UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.  20549











FORM 10-Q




x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the quarterly period ended:  June 30, 2010




OR




o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from _______ to _______




Commission File Number 0-31012




UNIVERSAL DETECTION TECHNOLOGY


(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)




California

95-2746949(State or other jurisdiction of incorporation

or organization)

(I.R.S. Employer Identification No.)340 North Camden Drive, Suite 302

Beverly Hills, California

90210(Address of principal executive offices)

(Zip Code)





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




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




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




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):




Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x





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




Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: As of August 19, 2010, there were 1,454,080,969  shares of common stock outstanding.














FORM 10-Q





INDEX





Page No.PART I.
Financial Information
3Item 1.
Financial Statements (unaudited) :
3Notes to Financial Statements
7Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
16Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
23Item 4.
Controls and Procedures.
23PART II.
Other Information
24Item 1.
Legal Proceedings
24Item 1A
Risk Factors
25Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
25Item 3.
Defaults Upon Senior Securities
25Item 4.
Removed and Reserved
25Item 5.
Other Information
25Item 6.
Exhibits
25SIGNATURES

27













2


PART I


FINANCIAL INFORMATION





ITEM 1.
FINANCIAL STATEMENTS




UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2010, AND DECEMBER 31, 2009(UNAUDITED)ASSETSJune 30, 2010


December 31, 2009CURRENT ASSETS:Cash and cash equivalents

$
5,182


$
1,367Accounts Receivable,net


3,291



3,626Inventory


4,117



4,117Prepaid expenses


74,822



7,678Total current assets


87,412



16,788Deposits


21,300



21,300Equipment, net


10,720



13,376Total assets

$
119,432


$
51,464LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIES:Accounts payable, trade

$
1,072,453


$
1,035,204Accrued liabilities


602,976



547,502Accrued payroll - officers


624,236



548,126Notes payable - related party


184,510



64,612Notes payable


1,043,025



888,843Accrued interest expense


684,236



629,149Total current liabilities


4,211,436



3,713,436Long term notes payable


75,940



354,826Total liabilities


4,287,376



4,068,262COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' DEFICIT:Preferred stock, $.01 par value, 20,000,000 sharesauthorized, -0- issued and outstanding


-



-Common stock, no par value, 20,000,000 shares authorized,1,416,272,157 shares issued and outstanding as of June 30, 2010and 1,020,051,351 shares issued and outstanding as of December 31, 2009


34,967,363



33,907,469Additional paid-in-capital


5,313,089



5,313,089Accumulated deficit


(44,448,396
)


(43,237,356
)Total stockholders' deficit


(4,167,944
)


(4,016,798
)Total liabilities and stockholders' deficit

$
119,432


$
51,464


See accompanying notes to the unaudited consolidated financial statements.
  3




UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009(UNAUDITED)2010


2009REVENUE, NET

$
1,099


$
-COST OF GOODS SOLD


1,002



-GROSS PROFIT


97



-OPERATING EXPENSES:Selling, general and administrative


277,085



291,692Marketing


57,611



42,500Depreciation and amortization


2,704



7,533Total expenses


337,400



341,725LOSS FROM OPERATIONS


(337,303
)


(341,725
)OTHER INCOME (EXPENSE):Interest expense


(40,002
)


(24,906
)Other income


3,750



-Loss on settlement of debt


(251,002
)


(390,184
)Total other expenses


(287,254
)


(415,090
)NET LOSS


(624,557
)

$
(756,815
)NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:


(0.0005
)

$
(0.0029
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


1,343,232,457



260,634,355





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




See accompanying notes to the unaudited consolidated financial statements.




4




UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF OPERATIONSFOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009(UNAUDITED)2010


2009REVENUE, NET

$
3,057


$
15,482COST OF GOODS SOLD


2,150



1,868GROSS PROFIT


907



13,614OPERATING EXPENSES:Selling, general and administrative


591,920



475,192Marketing


60,996



54,925Depreciation and amortization


5,668



15,067Total expenses


658,584



545,184LOSS FROM OPERATIONS


(657,677
)


(531,570
)OTHER INCOME (EXPENSE):Interest expense


(82,136
)


(77,269
)Other income


7,500



-Loss on settlement of debt


(478,727
)


(427,241
)Total other expenses


(553,363
)


(504,510
)NET LOSS

$
(1,211,040
)

$
(1,036,080
)NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED:

$
(0.0010
)

$
(0.0070
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING


1,214,409,060



157,374,747





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





See accompanying notes to the unaudited consolidated financial statements.





