##### Table of Contents



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 September 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, VictoriaAustralia
    
    Not Applicable(Address of principal executive offices)
    
    (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 o 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 September 30, 2010 and
December 31, 2009 (unaudited)
    
    
    32)
    
    Consolidated condensed statements of operations for the three
months and nine months ended September 30, 2010 and 2009
(unaudited)
    
    
    43)
    
    Consolidated condensed statements of cash flows for the nine
months ended September 30, 2010 and 2009 (unaudited)
    
    
    54)
    
    Consolidated condensed statements of changes in stockholders
equity and comprehensive income for the period ended September
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
    
    
    33Item 4
    
    [Removed and Reserved]
    
    
    33Item 5
    
    Other Information
    
    
    33Item 6
    
    Exhibits
    
    
    33SIGNATURES
    
    
    34EX-31.1EX-31.2EX-32.0
  2




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##### Table of Contents



PART I
 
 Item 1 Financial Statements
 
 UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 September 30,
    
    December 31,2010
    
    2009A$
    
    A$ASSETSCurrent assets:Cash and cash equivalents
    
    
    24,982,868
    
    
    
    31,291,011Inventories, net
    
    
    1,458,780
    
    
    
    305,124Accrued income
    
    
    
    
    
    
    118,305Accounts receivables
    
    
    2,363,686
    
    
    
    415,397Prepayments
    
    
    3,305,811
    
    
    
    2,289,149Other current assets
    
    
    349,163
    
    
    
    364,339Total current assets
    
    
    32,460,308
    
    
    
    34,783,325Property, plant and equipment
    
    
    28,490,622
    
    
    
    27,898,099Less accumulated depreciation
    
    
    (8,811,910
    )
    
    
    (6,597,956
    )Property, plant and equipment  net
    
    
    19,678,712
    
    
    
    21,300,143Total assets
    
    
    52,139,020
    
    
    
    56,083,468LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    
    775,235
    
    
    
    434,207Accrued expenses
    
    
    829,473
    
    
    
    1,201,893Financial instruments
    
    
    
    
    
    
    47,412Deferred income
    
    
    43,386
    
    
    
    559,931Employee entitlements provision
    
    
    480,280
    
    
    
    421,040Total current liabilities
    
    
    2,128,374
    
    
    
    2,664,483Non-current liabilities:Asset retirement obligations
    
    
    1,959,177
    
    
    
    1,842,547Employee entitlements provision
    
    
    307,037
    
    
    
    262,436Total non-current liabilities
    
    
    2,266,214
    
    
    
    2,104,983Total liabilities
    
    
    4,394,588
    
    
    
    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 157,447,964
shares in 2010 (2009: 157,155,933)
    
    
    15,745
    
    
    
    15,716Additional paid-in capital
    
    
    76,074,605
    
    
    
    74,566,698Accumulated deficit
    
    
    (22,922,688
    )
    
    
    (24,353,151
    )Current year earnings/(loss)
    
    
    (5,124,918
    )
    
    
    1,430,463Accumulated other comprehensive income
    
    
    (298,312
    )
    
    
    (345,724
    )Total stockholders equity
    
    
    47,744,432
    
    
    
    51,314,002Total liabilities and stockholders equity
    
    
    52,139,020
    
    
    
    56,083,468
  3




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 Period frominception(September 14,2001) toSeptember 30,
    
    
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$RevenueRevenue from products
    
    $
    6,220,003
    
    
    $
    3,202,873
    
    
    $
    
    
    
    $
    6,087,270
    
    
    $
    Revenue from services
    
    
    11,054,068
    
    
    
    1,785,331
    
    
    
    819,181
    
    
    
    5,082,243
    
    
    
    2,599,235Research and development income
    
    
    14,415,089
    
    
    
    
    
    
    
    310,945
    
    
    
    
    
    
    
    1,049,112Milestone payment
    
    
    17,722,641
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenue
    
    
    49,411,801
    
    
    
    4,988,204
    
    
    
    1,130,126
    
    
    
    11,169,513
    
    
    
    3,648,347Operating costs & expensesCost of goods sold (1)
    
    
    7,069,704
    
    
    
    3,136,390
    
    
    
    
    
    
    
    6,611,542
    
    
    
    Cost of services
    
    
    4,160,647
    
    
    
    376,398
    
    
    
    80,136
    
    
    
    869,652
    
    
    
    142,256Research and development (2 and 3)
    
