10-K 1 udt_10k-123112.htm FORM 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.

FORM 10-K

(Mark One):

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

For the fiscal year ended December 31, 2012

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

For the transition period from to

Commission File Number 001-09327

UNIVERSAL DETECTION TECHNOLOGY
(Exact name of registrant as specified in its charter)

California

95-2746949

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

340 North Camden Drive, Suite 302, Beverly Hills, CA		90210
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (310) 248-3655

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ

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 o No x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.

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 Act). Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. The aggregate market value of the common stock held by non-affiliates as of June 30, 2012 was $504,866.

As of June 7 2013, there were 1,502,284 shares of the registrant’s common stock outstanding.

Table of Contents

		Page
Part I

Item 1	Business	1
Item 1A	Risk Factors	5
Item 1B	Unresolved Staff Comments	9
Item 2	Properties	9
Item 3	Legal Proceedings	9
Item 4	Mine Safety Disclosures	9

Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6	Selected Financial Data	11
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	13
Item 8	Consolidated Financial Statements and Supplementary Data	14
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	15
Item 9A	Controls and Procedures	15
Item 9B	Other Information	15

Part III

Item 10	Directors, Executive Officers and Corporate Governance	16
Item 11	Executive Compensation	18
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	21
Item 13	Certain Relationships and Related Transactions, and Director Independence	23
Item 14	Principal Accounting Fees and Services	24

Part IV
Item 15	Exhibits, Financial Statements Schedules	25
Signatures		28

PART 1

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to in this annual report as the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings "Risk Factors" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statement you read in this annual report reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this annual report which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

Universal Detection Technology (the "Company," “UDT” or "We") is engaged in the marketing and resale of detection devices for chemical, biological, radiological, and nuclear (CBRN) threats. Through agreements with various third parties we supply bioterrorism detection kits capable of detecting anthrax, ricin, botulinum, plague, and SEBs, mold detection kits, chemical detection equipment, radiation detection systems, and counter-terrorism training references.

We have entered into supply and distribution agreements with various parties enabling us to supply a host of products and services for detection of hazardous materials and training references. By combining our in-house experience and knowledge and outside expertise offered by various consultants and third parties, we have added threat evaluation and consulting services, and training courses to our services. We sell and market security and counter-terrorism products including bioterrorism detection kits, chemical detectors, radiation detection systems, and training references. Some of the products and services we offer have not been sold to date and there is no guarantee that any of them will generate any interest or be sold in the market in the future. We plan to continue expanding our product base and intend to sell products to more users inside and outside the U.S. Our strategy is to generate sales by enhancing our web presence and marketing the Company as a supplier of complete CBRN detection equipment. We plan to attend various industry trade shows and to offer products in certain training scenarios so that first responders can become more familiar with our products. Our target customer markets primarily consist of first responders with some emphasis on the bioterror and military defense market. Our geographical customer focus is on the U.S., Europe, and Asia. There is no guarantee that we will succeed in implementing this strategy or if implemented, that this strategy will be successful.

Subsequent to the March 11, 2011 earthquake and tsunami in Japan, we saw an increased demand in our radiation detection equipment. In response we formed new alliances with manufacturers of dosimeters and survey meters to supply the Japanese market. We witnessed increased sales of these systems and have shipped several units to Japanese customers since the disaster.

In late 2011 we started research and development on a new line of radiation detectors that can monitor the environment and surfaces for radiation and communicate the results with a smartphone enabling the user to save and share the test results instantaneously. In December 2011 we announced entering into an agreement with Honeywell India (a unit of Honeywell International) to develop a radiation detector which would display radiation data collected via Bluetooth to a smartphone. The product is designed to detect radiation levels on surfaces and food and to automatically send the collected data to a smartphone. According to the agreement with Honeywell, any and all intellectual property including any patents which may be filed will be the sole property of Universal Detection Technology.

We named this product RadSmart and while we expected to bring it to the market in 2012, technical and funding problems have postponed the release. We now anticipate the market release of RadSmart to be in 2013. In March 2012, we applied for a Federal Trademark for RadSmart with the US Patent and Trademark Office (USPTO). On October 16, 2012 our trademark was registered under registration number 4,225,651 with the USPTO. The mark consists of standard characters without claim to any particular font, style, or color and it is for radiation detectors, in class 9 (U.S. CLS. 21, 23, 26, 36 AND 38).

RadSmart utilizes a Hamamatsu Cesium Iodide (CsI) scintillator for the detection of Gamma rays. Cs(I) scintillators are the most sensitive detection mechanisms for detecting Gamma radiation. The instrument will be sensitive enough to measure normal radiation levels to 100 to 200 times that intensity. With the planned detection range of 0.001 to 9.999 uSv/h the device is expected to be capable of detecting traces of radiation on surfaces, clothing and in particular food contamination, which has become an increasing concern globally after the Fukushima disaster in Japan.

In 2012 we realized revenues of $75,470 from sales. We have incurred losses for the fiscal years ended December 31, 2012 and 2011 in the approximate amounts of $1.6 million and $3.4 million, respectively, and have an accumulated deficit of $50.4 million as of December 31, 2012. At December 31, 2012, we were in default on certain debt obligations totaling approximately $443,500 in addition to accumulated interest of approximately $815,500. We require approximately $1.3 million in the next 12 months to repay debt obligations. We do not anticipate that our cash on hand is adequate to meet our operating expenses over the next 12 months. In addition, we do not have adequate capital to repay all of our debt currently due and becoming due in the next 12 months. We principally expect to raise funds through the sale of equity or debt securities. During the past 12 months, management spent the substantial majority of its time on sales and marketing of the Company’s products and services. These activities diverted management from capital raising activities. We will actively continue to pursue additional equity or debt financing in the coming months, but cannot provide any assurances that it will be successful or on terms that are acceptable to us. If we are unable to pay our debts as they become due and are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider other alternatives including suspending our business operations.

INDUSTRY BACKGROUND

The tragic events of September 11, 2001 redefined a new age of public safety and security, not only for the United States, but also for the entire world. In the wake of the tragedy, the world was shocked to learn of another nontraditional, deadly asymmetric weapon that was being deployed: lethal bioagents. A week after 9/11, envelopes containing anthrax, delivered by the U.S. Postal Service, were sent to five news media outlets, and on October 9th, two U.S. Senate offices. By November 2001, 22 people in four states and the District of Columbia contracted anthrax, many of them through the tainting of letters via the postal sorting machines. In all, the bioterrorism attacks claimed six lives.

The Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism, led by an independent U.S. congressional committee, asserts that a large scale biological attack, expected to hit somewhere in the world by the end of 2013, has yet to be seen.

Along with the grave predictions in the December 2008 report, World at Risk, the Commission on the Prevention of Weapons of Mass Destruction Proliferation and Terrorism, led by an independent U.S. congressional committee, listed recommendations on how the government can reduce the risk of a biological attack. In January 2010, the commission issued a report card following up on those recommendations. For its efforts to “enhance the nation’s capabilities for rapid response to prevent biological attacks from inflicting mass casualties,” the government received an “F” letter grade.

The United States Department of Homeland Security was formed to consolidate the federal government's efforts to secure the U.S. homeland, with the primary goal being an America that is stronger, safer, and more secure. The private sector also has responded to the need for preparedness against bioterrorism by developing numerous anti-terror products and services. As a result a market for anti-terror products and counter-attack products in the bioagent, nuclear, physical and radiological spheres has developed and continues to expand.

In 2011 a tragedy took place in Japan that changed the dynamic, size, and requirements of the market for equipment used to detect radiation and identify radioactive isotopes. On March 11, 2011 an earthquake sent a tsunami barreling into the coast, sparking a nuclear crisis at Fukushima, Japan. The tsunami caused massive damage to nuclear reactors causing unsafe levels of radioactive material to be spread over residential areas, agricultural land, and other surroundings. The people of Japan have since conducted widespread detection and decontamination efforts to repair the damages caused by the disaster. The tragedy, however, has opened the eyes of the public and experts alike to the hazards of radiation dissemination. The market for radiation detection systems has changed drastically. Not only the size of the market has increased but also there is a need for smarter, more accurate, smaller, and more user friendly systems.

OUR SOLUTIONS

Universal Detection Technology is a supplier of equipment and services used for detection of:

Chemical threats

Biological threats

Radiological and Nuclear threats

Mold

The chemical detection kits we offer serve to equip first responders and military personnel with tools that rapidly identify the presence of a chemical agent threat, such as extreme levels of acidity or basicity, chlorine/fluoride, hydrogen sulfide and sulfur dioxide. Designed for use in the field for first responders or military personnel, the "Chameleon" detection system offers hands-free detection for harmful chemical agents and eliminates the need for a liquid sample. Users wear a portable chemical detection kit on their forearm. Each armband has a cassette holder containing up to ten (10) small cassettes, each of which can detect a unique chemical agent and identify its presence through a clear color-changing indicator. The Chameleon armband is fully functioning in extreme temperatures (-30 C to 50 C or -22 F to 122 F), and can operate while fully immersed in water. The Chameleon armband is a handheld chemical detection device which we market and sell to first responders. We purchase and distribute the Chameleon device from Morphix Technologies under an open-ended supply and distribution agreement. To date, we have sold a nominal number of such units resulting in insignificant revenue amounts. We have no exclusive rights under the distribution agreement and the agreement may be terminated upon 30 days prior notice by either party, or immediately upon a breach of the agreement. Under the terms of the Agreement, we are permitted to sell these products within the United States only.

The Company also supplies a handheld gas and vapor detector called ChemPro100i used for detection and classification of toxic industrial chemicals (TICs) and chemical warfare agents (CWAs). ChemPro100i’s multi-sensor detection array has 10 sensing channels, with a unique open-loop Ion Mobility Spectroscopy (IMS) sensor at its heart, to provide CWA sensitivity below military action levels, quick response and industry-leading false alarm rejection even to low vapor pressure threats like VX. We purchase and distribute the ChemPro100i device from Environics under an open-ended supply and distribution agreement. To date, we have not sold any ChemPro100i units resulting in no revenue. We have no exclusive rights under the distribution agreement and the agreement may be terminated upon 30 days prior notice by either party, or immediately upon a breach of the agreement. Under the terms of the Agreement, we are permitted to sell these products within the United States only.

The Company’s biological detection equipment gives first responders the ability to immediately identify the presence of deadly agents in a sample. These biological detection kits are handheld assays capable of detecting anthrax, ricin toxin, botulinum, plague, SEBs, and tularemia. The Company is in the process of adding more biological agents to the list of the threats that these handheld kits can identify. The detection kits are sold as TS-10-5, TS-10-T-5, ANT-12, RIC-12, BOT-12, PLA-12, SEB-12, TUL-12. We purchase and distribute these kits from Advnt Biotechnologies, LLC under a one year VAR and distribution agreement. We have no exclusive rights under the distribution agreement. The agreement may be terminated by either party upon 60 days prior notice by either party or immediately upon a breach of the agreement. Under the terms of the agreement, we are permitted to sell these products throughout the world with no geographic restrictions.

In February 2011, the Company entered into a reseller agreement with Mirion Technologies Inc. (“Mirion Technologies”). Through the agreement, the Company offered nuclear detection and monitoring devices created and made by Mirion Technologies that include electronic dosimetry and teledosimetry devices. We had no exclusive rights under the distribution agreement. Under the terms of the original agreement, we were permitted to sell these products in the United States only. However, we amended the agreement via various items of correspondence with Mirion such that we can also sell these products in Japan. In April 2011, Mirion Technologies informed us that we could no longer purchase products directly from them to fill our orders and sales to Japan and the US. Through their referral and our own efforts, we have found several alternative suppliers of Mirion Technologies’ products, from whom we have been able to procure inventory and meet the demand of our customers thus far. As of April 2011, we no longer consider Mirion Technologies a supplier and do not rely on direct purchase of products from them.

In 2011 we initiated research and development efforts to design and produce a unique scintillator based radiation detection survey meter that would communicate its readings with a smartphone wirelessly via a Bluetooth module. We believe that using the computing power of the smart phone and new detection technologies will allow us to produce a much smaller and more accurate unit that will be more capable in terms of mapping, saving, and sharing the results over communication networks. We expected to unveil the first prototype of this device in 2012. However, due to lack of funding and a few technical difficulties with testing the technology that has been pushed back. We anticipate to unveil a prototype of RadSmart in 2013.

UDT’s Mold detection kit utilizes a highly accurate testing technology called immunochromatographic assay, also known as a rapid test or Hand-Held Assay (HHA). These devices have been used for over 30 years in the medical field for detecting disease, fertility, drugs of abuse and respiratory disorders. Designed to rapidly detect the presence of specific substances in field-collected samples, HHA’s have proven to be an indispensable tool for saving countless lives while reducing the time it takes to acquire results. Unlike the ATP test which detects any and all living cells, regardless of what those cells are, UDT’s kits detect only specific species of Aspergillus, Penicillium and Stachybotrys such as Stachybotrys chlorohalonata, Stachybotrys microspora, Stachybotrys echinata and Stachybotrys chartarum, in addition to certain Aspergillus and Penicillium sub-species. Each kit is individually packaged and includes everything necessary to run the test. No additional collection kits, readers or electronics are required. The Mold detection kit is sold as the MDK-2. We purchase and distribute MDK-2 from Advnt Biotechnologies LLC under the agreement described above. During 2012, we sold a nominal number of MDK-2 units.

Universal Detection Technology has also situated itself to provide various counter-terrorism services. Such services include training courses for first responders, event security, threat evaluation & consulting, and DVDs aimed at providing information and training regarding combating terrorism and managing emergency situations. Through a reseller agreement with Detrick Lawrence Corporation and its division, the Emergency Film Group, we market and sell a series of DVD’s related to combating terrorism and handling emergency situations and first response. To date, we have sold only a nominal amount of these services and products and the resulting revenue for 2012 was insignificant.

MARKETING AND SALES

Our sales and marketing plan includes strategic partnership agreements and retention of our in-house staff and outside consultants. The Company has retained the services of consultants to market its products in the United States and internationally. In the United States, we plan to continue presenting our technologies at industry events and trade shows. We also retain domestic distributors and consultants to arrange meetings with and presentations to building owners and operators, government officials in charge of decisions for safety and security of government and private venues and buildings, homeland security officials, and security companies. In 2012 we continued to use the internet to market and promote Universal Detection Technology and its products and services to the public. This strategy includes creation of an interactive and informational presence through our website and use of various third parties to bring traffic to our website. We intend to do more internet marketing and search engine optimization activities in 2013.

We also plan to develop brand recognition for our Company and for our products through attendance at national and international defense related exhibitions, use of print and video promotional materials, and by granting interviews to national and international news media.

We currently sell and plan to sell our products through a combination of unsolicited telephone orders, electronically generated sales via our website and in follow up to customer meetings or tradeshows.

MANUFACTURING

Currently, we do not have any manufacturing capabilities. In the past we have used original equipment manufacturers to manufacture our products. In addition to our own brands we also market third party brands that are related to our field of business. We are not obligated to continue to work with any of our current suppliers. As such, we may choose to work with other suppliers in the future. Should any of our supply and distribution agreements be terminated, we believe we can source adequate replacement supply parties and products without causing any material disruption to our business.

EMPLOYEES

As of December 31, 2012, we had a total of four employees. We also employ outside consultants from time to time to provide various services. None of our employees are represented by a labor union. We consider our employee relations to be good.

COMPETITION

We face intense competition from a number of companies that offer products in our targeted application areas. Our competitors may offer or be developing products superior to ours. Our competitors may be significantly better financed than us. There are various technological approaches available to our competitors and us that may be applicable to the detection of pathogens in the air or on surfaces, and the feasibility and effectiveness of these techniques has yet to be fully evaluated or demonstrated.

