UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 QUARTERLY REPORT
 PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2010
 Universal Biosensors, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    98-0424072(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number)Universal Biosensors, Inc. 
1 Corporate Avenue, 
Rowville, 3178, Victoria 
Australia(Address of principal executive offices)
    
    Not
Applicable(Zip Code)
 Telephone: +61 3 9213 9000  (Registrants telephone number,
including area code)
 þ o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
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##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
TABLE OF CONTENTS
 PagePART I            FINANCIAL INFORMATIONItem 1 Financial Statements1) Consolidated condensed balance sheets at June 30, 2010 and
December 31, 2009 (unaudited)
    
    32) Consolidated condensed statements of operations for the three
months and six months ended June 30, 2010 and 2009 (unaudited)
    
    43) Consolidated condensed statements of cash flows for the six
months ended June 30, 2010 and 2009 (unaudited)
    
    54) Consolidated condensed statements of changes in stockholders
equity and comprehensive income for the period ended June 30,
2010 (unaudited)
    
    65) Notes to consolidated condensed financial statements (unaudited)
    
    7Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    22Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    30Item 4 Controls and Procedures
    
    31PART II            OTHER INFORMATIONItem 1 Legal Proceedings
    
    32Item 1A Risk Factors
    
    32Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
    
    32Item 3 Defaults Upon Senior Securities
    
    32Item 4 [Removed and Reserved]
    
    32Item 5 Other Information
    
    32Item 6 Exhibits
    
    33SIGNATURES
    
    34
  2




---



##### 



PART I
 
 Item 1 Financial Statements
 UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 June 30,
    
    
    December 31,2010
    
    
    2009A$
    
    
    A$ASSETSCurrent assets:Cash and cash equivalents
    
    
    27,164,097
    
    
    
    31,291,011Inventories, net
    
    
    751,206
    
    
    
    305,124Accrued income
    
    
    
    
    
    
    118,305Accounts receivables
    
    
    944,487
    
    
    
    415,397Prepayments
    
    
    3,454,538
    
    
    
    2,289,149Other current assets
    
    
    369,204
    
    
    
    364,339Total current assets
    
    
    32,683,532
    
    
    
    34,783,325Property, plant and equipment
    
    
    28,234,246
    
    
    
    27,898,099Less accumulated depreciation
    
    
    (8,050,620
    )
    
    
    (6,597,956
    )Property, plant and equipment  net
    
    
    20,183,626
    
    
    
    21,300,143Total assets
    
    
    52,867,158
    
    
    
    56,083,468LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    431,168
    
    
    
    434,207Accrued expenses
    
    
    773,018
    
    
    
    1,201,893Financial instruments
    
    
    8,882
    
    
    
    47,412Deferred income
    
    
    82,752
    
    
    
    559,931Employee entitlements provision
    
    
    505,277
    
    
    
    421,040Total current liabilities
    
    
    1,801,097
    
    
    
    2,664,483Non-current liabilities:Asset retirement obligations
    
    
    1,920,300
    
    
    
    1,842,547Employee entitlements provision
    
    
    330,151
    
    
    
    262,436Total non-current liabilities
    
    
    2,250,451
    
    
    
    2,104,983Total liabilities
    
    
    4,051,548
    
    
    
    4,769,466Stockholders equity:Preferred stock, $0.01 par value. Authorized 1,000,000 shares;
issued and outstanding nil in 2010 (2009: nil)
Common stock, $0.0001 par value. Authorized 300,000,000
shares; issued and outstanding 157,341,259
shares in 2010 (2009: 157,155,933)
    
    
    15,734
    
    
    
    15,716Additional paid-in capital
    
    
    75,652,565
    
    
    
    74,566,698Accumulated deficit
    
    
    (22,922,688
    )
    
    
    (24,353,151
    )Current year earnings/(loss)
    
    
    (3,622,807
    )
    
    
    1,430,463Accumulated other comprehensive income
    
    
    (307,194
    )
    
    
    (345,724
    )Total stockholders equity
    
    
    48,815,610
    
    
    
    51,314,002Total liabilities and stockholders equity
    
    
    52,867,158
    
    
    
    56,083,468
  3




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Period frominception(September14, 2001) toJune  30, 2010
    
