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EX-5.1 - MICRO IMAGING TECHNOLOGY, INC. | v195045_ex5-1.htm |
EX-23.2 - MICRO IMAGING TECHNOLOGY, INC. | v195045_ex23-2.htm |
As
filed with the Securities and Exchange Commission on June 10, 2010
Registration
No. 333-________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1/A5
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
MICRO
IMAGING TECHNOLOGY, INC.
(Exact
name of Registrant as specified in its charter)
California
|
6794
|
33-0056212
|
(State
or other jurisdiction of
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Classification
Code Number)
|
Identification
Number)
|
970
Calle Amanecer, Suite F
San
Clemente, California 92673
(949)
485-6001
(Address, including zip code, and
telephone number, including
area
code, of Registrant's principal executive offices)
Michael
Brennan
Chief
Executive Officer
Micro
Imaging Technology, Inc.
970
Calle Amanecer, Suite F
San
Clemente, California 92673
(949)
485-6001
(Name, address, including zip code,
and telephone number, including
area
code, of agent for service)
Copies
to:
Christopher
H. Dieterich, Esq.
Dieterich
& Mazarei, LP
11835
West Olympic Blvd., Suite 1235E
Los
Angeles, California 90064
(310)
312-6888
Approximate
date of commencement of proposed sale to the public:
As
soon as practicable after the effective date of this Registration
Statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the
following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated file, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated file" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do
not check if a smaller reporting
company)
|
Smaller
reporting company x
|
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
|
Amount
to
be
Registered (1)
|
Proposed
Maximum
Offering
Price
Per
Share(2)
|
Proposed
Maximum
Aggregate
Offering
Price(3)
|
Amount
of
Registration
Fee
|
||||||||||||
Common
Stock, $0.001 par value per share
|
11,000,000 | $ | 0.04 | $ | 440,000 | $ | 24.56 |
(1)
Pursuant to Rule 416 under the Securities Act, the shares being registered
hereunder include such indeterminate number of shares of common stock as may be
issuable with respect to the shares being registered hereunder as a result of
stock splits, stock dividends or similar transactions.
(2)
Estimated solely for the purpose of calculating the amount of the registration
fee pursuant to Rule 457(c) of the Securities Act of 1933, using the average of
the high and low prices as reported on the OTC Bulletin Board on May 4,
2010.
(3) Estimated
assuming that all 11,000,000 shares are sold at the same price. This
number of shares is limited by Rule 415, however the share prices may increase
over the life of the agreements and this registration, such that prices could
cumulate to $5,000,000 (the contractual limitation) if a large number of shares
are sold at significantly higher prices than currently exist.
The
registrant hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission acting pursuant
to said section 8(a) may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject
to Completion, Dated August __, 2010
Prospectus
MICRO
IMAGING TECHNOLOGY, INC.
11,000,000Shares
Common
Stock
This
prospectus relates to the offer and resale of up to 11,000,000 shares of our
common stock, par value $0.01 per share, by the selling stockholder, Dutchess
Opportunity Fund II, LP, or "Dutchess". Dutchess has agreed to purchase up to
125,000,000 shares pursuant to the investment agreement dated May 4, 2010
between Dutchess and us. Of the 11,000,000 shares described in this
offering,Dutchess has agreed to purchase up to 11,000,000 shares pursuant to the
investment agreement. Subject to the terms and conditions of such investment
agreement, which is referred to in this prospectus as the "Investment
Agreement," we have the right to put up to $5,000,000 million in shares of our
common stock to Dutchess. This arrangement is sometimes referred to as an
"Equity Line." For more information on the selling stockholder, please see the
section of this prospectus entitled "Selling Stockholder".
We will
not receive any proceeds from the resale of these shares of common stock offered
by Dutchess. We will, however, receive proceeds from the sale of shares to
Dutchess pursuant to the Equity Line. When we put an amount of shares to
Dutchess, the per share purchase price that Dutchess will pay to us in respect
of such put will be determined in accordance with a formula set forth in the
Investment Agreement. Generally, in respect of each put, Dutchess will pay us a
per share purchase price equal to ninety-five percent (95%) of the lowest daily
volume weighted average price of our common stock during the five (5)
consecutive trading day period beginning on the trading day immediately
following the date of delivery of the applicable put notice.
Dutchess
may sell the shares of common stock from time to time at the prevailing market
price on the Over-the Counter (OTC) Bulletin Board, or on an exchange if our
shares of common stock become listed for trading on such an exchange, or in
negotiated transactions. Dutchess is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act") in connection with the
resale of our common stock under the Equity Line. For more information, please
see the section of this prospectus entitled "Plan of Distribution".
Our
common stock is quoted on the OTC Bulletin Board under the symbol "MMTC". The
last reported sale price of our common stock on the OTC Bulletin Board on May 4,
2010 was $0.04 per share.
Investing
in the offered securities involves a high degree of risk, including those risks
set forth in the "Risk Factors" section of this prospectus, as well as those set
forth in any prospectus supplement.
We will
be responsible for all fees and expenses incurred in connection with the
preparation and filing of this registration statement, provided, however, we
will not be required to pay any underwriters' discounts or commissions relating
to the securities covered by the registration statement.
You
should read this prospectus and any prospectus supplement carefully before you
decide to invest. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front of this
document.
2
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
The
date of this prospectus is August__, 2010
TABLE
OF CONTENTS
Page
|
||
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
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4
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|
PROSPECTUS
SUMMARY
|
5
|
|
RISK
FACTORS
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10
|
|
USE
OF PROCEEDS
|
14
|
|
SELLING
STOCKHOLDER
|
15
|
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
16
|
|
OUR
BUSINESS
|
19
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|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
23
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MANAGEMENT
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28
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EXECUTIVE
COMPENSATION
|
29
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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35
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
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36
|
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DESCRIPTION
OF CAPITAL STOCK
|
37
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PLAN
OF DISTRIBUTION
|
38
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CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS
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39
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LEGAL
MATTERS
|
39
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EXPERTS
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39
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|
WHERE
YOU CAN FIND MORE INFORMATION
|
39
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
41
|
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission. You should rely only on the information contained in
this prospectus or to which we have referred you. We have not authorized anyone
to provide you with information or to make any representation on behalf of the
Company that is different from that contained in this prospectus. You should not
rely on any unauthorized information or representation. This prospectus is an
offer to sell only the securities offered by this prospectus under circumstances
and in jurisdictions where it is lawful to do so. The information in this
prospectus is accurate only as of the date of this prospectus, regardless of the
date of delivery of this prospectus or of any sales of these securities. Our
business, financial condition, results of operations and prospects may have
changed since the date of this prospectus. This prospectus may be used only in
jurisdictions where it is legal to sell these securities.
3
Some of
the statements contained or incorporated by reference in this prospectus are
"forward-looking statements". These statements are based on the current
expectations, forecasts, and assumptions of our management and are subject to
various risks and uncertainties that could cause our actual results to differ
materially from those expressed or implied by the forward-looking statements.
Forward-looking statements are sometimes identified by language such as
"believe," "may," "could," "estimate," "continue," "anticipate," "intend,"
"should," "plan," "expect," "appear," "future," "likely," "probably," "suggest,"
"goal," "potential" and similar expressions and may also include references to
plans, strategies, objectives, and anticipated future performance as well as
other statements that are not strictly historical in nature. The risks,
uncertainties, and other factors that could cause our actual results to differ
materially from those expressed or implied in this prospectus include, but are
not limited to, those noted under the caption "Risk Factors" beginning on page 8
of this prospectus. Readers should carefully review this information as well the
risks and other uncertainties described in other filings we may make after the
date of this prospectus with the Securities and Exchange
Commission.
Readers
are cautioned not to place undue reliance on forward-looking statements. They
reflect opinions, assumptions, and estimates only as of the date they were made,
and we undertake no obligation to publicly update or revise any forward-looking
statements in this prospectus, whether as a result of new information, future
events or circumstances, or otherwise.
4
This
summary highlights the information contained elsewhere in this prospectus.
Because this is only a summary, it does not contain all of the information that
you should consider before buying shares of our common stock. You should read
the entire prospectus and any prospectus supplements carefully, especially the
sections entitled "Caution Regarding Forward Looking Statements," "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," together with our financial statements and the related notes
included elsewhere in this prospectus and in any prospectus supplements related
thereto, before deciding to purchase shares of our common stock.
Micro
Imaging Technology, Inc.
Depending
upon the context, the terms "MIT," “Micro Identification Technologies, Inc,”
”Company," "we," "our" and "us," refers to either Micro Imaging Technology, Inc.
alone or Micro Imaging Technology, Inc. and its subsidiaries collectively. On
February 19, 2010 Micro Imaging Technology, Inc. (OTC: Bulletin Board: MMTC)
announced that it had changed the Company’s business trading name to doing
business as (DBA) Micro Identification Technologies, Inc, to better reflect the
extensive capabilities of its microbial identification
technologies.
Organizational
History
We were
incorporated in December 1979 in California under the name HOH Water Technology
Corporation and changed our name to Electropure, Inc. in 1996. In November 2005,
we again changed our name to Micro Imaging Technology, Inc. as a condition of
the sale of our EDI assets (see discussion of Electropure EDI, Inc. below). Our
address and telephone number is: 970 Calle Amanecer, Suite F, San
Clemente, California 92673 – (949) 485-6001.
In
October 1997, we acquired an exclusive license to patent and intellectual
property rights involving laser light scattering techniques to be utilized in
the detection and monitoring of toxicants in drinking water. In February 2000,
we formed Micro Imaging Technology (MIT), a wholly-owned Nevada subsidiary to
conduct research and development based upon advancements we developed and
patented from the licensed technology.
In
October 2005, in order to generate working capital to support the research and
development efforts of our MIT subsidiary, we sold our 30,000 square foot
building and the assets of our Nevada subsidiary, Electropure EDI,
Inc. At that time, the Company changed its corporate identity to
Micro Imaging Technology,
Inc.
In
February 2010, the Company changed the Company’s business trading name to doing
business as (DBA) Micro Identification Technologies, Inc, to better reflect the
extensive capabilities of its microbial identification
technologies.
Summary
Financial Data
Because
this is only a summary of our financial information, it does not contain all of
the financial information that may be important to you. Therefore, you should
carefully read all of the information in this prospectus and any prospectus
supplement, including the financial statements and their explanatory notes and
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," before making a decision to invest in our
common stock. The information contained in the following summary are derived
from our financial statements for the quarters ended April 30, 2010 and 2009 and
the fiscal years ended October 31, 2009 and 2008.
5
Consolidated
Statement of Operations Data:
Six Months Ended April 30,
|
Fiscal years ended October
31,
|
|||||||||||||||
2010
|
2009
|
2009
|
2008
|
|||||||||||||
(Unaudited)
|
||||||||||||||||
Sales
|
$ | - | $ | - | $ | 18,000 | $ | - | ||||||||
Cost
of sales
|
- | - | 10,970 | - | ||||||||||||
Total
Operating expenses
|
765,815 | 905,516 | 2,910,982 | 2,326,989 | ||||||||||||
Loss
from operations
|
(765,815 | ) | (905,516 | ) | (2,903,952 | ) | (2,326,989 | ) | ||||||||
Net
Loss
|
$ | (1,376,646 | ) | $ | (1,578,876 | ) | $ | (3,475,892 | ) | $ | (2,461,976 | ) | ||||
Net
loss per share
|
$ | (0.01 | ) | $ | (0.02 | ) | $ | (0.04 | ) | $ | (0.07 | ) | ||||
Basic
and diluted weighted average shares
|
127,057,659 | 73,118,956 | 89,695,596 | 35,487,955 |
Consolidated
Balance Sheet Data:
As of April 30,
|
As of October 31,
|
As of October 31,
|
||||||||||
2010
|
2009
|
2008
|
||||||||||
(Unaudited)
|
||||||||||||
Cash
|
$ | 6,254 | $ | 2,148 | $ | 1,255 | ||||||
Inventories
|
90,904 | 90,904 | 98,497 | |||||||||
Prepaid
expenses
|
187,690 | 11,799 | 11,799 | |||||||||
Total
assets
|
$ | 284,848 | $ | 104,851 | $ | 111,551 | ||||||
Total
stockholders’ deficit
|
$ | (1,187,632 | ) | $ | (839,130 | ) | $ | (623,718 | ) |
6
Our Principal Executive
Offices. Our principal executive offices are located at 970
Calle Amanecer, Suite F, San Clemente, California 92673. Our telephone number is
(949) 485-6001 and our website address is www.micro-imaging.com. Information
included or referred to on our website is not a part of this
prospectus.
Market
Data and Industry Information
We
obtained the market data and industry information contained in this prospectus
from internal surveys, estimates, reports and studies, as appropriate, as well
as from market research, publicly available information and industry
publications. Although we believe our internal surveys, estimates, reports,
studies and market research, as well as industry publications are reliable, we
have not independently verified such information, and as such, we do not make
any representation as to its accuracy.
Summary
of the Offering
This
prospectus relates to the resale of up to 11,000,000 shares of our common stock
by Dutchess. The Investment Agreement with Dutchess provides that Dutchess is
committed to purchase up to $5,000,000 of our common stock over the course of 36
months. We may draw on the facility from time to time, as and when we determine
appropriate in accordance with the terms and conditions of the Investment
Agreement. A maximum of 125,000,000 shares (estimated by using the last reported
sale price of our common stock on the OTC Bulletin Board on May 4, 2010 of $0.04
per share) may be issued under the Equity Line at per-share prices set at
nine-five percent (95%) of the lowest daily volume weighted average price (VWAP)
of our common stock during the five (5) consecutive trading day period beginning
on the date of delivery of the applicable put notice (such five-day period, the
"Pricing Period").
The
Investment Agreement is further described below under the heading, "Investment
Agreement".
Shares of common stock offered
by us
|
None.
|
|
Shares
of common stock offered by the Selling
Stockholder
|
11,000,000
shares which are available for use under the Equity
Line..
|
|
Offering
Price
|
To
be determined by the prevailing market price for the shares at the time of
the sale or in negotiated transactions.
|
|
Use of
proceeds
|
We
will not receive any proceeds from the sale of shares by the selling
stockholder. However, we will receive proceeds from the Equity Line. See
"Use of Proceeds." We intend to use such proceeds for working capital,
reduction of indebtedness, acquisitions and other general corporate
purposes.
|
|
Risk
Factors
|
An
investment in our common stock is speculative and involves substantial
risks. You should read the "Risk Factors" section of this prospectus for a
discussion of certain factors to consider carefully before deciding to
invest in shares of our common stock.
|
|
Plan of
Distribution
|
The
shares of common stock covered by this prospectus may be sold by the
selling stockholder in the manner described under "Plan of
Distribution."
|
|
OTC
Bulletin Board Symbol
|
"MMTC"
|
7
Investment
Agreement
We
entered into the Investment Agreement with Dutchess on May 4, 2010. Pursuant to
the Investment Agreement, Dutchess committed to purchase up to $5,000,000 of our
common stock, over the course of 36 months. The aggregate number of shares
issuable by us and purchasable by Dutchess under the Investment Agreement is
125,000,000 (estimated using the last reported sale price of our common stock on
the OTC Bulletin Board on May 4, 2010 of $0.04 per share).
We may
draw on the facility from time to time, as and when we determine appropriate in
accordance with the terms and conditions of the Investment Agreement. The
maximum amount that we are entitled to put in any one notice is the greater of
(i) 200% of the average daily volume (U.S. market only) of the common stock for
the three (3) trading days prior to the date of delivery of the applicable put
notice, multiplied by the average of the closing prices for such trading days or
(ii) $100,000. The purchase price shall be set at nine-five percent (95%) of the
lowest daily VWAP of our common stock during the Pricing Period. However, if, on
any trading day during a Pricing Period, the daily VWAP of the common stock is
lower than the floor price specified by us in the put notice, then we reserve
the right, but not the obligation, to withdraw that portion of the put amount
for each such trading day during the Pricing Period, with only the balance of
such put amount above the minimum acceptable price being put to Dutchess. There
are put restrictions applied on days between the put notice date and the closing
date with respect to that particular put. During such time, we are not entitled
to deliver another put notice.
There are
circumstances under which we will not be entitled to put shares to Dutchess,
including the following:
• we will
not be entitled to put shares to Dutchess unless there is an effective
registration statement under the Securities Act to cover the resale of the
shares by Dutchess;
• we will
not be entitled to put shares to Dutchess unless our common stock continues to
be quoted on the OTC Bulletin Board, or becomes listed on a national securities
exchange;
• we will
not be entitled to put shares to Dutchess to the extent that such shares would
cause Dutchess's beneficial ownership to exceed 4.99% of our outstanding shares;
and
• we will
not be entitled to put shares to Dutchess prior to the closing date of the
preceding put.
The
Investment Agreement further provides that the Company and Dutchess are each
entitled to customary indemnification from the other for any losses or
liabilities we or it suffers as a result of any breach by the other of any
provisions of the Investment Agreement or our registration rights agreement with
Dutchess, or as a result of any lawsuit brought by a third-party arising out of
or resulting from the other party's execution, delivery, performance or
enforcement of the Investment Agreement or the registration rights
agreement.
The
Investment Agreement also contains representations and warranties of each of the
parties. The assertions embodied in those representations and warranties were
made for purposes of the Investment Agreement and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating the
terms of the Investment Agreement. In addition, certain representations and
warranties were made as of a specific date, may be subject to a contractual
standard of materiality different from what a stockholder or investor might view
as material, or may have been used for purposes of allocating risk between the
respective parties rather than establishing matters as facts.
8
In
connection with the preparation of the Investment Agreement and the registration
rights agreement, we issued Dutchess 750,000 shares of common stock as a
document preparation fee in the amount of $15,000. However, in the
event that we received any funds from a current private placement or from
Dutchess’ purchase of shares prior to the nine month anniversary of the issuance
of the 750,000 shares, those shares could have been redeemed, at the discretion
of Dutchess, for $15,000 in cash. The Company has redeemed those
shares by making payment of $15,000 in cash to Dutchess.
Registration
Rights Agreement
Pursuant
to the terms of a Registration Rights Agreement, dated May 4, 2010, between
Dutchess and us, we are obligated to file one or more registration statements
with the SEC to register the resale by Dutchess of shares of common stock issued
or issuable under the Investment Agreement. We must file with the SEC an initial
registration statement on Form S-1 of which this prospectus forms a part, in
order to access the credit line, covering the resale of the
11,000,000 shares of common stock which is equal to eighteen point seven percent
(18.7%) of our current public float (where "public float" shall be derived by
subtracting the number of shares of common stock held by our officers, directors
and "affiliates" (as such term is defined in Rule 144(a)(1) of the 1933 Act)
from the total number of shares of our common stock then
outstanding). We have agreed that, in the event that this initial
registration fails to register all of the shares necessary to fulfill our
contractual obligations, we will amend this statement of file new registration
statements. This registration process will continue until such time
as all of the dollar amounts available under the credit line, using shares of
common stock issuable under the Investment Agreement, have been registered for
resale on effective registration statements. In no event will we be obligated to
register for resale more than $5,000,000 in value of shares of common stock, or
125,000,000 shares (estimated using the last reported sale price of our common
stock on the OTC Bulletin Board on May 4, 2010 of $0.04 per
share).
9
Your
investment in our common stock involves a high degree of risk. You should
consider the risks described below and the other information contained in this
prospectus carefully before deciding to invest in our common stock. If any of
the following risks actually occur, our business, financial condition and
operating results could be harmed. As a result, the trading price of our common
stock could decline, and you could lose a part or all of your
investment.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
Failure to raise additional
capital could seriously reduce our ability to compete or harm our ability to
continue operations.
From time to time we have experienced and continue to experience working capital shortfalls that slowed the development of our research on the MIT technology. We will be required to raise substantial amounts of new financing, through equity investments, loans or strategic alliances, to carry out our business objectives. There can be no assurance that we will be able to obtain such additional financing on terms that are acceptable to us and at the time we require, or at all. Further, any such financing may cause substantial dilution of the interests of current shareholders. If we are unable to obtain such additional financing, the financial condition and results of operations of the Company will be materially adversely affected. Moreover, our estimates of cash requirements to carry out our current business objectives are based upon certain assumptions, including assumptions as to revenues, net income or loss and other factors, and there can be no assurance that such assumptions will prove to be accurate or that unforeseen costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on us and our plans. If we are not successful in obtaining loans or equity financing, it is unlikely that we will have sufficient cash to continue to conduct operations. We believe that to raise needed capital, we may be required to issue debt or equity securities that are significantly lower than the current market price of our common stock. However, no assurances can be given that we can obtain additional working capital through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing shareholders or will be on terms satisfactory to us.
We have a history of losses
which are likely to continue.
From our
inception in 1979 through October 31, 2009, we have accumulated a loss of
$39,585,919 and a net stockholders’ deficit of $839,130. The
accumulated loss is principally due to expenses incurred in the development of
the now disposed of EDI product, initial manufacturing start-up costs, initial
marketing efforts, administrative expenses and interest, as well as the expenses
associated with the research and development of MIT laser-based monitoring
technology acquired in 1997. The report of our independent registered public
accounting firm for the fiscal year ended October 31, 2009 contains an
explanatory paragraph as to our ability to continue as a going concern. Our
financial statements have been prepared assuming that we will continue as a
going concern. As discussed in the notes to the financial statements, our
negative cash flows from operations raise substantial doubt about our ability to
continue as a going concern.
Although
we sold our first two MIT Systems during 2007 and a single additional System in
October 2009, MIT is considered to be a development stage company. As such, it
has no significant or recurring operating income and its prospects must be
considered speculative considering the risks, expenses and difficulties
frequently encountered in the development of a new technology. While
laboratory results and other tests have been encouraging, substantial additional
development efforts will be required. The development of the MIT System involves
significant risks, which a combination of experience, knowledge and careful
evaluation may not be able to overcome. There can be no assurance that
unanticipated problems will not occur which would result in material delays in
our product development, or that our efforts will result in successful product
commercialization on a sustainable level. There can be no assurance that we will
be able to achieve profitable operations.
10
We have limited patent
protection.
We own
two U.S. patents on our MIT technology and one foreign patent for this
technology. We may not be able to afford the expenses required to enforce any
patent we may now or in the future own and no assurances can be given that any
patents would be upheld if challenged, or if upheld, would provide us with
meaningful protection. We also rely on trade secrets and know-how as regards the
MIT technology that is not patentable. Although we have taken steps to protect
our unpatented trade secrets and know-how, in part through the use of
confidentiality agreements with our employees, consultants and certain of our
contractors, there can be no assurance that:
•
|
these agreements will not be
breached,
|
•
|
we would have adequate remedies
for any breach, or
|
•
|
our proprietary trade secrets and
know-how will not otherwise become known or be independently developed or
discovered by
competitors.
|
Our competitors are larger
and better financed
The microbe identification industry continues to undergo rapid change with intense competition that is expected to increase. There can be no assurance that our competitors have not or will not succeed in developing technologies and products that are more accurate than the MIT System microbe identification and monitoring method and would, accordingly, render the MIT System obsolete and noncompetitive. Many of our competitors have substantially greater experience, financial and technical resources and production, marketing and development capabilities. Accordingly, certain of those competitors may succeed in obtaining regulatory approval for products more rapidly or effectively than us. We will also be competing with respect to sales and marketing capabilities, areas in which we currently have little experience.
Continued technological
changes and government regulations could adversely affect our
sales
The
technology upon which the MIT System relies may undergo rapid development and
change. There can be no assurance that the technology utilized by us will be
competitive in light of possible future technological developments. Further, we
cannot assure that our technology will not become obsolete or that we will have
adequate funds to meet technological changes.
There can
be no assurance that we will be successful in developing the MIT System to
respond to technological changes or evolving industry standards, that we will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of the MIT System, or that any new
products will adequately satisfy the requirements of prospective customers and
achieve market acceptance. If we are unable to develop and introduce new or
improved products in a timely manner in response to changing market conditions
or customer requirements, our business, operating results and financial
condition will be materially adversely affected.
Dependent
upon the field of application, the MIT System, when commercialized, may be
subject to extensive regulation by numerous governmental authorities and
regulatory agencies worldwide prior to introduction of the product. The process
of obtaining required regulatory approvals may be lengthy and expensive
depending on the jurisdiction. There can be no assurance that we will be able to
obtain the necessary approvals to conduct clinical trials for the manufacturing
and marketing of products, that all necessary clearances will be granted to us
for future products on a timely basis, or at all, or that review or other
actions by the regulatory agencies will not involve delays adversely affecting
the marketing and sale of our products. In addition, the testing and approval
process with respect to certain products which we may develop or seek to
introduce may take a substantial number of years and involve the expenditure of
substantial resources. There can be no assurance that the MIT System will be
cleared for marketing by the regulatory agencies of the countries in which we
seek to market the MIT System. Failure to obtain any necessary approvals or
failure to comply with applicable regulatory requirements could have a material
adverse effect on our business, financial condition or results of operations.
Further, future government regulation could prevent or delay regulatory approval
of our products.
11
If we fail to attract and
retain key personnel, our ability to compete will be harmed
Our
future success is highly dependent on our ability to attract, retain and
motivate qualified personnel, including technical personnel, executive officers
and other key management. The loss or unavailability of services of one or more
of our key employees, including Michael Brennan, our chief executive officer, or
our inability to attract and retain qualified personnel, could have a material
adverse effect on our ability to operate effectively.
RISKS
RELATING TO OUR COMMON STOCK
Because there is a limited
market in our common stock, stockholders may have difficult in selling our
common stock and our common stock may be subject to significant price
swings.
There can
be no assurance that an active market for our Common Stock will develop. If an
active public market for our Common Stock does not develop, shareholders may not
be able to re-sell the shares of our Common Stock that they own and affect the
value of the Shares.
If we fail to remain current
on our reporting requirements, we could be removed from the OTC Bulletin Board
which would limit the ability of broker-dealers to sell our securities and the
ability of stockholders to sell their securities in the secondary
market.
Companies
trading on the Over-The-Counter Bulletin Board, such as we, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market. In
addition, we may be unable to get re-listed on the OTC Bulletin Board, which may
have an adverse material effect on our Company.
Our common stock is subject
to the “penny stock” rules of the SEC and the trading market in our securities
is limited, which makes transactions in our stock cumbersome and may reduce the
value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and
|
·
|
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
·
|
obtain
financial information and investment experience objectives of the person;
and
|
·
|
make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
|
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
12
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The exercise of outstanding options and warrants may have a dilutive effect on the price of our common stock.
To the extent that outstanding stock options and warrants are exercised, dilution to our stockholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of the outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by the outstanding options and warrants.
We do not expect to pay
dividends in the future. Any return on investment may be limited to
the value of our common stock.
