Quarterly Report for the period ending 09/06

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

The accompanying reviewed financial statements are presented in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and item 310 under subpart A of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the nine months ended September 30, 2006 are not necessarily indicative of results that may be expected for the year ending December 31, 2006. The financial statements are presented on the accrual basis.

	September 30, 2006
*Assets*

Current Assets:

Cash and cash equivalents	$	25,752
Accounts Receivable, net of allowance
for doubtful accounts of $32,572		88,943
Inventory		172,688

Total Current Assets		287,382

Property, Plant, and Equipment, net of
accumulated depreciation of
$118,970		439,434
Patent Rights, net of $4,182 of
accumulated amortization		46,036

Total Assets	$	772,852

Liabilities and Stockholders’ Equity

Current Liabilities:
Accounts Payable-trade	$	160,114
Accrued Expenses		83,723
Advances from Stockholders		10,145
Note Payable		140,694

Total Current Liabilities		394,676

Stockholders’ Equity:

Convertible preferred stock, $.0001 par value,
10,000,000 shares authorized, 4,000,000
shares issued and outstanding		400
Common stock, $.0001 par value,
300,000,000 shares authorized,
38,652,300 shares
issued and outstanding		3,865

Additional Paid-in Capital		905,908
Accumulated Deficit		(531,998	)

Total Stockholders’ Equity		378,175
Total Liabilities
and Stockholders’ Equity	$	772,852

	3 Mos. Ended September 30, 2006			3 Mos. Ended September 30, 2005			9 mos. Ended September 30, 2006			9 mos. Ended September 30, 2005

Sales, net of returns	$	261,039		$	317,504		$	744,248		$	632,343

Cost of Sales		126,089			98,282			364,589			202,178

Gross Profit		134,950			219,222			379,659			430,165

Operating Expenses:

General and administrative expenses		85,427			116,729			244,512			263,056

Advertising & Marketing		2,718			40,544			8,947			43,501

Compensation Costs		53,610			171,006			169,485			272,948

Total Operating Expenses		141,755			328,279			422,944			579,505

Net Income (Loss) from operations	$	(7,192	)	$	(109,057	)	$	(43,285	)	$	(149,340	)

Interest Expense		3,405			9,518			13,329			14,349

Net Income (Loss) before income taxes		(10,597	)		(118,575	)		(56,614	)		(163,689	)

Provision for Income Taxes		0			0			0			0

Net Income (Loss)	$	(10,597	)	$	(118,575	)	$	(56,614	)	$	(163,689	)

Weighted Average Shares Outstanding		38,652,300			37,736,433			38,652,300			35,924,124

Earnings (Loss) Per Common Share:
Basic	$	0.00		$	0.00		$	0.00		$	0.00


	2006			2005

Cash flows from operating activities:

Net cash provided by (used in) operating activities	$	18,922		$	(138,523	)

Cash flows from investing activities:

Net cash provided by (used in)
investing activities		0			(49,635	)

Cash flows from financing activities:

Net cash provided by (used in)
financing activities		(38,029	)		310,536

Net increase (decrease) in cash		(19,107	)		122,378

Cash at beginning of period		44,859			4,363

Cash at end of period	$	25,752		$	126,741

*Supplemental Cash Flows Disclosures*


	2006		2005

Interest paid	$	13,329	$	14,349

Income taxes paid	$	--	$	--



Non-Cash Investing and Financing Activities


		2006		2005

Contribution of property and equipment,
net of related note payable, as
additional paid in capital	$	--	$	250,562

Common stock issued for services	$	--	$	91,910
Common stock issued for distributorship	$	--		50,000
Preferred stock issued for patent rights	$	--	$	50,218

Common stock issued in repayment
of advances from stockholder	$	--	$	129,424

Universal Fog, Inc. was incorporated in the state of Arizona on July 11,1996 and was the successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, Universal Fog, Inc. entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse merger)with Edmonds 6, Inc. (Edmonds 6) and its name was changed to Universal Fog, Inc. (hereinafter referred to as either UFI or the Company).Edmonds 6 was incorporated on August 19, 2004 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since 1996) became a wholly owned subsidiary of Edmonds 6.

