UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K


(Mark
      One):





ý
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the fiscal year ended December 31, 2009ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period fromto





Commission File
Number 000-14266





UNIVERSAL
DETECTION TECHNOLOGY


(Exact
name of registrant as specified in its charter)


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





340
      North Camden Drive, Beverly Hills, CA
            
            90266(Address
      of principal executive offices)
            
            (Zip
      Code)





Registrant’s
telephone number, including area code: (310) 248-3655





Securities
registered pursuant to Section 12(b) of the Act: None





Securities
registered pursuant to Section 12(g) of the Act: Common Stock, no par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o    No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o    No þ





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes o
    No o





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





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





Large
      accelerated filer o
            Accelerated
      filer oNon-accelerated
      filer o  (Do
      not check if a smaller reporting company)
            Smaller
      reporting company þ





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. The aggregate market value of the common stock held by non-affiliates
as of Arpril 12, 2010 was $4,670,945. As of April 12, 2010, there were
1,229,196,260 shares of the registrant’s common stock outstanding.




















PART 1




FORWARD-LOOKING
STATEMENTS




This
annual report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, which we refer
to in this annual report as the Securities Act, and Section 21E of the
Securities Exchange Act of 1934, as amended, which we refer to in this annual
report as the Exchange Act. Forward-looking statements are not statements of
historical fact but rather reflect our current expectations, estimates and
predictions about future results and events. These statements may use words such
as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project"
and similar expressions as they relate to us or our management. When we make
forward-looking statements, we are basing them on our management's beliefs and
assumptions, using information currently available to us. These forward-looking
statements are subject to risks, uncertainties and assumptions, including but
not limited to, risks, uncertainties and assumptions discussed in this annual
report. Factors that can cause or contribute to these differences include those
described under the headings "Risk Factors" and "Management Discussion and
Analysis and Plan of Operation."




If one or
more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from what
we projected. Any forward-looking statement you read in this annual report
reflects our current views with respect to future events and is subject to these
and other risks, uncertainties and assumptions relating to our operations,
results of operations, growth strategy and liquidity. All subsequent written and
oral forward-looking statements attributable to us or individuals acting on our
behalf are expressly qualified in their entirety by this paragraph. You should
specifically consider the factors identified in this annual report which would
cause actual results to differ before making an investment decision. We are
under no duty to update any of the forward-looking statements after the date of
this annual report or to conform these statements to actual
results.




ITEM
1. DESCRIPTION OF BUSINESS




CORPORATE
HISTORY




Universal
Detection Technology (the "Company" or "We") has been engaged in the research,
development and marketing of bioterrorism detection devices. We were
incorporated on December 24, 1971, under the laws of California. Our core
business for over twenty years was the design, manufacture, marketing and sale
of automated continuous air monitoring instruments used to detect and measure
various types of air pollution, such as acid rain, ozone depletion and smog
episodes. We also supplied computer-controlled calibration systems that verified
the accuracy of our instruments, data loggers to collect and manage pollutant
information, and our reporting software for remote centralized applications. In
September 2001, we retained a new management team. At that same time, the
members of the Board of Directors resigned and new members were appointed. In
the first quarter of 2002, management recommended to the Board, and the Board
approved, a change to our strategic direction. In March 2002, we sold our sole
operating subsidiary and reconfigured one of our existing air monitoring
instruments in order to develop the Anthrax Detector, later renamed BSM-2000. In
2006 we expanded our business activities and included new products and services
that would compliment our core counter bioterrorism expertise. These products
and services include anthrax detection kits, first responder training courses
and reference videos, radiation detection systems, and research &
development.




OVERVIEW




We have
been engaged in the research, development, and marketing of bioterrorism
detection devices. Our strategy is to identify qualified strategic partners with
whom to collaborate in order to develop commercially viable bioterrorism
detection devices. Consistent with this strategy, in August 2002, we entered
into a Technology Affiliates Agreement with NASA’s Jet Propulsion Laboratory,
commonly referred to as JPL, to develop technology for our bioterrorism
detection equipment. Under the Technology Affiliates Agreement, JPL developed
its proprietary bacterial spore detection technology and integrated it into our
existing aerosol monitoring system, resulting in a product named BSM-2000.
BSM-2000 is designed to provide continuous unattended monitoring of airborne
bacterial spores in large public places, with real-time automated alert
functionality. The device is designed to detect an increase in the concentration
of bacterial spores, which is indicative of a potential presence of
Anthrax.





We plan
to engage more in value added services to complement our bioterrorism detection
technologies. Through partnerships with various third parties we now supply
bioterrorism detection kits capable of detecting anthrax, ricin, botulinum,
plague, and SEBs, radiation detection systems, and counter-terrorism training
references.





We plan
to continue expanding our product base and to sell our products to more users
inside and outside the U.S. There is no guarantee that we will succeed in
implementing this strategy or if implemented, that this strategy will be
successful. We plan to seek and find third parties interested in collaborating
on further research and development on BSM-2000. Such research shall be aimed at
making BSM-2000 more user-friendly, developing a less complicated interface and
software, and designing a lighter casing. The ideal third party collaborator
would also assist us in marketing BSM-2000 more aggressively. There is no
guarantee that any such collaborators will be found and, if found, that this
strategy will be successful. The current version of BSM-2000 is functional and
available for sale. In 2004, we sold two units to the Government of the United
Kingdom and we intend to develop a more wide-spread use for BSM-2000 through our
planned collaborative research, development, sales, and marketing efforts. On
July 28, 2009 we announced that Caltech has been granted a patent from the U.S.
Patent and Trademark Office (USPTO) for the core detection technology licensed
by Universal Detection Technology and used in our BSM-2000. The patent is the
second for the technology licensed from the California Institute of
Technology.





2


On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Compnay's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 1, Part II, of this
Report.




In 2009
we have realized revenues of 19,467 from sales. We have incurred losses for the
fiscal years ended December 31, 2009 and 2008 in the approximate amounts of $4.6
and $2.3 million, respectively, and have an accumulated deficit of $43.2 million
as of December 31, 2009. At December 31, 2009, we were in default on certain
debt obligations totaling approximately $434,000, in addition to accumulated
interest of approximately $528,000. We require approximately $1.3 million in the
next 12 months to repay debt obligations. We do not anticipate that our cash on
hand is adequate to meet our operating expenses over the next 12 months. In
addition, we do not have adequate capital to repay all of our debt currently due
and becoming due in the next 12 months. We principally expect to raise funds
through the sale of equity or debt securities. However, during the past 12
months, management spent the substantial majority of its time on sales and
marketing of Company’s products and services in target markets. These activities
diverted management from the time it otherwise would spend negotiating sales of
securities to raise capital. In addition, the recent price and volume volatility
in the common stock has made it more difficult for management to negotiate sales
of its securities at a fair price. We actively continue to pursue additional
equity or debt financing, but cannot provide any assurances that it will be
successful. 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.




In May
2004, we unveiled the first functional prototype of BSM-2000. The prototype
operated on external software. In July 2004, we commenced simulated tests with
benign bacterial spores having anthrax-like properties in order to fine tune our
product. The use of benign spores is as effective as testing with anthrax spores
because our device is designed to detect an increase in bacterial spore
concentration levels. Based on results we obtained, we were able to enhance the
sensitivity of BSM-2000 by improving the sample collection efficiency of the
device, and made certain other modifications to improve efficiency. While more
testing and development is needed to enhance the performance of our BSM-2000 and
to make it more user-friendly, the device is a functional product, available for
sale.





Starting
in 2006, we followed a diversification strategy pursuant to which we have added
various other services to our BSM-2000, biological detection system. 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, training courses, and event security to our
services.  We have also started sales and marketing of security and
counter-terrorism products including bioterrorism detection kits, radiation
detection systems, and training references. Some of our products and services
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 seek and find third parties interested in collaborating on further research
and development on BSM-2000. Such research shall be aimed at making BSM-2000
more user-friendly, developing a less complicated interface and software,
designing a lighter casing, and some cosmetics. The ideal third party
collaborator would also assist us in marketing BSM-2000 more aggressively. There
is no guarantee that any such collaborators will be found and, if found, that
this strategy will be successful. The current version of BSM-2000 is fully
functional and available for sale. To date, we have sold two units to the
Government of the United Kingdom and we intend to develop a more wide-spread use
for BSM-2000 through our planned collaborative research, development, sales, and
marketing efforts. Our list price for BSM-2000 is $109,000. The manufacturing of
BSM-2000 is outsourced to Original Equipment Manufacturers (OEM). We do not have
any in-house manufacturing capabilities and do not intend to develop any until
we reach high volumes of sales for BSM-2000 that would justify such
facilities.





In
February 2006, the Company expanded its relationship with Caltech by licensing
additional technologies in the field of microbial monitoring and sterility
verification. While the Company plans to commercialize the microbial monitoring
technology for use in hospitals, it has not yet started any such activities and
there is no guarantee that it will in the near future. The Company also
commenced work on developing smart ticket assay for detection of anthrax spores.
Smart ticket assays are rapid field tests that are similar to common home
pregnancy tests. Further research and development is needed to fully
commercialize these smart ticket assays and presently there is no guarantee that
the Company will have necessary funding and resources to conduct such research
and development. Through parallel efforts for development of its proprietary
smart ticket assays, the Company entered an agreement with a third party,
whereby it markets and sells lateral flow assays capable of rapid on-site
detection of five bioterrorism agents.





On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Company's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 1, Part II, of this
Report.





3


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 is intended to consolidate the
federal government's efforts to secure the 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. A number of
companies have developed or are in the process of developing various methods to
detect harmful pathogens in the air, on surfaces, and in food and water through
genetic analysis, including DNA or RNA analysis. In recent years, significant
advances in molecular biology have led to the development of increasingly
efficient and sensitive techniques for detecting and measuring the presence of a
particular genetic sequence in a biological sample. Genetic testing involves
highly technical procedures, including:





·
            Sample
      preparation - procedures that must be performed to isolate the target
      cells and to separate and purify their nucleic
  acids;


·
            Amplification
      - a chemical process to make large quantities of DNA from the nucleic
      acids isolated from the sample; and


·
            Detection
      -  the method of determining the presence or absence of the
      target DNA or RNA, typically through the use of fluorescent
      dyes.




Existing
technologies for determining the genetic composition of a cell or organism
generally face the following limitations:




·
            Require
      skilled technicians and special laboratories. Currently available methods
      and systems for genetic analysis require skilled technicians in a
      controlled laboratory setting, including, in many cases, separate rooms to
      prevent contamination of one sample by another. Some progress has been
      made to automate this process.


·
            Large
      and inflexible equipment. Most currently available genetic analysis
      equipment is large and inflexible and requires a technically complex
      operating environment. New designs are attempting to address
      miniaturization of equipment.


·
            Timeliness
      of result. Current sample preparation, amplification and detection
      technologies rely on processes that often require hours to complete,
      rendering results that may not be timely enough to be medically useful.
      Some new instruments are attempting to reduce analysis
    times.


·
            Sensitivity
      constraints. Some existing technologies accept and process only very small
      sample volumes, forcing laboratory technicians to spend significant effort
      in concentrating larger samples in order to obtain the required level of
      sensitivity for detecting and measuring the presence of a genetic
      sequence.


·
            Lack
      of integration. We believe that current amplification and detection
      systems do not fully automate and integrate sample preparation into their
      processes in a manner that can be useful in a non-laboratory setting in a
      cost effective fashion.


·
            Operational
      Cost. The operating costs for existing technologies can be extremely high,
      making the implementation of the device
  cost-prohibitive.


·
            False
      Positives. Most existing technologies are susceptible to false positive
      results, which can have significant social and economic
      consequences.




Currently,
the two most commonly used methods for genetic testing are microbial culture and
Polymerase Chain Reaction, commonly referred to as PCR. With microbial culture,
a sample from the environment is placed into a small laboratory dish containing
a nutrient rich media. The microbial culture is allowed to grow for a specified
period of time, usually between 24-48 hours. The sample is then examined and a
determination is made as to whether an organism is present in the sample.
Although highly accurate, the disadvantages of microbial cultures are the time
required to determine the presence of an organism and the need for a laboratory
and an expertise in culture preparation and analysis.


4




PCR has
been one of the most promising methods for an automated anthrax detection
system. PCR amplifies DNA targets of choice, such as gene sequences encoded for
the anthrax toxins to detectable levels. PCR is very sensitive and is able to
detect very small amounts of DNA. But, the PCR process typically requires about
three to eight hours to complete, plus an additional three hours for sample
preparation time, which must usually be performed by a trained technician. Some
developments have been made to automate the PCR process and reduce the analysis
time. Nonetheless, the process is very expensive. We believe that the principal
desired characteristics of an anthrax detection system are sustained, online
operation with minimal maintenance, minimal susceptibility to false alarms, and
low operating costs. These attributes require that we address the limitations
inherent in most current technologies with a product that can operate as a
stand-alone detection device.




OUR
SOLUTION




Universal
Detection Technology's BSM-2000 combines a bio-aerosol capture device with a
chemical test for bacterial spores that is designed to accurately detect a
potential anthrax attack in a timely fashion. Our system is designed to function
as a first line of defense to detect a potential anthrax attack, on a fully
automated basis and at a low cost compared to existing technologies. Only upon
actual detection of a possible attack would first responders implement the more
expensive tests such as immunoassay or DNA testing techniques to verify the
identity of the detected spores. The BSM-2000 device, coupled with a testing
device to be used only in the event of actual detection, is designed to be
significantly less expensive than the existing competing technologies that are
used to detect and test for a possible anthrax attack. This is true in large
part because our device does not require the constant presence of experts or any
continuous testing mechanism for anthrax, both of which substantially increase
costs.




Universal
Detection Technology has also situated itself to provide various
counter-terrorism products services that can be complimentary to BSM-2000. These
products and services include handheld assays used for rapid detection of five
bioterrorism agents, training courses for first responders, event security,
threat evaluation & consulting, radiation detection systems, and DVDs aimed
at providing information and training regarding combating terrorism and managing
emergency situations. The Company’s bioterrorism detection kits can be used by
emergency personnel to determine whether a suspicious substance is actually
anthrax, botulinum toxin, ricin toxin, plague, or SEBs. So far the company has
sold these kits to both the US Army and private customers.




COMPANY
PRODUCTS




The
Company has situated itself to serve as a provider of counter terrorism
products, consulting, and solutions with a focus on bioterrorism detection. The
Company’s flagship product is an automated real-time bacterial spore detector,
called BSM-2000, used for detection of abnormal levels of airborne endospores
such as anthrax. In 2007, we expanded our product base to include small handheld
assays, radiation detection systems, and training material and reference
DVDs.




Our
BSM-2000 consists of the following four components:




·
            an
      air sampler for aerosol capture, which collects aerosolized particles on a
      fiber tape;


·
            thermal
      lysis for releasing the dipicolinic acid from the
  spores;


·
            reagent
      delivery via syringe pump; and


·
            a lifetime gated luminescence
      detection of the terbium-dipicolinate
  complex.




