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EX-32.1 - ADVANCED MEDICAL INSTITUTE INC.v177658_ex32-1.htm
EX-32.2 - ADVANCED MEDICAL INSTITUTE INC.v177658_ex32-2.htm
EX-31.2 - ADVANCED MEDICAL INSTITUTE INC.v177658_ex31-2.htm
EX-31.1 - ADVANCED MEDICAL INSTITUTE INC.v177658_ex31-1.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K/A
(Amendment No. 1)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended  June 30, 2008
or

¨
TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ________________
 
Commission file number 000-29531

ADVANCED MEDICAL INSTITUTE INC.
(Exact name of registrant as specified in its charter)

NEVADA
 
88-0409144
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
     
Level 1, 204-218 Botany Road
Alexandria, NSW Australia
 
2015
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (61) 2-9640-5253
 
Securities registered pursuant to Section 12(b) of the Act:  none
 
Securities registered pursuant to Section 12(g) of the Act:
$0.001 Common Stock
(Title of class)

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨  No x
 
Indicate by check mark whether the registrant (1) has filed all reports required 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ¨
Accelerated filer  ¨
   
Non-accelerated filer  ¨
Smaller reporting company  x

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant as of October 10, 2008 was $4,003,500.

The number of shares outstanding of the registrant’s common stock at $.001 par value as of October 10, 2008 was 53,507,450.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of Form 10-K is incorporated by reference to the registrant’s proxy statement filed July 30, 2008.

 
 

 

EXPLANATORY NOTE

This Amendment No. 1  to the Annual Report on Form 10-K for the year ended June 30, 2008 of Advanced Medical Institute Inc. (the "Company"), originally filed on October 14, 2008 (the "2008 Annual Report"), is being filed by the Company to amend:

 
·
Part II, Item 7 to add an executive overview to Management’s Discussion and Analysis of Financial Condition and Results of Operations;
 
·
Part II, Item 9A to revise the disclosure under Controls and Procedures;
 
·
the Company's financial statements to include an audited balance sheet for the year ended June 30, 2007; and
 
·
Exhibits 31.1 and 31.2 to comply with the language required by Item 601(b)(31) of Regulation S-K.

In addition, pursuant to the Securities and Exchange Commission rules, the Company is including a currently dated Exhibit 32. This Form 10-K/A does not otherwise update any exhibits as originally filed in, and does not otherwise reflect events occurring after the original filing date of, the 2008 Annual Report.

 
 

 

TABLE OF CONTENTS
 
 
 
 
Page
Part II.  
   
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
3
   
Item 9A.  Controls and Procedures
12
   
Part IV.  
   
Item 15.  Exhibits and Financial Statement Schedule
14
   
SIGNATURES
15

 
2

 
 
Part II
 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

Special Note on Forward-Looking Statements. Some of the statements contained in this report on Form 10-K/A that are not historical facts are “forward-looking statements” which can be identified by the use of terminology such as “estimates,” “projects,” “plans,” “believes,” “expects,” “anticipates,” “intends,” or the negative or other variations, or by discussions of strategy that involve risks and uncertainties. We urge you to be cautious of the forward-looking statements, that such statements, which are contained in this report on Form 10-K/A, reflect our current beliefs with respect to future events and involve known and unknown risks, uncertainties and other factors affecting operations, market growth, services, products and licenses. No assurances can be given regarding the achievement of future results, as actual results may differ materially as a result of the risks we face, and actual events may differ from the assumptions underlying the statements that have been made regarding anticipated events. Factors that may cause actual results, performance or achievements, or industry results, to differ materially from those contemplated by such forward-looking statements include without limitation:

 
·
our ability to attract and retain management, and to integrate and maintain technical information and management information systems;
 
·
our ability to raise capital when needed and on acceptable terms and conditions;
 
·
the intensity of competition; and
 
·
general economic conditions.

All written and oral forward-looking statements made in connection with this report on Form 10-K/A that are attributable to us or persons acting on our behalf are expressly qualified in their entirety by these cautionary statements. Given the uncertainties that surround such statements, you are cautioned not to place undue reliance on such forward-looking statements.
 
Information regarding market and industry statistics contained in this report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources, and we cannot assure you of the accuracy or completeness of the data included in this report. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. We have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See “Risk Factors” in our 2008 Annual Report for a more detailed discussion of uncertainties and risks that may have an impact on future results.

 
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Overview

We provide medical and clinical support services to patients with sexual dysfunction and prostate problems, particularly for premature ejaculation ("PE") and erectile dysfunction ("ED"). We have nineteen clinics in Australia, one clinic in each of China and New Zealand, and two clinics in the United Kingdom.

We continuously evaluate the performance of our existing markets to determine whether to exit or continue in the market. As a result, we may decide to exit certain markets if they do not meet our business goals.

We believe that we are better positioned than our competitors in the erectile dysfunction field to meet the needs of our customers because we believe that our products are efficacious, safe, easy to use and cost-effective. We continuously research and develop new methods of treatment in relation to the treatment of sexual dysfunction in men and women, including impotence premature ejaculation, reduced male libido and female sexual arousal disorders.

The advertisement of our services is a key driver of our revenue and costs. In addition, given all of our revenue and expenses are denominated in a foreign currency (particularly the Australian dollar), any appreciation or deprecation of the U.S. dollar impacts our results of operations when translated into U.S. dollars.

Summary highlights for the fiscal year ended June 30, 2008:

 
·
We increased advertising in fiscal 2008 and this was a major factor in attracting new patients and contributed to a 36% increase in revenue in fiscal 2008 compared to fiscal 2007.

 
·
Principally as a result of the higher revenue, we earned net income of $994,779 in fiscal 2008 compared with a loss of $1.3 million in fiscal 2007.

 
·
We seek to fund our operations mostly from cash generated by our business. We are not highly leveraged; our interest bearing debt was $1.5 million at June 30, 2008.

 
4

 
 
Critical Accounting Policies
 
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America.  The following are descriptions of the more significant policies:
 
Basis of Accounting
 
The accompanying financial statements are prepared on an accrual basis.
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AMI Australia Holdings Pty Limited, AMI Management Services Pty Limited (“AMI MS”) and AMI International Pty Limited (“AMI International”) and their direct and indirect wholly-owned subsidiaries: Advanced Medical Institute Pty Ltd, PE Patent Holdco Pty Limited (“PE”), Advanced Medical Institute (NZ) Limited (“AMI NZ”), Intelligent Medical Technologies Pty Ltd (“IMT”), Ai Te Wei (Beijing) Medicine Consulting Company, AMI Japan Kabushiki Gaisya (75% owned), AMI Clinic Limited (“AMI UK”) and AMI Australia’s 50% owned subsidiary, Whygo Video Conferencing Pty Ltd (“Whygo”) (which owns all of the shares in Whygo Limited, a UK entity).  All significant intercompany accounts and transactions have been eliminated upon consolidation.
 
Cash Equivalents
 
For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Accordingly, actual results could differ from those estimates.
 
Revenue Recognition
 
Sales are reported as deferred income when the sales contracts are executed and the term of the contract exceeds three months.  Up to three months of medication is delivered to the patient upon the signing of a contract.  Generally the terms of the treatment contracts are up to one year, but they can be for longer periods of time.  The deferred income arising from the contracts that exceed three months is then amortized, on a straight line basis, into income during the approximated composite remaining medication delivery period.  This approximated composite is an estimate that may vary from period to period.

 
5

 
 
Income Tax
 
Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned.  The income tax rates imposed by the taxing authorities vary.  Taxable income may vary from pre-tax income for financial accounting purposes.  There is no expected relationship between the provision for income taxes and income before income taxes because the countries have different taxation rules, which vary not only to nominal rates but also in terms of available deductions, credits and other benefits.  Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company’s assets and liabilities using the applicable tax rates in effect at year end as prescribed by Statement of Financial Accounts Standards (“SFAS”) 109 “Accounting for Income Taxes.”
 
Inventories
 
Inventories are valued at the lower of cost (determined on a first-in first-out basis) or market value.  Management compares the cost of inventories with the market value and allowance is made for writing down our inventories to market value, if lower.  As of June 30, 2008 and 2007 inventory consisted only of  finished goods.
 
Property and Equipment
 
Equipment placed in service is depreciated over the estimated useful lives of the assets using the reducing balance method.
 
Property and equipment are carried at the lesser of cost and written down value.  Expenditures for maintenance and repairs are expenses as incurred and expenditures for major renewals and betterments are capitalized.  Assets retired or sold are removed from the property accounts, with gains or losses on disposal included in income.
 
Exchange Gain (Loss)
 
During the years ended June 30, 2008 and 2007, the transactions of AMI Australia were denominated in foreign currency and were recorded in Australian Dollars (AUD) at the rates of exchange in effect when the transactions occur. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
 
Foreign Currency
 
As of June 30, 2008, the accounts of AMI Australia and its subsidiaries were maintained and its financial statements were expressed in the local currency for the jurisdiction in which the entity operated.  Such financial statements were translated into the functional currency in Australian Dollars (AUD) and thereafter to reporting currency in U.S. Dollars (USD) in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, “Foreign Currency Translation,” with the AUD as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders’ equity (deficit) is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity (deficit).
 
Research and Development Costs
 
Research and development costs are charged against income from ordinary activities before income tax as incurred.