    
    48,711,351
    
    
    
    1,543,482
    
    
    
    3,681,701
    
    
    
    4,897,260
    
    
    
    11,019,541General and administrative (4)
    
    
    24,932,794
    
    
    
    1,675,868
    
    
    
    1,543,305
    
    
    
    4,934,461
    
    
    
    4,129,183Total operating costs & expenses
    
    
    84,874,496
    
    
    
    6,732,138
    
    
    
    5,305,142
    
    
    
    17,312,915
    
    
    
    15,290,980Profit/(loss) from operations
    
    
    (35,462,695
    )
    
    
    (1,743,934
    )
    
    
    (4,175,016
    )
    
    
    (6,143,402
    )
    
    
    (11,642,633
    )Other income/(expense)Interest income
    
    
    6,330,756
    
    
    
    289,296
    
    
    
    161,041
    
    
    
    922,264
    
    
    
    621,299Interest expense
    
    
    (19,125
    )
    
    
    
    
    
    
    (2,409
    )
    
    
    
    
    
    
    (9,636
    )Fee income
    
    
    1,131,222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    (9,970
    )
    
    
    (47,473
    )
    
    
    5,368
    
    
    
    96,220
    
    
    
    23,855Total other income/(expense)
    
    
    7,432,883
    
    
    
    241,823
    
    
    
    164,000
    
    
    
    1,018,484
    
    
    
    635,518Net profit/(loss) before tax
    
    
    (28,029,812
    )
    
    
    (1,502,111
    )
    
    
    (4,011,016
    )
    
    
    (5,124,918
    )
    
    
    (11,007,115
    )Income tax benefit/(expense)
    
    
    (17,794
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net profit/(loss)
    
    $
    (28,047,606
    )
    
    $
    (1,502,111
    )
    
    $
    (4,011,016
    )
    
    $
    (5,124,918
    )
    
    $
    (11,007,115
    )Basic and diluted net loss per share
    
    $
    (0.32
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.07
    )Average weighted number of shares used as denominator in
calculating basic net loss per share
    
    
    87,275,315
    
    
    
    157,378,290
    
    
    
    157,004,871
    
    
    
    157,305,384
    
    
    
    156,986,350Notes:1  Includes non-cash compensation expense (cost of
goods sold)
    
    $
    135,435
    
    
    $
    28,489
    
    
    $
    
    
    
    $
    114,228
    
    
    $
    2  Net of research grant income in these amounts
    
    $
    2,366,063
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    3  Includes non-cash compensation expense
(research and
development)
    
    $
    2,492,752
    
    
    $
    172,215
    
    
    $
    229,637
    
    
    $
    690,526
    
    
    $
    406,6584  Includes non-cash compensation expense
(general and
administrative)
    
    $
    1,776,356
    
    
    $
    129,969
    
    
    $
    172,253
    
    
    $
    521,128
    
    
    $
    252,210
  4




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 Period fromInception(September14,2001) to September
    
    Nine Months Ended September 30,30, 2010
    
    2010
    
    2009A$
    
    A$
    
    A$Cash flows from operating activities:Net loss
    
    
    (28,047,606
    )
    
    
    (5,124,918
    )
    
    
    (11,007,115
    )Adjustments to reconcile net loss to net cash used in
operating activities:Net exchange difference
    
    
    1,102,572
    
    
    
    
    
    
    
    Depreciation and impairment of plant & equipment
    
    
    9,346,522
    
    
    
    2,213,954
    
    
    
    2,129,947Share based payments expense
    
    
    4,404,543
    
    
    
    1,325,882
    
    
    
    658,868Loss on fixed assets disposal
    
    
    211,343
    
    
    
    
    
    
    
    60,658Change in assets and liabilities:Inventory
    
    
    (1,458,780
    )
    
    
    (1,153,656
    )
    
    
    Accounts receivables
    
    
    (3,518,532
    )
    
    
    (2,464,834
    )
    
    
    (8,143
    )Prepaid expenses and other current assets
    
    
    162,894
    
    
    
    (170,165
    )
    
    
    91,027Accrued income
    
    
    9,450
    
    
    
    118,305
    
    
    
    Deferred revenue
    
    
    290,904
    
    
    
    
    
    
    
    528,414Borrowings
    
    
    
    
    
    
    
    
    
    
    Employee entitlements
    
    
    787,317
    
    
    
    103,841
    
    
    
