-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RyFp0IGplTDdLAZq/iRov82H8fvY+OYNEGKEu01BHh+Nj9HfYXSD94jwDslHtMpq 3359EdcgwPTXa/ozIfJBVQ== 0001011438-04-000244.txt : 20040802 0001011438-04-000244.hdr.sgml : 20040802 20040802152855 ACCESSION NUMBER: 0001011438-04-000244 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20040802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNIVERSAL DETECTION TECHNOLOGY CENTRAL INDEX KEY: 0000763950 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL INSTRUMENTS FOR MEASUREMENT, DISPLAY, AND CONTROL [3823] IRS NUMBER: 952746949 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-117859 FILM NUMBER: 04944940 BUSINESS ADDRESS: STREET 1: 9300 WILSHIRE BOULEVARD, SUITE 308 CITY: BEVERLY HILLS STATE: CA ZIP: 90212 BUSINESS PHONE: 3102483655 MAIL ADDRESS: STREET 1: 9300 WILSHIRE BOULEVARD, SUITE 308 CITY: BEVERLY HILLS STATE: CA ZIP: 90212 FORMER COMPANY: FORMER CONFORMED NAME: POLLUTION RESEARCH & CONTROL CORP /CA/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: DASIBI ENVIRONMENTAL CORP DATE OF NAME CHANGE: 19900529 SB-2 1 form_sb-2.txt As filed with the Securities and Exchange Commission on August 2, 2004 REGISTRATION NO. 333-XXXXXXX ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 UNIVERSAL DETECTION TECHNOLOGY (Exact Name of Registrant as Specified in Its Charter) CALIFORNIA 3823 95-2746949 (State or Other (Primary Standard (I.R.S. Employer Jurisdiction of Industrial Identification Incorporation or Classification Code Number) Organization) Number) 9595 WILSHIRE BLVD., SUITE 700 BEVERLY HILLS, CALIFORNIA 90212 (310) 248-3655 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) JACQUES TIZABI PRESIDENT & CHIEF EXECUTIVE OFFICER UNIVERSAL DETECTION TECHNOLOGY 9595 WILSHIRE BLVD., SUITE 700 BEVERLY HILLS, CALIFORNIA 90212 (310) 248-3655 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Services) ------------------------------------ WITH A COPY TO: JULIE M. KAUFER, ESQ. AFSHIN HAKIM, ESQ. AKIN GUMP STRAUSS HAUER & FELD LLP 2029 CENTURY PARK EAST, SUITE 2400 LOS ANGELES, CALIFORNIA 90067 TELEPHONE: (310) 229-1000 FACSIMILE: (310) 229-1001 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |X| If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ______________ If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ________________ If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| ________________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_| - --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE ============================ ================= ==================== ======================= ================ PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE SECURITIES TO BE REGISTERED REGISTERED (1) UNIT PRICE (2) - ---------------------------- ----------------- -------------------- ----------------------- ---------------- Common Stock, no par value 15,600,000 $0.78 $ 12,168,000 $1,542 shares ============================ ================= ==================== ======================= ================ - ------------ (1) This prospectus covers the offer and sale of (a) 6,000,000 shares of outstanding common stock, (b) 6,600,000 shares of common stock underlying Class A Warrants, (c) 3,000,000 shares of common stock underlying Class B Warrants, and (d) an indeterminable number of additional shares of common stock, pursuant to Rule 416 under the Securities Act of 1933, that may be issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions affecting the shares to be offered by the selling stockholders. (2) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(c) under the Securities Act of 1933 based on the average of the high and the low prices of registrant's common stock reported on The Over the Counter Bulletin Board on July 26, 2004.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ The information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION, DATED August 2, 2004 PROSPECTUS UNIVERSAL DETECTION TECHNOLOGY 15,600,000 SHARES OF COMMON STOCK This prospectus relates to the resale of up to 15,600,000 shares of common stock by the selling stockholders named in this prospectus. Of the shares being offered pursuant to this prospectus, 6,000,000 shares relate to shares presently owned by the selling stockholders and the remaining 9,600,000 shares relate to shares which the selling stockholders will receive as a result of the exercise of warrants granted to them by us. The selling stockholders may offer for resale the shares covered by this prospectus from time to time directly to purchasers or through underwriters, broker-dealers or agents, in public or private transactions, at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices. We will not receive any proceeds from the resale of our common stock by the selling stockholders. Our common stock is quoted on the Over The Counter Bulletin Board under the symbol "UDTT." The last reported sale price of our common stock on July 26, 2004 was $0.80 per share. You should read this prospectus carefully before you invest. INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 2. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. -------------------------- The date of this prospectus is _______, 2004.
TABLE OF CONTENTS Page Prospectus Summary........................................................................1 Risk Factors..............................................................................2 Forward-Looking Statements................................................................5 Use of Proceeds...........................................................................6 Market Price of Securities................................................................6 Dividend Policy...........................................................................6 Plan of Operation.........................................................................7 Business..................................................................................9 Management................................................................................15 Selling Stockholders......................................................................19 Plan of Distribution......................................................................22 Certain Relationships and Related Transactions............................................24 Description of Securities.................................................................25 Legal Matters.............................................................................27 Experts...................................................................................27 Where You Can Find More Information.......................................................27 Index to Consolidated Financial Statements................................................F-1
PROSPECTUS SUMMARY YOU SHOULD READ THIS SUMMARY TOGETHER WITH THE ENTIRE PROSPECTUS, INCLUDING THE MORE DETAILED INFORMATION IN OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. UNIVERSAL DETECTION TECHNOLOGY We primarily are engaged in the research and development of bio-terrorism detection devices. After engaging in initial research and development efforts, we determined to pursue a strategy to identify qualified strategic partners and collaborate to develop commercially viable bio-terrorism detection devices. Consistent with this strategy, in August 2002, we entered into a technology affiliates agreement with the Jet Propulsion Laboratory, commonly referred to as JPL, to develop technology for our bio-terrorism detection equipment. JPL is a federally funded research and development center sponsored by NASA and also is an operating division of the California Institute of Technology, a private non-profit educational institution. The agreement provides that JPL will develop its proprietary bacterial spore detection technology for integration into our existing aerosol monitoring system, resulting in a product which we refer to as the Anthrax Smoke Detector. Our goal with JPL is to develop a product which provides continuous unattended monitoring of airborne bacterial spores in large public places, with real-time automated alert functionality. Our Anthrax Smoke Detector combines a bioaerosol capture device with a chemical test for bacterial spores that we believe will provide accurate results in a timely fashion. Our system is designed to function fully automated and at a low cost compared to existing technologies. We believe that the technology developed by JPL and incorporated into our Anthrax Smoke Detector will substantially reduce the occurrence of false positives that could arise due to natural fluctuations in bacterial spore concentrations. To a lesser extent, we also may engage in research and development relating to our nitric oxide machine and its applications in the medical diagnostics market. We previously have participated in developing an asthma diagnostic instrument with Logan Research of London England, a research institute, for these applications, but the project was halted due to a lack of funding. From time to time, we engage in discussions with potential research partners to pursue further research and development efforts in this regard. Dr. Louis Ignarro, who became a member of our Scientific Advisory Board in December 2002, is one of the leading researchers on nitric oxide and its effects. To date, we have not entered into any collaborative relationships with research partners in connection with the development of the nitric oxide machine. We are incorporated under the laws of California. Our corporate headquarters are located at 9595 Wilshire Blvd., Suite 700, Beverly Hills, California 90212. Our telephone number is (310) 248-3655. 1 RISK FACTORS BEFORE DECIDING WHETHER TO INVEST IN OUR COMMON STOCK, YOU SHOULD UNDERSTAND THE HIGH DEGREE OF RISK INVOLVED. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS, INCLUDING OUR HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES. OUR MOST SIGNIFICANT RISKS AND UNCERTAINTIES ARE DESCRIBED BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER. AS A RESULT, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD LOSE PART OR ALL OF YOUR INVESTMENT. THE RISKS DISCUSSED BELOW ALSO INCLUDE FORWARD-LOOKING STATEMENTS, AND OUR ACTUAL RESULTS MAY DIFFER SUBSTANTIALLY FROM THOSE DISCUSSED IN THESE FORWARD-LOOKING STATEMENTS. OUR INDEPENDENT AUDITORS' REPORT EXPRESSES DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN. Our independent auditors' report, dated February 4, 2004, includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern, due to our working capital deficit at December 31, 2003, and the sale of our operating subsidiary in March 2002. We have experienced operating losses since the date of the auditors' report and in prior years. We have been unable to pay all of our creditors and certain other obligations in accordance with their terms, and as a result, we are in default on certain debt obligations equaling approximately $550,000, excluding accumulated interest, as of March 31, 2004. These defaults currently restrict our ability to file registration statements, including those relating to capital-raising transactions, on Form S-3, which may make it more difficult for us to raise additional capital. We have limited cash on hand and short-term investments and we do not expect to generate material cash from operations this year. We have attempted to raise additional capital through debt or equity financing and to date have had limited success. In July 2004, we completed a private placement resulting in net proceeds to us of approximately $2.5 million. The net proceeds from this financing may not be used, however, to repay any of our outstanding indebtedness as of the closing date of the financing. If we are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors. WE HAVE A HISTORY OF LOSSES AND WE DO NOT ANTICIPATE THAT WE WILL BE PROFITABLE IN FISCAL 2004. We do not anticipate having a product for sale until our Anthrax Smoke Detector is commercialized, which could take at least one more year. We have not been profitable in the past years and had an accumulated deficit of approximately $22.58 million as of March 31, 2004. During the three months ended March 31, 2004, we incurred a net loss of approximately $1.54 million. Achieving profitability depends upon numerous factors, including our ability to develop, market and sell commercially accepted products timely and cost-efficiently. We do not anticipate that we will be profitable in fiscal 2004. WE MAY NEED ADDITIONAL CAPITAL TO FUND OUR RESEARCH AND DEVELOPMENT ACTIVITIES. IF WE OBTAIN FINANCING, EXISTING SHAREHOLDER INTERESTS MAY BE DILUTED, AND IF WE CANNOT OBTAIN ADEQUATE FINANCING, WE MAY CEASE OPERATIONS. The down-trend in the financial markets have made it extremely difficult for us to raise additional capital for our research and development activities. We recently raised approximately $2.5 Million in a private placement. We believe that this amount should be sufficient to cover our operating expenses, including research and development activities, for the next 12 months. However, if we are unable to meet our goals as scheduled, we may need to raise additional capital. If we cannot raise additional capital, we will not be able to pursue our business strategies as scheduled, or at all, and we may cease operations. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our shareholders will be diluted. In addition, any convertible securities issued may not contain a minimum conversion price, which may make it more difficult for us to raise financing and may cause the market price of our common stock to decline because of the indeterminable overhang that is created by the discount to market conversion feature. In addition, any new securities could have rights, preferences and privileges senior to those of our common stock. Furthermore, we cannot assure you that additional financing will be available when and to the extent we require or that, if available, it will be on acceptable terms. WE CANNOT GUARANTEE THAT OUR BIO-TERRORISM DETECTION DEVICE WILL WORK OR BE COMMERCIALLY VIABLE. Our product in development requires further research, development, laboratory testing and demonstration of commercial scale manufacturing before it can be proven to be commercially viable. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These reasons 2 include the possibilities that the product may be ineffective, unsafe, difficult or uneconomical to manufacture on a large scale, or precluded from commercialization by proprietary rights of third parties. We cannot predict with any degree of certainty when, or if, the research, development, testing and regulatory approval process (if required), will be completed. If our product development efforts are unsuccessful or if we are unable to develop a commercially viable product timely, we would need to consider steps to protect our assets against our creditors. OUR RELIANCE ON THIRD PARTIES FOR RESEARCH AND DEVELOPMENT MAY AFFECT OUR FUTURE PROSPECTS. We do not maintain our own laboratory and we do not employ our own researchers. We contract with third parties to conduct research and development activities and we expect to continue to do so in the future. Because we rely on third parties for our research and development activities, we have less direct control over those activities and cannot assure you that the research will be done properly or in a timely manner. Our inability to conduct research and development may delay or impair our ability to commercialize our technology. The cost and time to establish or locate an alternative research and development facility to develop our technology could have a materially adverse affect on our future prospects. OUR PRODUCTS MAY NOT BE COMMERCIALLY ACCEPTED WHICH WILL ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY. Our ability to enter into the bio-terrorism detection device market, establish brand recognition and compete effectively depends upon many factors, including broad commercial acceptance of our products. If our products are not commercially accepted, we will not recognize meaningful revenue and may not continue to operate. The success of our products will depend in large part on the breadth of information these products capture and the timeliness of delivery of that information. The commercial success of our products also depends upon the quality and acceptance of other competing products, general economic and political conditions and other factors, all of which can change and cannot be predicted with certainty. We cannot assure you that our new products will achieve market acceptance or will generate significant revenue. THE MARKET FOR OUR PLANNED PRODUCT IS RAPIDLY CHANGING AND COMPETITIVE. NEW PRODUCTS MAY BE DEVELOPED BY OTHERS, WHICH COULD IMPAIR OUR ABILITY TO DEVELOP, GROW OR MAINTAIN OUR BUSINESS AND BE COMPETITIVE. Our industry is subject to rapid and substantial technological change. Developments by others may render our technology and planned product noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Competition from other biotechnology companies, universities, government research organizations and others diversifying into our field is intense and is expected to increase. Many of these entities have significantly greater research and development capabilities and budgets than we do, as well as substantially greater marketing, manufacturing, financial and managerial resources. These entities could represent significant competition for us. Our resources are limited and we may experience technical challenges inherent in developing our technology. Our competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competition. Our competitors may use different methods to detect biological pathogens in a manner that is more effective and less costly than our planned product and, therefore, represent a serious competitive threat to us. OUR COMMON SHARES HAVE BEEN DELISTED FROM THE NASDAQ SMALLCAP MARKET. On June 11, 2002, we were notified by The Nasdaq Stock Market that we did not meet the continued listing requirements of The Nasdaq SmallCap Market and our common shares were delisted on the close of business on June 19, 2002. Our common stock currently is trading on The Over the Counter Bulletin Board. It is more difficult to raise additional debt or equity financing while trading on The Over the Counter Bulletin Board. OUR OUTSTANDING OPTIONS AND WARRANTS MAY DILUTE OUR SHAREHOLDERS' INTERESTS. As of July 30, 2004, we have granted options and warrants to purchase a total of 21,272,657 shares of common stock that have not been exercised. To the extent these outstanding options and warrants are exercised, our shareholders' interests will be diluted. 3 THE LOSS OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER WOULD DISRUPT OUR BUSINESS. Our success depends in substantial part upon the services of Jacques Tizabi, our President, Chief Executive Officer and Chairman of the Board of Directors. The loss of or the failure to retain the services of Mr. Tizabi would adversely affect the development of our business and our ability to realize or sustain profitable operations. We do not maintain key-man life insurance on Mr. Tizabi and have no present plans to obtain this insurance. WE HAVE LIMITED PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS OF OUR PRODUCTS. We regard all portions of the designs and technologies incorporated into our products as proprietary and attempt to protect them under trade secret laws. It may be possible for unauthorized third parties to copy certain portions of our products or to "reverse engineer" or otherwise obtain and use to our detriment information we regard as proprietary. The technology for our Anthrax Smoke Detector is being developed pursuant to our technology affiliates agreement with JPL, which is federally funded. The U.S. government has the right to use technologies that it has funded regardless of whether the technology has been licensed to a third party, and thus, has a non-exclusive, non-transferable, irrevocable, paid-up license to practice or have practiced any invention covered by our technology affiliates agreement with JPL. We cannot assure you that our competitors will not independently develop technologies that are substantially equivalent or superior to our technologies. WE MAY BE SUED BY THIRD PARTIES WHO CLAIM OUR PRODUCT INFRINGES ON THEIR INTELLECTUAL PROPERTY RIGHTS. DEFENDING AN INFRINGEMENT LAWSUIT IS COSTLY AND WE MAY NOT HAVE ADEQUATE RESOURCES TO DEFEND OURSELVES. We may be exposed to future litigation by third parties based on claims that our technology, product, or activity infringes on the intellectual property rights of others or that we have misappropriated the trade secrets of others. This risk is compounded by the fact that the validity and breadth of claims covered in technology patents in general and the breadth and scope of trade secret protection involves complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial and managerial resources, and could harm our reputation. Our license agreement with Caltech requires that we pay the costs associated with initiating an infringement claim and defending claims by third parties for infringement, subject to certain offsets that may be allowed against amounts we may owe to Caltech under the licensing agreement. In addition, intellectual property litigation or claims could force us to do one or more of the following: o cease selling, incorporating, or using any of our technology and/or products that incorporate the challenged intellectual property, which could adversely affect our potential revenue; o obtain a license from the holder of the infringed intellectual property right, which license may be costly or may not be available on reasonable terms, if at all; or o redesign our products, which would be costly and time consuming. OUR STOCK PRICE IS VOLATILE. The trading price of our common stock fluctuates widely and in the future may be subject to similar fluctuations in response to quarter-to-quarter variations in our operating results, announcements of technological innovations or new products by us or our competitors, general conditions in the bio-terrorism detection device industry in which we compete and other events or factors. In addition, in recent years, broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. These broad market fluctuations also may adversely affect the future trading price of our common stock. OUR STOCK HISTORICALLY HAS BEEN THINLY TRADED. THEREFORE, SHAREHOLDERS MAY NOT BE ABLE TO SELL THEIR SHARES FREELY. The volume of trading in our common stock historically has been low and a limited market presently exists for the shares. We have no analyst coverage of our securities. The lack of analyst reports about our stock may make it difficult for potential investors to make decisions about whether to purchase our stock and may make it less likely 4 that investors will purchase our stock. We cannot assure you that our trading volume will increase, or that our historically light trading volume or any trading volume whatsoever will be sustained in the future. Therefore, we cannot assure you that our shareholders will be able to sell their shares of our common stock at the time or at the price that they desire, or at all. POTENTIAL ANTI-TAKEOVER TACTICS THROUGH ISSUANCE OF PREFERRED STOCK RIGHTS MAY BE DETRIMENTAL TO COMMON SHAREHOLDERS. We are authorized to issue up to 20,000,000 shares of preferred stock, of which none currently are issued and outstanding. The issuance of preferred stock does not require approval by the shareholders of our common stock. Our Board of Directors, in its sole discretion, has the power to issue preferred stock in one or more series and establish the dividend rates and preferences, liquidation preferences, voting rights, redemption and conversion terms and conditions and any other relative rights and preferences with respect to any series of preferred stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion and other rights, any of which rights and preferences may operate to the detriment of the shareholders of our common stock. Further, the issuance of any preferred stock having rights superior to those of our common stock may result in a decrease in the market price of the common stock and, additionally, could be used by our Board of Directors as an anti-takeover measure or device to prevent a change in our control. FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this prospectus as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this prospectus as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this prospectus. Factors that can cause or contribute to these differences include those described under the headings "Risk Factors" and "Management Discussion and Analysis of Financial Condition and Results of Operations." If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this prospectus reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this prospectus which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this prospectus or to conform these statements to actual results. 