e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

Universal Biosensors, Inc.

(Exact name of registrant as specified in its charter)


Delaware		98-0424072

(State or other jurisdiction of		(I.R.S. Employer Identification Number)
incorporation or organization)


Universal Biosensors, Inc.
1 Corporate Avenue,
Rowville, 3178, Victoria
Australia		Not Applicable
(Address of principal executive offices)		(Zip Code)

Telephone: +61 3 9213 9000
(Registrant’s telephone number,
including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

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


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 156,976,936 shares of Common Stock, U.S.$0.0001 par value, outstanding as of August 7, 2009.

PART I


Item 1		Financial Statements

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)


	June 30,			December 31,
	2009			2008
	A$			A$
ASSETS

Current assets:
Cash and cash equivalents		22,284,881			28,334,864
Accrued income		118,305			118,305
Accounts receivables		3,459			31,657
Prepayments		2,910,572			3,730,246
Other current assets		500,855			535,000

Total current assets		25,818,072			32,750,072

Property, plant and equipment		26,553,746			23,522,706
Less accumulated depreciation		(5,173,249	)		(3,767,457	)

Property, plant and equipment — net		21,380,497			19,755,249

Total assets		47,198,569			52,505,321


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable		504,753			630,977
Accrued expenses		813,451			838,697
Financial instruments		63,396			—
Borrowings		119,918			—
Deferred income		1,230,707			—
Employee entitlements provision		495,300			435,387

Total current liabilities		3,227,525			1,905,061

Non-current liabilities:
Asset retirement obligations		1,770,841			1,699,133
Employee entitlements provision		222,402			197,897
Deferred income		77,088			—

Total non-current liabilities		2,070,331			1,897,030

Total liabilities		5,297,856			3,802,091


Stockholders’ equity:
Preferred stock, $0.01 par value. Authorized 1,000,000 shares; issued and outstanding nil in 2009 (2008: nil)
Common stock, $0.0001 par value. Authorized 300,000,000 shares; issued and outstanding 156,976,936 shares in 2009 (2008: 156,976,936)		15,698			15,698
Additional paid-in capital		73,595,973			73,338,995
Accumulated deficit		(24,353,151	)		(12,357,265	)
Current year loss		(6,996,099	)		(11,995,886	)
Accumulated other comprehensive income		(361,708	)		(298,312	)

Total stockholders’ equity		41,900,713			48,703,230

Total liabilities and stockholders’ equity		47,198,569			52,505,321

See notes to consolidated condensed financial statements which are an integral part of these statements

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)


	Period from
	Inception
	(September 14,
	2001) to June 30,			Three Months Ended June 30,						Six Months Ended June 30,
	2009			2009			2008			2009			2008
	A$			A$			A$			A$			A$
Revenue
Revenue from products	$	—		$	—		$	—		$	—		$	—
Revenue from services		4,901,808			312,590			1,240,801			1,780,054			1,240,801

Total revenue from ordinary activities		4,901,808			312,590			1,240,801			1,780,054			1,240,801
Costs of revenues
Cost of goods sold		—			—			—			—			—
Cost of services		3,183,874			47,285			1,240,801			62,120			1,240,801

Total costs of revenues		3,183,874			47,285			1,240,801			62,120			1,240,801
Gross profit		1,717,934			265,305			—			1,717,934			—
Operating expenses
Research and development (1 and 2)		36,253,859			4,104,205			2,065,317			7,337,840			4,005,946
General and administrative (3)		16,948,642			1,395,286			1,432,689			2,585,878			2,821,702

Total operating expenses		53,202,501			5,499,491			3,498,006			9,923,718			6,827,648
Research and development income		13,816,131			349,848			274,213			738,167			553,511

Loss from operations		(37,668,436	)		(4,884,338	)		(3,223,793	)		(7,467,617	)		(6,274,137	)
Other income/(expense)
Interest income		5,059,291			193,184			702,517			460,258			1,476,474
Interest expense		(16,716	)		(3,614	)		(9,489	)		(7,227	)		(9,489	)
Fee income		1,131,222			—			—			—			1,131,222
Other		163,183			52,265			(67,433	)		18,487			(83,661	)

Total other income/(expense)		6,336,980			241,835			625,595			471,518			2,514,546
Net loss before tax		(31,331,456	)		(4,642,503	)		(2,598,198	)		(6,996,099	)		(3,759,591	)
Income tax benefit/(expense)		(17,794	)		—			(2,848	)		—			206

Net loss	$	(31,349,250	)	$	(4,642,503	)	$	(2,601,046	)	$	(6,996,099	)	$	(3,759,385	)


Basic and diluted net loss per share	$	(0.41	)	$	(0.03	)	$	(0.02	)	$	(0.04	)	$	(0.02	)
Average weighted number of shares outstanding during the period		76,022,193			156,976,936			156,969,888			156,976,936			156,964,319

Notes:


1. Net of research grant income in these amounts	2,366,063	—	59,862	—	300,613
2. Includes non-cash compensation expense (research and development)	1,325,773	81,024	253,212	177,021	331,056
3. Includes non-cash compensation expense (general and administrative)	931,095	35,506	55,910	79,957	151,674

See notes to consolidated condensed financial statements which are an integral part of these statements

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)


	Period from
	Inception
	(September 14,
	2001) to June 30,			Six Months Ended June 30,
	2009			2009			2008
	A$			A$			A$
Cash flows from operating activities:
Net loss		(31,349,250	)		(6,996,099	)		(3,759,383	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net exchange difference		1,102,572			—			—
Depreciation and impairment of plant & equipment		5,696,111			1,414,828			889,150
Share based payments expense		2,256,868			256,978			482,730
Loss on fixed assets disposal		206,506			55,821			—
Change in assets and liabilities:
Inventory		—			—			(216,091	)
Accounts receivables		(910,787	)		28,198			(1,206,710	)
Prepaid expenses and other current assets		(3,899	)		(195,627	)		16,608
Accrued income		(108,855	)		—			(152,123	)
Income tax payable		—			—			(18,000	)
Deferred revenue		1,307,795			1,307,795			—
Employee entitlements		717,702			84,418			220,563
Accounts payable and accrued expenses		1,313,171			(179,361	)		(87,384	)

Net cash used in operating activities		(19,772,066	)		(4,223,049	)		(3,830,640	)

Cash flows from investing activities:

Proceeds/(purchases) from sale of investment securities		—			—			3,123,501
Instalment payments to acquire plant and equipment		(5,146,240	)		(1,530,005	)		(2,663,339	)
Purchases of property, plant and equipment		(21,160,745	)		(416,847	)		(2,961,114	)

Net cash used in investing activities		(26,306,985	)		(1,946,852	)		(2,500,952	)

Cash flows from financing activities:
Gross proceeds from share issue		73,517,472			—			—
Transaction costs on share issue		(4,099,870	)		—			(16,659	)
Proceeds from borrowings		479,673			479,673			—
Repayment of borrowings		(359,755	)		(359,755	)		—
Proceeds from stock options exercised		184,045			—			5,047

Net cash provided by/(used in) financing activities		69,721,565			119,918			(11,612	)

Net increase/(decrease) in cash and cash equivalents		23,642,514			(6,049,983	)		(6,343,204	)
Cash and cash equivalent at beginning of period		—			28,334,864			41,958,285
Effect of exchange rate fluctuations on the balances of cash held in foreign currencies		(1,357,633	)		—			—

Cash and cash equivalents at end of period		22,284,881			22,284,881			35,615,081

See notes to consolidated condensed financial statements which are an integral part of these statements

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY AND COMPREHENSIVE INCOME
(Unaudited)


											Additional						Other			Total
	Preference Shares						Ordinary shares				Paid-in			Accumulated			Comprehensive			Stockholders'
	Shares			Amount			Shares		Amount		Capital			Deficit			Income			Equity
				A$					A$		A$			A$			A$			A$
Balance at September 14, 2001 (1)
Changes during the period from September 14, 2001 through December 31, 2007
Preference and ordinary shares issued for cash		40,386,962			16,701,436			116,071,631		11,607		54,474,378			—			—			71,187,421
Conversion of preference shares to ordinary shares		(40,386,962	)		(16,701,436	)		40,386,962		4,039		16,697,397			—			—			—
Exercise of stock options issued to employees		—			—			500,219		50		178,948			—			—			178,998
Stock option expense		—			—			—		—		1,038,782			—			—			1,038,782
Comprehensive Income
Foreign currency translation reserve		—			—			—		—		—			—			(298,312	)		(298,312	)
Net loss for the period		—			—			—		—		—			(12,357,265	)		—			(12,357,265	)

Total comprehensive income																					(12,655,577	)

Balances at December 31, 2007		—			—			156,958,812		15,696		72,389,505			(12,357,265	)		(298,312	)		59,749,624
Transaction costs on shares issued in 2007		—			—			—		—		(16,663	)		—			—			(16,663	)
Exercise of stock options issued to employees		—			—			18,124		2		5,045			—			—			5,047
Stock option expense		—			—			—		—		482,730			—			—			482,730
Comprehensive Income
Loss on derivatives and hedges		—			—			—		—		—			—			(21,316	)		(21,316	)
Net loss for the period		—			—			—		—		—			(3,759,385	)		—			(3,759,385	)