    
    Three Months Ended June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$RevenueRevenue from products
    
    $
    3,017,130
    
    
    $
    1,359,584
    
    
    $
    
    
    
    $
    2,884,397
    
    
    $
    Revenue from services
    
    
    9,268,737
    
    
    
    1,403,779
    
    
    
    312,590
    
    
    
    3,296,912
    
    
    
    1,780,054Research and development income
    
    
    14,415,089
    
    
    
    
    
    
    
    349,848
    
    
    
    
    
    
    
    738,167Milestone payment
    
    
    17,722,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    44,423,597
    
    
    
    2,763,363
    
    
    
    662,438
    
    
    
    6,181,309
    
    
    
    2,518,221Operating costs & expensesCost of goods sold (1)
    
    
    3,933,314
    
    
    
    1,936,716
    
    
    
    
    
    
    
    3,475,152
    
    
    
    Cost of services
    
    
    3,784,249
    
    
    
    247,190
    
    
    
    47,285
    
    
    
    493,254
    
    
    
    62,120Research and development (2 and 3)
    
    
    47,167,869
    
    
    
    1,799,551
    
    
    
    4,104,205
    
    
    
    3,353,778
    
    
    
    7,337,840General and administrative (4)
    
    
    23,256,926
    
    
    
    1,788,984
    
    
    
    1,395,286
    
    
    
    3,258,593
    
    
    
    2,585,878Total operating costs & expenses
    
    
    78,142,358
    
    
    
    5,772,441
    
    
    
    5,546,776
    
    
    
    10,580,777
    
    
    
    9,985,838Profit/(loss) from operations
    
    
    (33,718,761
    )
    
    
    (3,009,078
    )
    
    
    (4,884,338
    )
    
    
    (4,399,468
    )
    
    
    (7,467,617
    )Other income/(expense)Interest income
    
    
    6,041,460
    
    
    
    327,949
    
    
    
    193,184
    
    
    
    632,968
    
    
    
    460,258Interest expense
    
    
    (19,125
    )
    
    
    
    
    
    
    (3,614
    )
    
    
    
    
    
    
    (7,227
    )Fee income
    
    
    1,131,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    37,503
    
    
    
    153,984
    
    
    
    52,265
    
    
    
    143,693
    
    
    
    18,487Total other income/(expense)
    
    
    7,191,060
    
    
    
    481,933
    
    
    
    241,835
    
    
    
    776,661
    
    
    
    471,518Net profit/(loss) before tax
    
    
    (26,527,701
    )
    
    
    (2,527,145
    )
    
    
    (4,642,503
    )
    
    
    (3,622,807
    )
    
    
    (6,996,099
    )Income tax benefit/(expense)
    
    
    (17,794
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net profit/(loss)
    
    $
    (26,545,495
    )
    
    $
    (2,527,145
    )
    
    $
    (4,642,503
    )
    
    $
    (3,622,807
    )
    
    $
    (6,996,099
    )Basic and diluted net loss per share
    
    $
    (0.31
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )Average weighted number of shares used as denominator in calculating
basic and diluted net loss per share
    
    
    85,267,384
    
    
    
    157,307,199
    
    
    
    156,976,936
    
    
    
    157,268,327
    
    
    
    156,976,936
 
 Notes:1
    Includes non-cash compensation expense (cost
of goods sold)

    $
    106,946
    
    
    $
    45,051
    
    
    $
    
    
    
    $
    85,739
    
    
    $
    2
    Net of research grant income in these amounts

    $
    2,366,063
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3
    Includes non-cash compensation expense
(research and development)

    $
    2,320,537
    
    
    $
    272,343
    
    
    $
    81,024
    
    
    $
    518,311
    
    
    $
    177,0214
    Includes non-cash compensation expense
 (general and administrative)

    $
    1,646,387
    
    
    $
    219,029
    
    
    $
    35,506
    
    
    $
    391,159
    
    
    $
    79,957
  4




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Period fromInception(September 14,2001) to June 30,
    
    
    Six Months Ended June 30,2010
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$Cash flows from operating activities:Net loss
    
    
    (26,545,495
    )
    
    
    (3,622,807
    )
    
    
    (6,996,099
    )Adjustments to reconcile net loss to net cash used in operating activities:Net exchange difference
    
