Attached files
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EX-31.2 - MICRO IMAGING TECHNOLOGY, INC. | v210714_ex31-2.htm |
EX-32.2 - MICRO IMAGING TECHNOLOGY, INC. | v210714_ex32-2.htm |
EX-31.1 - MICRO IMAGING TECHNOLOGY, INC. | v210714_ex31-1.htm |
EX-21.1 - MICRO IMAGING TECHNOLOGY, INC. | v210714_ex21-1.htm |
EX-32.1 - MICRO IMAGING TECHNOLOGY, INC. | v210714_ex32-1.htm |
ANNUAL
REPORT PURSUANT TO SECTION 13 AND 15(D)
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
FORM 10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
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Commission
file number 0-16416
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October
31, 2010
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MICRO
IMAGING TECHNOLOGY, INC.
(Exact
name of registrant as specified in its charter)
California
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33-0056212
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(State
or Other Jurisdiction
of
Incorporation or Organization)
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(IRS
Employer Identification No.)
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970
Calle Amanecer, Suite F, San Clemente,
California 92673
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(Address
of principal executive offices) (Zip
Code)
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Registrant’s
telephone number, including area code: (949) 485-6000
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $0.01 per share
(Title of
Class)
Indicate
by check mark whether the Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨.
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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. ¨
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
registrant had no sales revenues for the twelve months ended October 31,
2010.
As of
January 7, 2011, the aggregate market value of the common stock held by
non-affiliates of the registrant was $915,369, based on a closing
price for the common stock of $0.01 on the OTC Bulletin Board on such
date.
At
January 7, 2011, 193,370,865 shares of the Registrant’s stock were
outstanding.
Documents
incorporated by reference are as follows:
Document
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Part and Item Number of Form 10-K
into Which Incorporated
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None
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Transitional
Small Business Disclosure Format (check one): Yes o No
x
Forward-Looking
Statements
This
Annual Report on Form 10-K, including the Notes to the Consolidated
Financial Statements and this Management’s Discussion and Analysis of Financial
Condition and Results of Operations, contains forward-looking statements. The
words “believe,” “expect,” “anticipate,” “intends,” “projects,” and similar
expressions identify forward-looking statements. Such statements
may include, but are not limited to, projections regarding demand for the
Company’s products, the impact of the Company’s development and manufacturing
process on its research and development costs, future research and development
expenditures, and the Company’s ability to obtain new financing as well as
assumptions related to the foregoing. Such forward-looking statements are within
the meaning of that term in Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise.
PART I
Item
1.
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Description
of Business
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COMPANY
OVERVIEW
We were
incorporated in December 1979 in California under the name HOH Water
Technology Corporation and changed our name to Electropure, Inc. in 1996.
In November 2005, we again changed our name to Micro Imaging
Technology, Inc. as a condition of the sale of our EDI assets (see
discussion of Electropure EDI, Inc. below). Our address and telephone
number is: 970 Calle Amanecer, Suite F, San Clemente,
California 92673 – (949) 485-6000.
In
October 1997, we acquired an exclusive license to patent and intellectual
property rights involving laser light scattering techniques to be utilized in
the detection and monitoring of toxicants in drinking water. In
February 2000, we formed Micro Imaging Technology (MIT), a wholly-owned
Nevada subsidiary to conduct research and development based upon advancements we
developed and patented from the licensed technology.
In
October 2005, in order to generate working capital to support the research and
development efforts of our MIT subsidiary, we sold our 30,000 square foot
building and the assets of our Nevada subsidiary, Electropure EDI,
Inc. At that time, the Company changed its corporate identity to
Micro Imaging Technology,
Inc.
DEVELOPMENT
OF OUR BUSINESS
MICRO
IMAGING TECHNOLOGY
The
acquisition of the MIT patent and intellectual property rights in 1997 provides
the basis for our development of near “real-time” fluid monitoring systems for
water monitoring as well as food processing and clinical applications. The
technology transferred under the October 25,
1997 agreement with Wyatt Technology Corporation had, at inception, two main
areas for exploitation:
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Detection
and early warning of dangerous particulate materials such as parasites and
other organisms, i.e., bacteria, spores, etc. If the initial efforts were
successful, future efforts were to be directed to include detection and
early warning of asbestos fibers and similar materials that pose a health
hazard to the consumer.
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•
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Detection and early
warning of dangerous soluble substances such as mutagens, carcinogens and
metabolic poisons.
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The
feasibility of the technology had already been confirmed, although never
commercialized in this area of application, during a study by Wyatt for the U.
S. Army through a Small Business Innovative Research program conducted in the
1980’s. We believe that the technology for this application may well
represent a major opportunity on a worldwide basis for future growth of consumer
market products and the currently available instrumentation and methods being
developed by us appear to provide a more immediate path to developing the
technology for this concept.
2
Our
initial proof-of-principal testing in 1998 demonstrated the ability, in a
laboratory setting, to detect and monitor parasites, primarily Cryptosporidium
and Giardia1 in
drinking water sources and the pathogenic microbes E. coli, Listeria and
Salmonella.
Potential
customers for a water monitoring system would include local water utilities,
both private and municipal; state water utilities and water quality and health
agencies; federal government agencies such as EPA, DoD, DoE, CDC; wastewater
treatment plants; ground water and well users; and potentially, as the cost of
the sensors and system decreases, homeowners.
However,
we believe development of an MIT System for clinical laboratory and food
processing applications will be achieved more rapidly because it will not
require the specialized instrumentation necessary for water monitoring.
Consequently, we have focused our research efforts to address these areas, each
of which we believe may achieve cost and efficiency benefits similar to the
proposed water monitoring device. In addition to Cryptosporidium and Giardia
protozoas, this technology has already demonstrated identification of the
bacteria E.coli,
Listeria monocytogenes,
Salmonella typhi,
Pseudomonas aeruginosa, Staphylococcus
aureus and
Streptococcus pneumoniae. Additionally, the
Company is in the process of adding to the System the ability to identify the
following pathogens: Klebsiella, Proteus, Shigella and
subspecies of each.
In
February 2006, the Company contracted with North American Science Associates,
Inc. (“NAMSA”), a highly regarded international testing and verification
laboratory, to design and perform a verification test that compares the speed,
accuracy and efficiency of MIT’s rapid microbe identification system with
conventional processes. The comparative tests were a double blind experiment,
meaning that the independent NAMSA laboratory technicians, using the MIT System
and a well recognized alternative, were not aware of the tested microbes’
identification. NAMSA chose the industry standard Sherlock Microbial Gas
Chromatographic Identification System (“MIDI”) as the initial process to verify
the accuracy of MIT’s diagnostic capabilities.
The MIT
system scored 98 percent correct identifications in fifty tests, with each test
consuming only several minutes for sample preparation and an average three
minutes for testing. The MIDI system was correct 80 percent and failed to
identify, with several attempts, one very common and dangerous bacterium, E. coli 0157:H7. NAMSA then
employed a conventional biological testing method which finally matched the
unidentified bacterium with MIT’s identification. The MIDI system took hours per
test and the biological testing method required days. We believe that
the NAMSA tests verified the accuracy, speed and efficiency of the MIT System
over conventionally accepted processes.
In June
2009, the Company received AOAC Research Institute (AOAC RI) Performance Test Methodtm (PTM) certification for
the MIT 1000 System’s identification of Listeria species (PTM
Certificate Number 060901). Listeria are known to be the
bacteria responsible for listeriosis, a rare but lethal food-borne infection
that has a devastating case fatality rate of 25% (Salmonella, in comparison, has
a less than 1% mortality rate). They are incredibly hardy and able to grow in
temperatures ranging from 4°C (39°F), the temperature of a refrigerator, to 37°C
(99°F), the body's internal temperature. Furthermore, listeriosis' deadliness
can be partially attributed to the infection's ability to spread to the nervous
system and cause meningitis. This Certification enables the Company
to aggressively begin marketing its System into the targeted food safety
markets. Following Listeria certification, the
Company’s next goal is to achieve PTM certifications for the ID of E.coli and Salmonella as these three
bacteria are responsible for most of the food bacterial contamination events
worldwide. Additional microbes will be certified as required by the
market.
The
clinical and food processing applications for our MIT System for rapid
identification of microbes will in some cases undergo stringent and lengthy
regulatory approval processes in the United States, including clinical trials.
To gain beta-site testing data, in June 2007 we sold and installed two MIT
systems in an instrumentation distribution company and a food research
laboratory in Japan through Yotsubishi Corporation, a subsidiary of Sibata
Scientific Technology. We believe that the operating results from
these installations has aided in further commercializing the MIT System for
clinical and food processing applications. In October 2009, we sold
an MIT system to a newly appointed Malaysian distributor which sells, markets
and distributes research and scientific products for the countries in the
Association of Southeast Asian Nations (ASEAN). No assurances can be
given, however, as to when or if additional Systems may be sold through this or
any other distributor.
1 Cryptosporidium (Cryptosporidium parvum) and Giardia (Giardia lamblia) are waterborne protozoan parasites which contaminate water sources such as wells, rivers, streams, and lakes, generally through animal and fowl fecal deposits.
3
Although
the water monitoring application for the MIT System will not require regulatory
review and approval, this application will require more extensive development
efforts because of the vast array of contaminants commonly found in water and
the need to configure a unique method and apparatus for isolating the water
being tested. For these reasons, we expect that a practical device for the water
monitoring application of our technology will not be commercialized until we
have successfully introduced and gained acceptance of an MIT System in the
clinical and food processing market segments.
Based on
a very preliminary evaluation of market needs and the size and number of
possible customers, we estimate that the market potential for the MIT System in
all of the above domestic market areas could exceed $3 billion annually. More
detailed market validation will be conducted as our development program
continues.
With
regard to the MIT System, there are established methods of testing currently
employed by both public and private agencies. However, these methods are labor
intensive, expensive and time consuming, and do not provide the near “real time”
monitoring capabilities which our product offers. We believe that the MIT System
is the only microbe identification system that is not biologically based – that
is, does not rely on biological agents or reagents.
The
Markets for Microbe Identification
The
number of applications for our laser-based rapid microbe detection system is
large, including food inspection, clinical applications and water testing.
However, we have elected in the near term to focus on food
inspection:
The Food
and Drug Administration currently requires elaborate laboratory procedures
taking up to 64 hours to identify E. coli, Salmonella or Listeria. According to
industry analysts at Strategic Consultants, Inc (Scarborough, ME.) there were
over 144 million microbiology tests performed in almost 6,000 plants. The
analysts further report that food manufacturers and processors anticipate a
continued increase in testing as regulatory agencies require more surveillance
and monitoring programs. The MIT system identifies bacteria in less than 15
minutes, thus minimizing the testing and reporting time which minimizes health
risks, product recall dangers and expenses to the producer.
On
January 9, 2007, the Company entered into a non-exclusive agreement to supply
MIT products to JMAR Technologies as a tandem product to its real-time water
monitoring system or as a stand-alone instrument for laboratory
use. In 2008, the Company ceased its business arrangement with JMAR
which subsequently discontinued its business. JMAR was a San Diego,
California based company that had a direct sales and support organization and
manufactured laser-based products for multiple markets, including homeland
security, the cruise ship and beverage industries, pharmaceutical companies, and
municipal water utilities.
In August
2007, we engaged the services of John Ricardi, JMAR’s former Vice President for
Sales and Marketing. Mr. Ricardi provides sales, marketing and
business development services to the Company and through his efforts thus far,
the Company has appointed seven (7) exclusive distributors for MIT products in
various territories, including, Taiwan and China, Puerto Rico and the Caribbean,
Bulgaria, the United Kingdom and Ireland, Vietnam, Laos and Cambodia, South
Korea, Turkey, Malaysia and a number of ASEAN countries (including Singapore,
Thailand, Brunei, Indonesia, Philippines, and Myanmar).
Patents
In
July 2002, we were granted U.S. Patent No. 6,639,672 on our MIT rapid
microbe detection technology. We also received a U.S.
Continuation-in-part patent on this technology on October 28, 2003 and
a corresponding patent in Mexico on April 4, 2006.
Because
the review and approval process associated with filing for patent protection on
new products can be lengthy, we cannot be certain when, or if, foreign patents
will be issued for any of our pending applications. The existence of a patent
may not provide us any meaningful protection because of technological
changes, the decision of courts not to uphold all or part of a patent, or
because of the limited financial resources that may be available to enforce
patent rights. We do not believe that any of our individual patents is of
sufficient importance that its termination or expiration would have a material
adverse effect on the Company. Conversely, we believe that our technical
know-how and trade secrets may be more significant to our business than
trademark or patent protection although we will continue to apply for patents on
any inventions or improvements made in the normal course of our
business.
4
“Micro
Imaging Technology” is a registered trademark of the Company.
Research
and Development
During
fiscal 2010, we expended $687,687 primarily on our MIT System research program
to develop a microbiological detection and monitoring system derived from the
technology acquired from Wyatt in October 1997. We concluded
Phase 1 research on the Micro Imaging System in 1998 with a laboratory system
that was used to prove the scientific principal and initiated phase two of our
research program which resulted in the development of a more advanced system and
the culmination of the library for the identification for various
pathogens. We expect to continue to incur and accelerate additional
research and development costs on this MIT System project through continued
product development and library expansion efforts.
During
fiscal 2009, we spent $973,344 on similar research and development
activities.
Compliance
with Environmental Laws
We do not
produce hazardous waste as a result of our research activities. Consequently,
our costs for compliance with federal, state and local environmental laws are
negligible.
Employees
As of
October 31, 2010, we employed 5 full-time employees, of whom four were engaged
in administrative, marketing, accounting and clerical functions and one was
engaged in research and development of the Company’s proposed MIT System. To
implement our MIT business strategies, we anticipate that we will hire
additional employees in fiscal 2010. However, we cannot predict with any
certainty when we will hire any additional personnel. We believe that our
relationship with our employees is good and we are not a party to any collective
bargaining agreement. Our future success will be dependent upon our ability to
attract and retain qualified personnel.
Risks
and Uncertainties
Failure
to raise additional capital could seriously reduce our ability to compete or
harm our ability to continue operations
From time
to time we have experienced and continue to experience working capital
shortfalls that slowed the development of our research on the MIT technology. We
will be required to raise substantial amounts of new financing, through equity
investments, loans or strategic alliances, to carry out our business objectives.
There can be no assurance that we will be able to obtain such additional
financing on terms that are acceptable to us and at the time we require, or at
all. Further, any such financing may cause substantial dilution of the
interests of current shareholders. If we are unable to obtain such additional
financing, the financial condition and results of operations of the Company will
be materially adversely affected. Moreover, our estimates of cash requirements
to carry out our current business objectives are based upon certain assumptions,
including assumptions as to revenues, net income or loss and other factors, and
there can be no assurance that such assumptions will prove to be accurate or
that unforeseen costs will not be incurred. Future events, including the
problems, delays, expenses and difficulties frequently encountered by similarly
situated companies, as well as changes in economic, regulatory or competitive
conditions, may lead to cost increases that could have a material adverse
effect on us and our plans. If we are not successful in obtaining loans or
equity financing, it is unlikely that we will have sufficient cash to continue
to conduct operations. We believe that to raise needed capital, we may be
required to issue debt or equity securities that are significantly lower than
the current market price of our common stock. However, no assurances can be
given that we can obtain additional working capital through the sale of common
stock or other securities, the issuance of indebtedness or otherwise or on terms
acceptable to us. Further, no assurances can be given that any such equity
financing will not result in a further substantial dilution to the existing
shareholders or will be on terms satisfactory to us.
5
We
have a history of losses which are likely to continue
From our
inception in 1979 through October 31, 2010, we have accumulated a loss of
$42,666,383 and a net stockholders’ deficit of $1,658,104. The accumulated loss
is principally due to expenses incurred in the development of the now disposed
of EDI product, initial manufacturing start-up costs, initial marketing efforts,
administrative expenses and interest, as well as the expenses associated with
the research and development of MIT laser-based monitoring technology acquired
in 1997. The report of our independent registered public accounting firm for the
fiscal year ended October 31, 2010 contains an explanatory paragraph as to our
ability to continue as a going concern. Our financial statements have been
prepared assuming that we will continue as a going concern. As discussed in the
notes to the financial statements, our negative cash flows from operations raise
substantial doubt about our ability to continue as a going concern. Management’s
plans in regard to these matters are also described in the notes to the
financial statements and in Item 6 - “MANAGEMENTS’ DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”
Although
we sold our first two MIT Systems during 2007 and a single additional System in
October 2009, MIT is considered to be a research and development operation. As
such, it has no significant or recurring operating income and its prospects must
be considered speculative considering the risks, expenses and difficulties
frequently encountered in the development of a new technology. While
laboratory results and other tests have been encouraging, substantial additional
development efforts will be required. The development of the MIT System involves
significant risks, which a combination of experience, knowledge and careful
evaluation may not be able to overcome. There can be no assurance that
unanticipated problems will not occur which would result in material delays in
our product development, or that our efforts will result in successful product
commercialization on a sustainable level. There can be no assurance that we will
be able to achieve profitable operations.
We
have limited patent protection
We own
two U.S. patents on our MIT technology and one foreign patent for this
technology. We may not be able to afford the expenses required to enforce
any patent we may now or in the future own and no assurances can be given
that any patents would be upheld if challenged, or if upheld, would provide us
with meaningful protection. We also rely on trade secrets and know-how as
regards the MIT technology that is not patentable. Although we have taken steps
to protect our unpatented trade secrets and know-how, in part through the
use of confidentiality agreements with our employees, consultants and certain of
our contractors, there can be no assurance that:
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these
agreements will not be breached,
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we would have
adequate remedies for any breach,
or
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our proprietary trade
secrets and know-how will not otherwise become known or be independently
developed or discovered by
competitors.