5 USE OF PROCEEDS We will not receive any proceeds from the sale of the shares by the selling stockholders. All proceeds from the sale of the common stock under this prospectus will be for the account of the selling stockholders. MARKET PRICE OF SECURITIES The following table sets forth, for the periods indicated, the range of high and low intraday bid information per share of our common stock as quoted on the Over The Counter Bulletin Board. Our stock is traded under the symbol "UDTT." Year Period Historic Prices --------------------------- High Low --------------- -------------------------------------------- ------------- 2002 First Quarter $ 0.69 $ 0.36 Second Quarter 0.42 0.12 Third Quarter 0.27 0.14 Fourth Quarter 0.32 0.16 2003 First Quarter 0.25 0.17 Second Quarter 0.31 0.18 Third Quarter 0.54 0.22 Fourth Quarter 0.80 0.45 2004 First Quarter 1.01 0.60 Second Quarter 0.99 0.70 As of July 26, 2004, the closing price of our common stock on Over The Counter Bulletin Board was $0.80, and at that date, our outstanding common stock was held of record by 1,275 stockholders. DIVIDEND POLICY We do not currently pay any dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the payment of dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors including the General Corporation Law of the State of California, which provides that dividends are only payable out of retained earnings or if certain minimum ratios of assets to liabilities are satisfied. The declaration of dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time. 6 PLAN OF OPERATION The following discussion should be read in conjunction with our consolidated financial statements provided in this prospectus. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein. The forward-looking information set forth in this prospectus is as of the date of this filing, and we undertake no duty to update this information. More information about potential factors that could affect our business and financial results is included in the section entitled "Risk Factors" of this prospectus. OVERVIEW We primarily are engaged in the research and development of bio-terrorism detection devices. In August 2002, we entered into a technology affiliates agreement with JPL, to develop technology for our bio-terrorism detection equipment. The agreement provides that JPL will develop its proprietary bacterial spore detection technology for integration into our existing aerosol monitoring system, resulting in a product which we refer to as the Anthrax Smoke Detector. Our goal with JPL is to develop a product which provides continuous unattended monitoring of airborne bacterial spores in large public places, with real-time automated alert functionality. PLAN OF OPERATION In May 2004, we unveiled the first commercial prototype of our Anthrax Smoke Detector. We recently completed the software component of our Anthrax Smoke Detector and expect in the next quarter of 2004 to engage in simulated tests with particles having anthrax-like properties in order to fine tune our product. Based on the results we obtain, we intend to order several units with the modified specifications from a third-party manufacturer that assembled our first commercial prototype. During the remainder of 2004, we plan to engage in field testing of these units in different environments and conditions and to use the empirical data gained from the testing to further improve the design and functionality of our product. Our field testing, other than those performed by JPL, will be performed through our collaboration with Rutgers University. Rutgers University plans to select a site operated by the New York and New Jersey Port Authority in order to test our product under a real-time environment. Rutgers University will manage all the details of the implementation of the program as well as all the precautions that need to be hardwired into the facilities security system in case of an alarm. After completing our field testing, we plan to initiate orders of our Anthrax Smoke Detector with a third- party manufacturer based on our sales during the following 12 month period. In connection with our sales and marketing efforts, we hope to sell units to customers in specific sectors in the market including, sports stadiums, conventions centers, and casinos. We believe that these sales will provide us a well-defined customer base to use as a reference in connection with our marketing campaign in 2005. At this time, we have not entered into any agreements with any third parties regarding the manufacturing of our product, but one third party has indicated to us that it will be capable of producing between 50 to 100 units per month. During the next 12 month period, we also plan on securing and leasing a testing facility close to the JPL laboratories where we would be able to implement a quality assurance program and test our products against the required specifications before shipping them to customers. We believe that the proximity to JPL and in particular to Caltech will help us by utilizing the knowledge of graduate and PhD students familiar with the project in a consultant or employment capacity. We anticipate hiring up to three additional employees in the next twelve months, one of whom would concentrate on marketing our Anthrax Smoke Detector to both the public and private sector. Upon establishment of the testing facility, we intend to hire up to two employees to assist with the testing of the products. LIQUIDITY AND CAPITAL RESOURCES On April 29, 2004, we commenced a private offering of our securities. In this private placement, we sold $3.0 million of Units. The offering was made solely to accredited investors through Meyers Associates, L.P., a registered broker dealer firm. Each Unit consists of one share of common stock and a Class A Warrant and a Class 7 B Warrant. The offering price per Unit was $0.50. The Class A Warrants are exercisable by the holder thereof to purchase one-half share of common stock at $0.50 per share and the Class B Warrants are exercisable by the holder thereof to purchase one-half share of common stock at $0.70 per share. Both the Class A and Class B Warrants are exercisable by the holder at any time up to the expiration date of the warrant, which is five years from the date of issuance. The net proceeds to us from the sale of the Units were approximately $2.5 million. We intend to use the proceeds of the offering for working capital and general corporate purposes, but are precluded from using the proceeds to pay debt outstanding at the time of the closing of the offering, any accrued but unpaid salary to our officer and directors, or any obligations (other than placement fees) under our Agreement for Investment Banking and Advisory Services with Astor Capital, Inc. Our working capital deficit at March 31, 2004, was $1,807,640. Our independent auditors' report, dated February 4, 2004, 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, 2003, and the sale of our operating subsidiary. We require approximately $1.8 million to repay indebtedness in the next twelve months and approximately $1.0 million in the next twelve months to complete our existing prototype, engage in testing of the device, and revise the technology or reengineer the device as may be necessary or desirable and otherwise execute our business plan. As a result of the private placement in July 2004, we believe we have sufficient capital to fund our operating expenses for the next 12 months. Our uses of capital during the past two fiscal years have been, and during the next 12 months will be, for: o administrative expenses, including salaries of officers and other employees we plan to hire; o research and development of our Anthrax Smoke Detector; o sales and marketing; and o expenses of professionals, including accountants and attorneys. We may need to raise additional capital, however, in order to pay off a portion of our debt. We are currently in discussions to make scheduled payment arrangements with some of our noteholders and may need to obtain extensions on some of our notes as they become due. Historically, we have financed operations through private debt and the issuance of common stock. 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 actively continue to pursue additional equity or debt financings. If we are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors. 8 BUSINESS GENERAL We primarily are engaged in the research and development of bio-terrorism detection devices. In August 2002, we entered into a technology affiliates agreement with JPL, to develop technology for our bio-terrorism detection equipment. The agreement provides that JPL will develop its proprietary bacterial spore detection technology for integration into our existing aerosol monitoring system, resulting in a product which we refer to as the Anthrax Smoke Detector. Our goal with JPL is to develop a product which provides continuous unattended monitoring of airborne bacterial spores in large public places, with real-time automated alert functionality. We unveiled the first commercial prototype of our Anthrax Smoke Detector at a press conference on May 6, 2004, and completed the software component of the device by mid-July 2004. In the next six months, we are planning on engaging in simulated tests to improve the software and running field tests in different environments and conditions in order to obtain empirical date to improve the overall design and functionality of our product. To a lesser extent, we also may engage in research and development relating to our nitric oxide machine and applications in the medical diagnostics market. We previously have participated in developing an asthma diagnostic instrument with Logan Research of London England, a research institute, for these applications, but the project was halted due to a lack of funding. From time to time, we engage in discussions with potential research partners to pursue further research and development efforts in this regard. Dr. Louis Ignarro, who became a member of our Scientific Advisory Board in December 2002, is one of the leading researchers on nitric oxide and its effects. To date, we have not entered into any collaborative relationships with research partners in connection with the development of the nitric oxide machine. INDUSTRY BACKGROUND The attacks of September 11, 2001, and the subsequent spread of and potential future threat of anthrax spores have created a new sense of urgency in the public health systems across the world, and especially in the United States. During the 2001 anthrax attacks in the United States, emergency response personnel, clinicians, laboratories, and public health officials were overwhelmed by requests for evaluation of suspicious powders and by calls from patients concerned about exposures to bio-terrorism agents. Systems designed to detect bio-terrorism agents in clinical and environmental samples have become essential components of responses to both hoaxes and actual bio-terrorism events. First responders and public health officials require sensitive and specific detection systems that can identify bio-terrorism agents early enough to take actions that limit their spread. The United States government has responded to this urgent need for preparedness against bio-terrorism by establishing the Department of Homeland Security. The Department of Homeland Security is intended to unite much of the federal government's effort to secure the homeland, with the primary goal being an America that is stronger, safer, and more secure. The primary mission of the Department is to, among other things, o prevent terrorist attacks within the United States, o reduce the vulnerability of the United States to terrorism, and o minimize the damage, and assist in the recovery, from terrorist attacks that do occur within the United States. For fiscal 2004, the Department has allocated $350 million in new funding for research, development, testing, and evaluation capabilities. According to the Department, these funds are targeted to promote innovative, high payoff capabilities through the Homeland Security Advanced Research Projects Agency, as well as focused efforts to rapidly evaluate and prototype near-term technologies available from the private sector. We may retain an outside consultant specialized in government grants, to screen the applicable grants for us. At this time, we have not received any portion of these grants, and cannot assure you that we will receive any portion in the future. The private sector also has responded to the need for preparedness against bio-terrorism. A number of companies have developed or are in the process of developing various methods to detect harmful pathogens in the 9 air through genetic analysis, including DNA or RNA analysis. In recent years, significant advances in molecular biology have led to the development of increasingly efficient and sensitive techniques for detecting and measuring the presence of a particular genetic sequence in a biological sample. Genetic testing involves a highly technical procedures, including: o SAMPLE PREPARATION - procedures that must be performed to isolate the target cells and to separate and purify their nucleic acids; o AMPLIFICATION - a chemical process to make large quantities of DNA from the nucleic acids isolated from the sample; and o DETECTION - the method of determining the presence or absence of the target DNA or RNA, typically through the use of fluorescent dyes. Existing technologies for determining the genetic composition of a cell or organism generally face the following limitations: o REQUIRE HIGHLY SKILLED TECHNICIANS AND SPECIAL LABORATORIES. Currently available methods and systems for genetic analysis require highly skilled scientists and technicians in a controlled laboratory setting, including, in many cases, separate rooms to prevent contamination of one sample by another. Some progress has been made to automate this process. o LARGE AND INFLEXIBLE EQUIPMENT. Most currently available genetic analysis equipment is large and inflexible and requires a technically complex operating environment. New designs are attempting to address miniaturization of equipment. o TIMELINESS OF RESULT. Current sample preparation, amplification and detection technologies rely on processes that often require hours to complete, rendering results that may not be timely enough to be medically useful. Some new instruments are attempting to reduce analysis times. o SENSITIVITY CONSTRAINTS. Some existing technologies accept and process only very small sample volumes, forcing laboratory technicians to spend significant effort in concentrating larger samples in order to obtain the required level of sensitivity for detecting and measuring the presence of a genetic sequence. o LACK OF INTEGRATION. We believe that current amplification and detection systems do not fully automate and integrate sample preparation into their processes in a manner that can be useful in a non-laboratory setting in a cost effective fashion. o OPERATIONAL COST. The operating costs for existing technologies can be extremely high, making the implementation of the device cost-prohibitive. o FALSE POSITIVES. Most existing technologies are susceptible to false positive results, which can have significant social and economic consequences. Currently, the two most commonly used methods for genetic testing are microbial culture and Polymerase Chain Reaction, commonly referred to as PCR. With microbial culture, a sample from the environment is placed into a small laboratory dish containing a nutrient rich media. The microbial culture is allowed to grow for a specified period of time, usually between 24-48 hours. The sample is then examined and a determination is made as to whether an organism is present in the sample. Although highly accurate, the disadvantages of microbial cultures are the time required to determine the presence of an organism and the need for a laboratory and an expertise in culture preparation and analysis. PCR has been one of the most promising methods for an automated anthrax detection system. PCR amplifies DNA targets of choice, such as gene sequences encoded for the anthrax toxins to detectable levels. PCR is very sensitive and is able to detect very small amounts of DNA. But, the PCR process requires about three to eight hours to complete, plus an additional three hours for sample preparation time, which 10 must usually be performed by a trained technician. Some developments have been made to automate the PCR process and reduce the analysis time. We believe that the principal desired characteristics of an anthrax detection system are sustained, online operation with minimal maintenance, minimal susceptibility to false alarms, and low operating costs. These attributes require that we address the limitations inherent in most current technologies. OUR SOLUTION Our Anthrax Smoke Detector combines a bioaerosol capture device with a chemical test for bacterial spores that we believe will provide accurate results in a timely fashion. Our system is designed to function fully automated and at a low cost compared to existing technologies. We believe that the technology developed by JPL and incorporated into our Anthrax Smoke Detector will substantially reduce the occurrence of false positives that could arise due to natural fluctuations in bacterial spore concentrations. COMPANY PRODUCTS We are expending all of our research and development efforts towards the design and testing of the Anthrax Smoke Detector. This instrument consists of four components: o an air sampler for aerosol capture, which collects aerosolized particles on a meshed glass fiber tape, o thermal lysis for releasing the dipicolinic acid from the spores, o reagent delivery via syringe pump, and o a lifetime gated luminescence detection of the terbium-dipicolinate complex. The device is designed to continuously monitor the air and measure the concentration of airborne bacterial endospores every 15 minutes. Bacterial endospores are captured on the glass fiber tape. Next, thermal lysis "pops" the endospores, releasing a chemical from inside the endospore called dipicolinic acid, which is unique to bacterial endospores. Then, a syringe pump adds a drop of terbium containing solution to the tape on the location where the endospores were lysed. Finally, a lifetime gated photometer measures the resultant terbium dipicolinate luminescence intensity, which is proportional to the bacterial spore concentration in the tape. A large change in endospore concentration is a strong indication of an anthrax attack, because endospores are the means by which anthrax travels. The collection tape becomes a permanent record of the air environment and can be sorted and subsequently reanalyzed as desired. Pursuant to our development plan, if an increase in spore concentration is detected, an alarm will sound notifying both a building's internal security as well as local emergency services through the device's landline or wireless networking capability. The system is designed to ensure the maximum time it takes to detect, and generate an alarm in response to, a release of bacterial spores is approximately 15 minutes, which we believe will be adequate to substantially reduce the likelihood of widespread contamination. This response time also provides adequate time to begin antibiotic treatment prior to the onset of symptoms which can arise within two to three days if left untreated. The system is designed for constant and unattended monitoring of spaces such as public facilities and commercial buildings. The device is designed to prevent false alarms. Technologies that allow a high percentage of false positive results are problematic not only for the obvious reason relating to their level of accuracy, but also because of the cost and consequences resulting from a false alarm. On one occasion, a false anthrax alarm shut down 11 postal facilities in the Washington D.C. area. JPL's detection technology is designed to sound an alarm only when it detects a significant increase in spore count and discriminates against detecting aerosol components such as dust. Thus, we anticipate that false positives will be rare, because natural background fluctuation of airborne endospores are very low, whereas an anthrax attack would result in a concentration swing many orders of magnitude greater than background levels, and spores from other microorganisms, such as fungi and molds, are not detected. 