TABLE OF CONTENTS

				Page
Part I.		Financial Information		3
		Item 1. Financial Statements (Unaudited)		3
		Unaudited Consolidated Balance Sheets as at December 31, 2009 and June 30, 2009		3
		Unaudited Consolidated  Statements of Operations for the Three and Six Month Periods Ended December 31, 2009 and 2008		4
		Unaudited Consolidated  Statements of Cash Flows for the  Six Month Periods Ended December 31, 2009 and 2008		5
		Notes to Unaudited Consolidated Financial Statements		7
		Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		18
		Item 3. Quantitative and Qualitative Disclosures About Market Risk		23
		Item 4T. Controls and Procedures		24
Part II.		Other Information		24
		Item 1. Legal Proceedings		24
		Item 1A. Risk Factors		24
		Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		24
		Item 3. Defaults Upon Senior Securities		24
		Item 4. Submission of Matters to a Vote of Security Holders		24
		Item 5. Other Information		24
		Item 6. Exhibits		24
SIGNATURES				25

 

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ITEM 1.   FINANCIAL STATEMENTS (CONTINUED)

 

ADVANCED MEDICAL INSTITUTE INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		Three Months Ended December 31,								Six Months Ended December 31,
		2009				2008				2009				2008
NET REVENUE		$	6,363,028			$	13,210,997			$	20,870,739			$	29,155,445
COST OF REVENUE			( 2,392,886	)			(2,789,937	)			(5,684,117	)			(6,381,137	)
GROSS PROFIT			3,970,142				10,421,060				15,186,622				22,774,308
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			(8,025,415	)			(9,800,763	)			(17,800,390	)			(21,554,028	)
OPERATING INCOME/(LOSS)			(4,055,273	)			620,297				(2,613,768	)			1,220,280
OTHER INCOME AND (EXPENSE)
Bank interest			2,262				8,119				3,998				42,729
Other income (expense)			26				(2,105	)			26				18,541
Interest expense			(172,497	)			(58,335	)			(326,519	)			(130,080	)
TOTAL OTHER EXPENSES			(170,209	)			(52,321	)			(322,495	)			(68,810	)
INCOME/(LOSS) FROM CONTINUED OPERATIONS			(4,225,482	)			567,976				(2,936,263	)			1,151,470
DISCONTINUED OPERATIONS
Gain on disposal of subsidiary (including income from discontinued operation)			-				119,677				-				119,677
Loss from discontinued operations			(12,043	)			(138,280	)			(35,377	)			(233,281	)
Total loss from discontinued operations			(12,043	)			(18,603	)			(35,377	)			(113,604	)
INCOME/(LOSS) BEFORE INCOME TAXES			(4,237,525	)			549,373				(2,971,640	)			1,037,866
INCOME TAX EXPENSE			(9,702	)			(162,440	)			(459,035	)			(536,287	)
NET INCOME (LOSS)			(4,247,227	)			386,933				(3,430,675	)			501,579
Other Comprehensive item - Foreign currency translation income (loss)			275,700				(4,660,654	)			1,454,976				(9,515,476	)
Net Comprehensive Income (loss)		$	(3,971,527	)		$	(4,273,721	)		$	(1,975,699	)		$	(9,013,897	)
Earnings per common share, basic & diluted		$	(0.08	)		$	0.01			$	(0.06	)		$	0.01
Weighted average number of shares, basic & diluted			53,507,450				53,507,450				53,507,450				53,507,450

 

The accompanying notes are an integral part of these unaudited financial statements.

 

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ITEM 1.   FINANCIAL STATEMENTS (CONTINUED)

 

ADVANCED MEDICAL INSTITUTE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(CONTINUED)