The
BSM-2000 is designed to continuously monitor the air and measure the
concentration of airborne bacterial spores. The testing intervals are adjustable
to respond to varying client needs and can be as short as 15 minutes. Bacterial
spores are captured on the glass fiber tape. Next, thermal lysis "pops" the
endospores, releasing a chemical from inside the endospore called dipicolinic
acid, which is unique to bacterial spores. Then, a syringe pump adds a drop of
terbium containing solution to the tape on the location where the endospores
were lysed. Finally, a lifetime gated photometer measures the resultant terbium
dipicolinate luminescence intensity, which is proportional to the bacterial
spore concentration on the tape. A large change in endospore concentration is a
strong indication of an anthrax attack, because endospores are the means by
which anthrax travels.




Pursuant
to our development plan, if an increase in spore concentration is detected, an
alarm can sound notifying both a building's internal security as well as local
emergency services through the device's landline or wireless networking
capability. The system can be adjusted to ensure that the maximum time it takes
to detect, and generate an alarm in response to a release of bacterial spores is
approximately 15 minutes, which is designed to be adequate to substantially
reduce the likelihood of widespread contamination. This response time also
provides adequate time to begin antibiotic treatment prior to the onset of
symptoms which can arise within two to three days if left untreated. The system
is designed for constant and unattended monitoring of spaces such as public
facilities and commercial buildings.




JPL's
detection technology is designed to sound an alarm only when it detects a
significant increase in spore count. Natural background fluctuation of airborne
endospores are very low, approximately 0.1 to 1 spore per liter of air, compared
to an anthrax attack which would result in a concentration swing many orders of
magnitude greater than background levels. Also, our device does not detect
spores from other microorganisms, such as fungi and molds, and discriminates
against detecting aerosol components such as dust. In addition, upon
installation of the device, we expect to operate it for seven to ten days to
measure the natural concentrations of bacterial spores in the area in which the
device operates, so that the triggering threshold of that device will be set at
an appropriate level for that environment.




It is
only upon detection of a significant increase in spore count, that our device is
triggered and the sample collected is tested. In contrast, existing competing
technologies require testing of ambient air samples continuously, which is very
expensive, either because of the expert personnel required or the costs of the
continuous immunoassay or DNA testing. In addition, these competing technologies
may be more likely to result in false positives due to the volume of tests
performed. In contrast, BSM-2000 is designed so that testing occurs only
following an actual detection of substantially increased spore count, which
significantly reduces the number of overall tests performed. Also, generally an
increase in spore count, whether anthrax or benign, is unusual, and arises as a
result of intentional conduct, which may be important to investigate even if the
spores released ultimately were not harmful.


5




False
positive results are problematic not only for the obvious reason relating to
their level of accuracy, but also because of the cost and consequences of a
false alarm. On one occasion, a false anthrax alarm shut down 11 postal
facilities in the Washington D.C. area. BSM-2000 is designed to function as a
stand-alone product to detect a likely Anthrax threat, but does not provide a
testing mechanism for samples collected that trigger the device. The BSM-2000
device is designed to function as a complement to an existing bioterrorism
detection device in places such as public buildings and stadiums. For example,
BSM-2000 is designed to serve as a front-end monitor to a PCR-based device. In
the case that our device detects a substantial increase in spore count, the
PCR-based device would be employed to test the sample collected.




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 BSM-2000 in the United States and
internationally. In the United States, we plan to continue presenting our
technology 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. The United States Army, Washington
DC Fire and Safety Management, and the Burbank Police Department have all
purchased our detection test kits and we plan to try and sell more in
2010.




In 2009
we continued to aggressively use the internet for spreading the word about
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 been successful in generating interest and traffic in Universal Detection
and its services. We intend to do more internet marketing and search engine
optimization activities in 2010.




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.




MANUFACTURING




Currently,
we do not have any manufacturing capabilities. In the past we have used two
third-party contractors for the manufacturing of our BSM-2000. These third
parties have manufactured three units for us to date. We have no agreements and
are not obligated to continue to work with any of our Original Equipment
Manufacturers (OEM). As such, we may choose to work with other OEMs in the
future.




RESEARCH
AND DEVELOPMENT




Under the
Technology Affiliates Agreement, JPL developed its proprietary bacterial spore
detection technology and integrated it into our existing aerosol monitoring
system, resulting in a product which initially we referred to as the Anthrax
Smoke Detector, and which we renamed BSM-2000 on April 21, 2005. BSM-2000 is
designed to provide continuous unattended monitoring of airborne bacterial
spores in large public places, with real-time automated alert functionality. The
device operates to detect an increase in the concentration of bacterial spores,
which is indicative of a potential presence of Anthrax. Under our agreement with
JPL, we paid it approximately $250,000 for its services and we received an
option to license all technology developed under the Technology Affiliates
Agreement from Caltech. On September 30, 2003, we exercised our option and
Caltech granted to us a worldwide exclusive license to the patent rights
referenced in the Technology Affiliates Agreement and a worldwide nonexclusive
license to rights in related proprietary technology. To maintain our license
with Caltech, a minimum annual royalty of $10,000 was due to Caltech on August
1, 2006, and is due on each anniversary thereof, regardless of any product
sales. Any royalties paid from product sales for the 12-month period preceding
the date of payment of the minimum annual royalty will be credited against the
annual minimum. We are in default of the August 1, 2008 annual royalty of
$10,000. Pursuant to the terms of the license, we 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.




We
reached an agreement with Caltech with regards to the payment of patent fees.
This agreement is signed in the form of a second amendment to our license
agreement with Caltech. Accordingly, we have agreed that we owe the amount of
$86,318.48 for patent costs incurred by Caltech prior to December 1, 2006 and
that this amount shall be paid to Caltech in ten monthly installments of
$8,631.85. To date, we are not up to date with the monthly installments called
for in the second amendment to our license agreement with Caltech.




On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Company's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 1, Part II, of this
Report.


6




We spent
an aggregate of 262,125 on research and development for the years ended December
31, 2003 to December 31, 2006. We paid the substantial majority of these amounts
($169,000 in fiscal 2003) to JPL under the Technology Affiliates
Agreement.




TESTING




In May
2004, we unveiled the first functional prototype of BSM-2000. The prototype
operated on external software. In July 2004, we commenced simulated tests with
benign bacterial spores having anthrax-like properties in order to fine tune our
product. The use of benign spores is as effective as testing with anthrax spores
because our device is designed to detect an increase in bacterial spore
concentration levels. Based on results we obtained, we were able to enhance the
sensitivity of BSM-2000 by improving the sample collection efficiency of the
device, and made certain other modifications to improve efficiency. Our device
is a functional viable product, available for sale, however, more work needs to
be done to reduce the weight and to ruggedize the device.




GOVERNMENTAL
APPROVAL




We are
not presently aware of any governmental agency approval required for BSM-2000
before we can sell it in the United States. We cannot assure you that BSM-2000
is not subject to or will not become subject to governmental approval. To the
extent that any governmental approval is required in the future, we intend to
obtain all required approvals consistent with applicable law. We cannot assure
you that future governmental regulation will not adversely affect our ability to
successfully commercialize a viable product.




EMPLOYEES




As of
December 31, 2009, we had a total of four 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. From time to time, we have been required to reduce our
research efforts while we seek to raise additional funds. 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, 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.





Cepheid,
a publicly traded company, focuses on the detection and analysis of DNA in
samples such as blood, urine, cell cultures, food and industrial air and water.
According to public disclosures of Cepheid, Northrop Grumnan is developing a
Biohazard Detection System that consists of a detection system (GeneXpert(R))
manufactured by Cepheid. This detection system offers rapid (about one hour) and
sensitive detection of specific gene sequences present in Bacillus anthracis,
the causative agent for anthrax. According to news releases of Cepheid, the
Biohazard Detection System has been installed at over 35 U.S. Postal Service
mail sorting facilities throughout the United States.





We also
expect to encounter intense competition from a number of established and
development-stage companies that continually 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




On
September 30, 2003, we entered into a license agreement with Caltech whereby we
received licenses to produce, provide and sell proprietary products, processes
and services for use in the detection of pathogens, spores, and biological
warfare agents. These licenses include a worldwide exclusive license to the
patent rights referenced in the Technology Affiliates Agreement with JPL and a
worldwide nonexclusive license to rights in related proprietary technology. We
also have a right under the agreement to grant sublicenses without rights to
sublicense further. Caltech reserves the right to produce, provide and sell the
licensed products, processes and services solely for noncommercial educational
and research purposes. The United States government also has a worldwide,
non-exclusive, non-transferable license to use or have used, for the performance
of work for it or on its behalf, any inventions covered by the patent rights or
the rights in the proprietary technology. The terms of the license further
require that our licensed products are manufactured substantially in the United
States, unless we can show that domestic manufacturing is not commercially
feasible.


7




On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Company's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 1, Part II, of this
Report.




On July
28, 2009 we announced that Caltech has been granted a patent from the U.S.
Patent and Trademark Office (USPTO) for the core detection technology licensed
by Universal Detection Technology and used in our BSM-2000. The patent is the
second for the technology licensed from the California Institute of
Technology.




As part
of the sale of our wholly-owned subsidiary, Dasibi Environmental Corp. to a
third party in March 2002, we obtained a perpetual nonexclusive license to
exploit all of Dasibi's intellectual property rights outside of mainland China.
Dasibi's core business had been the design, manufacture and marketing of
automated continuous monitoring instruments used to detect and measure various
types of air pollution, such as "acid rain," "ozone depletion" and "smog
episodes." Dasibi also supplied computer-controlled calibration systems that
verify the accuracy of our instruments, data loggers to collect and manage
pollutant information, and final reporting software for remote centralized
applications.





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 12, 2010, 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, 2009. 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, 2009 we are in
default on a portion of our debt totaling approximately $434,000 excluding
accumulated interest of approximately $528,000. In the aggregate, as of December
31, 2009, we have approximately $1.8 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. In addition, our common stock
trades on The Over the Counter Bulletin Board which makes it more difficult to
raise capital than if we were trading on The NASDAQ Stock Market. Also, our
default in repaying our debt restricts our ability to file registration
statements, including those relating to capital-raising transactions, on Form
S-3, which may make it more difficult for us to raise additional capital. In
July 2004, we completed a private placement resulting in net proceeds to us of
approximately $2.5 million, all of which have been used. As a condition to this
financing however, we agreed that we would not use the net proceeds to repay any
of our debt outstanding as of the closing of the financing. 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.


8




THE
BACTERIAL SPORE DETECTION TECHNOLOGY IS LICENSED TO US BY CALTECH. IF OUR
LICENSE TERMINATES, OUR FUTURE PROSPECTS WOULD BE HARMED.




The loss
of our technology license would require us to cease operations until we
identify, license and integrate into our product another technology, if
available. If we fail to fulfill any payment obligation under the terms of the
license agreement or materially breach the agreement, Caltech may terminate the
license. To maintain our license with Caltech, a minimum annual royalty of
$10,000 was due to Caltech on August 1, 2005, and is due on each anniversary
thereof, regardless of any product sales. Any royalties paid from product sales
for the 12-month period preceding the date of payment of the minimum annual
royalty will be credited against the annual minimum. As of the date of this
report, we have not yet paid the minimum annual royalty of $10,000 due on August
1, 2008. Under our license agreement, Caltech has the option to revoke our
license if payment has not been made fifteen days after receipt of the second
default notice from Caltech.




On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Company's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 3, Part I, of this
Report.




WE
HAVE A HISTORY OF LOSSES AND WE DO NOT ANTICIPATE THAT WE WILL BE PROFITABLE IN
FISCAL 2010.




We do not
anticipate generating significant sales of the BSM-2000 until after we complete
all testing and modifications, which is contingent principally upon receipt of
adequate funding and our ability to continue to form collaborative arrangements
with qualified third parties to engage in that testing at nominal cost to us. We
have not been profitable in the past years and had an accumulated deficit of
approximately $43.1 million at December 31, 2009. We have had little revenues
from sales of our products since the beginning of fiscal 2002, the commencement
of development of our BSM-2000. During the fiscal years ended December 31, 2009
and 2008, we had losses of $4.6 and $2.3 million, respectively. 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 2010.




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.




IF
WE CANNOT PARTNER WITH THIRD PARTIES TO ENGAGE IN RESEARCH AND DEVELOPMENT AND
TESTING OF OUR DEVICE AT MINIMAL COST TO US, OUR PRODUCT DEVELOPMENT WILL BE
DELAYED.




We
contract with third parties at minimal cost to us to conduct research and
development activities and we expect to continue to do so in the future. Because
we are unable to pay third parties to test our product and instead must rely on
a qualified third party's willingness to partner with us to test our product,
our research and development activities and the testing of our product may be
delayed. In addition, since we contract with third parties for these services,
we have less direct control over those activities and cannot assure you that the
research or testing will be done properly or in a timely manner.




MANAGEMENT
HAS NO EXPERIENCE IN PRODUCT MANUFACTURING, MARKETING, SALES, OR DISTRIBUTION.
WE MAY NOT BE ABLE TO MANUFACTURE OUR BACTERIAL SPORE DETECTOR IN SUFFICIENT
QUANTITIES AT AN ACCEPTABLE COST, OR IN A TIMELY FASHION, AND MAY NOT BE ABLE TO
MARKET AND DISTRIBUTE IT EFFECTIVELY, EACH OF WHICH COULD HARM OUR FUTURE
PROSPECTS.




If we are
unable to establish an efficient manufacturing process for the BSM-2000, our
costs of production will increase, our projected margins may decrease, and we
may not be able to timely deliver our product to customers. When and if we
complete all design and testing of our product, we will need to establish the
capability to manufacture it. Management has no experience in establishing,
supervising, or conducting commercial manufacturing. We plan to rely on third
party contractors to manufacture our product, although to date we have not
entered into any manufacturing arrangements with any third party. Relying on
third parties may expose us to the risk of not being able to directly oversee
the manufacturing process, which may adversely affect the production and quality
of our BSM-2000. In addition, these third party contractors may experience
regulatory compliance difficulty, mechanical shutdowns, employee strikes, or
other unforeseeable acts that may increase the cost of production or delay or
prevent production.


9




In
addition, 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 no experience in marketing or distributing
new products. We have not yet established marketing, sales, or distribution
capabilities for our BSM-2000. We plan on entering into distribution agreements
with third parties to sell our BSM-2000. If we are unable to enter into
relationships with third parties to market, sell, and distribute our products,
we will need to develop our own capabilities. We have no 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
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.




WE
CANNOT GUARANTEE THAT OUR BIOTERRORISM DETECTION DEVICE WILL WORK OR BE
COMMERCIALLY VIABLE.




Our
product in development requires testing, third party verification, potentially
additional modifications and demonstration of commercial scale manufacturing
before it can be proven to be commercially viable. Potential products that
appear to be promising at early stages of development may not reach the market
for a number of reasons. These reasons include the possibilities that the
product may be ineffective, unsafe, difficult or uneconomical to manufacture on
a large scale, or precluded from commercialization by proprietary rights of
third parties. We cannot predict with any degree of certainty when, or if, the
testing, modification and validation process will be completed. If our product
development efforts are unsuccessful or if we are unable to develop a
commercially viable product timely, we would need to consider steps to protect
our assets against our creditors.




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 ONLY
PRODUCT, THE BSM-2000.