11 The Anthrax Smoke Detector is designed to function as a stand-alone product, or as a complement to an existing bio-terrorism detection device in places such as public buildings and stadiums. For example, we believe that the Anthrax Smoke Detector would function well as a front-end monitor to a PCR-based device. In the case of a positive reading, the PCR-based device would be employed to validate the Anthrax Smoke Detector reading to help further reduce the possibility of a false positive. We expect to complete the testing of our device within the next six months and initiate placement of orders for our product based on customer demand soon thereafter. GOVERNMENTAL APPROVAL We are not presently aware of any governmental agency approval required for the Anthrax Smoke Detector before we can sell it in the United States. Completion of a nitric oxide instrument is dependent upon FDA approval. We have not applied for any regulatory approvals with respect to any of our products currently under development. We cannot assure you that the Anthrax Smoke Detector is not subject to or will not become subject to governmental approval. To the extent that any governmental approval is required in the future, we intend to obtain all required approvals consistent with applicable law. We cannot assure you that future governmental regulation will not adversely affect our ability to successfully commercialize a viable product. MARKETING AND SALES We primarily are focused on research and development of our bio-terrorism product. However, we are in the process of developing our sales and marketing plan which may include strategic partnership agreements, retention of an in-house staff or consultants, or a combination of the foregoing. MANUFACTURING Currently, we do not have any manufacturing or distribution capabilities. We have been in talks with a third-party contractor regarding the manufacturing of our Anthrax Smoke Detector. RESEARCH AND DEVELOPMENT We spent $199,000 and $82,000 on research and development for the years ended December 31, 2003 and 2002, respectively. We currently intend to focus substantially all of our efforts and resources to the development, testing, and commercialization of our Anthrax Smoke Detector. EMPLOYEES As of July 30, 2004, we had five full-time employees. We also employ outside consultants from time to time to provide various services. None of our employees are represented by a labor union. We consider our employee relations to be good. SCIENTIFIC ADVISORY BOARD We have assembled a group of scientific advisors with demonstrated expertise in fields related to molecular, chemical and medical pharmacology and hepatic science. Our Scientific Advisory Board meets periodically with our Chief Executive Officer and certain of our consultants and members of JPL to discuss our present and long-term research and development activities. Scientific Advisory Board members include: Leonard Makowka, M.D., Ph.D., a distinguished clinical surgeon, transplantation specialist and medical researcher, recognized as one of the world's leading authorities in hepatic science (study relating to the liver), and Louis Ignarro, Ph.D., Distinguished Professor of Pharmacology, University of California at Los Angeles School of Medicine. 12 COMPETITION We face intense competition from a number of companies that offer products in our targeted application areas. Our competitors may offer or be developing products superior to ours. From time to time, we have been required to reduce our research efforts while we seek to raise additional funds. Our competitors may be significantly better financed than us. There are various technological approaches available to our competitors and us that may be applicable to the detection of pathogens in the air, and the feasibility and effectiveness of these techniques has yet to be fully evaluated or demonstrated. Several companies provide or are in the process of developing instruments for detection of bio-terrorism agents. Centrex, Inc., a publicly traded company, owns the exclusive worldwide license to develop, manufacture, and market a system for detecting microbial contamination in air, food and water. Centrex is seeking to develop and market an automated fully integrated system which enables rapid detection of harmful pathogens in the air by recognizing the unique DNA (or RNA) fingerprint of the organism, whether bacteria or virus. Its planned product is designed to be a system that automatically collects samples, prepares the DNA, performs the analysis rapidly, and communicates results to the end-user, via specially integrated software, with a goal to produce test results within 30 minutes after a sample is collected. Similarly, Cepheid, a publicly traded company, focuses on the detection and analysis of DNA in samples such as blood, urine, cell cultures, food and industrial air and water. According to public disclosures of Cepheid, Northrop Grumnan is developing a Biohazard Detection System that consists of a detection system (GeneXpert(R)) manufactured by Cepheid. This detection system offers rapid (about one hour) and sensitive detection of specific gene sequences present in Bacillus anthracis, the causative agent for anthrax. The Biohazard Detection System currently is scheduled to be installed on a production basis in identified U.S. Postal Service mail sorting facilities throughout the United States beginning in 2004. Cepheid states that it is anticipating to commercially launch a self contained version of the GeneXpert system, which is in the final stages of development, into non-clinical markets in the second half of 2004 and in the clinical genetic assessment market in 2005. Cellomics, Inc. has developed a system that utilizes living cells for the detection, classification, and identification of chemical and biological warfare threat agents such as anthrax and botulinum neurotoxin. Smiths Detection, a privately held U.K. company, has developed an automated biological agent detector that simultaneously detects up to eight different agents using Immuno-ligand Assay chemistries. This device is an on-demand, portable system that identifies specific biological agents and their concentration levels. We believe that the primary competition for the Anthrax Smoke Detector is PCR-based methods. However, the complexity of PCR makes automated implementation extremely expensive. We believe that the Anthrax Smoke Detector operating costs will be substantially less than PCR-based methods. Thus, we expect to be competitive with companies offering these PCR methods. Moreover, we believe the two technologies are synergistic and may be employed in concert. In order to compete against vendors of PCR-based methods, we will need to demonstrate the advantages of our products over alternative existing technologies and products and the potential cost advantages of our products relative to these conventional technologies and products. We also expect to encounter intense competition from a number of established and development-stage companies that continually enter the bioterrorism detection device market. Our competitors may succeed in developing or marketing technologies and products that are more effective or commercially attractive than our potential products or that render our technologies and potential products obsolete. As these companies develop their technologies, they may develop proprietary positions that prevent us from successfully commercializing our products. INTELLECTUAL PROPERTY We have a right to receive a non-exclusive royalty-free license to any intellectual property developed by JPL under tasks that we have funded pursuant to our technology affiliate agreement with them. If we believe that we need rights greater than a non-exclusive royalty-free license to successfully develop and market a product likely to emerge from an individual task pursuant to this agreement, we have a right to apply for the additional intellectual property rights before initiation of the task. The United States government also will receive a non-exclusive, non- 13 transferable, royalty-free license to any intellectual property developed by JPL pursuant to the technology affiliate agreement. On September 30, 2003, we entered into a licensing agreement with the California Institute of Technology, which we refer to as Caltech, whereby we obtained an exclusive, royalty-bearing license to make, have made, import, use, sell and offer for sale specified licensed products that incorporate patent rights referenced in the technology affiliates agreement with JPL as well as a nonexclusive, royalty-bearing license to make, import, use, sell, offer for sale, reproduce, distribute, display, perform, create derivative works of, and otherwise exploit the technology not covered by the patent rights incorporated into the specified licensed products. The specified licensed products include any product or device used to detect pathogens, spores, and biological warfare agents developed under the terms of the licensing agreement. Caltech reserves the right to make, have made, import, use, sell, and offer for sale the licensed products for noncommercial educational and research purposes, but not for commercial purposes. Under this licensing agreement, we also have a right to sublicense to third parties, but the sublicensees do not have a right to grant further sublicenses. Pursuant to this licensing agreement, we are required to have all licensed products manufactured substantially in the United States; this requirement may be waived upon a showing by us that domestic manufacturing is not commercially feasible. The United States government will receive a non-exclusive, non-transferable, paid-up license to practice or have practiced any inventions covered by the licensing agreement. As part of the sale of our wholly-owned subsidiary, Dasibi Environmental Corp. to a third party in March 2002, we obtained a perpetual nonexclusive license to exploit all of Dasibi's intellectual property rights anywhere in the universe outside of mainland China. Dasibi's core business had been the design, manufacture and marketing of automated continuous monitoring instruments used to detect and measure various types of air pollution, such as "acid rain," "ozone depletion" and "smog episodes." Dasibi also supplied computer-controlled calibration systems that verify the accuracy of our instruments, data loggers to collect and manage pollutant information, and final reporting software for remote centralized applications. PROPERTIES We currently do not own or lease any property. As of January 2004, we moved our corporate headquarters to 9595 Wilshire Blvd., Suite 700, Beverly Hills, California, an office space leased by Astor Capital, Inc., a company partially owned by our President and Chief Executive Officer. We believe that this space is adequate for our current needs and plan to lease property for our testing facility as our business demands require in the future. 14 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following tables set forth certain information with respect to our directors and officers as of July 26, 2004. The following persons serve as our directors and executive officers:
DIRECTORS & EXECUTIVE OFFICERS AGE PRESENT POSITION ------------------------------ --- ---------------- Jacques Tizabi....................... 33 Director, Chief Executive Officer and President Matin Emouna (1) (2)................. 34 Director Michael Collins (1) (2).............. 35 Director, Secretary - ------------ (1).....Member of the Compensation Committee. (2).....Member of the Audit Committee.
Our executive officers are appointed by and serve at the discretion of our Board of Directors. There are no family relationships between any director and/or any executive officer. JACQUES TIZABI has been the Chief Executive Officer, President and Chairman of the Board of Directors of our Company since October 2001. He also serves as our Acting Chief Financial Officer. He is the co-founder and managing partner of Astor Capital, Inc., which was founded in 1995 and specializes in investment banking and asset management, predominantly in the area of direct private investment in public companies. He is also a director of eCast Media, a subsidiary of NT Media Corp. of California, a publicly traded company, and President and Chief Executive Officer of Riddle Records, Inc. Mr. Tizabi has substantial experience in evaluating, structuring and negotiating direct investments in public companies and later stage private companies. Mr. Tizabi holds a B.S. degree in Business from New York University and an M.B.A. from Pepperdine University. MICHAEL COLLINS has been the Secretary and a director of our Company since October 2001. He has been an independent business consultant since December 1998. Between 1993 and 1997, Mr. Collins worked for Twentieth Century Fox International, PolyGram Filmed Entertainment and Savoy Pictures in the field of media management. Mr. Collins received a B.A. in Political Science from Columbia University and an M.B.A. from The Anderson School at UCLA. MATIN EMOUNA has served as a director of our Company since October 2001. Since 1997, Mr. Emouna has maintained his own law practice in New York, where he represents foreign and domestic clients in a broad range of real estate transactions, with emphasis on new constructions, commercial real estate transactions, shopping center development, financing, and commercial leasing. Mr. Emouna also serves as a general counsel for Omni Abstract Title, Radio Sedayeh Iran and several non-profit religious organizations. He holds B.S. degrees in Business Administration and Spanish from New York State University at Albany and a J.D. from Benjamin N. Cardozo School of Law. DIRECTOR COMPENSATION During fiscal 2003, our directors did not receive compensation pursuant to any standard arrangement for their services as directors. When requested by us to attend Board meetings in person, it is our policy to reimburse directors for reasonable travel and lodging expenses incurred in attending these Board meetings. AUDIT COMMITTEE Our Audit Committee currently consists of Michael Collins and Matin Emouna. Each Audit Committee member is independent within the meaning of the applicable Nasdaq listing standards and applicable rules and regulations promulgated by the Securities and Exchange Commission. Our Audit Committee currently does not have a financial expert within the meaning of the applicable SEC rules as management does not believe one is necessary in light of the Company's current stage of product development. 15 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation for services in all capacities rendered to us for the three fiscal years ended December 31, 2003, of our Chief Executive Officer and our other executive officers whose annual compensation exceeded $100,000 in the fiscal year ended December 31, 2003, if any. We refer to the Chief Executive Officer and these other officers as the named executive officers.
ANNUAL LONG-TERM COMPENSATION COMPENSATION AWARDS ------------ -------------------- SECURITIES UNDERLYING NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS --------------------------- ---- ------ ----- --------------------- Jacques Tizabi 2003 $145,833 (1) $416,667 (1) 6,800,000 President, Chief Executive 2002 -- (1) -- Officer, Acting CFO and 2001 -- (1) 1,150,000 Chairman of the Board - --------- (1) To enable us to meet a portion of our obligations as they became due, our Chairman and Chief Executive Officer had agreed to allow us to waive cash compensation pursuant to his employment agreement until June 1, 2003. In August 2003, our Board of Directors approved a bonus of $416,667.
OPTION GRANTS IN FISCAL 2003 The following table sets forth certain information regarding the grant of stock options made during fiscal 2003 to the named executive officers. PERCENT OF TOTAL NUMBER OF OPTIONS SECURITIES GRANTED TO UNDERLYING EMPLOYEES EXERCISE OPTIONS IN FISCAL OR BASE EXPIRATION NAME GRANTED YEAR PRICE DATE -------------- ------------- --------- ---------- Jacques Tizabi 6,800,000 100% $0.33 8/18/13 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth, for each of the named executive officers, certain information regarding the exercise of stock options during fiscal 2003, the number of shares of common stock underlying stock options held at fiscal year-end and the value of options held at fiscal year-end based upon the last reported sales price of the common stock on the OTC Bulletin Board on December 31, 2003 ($0.70 per share).
SHARES NUMBER OF SECURITIES ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED ON VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT NAME EXERCISE REALIZED DECEMBER 31, 2003 DECEMBER 31, 2003 ---- --------- --------- -------------------------- --------------------------- EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ----------- ------------ ------------ ------------ Jacques Tizabi -- -- 7,950,000 -- $2,976,000 --
16 EMPLOYMENT AGREEMENTS We have an employment agreement with Jacques Tizabi. Mr. Tizabi's employment agreement, dated as of September 24, 2001, provides for Mr. Tizabi to serve as our Chairman of the Board, Chief Executive Officer and President for a term of five years from any given date, such that there shall always be a minimum of five years remaining under his employment agreement. The employment agreement provides for Mr. Tizabi to receive an annual base salary of $250,000, subject to annual increase based on comparable compensation packages provided to executives of similarly situated companies, and to participate in a bonus plan based on annual performance standards to be established by the compensation committee of our Board of Directors. Mr. Tizabi also is entitled to specified perquisites. If Mr. Tizabi's employment is terminated due to his death, the employment agreement provides that we will pay Mr. Tizabi's estate his remaining base salary during the remaining scheduled term of the employment agreement, accelerate the vesting of his options and continue to provide family medical benefits. If Mr. Tizabi's employment is terminated due to his disability, the employment agreement provides that we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement (reduced by any amounts paid under long-term disability insurance policy maintained by us for the benefit of Mr. Tizabi). If Mr. Tizabi terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Tizabi terminates automatically, we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement and an amount based on his past bonuses and continue to provide specified benefits and perquisites. If Mr. Tizabi terminates the employment agreement without cause or we terminate the employment agreement for cause, Mr. Tizabi is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay. If any of the payments due Mr. Tizabi upon termination qualifies as "excess parachute payments" under the Internal Revenue Code, Mr. Tizabi also is entitled to an additional payment to cover the tax consequences associated with these excess parachute payments. In connection with our recently completed private placement offering, Mr. Tizabi agreed that he will defer payment of all accrued but unpaid bonus or salary, as well as any compensation payable to him in excess of $150,000 per year, for nine months from April 29, 2004. STOCK INCENTIVE PLANS We have in effect the 2003 Stock Incentive Plan. The purpose of this plan is to advance our interests and our stockholders by strengthening our ability to obtain and retain the services of the types of officers and employees who will contribute to our long-term success and to provide incentives which are linked directly to increases in stock value which will inure to the benefit of all of our stockholders. PRINCIPAL STOCKHOLDERS The following table sets forth certain information relating to the ownership of common stock by (i) each person known by us be the beneficial owner of more than five percent (2,311,594 shares) of the outstanding shares of our common stock, (ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, the information relates to these persons, beneficial ownership as of July 22, 2004. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each person has the sole voting and investment power with respect to the shares owned. The address of each person listed is in care of Universal Detection Technology, 9595 Wilshire Blvd., Suite 700, Beverly Hills, California 90212, unless otherwise set forth below that person's name. 17
NAME AND ADDRESS Number of Shares of ---------------- Common Stock Percent of Beneficially Owned (1) Class (1) ----------------------- --------------- Jacques Tizabi (2)......................... 7,979,700 14.7% Michael Collins............................ -- 0% Matin Emouna............................... -- 0% Directors and executive officers as a group (3 persons) (2)................. 7,979,700 14.7% - ------------ (1) Under Rule 13d-3 under the Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by that person (and only that person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person's actual ownership with respect to the number of shares of our common stock actually outstanding at September 20, 2004. (2) Includes (a) 7,950,000 shares that may be acquired upon the exercise of options, which are or will become exercisable on or prior to September 20, 2004, (b) 21,900 shares that may be acquired upon the exercise of warrants owned by Astor Capital, Inc., and (c) 6,000 shares that may be acquired upon the exercise of warrants owned by JRT Holdings, Inc. Mr. Tizabi and Mr. Ali Moussavi, each a fifty-percent owner of Astor Capital, Inc., share voting and dispositive power. Mr. Tizabi and Mr. Raymond Tizabi, each a fifty-percent owner of JRT Holdings, Inc., share voting and dispositive power.