 
6

 
 
Intangible assets
 
The Company applies the criteria specified in SFAS No. 141, “Business Combinations” to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
 
Goodwill, trademarks, patents and other intangible assets determined to have indefinite useful lives are not amortized.  We test such trademarks and other intangible assets with indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that an asset might be impaired.  Goodwill, trademarks, patents and other intangible assets determined to have definite lives are amortized over their estimated useful lives or the life of the trademark, patent and other intangible asset, whichever is less.
 
Long-Lived Assets
 
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2008 there were no significant impairments of its long-lived assets.
 
Segment Reporting
 
Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.

 
7

 
 
Basic and Diluted Earnings Per Share
 
Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share.” SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.
 
Accounting Treatment of the AMI Australia Acquisition Transaction
 
The Share Exchange with AMI Australia has been accounted for as a reverse acquisition with the Company being the surviving company.  Pursuant to the Exchange Agreement, the Shareholders exercise control over the Company.  The Share Exchange has been deemed to be a capital transaction where the Company is treated as a non-business entity.  Therefore, the accounting for the business combination is identical to that resulting from a reverse merger, except no goodwill or other intangible assets will be recorded.  For accounting purposes, AMI Australia will be treated as the accounting acquirer and, accordingly, will be presented as the continuing entity.
 
Currency Conversion
 
As of June 30, 2008 and 2007, the accounts of AMI Australia were maintained, and its financial statements were expressed, in Australian Dollars (AUD).  Such financial statements were translated into US Dollars (USD) in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” with the AUD as the functional currency.  According to the Statement, all assets and liabilities were translated at the exchange rate (AUD1 = USD0.96150) as of June 30, 2008, stockholder’s equity are translated at the historical rates and income statement items are translated at the weighted-average exchange rate for the period.  The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income.”
 
The following table sets forth, for the periods indicated, certain operating information expressed as a percentage of revenue:

 
8

 
 
Result of operations:

   
Twelve months
ended
June 30,
 
   
2008
   
2007
 
Revenue
    100 %     100 %
Cost of Revenue
    22.3 %     24.8 %
Gross Profit
    77.7 %     75.2 %
Selling General and administrative expenses
    72.4 %     72.3 %
Other income and expenses
    (0.3 )%     0.2 %
Discontinued operation
    (0.7 )%     (4.5 )%
Income before income tax
    4.3 %     (1.4 )%
Income tax expenses
    2.4 %     2.1 %
Net Income
    1.9 %     (3.5 )%
 
Liquidity and Capital Resources
 
As of June 30, 2008, we had total liabilities of $21,887,563, including unearned revenue of $6,922,800, and we had a positive net worth of $33,474,159.  As of June 30, 2007, we had total liabilities of $14,986,821 including unearned revenue of $5,101,288 and a positive net worth of $28,678,386.  As at June 30, 2008 our total current assets were $23,244,656, our total current liabilities were $18,040,635 and our net current assets were $5,204,021.
 
Our aggregate cash balances as at June 30, 2008 were $3,127,029.  We forecast that we will be able to generate sufficient funds from our business in order to fund our operations in the ordinary course during the next 12 months.  Management has expanded our business into China and the United Kingdom and is considering further international expansion through either establishing new sales clinic operations or by licensing the intellectual property for use in territories in which we do not have clinics.
 
In the event that we continue to expand our business, we may need to raise debt or equity funding in order to undertake such expansion.  However, there can be no assurance that we can or will obtain sufficient funds from operations or from additional financings on terms acceptable to us.  If we are unable to obtain sufficient additional financing, we may not be able to expand our operations as considered or we could be required to reduce spending and operations.
 
TWELVE MONTHS ENDED JUNE 30, 2008 COMPARED TO TWELVE MONTHS ENDED JUNE 30, 2007
 
REVENUE.  Revenue was $51,903,527 in the twelve months ended June 30, 2008 compared to $38,156,967 in the twelve months ended June 30, 2007, an increase of $13,746,560 or 36.0%.  The increase in revenue in the twelve-month period is primarily attributable to the following factors: (1) increased effectiveness of advertising campaigns; (2) increased brand name recognition; and (3) effectiveness of our products.  Part of the increase is also due to a significant increase in the A$:US$ exchange rate during the relevant period.

 
9

 
 
We recognize all expenses on the date they are incurred regardless of whether they relate to recognized or unearned revenue whereas unearned revenue (which is generated by current expenses) is unable to be recognized in the current period.
 
In addition, our unearned revenue during the twelve months ending June 30, 2008 increased by $1,821,512 to $6,922,800 for the twelve months ending June 30, 2007, compared to the twelve months ending June 30, 2007.  The increase in unearned revenue in the twelve-month period is primarily attributed to the increase in the number of patients seeking treatment programs from us over the same period in 2007. We attribute this increase to the following factors: (1) increased advertising campaigns with improved target marketing in the premature ejaculation segment; (2) increased brand name recognition; and (3) effectiveness of our products.  Part of the increase is also due to a significant increase in the A$:US$ exchange rate during the relevant period.
 
Revenue in AMI Australia’s premature ejaculation (“PE”) treatment programs has increased by $5,324,396 or 28.5% to $24,034,165 and revenue in AMI Australia’s erectile dysfunction (“ED”) treatment programs has increased by $6,025,771 or 33.0% to $24,302,733 in the twelve months ending June 30, 2008, compared to the twelve months ending June 30, 2007.  AMI Australia also generated $3,566,629 in revenue from its prostate programs in the twelve months ending June 30, 2008, compared to $1,320,096 in the twelve months ending June 30, 2007, an increase of 170.17%.
 
Revenue in our Australian operations was $50,572,312 in the twelve months ended June 30, 2008 compared to $37,245,631 during the twelve months ended June 30, 2007, an increase of $13,326,681 or 35.8%.  The increase in revenue in the twelve-month period is primarily attributable to the increase in the number of patients seeking treatment  from us during the twelve months ended June 30, 2008 over the same period in 2007.  We attribute this increase to the following factors: (1) effectiveness advertising campaigns; (2) increased brand name recognition; and (3) effectiveness of our products.  Part of the increase is also due to a significant increase in the A$:US$ exchange rate during the relevant period.
 
Revenue in our New Zealand operations was $1,275,681 in the twelve months ended June 30, 2008 compared to $871,605 during the twelve months ended June 30, 2007, an increase of $404,076 or 46.4%.  The increase in revenue in the twelve-month period is primarily attributable to the increase in the number of patients seeking treatment  from us during the twelve months ended June 30, 2008 over the same period in 2007.  We attribute this increase to the following factors: (1) increased effectiveness of advertising campaigns; (2) increased brand name recognition; and (3) effectiveness of our products.
 
Revenue in our Chinese operations was $55,534 in the twelve months ended June 30, 2008 compared to $39,730 during the twelve months ended June 30, 2007.  The increase in revenue in the twelve-month period is primarily attributable to an increase in the number of patients seeking treatment from us during the year ended June 30, 2008 compared to the same period in 2007.
 
COST OF REVENUE.  Cost of revenue increased to $11,504,761 in the twelve months ended June 30, 2008 compared to $9,313,044 in the twelve months ended June 30, 2007 primarily as a result of an increase in doctor consultancy fees and medication costs during the period.  These additional costs were incurred as a result of the additional treatment programs sold during the 12 month period.  As a percentage of revenue, cost of revenue was 22.3% in the twelve months ended June 30, 2008 compared to 24.8% in the twelve months ended June 30, 2007.  The decrease in the cost of revenue percentage by 2.5% and is primarily attributable to decrease in expenditures on our unprofitable Chinese and discontinued Japanese operations.

 
10

 
 
GROSS PROFIT. Gross profit was $40,305,598 in the twelve months ended June 30, 2008 compared to $28,699,647in the twelve months ended June 30, 2007.  As a percentage of revenue, gross profit increased to 77.7% in the twelve months ended June 30, 2008 from 75.2% in the twelve months ended June 30, 2007.  The 2.5% increase in the gross profit percentage is primarily attributable to decrease in expenditures on our unprofitable Chinese and discontinued Japanese operations.
 
Gross profit in our Australian operations was $39,067,551 in the twelve months ended June 30, 2008 compared to $27,932,587 in the twelve months ended June 30, 2007.  This increase is mainly attributable to an increase in revenue in the business without additional fixed costs being incurred.
 
Gross profit in our New Zealand operations was $1,183,283 in the twelve months ended June 30, 2008 compared to a gross profit of $790,752 in the twelve months ended June 30, 2007.  This is primarily attributable to an increase in revenue in the business without additional fixed costs being incurred.
 
Gross profit in our Chinese operations was $54,764 in the twelve months ended June 30, 2008 compared to ($23,692) in the twelve months ended June 30, 2007.  The principal reason is because of an improvement in revenue through sales being generated.
 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses were $37,597,347 in the twelve months ended June 30, 2008 compared to $27,569,036 in the twelve months ended June 30, 2007.  As a percentage of revenue, selling, general and administrative expenses increased to 72.4% in the twelve months ended June 30, 2008 from 72.3% in the twelve months ended June 30, 2007.  The percentage change was not material.
 
Selling, general and administrative expenses in our Chinese operations were $741,071 in the twelve months ended June 30, 2008 compared to $929,729 in the twelve months ended June 30, 2007.  Major expenses incurred were staff costs and advertising expenses.
 