5




UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009(UNAUDITED)2010


2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(1,211,040
)

$
(1,036,080
)Adjustments to reconcile net loss to net cash used in operations:Stocks issued for services


298,583



472,212Loss on settlement of debt


478,727



427,241Depreciation


5,668



15,067Changes in operating assets and liabilities:Inventory


-



(5,852
)Accounts receivable


335



824Prepaid expenses


(67,144
)


(3,434
)Deposits


-



(11,074
)Accounts payable and accrued liabilities


240,101



(260,044
)Net cash used in operating activities


(254,770
)


(401,140
)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of equipment






-Decrease in restricted cash


(3,012
)


10,477Net cash provided by (used in) investing activity


(3,012
)


10,477CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from notes payable-related party


155,923



32,492Proceeds from notes payable


119,000



384,887Payments on notes payable - related party


(13,326
)


(23,170
)Net cash provided by (used in) financing activities


261,597



394,209NET INCREASE IN CASH AND CASH EQUIVALENTS


3,815



3,546CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


1,367



1,910CASH AND CASH EQUIVALENTS, END OF PERIOD

$
5,182


$
5,456SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Income tax

$
-


$
-Interest Paid

$
526


$
-SUPPLEMENTAL DISCLOSURES FOR NON CASH INVESTING ANDFINANCING ACTIVITIES:Shares issued for settlement of debt and accrued interest

$
761,310


$
936,338


See accompanying notes to unaudited consolidated financial statements.




6




UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010





NOTE 1 - BASIS OF PRESENTATION


The accompanying unaudited consolidated financial statements have been prepared by Universal Detection Technology and Subsidiaries, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) Form 10-Q and Item 310 of Regulation SK, and generally accepted accounting principles for interim financial reporting. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) that are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. The results of the three and six months ended June 30, 2010, are not necessarily indicative of the results to be expected for the full year ending December 31, 2010.
 
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  GOING CONCERN
  As of June 30, 2010, the Company had a working capital deficit of $4,124,024 and an accumulated deficit of $44,448,396. The Company incurred a net loss of $1,211,040 for the six month period ended June 30, 2010.  These conditions raise substantial doubt about its ability to continue as a going concern.  Its ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and ultimately achieve profitable operations.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  The Company’s financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
  During the first six months of 2010, the Company sold detection kits under various purchase agreements and had consulting revenue for $3,057. The Company also entered into various agreements to issue 396,220,806 shares of its common stock to third parties in order to convert outstanding debt to the respective parties.  The value of the stock issued in consideration for the debt conversion was $1,059,896.
  RECLASSIFICATION
 Certain reclassifications have been made to the prior year balances to conform to the current year presentation.
  7
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
  REVENUE RECOGNITION
  The Company’s revenue recognition policies are in compliance with ASC 605 (previously Staff accounting bulletin (SAB) 104). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
 
 USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
  The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.
  RECENT ACCOUNTING PRONOUNCEMENTS
  In 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. This Statement shall be effective for reporting period that begins after November 15, 2009. The Company does not believe this pronouncement will impact its financial statements.
  8
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 
 In June 2009, the FASB issued new guidance which is now part of ASC 105-10, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (ASC 105-10) (formerly Statement of Financial Accounting Standards No. 168),  establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. ASC 105-10 is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 did not have a material impact on the Company’s 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, we are 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, we are required to use another valuation technique, such as an income approach or a market approach. These amended standards are effective from October 1, 2009, and do not have a significant impact on our consolidated financial statements.
 
 In January 2010, the FASB issued ASU No. 2010-06 Fair Value Measurements and Disclosures Topic 820 “Improving Disclosures about Fair Value Measurements”.  This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in Codification Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. This pronouncement is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.
 
 In October 2009, the FASB issued guidance on revenue recognition that will become effective for the Company beginning July 1, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe adoption of this new guidance will not have a material impact on our financial statements.
  NOTE 3 – NOTES PAYABLE
 
