UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM 10-Q

 

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

 

 

For the quarterly period ended July 31, 2014

Commission file number 0-16416

 

MICRO IMAGING TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

California		33-0056212
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)

 

970 Calle Amanecer, Suite F, San Clemente, California 92673
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (949) 388-4547

 

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

 

Securities registered pursuant to Section 12(g) of the Act:

 

Common Stock, par value $0.01 per share

(Title of Class)

 

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

 

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

 

Large accelerated filer [  ]		Accelerated filer [  ]		Non-accelerated filer [  ]		Smaller reporting company [X]
				(Do not check if a smaller reporting company)

 

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

 

At September 10, 2014, there were 9,014,498 shares of the Registrant’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

 

 

TABLE OF CONTENTS

 

			Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements		F-1
	Condensed Consolidated Balance Sheet July 31, 2014 (Unaudited) and October 31, 2013 (Audited)		F-1
	Condensed Consolidated Statements of Operations Nine months ended July 31, 2014 and July 31, 2013		F-2
	Condensed Consolidated Statements of Cash Flows Nine months ended July 31, 2014 and July 31, 2013		F-3
	Notes to Condensed Consolidated Financial Statements (Unaudited)		F-5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Plan of Operation		3
Item 3.	Controls and Procedures		6
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		6
Item 2.	Changes in Securities		7
Item 3.	Omitted as not applicable		7
Item 4.	Omitted as not applicable		7
Item 5.	Other Information		7
Item 6.	Exhibits and Reports on Form 8-K		8
SIGNATURES			9

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Micro Imaging Technology, Inc. and Subsidiary
Condensed Consolidated Balance Sheet

 

July 31, 2014 (Unaudited) and October 31, 2013 (Audited)

 

		July 31, 2014				October 31, 2013
ASSETS
Current assets:
Cash		$	-			$	5,007
Inventories			67,487				67,487
Prepaid expenses			4,284				897
Total current assets			71,771				73,391
Fixed assets, net			75,054				111,570
Total assets		$	146,825			$	184,961
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Liabilities:
Current liabilities:
Bank overdraft		$	746			$	-
Notes payable to stockholder, net of unamortized discount of $0 and $844 in 2014 and 2013, respectively			298,172				200,606
Convertible notes payable, net of unamortized discount of $8,446 and $60,050 in 2014 and 2013, respectively			93,182				89,818
Accounts payable - trade			393,712				336,372
Accounts payable to officers and directors			240,601				131,472
Accrued payroll			392,019				244,031
Derivative liability			26,314				75,557
Anti-dilution liability			1,401				23,358
Other accrued expenses			99,154				81,016
Total current liabilities			1,545,301				1,182,230
Long-term liabilities:
Redeemable convertible preferred stock, $0.01 par value; 5,200 shares authorized, issued and outstanding at July 31, 2014 and October 31, 2013, respectively			26,000				26,000
Total long-term liabilities			26,000				26,000
Total liabilities			1,571,301				1,208,230
Commitments and contingencies
Stockholders’ (deficit):
Common stock, $0.01 par value; 25,000,000 shares authorized; 7,670,814 and 5,153,027 shares issued and outstanding at July 31, 2014 and October 31, 2013, respectively			76,708				51,531
Additional paid-in capital			45,839,872				45,335,031
Accumulated deficit			(47,341,056	)			(46,409,831	)
Total stockholders’ (deficit)			(1,424,476	)			(1,023,269	)
Total liabilities and stockholders’ (deficit)		$	146,825			$	184,961

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

Micro Imaging Technology, Inc. and Subsidiary

Condensed Consolidated Statements of Operations

Nine months ended July 31, 2014 and July 31, 2013

 

(Unaudited)

 

		Three months ended								Nine months ended
		July 31,								July 31,
		2014				2013				2014				2013
Operating costs and expenses:
Research and development		$	85,223			$	102,851			$	339,457			$	351,230
Sales, general and administrative			69,870				121,475				441,294				458,692
Total operating expenses			155,093				224,326				780,751				809,922
Loss from operations			(155,093	)			(224,326	)			(780,751	)			(809,922	)
Other income (expense):
Interest income			-				-				-				13
Interest expense			(30,747	)			(16,038	)			(194,843	)			(28,053	)
Gain on derivative instruments			4,326				2,311				24,012				2,311
Gain on anti-dilution provision			3,327				-				21,957				-
Other income (expense), net			-				(2,616	)			-				(2,616	)
Total other income (expense), net			(23,094	)			(16,343	)			(148,874	)			(28,345	)
Loss from operations:
Before provision for income tax			(178,187	)			(240,669	)			(929,625	)			(838,267	)
Provision for income tax			-				-				(1,600	)			(1,600	)
Net loss			(178,187	)			(240,669	)			(931,225	)			(839,867	)
Net loss attributable to:
Non-controlling interest			(19,869	)			(28,648	)			(91,464	)			(111,700	)
Micro Imaging Technology, Inc. stockholders			(158,318	)			(212,021	)			(839,761	)			(728,167	)
Net loss		$	(178,187	)		$	(240,669	)		$	(931,225	)		$	(839,867	)
Net loss per share, basic and diluted		$	(0.03	)		$	(0.05	)		$	(0.13	)		$	(0.17	)
Shares used in computing net loss per share, basic and diluted			6,730,049				4,995,291				6,907,606				4,828,493

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

Micro Imaging Technology, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

Nine months ended July 31, 2014 and July 31, 2013

 

(Unaudited)

 