We do not
currently anticipate paying cash dividends in the foreseeable future. The
payment of dividends on our Common Stock will depend on earnings, financial
condition and other business and economic factors affecting it at such time as
the board of directors may consider relevant. Our current intention is to apply
net earnings, if any, in the foreseeable future to increasing our capital base
and development and marketing efforts. There can be no assurance that the
Company will ever have sufficient earnings to declare and pay dividends to the
holders of our Common Stock, and in any event, a decision to declare and pay
dividends is at the sole discretion of the our Board of Directors. If we do not
pay dividends, our Common Stock may be less valuable because a return on your
investment will only occur if its stock price appreciates.
RISKS RELATED TO THIS
OFFERING
WE ARE REGISTERING THE
RESALE OF A MAXIMUM OF 11,000,000 SHARES OF COMMON STOCK, ALL OF WHICH MAY BE
ISSUED TO DUTCHESS UNDER THE EQUITY LINE.THE RESALE OF SUCH SHARES BY DUTCHESS
COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK.
We are
registering the resale of a maximum of 11,000,000 shares of common stock under
the registration statement of which this prospectus forms a part. The sale of
these shares into the public market by Dutchess could depress the market price
of our common stock. As of May 21, 2010, there were 141,519,187 shares of our
common stock issued and outstanding. In total, we may issue up to 125,000,000
shares (estimated using last reported sale price of our common stock on the OTC
Bulletin Board on May 4, 2010 of $0.04 per share) to Dutchess pursuant to the
Equity Line, meaning that we are obligated to file one or more registration
statements covering the 114,000,000 shares not covered by the registration
statement of which this prospectus forms a part. The sale of those additional
shares into the public market by Dutchess could further depress the market price
of our common stock.
EXISTING STOCKHOLDERS COULD
EXPERIENCE SUBSTANTIAL DILUTION UPON THE ISSUANCE OF COMMON STOCK PURSUANT TO
THE EQUITY LINE.
Our
Equity Line with Dutchess contemplates our issuance of up to 125,000,000 shares
(estimated using last reported sale price of our common stock on the OTC
Bulletin Board on May 22, 2010 of $0.04 per share) of our common stock to
Dutchess, subject to certain restrictions and obligations. If the terms and
conditions of the Equity Line are satisfied, and we choose to exercise our put
rights to the fullest extent permitted and sell 125,000,000 shares of our common
stock to Dutchess, our existing stockholders' ownership will be diluted by such
sales.
13
DUTCHESS WILL PAY LESS THAN
THE THEN-PREVAILING MARKET PRICE FOR OUR COMMON STOCK UNDER THE EQUITY
LINE.
The
common stock to be issued to Dutchess pursuant to the Investment Agreement will
be purchased at a 5% discount to the volume weighted average price of our common
stock during the five consecutive trading day period beginning on the trading
day immediately following the date of delivery of a put notice by us to
Dutchess, subject to certain exceptions. Therefore, Dutchess has a financial
incentive to sell our common stock upon receiving the shares to realize the
profit equal to the difference between the discounted price and the market
price. If Dutchess sells the shares, the price of our common stock could
decrease.
WE MAY NOT BE ABLE TO ACCESS
SUFFICIENT FUNDS UNDER THE EQUITY LINE WHEN NEEDED.
Our
ability to put shares to Dutchess and obtain funds under the Equity Line is
limited by the terms and conditions in the Investment Agreement, including
restrictions on when we may exercise our put rights, restrictions on the amount
we may put to Dutchess at any one time, which is determined in part by the
trading volume of our common stock, and a limitation on our ability to put
shares to Dutchess to the extent that it would cause Dutchess to beneficial own
more than 4.99% of our outstanding shares. In addition, we do not expect the
Equity Line to satisfy all of our funding needs, even if we are able and choose
to take full advantage of the Equity Line.
We will
not receive any proceeds from the resale of our common stock offered by
Dutchess. However, we will receive proceeds from the sale of our common stock to
Dutchess pursuant to the Investment Agreement. The proceeds from our exercise of
the put option pursuant to the Investment Agreement will be used to support the
commercialization of our current and future product candidates, for general
working capital needs, for the reduction of indebtedness and for other purposes
that our board of directors, in its good faith, deems to be in our best
interest.
All net
proceeds from the sale of the common stock covered by this prospectus will go to
the selling stockholder. See "Selling Stockholder" and "Plan of Distribution"
described below.
14
The
information provided in the table and discussions below has been obtained from
the selling stockholder. The table below identifies the selling stockholder and
shows the number of shares of common stock beneficially owned by it before and
after this offering, and the numbers of shares offered for resale by the selling
stockholder. Our registration of these shares does not necessarily mean that the
selling stockholder will sell all or any of their shares of common stock.
However, the "Shares Beneficially Owned After Offering" columns in the table
assume that all shares covered by this prospectus will be sold by the selling
stockholder and that no additional shares of common stock will be bought or sold
by the selling stockholder. No estimate can be given as to the number of shares
that will be held by the selling stockholder after completion of this offering
because the selling stockholder may offer some or all of the shares and, to our
knowledge, there are currently no agreements, arrangements or understanding with
respect to the sale of any of the shares. In addition, the selling stockholder
may have sold, transferred or otherwise disposed of, or may sell, transfer or
otherwise dispose of, at any time or from time to time since the date on which
it provided the information regarding the shares, all or a portion of the shares
of common stock beneficially owned in transactions exempt from the registration
requirements of the Securities Act.
The
following table sets forth the name of the selling stockholder, an if
applicable, the nature of any position, office, or other material relationship
which the selling stockholder has had, within the past three years, with us or
with any of our predecessors or affiliates, the amount of shares of our common
stock beneficially owned by the stockholder prior to the offering, the amount
being offered for the stockholder's account, the amount being offered for the
stockholder's account and the amount to be owned by such stockholder after
completion of the offering.
Shares
Beneficially Owned
Prior
to Offering (1)
|
Shares
Being
Offered
Under
this
|
Shares
Beneficially
Owned
After Offering (1)
|
||||||||||||||||
Beneficial
Owner
|
Shares
|
%
|
Prospectus(3)
|
Shares
|
%
|
|||||||||||||
Dutchess
Opportunity Fund II, LP(2)
|
0 | 0 | % | 11,000,000 |
None
|
None
|
(1)
Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated
by the Securities and Exchange Commission under the Exchange Act, and generally
includes voting or investment power with respect to securities. The number and
percentage of shares beneficially owned is determined in accordance with Rule
13d-3 of the Exchange Act and is not necessarily indicative of beneficial
ownership for any other purpose. Applicable percentage ownership is based on
141,519,187 shares of common stock outstanding as of May 21, 2010. Except as
otherwise noted, we believe that the stockholder named in the table has sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by it, subject to applicable community property
laws.
(2)
Dutchess is a Delaware limited partnership. Michael Novielli and
Douglas H. Leighton are managing members of Dutchess Capital Management, II,
LLC, which is the General Partner of Dutchess Opportunity Fund II, with voting
and investment power over the shares.
(3)
Represents 11,000,000 of the 125,000,000 shares (estimated using last reported
sale price of our common stock on the OTC Bulletin Board on May 22, 2010 of
$0.04 per share) of common stock issuable by us and purchaseable by Dutchess
under the Investment Agreement equal to a maximum of one-third (1/3) of our
public float as of May 21, 2010. As of that date, our public float was equal to
57,338,637 shares (where "public float" was derived by subtracting the number of
shares of common stock held by our officers, directors and "affiliates" (as such
term is defined in Rule 144(a)(1) of the 1933 Act) from the total number of
shares of our common stock outstanding as of May 21, 2010).
15
Market
Information
Our
common stock traded on the Over-the-Counter Bulletin Board under the symbol
"MMTC" from our initial public offering.
Holders
As of
October 31, 2009, there were approximately 400 holders of record of our common
stock.
Price
Range
For the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Common
Stock
Bid
Prices
|
|||||||||
High
($)
|
Low
($)
|
||||||||
Fiscal
2008
|
First
Quarter
|
0.35 | 0.11 | ||||||
Second
Quarter
|
0.33 | 0.15 | |||||||
Third
Quarter
|
0.20 | 0.15 | |||||||
Fourth
Quarter
|
0.25 | 0.05 | |||||||
Fiscal
2009
|
First
Quarter
|
0.07 | 0.01 | ||||||
Second
Quarter
|
0.13 | 0.01 | |||||||
Third
Quarter
|
0.17 | 0.05 | |||||||
Fourth
Quarter
|
0.16 | 0.04 | |||||||
Fiscal
2010
|
First
Quarter (through January 31, 2010)
|
0.10 | 0.012 | ||||||
Second
Quarter
|
0.06 | 0.02 | |||||||
Third
Quarter (through July 27, 2010)
|
0.06 | 0.02 |
As of
October 31, 2009, our shares of common stock were held by approximately 400
stockholders of record. The number of record holders was determined from the
records of our transfer agent and does not include beneficial owner’s common
stock whose shares are held in the names of various securities brokers, dealers
and registered clearing agencies.
The
transfer agent of our common stock is American Stock Transfer & Trust
Company, LLC, whose address is 59 Maiden Lane, Plaza Level, New York, NY
10038. The phone number of the transfer agent is (800)
937-5449.
Dividends
We have
not declared any dividends to date. We have no present intention of paying any
cash dividends on our common stock in the foreseeable future, as we intend to
use earnings, if any, to generate growth. The payment by us of dividends, if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends.
On
December 1, 2008, Michael Brennan converted a total of $128,996 in accrued
loans, interest, fees and expenses into 1,250,000 shares of common
stock.
16
Mr.
Anthony M. Frank converted $400,000 in principal loans into 8,783,416 shares of
common stock on December 15, 2008.
On
February 5, 2009, the Company’s Board of Directors authorized the issuance of 12
million shares of common stock and options to purchase 2 million shares of
common stock to various officers, directors, employees and consultants to the
Company for services rendered. The fair market value of the shares
and options was determined to be $210,458 and was expensed as of the grant
date.
On
February 5, 2009, Board member and Chief Financial Officer, Victor A. Hollander,
converted a total of $19,329 in fees and expenses into 1,257,189 shares of
common stock at the rate of $0.015375 per share.
Also on
February 5, 2009, a consultant to the Company converted $6,319 in accrued fees
and expenses into 420,962 shares of common stock at a fair market value of
$0.0154 per share.
On
February 17, 2009, we received the third installment of $100,000 from the
Company’s majority shareholder on the purchase of convertible debentures
commenced in December 2008. On February 27, 2009, our majority
shareholder converted $300,000 in convertible debentures purchased between
December 18, 2008 and February 17, 2009 into 31,592,467 shares of common
stock. The conversion price was $0.0096 per share and included $3,370
in interest accrued on the debentures.
On May 1,
2009, the Company issued 175,000 shares of common stock in payment for services
rendered by a financial consulting firm in 2008. The fair market
value of the shares was determined to be $9,262, or $0.05 per
share.
On May 1,
2009, the Company issued 500,000 shares of common stock to Chief Executive
Officer, Michael Brennan, for additional services rendered in efforts to secure
financing on behalf of the Company. The shares were issued under the
Company’s 2009 Employee Benefit Plan. The fair market value was
determined to be $0.056 per share, or an aggregate of $28,088 on the
issuance.
On May 1,
2009, for consulting services rendered, the Company granted a non-affiliated
consultant a three-year warrant to purchase 500,000 shares of common stock at
$0.03 per share and recorded a consulting expense of $44,920.
The
Company issued 2 million shares of common stock on June 12, 2009 to a consultant
for services rendered. The value of the shares, $233,000, was
recorded as a consulting expense.
On July
16, 2009, the Company’s Board of Directors authorized the issuance of
6,100,000shares of common stock to various officers, directors, employees and
consultants to the Company for services rendered. The fair market
value of the shares was determined to be $942,450 and was expensed as of the
grant date.
Between
December 15, 2008 and February 18, 2009, the Company issued a total of 5,058,474
shares of common stock upon the conversion of $50,000 in principal debentures
sold through Divine Capital Markets during fiscal 2008. The prices on
the three conversion transactions ranged from $0.009 to $0.0128 per
share.
On
September 8, 2009, the Board of Directors approved a September 3, 2009
settlement of a lawsuit brought against the Company in May 2009 by purchasers of
the Company’s convertible debentures sold by Divine Capital
Markets. The Company issue 5,889,997 shares of unrestricted common
stock, valued at approximately $0.0748 per share, to the debenture holders in
full satisfaction of all claims and in full payment of the $410,000 in principal
debentures and $33,745 in interest accrued on the debentures through the
September 3, 2009 settlement date. As part of the settlement, the
debenture holders waived $123,000 in penalties and $28,860.25 in interest which
the Company had recorded under the default terms of the
debentures. Consequently, the Company realized a gain of $151,860 on
the settlement.
On
October 2, 2009, the Company issued 1,071,429 shares of common stock to an
investment consulting firm in connection with an agreement to purchase up to $3
million of the Company shares. The fair market value of the shares on the
transaction date was $75,000, or $0.07 per share.
17
During
the twelve months ended October 31, 2009, pursuant to his compensation
arrangement, the Company issued 600,000 shares of common stock to Michael W.
Brennan, at prices ranging from $0.012 to $0.152 per share. The
aggregate fair market value of the shares was determined to be
$39,998. In August 2009, Mr. Brennan also received a two-year option
to purchase 100,000 shares of common stock at $0.30 per share as part of his
compensation arrangement, at an expense to the Company in the sum of
$14,772.
The
Company issued 300,000 shares of common stock to a consultant of the Company,
during the fiscal year ended October 31, 2009 in accordance with his
compensation arrangement. The shares were issued at prices ranging
from $0.012 to $0.152 per share, with an aggregate fair market value of
$19,999.
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of $29,018 in legal fees accrued between May and October 2009 in
regard to litigation conducted with Divine Capital Group.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of $20,000 in legal fees accrued between July 2007 and
October 2009.
On
January 7, 2010, the Board of Directors approved the establishment of
the Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. During the six months ended April 30, 2010, the
Board authorized the issuance under the Plan of 4 million shares to two
consultants for services and expensed $155,000 in consulting
fees.
On
March 17, 2010, the Company issued a total of 5,000,000 shares of common stock
to two consultants for investor relations services to be rendered over a
one-year term. The fair market value of the shares was determined to
be $200,000, or $0.04 per share, and will be amortized over one
year. The Company expensed $24,110 as consulting fees as of April 30,
2010 pursuant to the issuance of these shares and recorded the balance *of the
value, or $175,890, as prepaid expenses.
On
April 6, 2010, the Company issued 750,000 shares of common stock in conjunction
with an Investment Agreement which it entered into on May 4, 2010 with Dutchess
Opportunity Fund, II, LP (Dutchess). The fair market value of the
stock issued to Dutchess was determined to be $30,000.
On
April 9, 2010, the Company issued 6,100,000 shares of common stock on the
conversion of an aggregate of $305,000 in fees and expenses into convertible
term notes by the Company’s Chief Executive Officer, Chief Financial Officer and
a consultant to the Company. The Company expensed $305,000 as
the fair market value of the shares issued as additional
consideration.
During
the six months ended April 30, 2010, pursuant to his compensation arrangement,
the Company issued 300,000 shares of common stock to its Chief Executive
Officer, Michael W. Brennan, at prices ranging from $0.034 to $0.05 per
share. The aggregate fair market value of the shares was determined
to be $12,425.
The
Company issued 150,000 shares of common stock to a consultant of the Company,
during the six months ended April 30, 2010 in accordance with his compensation
arrangement. The shares were issued at prices ranging from $0.034 to
$0.05 per share, with an aggregate fair market value of $6,213.
Between
November 1, 2009 and April 30, 2010, the Company issued 5,000,000 shares of
common stock and warrants to purchase 500,000 shares of common stock as partial
consideration for $250,000 in convertible term loans received from various
lenders. Of such loans, $20,000 was received from our largest
stockholder and $25,000 was a loan made from our Chief Executive Officer,
Michael Brennan, if fiscal 2009 and transferred to an unaffiliated third party
in February 2010.
During
May and June 2010, the Company received an additional $155,000 in
loans from unaffiliated lenders. Similar to the convertible loans
discussed above, the Company issued a total of 3,100,000 shares of common stock
as consideration for these loans.
18
All of
these securities issuances were in private direct transactions, exempt under
Section 4(2) of the Securities Act of 1933 or Regulation D promulgated
thereunder.
OUR
BUSINESS
COMPANY
OVERVIEW
We were
incorporated in December 1979 in California under the name HOH Water
Technology Corporation and changed our name to Electropure, Inc. in 1996.
In November 2005, we again changed our name to Micro Imaging
Technology, Inc. as a condition of the sale of our EDI assets (see
discussion of Electropure EDI, Inc. below). Our address and telephone
number is: 970 Calle Amanecer, Suite F, San Clemente,
California 92673 – (949) 485-6000.
In
October 1997, we acquired an exclusive license to patent and intellectual
property rights involving laser light scattering techniques to be utilized in
the detection and monitoring of toxicants in drinking water. In
February 2000, we formed Micro Imaging Technology (MIT), a wholly-owned
Nevada subsidiary to conduct research and development based upon advancements we
developed and patented from the licensed technology.
In
October 2005, in order to generate working capital to support the research and
development efforts of our MIT subsidiary, we sold our 30,000 square foot
building and the assets of our Nevada subsidiary, Electropure EDI,
Inc. At that time, the Company changed its corporate identity to
Micro Imaging Technology,
Inc.
In
February 2010, the Company changed the Company’s business trading name to Micro
Identification Technologies, Inc, to better reflect the extensive capabilities
of its microbial identification technologies.
DEVELOPMENT
OF OUR BUSINESS
MICRO
IMAGING TECHNOLOGY
The
acquisition of the MIT patent and intellectual property rights in 1997 provides
the basis for our development of near “real-time” fluid monitoring systems for
water monitoring as well as food processing and clinical applications. The
technology transferred under the October 25,
1997 agreement with Wyatt Technology Corporation had, at inception, two main
areas for exploitation:
|
•
|
Detection and early warning of
dangerous particulate materials such as parasites and other organisms,
i.e., bacteria, spores, etc. If the initial efforts were successful,
future efforts were to be directed to include detection and early warning
of asbestos fibers and similar materials that pose a health hazard to the
consumer.
|
|
•
|
Detection and early warning of
dangerous soluble substances such as mutagens, carcinogens and metabolic
poisons.
|
The
feasibility of the technology had already been confirmed, although never
commercialized in this area of application, during a study by Wyatt for the U.
S. Army through a Small Business Innovative Research program conducted in the
1980’s. We believe that the technology for this application may well
represent a major opportunity on a worldwide basis for future growth of consumer
market products and the currently available instrumentation and methods being
developed by us appear to provide a more immediate path to developing the
technology for this concept.
Our
initial proof-of-principal testing in 1998 demonstrated the ability, in a
laboratory setting, to detect and monitor parasites, primarily Cryptosporidium
and Giardia1 in
drinking water sources and the pathogenic microbes E. coli, Listeria and
Salmonella.
Potential
customers for a water monitoring system would include local water utilities,
both private and municipal; state water utilities and water quality and health
agencies; federal government agencies such as EPA, DoD, DoE, CDC; wastewater
treatment plants; ground water and well users; and potentially, as the cost of
the sensors and system decreases, homeowners.
19
However,
we believe development of an MIT System for clinical laboratory and food
processing applications will be achieved more rapidly because it will not
require the specialized instrumentation necessary for water monitoring.
Consequently, we have focused our research efforts to address these areas, each
of which we believe may achieve cost and efficiency benefits similar to the
proposed water monitoring device. In addition to Cryptosporidium and Giardia
protozoas, this technology has already demonstrated identification of the
bacteria E.coli, Listeria monocytogenes, Salmonella
typhi, Pseudomonas
aeruginosa, Staphylococcus aureus and Streptococcus pneumoniae.
Additionally, the Company is in the process of adding to the System the ability
to identify the following pathogens: Klebsiella, Proteus, Shigella and
subspecies of each.
In
February 2006, the Company contracted with North American Science Associates,
Inc. (“NAMSA”), a highly regarded international testing and verification
laboratory, to design and perform a verification test that compares the speed,
accuracy and efficiency of MIT’s rapid microbe identification system with
conventional processes. The comparative tests were a double blind experiment,
meaning that the independent NAMSA laboratory technicians, using the MIT System
and a well recognized alternative, were not aware of the tested microbes’
identification. NAMSA chose the industry standard Sherlock Microbial Gas
Chromatographic Identification System (“MIDI”) as the initial process to verify
the accuracy of MIT’s diagnostic capabilities.
The MIT
system scored 98 percent correct identifications in fifty tests, with each test
consuming only several minutes for sample preparation and an average three
minutes for testing. The MIDI system was correct 80 percent and failed to
identify, with several attempts, one very common and dangerous bacterium, E. coli 0157:H7. NAMSA then
employed a conventional biological testing method which finally matched the
unidentified bacterium with MIT’s identification. The MIDI system took hours per
test and the biological testing method required days. We believe that
the NAMSA tests verified the accuracy, speed and efficiency of the MIT System
over conventionally accepted processes.
In June
2009, the Company received AOAC Research Institute (AOAC RI) Performance Test Methodtm (PTM) certification for
the MIT 1000 System’s identification of Listeria species (PTM
Certificate Number 060901). Listeria are known to be the
bacteria responsible for listeriosis, a rare but lethal food-borne infection
that has a devastating case fatality rate of 25% (Salmonella, in comparison,
has a less than 1% mortality rate). They are incredibly hardy and able to grow
in temperatures ranging from 4°C (39°F), the temperature of a refrigerator, to
37°C (99°F), the body's internal temperature. Furthermore, listeriosis'
deadliness can be partially attributed to the infection's ability to spread to
the nervous system and cause meningitis. This Certification enables
the Company to aggressively begin marketing its System into the targeted food
safety markets. Following Listeria certification, the
Company’s next goal is to achieve PTM certifications for the ID of E.coli and Salmonella as these three
bacteria are responsible for most of the food bacterial contamination events
worldwide. Additional microbes will be certified as required by the
market.
The
clinical and food processing applications for our MIT System for rapid
identification of microbes will in some cases undergo stringent and lengthy
regulatory approval processes in the United States, including clinical trials.
To gain beta-site testing data, in June 2007 we sold and installed two MIT
systems in an instrumentation distribution company and a food research
laboratory in Japan through Yotsubishi Corporation, a subsidiary of Sibata
Scientific Technology. We believe that the operating results from
these installations has aided in further commercializing the MIT System for
clinical and food processing applications. In October 2009, we sold
an MIT system to a newly appointed Malaysian distributor which sells, markets
and distributes research and scientific products for the countries in the
Association of Southeast Asian Nations (ASEAN). No assurances can be
given, however, as to when or if additional Systems may be sold through this or
any other distributor.
1
Cryptosporidium
(Cryptosporidium parvum) and Giardia (Giardia lamblia) are waterborne
protozoan parasites which contaminate water sources such as wells, rivers,
streams, and lakes, generally through animal and fowl fecal
deposits.
20
Although
the water monitoring application for the MIT System will not require regulatory
review and approval, this application will require more extensive development
efforts because of the vast array of contaminants commonly found in water and
the need to configure a unique method and apparatus for isolating the water
being tested. For these reasons, we expect that a practical device for the water
monitoring application of our technology will not be commercialized until we
have successfully introduced and gained acceptance of an MIT System in the
clinical and food processing market segments.
Based on
a very preliminary evaluation of market needs and the size and number of
possible customers, we estimate that the market potential for the MIT System in
all of the above domestic market areas could exceed $3 billion annually. More
detailed market validation will be conducted as our development program
continues.
With
regard to the MIT System, there are established methods of testing currently
employed by both public and private agencies. However, these methods are labor
intensive, expensive and time consuming, and do not provide the near “real time”
monitoring capabilities which our product offers. We believe that the MIT System
is the only microbe identification system that is not biologically based – that
is, does not rely on biological agents or reagents.
The
Markets for Microbe Identification
The
number of applications for our laser-based rapid microbe detection system is
large, including food inspection, clinical applications and water testing.
However, we have elected in the near term to focus on food
inspection:
The Food
and Drug Administration currently requires elaborate laboratory procedures
taking up to 64 hours to identify E. coli, Salmonella or Listeria. According to
industry analysts at Strategic Consultants, Inc (Scarborough, ME.) there were
over 144 million microbiology tests performed in almost 6,000 plants. The
analysts further report that food manufacturers and processors anticipate a
continued increase in testing as regulatory agencies require more surveillance
and monitoring programs. The MIT system identifies bacteria in less than 15
minutes, thus minimizing the testing and reporting time which minimizes health
risks, product recall dangers and expenses to the producer.
On
January 9, 2007, the Company entered into a non-exclusive agreement to supply
MIT products to JMAR Technologies as a tandem product to its real-time water
monitoring system or as a stand-alone instrument for laboratory
use. JMAR is a San Diego, California based company that has a direct
sales and support organization and manufactures laser-based products for
multiple markets, including homeland security, the cruise ship and beverage
industries, pharmaceutical companies, and municipal water
utilities. To date, no sales of the MIT System have occurred under
the agreement with JMAR and, although no assurances can be given that the
arrangement will result in future products sales, we continue to consider the
possibility of future business as promising.
In August
2007, we engaged the services of John Ricardi, JMAR’s former Vice President for
Sales and Marketing. Mr. Ricardi provides sales, marketing and
business development services to the Company and through his efforts thus far,
the Company has appointed seven (7) exclusive distributors for MIT products in
various territories, including, Taiwan and China, Puerto Rico and the Caribbean,
Bulgaria, the United Kingdom and Ireland, Vietnam, Laos and Cambodia, South
Korea, Turkey, Malaysia and a number of ASEAN countries (including Singapore,
Thailand, Brunei, Indonesia, Philippines, and Myanmar).
Patents
In
July 2002, we were granted U.S. Patent No. 6,639,672 on our MIT rapid
microbe detection technology. We also received a U.S.
Continuation-in-part patent on this technology on October 28, 2003 and
a corresponding patent in Mexico on April 4, 2006.
Because
the review and approval process associated with filing for patent protection on
new products can be lengthy, we cannot be certain when, or if, foreign patents
will be issued for any of our pending applications. The existence of a patent
may not provide us any meaningful protection because of technological
changes, the decision of courts not to uphold all or part of a patent, or
because of the limited financial resources that may be available to enforce
patent rights. We do not believe that any of our individual patents is of
sufficient importance that its termination or expiration would have a material
adverse effect on the Company. Conversely, we believe that our technical
know-how and trade secrets may be more significant to our business than
trademark or patent protection although we will continue to apply for patents on
any inventions or improvements made in the normal course of our business.
21
“Micro
Imaging Technology” is a registered trademark of the Company.
Research
and Development
During
fiscal 2009, we expended $973,344 primarily on our MIT System research program
to develop a microbiological detection and monitoring system derived from the
technology acquired from Wyatt in October 1997. We concluded
Phase 1 research on the Micro Imaging System in 1998 with a laboratory system
that was used to prove the scientific principal and initiated phase two of our
research program which resulted in the development of a more advanced system and
the culmination of the library for the identification for various
pathogens. We expect to continue to incur and accelerate additional
research and development costs on this MIT System project through continued
product development and library expansion efforts.
