officer earned in excess of $100,000 in fiscal year 2010.
The salary amounts listed in the table above were not paid, but are accrued.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth certain information regarding outstanding equity awards granted to our CEO.
All option awards listed about are fully vested as of December 31, 2010.
DIRECTOR COMPENSATION
We currently do not pay our directors any compensation, and there is no director compensation to report for our fiscal year ended December 31, 2010.
EMPLOYMENT AGREEMENTS
We have an employment agreement with Jacques Tizabi. Mr. Tizabi's employment agreement, dated as of September 24, 2001, and amended August 23, 2004, provides for Mr. Tizabi to serve as our Chairman of the Board, Chief Executive Officer and President until December 31, 2010, unless otherwise extended. We have agreed to extend Mr. Tizabi’s employment agreement until December 31, 2015. The employment agreement provides for Mr. Tizabi to receive an annual base salary of $250,000, subject to salary increases of 5% per year commencing January 1, 2006. Mr. Tizabi also is entitled to specified perquisites, including participation in any group life, medical, disability and other insurance plans provided by us, use of a luxury automobile approved by the compensation committee (with a maximum cost of $2,500 per month), monthly dues for club memberships not to exceed $1,500 per month, and reimbursement of entertainment expenses provided to our customers, vendors, and strategic partners. To date, Mr. Tizabi has not received any of these specified perquisites.
If Mr. Tizabi's employment is terminated due to his death, the employment agreement provides that we will pay Mr. Tizabi's estate his remaining base salary during the remaining scheduled term of the employment agreement, accelerate the vesting of his options and continue to provide family medical benefits. If Mr. Tizabi's employment is terminated due to his disability, the employment agreement provides that we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement (reduced by any amounts paid under long-term disability insurance policy maintained by us for the benefit of Mr. Tizabi).
If Mr. Tizabi terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Tizabi terminates automatically, we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement and an amount based on his past bonuses and continue to provide specified benefits and perquisites.
If Mr. Tizabi terminates the employment agreement without cause or we terminate the employment agreement for cause, Mr. Tizabi is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay.
If any of the payments due Mr. Tizabi upon termination qualifies as "excess parachute payments" under the Internal Revenue Code, Mr. Tizabi also is entitled to an additional payment to cover the tax consequences associated with these excess parachute payments.
Mr. Tizabi has agreed that he will defer payment of all accrued but unpaid bonus or salary, or other compensation payable to him in excess of $150,000 per year, beginning in 2005 until future years. In 2009, Mr. Tizabi received the following as a reduction of the accrual of his unpaid bonus or salary since 2005: 127,386,666 shares of the Company’s common stock with a fair market value of $392,160 on the date of issuance along with cash payments or payments made by the Company on behalf of Mr. Tizabi totaling $158,257.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
BENEFICIAL OWNERSHIP
The following table sets forth information as of April 15, 2011, relating to the ownership of our common and preferred stock, by (i) each person known by us to be the beneficial owner of more than five percent of the outstanding shares of each class of our capital stock, (ii) each of our directors and nominees, (iii) each of our named executive officers and (iv) all of our executive officers and directors as a group. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each person has the sole voting and investment power with respect to the shares owned. The address of each person listed is in care of Universal Detection Technology, 340 N. Camden Drive, Suite 302, Beverly Hills, California 90210.
Name of Beneficial Owner
Number of Shares of
Common Stock
Beneficially Owned (1)
Percent of Class (1)
Jacques Tizabi,
President, CEO, Acting CFO, Director
127,926,416 (2)
10.4%
Matin Emouna
Tom Sepenzis
All current directors and executive officers as a group (3 members)
127,926,416
10.4%
(1)
Under Rule 13d-3 under the Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by that person (and only that person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership with respect to the number of shares of our common stock actually outstanding at April 15, 2011. As of April 15, 2011, we had 3,587,599,829 common shares, no par value, outstanding.