OTHER INCOME AND EXPENSES.  Other income and expenses were $(113,388) in the twelve months ended June 30, 2008 compared to $70,585 in the twelve months ended June 30, 2007.  As a percentage of revenues, other income and expenses decreased to (0.3)% in the twelve months ended June 30, 2008 from 0.2% in the twelve months ended June 30, 2007.  The decrease is due to the decrease in the income received by the Company from the Heart Check Group and the increase in interest paid on the Company’s secured long term loan.
 
NET INCOME (LOSS) BEFORE INCOME TAX AND INCOME TAX EXPENSES.  Net income before income tax was $2,252,458 in the twelve months ended June 30, 2008 compared to ($550,831) in the twelve months ended June 30, 2007.  This improvement is due to significant expansion in the Company’s profitable Australian operations and the Company, substantially decreasing expenditures in its unprofitable Chinese operations.
 
Net income before income tax in our Australian operations was $4,312,262 in the twelve months ended June 30, 2008 compared to $2,452,564 in the twelve months ended June 30, 2007.  This increase is mainly attributable to increase in revenue in Australia.

 
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Net loss before income tax in our New Zealand operations was ($615,443) in the twelve months ended June 30, 2008 compared to a net loss ($112,711) in the twelve months ended June 30, 2007.  This increase is attributable to an increase in advertising expenses without as significant an increase in revenue.
 
Net loss before income tax in our Chinese operations was ($741,068) in the twelve months ended June 30, 2008 compared to ($953,513) in the twelve months ended June 30, 2007.  The principal reason for the reduction in net loss is because we have reduced the amount of expenditure into our China operations.
 
Income tax expenses were $1,257,679 in the twelve months ended June 30, 2008 compared to $769,691 in the twelve months ended June 30, 2007.  This increase is attributable to the increasing profitability of the Company’s Australian business. As a percentage of gross income, income tax expense decreased from 2.4% to 2.1% which is attributable to a lower proportion of expenses being incurred in offshore jurisdictions which are unable to be offset against Australian income tax expenses.  Australian corporate tax is assessed nationally at 30% of net profit before tax.
 
NET INCOME (LOSS).  Net income was $994,779 in the twelve months ended June 30, 2008 compared ($1,320,522) in the twelve months ended June 30, 2007.  The reason for this is attributable to significant expansion in the Company’s profitable Australian operations and the Company substantially decreasing expenditure on its unprofitable Chinese operations.
 
Net income in our Australian operations was $3,054,583 in the twelve months ended June 30, 2008 compared to $1,682,873 in the twelve months ended June 30, 2007.  This increase is mainly attributable to the increase in revenue in Australia.
 
Net loss in our New Zealand operations was ($615,443) in the twelve months ended June 30, 2008 compared to a net loss ($112,711) in the twelve months ended June 30, 2007.  This increase is attributable to the increase in advertising expenses.
 
Net loss in our Chinese operations was ($741,068) in the twelve months ended June 30, 2008 compared to ($953,513) in the twelve months ended June 30, 2007.  The principal reason for the decrease in the net loss is because we have reduced the amount of expenditure into our China operations.
 
Item 9A(T).    Controls and Procedures.

(a) Disclosure Controls and Procedures.
 
Our management, with the participation of our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15(d) – 15(e) under the  Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in reports we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding disclosure.

 
12

 

 (b) Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as required by Sarbanes-Oxley Section 404A. The Company's internal control over financial reporting is a process designed under the supervision of the Company's principal executive officer and prinicpal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S. generally accepted accounting principles (GAAP)
 
As of June 30, 2008, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
 
The matters involving controls over financial reporting that the Company's management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were : (1) lack of a functioning audit committee and lack of majority of outside directors on the Company's board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures, and, (2) inadequate segregation of duties consistent with control objectives. The aforementioned material weaknesses were identified by the Company's principal financial officer in connection with the audit of our financial statements as of June 30, 2008 and communicated to our management.
 
Management believes that the material weaknesses set forth in items (1) and (2) above did not have an effect on the Company's financial results. However, management believes that although its disclosure controls and procedures are effective, the lack of a functioning audit committee and lack of a majority of outside directors on the Company's board of directors could result in ineffective oversight in the establishment and monitoring of required internal controls and procedures. Management's goals are to have a functional audit committee and a majority of outside directors on the Company's board of directors when funds are available.
 
(c) Changes in Internal Controls.
 
No change in our internal control over financial reporting (as defined in Rules 13a-15 or 15d-15 under the 1934 Act) occurred during the fourth quarter of the year ended June 30, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 
13

 
 
PART IV
 
Item 15.      Exhibits Financial Statement Schedules.

(a) The following are filed with this report:
 
(1) The financial statements listed on the Financial Statement’s Table of Contents

 
(2) Not applicable

 
(3) The exhibits referred to below, which include the following managerial contracts or compensatory plans or arrangements:

 
·
Employment Agreement between AMI Australia and Forhad (Tony) Khan dated July 30, 2005
     
 
·
Employment Agreement between AMI Australia and Dilip Shrestha dated July 30, 2005
     
 
·
Employment Agreement between AMI Australia and Jacov (Jack) Vaisman dated July 30, 2005
 
(b) The exhibits listed on the Exhibit Index are filed as part of this report.
 
(c) Not applicable.
 
14


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: March 25, 2010
ADVANCED MEDICAL INSTITUTE INC.
     
 
By:
/s/ Jacov (Jack) Vaisman
   
Jacov (Jack) Vaisman
   
Chief Executive Officer and President
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Date: March 25, 2010
By:
/s/ Jacov (Jack) Vaisman
   
Jacov (Jack) Vaisman
   
Chief Executive Officer and President
   
(Principal Executive Officer)
     
Date: March 25, 2010
By:
/s/ Dilip Shrestha
   
Dilip Shrestha
   
Chief Financial Officer
   
(Principal Accounting Officer)
     
Date: March 25, 2010
By:
/s/ Forhad (Tony) Kahn
   
Forhad (Tony) Kahn
   
Executive Vice President and Secretary
     

 
15

 
 
EXHIBIT INDEX
 
Exhibit
Number
 
Description
     
2.1
 
Share Exchange Agreement, dated January 28, 2005 (incorporated herewith by reference to Exhibit 2.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated March 21, 2005 and filed with the Securities and Exchange Commission on March 28, 2005).
     
2.2
 
Share Exchange Agreement, dated November 16, 2005 (incorporated herewith by reference to Exhibit 2.2 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated November 16, 2005 and filed with the Securities and Exchange Commission on November 17, 2005).
     
2.3
 
Share Exchange Agreement, dated April 18, 2006 (incorporated herewith by reference to Exhibit 2.2 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated April 18, 2006 and filed with the Securities and Exchange Commission on April 19, 2006).
     
3.1
 
Certificate of Incorporation of Advanced Medical Institute Inc. (incorporated herewith by reference to Exhibit 3.1 to Advanced Medical Institute Inc.’s Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on February 16, 2000).
     
3.2
 
By-laws of Advanced Medical Institute Inc. (incorporated herewith by reference to Exhibit 3.2 to Advanced Medical Institute Inc.’s Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on February 16, 2000).
     
10.1
 
Subscription Agreement, dated June 29, 2005  (incorporated herewith by reference to Exhibit 10.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated June 29, 2005 and filed with the Securities and Exchange Commission on June 30, 2005).
     
10.2
 
Employment Agreement between AMI Australia and Forhad (Tony) Khan (incorporated herewith by reference to Exhibit 10.2 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated July 30, 2005 and filed with the Securities and Exchange Commission on August 1, 2005).
     
10.3
 
Employment Agreement between AMI Australia and Dilip Shrestha (incorporated herewith by reference to Exhibit 10.3 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated July 30, 2005 and filed with the Securities and Exchange Commission on August 1, 2005).

 
16

 

10.4
 
Employment Agreement between AMI Australia and Jacov (Jack) Vaisman (incorporated herewith by reference to Exhibit 10.4 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated August 29, 2005 and filed with the Securities and Exchange Commission on August 30, 2005).
     
10.5
 
Consultant Agreement between AMI Australia and Doyle Corporate Pty Limited (incorporated herewith by reference to Exhibit 10.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated April 24, 2006 and filed with the Securities and Exchange Commission on April 24, 2006).
     
10.6
 
Share Exchange Agreement dated as of September 8, 2006 (incorporated herewith by reference to Exhibit 10.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated September 8, 2006 and filed with the Securities and Exchange Commission on September 11, 2006).
     
10.7
 
Loan Agreement between AMI Australia and ANZ Nominees Limited as Custodian for the Professional Pension PST – Super dated September 8, 2006 (incorporated herewith by reference to Exhibit 10.2 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated September 8, 2006 and filed with the Securities and Exchange Commission on September 11, 2006).
     
10.8
 
Loan Agreement between AMI Australia and ANZ Nominees Limited as Custodian for the Professional Pension PST – Pension dated September 8, 2006 (incorporated herewith by reference to Exhibit 10.3 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated September 8, 2006 and filed with the Securities and Exchange Commission on September 11, 2006).
     
10.9
 
Fixed and Floating Charge Agreement between AMI Australia and ANZ Nominees Limited as Custodian for the Professional Pension PST – Super dated September 8, 2006 (incorporated herewith by reference to Exhibit 10.4 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated September 8, 2006 and filed with the Securities and Exchange Commission on September 11, 2006).
     