Several companies provide or are in the process of developing instruments for detection of bioterrorism agents. The biodetection kits we sell are small handheld assays that work based on sandwich immunoassay technology. We expect to encounter intense competition from a number of new development-stage companies that continue to enter the bioterrorism detection device market. Our competitors may succeed in developing or marketing technologies and products that are more effective or commercially attractive than our potential products or that render our technologies and potential products obsolete. As these companies develop their technologies, they may develop proprietary positions that prevent us from successfully commercializing our products.

There are many multinational and established manufacturers of radiation detection equipment. We will face intense competition from these manufacturers for marketing and selling our radiation detectors. Such competition will limit our ability to achieve market share and can affect our sales and revenues.

INTELLECTUAL PROPERTY

The Company does not own any intellectual property rights with respect to the products it markets and sells. As such, the Company may be at a competitive disadvantage with respect to protecting its ability to continue to market and sell any particular device, even if such a device is in high demand. In contrast, many of the Company's competitors develop proprietary technologies and devices which compete with the products marketed by and sold by the Company. As such, such competitors can control the marketing, sales and further development of their product offerings in a manner that the Company cannot. Because the Company is a re-seller of products developed by other parties, it cannot control its product offerings as well as its competitors may be able to.

In December 2011 we announced entering into an agreement with Honeywell India (a unit of Honeywell International) to develop a radiation detector which would display radiation data collected via Bluetooth to a smartphone. We named this product RadSmart and we expect to bring it to the market in 2013. In March 2012, we applied for a Federal Trademark for RadSmart with the US Patent and Trademark Office (USPTO). On October 16, 2012 our trademark was registered under registration number 4,225,651 with the USPTO. The mark consists of standard characters without claim to any particular font, style, or color and it is for radiation detectors, in class 9 (U.S. CLS. 21, 23, 26, 36 AND 38).

GENERAL

The Company was formed on December 24, 1971 in the State of California under the name Pollution Research and Control Corporation. It has operated continuously since that date. In August, 2003 the Company changed its name to Universal Detection Technology.

On July 5, 2012 the Company completed a one-for-twenty-thousand (1:20,000) reverse stock split for stockholders of record as of March 13, 2012 (the “Reverse Stock Split”) which resulted in 919,219 shares outstanding as of that date. All share and per share amounts discussed in this Annual Report give effect to the Reverse Stock Split.

ITEM 1A. RISK FACTORS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS TOGETHER WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS ANNUAL REPORT. SOME OF THE INFORMATION CONTAINED IN THIS DISCUSSION AND ANALYSIS OR SET FORTH ELSEWHERE IN THIS ANNUAL REPORT, INCLUDING INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGIES FOR OUR BUSINESS, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. YOU SHOULD REVIEW THE "RISK FACTORS" SECTION OF THIS REPORT FOR A DISCUSSION OF IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DESCRIBED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER.

OUR INDEPENDENT AUDITORS' REPORT EXPRESSES DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN.

Our independent auditors' report, dated June 3, 2013 includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern, due to our working capital deficit at December 31, 2012. We have experienced operating losses since the date of the auditors' report. Our auditor's opinion may impede our ability to raise additional capital on terms acceptable to us. If we are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors. If we are unable to continue as a going concern, your entire investment in us could be lost.

WE ARE IN DEFAULT OF A SUBSTANTIAL PORTION OF OUR DEBT AND DO NOT HAVE ADEQUATE CASH TO FUND OUR WORKING CAPITAL NEEDS. OUR FAILURE TIMELY TO PAY OUR INDEBTEDNESS MAY REQUIRE US TO CONSIDER STEPS THAT WOULD PROTECT OUR ASSETS AGAINST OUR CREDITORS.

If we cannot raise additional capital, we will not be able to repay our debt or pursue our business strategies as scheduled, or at all, and we may cease operations. We have been unable to pay all of our creditors and certain other obligations in accordance with their terms, and as a result, at December 31, 2012 we are in default on a portion of our debt totaling approximately $443,500 excluding accumulated interest of approximately $815,500 In the aggregate, as of December 31, 2012, we have approximately $2.2 million in debt obligations, including interest, owing within the next 12 months. We cannot assure you that any of these note-holders will agree to extend payment of these debt obligations or ultimately agree to revise the terms of this debt to allow us to make scheduled payments over an extended period of time.

We have nominal cash on hand and short-term investments and we do not expect to generate material cash from operations within the next 12 months. We have attempted to raise additional capital through debt or equity financings and to date have had limited success. The downtrend in the financial markets has made it extremely difficult for us to raise additional capital. If we are unable to raise capital successfully, or reduce our debt through other means, we may be unable to continue operations.

THE COMPANY DOES NOT OWN ANY PROPRIETARY OR INTELLECTUAL PROPERTY RIGHTS IN THE PRODUCTS IT MARKETS AND SELLS

Other than the U.S. trademark the Company received on RadSmart branded product in October 2012, the Company does not own any intellectual property rights with respect to the products it markets and sells. The Company is a "reseller" of products available to it under supply and distribution agreements. As such, the Company may be at a competitive disadvantage with respect to protecting its ability to continue to market and sell any particular device, even if such device is in high demand. The Company cannot assure the availability of the products it sells or any improvements on such products. In addition, should such products become the subject of infringement claims by third parties, the Company may be unable to continue selling such products while such claims are unresolved. The Company would be forced to rely on the efforts of the owners of the products and underlying technologies to defend such suits should they arise. Such legal challenges, should they arise, would be detrimental to our operations. The Company believes it could source other suppliers of products should any of its suppliers become unable to sell product for any reason, however there can be no assurance that such replacement suppliers can be found timely or upon terms acceptable to the Company, if at all.

WE HAVE NO ABILITY TO FINANCE SIGNIFICANT ORDERS OF OUR PRODUCTS OR TO PREPAY FOR ORDERS THAT MAY REQUIRE SUCH PAYMENT; WE MAY BE UNABLE TO TIMELY FULFILL ORDERS, IF AT ALL

The Company is a "reseller" of products available to it under supply and distribution agreements. When we obtain products for resale to our customers, we must be able to finance the purchase of such products. When the quantities and/or unit prices are low or nominal, we can finance that acquisition through existing cash, or require pre-payment from our customers, or request that the supply invoices be payable at a point in the future subsequent to the collection of the purchase price from our customers. The products we offer vary in price from several hundred dollars per unit to several thousand dollars per unit. From time to time, our management has made loans to the Company the proceeds of which are used for general operations including the acquisition of limited amount of product for demonstration and resale. Currently, we believe that none of our accounts receivable would be attractive to commercial finance lenders or factors as a means to finance product acquisition. Should we be successful in generating significant purchase requests for the products we market and sell, we may be unable to process those orders due to a lack of financing opportunities and a lack of cash on hand. While we may attempt to structure such orders, should they arise, in a way that provides for payment in advance from customers, or payment of invoices after customer collection, or upon a factoring or other finance arrangement, there can be no assurance that we can structure the financing terms in a manner that supports product acquisition in large quantities, if at all. In addition, we have no control over how quickly our suppliers will make product available to us. Even assuming we can finance orders of all sizes, we must rely upon our suppliers to provide product and ship product in a timely manner. However, we cannot control the timing and shipment of the products that we resell. If we are able to generate purchase orders, we may be unable to fulfill them timely and upon financing terms acceptable to us or our suppliers and customers, which would be detrimental to our operations.

WE HAVE A HISTORY OF LOSSES AND WE DO NOT ANTICIPATE THAT WE WILL BE PROFITABLE IN FISCAL 2012.

We do not anticipate generating significant sales. We have not been profitable in the past years and had an accumulated deficit of approximately $50.4 million at December 31, 2012. We have had little revenues from sales of our products since the beginning of fiscal 2002, the commencement of our entry in the counter terrorism market. During the fiscal years ended December 31, 2012 and 2011, we had losses of $1.6 million and $3.4 million, respectively. During fiscal 2012, we had gross revenues of $75,470. Achieving profitability depends upon numerous factors, including our ability to develop, market, and sell commercially accepted products timely and cost-efficiently. We do not anticipate that we will be profitable in fiscal 2013.

IF WE OBTAIN FINANCING, EXISTING SHAREHOLDER INTERESTS MAY BE DILUTED.

If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our shareholders will be diluted. In addition, any convertible securities issued may not contain a minimum conversion price, which may make it more difficult for us to raise financing and may cause the market price of our common stock to decline because of the indeterminable overhang that is created by the discount to market conversion feature. In addition, any new securities could have rights, preferences and privileges senior to those of our common stock. Furthermore, we cannot assure you that additional financing will be available when and to the extent we require or that, if available, it will be on acceptable terms.

MANAGEMENT HAS LIMITED EXPERIENCE IN SALES AND DISTRIBUTION. WE MAY NOT BE ABLE TO MARKET AND DISTRIBUTE PRODUCTS EFFECTIVELY, WHICH COULD HARM OUR FUTURE PROSPECTS.

If we are unable to establish a successful sales, marketing, and distribution operation, we will not be able to generate sufficient revenue in order to maintain operations. We have limited experience in marketing or distributing new products. We have limited experience in developing, training, or managing a sales force. If we choose to establish a direct sales force, we will incur substantial additional expense. We may not be able to build a sales force on a cost effective basis or at all. Any direct or internet marketing and sales efforts may prove to be unsuccessful. In addition, our marketing and sales efforts may be unable to compete with the extensive and well-funded marketing and sales operations of some of our competitors. We also may be unable to engage qualified distributors. Even if engaged, they may fail to satisfy financial or contractual obligations to us, or adequately market our products.

OUR PRODUCTS MAY NOT BE COMMERCIALLY ACCEPTED WHICH WILL ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.

Our ability to enter into the CBRN detection device market, establish brand recognition and compete effectively depends upon many factors, including broad commercial acceptance of our products. If our products are not commercially accepted, we will not recognize meaningful revenue and may not continue to operate. The success of our products will depend in large part on the breadth of information these products capture and the timeliness of delivery of that information. The commercial success of our products also depends upon the quality and acceptance of other competing products, general economic and political conditions and other factors, all of which can change and cannot be predicted with certainty. We cannot assure you that our new products will achieve market acceptance or will generate significant revenue.

EXISTING AND DEVELOPING TECHNOLOGIES MAY ADVERSELY AFFECT THE DEMAND FOR OUR PRODUCTS.

Our industry is subject to rapid and substantial technological change. Developments by others may render our technologies and planned products noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Competition from other companies, universities, governmental research organizations and others diversifying into our field is intense and is expected to increase.

SHARES ISSUED UPON THE EXERCISE OF OUR OUTSTANDING OPTIONS AND WARRANTS, OR UPON THE CONVERSION OF PROMISSORY NOTES, MAY DILUTE YOUR STOCK HOLDINGS AND ADVERSELY AFFECT OUR STOCK PRICE.

If exercised, our outstanding options and warrants will cause immediate and substantial dilution to our stockholders. We have issued options and warrants to acquire our common stock to our employees, consultants, and investors at various prices, some of which are or may in the future be below the market price of our stock. As of December 31, 2012, we had outstanding options and warrants to purchase a total of 120,002 shares of common stock. Of these options and warrants, all have exercise prices at or above the recent market price of $0.24 per share (as of April 15, 2013) and none have exercise prices at or below this price. In addition, because of our financial condition and substantial indebtedness and our need to raise capital, from time to time we have converted outstanding debt obligations into common stock. During 2012, we converted debt at conversion prices at $4 per share. Our conversion of outstanding debt obligations to common stock, as well as the exercise of outstanding options and warrants to purchase common stock, which the Board of Directors may authorize and undertake from time to time, may dilute the stockholdings of current shareholders.

THE LOSS OF OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER WOULD DISRUPT OUR BUSINESS.

Our success depends in substantial part upon the services of Jacques Tizabi, our President, Chief Executive Officer and Chairman of the Board of Directors. The loss of or the failure to retain the services of Mr. Tizabi would adversely affect the development of our business and our ability to realize profitable operations. We do not maintain key-man life insurance on Mr. Tizabi and have no present plans to obtain this insurance.

WE MAY BE SUED BY THIRD PARTIES WHO CLAIM THE PRODUCTS WE SELL INFRINGE ON THEIR INTELLECTUAL PROPERTY RIGHTS. DEFENDING AN INFRINGEMENT LAWSUIT IS COSTLY AND WE MAY NOT HAVE ADEQUATE RESOURCES TO DEFEND OURSELVES.

We may be exposed to future litigation by third parties based on claims that the products we sell infringe on the intellectual property rights of others or that we have misappropriated the trade secrets of others. This may be true even if we do not own the technologies embedded in the products we sell. This risk is compounded by the fact that the validity and breadth of claims covered in technology patents in general and the breadth and scope of trade secret protection involves complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether or not valid, could result in substantial costs, could place a significant strain on our financial and managerial resources, and could harm our reputation.

CURRENCY RISK

Some of our sales come from sales in Japan and that leaves us open to the risk associated with the valuation of the Japanese Yen. If the Japanese Yen becomes less valuable our products will be relatively more expensive and can therefore lose their competitive advantage. Our margins as a reseller are very thin and a currency devaluation in Japan can diminish our ability to compete or sell in that market.

HEAVY RELIANCE ON THE JAPANESE MARKET

Our sales are predominantly in Japan and have peaked since the March 11, 2011 disaster in Fukushima that resulted in damage to nuclear reactors and release of radioactive material in the ground and in the atmosphere. There is no assurance that the demand for radiation detection equipment will remain high in Japan and if such demand fades, we will recognize lower revenues.

RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT

We are spending resources on research and development related to a smartphone compatible radiation detector, RadSmart. Development of new products is inherently risky and there is no assurance that RadSmart will perform as well as it is designed to perform. Furthermore, the market for RadSmart might shrink in size or cease to exist by the time the product is ready and available for purchase. The market might not accept RadSmart as a reliable detection device and as such, our sales of RadSmart might be zero or very limited.

WE HAVE NOT PAID ANY CASH DIVIDENDS AND NO CASH DIVIDENDS WILL BE PAID IN THE FORESEEABLE FUTURE.

We do not anticipate paying cash dividends on our common stock in the foreseeable future, and we cannot assure an investor that funds will be legally available to pay a dividend or that even if the funds are legally available, that a dividend will be paid.

THE APPLICATION OF THE “PENNY STOCK” RULES COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE STOCK.

As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules. The “penny stock” rules impose additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of securities and have received the purchaser’s written consent to the transaction before the purchase. Additionally, for any transaction involving a penny stock, unless exempt, the broker-dealer must deliver, before the transaction, a disclosure schedule prescribed by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements must be sent disclosing recent price information on the limited market in penny stocks. These additional burdens imposed on broker-dealers may restrict the ability or decrease the willingness of broker-dealers to sell our common stock, and may result in decreased liquidity for our common stock and increased transaction costs for sales and purchases of our common stock as compared to other securities.

A DTC “CHILL” ON ELECTRONIC CLEARING OF TRADES IN OUR COMMON STOCK MAY AFFECT THE LIQUIDITY OF OUR STOCK AND OUR ABILITY TO RAISE CAPITAL.

In September 2011, The Depositary Trust Company (DTCC) placed a "chill" on the electronic clearing of trades in our shares which led to some firms being unwilling to accept certificates of our stock and also some will not accept trades in our shares altogether. The Company has sought advice from third parties on removal of the DTC chill. On February 1, 2013 the DTCC lifted the deposit chill and resumed accepting deposits of our stock and book-entry transfer services. A DTC chill affects the liquidity in our shares which, if reinstated, may make it difficult to purchase or sell shares.

OUR STOCK PRICE IS VOLATILE.