Total comprehensive income																					(3,780,701	)

Balances at June 30, 2008		—			—			156,976,936		15,698		72,860,617			(16,116,650	)		(319,628	)		56,440,037


Balances at December 31, 2008		—			—			156,976,936		15,698		73,338,995			(24,353,151	)		(298,312	)		48,703,230
Changes during the six month period ended June 30, 2009
Comprehensive Income
Loss on derivatives and hedges		—			—			—		—		—			—			(63,396	)		(63,396	)
Net loss for the period		—			—			—		—		—			(6,996,099	)		—			(6,996,099	)

Total comprehensive income																					(7,059,495	)
Stock option expense		—			—			—		—		256,978			—			—			256,978

Balances at June 30, 2009		—			—			156,976,936		15,698		73,595,973			(31,349,250	)		(361,708	)		41,900,713

(1) Incorporation date

See notes to consolidated condensed financial statements which are an integral part of these statements

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Basis of Presentation and Summary of Significant Accounting Policies

Organization of the Company

Universal Biosensors, Inc. (the “Company”) was incorporated on September 14, 2001 in the United States, and its wholly owned subsidiary and operating vehicle, Universal Biosensors Pty Ltd, was incorporated in Australia on September 21, 2001. Collectively, the Company and its wholly owned subsidiary Universal Biosensors Pty Ltd are referred to as “Universal Biosensors” or the “Group”. The Company’s shares of common stock in the form of CHESS Depositary Interests (“CDIs”) were quoted on the Australian Securities Exchange (“ASX”) on December 13, 2006 following the initial public offering in Australia of the Company’s shares of common stock. Our securities are not currently traded on any other public market.

The Company is a specialist medical diagnostics company focused on the development, manufacture and commercialization of a range of in vitro diagnostic tests for point-of-care use. In vitro diagnostic testing involves the testing of a body fluid or tissue sample outside the body. The Company’s diagnostic tests comprise a novel disposable test strip and a reusable meter and are small, portable and easy-to-use.

Universal Biosensors has rights to an extensive patent portfolio comprising certain patent applications owned by our wholly owned Australian subsidiary, Universal Biosensors Pty Ltd, and a large number of patents and patent applications licensed to us by LifeScan, Inc. (“LifeScan”), an affiliate of Johnson & Johnson Corporation.

The Group has a range of point-of-care blood tests in development including an immunoassay point-of-care test to measure the amount of C-reactive protein in the blood which may be used to assist in the diagnosis and management of inflammatory conditions and a prothrombin time test which may be used for monitoring the therapeutic range of the anticoagulant, warfarin. The Group has developed a working prototype of the immunoassay C-reactive protein test and the prothrombin time test. The Group has also started work on a point-of-care dry immunoassay to measure the amount of D-dimer in the blood. D-dimer is a well established marker currently being used as point-of-care test for the detection and monitoring of several conditions associated with thrombotic disease, particularly deep venous thrombosis (clots in the leg) and pulmonary embolism (clots in the lung). Universal Biosensors also intends to develop additional immunoassay based point-of-care test devices by taking selected disease biomarkers currently measured in the central laboratory environment and creating tests using those biomarkers for the point-of-care setting using its novel platform of electrochemical cell technologies. Universal Biosensors proposes to focus on the development of products, which do not rely on the discovery of new medicines, treatments or biomarkers, but instead proposes to focus on areas where existing therapies or practice can be enhanced significantly by simple and accurate diagnostic tools incorporating well-known biomarkers.

On October 29, 2007 Universal Biosensors entered into a master services and supply agreement which contains the terms pursuant to which Universal Biosensors Pty Ltd would provide certain services in the field of blood glucose monitoring to LifeScan and would act as a non-exclusive manufacturer of an original version of the initial blood glucose test strips we developed for LifeScan (“Master Services and Supply Agreement”). On December 11, 2008, Universal Biosensors entered into an additional services addendum to provide manufacturing process support to assist LifeScan to establish LifeScan’s own manufacturing line for blood glucose test strips at a location of its choosing. On December 11, 2008, the Master Services and Supply Agreement was amended to reflect certain definitional matters. On May 15, 2009, the Master Services and Supply Agreement was amended and restated to incorporate certain amendments made in December 2008 and to update the commercial terms of the agreement to reflect a change from the original version of the initial blood glucose test strip to an enhanced version of the initial blood glucose test strip. The Master Services and Supply Agreement is structured as an umbrella agreement which enables Universal Biosensors and LifeScan to enter into a series of additional arrangements for the supply by Universal Biosensors of additional services and products in the field of blood glucose monitoring.

Additionally, the Group will continue to provide research and development services to LifeScan in the area of diabetes management to extend and develop the glucose sensor technology owned by LifeScan under a development and research agreement (“Development and Research Agreement”).

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

All business operations and research and development activities are undertaken in Melbourne, Australia by the Company’s wholly owned subsidiary, Universal Biosensors Pty Ltd, under the Master Services and Supply Agreement and a research and development sub-contract and sub-license agreement between Universal Biosensors Pty Ltd and the Company.

The Group is considered a development stage enterprise, as its planned commercial manufacturing operations have not yet commenced.

Interim Financial Statements

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto as of and for the year ended December 31, 2008, included in the Form 10-K of Universal Biosensors, Inc.

The year-end condensed balance sheet data as at December 31, 2008 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

Basis of Presentation

These financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All amounts are expressed in Australian dollars (“A$”) unless otherwise stated.

The Company’s financial statements have been prepared assuming the Company will continue as a going concern. Other than a small profit in the Company’s first year of operations, the Company has sustained operating losses since inception. The Company expects to continue to incur losses as it continues the development of its point-of-care tests and expands the organization and commercial manufacturing capability until the Company is able to generate sufficient revenues under the Master Services and Supply Agreement and/ or from the sale of any of its own products.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiary Universal Biosensors Pty Ltd. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of inventory and property, plant and equipment, deferred income taxes, asset retirement obligations and obligations related to employee benefits. Actual results could differ from those estimates.

Cash & Cash Equivalents

The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. For cash and cash equivalents, the carrying amount approximates fair value due to the short maturity of those instruments.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Short-Term Investments (Held-to-maturity)

Short-term investments constitute all highly liquid investments with term to maturity from three months to twelve months. The carrying amount of short-term investments is equivalent to its fair value.

Concentration of Credit Risk and Other Risks and Uncertainties

Cash and cash equivalents consists of financial instruments that potentially subject the Company to concentration of credit risk to the extent of the amount recorded on the balance sheet. The Company’s cash and cash equivalents are invested with two of Australia’s four largest banks. The Company is exposed to credit risk in the event of default by the banks holding the cash or cash equivalents to the extent of the amount recorded on the balance sheets. The Company has not experienced any losses on its deposits of cash and cash equivalents.

Product candidates developed by the Company may require approvals or clearances from the U.S. Food and Drug Administration or other international regulatory agencies prior to commercialized sales. There can be no assurance that the Company’s product candidates will receive any of the required approvals or clearances. If the Company was denied approval or clearance of such approval was delayed, it may have a material adverse impact on the Company.

Derivative Instruments and Hedging Activities

Derivative financial instruments

The Company uses derivative financial instruments to hedge its exposure to foreign exchange arising from operating, investing and financing activities. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

Derivative financial instruments are recognized initially at fair value. Subsequent to initial recognition, derivative financial instruments are stated at fair value. The gain or loss on remeasurement to fair value is recognized immediately in the income statement. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.

Cash flow hedges

Exposure to foreign exchange risks arises in the normal course of the Company’s business and it is the Company’s policy to use forward exchange contracts to hedge anticipated sales and purchases in foreign currencies. The amount of forward cover taken is in accordance with approved policy and internal forecasts.

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognized asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognized directly in equity. When the forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, the associated cumulative gain or loss is removed from equity and included in the initial cost or other carrying amount of the non-financial asset or liability. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, then the associated gains and losses that were recognized directly in equity are reclassified into the income statement in the same period or periods during which the asset acquired or liability assumed affects the income statement.

For cash flow hedges, other than those covered by the preceding statement, the associated cumulative gain or loss is removed from equity and recognized in the income statement in the same period or periods during which the hedged forecast transaction affects the income statement and on the same line item as that hedged forecast transaction. The ineffective part of any gain or loss is recognized immediately in the income statement.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

When a hedging instrument expires or is sold, terminated or exercised, or the Company revokes designation of the hedge relationship but the hedged forecast transaction is still probable to occur, the cumulative gain or loss at that point remains in equity and is recognized in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, then the cumulative unrealized gain or loss recognized in equity is recognized immediately in the income statement.

Inventory

Raw materials are stated at the lower of cost and net realizable value. Costs of purchased inventory are determined after deducting rebates and discounts.

Receivables

Receivables are recognized initially at fair value and subsequently measured at amortized cost, less provision for doubtful debts. Receivables are due for settlement no more than 45 days from the receipt of the invoice by the customer.

Collectibility of receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount of the provision is recognized in the income statement.

Property, Plant and Equipment

Property, plant and equipment are recorded at acquisition cost, less accumulated depreciation.