The information as to shares beneficially owned has been individually furnished by our respective directors, named executive officers and other stockholders, or taken from documents filed with the SEC. 18 SELLING STOCKHOLDERS The shares of our common stock to which this prospectus relates are being registered for re-offers and resales by the selling stockholders named below. We have registered these shares to permit the selling stockholders to resell the shares when they deem appropriate. Subject to the restrictions described in this prospectus, the selling stockholders may resell all, a portion or none of their shares at any time under this prospectus. In addition, subject to the restrictions described in this prospectus, the selling stockholders identified below may sell, transfer or otherwise dispose of all or a portion of our common stock being offered under this prospectus in transactions exempt from the registration requirements of the Securities Act. We do not know when or in what amounts a selling stockholder may offer shares for sale under this prospectus. The following table sets forth each selling stockholder, together with the number of shares of our common stock owned by each stockholder as of July 22, 2004, unless otherwise indicated, the number of shares of our common stock being offered by each selling stockholder under this prospectus and the number of shares of our common stock owned by each stockholder upon completion of this offering. Our common stock being offered under this prospectus is being offered for the account of the selling stockholders.
NUMBER OF PERCENTAGE SHARES OF OF SHARES NUMBER OF OUR COMMON OF OUR SHARES OF OUR NUMBER OF STOCK OWNED COMMON COMMON STOCK SHARES OF OUR AFTER THE STOCK OWNED OWNED PRIOR TO COMMON STOCK OFFERING AFTER THE SELLING STOCKHOLDER THE OFFERING BEING OFFERED OFFERING - ---------------------------- ---------------- ---------------- ------------- --------------- Michael Stone (1) 200,000 200,000 --- * Leroy Darby (1) 300,000 300,000 --- * Carmelo Luppino (1) 600,000 600,000 --- * Donald Mudd (1) 200,000 200,000 --- * Jerry Clark (1) 50,000 50,000 --- * David Erickson (1) 200,000 200,000 --- * Patrick Bujold (1) 150,000 150,000 --- * Frank Lefevre (1) 100,000 100,000 --- * Thomas Stramat (1) 50,000 50,000 --- * Bill O'Donnell (1) 50,000 50,000 --- * Mark Summerfield (1) 200,000 200,000 --- * Martin Legge (1) 200,000 200,000 --- * Robert Lucas (1) 100,000 100,000 --- * Gary Filler (1) 50,000 50,000 --- * Alan Parberry (1) 100,000 100,000 --- * Robert Hanfling (1) 200,000 200,000 --- * Michael Catanzarro (1) 50,000 50,000 --- * Kevin Sullivan (1) 50,000 50,000 --- * Andrew Mitchell (1) 200,000 200,000 --- * Roy Cappadona (1) 50,000 50,000 --- * Robert Segusso (1) 400,000 400,000 --- * Robert Johnsen (1) 50,000 50,000 --- * Morris Rotenstein (1) 200,000 200,000 --- * Gordon Gregoretti (1) 120,000 120,000 --- * Bob Baron (1) 50,000 50,000 --- * Larry Sylvester (1) 50,000 50,000 --- * Norman Rothstein (1) 200,000 200,000 --- * SRG Capital, Inc. (1) (2) 600,000 600,000 --- * Greg Mason (1) 25,000 25,000 --- * Ron Moey (1) 25,000 25,000 --- * Bob Cohen (1) 50,000 50,000 --- * Richard N. Houlding 1993 100,000 100,000 --- * Trust (1) (3) JD Lauren, Inc. (1) (4) 200,000 200,000 --- * 19 NUMBER OF PERCENTAGE SHARES OF OF SHARES NUMBER OF OUR COMMON OF OUR SHARES OF OUR NUMBER OF STOCK OWNED COMMON COMMON STOCK SHARES OF OUR AFTER THE STOCK OWNED OWNED PRIOR TO COMMON STOCK OFFERING AFTER THE SELLING STOCKHOLDER THE OFFERING BEING OFFERED OFFERING - ---------------------------- ---------------- ---------------- ------------- --------------- Rock II, LLC (1) (5) 480,000 480,000 * Maple Investments (1) (6) 200,000 200,000 --- * Jupiter Investments (1) (7) 100,000 100,000 --- * Brian Kane (1) 200,000 200,000 --- * Fiona Emily Holland (1) 100,000 100,000 --- * Roy Knollys Ellard 200,000 200,000 --- * Nicholson (1) Iain Stewart (1) 200,000 200,000 --- * Karen Lynn Miller (1) 100,000 100,000 --- * Gerry Penfold (1) 200,000 200,000 --- * Rick Van Der Toorn (1) 100,000 100,000 --- * Frank Sangster (1) 200,000 200,000 --- * Martin G. Findly (1) 100,000 100,000 --- * Christine Stock (1) 100,000 100,000 --- * William B. Remick (1) 200,000 200,000 --- * David Ney (1) 50,000 50,000 --- * Richard A. and Elizabeth Smart (1) 100,000 100,000 --- * Kim Misciosa (1) 1,000,000 1,000,000 --- * Rheal Cote (1) 100,000 100,000 --- * Andrew Cranston (1) 200,000 200,000 James S. Holliday (1) 100,000 100,000 --- * R/S Fisher Trust UTA Dated 100,000 100,000 --- * 10/10/94 (1) (8) Anthony J. Spatacco, Jr. (1) 121,250 121,250 --- * Stuart Lee (1) 300,000 300,000 --- * Zephyr Ventures Ltd. (1) (9) 200,000 200,000 --- * Christopher Michael Convey (1) 100,000 100,000 --- * Anthony and Martha Prochillo (1) 100,000 100,000 --- * Jean Oliver Tedesco (1) 100,000 100,000 --- * Brian Fillweber, IRA (1) 100,000 100,000 --- * Brian Fillweber (1) 100,000 100,000 --- * Entrust, Inc. (1) (10) 100,000 100,000 --- * Peter Fink (1) 160,000 160,000 --- * John P. Faure (1) 100,000 100,000 --- * Demir Kozi (1) 50,000 50,000 --- * Yong S. Chen (1) 50,000 50,000 --- * Steven and Martha Pliskin (1) 200,000 200,000 --- * Professional Trades 400,000 400,000 --- * Management LLC (1) (11) Margie Chassman (1) 240,000 240,000 --- * Michael G. Jesselson 300,000 300,000 --- * 12/18/80 Trust (1) (12) Meyers Associates, L.P. (13) 1,664,250 1,664,250 --- * Alex Mark (13) 180,000 180,000 --- * Joseph Salino (13) 86,250 86,250 --- * Leor Yohanan (13) 124,500 124,500 --- * Bruce Meyers (13) 800,000 800,000 --- * Imtiaz Khan (13) 600,000 600,000 --- * Maria Molinsky (13) 60,000 60,000 --- * Michael Hambelt (13) 42,500 42,500 --- * Starboard Capital (13) (14) 21,250 21,250 --- * * Assumes the sale of all shares of the selling stockholder being offered. No estimate can be given as to the amount of shares that will be held by the selling 20 stockholders after completion of this offering because the selling stockholders may offer some or all of the shares and because there are currently no agreements, arrangements or understandings with respect to the sale of any of the shares held by the selling stockholders, whether or not covered by this prospectus. - ------------ (1) These selling stockholders purchased an aggregate of 6,000,000 shares of our common stock through a placement agent, Meyers & Associates, L.P., in a private placement transaction that closed on July 2, 2004. These shares were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act or Regulation D as promulgated by the SEC thereunder. The issuance was made without general solicitation or advertising. The selling stockholders were a limited number of accredited investors who were provided with an opportunity to ask questions and receive answers concerning the terms and conditions of the offering and to obtain any additional information which was in our possession or we could acquire without unreasonable effort or expense. The investors represented to us that the shares were being acquired for investment for their own account. We granted registration rights to the selling stockholders in connection with this transaction. Net proceeds to us from these sales were approximately $2.5 million. One half of the shares being offered by each of the selling stockholders represents common stock that the selling stockholder may purchase through exercise of warrants. (2) Edwin Mecabe and Tai May Lee share both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (3) Richard Houlding exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (4) Ken Orr exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (5) Howard Chalfin exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale (6) Christian Kimdersely exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale (7) Philip Beck exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (8) Robert Fisher exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale (9) Jean Meurice Emery and Stephen Screech share both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (10) Richard Hayes exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (11) Marc Swickle and Howard Berger share both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (12) Michael Jesselmen exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale. (13) Represents warrants Meyers Associates, L.P. and/or its agents received as consideration for their work as placement agent in a private placement transaction referenced in footnote 1 above. (14) Anthony Spatacco exercises both dispositive and voting power with respect to the shares being offered by the selling stockholder for resale.
21 PLAN OF DISTRIBUTION The selling stockholders, which as used in this section includes donees, pledgees, transferees or other successors-in-interest selling shares of our common stock or interests in shares of our common stock received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other transfer, may, from time to time, sell, transfer or otherwise dispose of any or all of their shares of common stock or interests in shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These dispositions may be at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale or at negotiated prices. The selling stockholders may use any one or more of the following methods when disposing of shares or interests therein: (i) ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; (ii) block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction; (iii) purchases by a broker-dealer as principal and resale by the broker-dealer for its account; (iv) an exchange distribution in accordance with the rules of the applicable exchange; (v) privately negotiated transactions; (vi) short sales; (vii) through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; (viii) broker-dealers may agree with the selling stockholders to sell a specified number of the shares at a stipulated price per share; (ix) a combination of any of these methods of sale and (x) any other method permitted pursuant to applicable law. The selling stockholders may, from time to time, pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling stockholders to include the pledgee, transferee or other successors-in-interest as selling stockholders under this prospectus. The selling stockholders also may transfer the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus. In connection with the sale of our common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume. The selling stockholders also may sell shares of our common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities. The selling stockholders also may enter into option or other transactions with broker-dealers or other financial institutions for the creation of one or more derivative securities which require the delivery to the broker-dealer or other financial institution of shares offered by this prospectus, which shares the broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect the transaction). The aggregate proceeds to the selling stockholders from the sale of the common stock offered by them will be the purchase price of the common stock less discounts or commissions, if any. Each of the selling stockholders reserves the right to accept and, together with its agents from time to time, to reject, in whole or in part, any proposed purchase of common stock to be made directly or through agents. We will not receive any of the proceeds from this offering. The selling stockholders also may resell all or a portion of the shares in open market transactions in reliance upon Rule 144 under the Securities Act, provided that they meet the criteria and conform to the requirements of that rule. The selling stockholders and any underwriters, broker-dealers or agents that participate in the sale of the common stock or interests therein may be "underwriters" within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the shares may be underwriting discounts and commissions under the Securities Act. Selling stockholders that are "underwriters" within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act. 22 To the extent required, the shares of our common stock to be sold, the names of the selling stockholders, the respective purchase prices and public offering prices, the names of any agents, dealers or underwriters, and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the registration statement that includes this prospectus. In order to comply with the securities laws of some states, if applicable, the common stock may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification requirements is available and is complied with. We have advised the selling stockholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling stockholders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling stockholders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling stockholders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act. We have agreed to indemnify the selling stockholders against certain liabilities, including liabilities under the Securities Act and state securities laws, relating to the registration of the shares offered by this prospectus. We have agreed with the selling stockholders to keep the registration statement of which this prospectus constitutes a part effective until the earlier of two (2) years from the effective date of the registration statement, the date on which the shares may be sold pursuant to Rule 144, and the date on which the shares have been sold or otherwise disposed. 23 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the three months ended March 31, 2004, we sold 3,812,725 shares of our common stock for $1,697,675, less offering costs of $181,098, including $96,184 in placement fees paid to Astor Capital, Inc., a company in which Jacques Tizabi, our Chief Executive Officer, is the President of and owns a 50% interest. In connection with our recently completed private placement offering, our Chief Executive Officer, agreed that he will defer payment of all accrued but unpaid bonus and salary, as well as any compensation payable to him in excess of $150,000 per year, for nine months from April 29, 2004. Effective June 1, 2003, we entered into an agreement with Astor Capital, Inc., pursuant to which we have agreed to pay $25,000 per month for investment banking and strategic advisory services as well as a 10% fee for all debt and equity financing raised for us. In connection with our recently completed private placement offering , we modified this agreement so that the compensation payable to Astor Capital under the agreement is reduced during the period from April 29, 2004, and for nine months thereafter, to an amount not to exceed the sum of $5,000 per month, excluding any fees for placement of securities. During fiscal 2003 and 2002, Astor Capital, Inc., received placement fees in the aggregate amounts of $157,633 and $34,900, respectively, in connection with private placements and equity financings for us. During the year ended December 31, 2003, we paid Astor Capital, Inc. $28,654 in connection with the use of the office space leased by them. 24 DESCRIPTION OF SECURITIES Our authorized capital stock consists of 480,000,000 shares of common stock, no par value per share, and 20,000,000 shares of preferred stock, par value $0.01 per share, the rights and preferences of which may be established from time to time by our Board of Directors. As of July 22, 2004, there were 46,231,862 shares of common stock outstanding that were held of record by approximately 1,275 stockholders, no shares of preferred stock outstanding, outstanding options to purchase 9,010,446 shares of common stock, and outstanding warrants to purchase 12,262,211 shares of common stock. The following description of our capital stock does not purport to be complete and is subject to and qualified by our Articles of Incorporation, as amended, and Bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of applicable California law. COMMON STOCK Our common stock is traded on the Over the Counter Bulletin Board under the symbol "UDTT." Holders of our common stock are entitled to one vote for each share on all matters voted upon by our stockholders, including the election of directors and have cumulative voting rights. For a description of our dividend policy, please refer to the information in this prospectus under the heading "Dividend Policy." Holders of our common stock are entitled to share ratably in our net assets upon our dissolution or liquidation after payment or provision for all liabilities and any preferential liquidation rights of our preferred stock then outstanding. Holders of our common stock have no preemptive rights to purchase shares of our stock. The shares of our common stock are not subject to any redemption provisions and are not convertible into any other shares of our capital stock. All outstanding shares of our common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of our common stock will be subject to those of the holders of any shares of our preferred stock we may issue in the future. PREFERRED STOCK As of July 22, 2004, we have no shares of preferred stock outstanding. Our Board of Directors may, from time to time, authorize the issuance of one or more additional classes or series of preferred stock without stockholder approval. Subject to the provisions of our Articles of Incorporation, as amended, and limitations prescribed by law, our Board of Directors is authorized to adopt resolutions to issue shares, establish the number of shares, change the number of shares constituting any series and provide or change the voting powers, designations, preferences and relative rights, qualifications, limitations or restrictions on shares of our preferred stock, including dividend rights, terms of redemption, conversion rights and liquidation preferences, in each case without any action or vote by our stockholders. We have no current intention to issue any shares of preferred stock. One of the effects of undesignated preferred stock may be to enable our Board of Directors to discourage an attempt to obtain control of our Company by means of a tender offer, proxy contest, merger or otherwise. The issuance of preferred stock may adversely affect the rights of our common stockholders by, among other things: o restricting dividends on the common stock; o diluting the voting power of the common stock; o impairing the liquidation rights of the common stock; or o delaying or preventing a change in control without further action by the stockholders. REGISTRATION RIGHTS As of the date hereof, certain holders of our common stock and warrants are entitled to rights with respect to the registration under the Securities Act of the shares of our common stock they currently own and the shares of our common stock they may acquire upon exercise of their warrants. The registration statement of which this prospectus constitutes a part includes all of the shares of common stock that we have agreed to register pursuant to registration rights agreements that we have entered into for the 25 benefit of the selling stockholders. In the case of each of the convertible securities referred to above, the registration statement of which this prospectus constitutes a part registers with the SEC the resale by the holder of those convertible securities of the shares of our common stock underlying the convertible securities. We have agreed to use all reasonable efforts to cause the registration statement to become effective as soon as reasonably practicable following its filing. In addition, we have agreed to prepare and file with the SEC any amendments or supplements to the registration statement, which may be necessary to keep the registration statement effective and to comply with the provisions of the Securities Act with respect to the resale of the shares covered by the registration statement for a period of the earlier of two years from the effective date of the registration statement, the date when the shares may be sold under Rule 144 of the Securities Act, and the date when all shares covered by the registration statement have been sold or otherwise disposed. We also have agreed to pay all expenses incurred by us incident to the registration of the resale of the shares covered by the prospectus, and to indemnify and hold harmless each purchaser of the securities. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our Articles of Incorporation provide that the liability of our directors for monetary damages shall be eliminated to the fullest extent permissible under California law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by or in the right of our Company for breach of a director's duties to us or our shareholders except for liability: (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) for acts or omissions that a director believes to be contrary to the best interests of our Company or our shareholders or that involve the absence of good faith on the part of the director; (iii) for any transaction for which a director derived an improper benefit; (iv) for acts or omissions that show a reckless disregard for the director's duty to us or our shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to our Company or our shareholders; (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to us or our shareholders; (vi) with respect to certain transactions, or the approval of transactions in which a director has a material financial interest; and (vii) expressly imposed by statute, for approval of certain improper distributions to shareholders or certain loans or guarantees. Our Articles of Incorporation also authorize us to provide indemnification to our agents (as defined in Section 317 of the California Corporations Code), through our Bylaws, by agreement or otherwise, with such agents or both, for breach of duty to us and our shareholders, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. Insofar as indemnification for liabilities arising under the Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is OTR Stock Transfer Corporation. 26 LEGAL MATTERS The validity of the shares of common stock offered by this prospectus will be passed upon for us by Akin Gump Strauss Hauer & Feld LLP, Los Angeles, California. EXPERTS Our consolidated financial statements as of December 31, 2003, and for each of the years in the two year period then ended, and the related financial statement schedules included in this prospectus have been audited by AJ Robbins PC, independent auditors, as stated in their reports appearing herein which reports express a qualified opinion and include explanatory paragraphs relating to a going concern uncertainty and prior period restatement and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We have filed with the SEC a registration statement on Form SB-2 under the Securities Act with respect to our common stock. This prospectus does not contain all of the information set forth in the registration statement, as amended, and the exhibits and schedule to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, we refer you to the copy of the contract or document that has been filed as an exhibit is qualified in all respects by the filed exhibit. You may read and copy the registration statement, the related exhibits and the other material we file with the SEC without charge at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington D.C. 20549. You also can request copies of those documents, upon payment of a duplication fee, by writing to the SEC. Please call the SEC at (800) SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The site's address is www.sec.gov. We also will provide to you a copy of these filings at no cost. You may request copies of these filings by writing or telephoning us as follows: 9595 Wilshire Blvd., Suite 700, Beverly Hills, California 90212, Attention, Chief Executive Officer; telephone number 310-248-3655. In addition, you may access these filings at our website. Our website's address is www.udetection.com. The foregoing website references are inactive textual references only. You should rely only on the information contained in this prospectus or any prospectus supplement or that we have specifically referred you to. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of those documents or that any document incorporated by reference is accurate as of any date other than its filing date. You should not consider this prospectus to be an offer or solicitation relating to the securities in any jurisdiction in which such an offer or solicitation relating to the securities is not authorized. Furthermore, you should not consider this prospectus to be an offer or solicitation relating to the securities if the person making the offer or solicitation is not qualified to do so, or if it is unlawful for you to receive such an offer or solicitation. 27 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) INDEX TO FINANCIAL STATEMENTS PAGE Independent Auditors' Report................................................F-2 Consolidated Balance Sheets.................................................F-3 Consolidated Statements of Operations.......................................F-4 Consolidated Statements of Changes in Stockholders' Equity (Deficit)........F-5 Consolidated Statements of Cash Flows.......................................F-6 Notes to Consolidated Financial Statements..................................F-7 INDEPENDENT AUDITORS' REPORT AJ. ROBBINS, P.C. 216 SIXTEENTH STREET SUITE 600 DENVER, COLORADO 80202 INDEPENDENT AUDITORS' REPORT Audit Committee Universal Detection Technology (f/k/a Pollution Research and Control Corporation and Subsidiaries) Beverly Hills, California We have audited the accompanying consolidated balance sheet of Universal Detection Technology (formerly Pollution Research and Control Corp.) and Subsidiaries as of December 31, 2003, and the related statements of operations, changes in stockholders' equity (deficit), and cash flows for each of the years in the two year period then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Universal Detection Technology (formerly Pollution Research and Control Corp.) and Subsidiaries as of December 31, 2003, and the results of its consolidated operations and its cash flows for each of the years in the two year period then ended in conformity with generally accepted accounting principles in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, it has a net working capital deficiency, and has a net capital deficiency that raises substantial doubt about the entity's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As discussed in Note 14 to the financial statements, certain errors resulting in understatement of previously reported accrued expenses as of December 31, 2002, were discovered by management of the Company during the quarter ended June 30, 2004. Accordingly, the December 31, 2003 and 2002 financial statements have been restated and an adjustment has been made to retained earnings and accrued expenses as of December 31, 2003 and 2002 to correct the error. AJ. ROBBINS, PC CERTIFIED PUBLIC ACCOUNTANTS DENVER, COLORADO FEBRUARY 4, 2004 (Except for Note 14, as to which the date is July 27, 2004) F-2 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) CONSOLIDATED BALANCE SHEETS ASSETS
March 31, December 31, 2004 2003 -------------- -------------- (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 186,686 $ 14,899 Restricted cash 100,605 100,233 Due from related parties 46,980 29,099 Bridge notes, related party --- 50,000 Inventories 20,000 20,000 Prepaid expenses 639,239 1,045,155 -------------- -------------- Total current assets 993,510 1,259,386 EQUIPMENT, NET 53,099 3,507 -------------- -------------- $ 1,046,609 $ 1,262,893 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable, trade $ 152,653 $ 112,759 Accrued liabilities 866,500 864,000 Notes payable, related party 40,000 40,000 Notes payable 1,257,526 1,517,526 Accrued interest expense 484,471 454,736 -------------- -------------- Total current liabilities 2,801,150 2,989,021 -------------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Preferred stock, $.01 par value, 20,000,000 shares authorized, -0- issued and outstanding --- --- Common stock, no par value, 480,000,000 shares authorized, 38,814,922 and 35,002,197 shares issued and outstanding 17,221,632 15,705,055 Additional paid-in-capital 3,606,891 3,606,891 Accumulated (deficit) (22,583,064) (21,038,074) -------------- -------------- Total stockholders' equity (deficit) (1,754,541) (1,726,128) -------------- -------------- Total liabilities and stockholders' equity (deficit) $ 1,046,609 $ 1,262,893 ============== ==============
See accompanying notes to consolidated financial statements. F-3
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE FOR THE THREE FOR THE FOR THE YEAR MONTHS ENDED MONTHS ENDED YEAR ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 2004 2003 2003 2002 ------------- -------------- ------------- -------------- (UNAUDITED) (UNAUDITED) REVENUE --- $ --- $ --- 30,000 COST OF GOODS SOLD --- --- --- 8,600 ------------- -------------- ------------- -------------- GROSS PROFIT --- --- --- 21,400 ------------- -------------- ------------- -------------- OPERATING EXPENSES: Selling, general and administrative 654,253 99,914 1,655,863 721,487 Marketing 806,211 --- 1,932,512 45,000 Research and development --- --- 199,000 82,000 Loss on write-down of inventory --- --- --- 1,894,342 Loss on legal judgment --- --- --- 411,500 ------------- -------------- ------------- -------------- Total expenses 1,460,464 99,914 3,787,375 3,154,329 ------------- -------------- ------------- -------------- (LOSS) FROM OPERATIONS (1,460,464) (99,914) (3,787,375) (3,132,929) OTHER INCOME (EXPENSE): Interest income 1,097 48 726 --- Interest expense (42,363) (49,783) (208,063) (232,345) Amortization of loan fees (43,260) (30,000) (235,136) (5,752) Beneficial conversion feature of convertible debt --- --- (495,305) (113,000) ------------- -------------- ------------- -------------- Total other income (84,526) (79,735) (937,778) (351,097) (expense) ------------- -------------- ------------- -------------- (LOSS) FROM OPERATIONS BEFORE INCOME TAXES (1,544,990) (179,649) (4,725,153) (3,484,026) INCOME TAX EXPENSE --- --- --- --- ------------- -------------- ------------- -------------- (LOSS) FROM CONTINUING OPERATIONS (1,544,990) (179,649) (4,725,153) (3,484,026) DISCONTINUED OPERATIONS: (Loss) from operations of discontinued subsidiaries (less applicable income tax expense of $-0-) --- --- --- (149,745) Gain on disposal of subsidiaries, including provision of $-0- for operating losses during phase-out period less applicable income taxes of $-0- --- --- --- 1,490,553 ------------- -------------- ------------- -------------- NET GAIN FROM DISCONTINUED OPERATIONS --- --- --- 1,340,808 ------------- -------------- ------------- -------------- NET (LOSS) $ (1,544,990) $ (179,649) $ (4,725,153) (2,143,218) ============= ============== ============= ============== NET INCOME (LOSS) PER SHARE - BASIC AND DILUTED: Continuing operations $ (.04) $ (.01) $ (0.23) (0.42) Discontinued operations: (Loss) from operations --- --- --- (0.02) Gain on disposal --- --- --- 0.18 ------------- -------------- ------------- -------------- $ (.04) $ (.01) $ (0.23) (0.26) ============= ============== ============= ============== WEIGHTED AVERAGE SHARES - BASIC AND DILUTED 37,375,750 12,657,459 20,919,845 8,212,300 ============= ============== ============= ==============
See accompanying notes to consolidated financial statements. F-4 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2003 AND FOR THE THREE MONTHS ENDED MARCH 31, 2004 (UNAUDITED)
Total Common Stock Additional Accumulated Stockholders' Shares Amount Paid-in-Capital Deficit Equity (Deficit) ------------ ----------- --------------- ------------- -------------- BALANCE, DECEMBER 31, 2001 5,949,616 $ 9,789,742 $ 2,485,062 $ (14,169,703) $ (1,894,899) Conversion of convertible debt and accrued interest 2,072,464 505,238 --- --- 505,238 Stock based compensation for consulting services --- --- 111,112 --- 111,112 Common stock issued for services 730,000 154,250 --- --- 154,250 Stock issued in private placements, net of offering costs of $34,900 2,121,312 364,100 --- --- 364,100 Value of stock based compensation issued for sale of Dasibi --- --- 160,993 --- 160,993 Value of beneficial conversion feature of convertible debt --- --- 113,000 --- 113,000 Net (loss) for the year --- --- --- (2,143,218) (2,143,218) ------------ ----------- --------------- ------------- -------------- BALANCE, DECEMBER 31, 2002 10,873,392 10,813,330 2,870,167 (16,312,921) (2,629,424) Common stock issued for services 3,357,000 1,181,280 --- --- 1,181,280 Common stock issued for loan fees 415,000 198,400 --- --- 198,400 Conversion of convertible debt and accrued interest 3,889,044 573,805 --- --- 573,805 Stock issued in private placements net of offering costs of $443,033 15,907,903 2,876,222 --- --- 2,876,222 Fair market value of repriced warrants --- --- 56,019 --- 56,019 Warrants issued for services --- --- 185,400 --- 185,400 Value of beneficial conversion feature of convertible debt --- --- 495,305 --- 495,305 Exercise of warrants 559,858 62,018 --- --- 62,018 Net (loss) for the year --- --- --- (4,725,153) (4,725,153) ------------ ----------- --------------- ------------- -------------- BALANCE, DECEMBER 31, 2003 35,002,197 15,705,055 3,606,891 (21,038,0.74) (1,726,128) Stock issued in private placements, net of offerings costs of $181,098 (Unaudited) 3,812,725 1,516,577 --- --- 1,516,577 Net (loss) for the period (Unaudited) --- --- --- (1,544,990) (1,544,990) ------------ ----------- --------------- ------------- -------------- BALANCE, MARCH 31, 2004 (UNAUDITED) 38,814,922 $ 17,221,632 $ 3,606,891 $ (22,583,064) $ (1,754,541) ============ =========== ============== ============= ==============
See accompanying notes to consolidated financial statements. F-5 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FOR THE THREE FOR THE YEAR FOR THE YEAR MONTHS ENDED MONTHS ENDED ENDED ENDED MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31, 2004 2003 2003 2002 -------------- --------------- --------------- --------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Net (loss) from continuing operations (1,544,990) (179,649) (4,725,153) (3,484,026) Adjustments to reconcile net (loss) to net cash (used in) operations: Beneficial conversion feature of convertible debt --- --- 495,305 113,000 Stock issued for services --- 11,280 1,181,280 265,362 Stock issued for loan fees --- --- 198,400 --- Warrants issued for services --- --- 185,400 --- Fair market value of repriced warrants --- 30,000 56,019 --- Depreciation 1,165 --- 152 --- Changes in operating assets and liabilities: Accounts receivable --- --- 30,000 (30,000) Due from related parties --- --- (29,099) --- Inventories --- --- --- 1,894,342 Prepaid expenses 405,916 (10,938) (999,217) (45,938) Accounts payable 39,894 (59,452) (126,701) 222,950 Accrued expenses 32,235 --- 599,847 509,248 -------------- --------------- --------------- --------------- Net cash (used in) operating activities (1,065,780) (208,759) (3,133,767) (555,062) -------------- --------------- --------------- --------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment (50,757) --- (3,659) --- Bridge note to related party --- --- (50,000) --- Payments received on bridge note to related party 50,000 --- --- --- (Increase) in restricted cash (372) --- (100,233) --- Advances to related party (17,881) --- --- --- -------------- --------------- --------------- --------------- Net cash (used in) investing activities (19,010) --- (153,892) --- -------------- --------------- --------------- --------------- CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Proceeds from issuance of common stock 1,697,675 195,131 3,319,255 399,000 Payment of offering costs (181,098) (19,491) (443,033) (34,900) Proceeds from exercise of warrants --- 36,000 62,018 --- Proceeds from notes payable --- --- 450,000 57,526 Payments on notes payable (260,000) --- (95,000) --- -------------- --------------- --------------- --------------- Net cash provided by financing activities 1,256,577 211,640 3,293,240 421,626 -------------- --------------- --------------- --------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 171,787 2,881 5,581 (133,436) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,899 9,318 9,318 142,754 -------------- --------------- --------------- --------------- CASH AND CASH EQUIVALENTS, END OF PERIOD 186,686 $ 12,199 $ 14,899 $ 9,318 ============== =============== =============== ===============
See accompanying notes to consolidated financial statements. F-6 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 1 - BUSINESS ACTIVITY Universal Detection Technology (formerly Pollution Research and Control Corp.), a California corporation, primarily designed, manufactured and marketed air pollution monitoring instruments, through its wholly-owned subsidiary Dasibi Environmental Corporation ("Dasibi"). The Company's wholly owned subsidiary Nutek, Inc. ("Nutek") is inactive. The Company's wholly owned subsidiary Logan Medical Devices, Inc. ("Logan") was renamed Dasibi China, Inc. ("Dasibi China") and is currently inactive. In March 2002, the Company sold Dasibi to one of its creditors in exchange for $1,500,000 in debt and accrued interest owed to the creditor. A non-exclusive license agreement for all of the Dasibi's technology was also granted to the Company. In May 2002, Dasibi vacated its premises and has suspended operations. Beginning in 2002, the Company began doing business as Universal Detection Technology and has focused its research and development efforts in developing a real time biological weapon detection device. On August 8, 2003, the shareholders approved the change of the name of Pollution Research and Control Corp. to Universal Detection Technology. To accelerate development of its initial biological weapon detection device, the Company has developed and is implementing a collaborative partnering strategy. Under this strategy, the Company identifies and partners with researchers and developers. The Company entered into a technology affiliates agreement with NASA's Jet Propulsion Laboratory ("JPL") to develop technology for its bio-terrorism detection equipment and a license agreement with the California Institute of Technology, which granted the Company an exclusive worldwide license to products that incorporate patent rights referenced in the above technology affiliates agreement. PRIOR PERIOD RESTATEMENT During the quarter ended June 30, 2004, a change was made to the retained earnings and accrued expenses of the Company to correct the legal judgment recorded during the year ended December 31, 2002. The Company originally recorded the amount of damages sought by the plaintiff, rather than the amount of the final judgment. The Company has retroactively restated net loss for the year ended December 31, 2002, increasing the net loss from $1,980,718 to $2,143,218 due to an adjustment of $162,500. (See Note 14.) GOING CONCERN AND MANAGEMENT'S PLANS In March 2002, the Company sold its operating subsidiary, Dasibi Environmental Corp., as further described in Note 12. As of December 31, 2003 and March 31, 2004, the Company had a working capital deficit and a capital deficit. 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. The Company is currently devoting its efforts to raising capital and development and marketing of its bio-terrorism detection devices, known as the Anthrax Smoke Detector. The Company entered into a technology affiliates agreement with NASA's Jet Propulsion Laboratory ("JPL") to develop technology for its bio-terrorism detection equipment and a license agreement with the California Institute of Technology, which granted the Company an exclusive worldwide license to products that incorporate patent rights referenced in the above technology affiliates agreement. The Company unveiled the first commercial prototype of its Anthrax Smoke Detector in May 2004 and recently completed the software component of the device. The Company plans to engage in simulated tests and field testing of its Antrhax Smoke Detector in different environments and conditions and to use the empirical data gained from the testing to further improve the design and functionality of the product. After completing of the testing, the Company plans to initiate orders of its Anthrax Smoke Detector with a third- party manufacturer based on sales orders. The Company is looking to sell units to customers in specific sectors in the market including, sports stadiums, conventions centers, and casinos and hopes that these sales will provide a well-defined customer base to use as a reference in connection with its marketing campaign in 2005. F-7 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 1 - BUSINESS ACTIVITY (CONTINUED) During July 2004, the Company completed the final closing of its private placement offering of Units consisting of common stock and warrants to purchase common stock. The aggregate gross proceeds from the offering were $3,000,000. The Company intends to use these proceeds for working capital and general corporate use but is precluded from using the proceeds to pay debt outstanding at the time of final closing of the offering or make payments to a particular related party entity in which its President and CEO has an equity interest. Pursuant to a related Registration Rights Agreement, the Company has agreed to file a registration statement with the Securities and Exchange Commission within 30 days of final closing of the offering to register for resale shares of the Company's common stock and the shares underlying the warrants included in the Units. UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, the unaudited interim financial statements for the three months ended March 31, 2004 and 2003 are presented on a basis consistent with the audited financial statements and reflect all adjustments, consisting only of normal recurring accruals, necessary for fair presentation of the results of such period. The results of operations for the three months ended March 31, 2004 are not necessarily indicative of the results to be expected for the year ending December 31, 2004. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION The consolidated financial statements include the accounts of Universal Detection Technology and its wholly-owned subsidiaries (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. REVENUE RECOGNITION Revenue is recognized upon shipment of products. Title of goods is transferred when the products are shipped from the Company's facility. Income not earned is recorded as deferred revenue. INVENTORIES Inventories, consisting of finished goods, are stated at the lower of cost (first-in first-out) basis or market. ADVERTISING EXPENSES The Company expenses advertising costs as incurred. During the years ended December 31, 2003 and 2002, and the three months ended March 31, 2004 and 2003, the Company did not have significant advertising costs. EQUIPMENT AND DEPRECIATION Equipment, consisting of office equipment, is recorded at cost less accumulated depreciation. Depreciation is provided for on the straight-line method over the estimated useful lives of the assets, generally five years. Total depreciation expense was $152 and $-0- for the years ended December 31, 2003 and 2002, respectively and $1,165 and $-0- for the three months ended March 31, 2004 and 2003, respectively. As of March 31, 2004 and December 31, 2003, accumulated depreciation was $1,317 and $152, respectively. F-8 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION The Company accounts for stock based compensation in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). This standard requires the Company to adopt the "fair value" method with respect to stock-based compensation of consultants and other non-employees. The Company did not change its method of accounting with respect to employee stock options; the Company continues to account for these under the "intrinsic value" method, and to furnish the proforma disclosures required by SFAS 123. VALUATION OF THE COMPANY'S COMMON STOCK Unless otherwise disclosed, all stock based transactions entered into by the Company have been valued at the market value of the Company's common stock on the date the transaction was entered into or have been valued using the Modified Black-Scholes European Model to estimate the fair market value. EARNINGS PER COMMON SHARE The Company computes earnings per common share in accordance with Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). This Statement simplifies the standards for computing earnings per share (EPS) previously found in Accounting Principles Board Opinion No. 15, Earnings Per Share, and makes them more comparable to international EPS standards. SFAS No. 128 replaces the presentation of primary EPS with a presentation of basic EPS. In addition, the Statement requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. However, such presentation is not required if the effect is antidilutive. Accordingly, no such presentation has been made. CASH EQUIVALENTS For purposes of reporting cash flows, the Company considers all short term, interest bearing deposits with original maturities of three months or less to be cash equivalents. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts of cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the short maturity of these items. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates its long-lived assets by measuring the carrying amounts of assets against the estimated undiscounted future cash flows associated with them. At the time the carrying value of such assets exceeds the fair value of such assets, impairment is recognized. To date, no adjustments to the carrying value of the assets have been made. RESEARCH AND DEVELOPMENT COSTS In 2002, the Company entered into a technology affiliates agreement with NASA's Jet Propulsion Laboratory ("JPL") to develop technology for its bio-terrorism detection equipment. These costs are charged to expense as incurred. Research and development expenses were $-0- for each of the three months ended March 31, 2004 and 2003 and $199,000 and $82,000 for the years ended December 31, 2003 and 2002, respectively. F-9 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES Deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial statement amounts at the end of each reporting period. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the current period and the change during the period in deferred tax assets and liabilities. The deferred tax assets and liabilities have been netted to reflect the tax impact of temporary differences. At March 31, 2004 and December 31, 2003, a full valuation allowance has been established for the deferred tax asset as management believes that it is more likely than not that a tax benefit will not be realized. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform to the presentation in the current period financial statements. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In April 2003, FASB issued SFAS No. 149, "Accounting for Derivative Instruments and Hedging Activities," which is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. This statement amends and clarifies financial accounting and reporting for derivative instruments including certain instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The adoption of this standard did not have a material impact on the Company's financial statements. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity," which is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. The adoption of this standard did not have a material impact on the Company's financial statements. In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," for certain entities which do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest ("variable interest entities"). Variable interest entities will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity's expected losses, receives a majority of its expected returns, or both, as a result of holding variable interests, which are ownership, contractual, or other pecuniary interests in an entity. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after December 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN 46 applies to public F-10 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) enterprises as of the beginning of the applicable interim or annual period. The Company's adoption of FIN 46 did not have any impact upon the Company's financial condition or results of operations. NOTE 3 - INVENTORIES As part of the sale of Dasibi, the Company arranged with Dasibi that Dasibi would continue to house the inventory that was assigned to the Company. During the second quarter of 2002, Dasibi vacated its manufacturing space, and moved the inventory that was assigned to the Company to a location unknown to the Company. The Company currently is in the process of reviewing its rights under the circumstances and has been unsuccessful in locating the inventory. At December 31, 2002, such inventory was written down to reflect the loss. Remaining inventory consists entirely of finished goods. NOTE 4 - ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK At December 31, 2002, the accounts receivable balance from one customer was $30,000, or 100% of the total accounts receivable balance. Generally, no collateral is required. The Company's credit losses in the aggregate have not exceeded managements' expectations. During 2003, the product was returned and is being used by the Company for research and development activities and the receivable was written off to research and development expense. The Company maintains all cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts. NOTE 5 - NOTES PAYABLE, RELATED PARTY During the year ended December 31, 2003, the Company borrowed cash for operating expenses on a short-term basis from certain related entities. The entities are related by common ownership and management. The Company borrowed a total of $-0- and $85,000 during the three months ended March 31, 2004 and during the year ended December 31, 2003, respectively and repaid a total of $45,000. Notes payable, related party consists of the following at December 31, 2003 and March 31, 2004:
Notes payable, interest at 9% per annum; principal and interest due April 2004, unsecured, converted from debenture $ 20,000 Note payable, interest at 6% per annum, principal and interest due February 2004, unsecured, effective rate of interest, which includes loan fees is 45.7% 20,000 ----------- Total notes payable, related party $ 40,000 ===========
F-11 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED)
NOTE 6 - NOTES PAYABLE Notes payable consisted of the following at December 31, 2003: Notes payable to individuals, interest at 11% per annum, principal and interest due June 2001, unsecured $ 150,000 Notes payable to individuals, interest at 12% per annum, principal and interest due June 2001, unsecured 150,000 Notes payable, interest at 12% per annum, principal and interest due October 2004, unsecured, converted from debenture 200,000 Notes payable, interest at 9% per annum, principal and interest due October 2004, unsecured, converted from debenture 100,000 Note payable, interest at 18% per annum, principal and interest due June 2000, and verbally extended, unsecured 200,000 Demand note under Ex-Im Bank authorization at Wall Street Journal Prime rate +3.0% per annum (7% at December 31, 2003), matured June 30, 2002 previously secured by Dasibi customer line of credit 250,000 Bridge loan payable, interest of 10% per annum, principal and interest due June 2002 and verbally extended, unsecured 22,526 Bridge loan payable, interest of 10% per annum, principal and interest due September 2002 and verbally extended, unsecured 35,000 Notes payable, interest at 18% per annum, due May 2003 and verbally extended, unsecured, effective interest, which includes loan fees is 72.6% 75,000 Notes payable, interest at 18% per annum, due August 2003 and verbally Extended, unsecured, effective interest, which includes loan fees is 154.2% 60,000 Notes payable, interest at 10% per annum, due in December 2003 and verbally extended, unsecured, effective interest, which includes values ascribed to stock compensation granted and other loan fees is 638.1% 100,000 Notes payable, interest at 10% per annum, due in February 2004, unsecured, effective interest, which includes values ascribed to stock compensation granted and other loan fees is 314.9% 100,000 Note payable, interest at 10% per annum, due June 2002 and verbally extended, unsecured 75,000 ----------- Total notes payable $ 1,517,526 ===========
F-12
UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 6 - NOTES PAYABLE (CONTINUED) Notes payable consisted of the following at March 31, 2004: Notes payable to individuals, interest at 11% per annum, principal and interest due June 2001, unsecured $ 150,000 Notes payable to individuals, interest at 12% per annum, principal and interest due June 2001, unsecured 150,000 Notes payable, interest at 12% per annum, principal and interest due October 2004, unsecured, converted from debenture 200,000 Notes payable, interest at 9% per annum, principal and interest due October 2004, unsecured, converted from debenture 100,000 Note payable, interest at 18% per annum, principal and interest due June 2000, and verbally extended, unsecured 200,000 Demand note under Ex-Im Bank authorization at Wall Street Journal Prime rate +3.0% per annum (7% at December 31, 2003), matured June 30, 2002 previously secured by Dasibi customer line of credit 250,000 Bridge loan payable, interest of 10% per annum, principal and interest due June 2002 and verbally extended, unsecured 22,526 Bridge loan payable, interest of 10% per annum, principal and interest due September 2002 and verbally extended, unsecured 35,000 Notes payable, interest at 18% per annum, due May 2003 and verbally extended, unsecured 75,000 Note payable, interest at 10% per annum, due June 2002 and verbally extended, unsecured 75,000 ----------- Total notes payable $ 1,257,526 ===========
Certain notes are past due and in default, totaling $550,000, as of March 31, 2004. F-13 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 6 - NOTES PAYABLE (CONTINUED) During the year ended December 31, 2003, certain convertible debt holders converted debt of $485,000 into 3,258,887 shares of the Company's common stock. In addition, certain convertible debt holders converted $88,805 of accrued interest on the convertible debt to 630,157 shares of the Company's common stock. In October 2003, as incentive to certain debenture holders, the Company agreed to convert the debentures to the Company's common stock at $.15 per share rather than at 70% to 80% of market price per the terms of the debentures. In connection with these transactions, the Company recorded $495,305 as an expense for the beneficial conversion feature. In October 2003, certain debenture holders agreed in principle to novate the $320,000 of convertible debentures and enter into non-convertible notes payable with extended due dates ranging from six months to one year. During the year ended December 31, 2002, certain convertible debt holders converted $435,000 to 1,801,252 shares of the Company's common stock. In addition, certain convertible debt holders converted $70,238 of accrued interest on the convertible debt to 271,212 shares of the Company's common stock. In March 2002, the holder of $450,000 of convertible debt agreed to extend the due date of the debt to February 23, 2004 and the Company agreed to reduce the conversion rate on the convertible debt from 85% of the market price of the Company's common stock to 70% of the market price of the Company's common stock. The Company recorded $113,000 as an expense for the beneficial conversion feature of the new conversion rate. During 2002, $250,000 was converted and the remaining outstanding debt balance was $200,000 as of December 31, 2002. During the year ended December 31, 2003 the remaining balance was converted to shares of the Company's common stock as described above. NOTE 7 - INCOME TAXES The income tax provision (benefit) for three months ended March 31, 2004 and 2003 differs from the computed expected provision (benefit) at the federal statutory rate for the following reasons:
2004 2003 --------------- -------------- Computed expected income tax provision $ (525,000) $ (61,000) (benefit) Net operating loss carryforward 525,000 61,000 increased --------------- -------------- Income tax provision $ --- $ --- (benefit) =============== ==============
F-14 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 7 - INCOME TAXES (CONTINUED) The income tax provision (benefit) for the years ended December 31, 2003 and 2002 differs from the computed expected provision (benefit) at the federal statutory rate for the following reasons:
2003 2002 --------------- -------------- Computed expected income tax provision $ (1,606,000) $ (673,000) (benefit) Net operating loss carryforward 1,356,000 964,000 increased Accrued litigation --- 85,000 Stock-based expenses 82,000 93,000 Beneficial conversion feature of convertible 168,000 38,000 debt Gain on disposal of --- (507,000) subsidiary --------------- -------------- Income tax provision $ ---- $ --- (benefit) =============== ==============
The components of the deferred tax assets and (liabilities) as of March 31, 2004 were as follows: Deferred tax assets: Temporary differences: Net operating loss carryforward $ 5,527,000 Valuation allowance (5,527,000) -------------- Net long-term deferred tax asset $ --- ============== The components of the deferred tax assets and (liabilities) as of December 31, 2003 were as follows: Deferred tax assets: Temporary differences: Net operating loss carryforward $ 5,002,000 Valuation allowance (5,002,000) -------------- Net long-term deferred tax asset $ --- ============== The components of the deferred tax (expense) benefit were as follows for the three months ended March 31, 2004 and 2003: March 31, 2004 2003 ----------- ---------- Deferred tax assets: Increase in net operating loss carryforward 525,000 $ $ 61,000 Change in valuation allowance (525,000) (61,000) ----------- ---------- $ --- $ --- =========== ========== F-15 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 7 - INCOME TAXES (CONTINUED) The components of the deferred tax (expense) benefit were as follows for the years ended December 31, 2003 and 2002: December 31, 2003 2002 ----------- ---------- Deferred tax assets: Accrued expenses --- $ (83,000) --- (4,000) Depreciation Increase in net operating loss carryforward 1,723,000 1,356,000 Change in valuation allowance (1,723,000) (1,335,000 Loss on previous joint venture investment --- 66,000 with Logan ----------- ---------- $ --- $ --- =========== ========== As of March 31, 2004 and December 31, 2003, the Company has net operating loss carryforwards available to offset future taxable income of approximately $14,045,000 and $12,500,000, respectively expiring in 2005 through 2023. NOTE 8- STOCKHOLDERS' EQUITY PREFERRED STOCK The Company is authorized to issue up to 20,000,000 shares of preferred stock, $.01 par value per share in series to be designated by the Board of Directors. No preferred shares are issued. COMMON STOCK On August 8, 2003, the stockholders approved an increase in the number of shares of common stock authorized to 480,000,000 from 30,000,000. SALES OF COMMON STOCK During the three months ended March 31, 2004, the Company sold 3,812,725 shares of common stock for a total of $1,697,675. The Company paid placement fees totaling $181,098 which includes $96,184 in placement fees to a company in which its President and CEO has an equity interest and $84,914 in placement fees to an unrelated entity. Certain investors received warrants to purchase 166,668 shares of the Company's common stock at $0.90 per share in connection with the sale of stock. During the year ended December 31, 2003, the Company sold 15,907,903 shares of common stock for a total of $3,319,255, $50,000 of which had been received prior to December 31, 2002, and had been recorded as a liability. The Company paid placement fees totaling $443,033 which includes $157,634 in placement fees to a company in which its President and CEO has an equity interest and $285,399 in placement fees to an unrelated company. Certain investors received warrants to purchase 349,300 shares of common stock at prices ranging from $0.27 to $0.65 per share. During the year ended December 31, 2002 the Company sold 2,121,312 shares of common stock for $399,000, $50,000 of which had been received prior to December 31, 2001 and had been recorded as a liability. The Company paid a $34,900 placement fee to a company controlled by its President and CEO. Certain investors received warrants to purchase 1,214,843 shares of common stock at prices ranging from $0.225 to $0.63 per share. F-16 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 8- STOCKHOLDERS' EQUITY (CONTINUED) STOCK ISSUED FOR SERVICES During August 2003, the Company entered into two agreements for strategic business planning, financial advisory, investor relations and public relations services. As compensation, the