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Our
competitors are larger and better financed
The
microbe identification industry continues to undergo rapid change with intense
competition that is expected to increase. There can be no assurance that our
competitors have not or will not succeed in developing technologies and products
that are more accurate than the MIT System microbe identification and monitoring
method and would, accordingly, render the MIT System obsolete and
noncompetitive. Many of our competitors have substantially greater experience,
financial and technical resources and production, marketing and development
capabilities. Accordingly, certain of those competitors may succeed in
obtaining regulatory approval for products more rapidly or effectively than us.
We will also be competing with respect to sales and marketing capabilities,
areas in which we currently have little experience.
Continued
technological changes and government regulations could adversely affect our
sales
The
technology upon which the MIT System relies may undergo rapid development
and change. There can be no assurance that the technology utilized by us will be
competitive in light of possible future technological developments. Further, we
cannot assure that our technology will not become obsolete or that we will have
adequate funds to meet technological changes.
There can
be no assurance that we will be successful in developing the MIT System to
respond to technological changes or evolving industry standards, that we will
not experience difficulties that could delay or prevent the successful
development, introduction and marketing of the MIT System, or that any new
products will adequately satisfy the requirements of prospective customers and
achieve market acceptance. If we are unable to develop and introduce new or
improved products in a timely manner in response to changing market conditions
or customer requirements, our business, operating results and financial
condition will be materially adversely affected.
6
Dependent
upon the field of application, the MIT System, when commercialized, may be
subject to extensive regulation by numerous governmental authorities and
regulatory agencies worldwide prior to introduction of the product. The process
of obtaining required regulatory approvals may be lengthy and expensive
depending on the jurisdiction. There can be no assurance that we will be able to
obtain the necessary approvals to conduct clinical trials for the manufacturing
and marketing of products, that all necessary clearances will be granted to us
for future products on a timely basis, or at all, or that review or other
actions by the regulatory agencies will not involve delays adversely affecting
the marketing and sale of our products. In addition, the testing and approval
process with respect to certain products which we may develop or seek to
introduce may take a substantial number of years and involve the
expenditure of substantial resources. There can be no assurance that the
MIT System will be cleared for marketing by the regulatory agencies of the
countries in which we seek to gain distribution rights. Failure to obtain any
necessary approvals or failure to comply with applicable regulatory requirements
could have a material adverse effect on our business, financial condition or
results of operations. Further, future government regulation could prevent or
delay regulatory approval of our products.
If
we fail to attract and retain key personnel, our ability to compete will be
harmed
Our
future success is highly dependent on our ability to attract, retain and
motivate qualified personnel, including technical personnel, executive officers
and other key management. The loss or unavailability of services of one or more
of our key employees, including Michael Brennan, our chief executive officer, or
our inability to attract and retain qualified personnel, could have a material
adverse effect on our ability to operate effectively.
Risks
relating to our common stock
Because
there is a limited market in our common stock, stockholders may have difficulty
in selling our common stock and our common stock may be subject to significant
price swings.
There can
be no assurance that an active market for our common stock will develop. If an
active public market for our common stock does not develop, shareholders may not
be able to re-sell the shares of our Common Stock that they own and affect the
value of the stock.
If we
fail to remain current on our reporting requirements, we could be removed from
the OTC Bulletin Board which would limit the ability of broker-dealers to sell
our securities and the ability of stockholders to sell their securities in the
secondary market.
Companies
trading on the Over-The-Counter Bulletin Board, such as we, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in their reports under Section 13, in order to maintain price
quotation privileges on the OTC Bulletin Board. If we fail to remain current on
our reporting requirements, we could be removed from the OTC Bulletin Board. As
a result, the market liquidity for our securities could be severely adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market. In
addition, we may be unable to get re-listed on the OTC Bulletin Board, which may
have an adverse material effect on our Company.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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7
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
The
exercise of outstanding options and warrants may have a dilutive effect on the
price of our common stock.
To the
extent that outstanding stock options and warrants are exercised, dilution to
our stockholders will occur. Moreover, the terms upon which we will be able to
obtain additional equity capital may be adversely affected, since the holders of
the outstanding options and warrants can be expected to exercise them at a time
when we would, in all likelihood, be able to obtain any needed capital on terms
more favorable to us than the exercise terms provided by the outstanding options
and warrants.
We
do not expect to pay dividends in the future. Any return on
investment may be limited to the value of our common stock.
We do not
currently anticipate paying cash dividends in the foreseeable future. The
payment of dividends on our common stock will depend on earnings, financial
condition and other business and economic factors affecting it at such time as
the board of directors may consider relevant. Our current intention is to apply
net earnings, if any, in the foreseeable future to increasing our capital base
and development and marketing efforts. There can be no assurance that the
Company will ever have sufficient earnings to declare and pay dividends to the
holders of our common stock, and in any event, a decision to declare and pay
dividends is at the sole discretion of the our Board of Directors. If we do not
pay dividends, our common stock may be less valuable because a return on your
investment will only occur if its stock price appreciates.
Item
2.
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Properties
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In
January 2006, we executed a one-year lease, with an option to renew for up to
five one-year terms, on a 4,100 sq. ft. facility in San Clemente, California
commencing on April 1, 2006 at the rate of $3,650 per month. On
April 1, 2008, our lease payment increased to and remains at $3,895.00 per month
through our lease extension date of March 31, 2011.
Management
believes that our present facilities in San Clemente, California will be
adequate for all of our current operations, and those contemplated for the
foreseeable future. We also believe that our property is adequately covered by
insurance.
Item
3.
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Legal
Proceedings
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None
Item
4.
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Submission
of Matters to a Vote of Security
Holders
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None.
8
PART II
Item
5.
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Market
for Registrant’s Common Equity and Related Stockholder
Matters
|
Our
common stock is currently quoted in the OTC Electronic Bulletin Board market as
a “penny stock” under the symbol “MMTC.” The following table sets
forth the high and low bid prices for the common stock, as reported on the
Bulletin Board or “pink sheets,” for the quarters that the securities were
traded. The quotations reflect inter-dealer prices, without retail mark-up or
mark-down or commissions and may not represent actual
transactions.
Common Stock
Bid Prices
|
|||||||||
High
|
Low
|
||||||||
Fiscal
2009
|
First
Quarter
|
0..07 | 0.01 | ||||||
Second
Quarter
|
0.13 | 0.05 | |||||||
Third
Quarter
|
0.17 | 0.05 | |||||||
Fourth
Quarter
|
0.16 | 0.04 | |||||||
Fiscal
2010
|
First
Quarter
|
0.08 | 0.03 | ||||||
Second
Quarter
|
0.08 | 0.02 | |||||||
Third
Quarter
|
0.06 | 0.02 | |||||||
Fourth
Quarter
|
0.03 | 0.01 | |||||||
Fiscal
2011
|
First
Quarter (through January 7, 2011)
|
0.02 | 0.01 |
The
market for our common stock is sporadic and quoted prices may not represent
the true value of the securities.
As of
October 31, 2010, the Company had approximately 400 holders of record of its
common stock.
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of $29,018 in legal fees accrued between May and October 2009 in
regard to litigation conducted with Divine Capital Group.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of $20,000 in legal fees accrued between July 2007 and
October 2009.
On
January 7, 2010, the Board of Directors approved the establishment of the
Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. During the nine months ended July 31, 2010, the
Board authorized the issuance of all 12 million shares under the Plan to two
consultants for services and expensed $523,000 in consulting fees.
On March
17, 2010, the Company issued a total of 5,000,000 shares of common stock to two
consultants for investor relations services to be rendered over a one-year
term. The fair market value of the shares was determined to be
$200,000, or $0.04 per share, and will be amortized over one
year. The Company expensed $74,521 as consulting fees as of July 31,
2010 pursuant to the issuance of these shares and recorded the balance of the
value, or $125,479, as prepaid expenses.
On April
6, 2010, the Company issued 750,000 shares of common stock as a document
preparation fee in conjunction with an Investment Agreement which it entered
into on May 4, 2010 with Dutchess Opportunity Fund, II, LP
(Dutchess). Pursuant to the Agreement, Dutchess has committed to
purchase up to $5,000,000 of the Company’s common stock over a three-year
period. The fair market value of the stock issued to Dutchess
was determined to be $30,000. However, pursuant to the agreement, the
Company redeemed the 750,000 shares by making payment to Dutchess of $15,000 in
October 2010. See Item 6- “Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Equity Financing
Arrangements.”
On April
9, 2010, the Company issued 6,100,000 shares of common stock on the conversion
of an aggregate of $305,000 in fees and expenses into convertible term notes by
the Company’s Chief Executive Officer, Chief Financial Officer and a consultant
to the Company. The Company expensed $305,000 as the fair
market value of the shares issued as additional consideration.
9
Between
November 1, 2009 and April 20, 2010, the Company issued 4,540,000 shares of
common stock and warrants to purchase 500,000 shares of common stock as partial
consideration for $252,000 in convertible term loans received from various
lenders. Of such loans, $20,000 was received from our largest
stockholder and $25,000 was a loan made from our Chief Executive Officer,
Michael Brennan, in fiscal 2009 and transferred to an unaffiliated third party
in February 2010.
Between
April and June 2010, the Company sold 6,000,000 shares of common stock at $0.029
per share to an unaffiliated accredited investor for net proceeds of
$175,000. An additional 50,000 shares of common stock were sold to a
second investor in May, 2010 for $0.10 per share, for net proceeds of
$5,000.
On July
12, 2010, the Board of Directors authorized an issuance of 5,000,000 shares of
common stock each to Michael Brennan, Chief Executive Officer, and Victor
Hollander, Chief Financial Officer, for services rendered. The total
fair market value of the shares was $390,000, or $0.039 per share.
On August
3, 2010, the Company issued two-year options to purchase 100,000 shares of
common stock to Ralph W. Emerson, Director, for his annual service as Chairman
of the Company’s Science Advisory Board. The fair market value of the
options was determined to be $1,905.
On August
16, 2010, the Company entered into a Securities Purchase Agreement with Asher
Enterprises, Inc. in connection with the issuance of an 8% convertible note in
the aggregate principal amount of $50,000. The Note matures on May
18, 2011 and is convertible into common shares at a 39% discount to the average
of the lowest three closing bid prices of the common stock during the ten
trading days prior to the conversion date. Asher may convert any or
all of the unpaid principal note prior to the maturity date, commencing 180 days
following the date of the Note. The Company received the proceeds of
the Note on September 8, 2010, less a $3,000 reimbursement to Asher for fees and
expenses related to the referenced agreements.
Between
September 10 and October 15, 2010, the Company received $32,492, net of $440 in
fees, from Dutchess Opportunity Fund II, LP on the issuance of
1,558,736 shares under the terms of the May 4, 2010 Investment Agreement whereby
Dutchess committed to purchase up to $5,000,000 of the Company’s common stock
over a thirty-nine month period. Of the funds received, the Company
paid Dutchess $15,000 to redeem the 750,000 common shares it received in April
2010 as a document preparation fee.
During
the twelve months ended October 31, 2010, pursuant to his compensation
arrangement, the Company issued 600,000 shares of common stock to Michael W.
Brennan, at prices ranging from $0.017 to $0.05 per share. The
aggregate fair market value of the shares was determined to be
$21,325. In August 2009, Mr. Brennan also received a two-year option
to purchase 100,000 shares of common stock at $0.30 per share as part of his
compensation arrangement, at an expense to the Company in the sum of
$1,713.
The
Company issued 300,000 shares of common stock to a consultant of the Company,
during the fiscal year ended October 31, 2010 in accordance with his
compensation arrangement. The shares were issued at prices ranging
from $0.024 to $0.05 per share, with an aggregate fair market value of
$10,663.
On
October 29, the Board of Directors authorized an issuance of 6,000,000 and
5,000,000 shares of common stock to Michael Brennan, Chief Executive Officer,
and Victor Hollander, Chief Financial Officer, respectively, for services
rendered. The total fair market value of the shares was $143,,000, or
$0.013 per share.
On
October 29, 2010, the Board of Directors also granted two-year warrants to
purchase a total of 4,000,000 shares of common stock to two consultants at
$0.011 per share. The fair market value of the warrants, or $37,532,
was recorded as consulting expense.
All of
these securities issuances were in private direct transactions, exempt under
Section 4(2) of the Securities Act of 1933 or Regulation D promulgated
thereunder.
10
Equity
Compensation Plan Information
The
following table provides information as of October 31, 2010 with respect to
shares of our common stock that may be issued under equity compensation
plans. See also Item 11 - “Executive Compensation-Equity Compensation
Plans”.
Plan category
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
Weighted average
exercise price of
outstanding
options, warrants
and rights
|
Number of
securities
remaining
available for future
issuance
|
|||||||||
1999
Stock Option Plan
|
1,000,000 | $ | 0.14 | - |
Plan category
|
Number of securities
issued under
the Plan
|
Weighted
average
price of
securities issued
|
Number of
securities
remaining
available for future
issuance
|
|||||||||
2008
Employee Benefit Plan
|
3,000,000 | $ | 0.34 | - | ||||||||
2008
Employee Incentive Stock Program
|
2,634,472 | $ | 0.16 | 365,528 | ||||||||
2009
Employee Benefit Plan
|
4,000,000 | $ | 0.05 | - | ||||||||
2010
Employee Benefit Plan
|
12,000,000 | 0.04 | - |
The
Company has not paid any dividends on its Common Stock since its incorporation.
We anticipate that, in the foreseeable future, earnings, if any, will be
retained for use in the business or for other corporate purposes and it is not
anticipated that cash dividends will be paid. Payment of dividends is at the
discretion of the Board of Directors and may be limited by future loan
agreements or California law. Under California law, a corporation may pay
dividends if the amount of the retained earnings of the corporation immediately
prior thereto equals or exceeds the amount of the proposed distribution.
California law also provides that if a corporation does not have retained
earnings at least equal to the amount of the proposed distribution, it
may pay dividends provided that after giving effect thereto, (a) the
sum of the assets of the corporation (exclusive of goodwill, capitalized
research and development expenses or deferred charges) would be at least equal
to one and one-quarter times its liabilities (not including deferred taxes,
deferred income and other deferred credits) and (b) the current assets of
the corporation would be at least equal to the current liabilities or, if the
average of the earnings of the corporation before taxes on income and for
interest expense for the two preceding fiscal years was less than the average of
interest expense of the corporation for such fiscal years, the current assets
must be at least equal to one and one-quarter times its current
liabilities.
Item
6.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Fiscal
Years Ended October 31, 2010 and 2009
We posted
our first sale since fiscal 2007 of an MIT system in October 2009, for gross
proceeds of $18,000. No product sales occurred during fiscal
2010. Our limited working capital has not yet allowed us to spend any
significant resources on advertising and marketing efforts.
Research
and development expenses for the fiscal year ended October 31, 2010 decreased by
$285,657 compared to the prior year. These expenses arise from the program which
we initiated in December 1997 to develop the micro imaging technology for
detecting and identifying contaminants in fluids. The decrease was primarily due
to a reduction in temporary labor expense, employee-related benefits and
generally lower operating expenses. Consulting expenses during fiscal
2010 were also lower mainly due to a reduction in the fair market value of the
Company’s stock issued as non-cash compensation.
Sales,
general and administrative expenses decreased by $180,930 for the fiscal year
ended October 31, 2010 compared to the prior year period. The
reduction primarily reflects a decrease in legal and consulting fees, a
significant portion of which reflects the value of options and common stock
issued as compensation during fiscal 2010. The decrease was partially
offset by an increase in expenses related to shareholder relations activities to
generate an interest in investments in the company.
11
Interest
income is generated from short-term investments and showed no change in fiscal
2010.
Interest
expense for the twelve months ended October 31, 2010 decreased by $128,829
compared to the prior fiscal year. The decrease reflects the fact
that the costs of issuing a number of convertible debentures in prior years were
fully amortized during fiscal 2009.
Components
of other expense, other than interest, increased by $192,958 for the fiscal year
ended October 31, 2010 compared to the prior year. The increase
mainly reflects the fact that during fiscal 2009, the Company realized a gain on
interest waived of $151,860 on settlement of the Divine Capital lawsuit and
$39,746 on conversion of loans from our majority shareholder, with no similar
gains during the current fiscal year.
We
recorded the minimum state income tax provision in fiscal 2010 and 2009 as we
had cumulative net operating losses in all tax jurisdictions.
Liquidity
and Capital Resources
At
October 31, 2010, we had working capital deficit of $1,610,150. This represents
a working capital decrease of $806,687 compared to that reported at October 31,
2009. The decrease primarily reflects an increase in current liabilities due to
lack of working capital to service the debt.
We sold
no products in fiscal 2010. Our primary source of cash during the
fiscal year ended October 31, 2010 has been from the sale of equity and
convertible debentures and loans from an unaffiliated shareholders and our
majority shareholder, Anthony M. Frank. Between November 2009
and April 2010, we borrowed $202,000 from various unaffiliated
shareholders. Between April and October 2010, we sold 6,050,000
shares of common stock in private placement transactions for net proceeds of
$180,000 from two non-affiliates. We also sold 1,558,736 shares of
common stock to Dutchess Capital for net proceeds of $32,491. We also
borrowed $20,000 in March and $30,000 in July 2010 from our majority
shareholder. In addition, we sold a total of $87,500 in convertible
debentures between August and October 2010 to Asher Enterprises,
Inc.