10.10
 
Fixed and Floating Charge Agreement between AMI Australia and ANZ Nominees Limited as Custodian for the Professional Pension PST – Pension dated September 8, 2006 (incorporated herewith by reference to Exhibit 10.5 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated September 8, 2006 and filed with the Securities and Exchange Commission on September 11, 2006).
     
10.11
 
Consulting Agreement between the Company and the Heartcheck Group dated February 12, 2007 (incorporated herewith by reference to Exhibit 10.11 to Advanced Medical Institute Inc.’s Annual Report on Form 10K-SB, filed with the Securities and Exchange Commission on October 15, 2007).

 
17

 

10.12
 
Option Agreement between Worldwide PE Patent Holdco Pty Limited and AMI Group Limited dated May 2, 2007 (incorporated herewith by reference to Exhibit 10.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated May 2, 2007 and filed with the Securities and Exchange Commission on May 3, 2007).
     
10.13
 
Share Sale Agreement, dated as of April 30, 2008 (incorporated herewith by reference to Exhibit 10.1 to Advanced Medical Institute Inc.’s Current Report or Form 8-K dated April 30, 2008 and filed with the Securities and Exchange Commission on May 5, 2008).
     
14.1
 
Code of Ethics (incorporated herewith by reference to Exhibit 14.1 to Advanced Medical Institute Inc.’s Annual Report on Form 10-KSB for the period ended December 31, 2004 and filed with the Securities and Exchange Commission on May 31, 2005).
     
16.1
 
Letter of Lichter, Yu & Associates relating to its resignation of independent public accountants for Advanced Medical Institute, Inc. (incorporated herewith by reference to Exhibit 16.1 to Advanced Medical Institute Inc.’s Current Report on Form 8-K dated March 29, 2006 and filed with the Securities and Exchange Commission on March 31, 2006).
     
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2
 
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1
  
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification of the Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
18

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
FINANCIAL REPORT
 
FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

 
F-1

 

ADVANCED MEDICAL INSTITUTE INC.
 
AND SUBSIDIARIES
 
FINANCIAL STATEMENTS
 
TABLE OF CONTENTS
 
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-3
   
FINANCIAL STATEMENTS
 
   
Consolidated Balance Sheet as at June 30,2008
F-4
   
Consolidated Statements of Operations for the years ended June 30, 2008 and 2007
F-5
   
Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2008 and 2007
F-6
   
Consolidated Statements of Cash Flows for the years ended June 30, 2008 and 2007
F-7
   
Notes to Consolidated Financial Statements
F-9

 
F-2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
Stockholders of Advanced Medical Institute, Inc.
 
We have audited the accompanying consolidated balance sheet of Advanced Medical Institute, Inc. and its subsidiaries (the “Company”) as of June 30, 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended June 30, 2008 and 2007.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Medical Institute, Inc. and its subsidiaries as of June 30, 2008, and the results of its operations and its cash flows for the years ended June 30, 2008 and 2007 in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Kabani & Company, Inc.
CERTIFIED PUBLIC ACCOUNTANTS
 
Los Angeles, California
 
October 2, 2008

 
F-3

 
 
ADVANCED MEDICAL INSTITUTE INC.
 
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
   
     
   
June 30, 2008
   
June 30, 2007
 
   
Notes
             
CURRENT ASSETS
 
   
             
Cash & cash equivalent
        $ 3,127,029     $ 864,481  
Receivables, net
          18,196,314       12,158,950  
Receivables due from related parties
 
12
      751,034       1,453  
Inventory
          468,950       269,707  
Other assets
 
3
      701,329       1,174,445  
                       
TOTAL CURRENT ASSETS
          23,244,656       14,469,036  
                       
NON-CURRENT ASSETS
                     
Security deposits
          124,569       191,702  
Property, plant and equipment, net
 
4
      1,314,825       1,045,917  
Net assets held for disposition
 
11
      396,332       -  
Intangible assets, net
 
2
      30,281,340       28,217,069  
                       
TOTAL NON-CURRENT ASSETS
          32,117,066       29,454,688  
                       
TOTAL ASSETS
        $ 55,361,722       43,923,724  
                       
CURRENT LIABILITIES
                     
Unearned revenue
        $ 6,922,800     $ 5,101,288  
Accounts payables & accrued expenses
 
6
      9,874,446       5,808,271  
Payables due to related parties
          -       4,932  
Interest bearing liabilities – current
 
5
      422,715       72,044  
Income taxes payable
          820,674       326,006  
                       
TOTAL CURRENT LIABILITIES
          18,040,635       11,312,541  
                       
NON-CURRENT LIABILITIES
                     
Rental deposit received
          -       6,833  
Interest bearing liabilities – non current
 
5
      1,523,716       2,424,362  
Deferred tax liabilities
 
14
      2,323,212       1,501,602  
                       
TOTAL NON-CURRENT LIABILITIES
          3,846,928       3,932,797  
                       
TOTAL LIABILITIES
          21,887,563       15,245,338  
                       
COMMITMENTS & CONTINGENCIES
          -       -  
                       
STOCKHOLDERS’ EQUITY
                     
Common stock, par value $0.001 per share, 90,000,000 shares authorized, 53,507,450 issued and outstanding as of June 30, 2008 and 2007
          53,507       53,507  
Additional paid in capital
          24,149,420       24,149,420  
Other comprehensive income
 
16
      6,972,500       3,171,506  
Retained earnings
          2,298,732       1,303,953  
                       
TOTAL STOCKHOLDERS’ EQUITY
          33,474,159       28,678,386  
                       
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
        $ 55,361,722     $ 43,923,724  
 
See accompanying notes to the financial statements.

 
F-4

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

   
2008
   
2007
 
             
NET REVENUES
  $ 51,903,527     $ 38,156,967  
                 
COST OF REVENUES
    11,597,929       9,457,320  
                 
GROSS PROFIT
    40,305,598       28,699,647  
                 
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    37,597,347       26,925,368  
Impairment loss
    -       643,668  
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
    37,597,347       27,569,036  
                 
OPERATING INCOME
    2,708,251       1,130,611  
                 
OTHER INCOME AND EXPENSE
               
Rental income
    -       14,722  
Bank interest
    92,499       49,172  
Sundry income
    23,779       88,272  
Management fee income
    33,813       122,765  
Interest expense
    (263,479 )     (204,806 )
                 
TOTAL OTHER INCOME AND EXPENSE
    (113,388 )     70,585  
                 
INCOME FROM CONTINUED OPERATIONS BEFORE INCOME TAXES
    2,594,863       1,201,196  
INCOME TAX EXPENSE
    (1,257,679 )     (769,691 )
INCOME FROM CONTINUED OPERATIONS
    1,337,184       431,505  
LOSS FROM DISCONTINUED OPERATIONS
    (342,405 )     (1,752,027 )
NET INCOME (LOSS)
    994,779       (1,320,522 )
                 
Other Comprehensive item – Foreign currency translation income
    3,800,994       3,375,989  
                 
Net Comprehensive Income
  $ 4,795,773     $ 2,055,467  
                 
Earnings (loss) per share, continued operations
  $ 0.03     $ 0.01  
Earnings (loss) per share, discontinued operations
    (0.01 )     (0.04 )
                 
Earnings (loss) per share, basic & diluted
  $ 0.02     $ (0.03 )
                 
Weighted average number of shares outstanding, basic
    53,507,450       50,346,964  
 
See accompanying notes to the financial statements.

 
F-5

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

         
Additional
   
Other
             
   
Common Stock
   
Paid-In
   
Comprehensive
   
Retained
       
   
Shares
   
Amount
   
Capital
   
Income (Loss)
   
Earnings
   
Total
 
                                     
Balance June 30, 2006
    37,482,450     $ 37,482     $ 8,040,445     $ (204,483 )   $ 2,624,475     $ 10,497,919  
Issuance of stock
    16,025,000       16,025       16,108,975       -       -       16,125,000  
Other comprehensive income
    -       -       -       3,375,989       -       3,375,989  
Net income, June 30, 2007
    -       -       -       -       (1,320,522 )     (1,320,522 )
                                                 
Balance June 30, 2007
    53,507,450       53,507       24,149,420       3,171,506       1,303,953       28,678,386  
Other comprehensive income
    -       -       -       3,800,994       -       3,800,994  
Net loss,  June 30, 2008
    -       -       -       -       994,779       994,779  
                                                 
Balance June 30, 2008
    53,507,450     $ 53,507     $ 24,149,420     $ 6,972,500     $ 2,298,732     $ 33,474,159  
 
See accompanying notes to the financial statements.

 
F-6

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

   
2008
   
2007
 
             
Cash Flows from Operating Activities
           
             
Receipts from customers
  $ 43,664,868     $ 32,399,025  
Interest received
    89,200       48,898  
Interest paid
    (263,482 )     (577,480 )
Payment to suppliers & employees
    (39,119,615 )     (30,495,606 )
Income tax paid
    (214,786 )     (234,127 )
                 
Net cash provided by operating activities of continued operations
    4,156,185       1,140,710  
Net cash (used in) provided by discontinued operation
    (609,639 )     73,517  
                 
Net cash provided by operating activities
    3,546,546       1,214,227  
                 
Cash Flows from Investing Activities
               
                 
Payment for property, plant & equipment
    (346,712 )     (284,654 )
Purchase of intangible assets
    (93,819 )     (2,349,477 )
                 
Net cash used in investing activities
    (440,531 )     (2,634,131 )
                 
Cash Flows From Financing Activities
               
Proceeds from borrowings
    -       2,357,760  
Repayment of borrowings
    (869,468 )     (228,461 )
                 
Net cash (used in) provided by financing activities
    (869,468 )     2,129,299  
                 
Net increase in cash and cash equivalent
    2,236,547       709,395  
Effect of exchange rate changes on cash and cash equivalent
    153,099       (1,075,255 )
Cash & cash equivalent at beginning of year
    737,383       1,103,243  
                 
Cash & cash equivalent at end of year
  $ 3,127,029     $ 737,383  
 
NON-CASH INVESTING & FINANCING ACTIVITY:

1) Assets acquired under capital leases $48,740
2) The Company issued 16,125,000 shares to the shareholders of Worldwide PE Patent Holdco Pty Limited as part of acquisition of that entity on September 8, 2006.
 