The trading price of our common stock fluctuates widely and in the future may be subject to similar fluctuations in response to quarter-to-quarter variations in our operating results, announcements of technological innovations or new products by us or our competitors, general conditions in the terrorism detection device industry in which we compete and other events or factors. In addition, in recent years, broad stock market indices, in general, and the securities of technology companies, in particular, have experienced substantial price fluctuations. These broad market fluctuations also may adversely affect the future trading price of our common stock.

OUR STOCK HISTORICALLY FLUCTUATES WIDELY IN TRADING VOLUME AND PRICE. THEREFORE, SHAREHOLDERS MAY NOT BE ABLE TO SELL THEIR SHARES FREELY OR AT PRICES AND AT TIMES THAT THEY DESIRE TO SELL SHARES.

The volume of trading in our common stock historically has fluctuated and a limited market presently exists for the shares. We have no analyst coverage of our securities. The lack of analyst reports about our stock may make it difficult for potential investors to make decisions about whether to purchase our stock and may make it less likely that investors will purchase our stock. Our stock trades in a wide fluctuation of volume that we cannot predict or control. We cannot assure you that our trading volume will increase, or that our historically light trading volume or any trading volume whatsoever will be sustained in the future. Therefore, we cannot assure you that our shareholders will be able to sell their shares of our common stock at the time or at the price that they desire, or at all.

POTENTIAL ANTI-TAKEOVER TACTICS AND RIGHTS AND PREFERENCES GRANTED THROUGH THE ISSUANCE OF PREFERRED STOCK RIGHTS MAY BE DETRIMENTAL TO COMMON SHAREHOLDERS.

We are authorized to issue up to 20,000,000 shares of preferred stock. The issuance of preferred stock does not require approval by the shareholders of our common stock. Our Board of Directors, in its sole discretion, has the power to issue preferred stock in one or more series and establish the dividend rates and preferences, liquidation preferences, voting rights, redemption and conversion terms and conditions and any other relative rights and preferences with respect to any series of preferred stock. Holders of preferred stock may have the right to receive dividends, certain preferences in liquidation and conversion and other rights, any of which rights and preferences may operate to the detriment of the shareholders of our common stock. Further, the issuance of any preferred stock having rights superior to those of our common stock may result in a decrease in the market price of the common stock and, additionally, could be used by our Board of Directors as an anti-takeover measure or device to prevent a change in our control.

IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROL OVER FINANCIAL REPORTING, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A RESULT, CURRENT AND POTENTIAL SHAREHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING, WHICH WOULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR STOCK.

Our management has determined that as of December 31, 2012, we did not maintain effective internal controls over financial reporting based on criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework as a result of identified material weaknesses in our internal control over financial reporting as described later in this Report in Part II – Item 9A – Controls and Procedures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. If the result of our remediation of the identified material weaknesses described in this Report are not successful, or if additional material weaknesses are identified in our internal control over financial reporting, our management will be unable to report favorably as to the effectiveness of our internal control over financial reporting and/or our disclosure controls and procedures, and we could be required to further implement expensive and time-consuming remedial measures and potentially lose investor confidence in the accuracy and completeness of our financial reports which could have an adverse effect on our stock price and potentially subject us to litigation.

OUR ISSUANCE OF ADDITIONAL COMMON STOCK, OR OPTIONS TO PURCHASE OUR STOCK, WOULD DILUTE YOUR PROPORTIONATE OWNERSHIP AND VOTING RIGHTS.

We are entitled under our articles of incorporation to issue up to 20,020,000,000 shares of capital stock which includes 20,000,000,000 shares of common stock and 20,000,000 shares of Preferred Stock. Our Preferred Stock may be designated in a senior position to our common stock. After giving effect to our July 2012 Reverse Stock Split, we are authorized to issue up to 20,000,000,000 shares of common stock and 20,000,000 shares of Preferred Stock as of May 1, 2013. Our board of directors may generally issue stock, or options or warrants to purchase those shares, without further approval by our stockholders based upon such factors as our board of directors may deem relevant at that time. It is likely that we will be required to issue a large amount of additional securities to raise capital to further our development or convert outstanding indebtedness to equity. It is also likely that we will be required to issue a large amount of additional securities to directors, officers, employees and consultants as compensatory grants in connection with their services, both in the form of stand-alone grants or under our stock plans. We cannot give you any assurance that we will not issue additional common stock, or options or warrants to purchase those shares, under circumstances we may deem appropriate at the time.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable for Smaller Reporting Companies.

ITEM 2. DESCRIPTION OF PROPERTY

We currently do not own any real property. Our corporate headquarters are located at 340 N. Camden Drive, Suite 302, Beverly Hills, CA 90210, USA. We lease this office on a month-to-month term. The base monthly rent is $6,896. We believe this operating space is adequate for the Company's needs for the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

On May 15, 2002, Walt Disney World Co. commenced action in the Los Angeles Superior Court against the Company and a former wholly-owned subsidiary (WALT DISNEY WORLD CO. V. POLLUTION RESEARCH AND CONTROL CORP. AND DASIBI ENVIRONMENTAL CORP. (Case No. BC 274013 Los Angeles Superior Court) for amounts due in connection with unpaid rent. A judgment was entered for $411,500. No amounts have been paid in connection with the judgment. As of December 31, 2012, $411,500 has been accrued.

On or about April 16, 2004, Plaintiffs A. Sean Rose, Claire F. Rose, and Mark Rose commenced an action in the Los Angeles Superior Court against the Company (A. SEAN ROSE, CLAIRE F. ROSE AND MARK ROSE V. UNIVERSAL DETECTION TECHNOLOGY, FKA POLLUTION RESEARCH AND CONTROL CORPORATION) for amounts allegedly due pursuant to four unpaid promissory notes. On August 2, 2004, the parties executed a Confidential Settlement Agreement and Mutual Releases (the “Agreement”). On December 30, 2005, Plaintiffs commenced an action against the Company, alleging the Company breached the Agreement and sought approximately $205,000 in damages. A judgment was entered on April 11, 2006 for $209,277.58. The Company has previously accrued for this settlement. As of December 31, 2012, we have accrued $661,929 for this settlement including principal and interest.

On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the Los Angeles Superior Court (TRILOGY CAPITAL PARTNERS V. UNIVERSAL DETECTION TECHNOLOGY, ET. AL., Case No. SC089929) against the Company. Plaintiff's Complaint alleged damages against UDT for breach of an engagement letter in the amount of $93,448.54. Also, Plaintiff alleged that UDT had failed to issue warrants to it pursuant to a written agreement. After completing the initial stages of litigation and conducting extensive mediation, Plaintiff and UDT reached a settlement wherein commencing December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six percent per annum was fully paid. In exchange, Plaintiff would release all of its claims against UDT. UDT has not been current on all of its agreed payments to Plaintiff. As of December 31 2012, $28,098 was due under the agreement.

On November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the Los Angeles Superior Court (NBGI, Inc. v. Universal Detection Technology, et. al., Case No. BC361979) against UDT. NBGI, Inc.'s Complaint alleged breach of contract, and requested damages in the amount of $111,014.34 plus interest at the legal rate and for costs of suit. A Motion for Summary Judgment was set for September 11, 2007. The Summary Judgment was granted in NBGI’s favor and judgment has been entered. No payments have been made on this judgment and no actions to enforce the judgment have been taken against UDT.

On November 1, 2010 the accounting firm of A.J. Robbins, P.C. filed a lawsuit in the District Court, City and County of Denver, Colorado, seeking recovery of fees allegedly owed for accounting services performed during 2004 to 2008. The claims have been asserted against the Company, a second corporate defendant, and our CEO, as a result of a personal guarantee. On December 15, 2010, Defendants filed an Answer which asserted several defenses. The parties exchanged initial disclosures, and the matter was set for trial commencing on December 5, 2011. On August 3, 2011 the parties entered into a settlement agreement whereby the Defendants in the case will jointly pay $85,000 to the plaintiffs and the Company will issue $45,000 of the Company’s stock to the plaintiffs. The Company was responsible to pay 50% of the cash payments, the other 50% of which was the responsibility of a second defendant. The cash payments were scheduled to be made in equal monthly payments over 7 months commencing on August 31, 2011. In consideration of the settlement, the parties have executed a mutual release and have agreed to withdraw the lawsuit. The releases and withdrawal are contingent upon the Company's full performance of the settlement agreement terms. The Company issued stock with a fair market value of $36,000 on the date of the agreement in full payment of the stock portion of the settlement agreement. As of November 11, 2012, the Company and the second corporate defendant have fulfilled all the obligations with respect to this liability and all of the $85,000 has been paid to the plaintiffs.

ITEM 4. MINE SAFETY DISCLOSURES

This item is not applicable to the Company’s business.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the OTC Bulletin Board under the symbol “UNDT.” The following table sets forth the high and low bid information of our common stock on the OTC Bulletin Board for each quarter during the last two fiscal years, as reported by the OTC Bulletin Board. This information reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Year	Period
		High Bid	Low Bid
2011	First Quarter	52.00	6.00
	Second Quarter	32.00	8.00
	Third Quarter	12.00	4.00
	Fourth Quarter	6.00	2.00

2012	First Quarter	4.000	2.00
	Second Quarter	2.00	2.00
	Third Quarter	2.00	.0013
	Fourth Quarter	1.02	0.35

HOLDERS OF RECORD

As of May 1, 2013, we had 2,623 shareholders of record of our common stock. Our Transfer Agent is Worldwide Stock Transfer, LLC located at 433 Hackensack Avenue, Level L, Hackensack, NJ 07601. Worldwide Stock Transfer’s phone number is (201) 820-2010.

DIVIDEND POLICY

We do not currently pay any dividends on our common stock, and we currently intend to retain any future earnings for use in our business. Any future determination as to the payment of dividends on our common stock will be at the discretion of our Board of Directors and will depend on our earnings, operating and financial condition, capital requirements and other factors deemed relevant by our Board of Directors including the General Corporation Law of the State of California, which provides that dividends are only payable out of retained earnings or if certain minimum ratios of assets to liabilities are satisfied. The declaration of dividends on our common stock also may be restricted by the provisions of credit agreements that we may enter into from time to time.

RECENT SALES OF UNREGISTERED SECURITIES

None

ITEM 6. SELECTED FINANCIAL DATA

Not applicable for Smaller Reporting Companies.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements provided in this annual report on Form 10-K. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed more fully herein.

The forward-looking information set forth in this annual report is as of the date of this filing, and we undertake no duty to update this information. More information about potential factors that could affect our business and financial results is included in the section of this annual report entitled "Risk Factors."

OVERVIEW

We are engaged in the marketing and resale of detection devices for chemical, biological, radiological, and nuclear (CBRN) threats. Through agreements with various third parties we seek to supply bioterrorism detection kits capable of detecting anthrax, ricin, botulinum, plague, and SEBs, mold detection kits, chemical detection equipment, radiation detection systems, and counter-terrorism training references.

We have entered into supply and distribution agreements with various parties enabling us to supply a host of products and services for detection of hazardous materials and training references. By combining our in-house experience and knowledge and outside expertise offered by various consultants and third parties, we have added threat evaluation and consulting services, and training courses to our services. We sell and market security and counter-terrorism products including bioterrorism detection kits, chemical detectors, radiation detection systems, and training references. Some of the products and services we offer have not been sold to date and there is no guarantee that any of them will be demanded and sold in the market in the future. We plan to continue expanding our product base and intend to sell products to more users inside and outside the U.S. Our strategy is to generate sales by enhancing our web presence and marketing the Company as a supplier of complete CBRN detection equipment. We plan to attend various industry trade shows and to offer products in certain training scenarios so that first responders can become more familiar with our products. Our target customer markets primarily consist of first responders with some emphasis on the bioterror and military defense market. Our geographical customer focus is on the U.S., Europe, and Asia. There is no guarantee that we will succeed in implementing this strategy or if implemented, that this strategy will be successful.

Our business operations are more fully described under "Description Business" in Item 1 of Part I of this Report.

Results of Operations

The following discussion is included to describe our consolidated financial position and results of operations. The audited consolidated financial statements and notes thereto contain detailed information that should be referred to in conjunction with this discussion.

Revenue – Total revenue for the year ended December 31, 2012 was $75,470 as compared to $245,109 the prior fiscal year, a decrease of $169,639. The decrease is primarily due to decreased demand for radiation detectors in Japan after the nuclear disaster in Fukushima.

Operating Expenses –Total operating expenses for the year ended December 31, 2012 were $1,378,352. Total operating expenses for the year ended December 31, 2011 was $1,161,524 representing an increase of $216,828 (19%). The increase is primarily attributable to an increase in marketing and administrative expense in the current year.

Other expenses. Other expenses amounted to $219,339 for the year ended December 31, 2012 as compared to $2,243,842 for the year ended December 31, 2011. The change is principally related to three factors. (1) The Company recognized a reduction in loss of settlement of shares issued for debt for $1,348,874. (2) The Company recognized gain on the change of the fair value of derivative liabilities of $1,475,481 for the year ended December 2012 as compared to a loss recognized of $284,378 for the year ended December 31, 2011. (3) Expense related to debt issuance cost and value of derivative liability increased $655,418 to $1,119,680 for the year ended December 31, 2012 from $464,262 for the year ended December 31, 2011.

Net loss. Net loss for the year ended December 31, 2012 was $1,582,288, as compared to a net loss of $3,385,403 for the same period in the prior fiscal year, representing a decreased loss of $1,803,115. The primary reason for this is a decrease is a reduction in other income (expense) and revenues partially offset by an increase in operating expenses all as discussed above.

PLAN OF OPERATION

We supply chemical, biological, radiological, nuclear (CBRN), and mold detection equipment. We plan to continue expanding our product base and to sell our products to more users inside and outside the U.S. There is no guarantee that we will succeed in implementing this strategy or if implemented, that this strategy will be successful.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of a company’s ability to meet potential cash requirements. We had current assets at December 31, 2012 of $26,672 which included cash of $2,074 and accounts receivable, other receivable and inventory of $24,598. Our working capital deficit at December 31, 2012 was $5,053,874.

Cash Requirements

We expect to incur losses in the development of our business and will require:

administrative expenses, including salaries of officers and other employees we plan to hire;

repayment of debt;

sales and marketing;

product testing or manufacturing; and

expenses of professionals, including accountants and attorneys.

These requirements cast substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from business operations when they come due.

Management continues to take steps to address the Company's liquidity needs. Management continues to seek extensions with respect to debt past due. Management also may seek additional extensions with respect to these notes and the Company's debt as it becomes due. In addition, management may continue to convert some portion of the principal amount and interest on our debt into shares of common stock. During 2012, the Company issued 35,268 shares of its common stock for an aggregate value of $141,071 to satisfy outstanding debt and accrued interest.

Historically, we have financed operations through private debt and equity financings. In recent years, financial institutions have been unwilling to lend to us and the cost of obtaining working capital from investors has been expensive. We principally expect to raise funds through the sale of equity or debt securities. During the years ended December 31, 2012 and 2011, the Company received gross proceeds of approximately $0.8 million and $0.9 million, respectively, from the sale of equity and debt securities. The Company actively continues to pursue additional equity or debt financings, but cannot provide any assurance that it will be successful. If we are unable to pay our debt as it becomes due and are unable to obtain financing on terms acceptable to us, or at all, we will not be able to accomplish any or all of our initiatives and will be forced to consider steps that would protect our assets against our creditors.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources, and that would be considered material to investors.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

USE OF ESTIMATES

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and, accordingly, require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

GOING CONCERN

The financial statements have been prepared on a going concern basis, and do not reflect any adjustments related to the uncertainty surrounding our recurring losses or accumulated deficit.