Depreciation on plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful life of machinery and equipment is 3 to 10 years. Leasehold improvements are amortized on the straight-line method over the shorter of the remaining lease term or estimated useful life of the asset. Maintenance and repairs are charged to operations as incurred and include minor corrections and normal services and does not include items of capital nature.


	June 30, 2009			December 31, 2008
	A$			A$
Plant and equipment		13,214,904			13,003,248
Leasehold improvements		8,188,072			8,123,925
Capital work in process		5,150,770			2,395,533

		26,553,746			23,522,706
Accumulated depreciation		(5,173,249	)		(3,767,457	)

Property, plant & equipment, net		21,380,497			19,755,249

Capital work in process relates to assets under construction and comprises primarily of specialized manufacturing equipment. Legal right to the assets under construction rests with the Company. The amounts capitalized for capital work in process represents the percentage of expenditure that has been completed, and once the assets are placed into service the Company begins depreciating the respective assets. The accumulated amortization of capitalized leasehold improvements for the fiscal year ended December 31, 2008 and for the six month period ended June 30, 2009 was A$1,501,516 and A$2,127,683, respectively.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The Company receives Victorian government grant monies under a grant agreement to support the establishment of a medical diagnostic manufacturing facility in Victoria through the purchase of plant and equipment. Plant and equipment is presented net of the government grant of A$280,000 at December 31, 2008 and June 30, 2009, respectively. The grant monies are recognized against the acquisition costs of the related plant and equipment as and when the related assets are purchased. Grant monies received in advance of the relevant expenditure are treated as deferred income and included in “Current Liabilities” on the balance sheet as the Company does not control the monies until the relevant expenditure has been incurred. Grants due to the Company under the grant agreement are recorded as “Currents Assets” on the balance sheet.

Depreciation expense was $5,696,111 for the period from inception to June 30, 2009 and $696,958 and $506,773 for the three months ended June 30, 2009 and 2008, respectively and $1,414,828 and $889,150 for the six months ended June 30, 2009 and 2008, respectively.

The movement in accumulated depreciation is agreed to depreciation expense as follows:


	Six months ended		Year ended
	June 30, 2009		December 31, 2008
	A$		A$
Movement in accumulated depreciation		1,405,792		2,195,236
Accumulated depreciation of fixed assets disposed		9,036		71,611

Depreciation expense		1,414,828		2,266,847

Research and Development

Research and development expenses consists of costs incurred to further the Group’s research and development activities and include salaries and related employee benefits, costs associated with clinical trial and preclinical development, regulatory activities, research-related overhead expenses, costs associated with the manufacture of clinical trial material, costs associated with developing a commercial manufacturing process, costs for consultants and related contract research, facility costs and depreciation. Research and development costs are expensed as incurred.

The Group receives Australian Commonwealth government grant funding under an R&D Start Grant Agreement as compensation for expenses incurred in respect of certain research activities into dry chemistry immunosensors. Such grants reduce the related research and development expenses as and when the relevant research expenses are incurred. Grants received in advance of incurring the relevant expenditure are treated as deferred research grants and included in current liabilities on the balance sheet as the Group has not earned these amounts until the relevant expenditure has been incurred. Grants due to the Group under research agreements are included in current assets as accrued income on the balance sheet.

Research and development expenses for the period from inception to June 30, 2009 and for the three months ended June 30, 2009 and 2008 and for the six months ended June 30, 2009 and 2008 are as follows:

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)


	Period from
	inception to
	June 30,			Three months ended June 30,					Six months ended June 30,
	2009			2009		2008			2009		2008
	A$			A$		A$			A$		A$
Research and development expenses		38,619,922			4,104,205		2,125,179			7,337,840		4,306,559
Research grants received recognized against related research and development expenses		(2,366,063	)		—		(59,862	)		—		(300,613	)

Research and development expenses as reported		36,253,859			4,104,205		2,065,317			7,337,840		4,005,946

Income Taxes

The Company applies Statement of Financial Accounting Standards No. 109 — Accounting for Income Taxes (“SFAS 109”) which establishes financial accounting and reporting standards for the effects of income taxes that result from a company’s activities during the current and preceding years. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Where it is more likely than not that some portion or all of the deferred tax assets will not be realized the deferred tax assets are reduced by a valuation allowance. The valuation allowance is sufficient to reduce the deferred tax assets to the amount that is more likely than not to be realized. At present there is a full valuation allowance recognized.

The Company adopted FASB Interpretation FIN No. 48, “Accounting for Uncertainty in Income Taxes” effective January 1, 2007 which has not had a material impact on the Company’s consolidated financial statements.

We are subject to income taxes in the United States and Australia. U.S. federal income tax returns up to the 2007 financial year have been lodged. Internationally, consolidated income tax returns up to the 2008 financial year have been lodged.

Asset Retirement Obligations

Asset retirement obligations (“ARO”) are legal obligations associated with the retirement and removal of long-lived assets. SFAS No. 143 “Accounting for Asset Retirement Obligations” requires entities to record the fair value of a liability for an asset retirement obligation when it is incurred. When the liability is initially recorded, the Company capitalizes the cost by increasing the carrying amounts of the related property, plant and equipment. Over time, the liability increases for the change in its present value, while the capitalized cost depreciates over the useful life of the asset. The Company derecognizes ARO liabilities when the related obligations are settled.

The ARO is in relation to our premises wherein in accordance with the terms of the lease, the lessee has to restore part of the building upon vacating the premises.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Our overall ARO changed as follows:


	Six months ended June		Year ended
	30, 2009		December 31, 2008
	A$		A$
Opening balance		1,699,133		1,566,892
Accretion expense		71,708		132,241

Ending balance		1,770,841		1,699,133

Fair Value of Financial Instruments

The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature. The estimated fair value of all other amounts has been determined by using available market information and appropriate valuation methodologies.

Impairment of Long-Lived Assets

The Company reviews its capital assets, including patents and licenses, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. In performing the review, the Company estimates undiscounted cash flows from products under development that are covered by these patents and licenses. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition is less than the carrying amount of the asset. Impairment, if any, is measured as the amount by which the carrying amount of the assets exceeds its fair value. Impairment, if any, is assessed using discounted cash flows.

Australian Goods and Services Tax (GST)

Revenues, expenses and assets are recognized net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognized as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet. Cash flows are presented on a gross basis.

Revenue Recognition

Revenue from services

We provide certain services to LifeScan. We perform services for LifeScan based on their requirements. There are different arrangements for each service being provided. Revenue recognition principles are assessed for each new contractual arrangement and the appropriate accounting is determined for each service. Revenues received in advance of performing the services are treated as deferred income and included in liabilities on the balance sheet as the Group has not earned these amounts until the relevant services have been performed. We recognize revenue from these services on the following bases:

(1)		as we perform the services

		Under the terms of our arrangement with LifeScan, we provided certain services relating to the development and scale up of the production of our blood glucose sensor strip. Production scale up includes activities such as producing strips and testing strips. Under this arrangement, no margin was earned as the costs of providing the services were equal to the revenue recognized. In accordance with Emerging Issues Task Force (“EITF”) Issue 99-19, revenue has been recognized on a gross basis as the Company has earned revenue from the provision of services. Other factors which management considered, which support the gross basis of revenue recognition are as follows:

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

	•		the Company was responsible for providing the service and was also the primary obligor with respect to purchasing goods and services from third party suppliers which in turn were used to provide services to LifeScan;

	•		the Company had unmitigated general inventory risk;

	•		the Company had credit risk; and

	•		pricing was not fixed but determined by the level of activity.

The transaction with LifeScan satisfies the revenue recognition criteria outlined in Staff Accounting Bulletin (“SAB”) 101/104. The principles of revenue recognition in SAB 104 have all been satisfied; services were performed by us which were supported by purchase orders issued by LifeScan on a regular basis, collection was assured, delivery of the services had occurred and the amount was objectively determined and reflected the cost of the services that were to be provided by us. The costs of the services, consisting of materials, labor hours and factory overheads, were largely dependant on the number of test runs that were required to be carried out by us on a monthly basis. The arrangement consisted of only one deliverable which was the development and scale up of the production activities of our blood glucose sensor strips. The relevant services performed under this arrangement were completed and ceased in September 2008. We recognized revenue from these services as we performed the services. Furthermore, the revenue received was not contingent on performing any other services.

(2)		on a proportional performance basis where revenues is related to costs incurred in providing the services required under the contract

		The Company has been providing services to LifeScan to enable LifeScan to establish its own manufacturing line for the blood glucose sensor strips. The proportional performance method has been used to recognize revenue. We believe this method is appropriate as the contract amount was determined prior to the commencement of the service, LifeScan receives value as the services are performed and LifeScan need not re-perform the services that it has already received from the Company should the service arrangement be terminated.

Research and development revenue

On April 1, 2002, the Company and LifeScan entered into a License Agreement, pursuant to which LifeScan granted to the Company a worldwide, royalty free, exclusive license, with a limited right to sub-license, to make, have made, use, sell under and exploit in any way a range of key patents, patent applications and know-how owned by LifeScan, relating to electrochemical sensor technologies in all fields in the area of diabetes and blood glucose management generally (“LifeScan Fields”), the rights to which are retained by LifeScan. The exclusive license is subject to LifeScan having retained the right to make, have made, use, and sell under and exploit in any way the key patents, patent applications and know-how owned by LifeScan in all fields including in the fields of the Company’s own point-of-care tests. At the time of the original execution of the Master Services and Supply Agreement in October 2007, the License Agreement was amended to grant the Company a license to certain new patents outside of such field of use.