See accompanying notes to the financial statements.

 
F-7

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 2008 AND 2007

   
June 30, 2008
   
June 30, 2007
 
             
Reconciliation of Cash
           
             
Cash at the end of financial year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:
           
             
Cash
  $ 3,127,029     $ 737,383  
                 
Reconciliation of Cash Flow from Operations with Profit from Ordinary Activities after Income Tax
               
Net Income (Loss)
    994,779       (1,320,522 )
                 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
               
Depreciation and amortization expense
    1,795,148       1,339,003  
Provision for doubtful debt
    4,917,980       4,696,994  
Impairment loss
    -       643,668  
                 
Changes in Assets and Liabilities
               
Increase in current inventories
    (152,377 )     (29,926 )
Increase in receivables
    (9,202,808 )     (6,409,081 )
Increase in deferred tax liabilities
    580,143       436,182  
Increase in unearned revenue
    1,066,787       539,141  
Increase in payables
    3,312,121       971,516  
Decrease (Increase) in rental deposit received
    2,959       (5,972 )
Increase in provisions for compensated absences
    397,768       133,601  
Increase in income tax payable
    462,528       146,106  
                 
Net cash provided by operating activities of continued operations
    4,175,028       1,140,710  
Net cash used in operating activities of discontinued operation
    (609,639 )     73,517  
                 
Cash Flows Provided by Operating Activities
  $ 3,565,389     $ 1,214,227  
 
See accompanying notes to the financial statements.

 
F-8

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008 AND 2007
 
1.
NATURE OF BUSINESS
 
We were originally incorporated under the name of Hawksdale Financial Visions, Inc. on December 6, 1996 under the laws of the State of Nevada.  We were involved in the business of timeshares, but became dormant on March 31, 1997, and until January 28, 2005, we were a “blank check” company with nominal assets. On October 15, 2004, we changed our name to “Advanced Medical Institute Inc.”
 
On March 21, 2005, we completed a Share Exchange Agreement (the “Exchange Agreement”) with Advanced Medical Institute Pty Limited, a privately owned Australian company (“AMI Australia”), whereby AMI Australia became our wholly owned subsidiary.
 
On November 17, 2005 we entered into a Share Exchange Agreement (the “Second Exchange Agreement”) with PE Patent Holdco Pty Limited, a privately owned Australian company (“PE Patent Holdco”), whereby PE Patent Holdco became our wholly-owned subsidiary.
 
On September 8, 2006, we entered into a Share Exchange Agreement (the “Third Exchange Agreement”) with Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned Australian company (“Worldwide PE”), whereby Worldwide PE became our wholly owned subsidiary.
 
Business Overview
 
 
AMI is a service provider company, which arranges for patients with sexual dysfunction and prostate problems in Australia, New Zealand, China and the United Kingdom to be provided with medical services, pharmaceuticals and associated clinical support services.
 
 
On September 15, 2008, we announced expansion of our operations to the United Kingdom where we opened up our treatment centers, contracts with independent doctors and pharmacies and begun airing infomercials throughout the country.
 
 
For the year ended June 30, 2008, AMI’s revenues were approximately $51.9 million.
 
Principal Products and Services
 
 
AMI provides a variety of treatment programs to its customers, via its call center and clinics, for the treatment of sexual dysfunction and prostate problems. A patient is diagnosed by telephone or in person at a clinic, in either case, by a licensed physician, who sends a prescription directly to a compounding pharmacy under contract with AMI to prepare the formulation.  The prescription is delivered to the patient, or the patient may pick up the prescription at the clinic.  The patient pays for treatments for a specified treatment period, during which the formulations may be varied to best suit the patient’s needs.
 
 
Our physicians prescribe varying combinations or dosages of medications for erectile dysfunction (predominantly phentalomine, apomorphine or a combination of them), premature ejaculation (predominantly clomipramine) and prostate problems (mixture of medicinal herbs).  Our compound formulations have not been subject to any clinical trial, but may lawfully be prescribed on an individual prescription (“off-label”) basis in each country in which we operate.
 
 
The effectiveness of AMI’s treatment programs depend highly on the delivery system.  These include:
 
 
(a)
injections, nasal spray, lozenges, tablets and gels for the treatment of erectile dysfunction;

 
F-9

 
 
 
(b)
injections, nasal spray, lozenges and gels for the treatment of premature ejaculation;
 
 
(c)
topical gels for the treatment of female sexual arousal dysfunction; and
 
 
(d)
an oral elixir for the treatment of prostate problems.
 
New Products and Services
 
 
On July 29, 2008, AMI announced the development of new transdermal gel used to treat premature ejaculation and erectile dysfunction in men as well as sexual arousal dysfunction in women.
 
 
Since 2003, AMI’s subsidiary, Intelligent Medical Technologies Pty Limited (“IMT”) has been developing  an ultrasonic nebulizer which will deliver drugs to the lungs.  The group’s intention is to use this delivery system to administer its compound formulations.  In order to utilize this delivery system IMT needs to obtain regulatory approval of the nebulizer as a medical device.  IMT has been working on this process for the last 3 years however IMT has not yet completed such process.
 
Distribution
 
 
AMI currently operates a centralized call center and 20 clinics offices throughout Australia and New Zealand.  AMI has an arrangement with two hospitals in Beijing where Chinese patients are treated, and AMI has recently established 2 clinics in the United Kingdom to service UK patients. AMI’s products and services are only available by prescription and are sold on an “off-label” basis.  AMI Australia’s treatment programs are generally available in the same manner through its medical clinics and its over-the-phone sales and marketing program.

Subsidiaries of the Company

Following are the significant Subsidiaries of the Company and AMI Australia
 
 
 
F-10

 

The Company’s subsidiaries are AMI Australia, AMI International Pty Limited and AMI Management Services Pty Limited.
 
 
AMI Australia’s subsidiaries are Advanced Medical Institute Pty Limited, PE Patent Holdco, Worldwide PE, Advanced Medical Institute (NZ) Limited, IMT.
 
 
AMI International’s subsidiaries are AMI China and AMI Clinic Limited.
 
 
On February 4, 2008, AMI discontinued operations of AMI Japan Kabushiki Gaisya .
 
 
AMI International Pty Limited was established to hold the Group’s shareholdings in the Chinese company established to conduct operations in that jurisdiction.
 
 
AMI Management Services Pty Limited provides treasury and management services to AMI Australia and its subsidiaries.
 
 
Advanced Medical Institute (NZ) Limited conducts the group’s business in New Zealand.
 
 
Ai Te Wei (Beijing) Medicine Consulting Company conducts the group’s business in China.
 
 
During September 2006, AMI commenced a not-for-profit division of the Company, AMI-SCI that provides treatment options to men who have sustained a spinal cord injury.

 
F-11

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
2. 
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America.  The following are descriptions of the more significant policies:
 
Principles of Consolidation
 
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AMI Australia Holdings Pty Limited, AMI Management Services Pty Limited (“AMI MS”) and AMI International Pty Limited (“AMI International”) and their direct and indirect wholly-owned subsidiaries: Advanced Medical Institute Pty Ltd, PE Patent Holdco Pty Limited (“PE”), Advanced Medical Institute (NZ) Limited (“AMI NZ”) and Intelligent Medical Technologies Pty Ltd (“IMT”). All significant inter-company accounts and transactions have been eliminated upon consolidation.
 
The Company is planning to dispose off its 50% owned subsidiary, Whygo Video Conferencing Pty Ltd (“Whygo”) (which owns all of the shares in Whygo Limited, a UK entity) in the subsequent period and re-classed the assets of Whygo as ‘Net Assets held for disposition’ in the accompanied financial statements.

The Company also re-classed assets of its 75% owned subsidiary AMI Japan, which was discontinued during the reporting period, to ‘Assets held for disposition’.
 
Concentration of Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions. The Company has a diversified customer base. The Company controls credit risk related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
 
Cash Equivalents
 
For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.
 
Revenue Recognition
 
Sales are reported as deferred income when the sales contracts are executed and the term of the contract exceeds three months.  Up to three months of medication is delivered to the patient upon the signing of a contract.  Generally the term of the sales contracts are up to one year, but they can be for longer periods of time.  The deferred income arising from the contracts that exceed three months is then amortized, on a straight line basis, into income during the approximated composite remaining medication delivery period.  This approximated composite is an estimate that may vary from period to period.
 
Unearned Revenue
 
Unearned revenue arises from programs that exceed three months.  The maximum program length is twelve months while the average program length purchased by each individual patient is four & half months. The Company made estimate of unearned revenue based on the average program length less three months for which medication is provided and revenue is recognized.
 
Advertising Expense
 
Advertising costs are charged to expense as they are incurred. Advertising expense is $17.9 million in financial year 2008 and $13.0 million in financial year 2007.
 