Management
estimates that it required working capital approximating $46,500 per month to
maintain operations during fiscal 2010, compared to the approximate $86,000 per
month expended during fiscal 2009.
Plan
of Operation
Our
independent registered public accounting firm has included an explanatory
paragraph in its report on the financial statements for the year ended October
31, 2010 which raises substantial doubt about our ability to continue as a going
concern.
We are in
the process of identifying commercial, technical and scientific partners that
can aid in advancing the MIT expertise, provide external endorsements of the
technology and accelerate introduction to the market. This strategy is dependent
upon our ability to identify and attract the right customers and partners over
the next six month period and to secure sufficient additional working capital in
a timely manner. There can be no assurances that our efforts will be
successful or that we will be able to raise sufficient capital to implement our
plans or to continue operations.
Equity
Financing Arrangements
On
October 2, 2009, Micro Imaging Technology, Inc. entered into a Securities
Purchase Agreement with Ascendiant Capital Group, LLC to establish a possible
source of funding through an equity drawdown facility. Under the
Agreement, Ascendiant has agreed to purchase up to $3,000,000 of the Company’s
common stock during a 36-month period which will commence once the Company has
filed the required Registration Statement and it has been declared effective by
the Securities and Exchange Commission. The Securities Purchase
Agreement with Ascendiant Capital Group, LLC was terminated by the Company on
May 6, 2010 without costs or transactions having occurred.
On May 4,
2010, the Company entered into an Investment Agreement (“Investment Agreement”)
with Dutchess Opportunity Fund, II, LP (the “Investor”). Pursuant to
the Investment Agreement, the Investor committed to purchase up to $5,000,000 of
the Company’s common stock over thirty-nine months (the “Equity
Line”). The aggregate number of shares issuable by the Company and
purchasable by Dutchess under the Investment Agreement is 125,000,000 (estimated
using the last reported sale price of the Company’s common stock on the OTC
Bulletin Board on May 4, 2010 of $0.04 per share).
12
The
Company may draw on the facility from time to time, as and when it determines
appropriate in accordance with the terms and conditions of the Investment
Agreement. The maximum amount that the Company is entitled to put in any one
notice is the greater of (i) 200% of the average daily volume (U.S. market only)
of the common stock for the three (3) trading days prior to the date of delivery
of the applicable put notice, multiplied by the average of the closing prices
for such trading days or (ii) $100,000. The purchase price shall be set at
nine-five percent (95%) of the lowest daily VWAP of the Company’s common stock
during the Pricing Period. However, if, on any trading day during a Pricing
Period, the daily volumn-weighted average price (VWAP) of the common stock is
lower than the floor price specified by us in the put notice, then the Company
reserves the right, but not the obligation, to withdraw that portion of the put
amount for each such trading day during the Pricing Period, with only the
balance of such put amount above the minimum acceptable price being put to
Dutchess. There are put restrictions applied on days between the put notice date
and the closing date with respect to that particular put. During such time, the
Company is not entitled to deliver another put notice.
There are
circumstances under which the Company will not be entitled to put shares to
Dutchess, including the following:
•
the Company will not be entitled to put shares to Dutchess unless there
is an effective registration statement under the Securities Act to cover the
resale of the shares by Dutchess;
•
the Company will not be entitled to put shares to Dutchess unless its
common stock continues to be quoted on the OTC Bulletin Board, or becomes listed
on a national securities exchange;
•
the Company will not be entitled to put shares to Dutchess to the extent
that such shares would cause Dutchess's beneficial ownership to exceed 4.99% of
our outstanding shares; and
•
the Company will not be entitled to put shares to Dutchess prior to the
closing date of the preceding put.
The
Investment Agreement further provides that the Company and Dutchess are each
entitled to customary indemnification from the other for any losses or
liabilities we or it suffers as a result of any breach by the other of any
provisions of the Investment Agreement or our registration rights agreement with
Dutchess, or as a result of any lawsuit brought by a third-party arising out of
or resulting from the other party's execution, delivery, performance or
enforcement of the Investment Agreement or the registration rights
agreement.
The
Investment Agreement also contains representations and warranties of each of the
parties. The assertions embodied in those representations and warranties were
made for purposes of the Investment Agreement and are subject to qualifications
and limitations agreed to by the parties in connection with negotiating the
terms of the Investment Agreement. In addition, certain representations and
warranties were made as of a specific date, may be subject to a contractual
standard of materiality different from what a stockholder or investor might view
as material, or may have been used for purposes of allocating risk between the
respective parties rather than establishing matters as facts.
The
Company also entered into a Registration Rights Agreement with Dutchess on May
4, 2010. Pursuant to the terms of the Registration Rights Agreement, the
Company is obligated to file one or more registration statements with the SEC to
register the resale by Dutchess of shares of common stock issued or issuable
under the Investment Agreement. On May 7, 2010, the Company filed an initial
registration statement on Form S-1 in order to access the credit line, covering
the resale of the 11,000,000 shares of common stock which is equal to
eighteen point seven percent (18.7%) of the Company’s current public float
(where "public float" shall be derived by subtracting the number of shares of
common stock held by the Company’s officers, directors and "affiliates" (as such
term is defined in Rule 144(a)(1) of the 1933 Act) from the total number of
shares of our common stock then outstanding). This Registration Statement
was declared effective by the Securities and Exchange Commission on August 31,
2010. This registration process will continue until such time
as all of the dollar amounts available under the credit line, using shares of
common stock issuable under the Investment Agreement, have been registered for
resale on effective registration statements. In no event will the Company be
obligated to register for resale more than $5,000,000 in value of shares of
common stock, or 125,000,000 shares (estimated using the last reported sale
price of the Company’s common stock on the OTC Bulletin Board on May 4, 2010 of
$0.04 per share).
During
September and October 2010, the Company issued six (6) puts under the investment
agreement with Dutchess and sold 1,558,736 shares of common stock to Dutchess at
prices ranging from $0.0175 to $0.0225 per share for net proceeds of
$32,492. An additional 2,109,644 shares have been sold to Dutchess
subsequent to October 31, 2010 for net proceeds of $18,641.
13
In
connection with the preparation of the Investment Agreement and the Registration
Rights Agreement, the Company issued Dutchess 750,000 shares of common stock as
a document preparation fee in the amount of $15,000. However, in the event
that the Company receives any funds from a current private placement or from
Dutchess’ purchase of shares prior to the nine month anniversary of the issuance
of the 750,000 shares, those shares could have been redeemed, at the discretion
of Dutchess, for $15,000 in cash. As of October 31, 2010, the Company
redeemed the shares by making payment of $15,000 in cash from the above private
placements proceeds to Dutchess.
On
October 2, 2009, Micro Imaging Technology, Inc. entered into a similar
Securities Purchase Agreement with Ascendiant Capital Group, LLC to establish a
possible source of funding through an equity drawdown facility. The
Securities Purchase Agreement with Ascendiant Capital Group, LLC was terminated
by the Company on May 6, 2010.
Between
August and October, 2010, we sold $87,500 in convertible debentures to Asher
Enterprises, Inc. which are convertible into common shares, at the discretion of
the holder, commencing 180 days following the date of the
Note. The loans bear interest at 8% per annum and are
convertible at a 39% discount to the average of the lowest three closing bid
prices of the common stock during the ten trading days prior to
conversion. Asher purchased an additional $25,000 convertible
debenture in November 2010. Asher also holds a $64,865 and a $25,000
convertible debenture which it purchased in October and December 2010,
respectively, from two other lenders. A total of $38,000 of such
debentures were converted into common stock subsequent to October 31,
2010.
During
the latter part of 2008, we appointed an exclusive distributor to sell our MIT
products in Taiwan and China. We have entered into similar
arrangements with five other companies granting distribution rights in Turkey,
Bulgaria, the United Kingdom, Ireland, Puerto Rico and the
Caribbean. In October 2009, we entered into a distribution agreement
with a Biotek Sdn Bhd, a Malaysian distributor of research and scientific
products for the Association of Southeast Asian Nations (ASEAN) (namely
Malaysia, Singapore, Thailand, Brunei, Indonesia, Philippines, Vietnam,
Cambodia, Laos and Myanmar). This distributor purchased its first MIT
System and is making preparations to conduct several workshops and product
demonstrations for key prospects in Asia over the next three
months. Biotek is also planning workshops and training classes
throughout ASEAN, including Indonesia, Singapore, The Philippines, Thailand,
Cambodia, Vietnam and others.
We are in
the process of developing promotional materials and marketing and sales
strategies with these and other future distributors which we believe will assist
in generating sales revenues in the near future.
In the
opinion of management, available funds and funds anticipated from forthcoming
loans and equity sales are expected to satisfy our working capital requirements
through October 2011. However, no assurances can be given that we
will secure additional financing or revenues in a timely manner, if at all, or
that such funds would be sufficient to achieve our intended business
objectives.
We will
be required to raise substantial amounts of new financing in the form of
additional equity investments, loan financings, or from strategic partnerships,
to carry out our business objectives. There can be no assurance that we will be
able to obtain additional financing on terms that are acceptable to us and at
the time required by us, or at all. Further, any financing may cause
dilution of the interests of our current stockholders. If we are unable to
obtain additional equity or loan financing, our financial condition and results
of operations will be materially adversely affected. Moreover, estimates of our
cash requirements to carry out our current business objectives are based upon
various assumptions, including assumptions as to our revenues, net income or
loss and other factors, and there can be no assurance that these assumptions
will prove to be accurate or that unbudgeted costs will not be incurred. Future
events, including the problems, delays, expenses and difficulties frequently
encountered by similarly situated companies, as well as changes in economic,
regulatory or competitive conditions, may lead to cost increases that could
have a material adverse effect on us and our plans. If we are not successful in
obtaining financing for future developments, whether in the form of loans,
licenses or equity transactions, it is unlikely that we will have sufficient
cash to continue to conduct operations, particularly research and development
programs, as currently planned. We believe that in order to raise needed
capital, we may be required to issue debt at significantly higher interest
rates or equity securities that are significantly lower than the current market
price of our common stock.
14
No
assurances can be given that currently available funds will satisfy our working
capital needs for the period estimated, or that we can obtain additional working
capital through the sale of common stock or other securities, the issuance of
indebtedness or otherwise or on terms acceptable to us. Further, no assurances
can be given that any such equity financing will not result in a further
substantial dilution to the existing stockholders or will be on terms
satisfactory to us.
Impact
of Recently Issued Accounting Pronouncements
See Note
3 to the Notes to the Consolidated Financial Statements – “New Accounting
Pronouncements.”
Item
7.
|
Financial
Statements and Supplementary Data
|
The
information required by Item 7 is included on pages F-1 to
F-21.
Item
8.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
None
Item 9A.
|
Controls and
Procedures.
|
As of the
end of the period covered by this annual report on Form 10-K, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)). That evaluation was performed under the supervision and with the
participation of its management, including its Chief Executive Officer and its
Chief Financial Officer. Based on that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified by the SEC rules and
forms, and that such information is accumulated and communicated to our
management, including our certifying officer, to allow timely decisions
regarding the required disclosure.
Internal
Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated
Framework, our management concluded that our internal control over
financial reporting was effective for the fiscal year ended October 31,
2010.
Changes
in internal controls over financial reporting
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Annual Report on Form 10-K that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.
Item
9B
|
Other
Information
|
None
15
PART III
Item
10.
|
Directors and
Executive Officers of the Registrant Directors and Executive
Officers
|
Our
directors and executive officers are as follows:
Name
|
Age
|
Position
|
||
Michael
W. Brennan
|
68
|
Director
(Chairman) and
Chief
Executive Officer
|
||
Ralph
W. Emerson (1)
|
64
|
Director
|
||
Victor
A. Hollander
|
78
|
D
|
Director
and Chief Financial Officer
|
(1)
|
Mr.
Emerson’s resignation from the Board of Directors was accepted as of
October 31, 2010.
|
The
Company does not currently have an Audit Committee and as of October 31, 2010,
there are currently three vacancies on the Board of Directors.
Michael W. Brennan, 68, was named to the Board
of Directors and appointed Chief Executive Officer on August 2, 2006. Mr.
Brennan has spent over twenty-five years within the computer industry and
participated in the founding of four companies that successfully became publicly
held corporations through IPOs on Nasdaq; three in the U.S.; Computer Automation
(CAI), Symmetricom, Inc. (originally, DATUM) (SYMM), and Interscience (INTR) and
one on the London International Stock Exchange (Optim, PLC). Additionally, Mr.
Brennan was a founder of Color Imaging, Inc. (CIMG), took the company public and
served as Chairman and CEO since 2000. Mr. Brennan has a B.S. degree
in electrical engineering from the University of Southern California and an MBA
from Pepperdine University.
Ralph W. Emerson, 64, was
named to the Board of Directors on August 2, 2006. He serves as
Chairman of the Company’s Science Advisory Committee. Mr. Emerson has
product development and research affiliations with some of the world's leading
companies including Cargill Inc., Helena Chemical, Spectrum Brands, and the 3M
Corporation. Formerly he was a consultant to the CEO/President of Grain
Processing Corporation (GPC), Senior Science Consultant to Central Pet and
Garden, a Sr. Vice President of Jourgensen Chemical/ NL Industries managing
chemical programs with the Department of Defense. Moreover, he has held senior
academic and research positions within the University of California at UCLA,
UCI, and UC Davis. His applied research has produced several US Patents and
International Patents in the disciplines of bioscience. Mr. Emerson is a partner
and founder of FREM Biosciences, Inc., working for the past 10 years in the
areas of pesticide science. Additionally, he is a director of the
Kary Mullis Research Foundation, and director of the Agriculture and Animal
Sciences division of Altermune-a US Defense Advanced Research Project Agency
funded program. Dr. Emerson is a graduate of UCLA and did his graduate work at
Harvard University, the Harvard School of Public Health and the Sloan School at
the Massachusetts Institute of Technology. Currently, he is an elected member of
the Harvard University Club of Boston, the New York Academy of Sciences and the
American Society of Microbiology.
Victor A. Hollander, 78, was
named to the Board of Directors on August 2, 2006 and as Chief Financial Officer
on November 1, 2008. Mr. Hollander was licensed to practice public
accounting in California in 1958. In 1965, he established and was the partner in
charge of the Los Angeles office of a large New York certified public accounting
firm where he specialized in audit and securities matters. In 1978, he left the
firm and ultimately formed the accounting firm of Hollander, Gilbert & Co.,
and in February 2001, this firm was merged with the Los Angeles accounting firm
Good Swartz Brown & Berns, LLP. Mr. Hollander has been with an East Coast
accounting firm since 2002, as Managing Director of the West Coast Group. Mr.
Hollander retired from the firm in January 2007 and currently performs SEC
consulting services. Mr. Hollander, during his professional career,
has been active in local, state and national professional activities. He has
served on various Los Angeles Chapter, California Society of Certified Public
Accountants and American Institute of Certified Public Accountants securities,
ethics, accounting and auditing committees. Mr. Hollander specializes in
securities, mergers and acquisitions.
Directors
serve until the next Annual Meeting of Shareholders when their successors are
elected and qualified. Officers, subject to any employment agreements,
serve at the pleasure of the Board of Directors.
16
Key
Employees
David
Haavig, 56, a Ph.D. in Physics, joined the Company in May 1998 as General
Manager of Micro Imaging Technology, its wholly owned subsidiary.
Dr. Haavig has over 25 years experience in instrument design in computer
software with applications in optical measurements and analysis. From
August 1991 to May 1998, he served as electrical design engineer for
San Diego-based Science Applications International Corporation, where he was
responsible for the mechanical and electrical design of microprocessor
controlled, autonomously controlled instruments. He also served as project
manager and technical director on various system development projects.
Dr. Haavig received his Bachelor of Science degree in Physics (Cum Laude)
from the University of Seattle and his Master of Science and Ph.D. degrees in
Physics from Purdue University.
Section 16(a) Beneficial
Ownership Reporting Compliance
Section 16(a) of
the Exchange Act requires our officers and directors, and stockholders owning
more than ten percent of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange and are required by SEC regulations to furnish us with copies of all
forms they file pursuant to these requirements. The following table provides
information regarding any of the reports which were filed late during the fiscal
year ended October 31, 2010:
Name of Reporting Person
|
Type of Report Filed Late
|
No. of Transactions
Reported Late
|
||
Michael
W. Brennan
|
Form
4 – Statement of Changes in Beneficial Ownership
|
11
|
||
Ralph
W. Emerson
|
Form
4 – Statement of Changes in Beneficial Ownership
|
1
|
||
Victor
A. Hollander
|
Form
4 – Statement of Changes in Beneficial Ownership
|
2
|
Item
11.
|
Executive
Compensation
|
The
members of the Board of Directors oversee compensation and benefits, i.e.,
option and warrant grants, to employees and service providers.
Michael
Brennan, who joined the Company in August 2006 as Chief Executive Officer, is
being compensated at the rate provided in his employment arrangement described
below under “Employment Agreements.”
The
following table sets forth summary information regarding compensation paid for
the years ended October 31, 2010, 2009, and 2008 to the officers of the
Company.