LifeScan has assumed responsibility for the cost of maintaining the licensed patents and patent applications. In the event that LifeScan elects not to proceed with the prosecution of any patent application, the Company may assume responsibility for those patents. Pursuant to the License Agreement, if the Company receives a lump sum, actual or minimum royalties payment from any sub-licence, 50% of such lump sum or royalties is payable to LifeScan.

Also on April 1, 2002, the Company and LifeScan entered into a Development and Research Agreement pursuant to which the Company agreed to undertake contract research and development for LifeScan in the area of diabetes management to extend and develop the glucose sensor technology owned by LifeScan. The research and development activities are supervised by a steering committee comprised of representatives from both the Company and LifeScan. In consideration of us undertaking the research and development activities, LifeScan makes quarterly payments to the Company. The Development and Research Agreement automatically renews for successive one year periods on the same terms and

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

conditions unless either LifeScan or the Company gives written notice of termination not less than nine months prior to the end of the relevant one year period (in which case the agreement terminates at the end of the relevant one year period), or the Development and Research Agreement is otherwise terminated in accordance with its terms. LifeScan owns all intellectual property developed by the Group under the Development and Research Agreement and the Group receives a license to such intellectual property outside of the LifeScan Field.

The Development and Research Agreement provides details of the amount to be charged to LifeScan each year for the provision of research and development services. Revenue is recognized ratably over the period to which it relates and when the amount of the payment can be reliably measured and collectibility is reasonably assured. For fiscal 2009, LifeScan is paying the Company US$250,000 per quarter under the Development and Research Agreement. For fiscal 2010, the Development and Research Agreement sets out a range of values that the Company or Universal Biosensors Pty Ltd will be paid depending on the level of research and development services required by LifeScan. In subsequent years, the steering committee will recommend the level of funding consistent with LifeScan’s requirements.

The revenue derived from the Development and Research Agreement is recognized over the period in which the agreed upon research services are completed. The Company recognizes revenue for accounting purposes ratably over the annual grant period. Under the Development and Research Agreement, the Company is not matching the revenue to a specific expenditure but to a specified period of research. The annual research and development revenue received from LifeScan is agreed with LifeScan from time to time and is subject to the Company continuing its research and development activities in the blood glucose area, the provision of quarterly reports and other obligations under the Development and Research Agreement. The Company has and continues to satisfy the requirements of the Development and Research Agreement.

The Company considers the income received under the Development and Research Agreement not to be indicative of its core operating activities or revenue producing goals of the Company, and as such account for this income as “other operating income” per SEC Regulation
S-X Article 5-03. The Company is of the view that presenting the income from the Development and Research Agreement as top line revenue with estimated costs that do not include all fixed charges on a full “absorption” basis would not provide the reader of the financial statements with a true indication of future operating margins.

Revenue recognized pursuant to the Development and Research Agreement has all been received in the financial years stated. No upfront payments have been received from LifeScan. There are no claw backs or repayment obligations relating to the Development and Research Agreement.

Fee Income

Pursuant to the agreement with LifeScan, consideration of A$1,131,222 was paid by LifeScan in consideration of the grant of rights by us. The grant of rights to LifeScan included a detailed written description of the Company’s process for the manufacture of the enhanced blood glucose product, including all underlying know-how relevant to the process. Whilst the non-refundable fee was part of an arrangement with multiple deliverables (other deliverables primarily relates to the manufacturing activities), this fee and the deliverable associated with it was considered a separate unit of accounting There are no other activities related to this deliverable and there is objective and reliable evidence of the fair value of the undelivered items. The fair value of the rights as determined by management was based on estimated market value of labour hours consumed in writing up the documents relating to the rights. There are no general rights of return of the delivered items. These rights were internally generated and were carried at zero value within our financial statements. Management had assessed that the fair value of the associated intellectual property deliverable was A$1,131,222. The rights were transferred and the consideration received in January 2008 at which time the service requirements (granting of the rights) had been fully satisfied.

The grant of these rights is considered to be a discrete earnings event as they are not linked in any way to the other deliverables in the arrangement and there is a risk that the other deliverables may not be achieved. The other deliverables in the arrangement are primarily related to manufacturing and the Company’s ability to manufacture which can only occur once regulatory approval is received to market the product. Regulatory approval to market the product has not yet been received

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

and there is a risk that the regulatory approval may not be received. Under the arrangement we have with LifeScan, they have the option of terminating the arrangement, which includes the rights for us to manufacture the product, if regulatory approval is not received. There was no such risk involved in fulfilling our service requirements for the grant of rights as the service requirements were completed and fully satisfied when the consideration was received at which point the rights were transferred to LifeScan. These rights have value to LifeScan as they are able to use this information to build their own manufacturing capability.

The consideration outlined for each of other elements in the LifeScan agreement have been separately and independently determined for each element, based on the fair value price that a third party manufacturer would charge. There is no link to the price paid for the grant of the rights and the revenue for the manufacturing element will only ever been received if regulatory approval is obtained and LifeScan order product from the company. The price outlined for manufacturing is in no way linked to the determination of the fair value of the grant of rights.

Management has concluded that the core operations of the Company in the short term are expected to be the commercial manufacture of approved medical or testing devices and the provision of services such as those specified under the Master Services and Supply Agreement. The Company’s ultimate goal is to utilize the underlying technology and skill base for the development of a marketable product that the Company will be hired to manufacture. The Company considers the income received for the grant of rights is not indicative of its core operating activities or revenue producing goals of the Company, and as such have accounted for this income as “non-operating income” per Statement of Financial Accounting Concepts No. 6, Elements of Financial Statements and SEC Regulation S-X Article 5-03. The Company believes that presenting these as top line revenue would not provide the reader of the financial statements with a true indication of future operating margins.

Interest revenue

Interest revenue is recognized as it accrues, taking into account the effective yield on the financial asset.

Foreign Currency

Functional and reporting currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of the Company and Universal Biosensors Pty Ltd is Australian Dollars for all years presented.

The consolidated financial statements are presented using a reporting currency of Australian dollars. Effective October 2008, the Company changed its reporting currency from U.S. Dollars (USD) to Australian Dollars (AUD). Prior to October 2008, the Company reported its consolidated balance sheet, statement of operations and stockholder’s equity and cash flows in USD. The related statements and corresponding notes for and prior to September 30, 2008 have been revised to reflect Australian Dollars as the reporting currency for comparison to the financial results for the year ended December 31, 2008. The change in reporting currency is to better reflect the Company’s performance and to improve investor’s ability to compare the Company’s financial results.

The functional currency of the Company for financial years up to December 31, 2005 was determined by management to be US dollars. This was based on the facts that the denomination of a significant proportion of transactions and the major source of finance were in US dollars.

In 2006, the Company expanded significantly its Australian based research activities. All of the Company’s directors became and continue to be resident in Australia. All of the Company’s expenditure on research and development is Australian dollar denominated. It also began planning for and successfully accomplished a capital raising in Australian dollars and listed on the Australian Stock Exchange. The majority of cash and other monetary assets now held by the Company are denominated in Australian dollars.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Due to these changes in circumstance, management is of the view that the functional currency of the Company changed in 2006 to Australian dollars. This change was effective from December 1, 2006. The difference in the foreign exchange movements recognized in 2006 as a result of the change in functional currency was A$44,430.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Statement of Operations.

The Company has recorded foreign currency transaction gains/(losses) of A$18,487, (A$83,662) and A$164,221 for the six month period ended June 30, 2009 and 2008 and the period from inception to June 30, 2009, respectively.

Group companies

The results and financial position of all the Group entities that have a functional currency different from the reporting currency are translated into the reporting currency as follows:

•		assets and liabilities for each balance sheet item reported are translated at the closing rate at the date of that balance sheet;

•		income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

•		all resulting exchange differences are recognized as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities are taken to the Foreign Currency Translation Reserve (“FCTR”).

Commitments and Contingencies

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.

Patent and License Costs

Legal fees incurred for patent application costs have been charged to expense and reported in research and development expense.

Clinical Trial Expenses

Clinical trial costs are a component of research and development expenses. These expenses include fees paid to participating hospitals and other service providers, which conduct certain product development activities on behalf of the Company. Depending on the timing of payments to the service providers and the level of service provided, the Company records prepaid or accrued expenses relating to these costs.

These prepaid or accrued expenses are based on estimates of the work performed under service agreements.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Leased Assets

All of the Group’s leases are considered operating leases. The costs of operating leases are charged to the statement of operations on a straight-line basis over the lease term.

Stock-based Compensation

Prior to January 1, 2006, the Company applied Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations, in accounting for its fixed-plan stock options. For periods prior to January 1, 2006, the Company complied with the disclosure only provisions of FASB Statement No.123, “Accounting for Stock-Based Compensation”, or SFAS 123. No stock-based employee compensation cost was reflected in net income, as all options granted under those plans had an exercise price equal to or greater than the market value of the underlying common stock on the date of grant (or within permitted discounted prices as it pertains to the Employee Option Plan). Results for periods before January 1, 2006 have not been restated to reflect, and do not include the impact of, FASB Statement No. 123(R), “Share Based Payment”, or SFAS 123(R).