Our
industry is subject to rapid and substantial technological change. Developments
by others may render our technology and planned product noncompetitive or
obsolete, or we may be unable to keep pace with technological developments or
other market factors. Competition from other biotechnology companies,
universities, governmental research organizations and others diversifying into
our field is intense and is expected to increase. According to the public
filings of Cepheid, one of our competitors, it has begun shipping its detection
technology product, including for use by the U.S. Postal Service. Cepheid's
entry into the market before us may make it more difficult for us to penetrate
the market. In addition, our competitors offer technologies different than ours
which potential customers may find more suitable to their needs. For example,
Cepheid's technology specifically detects for Anthrax whereas our technology
detects for an increase in the level of bacterial spores. Many of our
competitors also have significantly greater research and development
capabilities than we do, as well as substantially greater marketing,
manufacturing, financial and managerial resources.




SHARES
ISSUED UPON THE EXERCISE OF OUR OUTSTANDING OPTIONS AND WARRANTS 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, 2009, we had outstanding options and warrants to
purchase a total of 539,750 shares of common stock. Of these options and
warrants, all have exercise prices at or above the recent market price of
$0.0023 per share (as of March 31, 2010) and none have exercise prices at or
below this price.




WE
USE A SIGNIFICANT PORTION OF OUR CASH ON HAND AND STOCK TO PAY CONSULTING FEES.
WE MAY NOT RECEIVE THE BENEFIT WE EXPECT FROM THESE CONSULTANTS.




The
consultants that we hire may not provide us with the level of services, and
consequently, the operating results, we anticipate. We spent approximately $0.4
and $0.3 million in consulting fees during the years ended December 31, 2009 and
2008 respectively, and utilized approximately 10 consultants during this period.
The consultants we engage provide us with a variety of
services.


10




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.




IF
INTERNATIONAL PATENTS FOR THE BACTERIAL SPORE DETECTION TECHNOLOGY ARE NOT
ISSUED, COMPETITORS MAY BE ABLE TO COPY AND SELL PRODUCTS SIMILAR TO OURS
WITHOUT PAYING A ROYALTY, WHICH WOULD HAVE A MATERIAL ADVERSE IMPACT ON OUR
ABILITY TO COMPETE.




If
BSM-2000 is commercialized, the lack of foreign patent protection could allow
competitors to copy and sell products similar to ours without paying a royalty.
Caltech owns the bacterial spore detection technology that is integrated into
BSM-2000. On January 31, 2003, Caltech filed a U.S. patent application covering
the technology, which was granted by the U.S. Patent and Trademark Office in
December 2007. Caltech also filed a patent application with the European Patent
Office. We paid and filed on behalf of Caltech a patent application in Japan as
well. No international patents have been issued and we cannot assure you that
any international patents will be issued.




WE
MAY BE SUED BY THIRD PARTIES WHO CLAIM OUR PRODUCT INFRINGES 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 our
technology, product, or activity infringes on the intellectual property rights
of others or that we have misappropriated the trade secrets of others. 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. Our
license agreement with Caltech requires that we pay the costs associated with
initiating an infringement claim and defending claims by third parties for
infringement, subject to certain offsets that may be allowed against amounts we
may owe to Caltech under the licensing agreement. In addition, intellectual
property litigation or claims could force us to do one or more of the
following:




·
            cease selling, incorporating, or
      using any of our technology and/or products that incorporate the
      challenged intellectual property, which could adversely affect our
      potential revenue;


·
            obtain a license from the holder
      of the infringed intellectual property right, which license may be costly
      or may not be available on reasonable terms, if at all;
      or


·
            redesign our products, which
      would be costly and time
consuming.




THE
U.S. GOVERNMENT HAS RIGHTS TO THE TECHNOLOGY WE LICENSE FROM
CALTECH.




Under the
license rights provided to the U.S. government in our license agreement with
Caltech, a U.S. government agency or the U.S. armed forces may, either produce
the proprietary products or use the proprietary processes or contract with third
parties to provide the proprietary products, processes, and services to one or
more Federal agencies or the armed forces of the U.S. government, for use in
activities carried out by the U.S. government, its agencies, and the armed
forces, including, for instance, the war on terrorism or the national defense.
Further, the Federal agency that provided funding to Caltech for the research
that produced the inventions covered by the patent rights referenced in the
Technology Affiliates Agreement and the related technology may require us to
grant, or if we refuse, itself may grant a nonexclusive, partially exclusive, or
exclusive license to these intellectual property rights to a third party if the
agency determines that action is necessary:




·
            because we have not taken, or are
      not expected to take within a reasonable time, effective steps to achieve
      practical application of the invention in the detection of pathogens,
      spores, and biological warfare
agents;


·
            to alleviate health or safety
      needs which are not reasonably satisfied by us or our
      sublicensees;


·
            to meet requirements for public
      use specified by Federal regulations and those regulations are not
      reasonably satisfied by us;
or


·
            because
      we have not satisfied, or obtained a waiver of, our obligation to have the
      licensed products manufactured substantially in the United
      States.




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 bioterrorism
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.


11




OUR
STOCK HISTORICALLY HAS BEEN THINLY TRADED. THEREFORE, SHAREHOLDERS MAY NOT BE
ABLE TO SELL THEIR SHARES FREELY.




The
volume of trading in our common stock historically has been low 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. 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.





150
shares of our preferred stock have been designated as Series A-1 Preferred Stock
(the "Series A-1 Shares") and have been issued to Mr. Jacques Tizabi, our
President, Chief Executive Officer, Acting Chief Financial Officer, and Chairman
of the Board of Directors. The Series A-1 Shares entitled Mr. Tizabi to
1,000,000 votes per share, which shall vote together with the common stock of
the Company for all purposes, except where a separate vote of the classes of
capital stock is required by California law. The aggregate value of the 150
shares issued to Mr. Tizabi was $50,000. The shares had a liquidation value, as
described in the Company's Articles of Incorporation, of $50,000. Mr. Tizabi was
prohibited, by agreement with the Company, from transferring or selling such
stock, or any interest in such stock for so long as the shares were outstanding.
In the manners discussed above, the rights and preferences of the Series A-1
Shares may have operated to the detriment of our common shareholders. In July
2007, Mr. Tizabi surrendered the 150 shares of the Series A-1 preferred stock of
the Company in the amount of $50,000 in return for a promissory note that bears
no interest and is due on or before July 1, 2008. The shares were cancelled by
the Company.




WE ARE SUBJECT TO THE REQUIREMENTS
OF SECTION 404 OF THE SARBANES-OXLEY ACT.  IF WE ARE UNABLE TO TIMELY
COMPLY WITH SECTION 404 OR IF THE COSTS RELATED TO COMPLIANCE ARE SIGNIFICANT,
OUR PROFITABILITY, STOCK PRICE AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION
COULD BE MATERIALLY ADVERSELY AFFECTED.




We are
required to comply with the provisions of Section 404 of the Sarbanes-Oxley Act
of 2002, which require us to maintain an ongoing evaluation and integration of
the internal controls of our business.  We were required to document
and test our internal controls and certify that we are responsible for
maintaining an adequate system of internal control procedures for the year ended
December 31, 2009.  In sequent years, our independent registered
public accounting firm will be required to opine on those internal controls and
management’s assessment of those controls.  In the process, we may
identify areas requiring improvements, and we may have to design enhanced
processes and controls to address issued indentified through this
review.




We
evaluated our existing controls for the year ended December 31,
2009.  Our Chief Executive Officer and Chief Financial Officer
identified material weaknesses in our internal control over financial reporting
and determined that we did not maintain effective internal control over
financial reporting as of December 31, 2009.  The identified material
weaknesses did not result in material audit adjustments to our 2009 financial
statements; however, uncured material weaknesses could negatively impact our
financial statements for subsequent years.




We cannot
be certain that we will be able to successfully complete the procedures,
certification and attestation requirements of Section 404 or that our auditors
will not have to report a material weakness in connection with the presentation
of our financial statements.  If we fail to comply with the
requirements of Section 404 or if our auditors report such material weakness,
the accuracy and timeliness of the filing of our annual report may be materially
adversely affected and could cause investors to lose confidence in our reported
financial information, which could have a negative effect on the trading price
of our common stock. In addition, a material weakness in the effectiveness of
our internal controls over financial reporting could result in an increased
chance of fraud and the loss of customers, reduce our ability to obtain
financing and require additional expenditures to comply with these requirements,
each of which could have a material adverse effect on our business, result of
operations and financial condition.


12




Further,
we believe that the out-of-pocket costs, the diversion of management’s attention
from running the day-to-day operations and operational changed caused by the
need to comply with the requirements of Section 404 of the Sarbanes-Oxley Act
could be significant.  If the time and costs associated with such
compliance exceed our current expectations, our results of operations could be
adversely affected.




Item
1B.  UNRESOLVED STAFF COMMENTS


Not
applicable for Smaller Reporting Companies.




ITEM
2. DESCRIPTION OF PROPERTY




We
currently do not own any 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 $6,500. We believe this operating space is adequate for the
Company's needs for the foreseeable future.




ITEM
3. LEGAL PROCEEDINGS





On or
about April 16, 2004, Plaintiffs A. Sean Rose, Claire F. Rose, and Mark Rose
commenced an action in the Los Angeles Superior Court against the Company (A.
SEAN ROSE, CLAIRE F. ROSE AND MARK ROSE V. UNIVERSAL DETECTION TECHNOLOGY, FKA
POLLUTION RESEARCH AND CONTROL CORPORATION) for amounts allegedly due pursuant
to four unpaid promissory notes. On August 2, 2004, the parties executed a
Confidential Settlement Agreement and Mutual Releases (the “Agreement”). On
December 30, 2005, Plaintiffs commenced an action against the Company, alleging
the Company breached the Agreement and sought approximately $205,000 in damages.
A judgment was entered on April 11, 2006 for $209,277.58. The Company has
previously accrued for this settlement. As of December 31, 2009, we have accrued
$507,955 for this settlement including principal and interest.





On June
2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the Los
Angeles Superior Court (TRILOGY CAPITAL PARTNERS V. UNIVERSAL DETECTION
TECHNOLOGY, ET. AL., Case No. SC089929) against the Company. Plaintiff's
Complaint alleged damages against Universal Detection Technology ("UDT")for
breach of an engagement letter in the amount of $93,448.54. Also, Plaintiff
alleged that UDT had failed to issue warrants to it pursuant to a written
agreement. After completing the initial stages of litigation and conducting
extensive mediation, Plaintiff and UDT reached a settlement wherein commencing
December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until
a debt of $90,000 plus accrued interest at six percent per annum was fully paid.
In exchange, Plaintiff would release all of its claims against UDT. UDT has been
current on all of its agreed payments to Plaintiff.  As of December 31
2009, $50,457 was due under the agreement.





On
November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the Los Angeles
Superior Court (NBGI, Inc. v. Universal Detection Technology, et. al., Case No.
BC361979) against Universal Detection Technology ("UDT"). NBGI, Inc.'s Complaint
alleged breach of contract, and requested damages in the amount of $111,014.34
plus interest at the legal rate and for costs of suit. There is also a Motion
for Summary Judgment set for September 11, 2007. The Summary Judgment was
granted in NBGI’s favor and Judgment has been entered. No payments have been
made on this Judgment and no actions to enforce the Judgment have been taken
against UDT.




On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to
Universal Detection Technology ("UDT"), asserting certain breaches by UDT of
that certain License Agreement between Cal Tech and UDT effective September 30,
2009 as amended (the "License Agreement") including nonpayment of royalties,
failure to pay certain prosecution and legal costs and failure to fully
commercialize the patents and technologies that are licensed to UDT under the
License Agreement.  Cal Tech is also asserting its right to terminate
the License Agreement effective June 4, 2009. UDT disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and UDT continues to perform under the License Agreement. However, there can be
no assurance that the License Agreement will continue in effect, or that UDT
will be able to continue the use, development and commercialization of the
underlying patents and technologies. Primarily the License Agreement concerns a
group of patents that support UDT's "BSM" technologies and related products. The
loss of these licensed technologies would have an adverse effect on UDT's
prospects until such time as alternate technologies are licensed or
developed.






ITEM
4. REMOVED AND RESERVED


13




PART
II





ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES





Our
common stock is traded on the OTC Bulletin Board under the symbol
“UDTT.”  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 and the subsequent interim period, 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.




Year
            PeriodHigh Bid
            Low Bid2008
            First
      Quarter
            0.36
            0.04Second
      Quarter
            0.26
            0.04Third
      Quarter
            0.35
            0.009Fourth
      Quarter
            0.05
            0.00422009
            First
      Quarter
            0.01
            0.0033Second
      Quarter
            0.01
            0.0024Third
      Quarter
            0.015
            0.0021Fourth
      Quarter
            0.0098
            0.00232010
            First
      Quarter
            0.0035
            0.0022







HOLDERS
OF RECORD




As of
April 12, 2010, we had 2,578 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, 2009, for our last fiscal
year.




14




Plan
      Category
            Number
      of
              securities to be
              issued
      upon
              exercises
      of
              outstanding options,
      warrants, and rights
            Weighted-average exercise
              price of outstanding options,
      warrants, and rights
            Number of
              securities
              available for
              future
      plan
              issuanceEquity
      compensation plans approved by security holders
            N/A
            N/A
            N/AEquity
      compensation plans not approved by security holders2006
      Stock Compensation Plan
            37,500
      (1)
            N/A
            02006
      Consultant Stock Plan
            125,000
      (1)
            N/A
            02006-II
      Consultant Stock Plan
            187,500
      (1)
            N/A
            02007
      Equity Incentive Plan
            375,000
            N/A
            02007
      Equity Incentive Plan II&III
            295,000
      (1)(2)
            N/A
            02007
      Equity Incentive Plan IV
            450,000
            N/A
            312007
      Equity Incentive Plan V & VI
            1,350,000
            N/A
            16,1092008
      Equity Incentive Plan
            1,500,000
            N/A
            452008
      Equity Incentive Plan II
            1,650,000
            N/A
            15,7302008
      Equity Incentive Plan III
            2,500,000
            N/A
            02008
      Equity Incentive Plan IV
            3,800,000
            N/A
            02009
      Equity Incentive Plan
            10,000,000
            N/A
            02009
      Equity Incentive Plan II
            60,000,000
            N/A
            394,5882009
      Equity Incentive Plan III
            200,000,000
            N/A
            141,249,926





(1)
            Represents
      total number of shares of common stock originally authorized for stock
      grants.  Stock option grants were not
  authorized.


(2)
            Consists
      of the second and third plans


(3)
            Consists
      of the fourth and fifth 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 Equity Incentive 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-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 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 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 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.