Annual Compensation
|
Long-Term
Compensation
|
|||||||||||||||
Name
|
Position
|
Year
|
Salary
|
Other
Compensation
(1)
|
Awards
Options
|
|||||||||||
Michael
Brennan (2)
|
Chief
Executive Officer
|
2010
|
$ | 201,325 | $ | 275,000 | $ | 1,713 | ||||||||
2009
|
$ | 216,873 | $ | 383,213 | $ | 14,772 | ||||||||||
2008
|
$ | 190,250 | $ | 185,000 | $ | 102,341 | ||||||||||
Victor
Hollander (3)
|
Chief
Financial Officer
|
2010
|
$ | 120,000 | $ | 260,000 | — | |||||||||
2009
|
$ | 120,000 | $ | 200,625 | — |
|
(1)
|
We
are not required to report the value of personal benefits unless the
aggregate dollar value was at least 10 percent of the executive officer’s
salary and bonus or $50,000.
|
|
(2)
|
Mr.
Brennan was named Chief Executive Officer on August 2, 2006. He
receives a cash salary and 50,000 shares of common stock per
month. From August 2006 through October 31, 2008, Mr. Brennan’s
cash salary was $5,000 per month. Commencing November 1, 2008,
his cash salary was increased to $15,000 per month. For the
fiscal years ended October 31, 2008 and 2009, Mr. Brennan’s cash
compensation amounted to $60,000 and $180,000,
respectively. Mr. Brennan received shares of 600,000 shares of
common stock in fiscal 2008 and 2009 valued at $130,250 and $36,873,
respectively. In fiscal 2010, Mr. Brennan’s compensation
amounted to $180,000 in cash and 600,000 of common stock valued at
$21,325. Mr. Brennan was also granted two–year options to
purchase 100,000 shares of common stock at an exercise price of $0.30 per
share in fiscal years 2008, 2009 and 2010. Mr.
Brennan also received 100,000 shares of the common stock of the Company’s
Nevada subsidiary, Micro Imaging Technology, valued at $100, during the
fiscal years ended October 31, 2007 and
2008.
|
17
On March
3, 2008, Mr. Brennan received 500,000 shares of common stock, valued at $135,000
($0.27 per share) for consulting services rendered and on October 2, 2008, the
Company issued Mr. Brennan 1,000,000 shares of common stock valued at $50,000,
or $0.05 per share, for additional consulting services rendered.
Between
February and July 2009, Mr. Brennan received a total of 5,500,000 shares of
common stock for additional consulting services rendered at prices ranging from
$0.015 to $0.154 per shares, for an aggregate value of
$383,213.
Mr.
Brennan received 5,000,000 shares of common stock valued at $195,000, or $0.039
per share, for additional consulting services on July 12, 2010. On
October 29, 2010, he received an additional 6,000,000 shares of common stock
value at $78,000, or $0.013 per share.
|
(3)
|
Mr. Hollander
was named Chief Financial Officer effective November 1,
2008. He receives a monthly accrued salary of
$10,000.
|
|
On
February 5, 2009 and July 16, 2009, Mr. Hollander received 3,000,000
shares of common stock at $0.01538 per share and 1,000,000 shares of
common stock at $0.1545 per share, respectively, for additional financial
consulting services rendered. The aggregate fair market value
of these issuances was $46,125 and $154,500,
respectively.
|
|
On
July 12, 2010 and October 29, 2010, Mr. Hollander received 5,000,000
shares of common stock at $0.039 per share and 5,000,000 shares of common
stock at $0.013 per share, respectively, for additional consulting
services rendered. The fair market value of these issuances was
$195,000 and $65,000, respectively.
|
Compensation
Committee Interlocks and Insider Participation
Compensation
of executive officers is determined by the Board of Directors.
Michael
W. Brennan
Effective
August 2, 2006, we entered into a five-year employment arrangement with
Michael W. Brennan when he became the Chief Executive Officer of the Company.
The arrangement provides for the following:
|
·
|
Compensation
of $10,000 per month, payable $5,000 in cash and $5,000 in the Company’s
common stock (value of stock at $0.10 per share), issuable as each month
of service occurs, for a period of five years. The annual
valuation of this compensation is $60,000 in cash and 600,000 restricted
common shares. Between September 1, 2007 and December 31, 2007,
Mr. Brennan also received 50,000 shares each month of the common stock of
the Company’s Nevada subsidiary, Micro Imaging Technology. As
of November 1, 2008, Mr. Brennan’s cash salary increased to $15,000 per
month.
|
|
·
|
For
each year of service, Mr. Brennan is granted two-year warrants to purchase
100,000 shares of restricted common stock at an exercise price of $0.30
per share. Such warrants vest in their entirety at the
conclusion of each year of
service.
|
18
Compensation
of Directors
In
October 2006, the Board of Directors authorized following compensation outlined
below. Mr. Hollander was named Chief Financial Officer of the Company
and, as of November 1, 2008, no longer receives the compensation authorized for
outside members.
|
·
|
that Victor A. Hollander
and Ralph W. Emerson and all other outside individuals appointed to the
Board of Directors initially be issued 100,000 shares of the Company’s
common stock and those shares will be registered, at the Company’s
convenience, through an S-8 Registration Statement with the Securities and
Exchange Commission.
|
|
·
|
that
all outside members of the Board of Directors receive an option to
purchase 100,000 shares of the Company’s common stock on the annual
anniversary date of their service to the
Board.
|
|
·
|
that
each outside Board member shall be paid $1,000 for attendance to each
Board of Directors meeting and $500 for participating in telephonic Board
Meetings. Additionally, all expenses related to serving as a member of the
Board of Directors must be approved in advance by the Chairman of the
Board and will be reimbursed by the
Company.
|
|
·
|
that
the outside Board member appointed to and serving as the Chairman of the
Finance Committee, Victor A. Hollander, will receive an additional annual
compensation of $24,000. Note that as of November 1, 2008, when
Mr. Hollander was named Chief Financial Officer, the Finance Committee was
dissolved.
|
|
·
|
that
the outside Board member appointed to and serving as the Chairman of the
Science Advisory Committee, Ralph W. Emerson, will receive an additional
annual compensation of $18,000.
|
Director
Compensation Table
Director
|
Fees Earned
or Paid in
Cash (1)
|
Stock
Awards
|
Option
Awards (2)
|
Non-Equity
Incentive Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
|||||||||||||||||||||
Ralph
W. Emerson
|
$ | 18,000 | — | $ | 1,905 | — | — | — | $ | 19,905 |
(1)
|
Represents
annual fees for committee chairmanship plus all meeting attendance fees
earned by non-employee directors in fiscal
2010.
|
(2)
|
The
amounts shown are the aggregate grant date fair value related to the
grants of options to non-employee directors in 2010. All
options granted to directors vest in full on the grant
date. Consequently, there are no unvested option awards granted
to non-employee directors as of October 31,
2010.
|
Equity
Compensation Plans
1999 Stock Option Plan
In May
1999, the Company adopted the 1999 Stock Option Plan (the “Plan”). Under the
Plan, incentive and non-qualified stock options for 1,000,000 shares of common
stock may be issued. Incentive stock options may be issued to any
employee of the Company; are exercisable in installments as determined by the
Board of Directors or the Compensation and Benefits Committee; and may be
granted for not more than ten years (five years in the case of any employee who
owns or is considered to own more than 10% of the common stock). Incentive stock
options may not be exercisable for less than 100% of the fair market value
of the common stock on the date of grant (110% of fair market value in the case
of a more than 10% shareholder). Non-qualified stock options may be granted
to employees, directors, consultants and advisors of the Company. Non-qualified
stock options may not be granted for more than ten years, are exercisable
in installments as determined by the Board or Compensation and Benefits
Committee, and may not be exercisable for less than 100% of the fair market
value of the common stock on the date of grant. In September 2008,
the Company granted 140,000 options to purchase common stock at $0.10 per share
to a key employee and as of October 31, 2010, the total number of shares
authorized under the 1999 Stock Option Plan, 1,000,000, has been issued at
exercise prices ranging from $0.10 to $0.94 per share.
19
2008 Employee Benefit Plan
Effective
December 3, 2007, the Company adopted the Micro Imaging Technology 2008 Employee
Benefit Plan. Under the Plan, the Company can grant up to three (3)
million shares of common stock or options to purchase common stock to eligible
employees, directors, officers, consultants, or advisors of the
Company. Eligibility is determined by the Board of
Directors. During 2007, a total of 2 million shares of common stock
were granted under the plan to Michael Brennan and Victor Hollander in lieu of
payment for consulting services rendered. An additional one (1)
million shares were issued under this Plan in March 2008 to Messrs. Brennan and
Hollander. As of October 31, 2010, the total number of shares
authorized under the Plan has been issued.
2008 Employee Incentive Stock
Program
In May
2008, the Company adopted the 2008 Employee Incentive Stock Program, authorizing
the Company to grant up to three (3) million shares of common stock or options
to purchase common stock to eligible employees, directors, officers,
consultants, or advisors to the Company. Eligibility is determined by
the Board of Directors. On May 1, 2008, the Board authorized the
issuance of a total of 584,472 shares of common stock under the Plan to various
individuals, including officers and directors, in exchange for the cancellation
of loans and interest as well as fees and expenses due them from the
Company. On June 12, 2009, the Board granted a consultant to the
Company two (2) million shares of common stock for consulting
services. In November 2009, 50,000 shares were issued to
the Company’s legal counsel in partial payment for services
rendered. As of October 31, 2010, there were 365,538 shares or
options available for issuance remaining under the 2008 Employee Incentive Stock
Program.
2009 Employee Benefit Plan
In
October 2008, the Company adopted the 2009 Employee Benefit Plan, authorizing
the Company to grant up to four (4) million shares of common stock or options to
purchase common stock to eligible employees, directors, officers, consultants,
or advisors to the Company. Eligibility is determined by the Board of
Directors. During fiscal 2009, the Board authorized the issuance of a
total of 2,250,000 shares of common stock under the Plan to various individuals,
including 2,000,000 shares to officers and directors, in lieu of payment for
services rendered. An additional 500,000 shares were issued to
Michael Brennan on May 1, 2009 for additional management services
rendered. During November 2009, the balance of 1,250,000 shares
were issued to the Company’s legal firms for services rendered. No
shares or options remain available for issuance under the 2009 Employee Benefit
Plan.
2010 Employee Benefit Plan
In
January 2010, the Company adopted the 2010 Employee Benefit Plan, authorizing
the Company to grant up to twelve (12) million shares of common stock or options
to purchase common stock to eligible employees, directors, officers,
consultants, or advisors to the Company. As with all other plans
adopted by the Company, eligibility is determined by the Board of
Directors. During fiscal 2010, the Board of Directors authorized the
issuance of all 12,000,000 shares of common stock under this Plan to a various
consultants for services rendered.
2011 Employee Benefit Plan
Effective
November 1, 2010, the Board of Directors authorized the formation of the 2011
Employee Benefit Plan under which up to 17 million shares of common stock or
options to purchase common stock is issuable to eligible employees, directors,
officers, consultants, or advisors to the Company. Eligibility is
determined by the Board of Directors. No awards have been
granted under the Plan as of the date of this report.
Other Options
On
February 8, 2010, the Company granted two-year warrants to purchase 500,000
shares of common stock at $0.03 per share as partial consideration for a $30,000
loan by a non-affiliate.
20
In August
2009, the Company issued options to purchase 100,000 shares of common stock to
Chief Executive Officer and Director, Michael Brennan, in connection with this
annual compensation arrangement. The options are exercisable for two
(2) years at an exercise price of $0.30 per share.
Also in
August 2009, the Company also issued options to purchase 100,000 shares of
common Stock to Ralph W. Emerson, Director, for his annual service as Chairman
of the Company’s Science Advisory Board. The options are exercisable
at $0.15 per share and expire on August 3, 2011.
On
October 28, 2010, the Company issued 4,000,000 warrants to purchase 4,000,000
shares of common stock to two consultants. The warrants are
exercisable at $0.011 per share and expire on October 28, 2012.
See
PART II, Item 5, “Market for Registrant’s Common Equity and Related
Stockholder Matters.”
All
options are non-transferable except by will or the laws of descent and
distribution and terminate six months after death or termination of employment
due to permanent disability and three months after employment terminates for any
other reason.
The
following table sets forth summary information regarding the outstanding equity
awards held by the Company’s named executive officers and directors at October
31, 2010:
Option Awards
|
Stock Awards
|
||||||||||||||||||||
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number of
Shares or
Units of
Stock that
Have Not
Vested
|
Market Value
of Shares or
Units of Stock
That Have Not
Vested
|
||||||||||||||||
Michael
W. Brennan
|
100,000 | — | $ | 0.30 |
08/03/11
|
— | — | ||||||||||||||
100,000 | — | $ | 0.10 |
09/18/11
|
— | — | |||||||||||||||
100,000 | — | $ | 0.30 |
08/03/12
|
— | — | |||||||||||||||
Ralph
W. Emerson
|
100,000 | — | $ | 0.15 |
08/03/11
|
— | — | ||||||||||||||
100,000 | — | $ | 0.024 |
08/03/12
|
— | — | |||||||||||||||
Victor
A. Hollander
|
500,000 | — | $ | 0.10 |
09/18/11
|
— | — |
21
Item
12.
|
Security
Ownership of Certain Beneficial Owners and
Management.
|
PRINCIPAL
SHAREHOLDERS
The
following table sets forth information as of January 7, 2011 with respect to the
common stock and Convertible Preferred Stock owned by the only persons known by
us to own beneficially 5% or more of any of these classes of stock, by each
director and by all directors and officers as a group.
Name **
|
Common
Stock
(1)(2)
|
% of
Class
|
Convertible
Preferred
Stock(3)
|
% of
Class
|
% of
Voting
Power (4)
|
|||||||||||||||
Michael
W. Brennan
970
Calle Amanecer, Suite F
San
Clemente, CA 92673
|
24,648,600 | 12.0 | % | — | — | 11.9 | % | |||||||||||||
Ralph
W. Emerson
|
413,333 | * | — | — | * | |||||||||||||||
Anthony
M. Frank
320
Meadowood Court
Pleasant
Hill, CA 94523
|
58,035,586 | 28.3 | % | — | — | 28.0 | % | |||||||||||||
Victor
A. Hollander
9601
Wilshire Blvd., Suite M-200
Beverly
Hills, CA 90210
|
20,636,436 | 10.1 | % | — | — | 10.0 | % | |||||||||||||
Estate
of Harry M. O’Hare, Sr. (5)
1000
El Centro
S.
Pasadena, CA 91030
|
86,483 | * | 931,629 | 35.8 | % | * | ||||||||||||||
All
officers and directors as a group (3 persons)
|
45,698,369 | 22.3 | % | — | — | 22.0 | % |
*
|
Less
than 1%
|
**
|
Includes address of
five percent or more shareholders of any
class.
|
(1)
|
Includes
83,983 shares of common stock issued upon conversion of Class B
common stock held by founder, Harry M. O’Hare, who passed away in November
2006. Pursuant to the restrictions imposed on the Class B
common stock by the California Corporation Commission prior to the
Company’s initial public offering in 1987, upon the death of Mr. O’Hare,
the Class B common stock automatically converts into share of common stock
on a share-for-share basis.
|
(2)
|
Includes
currently exercisable warrants or options to purchase an aggregate of
1,900,000 shares of the Company’s common stock held by the officers and
directors referred to in the above table. See also Item 11 - “Executive
Compensation – Equity Compensation
Plans.”
|
|
|
(4)
|
The
Convertible Preferred Stock was convertible into common stock only if
specified earnings or market prices of the common stock were achieved
prior to October 31, 1990. The specified earnings and market prices
were not achieved and as of January 31, 1991, we were required to
redeem these shares at $0.01 per share as of the fiscal year ended
October 31, 1999. See Part II - Item 5 - “Market for
Registrant’s Common Equity and Related Stockholder
Matters.”
|
(5)
|
Reflects
the voting rights of the common stock and Convertible Preferred Stock,
each of which carries one vote per
share.
|
(5)
|
Mr.
O’Hare, the Company’s founder, passed away on or about November 13,
2006.
|
22
Item 13.
|
Certain Relationships and
Related Transactions.
|
Mr.
Michael W. Brennan
Between
May 8 and June 10, 2009, Mr. Brennan loaned the Company a total of $95,000 at 6%
per annum, payable on demand. In February 2010, Mr. Brennan assigned
$25,000 of such loans to an unaffiliated third party. Consequently,
there remains a total of $70,000 in principal loans due Mr. Brennan by the
Company.
On April
9, 2010, Mr. Brennan converted $90,000 in accrued fees into a convertible loan
similar to those offered by the Company to other accredited
investors. The loan is convertible, at the option of the lender, into
common stock at a 20% discount to fair market value or $0.10 per share,
whichever is greater. The loan matures in 12 months and bears
interest at 6% per annum. As additional consideration for the loan,
the lender (in this case, Mr. Brennan) received 1,800,000 shares of restricted
common stock the number of which was determined by dividing the principal amount
of the loan by the greater of $0.05 per share or the fair market value on the
loan date.
Between
November 1, 2009 and October 31, 2010, in addition to his cash compensation of
$15,000 per month, Mr. Brennan received a total of 600,000 shares of common
stock for services rendered pursuant to his employment arrangement.
Between
July and October 2010, Mr. Brennan was issued a total of 11,000,000 shares of
common stock for additional services rendered.
Mr.