As of January 1, 2006, the Company adopted SFAS 123(R), using the modified prospective method, which requires measurement of compensation expense of all stock-based awards at fair value on the date of grant and amortization of the fair value over the vesting period of the award. The Company has elected to use the straight-line method of amortization. Under the modified prospective method, the provisions of SFAS 123(R) apply to all awards granted or modified after the date of adoption. In addition, the unrecognized expense of awards not yet vested at the date of adoption, determined under the original provisions of SFAS No. 123 shall be recognized in net income in the periods after adoption. The fair value of stock options is determined using the Trinomial Lattice model, which is consistent with valuation techniques previously utilized for options in footnote disclosures required under SFAS No. 123, as amended by SFAS No. 148 “Accounting for Stock-Based Compensation Transition and Disclosure”.

Such value is recognized as an expense over the service period, net of estimated forfeitures, using the straight-line method under
SFAS 123(R). There were no transitional adjustments on adoption of SFAS 123 (R).

The total share-based compensation expense recorded by the Company for the period from inception to June 30, 2009 and for the three months ended June 30, 2009 and 2008 and for the six months ended June 30, 2009 and 2008 is allocated among the following categories:


	Period from
	inception to		Three Months Ended				Six Months Ended
	June 30,		June 30,				June 30,
	2009		2009		2008		2009		2008
	$		$		$		$		$
Research and development		1,325,773		81,024		253,212		177,021		331,056
General and administrative		931,095		35,506		55,910		79,957		151,674

Total share-based compensation expense		2,256,868		116,530		309,122		256,978		482,730

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The above charges had no impact on the Company’s cash flows.

The assumptions for the option grants computed using a Trinomial Lattice model for options issued during the 2008 financial year and for the six month period ended June 30, 2009 were:


	Grant Date
	June			June			May			February			August			March
	2009			2009			2009			2009			2008			2008
Exercise Price (A$)	Nil			$	0.94		Nil			$	0.50		$	0.70		$	0.89
Share Price at Grant Date (A$)	$	0.95		$	0.95		$	1.18		$	0.43		$	0.71		$	0.91
Volatility		80	%		80	%		81	%		77	%		71	%		76	%
Expected Life	10 years			10 years			10 years			10 years			10 years			10 years
Risk Free Interest Rate		5.49	%		5.49	%		4.87	%		4.26	%		5.85	%		5.87	%
Fair Value of Option (A$)	$	0.95		$	0.62		$	1.04		$	0.28		$	0.45		$	0.59

A summary of activity in the Employee Option Plan for the six month period ended June 30, 2009 is as follows:


				Weighted-Average
	Number of Options			Exercise Price
	Over Shares			A$
Outstanding Balance, December 31, 2008		6,373,284			0.66
Lapsed		(65,337	)		1.04
Granted		2,279,200			0.70

Outstanding Balance, June 30, 2009		8,587,147			0.66


Exercisable shares as of June 30, 2009		4,820,562			0.56

All our employees are eligible for options under the Employee Option Plan. Broadly speaking, options are issued to staff under two categories — options to new staff and options to existing staff (recurring options). Options to new staff are generally granted within the year they commence employment. Recurring options are issued based on the events that transpired during the year. The number of options to be granted as part of a recurring grant of options is determined in salary bands.

As of June 30, 2009, there was A$1,866,219 of unrecognized compensation expense related to unvested share-based compensation arrangements under the Employee Option Plan. This expense is expected to be recognized as follows:


Fiscal Year	A$
2009 — remaining periods		828,580
2010		669,416
2011		260,417
2012		68,346
2013		30,263
2014		9,197

		1,866,219

Pension Costs

As required by Australian law, Universal Biosensors Pty Ltd contributes to standard defined contribution superannuation funds on behalf of all employees at nine percent of each such employee’s salary. Superannuation is a compulsory savings program whereby employers are required to pay a portion of an employee’s remuneration to an approved superannuation fund that the employee is typically not able to access until they are retired. Universal Biosensors Pty Ltd permits employees to choose an approved and registered superannuation fund into which the contributions are paid. Contributions are charged to the statement of operations as they become payable.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Net Loss per Share and Anti-dilutive Securities

Basic and diluted net loss per share is presented in conformity with Statement of Financial Accounting Standards No. 128 — Earnings Per Share (“SFAS 128”). Basic and diluted net loss per share has been computed using the weighted-average number of common shares outstanding during the period. All periods present in these financial statements have been retroactively adjusted to give effect to the stock split in December 2006. The potentially dilutive options issued under the Universal Biosensors Employee Option Plan were not considered in the computation of diluted net loss per share because they would be anti-dilutive given the Group’s loss making position in this and previous years.

Total Comprehensive Income

The Company follows SFAS No. 130, “Reporting Comprehensive Income (Loss)” (“SFAS 130”). Comprehensive income is defined as the total change in shareholders’ equity during the period other than from transactions with shareholders, and for the Company, includes net income and cumulative translation adjustments.

Recent Accounting Pronouncements

In March 2008, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. The Company adopted SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” effective January 1, 2009 which has not had a material impact on the Company’s consolidated financial statements.

EITF Issue 07-01: “Accounting for Collaborative Arrangements Related to the Development and Commercialization of Intellectual Property”. This issue addresses the income statement classification of payments made between parties in a collaborative arrangement. The Company adopted EITF 07-01 effective January 1, 2009 which has not had a material impact on the Company’s consolidated financial statements.

Effective July 1, 2009, the FASB issued Statement of Financial Standards (SFAS) No. 168, “The Hierarchy of Generally Accepted Accounting Principles”. SFAS No. 168 reduces the U.S. GAAP hierarchy to two levels, one that is authoritative and one that is not. The adoption of this pronouncement is not expected to have a material effect on the consolidated financial statements.

Related Party Transactions

Details of related party transactions material to the operations of the Group other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business, are set out below:

Johnson & Johnson Development Corporation, a wholly owned subsidiary of Johnson & Johnson, owns approximately 12% of the Company’s shares.

LifeScan, a wholly owned subsidiary of Johnson & Johnson, makes payments to the Company or Universal Biosensors Pty Ltd through the Development and Research Agreement, Master Services and Supply Agreement and issuance of purchase orders to Universal Biosensors Pty Ltd to undertake additional services in the field of blood glucose monitoring.

UNIVERSAL BIOSENSORS, INC.
(A Development Stage Enterprise)

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

The following transactions occurred with LifeScan:


	Three Months Ended June 30,				Six Months Ended June 30,
	2009		2008		2009		2008
	A$		A$		A$		A$
Current Receivables
Reimbursement of expenses						2,730		432,305
Revenue from services						—		1,236,263

						2,730		1,668,568


Sale of Goods and Services
Revenue from services		312,590		1,240,801		1,780,054		1,240,801

Other transactions with LifeScan are detailed as follows:

	•		the Company received research and development revenue of A$349,848 and A$274,212 for the three months ended June 30, 2009 and 2008 and A$738,167 and A$553,511 for the six month ended June 30, 2009 and 2008, respectively under the Development and Research Agreement with LifeScan;

	•		Universal Biosensors Pty Ltd received an initial non-refundable fee of A$1,131,222 in January 2008 in consideration for the grant of certain rights to LifeScan pursuant to the Master Services and Supply Agreement; and

	•		Universal Biosensors Pty Ltd was reimbursed $0 and A$384,900 for the three months ended June 30, 2009 and 2008 and A$32,353 and A$692,608 for the six months ended June 30, 2009 and 2008, respectively for certain expenditure incurred on behalf of LifeScan

Borrowings

In March 2009, Universal Biosensors Pty Ltd entered into an arrangement with Pacific Premium Funding Pty Limited to fund the Group’s insurance premium. The total amount financed is A$479,673 at inception. Interest is charged at a rate of 2% per annum and the short-term borrowing is repayable over an 8-month period. The short-term borrowing is secured by the insurance premium refund.

Subsequent Events

On August 5, 2009, 36,248 employee stock options with an exercise value of US$0.26 per option were exercised.

There has not arisen in the interval between the end of the second quarter and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors of the Company, to affect significantly the operations of the Company, the results of those operations, or the state of affairs of the Company in future financial years.

UNIVERSAL BIOSENSORS, INC.

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our audited consolidated financial statements and related footnotes and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K filed with the United States Securities and Exchange Commission (“SEC”). This Form 10-Q contains, including this discussion and analysis, certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward looking statements, including statements relating to future events and our future financial performance. Those statements in this Form 10-Q containing the words “believes”, “anticipates”, “plans”, “expects”, and similar expressions constitute forward looking statements, although not all forward looking statements contain such identifying words.

The forward looking statements contained in this Form 10-Q are based on our current expectations, assumptions, estimates and projections about the Company and its businesses. All such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those results expressed or implied by these forward-looking statements, including those set forth in this Quarterly Report.