    85,435Accounts payable and accrued expenses
    
    
    1,946,875
    
    
    
    70,954
    
    
    
    (237,802
    )Net cash provided by/(used in) operating activities
    
    
    (14,762,498
    )
    
    
    (5,080,637
    )
    
    
    (7,698,711
    )Cash flows from investing activities:Instalment payments to acquire plant and equipment
    
    
    (6,593,364
    )
    
    
    (831,321
    )
    
    
    (2,145,808
    )Purchases of property, plant and equipment
    
    
    (22,165,337
    )
    
    
    (577,240
    )
    
    
    (631,119
    )Net cash used in investing activities
    
    
    (28,758,701
    )
    
    
    (1,408,561
    )
    
    
    (2,776,927
    )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
    )
    
    
    
    
    
    
    (479,673
    )Proceeds from stock options exercised
    
    
    444,098
    
    
    
    181,055
    
    
    
    19,074Net cash provided by/(used in) financing activities
    
    
    69,861,700
    
    
    
    181,055
    
    
    
    19,074Net increase/(decrease) in cash and cash equivalents
    
    
    26,340,501
    
    
    
    (6,308,143
    )
    
    
    (10,456,564
    )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
    
    
    24,982,868
    
    
    
    24,982,868
    
    
    
    17,878,300
  5




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##### Table of Contents



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,540
    )
    
    
    (12,540
    )Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,007,115
    )
    
    
    
    
    
    
    (11,007,115
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,019,655
    )Exercise of stock options issued to employees
    
    
    
    
    
    
    
    
    
    
    61,622
    
    
    
    6
    
    
    
    19,068
    
    
    
    
    
    
    
    
    
    
    
    19,074Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    658,868
    
    
    
    
    
    
    
    
    
    
    
    658,868Balances at September 30, 2009
    
    
    
    
    
    
    
    
    
    
    157,038,558
    
    
    
    15,704
    
    
    
    74,016,931
    
    
    
    (35,360,266
    )
    
    
    (310,852
    )
    
    
    38,361,517Balances at December 31, 2009
    
    
    
    
    
    
    
    
    
    
    157,155,933
    
    
    
    15,716
    
    
    
    74,566,698
    
    
    
    (22,922,688
    )
    
    
    (345,724
    )
    
    
    51,314,002Changes during the nine months period
ended September 30, 2010Comprehensive IncomeNet loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,124,918
    )
    
    
    
    
    
    
    (5,124,918
    )Loss on derivatives and hedges, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,412
    
    
    
    47,412Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,077,506
    )Exercise of stock options issued to employees
    
    
    
    
    
    
    
    
    
    
    291,450
    
    
    
    29
    
    
    
    181,026
    
    
    
    
    
    
    
    
    
    
    
    181,055Shares issued to employees
    
    
    
    
    
    
    
    
    
    
    581
    
    
    
    
    
    
    
    999
    
    
    
    
    
    
    
    
    
    
    
    999Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,325,882
    
    
    
    
    
    
    
    
    
    
    
    1,325,882Balances at September 30, 2010
    
    
    
    
    
    
    
    
    
    
    157,447,964
    
    
    
    15,745
    
    
    
    76,074,605
    
    
    
    (28,047,606
    )
    
    
    (298,312
    )
    
    
    47,744,432
 
 (1)
    
    Incorporation date  6




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##### Table of Contents



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




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##### Table of Contents



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
  Cash & Cash Equivalents
  Short-Term Investments (Held-to-maturity)
  8




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##### Table of Contents



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




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Inventory
  Receivables
  Property, Plant and Equipment
   September 30, 2010
    
    December 31, 2009A$
    
    A$Plant and equipment
    
    
    14,802,643
    
    
    
    13,271,715Leasehold improvements
    
    
    8,461,755
    
    
    
    8,328,270Capital work in process
    
    
    5,226,224
    
    
    
    6,298,11428,490,622
    
    
    
    27,898,099Accumulated depreciation
    
    
    (8,811,910
    )
    
    
    (6,597,956
    )Property, plant & equipment, net
    
    
    19,678,712
    
    
    
    21,300,143
   10




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
   Nine months ended
    
    
    Year endedSeptember 30, 2010
    
    
    December 31, 2009A$
    
    
    A$Movement in accumulated depreciation
    
    
    2,213,954
    
    
    
    2,830,499Accumulated depreciation of fixed assets disposed
    
    
    
    
    
    
    20,786Depreciation expense
    
    
    2,213,954
    
    
    