 During the first quarter of 2010, the Company borrowed an aggregate of $53,000 from third parties under various promissory note agreements.  The promissory notes all bear interest at 12.0% per annum, and are due on or before May 4, 2010.  No interest or principal payments have been made on the notes.
  During the second quarter of 2010, the Company borrowed an aggregate of $66,000 from third parties under various promissory note agreements.  The promissory notes all bear interest at 12.0% per annum, and are due on or before May 12, 2011.  No principal or interest payments have been made on these notes.
  As of June 30, 2010, the Company had total notes payable of $1,118,965, out of which $1,043,025 was current and $75,940 was long term. As of December 31, 2009, the Company had total notes payable of $1,243,669, out of which $888,843 was current and $354,826 as long term.
  The interest expense on these notes payable for the six months ended June 30, 2010 and 2009 was $82,138 and $77,281, respectively.
  NOTE 4 – COMMITMENTS AND CONTINGENCIES
  The Company was involved in the following litigations:
  a)
A. Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection Technology, fka Pollution Research and Control Corporation (Superior Court of the State of California for the County of Los Angeles, North Central District, Case No. EC042040)
  On or about April 16, 2004, Plaintiffs commenced an action against the Company (Case No. EC 038824) for amounts allegedly due pursuant to four unpaid promissory notes.  On August 2, 2004, the parties executed a Confidential Settlement Agreement and Mutual Releases (the “Agreement”).  On December 30, 2005, Plaintiffs commenced the above-referenced action against the Company, alleging the Company breached the Agreement and seeking approximately $205,000 in damages. A judgment was entered on April 11, 2006.  As of June 30, 2010 and December 31, 2009, the Company has accrued $533,629 and $507,995 respectively for this settlement including principal and interest.
  9
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 b)
On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the Los Angeles Superior Court (Trilogy Capital Partners v. Universal Detection Technology, et. al., Case No. SC089929) against the Company. Plaintiff’s Complaint alleged damages against UDT for breach of an engagement letter in the amount of $93,449.  Also, Plaintiff alleged that UDT had failed to issue warrants to it pursuant to a written agreement. After completing the initial stages of litigation and conducting extensive mediation, Plaintiff and UDT reached a settlement wherein commencing December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six percent per annum was fully paid.  In exchange, Plaintiff would release all of its claims against UDT. UDT has been current on all of its agreed payments to Plaintiff.  As of June 30, 2010, $11,217 was due under the agreement.
  c)
On November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the Los Angeles Superior Court (NBGI, Inc.  v. Universal Detection Technology, et. al., Case No. BC361979) against the Company. NBGI, Inc.’s Complaint alleged breach of contract, and requested damages in the amount of $111,014 plus interest at the legal rate and for costs of suit.  UDT strongly disputes and shall vigorously defend against the allegations of the Complaint. To date, discovery has commenced, and trial has been set for October 29, 2007. There is also a Motion for Summary Judgment set for September 11, 2007.   The Summary Judgment was granted in NBGI’s favor, and Judgment has been entered.
  d)
On June 23, 2009, California Institute of Technology (“Cal Tech”)sent a letter to Universal Detection Technology ("UDT"), asserting certain breaches by UDT of that certain License Agreement between Cal Tech and UDT effective September 30, 2009 as amended (the "License Agreement") including nonpayment of royalties, failure to pay certain prosecution and legal costs and failure to fully commercialize the patents and technologies that are licensed to UDT under the License Agreement.  Cal Tech is also asserting its right to terminate the License Agreement effective June 4, 2009. 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.
  From time to time, the Company is a party to a number of lawsuits arising in the normal course of business.  In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company’s operations, cash flows or financial position.
  
 10
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
  NOTE 5- STOCKHOLDERS’ EQUITY
  During the six month period ended June 30, 2010, the Company issued an aggregate of 54,492,720 shares of common stock to employees for services rendered to the Company.  The Company recorded the expense at the fair market value of the shares of $151,374.
  During the six month period ended June 30, 2010, the Company issued 64,150,325 shares of common stock as payment for consulting or other professional fees for an aggregate amount of $147,212.
  During the six month period ended June 30, 2009, the Company entered various agreements to convert $282,583 of debt and accrued interest into 277,577,761 shares of common stock.  The fair market value of the stock on the date of agreement and issuances was $761,310.  The company recorded a loss on settlement of debt of $478,727.
 
 COMMON STOCK PURCHASE WARRANTS AND OPTIONS
 
 From time to time, the Company issues options and warrants as incentives to employees, officers and directors, as well as to non-employees.  No options or warrants have been issued for the six months ended June 30, 2010.
  
  11
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
  STOCK OPTION PLAN
  On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of  Nonqualified  Stock Options,  Incentive  Stock Options,  Stock  Appreciation Rights (or SARs),  Restricted Stock,  Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction.  The Company reserved 300,000,000 shares of its common stock for awards to be made under the Plan. 299,991,072 shares reserved under this plan have been issued.
 