		Nine months ended
		July 31,
		2014				2013
Cash flows from operating activities:
Net loss		$	(931,225	)		$	(839,867	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			46,379				37,766
Change in value of derivatives			(24,012	)			(2,311	)
Change in anti-dilution liability			(21,957	)			-
Amortization of costs and fees related to convertible debentures			89,214				11,798
Common stock issued to officers, directors and consultants for services			-				993
Non-cash compensation for stock options and warrants			260,282				-
Interest expense related to beneficial conversion feature			-				(1,980	)
(Increase) decrease in assets:
Related party receivables			-				15,269
Prepaid expenses			(3,387	)			26,400
Inventories			-				(41,887	)
Increase (decrease) in liabilities:
Trade accounts payable			57,340				161,369
Accounts payable to officers and directors			109,129				46,746
Accrued payroll and other expenses			166,125				106,490
Net cash used in operating activities			(252,112	)			(479,214	)
Cash flows from investing activities:
Purchase of fixed assets			(9,863	)			(6,404	)
Net cash used in investing activities			(9,863	)			(6,404	)

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

Micro Imaging Technology, Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows (Continued)

Nine months ended July 31, 2014 and July 31, 2013

 

(Unaudited)

 

		Nine months ended
		July 31,
		2014				2013
Cash flows from financing activities:
Bank overdraft			746				-
Principal payments on notes payable to stockholder			-				(24,400	)
Proceeds from issuance of notes payable to a related party			96,722				17,900
Proceeds from issuance of notes and convertible notes payable			32,500				42,500
Proceeds from issuance of common stock			127,000				360,000
Net cash provided by financing activities			256,968				396,000
Net change in cash			(5,007	)			(89,618	)
Cash at beginning of period			5,007				90,132
Cash at end of period		$	-			$	514
Supplemental Disclosure of Cash Flow Information
Interest paid		$	36,946			$	271
Income taxes paid		$	1,600			$	1,600
Supplemental Schedule of Non-Cash Investing and Financing Activities
Conversion of convertible notes payable to shares of common stock		$	84,190			$	-
Common stock issued in consideration for accounts payable and accrued payroll		$	-			$	20,400

 

The accompanying notes are an integral part of the condensed consolidated financial statements.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.	Nature of our Business 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, 2013 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 July 31, 2014, the Company owned eighty point seven percent (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 nine months ended July 31, 2014. 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.

 

The Company acquired, in October 1997, an exclusive license to the 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 majority-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.

 

Micro Imaging Technology, Inc. (Company) is a business whose planned principal operations are the design, engineering and manufacturing the MIT 1000 System, an optically-based, software driven system that can detect and identify pathogenic bacteria in rapid time. The Company is currently conducting research activities to operationalize patented technology that the Company owns and to develop certain software Identifiers in order to market its MIT 1000 system for the identification of various pathogens such as Listeria, E. Coli STAPHYLOCOCCUS ENTERITIDIS (STAPH) and Salmonella.

 

Since April 2006, the Company has leased a 4,100 sq. ft. facility in San Clemente, California, which houses all of its employees and research and development activities. The Company is also in the process of raising additional capital from loans and/or the sale of equity to support the continuation of its development activities to begin marketing the MIT 1000 system as soon as possible.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to operationalize its current technology before another company develops similar technology and software.

 

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 July 31, 2014 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, 2013, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2014.

 

Going Concern

 

The accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company has not generated revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, additional cash infusion. The Company has obtained funds from several stockholders and believes this funding will continue. Management believes the existing stockholders will provide the additional cash needed to meet the Company’s obligations as they become due, and will allow the development of its core business.

 

3.	Concentration of Credit Risk and Other Risks and Uncertainties

 

Litigation and Claims

 

Alpine MIT Partners

 

On May 16, 2012, Alpine MIT Partners, LLC (Plaintiffs) filed a civil action against the Company and its Chairman and Chief Executive Officer, Jeffrey G. Nunez, (collectively, the Company), in the Texas District Court, Travis County. Plaintiffs alleged breach of contract and civil conspiracy, as well as tortious interference with contractual relations and prospective business relations. The lawsuit alleges that the Company breached certain provisions of a March 7, 2012 Securities Purchase Agreement the Company executed with the Plaintiff to sell up to $2.0 million of 7% Senior Secured five-year Convertible Debentures convertible into shares of common stock at a conversion rate of $.003 per share. The purchase and sale of the first $1.0 million Debenture was scheduled to close on or before April 6, 2012 and was subject to, among other things, Alpine closing the necessary equity funding to consummate the transactions. No money was ever received by the Company from Alpine. At a March 7, 2013 hearing, the Texas court upheld the Company’s argument and dismissed the complaint against the Company for lack of jurisdiction.

 

In August, 2013, Alpine filed an amended Complaint against Jeffrey Nunez in the Texas case alleging tortuous interference and conspiracy to terminate the March 7, 2012 Securities Purchase Agreement.

 

On January 10, 2013, the Company learned that Plaintiffs had filed a lien against the Company’s patents on May 8, 2012 with the California Secretary of State under the Uniform Commercial Code. On or about January 29, 2013, the Company filed suit against Alpine MIT Partners, LLC in the Orange County, California Superior Court alleging, among other claims, that the UCC filing is unauthorized. The lawsuit also names the managing director and managing member of Alpine as Defendants and alleges that they made false promises, intentional misrepresentations and breached the contract which is the subject of the Texas suit. The Company is seeking damages of $1.6 million. This lawsuit is currently in the discovery phase.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Michael W. Brennan

 

Concurrent with his April 13, 2012 resignation as Chairman of the Board of Directors and Chief Executive Officer, the Company agreed to repay a total of $160,000 in principal loans, $24,339 in accrued interest and $13,120 in unpaid fees and expenses due Michael Brennan over a 25-month payment schedule commencing May 1, 2012. Due to lack of funds, the Company has not made payments due Mr. Brennan since February 2013, each in the amount of $7,500. As of July 31, 2014, the principal balance due under the agreement amounted to $113,450 and, although Mr. Brennan originally waived interest on the note, the Company has accrued $16,842 in interest on that amount as of July 31, 2014.

 

On or about October 4, 2013, Mr. Brennan filed a lawsuit in the California Superior Court of Los Angeles for breach of contract for failure to pay monies due him under the above 2012 agreement. The lawsuit seeks $123,509 in principal damages, plus interest, costs and attorney fees. The Company has filed an answer to the complaint and is contesting the amount due Mr. Brennan. This lawsuit is currently in the discovery phase and is scheduled to go to trial in late September 2014.