(2)
Includes 539,750 shares that may be acquired upon the exercise of fully vested options.
CHANGE IN CONTROL
We are not aware of any arrangement that might result in a change in control in the future.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Described below are certain transactions or series of transactions since January 1, 2009 between us and our executive officers, directors and the beneficial owners of five percent or more of our common stock, on an as converted basis, and certain persons affiliated with or related to these persons, including family members, in which they had or will have a direct or indirect material interest in an amount that exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, other than compensation arrangements that are otherwise required to be described under “Executive Compensation.”
During the year ended December 31, 2010, the Company borrowed a total of $318,828 from its president and chief executive officer under various written and oral promissory note agreements executed by the Company. The notes had interest rates ranging from 0% to 15%. The Company repaid notes totaling $20,826 and interest of $526. As of December 31, 2010, $340,075 in principal and $639 in interest was due.
For the period from January 1, 2011 through April 14, 2011, the president and chief executive officer for the Company had advanced $22,044 to the Company for expenses. The Company did not make any payments to its president and chief executive officer for the period. As of April 14, 2011, $362,119 in principal and $639 in interest was due to the president and chief executive officer for various promissory note agreements executed by the Company and for advances expenses. The notes had interest rates ranging from 0% to 15%.
Director Independence
Mr. Matin Emouna and Mr. Tom Sepenzis are independent directors as that term is defined by NYSE Rule 303A.02(a). The Company currently does not have a nominating/corporate governance committee. Of the members of the Company’s board of directors, Messrs. Matin Emouna and Tom Sepenzis meet the NYSE’s independence standards for members of such committees and Mr. Jacques Tizabi does not meet the NYSE’s independence requirements for members of such committees.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
Prior to engagement, the Audit Committee pre-approves all audit or non-audit services to be performed by our independent auditors. The Audit Committee approved the engagement of Kabani & Company as our independent auditors for $40,000. The Audit Committee also approved an additional $18,000 for audit related services related to our quarterly filings.
AUDIT FEES
Summary of Principal Accounting Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by Kabani & Company, our independent registered public accountants, in the fiscal years ended December 31, 2010 and 2009.
Audit Fees
The aggregate fees billed by Kabani & Company for the audit and review of our annual financial statements and services that are normally provided by an accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2010 and 2009, were approximately $40,000 and $40,000, respectively.
Audit-Related Fees
The aggregate fees billed by Kabani & Company for assurance and related services rendered by Kabani & Company that are reasonably related to the performance of the audit or review of our financial statements for the fiscal years ended December 31, 2010 and 2009 were $18,000 and $18,000, respectively.
Tax Fees
No fees were billed by Kabani & Company for professional services rendered for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2010 and 2009.
All Other Fees
No other fees were billed by Kabani & Company for the fiscal years ended December 31, 2010 and 2009.
ITEM 15.
ITEM 15. EXHIBITS
The following documents are filed as part of this Annual Report on Form 10-K:
(a)
Documents filed as a part of this report:
(1)
Financial Statements
The financial statements of Universal Detection Technology and its subsidiaries for the periods ended December 31, 2010 and 2009 and Kabani & Company’s report dated April 14, 2011.
(2)
Financial Statement Schedules
Not required.
(b) Exhibits:
----------------------------
* Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 2011
UNIVERSAL DETECTION TECHNOLOGY
By:
/s/ Jacques Tizabi
Jacques Tizabi, President, Chief Executive
Officer, Acting Chief Financial Officer, and Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jacques Tizabi, his attorney-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming said attorney-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: April 15, 2011
/s/ Jacques Tizabi
Jacques Tizabi, President, Chief Executive
Officer, Acting Chief Financial Officer, and Chairman of the Board of Directors
Date: April 15, 2011
/s/ Tom Sepenzis
Tom Sepenzis,
Director
Date: April 15, 2011
/s/ Matin Emouna
Matin Emouna,
Director