    2,851,285
 Research and Development
    Period frominception to September 30,
    
    
    Three months endedSeptember 30,
    
    
    Nine months ended September 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Research and development expenses
    
    
    51,077,414
    
    
    
    1,543,482
    
    
    
    3,681,701
    
    
    
    4,897,260
    
    
    
    11,019,541Research grants received recognized against
related research and development expenses
    
    
    (2,366,063
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development expenses as reported
    
    
    48,711,351
    
    
    
    1,543,482
    
    
    
    3,681,701
    
    
    
    4,897,260
    
    
    
    11,019,541
 Income Taxes
  11




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
    Asset Retirement Obligations
    Nine months ended
    
    
    Year endedSeptember 30, 2010
    
    
    December 31, 2009A$
    
    
    A$Opening balance
    
    
    1,842,547
    
    
    
    1,699,133Accretion expense
    
    
    116,630
    
    
    
    143,414Ending balance
    
    
    1,959,177
    
    
    
    1,842,547
 Fair Value of Financial Instruments
  Impairment of Long-Lived Assets
  12




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Australian Goods and Services Tax (GST)
  Revenue Recognition
 Revenue from products and services and milestone payment
    
    
    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. If less than the specified quantity of test strips is produced
within a quarter, the interim costing period applies. In the interim costing period, the
Company is establishing its commercial scale manufacturing and therefore is not expected to
generate 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. Whilst we produced less than the specified quantity of test strips during
the September 2010 quarter, the production output was sufficient to absorb all the direct and
indirect manufacturing costs hence generating a small positive gross margin; 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.
   13




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
      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.
 14




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
     Research and development income
     15




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Fee Income
    Interest revenue
  Foreign Currency
 Functional and reporting currency
   16




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
    Transactions and balances
    
    
    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
  17




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Clinical Trial Expenses
   Leased Assets
  Stock-based Compensation
    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
 18




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
  Weighted averageexercise priceNumber of shares
    
    A$Balance at December 31, 2009
    
    
    10,039,486
    
    
    
    0.85Granted
    
    
    392,000
    
    
    
    0.91Exercised
    
    
    (291,450
    )
    
    
    0.64Lapsed
    
    
    (469,136
    )
    
    
    1.34Expired
    
    
    
    
    
    
    Balance at September 30, 2010
    
    
    9,670,900
    
    
    
    0.84
   Fiscal Year
    
    A$2010  remaining periods
    
    
    434,4942011
    
    
    817,2212012
    
    
    313,3762013
    
    
    40,3022014
    
    
    12,2141,617,607
 Pension Costs
  Net Profit/(Loss) per Share and Anti-dilutive Securities
  Total Comprehensive Income
  19




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Recent Accounting Pronouncements
 Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements
 Related Party Transactions
     Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$Current ReceivablesReimbursement of expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sale of goods
    
    
    
    
    
    
    
    
    
    
    2,018,684
    
    
    
    Sale of services
    
    
    
    
    
    
    
    
    
    
    213,784
    
    
    
    39,8002,232,468
    
    
    
    39,800RevenueRevenue from products
    
    
    3,202,873
    
    
    
    
    
    
    
    6,087,270
    
    
    
    Revenue from services
    
    
    1,785,331
    
    
    
    819,181
    
    
    
    5,082,243
    
    
    
    2,599,235Research and develoment
income
    
    
    
    
    
    
    310,945
    
    
    
    
    
    
    
    1,049,1124,988,204
    
    
    
    1,130,126
    
    
    
    11,169,513
    
    
    
    3,648,347
  
    
    Universal Biosensors Pty Ltd was reimbursed A$667 and A$Nil for the three months ended
September 30, 2010 and 2009, and A$1,205 and A$32,353 for the nine months ended September
30, 2010 and 2009, respectively for certain expenditures incurred on behalf of LifeScan.
 20




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)
 
 NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 (Unaudited)
 Borrowings
  Subsequent Events
  21




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##### Table of Contents



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




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 Master Services and Supply Agreement with LifeScan
  Development and Research Agreement with LifeScan
   License Agreement with LifeScan
   Results of Operations
 Manufacture of Products
  23




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 Period frominception toSeptember 30,
    
    Three months ended September 30,
    
    Nine months ended September 30,2010
    
    2010
    
    2009
    
    2010
    
    2009A$
    
    A$
    
    A$
    
    A$
    
    A$Revenue
    
    
    6,220,003
    
    
    