During
fiscal 2008, we spent $1,114,059 on similar research and development
activities.
Compliance
with Environmental Laws
We do not
produce hazardous waste as a result of our research activities. Consequently,
our costs for compliance with federal, state and local environmental laws are
negligible.
Employees
As of
October 31, 2009, we employed 6 full-time employees, of whom four were engaged
in administrative, marketing, accounting and clerical functions and two were
engaged in research and development of the Company’s proposed MIT System. To
implement our MIT business strategies, we anticipate that we will hire
additional employees in fiscal 2010. However, we cannot predict with any
certainty when we will hire any additional personnel. We believe that our
relationship with our employees is good and we are not a party to any collective
bargaining agreement. Our future success will be dependent upon our ability to
attract and retain qualified personnel.
Properties
In
January 2006, we executed a one-year lease, with an option to renew for up to
five one-year terms, on a 4,100 sq. ft. facility in San Clemente, California
commencing on April 1, 2006 at the rate of $3,650 per month. On
April 1, 2008, our lease payment increased to and remains at $3,895.00 per month
through our lease extension date of March 31, 2011.
Management
believes that our present facilities in San Clemente, California will be
adequate for all of our current operations, and those contemplated for the
foreseeable future. We also believe that our property is adequately covered by
insurance.
Legal
Proceedings
On May
11, 2009, Divine Capital Markets, LLC and a group of investors (collectively,
“Plaintiffs”) filed a civil action against the Company and several of its
officers and directors (collectively, the “Company”) in the New York Supreme
Court, New York County. Plaintiffs alleged breach of contract and
unjust enrichment by the Company, as well as fraud, tortious interference with a
contractual relationship and breach of fiduciary duty by the Company’s officers
and directors. The lawsuit alleges that the Company breached certain
conversion provisions of secured convertible debentures purchased by the
Plaintiffs.
22
On May
12, 2009, before the Company had been able to retain New York counsel,
Plaintiffs appeared in court and obtained a temporary restraining order, which
barred the Company from using or assigning any of its patents pending a hearing
scheduled for May 19. Divine also filed a motion for preliminary
injunctive relief seeking an order: (i) compelling the Company to cease and
desist any and all use of several patents; (ii) permitting plaintiffs to sell or
otherwise dispose of the patents; (iii) compelling the Company to immediately
issue the 2,424,240 shares to several investors; and (iv) compelling the Company
to issue all shares covered by the convertible debenture agreement.
The
Company opposed Divine's motion. On May 19, at the conclusion of oral
argument on Plaintiffs’ motion, Justice Richard B. Lowe, III ruled in the
Company’s favor. Justice Lowe vacated the temporary restraining order
and denied plaintiffs’ motion for a preliminary injunction in full.
On
September 3, 2009, the parties reached an agreement to settle all claims and
counterclaims asserted in the lawsuit. With respect to the agreement,
neither side admitted any liability in connection with the
settlement. As part of the agreement, the debenture holders agreed to
extinguish their existing rights under their debentures in exchange for the
immediate issuance of 5,899,997 unrestricted common shares of Micro Imaging
Technology stock. The settlement also provided for the release of any
legal claim or interest by the debenture holders with respect to patents and
patent rights which have been held by Micro Imaging Technology.
Reports
We make
available free of charge through our website, www.micro-imaging.com, our annual
report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to those reports filed or to be furnished pursuant to Section
13(a) of the Securities Exchange Act of 1934 as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the SEC. Any
information that is included on or linked to our Internet site is not a part of
this report or any registration statement that incorporates this report by
reference.
You may
also read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 100 F Street, NE, Washington, DC 20549, on official business
days during the hours of 10:00 am to 3:00 pm. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
You
should read the following discussion of our financial condition and results of
operations together with our financial statements and related notes included
elsewhere in this prospectus. This discussion may contain forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements due to
known and unknown risks, uncertainties and other factors, including those risks
discussed under "Risk Factors" and elsewhere in this prospectus.
Fiscal
Years Ended October 31, 2009 and 2008
We posted
our first sale since fiscal 2007 of an MIT system in October 2009, for gross
proceeds of $18,000. No product sales occurred during fiscal
2008. Our limited working capital has not yet allowed us to spend any
significant resources on advertising and marketing efforts.
Research
and development expenses for the fiscal year ended October 31, 2009 decreased by
$140,715 compared to the prior year. These expenses arise from the program which
we initiated in December 1997 to develop the micro imaging technology for
detecting and identifying contaminants in fluids. The decrease was primarily due
to a reduction in staff during fiscal 2008 resulting in reduced salaries and
employee-related expenses. Consulting expenses during fiscal 2009
were also lower mainly due to a reduction in the fair market value of the
Company’s stock issued as non-cash compensation.
Sales,
general and administrative expenses increased by $724,708 for the fiscal year
ended October 31, 2009 compared to the prior year period. The
increase primarily reflects a $681,000 increase in consulting expenses, a
significant portion of which reflects the value of options and common stock
issued as compensation during fiscal 2009. The increase also relates
to $64,000 in expenses incurred for litigation costs.
23
Interest
income is generated from short-term investments and decreased by $169 in fiscal
2009 as investment capital was utilized to sustain operations.
Interest
expense for the twelve months ended October 31, 2009 increased by $630,988
compared to the prior fiscal year. The increase reflects the costs
associated with the issuance of convertible debentures during fiscal 2008 and
the first three months of fiscal 2009, the majority of which was expensed in the
second quarter of fiscal 2009 as some of the debt was converted into common
stock and as fees and expenses associated with the debentures were fully
amortized.
Components
of other income, other than interest, increased by $194,203 for the fiscal year
ended October 31, 2009 compared to the prior year. The increase
mainly reflects a gain on interest waived of $151,860 on settlement of the
Divine Capital lawsuit and $39,746 on conversion of loans from our majority
shareholder.
We
recorded the minimum state income tax provision in fiscal 2009 and 2008 as we
had cumulative net operating losses in all tax jurisdictions.
Liquidity
and Capital Resources
At
October 31, 2009, we had working capital deficit of $803,473. This represents a
working capital decrease of $182,907 compared to that reported at
October 31, 2008. The decrease primarily reflects an increase in current
liabilities due to lack of working capital to service the debt.
We sold
one MIT 1000 system in October 2009 for gross proceeds of
$18,000. Our primary source of cash during the fiscal year ended
October 31, 2009 has been from the sale of equity and convertible debentures and
loans by our Chief Executive Officer, Michael W. Brennan, an unaffiliated
shareholder and our majority shareholder, Anthony M.
Frank. Between May 8 and June 10, 2009, we borrowed $95,000
from Mr. Brennan. We also borrowed $60,000 from an unaffiliated
shareholder and on June 25, 2009 we sold 2,000,000 shares of common stock in a
private placement transaction for net proceeds of $100,000 from a
non-affiliate. We also borrowed $150,000 in November 2008 and $64,000
in September 2009 from our majority shareholder. In addition, we sold
a total of $375,000 in convertible debentures between December 2008 and March
2009 to our majority shareholder.
Of the
cash received during fiscal 2008, nearly $13,000 was utilized to repay loans and
purchase inventories and capital equipment. Management estimates that
it required working capital approximating $86,000 per month to maintain
operations during fiscal 2009, compared to the approximate $60,400 per month
expended during fiscal 2008.
Plan
of Operation
Our
independent registered public accounting firm has included an explanatory
paragraph in its report on the financial statements for the year ended October
31, 2009 which raises substantial doubt about our ability to continue as a going
concern.
We are in
the process of identifying commercial, technical and scientific partners that
can aid in advancing the MIT expertise, provide external endorsements of the
technology and accelerate introduction to the market. This strategy is dependent
upon our ability to identify and attract the right customers and partners over
the next six month period and to secure sufficient additional working capital in
a timely manner. There can be no assurances that our efforts will be
successful or that we will be able to raise sufficient capital to implement our
plans or to continue operations.
On
October 2, 2009, Micro Imaging Technology, Inc. entered into a Securities
Purchase Agreement with Ascendiant Capital Group, LLC to establish a possible
source of funding through an equity drawdown facility. Under the
Agreement, Ascendiant has agreed to purchase up to $3,000,000 of the Company’s
common stock during a 36-month period which will commence once the Company has
filed the required Registration Statement and it has been declared effective by
the Securities and Exchange Commission. At that time, the Company may
request up to a $100,000 maximum drawdown under the Agreement every twelve (12)
trading days based on the formula indicated below. There is no
minimum amount required for a drawdown and while the Company is under no
obligation to request any drawdowns, Ascendiant is obligated to purchase the
shares if the Company does make a request. The Securities Purchase Agreement
with Ascendiant Capital Group, LLC was terminated by the Company on
May 6, 2010.
24
Between
November 2009 and January 28, 2010, we received $150,000 in short term loans
which are convertible into common shares at any time prior to their one-year
maturity date. The loans bear interest at 6% per annum and as
additional consideration for the loan, the lender receives a number of
restricted common shares which is determined by the amount of the
loan.
During
the latter part of 2008, we appointed an exclusive distributor to sell our MIT
products in Taiwan and China. We have entered into similar
arrangements with five other companies granting distribution rights in Turkey,
Bulgaria, the United Kingdom, Ireland, Puerto Rico and the
Caribbean. In October 2009, we entered into a distribution agreement
with a Biotek Sdn Bhd, a Malaysian distributor of research and scientific
products for the Association of Southeast Asian Nations (ASEAN) (namely
Malaysia, Singapore, Thailand, Brunei, Indonesia, Philippines, Vietnam,
Cambodia, Laos and Myanmar). This distributor purchased its first MIT
System and is making preparations to conduct several workshops and product
demonstrations for key prospects in Asia over the next three
months. Biotek is also planning workshops and training classes
throughout ASEAN, including Indonesia, Singapore, The Philippines, Thailand,
Cambodia, Vietnam and others.
We are in
the process of developing promotional materials and marketing and sales
strategies with these and other future distributors which we believe will assist
in generating sales revenues in the near future.
In the
opinion of management, available funds and funds anticipated from forthcoming
equity sales are expected to satisfy our working capital requirements through
June 2010. However, no assurances can be given that we will secure
additional financing or revenues in a timely manner, if at all, or that such
funds would be sufficient to achieve our intended business
objectives.
We will
be required to raise substantial amounts of new financing in the form of
additional equity investments, loan financings, or from strategic partnerships,
to carry out our business objectives. There can be no assurance that we will be
able to obtain additional financing on terms that are acceptable to us and at
the time required by us, or at all. Further, any financing may cause
dilution of the interests of our current stockholders. If we are unable to
obtain additional equity or loan financing, our financial condition and results
of operations will be materially adversely affected. Moreover, estimates of our
cash requirements to carry out our current business objectives are based upon
various assumptions, including assumptions as to our revenues, net income or
loss and other factors, and there can be no assurance that these assumptions
will prove to be accurate or that unbudgeted costs will not be incurred. Future
events, including the problems, delays, expenses and difficulties frequently
encountered by similarly situated companies, as well as changes in economic,
regulatory or competitive conditions, may lead to cost increases that could
have a material adverse effect on us and our plans. If we are not successful in
obtaining financing for future developments, whether in the form of loans,
licenses or equity transactions, it is unlikely that we will have sufficient
cash to continue to conduct operations, particularly research and development
programs, as currently planned. We believe that in order to raise needed
capital, we may be required to issue debt at significantly higher interest
rates or equity securities that are significantly lower than the current market
price of our common stock.
No
assurances can be given that currently available funds will satisfy our working
capital needs for the period estimated, or that we can obtain additional working
capital through the sale of common stock or other securities, the issuance of
indebtedness or otherwise or on terms acceptable to us. Further, no assurances
can be given that any such equity financing will not result in a further
substantial dilution to the existing stockholders or will be on terms
satisfactory to us.
25
Quarters
Ended April 30, 2010 and 2009
Results
of Operations
References
to fiscal 2010 and fiscal 2009 are for the six month periods ended April 30,
2010 and 2009, respectively.
The
Company had no sales revenue during the six months ended April 30,
2010.
Research
and development expenses for the three and six month periods ended April 30,
2010 decreased by $60,823 and $166,601, respectively, compared to the prior
year. These expenses arise from the program which we initiated in December 1997
to develop the micro imaging technology for detecting and identifying
contaminants in fluids. The decrease reflects reductions in expenditures across
the board, particularly in consulting and labor-related expenses.
Sales,
general and administrative expenses decreased by $32,937 for the three months
ended April 30, 2010 compared to the prior year period, but increased by $26,900
for the six month comparable period. The increase for the six months
ended April 30, 2010 primarily represent an increase in consulting
and shareholder relations expenses, which were partially offset by a reduction
in labor-related expenses during the three months ended April 30,
2010.
The
Company realized no interest income during the six months ended April 30, 2010
as investment capital was utilized to sustain operations. Interest
expense for the three and six months ended April 30, 2010 decreased by $140,050
and $102,274 compared to the prior period. The decrease
reflects the conversion in the third quarter of fiscal 2009 and the full
amortization of beneficial conversion features on debentures issued during
fiscal 2008 and 2009. The decrease was partially offset by the costs
associated with the issuance of common stock as additional consideration for
convertible loans recorded during fiscal 2010
Components
of other income, other than interest, decreased by $39,746 for the six months
ended April 30, 2010, compared to the prior year period. The income
during fiscal 2009 reflected the gain realized by the Company on the forgiveness
by our majority stockholder of $39,746 in accrued interest on loans converted to
common stock. No such transactions occurred during the current fiscal
period.
We
recorded the minimum state income tax provision in fiscal 2010 and 2009 as we
had cumulative net operating losses in all tax jurisdictions.
Liquidity
and Capital Resources
At April
30, 2010, we had working capital deficit of $1,130,190. This
represents a working capital decrease of $326,717 compared to that reported at
October 31, 2009. The decrease primarily reflects additional borrowings during
the current fiscal year as well as the accrual of payroll and accounts payable
to officers, directors and employees of the Company.
Our
primary source of cash during the six months ended April 30, 2010 has been from
loans totaling $225,000. Management estimates that it required
working capital approximating $77,800 per month to maintain operations during
fiscal 2010, compared to the approximate $86,000 per month expended during
fiscal 2009.
Plan
of Operation
Our
independent registered public accounting firm has included an explanatory
paragraph in its report on the financial statements for the year ended October
31, 2009 which raises substantial doubt about our ability to continue as a going
concern.
We are in
the process of identifying commercial, technical and scientific partners that
can aid in advancing the MIT expertise, provide external endorsements of the
technology and accelerate introduction to the market. This strategy is dependent
upon our ability to identify and attract the right customers and partners over
the next six month period and to secure sufficient additional working capital in
a timely manner. There can be no assurances that our efforts will be
successful or that we will be able to raise sufficient capital to implement our
plans or to continue operations.
During
the six months ended April 30, 2010, we received $225,000 in short term loans
which are convertible into common shares at any time prior to their one-year
maturity date. The loans bear interest at 6% per annum and as
additional consideration for the loan, the lender received a number of
restricted common shares which is determined by the amount of the
loan. The Company continues to seek additional
loans.
26
During
the latter part of 2008, we appointed an exclusive distributor to sell our MIT
products in Taiwan and China. We have entered into similar
arrangements with five other companies granting distribution rights in Turkey,
Bulgaria, the United Kingdom, Ireland, Puerto Rico and the
Caribbean. In October 2009, we entered into a distribution agreement
with a Biotek Sdn Bhd, a Malaysian distributor of research and scientific
products for the Association of Southeast Asian Nations (ASEAN) (namely
Malaysia, Singapore, Thailand, Brunei, Indonesia, Philippines, Vietnam,
Cambodia, Laos and Myanmar). This distributor purchased its first MIT
System and is making preparations to conduct several workshops and product
demonstrations for key prospects in Asia over the next six
months. Biotek is also planning workshops and training classes
throughout ASEAN, including Indonesia, Singapore, The Philippines, Thailand,
Cambodia, Vietnam and others.
We are in
the process of developing promotional materials and marketing and sales
strategies with these and other future distributors which we believe will assist
in generating sales revenues in the near future.
In the
opinion of management, available funds and funds anticipated from forthcoming
borrowings and equity sales are expected to satisfy our working capital
requirements through July 2010. However, no assurances can be given
that we will secure additional financing or revenues in a timely manner, if at
all, or that such funds would be sufficient to achieve our intended business
objectives.
We will
be required to raise substantial amounts of new financing in the form of
additional equity investments, loan financings, or from strategic partnerships,
to carry out our business objectives. There can be no assurance that we will be
able to obtain additional financing on terms that are acceptable to us and at
the time required by us, or at all. Further, any financing may cause
dilution of the interests of our current stockholders. If we are unable to
obtain additional equity or loan financing, our financial condition and results
of operations will be materially adversely affected. Moreover, estimates of our
cash requirements to carry out our current business objectives are based upon
various assumptions, including assumptions as to our revenues, net income or
loss and other factors, and there can be no assurance that these assumptions
will prove to be accurate or that unbudgeted costs will not be incurred. Future
events, including the problems, delays, expenses and difficulties frequently
encountered by similarly situated companies, as well as changes in economic,
regulatory or competitive conditions, may lead to cost increases that could
have a material adverse effect on us and our plans. If we are not successful in
obtaining financing for future developments, whether in the form of loans,
licenses or equity transactions, it is unlikely that we will have sufficient
cash to continue to conduct operations, particularly research and development
programs, as currently planned. We believe that in order to raise needed
capital, we may be required to issue debt at significantly higher interest
rates or equity securities that are significantly lower than the current market
price of our common stock.
No
assurances can be given that currently available funds will satisfy our working
capital needs for the period estimated, or that we can obtain additional working
capital through the sale of common stock or other securities, the issuance of
indebtedness or otherwise or on terms acceptable to us. Further, no assurances
can be given that any such equity financing will not result in a further
substantial dilution to the existing stockholders or will be on terms
satisfactory to us.
27
MANAGEMENT
Our
directors and executive officers are as follows:
Name
|
Age
|
Position
|
||
Michael
W. Brennan
|
67
|
Director
(Chairman) and
Chief
Executive Officer
|
||
Ralph
W. Emerson
|
63
|
Director
|
||
Victor
A. Hollander
|
77
|
D
|
Director
and Chief Financial Officer
|
The
Company does not currently have an Audit Committee and there are currently two
vacancies on the Board of Directors.
Michael W. Brennan, 67, was named to the Board
of Directors and appointed Chief Executive Officer on August 2, 2006. Mr.
Brennan has spent over twenty-five years within the computer industry and
participated in the founding of four companies that successfully became publicly
held corporations through IPOs on Nasdaq; three in the U.S.; Computer Automation
(CAI), Symmetricom, Inc. (originally, DATUM) (SYMM), and Interscience (INTR) and
one on the London International Stock Exchange (Optim, PLC). Additionally, Mr.
Brennan was a founder of Color Imaging, Inc. (CIMG), took the company public and
served as Chairman and CEO since 2000. Mr. Brennan has a B.S. degree
in electrical engineering from the University of Southern California and an MBA
from Pepperdine University.
Ralph W. Emerson, 63, was
named to the Board of Directors on August 2, 2006. He serves as
Chairman of the Company’s Science Advisory Committee. Mr. Emerson has
product development and research affiliations with some of the world's leading
companies including Cargill Inc., Helena Chemical, Spectrum Brands, and the 3M
Corporation. Formerly he was a consultant to the CEO/President of Grain
Processing Corporation (GPC), Senior Science Consultant to Central Pet and
Garden, a Sr. Vice President of Jourgensen Chemical/ NL Industries managing
chemical programs with the Department of Defense. Moreover, he has held senior
academic and research positions within the University of California at UCLA,
UCI, and UC Davis. His applied research has produced several US Patents and
International Patents in the disciplines of bioscience. Mr. Emerson is a partner
and founder of FREM Biosciences, Inc., working for the past 10 years in the
areas of pesticide science. Additionally, he is a director of the
Kary Mullis Research Foundation, and director of the Agriculture and Animal
Sciences division of Altermune-a US Defense Advanced Research Project Agency
funded program. Mr. Emerson is a graduate of UCLA and did his graduate work at
Harvard University, the Harvard School of Public Health and the Sloan School at
the Massachusetts Institute of Technology. Currently, he is an elected member of
the Harvard University Club of Boston, the New York Academy of Sciences and the
American Society of Microbiology.
Victor A. Hollander, 77, was
named to the Board of Directors on August 2, 2006 and as Chief Financial Officer
on November 1, 2008. Mr. Hollander was licensed to practice public
accounting in California in 1958. In 1965, he established and was the partner in
charge of the Los Angeles office of a large New York certified public accounting
firm where he specialized in audit and securities matters. In 1978, he left the
firm and ultimately formed the accounting firm of Hollander, Gilbert & Co.,
and in February 2001, this firm was merged with the Los Angeles accounting firm
Good Swartz Brown & Berns, LLP. Mr. Hollander has been with an East Coast
accounting firm since 2002, as Managing Director of the West Coast Group. Mr.
Hollander retired from the firm in January 2007 and currently performs SEC
consulting services. Mr. Hollander, during his professional career,
has been active in local, state and national professional activities. He has
served on various Los Angeles Chapter, California Society of Certified Public
Accountants and American Institute of Certified Public Accountants securities,
ethics, accounting and auditing committees. Mr. Hollander specializes in
securities, mergers and acquisitions.
Directors
serve until the next Annual Meeting of Stockholders when their successors are
elected and qualified. Officers, subject to any employment agreements,
serve at the pleasure of the Board of Directors.
28
Key
Employees
David
Haavig, 55, a Ph.D. in Physics, joined the Company in May 1998 as General
Manager of Micro Imaging Technology, its wholly owned subsidiary.
Dr. Haavig has over 25 years experience in instrument design in computer
software with applications in optical measurements and analysis. From
August 1991 to May 1998, he served as electrical design engineer for
San Diego-based Science Applications International Corporation, where he was
responsible for the mechanical and electrical design of microprocessor
controlled and autonomously controlled instruments. He also served as project
manager and technical director on various system development projects.
Dr. Haavig received his Bachelor of Science degree in Physics (Cum Laude)
from the University of Seattle and his Master of Science and Ph.D. degrees in
Physics from Purdue University.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our officers and directors, and stockholders owning
more than ten percent of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange and are required by SEC regulations to furnish us with copies of all
forms they file pursuant to these requirements. The following table provides
information regarding any of the reports which were filed late during the fiscal
year ended October 31, 2009:
Name of Reporting Person
|
|
Type of Report Filed Late
|
|
No. of Transactions
Reported Late
|
Michael
W. Brennan
|
Form
4 – Statement of Changes in Beneficial Ownership
|
4
|
||
Ralph
W. Emerson
|
Form
4 – Statement of Changes in Beneficial Ownership
|
1
|
||
Anthony
M. Frank
|
Form
4 – Statement of Changes in Beneficial Ownership
|
2
|
||
Victor
A. Hollander
|
Form
4 – Statement of Changes in Beneficial Ownership
|
1
|
EXECUTIVE
COMPENSATION
The
members of the Board of Directors oversee compensation and benefits, i.e.,
option and warrant grants, to employees and service providers.
Michael
Brennan, who joined the Company in August 2006 as Chief Executive Officer, is
being compensated at the rate provided in his employment arrangement described
below under “Employment Agreements.”
The
following table sets forth summary information regarding compensation paid for
the years ended October 31, 2009, 2008, and 2007 to the officers of the
Company.
29
SUMMARY
COMPENSATION TABLE
|
||||||||||||||||||||||||||||||||||
Name and
principal position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensation
($)
|
Total
($)
|
|||||||||||||||||||||||||
Michael
Brennan/CEO (2)
|
2009
|
220,123 | - | - | 14,772 | - | - | 383,213 | 618,108 | |||||||||||||||||||||||||
2008
|
190,350 | - | - | 102,341 | - | - | 185,000 | 477,691 | ||||||||||||||||||||||||||
2007
|
223,800 | - | - | 20,000 | - | - | 462,500 | 706,300 | ||||||||||||||||||||||||||
Victor
Hollander/CFO(3)
|
2009
|
120,000 | - | - | - | - | - | 200,625 | 320,625 | |||||||||||||||||||||||||
Catherine
Patterson/Secretary
|
2009
|
75,600 | - | - | 12,979 | - | - | - | 88,579 | |||||||||||||||||||||||||
2008
|
75,600 | - | - | 39,320 | - | - | - | 114,920 | ||||||||||||||||||||||||||
2007
|
75,600 | - | - | - | - | - | - | 75,600 |
|
(1)
|
We are not required to report the
value of personal benefits unless the aggregate dollar value was at least
10 percent of the executive officer’s salary and bonus or
$50,000.
|
|
(2)
|
Mr. Brennan was named Chief
Executive Officer on August 2, 2006. He receives a cash salary
and 50,000 shares of common stock per month. From August 2006
through October 31, 2008, Mr. Brennan’s cash salary was $5,000 per
month. Commencing November 1, 2008, his cash salary was
increased to $15,000 per month. For the fiscal years ended
October 31, 2007 and 2008, Mr. Brennan’s compensation amounted to $60,000
in cash and 600,000 shares of common stock per year valued at $163,000 and
$130,250, respectively. In fiscal 2009, Mr. Brennan’s
compensation amounted to $180,000 in cash and 600,000 of common stock
valued at $36,873. Mr. Brennan was also granted two–year
options to purchase 100,000 shares of common stock at an exercise price of
$0.30 per share in fiscal years 2007, 2008 and 2009. Mr.
Brennan also received 100,000 shares of the common stock of the Company’s
Nevada subsidiary, Micro Imaging Technology, valued at $100, during the
fiscal years ended October 31, 2007 and
2008.
|
In May
2007, Mr. Brennan also received an award of 800,000 shares of the common stock
of the Company’s Nevada subsidiary, valued at $800.
On
September 21, 2007, Mr. Brennan received 1,250,000 shares of the Company’s
common stock for management consulting services rendered with regard to the
aborted Zhongke transaction. The fair market value of the common
stock was determined to be $0.37 per share, or $462,500.
On March
3, 2008, Mr. Brennan received 500,000 shares of common stock, valued at $135,000
($0.27 per share) for consulting services rendered and on October 2, 2008, the
Company issued Mr. Brennan 1,000,000 shares of common stock valued at $50,000,
or $0.05 per share, for additional consulting services rendered.
Between
February and July 2009, Mr. Brennan received a total of 5,500,000 shares of
common stock for additional consulting services rendered at prices ranging from
$0.015 to $0.154 per shares, for an aggregate value of
$383,213.
30
|
(3)
|
Mr. Hollander was named
Chief Financial Officer effective November 1, 2008. He receives
a monthly salary of $10,000.
|
On
February 5, 2009 and July 16, 2009, Mr. Hollander received 3,000,000 shares of
common stock at $0.01538 per share and 1,000,000 shares of common stock at
$0.1545 per share, respectively, for additional financial consulting services
rendered. The aggregate fair market value of these issuances was
$46,125 and $154,500 respectively.
|
(4)
|
In January 2006, Ms. Patterson
was granted options to purchase 100,000 shares of the common stock of the
Company at an exercise price of $0.14 per share. The options
vest in 20,000 annual increments and expire on January 26,
2011.
|
On
September 18, 2008, Ms. Patterson was granted a three-year option to purchase
500,000 shares of common stock at $0.10 per share. The fair market
value of the options was determined to be $39,320.