 

See also Note 11 – “Subsequent Events.”

 

Other Litigation

 

On or about November 12, 2013, a vendor filed suit in the Orange County California Superior Court for non-payment of $9,894 in fees for services rendered. In or around December 2013, the vendor received a default judgment in the case and on January 23, 2014 filed a lien against the Company with the California Secretary of State. An additional $3,125 was subsequently awarded to the vendor for costs and interests. In June 2014, the plaintiff levied the Company’s bank account in the sum of $4,342. The Company is attempting to negotiate a payment schedule with this vendor for the remainder of the amount due.

 

On June 3, 2014, a vendor filed suit in the Orange County California Superior Court for non-payment of $10,070 in advertising fees. On or around July 11, 2014, the vendor received a default judgment in the case and an additional $1,550 was subsequently awarded to the vendor for costs and interests. The Company anticipates negotiating a payment schedule with this vendor.

 

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. Other than the above-described litigation, as of July 31, 2014, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

 

In accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote.

 

Because litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments indicate that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings could have a material adverse effect on its financial statements in any given reporting period. However, in the opinion of Management, after consulting with legal counsel, the ultimate liability related to the current outstanding litigation is not expected to have a material adverse effect on its financial statements.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Management is of the opinion that the ultimate resolution of such matters now pending will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows. However, the outcome of legal proceedings cannot be predicted with any degree of certainty.

 

Antidilution Liability

 

In fiscal 2012, the Company recorded a liability to allow for the possible dilutive impact of equity issuances that alter or effect conversion or exchange rates existing on the various dates of conversion or exercise of securities having adjustable conversion rates. The liability is adjusted to reflect current fair market value at the end of each fiscal period. Due to the decline in the Company’s stock price, we recorded a gain of $42,043 and $21,957 at October 31, 2013 and July 31, 2014, respectively.

 

Accrued Payroll, Payroll Taxes and Benefits

 

From April 2010 through March 2012, payments made to two employees were recorded as reductions in accrued and unpaid payroll. In April 2012, the Company reclassified such payments as net payroll payments; calculated and recorded the employer and employee taxes that should have been withheld on such payment. Federal and state payroll tax returns have been filed for the last three quarters of 2010, all of 2011 and the first quarter of 2012. The Company recorded a total of $81,206 and $20,560 in federal and state payroll taxes due, respectively. Estimated federal penalties and interest on the late filings and payments, in the sum of $24,196, have been accrued as of October 31, 2013. On September 20, 2012 and May 14, 2013, the Internal Revenue Service filed a Notice of Federal Tax Lien against the Company assessing $58,858 and $13,605, respectively for unpaid taxes, penalties and interest. The Company is in contact with the Internal Revenue Service to work out a payment schedule for the amounts due.

 

In November 2013, the Internal Revenue Service assessed a $36,414 penalty against the Company’s Chief Scientist, David Haavig, under the federal Trust Fund Recovery Act because the above payroll taxes were not reported and paid in a timely manner. The Company assumed the liability and has provided payment to the employee for indemnification. The Company’s Chief Financial Officer, Victor Hollander, may also be liable for the federal penalty, and the amount of such penalty, has not yet been determined. In the event that such a penalty is assessed against Mr. Hollander, the Company has determined that it will indemnify him for the related costs. As a result, the Company has recorded an additional $34,632 in interest expense as of July 31, 2014.

 

Estimated state penalties and interest of $4,316 on the above late filings were accrued. A Notice of Tax Lien for a portion of the taxes due was filed by the State of California on November 9, 2012 in the amount of $8,206, including penalty and interest. In October 2013, the California tax authority levied the Company’s account in the sum of $13,807 with an additional levy of $5,451 in November 2013. On December 17, 2013, the Company entered into an installment agreement with the California tax authority to pay $304 per month commencing January 27, 2014. A total of $1,518 was paid under this arrangement when the Company failed to make required monthly payment in June 2014. On or about July 14, 2014, the State of California levied the Company’s account for an additional $1,132 and the estimated remaining balance of $4,200 remains due to the state.

 

Accrued Payroll and Benefits consist of the above payroll taxes, salaries, wages, and vacation benefits earned by employees, but not disbursed as of July 31, 2014 and includes payroll earned, but unpaid to various employees between January 16, 2013 and July 31, 2014. Accrued Payroll also includes the above estimated penalties and interest due on such unpaid payroll taxes. Liability for vacation benefits is accrued when earned monthly and reduced when taken. At the end of each fiscal period, the balance in the accrued vacation benefits liability account is adjusted to reflect current pay rates. Annual leave earned but not taken is considered an unfunded liability since this leave will be funded from future appropriations when it is actually taken by employees.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

4.

Inventory

 

Inventory is stated at the lower of cost or market and comprised entirely of finished goods. Cost is determined on a first-in, first-out (FIFO) basis. The Company’s management monitors inventory for excess and obsolete items and makes necessary valuation corrections when such adjustments are required.

 

5.	Property and Equipment

 

Property and equipment are recorded at cost and are depreciated using the straight-line method over an expected useful life of 3 or 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.

 

The production tooling for the Company’s revised MIT 1000 has been capitalized and the $14,000 cost is being amortized over an estimated useful life of 3 years.

 

The Company capitalized $35,313 in fiscal 2013 in the development of proprietary software for the MIT 1000 rapid microbial identification system. The cost of the software is being amortized on a straight-line basis over 3 years.

 

6.	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 2013 Annual Report on Form 10-K. The Company has not experienced any material change in its critical accounting policies since November 1, 2013. 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.

 

New Accounting Pronouncements

 

During the period ended July 31, 2014, there were several new accounting pronouncements issued by the Financial Accounting Standards Board (FASB). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements. Set forth below are the more significant pronouncements.