    
    1,102,572
    
    
    
    
    
    
    
    Depreciation and impairment of plant & equipment
    
    
    8,585,232
    
    
    
    1,452,664
    
    
    
    1,414,828Share based payments expense
    
    
    4,073,870
    
    
    
    995,209
    
    
    
    256,978Loss on fixed assets disposal
    
    
    211,343
    
    
    
    
    
    
    
    55,821Change in assets and liabilities:Inventory
    
    
    (751,206
    )
    
    
    (446,082
    )
    
    
    Accounts receivables
    
    
    (2,059,968
    )
    
    
    (1,006,270
    )
    
    
    28,198Prepaid expenses and other current assets
    
    
    (5,873
    )
    
    
    (338,932
    )
    
    
    (195,627
    )Accrued income
    
    
    9,450
    
    
    
    118,305
    
    
    
    Deferred revenue
    
    
    290,904
    
    
    
    
    
    
    
    1,307,795Borrowings
    
    
    
    
    
    
    
    
    
    
    Employee entitlements
    
    
    835,428
    
    
    
    151,952
    
    
    
    84,418Accounts payable and accrued expenses
    
    
    1,540,689
    
    
    
    (335,232
    )
    
    
    (179,361
    )Net cash provided by/(used in)
operating activities
    
    
    (12,713,054
    )
    
    
    (3,031,193
    )
    
    
    (4,223,049
    )Cash flows from investing activities:Instalment payments to acquire plant and equipment
    
    
    (6,593,364
    )
    
    
    (831,321
    )
    
    
    (1,530,005
    )Purchases of property, plant and equipment
    
    
    (21,943,173
    )
    
    
    (355,076
    )
    
    
    (416,847
    )Net cash used in investing activities
    
    
    (28,536,537
    )
    
    
    (1,186,397
    )
    
    
    (1,946,852
    )Cash flows from financing activities:Gross proceeds from share issue
    
    
    73,517,472
    
    
    
    
    
    
    
    Transaction costs on share issue
    
    
    (4,099,870
    )
    
    
    
    
    
    
    Proceeds from
borrowings
    
    
    479,673
    
    
    
    
    
    
    
    479,673Repayment of
borrowings
    
    
    (479,673
    )
    
    
    
    
    
    
    (359,755
    )Proceeds from stock options exercised
    
    
    353,719
    
    
    
    90,676
    
    
    
    Net cash provided by/(used in)
financing activities
    
    
    69,771,321
    
    
    
    90,676
    
    
    
    119,918Net increase/(decrease) in cash and cash equivalents
    
    
    28,521,730
    
    
    
    (4,126,914
    )
    
    
    (6,049,983
    )Cash and cash equivalent at beginning of period
    
    
    
    
    
    
    31,291,011
    
    
    
    28,334,864Effect of exchange rate fluctuations on the balances of cash held in foreign currencies
    
    
    (1,357,633
    )
    
    
    
    
    
    
    Cash and cash equivalents at end of period
    
    
    27,164,097
    
    
    
    27,164,097
    
    
    
    22,284,881
  5




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
(Unaudited)
 Other
    
    
    TotalPreference Shares
    
    
    Ordinary shares
    
    
    Additional Paid-
    
    
    Accumulated
    
    
    Comprehensive
    
    

StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    in Capital
    
    
    Deficit
    
    
    Income
    
    
    EquityA$
    
    
    
    
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Balance at September 14, 2001(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes during the period from September
14, 2001 through December 31, 2008Preference and ordinary shares issued for cash
    
    
    40,386,962
    
    
    
    16,701,436
    
    
    
    116,071,631
    
    
    
    11,607
    
    
    
    54,474,378
    
    
    
    
    
    
    
    
    
    
    
    71,187,421Conversion
of preference shares to ordinary shares
    
    
    (40,386,962
    )
    
    
    (16,701,436
    )
    
    
    40,386,962
    
    
    
    4,039
    
    
    
    16,697,397
    
    
    
    
    
    
    
    
    
    
    
    Transaction costs on shares issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,663
    )
    
    
    
    
    
    
    
    
    
    
    (16,663
    )Comprehensive IncomeForeign currency translation reserve, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (298,312
    )
    
    
    (298,312
    )Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,353,151
    )
    