		Six Months Ended  December 31,
		2009				2008
Reconciliation of Cash & Cash Equivalents
Cash & cash equivalents at the end of financial period as shown in the Statement of Cash Flows is reconciled to the related items in the Consolidated Balance Sheets as follows:
Cash & Cash Equivalents		$	218,420			$	1,334,368
Reconciliation of Cash Flow from Operations with Profit from Ordinary Activities after Income Tax
Net Income		$	(3,430,675	)		$	501,579
Non-Cash Flows in Profit from Ordinary Activities
Depreciation and amortization			804,790				798,927
Provision for doubtful accounts			7,445,091				3,170,063
Gain on disposal of investments			-				(119,677	)
Changes in Assets and Liabilities
(Increase) Decrease in inventories			72,087				(502,992	)
Increase in receivables			(3,514,651	)			(8,611,531	)
(Decrease) Increase in unearned revenue			(1,691,398	)			600,883
(Decrease) Increase in payables			(230,069	)			3,161,964
Increase in provisions for compensated absences			69,894				143,842
Increase in deferred tax liabilities			459,035				855,058
Increase in security deposit			3,264				(70,096	)
Decrease in income tax payable			-				(552,771	)
Net cash used in operating activities of continued operations			(12,632	)			(624,751	)
Net cash provided by (used in) operating activities of discontinued operations			8,376				(110,643	)
Net cash used in operating activities		$	(4,256	)		$	(735,394	)
Supplemental Cash Flow Disclosures:
Interest paid		$	92,871			$	130,080
Income tax paid		$	-			$	233,604
Non-Cash Investing/Financing Activities:
Assets acquired under capital leases		$	-			$	114,656

The accompanying notes are an integral part of these unaudited financial statements.

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ADVANCED MEDICAL INSTITUTE INC.

AND SUBSIDIARIES

 

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009

1.	NATURE OF BUSINESS

Nature of Business

 

We were originally incorporated under the name of Hawksdale Financial Visions, Inc. on December 6, 1996 under the laws of the State of Nevada. We were involved in the business of timeshares, but became dormant on March 31, 1997 and, until January 28, 2005, we were a “blank check” company with nominal assets. On October 15, 2004, we changed our name to “Advanced Medical Institute, Inc.” On March 21, 2005, we completed a Share Exchange Agreement with Advanced Medical Institute Pty Limited, a privately owned Australian company (“AMI Australia”), whereby AMI Australia became our wholly-owned subsidiary. On November 17, 2005, we entered into a Share Exchange Agreement with PE Patent Holdco Pty Limited, a privately owned Australian company (“PE Patent Holdco”), whereby PE Patent Holdco became our wholly-owned subsidiary. On September 8, 2006, we entered into a Share Exchange Agreement with Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned Australian company (“Worldwide PE”), whereby Worldwide PE became our wholly-owned subsidiary.

 

Business Overview

 

AMI is a service provider company that arranges for patients with sexual dysfunction and prostate problems in Australia, New Zealand and the United Kingdom to be provided with medical services, pharmaceuticals and associated clinical support services.

 

For our fiscal year ended June 30, 2009, AMI’s revenues were approximately $53.4 million.

2.	BASIS OF PRESENTATION

 

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments, consisting only of normal, recurring adjustments, necessary for a fair presentation of AMI’s financial position and the results of operations for the interim periods presented. Notes to the unaudited consolidated financial statements that would substantially duplicate the disclosures contained in AMI’s audited consolidated financial statements for its most recent fiscal year have been omitted.

 

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3.	RECENT PRONOUNCEMENTS

In June 2009, the FASB issued SFAS No.167, Consolidation of Variable Interest Entities , which changes the consolidation rules as they relate to variable interest entities. Specifically, the new standard makes significant changes to the model for determining who should consolidate a variable interest entity, and also addresses how often this assessment should be performed. This standard will be effective for us on July 1, 2010. We do not expect the adoption will have a material impact on our consolidated financial statements.

In August 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-05, which amends Accounting Standards Codification ( “ ASC ” ) Topic 820, Measuring Liabilities at Fair Value , which provides additional guidance on the measurement of liabilities at fair value. Specifically, when a quoted price in an active market for the identical liability is not available, the new standard requires that the fair value of a liability be measured using one or more of the valuation techniques that should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. In addition, an entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. This standard became effective for us on October 1, 2009.

In October 2009, the FASB issued ASU 2009-13, which amends ASC Topic 605, Revenue Recognition, to require companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. ASU 2009-13 is effective beginning July 1, 2010. Earlier application is permitted. The Company is currently evaluating both the timing and the impact of the pending adoption of the ASU on its consolidated financial statements.