REVENUE RECOGNITION

Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue. Service revenue is recognized when services are performed and amounts are due.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Our short-term financial instruments, including cash, accounts payable and other liabilities, consist primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, reasonably approximate their book value. The fair value of the Company’s derivative instruments is determined using option pricing models.

STOCK BASED COMPENSATION TO OTHER THAN EMPLOYEES

Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably determinable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable for Smaller Reporting Companies.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our financial statements and related notes are set forth at pages F-1 through F-24.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Under the supervision and with the participation of our Management, including our Chief Executive Officer ("CEO"), who is also our acting Chief Financial Officer ("CFO"), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of a date as of the end of the reporting period covered by the Company's Annual Report on Form 10-K, December 31, 2012. For purposes of this section, the term disclosure controls and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on such evaluation, our Chief Executive Officer and Acting Chief Financial Officer concluded that, as of the end of such period, our disclosure controls and procedures are not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are not effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s Report on Internal Control over Financial Reporting

Our Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company's principal executive and principal financial officers and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

* Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

* Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

* Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2012 Management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of the end of the period covered by this report, such internal controls over financial reporting were not effective to control deficiencies that constituted material weaknesses. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affect our internal controls and that may be considered to be a material weakness. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant's annual or interim financial statements will not be prevented or detected on a timely basis.

The matters involving internal controls over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board included the lack of a fully functioning audit committee resulting in ineffective oversight in the establishment and monitoring of required internal controls over financial reporting. In addition, our Chief Executive Officer and Acting Chief Financial Officer identified a lack of sufficient internal accounting and book keeping staff and accountability. Because of the Company's severe cash constraints, there are no employees or contractors dedicated solely to the functions of book keeping or accounting. In addition, the Company's current personnel lack sufficient skills, training and experience in the review process in order to ensure the complete and proper application of generally accepted accounting principles. In addition, the Company can only afford to retain its outside accountants to review the books and records of the Company on a quarterly basis and in connection with the annual audit of financial statements, whereas more timely and increased periodic reviews would be beneficial to the Company's internal controls over financial reporting pending development of an internal accounting staff. These material weaknesses were identified by our Chief Executive Officer and Acting Chief Financial Officer in connection with the audit of our financial statements as of December 31, 2012.

In addition, Management has identified the following internal control deficiencies:

	·	We did not have formal policies governing accounting transactions and financial reporting processes;
	·	We did not have a consistent process involving the entry of transactions into the Company's financial recordation system by dedicated personnel;

We did not perform adequate oversight by management of certain accounting functions of our employees and maintained inadequate documentation of management review and approval of accounting transactions and financial reporting processes.

Management is in the process of developing and implementing remediation plans to address its material weaknesses. Management has identified specific remedial actions to address the material weaknesses described above which include:

Augment existing Company resources with additional consultants or employees to improve the recording of accounting transactions. The Company plans to hire additional personnel once the Company has achieved further commercialization of its products and is generating more revenue, or has raised significant additional working capital;

Improve oversight by management by creating a system of periodic and monthly reviews of financial transactions and the recordation of transactions into the Company's financial recordation system;

Adopt an audit committee charter delineating the committee’s duties with respect to the review and oversight of the Company's financial statements, auditors and audit process; and

Retain the services of the Company's outside accountants for periodic and intermittent review of the Company's financial data outside of the quarterly and annual procedures for the preparation of quarterly and annual reports and financial statements, upon the Company obtaining capital or generating additional revenue.

Until such time as we have implemented these remediation plans, there are no assurances that the material weaknesses will not result in errors in our financial statements which could lead to a restatement of those financial statements.

Changes in Internal Controls over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Set forth below are the names, ages, positions and business experience of our directors, executive officers, and key employees as of April 15, 2013:

Name	Age	Position
Jacques Tizabi	41	President, Chief Executive Officer, Acting Chief Financial Officer, Director, and Secretary

Matin Emouna (1)	42	Director

Tom Sepenzis	42	Director

(1) Member of Audit and Compensation Committees.

All directors hold office until the next annual meeting of our shareholders and until their successors have been elected and qualified. Officers serve at the pleasure of the board of directors.

There are no family relationships among any of our directors, executive officers, or persons nominated or chosen as our directors or executive officers.

Business Experience

JACQUES TIZABI has been the Chief Executive Officer, President and Chairman of the Board of Directors of our Company since October 2001, Acting Chief Financial Officer since May 2003 and Secretary since May 2008. Mr. Tizabi spends on average 40-50 hours per week providing services to us. He oversees all material aspects of the Company’s operations.

MATIN EMOUNA has served as a director of our Company since October 2001. Since 1997, Mr. Emouna has maintained his own law practice in New York, where he represents foreign and domestic clients in a broad range of real estate transactions, with emphasis on new constructions, commercial real estate transactions, shopping center development, financing, international business matters, and commercial leasing. He holds B.S. degrees in Business Administration and Spanish from New York State University at Albany and a J.D. from Benjamin N. Cardozo School of Law. His experience in both law and international trade are helpful to the Company.

TOM SEPENZIS became a director of our Company in April of 2009. Mr. Sepenzis worked for over a decade on Wall Street, becoming one of the most highly respected telecommunications analysts, earning the #1 ranking by Forbes magazine one week before his departure. Starting his career as an equities trader at Punk, Ziegel in 1993 he later moved to the firms Soundview Financial (1996), Piper Jaffrey (1998), CIBC World Markets (2000), and Think Equity (2002) as a telecommunications analyst. Switching careers to the entertainment business, he now is the CEO and founder of Ascension Pictures, in which capacity he produces and directs commercials, music videos, documentaries and full length feature films.

Involvement in Certain Legal Proceedings

Except as set forth below, none of the directors or executive officers have, during the past ten years:

Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

(i)

Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

(ii)

Engaging in any type of business practice; or

(iii)

Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;

Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;

Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated ;

Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated.

Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

(i)

Any federal or state securities or commodities law or regulation; or

(ii)

Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

(iii)

Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

Been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

In May 2005 and in October 2005, respectively the NASD notified Mr. Tizabi that he was suspended and subsequently permanently barred from registering with a broker-dealer.

In 2004, our CEO, Mr. Jacques Tizabi, was a registered representative and principal in an NASD registered broker dealer. In November 2004, Mr. Tizabi decided to leave the brokerage business at which time the broker-dealer filed a Form U-5, Uniform Termination Notice for Securities Industry Registration. Contemporaneously therewith, the NASD was conducting its routine examination of the broker-dealer pursuant to which Mr. Tizabi cooperated by responding to the NASD requests for information. Mr. Tizabi and the broker-dealer were never accused of any wrongdoing and after terminating his relationship with the broker-dealer and leaving the brokerage industry, Mr. Tizabi notified the NASD that he no longer would respond to the NASD in a representative capacity of the broker-dealer. Mr. Tizabi was made aware that his actions could be a violation of Rule 8210 and result in a suspension or bar from further registering with a broker dealer. Mr. Tizabi was suspended and barred because he failed to continue to respond to the NASD’s investigation; not because of any substantive securities violation.

COMMITTEES

Our Audit Committee currently consists of Mr. Matin Emouna. Mr. Emouna is independent within the meaning of the applicable NASDAQ listing standards and applicable rules and regulations promulgated by the Securities and Exchange Commission. Our Audit Committee currently does not have a financial expert within the meaning of the applicable SEC rules as management does not believe one is necessary in light of the Company's current stage of product development and sales volume.

Our Compensation Committee determines matters pertaining to the compensation and expense reporting of certain of our executive officers, and administers our stock option, incentive compensation, and employee stock purchase plans. Our Compensation Committee currently consists of Mr. Matin Emouna.CODE OF ETHICS

We have adopted a Code of Business Conduct and Ethics which is designed to set the standards of business conduct and ethics and help directors and employees resolve ethical issues. The Code applies to all directors and employees, including the Chief Executive Officer and Chief Financial Officer and other persons performing similar functions. The Code covers topics including, but not limited to, conflicts of interest, confidentiality of information, fair dealing with customers, supplies and competitors, and compliance with applicable laws, rules and regulations. The purpose of the Code is to ensure to the greatest possible extent that our business is conducted in a consistently legal and ethical manner. Upon written request to the Company, we will provide a copy of the Code free of charge. Any such request should be directed to the Company at the address set forth on the cover page of this annual report.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our common stock, to file with the Securities and Exchange Commission initial reports of ownership, and reports of changes in ownership, of our common stock and other equity securities of ours. Executive officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) reports that they file. To our knowledge, based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended December 31, 2012, we believe our executive officers, directors and greater than ten percent shareholders of our common stock complied with all Section 16(a) filing requirements applicable to them.

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

The following executive compensation disclosure reflects all compensation awarded to, earned by, or paid to the executive officers below for the fiscal years ended December 31, 2012 and 2011. The following table summarizes all compensation for fiscal years 2012 and 2011 received by our Chief Executive Officer. No other executive officer earned in excess of $100,000 in fiscal year 2012.

SUMMARY COMPENSATION TABLE

Name and

principal position

Year

Salary
($)

Bonus
($)

Stock Awards

($)

Option
Awards

($)

Non-Equity Incentive
Plan
Compensation

($)

Nonquali-

fied

Deferred Compen-

sation Earnings

($)

All Other Compen-

sation
($)

Total
($)

Jacques Tizabi,

President, CEO, Acting CFO

2012

$335,024

–

$335,024

Jacques Tizabi,

President, CEO, Acting CFO

2011

$319,071

–

$319,071

The salary amounts listed in the table above were not paid, but are accrued. On August 1, 2011, we issued 25,000 shares of our common stock to Mr. Tizabi in exchange for the conversion and in-full satisfaction of previously accrued but unpaid salary owed to Mr. Tizabi in the amount of $200,000. On February 13, 2012, we issued 385,000 shares of our common stock to Mr. Tizabi in exchange for the conversion and in-full satisfaction of (i) previously accrued but unpaid salary owed to Mr. Tizabi in the amount of $450,000 and (ii) $320,000 in principal and interest outstanding under certain notes payable by the Company to Mr. Tizabi.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table provides information concerning unexercised options, stock that has not vested and equity incentive plan awards for each named executive officer outstanding as of December 31, 2012:



	Option Awards					Stock Awards
Name	Number of securities underlying unexercised options (#) Exercisable	Number of securities underlying unexercised options (#) Unexercisable	Equity incentive plan awards: number of securities underlying unexercised earned options (#)	Option exercise price ($)	Option expiration date	Number of shares or units of stock that have not vested (#)	Market value of shares or units of stock that have not vested ($)	Equity incentive plan awards: number of unearned shares, units, or other rights that have not vested (#)	Equity incentive plan awards: market or payout value of unearned shares, units, or other rights that have not vested ($)
Jacques Tizabi	34,000	-	-	$1,320,000	Aug 2013

All option awards listed above were fully vested as of December 31, 2010.

DIRECTOR COMPENSATION

The following table summarizes the compensation paid by us to our directors during fiscal 2012.

Director Compensation Table for Fiscal Year 2012

Name	Fees earned or paid in cash ($)	Stock awards ($)	Option awards ($)	Non-equity incentive plan compensation ($)	Nonqualified deferred compensation earnings ($)	All other compensation ($)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)	(h)
Jacques Tizabi (1)
Matin Emouna		$60,000					$60,000
Tom Sepenzis (2)

(1)

All compensation received by Mr. Tizabi in fiscal year 2012 is disclosed in the Summary Compensation Table above. Mr. Tizabi received no compensation as a director in fiscal year 2012.

(2)

Mr. Sepenzis received no compensation as a director in fiscal year 2012.

EMPLOYMENT AGREEMENTS

We have an employment agreement with Jacques Tizabi. Mr. Tizabi's employment agreement, dated as of September 24, 2001, and amended August 23, 2004, provides for Mr. Tizabi to serve as our Chairman of the Board, Chief Executive Officer and President until December 31, 2010, unless otherwise extended. We have agreed to extend Mr. Tizabi’s employment agreement until December 31, 2015. The employment agreement provides for Mr. Tizabi to receive an annual base salary of $250,000, subject to salary increases of 5% per year commencing January 1, 2006. Mr. Tizabi also is entitled to specified perquisites, including participation in any group life, medical, disability and other insurance plans provided by us, use of a luxury automobile approved by the compensation committee (with a maximum cost of $2,500 per month), monthly dues for club memberships not to exceed $1,500 per month, and reimbursement of entertainment expenses provided to our customers, vendors, and strategic partners. To date, Mr. Tizabi has not received any of these specified perquisites.

If Mr. Tizabi's employment is terminated due to his death, the employment agreement provides that we will pay Mr. Tizabi's estate his remaining base salary during the remaining scheduled term of the employment agreement, accelerate the vesting of his options and continue to provide family medical benefits. If Mr. Tizabi's employment is terminated due to his disability, the employment agreement provides that we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement (reduced by any amounts paid under long-term disability insurance policy maintained by us for the benefit of Mr. Tizabi).

If Mr. Tizabi terminates the employment agreement for cause, if we terminate the employment agreement without cause or in the event of a change of control, in which event the employment of Mr. Tizabi terminates automatically, we will pay Mr. Tizabi his remaining base salary during the remaining scheduled term of the employment agreement and an amount based on his past bonuses and continue to provide specified benefits and perquisites.

If Mr. Tizabi terminates the employment agreement without cause or we terminate the employment agreement for cause, Mr. Tizabi is entitled to receive all accrued and unpaid salary and other compensation and all accrued and unused vacation and sick pay.

If any of the payments due Mr. Tizabi upon termination qualifies as "excess parachute payments" under the Internal Revenue Code, Mr. Tizabi also is entitled to an additional payment to cover the tax consequences associated with these excess parachute payments.

Mr. Tizabi has agreed that he will defer payment of all accrued but unpaid bonus or salary, or other compensation payable to him in excess of $150,000 per year, beginning in 2005 until future years. In 2009, Mr. Tizabi received the following as a reduction of the accrual of his unpaid bonus or salary since 2005: 6,369 shares of the Company’s common stock with a fair market value of $392,160 on the date of issuance along with cash payments or payments made by the Company on behalf of Mr. Tizabi totaling $158,257. On August 1, 2011, we issued 25,000 shares of our common stock to Mr. Tizabi in exchange for the conversion and in-full satisfaction of previously accrued but unpaid salary owed to Mr. Tizabi in the amount of $200,000. On February 13, 2012, we issued 385,000 shares of our common stock to Mr. Tizabi in exchange for the conversion and in-full satisfaction of (i) previously accrued but unpaid salary owed to Mr. Tizabi in the amount of $450,000 and (ii) $320,000 in principal and interest outstanding under certain notes payable by the Company to Mr. Tizabi.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

BENEFICIAL OWNERSHIP

The following table sets forth information as of April 15, 2013, relating to the ownership of our common and preferred stock, by (i) each person known by us to be the beneficial owner of more than five percent of the outstanding shares of each class of our capital stock, (ii) each of our directors and nominees, (iii) each of our named executive officers and (iv) all of our executive officers and directors as a group. Except as may be indicated in the footnotes to the table and subject to applicable community property laws, each person has the sole voting and investment power with respect to the shares owned. The address of each person listed is in care of Universal Detection Technology, 340 N. Camden Drive, Suite 302, Beverly Hills, California 90210.

Name of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned (1)	Percent of Class (1)

Jacques Tizabi, President, CEO, Acting CFO, Director	802,372 (2)	53.4%
Matin Emouna, Director	30,030	2.0%
Tom Sepenzis, Director	0	0
All directors and executive officers as a group (3 members)	832,402	55.4%

(1)

Under Rule 13d-3 under the Exchange Act, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by that person (and only that person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership with respect to the number of shares of our common stock actually outstanding at April 15, 2013. As of May 1, 2013, we had 1,502,284 common shares, no par value, outstanding.