    
    
    
    
    
    (24,353,151
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,651,463
    )Exercise of stock options issued to employees
    
    
    
    
    
    
    
    
    
    
    518,343
    
    
    
    52
    
    
    
    183,993
    
    
    
    
    
    
    
    
    
    
    
    184,045Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,999,890
    
    
    
    
    
    
    
    
    
    
    
    1,999,890Balances at December 31, 2008
    
    
    
    
    
    
    
    
    
    
    156,976,936
    
    
    
    15,698
    
    
    
    73,338,995
    
    
    
    (24,353,151
    )
    
    
    (298,312
    )
    
    
    48,703,230Comprehensive IncomeLoss on derivatives and hedges, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,396
    )
    
    
    (63,396
    )Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,996,099
    )
    
    
    
    
    
    
    (6,996,099
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,059,495
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,978
    
    
    
    
    
    
    
    
    
    
    
    256,978Balances at June 30, 2009
    
    
    
    
    
    
    
    
    
    
    156,976,936
    
    
    
    15,698
    
    
    
    73,595,973
    
    
    
    (31,349,250
    )
    
    
    (361,708
    )
    
    
    41,900,713Balances at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    157,155,933
    
    
    
    15,716
    
    
    
    74,566,698
    
    
    
    (22,922,688
    )
    
    
    (345,724
    )
    
    
    51,314,002Changes during the six months period
ended June 30, 2010Comprehensive IncomeNet loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,622,807
    )
    
    
    
    
    
    
    (3,622,807
    )Loss on derivatives and hedges, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,530
    
    
    
    38,530Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,584,277
    )Exercise of stock options issued to employees
    
    
    
    
    
    
    
    
    
    
    184,745
    
    
    
    18
    
    
    
    89,659
    
    
    
    
    
    
    
    
    
    
    
    89,677Shares issued to employees
    
    
    
    
    
    
    
    
    
    
    581
    
    
    
    
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    999Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    995,209
    
    
    
    
    
    
    
    
    
    
    
    995,209Balances at June 30, 2010
    
    
    
    
    
    
    
    
    
    
    157,341,259
    
    
    
    15,734
    
    
    
    75,652,565
    
    
    
    (26,545,495
    )
    
    
    (307,194
    )
    
    
    48,815,610
 
 (1)
    
    Incorporation date  6




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Basis of Presentation and Summary of Significant Accounting Policies
 Organization of the Company
        7




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
    Interim Financial Statements
   Basis of Presentation
   Principles of Consolidation
  Use of Estimates
  8




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Cash & Cash Equivalents
  Short-Term Investments (Held-to-maturity)
  Concentration of Credit Risk and Other Risks and Uncertainties
   Derivative Instruments and Hedging Activities
 Derivative financial instruments
   Cash flow hedges
   9




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
   Inventory
  Receivables
  Property, Plant and Equipment
   June 30, 2010
    
    
    December 31, 2009A$
    
    
    A$Plant and equipment
    
    
    14,650,169
    
    
    
    13,271,715Leasehold improvements
    
    
    8,357,853
    
    
    
    8,328,270Capital work in process
    
    
    5,226,224
    
    
    
    6,298,11428,234,246
    
    
    
    27,898,099Accumulated depreciation
    
    
    (8,050,620
    )
    
    
    (6,597,956
    )Property, plant & equipment, net
    
    
    20,183,626
    
    
    
    21,300,143
 10




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
     Six months ended
    
    
    Year endedJune 30, 2010
    
    
    December 31, 2009A$
    
    
    A$Movement in accumulated depreciation
    
    
    1,452,664
    
    
    
    2,830,499Accumulated depreciation of fixed assets disposed
    
    
    
    
    
    
    20,786Depreciation expense
    
    
    1,452,664
    
    
    
    2,851,285
 Research and Development
    11




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Period frominception toJune 30,
    
    
    Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Research and development expenses
    
    
    49,533,932
    
    
    
    1,799,551
    
    
    
    4,104,205
    
    
    
    3,353,778
    
    
    
    7,337,840Research grants received recognized against related research and development expenses
    
    
    (2,366,063
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development expenses as reported
    
    
    47,167,869
    
    
    
    1,799,551
    
    
    
    4,104,205
    
    
    