In October 2009, the FASB issued ASU 2009-13, “Multiple-Deliverable Revenue Arrangements”, now codified under FASB ASC Topic 605, “Revenue Recognition”, (“ASU 2009-13”). ASU 2009-13 requires entities to allocate revenue in an arrangement using estimated selling prices of the delivered goods and services based on a selling price hierarchy. The amendments eliminate the residual method of revenue allocation and require revenue to be allocated using the relative selling price method. ASU 2009-13 should be applied on a prospective basis for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. Management is currently evaluating the potential impact of ASU2009-13 on our financial statements.

 

 In October, 2009, the FASB issued ASU 2009-15, “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing”, now codified under FASB ASC Topic 470 “Debt”, (“ASU 2009-15”), and provides guidance for accounting and reporting for own-share lending arrangements issued in contemplation of a convertible debt issuance. At the date of issuance, a share-lending arrangement entered into on an entity’s own shares should be measured at fair value in accordance with Topic 820 and recognized as an issuance cost, with an offset to additional paid-in capital. Loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs. The amendments also require several disclosures including a description and the terms of the arrangement and the reason for entering into the arrangement. The effective dates of the amendments are dependent upon the date the share-lending arrangement was entered into and include retrospective application for arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009. Management is currently evaluating the potential impact of ASU 2009-15 on our financial statements.

 

In December, 2009, under FASB ASC Topic 860, “Transfers and Servicing.” New authoritative accounting guidance under ASC Topic 860, “Transfers and Servicing,” amends prior accounting guidance to enhance reporting about transfers of financial assets, including securitizations, and where companies have continuing exposure to the risks related to transferred financial assets. The new authoritative accounting guidance eliminates the concept of a “qualifying special-purpose entity” and changes the requirements for derecognizing financial assets. The new authoritative accounting guidance also requires additional disclosures about all continuing involvements with transferred financial assets including information about gains and losses resulting from transfers during the period. The new authoritative accounting guidance under ASC Topic 860 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

 

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4.	INTANGIBLE ASSETS

      

The Company applies the criteria specified in SFAS No. 141 (ASC 805), “Business Combinations” to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142 (ASC 350), intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144 (ASC 360), “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.

 

Goodwill, trademarks and other intangible assets determined to have indefinite useful lives are not amortized.  We test such trademarks and other intangible assets with indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that an asset might be impaired.  Goodwill, trademarks, patents and other intangible assets determined to have definite lives are amortized over their estimated useful lives or the life of the trademark, patent and other intangible asset, whichever is less.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the intangible asset relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.

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At December 31, 2009 and June 30, 2009, intangibles were as follows:

 

Intangibles			Gross Carrying Amount				Accumulated Amortization				Impairment   Loss				Net Carrying Amount December 31, 2009				Net Carrying Amount June 30, 2009
Amortized intangibles:
Australian Patents			$	5,897,631			$	(1,300,369	)		$	-			$	4,597,262			$	4,284,773
Worldwide Patents				4,465,496				(801,847	)			(1,529,300	)			2,134,349				2,011,523
Intellectual Property				18,068,593				(3,143,153	)			(5,505,488	)			9,419,952				8,865,082
Computer Software				552,826				(389,180	)			-				163,646				158,883
Unamortized intangibles:
Intellectual Property				3,336,715				-				-				3,336,715				3,006,817
			$	32,321,261			$	(5,634,549	)		$	(7,034,788	)		$	19,651,924			$	18,327,078

The Company assigned an 18-year life to the patents that are held by Worldwide PE Patent and a 19-year life to the patents that are held by PE Patent Holdco.

The exchange rate used at June 30, 2009 was A$1.00 = US$0.8048, and the rate used at December 31, 2009 was A$1.00 = US$0.8931. The strengthening Australian dollar against the U.S. dollar from June 30 to December 31, 2009 caused the net book value of intangible assets to increase, notwithstanding the addition to accumulated amortization.

 

For intellectual property, the Company assigned an 18 year life to the intellectual property that arose from Worldwide PE Patent, a 19 year life to the intellectual property that arose from PE Patent Holdco, and indefinite life to the intellectual property that arose from IMT.

 

Computer software was assigned a 3-year life.

 

Amortization expense from continuing operations for the three months ended December 31, 2009 and 2008 were $664,753 and $714,611, respectively. The Company expects the amortization expenses for the next five fiscal years to be as follows:

 

Fiscal Year Ending June 30,		Annual Amount
2011		$	1,330,000
2012		$	1,330,000
2013		$	1,330,000
2014		$	1,330,000
2015		$	1,330,000

 

5.	OTHER ASSETS

 

Following is the summary of other current assets as of December 31, 2009 and June 30, 2009.