 

On June 10, 2014, the FASB issued Accounting Standards Update [ASU] 2014-10, entitled Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. The guidance in ASU 2014-10 removes all incremental financial reporting requirements from GAAP for development-stage entities, including the removal of Topic 915 from the FASB Accounting Standards Codification. In addition, the update adds an example disclosure in Risks and Uncertainties (Topic 275) to illustrate one way that an entity that has not begun planned principal operations could provide information about the risks and uncertainties related to the company’s current activities.

 

The accounting standards update also removes an exception provided to development stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity—which may change the consolidation analysis, consolidation decision, and disclosure requirements for a company that has an interest in a company in the development stage. ASU 2014-10 is effective for the first annual period beginning after December 15, 2014 the presentation and disclosure requirements in Topic 915 will no longer be required. The revised consolidation standards are effective one year later, in annual periods beginning after December 15, 2015. Early adoption is permitted. The Company has adopted ASU effective for the nine months ended July 31, 2014 and believes that it has not had a material impact on our financial statements.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

 

Earnings Per Share

 

Basic earnings per share are based on the weighted average number of shares outstanding for a period. Diluted earnings per share are based upon the weighted average number of shares and potentially dilutive common shares outstanding. Potential common shares outstanding principally include convertible notes payable and stock options under our stock plan. Since the Company has incurred losses, the effect of any common stock equivalent would be anti-dilutive.

 

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 share-based compensation expense of $260,282 for options granted to various employees and consultants in November 2013, $80,348 of which is included in research and development expense and $179,934 is recorded as sales, general and administrative expense.

 

On November 19, 2013, the Board of Directors adopted the 2014 Employee Benefit Plan which is authorized to grant up to 525,000 shares of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility and vesting, in the case of options, is determined by the Board of Directors. On November 19, 2013, the Company issued three-year options to purchase 100,000 shares of common stock which vested immediately under the Plan to the Company’s President, Jeffrey Nunez, for services rendered at an exercise price of $0.50 per share at a fair market value of $67,447. Additional three-year options to purchase 300,000 shares of common stock, in the aggregate, were issued to Mr. Nunez and three other employees of the Company on November 19, 2013 at an exercise price of $1.00 per share, for an aggregate value of $192,835.

 

The following table summarizes information about options granted under the Company’s equity compensation plans through July 31, 2014 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, options granted have contractual lives ranging from two to ten years and, in the case of an employee, vested options terminate 90 days after an employee leaves the Company. All of the options granted on November 19, 2013 vested in their entirety at the time of issuance. Of such options, 50,000 terminated in March 2014 and 25,000 terminated in June 2014 due to voluntary terminations by two employees.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

		Number of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)				Aggregate Intrinsic Value
Outstanding at October 31, 2013			4,400			$	13.35				0.4			$	—
Granted			400,000				0.88				2.8
Exercised			—				—
Expired			(4,000	)			7.69
Canceled			(75,000	)			1.00
Outstanding at July 31, 2014			325,400			$	0.93				2.3			$	—

 

Summary information about the Company’s options outstanding at July 31, 2014 is set forth in the table below. Options outstanding at July 31, 2014 expire between January and November 2016.

 

Range of Exercise Prices				Options Outstanding July 31, 2014				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price				Options Exercisable July 31, 2014				Weighted Average Exercise Price
$	0.50				100,000				2.6			$	0.50				100,000			$	0.50
$	1.00				225,000				2.3			$	1.00				225,000			$	1.00
$	70.00				400				1.7			$	70.00				400			$	70.00
TOTAL:					325,400												325,400

 

As of July 31, 2014, all outstanding options had fully vested and there was no estimated unrecognized compensation from unvested stock options.

 

The following table summarizes the information relating to warrants granted to non-employees as of October 31, 2013 and changes during the nine months ended July 31, 2014:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (in years)				Aggregate Intrinsic  Value
Outstanding at October 31, 2013			240,000			$	0.90				1.9			$	—
Granted			67,000				1.00				0.5
Exercised			—				—
Expired			(80,000	)			1.00
Canceled			—				—
Outstanding at July 31, 2014			227,000			$	0.89				1.4			$	—

 

Summary information about the Company’s warrants outstanding at July 31, 2014 is set forth in the table below. Warrants outstanding at July 31, 2014 expire between May 2014 and June 2016.

 

Range of Exercise Prices		Warrants Outstanding July 31, 2014				Weighted Average Remaining Contractual Life				Weighted Average Exercise Price				Warrants Exercisable July 31, 2014				Weighted Average Exercise Price
$0.50 - $1.00			227,000				1.4			$	0.89				227,000			$	0.89
			227,000												227,000

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

7.	Convertible Debentures

 

Series 1 Notes

 

Under the provisions of ASC 815-40-15, “Derivatives and Hedging-Contracts in Entity’s Own Equity-Scope and Scope Exceptions,” a number of our outstanding Convertible notes are not considered indexed to our stock, as a result of an anti-dilution protection provision in these notes. The application of ASC 815-40-15, effective August 1, 2011, resulted in our accounting for these notes as derivative instruments, and they are recognized as liabilities in our consolidated balance sheets.

 

Between August 16, 2010 and February 21, 2012, the Company entered into a Securities Purchase Agreement with an unaffiliated lender in connection with the issuance of eleven (11) separate 8% convertible notes in various principal amounts, aggregating $387,500. As of September 14, 2012, the lender had converted all of the $387,500 in principal notes, plus $45,000 and $15,500 in principal penalties and accrued interest, respectively, on such notes and received a total of 663,219 shares of common stock upon the conversions at prices ranging from $0.20 to $1.95 per share.

 

Between July 18, 2013 and January 9, 2014, the Company entered into three new Securities Purchase Agreements with the lender, for total proceeds of $117,500, and paid a total of $7,500 out of the proceeds of the notes to lender for legal fees and expenses related to the referenced agreements. The notes mature between April 22, 2014 and October 13, 2014 and are convertible into shares of common stock at a discount of 39% of the average of the lowest three closing bid prices of the common stock during the ten trading days prior to the conversion date. The Series I Notes contain a provision requiring an adjustment to the conversion price of the note in the event the Company issues or sells any shares of common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such conversion price. Accordingly, the Series I Notes are accounted for as a derivative liability, measured at fair value, with changes in fair value recognized as gain or loss for each reporting period thereafter. The notes were recorded at fair value, using the Binomial valuation model, and a derivative liability of $26,314 has been recorded for the fiscal period ended July 31, 2014. This liability will be revalued each reporting period and gains and losses will be recognized in the statement of operations under “Other Income (Expense)”.