On
February 5, 2009, Ms. Patterson received five-year options to purchase 1,000,000
shares of common stock at an exercise price of $0.01538 per share, for a total
fair market value of $12,979 .
Compensation
Committee Interlocks and Insider Participation
Compensation
of executive officers is determined by the Board of Directors.
Michael
W. Brennan
Effective
August 2, 2006, we entered into a five-year employment arrangement with
Michael W. Brennan where he became the Chief Executive Officer of the Company.
The arrangement provides for the following:
|
·
|
Compensation of $10,000 per
month, payable $5,000 in cash and $5,000 in the Company’s common stock
(value of stock at $0.10 per share), issuable as each month of service
occurs, for a period of five years. The annual valuation of
this compensation is $60,000 in cash and 600,000 restricted common
shares. Between September 1, 2007 and December 31, 2007, Mr.
Brennan also received 50,000 shares each month of the common stock of the
Company’s Nevada subsidiary, Micro Imaging Technology. As of
November 1, 2008, Mr. Brennan’s cash salary increased to $15,000 per
month.
|
|
·
|
For each year of service, Mr.
Brennan is granted two-year warrants to purchase 100,000 shares of
restricted common stock at an exercise price of $0.30 per
share. Such warrants vest in their entirety at the conclusion
of each year of
service.
|
Compensation of Directors
In
October 2006, the Board of Directors authorized following compensation outlined
below. Mr. Hollander was named Chief Financial Officer of the Company
and, as of November 1, 2008, no longer receives the compensation authorized for
outside members.
|
·
|
that Victor A. Hollander and Ralph
W. Emerson and all other outside individuals appointed to the Board of
Directors initially be issued 100,000 shares of the Company’s common stock
and those shares will be registered, at the Company’s convenience, through
an S-8 Registration Statement with the Securities and Exchange
Commission.
|
|
·
|
that all outside members of the
Board of Directors receive an option to purchase 100,000 shares of the
Company’s common stock on the annual anniversary date of their service to
the Board.
|
|
·
|
that each outside Board member
shall be paid $1,000 for attendance to each Board of Directors meeting and
$500 for participating in telephonic Board Meetings. Additionally, all
expenses related to serving as a member of the Board of Directors must be
approved in advance by the Chairman of the Board and will be reimbursed by
the Company.
|
31
|
·
|
that the outside Board member
appointed to and serving as the Chairman of the Finance Committee, Victor
A. Hollander, will receive an additional annual compensation of
$24,000. Note that as of November 1, 2008, when Mr. Hollander
was named Chief Financial Officer, the Finance Committee was
dissolved.
|
|
·
|
that the outside Board member
appointed to and serving as the Chairman of the Science Advisory
Committee, Ralph W. Emerson, will receive an additional annual
compensation of
$18,000.
|
Director
Compensation Table
Non-Equity
|
Nonqualified
|
|||||||||||||||||||||||||||
Fees
Earned
|
Incentive
|
Deferred
|
All
|
|||||||||||||||||||||||||
or
Paid in
|
Stock
|
Option
|
Plan
|
Compensation
|
Other
|
|||||||||||||||||||||||
Director
|
Cash
(1)
|
Awards
|
Awards(2)(3)
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|||||||||||||||||||||
Ralph
W. Emerson
|
$ | 18,000 | — | $ | 14,837 | — | — | — | $ | 32,837 |
(1)
|
Represents
annual fees for committee chairmanship plus all meeting attendance fees
earned by non-employee directors in fiscal
2009.
|
(2)
|
The
amounts shown are the aggregate grant date fair value related to the
grants of options to non-employee directors in 2009. All
options granted to directors vest in full on the grant
date. Consequently, there are no unvested option awards granted
to non-employee directors as of October 31,
2009.
|
Equity
Compensation Plans
1999
Stock Option Plan
In May
1999, the Company adopted the 1999 Stock Option Plan (the “Plan”). Under the
Plan, incentive and non-qualified stock options for 1,000,000 shares of common
stock may be issued. Incentive stock options may be issued to any
employee of the Company; are exercisable in installments as determined by the
Board of Directors or the Compensation and Benefits Committee; and may be
granted for not more than ten years (five years in the case of any employee who
owns or is considered to own more than 10% of the common stock). Incentive stock
options may not be exercisable for less than 100% of the fair market value
of the common stock on the date of grant (110% of fair market value in the case
of a more than 10% shareholder). Non-qualified stock options may be granted
to employees, directors, consultants and advisors of the Company. Non-qualified
stock options may not be granted for more than ten years, are exercisable
in installments as determined by the Board or Compensation and Benefits
Committee, and may not be exercisable for less than 100% of the fair market
value of the common stock on the date of grant. In September 2008,
the Company granted 140,000 options to purchase common stock at $0.10 per share
to a key employee and as of October 31, 2009, the total number of shares
authorized under the 1999 Stock Option Plan, 1,000,000, has been issued at
exercise prices ranging from $0.10 to $0.94 per share.
2008
Employee Benefit Plan
Effective
December 3, 2007, the Company adopted the Micro Imaging Technology 2008 Employee
Benefit Plan. Under the Plan, the Company can grant up to three (3)
million shares of common stock or options to purchase common stock to eligible
employees, directors, officers, consultants, or advisors of the
Company. Eligibility is determined by the Board of
Directors. During 2007, a total of 2 million shares of common stock
were granted under the plan to Michael Brennan and Victor Hollander in lieu of
payment for consulting services rendered. An additional one (1)
million shares were issued under this Plan in March 2008 to Messrs. Brennan and
Hollander. As of October 31, 2009, the total number of shares
authorized under the Plan has been issued.
32
2008
Employee Incentive Stock Program
In May
2008, the Company adopted the 2008 Employee Incentive Stock Program, authorizing
the Company to grant up to three (3) million shares of common stock or options
to purchase common stock to eligible employees, directors, officers,
consultants, or advisors to the Company. Eligibility is determined by
the Board of Directors. On May 1, 2008, the Board authorized the
issuance of a total of 584,472 shares of common stock under the Plan to various
individuals, including officers and directors, in exchange for the cancellation
of loans and interest as well as fees and expenses due them from the
Company. On June 12, 2009, the Board granted a consultant to the
Company two (2) million shares of common stock for consulting
services. As of October 31, 2009, there were 415,538 shares or
options available for issuance remaining under the 2008 Employee Incentive Stock
Program. In November 2009, 50,000 shares were issued to the Company’s
legal counsel in partial payment for services rendered.
2009
Employee Benefit Plan
In
October 2008, the Company adopted the 2009 Employee Benefit Plan, authorizing
the Company to grant up to four (4) million shares of common stock or options to
purchase common stock to eligible employees, directors, officers, consultants,
or advisors to the Company. Eligibility is determined by the Board of
Directors. During fiscal 2008, the Board authorized the issuance of a
total of 2,250,000 shares of common stock under the Plan to various individuals,
including 2,000,000 shares to officers and directors, in lieu of payment for
services rendered. An additional 500,000 shares were issued to
Michael Brennan on May 1, 2009 for additional management services
rendered. As of October 31, 2009, there were 1,250,000 shares or
options available for issuance remaining under the 2009 Employee Benefit
Plan. During November 2009, the balance of 1,250,000 shares were
issued to the Company’s legal firms for services rendered.
2010
Employee Benefit Plan
In
January 2010, the Company adopted the 2010 Employee Benefit Plan, authorizing
the Company to grant up to twelve (12) million shares of common stock or options
to purchase common stock to eligible employees, directors, officers,
consultants, or advisors to the Company. As with all other plans
adopted by the Company, eligibility is determined by the Board of
Directors. As of April 30, 2010, the Board of Directors had
authorized the issuance of 4,000,000 shares of common stock under this Plan to
two consultants for services rendered.
Other
Options
In May
2009, the Company granted options to purchase two (2) million shares of common
stock at $0.03 per share to a consultant for services rendered. The
options expire on May 1, 2012.
In August
2009, the Company issued options to purchase 100,000 shares of common stock to
Chief Executive Officer and Director, Michael Brennan, in connection with this
annual compensation arrangement. The options are exercisable for two
(2) years at an exercise price of $0.30 per share.
Also in
August 2009, the Company also issued options to purchase 100,000 shares of
common Stock to Ralph W. Emerson, Director, for his annual service as Chairman
of the Company’s Science Advisory Board. The options are exercisable
at $0.15 per share and expire on August 3, 2011.
See
PART II, Item 5, “Market for Registrant’s Common Equity and Related
Stockholder Matters.”
All
options are non-transferable except by will or the laws of descent and
distribution and terminate six months after death or termination of employment
due to permanent disability and three months after employment terminates for any
other reason.
The
following table sets forth summary information regarding the outstanding equity
awards held by the Company’s named executive officers and directors at October
31, 2009:
33
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||
Number
of
|
Number
of
|
Number
of
|
Market
Value
|
||||||||||||||||||
Securities
|
Securities
|
Shares
or
|
of
Shares
|
||||||||||||||||||
Underlying
|
Underlying
|
Units
of
|
or
Units
|
||||||||||||||||||
Unexercised
|
Unexercised
|
Option
|
Option
|
Stock
that
|
of
Stock That
|
||||||||||||||||
Options
|
Options
|
Exercise
|
Expiration
|
Have
Not
|
Have
Not
|
||||||||||||||||
Name
|
Exercisable
|
Unexercisable
|
Price
|
Date
|
Vested
|
Vested
|
|||||||||||||||
Michael
W. Brennan
|
100,000 | — | $ | 0.30 |
08/03/10
|
— | — | ||||||||||||||
100,000 | — | $ | 0.30 |
08/03/11
|
— | — | |||||||||||||||
100,000 | — | $ | 0.10 |
09/18/11
|
— | — | |||||||||||||||
Ralph
W. Emerson
|
100,000 | — | $ | 0.28 |
08/03/10
|
— | — | ||||||||||||||
100,000 | — | $ | 0.15 |
08/03/11
|
— | — | |||||||||||||||
Victor
A. Hollander
|
100,000 | — | $ | 0.28 |
08/03/10
|
— | — | ||||||||||||||
500,000 | — | $ | 0.10 |
09/18/11
|
— | — | |||||||||||||||
Catherine
A. Patterson
|
100,000 | — | $ | 0.28 |
01/26/11
|
— | — | ||||||||||||||
500,000 | — | $ | 0.10 |
09/18/11
|
— | — | |||||||||||||||
1,000,000 | — | $ | 0.02 |
02/05/14
|
34
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL
SHAREHOLDERS
The
following table sets forth information as of January 28, 2010 with respect to
the common stock and Convertible Preferred Stock owned by the only persons known
by us to own beneficially 5% or more of any of these classes of stock, by each
director and by all directors and officers as a group.
Name
**
|
Common
Stock
(1)(2)
|
%
of
Class
|
Convertible
Preferred
Stock(3)
|
%
of
Class
|
%
of
Voting
Power
(4)
|
|||||||||||||||
Michael
W. Brennan
970
Calle Amanecer, Suite F
San
Clemente, CA 92673
|
11,248,600
|
8.8
|
%
|
—
|
—
|
8.6
|
%
|
|||||||||||||
Ralph
W. Emerson
|
413,333
|
*
|
—
|
—
|
*
|
|||||||||||||||
Anthony
M. Frank
320
Meadowood Court
Pleasant
Hill, CA 94523
|
57,635,586
|
45.1
|
%
|
—
|
—
|
44.2
|
%
|
|||||||||||||
Victor
A. Hollander
9601
Wilshire Blvd., Suite M-200
Beverly
Hills, CA 90210
|
7,436,436
|
5.8
|
%
|
—
|
—
|
5.7
|
%
|
|||||||||||||
Estate
of Harry M. O’Hare, Sr. (5)
1000
El Centro
S.
Pasadena, CA 91030
|
86,483
|
*
|
931,629
|
35.8
|
%
|
*
|
||||||||||||||
Catherine
Patterson
|
1.650,112
|
1.3
|
%
|
2,906
|
*
|
1.3
|
%
|
|||||||||||||
All
officers and directors as a group (4 persons)
|
20,748,481
|
16.2
|
%
|
2,906
|
*
|
15.9
|
%
|
*
|
Less than
1%
|
**
|
Includes address of five percent
or more shareholders of any
class.
|
(1)
|
Includes 83,983 shares of common
stock issued upon conversion of Class B common stock held by founder,
Harry M. O’Hare, who passed away in November 2006. Pursuant to
the restrictions imposed on the Class B common stock by the California
Corporation Commission prior to the Company’s initial public offering in
1987, upon the death of Mr. O’Hare, the Class B common stock automatically
converts into share of common stock on a share-for-share
basis.
|
(2)
|
Includes
currently exercisable warrants or options to purchase an aggregate of
3,600,000 shares of the Company’s common stock held by the officers and
directors referred to in the above table. See also Item 11 - “Executive
Compensation – Equity Compensation
Plans.”
|
(4)
|
The Convertible Preferred Stock
was convertible into common stock only if specified earnings or market
prices of the common stock were achieved prior to October 31, 1990.
The specified earnings and market prices were not achieved and as of
January 31, 1991, we were required to redeem these shares at $0.01
per share as of the fiscal year ended October 31,
1999. See Part II - Item 5 - “Market for Registrant’s
Common Equity and Related Stockholder
Matters.”
|
(5)
|
Reflects the voting rights of the
common stock and Convertible Preferred Stock, each of which carries one
vote per share.
|
(5)
|
Mr. O’Hare, the Company’s
founder, passed away on or about November 13,
2006.
|
35
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Mr.
Michael W. Brennan
Between
January 17 and July 1, 2008, Mr. Brennan loaned the Company a total of $130,000,
at 8% per annum, payable on demand. Of that amount, $62,000 was
repaid to Mr. Brennan as of October 31, 2009, with an additional $11,000 repaid
in November 2008. On December 1, 2008, Mr. Brennan converted the
remaining $57,000 in principal loans and $5,148.49 in accrued interest into
common stock. At the same time, Mr. Brennan converted $66,848 in
accrued fees and expenses into common stock at a fair market value of
approximately $0.10 per share. Mr. Brennan received a total of
1,250,000 shares of common stock pursuant to the conversion.
Fees
|
$ | 65,000.00 | ||
Expenses
|
1,848.00 | |||
Principal
Loans
|
57,000.00 | |||
Interest
|
5,148.49 | |||
TOTAL
|
$ | 128,996.49 |
Between
November 1, 2008 and October 31, 2009, Mr. Brennan received a total of 600,000
shares of common stock for services rendered pursuant to his employment
arrangement.
Between
February and July 2009, Mr. Brennan was issued a total of 5,500,000 shares of
common stock for additional services rendered.
Between
May 8 and June 10, 2009, Mr. Brennan loaned the Company a total of $95,000 at 6%
per annum, payable on demand.
Mr.
Brennan received the following option grants during fiscal 2009:
GRANT
DATE
|
NUMBER
GRANTED
|
EXERCISE
PRICE
|
FAIR
MARKET
VALUE
|
REASON GRANTED
|
|||||||||
08/03/09
|
100,000
|
$
|
0.30
|
$
|
14,772
|
Per
consulting
arrangement
|
Mr. Anthony
M. Frank
On
September 5, 2007, Mr. Frank loaned the Company $250,000 at 12% interest and on
November 3, 2008, he loaned the Company an additional $150,000 at an interest
rate of 8% per annum. On December 15, 2008, Mr. Frank entered into
Debt Conversion Agreements waiving $39,746 in accrued interest and converting
the principal loans to shares of common stock at $0.045 per share.
On or
about December 15, 2008, Mr. Frank entered into a Securities Purchase
Agreement to
purchase $300,000 in convertible debentures, the proceeds of which were received
by the Company between December 2008 and February 2009. On February 27, 2009,
Mr. Frank elected to convert all of the above $300,000 in debentures, plus
$3,288 in interest accrued thereon, into common stock at $0.0096 per
share. He received a total of 31,592,467 shares upon the
conversion.
Mr. Frank
purchased an additional $75,000 convertible debenture on March 16, 2009 which
remains outstanding and bears interest at 6% per annum.
On
September 23, 2009, Mr. Frank loaned the Company the sum of $64,000 at 6% annual
interest. The loan matures on March 23, 2009 or when the Company
receives at least $100,000 in other financing, whichever first
occurs.
36
Mr.
Victor A. Hollander
Mr.
Hollander was named Chief Financial Officer as of November 1, 2008 and receives
$10,000 per month for his service. As of October 31, 2009, the
Company owed Mr. Hollander a total of $111,000 in accrued monthly
fees.
On
February 5, 2009 and July 16, 2009, Mr. Hollander was issued 3,000,000 and
1,000,000 shares of common stock, respectively, for additional services
rendered.
Miscellaneous
The Board
of Directors has adopted a policy that no transaction between us and any
officer, director, employee or members of their family shall be entered into
without the full disclosure of the transaction to and the approval of the
transaction by the non-interested members of the Board of Directors.
Furthermore, except for routine supply and sales agreement, no agreements will
be entered into regarding royalties, distributorships, supply agreements, sales
agreements, the borrowing of money or the sale or granting of securities or
options or the leasing or buying of property by us, or any other type of
contract over three months or $50,000 without the approval of the Board of
Directors.
DESCRIPTION
OF CAPITAL STOCK
Our
authorized capital stock consists of 500,000,000 shares of Common Stock, $0.01
par value per share, of which 144,594,187 shares were issued and
outstanding as of May 21, 2010.
The
holders of Common Stock are entitled to one vote for each share held of record
on all matters to be voted on by the stockholders. The holders of Common Stock
are entitled to receive dividends ratably, when, as and if declared by the Board
of Directors, out of funds legally available therefore. In the event of a
liquidation, dissolution or winding-up of our business, the holders of Common
Stock are entitled to share equally and ratably in all assets remaining
available for distribution after payment of liabilities.
The
holders of shares of Common Stock, as such, have no conversion, preemptive, or
other subscription rights and there are no redemption provisions applicable to
the Common Stock. According to the Company’s counsel, Dieterich & Mazarei,
all of the outstanding shares of Common Stock are, and the Common Stock offered
hereby, when issued will be, validly issued, fully paid and
non-assessable.
We have
never paid any cash dividends on our Common Stock and do not anticipate paying
any cash dividends in the foreseeable future. We intend to retain future
earnings to fund ongoing operations and future capital requirements of our
business. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant.
Transfer
agent and registrar
The
transfer agent of our common stock is American Stock Transfer & Trust
Company, LLC, whose address is 59 Maiden Lane, Plaza Level, New York, NY
10038. The phone number of the transfer agent is (800)
937-5449.
37
PLAN
OF DISTRIBUTION
The
purpose of this prospectus is to permit the selling stockholder to offer and
resell up to 11,000,000 shares of our common stock at such times and at such
places as it chooses. To the extent required, we may amend and supplement this
prospectus from time to time to describe a specific plan of distribution. The
decision to sell any shares offered pursuant to this prospectus is within the
sole discretion of the selling stockholder.
The
distribution of the common stock by the selling stockholder may be effected from
time to time in one or more transactions. Any of the common stock may be offered
for sale, from time to time, by the selling stockholder at prices and on terms
then obtainable, at fixed prices, at prices then prevailing at the time of sale,
at prices related to such prevailing prices, or in negotiated transactions at
negotiated prices or otherwise. The common stock may be sold by one or more of
the following:
• On the
OTC Bulletin Board or any other national common stock exchange or automated
quotation system on which our common stock is traded, which may involve
transactions solely between a broker-dealer and its customers which are not
traded across an open market and block trades.
• Through
one or more dealers or agents (which may include one or more underwriters),
including, but not limited to:
• Block
trades in which the broker or dealer as principal and resale by such broker or
dealer for its account pursuant to this prospectus.
•
Purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this prospectus.
•
Ordinary brokerage transactions.
•
Transactions in which the broker solicits purchasers.
•
Directly to one or more purchasers.
• A
combination of these methods.
Dutchess
and any broker-dealers who act in connection with the sale of its shares are
"underwriters" within the meaning of the Securities Act, and any discounts,
concessions or commissions received by them and profit on any resale of the
shares as principal may be deemed to be underwriting discounts, concessions and
commissions under the Securities Act. Because the selling stockholder is an
"underwriter" within the meaning of the Securities Act, it will be subject to
the prospectus delivery requirements of the Securities Act, including Rule 172
thereunder.
The
selling stockholder or its underwriters, dealers or agents may sell the common
stock to or through underwriters, dealers or agents, and such underwriters,
dealers or agents may receive compensation in the form of discounts or
concessions allowed or reallowed. Underwriters, dealers, brokers or other agents
engaged by the selling stockholder may arrange for other such persons to
participate. Any fixed public offering price and any discounts and concessions
may be changed from time to time. Underwriters, dealers and agents who
participate in the distribution of the common stock may be deemed to be
underwriters within the meaning of the Securities Act, and any discounts or
commissions received by them or any profit on the resale of shares by them may
be deemed to be underwriting discounts and commissions thereunder. The proposed
amounts of the common stock, if any, to be purchased by underwriters and the
compensation, if any, of underwriters, dealers or agents will be set forth in a
prospectus supplement.
38
Unless
granted an exemption by the SEC from Regulation M under the Exchange Act, or
unless otherwise permitted under Regulation M, the selling stockholder will not
engage in any stabilization activity in connection with our common stock, will
furnish each broker or dealer engaged by the selling stockholder and each other
participating broker or dealer the number of copies of this prospectus required
by such broker or dealer, and will not bid for or purchase any common stock of
our or attempt to induce any person to purchase any of the common stock other
than as permitted under the Exchange Act.
We will
not receive any proceeds from the sale of these shares of common stock offered
by the selling stockholder. We shall use our reasonable efforts to prepare and
file with the SEC such amendments and supplements to the registration statement
and this prospectus as may be necessary to keep such registration statement
effective and to comply with the provisions of the Securities Act with respect
to the disposition of the common stock covered by the registration statement for
the period required to effect the distribution of such common
stock.
We are
paying certain expenses (other than commissions and discounts of underwriters,
dealers or agents) incidental to the offering and sale of the common stock to
the public. If we are required to update this prospectus during such period, we
may incur additional expenses in excess of the amount estimated above. We have
agreed to indemnify the selling stockholders against certain losses, claims,
damages and liabilities, including liabilities under the Securities Act and the
Exchange Act, subject to certain exceptions.
In order
to comply with certain state securities laws, if applicable, the common stock
will be sold in such jurisdictions only through registered or licensed brokers
or dealers. In certain states the shares of common stock may not be sold unless
they have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
CHANGES
AND DISAGREEMENTS WITH ACCOUNTANTS
None.
LEGAL
MATTERS
Selected
legal matters with respect to the validity of the securities offered by this
prospectus will be passed upon for us by Dieterich & Mazarei, Los Angeles,
California.
EXPERTS
The
financial statements as of and for the years ended October 31, 2009 and 2008,
included in this prospectus have been audited by Jeffrey S. Gilbert, CPA, an
independent registered public accounting firm, as stated in their report
appearing herein. Such financial statements have been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed a registration statement on Form S-1 with the SEC for the stock
offered pursuant to this prospectus. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits and
schedules thereto. Statements contained in this prospectus as to the contents of
any contract or other document referred to are not necessarily complete and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by such reference. For further information with
respect to us and the common stock offered hereby, please refer to the
registration statement and its exhibits and schedules for further information
relating to us and our common stock.
39
We are
subject to the information and periodic reporting requirements of the Securities
Exchange Act of 1934 and in accordance therewith file reports, proxy statements
and other information with the SEC. Such reports, proxy statements, other
information and a copy of the registration statement may be inspected by anyone
without charge and copies of these materials may be obtained upon the payment of
the fees prescribed by the SEC, at the Public Reference Room maintained by
the SEC at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. You may obtain
information on the operation of this public reference room by calling
1-800-SEC-0330. The Registration Statement, including all exhibits and schedules
and amendments, has been filed with the SEC through the Electronic Data
Gathering Analysis and Retrieval system and is available to the public from the
SEC's web site at http://www.sec.gov.
40
MICRO
IMAGING TECHNOLOGY, INC.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
Audited
Annual Financial Statements of Micro Imaging Technology,
Inc.
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated
Balance Sheets at October 31, 2009 and 2008
|
F-2
|
Consolidated
Statements of Operations for the Two Years Ended October 31, 2009 and 2008
and Cumulative period from November 1, 2005 through October 31,
2009
|
F-3
|
Consolidated
Statements of Stockholders' Deficit for the Two Years Ended October 31,
2009 and 2008
|
F-4
|
Consolidated
Statements of Cash Flows for the Two Years Ended October 31, 2009 and 2008
and Cumulative period from November 1, 2005 through October 31,
2009
|
F-6
|
Notes
to Consolidated Financial Statements
|
F-8
|
Unaudited
Quarterly Financial Statements of Micro Imaging Technology,
Inc.
|
|
Condensed
Consolidated Balance Sheet at April 30, 2010
|
F-24
|
Condensed
Consolidated Statements of Operations for the Six Months Ended April 30,
2010 and 2009
|
F-25
|
Condensed
Consolidated Statements of Cash Flows for the Six Months Ended April 30,
2010 and 2009
|
F-26
|
Notes
to Condensed Consolidated Financial Statements
|
F-28
|
41
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Micro
Imaging Technology, Inc.
I have
audited the consolidated balance sheets of Micro Imaging Technology, Inc. and
Subsidiary (the “Company”) (A Development Stage Company) as of October 31, 2009
and 2008 and the related consolidated statements of operations, stockholders’
deficit and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company’s
management. My responsibility is to express an opinion on these
consolidated financial statements based on my audit.
I
conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that I plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, I express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated 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. I believe my audit provides a reasonable basis for my
opinion.