The Company began manufacturing systems for outdoor cooling in Arizona and quickly expanded to distribute throughout the United States. As the Company grew, so did the need for more efficient, more effective, and higher quality commercial grade products.

All Universal Fog, Inc. high pressure fog systems are custom designed and manufactured for each specific application. We incorporate three different types of tubing in our systems enabling us to comply with nearly any design requirement. Our low profile 3/8” flexible nylon tubing utilizes our patented SLIP-LOK™ brass fittings allowing extreme versatility and easy installation. The use of 3/8” high-pressure nitrogenized copper is aesthetically very pleasing and enables us to conceal our mist lines behind walls, such as stucco, and meet certain building code requirements. In addition, we also produce systems using 3/8” stainless steel tubing, though copper systems are recommended, providing one of the most extensive product selections in the industry.

The concept is inherent in nature, such as water vapor, clouds, and fog, which manifest due to the earth’s environment. Universal Fog, Inc. high pressure fog systems can create the same environment where and when you want it. Using normal tap water and pressurizing it to 800 PSI with our high-pressure pump modules, we force water through a series of patented brass and stainless steel nozzles creating a micro-fine mist or “fog”. With droplets ranging in size from 4 - 40 microns, the fog flash evaporates, removing unwanted heat in the process. Temperature drops up to 40°F are typical in situations where high heat and low humidity exist.

The accompanying consolidated financial statements included the general accounts of the Company, a Delaware corporation formerly Edmonds 6, Inc. (see above), and its wholly owned Arizona subsidiary, also named Universal Fog, Inc. All material intercompany transactions, accounts and balances have been eliminated in the consolidation.

For financial reporting purposes the reverse merger with Edmonds 6 (see above) has been treated as a recapitalization of UFI with Edmonds 6 being the legal survivor and UFI being the accounting survivor and the operating entity. That is, the historical financial statements prior to May 9, 2005 are those of UFI and its operations, even though they are labeled as those of the Company. Retained earnings of UFI related to its operations, is carried forward after the recapitalization. Operations prior to the recapitalization are those of the accounting survivor, UFI and its predecessor operations, which began July 11,1996. Earnings per share for the periods prior to the recapitalization are restated to reflect the equivalent number of shares outstanding for the entire period operations were conducted. Upon completion of the reverse merger, the financial statements become those of the operating company, with adjustments to reflect the changes in equity structure and receipt of the assets and liabilities of UFI.

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 the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after June 15, 2001. Under the new standards, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.

On May 9, 2005, the Company was assigned the rights to two patents developed by Mr. Bontems, the Company’s controlling stockholder, in exchange for the issuance of 4,000,000 convertible preferred stock shares (Notes 2 and 5). Because this transaction is one between entities under common control, the patent rights are carried on the Company’s general accounts at their historical cost to Mr. Bontems pursuant to SFAS No. 141 and Staff Accounting Bulletin No. 48.

The patents rights are being amortized using the straight-line method over their remaining estimated lives of approximately six and sixteen years. For the nine months ended September 30, 2006 amortization expense related to these patent rights totaled $2,214. For each of the next five years, management estimates amortization of these patent rights to approximate $3,000.

Basic income/loss per share amounts are computed by dividing the net income or loss by the weighted average number of common stock shares outstanding. Diluted income/loss per share amounts reflect the maximum dilution that would have resulted from the issuance of common stock through potentially dilutive securities. Other than the convertible preferred stock (Note 2), the Company does not have any convertible securities, outstanding options or warrants that could potentially dilute the earnings of its common stockholders. Diluted loss per share amounts are computed by dividing the net income/loss (the preferred shares do not contain dividend rights) by the weighted average number of common stock shares outstanding plus the assumed issuance of the convertible preferred stock. For the three and nine months ended September 30, 2006 and 2005, basic income/loss per share amounts are based on 38,652,300, and 38,652,300, 37,736,433 and 35,924,124 weighted-average number of common stock shares outstanding, respectively. For the three and nine months ended September 30, 2006, no effect has been given to the assumed conversion of the convertible preferred stock shares as the effect would be antidilutive.