    3,353,778
    
    
    
    7,337,840
 Income Taxes
     Asset Retirement Obligations
   12




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  Six months ended
    
    
    Year endedJune 30, 2010
    
    
    December 31, 2009A$
    
    
    A$Opening balance
    
    
    1,842,547
    
    
    
    1,699,133Accretion expense
    
    
    77,753
    
    
    
    143,414Ending balance
    
    
    1,920,300
    
    
    
    1,842,547
 Fair Value of Financial Instruments
  Impairment of Long-Lived Assets
  Australian Goods and Services Tax (GST)
  Revenue Recognition
 Revenue from products and services and milestone payment
   13




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  
    
    milestone payment  the Company received a milestone payment of A$17,722,641 in
December 2009 triggered by the first grant to LifeScan of regulatory clearance to sell the
blood glucose product;
    
    contract manufacturing  one of two pricing methodologies will apply depending on
whether the Company is manufacturing above or below a specified quantity of blood glucose
tests strips in a quarter. As we produced less than the specified quantity of test strips in
the June 2010 quarter, we are considered to be in the interim costing period. In the interim
costing period, the Company is establishing its commercial scale manufacturing and therefore
is not expected to generate any profit through contract manufacturing, but is expected to
recover most of its glucose manufacturing costs. As volumes increase beyond the specified
quantity of blood glucose test strips sold per quarter, the interim costing period will cease
to apply and a different pricing methodology will apply, at which time we expect to be
profitable in the sale of blood glucose test strips; and
    
    product enhancement  a service fee based on the number of strips sold by LifeScan
is payable to us as an ongoing reward for our efforts to enhance the product.
      14




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  (1)
    
    as we perform the services
 Under the terms of our arrangement with LifeScan, we provide certain services relating to
the blood glucose field. In accordance with ASC 605  Revenue Recognition (formerly Emerging
Issues Task Force (EITF) Issue 99-19), revenue has been recognized on a gross basis as the
Company has earned revenue from the provision of services. Other factors which management
considered, which support the gross basis of revenue recognition are as follows:
 
    
    the Company was responsible for providing the service and was also the primary
obligor with respect to purchasing goods and services from third party suppliers which
in turn were used to provide services to LifeScan;
    
    the Company had unmitigated general inventory risk;
    
    the Company had credit risk; and
    
    pricing was not fixed but determined by the level of activity.
 The transaction with LifeScan satisfies the revenue recognition criteria outlined in ASC 605
(formerly Staff Accounting Bulletin 101/104). The principles of revenue recognition in ASC
605 have all been satisfied; services were performed by the Company which were supported by
purchase orders issued by LifeScan on a regular basis, collection was assured, delivery of
the services had occurred and the amount was objectively determined.
 (2)
    
    on a proportional performance basis where revenues is related to costs incurred in providing
the services required under the contractThe Company has been providing services to LifeScan to enable LifeScan to establish its own
manufacturing line for the blood glucose sensor strips. The proportional performance method
has been used to recognize revenue. We believe this method is appropriate as the contract
amount was determined prior to the commencement of the service, LifeScan receives value as
the services are performed and LifeScan need not re-perform the services that it has already
received from the Company should the service arrangement be terminated.(3)
    
    ratably over the period to which it relatesWe provide contract research services to LifeScan. Under the arrangement, the contract
research revenue is fixed and non-refundable. Revenue is recognized ratably over the period
to which it relates as the funding is not matched to a specific expenditure but is linked to
a specified period of research. Funding for the contract research services is determined
pursuant to the Development and Research Agreement.
 Research and development income
  15




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
     Fee Income
    16




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  Interest revenue
  Foreign Currency
 Functional and reporting currency
      Transactions and balances
   17




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  
    
    assets and liabilities for each balance sheet item reported are translated at the closing
rate at the date of that balance sheet;
 
    
    income and expenses for each income statement are translated at average exchange rates
(unless this is not a reasonable approximation of the effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the dates of the
transactions); and
 
    
    all resulting exchange differences are recognized as a separate component of equity.
  Commitments and Contingencies
  Patent and License Costs
  Clinical Trial Expenses
   Leased Assets
  Stock-based Compensation
  18