Brennan received the following option grants during fiscal 2010:
GRANT
DATE
|
NUMBER
GRANTED
|
EXERCISE
PRICE
|
FAIR
MARKET
VALUE
|
REASON GRANTED
|
|||||||||
08/03/10
|
100,000 | $ | 0.30 | $ | 1,713 |
Per
consulting
arrangement
|
Mr. Anthony
M. Frank
On March
16, 2009, Mr. Frank purchased a $75,000 convertible debenture which matures on
the 3rd anniversary of the purchase date. The debenture may be
converted at any time into common stock at 80% of the lowest closing
bid price per share for the 20 trading days immediately preceding the
conversion date. Interest accrues at 10% per annum and is payable at
maturity or upon redemption or conversion. The Company may redeem the
note: 1) If before 6 months at 120% of principal value, plus
interest; or 2) If after 6 months, at 131% of principal plus
interest. The Company paid no finder’s fee or commission with regard
to Mr. Frank's purchase.
On
September 23, 2009, Mr. Frank loaned the Company the sum of $64,000 at 6% annual
interest. The loan matured on March 23, 2009 and the Company is
currently negotiating an extension with Mr. Frank.
On March
18, 2010, Mr. Frank made a loan of $20,000 to the Company. The loan
is convertible, at the option of the lender, into common stock at a 20% discount
to fair market value or $0.10 per share, whichever is greater. The
loan matures in 12 months and bears interest at 6% per annum. As
additional consideration for the loan, Mr. Frank received 400,000 shares of
restricted common stock the number of which was determined by dividing the
principal amount of the loan by the greater of $0.05 per share or the fair
market value on the loan date.
On July
15, 2010, Mr. Frank loaned the Company an additional $30,000 at 6% annual
interest. The loan matured on October 15, 2010 and the Company is
currently negotiating an extension.
Mr.
Victor A. Hollander
Mr.
Hollander was named Chief Financial Officer as of November 1, 2008 and receives
$10,000 per month for his service. As of October 31, 2010, the
Company owed Mr. Hollander a total of $77,543 in accrued monthly fees and
expenses.
23
On April
9, 2010, Mr. Hollander converted $160,000 in accrued fees into a convertible
loan similar to those offered by the Company to other accredited
investors. The loan is convertible, at the option of the lender, into
common stock at a 20% discount to fair market value or $0.10 per share,
whichever is greater. The loan matures in 12 months and bears
interest at 6% per annum. As additional consideration for the loan,
Mr. Hollander received 3,200,000 shares of restricted common stock the number of
which was determined by dividing the principal amount of the loan by the greater
of $0.05 per share or the fair market value on the loan date.
Mr.
Hollander was issued 5,000,000 shares of common stock on July 12, 2010 and on
October 29, 2010 for additional services rendered.
Miscellaneous
The Board
of Directors has adopted a policy that no transaction between us and any
officer, director, employee or members of their family shall be entered into
without the full disclosure of the transaction to and the approval of the
transaction by the non-interested members of the Board of Directors.
Furthermore, except for routine supply and sales agreement, no agreements will
be entered into regarding royalties, distributorships, supply agreements, sales
agreements, the borrowing of money or the sale or granting of securities or
options or the leasing or buying of property by us, or any other type of
contract over three months or $50,000 without the approval of the Board of
Directors.
PART IV
Item
14.
|
Exhibits
and Reports on Form 8-K.
|
(a)
|
The
following documents are filed as part of this
report:
|
|
1.
|
Financial
Statements
|
Report of
Independent Registered Public Accounting Firm
Balance
Sheet as of October 31, 2010 and 2009
Statements
of Operations for the years ended October 31, 2010 and 2009
Statements
of Shareholders’ Deficit for the years ended October 31, 2010 and
2009
Statements
of Cash Flows for the years ended October 31, 2010 and 2009
Notes to
Financial Statements
(b)
|
Reports
on Form 8-K
|
On June
9, 2010, the Company filed Form 8-K to report that it had entered into a May 4,
2010 Investment Agreement with Dutchess Opportunity Fund, II, LP (the
“Investor”) pursuant to which the Investor committed to purchase up to
$5,000,000 of the Company’s common stock over thirty-six months.
(c)
|
Exhibits
|
|
3.1
|
Articles of Incorporation of the
Registrant, as amended, (incorporated by reference to Exhibit 3.1 to Form
10-KSB filed on February 28,
1989).
|
|
3.2
|
By-Laws of the Registrant, as
amended, (incorporated by reference to Exhibit 3.2 to Form S-1, File No.
33-10669, filed on December 15,
1986).
|
|
4.1
|
Micro
Imaging Technology, Inc. 2008 Employee Benefit Plan (incorporated by
reference to Exhibit 4.1 to Form S-8 filed on December 6,
2007).
|
10.10.CF
|
8%
Convertible Term Note with Anthony M. Frank - November 3, 2008
(incorporated by reference to Exhibit 10.10.CF to Schedule 13D/A of
Anthony M. Frank filed on December 15,
2008).
|
10.10.CG
|
Debt
Conversion Agreement – December 15, 2008 (incorporated by reference to
Exhibit 10.10.CG to Schedule 13D/A of Anthony M. Frank filed on December
15, 2008).
|
24
10.10.CH
|
Debt
Conversion Agreement – December 15, 2008 (incorporated by reference to
Exhibit 10.10.CH to Schedule 13D/A of Anthony M. Frank filed on December
15, 2008).
|
|
10.68
|
Securities
Purchase Agreement with Ascendiant Capital Group, LLC (incorporated by
reference to Exhibit 10.68 to Form 8-K filed on October 6,
2009.
|
|
10.12
|
1999
Stock Option Plan (incorporated by reference to Exhibit 10.12 to
Definitive Proxy Statement filed on May 24,
1999).
|
10.12.A
|
Micro
Imaging Technology, Inc. 2008 Employee Benefit Plan (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-8 filed on
December 6, 2007).
|
10.12.B
|
Micro
Imaging Technology, Inc. 2008 Employee Incentive Stock Plan
(incorporated by reference to Exhibit 4.1 to Registration Statement on
Form S-8 filed on May 7, 2008).
|
10.12.C
|
Micro
Imaging Technology, Inc. 2009 Employee Benefit Plan (incorporated by
reference to Exhibit 4.1 to Registration Statement on Form S-8 filed on
October 23, 2008).
|
|
10.19
|
Form of Indemnity Agreement
with each current Officer and Director. (incorporated by reference to
Exhibit 10.19 to Definitive Proxy Statement filed on May 4,
1988).
|
|
10.20
|
Investment Agreement dated May 4,
2010 with Dutchess Opportunity Fund, II, LP (incorporated by reference to
Exhibit 10.20 to Form S-1 as filed with the SEC on May 7,
2010.
|
|
10.21
|
Registration
Rights Agreement dated May 4, 2010 with Dutchess Opportunity Fund, II, LP
(incorporated by reference to Exhibit 10.21 to Form S-1 as filed with the
SEC on May 7, 2010.
|
|
21.1
|
Subsidiaries of Micro Imaging
Technology, Inc. *
|
|
31.1
|
Certification of Chief Executive
Officer *
|
|
31.2
|
Certification of Chief Financial
Officer *
|
|
32.1
|
906 Certification of Chief
Executive Officer *
|
|
32.2
|
906 Certification of Chief
Financial Officer *
|
* Filed herewith
Item
15.
|
Principal
Accountant Fees and Services.
|
Audit
Fees.
The
aggregate fees billed to the Company for professional services rendered by
Jeffrey S. Gilbert, CPA for the audit of the Company’s annual financial
statements, review of the Company’s quarterly financial statements, and other
services normally provided in connection with statutory and regulatory filings
or engagements for the fiscal years ended October 31, 2008, 2009 and 2010 were
$48,250, $41,380 and $9,100, respectively.
Although
no 2010 audit fees were paid to Jeffrey S. Gilbert, CPA before the fiscal year
ended October 31, 2010, management of the Company estimates that the October 31,
2010 audit fee will approximate $30,000.
Tax
Fees.
Fees
billed by Jeffrey S. Gilbert, CPA for professional services for tax compliance,
tax advice and tax planning were $5,400 and $5,600 for the fiscal years ended
October 31, 2008 and 2009, respectively. We anticipate
incurring fees for fiscal 2010 tax services following the submission of this
Annual Report on Form 10-K of approximately $5,600.
25
Other
Fees.
Other
fees billed to the Company by Jeffrey S. Gilbert, CPA for tax compliance and
auditing services related to the Company’s proxy and other regulatory filings
totaled $2,200 and $12,000 for the fiscal years ended October 31, 2008 and 2010,
respectively. The Company incurred no such fees during fiscal
2009.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1934, as amended, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned
thereunto.
Dated:
January 7, 2011
|
|
MICRO
IMAGING TECHNOLOGY, INC.
|
|
/S/
MICHAEL W. BRENNAN
|
|
MICHAEL
W. BRENNAN
|
|
Chairman
and Chief Executive Officer
|
|
(principal
executive officer)
|
|
/S/
VICTOR A. HOLLANDER
|
|
VICTOR
A. HOLLANDER
|
|
Director
and Chief Financial Officer
|
|
(principal
financial and accounting
officer)
|
Pursuant
to the requirements of the Securities Act of 1934, as amended, this Report has
been signed below by the following persons in the capacities and on the dates
indicated.
Signatures
/S/
Michael W. Brennan
|
Chairman
and Chief Executive Officer
(principal
executive officer)
|
January
7, 2011
|
MICHAEL
W. BRENNAN
|
and
|
|
/S/
Victor A. Hollander
|
Director
and Chief Financial Officer
(principal
financial and accounting officer)
|
January
7, 2011
|
VICTOR
A. HOLLANDER
|
26
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
Micro
Imaging Technology, Inc.
I have audited the consolidated balance
sheets of Micro Imaging Technology, Inc. and Subsidiary (the “Company”) (A
Development Stage Company) as of October 31, 2010 and 2009 and the related
consolidated statements of operations, stockholders’ deficit and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. My responsibility is to
express an opinion on these consolidated financial statements based on my
audit.
I conducted my audits in accordance
with standards of the Public Company Accounting Oversight Board (United
States). Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, I express no such
opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management as well as
evaluating the overall financial statement presentation. I believe my
audit provides a reasonable basis for my opinion.
In my opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Micro Imaging Technology, Inc. and
Subsidiary (A Development Stage Company) as of October 31, 2010 and 2009 and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial
statements have been prepared assuming the Company will continue as a going
concern. As discussed in Note 2 to the consolidated financial
statements, the Company has limited liquid resources, negative working capital,
recurring losses with an accumulated deficit of $42,666,383 at October 31, 2010,
and is seeking to implement its business plan, which requires the Company to
complete the development and marketing of the new product and/or raise capital
through the sale of the Company’s common stock or borrowings. These
matters raise substantial doubt about its ability to continue as a going
concern. Management’s plans in regard to these matters are also
discussed in Note 2. The consolidated financial statements do not
include any adjustment that might result from the outcome of this
uncertainty.
Jeffrey
S. Gilbert, CPA
Los
Angeles, California
February
7, 2011
F-1
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Balance Sheets
October
31,
|
||||||||
2010
|
2009
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
|
$ | (7,876 | ) | $ | 2,148 | |||
Inventories
|
90,904 | 90,904 | ||||||
Prepaid
expenses
|
86,868 | 11,799 | ||||||
Total
current assets
|
169,896 | 104,851 | ||||||
Fixed
assets, net
|
17,881 | 45,571 | ||||||
Unamortized
prepaid costs and fees related to issuance of convertible
debentures
|
100,040 | 19,772 | ||||||
Total
assets
|
$ | 287,817 | $ | 170,194 | ||||
LIABILITIES
AND STOCKHOLDERS' (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Notes
payable to stockholder
|
$ | 696,000 | $ | 219,000 | ||||
Convertible
notes payable
|
87,500 | - | ||||||
Trade
accounts payable
|
548,174 | 369,369 | ||||||
Accounts
payable to officers and directors
|
173,243 | 185,006 | ||||||
Accrued
payroll
|
193,056 | 89,800 | ||||||
Other
accrued expenses
|
82,083 | 45,149 | ||||||
Total
current liabilities
|
1,780,056 | 908,324 | ||||||
Long
term liabilities:
|
||||||||
Convertible
debentures
|
139,865 | 75,000 | ||||||
Redeemable
convertible preferred stock, $0.01 par value; 2,600,000 shares authorized,
issued and outstanding at October 31, 2010.