Overview

Established in 2001, we are a specialist medical diagnostics company focused on the development, manufacture and commercialization of in vitro diagnostic test devices for point-of-care use. In vitro diagnostic testing involves the testing outside of the body of a body fluid (e.g. blood or saliva) or tissue sample (biopsies or swabs). The diagnostic blood test devices we are developing comprise a novel disposable test strip and a reusable meter. The devices are designed to be used near to or at the site of the patient (at the “point-of-care”) to provide accurate and quick results to enable treatment to be immediately reviewed. We have rights to an extensive patent portfolio comprising of certain patent applications owned by our wholly owned Australian subsidiary, Universal Biosensors Pty Ltd, and a large number of patents and patent applications licensed to us by LifeScan, an affiliate of Johnson & Johnson.

We are developing an immunoassay point-of-care test to measure the amount of C-reactive protein in the blood. A C-reactive protein test may be used to assist in the diagnosis and management of inflammatory conditions. We are also developing a prothrombin time test for monitoring the therapeutic range of the anticoagulant, warfarin and have also started work on a second point-of-care dry immunoassay to measure the amount of D-dimer in the blood. D-dimer is a well established marker currently being used as a point-of-care test for the detection and monitoring of several potentially life threatening conditions associated with thrombotic disease, particularly deep venous thrombosis (clots in the leg) and pulmonary embolism (clots in the lung). We also intend to leverage our intellectual property platform to develop additional immunoassay based point-of-care test devices by taking proven disease biomarkers currently used in the central laboratory environment and adapting those diagnostic tests to the point-of-care setting.

All of our operating activities are undertaken through our wholly-owned subsidiary, Universal Biosensors Pty Ltd which is located in Australia. We have funded our operations primarily through the sale of our equity securities, payments from LifeScan in connection with the Development and Research Agreement, an initial payment under the Master Services and Supply Agreement received in January 2008 and revenue from certain services provided to LifeScan and government and state grants.

Master Services and Supply Agreement with LifeScan

On October 29, 2007, we entered into a Master Services and Supply Agreement which contains the terms pursuant to which Universal Biosensors Pty Ltd would provide certain services in the field of blood glucose monitoring to LifeScan and would act as a non-exclusive manufacturer of an original version of the initial blood glucose test strips we developed for LifeScan (“Master Services and Supply Agreement”). On December 11, 2008, we entered into an additional services addendum to provide manufacturing process support to assist LifeScan to establish LifeScan’s own manufacturing line for new blood glucose test strips at a location of its choosing. On December 11, 2008, the Master Services and Supply Agreement was amended to reflect certain definitional matters in the document. On May 15, 2009, the agreement was

UNIVERSAL BIOSENSORS, INC.

amended and restated to incorporate the amendments made in December 2008 and to update the commercial terms of the agreement to reflect a change from the original version of the initial blood glucose test strip to an enhanced version of the initial blood glucose test strip. The enhanced initial blood glucose test strip is based on the same technology as the original product and would be manufactured using the same production processes and manufacturing equipment and infrastructure. The Master Services and Supply Agreement is structured as an umbrella agreement which enables LifeScan and us to enter into a series of additional arrangements for the supply by us of additional services and products in the field of blood glucose monitoring.

Development and Research Agreement with LifeScan

On April 1, 2002, we entered into a Development and Research Agreement with LifeScan pursuant to which we agreed to perform certain research and development activities for LifeScan in the area of diabetes management to extend and develop the glucose sensor technology owned by LifeScan. At the time of execution of the Master Services and Supply Agreement, the Development and Research Agreement was amended to conform the intellectual property provisions in the Development and Research Agreement with those in the Master Services and Supply Agreement such that LifeScan would own all intellectual property developed by us under the Development and Research Agreement and we would receive a license to such intellectual property outside of the LifeScan field of diabetes and blood glucose management generally.

In consideration of undertaking the development and research, LifeScan makes quarterly payments to us. For fiscal 2009, LifeScan is paying the Company US$250,000 per quarter under the Development and Research Agreement. For fiscal 2010, the Development and Research Agreement sets out a range of values that the Company or Universal Biosensors Pty Ltd will be paid depending on the level of research and development services required by LifeScan. In subsequent years, the steering committee will recommend the level of funding consistent with LifeScan’s requirements. The Development and Research Agreement automatically renews for successive one year periods on the same terms and conditions unless either party has given to the other party prior written notice of termination not less than nine months prior to the end of the relevant one year period, in which case the Development and Research Agreement will terminate at the end of the relevant one year period, or the agreement is otherwise terminated in accordance with its terms.

License Agreement with LifeScan

In 2002, we entered into a License Agreement with LifeScan pursuant to which LifeScan granted to us a worldwide, royalty free, exclusive license to certain electrochemical cell technologies in all fields of use excluding the LifeScan Fields. LifeScan has retained all rights in the LifeScan Field. Under the License Agreement, we have a right to sub-license, make, have made, use, and sell under and exploit in any way a range of key patents, patent applications and know-how owned by LifeScan, relating to electrochemical cell technologies in all fields excluding the LifeScan Fields, the rights to which are retained by LifeScan. We must pay LifeScan 50% of any royalties or payments we receive under any such sublicense. We are also contractually bound to use our best efforts to exploit the licensed intellectual property outside the LifeScan Fields, for example, in our C-reactive protein, prothrombin time tests and D-dimer tests. At the time of execution of the Master Services and Supply Agreement, the License Agreement was amended to: a) clarify the scope of the LifeScan Field in which LifeScan have exclusive rights to the relevant patents; and b) to grant us a license to certain new patents outside of the LifeScan Field.

The License Agreement may be terminated by LifeScan in the event that we fail to exploit the licensed patents and patent applications or if we are liquidated or wound up or commit a persistent and material breach of our obligations under the License Agreement and fail to rectify the breach within 90 days of written notice from LifeScan requiring it to do so. The License Agreement otherwise continues on a perpetual basis until the expiration of the last licensed LifeScan patent or patent application. LifeScan may also convert the license from an exclusive license to a non-exclusive license in certain limited circumstances where we fail to comply with the requirements of the License Agreement.

Results of Operations

Gross Profit on Services Performed

Under the terms of our arrangement with LifeScan, we will assist LifeScan to establish its own manufacturing line for the new blood glucose sensor strips. Under this arrangement, revenue from the services is recognized on a proportional performance method where revenues are related to costs incurred in providing the services required under the contract.

UNIVERSAL BIOSENSORS, INC.

Research and Development Expenses

Our operating expenses to date have substantially been for research and development activities. Research and development expenses consist of costs associated with research activities, as well as costs associated with our product development efforts, including pilot manufacturing costs. All research and development costs, including those funded by an Australian research and development grant program, are expensed as incurred. Research and development expenses include:

•

consultant and employee related expenses, which include salary and benefits;

•

materials and consumables acquired for the research and development activities;

•

external research and development expenses incurred under agreements with third party organizations and universities; and

•

facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

Research and development expenses for the respective periods are as follows:


	Period
	from
	inception			Three months ended June					Six months ended June
	to June 30,			30,					30,
	2009			2009		2008			2009		2008
	A$			A$		A$			A$		A$
Research and development expenses		38,619,922			4,104,205		2,125,179			7,337,840		4,306,559
Research grants received recognized against related research and development expenses		(2,366,063	)		—		(59,862	)		—		(300,613	)

Research and development expenses as reported		36,253,859			4,104,205		2,065,317			7,337,840		4,005,946

These expenses are related to developing our electrochemical cell platform technologies and producing and testing strips. Research and development expenditure attributable to services performed on behalf of LifeScan have been recorded separately under the caption “Cost of services” in the consolidated condensed statements of operations (see section above titled “Gross Profit on Services Performed”). We expect that our expenses will increase significantly during 2009 as we expand our research and development programs and expand our organization and our commercial manufacturing capability and capacity.

We have not reported our internal historical research and development costs or our personnel and personnel-related costs on a project-by-project basis. Our programs share a substantial amount of our common fixed costs such as facilities, depreciation, utilities and maintenance. Accordingly, we do not track our research and development costs by individual research and development program.

In addition, we expect research and development expenditures to grow as we advance our development programs and explore other commercial opportunities our technology platform can be applied to. We cannot predict what it will cost to complete our research and development programs or when or if they will be completed and commercialized. The timing and cost of any program is dependent upon achieving technical objectives, which are inherently uncertain. In addition, our business strategy contemplates that if appropriate we may enter into collaborative arrangements with third parties for one or more of our programs. In the event that third parties assume responsibility for certain research or development activities, the estimated completion dates of those activities will be under the control of the third party rather than with us. We cannot forecast with any certainty, which programs, if any, will be subject to future collaborative arrangements, in whole, or in part, and how such arrangements would affect our research and development plans or capital requirements.

As a result of the uncertainties discussed above, we are unable to determine the duration and completion costs of our research and development programs or when and to what extent we will receive cash inflows from the commercialization and

UNIVERSAL BIOSENSORS, INC.

sale of products. Our inability to complete our research and development programs in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time to time in order to continue with our strategy. Our inability to raise additional capital on terms reasonably acceptable to us would jeopardize the future success of our business.

General and Administrative Expenses

General and administrative expenses decreased by 3% and 8% during the three and six months ended June 30, 2009 compared to the same period last year. This reduction is attributed to management reducing its expenditures primarily those related to professional/consultancy fees, repairs and travel. General and administrative expenses currently consist principally of salaries and related costs, including stock option expense, for personnel in executive, finance, accounting, information technology and human resources functions. Other general and administrative expenses include depreciation, repairs and maintenance, insurance, facility costs not otherwise included in research and development expenses, consultancy fees and professional fees for legal, audit and accounting services.