Income Tax
 
Income taxes have been provided based upon the tax laws and rates in the countries in which operations are conducted and income is earned.  The income tax rates imposed by the taxing authorities vary.  Taxable income may vary from pre-tax income for financial accounting purposes.  There is no expected relationship between the provision for income taxes and income before income taxes because the countries have different taxation rules, which vary not only to nominal rates but also in terms of available deductions, credits and other benefits.  Deferred tax assets and liabilities are recognized for the anticipated future tax effects of temporary differences between the financial statement basis and the tax basis of the Company’s assets and liabilities using the applicable tax rates in effect at year end as prescribed by SFAS 109 “Accounting for Income Taxes.”

 
F-12

 
 
Accounts Receivable
 
Accounts receivable are sales for the year, net of sales refund, cancellation, unearned revenue and provision for doubtful debt.   The Company estimates provision for doubtful debts based on the historical results.  Allowance for bad debt is $14.2 million in financial year 2008.
 
Inventories
 
Inventories are valued at the lower of cost (determined on a first-in first-out basis) or market.  Management compares the cost of inventories with the market value and allowance is made for writing down our inventories to market value, if lower.  As of June 30, 2008 inventory consisted only of finished goods:
 
Property and Equipment
 
Property & Equipment placed in service is depreciated over the estimated useful lives of the assets using the diminishing value depreciation method.
 
Property and equipment are carried at the lesser of cost and written down value.  Expenditures for maintenance and repairs are expenses as incurred and expenditures for major renewals and betterments are capitalized.  Assets retired or sold are removed from the property accounts, with gains or losses on disposal included in income.

 
F-13

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Employee Entitlements
 
Contributions are made to an employee superannuation fund and are charged as expenses when incurred.
 
Exchange Gain (Loss)
 
During the fiscal year ended June 30, 2008 and 2007, the transactions of AMI Australia were denominated in foreign currency and were recorded in Australian Dollars (AUD) at the rates of exchange in effect when the transactions occur. Exchange gains and losses are recognized for the different foreign exchange rates applied when the foreign currency assets and liabilities are settled.
 
Foreign Currency
 
As of June 30, 2008, the accounts of AMI Australia and its subsidiaries were maintained and its financial statements were expressed in the local currency for the jurisdiction in which the entity operated.  Such financial statements were translated into the functional currency in Australian Dollars (AUD) and thereafter to reporting currency in U.S. Dollars (USD) in accordance with Statement of Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation,” with the AUD as the functional currency. According to the Statement, all assets and liabilities were translated at the current exchange rate, stockholders’ equity (deficit) is translated at the historical rates and income statement items are translated at the average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive Income” as a component of shareholders’ equity (deficit).
 
Research and Development Costs
 
Research and development costs are charged against income from ordinary activities before income tax as incurred. Research and development costs are $0.2 million in financial year 2008 and $0.2 million in financial year 2007.

 
F-14

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Intangible assets
 
The Company applies the criteria specified in SFAS No. 141, “Business Combinations” to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business acquisitions are recognized as assets separate from goodwill if they satisfy either the “contractual-legal” or “separability” criterion. Per SFAS 142, intangible assets with definite lives are amortized over their estimated useful life and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible assets, such as purchased technology, trademark, customer list, user base and non-compete agreements, arising from the acquisitions of subsidiaries and variable interest entities are recognized and measured at fair value upon acquisition. Intangible assets are amortized over their estimated useful lives from one to ten years. The Company reviews the amortization methods and estimated useful lives of intangible assets at least annually or when events or changes in circumstances indicate that it might be impaired. The recoverability of an intangible asset to be held and used is evaluated by comparing the carrying amount of the intangible asset to its future net undiscounted cash flows. If the intangible asset is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the intangible asset exceeds the fair value of the intangible asset, calculated using a discounted future cash flow analysis. The Company uses estimates and judgments in its impairment tests, and if different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different.
 
Goodwill, trademarks, patents and other intangible assets determined to have indefinite useful lives are not amortized.  We test such trademarks and other intangible assets with indefinite useful lives for impairment annually, or more frequently if events or circumstances indicate that an asset might be impaired.  Goodwill, trademarks, patents and other intangible assets determined to have definite lives are amortized over their estimated useful lives or the life of the trademark, patent and other intangible asset, whichever is less.
 
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units), to which the intangible asset relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised.
 
At June 30, 2008, intangibles consist of the following:

 
Intangibles
 
Gross Carrying
Amount
   
Accumulated
Amortization
   
Impairment Loss
   
Net
 
               
Recorded in prior year
       
Amortized intangibles:
                       
Patents
  $ 11,156,809     $ (1,376,049 )   $ (787,469 )   $ 8,993,291  
Intellectual Properties
    19,427,611       (1,917,006 )     -       17,510,605  
Computer Software
    473,174       (287,994 )     -       185,180  
                                 
Unamortized intangibles:
                               
Intellectual Properties
    3,592,264       -       -       3,592,264  
                                 
    $ 34,649,859     $ (3,581,049 )   $ (787,469 )   $ 30,281,340  
 
 
F-15

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

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

Computer software was assigned as having a 3 year life.

Amortization expense from continuing operation for the year ended June 30, 2008 and 2007 was $1,795,148 and $1,339,737 respectively.  The Company expects the amortization expenses for the next five years to be as follows:

Year Ending June 30,
 
Annual Amount
 
       
2009
  $ 1,618,000  
2010
  $ 1,618,000  
2011
  $ 1,618,000  
2012
  $ 1,618,000  
2013
  $ 1,618,000  
 
Long-Lived Assets  
 
Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations for a Disposal of a Segment of a Business.” The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144. SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of June 30, 2008 there were no significant impairments of its long-lived assets.
 
Segment Reporting
Statement of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About Segments of an Enterprise and Related Information” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. SFAS 131 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.

 
F-16

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Basic and Diluted Earnings Per Share

Earnings per share is calculated in accordance with the Statement of financial accounting standards No. 128 (SFAS No. 128), “Earnings per share.” SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for all periods presented has been restated to reflect the adoption of SFAS No. 128. Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Recent Pronouncements

In September 2006, FASB issued SFAS No. 157 “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. However, for some entities, the application of this Statement will change current practice. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. Management is currently evaluating the effect of this pronouncement on financial statements.

In September 2006, FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. This Statement improves financial reporting by requiring an employer to recognize the over funded or under funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This Statement also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. An employer with publicly traded equity securities is required to initially recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after December 15, 2006. An employer without publicly traded equity securities is required to recognize the funded status of a defined benefit postretirement plan and to provide the required disclosures as of the end of the fiscal year ending after June 15, 2007. However, an employer without publicly traded equity securities is required to disclose the following information in the notes to financial statements for a fiscal year ending after December 15, 2006, but before June 16, 2007, unless it has applied the recognition provisions of this Statement in preparing those financial statements:
 
·      A brief description of the provisions of this Statement
 
·      The date that adoption is required
 
·       The date the employer plans to adopt the recognition provisions of this Statement, if earlier. 

 
F-17

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Pronouncements (Continued)

The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. Management is currently evaluating the effect of this pronouncement on financial statements.

In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted subject to specific requirements outlined in the new Statement. Therefore, calendar-year companies may be able to adopt FAS 159 for their first quarter 2007 financial statements.
 
The new Statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item's fair value in subsequent reporting periods must be recognized in current earnings. FAS 159 also establishes presentation and disclosure requirements designed to draw comparison between entities that elect different measurement attributes for similar assets and liabilities. Management is currently evaluating the effect of this pronouncement on financial statements.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations.” The objective of this statement will significantly change the accounting for business combinations. Under Statement 141R, an acquiring entity will be required to recognize all the assets acquired and liabilities assumed in a transaction at the acquisition date fair value with limited exceptions. Statement 141 applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 141R to have a material impact on the consolidated financial statements.

 In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51.” The objective of this statement is to establish new accounting and reporting standards for the Noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company does not expect the adoption of SFAS No. 160 to have a material impact on the consolidated financial statements.

In March, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities.” The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The new standard also improves transparency about the location and amounts of derivative instruments in an entity’s financial statements; how derivative instruments and related hedged items are accounted for under Statement 133; and how derivative instruments and related hedged items affect its financial position, financial performance, and cash flows. FASB Statement No. 161 achieves these improvements by requiring disclosure of the fair values of derivative instruments and their gains and losses in a tabular format. It also provides more information about an entity’s liquidity by requiring disclosure of derivative features that are credit risk-related. Finally, it requires cross-referencing within footnotes to enable financial statement users to locate important. Based on current conditions, the Company does not expect the adoption of SFAS 161 to have a significant impact on its results of operations or financial position.

In May 2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting Principles.” The pronouncement mandates the GAAP hierarchy reside in the accounting literature as opposed to the audit literature. This has the practical impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP hierarchy. This pronouncement will become effective 60 days following SEC approval. The Company does not believe this pronouncement will impact its financial statements.
 
In May 2008, FASB issued SFASB No. 163, “Accounting for Financial Guarantee Insurance Contracts-an interpretation of FASB Statement No. 60.” The scope of the statement is limited to financial guarantee insurance (and reinsurance) contracts. The pronouncement is effective for fiscal years beginning after December 31, 2008. The Company does not believe this pronouncement will impact its financial statements.