Company issued a total of 3,000,000 shares of its common stock to the consultants, valued at $1,110,000, the fair market value of the stock on the effective date of the agreements, which amount is being amortized over the one-year term of the agreements. The Company had recorded $740,000 and $462,500 as prepaid expense as of December 31, 2003 and March 31, 2004, respectively. The Company expensed related consulting fees of $370,000 for the year ended December 31, 2003 and $277,500 for the three months ended March 31, 2004. On January 6, 2003, the Company entered into an agreement with an individual to provide consulting services through January 6, 2004 in connection with the Company's corporate business development and strategy. As compensation for services received, the Company issued 300,000 unrestricted shares of its common stock valued at $60,000 based upon the price of the Company's common stock on the date of issuance. The Company recognized $60,000 in related expenses during 2003. During 2003, the Company issued an additional 57,000 shares of its common stock to individuals for various consulting services rendered. The stock was valued at $11,280 based upon the price of the Company's common stock on the date of issuance. The Company recognized $11,280 in related expenses during 2003. In February 2002, the Company entered into an agreement with an individual to provide consulting services through December 31, 2002 in connection with the Company's corporate business development and strategy. As compensation for services received, the Company issued 50,000 unrestricted shares of its common stock valued at $21,500 based upon the price of the Company's common stock on the date of issuance. The Company recognized $21,500 in related expenses. In August 2002, the agreement was amended and extended through June 30, 2003. An additional 50,000 unrestricted shares of the Company's common stock were issued as consideration. The shares were valued at $9,500 based on the price of the Company's common stock on the date of issuance. As of December 31, 2003, $9,500 had been expensed as consulting fees. During 2002, the Company issued an additional 630,000 shares of its common stock to individuals for various consulting services rendered. The stock was valued at $123,250 based upon the price of the Company's common stock on the date of issuance. The Company recognized $123,250 in related expenses during 2002. ISSUANCE OF OPTIONS AND WARRANTS On October 18, 2003, the Company issued warrants to purchase 600,000 shares of common stock at an exercise price of $0.60 per share to two individuals for services to be rendered during the period through October 15, 2004. The warrants expire October 15, 2008. The warrants were valued at $185,400, the fair market value using the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 3.32%, volatility was estimated at 93.5% and the expected life was five years. The amount was recorded as a prepaid expense and is being amortized over the term of the service period. In December 2002, the Company issued warrants to purchase 200,000 shares of its common stock for $0.26 per share, expiring in 2005 and valued at $31,438 in connection with an agreement for advisory board and product development services. The Company has recorded this amount as a prepaid consulting expense and is amortizing the expense over the two-year term of the contract. In estimating the expense, the Company used the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 2.63%, volatility was estimated at 93%, and the expected life was three years. F-17 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 8- STOCKHOLDERS' EQUITY (CONTINUED) In January 2002, the Company issued options to purchase 250,000 shares of its common stock at prices ranging from $1.00 to $2.00 per share, expiring in 2006 and valued at $79,674 for public relations services. In estimating the expense, the Company used the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 3.99%, volatility was estimated at 103%, and the expected life was four years. The amount was expensed during the initial 90-day term of the agreement. REPRICED AND EXERCISED WARRANTS In February 2003, the Company agreed to reprice warrants to purchase 300,000 shares of common stock related to outstanding debt from $2.25 and $4.50 per share to $0.12 per share. The repriced warrants were valued at $30,000, the fair market value using the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 1.19%, volatility was estimated at 93% and the expected life was one day. The value of the repriced warrants was expensed as loan fees. The warrants to purchase 300,000 shares of common stock were immediately exercised for proceeds of $36,000. During the second quarter of 2003, the Company agreed to reprice warrants to purchase 260,191 shares of common stock issued as incentive to exercise warrants from $4.00 per share to $0.10 per share. The repriced warrants were valued at $26,019, the fair market value using the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 1.12%, volatility was estimated at 91% and the expected life was one day. The value of the repriced warrants was expensed as stock based compensation. The warrants to purchase 259,858 shares of common stock were exercised for proceeds of $26,018. STOCK OPTION PLAN During 2003, the Company adopted the 2003 Stock Incentive Plan ("the Plan"), which provides for the granting of stock and options to selected officers, directors, employees and consultants of the Company. 4,500,000 shares are reserved for issuance under the Plan for the granting of options. Unless terminated sooner, the Plan will terminate on June 22, 2013. The options issued under the Plan may be exercisable to purchase stock for a period of up to ten years from the date of grant. Incentive stock options granted pursuant to this Plan may not have an option price that is less than the fair market value of the stock on the date of grant. Incentive stock options granted to significant stockholders shall have an option price of not less than 110% of the fair market value of the stock on the date of grant. To date, no options have been granted under the Plan. F-18 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 8- STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes the activity of options and warrants under all agreements and plans for the two years ended December 31, 2003 and for the three months ended March 31, 2004:
Weighted Average Number of Weighted Average Exercise --------------------------- ------------------------ Options Warrants Price Amount ------------ ----------- -------- ----------- Outstanding, December 31, 1,894,821 1,606,938 $ 1.75 $ 6,121,004 2001 Granted 960,446 1,414,843 .64 1,508,492 Expired/cancelled (153,250) 1.17 (912,506) (626,331) ------------ ----------- -------- ----------- Outstanding, December 31, 2002 2,702,017 2,395,450 1.32 6,716,990 Granted 6,800,000 949,300 .35 2,740,320 Repriced warrants exercised --- (559,858) 3.76 (2,102,446) Expired/cancelled (163,000) 3.06 (1,382,879) (289,349) ------------ ----------- -------- ----------- Outstanding, December 31, 2003 9,339,017 2,495,543 .50 5,971,986 Granted --- 166,668 .90 150,001 Expired/cancelled (228,571) --- .88 (201,142) ------------ ----------- -------- ----------- Outstanding, March 31, 2004 9,110,446 2,662,211 $ .50 $ 5,920,845 ============ =========== ======== ===========
NOTE 9- STOCK-BASED COMPENSATION The Company accounts for stock based compensation in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation." The standard requires the Company to adopt the "fair value" method with respect to stock-based compensation of consultants and other non-employees, which resulted in charges to operations of $50,280 and $3,930 during the three months ended March 31, 2004 and 2003, respectively and $54,345 and $79,674 during the years ended December 31, 2003 and 2002 respectively. Effective August 18, 2003, the board of directors of the Company granted an option to the President and CEO to purchase 6,800,000 shares of the Company's common stock at $0.33 per share, the closing price on the date of the grant. The option expires in ten years. The fair value of the option is estimated at $1,995,000 based on the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 4.49%, volatility was estimated at 93.5% and the expected life was ten years. Had the Company adopted the fair value method with respect to the option issued to the President and CEO described above, an additional $1,995,000 would have been charged to income in 2003, proforma net loss would have been $6,720,153 and net loss per share would have been $0.32 on a basic and diluted basis. There would have been no additional changes to the net loss for 2002 had the Company adopted the fair value method with respect to options issued to employees. F-19 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 10 - COMMITMENTS AND CONTINGENCIES LEGAL JUDGMENT The Company leased its facilities under a long-term non-cancelable operating leases. The Company assigned the lease to Dasibi in March 2002. The Company was named in a lawsuit to collect past due rent. In November 2002, a judgment was entered against the Company for a total of $411,500, which has been accrued. EMPLOYMENT AGREEMENTS In September 2001, the Company entered into an employment agreement with an individual serving in the capacity of Chairman of the Board, Chief Executive Officer and President of the Company. According to the agreement, there shall always be a minimum of at least five years remaining on the term of the agreement. Base salary is $250,000 to be adjusted on an annual basis, with an as yet undetermined cash bonus plan, provisions for use of a luxury automobile, club memberships, and insurance plans. In addition, as inducement to retain the services of the Officer, the Company granted the Officer options to purchase 1,150,000 shares of its common stock exercisable at $.30 per share. The Officer had waived claim to his cash compensation until June 1, 2003. In August 2003, the Board of Directors approved a bonus of $416,667 for the officer. The future minimum salary payable to the officer is $1,250,000. LITIGATION The Company may be 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. NOTE 11 - SUPPLEMENTAL CASH FLOW INFORMATION During the three months ended march 31, 2004, the Company paid $2,400 for income taxes. No cash was paid for income taxes during the three months ended March 31, 2003 or during the years ended December 31, 2003 or 2002. Cash paid for interest was $12,630 and $-0- during the three months ended March 31, 2004 and 2003, respectively, and $747 and $7,661 during the years ended December 31, 2003 and 2002, respectively. NOTE 12 - SALE OF SUBSIDIARY AND DISCONTINUED OPERATIONS In March 2002, the Company entered into an agreement to sell Dasibi to one of its note holders in exchange for $1,500,000 of debt owed to the creditor. The purchaser assumed all liabilities of Dasibi as of the date of the agreement. The Company retained ownership of the inventory of Dasibi without limitations. Subsequent to the sale of Dasibi, the inventory was moved by Dasibi to a location unknown to the Company and the inventory has been written down to reflect the loss. The Company had granted options to the purchaser of the subsidiary to purchase the Company's common stock as follows: 50,000 at $0.25 per share, 100,000 at $0.50 per share, 528,571 at $0.875 per share, 100,000 at $1.00 per share and 21,875 at $3.10 per share. The options are vested immediately and expire in March 2005. The options are valued at the fair market value of $160,993 on the date of grant utilizing the Modified Black-Scholes European pricing model. The average risk-free interest rate used was 4.73%, volatility was estimated at 99.86%, and the expected life was three years. The Company was granted a perpetual non-exclusive license for all products, software, technologies and other intellectual property (including the use of the name Dasibi and Dasibi Environmental Corp.) of Dasibi throughout the world with the exception of the Peoples Republic of China. F-20 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 12 - SALE OF SUBSIDIARY AND DISCONTINUED OPERATIONS (CONTINUED) As a result of the sale of Dasibi, the Company has reported the operations of Dasibi as discontinued operations. The Company sold Dasibi on March 18, 2002 in a transaction that closed on March 25, 2002. Dasibi had assets of approximately $967,000 and liabilities of approximately $2,072,000 as of December 31, 2001. The Company recorded a gain on the sale of Dasibi of $1,490,553 because the liabilities assumed by the purchaser exceed the fair market value of the assets transferred in the sale. Certain information with respect to discontinued operations of Dasibi is as follows: 2002 -------------- Net sales $ --- Cost of sales --- -------------- Gross profit --- Operating expenses 149,745 -------------- (Loss) before income tax expense (149,745) Income tax expense --- -------------- (Loss) from discontinued operations $ (149,745) ============== NOTE 13 - RELATED PARTY TRANSACTIONS Effective June 1, 2003, the Company entered into an agreement with a company in which its President and CEO has an equity interest. The agreement required the Company to pay $25,000 per month for investment banking and strategic advisory services as well as a 10% fee for all debt and equity financing raised by the Company. During the three months ended March 31, 2004 and the year ended December 31, 2003 the Company paid the related party entity approximately $171,184 and $378,000, respectively in related expenses. In September 2003, the Company loaned $20,000 to a related party entity in which a company controlled by its President and CEO has an equity interest. The bridge note was due upon the sooner of October 15, 2003, or upon the Company raising additional funds of more than $50,000, and bears interest at the rate of 6%. The note has been extended by mutual consent and must be repaid from financing before any other creditor. In December 2003, the Company advanced an additional $10,000 and $20,000 under agreements which provide for interest at 6% per annum and are due upon the sooner of February 24 and 29, 2004, respectively, or upon the Company raising additional funds of more than $50,000. These notes were paid in full during the three months ended March 31, 2004. Restricted cash consists of a certificate of deposit, which guarantees an irrevocable letter of credit. The letter of credit has been provided for the benefit of a related party company in which the Company's president and CEO has an equity interest. F-21 UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES (FORMERLY POLLUTION RESEARCH AND CONTROL CORP.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003 IS UNAUDITED) NOTE 13 - RELATED PARTY TRANSACTIONS (CONTINUED) The Company has advanced $46,980 and $28,654 to a related entity in which its President and CEO has an equity interest as of March 31, 2004 and December 31, 2003, respectively. The Company and the related entity intend to enter into a sub-lease agreement during the first quarter of 2004. The Company's restricted cash currently guaranteeing its letter of credit for the benefit of the related party will be incorporated as a condition of the sub-lease agreement when executed. The amounts currently due from the related party will be applied to a lease deposit when the sub-lease is executed. NOTE 14 - PRIOR PERIOD RESTATEMENT The Company leased its facilities under a long-term non-cancelable operating leases. The Company assigned the lease to Dasibi in March 2002. The Company was named in a lawsuit to collect past due rent. In November 2002, a judgment was entered against the Company for a total of $411,500, which has been accrued. During the quarter ended June 30, 2004, a change was made to the retained earnings and accrued expenses of the Company to correct the legal judgment recorded during the year ended December 31, 2002. The Company originally recorded the amount of damages sought by the plaintiff, rather than the amount of the final judgment. The Company has retroactively restated net loss for the year ended December 31, 2002, increasing the net loss from $1,980,718 to $2,143,218 due to an adjustment of $162,500. NOTE 15 - SUBSEQUENT EVENTS Subsequent to March 31, 2004, the Company issued 93,200 shares of its common stock for proceeds of $59,560. The Company paid related placement fees of $2,547 to a related party entity in which its President and CEO has an equity interest. On April 29, 2004, the Company commenced a private placement, offering for sale a minimum of $250,000 of Units on a "best efforts all or none" basis and an additional of $750,000 of Units on a "best efforts" basis. Upon mutual agreement between the Company and the placement agent, the Company offered an additional $2,000,000 of Units. The offering was completed in July 2004, generating gross proceeds of $3,000,000. The Company paid placement fees of $414,640 related to the offering. The Company intends to use the proceeds for working capital and general corporate use. The Company is precluded from using the proceeds to pay debt outstanding at the time of the closing of the offering or to make payments to a related party entity in which its President and CEO has an equity interest. Each Unit consists of one share of common stock and a Class A Warrant and a Class B Warrant, each immediately exercisable by the holder to purchase one-half share of the Company's common stock for $0.50 and $0.70 per share, respectively. The warrants expire five years from the final closing date. The price per Unit was $0.50. Pursuant to the agreement with the placement agent, following closing of the private placement offering, the Company will amend the terms of its agreement for investment banking and strategic advisory services, reducing the monthly payment to a sum no greater than $5,000 per month commencing April 29, 2004 and the nine months thereafter. In addition, the Company has agreed to defer payment of all accrued wages and future compensation due to its President and Chief Executive Officer in excess of $150,000 per year for nine months from April 29, 2004. F-22 You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information contained in this document is current only as of its date. 15,600,000 SHARES UNIVERSAL DETECTION TECHNOLOGY COMMON STOCK ------------ PROSPECTUS ------------ ____________, 2004 Through and including _________, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Our Articles of Incorporation provide that the liability of our directors for monetary damages shall be eliminated to the fullest extent permissible under California law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by or in the right of our Company for breach of a director's duties to us or our shareholders except for liability: (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law; (ii) for acts or omissions that a director believes to be contrary to the best interests of our Company or our shareholders or that involve the absence of good faith on the part of the director; (iii) for any transaction for which a director derived an improper benefit; (iv) for acts or omissions that show a reckless disregard for the director's duty to us or our shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to our Company or our shareholders; (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to us or our shareholders; (vi) with respect to certain transactions, or the approval of transactions in which a director has a material financial interest; and (vii) expressly imposed by statute, for approval of certain improper distributions to shareholders or certain loans or guarantees. Our Articles of Incorporation also authorize us to provide indemnification to our agents (as defined in Section 317 of the California Corporations Code), through our Bylaws, by agreement or otherwise, with such agents or both, for breach of duty to us and our shareholders, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject to the limits on such excess indemnification set forth in Section 204 of the California Corporations Code. ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table itemizes the fees and expenses incurred by us in connection with the issuance and distribution of the securities being registered. All the amounts shown are estimates except the SEC registration fee.