The Company’s capital structure is complex and consists of a series of convertible preferred stock and a general class of common stock. The Company is authorized to issue 310,000,000 shares of stock with a par value per share of $.0001, 10,000,000 of which have been designated as preferred shares and 300,000,000 of which have been designated as common shares.

On May 9, 2005, the Company issued 4,000,000 preferred stock shares to its majority common stockholder in exchange for the assignment of two patent rights (Notes 1 and 5). These shares are convertible into the Company’s common stock at the option of the holder any time after one year from the date of issuance. Each share of convertible preferred stock is convertible into one share of common stock. In the event of liquidation, these shares also allow the holder to exchange the shares for the Company’s office and manufacturing facilities (Notes 1 and 5). In addition, the shares will survive and not be affected by any recapitalization, reorganization or reverse stock split.

The Company operates in a highly specialized industry. The concept is inherent in nature, such as water vapor, clouds and fog, which occur due to the earth’s environment. Universal Fog, Inc.’s high pressure fog systems can create the same environment where and when you want it. Using normal tap water and pressurizing it to 800 PSI with our high-pressure pump modules, we force water through a series of patented brass and stainless steel nozzles creating a micro-fine mist or “fog”. With droplets ranging in size from 4 - 40 microns, the fog flash evaporates, removing unwanted heat in the process. Temperature drops up to 40⁰Fahrenheit are typical in situations where high heat and low humidity exist.

The mortgage payable was assumed by UFI on January 3, 2005 when the land, office and manufacturing facilities were contributed to UFI as additional paid in capital by our majority stockholder. On March 29, 2006, the Company received approval of a refinancing of this mortgage. The new mortgage had a beginning principal balance of $142,279.34 and bears interest at 8.34% with a balloon payment of $114,323.07 which will be due on May 30, 2011, and has a term of five years and principal and interest will be payable monthly based on a fifteen year amortization. The mortgage is guaranteed by Tom and Steffani Bontems. The Company and the guarantors are required to submit annual tax returns, the Company’s annual audited financial statements, quarterly Company prepared financials and personal financial statements of the guarantors. No financial covenants were required by the Lender.

On January 3, 2005, the Company’s majority stockholder contributed as additional paid in capital the land, office and manufacturing facilities located at 1808 South First Avenue, Phoenix, Arizona to the Company. Because this transaction is one between entities under common control, these facilities were recorded into the Company’s books and records at the stockholder’s historical cost of $401,117. These facilities are security for a note payable (Note 4), which was also transferred to and assumed by the Company.

Additionally, the Company’s majority stockholder entered in to an agreement whereby he assigned certain patent rights to the Company in exchange for 4,000,000 shares of the Company’s convertible preferred stock (Note 2). These patent rights were also recorded at the stockholder’s historical cost of $50,218.

At January 1, 2006, the Company owed its majority stockholder $48,174 from advances, net of repayments, made in prior years. During the nine months ended September 30, 2006 no additional advances were made and $38,029 of advances were repaid. The advances are unsecured, non-interest bearing and due upon demand as funds are available.

Also, at January 1, 2003, the Company owed another stockholder $153,064 from advances, net of repayments, made in prior years. During the years ended December 31, 2004 and 2003, and the five months ended May 30, 2005 the Company repaid $9,921, $9,437 and 4,282 respectively, of these advances. The advances were unsecured and payable with interest at 5.0% in monthly payments of $1,406 through March 2015. On May 30, 2005, the outstanding advances totaling $129,424 plus expenses of $5,576 were repaid through the issuance of 540,000 common stock shares.

The Company made a private placement to Dennis McKee wherein Mr. McKee purchased 2,000,000 shares of the Company’s common stock for $100,000 or $0.05 per share. $48,500 was tendered at the time of purchase and $12,822 was paid through payment of an outstanding invoice leaving a subscription receivable balance of $38,678. The share certificate was tendered prior to the receipt of the remaining funds. On December 5, 2005, in a negotiated transaction, Mr. McKee tendered 300,000 common stock shares to the Company in exchange for the remaining balance due of the subscription receivable. These shares were recorded as Treasury Stock in the amount of the subscription receivable balance ($38,678).