15


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 (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 (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
(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
I (the “2009-I Plan”).  The 2009-I 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 2000-I Plan.  The 2009-I 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
2000-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 2000-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 SECURITIESDuring fiscal 2009, we issued the following securities which were not
registered under the securities which were not registered under the Securities
Act of 1933, as amended.  We did not employ any form of general
solicitation or advertising in connection with the 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:




16









·
            During
      2009, we issued 691,572,602 shares of common stock to various note holders
      to convert outstanding debt obligations valued at approximately $3,312,396
      as follows:


On
      January 8, 2009, We issued 568,334 shares of common stock to convert
      outstanding debt obligations valued at $3,126. The price per share of the
      conversion was $0.0055.On
      January 8, 2009, We issued 1,130,000 shares of common stock to convert
      outstanding debt obligations valued at $6,215. The price per share of the
      conversion was $0.0055.On
      January 8, 2009, We issued 1,700,000 shares of common stock to convert
      outstanding debt obligations valued at $9,350. The price per share of the
      conversion was $0.0055.On
      January 8,2009, We issued 1,700,000 shares of common stock to convert
      outstanding debt obligations valued at $9,350. The price per share of the
      conversion was $0.0055.On
      January 14, 2009, We issued 800,000 shares of common stock to convert
      outstanding debt obligations valued at $4,000. The price per share of the
      conversion was $0.005.On
      January 14, 2009, We issued 537,500 shares of common stock to convert
      outstanding debt obligations valued at $2,688. The price per share of the
      conversion was $0.005.On
      January 14, 2009, We issued 751,666 shares of common stock to convert
      outstanding debt obligations valued at $3,758. The price per share of the
      conversion was $0.005.On
      January 14, 2009, We issued 1,243,750 shares of common stock to convert
      outstanding debt obligations valued at $6,219. The price per share of the
      conversion was $0.005.On
      January 14, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $10,000. The price per share of the
      conversion was $0.005.On
      January 14, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $10,000. The price per share of the
      conversion was $0.005.On
      January 29, 2009, We issued 1,000,000 shares of common stock to convert
      outstanding debt obligations valued at $5,500. The price per share of the
      conversion was $0.0055.On
      February 3, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $13,000. The price per share of the
      conversion was $0.0065.On
      February 17, 2009, We issued 2,300,000 shares of common stock to convert
      outstanding debt obligations valued at $11,730. The price per share of the
      conversion was $0.0051.On
      February 17, 2009, We issued 2,300,000 shares of common stock to convert
      outstanding debt obligations valued at $11,730. The price per share of the
      conversion was $0.0051.On
      February 17, 2009, We issued 2,300,000 shares of common stock to convert
      outstanding debt obligations valued at $11,730. The price per share of the
      conversion was $0.0051.On
      March 4, 2009, We issued 1,000,000 shares of common stock to convert
      outstanding debt obligations valued at $4,500. The price per share of the
      conversion was $0.0045.On
      March 4, 2009, We issued 2,500,000 shares of common stock to convert
      outstanding debt obligations valued at $11,250. The price per share of the
      conversion was $0.0045.On
      March 12, 2009, We issued 2,100,000 shares of common stock to convert
      outstanding debt obligations valued at $8,190. The price per share of the
      conversion was $0.0039.On
      March 19, 2009, We issued 3,000,000 shares of common stock to convert
      outstanding debt obligations valued at $11,700. The price per share of the
      conversion was $0.00367.On
      March 27, 2009, We issued 3,500,000 shares of common stock to convert
      outstanding debt obligations valued at $12,950. The price per share of the
      conversion was $0.0037.On
      March 30, 2009, We issued 3,500,000 shares of common stock to convert
      outstanding debt obligations valued at $11,550. The price per share of the
      conversion was $0.0033.On
      April 6, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $5,800. The price per share of the
      conversion was $0.0029.On
      April 6, 2009, We issued 4,000,000 shares of common stock to convert
      outstanding debt obligations valued at $11,600. The price per share of the
      conversion was $0.0029.On
      April 9, 2009, We issued 4,000,000 shares of common stock to convert
      outstanding debt obligations valued at $12,000. The price per share of the
      conversion was $0.003.On
      April 9, 2009, We issued 4,000,000 shares of common stock to convert
      outstanding debt obligations valued at $12,000. The price per share of the
      conversion was $0.003.


17





On
      April 16, 2009, We issued 4,000,000 shares of common stock to convert
      outstanding debt obligations valued at $12,000. The price per share of the
      conversion was $0.003.On
      April 20, 2009, We issued 5,000,000 shares of common stock to convert
      outstanding debt obligations valued at $13,000. The price per share of the
      conversion was $0.0026.On
      April 20, 2009, We issued 5,000,000 shares of common stock to convert
      outstanding debt obligations valued at $13,000. The price per share of the
      conversion was $0.0026.On
      April 20, 2009, We issued 5,000,000 shares of common stock to convert
      outstanding debt obligations valued at $13,000. The price per share of the
      conversion was $0.0026.On
      April 20, 2009, We issued 5,000,000 shares of common stock to convert
      outstanding debt obligations valued at $13,000. The price per share of the
      conversion was $0.0026.On
      April 27, 2009, We issued 6,100,000 shares of common stock to convert
      outstanding debt obligations valued at $15,860. The price per share of the
      conversion was $0.0026.On
      May 1, 2009, We issued 10,500,000 shares of common stock to convert
      outstanding debt obligations valued at $31,500. The price per share of the
      conversion was $0.003.On
      May 6, 2009, We issued 3,649,635 shares of common stock to convert
      outstanding debt obligations valued at $9,124. The price per share of the
      conversion was $0.0025.On
      May 8, 2009, We issued 2,121,428 shares of common stock to convert
      outstanding debt obligations valued at $7,849. The price per share of the
      conversion was $0.0037.On
      May 8, 2009, We issued 3,649,635 shares of common stock to convert
      outstanding debt obligations valued at $13,504. The price per share of the
      conversion was $0.0037.On
      May 8, 2009, We issued 10,378,571 shares of common stock to convert
      outstanding debt obligations valued at $38,401. The price per share of the
      conversion was $0.003218.On
      May 12, 2009, We issued 4,545,455 shares of common stock to convert
      outstanding debt obligations valued at $25,455. The price per share of the
      conversion was $0.0056.On
      May 14, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $8,800. The price per share of the
      conversion was $0.0044.On
      May 14, 2009, We issued 1,930,502 shares of common stock to convert
      outstanding debt obligations valued at $8,494. The price per share of the
      conversion was $0.0044.On
      May 14, 2009, We issued 4,729,961 shares of common stock to convert
      outstanding debt obligations valued at $20,812. The price per share of the
      conversion was $0.0044.On
      May 18, 2009, We issued 7,000,000 shares of common stock to convert
      outstanding debt obligations valued at $31,500. The price per share of the
      conversion was $0.0045.On
      May 20, 2009, We issued 3,436,426 shares of common stock to convert
      outstanding debt obligations valued at $11,684. The price per share of the
      conversion was $0.0034.On
      May 26, 2009, We issued 13,233,900 shares of common stock to convert
      outstanding debt obligations valued at $43,672. The price per share of the
      conversion was $0.0033.On
      May 20, 2009, We issued 3,605,769 shares of common stock to convert
      outstanding debt obligations valued at $12,260. The price per share of the
      conversion was $0.0034.On
      May 28, 2009, We issued 4,213,483 shares of common stock to convert
      outstanding debt obligations valued at $13,062. The price per share of the
      conversion was $0.0031.On
      May 28, 2009, We issued 14,322,915 shares of common stock to convert
      outstanding debt obligations valued at $44,401. The price per share of the
      conversion was $0.0031.On
      June 09, 2009, We issued 17,000,000 shares of common stock to convert
      outstanding debt obligations valued at $56,100. The price per share of the
      conversion was $0.0033.On
      June 11, 2009, We issued 17,031,250 shares of common stock to convert
      outstanding debt obligations valued at $78,344. The price per share of the
      conversion was $0.0046.On
      June 16, 2009, We issued 18,437,500 shares of common stock to convert
      outstanding debt obligations valued at $88,500. The price per share of the
      conversion was $0.0048.On
      June 16, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $9,600. The price per share of the
      conversion was $0.0048.On
      June 24, 2009, We issued 20,000,000 shares of common stock to convert
      outstanding debt obligations valued at $66,000. The price per share of the
      conversion was $0.0033.On
      July 07, 2009, We issued 22,000,000 shares of common stock to convert
      outstanding debt obligations valued at $63,800. The price per share of the
      conversion was $0.0029.On
      July 07, 2009, We issued 20,312,500 shares of common stock to convert
      outstanding debt obligations valued at $58,906. The price per share of the
      conversion was $0.0029.On
      July 13, 2009, We issued 2,000,000 shares of common stock to convert
      outstanding debt obligations valued at $5,000. The price per share of the
      conversion was $0.0025.On
      July 21, 2009, We issued 24,155,000 shares of common stock to convert
      outstanding debt obligations valued at $55,557. The price per share of the
      conversion was $0.0023.On
      July 23, 2009, We issued 5,150,000 shares of common stock to convert
      outstanding debt obligations valued at $13,390. The price per share of the
      conversion was $0.0026.


18





On
      July 23, 2009, We issued 6,250,000 shares of common stock to convert
      outstanding debt obligations valued at $16,250. The price per share of the
      conversion was $0.0026.On
      July 28, 2009, We issued 25,000,000 shares of common stock to convert
      outstanding debt obligations valued at $247,500. The price per share of
      the conversion was $0.0099.On
      July 28, 2009, We issued 25,277,779 shares of common stock to convert
      outstanding debt obligations valued at $250,250. The price per share of
      the conversion was $0.0099.On
      August 06, 2009, We issued 1,000,000 shares of common stock to convert
      outstanding debt obligations valued at $5,300. The price per share of the
      conversion was $0.0053.On
      August 06, 2009, We issued 20,320,000 shares of common stock to convert
      outstanding debt obligations valued at $107,696. The price per share of
      the conversion was $0.0053.On
      August 10, 2009, We issued 27,250,000 shares of common stock to convert
      outstanding debt obligations valued at $138,975. The price per share of
      the conversion was $0.0051.On
      September 01, 2009, We issued 32,738,092 shares of common stock to convert
      outstanding debt obligations valued at $127,679. The price per share of
      the conversion was $0.0039.On
      September 02, 2009, We issued 1,272,929 shares of common stock to convert
      outstanding debt obligations valued at $5,346. The price per share of the
      conversion was $0.0042.On
      September 02, 2009, We issued 32,805,301 shares of common stock to convert
      outstanding debt obligations valued at $137,782. The price per share of
      the conversion was $0.0042.On
      September 21, 2009, We issued 34,047,619 shares of common stock to convert
      outstanding debt obligations valued at $204,286. The price per share of
      the conversion was $0.006.On
      September 23, 2009, We issued 30,000,000 shares of common stock to convert
      outstanding debt obligations valued at $156,000. The price per share of
      the conversion was $0.0052.On
      October 05, 2009, We issued 42,500,000 shares of common stock to convert
      outstanding debt obligations valued at $314,500. The price per share of
      the conversion was $0.0074.On
      October 08, 2009, We issued 653,380 shares of common stock to convert
      outstanding debt obligations valued at $5,096. The price per share of the
      conversion was $0.007799.On
      October 13, 2009, We issued 40,000,000 shares of common stock to convert
      outstanding debt obligations valued at $280,000. The price per share of
      the conversion was $0.007.On
      December 10, 2009, We issued 50,156,250 shares of common stock to convert
      outstanding debt obligations valued at $190,594. The price per share of
      the conversion was $0.0038.




ITEM
6. SELECTED FINANCIAL DATA




Not
applicable for Smaller Reporting Companies.




ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION




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 entitled "Risk Factors" of this annual
report.




OVERVIEW




We have
been engaged in the research, development, and marketing of bioterrorism
detection devices, radiation detectors, and counter terrorism training
references. In August 2002, we entered into a Technology Affiliates Agreement
with NASA’s Jet Propulsion Laboratory, commonly referred to as JPL, to develop
technology for our bioterrorism detection equipment. Under the Technology
Affiliates Agreement, JPL developed its proprietary bacterial spore detection
technology and integrated it into our existing aerosol monitoring system,
resulting in a product named BSM-2000. BSM-2000 is designed to provide
continuous unattended monitoring of airborne bacterial spores in large public
places, with real-time automated alert functionality. The device is designed to
detect an increase in the concentration of bacterial spores, which is indicative
of a potential presence of Anthrax. Through partnerships with various third
parties, we have commenced sales and marketing of bioterrorism hand held assays,
radiation detection systems, and training references.





19


In 2009
we spent an aggregate of $2,485,754 on selling, general and administrative
expenses, research and development expenses and marketing expenses. This amount
represents a 63% increase over the comparable year-ago period. The increase is
principally attributable to an increase in marketing expense due to a charge in
connection with issuance of restricted stock.


Our
working capital deficit at December 31, 2009, was $3,696,648.  Our
independent auditors' report, dated April 12, 2010 includes an explanatory
paragraph relating to substantial doubt as to our ability to continue as a going
concern, due to our working capital deficit at December 31, 2009. We require
approximately $1.8 million to repay indebtedness in the next 12
months.





We plan
to engage more in value added services to complement our bioterrorism detection
technologies. We now supply bioterrorism detection kits capable of detecting
anthrax, ricin, botulinum, plague, and SEBs, radiation detection systems, and
counter-terrorism training references.





We plan
to continue expanding our product base and to sell our products to more users
inside and outside the U.S. There is no guarantee that we will succeed in
implementing this strategy or if implemented, that this strategy will be
successful. We plan to seek and find third parties interested in collaborating
on further research and development on BSM-2000. Such research shall be aimed at
making BSM-2000 more user-friendly, developing a less complicated interface and
software, and designing a lighter casing. The ideal third party collaborator
would also assist us in marketing BSM-2000 more aggressively. There is no
guarantee that any such collaborators will be found and, if found, that this
strategy will be successful. The current version of BSM-2000 is functional and
available for sale. To date, we have sold two units to the Government of the
United Kingdom and we intend to develop a more wide-spread use for BSM-2000
through our planned collaborative research, development, sales, and marketing
efforts. On July 28, 2009 we announced that Caltech has been granted a patent
from the U.S. Patent and Trademark Office (USPTO) for the core detection
technology licensed by Universal Detection Technology and used in our BSM-2000.
The patent is the second for the technology licensed from the California
Institute of Technology.





On June
23, 2009, California Institute of Technology ("Cal Tech") sent a letter to the
Company asserting certain breaches by the Company of the License Agreement
between Cal Tech and the Company. The Company disagrees with the various
assertions made by Cal Tech in the letter and has requested that Cal Tech submit
to arbitration all matters in dispute. To date, no further action has been taken
and the Company continues to perform under the License Agreement. However, there
can be no assurance that the License Agreement will continue in effect, or that
the Company will be able to continue the use, development and commercialization
of the underlying patents and technologies. Primarily the License Agreement
concerns a group of patents that support the Compnay's "BSM" technologies and
related products. The loss of these licensed technologies would have an adverse
effect on the Company's prospects until such time as alternate technologies are
licensed or developed. See "Legal Proceedings" under Item 3, Part I, of this
Report.





Results
of Operations





The
following discussion is included to describe our consolidated financial position
and results of operations.  The unaudited consolidated financial
statements and notes thereto contain detailed information that should be
referred to in conjunction with this discussion.





Revenue – Total revenue for
the year ended December 31, 2009 was $19,467 as compared to $109,649 the prior
fiscal year, a decrease of $90,182.  The decrease is primarily due to
a reduced number of detection unit sales.





Operating Expenses –Total
operating expenses for the year ended December 31, 2009 were $2,485,754. Total
operating expenses for the year ended December 31, 2008 was $1,525,349
representing an increase of $960,405 (63%).  The increase in primarily
attributable to an increase in marketing expense due to a charge in connection
with issuance of restricted stock.





Other income(expense).Other
income (expense) amounted to ($2,148,913) for the year ended December 31, 2009
as compared to ($776,953) 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, 2009 was $4,625,265, as compared to a net loss
of $2,279,058 for the same period in the prior fiscal year, representing a
increased loss of $2,346,207..  The primary reason for this is an
increase in loss recognized on settlement of shares issued for debt along with
marketing expense charge in connection with issuance of restricted
stock.