 On April 29, 2008, the Board of Directors adopted the 2008-2 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of  Nonqualified  Stock Options,  Incentive  Stock Options,  Stock  Appreciation Rights (or SARs),  Restricted Stock,  Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction.  The Company initially reserved 330,000,000 shares of its common stock for awards to be made under the Plan. 326,854,165 of the shares reserved under this plan have been issued.
  On July 1, 2008, the Board of Directors adopted the 2008-3 Equity Incentive Plan (the "Plan”).  The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction.  The Company initially reserved 2,500,000 shares of its common stock for awards to be made under the Plan.  2,500,000 of the shares reserved under this plan have been issued.
  On September 2, 2008, the Board of Directors adopted the 2008-4 Equity Incentive Plan (the “Plan”).  The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs).  Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service provider, provided that such services are not in connection with the offer and sale of securities in a capital raising transactions.  The company initially reserved 3,800,000 shares of its common stock for awards to be made under the Plan.  3,800,000 of the shares reserved under this plan have been issued.
     12
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
 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.  120,461,225 of the shares under this plan have been issued.
  Warrants:
 There were no warrants granted during the six month period ended June 30, 2010.
 
 Common stock purchase options and warrants consisted of the following as of June 30, 2010:
   13
  UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
  Common stock purchase options and warrants consisted of the following as of June 30, 2010:
 
 Weighted Average


Weighted


AggregatedExercise


Average


Intrinsic# shares


Price


Remaining Life


ValueOptions:Outstanding and exercisable, December 31, 2009


539,750


$
6.65



1.39


$
-Granted


-











-Exercised


-











-Expired


-











-Outstanding and exercisable, June 30, 2010


539,750


$
6.65



0.90


$
-Warrants:Outstanding and exercisable, December 31, 2009


-



N/A






$
-Granted


-











-Exercised


-











-Expired


-











-Outstanding and exercisable, June 30, 2010


-



N/A






$
-
 
 Options:
  Prior to July 1, 2006, the Company measured stock compensation expense using the intrinsic value method of accounting in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations (APB No. 25).
  The Company adopted ASC 718 (previously SFAS No. 123-R) effective July 1, 2006 using the modified prospective method. Under this transition method, stock compensation expense recognized in the six months ended June 30, 2010, includes compensation expense for all stock-based compensation awards vested during the six months ended June 30, 2010, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123-R. As there were no options granted or vested since the implementation of ASC 718, no expense has been recorded during the six month period ended June 30, 2010.
  Methods of estimating fair value
  Under ASC 718 (previously SFAS No. 123-R), the fair value of stock options is determined using the Black-Scholes model. The Company's expected volatility assumption is based on the historical volatility of the Company's stock. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
  ASC 718 (previously SFAS No. 123-R) requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.
  14
 
 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 June 30, 2010
  NOTE 6 - RELATED PARTY TRANSACTIONS
  During the six months ended June 30, 2010, the Company repaid $13,326 in principal and interest payments under various promissory note agreements to its president and CEO.  During the six months ended June 30, 2010, the Company borrowed an aggregate of $5,318 in principal with interest rates of 12.0%.
 
 As of June 30, 2010 & December 31, 2009, the notes payable to related parties were $6,272 and $28,870, respectively. The notes are unsercured, bear interest of 12% per annum and are due on or before October 2010.
 
 In addition, the loan payable to related parties as of June 30, 2010 and December 31, 2009 were $178,238 and $35,742, respectively. These loans are unsecured,  interest free ,and due on demand.
 
 The accrued payroll of the officers as of June 30, 2010 and December 31, 2009 were $624,236 and $548,126, respectively.
 
 NOTE 7 - SUBSEQUENT EVENTS
  During July 2010, the Company issued an aggregate of 31,818,180 shares of common stock to employees for services rendered valued at approximately $44,545.
  During July and August 2010, the Company issued 4,000,000 shares of its common stock as partial payment to certain consultants and for payment of professional fees for an aggregate price of $5,200.




15





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





FORWARD-LOOKING STATEMENTS





This quarterly report of Form 10-Q, including the following management’s discussion and analysis, and other reports filed by the registrant from time to time with the Securities and Exchange Commission (Collectively the “filings”) contain forward-looking statements which are intended to convey our expectations or predictions regarding the occurrence of possible future events or the existence of trends and factors that may impact our future plans and operating results. These forward-looking statements are derived, in part, from various assumptions and analyses we have made in the context of our current business plan and information currently available to us and in light of our experience and perceptions of historical trends, current conditions and expected future developments and other factors we believe to be appropriate in the circumstances. You can generally identify forward-looking statements through words and phrases such as “seek”, “anticipate”, “believe”, “estimate”, “expect”, “intend”, “plan”, “budget”, “project”, “may be”, “may continue”, “may likely result”, and similar expressions. When reading any forward-looking statement you should remain mindful that all forward-looking statements are inherently uncertain as they are based on current expectations and assumptions concerning future events or future performance of our company, and are subject to risks, uncertainties, assumptions and other factors relating to our industry and results of operations.