		December 31				June 30
Bank guarantees		$	224,235			$	206,863
Advances and prepayments			8,988				42,640
Other receivables			10,137				9,134
Other debtors			904,617				755,787
Total		$	1,147,977			$	1,014,424

 

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6.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment comprised of the following as of December 31, 2009 and June 30, 2009:

		December 31				June 30
Leasehold improvements		$	649,009			$	590,908
Less: Accumulated depreciation			105,088				62,258
			543,921				528,650
Motor Vehicles			83,489				75,235
Less: Accumulated Depreciation			47,045				38,966
			36,444				36,269
Office Furniture & Equipment			1,399,153				1,217,911
Less: Accumulated Depreciation			400,160				289,911
			998,993				928,000
Computer Hardware			461,667				413,800
Less: Accumulated Depreciation			371,246				315,635
			90,421				98,165
Low Value Pooled Fixed Assets			196,700				173,057
Less: Accumulated Depreciation			156,581				133,162
			40,119				39,895
Total Property, Plant and Equipment, net		$	1,709,898			$	1,630,979

Included in property, plant and equipment are assets of approximately $543,555 and $489,814, as of December 31, 2009 and June 30, 2009, that are leased under non-cancellable leases and accounted for as capital leases, which expire through October 2013. The accumulated depreciation included in the property and equipment for these leases is approximately $146,255 and $102,469 as of December 31, 2009 and June 30, 2009, respectively.

Accounts payable and accrued expenses as of December 31, 2009 and June 30, 2009 are summarized as follows:

 

		December 31				June 30
Bank overdraft		$	570,696			$	481,319
Accounts payable			9,005,760				8,642,972
Accrued salaries			617,342				480,436
Accrued professional fees			42,422				60,360
Other current liabilities			1,342,674				1,087,589
Accrued DDR medication cost			1,479,867				1,259,512
Accrued DDR sales commission			1,570,070				1,377,818
Accrued DDR collection fee			1,570,070				1,377,818
Provision for patient refund			80,379				120,720
Accrued compensated absences			1,141,364				963,892
Total		$	17,420,644			$	15,852,436

9.	LEGAL PROCEEDINGS

As of December 31, 2009, there was no litigation pending or threatened by or against the Company or any of its direct or indirect subsidiaries other than AMI Australia. AMI Australia currently is involved in the following litigation and administrative matters:

 

On October 25, 2006, Bade Medical Institute Pty Limited, Mr. David Wade, Mr. Buddy Beani and others (collectively “Bade”) applied for Trade Mark No. 114322021 in respect of the words “AMI Nasal Spray.” AMI Australia lodged an objection to the registration of that application with IP Australia on June 21, 2007 and that application was subsequently refused.  On December 13, 2007, AMI Australia commenced proceedings in the Federal Court of Australia Sydney Registry against Bade alleging Bade was infringing upon AMI Australia’s trademarks and other intellectual property rights. On December 19, 2007, Bade consented to orders that Bade transfer ownership of certain domain names and telephone numbers to AMI Australia and consented to orders that Bade would not use certain names which contained the word AMI.  Bade appears to have ceased operation since the orders were obtained and has transferred the required names to AMI Australia. AMI subsequently applied for final orders and damages against Bade and final hearing of this matter concluded on September 2, 2009.  On December 4, 2009 the court found in favor of AMI Australia. The court allowed AMI Australia’s application, held that Bade contravened sections 52 an 53 of the Trade Practices Act and passing off, held that AMI Australia was entitled to a remedy of $220,000 from Bade, awarded costs in favor of AMI Australia and held that Mr and Mrs Wade were liable to pay interest to AMI Australia on the amount awarded to AMI Australia. Mr & Mrs Wade appealed this decision on January 27, 2010 and Dr Beani appealed this decision on January 29, 2010. The core claim in the appeal is that Mr Wade was medically unfit to give evidence in the matter and this fundamentally affected their defence.