(2)

Includes 2 shares that may be acquired upon the exercise of fully vested options.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Set forth in the table below is information regarding awards made through equity compensation plans through December 31, 2012.

Plan Category	Number of securities to be issued upon exercises of outstanding options, warrants, and rights (a)	Weighted-average exercise price of outstanding options, warrants, and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)

Equity compensation plans approved by security holders	N/A	N/A	N/A

Equity compensation plans not approved by security holders (1)
2006 Stock Compensation Plan	2 (2)	N/A	0
2006 Consultant Stock Plan	6 (2)	N/A	0
2006-II Consultant Stock Plan	9(2)	N/A	0
2007 Consultant Stock Plan	19	N/A	0
2007 Equity Incentive Plan II&III	15 (2)(3)	N/A	0
2007 Equity Incentive Plan IV	22	N/A	0
2007 Equity Incentive Plan V & VI	67(4)	N/A	0
2008 Equity Incentive Plan	75	N/A	0
2008 Equity Incentive Plan II	33	N/A	0
2008 Equity Incentive Plan III	125	N/A	0
2008 Equity Incentive Plan IV	190	N/A	0
2009 Equity Incentive Plan	500	N/A	0
2009 Equity Incentive Plan II	3,000	N/A	20
2009 Equity Incentive Plan III	10,000	N/A	0

2011 Equity Incentive Plan	30.000	N/A	0
2011 Equity Incentive Plan II	60	N/A	0

(1)

The Company has individual compensation arrangements with Messrs. Amir Ettehadieh and Nima Montazeri. Under these arrangements Messrs. Ettehadieh and Montazeri help the company with matters related to research, business development, and administration. For their services, Messrs. Ettehadieh and Montazeri receive the equivalent of $10,000 worth of common shares of the Company per month, which shares are issued under the then-current equity incentive plan, including those plans listed above.

(2)

Represents total number of shares of common stock originally authorized for stock grants. Stock option grants were not authorized.

(3)

Consists of the second and third plans.

(4)

Consists of the fifth and sixth plans.

On February 13, 2006, our Board of Directors adopted the 2006 Stock Compensation Plan (the "Plan"). The Plan authorizes common stock grants to our non-executive employees, professional advisors and consultants. We reserved 7,500,000 shares of our common stock for awards to be made under the Plan. The Plan is to be administered by our Board of Directors, or by any committee to which such duties are delegated by the Board.

On June 29, 2006, our Board of Directors adopted the 2006 Consultant Stock Plan (the "2006 Plan"). The 2006 Plan authorizes common stock grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. We reserved 25,000,000 shares of our common stock for awards to be made under the 2006 Plan. The 2006 Plan is to be administered by a committee of one or more members of our Board of Directors.

On November 22, 2006, our Board of Directors adopted the 2006-II Consultant Stock Plan (the "2006-II Plan"). The 2006-II Plan authorizes common stock grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. We reserved 37,500,000 shares of our common stock for awards to be made under the 2006-II Plan. The 2006-II Plan is to be administered by a committee of two or more members of our Board of Directors.

On April 17, 2007, the Board of Directors adopted the 2007 Consultant Stock Plan (the “2007 Plan”). The 2007 Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. We reserved 375,000 shares of our common stock for awards to be made under the 2007 Plan. The 2007 Plan is to be administered by a committee of two or more members of our Board of Directors.

On June 5, 2007, the Board of Directors adopted the 2007 Equity Incentive Plan (the “2007-II Plan”). The 2007-II Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 150,000 shares of its common stock for awards to be made under the 2007-II Plan. The 2007-II Plan is to be administered by a committee of two or members of the Board of Directors.

On June 27, 2007, the Board of Directors adopted the 2007 Equity Incentive Plan (the “2007-III Plan”). The 2007-III Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 145,000 shares of its common stock for awards to be made under the 2007-III Plan. The 2007-III Plan is to be administered by a committee of two or members of the Board of Directors.

On July 13, 2007, the Board of Directors adopted the 2007-2 Equity Incentive Plan (the “2007-IV Plan”). The 2007-IV Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 450,000 shares of our common stock for awards to be made under the 2007-IV Plan. The 2007-IV Plan is to be administered by a committee of two or more members of the Board of Directors.

On October 10, 2007, the Board of Directors adopted the 2007-3 Equity Incentive Plan (the “2007-V Plan”). The 2007-V Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 600,000 shares of common stock for awards to be made under the 2007-V Plan. The 2007-V Plan is to be administered by a committee of two or more members of our Board of Directors.

On November 1, 2007, the Board of Directors adopted the 2007-4 Equity Incentive Plan (the “2007-VI Plan”). The 2007-VI Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 750,000 shares of common stock for awards to be made under the 2007-VI Plan. The 2007-VI Plan is to be administered by a committee of two or more members of our Board of Directors.

On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan (the “2008 Plan”). The 2008 Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 1,500,000 shares of common stock for awards to be made under the 2008 Plan. The 2008 Plan is to be administered by a committee of two or more members of our Board of Directors.

On April 29, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan II (the “2008-II Plan”). The 2008-II Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 1,650,000 shares of common stock for awards to be made under the 2008-III Plan. The 2008-II Plan is to be administered by a committee of two or more members of our Board of Directors.

On July 1, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan III (the “2008-III Plan”). The 2008-III Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 2,500,000 shares of common stock for awards to be made under the 2008-III Plan. The 2008-III Plan is to be administered by a committee of two or more members of our Board of Directors.

On September 2, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan IV (the “2008-IV Plan”). The 2008-IV Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 3,800,000 shares of common stock for awards to be made under the 2008-IV Plan. The 2008-IV Plan is to be administered by a committee of two or more members of our Board of Directors.

On February 22, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 10,000,000 shares of common stock for awards to be made under the 2009 Plan. The 2009 Plan is to be administered by a committee of two or more members of our Board of Directors.

On May 14, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan II (the “2009-II Plan”). The 2009-II Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 60,000,000 shares of common stock for awards to be made under the 2009-II Plan. The 2009-II Plan is to be administered by a committee of two or more members of our Board of Directors.

On November 5, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan III (the “2009-III Plan”). The 2009-III Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 200,000,000 shares of common stock for awards to be made under the 2009-III Plan. The 2009-III Plan is to be administered by a committee of two or more members of our Board of Directors.

On May 6, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan (the “2011 Plan”). The 2011 Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 600,000,000 shares of common stock for awards to be made under the 2011 Plan. The 2011 Plan is to be administered by a committee of two or more members of our Board of Directors.

On October 27, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan II (the “2011-II Plan”). The 2011-II Plan grants to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 1,200,000,000 shares of common stock for awards to be made under the 2011-II Plan. The 2011-II Plan is to be administered by a committee of two or more members of our Board of Directors.

With respect to each of the above Plans, and subject to the provisions of each Plan, the Board and/or committee shall have authority to (a) grant, in its discretion, stock awards; (b) determine in good faith the fair market value of the stock covered by any grant; (c) determine which eligible persons shall receive grants and the number of shares, restrictions, terms and conditions to be included in such grants; (d) construe and interpret the Plans; (e) promulgate, amend and rescind rules and regulations relating to its administration, and correct defects, omissions and inconsistencies in the Plans or any grants; (f) consistent with the Plans and with the consent of the participant, amend any outstanding grant; and (g) make all other determinations necessary or advisable for the Plans’ administration. The interpretation and construction by the Board of any provisions of the Plans shall be conclusive and final.

CHANGE IN CONTROL

We are not aware of any arrangement that might result in a change in control in the future.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Described below are certain transactions or series of transactions since January 1, 2010 between us and our executive officers, directors and the beneficial owners of five percent or more of our common stock, on an as converted basis, and certain persons affiliated with or related to these persons, including family members, in which they had or will have a direct or indirect material interest in an amount that exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, other than compensation arrangements that are otherwise required to be described under “Executive Compensation.”

During the year ended December 31, 2012, the Company borrowed a total of $402,344 from Mr. Tizabi, its president and chief executive officer, under various written and oral promissory note agreements executed by the Company. The notes had interest rates of 0%. The Company repaid notes totaling $857,347 and interest of $1,768. On February 13, 2012, we issued 385,000 shares of our common stock to Mr. Tizabi in exchange for the conversion and in-full satisfaction of (i) previously accrued but unpaid salary owed to Mr. Tizabi in the amount of $450,000 and (ii) $320,000 in principal and interest outstanding under certain notes payable by the Company to Mr. Tizabi. As of December 31, 2012, $11,867 in principal and $-0- in interest was due.

For the period from January 1, 2013 through April 15, 2013, the Company borrowed a total of $94,309 from its president and chief executive officer under promissory notes executed by the Company. The notes had interest rates of 0%. The Company repaid notes totaling $21,397 and interest of $-0-..

Director Independence

Mr. Matin Emouna and Mr. Tom Sepenzis are independent directors as that term is defined by NYSE Rule 303A.02(a). The Company currently does not have a nominating/corporate governance committee. Of the members of the Company’s board of directors, Messrs. Matin Emouna and Tom Sepenzis meet the NYSE’s independence standards for members of such committees and Mr. Jacques Tizabi does not meet the NYSE’s independence requirements for members of such committees.

ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES

The following table presents the aggregate fees for professional audit services and other services rendered by Kabani & Company, our independent registered public accountants, in the fiscal years ended December 31, 2012 and 2011.

	Year Ended December 31, 2012		Year Ended December 31, 2011

Audit Fees	$	40,000		40,000
Audit-Related Fees (quarterly reports)		18,000		18,000
Tax Fees		–		–
All Other Fees		–		–
	$	58,000		58,000

Audit Fees — This category includes the audit of our annual financial statements, review of financial statements included in our Quarterly Reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements.

Audit-Related Fees — This category consists of assurance and related services by the independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include consultation regarding our correspondence with the Securities and Exchange Commission and other accounting consulting.

Tax Fees — This category consists of professional services rendered by our independent registered public accounting firm for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees — This category consists of fees for other miscellaneous items.

Our Board of Directors has adopted a procedure for pre-approval of all fees charged by our independent registered public accounting firm. Under the procedure, the Board approves the engagement letter with respect to audit, tax and review services. Other fees are subject to pre-approval by the Board, or, in the period between meetings, by a designated member of Board. Any such approval by the designated member is disclosed to the entire Board at the next meeting. The audit and tax fees paid to the auditors with respect to 2012 were pre-approved by the Board of Directors.

ITEM 15. EXHIBITS

The following documents are filed as part of this Annual Report on Form 10-K:

(a)

Documents filed as a part of this report:

(1)

Financial Statements

The financial statements of Universal Detection Technology and its subsidiaries for the periods ended December 31, 2012 and 2011 and Kabani & Company’s report dated June 3, 2013 are listed in the “Index to Financial Statements and Schedules” on page F - 1 and included on pages F - 2 through F – 24 of this report..

(2)

Financial Statement Schedules

Not required.

(b) Exhibits:

	Exhibit No.	Description

	3.1(a)	Articles of Incorporation of Universal Detection Technology (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 26, 2011).

3.1(b)

June 29, 2012 Certificate of Amendment to Articles of Incorporation (incorporated by reference to the Company's Current Report on Form 8-K filed on July 11, 2012).

3.2

Amended and Restated Bylaws of the Registrant (incorporated by reference to the Company's Annual Report on Form 10-K filed on May 10, 2012).

4.1+

Amended and Restated 2003 Stock Incentive Plan (incorporated by reference to Exhibit 4.2 of the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004, filed on March 31, 2005).

4.2+

2006 Stock Compensation Plan (incorporated by reference to the Company's Form S-8 Registration Statement filed on February 13, 2006).

4.3+ 2006 Consultant Stock Plan (incorporated by reference to the Company's Form S-8 Registration Statement filed on June 30, 2006).

4.4+

2006-II Consultant Stock Plan (incorporated by reference to the Company's Form S-8 Registration Statement filed on November 22, 2006).

4.5+

2007 Consultant Stock Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on April 17, 2007).

4.6+

2007 Equity Incentive Plan (effective May 30, 2007) (incorporated by reference to the Company’s Form S-8 Registration Statement filed on June 6, 2007).

4.7+

2007 Equity Incentive Plan (effective June 21, 2007) (incorporated by reference to the Company’s Form S-8 Registration Statement filed on June 27, 2007).

4.8+

2007-2 Equity Incentive Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on July 13, 2007).

4.9+

2007-3 Equity Incentive Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on October 2, 2007).

4.10+

2007-4 Equity Incentive Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on November 2, 2007).

4.11+

2008 Equity Incentive Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on February 11, 2008).

4.12+

2008 Equity Incentive Plan II (incorporated by reference to the Company’s Post-Effective Amendment No. 1 to Form S-8 Registration Statement filed on May 27, 2008).

4.13+

2008 Equity Incentive Plan III (incorporated by reference to the Company’s Form S-8 Registration Statement filed on July 11, 2008).

4.14+

2008 Equity Incentive Plan IV (incorporated by reference to the Company’s Form S-8 Registration Statement filed on September 8, 2008).

4.15+

2009 Equity Incentive Plan (incorporated by reference to the Company’s Form S-8 Registration Statement filed on February 23, 2009).

4.16+

2009 Equity Incentive Plan II (incorporated by reference to the Company’s Form S-8 Registration Statement filed on May 15, 2009).

4.17+

2009 Equity Incentive Plan III (incorporated by reference to the Company’s Form S-8 Registration Statement filed on November 6, 2009).

4.18+

2011 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to the Company’s Form S-8 Registration Statement (File No. 333-174010) filed on May 6, 2011).

4.19+

2011 Equity Incentive Plan II (incorporated by reference to Exhibit 4 to the Company’s Form S-8 Registration Statement (File No. 333-177555) filed on October 27, 2011

10.1+

Employment Agreement by and between the Company and Jacques Tizabi dated September 25, 2001 (incorporated by reference to the Company's Quarterly Report on Form 10-QSB for the Quarter Ended March 31, 2002, filed on May 20, 2002).

10.2+

Amendment to Employment Agreement of Jacques Tizabi, dated August 23, 2004 (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB for the Quarter Ended September 30, 2004, filed on November 22, 2004).

10.3

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 20, 2009)

10.4

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on August 14, 2009)

10.5

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on November 13, 2009)

10.6

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K filed on April 15, 2010)

10.7

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on May 24, 2010)

10.8

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on August 23, 2010)

10.9

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed on November 19, 2010)

10.10

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.11

Commercial Property Lease dated June 1, 2009 (incorporated by reference to Exhibit 10.20 of the Company’s Amended Annual Report on form 10-K/A filed on November 17, 2010)

10.12

Agreement with Morphix Technologies dated March 8, 2010 (incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.13

Agreement with Mirion Technologies (MPGI), Inc. dated February 22, 2011 (incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.14

Agreement Advnt Biotechnologies, LLC Value Added Reseller (VAR) Agreement dated September 21, 2010 (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.15

Agreement with Detrick Lawrence Corporation dated April 7, 2011 (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.16

Agency Agreement with APP Systems Services PTE LTD dated March 15, 2011 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed on April 15, 2011).

10.17

Form of Debt Conversion Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2011, filed on May 20, 2011).

10.18

Form of Note Conversion Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 6, 2011).

10.19

Form of Note Conversion Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2011, filed on August 22, 2011).

10.20

Form of Note Conversion Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2011, filed on November 16, 2011).

14.1 Code of Business Conduct and Ethics*.

21.1

Subsidiaries of Registrant (incorporated by reference to Exhibit 21.1 to the Company's Annual Report on Form 10-KSB for the year ended December 31, 2003, filed March 31, 2004).

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*.

32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*.

101.INS	**	XBRL INSTANCE DOCUMENT
101.SCH	**	XBRL TAXONOMY EXTENSION SCHEMA
101.CAL	**	XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF	**	XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB	**	XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE	**	XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

----------------------------

+ Management contract or compensatory plan or arrangement.