 

In July 2014, the lender notified the Company that it had defaulted on the terms of its outstanding notes for failure to pay the remaining $6,900 principal balance due on a note that had matured as of June 20, 2014. The terms of the notes provided that the lender receive a 50% increase in the principal balance of any outstanding notes at the time of any such default. Consequently, the lender penalized the Company $3,450 on the remaining balance of that particular note and agreed to waive the penalty on a $32,500 principal note outstanding at that time.

 

Pursuant to the terms of the Series I Notes, the Company initially instructed its stock transfer agent to reserve 2,400,000 shares of the Company’s common stock to be issued if the notes are converted. Between January 27, 2014 and July 31, 2014, the lender converted $84,190 of such notes, plus $1,700 in accrued interest, and received a total of 1,950,454 shares of common stock at conversion prices ranging from $0.079 to $0.018 per share. The balance of 449,546 shares was reserved as of July 31, 2014. On August 19, 2014, the Company instructed its transfer agent to reserve an additional 2,000,000 shares of common stock to cover future conversions of notes. Shares held in reserve are not considered as issued and outstanding. If the remaining Series I Notes had been converted as of July 31, 2014, the Company would have issued a total of 3,242,598 shares of common stock the value of which would exceed, by $33,892 the principal balance due on the notes.

 

The lender converted an additional $14,945 in Series I Notes in August 2014. See Note 11 – “Subsequent Events.”

 

Fair value of financial instruments

 

The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

The fair value framework establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

	●	Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
	●	Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
	●	Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

The carrying amounts of our financial instruments, including cash, accounts payable and accrued expenses approximate fair value because of their generally short maturities.

 

The Company measured the fair value of the Series 1 Note by using the Binomial Valuation model. As of July 31, 2014, the assumptions used to measure fair value of the liability embedded in our outstanding Series I Note included an exercise price of $0.0183 per share, a common share price of $0.03, a discount rate of 0.02% or 0.03%, and a volatility of 141% or 183%.

 

The anti-dilution liability is calculated by an approximate number of shares multiplied by the quoted market price of the Company’s common stock at the measurement date.

 

The following table sets forth, by level within the fair value hierarchy, our financial instrument liabilities as of July 31, 2014 (See also Note 7 – Convertible Debentures – “Series 1 Notes”):

 

		Quoted Prices in Active Markets For Identical Assets				Significant Other Observable Inputs				Significant Unobservable Inputs
		(Level 1)				(Level 2)				(Level 3)				Total
Anti-dilution liability		$	1,401			$	—			$	—			$	1,401
Derivative liability		$	—			$	—			$	26,314			$	26,314
Total		$	1,401			$	—			$	26,314			$	27,715

 

The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the fiscal year ended October 31, 2013 and for the nine month period ended July 31, 2014:

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Balance October 31, 2013		$	75,557
Additions			31,615
Net gain included in earnings			(24,012	)
Settlements			(56,846	)
Balance July 31, 2014		$	26,314

 

Other Convertible Notes

 

On November 10, 2010, the Company entered into a convertible note for $64,868 with a stockholder. The Note matured on May 31, 2012 and bears interest at the rate of ten percent (10%) per annum. The Note is convertible into shares of common stock at a forty two percent (42%) discount to the average of the lowest three (3) closing bid prices of the common stock during the ten (10) trading days prior to the conversion date. The note holder may convert any or all of the unpaid principal note prior to the maturity date. The Company calculated the intrinsic value of the conversion feature to be $46,973 as of the date of issuance of the debentures using the same criteria as noted above, which amount was fully amortized as of 2012. The Company has expensed $24,152 in accrued interest on the note as of July 31, 2014. If the note had been converted as of July 31, 2014, the Company would have issued a total of 4,172,186 shares of common stock the value of which would exceed, by $46,973 the principal balance due on the note. The Company is currently negotiating with the lender to settle or renegotiate the Note.

 

At July 31, 2014 and October 31, 2013, without taking into effect any unamortized discounts, convertible debentures and Series 1 notes consisted of the following:

 

		July 31, 2014				October 31, 2013
Series 1 Notes, principal and interest at 8% maturing through October 13, 2014		$	36,760			$	85,000
Convertible note payable to stockholder; principal and interest at 10% due on May 31, 2012.			64,868				64,868
			101,628				149,868
Less current maturities			101,628				149,868
Long-term portion of Convertible and Series 1 notes payable		$	—			$	—

 

Of the above notes, $69,128 was past due as of July 31, 2014. The Company’s outstanding notes mature as follows for the year ending October 31:

 

2014		$	101,628
Thereafter			—
		$	101,628

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

8.	Notes Payable

 

At July 31, 2014 and October 31, 2013, without taking into effect any unamortized discounts, notes payable to an officer and to stockholders consisted of the following:

 

		July 31, 2014				October 31, 2013
						(Audited)
Unsecured, interest-free convertible notes payable to former officer/director of the Company; principal due on payment schedule through May 2014.		$	113,450			$	113,450
Unsecured convertible note payable to various stockholders; principal and interest at 6% due between December 9, 2010 and March 31, 2013.			52,000				52,000
Unsecured notes payable to officers and directors of the Company; principal and interest at 6% payable on demand			132,722				36,000
			298,172				201,450
Less current maturities			298,172				201,450
Long-term portion of notes payable		$	—			$	—

 

Of the above notes payable, $113,450 is the subject of a lawsuit brought against the Company by former officer and director, Michael Brennan. The Company is currently negotiating with the holders of $52,000 of the above notes to either extend the maturity date or convert the notes into shares of common stock. The Company’s outstanding notes mature as follows for the years ending:

 

2014		$	298,172
Thereafter			—
		$	298,172

 

9.	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. Employer contributions would be made at the rate of three percent (3%) of the employees’ base annual wages. However, the Company has made no contributions to the IRA plan since January 2010.