On January 16, 2006, Brian Hahn, COO, presented a proposed employment contract for Board of Directors approval. The Board, by unanimous vote, declined to approve the contract and part of a cost containment process, terminated Mr. Hahn's services to the Company. Mr. Hahn filed suit alleging a contractual violation and requesting cash damages of $63,453.36 and common stock in the amount of 3,458,295 shares. The Company intends to vigorously defend the suit. The plaintiff's attorney as agreed to postponement of the Company's answer while good faith settlement discussions are ongoing. Management believes that a settlement will be reached that will not have a material affect on the financial statements. As of September 30, 2006, the Company has accrued a loss contingency of $17,510 relating to this matter. As of November 10, 2006, there have been no further developments.

On August 9, 2005, the Company entered into an agreement with Sedona Holdings, Corp and Sundown Designs, Inc., to be the exclusive wholesale distributor for in the cities of Scottsdale and Phoenix, Arizona. The Company issued 200,000 shares valued a $0.25 per share as consideration for this agreement. The distributorship was valued at $50,000 since shares were being sold in a private placement for $0.25 per share and this was the fair value of the Company's common stock on the date of the transaction.

Universal Fog has developed a line of high pressure misting nozzles which will be used in certain of the Sundown Designs outdoor lighting products. These products, as well as the entire Sundown line, will be sold in the local area by Universal Fog as part of its agreement with Sedona Holdings. In addition, Universal Fog will furnish misting nozzles to Sundown Design for their line of products which they sell in other areas. Universal Fog has sold and installed one custom designed lighting project in the Phoenix area and has inquiries and other potential sales for the near future. (Note 8)

In August of 2006, the Company re-evaluated its accounting for the Sundown Distributorship (Note 7) and charged the entire cost of the distributorship, an amount previously accounted for as an asset, to expense in the December 31, 2005 financial statements. The Company re-evaluated the future economic benefits to be derived from this distributorship and determined that no or minor economic benefit had been realized through the first nine months of 2006 and since the signing of the agreement, which indicated that any future economic benefit was indeterminable. In accordance with SFAS 154 “Accounting Changes and Error Corrections,” the Company adjusted its accounting for the Sundown Distributorship to correct an error in its initial recording of the cost of this distributorship. The effect of this change reduced previously reported stockholders’ equity by $50,000 and reduced total assets by the same amount, but did not affect reported net income (loss) per share. There was no indirect effect by this action and there was no effect to any previously reported amounts.

The information set forth below should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included in Part I- Item I of this Quarterly Report and the Company’s Annual Report on Form 10-KSBfor the fiscal year ended December 31, 2005, which contains the audited consolidated financial statements and notes thereto and the Management’s Discussion and Analysis of Financial Condition and Results of Operations for the December 31, 2005 Annual Report.

Some of the statements under “Description of Business,” “Risk Factors,” “Management’s Discussion and Analysis or Plan of Operation,” and elsewhere in this Report and in the Company’s periodic filings with the Securities and Exchange Commission constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors what may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, those listed under “Risk Factors” and elsewhere in this Report.

In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intends,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its growth, that there will be no material adverse competitive or technological change in condition of the Company’s business, that the Company’s President and other significant employees will remain employed as such by the Company, and that there will be no material adverse change in the Company’s operations, business or governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, further economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company’s control.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.

Universal Fog, Inc. was incorporated in the State of Arizona on July 11, 1996and was the successor of the business known as Arizona Mist, Inc. which began in 1989. On May 9, 2005, Universal Fog, Inc. entered into a Stock Purchase Agreement and Share Exchange (effecting a reverse merger) with Edmonds 6, Inc.(Edmonds 6) and its name was changed to Universal Fog, Inc. (hereinafter referred to as either UFI or the Company). Edmonds 6 was incorporated on August19, 2004 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. Pursuant to this agreement, Universal Fog, Inc. (which has been in continuous operation since 1996) became a wholly owned subsidiary of Edmonds 6.