On June 12, 2009, AMI Australia obtained an interlocutory injunction from the Supreme Court of New South Wales preventing Fairfax Media Publications Limited (“Fairfax”) from publishing information which AMI Australia alleges was disclosed to Fairfax in breach of a duty of confidence owed to AMI Australia.  Final hearing of this matter commenced on October 26, 2009 but was unable to be concluded by October 28, 2009, the final scheduled date for the hearing of the matter. The court has ordered AMI Australia to lodge written submissions by March 10, 2009, with final oral submissions to be heard on March 19, 2009. AMI Australia’s interlocutory injunction has been extended until that date.

 

10.	LEASE COMMITMENTS

 

The Company is party to long-term, non-cancellable operating leases for its administrative offices and clinic locations. The future aggregate minimum annual lease payments arising from these leases are as follows:

 

		December 31
Due during the period ended,
2011			536,361
2012			454,078
2013			360,621
2014			310,544
2015			302,357
2016			302,357
		$	2,266,318

 

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Rent paid for the six month periods ended December 31, 2009 and 2008 were $698,405 and $582,435, respectively.

11.	DISCONTINUED OPERATION

AMI Japan Kabushiki Gaisya

AMI Japan Kabushiki Gaisya (“AMI Japan”) was an indirect 75% owned subsidiary of the Company. AMI Japan had formed an alliance with a Japanese party with expertise in marketing in the Japanese market and two financial investors. AMI Japan commenced operations on October 1, 2006.

On or about February 4, 2008, the operation of AMI Japan was wound down and discontinued due to unsatisfactory operating results.

Loss from the discontinued operation of AMI Japan during the period ended December 31, 2009 was $24,615.

The capital contributed to AMI Japan of $211,311 has been classified as assets pending sale on the accompanying consolidated balance sheet as of December 31, 2009.

Following is the summary of net assets held as of December 31 and June 30, 2009:

 

		December 31				June 30
Assets
Cash and cash equivalents		$	742			$	1,704
Other current assets			90,644				84,005
Property, Plant & Equipment, net			123,439				126,552
Intangible assets			994				3,837
Total Assets			215,819				216,098
Liabilities
Accounts payable and accrued expense			4,508				4,078
Total Liabilities			4,508				4,078
Net Assets Held for disposal		$	211,311			$	212,020

 

The components of loss from operations related to the entity held for disposal for the periods ended December 31, 2009 and 2008 are shown below.

 

AMI China

AMI China was a fully owned subsidiary of the Company.

During the second half of the last financial year, the operation of AMI China was wound down and discontinued due to unsatisfactory operating results.

Loss from the discontinued operation of AMI China during the period ended December 31, 2009 was US$10,762.

The capital contributed to AMI Japan of US$80,712 has been classified as assets pending sale on the accompanying consolidated balance sheet as of December 31, 2009.

Following is the summary of net assets held as of December 31 and June 30, 2009:

Payables to related parties are as follows:

The Company borrowed A$1.0 million from Secare Health Centre Pty Limited (“Secare”) in November 2008.  Secare is controlled by the Company’s chief executive officer and founder, Jack Vaisman. The Company subsequently borrowed a further A$4,631,489 from Secare. The loan is secured by a second ranking security interest in all of AMI Australia’s assets and undertakings (including its existing equity interests in PE Patent Holdco Pty Limited, Intelligent Medical Technologies Pty Limited and Advanced Medical Institute (NZ) Limited). The loan bears interest at a rate of 10% per annum.  No repayment of this loan has been made as at December 31, 2009.  The loan is due for repayment in December 2011.

13.	INCOME TAXES

Total income tax expense for the six months ended December 31, 2009 and 2008 amounted to $459,035 and $536,287, respectively. For the six month period ended December 31, 2009 and 2008 there is a difference of 1% between the Australian federal statutory tax rate and the effective tax rate. This difference is due to the domicile of operating profits and losses  as well as the impact of timing and past operating profits (losses) on these matters.