PLAN
OF OPERATION





In 2009
we have continued to diversify our activities. We plan to engage more in value
added services to complement our bioterrorism detection technologies. We now
supply our proprietary bacterial spore detection system (BSM-2000), bioterrorism
detection kits capable of detecting anthrax, ricin, botulinum, plague, and SEBs,
radiation detection systems, and counter-terrorism training
references.





20


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 $3.0 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 and manufacturing; and





·
            expenses
      of professionals, including accountants and
  attorneys.





To
maintain our license with Caltech, a minimum annual royalty of $10,000 is due to
Caltech on each year on August 1, regardless of any product sales. Any royalties
paid from product sales for the 12-month period preceding the date of payment of
the minimum annual royalty will be credited against the annual minimum. Pursuant
to the terms of the license, we must pay 4% royalties on product sales in
countries where a patent is issued and 2% royalties on product sales in
countries where a patent is not issued, as well as 35% of net revenues received
from sublicensees.





Our
working capital deficit at December 31, 2009 was 3,696,648.  Our
independent auditors' report includes an explanatory paragraph relating to
substantial doubt as to our ability to continue as a going concern, due to our
working capital deficit at December 31, 2008. We require approximately $1.8
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, 2009:





·
              One
      loan from three family members, each of whom is an unaffiliated party,
      evidenced by four promissory notes in the aggregate principal amounts of
      $100,000, $50,000, $50,000, and $100,000, each due June 24, 2001 with
      interest rates ranging from 11% to 12%. We entered into a settlement
      agreement in the third quarter of 2004 with each of these parties.
      Pursuant to this agreement, at June 30, 2005, we were required to pay an
      additional $80,000 as full payment of our obligations. We did not make
      this payment and are in default of these notes.  As of December 31,
      2009, we have $507,955 accrued for including interest relating to this
      matter.





·
              One
      loan from an unaffiliated party in the aggregate principal amount of
      $195,000 with interest at a rate of 12% per annum. Pursuant to a letter
      agreement dated as of August 10, 2004, we entered into a settlement with
      this party and agreed to pay a total of $261,000 pursuant to a scheduled
      payment plan through July 2005. Additionally, the Company, in September
      2004, issued 206,250 shares of common stock upon the conversion of unpaid
      interest in the aggregate amount of $33,000. At December 31, 2009, there
      was $161,000 principal amount (and $81,637 in interest) remaining on this
      note. We did not make our scheduled payment under this note in July 2005,
      and are in default of this
note.





·
              One
      loan from an unaffiliated party in the aggregate principal amount of
      $98,500, due July 31, 2005, with interest at the rate of 9% per annum.
      Pursuant to a letter agreement dated August 10, 2004, between 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, 2009, there was $71,500
      principal amount (and $34,709 in interest) remaining on this note. We did
      not make our scheduled payment under this note in July 2005, and are in
      default of this note.





·
              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, 2009 we owed
      $46,500 in interest.  We did not make our scheduled payment on
      March 31, 2006. We have verbally extended the unpaid note and the due date
      and other terms are being renegotiated so the note is not considered in
      default.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $60,000 due on November 1, 2007 with an
      interest rate of 12.5% per annum.  As of December 31, 2009 we
      owed $ 2,970 in principal and $186 in interest.  We did not make
      our scheduled payment on November 1, 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.


21





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $30,000 due on January 11, 2008 with an
      interest rate of 12.5% per annum.  As of December 31, 2009 we
      owed $3,000 in principal and $360 in interest.  We did not make
      our scheduled payment on January 11, 2008. We have verbally extended the
      unpaid note and the due date and other terms are being renegotiated so the
      note is not considered in
default.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $20,000 due on July 8, 2008 with an interest
      rate of 12.5% per annum.  As of December 31, 2009 we owed $5,000
      in interest.  We did not make our scheduled payment on July 8,
      2008. We have verbally extended the unpaid note and the due date and other
      terms are being renegotiated so the note is not considered in
      default.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $15,000 due on August 4, 2008 with an
      interest rate of 12.5% per annum.  As of December 31, 2009 we
      owed  $713 in principal and $22 in interest.  We did
      not make our scheduled payment on August 4, 2008. We have verbally
      extended the unpaid note and the due date and other terms are being
      renegotiated so the note is not considered in
  default.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of  $27,000 due on December 2, 2009
      with an interest rate of 12% per annum.  As of December 31, 2009
      we owed $3,150 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.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of  $25,000 due on October 9, 2009
      with an interest rate of 12% per annum.  As of December 31, 2009
      we owed $3,750 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.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $4,000 due on January 09, 2010 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $480 in interest.





·
              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, 2009, we
      owed $960 in interest.





·
                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, 2009, we owed
      $600 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $33,000 due on January 22, 2010 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $3,630 in interest.





·
              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, 2009, we
      owed $1,430 in interest.





·
              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, 2009, we
      owed $1,200 in interest.





·
              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, 2009, we
      owed $1,870 in interest.





·
                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, 2009, we owed
      $1,063 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $4,475 due on April 23, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $358 in interest.


22





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $9,000 due on May 01, 2011 with an interest
      rate of 12% per annum.  As of December 31, 2009, we owed $720 in
      interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $40,000 due on May 06, 2011 with an interest
      rate of 12% per annum.  As of December 31, 2009, we owed $3,200
      in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $41,000 due on May 13, 2011 with an interest
      rate of 12% per annum.  As of December 31, 2009, we owed $3,075
      in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $52,941 due on May 28, 2011 with an interest
      rate of 12% per annum.  As of December 31, 2009, we owed $3,706
      in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $17,450 due on June 04, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,222 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $13,677 due on June 16, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $889 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $23,000 due on June 29, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,380 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $18,940 due on June 09, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,326 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $45,904 due on June 19, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $2,984 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $30,000 due on August 24, 2010 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $600 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $40,000 due on September 10, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,463 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $10,000 due on September 15, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $350 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $29,920 due on August 12, 2010 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,346 in interest.





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $25,940 due on July 23, 2011 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,297 in interest.


23





·
              One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $45,000 due on November 02,2009 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $1,350 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.





·
            One
      loan from an unaffiliated party evidenced by a promissory note in the
      aggregate principal amount of $20,000 due on October 05, 2010 with an
      interest rate of 12% per annum.  As of December 31, 2009, we
      owed $0,500 in interest.





Management
continues to take steps to address the Company's liquidity needs. Recently
management concluded discussions with most of our note holders and amended the
terms of these notes to provide for extended scheduled payment arrangements.
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 2009, the Company issued
691,572,602 shares of its common stock for an aggregate value of $3,312,396 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, 2009 and 2008, the Company received gross
proceeds of approximately $0.6 million and $0.8 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. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Not
applicable for Smaller Reporting Companies.


24









ITEM
8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Our
financial statements and related notes are set forth at pages F-1
through F-29 .















































25


INDEX
TO FINANCIAL STATEMENTS










Report
      of Independent Registered Public Accounting Firm
            F-2Consolidated
      Balance Sheet
            F-3Consolidated
      Statements of Operations
            F-4Consolidated
      Statements of Changes in Stockholders' Equity (Deficit)
            F-5Consolidated
      Statements of Cash Flows
            F-6Notes
      to Consolidated Financial Statements
            F-7



















F-1


Report of Independent
Registered Public Accounting Firm
 
 
 
 
 Board of
Directors and Stockholders of
 Universal
Detection Technology and Subsidiaries
 
 
 
 We have
audited the accompanying consolidated balance sheets of Universal Detection
Technology and Subsidiaries as of December 31, 2009 and 2008, and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the two year period ended December 31, 2009. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. 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 consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Universal Detection Technology and
Subsidiaries as of December 31, 2009 and 2008, and the results of their
operations and cash flows for the two year period ended December 31, 2009 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. During the year ended December 31,
2009, the Company incurred net losses of $4,626,644 and has accumulated deficit
of $43,237,356 as of December 31, 2009. These factors, among others, as
discussed in Note 1 to the consolidated financial statements, raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also 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
 April 15,
2010









F-2




UNIVERSAL
      DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSAS
      OF DECEMBER 31, 2009 AND 2008ASSETS2009
              
              
              2008CURRENT
      ASSETS:Cash
      and cash equivalents
              
              $
              1,367
              
              
              $
              1,910Restricted
      cash
              
              
              -
              
              
              
              10,477Accounts
      Receivable,net
              
              
              3,626
              
              
              
              1,058Inventory
              
              
              4,117
              
              
              
              -Prepaid
      expenses
              
              
              7,678
              
              
              
              3,666Total
      current assets
              
              
              16,788
              
              
              
              17,111Deposits
              
              
              21,300
              
              
              
              10,226Equipment,
      net
              
              
              13,376
              
              
              
              32,946Patent,
      net
              
              
              -
              
              
              
              84,008Total
      assets
              
              $
              51,464
              
              
              $
              144,291LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accounts
      payable, trade
              
              $
              1,035,204
              
              
              $
              1,030,865Accrued
      liabilities
              
              
              547,502
              
              
              
              480,126Accrued
      payroll - officers
              
              
              548,126
              
              
              
              809,136Notes
      payable - related party
              
              
              64,612
              
              
              
              10,325Notes
      payable
              
              
              888,843
              
              
              
              1,630,711Accrued
      interest expense
              
              
              629,149
              
              
              
              657,110Total
      current liabilities
              
              
              3,713,436
              
              
              
              4,618,273Long
      term notes payable
              
              
              354,826
              
              
              
              -Total
      liabilities
              
              
              4,068,262
              
              
              
              4,618,273COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICIT:Preferred
      stock, $.01 par value, 20,000,000 sharesauthorized,
      -0- issued and outstanding
              
              
              -
              
              
              
              -Common
      stock, no par value,200,000,000 shares authorized,1,020,051,351
      shares issued and outstanding as of December 31, 2009and
      35,286,671 shares issued and outstanding as of December 31,
      2008
              
              
              33,907,469
              
              
              
              28,823,641Additional
      paid-in-capital
              
              
              5,313,089
              
              
              
              5,313,089Accumulated
      deficit
              
              
              (43,237,356
              )
              
              
              (38,610,712
              )Total
      stockholders' deficit
              
              
              (4,016,798
              )
              
              
              (4,473,982
              )Total
      liabilities and stockholders' deficit
              
              $
              51,464
              
              
              $
              144,291See
      accompanying notes to consolidated financial statements.


F-3




UNIVERSAL
      DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 20082009
              
              
              2008REVENUE,
      NET
              
              $
              19,467
              
              
              $
              109,649COST
      OF GOODS SOLD
              
              
              11,444
              
              
              
              86,405GROSS
      PROFIT
              
              
              8,023
              
              
              
              23,244OPERATING
      EXPENSES:Selling,
      general and administrative
              
              
              1,230,864
              
              
              
              1,461,042Marketing
              
              
              1,151,312
              
              
              
              34,175Impairment
      of patent
              
              
              78,573
              
              
              
              -Depreciation
      and amortization
              
              
              25,005
              
              
              
              30,132Total
      expenses
              
              
              2,485,754
              
              
              
              1,525,349LOSS
      FROM OPERATIONS
              
              
              (2,477,731
              )
              
              
              (1,502,105
              )OTHER
      INCOME (EXPENSE):Interest
      income
              
              
              14
              
              
              
              268Interest
      expense
              
              
              (118,093
              )
              
              
              (191,046
              )Other
      income
              
              
              8,750
              
              
              
              -Loss
      on settlement of debt
              
              
              (2,039,584
              )
              
              
              (586,175
              )Total
      other expenses
              
              
              (2,148,913
              )
              
              
              (776,953
              )NET
      LOSS
              
              $
              (4,626,644
              )
              
              $
              (2,279,058
              )NET
      INCOME (LOSS) PER SHARE - BASIC AND DILUTED:
              
              $
              (0.01
              )
              
              $
              (0.15
              )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
              
              
              476,000,298
              
              
              
              14,793,963Weighted
      average number of dilutive securities has no been calculated as the effect
      of dilutive securities would be anti-dilutiveSee
      accompanying notes to consolidated financial
  statements.






F-4




UNIVERSAL
      DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICITFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008TotalCommon
      Stock
              
              
              
              
              
              Additional
              
              
              Accumulated
              
              
              Stockholders'Shares
              
              
              Amount
              
              
              Paid-in-Capital
              
              
              Deficit
              
              
              DeficitBALANCE,
      DECEMBER 31, 2007
              
              
              4,178,479
              
              
              $
              27,195,242
              
              
              $
              5,313,089
              
              
              $
              (36,331,655
              )
              
              $
              (3,823,324
              )Adjustment
      due to stock split
              
              
              10,184
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Stock
      issued for conversion of debt
              
              
              15,088,690
              
              
              
              929,461
              
              
              
              -
              
              
              
              -
              
              
              
              929,461Stock
      issued for services
              
              
              16,009,318
              
              
              
              698,938
              
              
              
              -
              
              
              
              -
              
              
              
              698,938Net
      loss for the year
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,279,057
              )
              
              
              (2,279,057
              )BALANCE,
      DECEMBER 31, 2008
              
              
              35,286,671
              
              
              
              28,823,641
              
              
              
              5,313,089
              
              
              
              (38,610,712
              )
              
              
              (4,473,982
              )Stock
      issued for conversion of debt
              
              
              691,572,602
              
              
              
              3,312,396
              
              
              
              -
              
              
              
              -
              
              
              
              3,312,396Stock
      issued for services
              
              
              293,192,078
              
              
              
              1,771,432
              
              
              
              -
              
              
              
              -
              
              
              
              1,771,432Net
      loss for the year
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,626,644
              )
              
              
              (4,626,644
              )BALANCE,
      DECEMBER 31, 2009
              
              
              1,020,051,351
              
              
              $
              33,907,469
              
              
              $
              5,313,089
              
              
              $
              (43,237,356
              )
              
              $
              (4,016,798
              )See
      accompanying notes to consolidated financial
  statements.












F-5






UNIVERSAL
      DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 20082009
              
              
              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (4,626,644
              )
              
              $
              (2,279,058
              )Adjustments
      to reconcile net loss to net cash used in operations:Stocks
      issued for services
              
              
              1,771,432
              
              
              
              698,938Stock
      option expenses
              
              
              -
              
              
              
              -Loss
      on settlement of debt
              
              
              2,039,584
              
              
              
              586,175Impairment
      of patent
              
              
              78,573
              
              
              
              -Depreciation
              
              
              19,571
              
              
              
              24,727Changes
      in operating assets and liabilities:Inventory
              
              
              (4,117
              )
              
              
              -Patent
      costs
              
              
              5,434
              
              
              
              5,405Accounts
      receivable
              
              
              (2,568
              )
              
              
              3,224Prepaid
      expenses
              
              
              (4,012
              )
              
              
              7,161Deposits
              
              
              (11,074
              )
              
              
              -Accounts
      payable and accrued liabilities
              
              
              (71,202
              )
              
              
              430,922Net
      cash used in operating activities
              
              
              (805,023
              )
              
              
              (522,506
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Decrease
      (increase) in restricted cash
              
              
              10,477
              
              
              
              (269
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable-related party
              
              
              121,539
              
              
              
              62,487Proceeds
      from notes payable
              
              
              739,716
              
              
              
              607,347Payments
      on notes payable - related party
              
              
              (67,252
              )
              
              
              (124,704
              )Payments
      on notes payable
              
              
              -
              
              
              
              (30,000
              )Net
      cash provided by financing activities
              
              
              794,003
              
              
              
              515,130NET
      DECREASE IN CASH AND CASH EQUIVALENTS
              
              
              (543
              )
              
              
              (7,645
              )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              1,910
              
              
              
              9,555CASH
      AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              1,367
              
              
              $
              1,910SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Income
      tax
              
              $
              -
              
              
              $
              -Interest
      Paid
              
              $
              -
              
              
              $
              818SUPPLEMENTAL
      DISCLOSURES FOR NON CASH INVESTING ANDFINANCING
      ACTIVITIES:691,572,602
      and 15,088,690 Shares of common stock issued for settlement of debt and
      accrued interest in 2009 and 208
              
              $
              3,312,396
              
              
              $
              929,461See
      accompanying notes to consolidated financial statements.