 
F-18

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008
 
3.           OTHER ASSETS
 
Following is the summary of other assets as of June 30, 2008

   
June 30, 2008
   
June 30, 2007
 
Bank guarantees
  $ 112,256     $ 84,917  
                 
Advances and prepayments
    23,220       57,397  
                 
Other receivables
    67,305       106,100  
                 
Other debtors
    498,548       544,185  
                 
Total
  $ 701,329       381,856  
 
4.           PROPERTY, PLANT AND EQUIPMENT
 
   
June 30, 2008
   
June 30, 2007
 
             
             
Leasehold improvements at cost
  $ 557,408     $ 541,746  
Less: Accumulated depreciation
    118,234       74,746  
 
    439,174       467,000  
                 
Motor Vehicles
    89,884       50,334  
Less: Accumulated Depreciation
    36,316       26,708  
      53,568       23,626  
                 
Office Furniture & Equipment
    803,398       474,426  
Less: Accumulated Depreciation
    177,720       99,363  
      625,678       375,063  
                 
Computer Hardware – at Cost
    462,013       357,854  
Less: Accumulated Depreciation
    318,141       220,420  
      143,872       137,434  
                 
Low Value Pooled Fixed Assets
    188,491       142,171  
Less: Accumulated Depreciation
    135,958       99,375  
      52,533       42,796  
                 
Total Property, Plant and Equipment
  $ 1,314,825     $ 1,045,917  
 
Depreciation expenses were $176,718 and $156,162 for the fiscal years ended June 30, 2008 and 2007, respectively.


 
F-19

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENT
JUNE 30, 2008

   
June 30, 2008
   
June 30, 2007
 
5.           INTEREST BEARING LIABILITIES
           
             
Current, as of the period ended June 30
           
Capitalized lease liability
  $ 45,037     $ 72,044  
Secured loan 2008
    377,678       -  
    $ 422,715       72,044  
                 
Non-current, due during the year ended June 30:
               
Capitalized lease liability
  $ 26,061     $ 25,220  
Secured Loan
    1,497,655       2,399,142  
Total non-current
  $ 1,523,716       2,424,362  
 
The interest bearing liabilities require monthly payments of principal and interest at a per annum interest rate ranging from 7.4% to 13.8%.  Obligations under the notes are secured by the financed assets included in property and equipment.
 
Interest expenses were $263,479 and $204,806 for the fiscal years ended June 30, 2008 and 2007, respectively.
 
Obligations under the notes are secured by the financed assets included in property and equipment. The secured loan is secured over all of AMI Australia’s assets and undertakings. The principal of the loan is due to mature in September 2009.

Obligation under capital lease will expire during the period from September 2010 to April 2013.
 
6.    ACCOUNTS PAYABLE AND ACCRUED EXPENSES
 
Accounts payable and accrued expenses as of June 30, 2008 and 2007  are summarized as follows:
 
   
Amount
       
   
June 30, 2008
   
June 30, 2007
 
             
Accounts payable
  $ 4,195,940     $ 1,714,756  
Accrued salaries
    611,049       443,806  
Accrued professional fees
    62,305       30,557  
Accrued legal fee
    89,083       -  
Other current liabilities
    290,800       102,000  
Provision for DDR medication cost
    -       887,845  
Provision for DDR sales commission
    -       828,428  
Provision for DDR collection fee
    -       828,428  
Accrued DDR medication cost
    1,204,760       -  
Accrued DDR sales commission
    1,204,760       211,709  
Accrued DDR collection fee
    1,204,760          
Provision for patient refund
    182,685       84,880  
Accrued legal case settlement
    -       250,396  
Accrued payroll tax
    -       59,416  
Accrued compensated absences 
    828,304       366,050  
Total
  $ 9,874,446     $ 5,808,271  
 
F-20

 
7.           LAWSUITS
 
As of June 30, 2008, there was no litigation pending or threatened by or against the Company or any of its direct or indirect subsidiaries other than AMI Australia. AMI Australia currently is involved in the following litigation and administrative matters:
 
On May 25, 2007, AMI Australia commenced proceedings in the New South Wales Supreme Court against Channel Seven Sydney Pty Limited in respect of certain allegedly actionable statements made by Channel Seven. AMI Australia has alleged that the statements made involve a breach of the doctrine of injurious falsehood and that it is entitled to be compensated in damages. The proceedings are at an early stage.
 
On October 25, 2006, Bade Medical Institute Pty Limited, Mr. David Wade, Mr. Buddy Beani and others (collectively “Bade”) applied for Trade Mark No. 114322021 in respect of the words “AMI Nasal Spray.” AMI Australia lodged an objection to the registration of that application with IP Australia on June 21, 2007.  On December 13, 2007, AMI Australia commenced proceedings in the Federal Court of Australia Sydney Registry against Bade alleging Bade was infringing upon AMI Australia’s trademarks and other intellectual property rights. On December 19, 2007, Bade consented to orders that Bade transfer ownership of certain domain names and telephone numbers to AMI Australia and consented to orders that Bade would not use certain names which contained the word AMI.  Bade appear to have ceased operation since the orders were obtained and has transferred the required names to AMI Australia.

On April 10, 2008, a subpoena was served on Bade requiring the production of, amongst other things, its bank records.  However, despite the subpoena being stood over on 9 occasions, it was never sufficiently answered by Bade.  As Bade failed to properly respond to the subpoena, AMI Australia has had to issue Subpoenas to third parties to attain the evidence it requires to quantify its damages.

As these proceedings were commenced by way of Application, on August 8, 2008, AMI Australia filed and served a statement of claim so that it can file for default or summary judgment if Bade fails to file and serve defences or if Bade fails to file and serve defences that reasonably answer AMI Australia’s case.

On September 16, 2008 the matter was listed for further directions and orders were made that:
-   the matter be fixed for hearing on December 17-19, 2008;
-   Bade file and serve any defences upon which they propose to rely by September 20, 2008 (no such defences have been received to date other than a defence by Georgina Wade) and file certain affidavits by September 20, 2008 and November 5, 2008; and
-   The Company file affidavits in reply by December 9, 2008.

 
F-21

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 2008
 
8.        LEASE COMMITMENTS
 
The Company is party to long-term, non-cancelable operating lease agreements for administrative offices and clinic locations.  The future aggregate minimum annual lease payments arising from these lease agreements are as follows:
       
   
June 30, 2008
 
       
Due during the period ended June 30:
     
2009
  $ 689,576  
2010
    293,268  
2011
    125,290  
2012
    43,964  
         
    $ 1,152,098  
 
Total rent expense under these operating lease was approximately $1,085,779 and $1,733,041 during the years ended June 30, 2008 and 2007, respectively.
 
9.        CONCENTRATIONS
 
Sales Markets – 97% of the Company’s revenues arise from Australian customers.
 
Suppliers - Although the Company has access to a variety of suppliers, the majority of the Company’s products that are obtained for resale are purchased from a limited number of suppliers.
 
Concentration of Credit Risk - Financial instruments that potentially subject the Company to credit risk consist of uninsured cash deposited in the bank and large receivables that are sometimes due from a limited number of debtors.  The Company extends credit to a variety of related parties.

10.            STOCK EXCHANGE AGREEMENT
 
On September 8, 2006 the Company entered into a Share Exchange Agreement with Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to which the Company acquired all of the issued and outstanding shares of stock of Worldwide PE in exchange for the payment of AUD3 million (approximately USD2.25 million) and the issuance in the aggregate of 16,125,000 shares of the Company’s common stock valued at $1.00 per share. These shares were subsequently transferred by the Company to AMI Australia. The issuance of our shares of common stock to the Worldwide PE Shareholders was exempt from registration under the Securities Act pursuant to Section 4(2) and Regulation S. As used herein, the “Company” shall also mean Worldwide PE when used for events after September 8, 2006, described herein.
 
The Company funded the cash component of the purchase price by AMI Australia entering into two secured three year term loans in the aggregate principal amount of AUD3 million with ANZ Nominees Limited in its capacity as custodian of the Professional Pensions PST. The loan is secured by a security interest in all of AMI Australia’s assets and undertakings (including its existing equity interests in PE Patent Holdco Pty Limited, Intelligent Medical Technologies Pty Limited, Advanced Medical Institute (NZ) Limited and Whygo Video Conferencing Pty Limited). The loan accrues interest at an annual coupon of 450 basis points above the then Australian Reserve Bank’s current cash rate (currently being an aggregate current interest rate of 11%).
 
F-22


A summary of Worldwide PE Patent Holdco Pty Ltd., assets acquired, liabilities assumed and consideration paid for is as follows:

   
Amount
 
Current assets
 
$
-
 
Patent
   
18,383,100
 
     
   
 
         
   
$
18,383,100
 
         
Consideration paid
       
Cash
 
$
2,258,100
 
Common Stock
   
16,125,000
 
         
   
$
18,383,100
 

The following un-audited pro forma consolidated financial information for the years ended June 30, 2007 and 2006, as presented below, reflects the results of operations of the Company assuming the acquisition occurred on July 1, 2006 and 2005 respectively, and after giving effect to the purchase accounting adjustments. These pro forma results have been prepared for information purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on July 1, 2006 and 2005 respectively, and may not be indicative of future operating results. 
 