All Universal Fog high pressure fog systems are custom designed and manufactured for each specific application. We incorporate three different types of tubing in our systems enabling us to comply with nearly any design requirement. Our low profile 3/8” flexible nylon tubing utilizes our patented SLIP-LOK™ brass fittings allowing extreme versatility and easy installation. The use of 3/8”high-pressure nitrogenized copper is aesthetically very pleasing and enables us to conceal our mist lines behind walls, such as stucco, and meet certain building code requirements. In addition, we also produce systems using 3/8”stainless steel tubing, though copper systems are recommended, providing one of the most extensive product selections in the industry.

The concept is inherent in nature, such as water vapor, clouds, and fog, which manifest due to the earth’s environment. Universal Fog high pressure fog systems can create the same environment where and when you want it. Using normal tap water and pressurizing it to 800 PSI with our high-pressure pump modules, we force water through a series of patented brass and stainless steel nozzles creating a micro-fine mist or “fog”. With droplets ranging in size from 4 - 40 microns, the fog flash evaporates, removing unwanted heat in the process. Temperature drops up to 40°F are typical in situations where high heat and low humidity exist.

The Company is currently investigating new sources of supply and is concentrating on controlling costs to enhance its profitability. The Company is fully staffed with highly qualified individuals to fulfill the current and increased demand for product. As a result of this staffing, the Company has increased its sales and production capabilities and believes the Company is well positioned to experience new growth. The Company believes there will not be any significant increase in selling, general and administrative expenses as it implements its business plan.

Financial Reporting Release No. 60, which was released by the Securities and Exchange Commission (the “SEC”), encourages all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. The Company’s consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the financial statements.

Use of Estimates — Management’s discussion and analysis or plan of operation is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Management must determine at what point in the sales process to recognize revenue. We recognize revenue when title passes to the purchaser or when installation is complete and the customer is invoiced. Early or improper revenue recognition can affect the financial statements. We have established credit policies which, we believe will eliminate or substantially lower our uncollectible accounts receivable; however, management must make judgments regarding when and if to classify a receivable as uncollectible and this may affect the financial statements. The timing of purchase and the depreciation policies for property and equipment may affect the financial statements. Advertising costs can be deferred or may not be properly allocated to the proper accounting period and this can affect the financial statements.

We review the carrying value of property and equipment for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair market value.

Effective January 1, 2006, we adopted the provisions of SFAS No. 123(R), “Share-Based Payment,” under the modified prospective method. SFAS No. 123(R) eliminates accounting for share-based compensation transactions using the intrinsic value method prescribed under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and requires instead that such transactions be accounted for using a fair-value-based method. Under the modified prospective method, we are required to recognize compensation cost for share-based payments to employees based on their grant-date fair value from the beginning of the fiscal period in which the recognition provisions are first applied. During the 9 months ended September 30, 2006, we have not issued shares for services.

For periods prior to adoption, the financial statements are unchanged, and the pro forma disclosures previously required by SFAS No. 123, as amended by SFAS No. 148, will continue to be required under SFAS No. 123(R) to the extent those amounts differ from those in the Statement of Operations.

Revenues. The Company’s revenues are derived from the assembly of components used in misting systems and installations of these systems in commercial and residential applications and through the sales to distributors in various states and foreign countries.

Revenues for the three-month period ended September 30, 2006 were $261,039 compared to $317,504 for the three-month period ended September 30, 2005. During the third quarter of 2005 the Houston, Texas distributor made substantial purchases to set up his inventory. These purchases were not repeated in the third quarter of 2006 and led to a decrease in quarterly sales.

Cost of sales for the three-month period ended September 30, 2006 were $126,089, compared to $98,282 for the three-month period ended September 30, 2005. The increase is due to additional direct labor in the third quarter. The Company refined its method of identifying which costs are more directly related to manufacturing, therefore the gross profit percentages have decreased during this quarter as compared to the same quarter in 2005.