|
26,000 | 26,000 | ||||||
Total
long term liabilities
|
165,865 | 101,000 | ||||||
Total
liabilities
|
1,945,921 | 1,009,324 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
(deficit):
|
||||||||
Common
stock, $0.01 par value; 500,000,000 shares authorized; 177,941,922 and
119,494,187 shares issued and outstanding at October 31, 2010 and 2009,
respectively
|
1,779,429 | 1,194,942 | ||||||
Additional
paid-in capital
|
39,228,850 | 37,551,847 | ||||||
Accumulated
deficit from previous operating activities
|
(27,809,201 | ) | (27,809,201 | ) | ||||
Deficit
accumulated during the development stage
|
(14,857,182 | ) | (11,776,718 | ) | ||||
Total
stockholders' (deficit)
|
(1,658,104 | ) | (839,130 | ) | ||||
Total
liabilities and stockholders' (deficit)
|
$ | 287,817 | $ | 170,194 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Operations
For
the Two Years in the Periods Ended October 31, 2010 and 2009
and
Cumulative period from November 1, 2005 through October 31, 2010
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
through
|
||||||||||||
October 31,
|
October 31, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Sales
|
$ | - | $ | 18,000 | $ | 58,000 | ||||||
Cost
of Sales
|
- | 10,970 | 29,886 | |||||||||
Gross
profit
|
- | 7,030 | 28,114 | |||||||||
Operating
costs and expenses:
|
||||||||||||
Research
and development
|
687,687 | 973,344 | 4,343,808 | |||||||||
Sales,
general and administrative
|
1,756,708 | 1,937,638 | 6,713,913 | |||||||||
Total
operating expenses
|
2,444,395 | 2,910,982 | 11,057,721 | |||||||||
Loss
from operations
|
(2,444,395 | ) | (2,903,952 | ) | (11,029,607 | ) | ||||||
Other
income (expense):
|
||||||||||||
Interest
income
|
1 | 1 | 11,354 | |||||||||
Interest
expense
|
(631,401 | ) | (760,230 | ) | (3,992,127 | ) | ||||||
Other
income (expense), net
|
(3,069 | ) | 189,889 | 161,198 | ||||||||
Total
other income (expense), net
|
(634,469 | ) | (570,340 | ) | (3,819,575 | ) | ||||||
Loss
from operations:
|
||||||||||||
Before
provision for income tax
|
(3,078,864 | ) | (3,474,292 | ) | (14,849,182 | ) | ||||||
Provision
for income tax
|
(1,600 | ) | (1,600 | ) | (8,000 | ) | ||||||
(3,080,464 | ) | (3,475,892 | ) | (14,857,182 | ) | |||||||
Net
loss attributable to:
|
||||||||||||
Non-controlling
interest
|
(134,295 | ) | (155,862 | ) | (1,040,493 | ) | ||||||
Micro
Imaging Technology, Inc. stockholders
|
(2,946,169 | ) | (3,320,030 | ) | (13,816,689 | ) | ||||||
Net
loss
|
$ | (3,080,464 | ) | $ | (3,475,892 | ) | $ | (14,857,182 | ) | |||
Net
loss per share, basic and diluted
|
$ | (0.02 | ) | $ | (0.04 | ) | ||||||
Shares
used in computing net loss per share, basic and diluted
|
141,859,194 | 89,695,596 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Stockholders’ (Deficit) (Continued)
For
the Two Years Ended October 31, 2010 and 2009
Additional
|
||||||||||||||||||||
Common
|
Common
|
Paid-in
|
Accumulated
|
|||||||||||||||||
Stock
|
Stock
|
Capital
|
(Deficit)
|
Total
|
||||||||||||||||
Balance,
October 31, 2008
|
40,485,253 | $ | 404,853 | 35,081,456 | $ | (36,110,027 | ) | $ | (623,718 | ) | ||||||||||
Common
stock issued to officers, directors and consultants
|
||||||||||||||||||||
for
services, $0.012 per share
|
75,000 | 750 | 150 | 900 | ||||||||||||||||
for
services, $0.015375 per share
|
12,000,000 | 120,000 | 64,500 | 184,500 | ||||||||||||||||
for
services, $0.0155 per share
|
75,000 | 750 | 413 | 1,163 | ||||||||||||||||
for
services, $0.01765 per share
|
75,000 | 750 | 574 | 1,324 | ||||||||||||||||
for
services, $0.018625 per share
|
75,000 | 750 | 647 | 1,397 | ||||||||||||||||
for
services, $0.04 per share
|
75,000 | 750 | 2,250 | 3,000 | ||||||||||||||||
for
services, $0.053675 per share
|
75,000 | 750 | 3,276 | 4,026 | ||||||||||||||||
for
services, $0.056175 per share
|
500,000 | 5,000 | 23,088 | 28,088 | ||||||||||||||||
for
services, $0.0625 per share
|
75,000 | 750 | 3,938 | 4,688 | ||||||||||||||||
for
services, $0.07 per share
|
1,071,429 | 10,714 | 64,286 | 75,000 | ||||||||||||||||
for
services, $0.088 per share
|
75,000 | 750 | 5,850 | 6,600 | ||||||||||||||||
for
services, $0.09 per share
|
75,000 | 750 | 6,000 | 6,750 | ||||||||||||||||
for
services, $0.11 per share
|
75,000 | 750 | 7,500 | 8,250 | ||||||||||||||||
for
services, $0.1165 per share
|
2,000,000 | 20,000 | 213,000 | 233,000 | ||||||||||||||||
for
services, $0.1405 per share
|
75,000 | 750 | 9,788 | 10,538 | ||||||||||||||||
for
services, $0.152 per share
|
75,000 | 750 | 10,650 | 11,400 | ||||||||||||||||
for
services, $0.1545 per share
|
6,100,000 | 61,000 | 881,450 | 942,450 | ||||||||||||||||
Common
stock issued for convertible debt, $0.009 per share
|
3,888,885 | 38,889 | (3,889 | ) | - | 35,000 | ||||||||||||||
Common
stock issued for convertible debt, $0.009 per share
|
31,592,467 | 315,925 | (12,555 | ) | - | 303,370 | ||||||||||||||
Common
stock issued for convertible debt, $0.012825 per share
|
1,169,589 | 11,696 | 3,304 | - | 15,000 | |||||||||||||||
Common
stock issued for convertible debt, $0.04554 per share
|
8,783,416 | 87,834 | 312,166 | - | 400,000 | |||||||||||||||
Common
stock issued in settlement of lawsuit, $0.0748 per share
|
5,899,997 | 59,000 | 384,745 | - | 443,745 | |||||||||||||||
|
||||||||||||||||||||
Common
stock issued in private placement offering, $0.05 per
share
|
2,000,000 | 20,000 | 80,000 | - | 100,000 | |||||||||||||||
Common
stock issued to officers, directors and consultants
|
||||||||||||||||||||
for
debt, $0.10 per share
|
1,250,000 | 12,500 | 116,496 | - | 128,996 | |||||||||||||||
for
debt, $0.052925 share
|
175,000 | 1,750 | 7,512 | - | 9,262 | |||||||||||||||
for
debt, $0.015375 per share
|
1,678,151 | 16,782 | 9,020 | - | 25,802 | |||||||||||||||
Options
and warrants granted to employees and consultants for
services
|
- | - | 101,234 | - | 101,234 | |||||||||||||||
Interest
recognized on beneficial conversion feature of convertible debentures
issued
|
- | - | 175,000 | - | 175,000 | |||||||||||||||
Net
loss
|
(3,475,892 | ) | (3,475,892 | ) | ||||||||||||||||
Balance,
October 31, 2009
|
119,494,187 | $ | 1,194,942 | 37,551,847 | $ | (39,585,919 | ) | $ | (839,130 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Stockholders’ (Deficit) (Continued)
For
the Two Years Ended October 31, 2010 and 2009
Additional
|
||||||||||||||||||||
Common
|
Common
|
Paid-in
|
Accumulated
|
|||||||||||||||||
Stock
|
Stock
|
Capital
|
(Deficit)
|
Total
|
||||||||||||||||
Balance,
October 31, 2009
|
119,494,187 | $ | 1,194,942 | 37,551,847 | $ | (39,585,919 | ) | $ | (839,130 | ) | ||||||||||
Common
stock issued to officers, directors and consultants
|
||||||||||||||||||||
for
services, $0.013 per share
|
11,000,000 | 110,000 | 33,000 | 143,000 | ||||||||||||||||
for
services, $0.0165 per share
|
75,000 | 750 | 488 | 1,238 | ||||||||||||||||
for
services, $0.02 per share
|
75,000 | 750 | 750 | 1,500 | ||||||||||||||||
for
services, $0.024 per share
|
75,000 | 750 | 1,050 | 1,800 | ||||||||||||||||
for
services, $0.026 per share
|
75,000 | 750 | 1,200 | 1,950 | ||||||||||||||||
for
services, $0.0335 per share
|
75,000 | 750 | 1,763 | 2,513 | ||||||||||||||||
for
services, $0.0375 per share
|
2,000,000 | 20,000 | 55,000 | 75,000 | ||||||||||||||||
for
services, $0.039 per share
|
10,000,000 | 100,000 | 290,000 | 390,000 | ||||||||||||||||
for
services, $0.04 per share
|
9,975,000 | 99,750 | 299,250 | 399,000 | ||||||||||||||||
for
services, $0.045 per share
|
150,000 | 1,500 | 5,250 | 6,750 | ||||||||||||||||
for
services, $0.0465 per share
|
75,000 | 750 | 2,738 | 3,488 | ||||||||||||||||
for
services, $0.048 per share
|
6,000,000 | 60,000 | 228,000 | 288,000 | ||||||||||||||||
for
services, $0.05 per share
|
75,000 | 750 | 3,000 | 3,750 | ||||||||||||||||
Common
stock issued for loans, $0.05 per share
|
10,640,000 | 106,400 | 425,600 | - | 532,000 | |||||||||||||||
Common
stock issued in private placement offering, $0.0175 per
share
|
428,105 | 4,281 | 3,211 | - | 7,492 | |||||||||||||||
Common
stock issued in private placement offering, $0.0225 per
share
|
1,130,630 | 11,306 | 14,134 | - | 25,440 | |||||||||||||||
Common
stock issued in private placement offering, $0.0292 per
share
|
6,000,000 | 60,000 | 115,000 | - | 175,000 | |||||||||||||||
Common
stock issued in private placement offering, $0.10 per
share
|
50,000 | 500 | 4,500 | - | 5,000 | |||||||||||||||
Common
stock issued for debt, $0.036 per share
|
800,000 | 8,000 | 21,018 | 29,018 | ||||||||||||||||
Common
stock issued for debt, $0.04 per share
|
500,000 | 5,000 | 15,000 | 20,000 | ||||||||||||||||
Common
stock redeemed for cash, $0.04 per share
|
(750,000 | ) | (7,500 | ) | (7,500 | ) | (15,000 | ) | ||||||||||||
Options
and warrants granted to employees and consultants for
services
|
- | - | 67,890 | - | 67,890 | |||||||||||||||
Interest
recognized on beneficial conversion feature of convertible debentures
issued
|
- | - | 96,664 | - | 96,664 | |||||||||||||||
Net
loss
|
(3,080,464 | ) | (3,080,464 | ) | ||||||||||||||||
Balance,
October 31, 2010
|
177,942,922 | $ | 1,779,429 | 39,228,850 | $ | (42,666,383 | ) | $ | (1,658,104 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
For
the Two Years Ended October 31, 2010 and 2009
and
Cumulative period from November 1, 2005 through October 31, 2010
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
through
|
||||||||||||
October 31,
|
October 31, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
loss
|
$ | (3,080,464 | ) | $ | (3,475,892 | ) | $ | (14,857,182 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Depreciation
|
27,690 | 27,864 | 125,956 | |||||||||
Amortization
of costs and fees related to convertible debentures
|
(26,518 | ) | 565,941 | 619,843 | ||||||||
Common
stock issued for services
|
748,663 | 908,627 | 2,102,040 | |||||||||
Common
stock issued to officers and directors for services
|
554,325 | 623,860 | 3,019,310 | |||||||||
Common
stock issued for shares of subsidiary stock
|
- | - | 254,000 | |||||||||
Common
stock of subsidiary issued to employees and consultants
|
- | - | 2,815 | |||||||||
Common
stock issued as a commission
|
- | - | 3,000 | |||||||||
Common
stock issued for accounts payable
|
49,018 | - | 278,583 | |||||||||
Common
stock issued to former licensee
|
- | - | 41,319 | |||||||||
Common
stock issued/recovered on cancelled agreements
|
- | - | 20,478 | |||||||||
Non-cash
compensation for stock options and warrants
|
67,890 | 101,234 | 631,894 | |||||||||
Costs
and fees related to issuance of convertible debt
|
634,912
|
- | 537,112 | |||||||||
Interest
expense related to beneficial conversion feature
|
- | 1,944,800 | ||||||||||
Interest
paid with common stock
|
- | - | 104,836 | |||||||||
Interest
on notes receivable for common stock
|
- | - | (1,373 | ) | ||||||||
(Increase)
decrease in assets:
|
||||||||||||
Prepaid
expenses
|
(75,069 | ) | - | (61,277 | ) | |||||||
Inventories
|
- | 7,593 | (90,904 | ) | ||||||||
Increase
(decrease) in liabilities:
|
||||||||||||
Trade
accounts payable
|
233,805 | 175,229 | 478,798 | |||||||||
Accounts
payable to officers and directors
|
238,237 | 187,086 | 477,697 | |||||||||
Accrued
payroll and other expenses
|
140,190 | 47,651 | 162,044 | |||||||||
Net
cash used in operating activities
|
(487,321 | ) | (830,807 | ) | (4,206,210 | ) | ||||||
Cash
flows from investing activities:
|
||||||||||||
Purchase
of fixed assets
|
- | (1,300 | ) | (137,354 | ) | |||||||
Net
cash used in investing activities
|
- | (1,300 | ) | (137,354 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Consolidated
Statements of Cash Flows (Continued)
For
the Two Years Ended October 31, 2010 and 2009
and
Cumulative period from November 1, 2005 through October 31, 2010
Cumulative period
|
||||||||||||
from
|
||||||||||||
November 1, 2005
|
||||||||||||
through
|
||||||||||||
October 31, 2010
|
October 31, 2010
|
|||||||||||
2010
|
2009
|
(Unaudited)
|
||||||||||
Cash
flows from financing activities:
|
||||||||||||
Principal
payments on notes payable to stockholder
|
(60,000 | ) | (11,000 | ) | (1,133,000 | ) | ||||||
Proceeds
from issuance of convertible notes payable
|
92,365 | 375,000 | 957,365 | |||||||||
Proceeds
from issuance of notes payable to a related party
|
- | 369,000 | 1,005,800 | |||||||||
Proceeds
from issuance of notes and convertible notes payable
|
232,000 | - | 232,000 | |||||||||
Proceeds
from issuance of common stock, net
|
212,932 | 100,000 | 2,078,226 | |||||||||
Net
cash provided by financing activities
|
477,297 | 833,000 | 3,140,391 | |||||||||
Net
change in cash
|
(10,024 | ) | 893 | (1,203,174 | ) | |||||||
Cash
at beginning of period
|
2,148 | 1,255 | 1,195,298 | |||||||||
Cash
at end of period
|
$ | (7,876 | ) | $ | 2,148 | $ | (7,876 | ) | ||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||||||
Interest
paid
|
$ | 3,751 | $ | 3,039 | $ | 10,321 | ||||||
Income
taxes paid
|
$ | 1,600 | $ | 1,600 | $ | 17,040 | ||||||
Supplemental
Schedule of Non-Cash Investing and Financing Activities
|
||||||||||||
Beneficial
conversion feature of convertible debentures
|
$ | (6,250 | ) | $ | 175,000 | |||||||
Conversion
of notes payable, majority stockholder, to shares of common
stock
|
$ | - | $ | 400,000 | ||||||||
Common
stock issued in consideration for loans
|
$ | 305,000 | $ | - | ||||||||
Conversion
of other notes payable to shares of common stock
|
$ | - | $ | 760,000 | ||||||||
Issuance
of common stock in payment of liabilities
|
$ | - | $ | 191,759 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-7
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
1.
|
Description of
Business and Development Stage
Company
|
Micro
Imaging Technology, Inc. (the “Company”), a California corporation, is a holding
company whose operations are conducted through its 81%-owned
subsidiary.
The
losses incurred to date which are applicable to the noncontrolling (minority)
stockholders of the Company’s consolidated subsidiary, Micro Imaging Technology
(MIT) exceed the value of the equity held by the noncontrolling
stockholders. Such losses have been allocated to the Company as the
majority stockholder and are included in the net loss and accumulated deficit in
the consolidated financial statements for the fiscal year ended October 31,
2010. Commencing November 1, 2009, in accordance with the guidance
provided under FASB Codification No. 810, (Consolidation-Noncontrolling
Interests) the Company’s annual and interim reports will present losses
by the subsidiary separately from that attributable to the parent and separately
in the equity section of the balance sheets.
In 1997,
the Company began marketing a small, point-of-use water treatment product aimed
at the high purity segment of commercial and industrial water treatment markets.
In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned
Nevada subsidiary, through which all manufacturing and sales of its proprietary
water treatment products were then conducted. In October 2005, the Company sold
the assets of the EDI subsidiary and discontinued operations.
The
Company acquired, in October 1997, an exclusive license to patent and
intellectual property rights involving laser light scattering techniques to be
utilized in the detection and monitoring of toxicants in drinking water. The
Company formed Micro Imaging Technology (MIT) in February 2000, a wholly-owned
Nevada subsidiary, to conduct research and development based upon advancements
developed and patented from the licensed technology. It is this technology
that is being developed.
The
Company is developing a non-biologically based system utilizing both proprietary
hardware and software to rapidly (near real time) determine the specific specie
of an unknown microbe present in a fluid with a high degree of statistical
probability (“MIT System”). It will analyze a sample presented to it and
compare its characteristics to a library of known microbe characteristics on
file. At present, it is the Company’s only operation.
Effective
with the sale of its EDI operation in October 2005, the Company’s planned
principal operation, the further development and marketing of its remaining
technology, has not produced any significant revenue and, as such, the Company,
beginning with the fiscal year commenced November 1, 2005, is now considered a
development stage enterprise.
2.
|
Basis of
Presentation
|
The
Company incurred net losses from continuing operations of $3,080,464 and
$3,475,892 for the fiscal years ended October 31, 2010 and 2009,
respectively. At October 31, 2010 the Company had an accumulated deficit
of $42,666,383 and is in default under the redemption provisions of its
redeemable preferred stock (Note 8). These raise substantial doubts about
the Company’s ability to continue as a going concern. The Company has been able
to secure operating capital in the prior and current fiscal years through loans
from an individual who is a related party and the largest stockholder, through
the sale of convertible debentures and through the sale of the Company’s common
stock in various private placement transactions.
The
Company is also negotiating with private accredited investors and with an
investment banking firm for the sale of its common stock in private placement
transactions. No assurances can be given that the Company can or will
continue to obtain sufficient working capital through the sale of the Company’s
securities, borrowing, or through the sale of assets or products that will
generate sufficient revenues in the future to sustain ongoing operations. The
Company’s ability to continue as a going concern will be dependent upon its
ability to gain access to equity and debt capital or achieve profitable
operations.
The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustment that might be necessary
should the Company be unable to continue as a going concern.
F-8
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
3.
|
Summary of Significant
Accounting Policies
|
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiary, Micro Imaging Technology (“MIT”). As of October 31,
2005, the operations of the Company’s subsidiaries, Electropure EDI, Inc. and
Electropure Holdings, LLC, were discontinued and the Company became a
development stage company. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company invests portions of its excess cash in highly liquid investments. Cash
and equivalents include time deposits and commercial paper with original
maturities of three months or less. As of October 31, 2010 and 2009, there was
no cash or cash equivalents outstanding.
Impairment
of Long-Lived Assets
The
Company annually evaluates its long-lived assets, including identifiable
intangible assets for potential impairment. When circumstances indicate that the
carrying amount of an asset is not recoverable, as demonstrated by the projected
undiscounted cash flows, an impairment loss is recognized. The Company’s
management has determined that there was no such impairment present at October
31, 2010 and 2009.
Stock
Based Compensation
The
Company measures share based compensation at the grant date, based on the fair
value of the award using the Black-Scholes Option Pricing Model, and recognizes
such compensation as an expense over the employee’s requisite service period
(generally the vesting period of the equity grant).
The
Company recognized share-based compensation expense of $67,890 and $101,234 on
options and warrants that vested during the fiscal years ended October 31, 2010
and 2009, respectively.
The
activity under the Company’s stock option plans are included in Note
9.
Property
and Equipment
Property
and equipment are recorded at cost and are depreciated using the straight-line
method over an expected useful life of 5 years. The leasehold improvements made
to the Company’s leased facility are being depreciated over an expected useful
life of 5 years. Expenditures for normal maintenance and repairs are charged to
operations. The cost and related accumulated depreciation of assets are removed
from the accounts upon retirement or other disposition, and the resulting profit
or loss is reflected in the Statement of Operations. Renewals and betterments
that materially extend the life of the assets are capitalized.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual amounts could differ from those estimates.
Advertising
Costs
The
Company charges advertising costs to expense as incurred. The Company did
not incur advertising expense during the fiscal years ended October 31, 2010 or
2009.
F-9
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
Research
and Development
Research
and development expenditures are charged to expense as they are incurred. The
Company’s research and development activities include ongoing work on various
uses of the micro imaging multi-angle laser light scattering technology.
Contract research and development expenditures are expensed as
incurred.
Fair
Value of Financial Instruments
The
estimated fair value amounts of all financial instruments on the Company’s
balance sheet have been determined by using available market information and
appropriate valuation methodologies. Fair value is described as the amount at
which the instrument could be exchanged in a current transaction between
informed willing parties, other than in a forced liquidation. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The Company does not have any off balance sheet financial
instruments.
The
following methods and assumptions were used by the Company in estimating fair
value disclosures for financial statements:
Cash and
equivalents, notes receivable, trade accounts payable, current portion of notes
payable and capital leases, and certain other current liability amounts reported
in the balance sheet approximate fair value due to the short term maturities of
these instruments.
The fair
value of non-current notes payable is estimated by determining the net present
value of future payments. The carrying amount on the balance sheet approximates
the fair value as the interest rates approximate current market
rates.