		December 31,
		2009				2008
Federal statutory tax rate			34	%			34	%
Decrease in rate resulting from:
Non-US income taxed at different rates			(1	)%			(1	)%
			33	%			33	%
Temporary Difference			21	%			5	%
Effective Tax Rate			54	%			38	%

 

Deferred tax liability arises due to the following temporary differences:

		December 31, 2009				Future tax rate %				Deferred tax liability				June 30, 2009				Future tax rate %				Deferred tax liability
Owing by patients via ACFC		$	(35,268,470	)			30	%		$	(10,580,541	)		$	(28,861,821	)			30	%		$	(8,658,546	)
Provision DDR cancellation			19,708,930				30	%			5,912,679				16,788,933				30	%			5,036,680
Provision un-dispensed DDR medications			1,479,867				30	%			443,960				1,259,512				30	%			377,854
Accrued ACFC collection and commission			3,140,140				30	%			942,042				2,755,635				30	%			826,691
Provision for patient refund			80,380				30	%			24,114				120,720				30	%			36,216
Unutilized tax losses			7,038,387				30	%			2,111,516				5,663,851				30	%			1,699,155
Amortization of patents			(2,631,617	)			30	%			(789,485	)			(2,083,987	)			30	%			(625,196	)
Impairment loss			6,303,340				30	%			1,891,002				5,680,134				30	%			1,704,040
Other miscellaneous			1,087,927				30	%			326,378				937,806				30	%			281,354
Total		$	938,884				30	%		$	281,665			$	2,260,783				30	%		$	678,248

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14.	OTHER COMPREHENSIVE INCOME (LOSS)

Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders’ equity, at December 31, 2009 and June 30, 2009 are as follows:

		Accumulated Other Comprehensive Income
Balance at June 30, 2008		$	6,972,500
Change for year ended June 30, 2009			(6,018,555	)
Balance at June 30, 2009			953,945
Change for six months ended December 31, 2009			1,454,976
Balance at December 31, 2009		$	2,408,921

The change for the six months ended December 31, 2009 is primarily attributable to the appreciation in the Australian dollar against the US dollar from the closing rate of A$:US$ 1:0.80480 as at June 30, 2009 to A$:US$ 1:0.89310 as at December 31, 2009.

 

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RESULTS OF OPERATIONS

SIX MONTHS ENDED DECEMBER 31, 2009 COMPARED TO SIX MONTHS ENDED DECEMBER 31, 2008

Revenue. Revenue was $20,870,739 in the six months ended December 31, 2009, compared to $29,155,445 in the six months ended December 31, 2008, representing a decrease of $8,284,706, or  28%.  This decrease in revenue was primarily due to  an increase in the  provision for doubtful accounts from $3,170,063 to $7,445,091 for the six months ended December 31, 2009 that mostly related to  our UK operations. 

Our unearned revenue as at December 31, 2009 was $7,146,073 compared to $8,003,468 as at June 30, 2009. The gross decrease in unearned revenue from the six months ended December 31, 2008 to the six months ended December 31, 2009 was $857,395, or a decrease of 10.7%. The decrease in unearned revenue at December 31, 2009 is primarily attributed to fewer patients seeking new treatments  during the quarter ended December 31, 2009.

 

Revenue in our PE treatments has decreased by $4,209,424 or 26.8% to $11,513,709, and revenue in our ED treatments decreased by $3,351,738 or 26.8% to $9,165,652, in the six months ended December 31, 2009, compared to the six months ended December 31, 2008. We attribute the decrease in revenue in our PE and ED treatments to the decrease in the number of patients and the significant provision for doubtful debt on our UK operation. Revenue in our prostate treatments has decreased by $545,345 or 71.2%, to $220,345, in the six months ended December 31, 2009, compared to the six months ended December 31, 2008. We attribute the decrease in revenue in our prostate treatments to decreases in the number of patients.

 

Revenue in our Australian operations was $20,372,971 in the six months ended December 31, 2009, compared to $25,142,030 in the six months ended December 31, 2008. Compared to the same period in the previous year, there is a decrease of $4,769,059, or 18.9%, in the six months ended December 31, 2009. The decrease in the six-month period ended December 31, 2009 is primarily attributable to the decrease in the number of patients purchasing our programs which is due to difficult economic condition and a reduction in the advertising and promotion of our programs in Australia during the relevant period.

 

Cost of Revenue. Cost of revenue was $5,684,117 in the six months ended December 31, 2009, compared to $6,381,137 in the six months ended December 31, 2008. The decrease in cost of revenue was attributable to a decrease in the medication cost incurred by AMI Australia. As a percentage of revenue, cost of revenue was 27.2% in the six months ended December 31, 2009, compared to 21.9% in the six months ended December 31, 2008.  We attribute this increase primarily to the decrease in revenue during the relevant period being more than the decrease in related staff costs such as salaries of doctors, sales consultants and customer services.