* Filed herewith.

** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Annual Report on Form 10-K shall be deemed “furnished” and not “filed”.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: February 10, 2013	UNIVERSAL DETECTION TECHNOLOGY

By:	/s/ Jacques Tizab
	Jacques Tizabi, President, Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jacques Tizabi, his attorney-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming said attorney-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: February 10, 2013	/s/ Jacques Tizab
	Jacques Tizabi, President, Chief Executive
	Officer, Acting Chief Financial Officer, and Chairman of the Board of Directors (principal executive officer and principal financial and accounting officer)


Date: February 10, 2013	/s/ Tom Sepenzis
	Tom Sepenzis, Director


Date: February 10, 2013	/s/ Matin Emouna
	Matin Emouna, Director

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2012 and 2011	F-3
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011	F-4
Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31, 2012 and 2011	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011	F-6
Notes to Consolidated Financial Statements	F-7 to F-24

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Universal Detection Technology

We have audited the accompanying consolidated balance sheets of Universal Detection Technology as of December 31, 2012 and 2011, and the related statements of operations, stockholders' deficit, and cash flows for the two years period ended December 31, 2012. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Universal Detection Technology as of December 31, 2012 and 2011, and the consolidated results of its operations and cash flows for the two years period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s significant operating losses and insufficient capital raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in note 12, the Company restated its financial statements for the year ended December 31, 2011.

/s/ Kabani & Company, Inc.

Certified Public Accountants

Los Angeles, California

October 9, 2013

F-2

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2012 AND DECEMBER 31, 2011

	As of
	December 31, 2012			December 31, 2011
				(Restated)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,074		$	2,062
Accounts Receivable,net		1,099			1,099
Other Receivable		22,500			–
Inventory		999			28,560
Total current assets		26,672			31,721

Deposits		21,300			21,300
Equipment, net		2,485			3,374
Total assets	$	50,457		$	56,395


LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable, trade	$	1,219,614		$	1,165,976
Accrued liabilities		619,981			632,960
Unearned revenue		5,075			11,878
Accrued payroll - officers		775,481			902,481
Notes payable - related party		11,867			466,869
Notes payable, net of discount of $104,298 and $0 respectively		550,375			443,514
Derivative liabilities (restated)		1,016,341			1,043,639
Accrued interest expense		881,812			745,110
Total current liabilities (restated)		5,080,546			5,412,427

Long term notes payable, net of discount of $314,325 and $272,103 respectively (restated)		167,175			37,522
Total liabilities (restated)		5,247,721			5,449,949

STOCKHOLDERS' DEFICIT:
Preferred stock, $.01 par value, 20,000,000 shares authorized, -0- issued and outstanding		–			–
Common stock, no par value, 20,000,000,000 shares authorized, 1,222,954 and 382,951 shares issued and outstanding as of December 31, 2012 and December 31, 2011, respectively		39,590,889			38,112,311
Additional paid-in-capital		5,613,089			5,313,089
Accumulated deficit (restated)		(50,401,242	)		(48,818,954	)
Total stockholders' deficit (restated)		(5,197,264	)		(5,393,554	)
Total liabilities and stockholders' deficit	$	50,457		$	56,395

See accompanying notes to the consolidated financial statements.

F-3

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	For the years ended December 31,
	2012			2011
					(Restated)

REVENUE, NET	$	75,470		$	245,109
COST OF GOODS SOLD		60,067			225,146
GROSS PROFIT		15,403			19,963

OPERATING EXPENSES:
Selling, general and administrative		1,261,592			1,112,458
Marketing		115,870			45,554
Depreciation and amortization		890			3,512
Total operating expenses		1,378,352			1,161,524

LOSS FROM OPERATIONS		(1,362,949	)		(1,141,561	)

OTHER INCOME (EXPENSES):
Interest expense (restated)		(464,694	)		(78,382	)
Debt issuance cost (restated)		(1,119,680	)		(464,262	)
Other income		–			42,500
Loss on settlement of debt		(110,446	)		(1,459,320	)
Gain/(loss) in change of FV of derivative (restated)		1,475,481			(284,378	)
Total other expenses (restated)		(219,339	)		(2,243,842	)

NET LOSS (restated)	$	(1,582,288	)	$	(3,385,403	)

NET LOSS PER SHARE - BASIC AND DILUTED:	$	(1.73369	)	$	(13.4744	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING*		912,671			251,247

- Weighted average number of dilutive securities has not been calculated as the effect of dilutive securities would be anti-dilutive

See accompanying notes to the consolidated financial statements.

F-4

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	Preferred Stock			Common Stock				Additional Paid-in-		Accumulated			Total Stockholders’
	Shares		Amount	Shares		Amount		Capital		Deficit			Deficit

BALANCE, DECEMBER 31, 2010	–		–	112,651		35,601,080		5,313,089		(45,433,551	)		(4,519,382	)

Stock issued for conversion of debt	–		–	199,800		1,934,642		–		–			1,934,642
Stock issued for services	–		–	70,500		576,589		–		–			576,589
Net loss for the year (restated)										(3,385,403	)		(3,385,403	)

BALANCE, DECEMBER 31, 2011	–	$	–	382,951	$	38,112,311	$	5,313,089	$	(48,818,954	)	$	(5,393,554	)

Stock issued for conversion of debt	–		–	35,268		141,071		–		–			141,071
Stock issued for services	–		–	354,335		503,720		–		–			503,720
Stock issued for services - related party				225,000		450,000							450,000
Stock issued for debt - related party				160,000		320,000							320,000
Stock issued for loan fees				65,400		63,786		–					63,786
Value of beneficial conversion feature & warrants issued with notes								300,000					300,000
Net loss for the year										(1,582,288	)		(1,582,288	)

BALANCE, DECEMBER 31, 2012	–	$	–	1,222,954	$	39,590,889	$	5,613,089	$	(50,401,242	)	$	(5,197,264	)

See accompanying notes to the consolidated financial statements.

F-5

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

	For the years ended December 31,
	2012			2011
					(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (restated)	$	(1,582,288	)	$	(3,385,403	)
Adjustments to reconcile net loss to net cash used in operations:
Stocks issued for services		503,720			576,588
Stocks issued for loan fees		63,786			–
(Gain)/Loss on change in FV of debt (restated)		(1,475,481	)		284,378
Loss on settlement of debt		110,446			1,459,320
Debt issuance cost (restated)		1,119,680			464,262
Depreciation		889			3,512
Amortization of note discount and loan fees (restated)		240,436			22,897
Changes in operating assets and liabilities:
Inventory		27,561			(27,624	)
Unearned Revenue		(6,803	)		11,878
Accounts payable and accrued liabilities		504,568			147,906

Net cash used in operating activities		(493,486	)		(442,286	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		–			(1,435	)
Net cash used in investing activities		–			(1,435	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes with beneficial conversion and warrants		300,000			–
Proceeds from notes payable-related party		224,801			592,256
Proceeds from notes payable		328,500			318,000
Payments on notes payable - related party		(359,803	)		(465,460	)

Net cash provided by financing activities		493,498			444,796

NET INCREASE IN CASH AND CASH EQUIVALENTS		12			1,075

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		2,062			987

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,074		$	2,062

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Income tax	$	–		$	3,200
Interest Paid	$	1,769		$	–

SUPPLEMENTAL DISCLOSURES FOR NON CASH INVESTING AND FINANCING ACTIVITIES:

Shares issued for settlement of debt and accrued interest	$	141,071		$	1,934,642
Shares issued for settlement of debt - related party	$	320,000		$	–

See accompanying notes to the consolidated financial statements.

F-6

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 1 - BUSINESS ACTIVITY

Universal Detection Technology, a California corporation, primarily designs, manufactures and markets air pollution monitoring instruments. Beginning in 2002, the Company has focused its research and development efforts in developing a real time biological weapon detection device. To accelerate development of its initial biological weapon detection device, the Company has developed and is implementing a collaborative partnering strategy. Under this strategy, the Company identifies and partners with researchers and developers. The Company has expanded its services to include security related consulting, event security and counterterrorism training.

The Company is a reseller of a range of products, which include rapid anthrax detection test kits, training courses for first responders, event security, threat evaluation and consulting, radiation detection systems, anti-microbial products, and DVDs aimed at providing information and training regarding combating terrorism and managing emergency situations.

GOING CONCERN AND MANAGEMENT'S PLANS

As of December 31, 2012, the Company had a working capital deficit of $5,053,873. During the year ended December 31, 2012, the Company incurred net losses of $1,582,288 and had an accumulated deficit of $50,401,242 as of December 31, 2012. These conditions raise substantial doubt about its ability to continue as a going concern. Its ability to continue as a going concern is dependent upon its ability to develop additional sources of capital and ultimately achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Management has taken certain steps to provide the Company with necessary capital to continue its operations. These steps include: 1) actively seeking additional funding in the form of unsecured indebtedness and 2) seeking to increase revenues from product sales.

During 2011 and 2012, the Company entered into various agreements to sell shares of its common stock to third parties in order to convert its debts to the respective parties. In 2011, 199,800 shares were issued in the aggregate amount of $1,934,642. In 2012, 35,268 shares were issued in the aggregate amount of $141,071.

During 2012, the Company issued 160,000 shares in the aggregate amount of $320,000 as payment of debt to its President and CEO.

F-7

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Universal Detection Technology and its wholly-owned subsidiaries Nutek, Inc. (“Nutek”) and Logan Medical Devices, Inc. (“Logan”). The two subsidiaries are currently inactive. All significant intercompany balances and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

INVENTORIES

Inventories, consisting of finished goods, are stated at the lower of cost (first-in first-out) basis or market.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the current year’s presentation, none of which had an impact on total assets, stockholders’ deficit, net loss, or net loss per share.

ADVERTISING EXPENSES

The Company expenses advertising costs as incurred. During the years ended December 31, 2012 and 2011, the Company did not have significant advertising costs.

PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION

Property and equipment, consisting of office furniture and equipment, leasehold improvements and lab testing equipment, is recorded at cost less accumulated amortization and depreciation respectively. Depreciation and amortization is provided for on the straight-line method over the estimated useful lives of the assets, generally three to five years or over the term of the lease.

		2012			2011

Equipment	$	4,448		$	4,448
Accumulated Depreciation		(1,963	)		(1,074	)
Fixed Assets, Net of Depreciation	$	2,485		$	3,374

Total depreciation expense was $890 and $3,512 for the years ended December 31, 2012 and 2011, respectively. During 2011, the Company wrote off $142,112 in fixed assets no longer in service. The accumulated depreciation on the assets was $142,112 and no gain or loss was recognized on the disposal.

F-8

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

STOCK BASED COMPENSATION TO OTHER THAN EMPLOYEES

EARNINGS PER COMMON SHARE

Basic loss per share is computed by dividing loss available to common shareholders by the weighted average number of common shares outstanding. The computation of diluted loss per share is similar to the basic loss per share computation except the denominator is increased to include the number of additional shares that would have been outstanding if the dilutive potential common shares had been issued. In addition, the numerator is adjusted for any changes in income or loss that would result from the assumed conversions of those potential shares. However, such presentation is not required if the effect is antidilutive. Accordingly, the diluted per share amounts do not reflect the impact of warrants and options or convertible debt outstanding for 122,000 and 2 shares at December 31, 2012 and 2011, respectively, because the effect of each is antidilutive.

CASH EQUIVALENTS

For purposes of reporting cash flows, the Company considers all short term, interest bearing deposits with original maturities of three months or less to be cash equivalents.

IMPAIRMENT OF PATENTS AND LONG-LIVED ASSETS

Patents and other intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. In accordance with ASC 350 (previously Statement of Financial Accounting Standard No. 142), GOODWILL AND OTHER INTANGIBLE ASSETS ("ASC 350"), the Company periodically evaluates its long-lived assets by measuring the carrying amounts of assets against the estimated undiscounted future cash flows associated with them. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144 (ASC 360). SFAS 144 (ASC 360) requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.

As per the Statement of Financial Accounting Standards (“SFAS”) No. 142 (ASC 350), “Goodwill and Other Intangible Assets (“SFAS 142”) (ASC 350),” the Company assess finite-lived intangible assets and other long-lived assets, excluding goodwill, for recoverability whenever events or changes in circumstances indicate that their carrying value may not be recoverable through the estimated undiscounted future cash flows resulting from the use of the assets. If it is determined that the carrying value of intangible assets or other long-lived assets may not be recoverable, the impairment is measured by using the projected discounted cash-flow method.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable, notes receivable, accounts payable, accrued expenses and notes payable approximate fair value because of the short maturity of these items.

INCOME TAXES

Deferred income taxes are recorded to reflect the tax consequences in future years of temporary differences between the tax basis of the assets and liabilities and their financial statement amounts at the end of each reporting period. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the current period and the change during the period in deferred tax assets and liabilities. The deferred tax assets and liabilities have been netted to reflect the tax impact of temporary differences. At December 31, 2012, a full valuation allowance has been established for the deferred tax asset as management believes that it is more likely than not that a tax benefit will not be realized.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include collectability of accounts receivable, accounts payable, sales returns and recoverability of long-term assets.

F-9

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

CONCENTRATION OF CREDIT RISK

Generally, the Company required no collateral when it extends credit to its customers. The Company's credit losses in the aggregate have not exceeded managements' expectations. The Company maintains all cash in bank accounts, which at times may exceed federally insured limits. The Company has not experienced a loss in such accounts.

SEGMENT REPORTING

ASC 280 (previously SFAS No. 131), Disclosures about segments of an enterprise and related information, which superseded statement of financial accounting standards No. 14, Financial reporting for segments of a business enterprise, establishes standards for the way that public enterprises report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements regarding products and services, geographic areas and major customers. ASC 280 defines operating segments as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performances. In 2012 and 2011, the Company operated as one segment.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2013-02, which requires entities to present information about significant items reclassified out of accumulated other comprehensive income (loss) by component either on the face of the statement where net income is presented or as a separate disclosure in the notes to the financial statements. This ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

In July 2012, the FASB issued ASU 2012-02, which amends how companies test for impairment of indefinite-lived intangible assets. The new guidance permits a company to assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform the annual impairment test. The ASU is effective for the Company in the first quarter of fiscal 2014. We do not expect the adoption will have a significant impact on our consolidated financial statements.

F-10

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 3 – ACCRUED LIABILITIES

The accrued liabilities consist of the following at December 31, 2012 and 2011:

		2012		2011
Loan Fees Payable	$	68,600	$	68,600
Deferred Rent		–		2,827
Accrued expenses		139,881		150,033
Accrued Settlement (Refer to Note 10)		411,500		411,500
TOTAL ACCRUED LIABILITIES	$	619,981	$	632,960

Loan fees payable consists of the following: $68,600 was the value of 15 shares payable to third parties in connection with certain loan fees at the original note date.

NOTE 4 – ACCRUED PAYROLL – OFFICERS

Accrued payroll – officers as of December 31, 2012 and 2011 is comprised of accrued payroll to the officers of the company amounting to $775,481 and $902,481, respectively. This payable is interest-free, unsecured and due on demand.

During 2012, the Company issued 225,000 shares of common stock to its president and CEO to convert $450,000 of accrued but unpaid salary.

NOTE 5 - NOTES PAYABLE, RELATED PARTY

During the year ended December 31, 2012, the Company borrowed a total of $224,801 from its president and chief executive officer under various written and oral promissory note agreements executed by the Company. The notes had interest rates of 0%. The Company repaid notes totaling $679,803 and interest of $1,769. A total of $359,803 was repaid in cash and $320,000 was repaid through the issuance of 160,000 shares of its common stock. As of December 31, 2012, $11,867 in principal and $0 in interest was due under the above loans.