Each forward-looking statement should be read in context with, and with an understanding of, the various other disclosures concerning our company and our business made in our filings. You should not place undue reliance on any forward-looking statement as a prediction of actual results or developments. We are not obligated to update or revise any forward-looking statement contained in this report to reflect new events or circumstances unless and to the extent required by applicable law.




OVERVIEW




We 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, chemical weapons and industrial chemical detection devices, and counter-terrorism training references.





During the three months ended June 30, 2010 we spent an aggregate of $334,696 on selling, general and administrative expenses, research and development expenses and marketing expenses. This amount represents a 0.2% increase over the comparable year-ago period. The increase is principally attributable to a increase in compensation and marketing expenses.
 
 During the six months ended June 30, 2010 we spent an aggregate of $652,916 on selling, general and administrative expenses, research and development expenses and marketing expenses.  This amount represents a 23% increase over the comparable year-ago period.  The increase is principally attributable to an increase in compensation expenses and marketing expenses.




Our working capital deficit at June 30, 2010, was 4,124,024.  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 $2 million to repay indebtedness in the next 12 months.




16




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.





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.


Results of Operations





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





Three Months EndedJune 30, 2010 Compared to the Three Months EndedJune 30, 2009.





Revenue.  Total revenue for the three months ended June 30, 2010 was $ 1,099, as compared to revenue of 0 for the same period in the prior fiscal year, an increase of $1,099. The increase is primarily due to an increased number of detection unit sales.





Operating Expenses. Total operating expenses for the three months ended June 30, 2010were $337,400  representing a decrease of $4,325.  Total selling, general and administrative expenses for the three months ended June 30, 2010 were $277,085 representing an decrease of $14,607 (5%) as compared to the same period in the prior fiscal year. These decreases are principally attributable to a decrease in professional fees and in stock based compensation.





Other income(expense).Other income (expense) amounted to ($287,254) for the three months ended June 30, 2010 as compared to ($415,090) for the corresponding period of the prior year.  The decrease is principally related the loss recognized on the settlement of shares issued for debt.





Net loss.  Net loss for the three months ended June 30, 2010 was $624,557, as compared to a net loss of $756,815 for the same period in the prior fiscal year, representing an decrease of $132,258.  The primary reasons for this are a decrease in professional fees and in stock based compensation and an increase in loss recognized on the settlement of shares issued for debt.




Six Months EndedJune 30, 2010Compared to the Six Months EndedJune 30, 2009.
  Revenue.Total revenue for the six months endedJune 30, 2010was $ 3,057, as compared to revenue of $15,482 for the same period in the prior fiscal year, a decrease of $12,425. The decrease is primarily due to a reduced number of detection unit sales.
  Operating Expenses.Total operating expenses for the six months endedJune 30, 2010were $658,584  representing an increase of $113,400.  Total selling, general and administrative expenses for the six months endedJune 30, 2010were $591,920 representing an increase of $116,728 (2%) as compared to the same period in the prior fiscal year. These increases are principally attributable to an increase in stock based compensation and marketing expense.
  Other income(expense).Other income (expense) amounted to ($553,363) for the six months endedJune 30, 2010as compared to ($504,510) for the corresponding period of the prior year.  The decrease is principally related the loss recognized on the settlement of shares issued for debt.
  Net loss.Net loss for the six months endedJune 30, 2010was $1,211,040, as compared to a net loss of $1,036,080 for the same period in the prior fiscal year, representing a decrease of $174,960.  The primary reasons for this are increases in stock based compensation, in marketing expense and in loss recognized on the settlement of shares issued for debt.





17





LIQUITY AND CAPITAL RESOURCES





We require approximately $2 million to repay debt and $300,000 to execute our business plan in the next twelve months. We do not anticipate that our cash on hand is adequate to meet our operating expenses over the next 12 months. Also, we do not believe we have adequate capital to repay all of our debt currently due and becoming due in the next 12 months. We anticipate that uses of our available capital during the next 12 months principally will be for:





●
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.