Un-Audited Pro Forma Consolidated Financial Information
 
June 30,
2007
 
       
Net revenue
  $ 39,421,485  
Operating income (loss)
  $ (846,042 )
Net income (loss)
  $ (1,593,376 )
Earnings/(loss) per share - basic
  $ (0.03 )

11.    DISCONTINUED OPERATION/ASSETS HELD FOR DISPOSITION

Whygo Video Conferencing Pty Limited
 
On April 30, 2008, AMI Australia Holdings Pty Limited, a wholly owned subsidiary of Advanced Medical Institute Inc., entered into a Share Sale Agreement with Mr. James Matthews pursuant to which AMI Australia agreed to sell its 50% interest in Whygo Video Conferencing Pty Limited (ACN 105 732 492), a privately owned Australian company in exchange for the payment of A$330,000 (approximately US$305,000) to Mr. Matthews.

 
F-23

 

A$236,700 has been received up to Oct 7, 2008 with further installments due on June 30, 2009.  Ownership of shares will be transferred after full settlement has been done.

Following is the summary of net assets held for disposition as of June 30:

Assets :-
     
Cash and cash equivalents
 
$
30,032
 
Accounts receivable, net
   
208,678
 
Other receivable
   
56,788
 
Other current assets
   
2,560
 
Property, Plant & Equipment, net
   
2,103
 
Total Assets
   
300,161
 
Liabilities :-
       
Accounts payable and accrued expense
   
139,554
 
         
Total Liabilities
   
139,554
 
         
Net Assets Held for disposal
 
$
160,607
 
 
The components of loss from operations related to the entity held for disposal for the year ended June 30, 2008 are shown below.

Net sales
 
$
943,939
 
         
Operating expenses
       
Selling, general and administrative
   
836,758
 
Total operating expenses
   
836,758
 
         
Profit from operations
   
107,181
)
         
Non-operating income (expenses) :-
       
Other income
   
25,805
 
Interest income
   
798
 
         
Net profit before income tax
   
133,784
)
         
Provision for Income tax
   
(167)
 
         
Net profit from entity held for disposal
 
133,617
)
 
AMI Japan Kabushiki Gaisya

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

On or about February 4, 2008, the operation of AMI Japan was wound down and discontinued due to unsatisfied operating result.
 
F-24


Loss from the discontinued operation of AMI Japan during the period ended June 30, 2008 was US$476,022.

The capital contributed to AMI Japan of US$235,725 has been classified as assets pending sale on the accompanying consolidated balance sheet as of June 30, 2008.

Following is the summary of net assets held as of June 30:
 
Assets :-
     
Cash and cash equivalents
 
$
34,288
 
Other current assets
   
75,693
 
Property, Plant & Equipment, net
   
117,950
 
Intangible assets
   
8,643
 
Total Assets
   
236,574
 
Liabilities :-
       
Accounts payable and accrued expense
   
849
 
         
Total Liabilities
   
849
 
         
Net Assets Held for disposal
 
$
235,725
 
 
The components of loss from operations related to the entity held for disposal for the year ended June 30, 2008 are shown below.

Net sales
 
$
77,092
 
         
Operating expenses
       
Selling, general and administrative
   
553,425
 
Total operating expenses
   
553,425
 
         
Loss from operations
   
(476,333
)
         
Non-operating income (expenses) :-
       
Other income
   
218
 
Interest income
   
93
 
         
Net Loss before income tax
   
(476,022
)
         
Provision for Income tax
   
-
 
         
Net loss from entity held for disposal
 
(476,022
)

 
F-25

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 2008
 
12.           RELATED PARTY TRANSACTIONS

   
June 30, 2008
 
       
Advanced Medical Institute of the United States, Inc.
     
Relationship: Under common management  control by Jack Vaisman
     
Receivable from this related party
  $ 151,074  
         
Prostate Health Clinic  Pty. Ltd. (an AU co.)
       
Relationship: Under common management  control by Jack Vaisman
       
Receivable from this related party
    1,850  
         
Loan to affiliate in Indonesia
    598,110  
         
Total:
  $ 751,034  

Total receivables from related parties included in the Company’s balance sheet was $152,924 and $1,453 as of June 30, 2008 and 2007.

Receivables from related parties are unsecured, interest-free and are due on demand.

13.   CONTINGENT LIABILITY
 
A dispute with a previous telecommunication carrier over billing in the amount of $122,924 arose in 2002. AMI Australia responded with a counterclaim of $550,904 against the carrier in 2003 and no correspondence has since been received from the carrier. No settlement has since been reached, but in the opinion of the Company’s directors, the $122,924 will not be paid. Similarly, the Company has not been actively pursuing the amount it claims is owed to it under the counterclaim. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
F-26

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 2008
 
14.             INCOME TAXES
 
Total Federal and State income tax expense for the fiscal years ended June 30, 2008 and 2007 amounted to $1,257,679 and $769,691, respectively. For the fiscal years ended June 30, 2008 and 2007 there is a difference of 1% between the Australian federal statutory tax rate and the effective tax rate.  This difference is due to the domicile of operating profits and losses in the Group as well as the impact of timing and past operating profits (losses) on these matters.

June 30, 2008
 
U.S.
   
State
   
International
   
Total
 
Current
  $ 0     $ 0     $ 821,610     $ 821,610  
Deferred
  $ 0     $ 0     $ 436,069     $ 436,069  
Total
  $ 0     $ 0     $ 1,257,679     $ 1,257,679  
                                 
June 30, 2007
 
U.S.
   
State
   
International
   
Total
 
Current
  $ 0     $ 0     $ 154,849     $ 154,849  
Deferred
  $ 0     $ 0     $ 614,842     $ 614,842  
Total
  $ 0     $ 0     $ 769,691     $ 769,691  
                                 
Reconciliation of the differences between the statutory U.S. Federal income tax rate and the effective rate is as follows:
 
   
June
30,
2008
   
June
30,
2007
                 
                                 
Federal statutory tax rate
    34 %     34 %                
Increase (decrease) in rate resulting from:
                               
Non US income taxed at different rates
    (1 )%     (1 )%                
      33 %     33 %                
Temporary Difference
    31       15 %                
Effective Tax Rate
    64 %     48 %                

 
F-27

 

ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 2008
 
Deferred tax liability arises due to the following temporary differences.

   
June 30,
2008
   
Future tax
rate %
   
Deferred tax
liability
 
                   
Owing to patients via ACFC
  $ 24,444,765       30 %   $ 7,333,430  
                         
Provision DDR cancellation
    (13,746,000 )     30 %     (4,123,800 )
                         
Provision un-dispensed DDR medications
    (1,253,000 )     30 %     (375,900 )
                         
Accrued ACFC collection and commission
    (2,506,000 )     30 %     (751,800 )
                         
Provision for patient refund
    (190,000 )     30 %     (57,000 )
                         
Amortization of patents
    714,329       30 %     214,299  
                         
Other miscellaneous
    279,946       30 %     83,983  
                         
Total
  $ 7,744,040       30 %   $ 2,323,212  

 
F-28

 

 
ADVANCED MEDICAL INSTITUTE INC.
AND SUBSIDIARIES
 
NOTES TO THE FINANCIAL STATEMENT
JUNE 30, 2008
 
15.           STOCK
 
On October 28, 2004 the officers and directors of the Company surrendered for cancellation 1,450,000 shares of common stock.
 
On November 8, 2004 the Company issued a stock dividend of 15 shares for each share outstanding on November 8, 2004.
 
All prior year information has been adjusted to reflect the stock cancellation and the stock dividend.
 
On May 25, 2005 the Company’s Articles of Incorporation were amended to increase the number of authorized shares of the capital stock of the Company to 100,000,000.  The Company designated 90,000,000 shares as Common Stock and 10,000,000 shares as Preferred Stock.
 
On June 29, 2005 the Company entered into a subscription agreement with certain non-U.S. persons pursuant to which the Company issued an aggregate of 6,122,450 shares of common stock for aggregate gross proceeds of $762,000.
 
On November 17, 2005, the Company entered into a share exchange agreement with PE Patent Holdco Pty Limited (“PE”), pursuant to which the Company acquired all of the issued and outstanding shares of stock of PE in exchange for the issuance in the aggregate of 5,000,000, or 13.85%, of the Company’s issued shares of Common Stock to the shareholders of PE.
 
On April 18, 2006, the Company entered into a share exchange agreement with certain non-US persons pursuant to which the Company acquired the remaining 7% of Intelligent Medical Technologies Pty Limited (“IMT”) which was previously held by those persons in exchange for 1,260,000 or 3.37% of the Company’s issued shares of Common Stock.
 
On September 8, 2006, the Company entered into a share exchange Agreement with Worldwide PE Patent Holdco Pty Limited (ACN 117 157 727), a privately owned Australian company (“Worldwide PE”), and Worldwide PE’s shareholders pursuant to which the Company acquired all of the issued and outstanding shares of stock of Worldwide PE in exchange for the payment of A$3 million (approximately $2.25 million) and the issuance in the aggregate of 16,125,000 shares of the Company’s common stock valued at $1.00 per share.
 
16.           OTHER COMPREHENSIVE INCOME
 
Balances of related after-tax components comprising accumulated other comprehensive income (loss), included in stockholders’ equity, at June 30, 2008are as follows:
                                               
Accumulated Other
Comprehensive Income
 
Balance at June 30, 2006
      $ (204,483 )
             
Change for 2006
        3,375,989  
             
Balance at June 30, 2007
      $ 3,171,506  
             
Change for 2008
        3,800,994  
             
Balance at June 30, 2008
      $ 6,972,500  

 
F-29