Operating Expenses. Operating expenses for the three-month period ended September 30, 2006 were $141,755 compared to $328,279 for the three-month period ended September 30, 2005. The decrease is due to cost cutting efforts by management and the initial expenses of becoming a reporting company and filing a registration statement were paid in 2005. Selling and marketing expenses decreased to $2,718 during these three months in 2006 as compared to $40,544 for the same three months in 2005 due to marketing costs allocated to the new distributor being paid in 2005. General and Administrative expenses decreased from $116,729 in the three-month period ended September 30, 2005 to $85,427 in the same period in 2006. This decrease was due to cost cutting efforts by management. Compensation expense decreased for the three-month period ended September 30, 2006 to $53,610 from $171,006 in the period ended September 30, 2005 due to the elimination of the Chief Operating Officer position and the President has not taken his salary.

Depreciation and Amortization. Depreciation and amortization are included in General and Administrative expenses. For the three-month period ended September 30, 2006, these costs were $5,598, compared to $5,512 for the three-month period ended September 30, 2005.

Revenues. Revenues for the nine-month period ended September 30, 2006 were $744,248 compared to $632,343 for the same period ended September 30, 2005. The increase in revenues in 2006 was due to the addition of a 50 inch fan to our product line, and overseas purchases.

Cost of Sales. Cost of sales for the nine-month period ended September 30, 2006 were $364,589, compared to $202,178 for the nine-month period ended September 30, 2005. This increase is the result of higher revenues and increased direct labor costs compared to the corresponding nine-month period in 2005. During the nine-months ended September 30, 2006, the Company refined its method of identifying which costs are more directly related to manufacturing, therefore the gross profit percentage during the nine-month period ending September 30, 2006 decreased from the gross profit percentage in the corresponding period of 2005.

Operating Expenses. Operating expenses for the nine-month period ended September 30, 2006 were $422,944, compared to $579,505 for the nine-month period ended September 30, 2005 due to cost cutting efforts by management. Selling and marketing expenses decreased to $8,947 during these nine months in 2006 from $43,501 for the same nine months in 2005 due to promotional costs allocated to the new distributor in 2005. Compensation decreased from $272,948 in the nine-month period of 2005 to $169,485 in the same nine-month period in 2006 due to the elimination of the chief operating officer position and the President foregoing his salary. General and Administrative expenses decreased from $263,056 in the nine-month period ended September 30, 2005 to $244,512 in the same period of 2006. This decrease was due to non-recurring costs associated with becoming a reporting company which were paid in 2005.

Depreciation and Amortization. Depreciation and amortization are included in General and Administrative expenses. For the nine-month period ended September 30, 2005, these costs were $13,142, compared to $12,658 for the nine-month period ended September 30, 2006.

We funded our cash requirements for the nine-month period ended September 30, 2005 through operations. During the nine months ended September 30, 2006 our cash flow from operations was $18,922 as compared to a negative $138,523 in the corresponding period in 2005. The Company does not have any material commitments for capital expenditures as of the date of this report. Management believes sufficient cash flow from operations and the sale of additional common stock will be available during the next twelve months to satisfy its short-term obligations. Management is continuing to seek additional equity capital to fund its various activities and as part of a capital procurement plan, filed a form SB2 registration statement with the SEC on October 5, 2005 to sell 4,000,000 shares of its stock to the public. The filing was declared effective on November 6, 2006 and will expire on June 30, 2007. Management has also eliminated or reduced unnecessary costs

Cash decreased by $19,107 during the nine-month period ended September 30, 2006. Over the same period in 2005, cash increased by $122,378. During the nine-month period ended September 30, 2006, our operating expenses were decreased due to cost cutting efforts by management and the elimination of the Chief Operating Officer position.

We are currently incurring cash expenses in the amount of approximately $47,000 per month for all operations, of which fixed costs account for approximately $24,000. We anticipate cash expenditures of approximately $140,000 for the quarter ended December 31, 2006. We believe our current liquidity and capital resources, together with the proceeds received in the SB-2 registration statement are sufficient to support our ongoing business operations.

UFI has suffered an operating loss for the nine-month period ending September 30, 2006 of $56,614 compared to $163,689 in the nine-month period ended September 30, 2005. This loss was primarily the result of the expenses of the current SB-2 registration statement. If UFI does not raise adequate funds from this offering we will curtail our expansion plans and, if necessary, will seek a line of credit secured by the building which will allow UFI to continue as a going concern as our core business should not be affected.