In my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Micro Imaging
Technology, Inc. and Subsidiary (A Development Stage Company) as of October 31,
2009 and 2008 and the results of their operations and their cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has limited liquid resources,
negative working capital, recurring losses with an accumulated deficit of
$39,585,919 at October 31, 2009, and is seeking to implement its business plan,
which requires the Company to complete the development and marketing the new
product and/or raise capital through the sale of the Company’s common stock or
borrowings. These matters raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard to these
matters are also discussed in Note 2. The consolidated financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
Jeffrey
S. Gilbert, CPA
Los
Angeles, California
February
9, 2010
F-1
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Balance Sheets
|
October 31,
|
October 31,
|
||||||
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | 2,148 | $ | 1,255 | ||||
Inventories
|
90,904 | 98,497 | ||||||
Prepaid
expenses
|
11,799
|
11,799
|
||||||
Total
current assets
|
104,851 | 111,551 | ||||||
Fixed
assets, net
|
45,571 | 72,135 | ||||||
Unamortized
prepaid costs and fees related to issuance of convertible
debentures
|
19,772
|
410,713
|
||||||
Total
assets
|
$
|
170,194 | $ | 594,399 | ||||
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable to stockholders
|
$ | 219,000 | $ | 318,000 | ||||
Trade
accounts payable
|
369,369 | 200,459 | ||||||
Accounts
payable to officers and directors
|
185,006 | 89,245 | ||||||
Accrued
payroll
|
89,800 | 36,391 | ||||||
Other
accrued expenses
|
45,149
|
88,022 | ||||||
Total
current liabilities
|
908,324
|
732,117 | ||||||
Long
term liabilities:
|
||||||||
Convertible
debentures
|
75,000 | 460,000 | ||||||
Redeemable
convertible preferred stock, $0.01 par value; 2,600,000 shares
authorized, issued and outstanding at October 31, 2009 and 2008,
respectively.
|
26,000
|
26,000 | ||||||
Total
long term liabilities
|
101,000
|
486,000 | ||||||
Total
liabilities
|
1,009,324 | 1,218,117 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
(deficit):
|
||||||||
Common
stock, $0.01 par value; 500,000,000 shares authorized; 119,494,187
shares and 40,485,523 shares issued and outstanding at October 31, 2009
and 2008, respectively.
|
1,194,942 | 404,853 | ||||||
Additional
paid-in capital
|
37,551,847 | 35,081,456 | ||||||
Accumulated
deficit from previous operating activities
|
(27,809,201 | ) | (27,809,201 | ) | ||||
Deficit
accumulated during the development stage
|
(11,776,718
|
) |
(8,300,826
|
) | ||||
Total
stockholders' (deficit)
|
(839,130
|
) |
(623,718
|
) |
Total
liabilities and stockholders' (deficit)
|
$ | 170,194 | $ | 594,399 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Operations
For the
Two Years in the Periods Ended October 31, 2009 and 2008
and
Cumulative period from November 1, 2005 through October 31, 2009
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
through
|
||||||||||||
October 31,
|
October 31, 2009
|
|||||||||||
2009
|
2008
|
(Unaudited)
|
||||||||||
Sales
|
$
|
18,000
|
$
|
-
|
$
|
58,000
|
||||||
Cost
of Sales
|
10,970
|
-
|
29,886
|
|||||||||
Gross
profit
|
7,030
|
-
|
28,114
|
|||||||||
Operating
costs and expenses:
|
||||||||||||
Research
and development
|
973,344
|
1,114,059
|
3,656,121
|
|||||||||
Sales,
general and administrative
|
1,937,638
|
1,212,930
|
4,957,205
|
|||||||||
Total
operating expenses
|
2,910,982
|
2,326,989
|
8,613,326
|
|||||||||
Loss
from operations
|
(2,903,952
|
)
|
(2,326,989
|
)
|
(8,585,212
|
)
|
||||||
Other
income (expense):
|
||||||||||||
Interest
income
|
1
|
169
|
11,353
|
|||||||||
Interest
expense
|
(760,230
|
)
|
(129,242
|
)
|
(3,360,726
|
)
|
||||||
Other
income (expense), net
|
189,889
|
(4,314
|
)
|
164,267
|
||||||||
Other
income (expense), net
|
(570,340
|
)
|
(133,387
|
)
|
(3,185,106
|
)
|
||||||
Loss
from continuing operations:
|
||||||||||||
Before
provision for income tax
|
(3,474,292
|
)
|
(2,460,376
|
)
|
(11,770,318
|
)
|
||||||
Provision
for income tax
|
(1,600
|
)
|
(1,600
|
)
|
(6,400
|
)
|
||||||
Net
loss
|
$
|
(3,475,892
|
)
|
$
|
(2,461,976
|
)
|
$
|
(11,776,718
|
)
|
|||
Net
loss per share, basic and diluted
|
$
|
(0.04
|
)
|
$
|
(0.07
|
)
|
||||||
Shares
used in computing net loss per share, basic and diluted
|
89,695,596
|
35,487,955
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Stockholders’ (Deficit)
For the
Two Years Ended October 31, 2009 and 2008
|
Additional
|
|||||||||||||||||
|
Common
|
Common
|
Paid-in
|
Accumulated
|
||||||||||||||
|
Stock
|
Stock
|
Capital
|
(Deficit)
|
Total
|
|||||||||||||
Balance,
October 31, 2007
|
32,215,781
|
$
|
322,158
|
$
|
33,133,341
|
$
|
(33,648,051
|
)
|
$
|
(192,552
|
)
|
|||||||
|
||||||||||||||||||
Common
stock issued to officers for services, $0.35 per share
|
75,000
|
750
|
25,500
|
-
|
26,250
|
|||||||||||||
Common
stock issued to officers for services, $0.30 per share
|
75,000
|
750
|
21,750
|
-
|
22,500
|
|||||||||||||
Common
stock issued to officers for services, $0.27 per share
|
75,000
|
750
|
19,500
|
-
|
20,250
|
|||||||||||||
Common
stock issued to officers for services, $0.25 per share
|
225,000
|
2,250
|
54,000
|
-
|
56,250
|
|||||||||||||
Common
stock issued to officers for services, $0.23 per share
|
75,000
|
750
|
16,500
|
-
|
17,250
|
|||||||||||||
Common
stock issued to officers for services, $0.20 per share
|
75,000
|
750
|
14,250
|
-
|
15,000
|
|||||||||||||
Common
stock issued to officers for services, $0.18 per share
|
75,000
|
750
|
12,750
|
-
|
13,500
|
|||||||||||||
Common
stock issued to officers for services, $0.15 per share
|
75,000
|
750
|
10,500
|
-
|
11,250
|
|||||||||||||
Common
stock issued to officers for services, $0.14 per share
|
75,000
|
750
|
9,750
|
-
|
10,500
|
|||||||||||||
Common
stock issued to officers for services, $0.035 per share
|
75,000
|
750
|
1,875
|
-
|
2,625
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued to officers, directors and consultants for debt, $0.30 per
share
|
584,472
|
5,845
|
169,497
|
-
|
175,342
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued to consultants for services, $0.28 per share
|
1,000,000
|
10,000
|
270,000
|
-
|
280,000
|
|||||||||||||
Common
stock issued to consultants for services, $0.25 per share
|
275,000
|
2,750
|
66,000
|
-
|
68,750
|
|||||||||||||
Common
stock issued to consultants for services, $0.08 per share
|
250,000
|
2,500
|
17,500
|
-
|
20,000
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued to officers and directors for consulting services, $0.27 per
share
|
1,000,000
|
10,000
|
260,000
|
-
|
270,000
|
|||||||||||||
Common
stock issued to officers and directors for consulting services, $0.05 per
share
|
2,000,000
|
20,000
|
80,000
|
-
|
100,000
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued in private placement offering, $0.167 per
share
|
360,000
|
3,600
|
56,400
|
-
|
60,000
|
|||||||||||||
Common
stock issued in private placement offering, $0.12 per
share
|
1,100,000
|
11,000
|
121,000
|
-
|
132,000
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued as commission, $0.40 per share
|
600,000
|
6,000
|
234,000
|
-
|
240,000
|
|||||||||||||
|
||||||||||||||||||
Common
stock issued upon exercise of warrants, $0.06 per share
|
200,000
|
2,000
|
10,000
|
-
|
12,000
|
|||||||||||||
|
||||||||||||||||||
Common
stock of subsidiary issued to employees and consultants, $0.001 per
share
|
-
|
-
|
150
|
-
|
150
|
|||||||||||||
|
||||||||||||||||||
Options
and warrants granted to employees and consultants for
services
|
-
|
-
|
323,860
|
-
|
323,860
|
|||||||||||||
|
||||||||||||||||||
Interest
recognized on beneficial conversion feature of convertible debentures
issued
|
-
|
-
|
153,333
|
-
|
153,333
|
|||||||||||||
Net
loss
|
|
(2,461,976
|
)
|
(2,461,976
|
)
|
|||||||||||||
Balance,
October 31, 2008
|
40,485,253
|
$
|
404,853
|
4
35,081,456
|
$
|
(36,110,027
|
)
|
$
|
(623,718
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Stockholders’ (Deficit) (Continued)
For the
Two Years Ended October 31, 2009 and 2008
|
Additional
|
|||||||||||||||||||
|
Common
|
Common
|
Paid-in
|
Accumulated
|
||||||||||||||||
|
Stock
|
Stock
|
Capital
|
(Deficit)
|
Total
|
|||||||||||||||
Balance,
October 31, 2008
|
40,485,253
|
$
|
404,853
|
$
|
35,081,456
|
$
|
(36,110,027
|
)
|
$
|
(623,718
|
)
|
|||||||||
Common
stock issued to officers, directors and consultants
|
||||||||||||||||||||
for
services, $0.012 per share
|
75,000
|
750
|
150
|
900
|
||||||||||||||||
for
services, $0.015375 per share
|
12,000,000
|
120,000
|
64,500
|
184,500
|
||||||||||||||||
for
services, $0.0155 per share
|
75,000
|
750
|
413
|
1,163
|
||||||||||||||||
for
services, $0.01765 per share
|
75,000
|
750
|
574
|
1,324
|
||||||||||||||||
for
services, $0.018625 per share
|
75,000
|
750
|
647
|
1,397
|
||||||||||||||||
for
services, $0.04 per share
|
75,000
|
750
|
2,250
|
3,000
|
||||||||||||||||
for
services, $0.053675 per share
|
75,000
|
750
|
3,276
|
4,026
|
||||||||||||||||
for
services, $0.056175 per share
|
500,000
|
5,000
|
23,088
|
28,088
|
||||||||||||||||
for
services, $0.0625 per share
|
75,000
|
750
|
3,938
|
4,688
|
||||||||||||||||
for
services, $0.07 per share
|
1,071,429
|
10,714
|
64,286
|
75,000
|
||||||||||||||||
for
services, $0.088 per share
|
75,000
|
750
|
5,850
|
6,600
|
||||||||||||||||
for
services, $0.09 per share
|
75,000
|
750
|
6,000
|
6,750
|
||||||||||||||||
for
services, $0.11 per share
|
75,000
|
750
|
7,500
|
8,250
|
||||||||||||||||
for
services, $0.1165 per share
|
2,000,000
|
20,000
|
213,000
|
233,000
|
||||||||||||||||
for
services, $0.1405 per share
|
75,000
|
750
|
9,788
|
10,538
|
||||||||||||||||
for
services, $0.152 per share
|
75,000
|
750
|
10,650
|
11,400
|
||||||||||||||||
for
services, $0.1545 per share
|
6,100,000
|
61,000
|
881,450
|
942,450
|
||||||||||||||||
Common
stock issued for convertible debt, $0.009 per share
|
3,888,885
|
38,889
|
(3,889
|
)
|
-
|
35,000
|
||||||||||||||
Common
stock issued for convertible debt, $0.009 per share
|
31,592,467
|
315,925
|
(12,555
|
)
|
-
|
303,370
|
||||||||||||||
Common
stock issued for convertible debt, $0.012825 per share
|
1,169,589
|
11,696
|
3,304
|
-
|
15,000
|
|||||||||||||||
Common
stock issued for convertible debt, $0.04554 per share
|
8,783,416
|
87,834
|
312,166
|
-
|
400,000
|
|||||||||||||||
Common
stock issued in settlement of lawsuit, $0.0748 per share
|
5,899,997
|
59,000
|
384,745
|
-
|
443,745
|
|||||||||||||||
Common
stock issued in private placement offering, $0.05 per
share
|
2,000,000
|
20,000
|
80,000
|
-
|
100,000
|
|||||||||||||||
Common
stock issued to officers, directors and consultants
|
||||||||||||||||||||
for
debt, $0.10 per share
|
1,250,000
|
12,500
|
116,496
|
-
|
128,996
|
|||||||||||||||
for
debt, $0.052925 share
|
175,000
|
1,750
|
7,512
|
-
|
9,262
|
|||||||||||||||
for
debt, $0.015375 per share
|
1,678,151
|
16,782
|
9,020
|
-
|
25,802
|
|||||||||||||||
Options
and warrants granted to employees and consultants for
services
|
-
|
-
|
101,234
|
-
|
101,234
|
|||||||||||||||
Interest
recognized on beneficial conversion feature of convertible debentures
issued
|
-
|
-
|
175,000
|
-
|
175,000
|
|||||||||||||||
Net
loss
|
(3,475,892
|
)
|
(3,475,892
|
)
|
||||||||||||||||
Balance,
October 31, 2009
|
119,494,187
|
$
|
1,194,942
|
$
|
37,551,847
|
$
|
(39,585,919
|
)
|
$
|
(839,130
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
For the
Two Years Ended October 31, 2009and 2008
and
Cumulative period from November 1, 2005 through October 31,
2009
|
Cumulative period
|
|||||||||||
|
from
|
|||||||||||
|
November 1, 2005
|
|||||||||||
|
through
|
|||||||||||
|
October 31,
|
October 31, 2009
|
||||||||||
|
2009
|
2008
|
(Unaudited)
|
|||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$
|
(3,475,892
|
)
|
$
|
(2,461,976
|
)
|
$
|
(11,776,718
|
)
|
|||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
27,864
|
27,732
|
98,266
|
|||||||||
Amortization
of costs and fees related to convertible debentures
|
565,941
|
80,420
|
646,361
|
|||||||||
Common
stock issued for services
|
908,627
|
348,750
|
1,353,377
|
|||||||||
Common
stock issued to officers and directors for services
|
623,860
|
585,375
|
2,464,985
|
|||||||||
Common
stock issued for shares of subsidiary stock
|
-
|
-
|
254,000
|
|||||||||
Common
stock of subsidiary issued to employees and consultants
|
-
|
150
|
2,815
|
|||||||||
Common
stock issued as a commission
|
-
|
-
|
3,000
|
|||||||||
Common
stock issued for accounts payable
|
-
|
187,342
|
229,565
|
|||||||||
Common
stock issued to former licensee
|
-
|
-
|
41,319
|
|||||||||
Common
stock issued/recovered on cancelled agreements
|
-
|
-
|
20,478
|
|||||||||
Non-cash
compensation for stock options and warrants
|
101,234
|
323,860
|
564,004
|
|||||||||
Interest
expense related to beneficial conversion feature
|
-
|
-
|
1,944,800
|
|||||||||
Interest
paid with common stock
|
-
|
-
|
104,836
|
|||||||||
Interest
on notes receivable for common stock
|
-
|
-
|
(1,373
|
)
|
||||||||
(Increase)
decrease in assets:
|
||||||||||||
Prepaid
expenses
|
-
|
588
|
13,792
|
|||||||||
Inventories
|
7,593
|
(26,091
|
)
|
(90,904
|
)
|
|||||||
Increase
(decrease) in liabilities:
|
||||||||||||
Trade
accounts payable
|
175,229
|
109,656
|
244,993
|
|||||||||
Accounts
payable to officers and directors
|
187,086
|
24,745
|
239,460
|
|||||||||
Accrued
payroll and other expenses
|
47,651
|
56,132
|
21,854
|
|||||||||
Net
cash used in operating activities
|
(830,807
|
)
|
(743,317
|
)
|
(3,621,089
|
)
|
||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of fixed assets
|
(1,300
|
)
|
(4,655
|
)
|
(137,354
|
)
|
||||||
Net
cash used in investing activities
|
(1,300
|
)
|
(4,655
|
)
|
(137,354
|
)
|
F-6
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Cash Flows (Continued)
For
Each of the Two Years in the Period Ended October 31, 2009 and 2008
and
Cumulative period from November 1, 2005 through October 31, 2009
|
Cumulative period
|
|||||||||||
|
from
|
|||||||||||
|
November 1, 2005
|
|||||||||||
|
through
|
|||||||||||
|
October 31,
|
October 31, 2009
|
||||||||||
|
2009
|
2008
|
(Unaudited)
|
|||||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments on notes payable to stockholder
|
(11,000
|
)
|
(62,000
|
)
|
(1,073,000
|
)
|
||||||
Proceeds
from issuance of convertible debentures
|
375,000
|
460,000
|
865,000
|
|||||||||
Costs
and fees related to issuance of convertible debentures
|
-
|
(97,800
|
)
|
(97,800
|
)
|
|||||||
Proceeds
from issuance of notes payable to a related party
|
369,000
|
130,000
|
1,005,800
|
|||||||||
Proceeds
from issuance of common stock, net
|
100,000
|
192,000
|
1,865,294
|
|||||||||
Net
cash provided by financing activities
|
833,000
|
622,200
|
2,565,294
|
|||||||||
Net
change in cash
|
893
|
(125,772
|
)
|
(1,193,150
|
)
|
|||||||
Cash
at beginning of period
|
1,255
|
127,027
|
1,195,298
|
|||||||||
Cash
at end of period
|
$
|
2,148
|
$
|
1,255
|
$
|
2,148
|
||||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||||||
Interest
paid
|
$
|
3,039
|
$
|
1,612
|
$
|
6,570
|
||||||
Income
taxes paid
|
$
|
1,600
|
$
|
1,600
|
$
|
15,440
|
||||||
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
||||||||||||
Beneficial
conversion feature of convertible debentures
|
$
|
175,000
|
$
|
-
|
||||||||
Prepaid
costs and fees related to beneficial
|
||||||||||||
conversion
feature of convertible debentures
|
$
|
-
|
$
|
131,667
|
||||||||
Common
stock issued as commission for convertible debentures
|
$
|
-
|
$
|
240,000
|
||||||||
Conversion
of notes payable to a director
|
||||||||||||
to
shares of common stock
|
$
|
-
|
$
|
20,274
|
||||||||
Conversion
of notes payable, majority stockholder,
|
||||||||||||
to
shares of common stock
|
$
|
400,000
|
$
|
-
|
||||||||
Conversion
of other notes payable to shares of common stock
|
$
|
760,000
|
$
|
-
|
||||||||
Issuance
of common stock in payment of liabilities
|
$
|
191,759
|
$
|
167,068
|
F-7
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
1.
Description of
Business and Development Stage Company
Micro
Imaging Technology, Inc. (the “Company”), a California corporation, is a holding
company whose operations are conducted through its 81%-owned
subsidiary.
The
losses incurred to date which are applicable to the noncontrolling (minority)
stockholders of the Company’s consolidated subsidiary, Micro Imaging Technology
(MIT) exceed the value of the equity held by the noncontrolling
stockholders. Such losses have been allocated to the Company as the
majority stockholder and are included in the net loss and accumulated deficit in
the consolidated financial statements for the fiscal year ended October 31,
2009. Commencing November 1, 2009, in accordance with the
guidance provided under FASB Codification No. 810, (Consolidation-Noncontrolling
Interests) the Company’s annual and interim reports will present losses
by the subsidiary separately from that attributable to the parent and separately
in the equity section of the balance sheets.
In 1997,
the Company began marketing a small, point-of-use water treatment product aimed
at the high purity segment of commercial and industrial water treatment markets.
In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned
Nevada subsidiary, through which all manufacturing and sales of its proprietary
water treatment products were then conducted. In October 2005, the Company sold
the assets of the EDI subsidiary and discontinued operations.
The
Company acquired, in October 1997, an exclusive license to patent and
intellectual property rights involving laser light scattering techniques to be
utilized in the detection and monitoring of toxicants in drinking water. The
Company formed Micro Imaging Technology (MIT) in February 2000, a wholly-owned
Nevada subsidiary, to conduct research and development based upon advancements
developed and patented from the licensed technology. It is this
technology that is being developed.
The
Company is developing a non-biologically based system utilizing both proprietary
hardware and software to rapidly (near real time) determine the specific specie
of an unknown microbe present in a fluid with a high degree of statistical
probability (“MIT System”). It will analyze a sample presented to it
and compare its characteristics to a library of known microbe characteristics on
file. At present, it is the Company’s only operation.
Effective
with the sale of its EDI operation in October 2005, the Company’s planned
principal operation, the further development and marketing of its remaining
technology, has not produced any significant revenue and, as such, the Company,
beginning with the fiscal year commenced November 1, 2005, is now considered a
development stage enterprise.
2.
Basis of
Presentation
The
Company incurred net losses from continuing operations of $3,475,892 and
$2,461,976 for the fiscal years ended October 31, 2009 and 2008,
respectively. At October 31, 2009 the Company had an accumulated
deficit of $39,585,919 and is in default under the redemption provisions of its
redeemable preferred stock (Note 8). These raise substantial doubts
about the Company’s ability to continue as a going concern. The Company has been
able to secure operating capital through the sale of assets in fiscal 2005 and
in the prior and current fiscal years through loans from an individual who is a
related party and the largest stockholder, through the sale of convertible
debentures and through the sale of the Company’s common stock in various private
placement transactions.
The
Company is also negotiating with private accredited investors and with an
investment banking firm for the sale of its common stock in private placement
transactions. No assurances can be given that the Company can or will
continue to obtain sufficient working capital through the sale of the Company’s
securities, borrowing, or through the sale of assets or products that will
generate sufficient revenues in the future to sustain ongoing operations. The
Company’s ability to continue as a going concern will be dependent upon its
ability to gain access to equity and debt capital or achieve profitable
operations.
F-8
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustment that might be necessary
should the Company be unable to continue as a going concern.
3.
Summary of
Significant Accounting Policies
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiary, Micro Imaging Technology (“MIT”). As of October 31,
2005, the operations of the Company’s subsidiaries, Electropure EDI, Inc. and
Electropure Holdings, LLC, were discontinued and the Company became a
development stage company. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company invests portions of its excess cash in highly liquid investments. Cash
and equivalents include time deposits and commercial paper with original
maturities of three months or less. As of October 31, 2009 and 2008, there was
no cash or cash equivalents outstanding.
Impairment
of Long-Lived Assets
The
Company annually evaluates its long-lived assets, including identifiable
intangible assets for potential impairment. When circumstances indicate that the
carrying amount of an asset is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss is recognized. The Company’s
management has determined that there was no such impairment present at October
31, 2009 and 2008.
Stock
Based Compensation
The
Company measures share based compensation at the grant date, based on the fair
value of the award using the Black-Scholes Option Pricing Model, and recognizes
such compensation as an expense over the employee’s requisite service period
(generally the vesting period of the equity grant).
The
Company recognized share-based compensation expense of $101,234 and $323,861 on
options and warrants that vested during the fiscal years ended October 31, 2009
and 2008, respectively.
A summary
of the activity under the Company’s stock option plans are included in Note
9.
Property
and Equipment
Property
and equipment are recorded at cost and are depreciated using the straight-line
method over an expected useful life of 5 years. The leasehold improvements made
to the Company’s leased facility are being depreciated over an expected useful
life of 5 years. Expenditures for normal maintenance and repairs are charged to
operations. The cost and related accumulated depreciation of assets are removed
from the accounts upon retirement or other disposition, and the resulting profit
or loss is reflected in the Statement of Operations. Renewals and betterments
that materially extend the life of the assets are capitalized.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ from those estimates.
F-9
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
Advertising
Costs
The
Company charges advertising costs to expense as incurred. The Company
did not incur advertising expense during the fiscal years ended October 31, 2008
or 2009.
Research
and Development
Research
and development expenditures are charged to expense as they are incurred. The
Company’s research and development activities include ongoing work on various
uses of the micro imaging multi-angle laser light scattering technology.
Contract research and development expenditures are expensed as
incurred.
Fair
Value of Financial Instruments
The
estimated fair value amounts of all financial instruments on the Company’s
balance sheet have been determined by using available market information and
appropriate valuation methodologies. Fair value is described as the amount at
which the instrument could be exchanged in a current transaction between
informed willing parties, other than in a forced liquidation. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The Company does not have any off balance sheet financial
instruments.
The
following methods and assumptions were used by the Company in estimating fair
value disclosures for financial statements:
Cash and
equivalents, notes receivable, trade accounts payable, current portion of notes
payable and capital leases, and certain other current liability amounts reported
in the balance sheet approximate fair value due to the short term maturities of
these instruments.
The fair
value of non-current notes payable is estimated by determining the net present
value of future payments. The carrying amount on the balance sheet approximates
the fair value as the interest rates approximate current market
rates.
Income
Taxes
The
Company accounts for income taxes under the liability method. Under the
liability method, deferred income taxes are determined based on differences
between the financial reporting and tax bases of assets and liabilities. They
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company is required to adjust its
deferred tax liabilities in the period when tax rates or the provisions of the
income tax laws change. Valuation allowances are established to reduce deferred
tax assets to the amounts expected to be realized.
Loss
Per Share
Basic
earnings (loss) per share excludes dilution and is calculated by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then share in the earnings (loss) of the entity.
Common stock equivalents of 7,150,000 and 4.900,000 as of October 31, 2009 and
2008,
respectively, have been omitted from the earnings (loss) per share calculation,
as their effect would be antidilutive.
F-10
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
New
Accounting Pronouncements
In May
2008, the Financial Accounting Standards Board issued SFAS No. 162, “The
Hierarchy of Generally Accepted Accounting Principles,” which identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles in the
United States of America. The sources of accounting principles that
are generally accepted are categorized in descending order as
follows:
|
a)
|
FASB
Statements of Financial Accounting Standards and Interpretations, FASB
Statement 133 Implementation Issues, FASB Staff Positions, and American
Institute of Certificate Public Accountants (AICPA) Accounting Research
Bulletins and Accounting Principles Board Opinions that are not superseded
by actions of the FASB.
|
|
b)
|
FASB
Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
Accounting Guides and Statements of
Position.
|
|
c)
|
AICPA
Accounting Standards Executive Committee Practice Bulletins that have been
cleared by the FASB, consensus positions of the FASB Emerging Issues Task
Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
(EITF D-Topics).
|
|
d)
|
Implementation
guides (Q&As) published by the FASB Staff, AICPA Accounting
Interpretations, AICPA Industry Audit and Accounting Guides and Statements
of Position not cleared by the FASB, and practices that are widely
recognized and prevalent either generally or in the
industry.
|
SFAS 162
is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendments to the auditing standards contained in AU
Section 411, The Meaning
of ‘Present Fairly in Conformity With Generally Accepted Accounting
Principles. The Company does not believe that the adoption of SFAS 162
has had a material effect on its financial condition or results of
operations.
On May
28, 2009, the FASB issued FAS 165, Subsequent Events (“FAS 165”)
or ASC 855-10, Subsequent
Events (“ASC 855-10”), which requires entities to evaluate subsequent
events through the date financial statements are issued. Existing guidance on
subsequent events was part of the AICPA Auditing Standards. FAS 165 or ASC
855-10 is not intended to change existing practice. It requires entities to
recognize in the financial statements the effects of all subsequent events that
provide additional evidence about conditions that existed at the date of the
balance sheet, including estimates inherent in the process of preparing
financial statements. FAS 165 or ASC 855-10 also requires entities to disclose
the date through which subsequent events have been evaluated and the nature and
estimated financial effects of certain subsequent events. The Company
adopted FAS 165 commencing May 1, 2009. It has had no material impact
on the Company’s financial statements. The Company has evaluated
subsequent events through February 9, 2010, which is the date these financial
statements were issued.