 

10.	Securities Transactions

 

Common Stock Issued in Private Placement Transactions

 

Between November 8, 2013 and December 13, 2013, the Company entered into Subscription Agreements with a major stockholder to purchase a total of 40,000 shares of the Company’s common stock at $0.50 per share, for a total of $20,000. As additional consideration, the purchaser was granted six-month options to purchase an additional 20,000 shares of common stock at $1.00 per share. These warrants expired by their terms as of June 13, 2014. On June 30, 2014, this same stockholder purchased an additional 333,333 shares of common stock at $0.03 per share for proceeds to the Company of $10,000. No warrants were issued pursuant to this latest subscription.

 

On November 13, 2013, the Company’s Chief Scientist, David Haavig, purchased 100,000 shares of common stock for $0.50 per share, or $50,000.

 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Between December 19, 2013 and May 12, 2014, a major stockholder purchased 70,000 shares of common stock for proceeds of $35,000, or $0.50 per share. He received six-month warrants to purchase an additional 35,000 shares of common stock at $1.00 per share as part of the purchase transactions. In May 2014, 10,000 of such warrants expired by their terms.

 

On April 7 and April 15, 2014, an unaffiliated stockholder purchased 20,000 and 4,000 shares of common stock, respectively, for $0.50 per share, or total proceeds of $12,000. The stockholder also received a warrant to purchase 12,000 shares of common stock at $1.00 per share.

 

Common Stock Issued in Cancellation of Debt

 

Between January 27, 2014 and July 23, 2014, the Company issued 1,950,454 shares of common stock to a lender upon conversion of $84,190 in convertible notes, plus $1,700 in accrued interest thereon, at prices ranging from $0.018 to $0.22 per share.

 

11.	Subsequent Events

 

Between August 8 and August 28, 2014, a member of the Board of Directors loaned the Company $16,000. The loans bear interest at 6% per annum and are payable on demand.

 

On August 20, 2014, the Company filed a Complaint in the United States District Court for the Central District of California in Los Angeles, California against former Director and President, Michael W. Brennan, for alleged violations of state and federal securities laws dealing with the sale of the Company’s common stock. The suit alleges that Mr. Brennan breached his fiduciary duty to the Company by failing to report certain sales of the Company’s securities and gained profits from such stock sales that were required to be paid to the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The suit seeks to recover compensatory damages and all profits improperly realized by Mr. Brennan together with costs and attorneys’ fees.

 

Between August 4 and September 4, 2014, the Company issued a total of 1,093,684 shares of common stock to a lender upon conversion of an aggregate of $14,945 in convertible notes at prices ranging from $0.012 and $0.015 per share.

 

On August 25, 2014, the Company’s landlord filed a complaint for unlawful detainer in the Superior Court of Orange County, California for unpaid rent in the sum of $7,790. As of September 10, 2014, the Company had paid the delinquent rent to the landlord, along with legal fees and late payment penalties assessed.

 

Between August 27 and August 29, 2014, an unaffiliated stockholder purchased 250,000 shares of common stock for $0.04 per share, or total proceeds of $10,000.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation

 

Forward-Looking Statements

 

This Quarterly Report, including the Notes to the 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. 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 the Company undertakes no obligation to publicly update or revise any forward-looking statements in this Quarterly Report, whether as a result of new information, future events or circumstances, or otherwise.

 

Results of Operations

 

References to fiscal 2014 and fiscal 2013 are for the nine month period ended July 31, 2014 and 2013, respectively.

 

The Company had no sales revenue during the nine months ended July 31, 2014 or 2013.

 

Research and development expenses for the nine month period ended July 31, 2014 decreased by $11,773 compared to the prior year. These expenses arose from the program which the Company initiated in December 1997 to develop the micro imaging technology for detecting and identifying contaminants in fluids. The decrease reflects lower expenses overall, particularly for salaries, consulting and temporary labor. The decrease was substantially offset by the issuance of options to employees in November. Research and development expenses for the three months ended July 31, 2014 decreased in fiscal 2014 by $17,628, reflecting the overall lower expenditures discussed above.

 

Sales, general and administrative expenses decreased by $17,398 for the nine months ended July 31, 2014 compared to the prior year period. The decrease resulted from lower expenditures for salaries and related expenses, advertising, travel and entertainment expenses. The decrease was partially offset by issuance of options to various employees in November 2013. The largest decrease was reflected in legal expenses as a result of the dismissal in March 2013 of the lawsuit brought against the Company in Texas by Alpine MIT Partners. Sales, general and administrative expenses decreased by $51,605 for the three month period ended July 31, 2014 compared to the prior fiscal period in nearly all categories of expense, primarily legal fees and salaries and related expenditures.

 

The Company had no interest income during the nine months ended July 31, 2014 as all available capital was utilized to sustain operations. Interest expense for the nine month period ended July 31, 2014 increased by $166,790 compared to the prior period reflecting the cost of borrowings conducted by the Company commencing in July 2013.

 

For the nine months ended July 31, 2014, the Company recognized $24,012 and $21,957 in non-cash gains due to certain convertible notes and anti-dilution provisions, respectively. These gains are a result of the Company’s accounting for these features at each measurement period.

 

The Company recorded no other income or expense for the nine month periods ended July 31, 2014 compared to a $2,616 expense in fiscal 2013 for business property taxes.

 

The Company recorded the minimum state income tax provision in fiscal 2014 and 2013 as the Company had cumulative net operating losses in all tax jurisdictions.

 

Liquidity and Capital Resources

 

At July 31, 2014, the Company had a working capital deficit of $1,473,530. This represents a working capital decrease of $364,691 compared to that reported at October 31, 2013. The decrease primarily reflects overall increases in current liabilities, i.e., accounts payable, accrued payroll, notes and convertible debentures payable, while utilizing available cash for operating activities.