 

Gross Profit. Gross profit was $15,186,622 in the six months ended December 31, 2009, compared to $22,774,308 in the 2008 comparable period. As a percentage of revenue, gross profit decreased to 72.8% in the quarter ended December 31, 2009 from 78.1% in the 2008 quarter. We attribute this decrease primarily to the increase in the percentage of cost of revenue to revenue during the relevant period.

  

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $17,800,390 in the six months ended December 31, 2009, compared to $21,554,028 in the six months ended December 31, 2008, representing a decrease of $3.7 million or 17%. This decrease was primarily due to less advertising. As a percentage of revenue, selling, general and administrative expenses increased to 85.3% in the six months ended December 31, 2009 from 73.9% in the six months ended December 31, 2008. We attribute this increase primarily to the decrease in revenue during the six months ended December 31, 2009being more than the decrease in selling, general and administrative expenses.

 

Other Income and (Expenses). Other income and expenses was net expenses of $322,495 in the six months ended December 31, 2009, compared to other net income of $50,867 in the six months ended December 31, 2008. As a percentage of revenue, other income and expenses was (1.5%) in the six months ended December 31, 2009 and 0.2% in the six months ended December 31, 2008.  The 1.7% decrease in the other income and expenses in six months ended December 31, 2009 is primarily attributable to the increase in interest expenses that resulted from additional borrowings and higher interest rates on our Australian dollar borrowings. 

 

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Net Income Before Income Tax and Income Tax Expenses. Net income before income tax was ($2,971,640) in the six months ended December 31, 2009, compared to $1,037,866 in the six months ended December 31, 2008. The decrease is primarily attributable losses generated in our UK operations in the six months ended December 31, 2009.

 

Income tax expenses were $459,035 in the six months ended December 31, 2009 compared to $536,287 in the six months ended December 31, 2008. As a percentage of revenue, income tax expense increased to 2.9% in the six months ended December 31, 2009 from 1.9% in the six months ended December 31, 2008. The increase is primarily attributable to the decrease in revenue in the six months ended December 31, 2009.

 

Net Income. Net income was ($3,430,675) in the six months ended December 31, 2009, compared to $501,579 in the six months ended December 31, 2008. The decrease in net income is primarily attributable to losses generated in our UK operations for the six months ended December 31, 2009.

 

Net income in our Australian operations was $1,050,550 in the six months ended December 31, 2009, compared to $1,237,646 in the six months ended December 31, 2008. The decrease is primarily attributable to the decrease in revenue in AMI Australia in the six months ended December 31, 2009.

THREE MONTHS ENDED DECEMBER 31, 2009 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2008

Revenue. Revenue was $6,363,028 in the three months ended December 31, 2009, compared to $13,210,997 in the three months ended December 31, 2008, a decrease of $6,847,969, or  52%.   We attribute this decrease primarily to the decrease in the number of patients purchasing our programs which is due to difficult economic conditions and a reduction in the advertising and promotion of our programs in Australia during the relevant period and the significant provision for doubtful debt on our UK operation.

 

Our unearned revenue as at December 31, 2009 was $7,146,073 compared to $8,003,468 as at June 30, 2009. The gross decrease in unearned revenue from the three months ended December 31, 2008 to the three months ended December 31, 2009 was $857,395, or a decrease of 10.7%. The decrease in unearned revenue in the three-month period is primarily attributed to fewer new patients during the quarter ended December 31, 2009.

 

Revenue in our PE treatments has decreased by $4,700,957 or 77.8% to $1,343,510, and revenue in our ED treatments decreased by $1,963,126 or 28.7% to $4,888,236, in the three months ended December 31, 2009, compared to the three months ended December 31, 2008. We attribute the decrease in revenue in our PE and ED treatments to the decrease in the number of patients and the significant provision for doubtful debt on our UK operation. Revenue in our prostate treatments has decreased by $409,302 or 77.8%, to $116,885, in the three months ended December 31, 2009, compared to the three months ended December 31, 2008. We attribute the decrease in revenue in our prostate treatments to decreases in the number of patients.