F-6
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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, 2009, the Company had a working capital deficit of
$3,696,648.  During the year ended December 31, 2009, the Company
incurred net losses of $4,626,644 and had an accumulated deficit of $43,237,356
as of December 31, 2009.  These conditions raise substantial doubt
about its ability to continue as a going concern. Its ability to continue as a
going concern is dependent upon its ability to develop additional sources of
capital and ultimately achieve profitable operations. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty. The Company's financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
 
 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
2008 and 2009, the Company entered into various agreements to sell shares of its
common stock to third parties in order to covert their debts to the respective
parties.  In 2008, 15,088,690 shares were issued in the aggregate
amount of $929,461.  In 2009, 691,572,602 shares were issued in the
aggregate amount of $3,312,396.
 
  F-7
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 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.
 
 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 $8,750 in Other Revenue under this
agreement in 2009.
  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, 2009 and 2008, the Company did not have significant advertising
costs.
 
 PROPERTY
AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION
 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.
  F-8
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 
 2009
              
              
              2008Equipment
              
              $
              51,998
              
              
              $
              51,998Furniture
              
              
              64,669
              
              
              
              64,669Leasehold
      Improvements
              
              
              25,444
              
              
              
              25,444142,111
              
              
              
              142,111Accumulated
      Depreciation
              
              
              (128,735
              )
              
              
              (109,165
              )Fixed
      Assets, Net of Depreciation
              
              $
              13,376
              
              
              $
              32,946
 
 Total
depreciation expense was $19,571 and $24,727 for the years ended December 31,
2009 and 2008, respectively.
 
 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),
“Accountingfor 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 (pervious 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
592,750  shares at December 31, 2009 and 2008, respectively, because
the effect of each is antidilutive.
 
  F-9
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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.
 
 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 on 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.
 
  F-10
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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, 2009, 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 2009 and 2008,
the Company operated in one segment.
 
  F-11
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
 In June
2009, the FASB issued ASC 105 (previously SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles ("GAAP") - a replacement of FASB Statement No. 162), which will
become the source of authoritative accounting principles generally accepted in
the United States recognized by the FASB to be applied to nongovernmental
entities.
 
 In June
2009, the FASB issued ASC 855 (previously SFAS No. 165, Subsequent Events),
which establishes general standards of accounting for and disclosures of events
that occur after the balance sheet date but before the financial statements are
issued or available to be issued. It is effective for interim and annual periods
ending after June 15, 2009. There was no material impact upon the adoption of
this standard on the Company’s consolidated financial statements.
 
 In
June 2009, the FASB issued ASC 860 (previously SFAS No. 166,
“Accounting for Transfers of Financial Assets”) , which requires additional
information regarding transfers of financial assets, including securitization
transactions, and where companies have continuing exposure to the risks related
to transferred financial assets. SFAS 166 eliminates the concept of a
“qualifying special-purpose entity,” changes the requirements for derecognizing
financial assets, and requires additional disclosures. SFAS 166 is effective for
fiscal years beginning after November 15, 2009. The Company does not
believe this pronouncement will impact its financial statements.
 
 In
June 2009, the FASB issued ASC 810 (previously SFAS No. 167) for
determining whether to consolidate a variable interest entity. These amended
standards eliminate a mandatory quantitative approach to determine whether a
variable interest gives the entity a controlling financial interest in a
variable interest entity in favor of a qualitatively focused analysis, and
require an ongoing reassessment of whether an entity is the primary beneficiary.
These amended standards are effective for us beginning in the first quarter of
fiscal year 2010 and the Company is currently evaluating the impact that
adoption will have on our consolidated financial statements.
 
 In August
2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends
ASC Topic 820, Measuring Liabilities at Fair Value, which provides additional
guidance on the measurement of liabilities at fair value. These amended
standards clarify that in circumstances in which a quoted price in an active
market for the identical liability is not available, the Company is required to
use the quoted price of the identical liability when traded as an asset, quoted
prices for similar liabilities, or quoted prices for similar liabilities when
traded as assets. If these quoted prices are not available, the Company is
required to use another valuation technique, such as an income approach or a
market approach. These amended standards are effective for us beginning in the
fourth quarter of fiscal year 2009 and are not expected to have a significant
impact on our consolidated financial statements.
 
  F-12
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  NOTE
3 – PATENTS
 
 As of
December 31, 2009 and 2008, the patent value is as follows:-
  2009
              
              
              2008Patent
      Costs
              
              $
              117,341
              
              
              $
              117,341Accumulated
      Amortization
              
              
              (38,768
              )
              
              
              (33,333
              )Impairment
      of patent
              
              
              (78,573
              )
              
              
              -Patent,
      Net
              
              $
              -
              
              
              $
              84,008
 
  Total
amortization expense was $5,435 and $5,405 for the years ended December 31, 2009
and 2008, respectively.
  NOTE
4 – ACCRUED LIABILITIES
 
 The
accrued liabilities consist of the following at December 31, 2009 and
2008:
 
 2009
              
              
              2008Loan
      Fees Payable
              
              $
              68,600
              
              
              $
              68,600Sales
      tax payable
              
              
              -
              
              
              
              26Accrued
      expenses
              
              
              66,023
              
              
              
              -Accrued
      Settlement (Refer to Note 10)
              
              
              411,500
              
              
              
              411,500Deferred
      Rent
              
              
              1,379
              
              
              
              -TOTAL
      ACCRUED LIABILITIES
              
              $
              547,502
              
              
              $
              480,126
 
 The loan
fees payable of $68,600 is the value of 300,000 shares payable to third parties
in connection with certain loan fees.
 
 NOTE
5 – ACCRUED PAYROLL – OFFICERS
 
 Accrued
payroll – officers as of December 31, 2009 and 2008 is comprised of accrued
payroll to the officers of the company amounting to $548,126 and $809,136,
respectively.  This payable is interest free, unsecured and due on
demand.
 
 NOTE
6 - NOTES PAYABLE, RELATED PARTY
 
 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 fo December 31, 2009, $15,523 in principal and $1,685 in interest was
due.
 
  F-13
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  During
the year ended December 31, 2009, the Company borrowed a total of $12,998 from
its vice president of Global Strategy under promissory notes executed by the
Company.  The notes had interest rates of 12% to 12.5%.  The
Company made no payments of principal or interest during
2009.  $12,998 was due as of December 31, 2009, and $1,654 in interest
was due as of December 31, 2009.
 
 During
the year ended December 31, 2008, the Company borrowed a total of $23,500 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 $90,555. No interest was paid on the notes. No principal
or interest was due as of December 31, 2008.
 
 The
Company has $1,500 in principal and $297 in accrued interest payable to its vice
president of Global Strategy under a promissory note agreement. No payments were
made on this note during 2008.
 
 NOTE
7 – NOTES PAYABLE
 
 Notes
payable consisted of the following at December 31, 2009:
 
 Notes
      payable to individuals, subject to contingent settlement agreement and
      summary judgement, interest at 11.67% per annum, princpal and interest due
      January 1, 2006, in default, unsecured
              
              $
              95,740Note
      payable, subject to settlement agreement, interest at 12% per annum,
      principal and interest due July 2005, in default,
unsecured
              
              
              161,000Note
      payable, subject to settlement agreement, interest at 9.17% per annum,
      principal and interest due July 2005, unsecured
              
              
              71,500Note
      payable, subject to settlement agreement, interest at 12% per annum,
      principal and interest due December 2005, unsecured
              
              
              100,000Note
      payable, interest at 12.5% per annum, due November 2007 and verbally
      extended, unsecured
              
              
              2,970Note
      payable, interest at 12% per annum, due January 2008 and verbally
      extended, unsecured
              
              
              3,000Note
      payable, interest at 12.5% per annum, due July 2008 and verbally extended,
      unsecured
              
              
              20,000
  F-14
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 Note
      payable, interest at 12% per annum, due August 2008 and verbally extended,
      unsecured
              
              
              712Note
      payable, interest at 12% per annum, due December 2009 and verbally
      extended, unsecured
              
              
              27,000Note
      payable, interest at 12% per annum, due October 2009 and verbally
      extended, unsecured
              
              
              25,000Note
      payable, interest at 12% per annum, due January 2010,
      unsecured
              
              
              4,000Note
      payable, interest at 12% per annum, due January 2010,
      unsecured
              
              
              8,000Note
      payable, interest at 12% per annum, due January 2010,
      unsecured
              
              
              5,000Note
      payable, interest at 12% per annum, due January 2010,
      unsecured
              
              
              33,000Note
      payable, interest at 12% per annum, due February 2010,
      unsecured
              
              
              13,000Note
      payable, interest at 12% per annum, due February 2010,
      unsecured
              
              
              12,000Note
      payable, interest at 12% per annum, due February 2010,
      unsecured
              
              
              17,000Note
      payable, interest at 12% per annum, due April 2011,
    unsecured
              
              
              12,500Note
      payable, interest at 12% per annum, due April 2011,
    unsecured
              
              
              4,475Note
      payable, interest at 12% per annum, due May 2011,
unsecured
              
              
              9,000Note
      payable, interest at 12% per annum, due May 2011,
unsecured
              
              
              40,000Note
      payable, interest at 12% per annum, due May
      2011,  unsecured
              
              
              41,000Note
      payable, interest at 12% per annum, due May 2011,
unsecured
              
              
              52,941Note
      payable, interest at 12% per annum, due June 2011,
    unsecured
              
              
              17,450Note
      payable, interest at 12% per annum, due June 2011,
    unsecured
              
              
              13,677Note
      payable, interest at 12% per annum, due June 2011,
    unsecured
              
              
              23,000Note
      payable, interest at 12% per annum, due June 2011,
    unsecured
              
              
              18,940Note
      payable, interest at 12% per annum, due June 2011,
    unsecured
              
              
              45,904Note
      payable, interest at 12% per annum, due August 2010,
    unsecured
              
              
              30,000
  F-15
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 Note
      payable, interest at 12% per annum, due September 2011,
      unsecured
              
              
              40,000Note
      payable, interest at 12% per annum, due September 2011,
      unsecured
              
              
              10,000Note
      payable, interest at 12% per annum, due August 2010,
    unsecured
              
              
              29,920Note
      payable, interest at 12% per annum, due July 2011,
    unsecured
              
              
              25,940Note
      payable, interest at 12% per annum, due November 2009 and verbally
      extended, unsecured
              
              
              45,000Note
      payable, interest at 12% per annum, due October 2010,
      unsecured
              
              
              20,000Note
      payable, interest at 12% per annum, due November 2009 and verbally
      extended, unsecured
              
              
              50,000Note
      payable, interest at 12% per annum, due December 2009 and verbally
      extended, unsecured
              
              
              90,000Note
      payable, interest at 12% per annum, due January 2010,
      unsecured
              
              
              25,000Total
      notes payable
              
              $
              1,243,669Less:
      Long-term portion
              
              
              354,826Current
      Notes Payable
              
              $
              888,843
 
 Notes
payable consisted of the following at December 31, 2008:
 
 Notes
      payable to individuals, subject to contingent settlement agreement and
      summary judgement, interest at 11.67% per annum, princpal and interest due
      January 1, 2006, in default, unsecrured
              
              $
              95,740Note
      payable, subject to settlement agreement, interest at 12% oer annum,
      principal and interest due July 2005, in default,
unsecured
              
              
              161,000Note
      payable, subject to settlement agreement, interest at 9.17% per annum,
      principal and interest due July 2005, unsecured
              
              
              71,500Note
      payable, subject to settlement agreement, interest at 12% per annum,
      principal and interest due December 2005, unsecured
              
              
              100,000
  F-16
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 Note
      payable, interest at 12.5% per annum, due August 2006 and verbally
      extended, unsecured
              
              
              14,975Note
      payable, interest at 12.5% per annum, due August 2006 and verbally
      extended, unsecured
              
              
              10,000Note
      payable, interest at 12.5% per annum, due February 2007 and verbally
      extended, unsecured
              
              
              62,998Note
      payable, interest at 12.5% per annum, due February 2007 and verbally
      extended, unsecured
              
              
              4,500Note
      payable, interest at 12.5% per annum, due February 2007 and verbally
      extended, unsecured
              
              
              3,498Note
      payable, interest at 12.5% per annum, due March 2007 and verbally
      extended, unsecured
              
              
              50,000Note
      payable, interest at 12.5% per annum, due April 2007 and verbally
      extended, unsecured
              
              
              50,000Note
      payable, interest at 12.5% per annum, due April 2007 and verbally
      extended, unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due November 2007 and verbally
      extended, unsecured
              
              
              60,000Note
      payable, interest at 12.5% per annum, due December 2007 and verbally
      extended, unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due January 2008 and verbally
      extended, unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due February 2008 and verbally
      extended, unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due March 2008 and verbally
      extended, unsecured
              
              
              25,000Note
      payable, interest at 12.5% per annum, due March 2008 and verbally
      extended, unsecured
              
              
              40,000Note
      payable, interest at 12.5% per annum, due October 2008 and verbally
      extended, unsecured
              
              
              25,000
  F-17
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 Note
      payable, interest at 12.5% per annum, due April 2008 and verbally
      extended, unsecured
              
              
              40,000Note
      payable, interest at 12.5% per annum, due May 2008 and verbally extended,
      unsecured
              
              
              60,000Note
      payable, interest at 12.5% per annum, due November 2008 and verbally
      extended,  unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due November 2008 and verbally
      extended, unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due July 2008 and verbally extended,
      unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              15,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              17,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              13,000Note
      payable, interest at 12.5% per annum, due August 2008 and verbally
      extended, unsecured
              
              
              13,000Note
      payable, interest at 12.5% per annum, due April 2009 and verbally
      extended, unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due April 2009 and verbally
      extended, unsecured
              
              
              19,000Note
      payable, interest at 12.5% per annum, due May 2009,
    unsecured
              
              
              30,000Note
      payable, interest at 12.5% per annum, due May 2009,
    unsecured
              
              
              35,000Note
      payable, interest at 12.5% per annum, due June 2009,
    unsecured
              
              
              20,000Note
      payable, interest at 12.5% per annum, due December 2009,
      unsecured
              
              
              40,000Note
      payable, interest at 12% per annum, due July 2009,
    unsecured
              
              
              35,000Note
      payable, interest at 12% per annum, due July 2009,
    unsecured
              
              
              15,000
  F-18
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 Note
      payable, interest at 12% per annum, due July 2009,
    unsecured
              
              
              34,000Note
      payable, interest at 12% per annum, due August 2009,
    unsecured
              
              
              17,000Note
      payable, interest at 12% per annum, due August 2009,
    unsecured
              
              
              23,500Note
      payable, interest at 12% per annum, due August 2009,
    unsecured
              
              
              55,000Note
      payable, interest at 12% per annum, due November 2009,
      unsecured
              
              
              25,000Note
      payable, interest at 12% per annum, due November 2009,
      unsecured
              
              
              18,000Note
      payable, interest at 12% per annum, due December 2009,
      unsecured
              
              
              27,000Note
      payable, interest at 12% per annum, due December 2009,
      unsecured
              
              
              30,000Note
      payable, interest at 12% per annum, due October 2009,
      unsecured
              
              
              25,000Total
      notes payable
              
              $
              1,630,711Less:
      Long-term portion
              
              
              -Current
      Notes Payable
              
              $
              1,630,711
 
 The
interest expense for the years ended December 31, 2009 and December 31, 2008 is
$116,122 and $191,046, 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 $412,215 for interest and legal fees in addition to the $95,740
principal balance
 
 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 $81,637 for interest
in addition to the $161,000 principal balance.
 