 

 

Our only source of cash during the nine months ended July 31, 2014 has been from the sale of common stock totaling $127,000 and $126,722 in net short term loans. Management estimates that it utilized $27,600 per month in working capital on operations for the nine months ended July 31, 2014, compared to the approximate $47,000 per month expended during the nine month period ended July 31, 2013.

 

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, 2013 which raises substantial doubt about our ability to continue as a going concern.

 

The Company is 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 nine 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 the Company will be able to raise sufficient capital to implement our plans or to continue operations.

 

In June 2009, the Company received Performance Test Method (PTM) Certification from the Association of Advanced Communities Research Institute (AOAC RI) for its Identifier^TM for the Listeria bacteria species, a rare but lethal food-borne infection. In 2012, the Company’s protocols for testing the pathogens E. Coli and Salmonella were accepted by the AOAC so that, once it has completed internal testing procedures, the Company will also apply for AOAC PTM Certification for those additional pathogens. When certified for the two additional pathogenic bacteria identification processes, the Company’s System will have the proven capability of identifying over 90 percent of all bacteria-causing, food-related illnesses.

 

In April 2012, the Company commenced the production phase of its MIT 1000 Rapid Microbial Identification System with its Hawthorne, California-based manufacturing partner. The first two Systems were received in July 2012, with three additional Systems received in November 2012. The Company participated in several food safety conferences during 2012 and 2013 and brought significant attention to its MIT 1000 which has led to follow-up contacts from several high profile independent laboratories, multinational food and food safety industry leaders, as well as from prominent academic research institutes.

 

In October 2013, the Company announced that it is collaborating with the Northern Michigan University (NMU) Department of Biology to identify and differentiate Staphylococcus aureus (S. aureus) and the “superbug,” Methicillin Resistant S. aureus (MRSA). The goal of this strategic research with NMU is to rapidly and cost-effectively identify these two particular healthcare threats using the MIT 1000 System. Staph infections can range from mild skin problems to potentially fatal conditions if the bacteria invade deeper into the body. Most can be easily treated. Some Staphs, however, are drug-resistant. The faster the responsible disease causing bacteria is identified, the faster the appropriate treatment can begin. This is the driving goal behind the NMU/MIT collaboration using the MIT 1000 to differentiate between the common S. aureus and MRSA. At this stage, the collaboration involves scientists from MIT and NMU gathering preliminary data and developing collaborative research proposals seeking funding in support of continued research.

 

Also in October 2013, the Company announced a strategic research collaboration with Purdue University to prove the concept of faster, cheaper, and easier pathogen testing for Listeria and Listeria monocytogenes in foods using laser light scattering. The partnership pairs similar laser light scattering technologies developed independently by each contributor to demonstrate the speed and accuracy of using non-biological methods to provide a simple, rapid, and cost-effective solution to food pathogen testing.

 

In December 2013, the Company announced that its MIT 1000 System can now identify the potentially life-threatening bacteria Staphylococcus. Staph is one of the five most common causes of infections after injury or surgery and can lead to very serious complications with the lung (pneumonia), brain (meningitis), bone (osteopmyelitis), heart (endorcarditis), and blood (bacteremia and septicemia). The addition of this Identifier opens the door for the MIT 1000 Technology to enter the clinical pathogen detection and identification arena.

 

 

In July 2014, the Company announced that the MIT 1000 System can also identify Salmonella enterica serotype Choleraesuis. S. Choleraesuis is a non-typhoid strain that is a serious cause of foodborne infection. It also shows a higher predilection for causing bacteremia (bacteria in the blood) in humans by entering blood vessels through the stomach wall. The completion of this Identifier demonstrates the sensitivity of this non-biological bacterial identification technology. This new Identifier gives the MIT 1000 the ability to identify a serotype of the species Salmonella enterica. A serotype is a distinct variation within a species that has cell surface antigens that differ from other serotypes of the same species; that is a very small difference. Other Identifiers give the MIT 1000 the ability to identify Listeria genus and Staphylococcus genus where each genus consists of multiple species, some of which can be pathogenic.”

 

The Staph and Salmonella Identifiers are available now and the Company plans to submit them for AOAC certification as soon as possible.

 

The Company is developing its marketing and sales strategies with distributors in Japan and the ASEAN countries (Malaysia, Singapore, Thailand, Brunei, Indonesia, Philippines, Vietnam, Cambodia, Laos and Myanmar) which the Company believes will assist in generating sales revenues in the near future. The Company expects to establish additional distributing partners as its marketing plans develop. The Company also continues to develop promotional materials and enhance its website with a view toward generating sales in the near future.

 

In the opinion of management, funds anticipated from forthcoming loans and equity sales are expected to satisfy our working capital requirements through September 2014. However, no assurances can be given that the Company 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.

 

The Company 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 the Company 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 the Company is 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 the Company is not successful in obtaining financing for future developments, whether in the form of loans, licenses or equity transactions, it is unlikely that the Company will have sufficient cash to continue to conduct operations, particularly research and development programs, as currently planned. The Company believes that in order to raise needed capital, the Company 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 the Company 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.

 

 

Item 3. Controls and Procedures

 

The Company’s management has carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act, (1) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

 

In addition, based on that evaluation, there has been no change in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

On May 16, 2012, Alpine MIT Partners, LLC (Plaintiffs) filed a civil action against the Company and its Chairman and Chief Executive Officer, Jeffrey G. Nunez, (collectively, the Company), in the Texas District Court, Travis County. Plaintiffs alleged breach of contract and civil conspiracy, as well as tortious interference with contractual relations and prospective business relations. The lawsuit alleges that the Company breached certain provisions of a March 7, 2012 Securities Purchase Agreement the Company executed with the Plaintiff to sell up to $2.0 million of 7% Senior Secured five-year Convertible Debentures convertible into shares of common stock at a conversion rate of $.003 per share. The purchase and sale of the first $1.0 million Debenture was scheduled to close on or before April 6, 2012 and was subject to, among other things, Alpine closing the necessary equity funding to consummate the transactions. No money was ever received by the Company from Alpine.