 

Revenue in our Australian operations was $8,697,719 in the three months ended December 31, 2009, compared to $9,734,524 in the three months ended December 31, 2008. Compared to the same period in the previous year, there is a decrease of $1,036,805, or 10.6%, in the three months ended December 31, 2009. The decrease in the three-month period ended December 31, 2009 is primarily attributable to the decrease in the number of patients purchasing our programs which is due to difficult economic condition and a reduction in the advertising and promotion of our programs in Australia during the relevant period.

 

Cost of Revenue. Cost of revenue was $2,392,886 in the three months ended December 31, 2009, compared to $2,789,937 in the three months ended December 31, 2008. The decrease in cost of revenue was attributable to a decrease in the medication cost incurred by AMI Australia. As a percentage of revenue, cost of revenue was 37.6% in the three months ended December 31, 2009, compared to 21.1% in the three months ended December 31, 2008.  We attribute this increase primarily to the decrease in revenue during the relevant period being more than the decrease in related staff costs such as salaries of doctors, sales consultants and customer services.

 

Gross Profit. Gross profit was $3,970,142 in the three months ended December 31, 2009, compared to $10,421,060 in the 2008 comparable period. As a percentage of revenue, gross profit decreased to 62.4% in the quarter ended December 31, 2009 from 78.9% in the 2008 quarter. We attribute this decrease primarily to the increase in the percentage of cost of revenue to revenue during the relevant period.

  

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $8,025,415 in the three months ended December 31, 2009, compared to $9,800,763 in the three months ended December 31, 2008. As a percentage of revenue, selling, general and administrative expenses increased to 126.1% in the three months ended December 31, 2009 from 74.2% in the three months ended December 31, 2008. The increase in the three months ended December 31, 2009 is primarily attributable to the decrease in revenue during the relevant period.

 

Other Income and (Expenses). Other income and expenses was a net expense of ($170,209 in the three months ended December 31, 2009, compared to other net income of $67,356 in the three months ended December 31, 2008. As a percentage of revenue, other income and expenses was (2.7%) in the three months ended December 31, 2009 and 0.5% in the three months ended December 31, 2008.  The 3.2% decrease in the other income and expenses in 2009 is primarily attributable to the increase in interest expenses that resulted from additional borrowings and higher interest rates on our Australian dollar borrowings. 

Net Income Before Income Tax and Income Tax Expenses. Net income before income tax was ($4,237,525) in the three months ended December 31, 2009, compared to $549,373 in the three months ended December 31, 2008. The decrease is primarily attributable to losses generated in our UK operations in the three months ended December 31, 2009.

 

Income tax expenses were $9,702 in the three months ended December 31, 2009 compared to $162,440 in the three months ended December 31, 2008. As a percentage of revenue, income tax expense decreased to 0.1% in the three months ended December 31, 2009 from 1.3% in the three months ended December 31, 2008. The decrease is primarily attributable the decrease in revenue in the three months ended December 31, 2009.

 

Net Income . Net income was ($4,247,227) in the three months ended December 31, 2009, compared to $386,933 in the three months ended December 31, 2008. The decrease is primarily attributable to losses generated in our UK operations in the three months ended December 31, 2009.

 

Net income in our Australian operations was $20,079 in the three months ended December 31, 2009, compared to $361,461 in the three months ended December 31, 2008. The decrease is primarily attributable the decrease in revenue in the three months ended December 31, 2009.

 

OFF-BALANCE SHEET ARRANGEMENTS

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

Item 1.   Legal Proceedings.    

 

Please see Note 8 to our financial statements above.

 

Item 1A.   Risk Factors

 

As a “smaller reporting company”, we are not required to provide this information.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.    

 

Not applicable for this quarterly report.

Item 3.   Defaults upon Senior Securities.    

 

Not applicable for this quarterly report.

Item 4.   Submission of Matters to a Vote of Security Holders.    

 

Not applicable for this quarterly report.

Item 5.   Other Information.    

 

Not applicable for this quarterly report.

Item 6.   Exhibits.    

The following exhibits are filed as part of this report:

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.
32		Certification of Chief Executive Officer and the Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	ADVANCED MEDICAL INSTITUTE INC.
Date: March 3, 2010	By:	/s/  Jacov (Jack) Vaisman
		Jacov (Jack) Vaisman
		Chief Executive Officer

 

	By:	/s/  Dilip Shrestha
		Dilip Shrestna
		Chief Financial Officer

 

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Exhibit Index

Exhibit Number		Description
31.1		Certification of Chief Executive Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer and the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.

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