Our working capital deficit at June 30, 2010 was $4,124,024.  Our independent auditors’ report includes an explanatory paragraph relating to substantial doubt as to our ability to continue as a going concern, due to our working capital deficit at December 31, 2009.  We require approximately $2 million to repay indebtedness including interest in the next 12 months.  The following provides principal terms of our outstanding debt as of June 30, 2010:





o One loan from three family members, each of whom is an unaffiliated party, evidenced by four promissory notes in the aggregate principal amounts of $100,000, $50,000, $50,000, and $100,000, each due June 24, 2001 with interest rates ranging from 11% to 12%. We entered into a settlement agreement in the third quarter of 2004 with each of these parties. Pursuant to this agreement, at June 30, 2005, we were required to pay an additional $80,000 as full payment of our obligations. We did not make this payment and are in default of these notes.  As of June 30, 2010, we have $533,629 accrued for including interest relating to this matter.




o One loan from an unaffiliated party in the aggregate principal amount of $195,000 with interest at a rate of 12% per annum. Pursuant to a letter agreement dated as of August 10, 2004, we entered into a settlement with this party and agreed to pay a total of $261,000 pursuant to a scheduled payment plan through July 2005. Additionally, the Company, in September 2004, issued 206,250 shares of common stock upon the conversion of unpaid interest in the aggregate amount of $33,000. At June 30, 2010, there was $161,000 principal amount (and $88,892 in interest) remaining on this note. We did not make our scheduled payment under this note in July 2005, and are in default of this note.




o One loan from an unaffiliated party in the aggregate principal amount of $98,500, due July 31, 2005, with interest at the rate of 9% per annum. Pursuant to a letter agreement dated August 10, 2004, between this third party and us, we agreed to pay a total of $130,800 pursuant to a scheduled payment plan through July 2005. At June 30, 2010, there was $71,500 principal amount (and $34,709 in interest) remaining on this note. We did not make our scheduled payment under this note in July 2005, and are in default of this note.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $100,000 due on March 31, 2006 with an interest rate of 12% per annum.  As of June 30, 2010, we owed $52,500 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.




18





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $60,000 due on November 1, 2007 with an interest rate of 12.5% per annum.  As of June 30, 2010, we paid off the remaining balance.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on January 11, 2008 with an interest rate of 12% per annum.  As of June 30, 2010, we paid off the remaining balance.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $20,000 due on July 8, 2008 with an interest rate of 12.5% per annum.  As of June 30, 2010, we paid off the remaining balance.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $15,000 due on August 4, 2008 with an interest rate of 12% per annum.  As of June 30, 2010, we paid off the remaining balance.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $27,000 due on December 2, 2009 with an interest rate of 12.0% per annum.  As of June 30, 2010, we paid off the remaining balance.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $4,000 due on January 9, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $4,000 in principal and $720 in interest.  We did not make our scheduled payment on January 9, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $8,000 due on January 13, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $8,000 in principal and $1,440 in interest.  We did not make our scheduled payment on January 13, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $5,000 due on January 16, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $5,000 in principal and $900 in interest.  We did not make our scheduled payment on January 16, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $33,000 due on January 22, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $33,000 in principal and $5,610 in interest.  We did not make our scheduled payment on January 22, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $13,000 due on February 11, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $13,000 in principal and $2,210 in interest.  We did not make our scheduled payment on February 11, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $12,000 due on February 20, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $12,000 in principal and $1,920 in interest.  We did not make our scheduled payment on February 20, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.




19




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $17,000 due on February 11, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $17,000 in principal and $2,890 in interest.  We did not make our scheduled payment on February 11, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $12,500 due on April 16, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $12,500 in principal and $1,813 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $4,475 due on April 23, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $4,475 in principal and $627 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $9,000 due on May 1, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $9,000 in principal and $1,260 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on May 6, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $40,000 in principal and $5,600 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $41,000 due on May 13, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we paid off the remaining balance.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $17,450 due on June 4, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we paid off the remaining balance.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $13,677 due on June 16, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $13,677 in principal and $1,710 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $18,940 due on June 9, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $18,940 in principal and $2,462 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on August 24, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $30,000 in principal and $2,400 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $40,000 due on September 10, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $40,000 in principal and $3,863 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $10,000 due on September 15, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $10,000 in principal and $950 in interest.