On June
29, 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTM and the
Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB
Statement No. 162,” to supersede the existing U.S. GAAP hierarchy and establish
the FASB Accounting Standards CodificationTM (the
“FASB Codification”) as the sole source of authoritative non-governmental U.S.
GAAP. The FASB Codification does not change existing U.S. GAAP
guidance but instead provides a consistent organizational structure to simplify
user access to its contents. Hereafter, the FASB will not issue new
authoritative standards in the form of Statements, FSPs or EITF abstracts, but
will update the FASB Codification. The FASB Codification does not
replace or affect guidance issued by the SEC or its staff for public entities’
filings with the SEC. SFAS No. 168 is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. Accordingly, beginning with the Company’s annual report for the
year ended October 31, 2009, citing of authoritative accounting guidance made in
the financial statements of the Company references the appropriate subjects or
sections of the FASB Codification.
F-11
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
SFAS No.
166 eliminates the concept of qualifying special-purpose entities (“QSEPs”) and
their exemption from consolidation in the financial statements of a transferor
of financial assets. In addition, SFAS No. 166 modifies and clarifies
the conditions for derecognition of transferred financial assets, including
partial transfers and subsequent measurement of retained
interests. Enhanced disclosure also is required about financial asset
transfers and any continuing involvement of the transferor. The
Statement is effective for financial statements issued for fiscal years
beginning after November 15, 2009, and all interim periods within those fiscal
years. The Company does not expect the implementation of SFAS 166 to
have a material effect on its financial statements.
SFAS No.
167 modifies the approach and increases the frequency for assessing whether a
Variable Interest
Entity must be consolidated and requires additional disclosures about an
entity’s involvement with VIEs. SFAS 167 removes the
quantitative-based risks-and-rewards calculation for identifying the primary
beneficiary and, instead, requires a variable-interest holder to qualitatively
assess whether it has a controlling financial interest in a VIE, without
consideration of kick-out and participating rights unless unilaterally
held. Continuous reassessments of whether an enterprise is the
primary beneficiary of a VIE are required. The Statement is effective
for financial statements issued for fiscal years beginning after November 15,
2009, and all interim periods within those fiscal years. Earlier
adoption is prohibited. The Company does not expect the
implementation of SFAS 166 to have a material effect on its financial
statements.
In
September 2009, the FASB issued Accounting Standards Update (ASU)
No. 2009-12, Fair Value
Measurements and Disclosure, or ASU 2009-12. This standard provides
additional guidance on using the net asset value per share, provided by an
investee, when estimating the fair value of an alternate investment that does
not have a readily determinable fair value and enhances the disclosures
concerning these investments. Examples of alternate investments, within the
scope of this standard, include investments in hedge funds and private equity,
real estate, and venture
capital partnerships. This Standard is effective for interim and annual periods
ending after December 15, 2009. As of October 31, 2009, the Company had no
investments falling within the scope of this Standard.
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements, or ASU 2009-13. ASU 2009-13, amends existing revenue
recognition accounting pronouncements that are currently within the scope of
FASB Accounting Standards Codification, or ASC, Subtopic 605-25 (previously
included within EITF 00-21, Revenue Arrangements with Multiple
Deliverables, or EITF 00-21). The consensus to EITF Issue No. 08-01,
Revenue Arrangements with Multiple Deliverables, or EITF 08-01, provides
accounting principles and application guidance on whether multiple deliverables
exist, how the arrangement should be separated, and the consideration allocated.
This guidance eliminates the requirement to establish the fair value of
undelivered products and services and instead provides for separate revenue
recognition based upon management’s estimate of the selling price for an
undelivered item when there is no other means to determine the fair value of
that undelivered item. EITF 00-21 previously required that the fair value
of the undelivered item be the price of the item either sold in a separate
transaction between unrelated third parties or the price charged for each item
when the item is sold separately by the vendor.
This was difficult to determine when the product was not individually sold
because of its unique features. Under EITF 00-21, if the fair value of all
of the elements in the arrangement was not determinable, then revenue was
deferred until all of the items were delivered or fair value was determined.
This new approach is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15,
2010. The Company does not expect the implementation of this standard
to have a material impact on its financial position and results of
operations.
F-12
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
4.
Property, Plant
and Equipment
At
October 31, property, plant and equipment consisted of the
following:
2009
|
2008
|
|||||||
Machinery
and equipment
|
$ | 94,932 | $ | 93,632 | ||||
Furniture
and fixtures
|
74,326 | 74,326 | ||||||
Leasehold
improvements
|
70,370
|
70,370
|
||||||
239,628 | 238.328 | |||||||
Less:
accumulated depreciation
|
(194,057 | ) | (166,193 | ) | ||||
Total
property and equipment, net
|
$ | 45,571 | $ | 72,135 |
Depreciation
expense for the years ended October 31, 2009 and 2008 was $27,864 and $27,732,
respectively.
5.
Convertible
Debentures
Divine
Capital Markets
On March
27, 2008, the Company entered into a Securities Purchase Agreement with Divine
Capital Markets which acted as a Placement Agent seeking buyers for a minimum
amount of $250,000 and a maximum aggregate amount of $800,000 of secured
convertible debentures from the Company. Between April 17, 2008 and
October 31, 2008, the Company sold a total of $460,000 in such debentures
bearing interest at 6% per annum. As of October 31, 2009, the Company
had expensed $33,745 in interest. The debentures mature on the third
anniversary of the final closing date on which the final debentures are sold as
determined by the Placement Agent. The debentures were secured by the
Company’s intellectual property and are convertible at any time at the option of
the holder into the Company’s common stock at a fair market value of 75% of the
lowest closing bid price per share for the 20 trading days immediately preceding
conversion. The debentures are also redeemable by the
Company: 1) if before six months at 120% of the principal value, plus
interest; or 2) if after six months, at 131% of principal, plus
interest.
The
Company paid a total of $97,800 in cash fees and commissions relating to these
debentures and issued 600,000 shares of common stock as a commission to the
Placement Agent valued at $240,000, or $0.40 per share. The fees and
commissions to be expensed over the life of the loans. The intrinsic
value of the beneficial conversion feature (which represents the 25% discount in
the conversion price of the common stock) was determined to be $153,333 and was
to be amortized over the three-year life of the
loans. However, the Company accelerated amortization when
the debentures were converted in September 2009 and fully expensed the remaining
balance at that time.
Between
December 15, 2008 and February 18, 2009, various holders elected to convert a
total of $50,000 in principal debentures at conversion prices ranging from
$0.009 to $0.0128 per share. The Company issued a total of 5,058,474
shares of common stock pursuant to such conversations.
On
September 3, 2009, the Company issued a total of 5,899,997 shares of common
stock in full settlement of all remaining principal and interest due the
debenture holders. The Company realized a gain on settlement of
$151,860. See Note 10 – “Litigation and Claims.”
Anthony
M. Frank
In
December 2008, the Company authorized a private offering to sell up to
$2,500,000 in convertible debentures. On December 15, 2008, the
Company entered into a Securities Purchase Agreement with Anthony M. Frank to
purchase $300,000 of the convertible debentures, the payment for which the
Company received between December 18, 2008 and February 17, 2009. The
debentures mature on the third anniversary of the final closing date on which
the final debentures are sold. The debentures are convertible at any
time at the option of the holder into the Company’s common stock at a fair
market value of 80% of the lowest closing bid price per share for the 20 trading
days immediately preceding conversion. The debentures are also
redeemable by the Company: 1) if before six months at 120% of the
principal value, plus interest; or 2) if after six months, at 131% of principal,
plus interest.
F-13
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
On
February 27, 2009, Mr. Frank elected to convert all of the above $300,000 in
debentures, plus $3,288 in interest accrued thereon, into common stock at
$0.0096 per share. He received a total of 31,592,467 shares upon the
conversion. The intrinsic value of the beneficial conversion feature
(which represents the 20% discount in the conversion price of the common stock)
for the debentures purchased by Mr. Frank was determined to be $150,000 and was
fully amortized when the debentures were converted in February
2009.
On March
16, 2009, Mr. Frank purchased an additional $75,000 debenture for which the
Company has expensed $4,705 in accrued interest as of October 31,
2009. The intrinsic value of the beneficial conversion feature,
$25,000, is being amortized over the three-year life of the
debenture.
6.
Notes Payable
to an Officer and Stockholders
At
October 31, 2009 and 2008, notes payable to an officer and to the majority
stockholder consisted of the following:
2009
|
2008
|
|||||||
Unsecured
convertible note payable to major stockholder; principal and interest at
6% due on March 10,2010.
|
$ | 64,000 | $ | — | ||||
Unsecured
notes payable to stockholder of the Company; principal and interest at 6%
due on demand.
|
60,000 | — | ||||||
Unsecured
notes payable to officer/director of the Company; principal and interest
at 6% due on demand.
|
95,000 | — | ||||||
Note
payable to major stockholder, collateralized by the Company’s public shell
structure; principal and interest at 12% due in full on March 5,
2009.
|
$ | — | $ | 250,000 | ||||
Unsecured
notes payable to officer/director of the Company; principal and interest
at 8% due on demand.
|
— |
68,000
|
||||||
219,000 | 318,000 | |||||||
Less
current maturities
|
$ | 219,000 |
$
|
318,000
|
||||
Long
term portion of notes payable
|
$ | — | $ | — |
7.
Income
Taxes
At
October 31, the components of the income tax expense are as
follows:
2009
|
2008
|
|||||||
Current
tax expense:
|
||||||||
Federal
|
$ | — | $ | — | ||||
State
|
1,600
|
1,600
|
||||||
Total
corporate tax expense
|
1,600 | 1,600 | ||||||
Deferred
tax expenses:
|
||||||||
Federal
|
— | — | ||||||
State
|
—
|
—
|
||||||
Total
provision:
|
$ | 1,600 | $ | 1,600 |
F-14
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
Significant
components of the Company’s net deferred income tax assets/ (liabilities) at
October 31 were as follows:
2009
|
2008
|
|||||||
Current
deferred tax assets:
|
||||||||
Accrued
vacation
|
$ | — | $ | 1,000 | ||||
Book
compensation for options and warrants
|
— | 37,000 | ||||||
Other
|
— | 1,000 | ||||||
Total
current deferred tax assets
|
— | 39,000 | ||||||
Valuation
allowance
|
— | (39,000 | ) | |||||
Net
deferred current tax assets
|
$ | — | $ | — | ||||
Noncurrent
deferred tax assets:
|
||||||||
Net
operating loss carryforward
|
$ | 9,850,000 | $ | 8,755,000 | ||||
Other
credit carryforward
|
165,000 | 165,000 | ||||||
Depreciation
and amortization
|
— | 4,000 | ||||||
Total
noncurrent deferred tax assets
|
10,015,000 | 8,924,000 | ||||||
Valuation
allowance
|
(10,015,000 | ) | (8,924,000 | ) | ||||
Net
deferred noncurrent tax assets
|
— | — | ||||||
Total
deferred tax assets
|
$ | — | $ | — |
The
Company, based upon its history of losses and management’s assessment of when
operations are anticipated to generate taxable income, has concluded that it is
more likely than not that none of the net deferred income tax assets will be
realized through future taxable earnings and has established a valuation
allowance for them. The change in the total valuation allowance for the year
ended October 31, 2009 and 2008 was a decrease of $1,095,000 and $629,000,
respectively.
Reconciliation
of the effective income tax rate to the U.S. statutory income tax rate is as
follows:
2009
|
2008
|
|||||||
Tax
expense at U.S. statutory income tax rate
|
(34.0
|
)%
|
(34.0
|
)%
|
||||
State
tax
|
(5.8
|
)%
|
(5.8
|
)%
|
||||
Utilization
of net operating loss
|
0
|
%
|
0
|
%
|
||||
Change
in beginning balance of valuation allowance
|
39.8
|
%
|
39.8
|
%
|
||||
Effective
income tax rate
|
—
|
%
|
—
|
%
|
As of
October 31, 2009, the Company has federal and state net operating loss
carryforwards of $24,750,000 and $9,890,000, respectively. The
federal and state net operating loss carryforwards began
expiring through 2028. The Company also has federal and
state research and development tax credit carryforwards of $166,000 and
$130,000, respectively.
F-15
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
8.
Stockholders’
Deficit
Common
Stock
On June
29, 2005, the Company entered into a one-year arrangement with Michael Brennan
for administrative, public relations and financial services. In addition to a
$5,000 per month consulting fee, the Company issued 50,000 shares of common
stock to Mr. Brennan each month and granted him three-year warrants to purchase:
(a) 100,000 shares of common stock at an exercise price of $0.10 per share and
(b) 100,000 shares at $0.25 per share. On August 2, 2006, Mr. Brennan was named
Chief Executive Officer and was appointed to the Company’s Board of
Directors. His compensation arrangement continued under the same
terms of the 2005 consulting agreement, but included an increased consulting fee
of $15,000 per month; and the annual issuance of a two-year option to purchase
100,000
shares of common stock at $0.30 per share; and, from September 1 to December 31,
2007, the issuance of 50,000 shares of the common stock of the Company’s Nevada
subsidiary per month. During the twelve months ended October 31,
2009, pursuant to his compensation arrangement, Mr. Brennan received 600,000
shares of the Company’s common stock with an aggregate fair market value of
$40,023 issued at prices ranging from $0.012 to $0.152 per share and options to
purchase 100,000 shares of common stock with a fair market value of
$14,772. During fiscal 2008, Mr. Brennan received 600,000 shares of
common stock under his compensation arrangement with an aggregate fair market
value of $130,250 issued at prices ranging from $0.14 to $0.35 per share;
100,000 shares of the subsidiary’s common stock valued at $100; and options to
purchase 100,000 shares of common stock with a fair market value of
$23,702.
Also
between November 1, 2008 and October 31, 2009, the Company issued a total of
300,000 common shares to a consultant pursuant to a consulting
arrangement. Such shares were issued at prices ranging from $0.012 to
$0.152 per share and were expensed at a total cost of $20,011. During
fiscal 2008, this consultant received an additional 300,000 common shares of the
Company at prices ranging from $0.14 to $0.35 per share, valued at $62,625;
50,000 shares of common stock of the Company’s subsidiary, valued at $50; and
250,000 shares of common stock issued under the Company’s 2009 Employee Benefit
Plan with a fair market value of $20,000, or $0.08 per share.
Between
December 18, 2007 and September 19, 2008, the Company sold 1,100,000 shares of
common stock at $0.12 per share to an unaffiliated accredited investor for net
proceeds of $132,000.
On March
17, 2008, the Board of Directors authorized an issuance of 500,000 shares of
common stock each to Michael Brennan, Chief Executive Officer, and Victor
Hollander, Director, for services rendered. The shares were issued
under the 2008 Employee Benefit Plan for a total fair market value of $270,000,
or $0.27 per share. Messrs. Brennan and Hollander each received an
additional 1,000,000 shares of common stock on October 2, 2008 under the 2009
Employee Benefit Plan. The fair market value of the latter share
issuance was determined to be $100,000, or $0.05 per share.
In April
2008, pursuant to a Securities Purchase Agreement, the Company issued 600,000
shares of common stock to the Placement Agent which assisted in selling $460,000
in convertible debentures for the Company between April and October
2008. The fair market value of the shares was $240,000, or $0.40 per
share.
On April
22, 2008, the Company issued 200,000 shares of common stock upon the exercise of
warrants at $0.06 per share. The $12,000 purchase price for the
warrants, which were issued in 2006 to the Company’s legal counsel, was paid by
crediting the Company in that amount for outstanding fees for services
rendered.
On May 1,
2008, the Board of Directors authorized the formation of the 2008 Employee
Incentive Stock Program and authorized the issuance of a total of 584,472 shares
of common stock under the Plan to various individuals, including officers and
directors, in exchange for cancellation of loans and interest as well as fees
and expenses due them from the Company. The fair market value of the
stock on the grant date was $0.30 per share in cancellation of $175,342 in
accrued debt.
On June
9, 2008, the Board of Directors authorized the issuance of 1,000,000 shares of
common stock in equal amounts of 500,000 shares to two consultants pursuant to
their consulting agreements. The fair market value of the shares on
the grant date was $0.28 per share.
On June
24, 2008, the Company issued 275,000 shares of common stock in connection with
the engagement of a firm providing investment consulting
services. The fair market value of the shares on the transaction date
was $68,750, or $0.25 per share.
On August
4, 2008 and on August 28, 2008, the Company’s largest shareholder, Anthony M.
Frank, purchased 180,000 shares of common stock in private transactions for
$0.1667 per share. The Company received a total of $60,000 in the two
transactions and issued at total of 360,000 shares to Mr.
Frank.
F-16
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
On
December 1, 2008, Michael Brennan converted a total of $128,996 in accrued fees,
expenses, principal loans and interest into 1,250,000 shares of common
stock.
On
December 15, 2008, the Company’s majority stockholder converted $400,000 in
principal loans into 8,783,416 shares of common stock and forgave $39,746 in
interest accrued on the loans.
Between
December 15, 2008 and February 18, 2009, the Company issued a total of 5,058,474
shares of common stock upon the conversion of $50,000 in principal debentures
sold by the Company during fiscal 2008.
On
February 5, 2009, the Company granted a total of 12 million shares of common
stock to various officers, directors and consultants to the Company for services
rendered.
On
February 5, 2009, a member of the Board of Directors, Victor Hollander,
converted $19,329 in accrued fees and expenses into 1,257,189 shares of common
stock.
Also on
February 5, 2009, a consultant to the Company converted $6,319 in unpaid fees
and expenses into 420,962 shares of common stock.
On
February 27, 2009, the Company major stockholder converted $300,000 in principal
debentures and $3,370 in accrued interest into 31,592,467 shares of common
stock.
On April
1, 2009, the Company issued 175,000 shares of common stock in payment for
services rendered in 2008 by a previous selling agent in conjunction with a
private offering of the Company’s securities.
On May 1,
2009, the Company issued 500,000 shares of common stock, valued at $28,088 to
Michael Brennan, for additional services rendered in efforts to secure financing
on behalf of the Company.
On June
12, 2009, the Company issued 2 million shares of common stock to a consultant
for marketing services rendered. The shares were valued at $233,000
on the date of issuance.
On June
25, 2009, the Company realized proceeds of $100,000 from the sale of 2 million
shares of stock in a private placement transaction with one
individual.
On July
16, 2009, the Company’s Board of Directors authorized the issuance of 6,100,000
shares of common stock to various officers, directors, employees and consultants
to the Company for services rendered. The fair market value of the
shares on the date of issuance was $0.1545 per share.
On
September 3, 2009, the Company issued 5,899,997 shares of common stock to
convert $410,000 in principal and $33,745 in accrued interest to settle a
lawsuit brought by convertible debenture holders.
On
October 2, 2009, for $75,000 in services rendered, the Company issued 1,071,429
shares of common stock to a consulting firm.
Redeemable Preferred
Stock
The
redeemable preferred stock, issued in 1987 to the then holders of the common and
Class B common stock, had a redemption date in 1991. The redeemable preferred
stock has not been redeemed due to a lack of “legally available funds.”
These shares must be redeemed by the Company as soon as possible for $0.01 per
share at any time the Company has the “legally available funds” for the
redemption. There was a conversion feature to this redeemable preferred stock,
which, with the passing of time, has lapsed. The Company believes the definition
of “legally available funds” to be the amount under California law from which
dividends could be paid by a corporation that does not have retained earnings.
In general, California law provides that to the extent a corporation’s assets,
excluding intangible and deferred assets, are at least equal to (a) the amount
of the proposed distribution, and (b) 1.25 times its liabilities, excluding
deferred taxes, deferred income, and deferred credits, a corporation may pay
dividends. Under this definition, the Company had “legally available funds” as
of October 31, 2000 and 1999. As a result, the Company is in default under the
redemption provisions of the redeemable preferred stock.
F-17
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
The
redeemable preferred stock is not assignable or transferable, except upon death
or upon approval of a majority of the members of the Board of Directors not
holding such shares and is not entitled to receive any dividends.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of Preferred Stock, $1.00 par
value. The terms of the Preferred Stock, or any series thereof, may
be determined from time to time by the Board of Directors. Such
shares may be convertible into Common Stock and may have rank superior to the
Common Stock in the payment of dividends, liquidation rights, voting and other
rights, preferences and privileges. Future shares of Preferred Stock
may be issued by the Company without submitting a proposal regarding the
issuance of such shares to a vote of holders of Common Stock. The
Company in the future could issue Preferred Stock in a situation designed to
discourage a tender offer. The Company has no present plans to issue
any shares of Preferred Stock.
In
January 2001, the Board of Directors authorized 250,000 shares of Series C
preferred stock. Each share of Series C preferred stock is
convertible at the option of the holder into four (4) shares of common
stock. As of October 31, 2009, there were no shares of Series C
preferred stock issued or outstanding.
Also in
January 2001, the Board of Directors authorized 500,000 shares of Series D
preferred stock each of which is convertible into two (2) shares of common stock
at the option of the holder. There were no shares of Series D
preferred stock issued or outstanding at October 31, 2009.
Voting
Rights
Each
share of the Company’s common stock and redeemable preferred stock is entitled
to one vote per share. Shares of the Company’s Series C and Series D convertible
preferred stock carry no voting rights.
Liquidation
Preferences
In the
event of liquidation or dissolution of the Company, the holders of the common
stock and redeemable preferred stock shall be entitled to receive an equal
amount per share, provided, however, in no instance shall a share of redeemable
preferred stock receive more than $0.01 per share.
In any
liquidation or dissolution of the Company, the holder of the Series C
convertible preferred stock will be entitled to a liquidation preference of $4
per share.
In any
liquidation or dissolution of the Company, the holder of the Series D
convertible preferred stock will be entitled to a liquidation preference of $2
per share.
9.
Stock Options and
Warrants
Common Stock
Options
In May
1999, the Company adopted the Micro Imaging Technology, Inc. 1999 stock option
plan (the “plan”), for officers, directors, employees, consultants, and advisors
of the Company. The plan provides two types of options: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options. The plan authorizes the granting
of options up to 1,000,000 shares of common stock. The exercise price per share
on options granted may not be less than the fair market value per share of the
Company’s common stock at the date of grant. The exercise price per share of
Incentive stock options granted to anyone who owns more than 10% of the voting
power of all classes of the Company’s common stock must be a minimum of 110% of
the fair market value per share at the date of grant. The options exercise price
may be paid in cash or its equivalent including cashless exercises as determined
and approved by the plan administrator. The term of each Incentive stock option
granted is fixed by the plan administrator and shall not exceed 10 years, except
that for those who own 10% of the voting power of the Company the term of the
option may be no more than five (5) years. Non-qualified stock options may not
be granted for more than ten years. The vesting period for both Incentive stock
options and Non-qualified stock options is determined by the administrator at or
after the date of grant. All remaining options available under the
Plan, 140,000, were granted under this plan to an employee during the fiscal
year ended October 31, 2008.
F-18
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
In
September 2007, the Company’s subsidiary adopted the Micro Imaging Technology
2007 Stock Option Plan authorizing the granting of options up to 3,000,000
shares of common stock. This plan is otherwise identical to the above
1999 plan of its parent company in eligibility requirements, types of options
and other terms and conditions. There have been no options
granted under this plan to date.
The
Company adopted the Micro Imaging Technology 2008 Employee Benefit Plan (the
“Benefit Plan”) effective December 3, 2007. Under the plan, the
Company can grant up to three (3) million shares of common stock or options to
purchase common stock to eligible employees, directors, officers, consultants or
advisors. Eligibility and terms of each grant is determined by the
Board of Directors. Between September 2007 and March 2008, all three
(3) million shares of common stock authorized under the Benefit Plan were issued
to Michael Brennan (1,750,000 shares) and Victor Hollander (1,250,000 shares)
for services rendered.
In May
2008, the Company adopted the Micro Imaging Technology 2008 Employee Incentive
Stock Plan (“Stock
Plan”) effective May 2, 2008. Similar to the above-referenced Benefit
Plan, the Stock Plan permits the Company to grant up to three (3) million shares
of common stock or options or purchase common stock to eligible employees,
directors, officers, consultants or advisors. The Board of
Directors authorized the issuance of 584,472 shares of common stock under the
Stock Plan in May 2008 to various individuals, including officers and directors,
in exchange for cancellation of loans and interest as well as fees and expenses
due them from the Company. The FMV of the stock on the grant date was
$0.30 per share in cancellation of $175,342 in accrued debt. An
additional 2,000,000 shares were issued under the Stock Plan on June 12, 2009 to
a consultant. See Note 8 – “Common Stock.”
The
Company adopted the 2009 Employee Benefit Plan in October 2008. Under
the Plan, the Company can grant up to four (4) million shares of common stock of
options to purchase common stock to eligible employees, directors, officers,
consultants or advisors. Eligibility and terms of each grant is
determined by the Board of Directors. The Company issued 2,250,000
shares of common stock during the fiscal year ended October 31, 2008 and 500,000
shares of common stock on May 1, 2009 under the Plan. See Note 8 –
“Common Stock.”
The
following table summarizes information about options granted under the Company’s
equity compensation plans and otherwise to employees, directors and consultants
of the Company. Generally, options vest on an annual pro rata basis over various
periods of time and are exercisable, upon proper notice, in whole or in part at
any time upon vesting. Typically, unvested options terminate when an employee
leaves the Company. The options granted have contractual lives ranging from
three to ten years.
F-19
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding
at October 31, 2007
|
1,435,000 | $ | 0.36 | 4.3 | $ | — | ||||||||||
Granted
|
2,800,000 | 0.12 | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Expired
|
(75,000 | ) | 0.17 | |||||||||||||
Canceled
|
—
|
—
|
|
|
||||||||||||
Outstanding
at October 31, 2008
|
4,160,000 | 0.16 | 3.0 | $ | — | |||||||||||
Granted
|
2,200,000 | 0.12 | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Expired
|
(310,000 | ) | 0.28 | |||||||||||||
Canceled
|
—
|
—
|
|
|
||||||||||||
Outstanding
at October 31, 2009
|
6,050,000 | $ | 0.11 | 2.8 | $ | 74,040 |
The
values of the consideration received were based on the values of the options
granted. The values of the options were estimated using the
Black-Scholes Option Pricing Model with the following weighted average
assumptions for grants made in 2009 and 2008.
2009
|
2008
|
|||||||
Risk-free
interest rate
|
1.96
|
%
|
2.88
|
%
|
||||
Expected
dividend yield
|
—
|
—
|
||||||
Expected
stock price volatility
|
3.21
|
2.79
|
||||||
Expected
life in years
|
4
years
|
3
years
|
Summary
information about the Company’s options outstanding at October 31, 2009 is set
forth in the table below. Options outstanding at October 31, 2009
expire between August 2010 and January 2016.