 

The lawsuit also suggests that the Company’s Chairman and Chief Executive Officer, Jeffrey G. Nunez, has a history of regulatory and securities law violations. The Company’s Board of Directors has researched the matter and understands that in January 2004, Mr. Nunez was requested by the NASD to appear and provide testimony pursuant to NASD Rule 8210. Mr. Nunez did not appear, but agreed not to associate in any capacity, in the future, with NASD member firms. The Company’s Board of Directors believes this to be of no consequence with respect to Mr. Nunez’ qualifications to serve as a board member and chief executive officer of the Company.

 

At a hearing on March 7, 2013, the court dismissed the lawsuit against the Company upholding its motion that the Texas court had no jurisdiction over the matter. In August, 2013, Alpine filed an amended Complaint against Jeffrey Nunez in the Texas case alleging tortuous interference and conspiracy to terminate the March 7, 2012 Securities Purchase Agreement. Mr. Nunez believes that the allegations of the lawsuit against him have no merit and intends to vigorously defend the matter.

 

On January 10, 2013, the Company learned that Plaintiffs had filed a lien against the Company’s patents on May 8, 2012 with the California Secretary of State under the Uniform Commercial Code. On or about January 29, 2013, the Company filed suit against Alpine MIT Partners, LLC in the Orange County, California Superior Court alleging, among other claims, that the UCC filing is unauthorized. The lawsuit also names the managing director and managing member of Alpine as Defendants and alleges that they made false promises, intentional misrepresentations and breached the contract which is the subject of the Texas suit. The Company is seeking damages of $1.6 million.

 

On or about October 4, 2013, former President, Michael Brennan, filed a lawsuit in the California Superior Court of Los Angeles for breach of contract for failure to pay monies due him under an agreement executed in April 2012 at the time of his resignation. The lawsuit seeks $123,509 in principal damages, interest, costs and attorney fees. The Company has contested the amount due Mr. Brennan and the matter is scheduled for trial in late September 2014.

 

 

On or about November 12, 2013, the Company was served with a Complaint brought in the Superior Court of Orange County, California by a vendor for non-payment of $9,894 in services performed and received a default judgment against the Company in December 2013. On January 23, 2014, the vendor filed a lien against the Company with the California Secretary of State. An additional $3,125 was subsequently awarded to the vendor for costs and interests. The vendor levied the Company’s bank account in July 2014 in the sum of $4,342. The Company anticipates negotiating a payment schedule with this vendor for the balance due.

 

On June 3, 2014, a vendor filed suit against the Company in the Orange County California Superior Court seeking payment for $10,070 in unpaid advertising fees, plus interest. A default judgment was awarded the vendor in July 2014 and costs of $1,550 were assessed against the Company. We anticipate negotiating with the vendor to establish a payment plan.

 

On August 20, 2014, the Company filed a lawsuit against Michael Brennan, former Director and President, in the U.S. District Court in Los Angeles for alleged breach of fiduciary duty as a result of selling shares of the Company’s common stock while he was an officer and director. The lawsuit alleges that Mr. Brennan failed to disclose sales that he made of the Company’s stock and that he was required to turn over all profits that he made on certain sales to the Company.

 

Item 2. Changes in Securities

 

On November 8, 2013, the Company issued 20,000 shares of common stock and a six-month warrant to purchase 10,000 shares of common stock at $1.00 per share to a major stockholder of the Company, for proceeds of $10,000. On December 13, 2013, this same stockholder purchased an additional 20,000 shares of common stock at $0.50 per share and received an additional six-month warrant to purchase 10,000 shares of common stock at $1.00 per share. On June 30, 2014, this shareholder purchased 333,333 shares of common stock for $0.03 per share, or a total of $10,000.

 

On November 13, 2013, the Company’s Chief Scientist purchased 100,000 shares of common stock for proceeds of $50,000, or $0.50 per share.

 

On December 19, 2013, the Company issued 20,000 shares of common stock and a six-month warrant to purchase 10,000 shares of common stock at $1.00 per share to a major stockholder of the Company, for proceeds of $10,000. On February 28, 2014, this same stockholder purchased an additional 30,000 shares of common stock and a six-month warrant to purchase 15,000 shares of common stock for proceeds of $15,000. This shareholder purchased an additional 20,000 shares of common stock on May 12, 2014 for $0.50 per share and received six-month warrants to purchase 10,000 shares of common stock at $1.00 per share.

 

On April 7, 2014 and April 15, 2014, the Company issued 20,000 and 4,000 shares of common stock, respectively, to an unaffiliated stockholder for proceeds totaling $12,000, or $0.50 per share. As additional consideration, the stockholder received a six-month warrant to purchase an additional 12,000 shares of common stock at $1.00 per share.

 

Between January 27, 2014 and July 23, 2014, a lender converted a total of $84,190 principal loan, plus $1,700 in accrued interest, into 1,950,454 shares of common stock at prices ranging from $0.018 to $0.22 per share.

 

Item 3 and 4. Omitted as not applicable.

 

Item 5. Other Information

 

The Company has not yet completed its state and federal corporate income tax returns for the fiscal years ended October 31, 2012 and 2013.

 

 

Item 6. Exhibits and Reports on Form 8-K

 

(a) Exhibits:

 

	31.1		Certification of Chief Executive Officer *
	31.2		Certification of Chief Financial Officer *
	32.1		906 Certification of Chief Executive Officer *
	32.2		906 Certification of Chief Financial Officer *
	101**		Interactive Data Files of Financial Statements and Notes formatted in Extensible Business Reporting Language (XBRL).

 

 

* Filed herewith

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Exchange Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

(b) Reports on Form 8-K.

 

None.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated: September 15, 2014	MICRO IMAGING TECHNOLOGY, INC.
	By:	/S/ Victor A. Hollander
		Victor A. Hollander
		(Chief Financial Officer with responsibility to sign on behalf of Registrant as a duly authorized officer and principal financial officer)