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
   Grant DateFebruary 2010
    
    
    November 2009
    
    
    June 2009
    
    
    June 2009
    
    
    May 2009
    
    
    February 2009Exercise Price (A$)
    
    $
    1.60
    
    
    $
    1.72
    
    
    Nil
    
    
    $
    0.94
    
    

    Nil
    
    
    $
    0.50Share Price at Grant Date (A$)
    
    $
    1.60
    
    
    $
    1.73
    
    
    $
    0.95
    
    
    $
    0.95
    
    
    $
    1.18
    
    
    $
    0.43Volatility
    
    
    77
    %
    
    
    78
    %
    
    
    80
    %
    
    
    80
    %
    
    
    81
    %
    
    
    77
    %Expected Life
    
    7 years
    
    
    10 years
    
    
    10 years
    
    
    10 years
    
    
    10 years
    
    
    10 yearsRisk Free Interest Rate
    
    
    5.34
    %
    
    
    5.63
    %
    
    
    5.49
    %
    
    
    5.49
    %
    
    
    4.87
    %
    
    
    4.26
    %Fair Value of Option (A$)
    
    $
    0.99
    
    
    $
    1.13
    
    
    $
    0.95
    
    
    $
    0.62
    
    
    $
    1.04
    
    
    $
    0.28
  Weighted averageexercise priceNumber
of shares
    
    

A$Balance at December 31, 2009
    
    
    10,039,486
    
    
    
    0.85Granted
    
    
    392,000
    
    
    
    0.91Exercised
    
    
    (184,745
    )
    
    
    0.51Lapsed
    
    
    (182,667
    )
    
    
    1.34Expired
    
    
    
    
    
    
    Balance at June 30, 2010
    
    
    10,064,074
    
    
    
    0.85
   19




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Fiscal Year
    
    A$2010  remaining periods
    
    
    896,7752011
    
    
    873,3552012
    
    
    331,4052013
    
    
    40,3022014
    
    
    12,2142,154,051
 Pension Costs
  Net Profit/(Loss) per Share and Anti-dilutive Securities
  Total Comprehensive Income
  Recent Accounting Pronouncements
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
 Related Party Transactions
  20




---



##### 



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
    Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$Current ReceivablesReimbursement of expenses
    
    
    
    
    
    
    
    
    
    
    667
    
    
    
    2,730Sale of goods
    
    
    
    
    
    
    
    
    
    
    943,820
    
    
    
    944,487
    
    
    
    2,730RevenueRevenue from products
    
    
    1,359,584
    
    
    
    
    
    
    
    2,884,397
    
    
    
    Revenue from services
    
    
    1,403,779
    
    
    
    312,590
    
    
    
    3,296,912
    
    
    
    1,780,054Research and develoment income
    
    
    
    
    
    
    349,848
    
    
    
    
    
    
    
    738,1672,763,363
    
    
    
    662,438
    
    
    
    6,181,309
    
    
    
    2,518,221
  
    
    Universal Biosensors Pty Ltd was reimbursed A$538 and A$Nil for the three months ended
June 30, 2010 and 2009, and A$538 and A$32,353 for the six months ended June 30, 2010 and
2009, respectively for certain expenditures incurred on behalf of LifeScan.
 Borrowings
  Subsequent Events
  21




---



##### 



UNIVERSAL BIOSENSORS, INC.
 
 Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion and analysis provides information that we believe is relevant to an
assessment and understanding of our results of operations and financial condition. You should read
this analysis in conjunction with our audited consolidated financial statements and related
footnotes and Managements Discussion and Analysis of Financial Condition and Results of Operations
included in our Form 10-K filed with the United States Securities and Exchange Commission (SEC).
This Form 10-Q contains, including this discussion and analysis, certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by
such acts. For this purpose, any statements that are not statements of historical fact may be
deemed to be forward looking statements, including statements relating to future events and our
future financial performance. Those statements in this Form 10-Q containing the words believes,
anticipates, plans, expects, and similar expressions constitute forward looking statements,
although not all forward looking statements contain such identifying words.
 The forward looking statements contained in this Form 10-Q are based on our current
expectations, assumptions, estimates and projections about the Company and its businesses. All
such forward looking statements involve known and unknown risks, uncertainties and other factors
that may cause our actual results to be materially different from those results expressed or
implied by these forward-looking statements, including those set forth in this Quarterly Report on
Form 10-Q.
 Overview
      22