We expect that our general and administrative expenses will increase as we expand our legal, accounting, marketing and sales staff, add infrastructure and incur additional costs related to operating as a company whose shares in the form of CDIs are quoted on the ASX and compliance costs associated with being a domestic United States issuer subject to SEC reporting requirements.

Research and Development Income

We receive research and development revenue under the Development and Research Agreement with LifeScan. The Development and Research Agreement provides details of the amount to be charged to LifeScan each year for the research and development services carried out by us. Revenue is recognized when services have been performed, and the amount of the payment can be reliably measured and collectability is reasonably assured. The recognition of revenue is not based on the completion of any milestones, or on a percentage of completion basis. We recognize revenue for accounting purposes ratably over the annual grant period.

The revenue derived from the Development and Research Agreement is recognized over the period in which the agreed upon research services are completed. Under the Development and Research Agreement, we are not matching the revenue to a specific expenditure but to a specified period of research. The annual research and development revenue received from LifeScan is agreed with LifeScan from time to time and is subject to us continuing our research and development activities in the blood glucose area, the provision of quarterly reports and other obligations under the Development and Research Agreement. We have and continue to satisfy the requirements of the Development and Research Agreement.

Research and development income for the period from inception to June 30, 2009 was A$13,816,131. Research and development income for the three months ended June 30, 2009 and 2008 was A$349,848, A$274,213, respectively. Research and development income for the six months ended June 30, 2009 and 2008 was A$738,167 and A$553,511, respectively.

Fee Income

The Company received an initial non-refundable fee of A$1,131,222 in January 2008 in consideration for the grant of certain rights to LifeScan pursuant to the Master Services and Supply Agreement. This revenue is recorded as non-operating income in the consolidated statements of operations.

Interest Income

Interest income decreased by 73% and 69% during the three and six months ended June 30, 2009, compared to the same period last year. The decrease in interest income is attributable to the lower level of funds invested during the year and decreased returns on the funds invested.

UNIVERSAL BIOSENSORS, INC.

Interest Expense

Interest expense of A$3,614 and A$7,227 for the three and six months ended June 30, 2009 relates to a 2% interest being charged on a short-term borrowing. Our interest expense for the three and six months ended June 30, 2008 was A$9,489 for each period.

Liquidity and Capital Resources

Since inception, our operations have mainly been financed through the issuance of equity securities. Additional funding has come through payments received from LifeScan under the Development and Research Agreement, revenue from services, an initial one time payment under the Master Services and Supply Agreement and a one-time payment for manufacturing process support and research grants and interest on investments. Through to June 30, 2009, we had received aggregate net cash proceeds from the following: (a) A$32,518,792 from the renounceable rights issue; (b) A$37,082,855 from the issuance of equity securities other than those issued under the renounceable rights offer; (c) A$13,816,131 from LifeScan under our Development and Research Agreement; (d) A$6,209,603 from LifeScan as revenue from services performed; (e) A$2,646,063 as contributions from government and state grants; (f) A$1,131,222 from LifeScan in consideration of the grant of rights by us and (g) A$5,059,291 from interest on investments. As of June 30, 2009, we had A$22,284,881 in cash, cash equivalents and short-term investments. Our cash and investment balances are held in money market accounts and short-term instruments. Cash in excess of immediate requirements is invested in short-term instruments with regard to liquidity and capital preservation.

For the six month period ended June 30, 2009, we used net cash of A$4,223,049 for operating activities. This consisted of a net loss for the period of A$6,996,099, which included A$1,414,828 of non-cash depreciation and amortization and non-cash stock option expense of A$256,978. Net cash used in investing activities during the six months ended June 30, 2009 was A$1,946,852, which consisted of the purchase of property, plant and equipment of A$416,847 and deposit towards manufacturing equipment of A$1,530,005. Net cash provided by financing activities during the six months ended June 30, 2009 was A$119,918, which consisted of A$479,673 in proceeds from borrowings offset by A$359,755 used in the repayment of borrowings.

As at June 30, 2009, we had cash and cash equivalents of A$22,284,881 as compared to A$35,615,081 as of June 30, 2008. The decrease in cash and cash equivalents balance is as a result of our payments for our ongoing operations including our capital expenditure outlay. The decrease has been to some extent offset by receipts from LifeScan.

In October 2007, we entered into a Master Services and Supply Agreement with LifeScan. In February 2009 we received A$3,087,849 in connection with the provision by us to LifeScan of certain manufacturing support services. The receipt and timing of any further revenue under the Master Services and Supply Agreement is uncertain.

Choice and timing of market entry(ies) for blood glucose products covered by the Master Services and Supply Agreement are at LifeScan’s discretion. If at any time LifeScan indicates that it will not proceed with commercialization of the enhanced initial blood glucose test covered by the Master Services and Supply Agreement, or if the product does not obtain regulatory approval, we will use the installed manufacturing equipment for the immunoassay and prothrombin time tests we are developing, contingent on those tests reaching the point of manufacture. To reach that point, development efforts will need to continue to be successful. If development efforts continue to be successful and we are able to enter into a strategic partnership to support the development and commercialization of the tests, we expect to be in a position to commence formal validation of the C-reactive protein test and the prothrombin time test this financial year and 2010 for D-dimer test, following which, we will seek regulatory clearance for these tests. As appropriate, we will likely seek partners to assist in the development, sales and distribution of these tests. We also intend to develop additional immunoassay based point-of-care test devices by taking selected disease biomarkers currently measured in the central laboratory environment and creating tests using those biomarkers for the point-of-care setting using our novel platform of electrochemical cell technologies.

The total cost of the projects which we are undertaking is subject to a range of factors. As a result, we consider that at this stage of our development we are unable to provide investors with reliable details in relation to the potential cost of our project to us. We believe that with our cash, cash equivalents and the interest we earn on these balances, will allow the Group to perform under the Master Services and Supply Agreement and to progress the Group’s other development programs. In the event we do not receive the milestone payment as described under the Master Services and Supply Agreement, nor are we able to generate revenue from the manufacturing and supply of the blood glucose test, we expect to receive advance payments

UNIVERSAL BIOSENSORS, INC.

under the Development and Research Agreement and therefore we believe that our current cash and cash equivalents will be sufficient to fund our ongoing operations until the end of 2010. Notwithstanding this, by actively managing our cash flows, controlling costs and revising our development plans as necessary we believe we have sufficient cash reserves to continue as a going concern through the next 12 months. In order to achieve our objectives, we may require additional funding and/or to revise our business plans. The amount and timing of these future funding requirements is uncertain. To meet these financing requirements, we may raise funds through public or private equity offerings, debt financings, and through other means, including collaborations and license agreements or other means determined by the directors at that time.

We note our forecasted ability to maintain our financial resources to support our operations for this period is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly delay, scale back or discontinue one or more of our planned research, development and commercialization activities. Management will determine at that point in time the activities that will be delayed, scaled-back or discontinued.

Operating Capital and Capital Expenditure Requirements

The sale of additional equity securities, if undertaken, may result in dilution to our shareholders. If we raise additional funds in the future through the issuance of debt securities or preferred stock, these securities could have rights senior to those of our common stock and could contain covenants that would restrict our operations. Any such required additional capital may not be available on reasonable terms, if at all. If we are unable to obtain additional financing, we may be required to reduce the scope of, delay or eliminate some or all of our planned research, development and commercialization activities, which could materially harm our business.

As a result of the numerous risks and uncertainties associated with our business strategy, we are unable to estimate the exact amounts of our capital and working capital requirements. We estimate our total capital expenditures in 2009 to be in the range of A$5,000,000 to A$6,000,000 for the purchase of equipment to support our activities under the Master Services and Supply Agreement, capacity expansion, for ongoing development of our existing products, and for other ongoing research and development activities. We have also funded the majority of the fit out cost of our new facilities at Corporate Avenue from our existing cash. Our future funding requirements will depend on many factors, including, but not limited to:

	•		expenses we incur in manufacturing, developing, marketing and selling products;

	•		any need to scale our manufacturing operations to meet demand for blood glucose strips under the Master Services and Supply Agreement, or for our point-of-care tests, including additional costs related to the fit out of our manufacturing facility in Melbourne, Australia and the acquisition of additional manufacturing equipment;

	•		changes to our operations to enable us to perform services required under the Master Services and Supply Agreement;

	•		the timing and amount of receipts of revenue from LifeScan under the Master Services and Supply Agreement;

	•		the success of our research and development efforts, and whether or not additional funds are required to support these;

	•		the rate of progress and cost of our product development activities;

	•		the timing and amount of revenue generated by sales of our point-of-care tests;

	•		costs and timing of regulatory approvals;

	•		costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

	•		the terms and timing of any collaborative, licensing and other arrangements that we may establish; and

	•		the acquisition of businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.

UNIVERSAL BIOSENSORS, INC.