Range of
Exercise
Prices
|
Options
Outstanding
October 31,
2009
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
October 31,
2009
|
Weighted
Average
Exercise
Price
|
|||||||||
$
|
0.02
- $0.15
|
5,050,000
|
3.0
|
$
|
0.07
|
5,000,000
|
$
|
0.07
|
||||||
$
|
0.24
- $0.30
|
950,000
|
2.2
|
$
|
0.29
|
950,000
|
$
|
0.29
|
||||||
$
|
0.78
|
50,000
|
0.8
|
$
|
0.78
|
50,000
|
$
|
0.11
|
||||||
TOTAL:
|
6,050,000
|
6,050,000
|
Total
estimated unrecognized compensation from unvested stock options as of October
31, 2009 was approximately $6,500 which is expected to be recognized over a
weighted average period of approximately 1.2 years.
Common
Stock Warrants
The
Company accounts for stock-based compensation awards to non-employees based upon
fair values at the grant dates. The consideration received for the issuance of
stock purchase warrants (“warrants”) is based on the fair value of the warrants
or of the goods or services received for the warrants issued, whichever is more
reliably measurable.
When the
value of the services is based on the fair value of the warrants, the value is
calculated using the Black-Scholes Option Pricing Model. The fair value of the
options or warrants is expensed as the services are provided.
F-20
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
During
the fiscal years ended October 31, 2008 and 2009, the Company granted warrants
as follows:
On
September 18, 2008, the Company granted three-year warrants to purchase 500,000
shares of common stock to a consultant in consideration for services
rendered. The warrants vest in full as of the grant date with an
exercise price of $0.10 per share. The fair market value of these
warrants was also recorded as consulting expense in the amount of $39,320 ($0.08
per share) as of the fiscal year ended October 31, 2008.
On May 1,
2009, the Company granted a three-year warrant to purchase 500,000 shares of
common stock at $0.03 per share to a consultant for services
rendered. The fair market value of the warrants, $44,920, was
recorded as consulting expense as of the fiscal year ended October 31,
2009.
The
following table summarizes the information relating to warrants granted to
non-employees as of October 31, 2009 and 2008 and changes during the years then
ended. Warrants outstanding at October 31, 2009 expire between July
2010 and May 2012.
|
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
|||||
Outstanding
at October 31, 2007
|
1,115,000
|
$
|
0.22
|
||||
Granted
|
500,000
|
0.10
|
|||||
Exercised
|
(200,000
|
)
|
0.06
|
||||
Expired
|
(675,000
|
)
|
0.26
|
||||
Outstanding
at October 31, 2008
|
740,000
|
0.15
|
|||||
Granted
|
500,000
|
0.03
|
|||||
Exercised
|
—
|
—
|
|||||
Expired
|
(140,000
|
)
|
0.41
|
||||
Outstanding
at October 31, 2009
|
1,100,000
|
$
|
0.06
|
All of
the 75,000 outstanding warrants issued by the Company’s subsidiary had expired
as of the fiscal year ended October 31, 2008.
The
values of the consideration received were based on the values of the warrants
granted. The values of the warrants were estimated using the Black-Scholes
Option Pricing Model with the following weighted average assumptions for grants
made in 2009 and 2008:
2009
|
2008
|
|||||||
Risk-free
interest rate
|
2.03
|
%
|
2.67
|
%
|
||||
Expected
dividend yield
|
—
|
—
|
||||||
Expected
stock price volatility
|
3.40
|
2.79
|
||||||
Expected
life in years
|
3
years
|
3
years
|
F-21
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
Summary
information about the Company’s warrants outstanding at October 31, 2009 is as
follows:
Range of
Exercise
Prices
|
Warrants
Outstanding
October 31,
2009
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Warrants
Exercisable
October 31,
2009
|
Weighted
Average
Exercise
Price
|
||||||||||||||||
$
|
0.03
|
500,000
|
2.5
|
$
|
0.03
|
500,000
|
$
|
0.03
|
|||||||||||||
$
|
0.06
- $ 0.10
|
600,000
|
1.7
|
$
|
0.09
|
600,000
|
$
|
0.06
|
|||||||||||||
TOTAL:
|
1,100,000
|
1,100,000
|
10. Litigation and
Claims
Effective
September 3, 2009, the Company settled all claims and counterclaims asserted in
a lawsuit brought in New York State Supreme Court by Divine Capital Partners,
LLC arising from the issuance of convertible debentures. Neither side admitted
any liability in connection with the settlement. As part of the
settlement, a group of debenture holders agreed to extinguish their existing
rights under $410,000 in principal debentures and $33,745 in interest in
exchange for the immediate issuance of 5,899,997 unrestricted common shares of
Micro Imaging stock. The settlement also provided for the release of any legal
claim or interest by the debenture holders with respect to patents and patent
rights which have been held by Micro Imaging. Pursuant to the
settlement, the Company realized a gain of $151,860 on penalties and additional
interest waived by the debenture holders.
11.
Commitments and
Contingencies
Facilities
Agreement
In
January 2006, the Company entered into a one-year agreement to lease a 4,100 sq.
ft. facility in San Clemente, California at a rate of $3,650 per month
commencing on April 1, 2006. The lease provides the Company with an
option to extend the lease for additional one-year terms through March 31,
2012. The lease was extended in on May 1, 2009 for an additional year
and the lease payment increased to $3,895 per month. However, the
lessor provided the Company a $974 discount on the monthly rate for the first
four months of the extension.
Future
minimum facilities lease payments as of October 31, 2009 are as
follows:
2010
|
$
|
19,475
|
||
2011
|
$
|
—
|
Employment
Contracts
(a) Michael
W. Brennan
Effective
August 2, 2006, the Company entered into a five-year employment agreement with
Michael Brennan, the Company’s Chief Executive Officer that provides for a
$5,000 monthly cash payment and 50,000 shares of the Company’s common stock for
each month of service. The cash compensation to Mr. Brennan increased
to $15,000 per month effective on November 1, 2008. For each year of
service, Mr. Brennan will also be granted a two-year warrant to purchase 100,000
shares of common stock at an exercise price of $0.30 per share. Such
warrants are to vest at the conclusion of each year of
service. Between September 1 and December 31, 2007, Mr. Brennan also
received 50,000 shares of the common stock of the Company’s subsidiary per
month. See also Note 14 - “Subsequent Events.”
(b) George R.
Farquhar
Effective
August 1, 2006, the Company entered into a five-year employment arrangement with
Mr. Farquhar to provide consulting services in connection with administrative
activities, as well as financial and marketing matters. The agreement
provides for a $5,000 monthly cash payment and 25,000 shares of common stock for
each month of service. If the agreement is terminated by the Company,
Mr. Farquhar is entitled to one year of monthly cash
payments. Effective August 1, 2007, Mr. Farquhar’s cash
compensation was increased to $7,500 per month and, between September 1 and
December 31, 2007, he also received 25,000 shares of the common stock of the
Company’s subsidiary per month. See also Note 14 - “Subsequent
Events.”
F-22
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
October
31, 2009 and October 31, 2008
12.
Related Party
Transactions
See Notes
6, 8, 9, 11, and 14 for related party transactions.
13. Employee Retirement
Plan
Commencing
on January 1, 2005, the Company sponsored a Simple IRA retirement plan which
covers substantially all qualified full-time employees. Participation
in the plan is voluntary, and employer contributions are determined on an annual
basis. Currently employer contributions are being made at the rate of
3% of the employees’ base annual wages. The Company’s contribution to
the IRA plan was $8031 and $4,701 for the fiscal years ended October 31, 2008
and 2009, respectively.
14.
Subsequent
Events (Unaudited)
In
accordance with this consulting arrangement, between November 1, 2009 and
December 31, 2009, the Company issued 100,000 shares of common stock to its
Chief Executive Officer, Michael Brennan.
The
Company issued a total of 50,000 shares of common stock between November 1 and
December 31, 2009 to a consultant to the Company under the terms of his
consulting agreement.
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of legal fees accrued between May and October 2009 in regard to
the Divine Capital litigation.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of legal fees accrued between July 2007 and October
2009.
Between
November 27, 2009 and January 12, 2010, the Company issued 2,000,000 shares of
common stock as partial consideration for $100,000 in loans received from three
lenders.
On
January 7, 2010, the Board of Directors approved the establishment of the
Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. The Board also authorized the issuance under
the plan of up to 2 million shares to a consultant for services.
F-23
Unaudited Financial
Statements of Micro Imaging Technology, Inc.
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Condensed
Consolidated Balance Sheet
April 30,
2010
(Unaudited)
ASSETS
|
||||
Current
assets:
|
||||
Cash
|
$ | 6,254 | ||
Inventories
|
90,904 | |||
Prepaid
expenses
|
187,690 | |||
Total
current assets
|
284,848 | |||
Fixed
assets, net
|
31,830 | |||
Unamortized
prepaid costs and fees related to issuance of convertible
debentures
|
11,729 | |||
Total
assets
|
$ | 328,407 | ||
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
||||
Current
liabilities:
|
||||
Notes
payable to stockholder
|
$ | 749,000 | ||
Trade
accounts payable
|
401,715 | |||
Accounts
payable to officers and directors
|
56,043 | |||
Accrued
payroll
|
148,726 | |||
Other
accrued expenses
|
59,554 | |||
Total
current liabilities
|
1,415,038 | |||
Long
term liabilities:
|
||||
Convertible
debentures
|
75,000 | |||
Redeemable
convertible preferred stock, $0.01 par value; 2,600,000 shares authorized,
issued and outstanding at April 30, 2010.
|
26,000 | |||
Total
long term liabilities
|
101,000 | |||
Total
liabilities
|
1,516,038 | |||
Commitments
and contingencies
|
||||
Stockholders'
(deficit):
|
||||
Common
stock, $0.01 par value; 500,000,000 shares authorized; 142,094,187 shares
issued and outstanding at April 30, 2010.
|
1,420,942 | |||
Additional
paid-in capital
|
38,337,077 | |||
Equity
attributable to non-controlling interest
|
16,915 | |||
Accumulated
deficit from previous operating activities
|
(27,809,201 | ) | ||
Deficit
accumulated during the development stage
|
(13,153,365 | ) | ||
Total
stockholders' (deficit)
|
(1,187,632 | ) | ||
Total
liabilities and stockholders' (deficit)
|
$ | 328,406 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
F-24
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Condensed
Consolidated Statements of Operations
For the
Six Months Ended April 30, 2010 and the
Cumulative
period from November 1, 2005 through April 30, 2010
(Unaudited)
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
Six months ended
|
through
|
|||||||||||
April 30,
|
April 30, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Sales
|
$ | - | $ | - | $ | 58,000 | ||||||
Cost
of Sales
|
- | - | 29,886 | |||||||||
Gross
profit
|
- | - | 28,114 | |||||||||
Operating
costs and expenses:
|
||||||||||||
Research
and development
|
308,622 | 475,223 | 3,964,743 | |||||||||
Sales,
general and administrative
|
457,193 | 430,293 | 5,414,398 | |||||||||
Total
operating expenses
|
765,815 | 905,516 | 9,379,141 | |||||||||
Loss
from operations
|
(765,815 | ) | (905,516 | ) | (9,351,027 | ) | ||||||
Other
income (expense):
|
||||||||||||
Interest
income
|
1 | - | 11,354 | |||||||||
Interest
expense
|
(609,232 | ) | (711,506 | ) | (3,969,958 | ) | ||||||
Other
income (expense), net
|
- | 39,746 | 164,267 | |||||||||
Total
other income (expense), net
|
(609,231 | ) | (671,760 | ) | (3,794,337 | ) | ||||||
Loss
from operations:
|
||||||||||||
Before
provision for income tax
|
(1,375,046 | ) | (1,577,276 | ) | (13,145,364 | ) | ||||||
Provision
for income tax
|
(1,600 | ) | (1,600 | ) | (8,000 | ) | ||||||
(1,376,646 | ) | (1,578,876 | ) | (13,153,364 | ) | |||||||
Net
loss attributable to:
|
||||||||||||
Non-controlling
interest
|
(60,030 | ) | (91,955 | ) | (941,983 | ) | ||||||
Micro
Imaging Technology, Inc. stockholders
|
(1,316,616 | ) | (1,486,921 | ) | (12,211,381 | ) | ||||||
Net
loss
|
$ | (1,376,646 | ) | $ | (1,578,876 | ) | $ | (13,153,364 | ) | |||
Net
loss per share, basic and diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | ||||||
Shares
used in computing net loss per share, basic and diluted
|
127,057,659 | 73,118,956 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
F-25
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Condensed
Consolidated Statements of Cash Flows
For the
Six Months Ended April 30, 2010 and 2009, and the
Cumulative
period from November 1, 2005 through April 30, 2010
(Unaudited)
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
Six months ended
|
through
|
|||||||||||
April 30,
|
April 30, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (1,376,646 | ) | $ | (1,578,876 | ) | $ | (13,153,364 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
13,741 | 7,102 | 112,007 | |||||||||
Amortization
of costs and fees related to convertible debentures
|
1,793 | 56,405 | 648,154 | |||||||||
Common
stock issued for services
|
368,138 | - | 1,721,515 | |||||||||
Common
stock issued to officers and directors for services
|
35,500 | 5,063 | 2,500,485 | |||||||||
Common
stock issued for shares of subsidiary stock
|
- | - | 254,000 | |||||||||
Common
stock of subsidiary issued to employees and consultants
|
- | - | 2,815 | |||||||||
Common
stock issued as a commission
|
- | - | 3,000 | |||||||||
Common
stock issued for accounts payable
|
49,018 | - | 278,583 | |||||||||
Common
stock issued to former licensee
|
- | - | 41,319 | |||||||||
Common
stock issued/recovered on cancelled agreements
|
- | - | 20,478 | |||||||||
Non-cash
compensation for stock options and warrants
|
26,740 | 747 | 590,744 | |||||||||
Costs
and fees related to issuance of convertible debt
|
555,000 | - | 457,200 | |||||||||
Interest
expense related to beneficial conversion feature
|
- | 1,944,800 | ||||||||||
Interest
paid with common stock
|
- | - | 104,836 | |||||||||
Interest
on notes receivable for common stock
|
- | - | (1,373 | ) | ||||||||
(Increase)
decrease in assets:
|
||||||||||||
Prepaid
expenses
|
(175,891 | ) | - | (162,099 | ) | |||||||
Inventories
|
- | (679 | ) | (90,904 | ) | |||||||
Increase
(decrease) in liabilities:
|
||||||||||||
Trade
accounts payable
|
32,346 | 17,054 | 277,339 | |||||||||
Accounts
payable to officers and directors
|
176,037 | 45,056 | 415,497 | |||||||||
Accrued
payroll and other expenses
|
73,330 | (27,640 | ) | 95,184 | ||||||||
Net
cash used in operating activities
|
(220,894 | ) | (1,475,768 | ) | (3,939,783 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of fixed assets
|
- | (1,300 | ) | (137,354 | ) | |||||||
Net
cash used in investing activities
|
- | (1,300 | ) | (137,354 | ) |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
F-26
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Condensed
Consolidated Statements of Cash Flows (Continued)
For the
Six Months Ended April 30, 2010 and 2009, and the
Cumulative
period from November 1, 2005 through April 30, 2010
(Unaudited)
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
Six months ended
|
through
|
|||||||||||
April 30,
|
April 30, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments on notes payable to stockholder
|
- | (11,000 | ) | (1,073,000 | ) | |||||||
Proceeds
from issuance of convertible debentures
|
- | 200,000 | 865,000 | |||||||||
Proceeds
from issuance of notes payable to a related party
|
- | 150,000 | 1,005,800 | |||||||||
Proceeds
from issuance of notes payable
|
225,000 | - | 225,000 | |||||||||
Proceeds
from issuance of common stock, net
|
- | - | 1,865,294 | |||||||||
Net
cash provided by financing activities
|
225,000 | 339,000 | 2,888,094 | |||||||||
Net
change in cash
|
4,106 | (1,138,068 | ) | (1,189,044 | ) | |||||||
Cash
at beginning of period
|
2,148 | 1,255 | 1,195,298 | |||||||||
Cash
at end of period
|
$ | 6,254 | $ | (1,136,813 | ) | $ | 6,254 | |||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||||||
Interest
paid
|
$ | 2,041 | $ | 707 | $ | 8,611 | ||||||
Income
taxes paid
|
$ | 1,600 | $ | 1,600 | $ | 17,040 | ||||||
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
||||||||||||
Beneficial
conversion feature of convertible debentures
|
$ | (6,250 | ) | $ | 116,667 | |||||||
Conversion
of notes payable, majority stockholder, to shares of common
stock
|
$ | - | $ | 400,000 | ||||||||
Common
stock issued in consideration for loans
|
$ | 305,000 | $ | - | ||||||||
Conversion
of other notes payable to shares of common stock
|
$ | - | $ | 30,000 | ||||||||
Issuance
of common stock in payment of liabilities
|
$ | - | $ | 128,996 |
The
accompanying notes are an integral part of the condensed consolidated financial
statements.
F-27
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
Forward-Looking
Statements
This
Quarterly Report, including the Notes to the Unaudited Condensed Consolidated
Financial Statements and the Management’s Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements. The
words “believe,” “expect,” “anticipate,” “intends,” “projects,” and similar
expressions identify forward-looking statements. Such statements may include,
but are not limited to, projections regarding demand for the Company’s products,
the impact of the Company’s development and manufacturing process on its
research and development costs, future research and development expenditures,
and the Company’s ability to obtain new financing as well as assumptions related
to the foregoing. Such forward-looking statements are within the meaning of that
term in Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
1.
|
Nature
of our Business, Development Stage Company and Continuance of
Operations
|
These
unaudited condensed consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America applicable to a going concern which contemplated the realization of
assets and the satisfaction of liabilities and commitments in the normal course
of business. Since inception, the Company has incurred substantial
losses and there is substantial doubt that the Company will generate sufficient
revenues in the foreseeable future to meet its operating cash
requirements. Accordingly, the Company’s ability to continue
operations depends on its success in obtaining additional capital in an amount
sufficient to meet its cash needs. This raises substantial doubt about its
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from this uncertainty.
Our
independent registered public accounting firm has included an explanatory
paragraph in its report on the financial statements for the year ended October
31, 2009 which raises substantial doubt about our ability to continue as a going
concern.
Micro
Imaging Technology, Inc. (the “Company”), a California corporation, is a holding
company whose operations are conducted through its Nevada subsidiary, Micro
Imaging Technology (“MIT”). As of April 30, 2010, the Company owns
80.7% of the issued and outstanding stock of MIT.
The
losses incurred to date which are applicable to the minority stockholders of the
Company’s consolidated subsidiary, MIT, exceed the value of the equity held by
the minority stockholders. Such losses have been allocated to the
Company as the majority stockholder and are included in the net loss and
accumulated deficit in the condensed consolidated financial statements for the
six months ended April 30, 2010. Any future profits reported by our
subsidiary will be allocated to the Company until the minority’s share of losses
previously absorbed by the Company have been recovered.
In 1997,
the Company began marketing a small, point-of-use water treatment product aimed
at the high purity segment of commercial and industrial water treatment markets.
In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned
Nevada subsidiary, through which all manufacturing and sales of its proprietary
water treatment products were then conducted. In October 2005, the Company sold
the assets of the EDI subsidiary and discontinued operations.
F-28
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
The
Company acquired, in October 1997, an exclusive license to patent and
intellectual property rights involving laser light scattering techniques to be
utilized in the detection and monitoring of toxicants in drinking water. In
February 2000, the Company formed Micro Imaging Technology (MIT), a wholly-owned
Nevada subsidiary, to conduct research and development based upon advancements
developed and patented from the licensed technology. The
technology being developed is a non-biologically based system utilizing both
proprietary hardware and software to rapidly (near real time) determine the
specific specie of an unknown microbe present in a fluid with a high degree of
statistical probability (“MIT system”). It will analyze a sample
presented to it and compare its characteristics to a library of known microbe
characteristics on file. At present, it is the Company’s only
operation.
Effective
with the sale of its EDI operation in October 2005, the Company’s planned
principal operation, the further development and marketing of its remaining
technology, has not produced any significant revenue and, as such, the Company,
beginning with the fiscal year starting November 1, 2005, is considered a
development stage enterprise.
2.
|
Basis
of Presentation
|
The
accompanying unaudited condensed consolidated financial statements include all
adjustments, consisting solely of normal recurring adjustments which management
believes are necessary for a fair presentation of the Company’s financial
position at April 30, 2010 and results of operations for the periods
presented.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with GAAP have been condensed or omitted.
Results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. The accompanying condensed
consolidated financial statements should be read in conjunction with our audited
financial statements and footnotes as of and for the year ended October 31,
2009, included in our Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission on February 16, 2010.
3.
|
Related
Party Transactions
|
See Note
5 – “Convertible Debentures”, Note 6 – “Notes Payable” and Note 9 – Subsequent
Events.”
4.
|
Summary
of Significant Accounting
Policies
|
The
accounting policies followed are as set forth in Note 1 of the Notes to
Financial Statements in the Company’s 2009 Annual Report on Form 10-KSB. The
Company has not experienced any material change in its critical accounting
policies since November 1, 2009. The Company’s discussion and analysis of its
financial condition and results of operations are based upon its consolidated
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the Company to make estimates and
judgments regarding uncertainties that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, the Company evaluates
its estimates, which are based upon historical experience and on other
assumptions that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates under different assumptions or
conditions. The Company considers the following accounting policies to be most
critical in their potential effect on its financial position or results of
operations.
Stock
Based Compensation
Stock-based
compensation costs for stock options issued to employees is measured at the
grant date, based on the fair value of the award using the Black Scholes Option
Pricing Model, and is recognized as an expense over the employee’s requisite
service period (generally the vesting period of the equity grant).
The
Company recognized stock-based compensation expense of $1,995 on options and
warrants granted in prior periods that vested during the six months ended April
30, 2010. The Company also recognized stock-based compensation
expense of $24,745 on warrants granted during February 2010.
F-29
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
In May
1999, the Company adopted the Micro Imaging Technology, Inc. 1999 stock option
plan (the “Plan”), for officers, directors, employees, consultants, and advisors
of the Company. The Plan provides two types of options: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options. The Plan authorizes the granting
of options up to 1,000,000 shares of common stock. The exercise price per share
on options granted may not be less than the fair market value per share of the
Company’s common stock at the date of grant. The exercise price per share of
Incentive stock options granted to anyone who owns more than 10% of the voting
power of all classes of the Company’s common stock must be a minimum of 110% of
the fair market value per share at the date of grant. The options exercise price
may be paid in cash or its equivalent including cashless exercises as determined
and approved by the plan administrator. The term of each Incentive
stock option granted is fixed by the plan administrator and shall not exceed 10
years, except that for those who own 10% of the voting power of the Company the
term of the option may be no more than 5 years. Non-qualified stock options may
not be granted for more than ten years. The vesting periods for both Incentive
stock options and Non-qualified stock options are determined by the
administrator at or after the date of grant. As of the fiscal year
ended October 31, 2008, all of the options available for issuance under the Plan
have been granted.
In
September 2007, the Company’s subsidiary adopted the Micro Imaging Technology
2007 Stock Option Plan authorizing the granting of options up to 3,000,000
shares of common stock. This plan is otherwise identical to the above
1999 plan of its parent company in eligibility requirements, types of options
and other terms and conditions. There have been no options
granted under this plan to date.
The
Company adopted the Micro Imaging Technology 2008 Employee Benefit Plan (the
“Benefit Plan”) effective December 3, 2007. Under the plan, the
Company can grant up to three (3) million shares of common stock or options to
purchase common stock to eligible employees, directors, officers, consultants or
advisors. Eligibility and terms of each grant is determined by the
Board of Directors. Between September 2007 and March 2008, all three
(3) million shares of common stock authorized under the Benefit Plan were issued
to Michael Brennan (1,750,000 shares) and Victor Hollander (1,250,000 shares)
for services rendered.
In May
2008, the Company adopted the Micro Imaging Technology 2008 Employee Incentive
Stock Plan (“Stock Plan”) effective May 2, 2008. Similar to the
above-referenced Benefit Plan, the Stock Plan permits the Company to grant up to
three (3) million shares of common stock or options or purchase common stock to
eligible employees, directors, officers, consultants or
advisors. Between May 2008 and November 2009, 2,634,472 shares
of common stock were issued under the Stock Plan to various individuals,
including officers and directors, in exchange for cancellation of loans and
interest as well as fees and expenses due to consultants and corporate counsel
of the Company.
The
Company adopted the 2009 Employee Benefit Plan in October 2008. Under
the Plan, the Company can grant up to four (4) million shares of common stock of
options to purchase common stock to eligible employees, directors, officers,
consultants or advisors. Eligibility and terms of each grant is
determined by the Board of Directors. The Company granted 2,250,000
options under the Plan during the fiscal year ended October 31,
2008. In May 2009, the Company granted 500,000 shares, valued at
$28,088, under the Plan to Michael Brennan. In November, 2009, the
Company issued 1,300,000 shares valued at $49,018 to legal firms rendering
services to the Company for accrued fees.
On
January 7, 2010, the Board of Directors authorized the formation of the 2010
Employee Benefit Plan which is authorized to grant up to 12 million shares of
common stock or options to purchase common stock to eligible employees,
directors, officers, consultants or advisors. Eligibility is
determined by the Board of Directors. During the six months ended
April 30, 2010, the Company issued 2 million shares of common stock under the
Plan to a consultant for services rendered in the sum of $75,000. See
Note 9 – “Subsequent Events.”
F-30
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
The
following table summarizes information about options granted under the Company’s
equity compensation plans through April 30, 2010 and otherwise to employees,
directors and consultants of the Company. Generally, options vest on an annual
pro rata basis over various periods of time and are exercisable, upon proper
notice, in whole or in part at any time upon vesting. Typically, in the case of
an employee, vested options terminate when an employee leaves the Company. The
options granted have contractual lives ranging from three to ten
years.
|
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
Aggregate
Intrinsic
Value
|
||||||||||||
Outstanding
at October 31, 2009
|
6,050,000 | $ | 0.11 | 2.8 | $ | — | ||||||||||
Granted
|
— | — | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Expired
|
— | — | ||||||||||||||
Canceled
|
— | — | ||||||||||||||
Outstanding
at April 30, 2010
|
6,050,000 | $ | 0.11 | 2.3 | $ | — |
Summary
information about the Company’s options outstanding at April 30, 2010 is set
forth in the table below. Options outstanding at April 30, 2010
expire between August 2010 and January 2016.
Range of
Exercise
Prices
|
Options
Outstanding
April 30,
2010
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
April 30,
2010
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
$ 0.02
- $0.15
|
5,050,000 | 2.7 | $ | 0.07 | 5,050,000 | $ | 0.07 | |||||||||||||
$ 0.24
- $0.30
|
950,000 | 2.0 | $ | 0.29 | 950,000 | $ | 0.29 | |||||||||||||
$ 0.78
|
50,000 | 0.5 | $ | 0.78 | 50,000 | $ | 0.78 | |||||||||||||
TOTAL:
|
6,050,000 | 6,050,000 |
As of
April 30, 2010, all outstanding options had fully vested and there was no
estimated unrecognized compensation from unvested stock options.