20




o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $29,920 due on August 12, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $29,920 in principal and $3,142 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $25,940 due on July 23, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $25,940 in principal and $2,853 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $45,000 due on November 2, 2009 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $45,000 in principal and $4,050 in interest.  We did not make our scheduled payment on November 2, 2009.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $20,000 due on October 15, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $20,000 in principal and $1,700 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $50,000 due on November 27, 2009 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $50,000 in principal and $4,000 in interest.  We did not make our scheduled payment on November 27, 2009.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $90,000 due on December 23, 2009 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $90,000 in principal and $6,300 in interest.  We did not make our scheduled payment on December 23, 2009.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $25,000 due on January 16, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $25,000 in principal and $1,625 in interest.  We did not make our scheduled payment on January 16, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $23,000 due on May 4, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $23,000 in principal and $1,150 in interest.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $30,000 due on March 26, 2010 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $30,000 in principal and $1,200 in interest.  We did not make our scheduled payment on March 26,2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $31,000 due on May 17, 2010 with a late charge of 15% per annum.  As of June 30, 2010, we owed $31,000 in principal and $4,650 in late charge.  We did not make our scheduled payment on May 17, 2010.  We have verbally extended the unpaid note and the due date and other terms are being renegotiated so the note is not considered in default.





o One loan from an unaffiliated party evidenced by a promissory note in the aggregate principal amount of $35,000 due on May 12, 2011 with an interest rate of 12.0% per annum.  As of June 30, 2010, we owed $35,000 in principal and $350 in interest.





21





Management continues to take steps to address the Company's liquidity needs. In the past, management has entered into agreements with some of our note holders to amend the terms of our notes to provide for extended scheduled payment arrangements. Management is engaged in discussions with each holder of debt that is in default and continues to seek extensions with respect to our debt that is past due. In addition, management may endeavor to convert some portion of the principal amount and interest on our debt into shares of common stock. During the six months June 2010, we have entered into agreements to convert 277,577,761 shares of common stock valued at $761,310.




Historically, we have financed operations through private debt and equity financings. In recent years, financial institutions have been unwilling to lend to us and the cost of obtaining working capital from investors has been expensive. We principally expect to raise funds through the sale of equity or debt securities. The more recent price and volume volatility in the common stock has made it more difficult for management to negotiate sales of its securities at a price it believes to be fair to the Company. The Company actively continues to pursue additional equity or debt financings, but cannot provide any assurance that it will be successful. If we are unable to pay our debt as it becomes due and are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors.





OFF-BALANCE SHEET ARRANGEMENTS





We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, and that would be considered material to investors.





























22





ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCOLSOURES ABOUT MARKET RISK.





Not Applicable





ITEM 4.
CONTROLS AND PROCEDURES





DISCLOSURE CONTROLS AND PROCEDURES





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




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




CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING





There have been no changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.





Additional Disclosure Concerning Controls and Procedures.





We currently believe that the Company has material weaknesses in its disclosure controls and procedures. We will continue to work in the coming weeks and months to address such weaknesses. We believe that the out-of-pocket costs, the diversion of management's attention from running the day-to-day operations and operational changes caused by the need to make changes in our internal control and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) could be significant and still we may not achieve significant improvements in our internal controls and procedures. If the time and costs associated with such compliance exceed our current expectations, our results of operations and the accuracy and timeliness of the filing of our annual and periodic reports may be materially adversely affected and could cause investors to lose confidence in our reported financial information, which could have a negative affect on the trading price of our common stock.









23


PART II


OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





On or about April 16, 2004, Plaintiffs A. Sean Rose, Claire F. Rose, and Mark Rose commenced an action in the Los Angeles Superior Court against the Company (A. SEAN ROSE, CLAIRE F. ROSE AND MARK ROSE V. UNIVERSAL DETECTION TECHNOLOGY, FKA POLLUTION RESEARCH AND CONTROL CORPORATION) for amounts allegedly due pursuant to four unpaid promissory notes. On August 2, 2004, the parties executed a Confidential Settlement Agreement and Mutual Releases (the “Agreement”). On December 30, 2005, Plaintiffs commenced an action against the Company, alleging the Company breached the Agreement and sought approximately $205,000 in damages. A judgment was entered on April 11, 2006 for $209,277.58. The Company has previously accrued for this settlement. As of June 30, 2010, we have accrued $533,629  for this settlement including principal and interest.




On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the Los Angeles Superior Court (TRILOGY CAPITAL PARTNERS V. UNIVERSAL DETECTION TECHNOLOGY, ET. AL., Case No. SC089929) against the Company. Plaintiff's Complaint alleged damages against Universal Detection Technology ("UDT")for breach of an engagement letter in the amount of $93,448.54. Also, Plaintiff alleged that UDT had failed to issue warrants to it pursuant to a written agreement. After completing the initial stages of litigation and conducting extensive mediation, Plaintiff and UDT reached a settlement wherein commencing December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six percent per annum was fully paid. In exchange, Plaintiff would release all of its claims against UDT.  As of June 30, 2010, $11,216 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.