Income
Taxes
The
Company accounts for income taxes under the liability method. Under the
liability method, deferred income taxes are determined based on differences
between the financial reporting and tax bases of assets and liabilities. They
are measured using the enacted tax rates and laws that will be in effect when
the differences are expected to reverse. The Company is required to adjust its
deferred tax liabilities in the period when tax rates or the provisions of the
income tax laws change. Valuation allowances are established to reduce deferred
tax assets to the amounts expected to be realized.
Loss
Per Share
Basic
earnings (loss) per share excludes dilution and is calculated by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then share in the earnings (loss) of the entity.
Common stock equivalents of 11,400,000 and 7,150,000 as of October 31, 2010 and
2009, respectively, have been omitted from the earnings (loss) per share
calculation, as their effect would be antidilutive.
New
Accounting Pronouncements
ASU 2010-6
amends existing disclosure requirements about fair value measurements by adding
required disclosures about items transferring into and out of levels 1 and 2 in
the fair value hierarchy; adding separate disclosures about purchase, sales,
issuances, and settlements relative to level 3 measurements; and clarifying,
among other things, the existing fair value disclosures about the level of
disaggregation. ASU 2010-6 is effective for fiscal years beginning after
December 15, 2009. The adoption of this ASU has not had an impact on
our consolidated financial position, results of operations or cash
flows.
F-10
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
In
February 2010, the FASB issued ASU No. 2010-09, "Subsequent Events (Topic 855) -
Amendments to Certain Recognition and Disclosure Requirements." ASU 2010-09
requires an entity that is an SEC filer to evaluate subsequent events through
the date that the financial statements are issued and removes the requirement
that an SEC filer disclose the date through which subsequent events have been
evaluated. ASC 2010-09 was effective upon issuance. The adoption of this
standard had no effect on our consolidated financial position or results of
operations.
ASU
2009-17 revises the consolidation guidance for variable-interest entities. The
modifications include the elimination of the exemption for qualifying special
purpose entities, a new approach for determining who should consolidate a
variable-interest entity, and changes to when it is necessary to reassess who
should consolidate a variable-interest entity. The new standard is effective for
interim and annual periods beginning on or after June 15, 2010. Early
adoption is permitted. The adoption of this standard did not have any impact on
the Company’s consolidated financial position and results of operations.
The Company does not have any variable-interest entities.
In
January 2010, the FASB issued ASU No. 2010-01- Accounting for Distributions to
Shareholders with Components of Stock and Cash. The amendments in this Update
clarify that the stock portion of a distribution to shareholders that allows
them to elect to receive cash or stock with a potential limitation on the total
amount of cash that all shareholders can elect to receive in the aggregate is
considered a share issuance that is reflected in EPS prospectively and is not a
stock dividend for purposes of applying Topics 505 and 260 (Equity and Earnings
Per Share). The amendments in this update are effective for interim and
annual periods ending on or after December 15, 2009, and should be applied on a
retrospective basis. The adoption of this standard did not have any impact on
the Company’s consolidated financial position and results of
operations.
In
January 2010, the FASB issued ASU No. 2010-02 regarding accounting and reporting
for decreases in ownership of a subsidiary. Under this guidance, an entity
is required to deconsolidate a subsidiary when the entity ceases to have a
controlling financial interest in the subsidiary. Upon deconsolidation of
a subsidiary, and entity recognizes a gain or loss on the transaction and
measures any retained investment in the subsidiary at fair value. In
contrast, an entity is required to account for a decrease in its ownership
interest of a subsidiary that does not result in a change of control of the
subsidiary as an equity transaction. This ASU clarifies the scope of the
decrease in ownership provisions, and expands the disclosures about the
deconsolidation of a subsidiary or de-recognition of a group of assets.
This ASU is effective for beginning in the first interim or annual
reporting period ending on or after December 31, 2009. The adoption of
this ASU did not have a material impact on the Company’s consolidated financial
statements.
In
December 2010, FASB issued ASU No. 2010-28
When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units
with Zero or Negative Carrying Amounts, which modifies goodwill
impairment testing for reporting units with a zero or negative carrying amount.
Under the new guidance, an entity must consider whether it is more likely than
not that goodwill impairment exists for each reporting unit with a zero or
negative carrying amount. If it is more likely than not that goodwill impairment
exists, the second step of the goodwill impairment test in FASB Accounting Standards
CodificationTM (ASC) 350-20-35, Intangibles – Goodwill and Other:
Goodwill, must be performed to measure the amount of goodwill impairment
loss, if any. Under the new guidance, if the carrying amount of a
reporting unit is zero or negative, an entity must assess whether it is more
likely than not that goodwill impairment exists. To make that determination, an
entity should consider whether there are adverse qualitative factors that could
impact the amount of goodwill, including those listed in ASC 350-20-35-30. Those
factors include, for example, an adverse business climate, unexpected
competition, a loss of key personnel, or a more-likely-than-not expectation that
part, or all, of the reporting unit will be disposed of. As a result of
the new guidance, an entity can no longer assert that a reporting unit is not
required to perform the second step of the goodwill impairment test because the
carrying amount of the reporting unit is zero or negative, despite the existence
of qualitative factors that indicate goodwill is more likely than not impaired.
The
amended guidance in ASU 2010-28 is effective for public entities for fiscal
years, and for interim periods within those years, beginning after December 15,
2010, with early adoption prohibited. The Company does not expect that
adoption of this ASU will have a material impact on the Company’s consolidated
financial position and results of operations.
F-11
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
There
were various other updates recently issued, many of which represented technical
corrections to the accounting literature or application to specific
industries. None of the updates are expected to a have a material impact
on our consolidated financial position, results of operations or cash
flows.
4.
|
Property, Plant and
Equipment
|
At
October 31, property, plant and equipment consisted of the
following:
2010
|
2009
|
|||||||
Machinery and
equipment
|
$ | 94,932 | $ | 94,932 | ||||
Furniture and
fixtures
|
74,326 | 74,326 | ||||||
Leasehold
improvements
|
70,370 | 70,370 | ||||||
239,628 | 239,628 | |||||||
Less: accumulated
depreciation
|
(221,747 | ) | (194,057 | ) | ||||
Total property and equipment,
net
|
$ | 17,881 | $ | 45,571 |
Depreciation
expense for the years ended October 31, 2010 and 2009 was $27,690 and $27,864,
respectively.
5.
|
Convertible
Debentures
|
Anthony
M. Frank
On March
16, 2009, Mr. Frank purchased a $75,000 convertible debenture for which the
Company has expensed $12,205 in accrued interest as of October 31, 2010.
The debentures are convertible at any time at the option of the holder into the
Company’s common stock at a fair market value of 80% of the lowest closing bid
price per share for the 20 trading days immediately preceding conversion.
The debentures are also redeemable by the Company: 1) if before six months
at 120% of the principal value, plus interest; or 2) if after six months, at
131% of principal, plus interest. The intrinsic value of the beneficial
conversion feature, $25,000, is being amortized over the three-year life of the
debenture. This amount is reflected as a long term liability.
Asher
Enterprises, Inc.
On August
16, 2010, the Company entered into a Securities Purchase Agreement with Asher
Enterprises, Inc. in connection with the issuance of an 8% convertible note in
the aggregate principal amount of $50,000. The Note matures on May 18,
2011 and is convertible into common shares at a 39% discount to the average of
the lowest three closing bid prices of the common stock during the ten trading
days prior to the conversion date. Asher may convert any or all of the
unpaid principal note prior to the maturity date, commencing 180 days following
the date of the Note. The Company received the proceeds of the Note on
September 8, 2010, less a $3,000 reimbursement to Asher for fees and expenses
related to the referenced agreements. The debentures carry a beneficial
conversion feature allowing conversion at the option of the holder at any time
after purchase into common stock at 61% of the average of the lowest three
closing bids during the ten trading days ending one trading day prior to the
date the conversion notice is sent. The Company has calculated the
intrinsic value of the conversion feature as of the date of issuance of the
debentures (using the same criteria as noted above) and will amortize the
$31,967 cost over the 9-month life of the loan.
On
October 5, 2010, the Company entered into a Securities Purchase Agreement with
Asher Enterprises, Inc. in connection with the issuance of an 8% convertible
note in the aggregate principal amount of $37,500. The Note matures on
July 8, 2011 and is convertible into common shares at a 39% discount to the
average of the lowest three closing bid prices of the common stock during the
ten trading days prior to the conversion date. Asher may convert any or
all of the unpaid principal note prior to the maturity date, commencing 180 days
following the date of the Note. The Company received the proceeds of the
Note on October 12, 2010, less a $2,500 reimbursement to Asher for fees and
expenses related to the referenced agreements. The value of the conversion
feature, $23,975, is being amortized over the life of the loan.
F-12
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
On
October 26, 2010, Asher Enterprises entered into a Purchase Agreement with an
unaffiliated noteholder to purchase the Amended and Restated 10% Convertible
Note issued to the latter by the Company in the aggregate amount of $64,865 for
a $60,000 loan made to the Company in June 2009, plus the $4,865 in interest
accrued on such loan. The Note matures on May 31, 2012 and is convertible
into common shares at a 42% discount to the average of the lowest three closing
bid prices of the common stock during the ten trading days prior to the
conversion date. Asher may convert any or all of the unpaid principal note
prior to the maturity date. The Company has calculated the intrinsic value
of the conversion feature as of the date of issuance of the debentures (using
the same criteria as noted above) and will amortize the $46,971 cost over the
life of the loan. This amount has been reflected as a long term
liability.
On
November 2, 2010, Asher converted $15,000 of this note at $0.0075 per share and
received 2 million shs of common stock. An additional $10,000 was
converted on November 9, 2010 at $0.0074 per share, for another 1,351,351
shares. On November 16, 2010, an additional $10,000 was converted at
$0.0054 for 1,851,852 shares.
Similar
purchase and conversion transactions have occurred with Asher subsequent to
October 31, 2010. See Note 13 – “Subsequent Events.” Concurrent with
the issuance of these notes, the Company, as requested by the above creditor,
has instructed it stock transfer agent to reserve an agreed upon number of
shares of the Company’s common stock to be issued if the notes are
converted. As of October 31, 2010, 62,232,374 shares have been reserved,
but are not considered as issued and outstanding.
6.
|
Notes Payable to an
Officer and Shareholders
|
At October 31, 2010 and 2009, notes
payable to an officer and to the majority shareholder consisted of the
following:
2010
|
2009
|
|||||||
Unsecured
convertible note payable to major stockholder; principal and interest at
6% due on March 10,2010.
|
$ | 64,000 | $ | 64,000 | ||||
Unsecured
convertible note payable to major stockholder; principal and interest at
6% due on October 15, 2010.
|
$ | 30,000 | $ | — | ||||
Unsecured
convertible notes payable to officers/directors of the Company; principal
and interest at 6% due on April 9, 2011.
|
$ | 250,000 | $ | 60,000 | ||||
Unsecured
notes payable to officer/director of the Company; principal and interest
at 6% due on demand.
|
$ | 70,000 | $ | 95,000 | ||||
Unsecured
convertible note payable to various stockholders (including $20,000 to
major stockholder); principal and interest at 6% due between November 27,
2010 and April 20, 2011.
|
$ | 282,000 | $ | — | ||||
696,000 | 219,000 | |||||||
Less
current maturities
|
$ | 696,000 | $ | 219,000 | ||||
Long
term portion of notes payable
|
$ | — | $ | — |
F-13
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
7.
|
Income
Taxes
|
At
October 31, the components of the income tax expense are as
follows:
2010
|
2009
|
|||||||
Current
tax expense:
|
||||||||
Federal
|
$ | — | $ | — | ||||
State
|
1,600 | 1,600 | ||||||
Total
corporate tax expense
|
1,600 | 1,600 | ||||||
Deferred
tax expenses:
|
||||||||
Federal
|
— | — | ||||||
State
|
— | — | ||||||
— | — | |||||||
Total
provision:
|
$ | 1,600 | $ | 1,600 |
Significant
components of the Company’s net deferred income tax assets/ (liabilities) at
October 31, 2010 were as follows:
Current
deferred tax assets:
|
||||
Accrued
vacation
|
$ | — | ||
Book
compensation for options and warrants
|
— | |||
Other
|
— | |||
Total
current deferred tax assets
|
— | |||
Valuation
allowance
|
— | |||
Net
deferred current tax assets
|
$ | — | ||
Noncurrent
deferred tax assets:
|
||||
Net
operating loss carryforward
|
$ | 11,322,000 | ||
Other
credit carryforward
|
165,000 | |||
Depreciation
and amortization
|
— | |||
Total
noncurrent deferred tax assets
|
11,487,000 | |||
Valuation
allowance
|
(11,487,000 | ) | ||
Net
deferred noncurrent tax assets
|
— | |||
Total
deferred tax assets
|
$ | — |
The
Company, based upon its history of losses and management’s assessment of when
operations are anticipated to generate taxable income, has concluded that it is
more likely than not that none of the net deferred income tax assets will be
realized through future taxable earnings and has established a valuation
allowance for them. The change in the total valuation allowance for the year
ended October 31, 2010 was an increase of $1,472,000.
Reconciliation
of the effective income tax rate to the U.S. statutory income tax rate is as
follows:
2010
|
2009
|
|||||||
Tax
expense at U.S. statutory income tax rate
|
(34.0 | )% | (34.0 | )% | ||||
State
tax
|
(5.8 | )% | (5.8 | )% | ||||
Utilization
of net operating loss
|
0 | % | 0 | % | ||||
Change
in beginning balance of valuation allowance
|
39.8 | % | 39.8 | % | ||||
Effective
income tax rate
|
— | % | — | % |
F-14
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
As of
October 31, 2010, the Company has federal and state net operating loss
carryforwards of $28,512,000 and $14,423,000, respectively. The federal
and state net operating loss carryforwards began expiring through
2029. The Company also has federal and state research and development tax
credit carryforwards of $165,000 and $130,000, respectively.
8.
|
Stockholders’
Deficit
|
Common
Stock
On June
29, 2005, the Company entered into a one-year arrangement with Michael Brennan
for administrative, public relations and financial services. In addition to a
$5,000 per month consulting fee, the Company issued 50,000 shares of common
stock to Mr. Brennan each month and granted him three-year warrants to purchase:
(a) 100,000 shares of common stock at an exercise price of $0.10 per share and
(b) 100,000 shares at $0.25 per share. On August 2, 2006, Mr. Brennan was named
Chief Executive Officer and was appointed to the Company’s Board of
Directors. His compensation arrangement continued under the same terms of
the 2005 consulting agreement, but included an increased consulting fee of
$15,000 per month; and the annual issuance of a two-year option to purchase
100,000 shares of common stock at $0.30 per share; and, from September 1 to
December 31, 2007, the issuance of 50,000 shares of the common stock of the
Company’s Nevada subsidiary per month. During the twelve months ended
October 31, 2010, pursuant to his compensation arrangement, Mr. Brennan received
600,000 shares of the Company’s common stock with an aggregate fair market value
of $21,325 issued at prices ranging from $0.017 to $0.05 per share and options
to purchase 100,000 shares of common stock with a fair market value of
$1,713.
Also
between November 1, 2008 and October 31, 2010, the Company issued a total of
300,000 common shares to a consultant pursuant to a consulting
arrangement. Such shares were issued at prices ranging from $0.017 to
$0.05 per share and were expensed at a total cost of $10,663.
On
November 2, 2009, the Company issued 800,000 shares of common stock to a law
firm in payment of $29,018 in legal fees accrued between May and October 2009 in
regard to litigation conducted with Divine Capital Group.
On
November 5, 2009, the Company issued 500,000 shares of common stock to corporate
counsel in payment of $20,000 in legal fees accrued between July 2007 and
October 2009.
Between
November 1, 2009 and July 31, 2010, the Company issued 4,540,000 shares of
common stock and warrants to purchase 500,000 shares of common stock as partial
consideration for $252,000 in convertible term loans received from various
lenders. Of such loans, $20,000 was received from our largest stockholder
and $25,000 was a loan made from our Chief Executive Officer, Michael Brennan,
in fiscal 2009 and transferred to an unaffiliated third party in February
2010.
On
January 7, 2010, the Board of Directors approved the establishment of the
Company’s 2010 Employee Benefit Plan, authorizing the issuance of up to 12
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan. During the twelve months ended October 31, 2010, the
Board authorized the issuance of all 12 million shares under the Plan to two
consultants for services and expensed $523,000 in consulting fees.
On March
17, 2010, the Company issued a total of 5,000,000 shares of common stock to two
consultants for investor relations services to be rendered over a one-year
term. The fair market value of the shares was determined to be $200,000,
or $0.04 per share, and will be amortized over one year. The Company
expensed $124,932 as consulting fees as of October 31, 2010 pursuant to the
issuance of these shares.
On April
6, 2010, the Company issued 750,000 shares of common stock in lieu of $15,000 in
cash, as a document preparation fee in conjunction with an Investment Agreement
which it entered into on May 4, 2010 with Dutchess Opportunity Fund, II, LP
(Dutchess). Pursuant to the Agreement, Dutchess committed to purchase up
to $5,000,000 of the Company’s common stock over a three-year period.
The fair market value of the stock issued to Dutchess was determined to be
$30,000. The shares were redeemed by the Company in October 2010 by making
payment to Dutchess in the sum of $15,000.