New
Accounting Pronouncements
The
following accounting standards updates were recently issued and have not yet
been adopted by us. These standards are currently under review to
determine their impact on our consolidated financial position, results of
operations, or cash flows.
ASU 2010-6
amends existing disclosure requirements about fair value measurements by adding
required disclosures about items transferring into and out of levels 1 and 2 in
the fair value hierarchy; adding separate disclosures about purchase, sales,
issuances, and settlements relative to level 3 measurements; and clarifying,
among other things, the existing fair value disclosures about the level of
disaggregation. ASU 2010-6 is effective for fiscal years beginning after
December 15, 2009. The adoption of this ASU has not had an impact on
our consolidated financial position, results of options or cash
flows.
In
February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855) -
Amendments to Certain Recognition and Disclosure Requirements." ASU 2010-09
requires an entity that is an SEC filer to evaluate subsequent events through
the date that the financial statements are issued and removes the requirement
that an SEC filer disclose the date through which subsequent events have been
evaluated. ASC 2010-09 was effective upon issuance. The adoption of this
standard had no effect on our consolidated financial position or results of
operations.
F-31
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
ASU
2009-17 revises the consolidation guidance for variable-interest entities. The
modifications include the elimination of the exemption for qualifying special
purpose entities, a new approach for determining who should consolidate a
variable-interest entity, and changes to when it is necessary to reassess who
should consolidate a variable-interest entity. This standard is effective for
interim and annual periods beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of this standard did not have any
impact on the Company’s consolidated financial position and results of
operations. The Company does not have any variable-interest
entities.
There
were various other updates recently issued, most of which represented technical
corrections to the accounting literature or application to specific
industries. None of the updates are expected to a have a material
impact on our consolidated financial position, results of operations or cash
flows.
5.
|
Convertible
Debentures
|
Anthony
M. Frank
In
December 2008, the Company authorized a private offering to sell up to
$2,500,000 in convertible debentures. On March 16, 2009, the
Company’s largest stockholder, Anthony M. Frank, purchased $75,000 of the
convertible debentures. The debenture matures on March 16, 2012 and
is convertible at any time at the option of the holder into the Company’s common
stock at a fair market value of 80% of the lowest closing bid price per share
for the 20 trading days immediately preceding conversion. The
debentures are also redeemable by the Company: 1) if before three
months at 120% of the principal value, plus interest; or 2) if after three
months, at 131% of principal, plus interest.
During
the six months ended April 30, 2010, expensed $3,719 in accrued interest on the
above debenture. The intrinsic value of the beneficial conversion
feature (which represents the 20% discount in the conversion price of the common
stock) was determined to be $18,750 and is being amortized over the three-year
life of the debenture. The Company expensed $1,792 of this cost
during the six months ended April 30, 2010.
6.
|
Notes
Payable
|
Between
May 1 and June 24, 2009, the Company borrowed a total of $95,000 from its Chief
Executive Officer, Michael W. Brennan. On February 15, 2010, Mr.
Brennan transferred title to $25,000 in principal loans to an unaffiliated third
party. This loan was reclassified into a convertible term note with
provisions identical to the “Convertible Term Loans” discussed below in this
Note 6. The loans from Mr. Brennan are due upon demand and accrue
interest at the rate of 6% per annum. The Company has recorded $4,802
in interest expense as of April 30, 2010 on these loans.
On June
24, 2009, an unaffiliated shareholder loaned the Company $60,000 at 6% annual
interest. The loan is due upon demand and has accrued $3,058 in
interest as of April 30, 2010.
Our
largest shareholder, Anthony M. Frank, loaned the Company $64,000 on September
23, 2009. The loan bears interest at 6% per annum and is convertible
into common stock at the option of the holder. The Company has
accrued a total of $2,336 in interest on the loan as of April 30,
2010. The loan was due on March 10, 2010 and the Company is currently
negotiating with Mr. Frank to extend the maturity date.
F-32
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
Between
November 1, 2009 and March 2010, the Company borrowed $155,000 from five
unaffiliated lenders and $20,000 from our largest stockholder. The
Convertible Term Loans mature in 12 months, bear interest at 6% per annum and
require the Company to make payments on the loans each fiscal quarter from a
sinking fund to be established from any proceeds received from operating
profits, proceeds derived from a securities purchase agreement entered into with
Ascendiant Capital Group in October 2009 (see Note 9 – “Subsequent Events”),
and/or from other equity funding. The loans are convertible, at the
option of the lender, into common stock at a 20% discount to fair market value
or $0.10 per share, whichever is greater. As additional consideration
for the loan, the lender receives restricted common stock, the number of which
is determined by dividing the principal amount of the loan by the greater of
$0.05 per share or the fair market value on the loan date. One lender
also received a two-year warrant to purchase 500,000 shares of common stock at
$0.03 per share as additional consideration for a $30,000 loan.
During
April 2010, the Company borrowed an additional $50,000 under the terms of the
above Convertible Term Loans. However, these loans provide that they
are convertible, at the option of the lender, into common stock at a 20%
discount to fair market value of $0.05 per share, whichever is
greater. One of the loans does not require the Company to establish a
sinking fund.
Including
the $25,000 loan transferred by Mr. Brennan as discussed above, as of April 30,
2010, the Company had issued 5,000,000 shares of common stock in exchange for
all of the above $250,000 in loans and has expensed $1,998 in interest accrued
on the loans. See also Note 9 – “Subsequent Events.”
On April
9, 2010, our Chief Executive Officer, Michael Brennan and our Chief Financial
Officer, Victor Hollander, converted $90,000 and $160,000, respectively, into
convertible term loans. Also on April 9, 2010, a consultant to the
Company converted $55,000 into a convertible term loan. The funds
converted represented unpaid fees and expenses that had been accrued on the
Company’s books. The terms of the loans are identical to the above
Convertible Term Loans received through March 2010 and provide for the issuance
of shares as additional consideration. Consequently, the Company
expensed $305,000 on the issuance of 6,100,000 shares of common stock
for these loans and expensed $1,053 in interest accrued on the loans as of April
30, 2010 See also Note 8 – “Securities Transactions - Common
Stock issued to Officers, Directors and Certain Consultants.”
7.
|
Employee
Retirement Plan
|
Commencing
on January 1, 2005, the Company sponsored a Simple IRA retirement plan which
covers substantially all qualified full-time employees. Participation
in the plan is voluntary and employer contributions are determined on an annual
basis. Currently employer contributions are being made at the rate of
3% of the employees’ base annual wages. The Company’s contribution to
the IRA plan for the six months ended April 30, 2010 and 2009 was $639 and
$2,840, respectively.
8.
|
Securities
Transactions
|
Common
Stock issued to Officers, Directors and Certain Consultants
During
the six months ended April 30, 2010, pursuant to his compensation arrangement,
the Company issued 300,000 shares of common stock to its Chief Executive
Officer, Michael W. Brennan, at prices ranging from $0.034 to $0.05 per
share. The aggregate fair market value of the shares was determined
to be $12,425.
The
Company issued 150,000 shares of common stock to a consultant of the Company,
during the six months ended April 30, 2010 in accordance with his compensation
arrangement. The shares were issued at prices ranging from $0.034 to
$0.05 per share, with an aggregate fair market value of $6,213.
On April
9, 2010, the Company issued 6,100,000 shares of common stock on the conversion
of an aggregate of $305,000 in fees and expenses into convertible term notes by
the Company’s Chief Executive Officer, Chief Financial Officer and a consultant
to the Company. The Company expensed $305,000 as the fair
market value of the shares issued as additional consideration.
F-33
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
On
January 7, 2010, the Board of Directors approved the establishment of the
Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. During the six months ended April 30, 2010, the
Board also authorized the issuance under the Plan of 4 million shares to two
consultant for services and expensed $155,000 in consulting fees.
On
March 17, 2010, the Company issued a total of 5,000,000 shares of common stock
to two consultants for investor relations services to be rendered over a
one-year term. The fair market value of the shares was determined to
be $200,000, or $0.04 per share, and will be amortized over one
year. The Company expensed $24,110 as consulting fees as of April 30,
2010 pursuant to the issuance of these shares and recorded the balance of the
value, or $175,890, as prepaid expenses. On April 6, 2010, the Company issued
750,000 shares of common stock in conjunction with an Investment Agreement which
it entered into on May 4, 2010 with Dutchess Opportunity Fund, II, LP (Dutchess)
and those shares were redeemed by the Company upon payment of $15,000 in cash to
Dutchess. Pursuant to the Agreement, Dutchess has committed to
purchase up to $5,000,000 of the Company’s common stock over a three-year
period. The fair market value of the stock issued to Dutchess
was determined to be $30,000. See Note 9 – “Subsequent
Events.”
Common
Stock and Warrants Issued in Consideration for Loans
Between
November 1, 2009 and April 30, 2010, the Company issued 5,000,000 shares of
common stock and warrants to purchase 500,000 shares of common stock as partial
consideration for $250,000 in convertible term loans received from various
lenders. Of such loans, $20,000 was received from our largest
stockholder and $25,000 was a loan made from our Chief Executive Officer,
Michael Brennan, if fiscal 2009 and transferred to an unaffiliaited third party
in February 2010.
Common
Stock Issued in Cancellation of Debt
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of $29,018 in legal fees accrued between May and October 2009 in
regard to litigation conducted with Divine Capital Group.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of $20,000 in legal fees accrued between July 2007 and
October 2009.
9.
|
Subsequent
Events
|
On
October 2, 2009, Micro Imaging Technology, Inc. entered into a Securities
Purchase Agreement with Ascendiant Capital Group, LLC to establish a possible
source of funding through an equity drawdown facility. Under the
Agreement, Ascendiant has agreed to purchase up to $3,000,000 of the Company’s
common stock during a 36-month period which will commence once the Company has
filed the required Registration Statement and it has been declared effective by
the Securities and Exchange Commission. The Securities Purchase
Agreement with Ascendiant Capital Group, LLC was terminated by the Company on
May 6, 2010.
On May 4,
2010, the Company entered into an Investment Agreement (“Investment Agreement”)
with Dutchess Opportunity Fund, II, LP (the “Investor”). Pursuant to
the Investment Agreement, the Investor committed to purchase up to $5,000,000 of
the Company’s common stock over thirty-six months (the “Equity
Line”). The aggregate number of shares issuable by the Company and
purchasable by Dutchess under the Investment Agreement is 125,000,000 (estimated
using the last reported sale price of the Company’s common stock on the OTC
Bulletin Board on May 4, 2010 of $0.04 per share).
F-34
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
The
Company may draw on the facility from time to time, as and when it determines
appropriate in accordance with the terms and conditions of the Investment
Agreement. The maximum amount that the Company is entitled to put in any one
notice is the greater of (i) 200% of the average daily volume (U.S. market only)
of the common stock for the three (3) trading days prior to the date of delivery
of the applicable put notice, multiplied by the average of the closing prices
for such trading days or (ii) $100,000. The purchase price shall be set at
nine-five percent (95%) of the lowest daily VWAP of the Company’s common stock
during the Pricing Period. However, if, on any trading day during a Pricing
Period, the daily VWAP of the common stock is lower than the floor price
specified by us in the put notice, then the Company reserves the right, but not
the obligation, to withdraw that portion of the put amount for each such trading
day during the Pricing Period, with only the balance of such put amount above
the minimum acceptable price being put to Dutchess. There are put restrictions
applied on days between the put notice date and the closing date with respect to
that particular put. During such time, the Company is not entitled to deliver
another put notice.
There are
circumstances under which the Company will not be entitled to put shares to
Dutchess, including the following:
|
•
|
the
Company will not be entitled to put shares to Dutchess unless there is an
effective registration statement under the Securities Act to cover the
resale of the shares by Dutchess;
|
|
•
|
the
Company will not be entitled to put shares to Dutchess unless its common
stock continues to be quoted on the OTC Bulletin Board, or becomes listed
on a national securities exchange;
|
|
•
|
the
Company will not be entitled to put shares to Dutchess to the extent that
such shares would cause Dutchess's beneficial ownership to exceed 4.99% of
our outstanding shares; and
|
|
•
|
the
Company will not be entitled to put shares to Dutchess prior to the
closing date of the preceding put.
|
The
Investment Agreement further provides that the Company and Dutchess are each
entitled to customary indemnification from the other for any losses or
liabilities we or it suffers as a result of any breach by the other of any
provisions of the Investment Agreement or our registration rights agreement with
Dutchess, or as a result of any lawsuit brought by a third-party arising out of
or resulting from the other party's execution, delivery, performance or
enforcement of the Investment Agreement or the registration rights
agreement.
The
Investment Agreement also contains representations and warranties of each of the
parties. The assertions embodied in those representations and warranties were
made for purposes of the Investment Agreement and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating the
terms of the Investment Agreement. In addition, certain representations and
warranties were made as of a specific date, may be subject to a contractual
standard of materiality different from what a stockholder or investor might view
as material, or may have been used for purposes of allocating risk between the
respective parties rather than establishing matters as facts.
The
Company also entered into a Registration Rights Agreement with Dutchess on May
4, 2010. Pursuant to the terms of a Registration Rights Agreement, the
Company is obligated to file one or more registration statements with the SEC to
register the resale by Dutchess of shares of common stock issued or issuable
under the Investment Agreement. The Company agreed to file with the SEC an
initial registration statement on Form S-1 in order to access the credit line,
covering the resale of the 11,000,000 shares of common stock which is
equal to eighteen point seven percent (18.7%) of the Company’s current public
float (where "public float" shall be derived by subtracting the number of shares
of common stock held by the Company’s officers, directors and "affiliates" (as
such term is defined in Rule 144(a)(1) of the 1933 Act) from the total number of
shares of our common stock then outstanding). The Company filed this
initial Registration Statement on May 7, 2010. The Company has agreed
that, in the event that this initial registration fails to register all of the
shares necessary to fulfill its contractual obligations, it will amend this
statement or file new registration statements. This registration process
will continue until such time as all of the dollar amounts available under the
credit line, using shares of common stock issuable under the Investment
Agreement, have been registered for resale on effective registration statements.
In no event will the Company be obligated to register for resale more than
$5,000,000 in value of shares of common stock, or 125,000,000 shares (estimated
using the last reported sale price of the Company’s common stock on the OTC
Bulletin Board on May 4, 2010 of $0.04 per share).
F-35
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Condensed Consolidated Financial Statements
April
30, 2010 and April 30, 2009
(Unaudited)
In
connection with the preparation of the Investment Agreement and the Registration
Rights Agreement, the Company issued Dutchess 750,000 shares of common stock as
a document preparation fee in the amount of $15,000. However, those shares
were redeemed by the Company upon payment of $15,000 in cash to
Dutchess.
The
Investment Agreement and Registration Rights Agreement was filed as Exhibits
10.20 and 10.21, respectively, to the Company’s Form S-1 as filed with the
United States Securities and Exchange Commission on May 7, 2010.
During
May and June 2010, the Company received an additional $155,000 in loans from
unaffiliated lenders. Similar to the convertible loans discussed
under Note 6 – “Notes Payable,” the Company issued shares of common stock as
additional consideration for the loans. A total of 3,100,000 shares
of common stock were issued for these loans.
Subsequent
events have been evaluated through June 14, 2010, which is the date these
condensed consolidated financial statements were issued.
F-36
11,000,000
SHARES
MICRO
IMAGING TECHNOLOGY, INC.
COMMON
STOCK
PROSPECTUS
Through
and including July ____, 2010 (the 25th day after the date of this prospectus),
all dealers effecting transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13.
|
Other Expenses of Issuance and
Distribution
|
The
following table sets forth expenses in connection with the issuance and
distribution of the securities being registered. All amounts shown are
estimated, except the SEC registration fee.
SEC
registration fee
|
$ | 24.56 | ||
Legal
fees and expenses
|
$ | 10,000.00 | ||
Accountants'
fees and expenses
|
$ | 10,000.00 | ||
Miscellaneous
fees
|
$ | 10,000.00 | ||
Total
|
$ | 30,024.56 |
Item 14.
|
Indemnification of Directors
and Officers
|
Our
By-laws, as amended, provide to the fullest extent permitted by California law,
our directors or officers shall not be personally liable to us or our
shareholders for damages for breach of such director's or officer's fiduciary
duty. The effect of this provision of our By-laws, as amended, is to eliminate
our right and our shareholders (through shareholders' derivative suits on behalf
of our company) to recover damages against a director or officer for breach of
the fiduciary duty of care as a director or officer (including breaches
resulting from negligent or grossly negligent behavior), except under certain
situations defined by statute. We believe that the indemnification provisions in
our By-laws, as amended, are necessary to attract and retain qualified persons
as directors and officers.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 (the
“Act” or “Securities Act”) may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In May, 2007, the Company entered into
indemnification agreements with each of the Officers and Directors of the
Corporation individually.
42
Item 15.
|
Recent Sales of Unregistered
Securities
|
The
following is a summary of transactions by us within the past three years
involving sales of our securities that were not registered under the Securities
Act. Each offer and sale was exempt from registration under either Section 4(2)
of the Securities Act or Rule 506 under Regulation D of the Securities Act
because (i) the securities were offered and sold only to accredited investors;
(ii) there was no general solicitation or general advertising related to the
offerings; (iii) each investor was given the opportunity to ask questions and
receive answers concerning the terms of and conditions of the offering and to
obtain additional information; (iv) the investors represented that they were
acquiring the securities for their own account and for investment; and (v) the
securities were issued with restrictive legends.
On
December 1, 2008, Michael Brennan converted a total of $128,996 in accrued
loans, interest, fees and expenses into 1,250,000 shares of common
stock.
Mr.
Anthony M. Frank converted $400,000 in principal loans into 8,783,416 shares of
common stock on December 15, 2008.
On
February 5, 2009, the Company’s Board of Directors authorized the issuance of 12
million shares of common stock and options to purchase 2 million shares of
common stock to various officers, directors, employees and consultants to the
Company for services rendered. The fair market value of the shares
and options was determined to be $210,458 and was expensed as of the grant
date.
On
February 5, 2009, Board member and Chief Financial Officer, Victor A. Hollander,
converted a total of $19,329 in fees and expenses into 1,257,189 shares of
common stock at the rate of $0.015375 per share.
Also on
February 5, 2009, a consultant to the Company converted $6,319 in accrued fees
and expenses into 420,962 shares of common stock at a fair market value of
$0.0154 per share.
On
February 17, 2009, we received the third installment of $100,000 from the
Company’s majority shareholder on the purchase of convertible debentures
commenced in December 2008. On February 27, 2009, our majority
shareholder converted $300,000 in convertible debentures purchased between
December 18, 2008 and February 17, 2009 into 31,592,467 shares of common
stock. The conversion price was $0.0096 per share and included $3,370
in interest accrued on the debentures.
On May 1,
2009, the Company issued 175,000 shares of common stock in payment for services
rendered by a financial consulting firm in 2008. The fair market
value of the shares was determined to be $9,262, or $0.05 per
share.
On May 1,
2009, the Company issued 500,000 shares of common stock to Chief Executive
Officer, Michael Brennan, for additional services rendered in efforts to secure
financing on behalf of the Company. The shares were issued under the
Company’s 2009 Employee Benefit Plan. The fair market value was
determined to be $0.056 per share, or an aggregate of $28,088 on the
issuance.
On May 1,
2009, for consulting services rendered, the Company granted a non-affiliated
consultant a three-year warrant to purchase 500,000 shares of common stock at
$0.03 per share and recorded a consulting expense of $44,920.
The
Company issued 2 million shares of common stock on June 12, 2009 to a consultant
for services rendered. The value of the shares, $233,000, was
recorded as a consulting expense.
On July
16, 2009, the Company’s Board of Directors authorized the issuance of 6,100,000
shares of common stock to various officers, directors, employees and consultants
to the Company for services rendered. The fair market value of the
shares was determined to be $942,450 and was expensed as of the grant
date.
43
Between
December 15, 2008 and February 18, 2009, the Company issued a total of 5,058,474
shares of common stock upon the conversion of $50,000 in principal debentures
sold through Divine Capital Markets during fiscal 2008. The prices on
the three conversion transactions ranged from $0.009 to $0.0128 per
share.
On
September 8, 2009, the Board of Directors approved a September 3, 2009
settlement of a lawsuit brought against the Company in May 2009 by purchasers of
the Company’s convertible debentures sold by Divine Capital
Markets. The Company issue 5,889,997 shares of unrestricted common
stock, valued at approximately $0.0748 per share, to the debenture holders in
full satisfaction of all claims and in full payment of the $410,000 in principal
debentures and $33,745 in interest accrued on the debentures through the
September 3, 2009 settlement date. As part of the settlement, the
debenture holders waived $123,000 in penalties and $28,860.25 in interest which
the Company had recorded under the default terms of the
debentures. Consequently, the Company realized a gain of $151,860 on
the settlement.
On
October 2, 2009, the Company issued 1,071,429 shares of common stock to an
investment consulting firm in connection with an agreement to purchase up to $3
million of the Company shares. The fair market value of the shares on the
transaction date was $75,000, or $0.07 per share.
During
the twelve months ended October 31, 2009, pursuant to his compensation
arrangement, the Company issued 600,000 shares of common stock to Michael W.
Brennan, at prices ranging from $0.012 to $0.152 per share. The
aggregate fair market value of the shares was determined to be
$39,998. In August 2009, Mr. Brennan also received a two-year option
to purchase 100,000 shares of common stock at $0.30 per share as part of his
compensation arrangement, at an expense to the Company in the sum of
$14,772.
The
Company issued 300,000 shares of common stock to a consultant of the Company,
during the fiscal year ended October 31, 2009 in accordance with his
compensation arrangement. The shares were issued at prices ranging
from $0.012 to $0.152 per share, with an aggregate fair market value of
$19,999.
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of $29,018 in legal fees accrued between May and October 2009 in
regard to litigation conducted with Divine Capital Group.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of $20,000 in legal fees accrued between July 2007 and
October 2009.
On
January 7, 2010, the Board of Directors approved the establishment of
the Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. During the six months ended April 30, 2010, the
Board authorized the issuance under the Plan of 4 million shares to two
consultants for services and expensed $155,000 in consulting
fees.
On
March 17, 2010, the Company issued a total of 5,000,000 shares of common stock
to two consultants for investor relations services to be rendered over a
one-year term. The fair market value of the shares was determined to
be $200,000, or $0.04 per share, and will be amortized over one
year. The Company expensed $24,110 as consulting fees as of April 30,
2010 pursuant to the issuance of these shares and recorded the balance *of the
value, or $175,890, as prepaid expenses.
On
April 6, 2010, the Company issued 750,000 shares of common stock in conjunction
with an Investment Agreement which it entered into on May 4, 2010 with Dutchess
Opportunity Fund, II, LP (Dutchess). The fair market value of the
stock issued to Dutchess was determined to be $30,000.
On
April 9, 2010, the Company issued 6,100,000 shares of common stock on the
conversion of an aggregate of $305,000 in fees and expenses into convertible
term notes by the Company’s Chief Executive Officer, Chief Financial Officer and
a consultant to the Company. The Company expensed $305,000 as
the fair market value of the shares issued as additional
consideration.
44
During
the six months ended April 30, 2010, pursuant to his compensation arrangement,
the Company issued 300,000 shares of common stock to its Chief Executive
Officer, Michael W. Brennan, at prices ranging from $0.034 to $0.05 per
share. The aggregate fair market value of the shares was determined
to be $12,425.
The
Company issued 150,000 shares of common stock to a consultant of the Company,
during the six months ended April 30, 2010 in accordance with his compensation
arrangement. The shares were issued at prices ranging from $0.034 to
$0.05 per share, with an aggregate fair market value of $6,213.
Between
November 1, 2009 and April 30, 2010, the Company issued 5,000,000 shares of
common stock and warrants to purchase 500,000 shares of common stock as partial
consideration for $250,000 in convertible term loans received from various
lenders. Of such loans, $20,000 was received from our largest
stockholder and $25,000 was a loan made from our Chief Executive Officer,
Michael Brennan, if fiscal 2009 and transferred to an unaffiliated third party
in February 2010.
During
May and June 2010, the Company received an additional $155,000 in
loans from unaffiliated lenders. Similar to the convertible loans
discussed above, the Company issued a total of 3,100,000 shares of common stock
as consideration for these loans.
All of
these securities issuances were in private direct transactions, exempt under
Section 4(2) of the Securities Act of 1933 or Regulation D promulgated
thereunder.
Item 16.
|
Exhibits and Financial
Statement Schedules
|
The
exhibits set forth under the caption “Exhibit Index” below are included in this
filing and incorporated by reference. The financial statement
schedules have been omitted because they are not applicable, not required, or
the information is included in the consolidated financial statements or notes
thereto.
Item 17.
|
Undertakings
|
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
i. To
include any prospectus required by section 10(a)(3) of the Securities
Act of 1933;
ii. To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
iii. To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
2. That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
45
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the
offering.
4. That,
for the purpose of determining liability under the Securities Act of 1933 to any
purchaser, each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in
reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933, may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the SEC, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by them is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
46
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly
caused this Registration Statement on Form S-1 to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of San Clemente,
State of California, on August 19, 2010.
MICRO
IMAGING TECHNOLOGY, INC.
|
||
By:
|
/s/
Michael W.
Brennan
|
|
Name:
|
Michael
W. Brennan
|
|
Title:
|
Chief
Executive Officer
|
POWER
OF ATTORNEY
We, the
undersigned officers and directors of Micro Imaging Technology, Inc., do
hereby constitute and appoint Michael Brennan and Victor Hollander, and each of
them individually, our true and lawful attorney-in-fact and agent with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, or any related
registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933, as amended, and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the SEC, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite or necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute, may lawfully do or cause to be
done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
on Form S-1 has been signed below by the following persons in the
capacities and on the dates indicated.
Name
|
Title
|
Date
|
||
/s/
Michael W.
Brennan
|
Chief
Executive Officer and Chairman
|
August
19, 2010
|
||
Michael
W. Brennan
|
(Principal
Executive Officer)
|
|||
/s/
Victor A.
Hollander
|
Chief
Financial Officer and Director
|
August
19, 2010
|
||
Victor
A. Hollander
|
(Principal
Accounting Officer)
|
|||
/s/ Ralph
Emerson
|
Director
|
August
19, 2010
|
||
Ralph
Emerson
|
47
EXHIBIT
INDEX
Exhibit
Number
|
Description
of Exhibit
|
|
5.1
|
Opinion
of Legal Counsel, Dieterich & Mazarei
|
|
10.20
|
Investment
Agreement between the Company and Dutchess Opportunity Fund II, a Delaware
Limited Partnership, dated May 4, 2010*
|
|
10.21
|
Registration
Rights Agreement between the Company and Dutchess Opportunity Fund II, a
Delaware Limited Partnership, dated May 4, 2010*
|
|
23.1
|
Consent
of Dieterich & Mazarei (Legal Counsel) (included in Exhibit
5.1)
|
|
23.2
|
Consent
of Auditor
|
* Filed
as exhibits to the Company’s Form S-1 on May 7, 2010
48