Off-Balance Sheet Arrangement

The future minimum lease payments under non-cancelable operating leases (with initial or remaining lease terms in excess of one year) as of June 30, 2009 are:


Less than 1 year	A$	517,366
1 — 3 years		1,088,908
3 — 5 years		1,008,523
More than 5 years		—

Total minimum lease payments	A$	2,614,798

The above relates to our operating lease obligations in relation to the lease of our premises.

Contractual Obligations

Our future contractual obligations primarily for future rental payment obligations on the current office and manufacturing space, including financing costs, at June 30, 2009 were as follows:


			Payments Due By Period
			Less than 1						More than 5
	Total		year		1–3 years		3–5 years		years
Long-Term Debt Obligations		—		—		—		—		—
Asset Retirement Obligations (1)		1,770,841		—		—		—		1,770,841
Operating Lease Obligations (2)		2,614,798		517,366		1,088,908		1,008,523		—
Purchase Obligations		—		—		—		—		—
Other Long-Term Liabilities on Balance Sheet under GAAP (3)		222,402		—		—		—		222,402

Total		4,608,041		517,366		1,088,908		1,008,523		1,993,243


(1)		Represents legal obligations associated with the retirement and removal of long-lived assets.

(2)		Our operating lease obligations relate primarily to the lease of our premises.

(3)		Represents long service leave owing to the employees

Segments

We operate in one segment. Our principal activities are the research, development, manufacture and commercialization of in vitro diagnostic test devices for point-of-care use. We operate predominantly in one geographical area, Australia.

UNIVERSAL BIOSENSORS, INC.

Item 3 Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Market Risk

We transact business in various foreign currencies, including U.S. dollars and Euros. We have established a foreign currency hedging program using forward contracts to hedge the net projected exposure for each currency and the anticipated sales and purchases in U.S. dollars and Euros. The goal of this hedging program is to economically guarantee or lock-in the exchange rates on our foreign exchange exposures. The Company does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments.

The following table sets out the notional amounts and weighted average exchange rates by expected (contractual) maturity dates. These notional amounts generally are used to calculate the contractual payments to be exchanged under the contract.


	*2009 ()**		Fair Value
*Anticipated Transactions and Related Derivatives*
$AUD Functional Currency:
Forward exchange agreements (Sell $AUD/Buy Euros)
Contract amount	AUD$615,803			A$679,198
Average contractual exchange rate		0.5151


*		Expected maturity or transaction date

Interest Rate Risk

Our exposure to interest income sensitivity, which is affected by changes in the general level of Australian interest rates, particularly because the majority of our investments are in Australian dollars in cash and cash equivalents. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Our investment portfolio is subject to interest rate risk and will fall in value in the event market interest rates increase. Due to the short duration of our investment portfolio, we believe an immediate 10% change in interest rates would not be material to our financial condition or results of operations.

UNIVERSAL BIOSENSORS, INC.

Item 4 Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

With the participation of our management, including the Company’s principal executive officer and principal financial officer, our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that:

	•		information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports that the Company files or submits under the Exchange Act would be accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure;

	•		information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and other reports that the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and

	•		the Company’s disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that material information relating to the Company and its consolidated subsidiaries is made known to them, particularly during the period in which the periodic reports of the Company, including this Quarterly Report on Form 10-Q, are being prepared.

Changes in Internal Control Over Financial Reporting.

During the most recent quarter ended June 30, 2009, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

UNIVERSAL BIOSENSORS, INC.

PART II


Item 1		Legal Proceedings

N/A


Item 1A		Risk Factors

N/A


Item 2		Unregistered Sales of Equity Securities and Use of Proceeds

N/A


Item 3		Defaults Upon Senior Securities

N/A


Item 4		Submission of Matters to a Vote of Security Holders

The annual general meeting of the Company’s stockholders was held on May 14, 2009. At that meeting, three items were submitted to the Company’s stockholders with details as follows:


Item	Proposal	Details of Proposal
1(a).	Re-election of Mr. Andrew Denver as a Class I director of the Company	Proposal to re-elect Mr. Andrew Denver as a Class I director of the Company to serve a three-year term of office expiring on the date of the 2012 annual general meeting of stockholders

1(b).	Re-election of Mr. Andrew Jane as a Class I director of the Company	Proposal to re-elect Mr. Andrew Jane as a Class II director of the Company to serve a three-year term of office expiring on the date of the 2012 annual general meeting of stockholders

2.	Adoption and approval of remuneration report	Proposal that the security holders have the opportunity to vote in respect of the remuneration report of the Company. The vote on the resolution is advisory only and does not bind the board of directors of the Company

For further information regarding the annual general meeting, please see the Company’s definitive proxy statement filed with the Securities and Exchange Commission on May 14, 2009. The stockholders approved the proposals as follows:

Resolution

Votes For

Votes Against

Abstentions

Proposal 1(a) Re-election of Mr. Andrew Denver

72,010,400

Nil

Proposal 1(b) Re-election of Mr. Andrew Jane

72,010,400

Nil

Proposal 2 Adoption and approval of remuneration report

71,970,400

63,985

40,000


*		Abstentions with respect to this resolution is counted as votes against the proposal.


Item 5		Other Information

N/A

UNIVERSAL BIOSENSORS, INC.


Item 6		Exhibits


Exhibit No	Description	Location
10.1	Advanced Care Enhanced Product Agreement (which is an addendum to the Amended and Restated Master Services and Supply Agreement filed with this Form 10-Q as Exhibit 10.3) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

10.2	Amendment to Development and Research Agreement (which amends the Development and Research Agreement filed on April 30, 2007 on Form 10 as Exhibit 10.2 and the Amendment to Development and Research Agreement filed on November 14, 2007 on Form 10-Q as Exhibit 10.3)	Filed herewith

10.3	Amended and Restated Master Services and Supply Agreement (which amends and restates the Master Services and Supply Agreement filed on November 14, 2007 on Form 10-Q as Exhibit 10.1 and the First Amendment to the Master Services and Supply Agreement filed on March 30, 2009 on Form 10-K as Exhibit 10.14) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

10.4	Manufacturing Initiation Payment Addendum to Master Services and Supply Agreement (which is an addendum to the Amended and Restated Master Services and Supply Agreement filed with this Form 10-Q as Exhibit 10.3) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith

32.0 *	Section 1350 Certificate	Filed herewith


*		This exhibit is furnished rather than filed, and shall not be incorporated by reference into any filing of the registrant in accordance with Item 601 of Registration S-K

INDEX TO EXHIBITS

Quarterly Report on Form 10-Q
Dated August 7, 2009


Exhibit No	Description	Location
10.1	Advanced Care Enhanced Product Agreement (which is an addendum to the Amended and Restated Master Services and Supply Agreement filed with this Form 10-Q as Exhibit 10.3) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

10.2	Amendment to Development and Research Agreement (which amends the Development and Research Agreement filed on April 30, 2007 on Form 10 as Exhibit 10.2 and the Amendment to Development and Research Agreement filed on November 14, 2007 on Form 10-Q as Exhibit 10.3)	Filed herewith

10.3	Amended and Restated Master Services and Supply Agreement (which amends and restates the Master Services and Supply Agreement filed on November 14, 2007 on Form 10-Q as Exhibit 10.1 and the First Amendment to the Master Services and Supply Agreement filed on March 30, 2009 on Form 10-K as Exhibit 10.14) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

10.4	Manufacturing Initiation Payment Addendum to Master Services and Supply Agreement (which is an addendum to the Amended and Restated Master Services and Supply Agreement filed with this Form 10-Q as Exhibit 10.3) (Portions of this Exhibit have been omitted pursuant to a request for confidential treatment)	Filed herewith

31.1	Rule 13a-14(a)/15d-14(a) Certification (Principal Executive Officer)	Filed herewith

31.2	Rule 13a-14(a)/15d-14(a) Certification (Principal Financial Officer)	Filed herewith

32.0 *	Section 1350 Certificate	Filed herewith


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PART I FINANCIAL INFORMATION

Item 1 Financial Statements

1) Consolidated condensed balance sheets at June 30, 2009 and December 31, 2008 (unaudited)		3
2) Consolidated condensed statements of operations for the three months and six months ended June 30, 2009 and 2008 (unaudited)		4
3) Consolidated condensed statements of cash flows for the six months ended June 30, 2009 and 2008 (unaudited)		5
4) Consolidated condensed statements of changes in stockholder’s equity and comprehensive income for the period ended June 30, 2009 (unaudited)		6
5) Notes to consolidated condensed financial statements (unaudited)		7

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3 Quantitative and Qualitative Disclosures About Market Risk		29
Item 4 Controls and Procedures		30

PART II OTHER INFORMATION

Item 1 Legal Proceedings		31
Item 1A Risk Factors		31
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds		31
Item 3 Defaults Upon Senior Securities		31
Item 4 Submission of Matters to a Vote of Security Holders		31
Item 5 Other Information		31
Item 6 Exhibits		32
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 31.1
Exhibit 31.2
Exhibit 32.0

SIGNATURES		33


		UNIVERSAL BIOSENSORS, INC. (Registrant)
	By:	/s/ MARK MORRISSON
Date: August 7, 2009		Mark Morrisson
		Chief Executive Officer and Executive Director


	By:	/s/ SALESH BALAK
Date: August 7, 2009		Salesh Balak
		Chief Financial Officer