  F-19
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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 in addition to the $71,500 principal balance.
 
 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
 
 CONVERSION
OF DEBT
 During
2009, the Company entered into various agreements to covert $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.
 
 During
2008, the Company entered in various agreements to convert $332,395 of principal
and $10,941 of accrued interest into 15,088,690 shares of common
stock.  The fair market value of the stock on the dates of agreement
and issuance was $929,461.  The Company recorded a loss on settlement
of debt of $586,125.
 
 STOCK
ISSUED FOR SERVICES
 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
 
  F-20
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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 value of the stock on the day of issuance.
 
 During
the year ended December 31, 2008, the Company issued an aggregate of 11,878,886
shares of its common stock to various employees of the Company as
compensation.  The shares were valued at a total of
$422,896.
 
 During
the year ended December 31, 2008, 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 4,130,472 shares of common stock, valued
at $276,042, the fair 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 “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 (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 (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.
  
   F-21
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  On
September 2, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan
(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.  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.  58,750,074 of the
shares under this plan have been issued.
   F-22
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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
$898,429 in marketing expense during the year ended December 31, 2009, due to
the restricted shares.
  WARRANTS
 
 There
were no warrants granted during 2009 and 2008.
 
 The
following table summarizes the activity of options and warrants under all
agreements and plans for the two years ended December 31, 2009 and
2008:
 
 
 WeightedAvergae
              
              AggregateNumber
      of
              
              
              Exercise
              
              IntrinsicOptions
              
              
              Warrants
              
              
              Price
              
              ValueOutstanding,
      December 31,2007
              
              
              539,750
              
              
              
              75,250
              
              
              
              16Granted
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Expired/cancelled
              
              
              -
              
              
              
              (22,250
              )
              
              
              50Outstanding,
      December 31,2008
              
              
              539,750
              
              
              
              53,000
              
              
              
              15Granted
              
              
              -
              
              
              
              -
              
              
              
              -Exercised
              
              
              -
              
              
              
              -
              
              
              
              -Expired/cancelled
              
              
              -
              
              
              
              (53,000
              )
              
              
              102Outstanding,
      December 31,2009
              
              
              539,750
              
              
              
              -
              
              
              
              7
              
              -
 
 
  F-23
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  The
following table summarizes information about stock options and warrants
outstanding at December 31, 2009:
 
 OPTIONS
      AND WARRANTS  RANGE
      OF
                  EXERCISE
                  PRICES
                
                
                NUMBER
                  OUTSTANDING
                
                
                WEIGHTED
                  AVERAGE
                  REMAINING
                  CONTRACTUAL
                  LIVE-YEARS
                
                
                WEIGHTED
                  AVERAGE
                  EXERCISE
                  PRICE
                
                
                NUMBER
                  EXERCISABLE
                
                
                WEIGHTED
                  AVERAGE
                  EXERCISE
                  PRICE$2
      to 66
                
                
                
                539,750
                
                
                
                1.39
                
                
                
                6.6
                
                
                
                539,750
                
                
                
                6.6-
                
                
                
                
                
                
                
                
                
                
                
                -539,750
                
                
                
                1.39
                
                
                
                6.6
                
                
                
                539,750
                
                
                
                6.6
 
 STOCK
SPLIT
 
 On July
25, 2008, the Company effected a reverse stock split of their common
stock.  The reverse split was effected on a one-for-two hundred basis,
resulting in 14,211,953 shares outstanding immediately following the stock
split.  All common stock numbers in these consolidated financial
statements have been retroactively restated for the effect of the reverse
split.
 
 NOTE
9 - INCOME TAXES
 
 The
income tax provision (benefit) for the years ended December 31, 2009 and 2008
differs from the computed expected provision (benefit) at the federal statutory
rate for the following reasons:
 
 2009
              
              
              2008Computed
      expected income tax provision (benefit)
              
              $
              (1,573,059
              )
              
              $
              (770,739
              )Increase
      in allowance for doubtful accounts
              
              
              -
              
              
              
              18,020Net
      operating loss carryforward
              
              
              1,668,542
              
              
              
              846,494IncreasedAccrued
      liabilities
              
              
              (99,139
              )
              
              
              (97,431
              )Stock-based
      expenses
              
              
              –
              
              
              
              -Non-deductible
      meals & entertainment
              
              
              596
              
              
              
              596Depreciation
              
              
              3,060
              
              
              
              3,060Income
      tax provision (benefit)
              
              $
              -
              
              
              $
              -
  F-24
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  
 The
      components of the deferred tax assets and (liabilities) as of December 31,
      2009 and 2008 were as follows:  2009
                
                
                2008Deferred
      tax assets:Temporary
      differences:Depreciation
                
                $
                (5,350
                )
                
                $
                (12,270
                )Accrued
      liabilities
                
                
                (116,634
                )
                
                
                (114,625
                )Allowance
      for bad debt
                
                
                (21,200
                )
                
                
                (21,200
                )Net
      operating loss carryforward
                
                
                13,565,769
                
                
                
                11,602,779Valuation
      allowance
                
                
                (13,422,585
                )
                
                
                (11,454,684
                )Net
      long-term deferred tax asset
                
                $
                -
                
                
                $
                -
 
 The
components of the deferred tax (expense) benefit were as follows for the years
ended December 31, 2009 and 2008:
 
 2009
              
              
              2008Deferred
      tax assets:Accrued
      expenses
              
              $
              (2,008
              )
              
              $
              65,985Allowance
      for bad debt
              
              
              -
              
              
              
              (21,200
              )Accumulated
      Depreciation
              
              
              6,920
              
              
              
              -Increase
      in net operating loss carryforward
              
              
              1,962,990
              
              
              
              995,875Change
      in valuation allowance
              
              
              (1,967,902
              )
              
              
              (1,040,660
              )$
              -
              
              
              $
              -
 
 As of
December 31, 2009, the Company has net operating losses carryforwards of
approximately $33,547,164 expiring in 2010 through 2024.
 
 NOTE
10- COMMITMENTS AND CONTINGENCIES
 
 LITIGATION
 
 a)
              A.
      Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection Technology,
      fka Pollution Research and Control Corporation (Superior Court of the
      State of California for the County of Los Angeles, North Central District,
      Case No. EC042040)
 
 On or
about April 16, 2004, Plaintiffs commenced an action against the Company (Case
No. EC 038824) for amounts allegedly due pursuant to four unpaid promissory
notes.  On August 2, 2004, the parties executed a Confidential
Settlement Agreement and Mutual Releases (the “Agreement”).  On
December 30, 2005, Plaintiffs commenced the above-referenced action against the
Company, alleging the Company breached the Agreement and seeking approximately
$205,000 in damages. A judgment was entered on April 11, 2006.  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, 2009, The Company has $507,955
accrued for including interest relating to this matter.
 
 F-25
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
 
 b)
              On
      June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in
      the Los Angeles Superior Court (Trilogy Capital Partners v.
      Universal Detection Technology, et. al., Case No. SC089929) against
      the Company. Plaintiff’s Complaint alleged damages against UDT for breach
      of an engagement letter in the amount of $93,449.  Also, Plaintiff
      alleged that UDT had failed to issue warrants to it pursuant to a written
      agreement. After completing the initial stages of litigation and
      conducting extensive mediation, Plaintiff and UDT reached a settlement
      wherein commencing December 15, 2006, UDT would make monthly payments to
      Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six
      percent per annum was fully paid.  In exchange, Plaintiff would
      release all of its claims against UDT. UDT has been current on all of its
      agreed payments to Plaintiff.  As of December 31, 2009, $50,457
      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 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.
  
 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, 2010. 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.
 
  F-26
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  On
October 1, 2004, the Company entered into an employment agreement with its Vice
President of Global Strategy. For the period from October 1 through December 31,
2004, compensation was $35,000 per month. Thereafter, the agreement provides for
salary of $150,000 per year plus health care costs not to exceed $400 per month.
Employment is at will and may be terminated by either party at any
time.
 
 The
Company is obligated to make certain minimum salary payments as
follows:
 
 YEAR
ENDING DECEMBER 31,
 
 2010
              
              $
              319,070$
              319,070
 
 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.
 
  F-27
 UNIVERSAL
DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
  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 $8,631,85.  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 continues 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:
 
 2010
              
              $
              79,3652011
              
              
              81,7462012
              
              
              34,479$
              195,590
 
 
 Rent
expense was $87,204 and $133,897 for 2009 and 2008 respectively.
 
 
  F-28
  NOTE
11 SUBSEQUENT EVENTS
 
 Through April 10,
2010, the Company issued an aggregate of 47,201,054 shares of its common
stock to employees as payment for current and past services valued at
approximately $130,436.
 
 During
the first quarter of 2010, the Company entered in several consulting and
advisory agreements.  The Company issued 9,882,352 shares of its
common stock as partial payment to certain consultants and for payment of
professional fees for an aggregate price of $27,847.
 
 Through
April 10, 2010, the Company issued 152,070,871 shares of its common stock valued
at $384,800 in order to covert $157,076 in principal and accrued
interest.
 
 In
February 2010, the Company executed a promissory note in the aggregate principal
amount of $23,000 payable to an unrelated party.  The promissory note
bears interest at 12.0% per annum, due March 4, 2010.
 
 In
February 2010, the Company executed a promissory note in the aggregate principal
amount of $30,000 payable to an unrelated party.  The promissory note
bears interest at 12.0% per annum, due March 26, 2010.
  
  F-29
   ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




None.




ITEM
9A(T) . CONTROLS AND PROCEDURES





Regulations
under the Securities Exchange Act of 1934 (the "Exchange Act") require public
companies to maintain "disclosure controls and procedures," which are defined to
mean a company's controls and other procedures that are designed to ensure that
information required to be disclosed in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported, within the time periods specified in the Commission's rules and forms.
Our Chief Executive Officer ("CEO"), President, and Acting Chief Financial
Officer ("CFO") carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this report.
Based on those evaluations, as of the Evaluation Date, our CEO, President, and
CFO believe that:





(i) our
disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file under the


Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to our management, including the CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure;
and





(ii) our
disclosure controls and procedures are not effective.





Internal
Control over Financial Reporting





(a)
MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL
REPORTING





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted  accounting principles. Our
internal control over financial reporting includes those policies and procedures
that:





(1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our assets;





(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with U.S. GAAP, and
that our receipts and expenditures are being made only in accordance with the
authorization of our management and directors; and





(3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our 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. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.





Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated
Framework.





Based on
an evaluation under the supervision and with the participation of the Company's
management, including the CEO and the acting CFO have concluded that the
Company's disclosure controls and procedures (as defined under the Securities
Exchange Act of 1934, as amended (Exchange Act)) were not effective as of
December 31, 2008 to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.





Identified
Material Weaknesses





During
the year ended December 31, 2009, the Company identified the following material
weaknesses as indicated below.





31


A
material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the financial statements will not be prevented or detected.
Management identified the following internal control deficiencies during its
assessment of our internal control over financial reporting as of December 31,
2009:





·
            We
      did not have effective comprehensive entity-level internal controls
      specific to the structure of our board of
  directors;


·
            We
      did not have formal policies governing certain accounting transactions and
      financial reporting processes;


·
            We
      did not obtain attestations by all employees regarding their understanding
      of and compliance with Universal Detection Technology, Inc. policies
      related to their employment;


·
            We
      did not obtain attestations by all members of our board of directors, our
      executive officers and/or our senior financial officers regarding their
      compliance with our Code of Ethics and our Code of Ethics did not apply to
      our other employees;


·
            We
      did not perform adequate oversight of certain accounting functions and
      maintained inadequate documentation of management review and approval of
      accounting transactions and financial reporting processes;
    and


·
            We
      had not fully implemented certain control activities and capabilities
      included in the design of our financial system. Certain features of our
      financial system are designed to automate accounting procedures and
      transaction processing, or to enforce
controls.





Based on
management's evaluation of our internal control over financial reporting, our
current CFO and CEO have concluded that Universal Detection Technology, Inc. did
not maintain effective internal control over financial reporting as of December
31, 2009.





This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management's report
in this annual report.





Conclusion





The above
identified material weaknesses did not result in material audit adjustments to
our 2009 financial statements. However, it is reasonably possible that, if not
remediated, one or more of the identified material weaknesses noted above, could
result in a material misstatement in our reported financial statements that
might result in a material misstatement in a future annual or interim
period.





In light
of the identified material weaknesses, management performed: (i) significant
additional substantive review of those areas described above; and (ii) performed
additional analyses, including but not limited to a detailed balance sheet and
statement of operations analytical review that compared changes from the prior
period's financial statements and analyzed all significant differences. These
procedures were completed so management could gain assurance that the financial
statements and schedules included in this Form 10-KSB fairly present in all
material respects the Company's financial position, results of operations and
cash flows for the periods presented.





(b)
CHANGES IN CONTROL OVER FINANCIAL REPORTING





The
changes noted above, are the only changes during our most recently completed
fiscal quarter that have materially affected or are reasonably likely to
materially affect, our internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act.




ITEM 9B. OTHER
INFORMATION




None.


32




PART
III




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, 2010:




Name
            Age
            PositionJacques
      Tizabi
            38
            President,
      Chief Executive Officer, Acting Chief Financial Officer, and
      DirectorMatin
      Emouna (1)
            39
            DirectorTom
      Sepnzis
            39
            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.





On April
1, 2009, Dr. Leonard Makowka resigned from the Board of Directors of Universal
Detection Technology.  Dr. Leonard Makowka is no longer a director of
the Company.  He was a director for all of 2008.





On April
2, 2009, the Board of Directors voted to fill the vacancy created by Dr.
Makowka’s resignation by electing Mr. Tom Sepnzis a director.