On January 3, 2005, the Company’s majority stockholder contributed as additional paid in capital the land, office and manufacturing facilities located at 1808 South First Avenue, Phoenix, Arizona to the Company. Because this transaction is one between entities under common control, these facilities were recorded into the Company’s books and records at the stockholder’s historical cost of $401,117. These facilities are security for a note payable of $147,570, which was also transferred to and assumed by the Company. The net amount of $253,547 was recorded in the Company’s books as additional paid in capital.

At January 1, 2003, the Company owed its majority stockholder $104,247 from advances, net of repayments, made in prior years. During the six months ended June 30, 2005 additional advances of $4,647 were made and $36,000 of advances repaid. During each of the years ended December 31, 2004 and 2003, the Company repaid $7,875 and $15,944, respectively, of these advances. The advances are unsecured, non-interest bearing and due upon demand as funds are available.

Also, at January 1, 2003, the Company owed another stockholder $153,064 from advances, net of repayments, made in prior years. During the five months ended September 30, 2005 and each of the years ended December 31, 2004 and 2003, the Company repaid $4,282, $9,921 and $9,437, respectively, of these advances. The advances were unsecured and payable with interest at 5.0% in monthly payments of $1,406 through March 2015. On May 30, 2005, the outstanding advances totaling $129,424 plus expenses of $5,576 were repaid through the issuance of 540,000 common stock shares.

In May of 2005, the Company made a private placement of 2,000,000 shares of its restricted common stock to a beneficial stockholder at $0.05 per share. On December 5, 2005, Dennis McKee (a beneficial stockholder) returned 300,000 shares to the Company. The Company resold the 300,000 shares of Treasury Stock as follows: 52,000 shares of treasury stock were sold for $13,000 on December 29, 2005 and 40,000 shares of treasury stock were sold on January 9, 2006 for $10,000. In addition the remaining 208,000 shares of treasury stock were sold on March 31, 2006 for $18,678. The aggregate price received for all of the treasury stock was $41,678.

Our Chief Executive Officer and Chief Financial Officer (collectively the “Certifying Officers”) maintain a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be disclosed, is accumulated and communicated to management timely. Under the supervision and with the participation of management, the Certifying Officers evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule [13a-14(c)/15d-14(c)] under the Exchange Act) within 90 days prior to the filing date of this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures are effective in timely alerting them to material information relative to our company required to be disclosed in our periodic filings with the SEC. The Certifying Officers concluded that our disclosure controls and procedures are also effective to ensure that information required to be disclosed by the Company in reports that it files under the Exchange act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Our scope of internal control is intended to extend to policies, procedures, processes, systems, activities, initiatives, and endeavors required of a company with our transactions, expenses, and operations. To this end, management has made changes to internal controls and procedures, including corrective actions with regard to significant deficiencies or material weaknesses identified in the Company’s audit for the period ending May 31, 2005 and the years ended December 31, 2004 and 2003, respectively. As of this date, it is the belief of management that, given the Company’s operations, our revised disclosure controls and procedures will be effective.

There were two significant deficiencies which were found during the audit of the five months ended May 31, 2005 and the years ended December 31, 2004 and 2003. One included the failure to record accrual entries during the above periods as the general ledgers were kept on a cash basis. The other involved the lack of timely recording of non-cash equity transactions. Collectively, these deficiencies represent a material weakness. UFI has contracted with a Certified Public Accountant to review monthly the recordation procedures and to provide assistance in compliance with generally accepted accounting principles. UFI has employed an independent stock transfer agent to record transactions in the Company’s equity securities and will rely on the assistance of the contract CPA to provide timely recording in the Company’s general ledger of any equity security.

Delaware	86-0827216
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

	Page #

Consolidated Balance Sheet	F-1

Consolidated Statements of Operations	F-2

Consolidated Statements of Cash Flows	F-3

Notes to the Consolidated Financial Statements	F-5

Date: November 10, 2006	By: /s/ Tom Bontems
	Tom Bontems
	President