On June 24, 2010, Plaintiff Meyers Associates, L.P. commenced an action in the Supreme Court of the State of New York, New York County, entitled Meyers Associates, L.P. v. Universal Detection Technology ("UDT"), case No. 108321/10.  The complaint alleges breach of contract and damages related to performance by Meyers Associates, L.P. ("Meyers") of an investment banking services agreement dated December 22, 2005 and UDT's alleged failure to compensate Meyers for such services under the terms of the agreement. Plaintiff seeks damages in the amount of approximately $116,000 plus an award of court costs and attorneys fees.  UDT disputes Meyer's claims including the asserted damages. UDT intends to defend the action.




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ITEM 1A.  RISK FACTORS




Not Applicable.




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





During the second quarter of 2010, we issued the following securities which were not registered under the Securities Act of 1933, as amended. We did not employ any form of general solicitation or advertising in connection with the offer and sale of the securities described below. In addition, we believe the purchasers of the securities are "ACCREDITED INVESTORS" for the purpose of Rule 501 of the Securities Act. For these reasons, among others, the offer and sale of the following securities were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act or Regulation D promulgated by the SEC under the Securities Act:





●
During the three months ended June 30, 2010, we entered into agreements to issue 125,506,890 shares of common stock to various notes holders to convert outstanding debt obligations valued at approximately $376,500 as follows:


o
On April 9, 2010, we issued 62,746,500 shares of common stock to convert outstanding obligations valued at $238,437.  The price per share of the conversion was $0.0038.


o
On May 19, 2010, we issued 62,760,390 shares of common stock to convert outstanding obligations valued at 138,073.  The price per share of the conversion was $0.0022.




During the first quarter of 2010, we issued the following securities which were not registered under the Securities Act of 1933, as amended. We did not employ any form of general solicitation or advertising in connection with the offer and sale of the securities described below. In addition, we believe the purchasers of the securities are "ACCREDITED INVESTORS" for the purpose of Rule 501 of the Securities Act. For these reasons, among others, the offer and sale of the following securities were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act or Regulation D promulgated by the SEC under the Securities Act:
 
 ·
During the three months ended March 31, 2010, we entered into agreements to issue 152,070,871 shares of common stock to various notes holders to convert outstanding debt obligations valued at approximately $384,800 as follows:
 
 On January 27, 2010, we issued 50,053,381 shares of common stock to convert outstanding debt obligations valued at $52,941.  The price per share of the conversion was $0.003.
 
 On March 24, 2010, we issued 24,380,000 shares of common stock to convert outstanding debt obligations valued at $23,000.  The price per share of the conversion was $0.0023.
 
 On March 24, 2010, we issued 28,750,000 shares of common stock to convert outstanding debt obligations valued at $25,000.  The price per share of the conversion was $0.0023.
 
 On March 22, 2010, we entered into an agreement to issue 48,887,490 shares of common stock to convert outstanding debt obligations valued at $45,904.  The price per share of the conversion was $0.0023.  The shares were issued in April 2010.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





We have defaulted upon the following senior securities





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





●
One loan from an unaffiliated party in the aggregate principal amount of $195,000 with interest at a rate of 9% per annum. Pursuant to a letter agreement dated as of August 10, 2004, we entered into a settlement with this party and agreed to pay a total of $261,000 pursuant to a scheduled payment plan through July 2005. Additionally, the Company, in September 2004, issued 206,250 shares of common stock upon the conversion of unpaid interest in the aggregate amount of $33,000. At June 30, 2010, there was $161,000 principal amount remaining on this note. We did not make our scheduled payment under this note and are in default. As of June 30, 2010, we owed $88,892 in interest on this note.





●
One loan from an unaffiliated party in the aggregate principal amount of $98,500, due July 31, 2005 with interest at the rate of 9% per annum. Pursuant to a letter agreement dated August 10, 2004, between this third party and us, we agreed to pay a total of $130,800 pursuant to a scheduled payment plan through July 2005. At June 30, 2010, there was $71,500 principal amount remaining on this note. We did not make our scheduled payments under this note and are in default. As of June 30, 2010, we owed $34,709 in interest on this note.





ITEM 4. REMOVED AND RESERVED.





ITEM 5. OTHER INFORMATION.









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ITEM 6. EXHIBITS.


Exhibit List





Exhibit Number
Description





Exhibit 10.1
Form of Note Conversion AgreementExhibit 31
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewithExhibit 32
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
























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SIGNATURES





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




Dated; August 23, 2010
UNIVERSAL DETECTION TECHNOLOGYBy:
/s/ Jacques TizabiJacques Tizabi,President, Chief Executive Officer (Principal Executive Officer), and Acting Chief Financial Officer (Acting Principal Financial Officer)


















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