F-15
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
On April
9, 2010, the Company issued 6,100,000 shares of common stock on the conversion
of an aggregate of $305,000 in fees and expenses into convertible term notes by
the Company’s Chief Executive Officer, Chief Financial Officer and a consultant
to the Company. The Company expensed $305,000 as the fair market
value of the shares issued as additional consideration.
Between
April 22 and June 15, 2010, the Company sold 6,000,000 shares of common stock to
an unaffiliated third party in private placements transactions at $0.029 per
share and received proceeds in the sum of $175,000.
On May
26, 2010, the Company sold 50,000 shares of common stock to a unaffiliated party
in a private placement sale at $0.10 per share for proceeds of
$5,000.
On July
12, 2010, the Board of Directors authorized an issuance of 5,000,000 shares of
common stock each to Michael Brennan, Chief Executive Officer, and Victor
Hollander, Chief Financial Officer, for services rendered. The total fair
market value of the shares was $390,000, or $0.039 per share.
Between
September 8 and October 15, 2010, Dutchess Opportunity Fund purchased 1,558,736
shares of common stock at prices of $0.0175 and $0.0225 per share under the
terms of the May 4, 2010 Securities Purchase Agreement. The Company
received net proceeds of $32,492 over the six separate sale
transactions.
On
October 29, 2010, the Board of Directors authorized an issuance of 6,000,000
shares of common stock to Michael Brennan and 5,000,000 shares to Victor
Hollander for services rendered. The value of the shares was determined to
be $143,000, or $0.013 per share.
Redeemable Preferred
Stock
The
redeemable preferred stock, issued in 1987 to the then holders of the common and
Class B common stock, had a redemption date in 1991. The redeemable preferred
stock has not been redeemed due to a lack of “legally available funds.”
These shares must be redeemed by the Company as soon as possible for $0.01 per
share at any time the Company has the “legally available funds” for the
redemption. There was a conversion feature to this redeemable preferred stock,
which, with the passing of time, has lapsed. The Company believes the definition
of “legally available funds” to be the amount under California law from which
dividends could be paid by a corporation that does not have retained earnings.
In general, California law provides that to the extent a corporation’s assets,
excluding intangible and deferred assets, are at least equal to (a) the amount
of the proposed distribution, and (b) 1.25 times its liabilities, excluding
deferred taxes, deferred income, and deferred credits, a corporation may pay
dividends. Under this definition, the Company had “legally available funds” as
of October 31, 2000 and 1999. As a result, the Company is in default under the
redemption provisions of the redeemable preferred stock.
The
redeemable preferred stock is not assignable or transferable, except upon death
or upon approval of a majority of the members of the Board of Directors not
holding such shares and is not entitled to receive any dividends.
Preferred
Stock
The
Company is authorized to issue 1,000,000 shares of Preferred Stock, $1.00 par
value. The terms of the Preferred Stock, or any series thereof, may be
determined from time to time by the Board of Directors. Such shares may be
convertible into Common Stock and may have rank superior to the Common Stock in
the payment of dividends, liquidation rights, voting and other rights,
preferences and privileges. Future shares of Preferred Stock may be issued
by the Company without submitting a proposal regarding the issuance of such
shares to a vote of holders of Common Stock. The Company in the future
could issue Preferred Stock in a situation designed to discourage a tender
offer. The Company has no present plans to issue any shares of Preferred
Stock.
In
January 2001, the Board of Directors authorized 250,000 shares of Series C
preferred stock. Each share of Series C preferred stock is convertible at
the option of the holder into four (4) shares of common stock. As of
October 31, 2010, there were no shares of Series C preferred stock issued or
outstanding.
F-16
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
Also in
January 2001, the Board of Directors authorized 500,000 shares of Series D
preferred stock each of which is convertible into two (2) shares of common stock
at the option of the holder. There were no shares of Series D preferred
stock issued or outstanding at October 31, 2010.
Voting
Rights
Each
share of the Company’s common stock and redeemable preferred stock is entitled
to one vote per share. Shares of the Company’s Series C and Series D convertible
preferred stock carry no voting rights.
Liquidation
Preferences
In the
event of liquidation or dissolution of the Company, the holders of the common
stock and redeemable preferred stock shall be entitled to receive an equal
amount per share, provided, however, in no instance shall a share of redeemable
preferred stock receive more than $0.01 per share.
In any
liquidation or dissolution of the Company, the holder of the Series C
convertible preferred stock will be entitled to a liquidation preference of $4
per share.
In any
liquidation or dissolution of the Company, the holder of the Series D
convertible preferred stock will be entitled to a liquidation preference of $2
per share.
9.
|
Stock Options and
Warrants
|
Common Stock
Options
In May
1999, the Company adopted the Micro Imaging Technology, Inc. 1999 stock option
plan (the “plan”), for officers, directors, employees, consultants, and advisors
of the Company. The plan provides two types of options: (i) Incentive Stock
Options and (ii) Non-Qualified Stock Options. The plan authorizes the granting
of options up to 1,000,000 shares of common stock. The exercise price per share
on options granted may not be less than the fair market value per share of the
Company’s common stock at the date of grant. The exercise price per share of
Incentive stock options granted to anyone who owns more than 10% of the voting
power of all classes of the Company’s common stock must be a minimum of 110% of
the fair market value per share at the date of grant. The options exercise price
may be paid in cash or its equivalent including cashless exercises as determined
and approved by the plan administrator. The term of each Incentive stock option
granted is fixed by the plan administrator and shall not exceed 10 years, except
that for those who own 10% of the voting power of the Company the term of the
option may be no more than five (5) years. Non-qualified stock options may not
be granted for more than ten years. The vesting period for both Incentive stock
options and Non-qualified stock options is determined by the administrator at or
after the date of grant. All remaining options available under the Plan,
140,000, were granted under this plan to an employee during the fiscal year
ended October 31, 2009.
In
September 2007, the Company’s subsidiary adopted the Micro Imaging Technology
2007 Stock Option Plan authorizing the granting of options up to 3,000,000
shares of common stock. This plan is otherwise identical to the above 1999
plan of its parent company in eligibility requirements, types of options and
other terms and conditions. There have been no options granted under
this plan to date.
The
Company adopted the Micro Imaging Technology 2008 Employee Benefit Plan (the
“Benefit Plan”) effective December 3, 2007. Under the plan, the Company
can grant up to three (3) million shares of common stock or options to purchase
common stock to eligible employees, directors, officers, consultants or
advisors. Eligibility and terms of each grant is determined by the Board
of Directors. Between September 2007 and March 2008, all three (3) million
shares of common stock authorized under the Benefit Plan were issued to Michael
Brennan (1,750,000 shares) and Victor Hollander (1,250,000 shares) for services
rendered.
F-17
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
In May
2008, the Company adopted the Micro Imaging Technology 2008 Employee Incentive
Stock Plan (“Stock Plan”) effective May 2, 2008. Similar to the
above-referenced Benefit Plan, the Stock Plan permits the Company to grant up to
three (3) million shares of common stock or options or purchase common stock to
eligible employees, directors, officers, consultants or advisors.
The Board of Directors authorized the issuance of 584,472 shares of common
stock under the Stock Plan in May 2008 to various individuals, including
officers and directors, in exchange for cancellation of loans and interest as
well as fees and expenses due them from the Company. The FMV of the stock
on the grant date was $0.30 per share in cancellation of $175,342 in accrued
debt. An additional 2,000,000 shares were issued under the Stock Plan on
June 12, 2009 to a consultant and 50,000 shares were issued on November 2, 2009
to legal counsel in partial payment of legal fees. There remains 365,528
shares and/or options available under this Plan as of October 31,
2010.
The
Company adopted the 2009 Employee Benefit Plan in October 2008. Under the
Plan, the Company can grant up to four (4) million shares of common stock of
options to purchase common stock to eligible employees, directors, officers,
consultants or advisors. Eligibility and terms of each grant is determined
by the Board of Directors. The Company issued 2,750,000 shares of common
stock during the fiscal year ended October 31, 2009. During fiscal 2010,
the Company issued the remaining 1,250,000 shares available under the Plan to
legal counsel in payment of accrued fees. See Note 8 – “Common
Stock.”
The
following table summarizes information about options granted under the Company’s
equity compensation plans and otherwise to employees, directors and consultants
of the Company. Generally, options vest on an annual pro rata basis over various
periods of time and are exercisable, upon proper notice, in whole or in part at
any time upon vesting. Typically, unvested options terminate when an employee
leaves the Company. The options granted have contractual lives ranging from
three to ten years.
Number of
Options
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding at October 31,
2008
|
4,160,000 | $ | 0.16 | 3.0 | $ | — | ||||||||||
Granted
|
2,200,000 | 0.12 | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Expired
|
(310,000 | ) | 0.28 | |||||||||||||
Canceled
|
— | — | ||||||||||||||
Outstanding at October 31,
2009
|
6,050,000 | 0.11 | 2.8 |
$
|
74,040 | |||||||||||
Granted
|
200,000 | 0.16 | ||||||||||||||
Exercised
|
— | — | ||||||||||||||
Expired
|
(350,000 | ) | 0.36 | |||||||||||||
Canceled
|
— | — | ||||||||||||||
Outstanding
at October 31, 2010
|
5,900,000 | $ | 0.10 | 1.9 | $ | — |
The
values of the consideration received were based on the values of the options
granted. The values of the options were estimated using the Black-Scholes
Option Pricing Model with the following weighted average assumptions for grants
made in 2010 and 2009.
2010
|
2009
|
|||||||
Risk-free
interest rate
|
1.55
|
%
|
1.96
|
%
|
||||
Expected
dividend yield
|
—
|
—
|
||||||
Expected
stock price volatility
|
2.84
|
3.21
|
||||||
Expected
life in years
|
2
years
|
4
years
|
Summary
information about the Company’s options outstanding at October 31, 2010 is set
forth in the table below. Options outstanding at October 31, 2010 expire
between January 2011 and January 2016.
F-18
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
Range of
Exercise
Prices
|
Options
Outstanding
October 31,
2010
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Options
Exercisable
October 31,
2010
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
$0.02
- $0.15
|
5,150,000 | 2.0 | $ | 0.07 | 5,150,000 | $ | 0.07 | |||||||||||||
$0.24
- $0.30
|
750,000 | 1.9 | $ | 0.29 | 750,000 | $ | 0.29 | |||||||||||||
TOTAL:
|
5,900,000 | 5,900,000 |
There
were no unvested stock options as of October 31, 2010.
Common
Stock Warrants
The
Company accounts for stock-based compensation awards to non-employees based upon
fair values at the grant dates. The consideration received for the issuance of
stock purchase warrants (“warrants”) is based on the fair value of the warrants
or of the goods or services received for the warrants issued, whichever is more
reliably measurable.
When the
value of the services is based on the fair value of the warrants, the value is
calculated using the Black-Scholes Option Pricing Model. The fair value of the
options or warrants is expensed as the services are provided.
During
the fiscal years ended October 31, 2010 and 2009, the Company granted warrants
as follows:
On
February 8, 2010, the Company granted two-year warrants to purchase 500,000
shares of common stock as partial consideration for a $30,000 loan. The
warrants vest in full as of the grant date with an exercise price of $0.03 per
share. The fair market value of these warrants was also recorded as
consulting expense in the amount of $24,745 as of the fiscal year ended October
31, 2010.
On
October 28, 2010, the Board granted warrants to purchase a total of 4,000,000
shares of common stock to two consultants to the Company. The warrants are
exercisable until October 28, 2012 at $0.011 per share. The Company
recognized a non-cash compensation expense of $37,532 on these
issuances.
The
following table summarizes the information relating to warrants granted to
non-employees as of October 31, 2010 and 2009 and changes during the years then
ended. Warrants outstanding at October 31, 2010 expire between September
2011 and October 2012.
Number of
Warrants
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at October 31, 2008
|
740,000 | $ | 0.15 | |||||
Granted
|
500,000 | 0.03 | ||||||
Exercised
|
— | — | ||||||
Expired
|
(140,000 | ) | 0.41 | |||||
Outstanding
at October 31, 2009
|
1,100,000 | 0.06 | ||||||
Granted
|
4,500,000 | 0.01 | ||||||
Exercised
|
— | — | ||||||
Expired
|
(100,000 | ) | 0.06 | |||||
Outstanding
at October 31, 2010
|
5,500,000 | $ | 0.02 |
The
values of the consideration received were based on the values of the warrants
granted. The values of the warrants were estimated using the Black-Scholes
Option Pricing Model with the following weighted average assumptions for grants
made in 2010 and 2009:
F-19
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
2010
|
2009
|
|||||||
Risk-free
interest rate
|
1.57 | % | 2.03 | % | ||||
Expected
dividend yield
|
— | — | ||||||
Expected
stock price volatility
|
3.68 | 3.40 | ||||||
Expected
life in years
|
2
years
|
3
years
|
Summary
information about the Company’s warrants outstanding at October 31, 2010 is as
follows:
Range of
Exercise
Prices
|
Warrants
Outstanding
October 31,
2010
|
Weighted
Average
Remaining
Contractual
Life
|
Weighted
Average
Exercise
Price
|
Warrants
Exercisable
October 31,
2010
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
$ 0.011
- $ 0.03
|
5,000,000 | 1.9 | $ | 0.015 | 5,000,000 | $ | 0.015 | |||||||||||||
$
0.10
|
500,000 | .9 | $ | 0.10 | 500,000 | $ | 0.10 | |||||||||||||
TOTAL:
|
5,500,000 | 5,500,000 |
10.
|
Commitments and
Contingencies
|
Facilities
Agreement
In
January 2006, the Company entered into a one-year agreement to lease a 4,100 sq.
ft. facility in San Clemente, California at a rate of $3,650 per month
commencing on April 1, 2006. The lease provides the Company with an option
to extend the lease for additional one-year terms through March 31, 2012.
The monthly lease payment increased to $3,895 commencing on April 1, 2008.
The lease was extended on April 1, 2010 for an additional year and the lease
payment at the same monthly rate.
Future
minimum facilities lease payments as of October 31, 2010 are as
follows:
2010
|
$ | 19,475 | ||
2011
|
$ | — |
Employment
Contracts
(a) Michael
W. Brennan
Effective
August 2, 2006, the Company entered into a five-year employment agreement with
Michael Brennan, the Company’s Chief Executive Officer that provides for a
$5,000 monthly cash payment and 50,000 shares of the Company’s common stock for
each month of service. The cash compensation to Mr. Brennan increased to
$15,000 per month effective on November 1, 2008. For each year of service,
Mr. Brennan will also be granted a two-year warrant to purchase 100,000 shares
of common stock at an exercise price of $0.30 per share. Such warrants are
to vest at the conclusion of each year of service. Between September 1 and
December 31, 2007, Mr. Brennan also received 50,000 shares of the common stock
of the Company’s subsidiary per month. See also Note 13 - “Subsequent
Events.”
(b) George R.
Farquhar
Effective
August 1, 2006, the Company entered into a five-year employment arrangement with
Mr. Farquhar to provide consulting services in connection with administrative
activities, as well as financial and marketing matters. The agreement
provides for a $5,000 monthly cash payment and 25,000 shares of common stock for
each month of service. If the agreement is terminated by the Company, Mr.
Farquhar is entitled to one year of monthly cash payments. Effective
August 1, 2007, Mr. Farquhar’s cash compensation was increased to $7,500 per
month and, between September 1 and December 31, 2007, he also received 25,000
shares of the common stock of the Company’s subsidiary per month. See also
Note 13 - “Subsequent Events.”
F-20
Micro
Imaging Technology, Inc. and Subsidiary
(A
Development Stage Company)
Notes
to the Consolidated Financial Statements
11.
|
Related Party
Transactions
|
See Notes
6, 8, 9, 10, and 13 for related party transactions.
12.
|
Employee Retirement
Plan
|
Commencing
on January 1, 2005, the Company sponsored a Simple IRA retirement plan which
covers substantially all qualified full-time employees. Participation in
the plan is voluntary, and employer contributions are determined on an annual
basis. Currently employer contributions are being made at the rate of 3%
of the employees’ base annual wages. The Company’s contribution to the IRA
plan was $639 and $4,701 for the fiscal years ended October 31, 2010 and 2009,
respectively.
13.
|
Subsequent Events
(Unaudited)
|
In
accordance with this consulting arrangement, between November 1, 2010 and
January 7, 2011, the Company issued 100,000 shares of common stock to its Chief
Executive Officer, Michael Brennan.
The
Company issued a total of 50,000 shares of common stock between November 1 and
January 7, 2011 to a consultant to the Company under the terms of his consulting
agreement.
Effective
November 1, 2010, the Board of Directors approved the establishment of the
Company’s 2011 Employee Benefit Plan, authorizing the issuance of up to 17
million shares to employees, directors, officers, consultants, or advisors of
the Company who are determined to be eligible to receive an option or stock
award under the plan.
Between
November 2 and December 22, 2010, the Company issued a total of 13,026,732
shares of common stock upon the conversion of $60,000 in convertible debentures
held by Asher Enterprises. The conversions took place at prices ranging
from $0.003 to $0.0075 per share.
Between
November 5 and December 27, 2010, Dutchess Opportunity Fund purchased an
additional 2,251,211 shares of common stock at prices ranging from $0.0057 to
$0.013 per share.
On
November 10, 2010, the Company received a $64,868 principal loan from an
unaffiliated shareholder. The Company is still negotiating with the
lender as to the terms and conditions of the loan, which is likely to include a
beneficial conversion provision.
F-21