---



##### 



UNIVERSAL BIOSENSORS, INC.
 Master Services and Supply Agreement with LifeScan
  Development and Research Agreement with LifeScan
   License Agreement with LifeScan
   23




---



##### 



UNIVERSAL BIOSENSORS, INC.
 Results of Operations
 Manufacture of Products
  Period frominception to June 30,
    
    
    Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Revenue
    
    
    3,017,130
    
    
    
    1,359,584
    
    
    
    
    
    
    
    2,884,397
    
    
    
    Cost of goods sold
    
    
    (3,933,314
    )
    
    
    (1,936,716
    )
    
    
    
    
    
    
    (3,475,152
    )
    
    
    (916,184
    )
    
    
    (577,132
    )
    
    
    
    
    
    
    (590,755
    )
    
    
    
  Services Performed
  Period frominception to June 30,
    
    
    Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Revenue
    
    
    9,268,737
    
    
    
    1,403,779
    
    
    
    
    
    
    
    3,296,912
    
    
    
    Cost
    
    
    (3,784,249
    )
    
    
    (247,190
    )
    
    
    
    
    
    
    (493,254
    )
    
    
    5,484,488
    
    
    
    1,156,589
    
    
    
    
    
    
    
    2,803,658
    
    
    
    
 Research and Development Income
   24




---



##### 



UNIVERSAL BIOSENSORS, INC.
  Research and Development Expenses
   
    
    consultant and employee related expenses, which include salary and benefits;
    
    materials and consumables acquired for the research and development activities;
    
    external research and development expenses incurred under agreements with third party
organizations and universities; and
    
    facilities, depreciation and other allocated expenses, which include direct and allocated
expenses for rent and maintenance of facilities, depreciation of leasehold improvements and
equipment and laboratory and other supplies.
           25




---



##### 



UNIVERSAL BIOSENSORS, INC.
     Period frominception toJune 30,
    
    
    Three months ended June 30,
    
    
    Six months ended June 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Research and
development
expenses
    
    
    49,533,932
    
    
    
    1,799,551
    
    
    
    4,104,205
    
    
    
    3,353,778
    
    
    
    7,337,840Research grants received recognized against related research and development expenses
    
    
    (2,366,063
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and
development
expenses as
reported
    
    
    47,167,869
    
    
    
    1,799,551
    
    
    
    4,104,205
    
    
    
    3,353,778
    
    
    
    7,337,840
    General and administrative expenses
   26




---



##### 



UNIVERSAL BIOSENSORS, INC.
  Interest Income
  Interest Expense
  Liquidity and Capital Resources
     Operating Capital and Capital Expenditure Requirement
  27




---



##### 



UNIVERSAL BIOSENSORS, INC.
 
    
    our business and product development strategies;
    
    expenses we incur in manufacturing and developing products and the services and
development programs we undertake from LifeScan;
    
    changes to our operations to enable us to perform services required under the Master
Services and Supply Agreement;
    
    the sales of blood glucose test strips by LifeScan and the quantities of blood glucose
test strips to be manufactured by us for LifeScan;
    
    the timing and amount of receipts of revenue from LifeScan under the Master Services and
Supply Agreement;
    
    costs and timing of regulatory approvals and market launches of the blood glucose test;
    
    the costs of undertaking and success of our research and development efforts;
    
    any need to further scale up our manufacturing operations, including additional costs
related to the fit out of our manufacturing facility in Melbourne, Australia and the
acquisition of additional manufacturing equipment;
    
    the rate of progress and cost of our product development activities;
    
    the timing and success of any corporate collaborations or strategic alliances with
respect to our tests in development, including revenues expected from such collaborations;
    
    the timing and amount of revenue generated by sales of our point-of-care tests;
    
    costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
    
    the terms and timing of any collaborative, licensing and other arrangements that we may
establish; and
    
    the acquisition of businesses, products and technologies, although we currently have no
commitments or agreements relating to any of these types of transactions.
 Off-Balance Sheet Arrangement
  Less than 1 year
    A$
    