SEC registration fee................................................. $ 1,542 Accounting fees and expenses......................................... 20,000 Legal fees and expenses.............................................. 100,000 Transfer agent and registrar fees and expenses....................... 5,000 Miscellaneous expenses............................................... 10,000 Total........................................................ $136,542
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES During the first two quarters of fiscal 2004, 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: II-1 o In February 2004, we engaged in an offering of an aggregate of 125,000 shares of common stock for a total purchase price of $91,500. We incurred $9,148 in placement fees, and our net proceeds were $82,352. o In February 2004, we issued an aggregate of 100 units, consisting of a total of 333,334 shares of common stock and warrants to purchase 166,668 shares of common stock at $0.90 per share, for a total purchase price of $100,000. We incurred $10,000 in placement fees, and our net proceeds were $90,000. o In June 2004, we issued an aggregate of 10,000 shares of common stock to a consultant for consulting services rendered to us valued at $7,500. o In June 2004, we engaged in a private placement of $3 million of Units. The offering was made solely to accredited investors through Meyers Associates, L.P., a registered broker dealer firm. Each Unit consists of one share of common stock and a Class A Warrant and a Class B Warrant. We incurred $414,640 in placement fees, and our net proceeds were $2,585,360. During the first two quarters of fiscal 2004 and through July 30, 2004, we issued 3,681,979 shares of common stock to non-U.S. persons, as such term is defined in Regulation S, for an aggregate offering price of $1,762,702. We incurred $192,615 in placement fees, and our net proceeds were $1,570,087. No offer or sale of the securities was made to a person in the United States. We believe that each purchaser of securities was not a U.S. person as defined in Rule 902(k) of Regulation S and did not acquire the securities for the account or benefit of any U.S. person. We did not engage in any directed selling efforts in the United States. For these reasons, among others, the offer and sale of the following securities were not subject to Section 5 of the Securities Act by virtue of Regulation S promulgated by the SEC under the Securities Act. During fiscal 2003, 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: o Commencing in January 2003 and during each month in 2003 thereafter (other than February and October), we were engaged in an offering of an aggregate of 1,719,106 shares of common stock for a total purchase price of $457,275. We incurred $45,581 in placement fees, and our net proceeds were $411,694. o In January, February and August 2003, we issued an aggregate of 3,357,000 shares of common stock to various consultants for their consulting services rendered to us valued at $1,181,280. o On October 15, 2003, we issued warrants to purchase an aggregate of 600,000 shares of common stock to two consultants in connection with consulting services rendered to us valued at $185,400. These warrants are immediately exercisable. o On February 15, 2003, we agreed to reprice warrants to purchase 300,000 shares of common stock, from $2.25 and $4.50 per share to $0.12 per share. The repriced warrants were valued at $30,000. o On March 31, 2003, we agreed to reprice warrants to purchase 260,191 shares of common stock, from $4.00 per share to $0.10 per share. The repriced warrants were valued at $26,019. We incurred $2,602 in offering costs in connection with the repricing. o In February and April 2003, we issued an aggregate of 559,858 shares of common stock pursuant to exercises of warrants. Our net proceeds from these exercises were $62,018. o In April, July, October and December 2003, we issued an aggregate of 415,000 shares of common stock to an unrelated entity in connection with loan fees arising from bridge financing provided by that entity. The loan fees are valued at $188,400. In January, March and October 2003, we issued 3,889,044 shares of common stock pursuant to the conversion of debt and accrued and unpaid interest in the aggregate amount of $573,805, which shares were not registered under the Securities Act of 1933. No commission or other remuneration was paid or given in connection II-2 with the issuance of these securities. For these reasons, among others, the securities issued in the following transaction were exempt from registration by Section 3(a)(9) of the Securities Act. In January, March and October 2003, we issued 3,889,044 shares of common stock upon the conversion of debt and accrued and unpaid interest in the aggregate amount of $573,805, which shares were not registered under the Securities Act of 1933. No offer or sale of the securities was made to a person in the United States. We believe that each purchaser of securities was not a U.S. person as defined in Rule 902(k) of Regulation S and did not acquire the securities for the account or benefit of any U.S. person. We did not engage in any directed selling efforts in the United States. For these reasons, among others, the offer and sale of the following securities were not subject to Section 5 of the Securities Act by virtue of Regulation S promulgated by the SEC under the Securities Act. During fiscal 2003, we issued 14,188,797 shares of common stock to non-U.S. persons, as such term is defined in Regulation S, for an aggregate offering price of $2,861,980, which shares were not registered under the Securities Act of 1933. We incurred $394,850 in placement fees, and our net proceeds were $2,467,130. No offer or sale of the securities was made to a person in the United States. We believe that each purchaser of securities was not a U.S. person as defined in Rule 902(k) of Regulation S and did not acquire the securities for the account or benefit of any U.S. person. We did not engage in any directed selling efforts in the United States. For these reasons, among others, the offer and sale of the following securities were not subject to Section 5 of the Securities Act by virtue of Regulation S promulgated by the SEC under the Securities Act. During fiscal 2002, we sold 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 general 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 exempt from registration pursuant to Rules 506 and/or Section 4(2) of the Securities Act: o In March 2002, we issued 154,799 shares of common stock at $0.323 per share for an aggregate offering price of $50,000, which was received during the year ended December 31, 2001. o On March 27, 2002, we sold 250,000 shares of common stock at $0.40 per share for an aggregate offering price of $90,000 net of $10,000 in placement fees. o On August 6, 2002, we sold 69,444 shares of common stock at $0.144 per share for an aggregate offering price of $9,000 net of $1,000 in placement fees. In connection with this private placement, we issued 6,944 warrants to purchase shares of common stock at $0.27 per share, 6,944 warrants to purchase shares of common stock at $0.45 per share, and 6,944 warrants to purchase shares of common stock at $0.63 per share. o On September 26, 2002, we sold 277,778 shares of common stock at $0.144 per share for an aggregate offering price of $36,000 net of $4,000 in placement fees. In connection with this private placement, we issued 27,778 warrants to purchase shares of common stock at $0.27 per share, 27,778 warrants to purchase shares of common stock at $0.45 per share, 83,333 warrants to purchase shares of common stock at $0.63 per share. o On October 2, 2002, we sold 241,677 shares of common stock at $0.12 per share for an aggregate offering price of $26,100 net of $2,900 in placement fees. In connection with this private placement, we issued 24,167 warrants to purchase shares of common stock at $0.225 per share, 24,167 warrants to purchase shares of common stock at $0.375 per share, 24,167 warrants to purchase shares of common stock at $0.525 per share. o On October 12, 2002, we sold 1,135,364 shares of common stock at $0.176 per share for an aggregate offering price of $180,000 net of $20,000 in placement fees. In connection with this private placement, we issued 681,818 warrants to purchase shares of common stock at $0.33 per share and 227,273 warrants to purchase shares of common stock at $0.55 per share. II-3 o On November 1, 2002, we sold 147,059 shares of common stock at $0.136 per share for an aggregate offering price of $18,000 net of $2,000 in placement fees. In connection with this private placement, we issued 44,118 warrants to purchase shares of common stock at $0.26 per share, 14,706 warrants to purchase shares of common stock at $0.375 per share, 14,706 warrants to purchase shares of common stock at $0.525 per share. During fiscal 2002, we also issued shares of our common stock and/or options to purchase our common stock to various consultants for their consulting services. We did not employ any form of general solicitation or general 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 exempt from registration pursuant to Rules 506 and/or Section 4(2) of the Securities Act: o On January 25, 2002, we issued options to purchase 100,000 shares of our common stock at $1.00 per share, 50,000 shares of our common stock at $1.50 per share, and 100,000 shares of our common stock at $2.00 per share. o On January 30, 2002, we issued 5,000 shares of common stock at $0.65 per share. o On March 1, 2002, we issued 50,000 shares of common stock at $0.43 per share. o On March 27, 2002, we issued 10,000 shares of common stock at $0.43 per share. o On April 17, 2002, we issued 200,000 shares of common stock at $0.18 per share and 25,000 shares of common stock at $0.34 per share. o On July 1, 2002, we issued 30,000 shares of common stock at $0.19 per share. o On October 9, 2002, we issued 100,000 shares of common stock at $0.19 per share. o On October 23, 2002, we issued 275,000 shares of common stock at $0.18 per share. o On November 1, 2002, we issued 15,000 shares of common stock at $0.20 per share and 20,000 shares of common stock at $0.175. o On December 18, 2002, we issued warrants to purchase 200,000 shares of our common stock at $0.25 per share. During fiscal 2001, we sold 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 general advertising in connection with the offer and sale of the securities described below. In addition, the purchasers of the securities are "accredited investors" for the purpose of Rule 501 of the Securities Act, unless otherwise specified or unless the sale was exempt pursuant to Section 4(2) of the Securities Act. For these reasons, among others, the offer and sale of the following securities were exempt from registration pursuant to Rules 506 and/or Section 4(2) of the Securities Act: o On January 12, 2001, we issued to Steven Sion an option to purchase 228,571 shares of our common stock at an exercise price of $0.875 per share in consideration for a promissory note in the amount of $650,000 issued to us and other services provided by Steven Sion. These options expire on March 25, 2005. o On January 25, 2001, we issued 700,000 shares of common stock valued at $700,000 to Silverline Partners, Inc. under a one-year consulting agreement. II-4 o On April 4, 2001, we issued 200,000 shares of common stock valued at $176,000 to East West Network for services rendered. o On June 6, 2001, we issued to Lee Sion an option to purchase 100,000 shares of our common stock at an exercise price of $1.00 per share in consideration for a promissory note in the amount of $100,000 issued to us by Lee Sion. These options expire on March 25, 2005. o On July 30, 2001, we issued to Lee Sion an option to purchase 100,000 shares of our common stock at an exercise price of $.50 per share in consideration for a promissory note in the amount of $100,000 issued to us by Lee Sion. These options expire on March 25, 2005. o On November 9, 2001, we sold 125,000 shares of common stock at $0.40 per share to Spiga Ltd. o In November and December 2001, we issued an aggregate of 59,500 shares of common stock valued at $41,016 to John Holt Smith for legal services. o On December 26, 2001, we issued 10,000 shares of our common stock valued at $6,000 to Amir Eddehadieh for consulting services rendered. o On December 26, 2001, we issued 5,000 shares of our common stock valued at $3,000 to Nima Montazeri for consulting services rendered. II-5 ITEM 27. EXHIBITS. (a) The following exhibits are filed herewith:
NUMBER EXHIBIT TITLE The following exhibits are included as part of this filing and incorporated herein by this reference. 3.1 Articles of Incorporation of A. E. Gosselin Engineering, Inc. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.2 Certificate of Amendment of Articles of Incorporation of A. E. Gosselin Engineering, Inc. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.3 Certificate of Amendment of Articles of Incorporation of Dasibi Environmental Corp. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.4 Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.4 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001, filed on April 15, 2002). 5.1 Opinion of Akin Gump Strauss Hauer & Feld LLP. 10.1 Binding letter of Intent dated March 19, 2002, by and between Registrant and Steven Sion (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 22, 2002). 10.2 Employment Agreement by and between Registrant and Jacques Tizabi dated September 25, 2001 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2002, filed on May 20, 2002). 10.3 Technology Affiliates Agreement by and between Registrant and California Institute of Technology, dated August 6, 2002. (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, filed on April 15, 2003). 10.4 Licensing Agreement by and between Universal Detection Technology and California Institute of Technology, dated September 30, 2003 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2003, filed on November 19, 2003). 10.5 Agreement for Investment Banking and Advisory Services, by and between the Registrant and Astor Capital, Inc., dated June 1, 2003. (incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2003, filed on March 31, 2004) 21.1 Subsidiaries of Registrant. (incorporated by reference to Exhibit 21.1 of Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2003, filed on March 31, 2004). 23.1 Consent of Akin Gump Strauss Hauer & Feld LLP (as set forth in Exhibit 5.1). 23.2 Consent of Independent Auditors - AJ Robbins, P.C. 24.1 Power of Attorney (included on signature page).
II-6 (b) The following financial statement schedule is filed herewith: Other financial statement schedules are omitted because the information called for is not required or is shown either in our consolidated financial statements or the notes thereto. ITEM 28. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sale are being made, a post-effective amendment to this registration statement; to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof; and (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described in Item 24 above, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-7 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this amendment to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on this 30th day of July, 2004. UNIVERSAL DETECTION CORPORATION /s/ Jacques Tizabi ----------------------------------- Jacques Tizabi Chief Executive Officer and President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jacques Tizabi, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorney-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this amendment to registration statement has been signed by the following persons in the capacities and on the date indicated.
NAME TITLE DATE /s/ Jacques Tizabi - --------------------------------- Jacques Tizabi President, Chief Executive Officer & July 30, 2004 Acting Chief Financial Officer /s/ Michael Collins - --------------------------------- Michael Collins Director, Secretary July 30, 2004 /s/ Matin Emouna - --------------------------------- Matin Emouna Director July 30, 2004
1 EXHIBIT INDEX NUMBER EXHIBIT TITLE
The following exhibits are included as part of this filing and incorporated herein by this reference: 3.1 Articles of Incorporation of A. E. Gosselin Engineering, Inc. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.2 Certificate of Amendment of Articles of Incorporation of A. E. Gosselin Engineering, Inc. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.3 Certificate of Amendment of Articles of Incorporation of Dasibi Environmental Corp. (now the Registrant) (incorporated herein by reference to Exhibit 3(a) to the Amendment No. 1 to the Registration Statement on Form 10 of Dasibi Environmental Corporation). 3.4 Amended and Restated Bylaws of Registrant (incorporated by reference to Exhibit 3.4 of the Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2001, filed on April 15, 2002). 5.1 Opinion of Akin Gump Strauss Hauer & Feld LLP. 10.1 Binding letter of Intent dated March 19, 2002, by and between Registrant and Steven Sion (incorporated herein by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed on March 22, 2002). 10.2 Employment Agreement by and between Registrant and Jacques Tizabi dated September 25, 2001 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2002, filed on May 20, 2002). 10.3 Technology Affiliates Agreement by and between Registrant and California Institute of Technology, dated August 6, 2002. (incorporated herein by reference to Exhibit 10.3 to the Registrant's Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002, filed on April 15, 2003). 10.4 Licensing Agreement by and between Universal Detection Technology and California Institute of Technology, dated September 30, 2003 (incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2003, filed on November 19, 2003). 10.5 Agreement for Investment Banking and Advisory Services, by and between the Registrant and Astor Capital, Inc., dated June 1, 2003 (incorporated by reference to Exhibit 10.5 of Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2003, filed on March 31, 2004). 21.1 Subsidiaries of Registrant. Incorporated by reference to Exhibit 21.1 of Registrant's Annual Report on Form 10-KSB for the year ended December 31, 2003, filed March 31, 2004. 23.1 Consent of Akin Gump Strauss Hauer & Feld LLP (as set forth in Exhibit 5.1). 23.2 Consent of Independent Auditors - AJ Robbins, P.C. 24.1 Power of Attorney (included on signature page).
1 EX-5 2 exhibit_5-1.txt July 30, 2004 Universal Detection Technology 9595 Wilshire Blvd., Suite 700 Beverly Hills, California 90212 Re: Universal Detection Technology, Registration Statement on Form SB-2 Ladies and Gentlemen: We have acted as counsel to Universal Detection Technology, a California corporation (the "COMPANY"), in connection with the registration, pursuant to a registration statement on Form SB-2 (the "REGISTRATION STATEMENT"), filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "ACT"), of the offer and sale by the selling stockholders listed in the Registration Statement of 15,600,000 shares of the Company's common stock, no par value per share (the "COMMON STOCK"). The shares being registered for resale include: (a) 6,000,000 shares of Common Stock (the "COMMON SHARES"); and (b) 9,600,000 shares of Common Stock reserved for issuance upon exercise of warrants (the "WARRANT SHARES," and together with the Common Shares, the "SHARES"). We have examined originals or certified copies of such corporate records of the Company and other certificates and documents of officials of the Company, public officials and others as we have deemed appropriate for purposes of this letter. We have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to authentic original documents of all copies submitted to us as conformed and certified or reproduced copies. Based upon the foregoing and subject to the assumptions, exceptions, qualifications and limitations set forth herein, we are of opinion that when the Registration Statement has become effective under the Act, (i) the Common Shares will be validly issued, fully paid and non-assessable, and (ii) upon exercise of the warrants and receipt of consideration therefore in accordance with the terms of the warrants, the Warrant Shares will be validly issued, fully paid and non-assessable. The opinions and other matters in this letter are qualified in their entirety and subject to the following: A. We express no opinion as to the laws of any jurisdiction other than any published constitutions, treaties, laws, rules or regulations or judicial or administrative decisions of the State of California (the "LAWS"). B. The matters expressed in this letter are subject to and qualified and limited by (i) applicable bankruptcy, insolvency, fraudulent transfer and conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally; (ii) general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity); (iii) commercial reasonableness and unconscionability and an implied covenant of good faith and fair dealing; (iv) the power of the courts to award damages in lieu of equitable remedies; and (v) securities Laws and public policy underlying such Laws with respect to rights to indemnification and contribution. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the prospectus forming a part of the Registration Statement under the caption "Legal Matters." In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Act and the rules and regulations thereunder. We also consent to your filing copies of this opinion as an exhibit to the Registration Statement. Very truly yours, /s/ AKIN GUMP STRAUSS HAUER & FELD LLP -------------------------------------- AKIN GUMP STRAUSS HAUER & FELD LLP EX-23 3 exhibit_23-2.txt AJ. ROBBINS, P.C. CERTIFIED PUBLIC ACCOUNTANTS 216 SIXTEENTH STREET SUITE 600 DENVER, COLORADO 80202 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the inclusion in this Registration Statement on Form SB-2 of Universal Detection Technology of our report dated February 4, 2004 and July 27, 2004 relating to the financial statements of Universal Detection Technology and to the reference made to our firm under the caption "Experts" included in or made part of this Registration Statement on Form SB-2. /s/ AJ. ROBBINS, P.C. --------------------------------- AJ. ROBBINS, P.C. CERTIFIED PUBLIC ACCOUNTANTS DENVER, COLORADO JULY 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----