    3,202,873
    
    
    
    
    
    
    
    6,087,270
    
    
    
    Cost of goods sold
    
    
    (7,069,704
    )
    
    
    (3,136,390
    )
    
    
    
    
    
    
    (6,611,542
    )
    
    
    (849,701
    )
    
    
    66,483
    
    
    
    
    
    
    
    (524,272
    )
    
    
    
  Services Performed
  Period frominception toSeptember 30,
    
    
    Three months ended September 30,
    
    
    Nine months ended September 30,2010
    
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Revenue
    
    
    11,054,068
    
    
    
    1,785,331
    
    
    
    819,181
    
    
    
    5,082,243
    
    
    
    2,599,235Cost
    
    
    (4,160,647
    )
    
    
    (376,398
    )
    
    
    (80,136
    )
    
    
    (869,652
    )
    
    
    (142,256
    )6,893,421
    
    
    
    1,408,933
    
    
    
    739,045
    
    
    
    4,212,591
    
    
    
    2,456,979
 Research and Development Income
    24




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##### Table of Contents



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




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
    Period frominception toSeptember 30,
    
    Three months ended September 30,
    
    Nine months ended September 30,2010
    
    2010
    
    2009
    
    2010
    
    2009A$
    
    A$
    
    A$
    
    A$
    
    A$Research and development expenses
    
    
    51,077,414
    
    
    
    1,543,482
    
    
    
    3,681,701
    
    
    
    4,897,260
    
    
    
    11,019,541Research grants received
recognized against related
research and development
expenses
    
    
    (2,366,063
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Research and development
expenses as reported
    
    
    48,711,351
    
    
    
    1,543,482
    
    
    
    3,681,701
    
    
    
    4,897,260
    
    
    
    11,019,541
    General and administrative expenses
   26




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##### Table of Contents



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




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##### Table of Contents



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$
    532,9851 - 3 years
    
    
    
    1,116,2883 - 5 years
    
    
    
    290,150More than 5 years
    
    
    
    Total minimum lease payments
    
    
    A$
    1,939,423
  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)
    
    
    1,959,177
    
    
    
    
    
    
    
    
    
    
    
    1,959,177
    
    
    
    Operating Lease Obligations (2)
    
    
    1,939,423
    
    
    
    532,985
    
    
    
    1,116,288
    
    
    
    290,150
    
    
    
    Purchase Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities on
Balance Sheet under GAAP (3)
    
    
    307,037
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    307,037Total
    
    
    4,205,637
    
    
    
    532,985
    
    
    
    1,116,288
    
    
    
    2,249,327
    
    
    
    307,037
 
 (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




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 Segments
  29




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 
 Item 3 Quantitative and Qualitative Disclosures About Market Risk
 Foreign Currency Market Risk
   Interest Rate Risk
  30




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##### Table of Contents



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




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##### Table of Contents



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 andCorresponding
    
    
    
    
    
    ProceedsNumber of Shares
    
    Option Exercise
    
    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
    
    
    
    4,040August, 2010
    
    
    25,374
    
    
    
    US$0.26
    
    
    
    8,38120,000
    
    
    
    A$1.18
    
    
    
    23,60013,332
    
    
    
    A0.89
    
    
    
    11,8656,667
    
    
    
    A$0.94
    
    
    
    6,267September, 2010
    
    
    13,333
    
    
    
    A$0.94
    
    
    
    12,5338,000
    
    
    
    A$0.70
    
    
    
    5,60016,666
    
    
    
    A$1.20
    
    
    
    19,9993,333
    
    
    
    A$0.94
    
    
    
    3,133291,450
    
    
    
    
    
    
    
    181,055
  32




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 
 Item 3 Defaults Upon Senior Securities
  
 Item 4 [Removed and Reserved]
  
 Item 5 Other Information
  
 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




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##### Table of Contents



UNIVERSAL BIOSENSORS, INC.
 
 SIGNATURES
  UNIVERSAL BIOSENSORS, INC.
(Registrant)By:
    /s/ ANDREW DENVERDate: October 26, 2010
    
    Andrew DenverInterim Chief Executive Officer
and Executive Chairman By:
    /s/ SALESH BALAKDate: October 26, 2010
    
    Salesh BalakChief Financial Officer 34




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##### Table of Contents



INDEX TO EXHIBITS
Quarterly Report on Form 10-Q
Dated October 26, 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