During the year ended December 31, 2011, the Company borrowed a total of $592,256 from its president and chief executive officer under promissory notes executed by the Company. The notes had interest rates of 0%. The Company repaid notes totaling $465,460 and interest of $0. As of December 31, 2011, $466,869 in principal and $1,392 in interest was due.

F-11

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 6 – NOTES PAYABLE

Notes payable consisted of the following at December 31, 2012:

	Gross		Unamortized Discount		Net
Notes payable to individuals, subject to contingent settlement agreement and summary judgment, interest at 11.67% per annum, principal and interest due January 1, 2006, in default, unsecured	$	95,740		–		95,740

Note payable, subject to settlement agreement, interest at 12% per annum, principal and interest due July 2005, in default, unsecured		161,000		–		161,000

Note payable, subject to settlement agreement, interest at 9.17% per annum, principal and interest due July 2005, unsecured		71,500		–		71,500

Note payable, subject to settlement agreement, interest at 12% per annum, principal and interest due December 2005, unsecured		100,000		–		100,000

Note payable, interest at 12.5%, due June 2007, verbally extended, unsecured		1,500		–		1,500

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		9,940		–		9,940

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		1,638		–		1,638

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		1,420		–		1,420

Note payable, interest at 12% per annum, due September 2010, verbally extended, unsecured		776		–		776

Note payable, interest at 12% per annum, due July 2014		36,500		26,095		10,405

Note payable, interest at 12% per annum, due August 2014		40,000		21,387		18,613

Note payable, interest at 12% per annum, due August 2014		35,000		18,969		16,031

Note payable, interest at 12% per annum, due November 2014		60,000		36,734		23,266

Note payable, interest at 12% per annum, due November 2014		60,000		37,828		22,172

Note payable, interest at 12% per annum, due December 2014		50,000		32,847		17,153

Note payable, interest at 12% per annum, due January 2015		50,000		34,535		15,465

Note payable, interest at 12% per annum, due January 2015		50,000		34,763		15,237

Note payable, interest at 12% per annum, due February 2015		60,000		42,591		17,409

F-12

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

		Gross		Unamortized Discount		Net
Note payable, interest at 12% per annum, due February 2015		40,000		28,577		11,423

Note payable, interest at 5% per annum, due July 2012, verbally extended, unsecured		30,000		–		30,000

Note payable, interest at 8% per annum, due April 2013, verbally extended, unsecured		27,500		10,672		16,828

Note payable, interest at 8% per annum, due August 2013, verbally extended, unsecured (net of discount of $26,503)		18,311		6,423		11,888

Note payable, interest at 8% per annum, due May 2013, verbally extended, unsecured (net of discount of $27,075)		17,721		6,423		11,298

Note payable, interest at 8% per annum, due May 2013, verbally extended, unsecured		32,500		17,247		15,253

Note payable, interest at 8% per annum, due September 2013, verbally extended, unsecured (net of discount of $87,536)		38,318		29,077		9,242

Note payable, interest at 8% per annum, due August 2013, verbally extended, unsecured		16,000		13,149		2,851

Note payable, interest at 8% per annum, due November 2013, verbally extended, unsecured (net of discount of $37,243)		8,939		–		8,939

Note payable, interest at 8% per annum, due September 2013, verbally extended, unsecured		22,500		21,938		562

Total Notes Payable		1,136,803		419,253		717,550

Less: Current Portion		655,303		104,928		550,375

Long-Term Notes Payable	$	481,500	$	314,325	$	167,175

F-13

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

Notes payable consisted of the following at December 31, 2011:

	Gross		Unamortized Discount		Net
Notes payable to individuals, subject to contingent settlement agreement and summary judgment, interest at 11.67% per annum, principal and interest due January 1, 2006, in default, unsecured	$	95,740		–		95,740

Note payable, subject to settlement agreement, interest at 12% per annum, principal and interest due July 2005, in default, unsecured		161,000		–		161,000

Note payable, subject to settlement agreement, interest at 9.17% per annum, principal and interest due July 2005, unsecured		71,500		–		71,500

Note payable, subject to settlement agreement, interest at 12% per annum, principal and interest due December 2005, unsecured		100,000		–		100,000

Note payable, interest at 12.5%, due June 2007, verbally extended, unsecured		1,500		–		1,500

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		9,940		–		9,940

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		1,638		–		1,638

Note payable, interest at 12% per annum, due March 2010, verbally extended, unsecured		1,420		–		1,420

Note payable, interest at 12% per annum, due September 2010, verbally extended, unsecured		776		–		776

Note payable, interest at 12% per annum, due April 2014		14,625		–		14,625

Note payable, interest at 12% per annum, due July 2014		50,000		42,746		7,254

Note payable, interest at 12% per annum, due August 2014		40,000		34,708		5,292

Note payable, interest at 12% per annum, due August 2014		35,000		30,625		4,375

Note payable, interest at 12% per annum, due November 2014		60,000		56,715		3,285

Note payable, interest at 12% per annum, due November 2014		60,000		57,810		2,190

Note payable, interest at 12% per annum, due December 2014		50,000		49,498		502

Total Notes Payable		753,139		272,103		481,036

Less: Current Portion		443,514		–		443,514

Long-Term Notes Payable	$	309,625	$	272,103	$	37,522

The interest expense for the years ended December 31, 2012 and December 31, 2011 is $464,694 and $78,382, respectively.

F-14

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

The Company entered into a contingent settlement agreement on July 26, 2004 related to $440,765 of notes payable to individuals and related accrued interest. In July 2004, the Company paid a total of $73,333 towards the debt and agreed to pay a total of $298,667, including interest through January 2006 in full payment. The Settlement Agreement provides for an accelerated payment schedule at the Company's option, which would reduce the total payment made by the Company by approximately $12,000. The Company defaulted on the two remaining payments totaling $80,000 at which time the entire remaining balance became due, including default interest and legal fees. The Company currently has accrued $566,189 for interest and legal fees (included in the accrued interest of $881,812 as of December 31, 2012) in addition to the $95,740 principal balance (included in the notes payable of $717,550 as of December 31, 2012).

During August 2004, the Company entered into an agreement to settle a note payable in the amount of $200,000 plus accrued interest. The parties agreed to settle the debt for $261,000 payable as follows: Twelve consecutive payments of $12,500 payable monthly commencing August 31, 2004 and ending July 31, 2005; a lump-sum payment of $95,000 payable on July 31, 2005; and a one-time interest payment of $16,000 on July 31, 2005. This agreement includes an additional $7,500 as inducement to the note holder to enter into the extended agreement, which was amortized as a loan fee over the term of the agreement. Scheduled payments were not made on the note and the company is currently in default. The Company currently has accrued $125,165 for interest (included in the accrued interest of $881,812 as of December 31, 2012) in addition to the $161,000 principal balance (included in the notes payable of $717,550 as of December 31, 2012.

During August 2004, the Company entered into an agreement to settle a note payable in the amount of $100,000 plus accrued interest. The parties agreed to settle the debt for $130,800 payable as follows: Twelve consecutive payments of $6,000 payable monthly commencing August 31, 2004 and ending July 31, 2005; a lump-sum payment of $50,500 payable on July 31, 2005; and a one-time interest payment of $8,300 on July 31, 2005. The Company has recognized a $38,610 gain on forgiveness of accrued interest related to this transaction. Scheduled payments were not made on the note and the company is currently in default. The Company currently has accrued $34,709 for interest (included in the accrued interest of $881,812 as of December 31, 2012) in addition to the $71,500 principal balance (included in the notes payable of $717,550 as of December 31, 2012.

During the year ended December 31, 2012, the Company entered into various note agreements to issue convertible notes and detachable warrants. The notes call for outstanding principal and interest to be converted into the Company’s common stock at $0.50 per share. During 2012, the Company issued the following convertible notes:

Issue Date	Principal		Warrants to be Granted		Notes Payable – Beneficial Conversion Feature as of Issue Date

8/14/2012		50,000		10,000		41,623
8/21/2012		50,000		10,000		41,848
9/26/2012		150,000		50,000		120,435
11/12/2012		50,000		10,000		42,867
	$	300,000		80,000		246,773

F-15

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

NOTE 7 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Fair value is determined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

Assets and liabilities measured at fair value on a recurring basis are summarized as follows:

	Fair value measurement using inputs						Carrying amount at
Financial instruments	Level 1		Level 2		Level 3		12/31/2012

Liabilities:
Derivative instruments	$	–	$	1,016,341	$	–	$	1,016,341
Total	$	–	$	1,016,341	$	–	$	1,016,341

	Fair value measurement using inputs						Carrying amount at
Financial instruments	Level 1		Level 2		Level 3		12/31/2011

Liabilities:
Derivative instruments	$	–	$	1,043,639	$	–	$	1,043,639
Total	$	–	$	1,043,639	$	–	$	1,043,639

During the year ended December 31, 2012, the Company entered into various note agreements. At the option of the holder, these notes are convertible into the Company’s shares of common stock at various conversion prices.


Issue Date		Conversion Price Clause
01/26/12		Lower of (i) $2.00 or (ii) 50% of lowest closing bid price 30 trading days preceding conversion date
1/31/12		Lower of (i) $2.00 or (ii) 50% of lowest closing bid price 30 trading days preceding conversion date
2/16/12		Lower of (i) $2.00 or (ii) 50% of lowest closing bid price 30 trading days preceding conversion date
2/21/12		Lower of (i) $2.00 or (ii) 50% of lowest closing bid price 30 trading days preceding conversion date
6/6/12		Lower of (i) $0.50 or (ii) 50% of average closing bid price 3 trading days preceding conversion date
7/20/12		55% of Market Price / average of the lowest 3 trading prices, 10 trading days preceding conversion date
8/23/12		55% of Market Price / average of the lowest 3 trading prices, 10 trading days preceding conversion date
11/12/12		31% of Market Price / lowest trading price, 120 days preceding conversion date
12/24/12		55% of Market Price / lowest trading price, 120 days preceding conversion date

F-16

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

As per ASC 815 Derivatives & Hedging, these convertible notes payable do not meet the definition of a “conventional convertible debt instrument” since the debt is not convertible into a fixed number of shares. The debt can be converted into common stock at a conversions price that is a percentage of the market price; therefore the number of shares that could be required to be delivered upon “net-share settlement” is essentially indeterminate. Therefore, the convertible debenture is considered “non-conventional,” which means that the conversion feature must be bifurcated from the debt and shown as a separate derivative liability.

The fair value of the conversion liability will be adjusted to fair value each balance sheet date with the change being shown as a component of net income.

The fair value of the derivative liability at the inception of these convertible notes payable were shown as a debt discount with any discount greater than the face amount of the debt being as financing costs in the year ended December 31, 2012.

Funding Date	Amount of Debt	Fair Value of Derivative Liability	Amount Applied to Debt Discount	Recorded as Debt Issuance Cost
01/26/12	50,000	199,842	50,000	149,842
1/31/12	50,000	99,901	50,000	49,901
2/16/12	60,000	239,871	60,000	179,871
2/21/12	40,000	79,937	40,000	39,937
6/6/12	30,000	93,875	30,000	63,875
7/20/12	27,500	212,706	27,500	185,206
8/23/12	32,500	53,870	32,500	21,370
11/12/12	16,000	195,202	16,000	179,202
12/24/12	22,500	272,976	22,500	250,476
	328,500	1,448,180	328,500	1,119,680

At December 31, 2012, the fair value of the conversion liabilities was $1,016,341. During the year ended December 31, 2012, the gain due to the change in the fair value of these derivative liabilities was recorded as $1,475,481.

At December 31, 2011, the fair value of the conversion liabilities was $1,043,639. During the year ended December 31, 2011, the loss due to the change in the fair value of these derivative liabilities was recorded as $284,378.

NOTE 8 – STOCKHOLDERS’ DEFICIT

PREFERRED STOCK

The Company is authorized to issue up to 20,000,000 shares of preferred stock, $0.01 par value per share in series to be designated by the Board of Directors. There were no shares issued and outstanding as of December 31, 2012 and 2011.

Stock Split

A majority of shareholders approved a resolution providing the Company’s Board of Directors with the authority to effect a one-for-twenty-thousand (1:20,000) reverse stock split for stockholders of record as of March 13, 2012. The reverse split took effect July 5, 2012, resulting in 919,219 shares outstanding. All figures have been presented on the basis of reverse split where ever applicable for all the periods presented in these financial statements.

COMMON STOCK

CONVERSION OF DEBT

During 2012, the Company entered into various agreements to convert $28,125 of principal and $2,500 of accrued interest into 35,268 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $141,071. The Company recorded a loss on settlement of debt of $110,446.

During 2011, the Company entered into various agreements to convert $439,255 of principal and $36,019 of accrued interest into 199,800 shares of common stock. The fair market value of the stock on the dates of agreement and issuance was $1,934,642. The Company recorded a loss on settlement of debt of $1,459,321.

F-17

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

STOCK ISSUED FOR SERVICES

During the year ended December 31, 2012, the Company issued an aggregate of 196,110 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $390,815. A total of 225,000 shares of its common stock were issued to the Company’s president and CEO. The fair market value of the shares issued to the Company’s president and CEO was $450,000.

During the year ended December 31, 2012, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, and professional and public relations services. As compensation for the services rendered, the Company issued 158,225 shares of common stock, valued at $112,905, the fair market value of the stock on the day of issuance.

In addition to the above issuances, the Company also issued 160,000 shares of common stock to its president and CEO for payment of outstanding debt, during 2012, valued at $320,000.

During the year ended December 31, 2011, the Company issued an aggregate of 57,451 shares of its common stock to various employees of the Company as compensation. The shares were valued at a total of $438,678.

During the year ended December 31, 2011, the Company entered into various agreements for strategic business planning, financial advisory, investor relations, and professional and public relations services. As compensation for the services rendered, the Company issued 13,049 shares of common stock, valued at $137,912, the fair market value of the stock on the day of issuance.

STOCK OPTION PLAN

On February 11, 2008, the Board of Directors adopted the 2008 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 15,000 shares of common stock for awards to be made under the Plan. 15,000 shares reserved under this plan have been issued.

On April 29, 2008, the Board of Directors adopted the 2008-2 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 16,500 shares of common stock for awards to be made under the Plan. 16,343 of the shares reserved under this plan have been issued.

On July 1, 2008, the Board of Directors adopted the 2008-3 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 125 shares of common stock for awards to be made under the Plan. 125 of the shares reserved under this plan have been issued.

On September 2, 2008, the Board of Directors adopted the 2008-4 Equity Incentive Plan (“the Plan”). The Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital-raising transaction. The Company reserved 190 shares of common stock for awards to be made under the Plan. 190 of the shares reserved under this plan have been issued.

F-18

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

On February 15, 2009, the Board of Directors adopted the 2009 Equity Incentive Plan (the “Plan.”) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are no it connection with the offer and sale of securities in a capital raising transactions. The company initially reserved 500 shares of its common stock for awards to be made under the Plan. 500 of the shares reserved under this plan have been issued.

On May 15, 2009, the Board of Directors adopted the 2009-2 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 3,000 shares of its common stock for awards to be made under the Plan. 2,980 of the shares under this plan have been issued.

On November 6, 2009, the Board of Directors adopted the 2009-3 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 10,000 shares of its common stock for awards to be made under the Plan. 10,000 of the shares under this plan have been issued.

The Company recognized marketing expenses over a straight-line basis over the vesting periods based on the market price of their stock at grant date.

The Company granted 5,040 restricted shares during the year ended December 31, 2009. Of the shares granted, 5,000 shares vested immediately and 40 shares vest over a six-month period. The Company recognized marketing expense on a straight-line basis over the vesting periods based on the market price of their stock on the grant date.