    528,5231  3 years
    
    
    1,108,7293  5 years
    
    
    577,827More than 5 years
    
    
    Total minimum lease payments
    A$
    
    2,215,079
  Contractual Obligations
  Payments Due By PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    year
    
    
    1  3 years
    
    
    3  5 years
    
    
    yearsLong-Term Debt Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Asset Retirement Obligations (1)
    
    
    1,920,300
    
    
    
    
    
    
    
    
    
    
    
    1,920,300
    
    
    
    Operating Lease Obligations (2)
    
    
    2,215,079
    
    
    
    528,523
    
    
    
    1,108,729
    
    
    
    577,827
    
    
    
    Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities on
Balance Sheet under GAAP (3)
    
    
    330,151
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    330,151Total
    
    
    4,465,530
    
    
    
    528,523
    
    
    
    1,108,729
    
    
    
    2,498,127
    
    
    
    330,151
 
 (1)
    
    Represents legal obligations associated with the retirement and removal of long-lived
assets.(2)
    
    Our operating lease obligations relate primarily to the lease of our premises.(3)
    
    Represents long service leave owing to the employees 28




---



##### 



UNIVERSAL BIOSENSORS, INC.
 Segments
  29




---



##### 



UNIVERSAL
BIOSENSORS, INC.
 
 Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk
   2010 (*)
    
    
    Fair ValueAnticipated Transactions and Related DerivativesAUD Functional Currency:Forward exchange agreements (Sell AUD/Buy Euros)Contract amount
    
    
    A$555,428
    
    
    
    A$546,546Average contractual exchange rate
    
    
    0.8687
 
 *
    
    Expected maturity or transaction date Interest Rate Risk
  30




---



##### 



UNIVERSAL
BIOSENSORS, INC.
 
 Item 4
    
    Controls and Procedures
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Control Over Financial Reporting.
  31




---



##### 



UNIVERSAL
BIOSENSORS, INC.
 
 PART II
 
 Item 1
    
    Legal Proceedings
  
 Item 1A
    
    Risk Factors
  
 Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
  Number of OptionsExercised andCorrespondingNumber of Shares
    
    Option Exercise
    
    Proceeds ReceivedExercise Date
    
    Issued
    
    Price
    
    (A$)February, 2010
    
    23,333
    
    A$0.89
    
    20,76620,000
    
    A$0.94
    
    18,8004,000
    
    A$0.50
    
    2,00018,124
    
    US$0.26
    
    5,10413,332
    
    A$1.18
    
    15,73218,124
    
    US$0.22
    
    4,48933,333
    
    Nil
    
    March, 2010
    
    6,666
    
    A0.89
    
    5,9336,666
    
    A$0.70
    
    4,6662,000
    
    A$0.94
    
    1,880May, 2010
    
    12,500
    
    Nil
    
    June, 2010
    
    6,667
    
    A$0.94
    
    6,26720,000
    
    US$0.22
    
    4,040184,745
    
    
    
    89,677
  
 Item 3
    
    Defaults Upon Senior Securities
  
 Item 4
    
    [Removed and Reserved]
  
 Item 5
    
    Other Information
  32




---



##### 



UNIVERSAL
BIOSENSORS, INC.
 
 Item 6
    
    Exhibits
 Exhibit No
    
    Description
    
    Location31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
    
    Filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)
    
    Filed herewith32.0*
    
    Section 1350 Certificate
    
    Filed herewith
 
 *
    
    This exhibit is furnished rather than filed, and shall not be incorporated by reference into
any filing of the registrant in accordance with Item 601 of Registration S-K 33




---



##### 



UNIVERSAL
BIOSENSORS, INC.
 
 SIGNATURES
  UNIVERSAL BIOSENSORS, INC.
(Registrant)By:
    /s/ MARK MORRISSONDate: August 6, 2010
    
    Mark MorrissonChief Executive Officer and

Executive DirectorBy:
    /s/ SALESH BALAKDate: August 6, 2010
    
    Salesh Balak
Chief Financial Officer 34




---



##### 



INDEX TO EXHIBITS
Quarterly Report on Form 10-Q
Dated August 6, 2010
 Exhibit No
    
    Description
    
    Location31.1
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)
    
    Filed herewith31.2
    
    Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)
    
    Filed herewith32.0
    
    Section 1350 Certificate
    
    Filed herewith