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, and also is involved with several other companies in industries unrelated to
our business. He is the co-founder and managing partner of Astor Capital, Inc.,
which was founded in 1995 and specializes in investment banking and asset
management, predominantly in the area of direct private investment in public
companies. He is also a director of eCast Media, a subsidiary of NT Media Corp.
of California, a publicly traded company, and President, Chief Executive
Officer, and director of Riddle Records, Inc., a publicly traded company. Mr.
Tizabi has substantial experience in evaluating, structuring and negotiating
direct investments in public companies and later stage private companies. Mr.
Tizabi holds a B.S. degree in Business from New York University and an M.B.A.
from Pepperdine University.




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, and commercial leasing. Mr. Emouna also serves as
a general counsel for Omni Abstract Title, Radio Sedayeh Iran and several
non-profit religious organizations. He holds a 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.




TOM
SEPNZIS became a director of our Company in April of 2009.   Mr.
Sepnzis  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 he later moved to the firms Piper Jaffrey
Soundview Financial, Oppenheimer, and Think Equity 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.







33




COMMITTEES




Our Audit
Committee currently consists of Mr. Matin Emouna. Each Audit Committee member 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.




SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE





Section
16(a) of the Securities Exchange Act of 1934, as amended, 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 on a review of the copies of the reports furnished to us, and
representations from our executive officers and directors that no other reports
were required during the fiscal year ended December 31, 2009, 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.





34




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 year ended
December 31, 2009.  The following table summarizes all compensation
for fiscal year 2009 received by our Chief Executive Officer.  No
other executive officer earned in excess of $100,000 in fiscal year
2009.





SUMMARY
      COMPENSATION TABLEName
      and
              principal
      position
            Year
            Salary
      ($)
            Bonus
      ($)
            Stock
      Awards
              ($)
            Option
      Awards
              ($)
            Non-Equity
              Incentive
      Plan
              Compensation
              ($)
            Nonquali-
              fied
              Deferred
              Compen-
              sation
              Earnings
              ($)
            All
      Other
              Compen-
              sation
      ($)
            Total
              ($)Jacques
      Tizabi,
              President,
      CEO, Acting CFO
            2009
            $289,406
            --
            --
            --
            --
            --
            --
            $289,406




OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END




The
following reflects all compensation awarded to, earned by, or paid to the
directors for the fiscal year ended December 31, 2009







OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOption
      Awards
            Stock
      AwardsName
            Number
      of
              securities
              underlying
              unexercised
              options
      (#)
              Exercisable
            Number
      of
              securities
              underlying
              unexercised
              options
      (#)
              Unexercisable
            Equity
              incentive
      plan
              awards:
      number
              of
      securities
              underlying
              unexercised
              earned
      options
              (#)
            Option
              exercise
              price
      ($)
            Option
              expiration
              date
            Number
      of
              shares
      or
              units
      of
              stock
      that
              have
      not
              vested
      (#)
            Market
              value
      of
              shares
      or
              units
      of
              stock
              that
      have
              not
              vested
              ($)
            Equity
              incentive
              plan
      awards:
              number
      of
              unearned
              shares,
      units,
              or
      other
              rights
      that
              have
      not
              vested
      (#)
            Equity
              incentive
              plan
      awards:
              market
      or
              payout
      value
              of
      unearned
              shares,
      units,
              or
      other
              rights
      that
              have
      not
              vested
      ($)Jacques
      Tizabi
            0
            0
            0
            0
            0
            0
            0
            0
            0Matin
      Emouna
            0
            0
            0
            0
            0
            0
            0
            0
            0Leonard
      Makowka
            0
            0
            0
            0
            0
            0
            0
            0
            0Tom
      Sepenzis
            0
            0
            0
            0
            0
            0
            0
            0
            0





DIRECTOR
COMPENSATION







The
following reflects all compensation awarded to, earned by, or paid to the
directors below for the fiscal year ended December 31, 2009.




DIRECTOR
      COMPENSATIONName
            Fees
      Earned or
              Paid
      in Cash ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
              Plan
      Compen-
              sation
              ($)
            Change
      in
              Pension
      Value
              and
              Nonqualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compen-
              sation
              ($)
            Total
      ($)Jacques
      Tizabi
            $0
            --
            --
            --
            --
            --
            $0Matin
      Emouna
            $0
            --
            --
            --
            --
            --
            $0Dr.
      Leonard Makowka
            $0
            --
            --
            --
            --
            --
            $0Tom
      Sepenzis
            $0
            --
            --
            --
            --
            --
            $0




On
October 18, 2004, the Board of Directors determined to compensate independent
directors in the amount of $15,000 each for services rendered through December
31, 2004. The Board also determined to compensate the independent directors
$5,000 each for services to be rendered for the period January 1, 2005 through
December 31, 2005. No compensation was paid to directors for the period January
1, 2006 through December 31, 2009.  When we request our Board members
to attend meetings in person, it is our policy to reimburse directors for
reasonable travel and lodging expenses incurred in attending those Board
meetings. No compensation was paid to
directors


35




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. 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.


36


ITEM
12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER
MATTERS





BENEFICIAL OWNERSHIP




The
following table sets forth information as of April 10, 2010, 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)
            Number
      of Shares of
              Preferred
      Stock
              Beneficially
      Owned (1)
            Percent
      of Class (1)Jacques
      Tizabi,
              President,
      CEO, Acting CFO, Director
            127,926,416
      (2)
            10.4%
            150
            100%Matin
      Emouna,
              Director
            0
            *
            0
            *Dr.
      Leonard Makowka,
              Director
            0
            *
            0
            *Tom
      Sepenzis,
              Director
            0
            *
            0
            *Directors
      and executive officers as a
              group
      (4 persons)
            127,926,416
      (2)
            10.4%
            150
            100%*
      Less than 1%.




(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 10,
      2010.  As of April 10, 2010, we had 1,229,196,260common
      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. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
 
,
AND DIRECTOR INDEPENDENCE




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.





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 but does have an audit committee and a compensation
committee both comprised of Mr. Matin Emouna. 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.  37




ITEM
14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES




The Audit
Committee approved the engagement of Kabani & Company as our independent
auditors for $40,000.




AUDIT
FEES




The
aggregate fees billed by Kabani and Associates 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, 2009 and 2008 was $58,000 and $58,000
respectively.

































38




ITEM
15. EXHIBITS





3.1
            Articles
      of Incorporation of A. E. Gosselin Engineering, Inc. (now the Company)
      (incorporated herein by reference to Exhibit 3(a) to Amendment No. 1 to
      the Registration Statement on Form 10 of Dasibi Environmental
      Corporation).3.2
            Certificate
      of Amendment of Articles of Incorporation of A. E. Gosselin Engineering,
      Inc. (now the Company) (incorporated herein by reference to Exhibit 3(a)
      to Amendment No. 1 to the Registration Statement on Form 10 of Dasibi
      Environmental Corporation).3.3
            Certificate
      of Amendment of Articles of Incorporation of Dasibi Environmental Corp.
      (now the Company) (incorporated herein by reference to Exhibit 3(a) to
      Amendment No. 1 to the Registration Statement on Form 10 of Dasibi
      Environmental Corporation).3.4
            Amended
      and Restated Bylaws of Registrant (incorporated by reference to Exhibit
      3.4 of the Company's Annual Report on Form 10-KSB for the year ended
      December 31, 2001, filed on April 15, 2002).3.5
            Certificate
      of Determination of Preferences of Preferred Shares.3.5
            Amendment
      to Articles of Incorporation of the Company (incorporated by reference to
      Exhibit 10.1 to the Current Report on Form 8-K filed on August 14,
      2008).4.1
            Amended
      and Restated 2003 Stock Incentive Plan (incorporated by reference to
      Exhibit 4.2 of the Company's Annual Report on Form 10-KSB for the year
      ended December 31, 2004, filed on March 31, 2005).4.2
            2006
      Stock Compensation Plan (incorporated by reference to the Company's Form
      S-8 Registration Statement filed on February 13, 2006).4.3
            2006
      Consultant Stock Plan (incorporated by reference to the Company's Form S-8
      Registration Statement filed on June 30, 2006).4.4
            2006-II
      Consultant Stock Plan (incorporated by reference to the Company's Form S-8
      Registration Statement filed on November 22, 2006).4.5
            2009
      Equity Plan (incorporated by reference to the Company’s Form S-8
      Registration Statement filed on February 20, 2009).4.6
            2008
      Equity Incentive Plan IV (incorporated by reference to the Company’s Form
      S-8 Registration Statement filed on September 8, 2008).4.7
            2008
      Equity Incentive Plan III (incorporated by reference to the Company’s Form
      S-8 Registration Statement filed on July 11, 2008).4.8
            2008
      Equity Incentive Plan II (incorporated by reference to the Company’s Form
      S-8 Registration Statement filed on April 23, 2008).4.9
            2008
      Equity Incentive Plan (incorporated by reference to the Company’s Form S-8
      Registration Statement filed on February 11, 2008).4.10
            2009
      Equity Incentive Plan III (incorporated by reference to the Company’s Form
      S-8 Registration Statement filed on November 6, 2009).4.11
            2009
      Equity Incentive Plan II (incorporated by reference to the Company’s Form
      S-8 Registration Statement filed on May 15, 2009).4.12
            2009
      Equity Incentive Plan (incorporated by reference to the Company’s Form S-8
      Registration Statement filed on February 23,
  2009).


39








10.1
            Employment
      Agreement by and between the Company and Jacques Tizabi dated September
      25, 2001 (incorporated by reference to the Company's Quarterly Report on
      Form 10-QSB for the Quarter Ended March 31, 2002, filed on May 20,
      2002).10.2
            Amendment
      to Employment Agreement of Jacques Tizabi, dated August 23, 2004.
      (incorporated by reference to Exhibit 10.1 to the Company 's Quarterly
      Report on Form 10-QSB for the Quarter Ended September 30, 2004, filed on
      November 22, 2004).10.3
            Technology
      Affiliates Agreement by and between the Company and California Institute
      of Technology, dated August 6, 2002. (incorporated herein by reference to
      Exhibit 10.3 to the Company 's Annual Report on Form 10-KSB for the fiscal
      year ended December 31, 2002, filed on April 15, 2003).10.4
            Licensing
      Agreement by and between Universal Detection Technology and California
      Institute of Technology, dated September 30, 2003 (incorporated by
      reference to Exhibit 10.4 to the Company 's Quarterly Report on Form
      10-QSB for the Quarter Ended September 30, 2003, filed on November 19,
      2003).10.5
            Agreement
      for Investment Banking and Advisory Services, by and between the Company
      and Astor Capital, Inc., dated June 1, 2003 (incorporated by reference to
      Exhibit 10.5 of the Company 's Annual Report on Form 10-KSB for the year
      ended December 31, 2003, filed on March 31, 2004).10.6
            Amendment
      to Agreement for Investment Banking and Advisory Services with Astor
      Capital, Inc. dated April 29, 2004 (incorporated by reference to Exhibit
      10.1 to the Company 's Quarterly Report on Form 10-QSB for the Quarter
      Ended June 30, 2004, filed on August 23, 2004).10.7
            Amendment
      to Agreement for Investment Banking and Advisory Services with Astor
      Capital, Inc. dated September 22, 2004 (incorporated by reference to
      Exhibit 10.4 to the Company 's Quarterly Report on Form 10-QSB for the
      Quarter Ended September 30, 2004, filed on November 22,
    2004).10.8
            Standard
      Form Office Lease, dated September 2003, between Astor Capital, Inc. and
      CSDV, a Limited Partnership. (incorporated by reference to Exhibit 10.2 to
      the Company 's Quarterly Report on Form 10-QSB for the Quarter Ended
      September 30, 2004, filed on November 22, 2004).10.9
            Assumption
      of Lease Agreement, dated October 14, 2004, between Universal Detection
      Technology and Astor Capital, Inc. (incorporated by reference to Exhibit
      10.2 to the Company 's Quarterly Report on Form 10-QSB for the Quarter
      Ended September 30, 2004, filed on November 22, 2004).10.10
            Letter
      Agreement, dated August 10, 2004, between the Company and IIG Equity
      Opportunities Fund Ltd. (incorporated by reference to the exhibit so
      described in Amendment No. 5 to the Company's Registration Statement on
      Form SB-2, File No. 333-117859, filed with the Securities and Exchange
      Commission on February 2, 2005).10.11
            Letter
      Agreement, dated August 10, 2004, between the Company and Target Growth
      Fund Ltd. (incorporated by reference to the exhibit so described in
      Amendment No. 5 to the Company's Registration Statement on Form SB-2, File
      No. 333-117859, filed with the Securities and Exchange Commission on
      February 2, 2005).10.12
            Letter
      Agreement, dated September 21, 2004 between the Company and JRT Holdings.
      (incorporated by reference to the exhibit so described in Amendment No. 5
      to the Company's Registration Statement on Form SB-2, File No. 333-117859,
      filed with the Securities and Exchange Commission on February 2,
      2005).


40





10.13
            Letter
      Agreement, dated October 1, 2004, between the Company and Ali Moussavi.
      (incorporated by reference to the exhibit so described in Amendment No. 5
      to the Company's Registration Statement on Form SB-2, File No. 333-117859,
      filed with the Securities and Exchange Commission on February 2,
      2005).10.14
            Letter
      of Engagement dated August 19, 2005, between Trilogy Capital Partners,
      Inc. and Universal Detection Technology (incorporated by reference to The
      Company's Current Report on Form 8-K filed on September 28,
      2005).10.15
            Form
      of Stock Purchase Warrant (incorporated by reference to the Company's
      Registration Statement on Form SB-2 filed on February 14,
      2006).10.16
            Stock
      Purchase Warrant issued to Trilogy Capital Partners (incorporated by
      reference to the Company's Registration Statement on Form SB-2 filed on
      February 14, 2006).10.17
            Investment
      Agreement by and between Universal Detection Technology, a California
      corporation, and European Equity Group (incorporated by reference to the
      Company's Registration Statement on Form SB-2 filed on February 14,
      2006).10.18
            Form
      of Consulting Agreement (incorporated by reference to the Company's
      Registration Statement on Form SB-2 filed on February 14,
      2006).10.19
            Form
      of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of
      the Company’s Quarterly Report on Form 10-Q filed on July 25,
      2008)10.20
            Form
      of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of
      the Company’s Quarterly Report on Form 10-Q filed on May 20,
      2009)10.19
            Form
      of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of
      the Company’s Quarterly Report on Form 10-Q filed on August 14,
      2009)10.19
            Form
      of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of
      the Company’s Quarterly Report on Form 10-Q filed on November 13,
      2009)10.20
            Commercial
      Property Lease dated June 1, 200921.1
            Subsidiaries
      of Registrant (incorporated by reference to Exhibit 21.1 of the Company 's
      Annual Report on Form 10-KSB for the year ended December 31, 2003, filed
      March 31, 2004).23.1
            Consent
      of Independent Registered Public Accounting Firm31.1
            Certification
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  2002.32.1
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.










41








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, 2010
            UNIVERSAL
      DETECTION TECHNOLOGYBy:
            /s/ Jacques
      TizabiJacques
      Tizabi, President, Chief ExecutiveOfficer,
      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, 2010
            /s/
      Jacques TizabiJacques
      Tizabi, President, Chief ExecutiveOfficer,
      Acting Chief Financial Officer, and Chairman of the Board of
      DirectorsDate:
      April 15, 2010
            /s/Tom SepnzisTom
      Sepnzis,
              DirectorDate:
      April 15, 2010
            /s/ Matin EmounaMatin
      Emouna,
              Director


42