On May 6, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan (The “Plan”.) The Plan provides for the granting of the nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to their employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 30,000 shares of its common stock for awards to be made under the Plan. 30,000 of the shares under this plan have been issued.

On October 27, 2011, the Board of Directors adopted the 2011 Equity Incentive Plan II (the “2011-II Plan”). The 2011-II Plan provides for the granting of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (or SARs), Restricted Stock, Performance Units, and Performance Shares, to our employees, officers, directors, consultants, independent contractors, advisors, or other service providers, provided that such services are not in connection with the offer and sale of securities in a capital raising transaction. The Company initially reserved 60,000 shares of its common stock for awards to be made under the 2011-II Plan. 48,750 of the shares under this plan have been issued.

F-19

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

WARRANTS

There were 80,000 warrants granted during 2012 and 0 in 2011.

The following table summarizes the activity of options and warrants under all agreements and plans for the two years ended December 31, 2012 and 2011:

Weighted

Average

Aggregate

Number of

Exercise

Intrinsic

Options

Warrants

Price

Value

Outstanding, December 31, 2010

–

140,000

–

Granted

–

Exercised

–

Expired/cancelled

(25

)

–

Outstanding, December 31, 2011

2,244,000

–

Granted

–

Exercised

–

80,000

–

Expired/cancelled

–

Outstanding, December 31, 2012

80,000

19.7

–

Options:

The Company adopted ASC 718 (previously SFAS No. 123-R) effective July 1, 2006 using the modified prospective method. Under this transition method, stock compensation expense recognized in the year ended December 31, 2011 includes compensation expense for all stock-based compensation awards vested during year ended December 31, 2011 based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123-R.

Methods of estimating fair value:

Under ASC 718 (previously SFAS No. 123-R), the fair value of stock options is determined using the Black-Scholes model. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination behavior. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted average assumptions used in the model were as follows:

	2012	2011

Risk-free interest rate	0.19%	N/A
Volatility	320%	N/A
Expected life	One Year	N/A
Dividend yield	0%	0%

F-20

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

The following table summarizes information about stock options and warrants outstanding at December 31, 2012:

OPTIONS
OUTSTANDING			EXERCISABLE
RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE-YEARS	WEIGHTED AVERAGE EXERCISE PRICE	NUMBER EXERCISABLE
$1,320,000	2	0.63	1,320,000	2
	–			–
	2	0.63	1,320,000	2

WARRANTS
OUTSTANDING			EXERCISABLE
RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE-YEARS	WEIGHTED AVERAGE EXERCISE PRICE	NUMBER EXERCISABLE
$1	80,000	8.73	1.00	80,000
	–			–
	80,000	8.73	1.00	80,000

NOTE 9 - INCOME TAXES

The income tax provision (benefit) for the years ended December 31, 2012 and 2011 differs from the computed expected provision (benefit) at the federal statutory rate for the following reasons:

		2012			2011

Computed expected income tax provision (benefit)	$	(537,978	)	$	(851,053	)
Increase in allowance for doubtful accounts		–			–
Net operating loss carryforward		576,606			826,141
Increased
Accrued liabilities		(39,478	)		40,484
Allowance for doubtful accounts		–			(17,000	)
Non-deductible meals & entertainment		850			1,428
Depreciation		–			–

Income tax provision (benefit)	$	–		$	–

The components of the deferred tax assets and (liabilities) as of December 31, 2012 and 2011 were as follows:

		2012			2011
Deferred tax assets:
Temporary differences:
Accrued liabilities	$	3,652		$	(46,757	)
Allowance for bad debt		–			–
Net operating loss carryforward		16,149,854			15,471,495
Valuation allowance		(16,153,507	)		(15,424,738	)
Net long-term deferred tax asset	$	–		$	–

F-21

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

The components of the deferred tax (expense) benefit were as follows for the years ended December 31, 2012 and 2011:

	2012			2011
Deferred tax assets:
Accrued expenses	$	50,410		$	47,628
Allowance for bad debt		–			21,200
Accumulated Depreciation		–			2,180

Increase in net operating loss carryforward		678,360			971,830
Change in valuation allowance		(627,950	)		(1,042,939	)
	$	–		$	–

As of December 31, 2012, the Company had net operating loss carryforwards of approximately $32,600,000 expiring from 2012 through 2026.

NOTE 10- COMMITMENTS AND CONTINGENCIES

LITIGATION

a)	On May 15, 2002, Walt Disney World Co. commenced action in the Los Angeles Superior Court against the Company and a former wholly-owned subsidiary (WALT DISNEY WORLD CO. V. POLLUTION RESEARCH AND CONTROL CORP. AND DASIBI ENVIRONMENTAL CORP. (Case No. BC 274013 Los Angeles Superior Court) for amounts due in connection with unpaid rent. A judgment was entered for $411,500. No amounts have been paid in connection with the judgment. As of December 31, 2012, $411,500 has been accrued.

b)	Sean Rose, Claire F. Rose and Mark Rose v. Universal Detection Technology, fka Pollution Research and Control Corporation (Superior Court of the State of California for the County of Los Angeles, North Central District, Case No. EC042040)

	On or about April 16, 2004, Plaintiffs commenced an action against the Company (Case No. EC 038824) for amounts allegedly due pursuant to four unpaid promissory notes. On August 2, 2004, the parties executed a Confidential Settlement Agreement and Mutual Releases (the “Agreement”). On December 30, 2005, Plaintiffs commenced the above-referenced action against the Company, alleging the Company breached the Agreement and seeking approximately $205,000 in damages. A judgment was entered on April 11, 2006. The Company has accrued for this settlement. The Company entered into a settlement agreement in the third quarter of 2004 with each of these three parties. Pursuant to this agreement, at June 30, 2005, the Company was required to pay an additional $80,000 as full payment of our obligations. The Company did not make this payment and are in default of these notes. As of December 31, 2012 and 2011, the Company has $661,929 and $610,621, including interest, accrued for this matter.

c)	On June 2, 2006, Plaintiff Trilogy Capital Partners instituted an action in the Los Angeles Superior Court (Trilogy Capital Partners v. Universal Detection Technology, et. al., Case No. SC089929) against the Company. Plaintiff’s Complaint alleged damages against UDT for breach of an engagement letter in the amount of $93,449. Also, Plaintiff alleged that UDT had failed to issue warrants to it pursuant to a written agreement. After completing the initial stages of litigation and conducting extensive mediation, Plaintiff and UDT reached a settlement wherein commencing December 15, 2006, UDT would make monthly payments to Plaintiff of $2,000 until a debt of $90,000 plus accrued interest at six percent per annum was fully paid. In exchange, Plaintiff would release all of its claims against UDT. UDT has been current on all of its agreed payments to Plaintiff. As of December 31, 2011, $28,098 was due under the agreement and included in accounts payable in the accompanying balance sheet as of December 31, 2012.

F-22

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011


d)	On November 15, 2006, Plaintiff NBGI, Inc. instituted an action in the Los Angeles Superior Court (NBGI, Inc. v. Universal Detection Technology, et. al., Case No. BC361979) against the Company. NBGI, Inc.’s Complaint alleged breach of contract, and requested damages in the amount of $111,014 plus interest at the legal rate and for costs of suit. A Summary Judgment was granted in NBGI’s favor and Judgment has been entered. No payments have been made on this judgment and no actions to enforce the judgment have been taken against the Company.

e)	On November 1, 2010 the accounting firm of A.J. Robbins, P.C. filed a lawsuit in the District Court, City and County of Denver, Colorado, seeking recovery of fees allegedly owed for accounting services performed during 2004 to 2008. The claims have been asserted against the Company, a second corporate defendant, and our CEO, as a result of a personal guarantee. On December 15, 2010, Defendants filed an Answer which asserted several defenses. The parties exchanged initial disclosures, and the matter was set for trial commencing on December 5, 2011. On August 3, 2011 the parties entered into a settlement agreement whereby the Defendants in the case will jointly pay $85,000 to the plaintiffs and the Company will issue $45,000 of the Company’s stock to the plaintiffs. The Company was responsible to pay 50% of the cash payments, the other 50% of which was the responsibility of a second defendant. The cash payments were scheduled to be made in equal monthly payments over 7 months commencing on August 31, 2011. In consideration of the settlement, the parties have executed a mutual release and have agreed to withdraw the lawsuit. The releases and withdrawal are contingent upon the Company's full performance of the settlement agreement terms. The Company issued stock with a fair market value of $36,000 on the date of the agreement in full payment of the stock portion of the settlement agreement. As of November 11, 2012, the Company and the second corporate defendant have fulfilled all the obligations with respect to this liability and all of the $85,000 has been paid to the plaintiffs.

From time to time, the Company is a party to a number of lawsuits arising in the normal course of business. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Company's operations, cash flows or financial position.

EMPLOYMENT AGREEMENTS

In September 2001, the Company entered into an employment agreement with its President and Chief Executive Officer. Under the agreement, base salary is $250,000 to be adjusted on an annual basis. The Company granted options to purchase 5,750 shares of its common stock exercisable at $60 per share.

On January 1, 2011, the Company entered into an amendment of the employment agreement with its President and Chief Executive Officer. Under the amendment, base salary is $320,000. The agreement also provides for salary increases of 5% per year commencing January 1, 2012, and an extension of the term of the agreement until December 31, 2016. In addition, automobile cost is limited to a maximum of $2,500 per month and the Company will reimburse the officer for individual life insurance premiums and for health insurance premiums and related expenses.

The Company is obligated to make certain minimum salary payments as follows:

YEAR ENDING DECEMBER 31,

2013	$	352,800
2014		370,440
2015		388,962
2016		408,410
	$	1,520,612

LICENSE AGREEMENT

On September 30, 2003, the Company entered into a license agreement with CalTech whereby CalTech granted the Company an exclusive, royalty-bearing license to make, use, and sell all products that incorporate the technology that was developed under the Technology Affiliates Agreement with JPL and is covered by related patents. In addition, the grant includes a nonexclusive, royalty-bearing license to make derivative works of the technology. The Company is required to make quarterly royalty payments to CalTech, ranging from 2% to 4% of net revenues for each licensed product made, sold, licensed, distributed, or used by the Company and 35% of net revenues that the Company receives from sublicensing the licensed products. A minimum annual royalty of $10,000 was due and paid to CalTech on August 1, 2005 and each anniversary thereof. The minimum royalty will be offset by the above mentioned royalty payments, if any.

F-23

UNIVERSAL DETECTION TECHNOLOGY AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011

To maintain its license with Cal Tech, a minimum annual royalty of $10,000 was due Caltech on August 1, 2005, and is due on each anniversary thereof, regardless of product sales. Any royalties paid from product sales for the 12-month period preceding the date of payment of the minimum royalty will be credited against the annual minimum. Pursuant to the terms of the license, the Company must pay four percent royalties on product sales in countries where a patent is issued and two percent royalties on product sales in countries where a patent is not issued, as well as 35 percent of net revenues received from sub-licensees. As of the date of this report the Company has not paid the $10,000 royalty due Caltech on August 1, 2007. The Company and Caltech entered into a second amendment to the Company’s license agreement, dated December 1, 2006, and which provides that the overdue amounts shall be paid to Caltech in ten monthly installments of $8,631,85. To date, the Company has made four of the monthly installments called for in the second amendment to its license agreement with Caltech. On June 23, 2009, Caltech sent a letter to the Company asserting certain breaches by the Company of the License Agreement between Caltech and the Company and attempting to terminate the Agreement. The Company disagrees with the various assertions made by Caltech in the letter and has requested that Caltech submit to arbitration all matters in dispute. To date, no further action has been taken and the Company does not continue to perform under the License Agreement.

OPERATING LEASES

On June 1, 2009, the Company entered into a lease agreement to lease office space commencing June 1, 2009 through May, 31, 2012. The Company further extended the lease to November 30, 2012, and is currently on a “month-to-month” term.

Rent expense was $84,399 and $79,059 for 2012 and 2011, respectively.

NOTE 11 – SUBSEQUENT EVENTS

During the first quarter of 2013, the company issued 277,552 shares of common stock valued at $156,339 in order to convert debt of $44,600.

On January 9, 2013 the Board of Directors adopted a resolution to enter into a securities purchase agreement in connection with the issuance of an 8% Convertible Note of the Company in the aggregate principal amount of $12,500, convertible into share of common stock, no par value per share, of the Company. The Company also executed an irrevocable letter agreement with Worldwide Stock Transfer, LLC, the Company’s transfer agent, with respect to the reserve of shares of common stock of the Company to be issued upon any conversion of the above Note.

On June 11, 2013 the Board of Directors adopted a resolution to enter into a securities purchase agreement in connection with the issuance of an 8% Convertible Note of the Company in the aggregate principal amount of $53,000, convertible into share of common stock, no par value per share, of the Company. The Company also executed an irrevocable letter agreement with Worldwide Stock Transfer, LLC, the Company’s transfer agent, with respect to the reserve of shares of common stock of the Company to be issued upon any conversion of the above Note.

On August 7, 2013 the Board of Directors adopted a resolution to enter into a securities purchase agreement in connection with the issuance of an 8% Convertible Note of the Company in the aggregate principal amount of $6,000, convertible into share of common stock, no par value per share, of the Company. The Company also executed an irrevocable letter agreement with Worldwide Stock Transfer, LLC, the Company’s transfer agent, with respect to the reserve of shares of common stock of the Company to be issued upon any conversion of the above Note.

NOTE 12 – RESTATEMENT OF FINANCIAL STATEMENTS

The management of Universal Detection Technology has determined that the previously issued financial statements contained in the Company’s annual Report on Form 10-K for the year ended December 31, 2011 required restatement to properly account for certain derivative transactions.

The Company issued 2 secured convertible promissory notes to Beauvoir Capital, LTD on July 25, 2011 and August 8, 2011 for total proceeds to the Company of $90,000 (“Beauvoir Notes”). Beauvoir Notes could be converted into shares of the Company’s common stock at a conversion price of the lower of (i) $0.0003 or (ii) eight percent (80%) of the lowest closing bid price of the Common Stock during the 30 trading days preceding the date the Conversion Notice is delivered to the Company.

The Company issued 4 secured convertible promissory notes to Sendero Capital on August 16, 2011, November 1, 2011, November 21, 2011, and December 20, 2011 for total proceeds of $205,000 (“Sendero Notes”). Sendero Notes could be converted into shares of the Company’s common stock at a conversion price of the lower of (i) $0.0001 or (ii) fifty percent (50%) of the lowest closing bid price of the Common Stock during the 30 trading days preceding the date the Conversion Notice is delivered to the Company.

Because the conversion prices of the notes were variable, the Company should have recorded derivative liabilities against these notes as of their issuance dates. The Company calculated the derivative liabilities and determined that the amount is material.

Below is a comparative presentation of the balance sheet and income statement as of and for the year ended December 31, 2011 as restated in this report and as reported in the Company’s Report on Form 10K previously filed with the Securities and Exchange Commission.

	As Reported			As Restated
	12/31/2011			12/31/2011
BALANCE SHEET:
Derivative liabilities		–			1,043,639
Total current liabilities		4,368,787			5,412,427
Long term notes payable, net		309,625			37,522
Total liabilities		4,678,412			5,449,949
Accumulated deficit		(48,047,417	)		(48,818,954	)
Total stockholders' deficit		(4,622,017	)		(5,393,554	)

STATEMENT OF OPERATIONS:
Interest expense		(55,485	)		(78,382	)
Debt issuance cost		–			(464,262	)
Gain/(loss) in change of FV of derivative		–			(284,378	)
Total other expenses		(1,472,305	)		(2,243,842	)
NET LOSS		(2,613,866	)		(3,385,403	)

F-24