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EX-31.1 - EXHIBIT 31.1 - MICRO IMAGING TECHNOLOGY, INC.v237109_ex31-1.htm
EX-32.1 - EXHIBIT 32.1 - MICRO IMAGING TECHNOLOGY, INC.v237109_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - MICRO IMAGING TECHNOLOGY, INC.v237109_ex32-2.htm
EX-21.1 - EXHIBIT 21.1 - MICRO IMAGING TECHNOLOGY, INC.v237109_ex21-1.htm
EX-31.2 - EXHIBIT 31.2 - MICRO IMAGING TECHNOLOGY, INC.v237109_ex31-2.htm

ANNUAL REPORT PURSUANT TO SECTION 13 AND 15(D)
SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549
 


FORM 10-K/A
Amendment No. 1
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 


For the fiscal year ended
Commission file number 0-16416
October 31, 2010
 
 
MICRO IMAGING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
 
California
 
33-0056212
(State or Other Jurisdiction
of Incorporation or Organization)
 
(IRS Employer Identification No.)
     
970 Calle Amanecer, Suite F, San Clemente, California  92673
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:  (949) 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
 
Part and Item Number of Form 10-K
into Which Incorporated
     
None
   
     
Transitional Small Business Disclosure Format (check one): Yes o     No x
 
 
 

 
 
Explanatory Note
 
Micro Imaging Technology, Inc. (the “Company”) is filing this Amendment No. 1 (this “Form 10-K/A”) to our Annual Report on Form 10-K for the year ended October 31, 2010 (the “Annual Report”) to clarify in Item 11, the tabular and footnote disclosure information provided with regard to the executive Summary Compensation Table.
 
We are also filing this Form 10-K/A to correct and update the certifications of our Chief Executive Officer and Chief Financial Officer.  There has been no modification to the audit opinion and the full set of financial statements and related notes of Micro Imaging Technology, Inc. can be found in Amendment No. 1 to our Annual Report, filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 11, 2011.
 
In connection with the filing of this Form 10-K/A and pursuant to SEC rules, we are including currently dated certifications of our Chief Executive Officer and Chief Financial Officer.  This Form 10-K/A does not otherwise update or amend any other exhibits as originally filed and does not otherwise reflect events occurring after the original filing date of the Annual Report.  Accordingly, this Form 10-K/A should be read in conjunction with our filings with the SEC subsequent to the original filing of our Annual Report.
 
 
 
 

 

Forward-Looking Statements
 
This Annual Report on Form 10-K/A, 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. 
Description of Business
 
COMPANY OVERVIEW
 
We were incorporated in December 1979 in California under the name HOH Water Technology Corporation and changed our name to Electropure, Inc. in 1996. In November 2005, we again changed our name to Micro Imaging Technology, Inc. as a condition of the sale of our EDI assets (see discussion of Electropure EDI, Inc. below). Our address and telephone number is:  970 Calle Amanecer, Suite F, San Clemente, California  92673 – (949) 485-6000.

In October 1997, we acquired an exclusive license to patent and intellectual property rights involving laser light scattering techniques to be utilized in the detection and monitoring of toxicants in drinking water. In February 2000, we formed Micro Imaging Technology (MIT), a wholly-owned Nevada subsidiary to conduct research and development based upon advancements we developed and patented from the licensed technology.
 
In October 2005, in order to generate working capital to support the research and development efforts of our MIT subsidiary, we sold our 30,000 square foot building and the assets of our Nevada subsidiary, Electropure EDI, Inc.  At that time, the Company changed its corporate identity to Micro Imaging Technology, Inc.
 
DEVELOPMENT OF OUR BUSINESS
 
MICRO IMAGING TECHNOLOGY
 
The acquisition of the MIT patent and intellectual property rights in 1997 provides the basis for our development of near “real-time” fluid monitoring systems for water monitoring as well as food processing and clinical applications. The technology transferred under the October 25, 1997 agreement with Wyatt Technology Corporation had, at inception, two main areas for exploitation:
 
 
Detection and early warning of dangerous particulate materials such as parasites and other organisms, i.e., bacteria, spores, etc. If the initial efforts were successful, future efforts were to be directed to include detection and early warning of asbestos fibers and similar materials that pose a health hazard to the consumer.
 
 
 
 Detection and early warning of dangerous soluble substances such as mutagens, carcinogens and metabolic poisons.
 
 
The feasibility of the technology had already been confirmed, although never commercialized in this area of application, during a study by Wyatt for the U. S. Army through a Small Business Innovative Research program conducted in the 1980’s. We believe that the technology for this application may well represent a major opportunity on a worldwide basis for future growth of consumer market products and the currently available instrumentation and methods being developed by us appear to provide a more immediate path to developing the technology for this concept.
 
 
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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.
 
 
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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:
 
 
these agreements will not be breached,
 
 we would have adequate remedies for any breach, or
 
 our proprietary trade secrets and know-how will not otherwise become known or be independently developed or discovered by competitors.
 
Our competitors are larger and better financed
 
The microbe identification industry continues to undergo rapid change with intense competition that is expected to increase. There can be no assurance that our competitors have not or will not succeed in developing technologies and products that are more accurate than the MIT System microbe identification and monitoring method and would, accordingly, render the MIT System obsolete and noncompetitive. Many of our competitors have substantially greater experience, financial and technical resources and production, marketing and development capabilities. Accordingly, certain of those competitors may succeed in obtaining regulatory approval for products more rapidly or effectively than us. We will also be competing with respect to sales and marketing capabilities, areas in which we currently have little experience.
 
Continued technological changes and government regulations could adversely affect our sales
 
The technology upon which the MIT System relies may undergo rapid development and change. There can be no assurance that the technology utilized by us will be competitive in light of possible future technological developments. Further, we cannot assure that our technology will not become obsolete or that we will have adequate funds to meet technological changes.
 
There can be no assurance that we will be successful in developing the MIT System to respond to technological changes or evolving industry standards, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of the MIT System, or that any new products will adequately satisfy the requirements of prospective customers and achieve market acceptance. If we are unable to develop and introduce new or improved products in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition will be materially adversely affected.
 
 
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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:

·
that a broker or dealer approve a person's account for transactions in penny stocks; and

·
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

·
obtain financial information and investment experience objectives of the person; and
 
 
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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.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which, in highlight form:

·
sets forth the basis on which the broker or dealer made the suitability determination; and

·
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
 
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

The exercise of outstanding options and warrants may have a dilutive effect on the price of our common stock.

To the extent that outstanding stock options and warrants are exercised, dilution to our stockholders will occur. Moreover, the terms upon which we will be able to obtain additional equity capital may be adversely affected, since the holders of the outstanding options and warrants can be expected to exercise them at a time when we would, in all likelihood, be able to obtain any needed capital on terms more favorable to us than the exercise terms provided by the outstanding options and warrants.

We do not expect to pay dividends in the future.  Any return on investment may be limited to the value of our common stock.

We do not currently anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and development and marketing efforts. There can be no assurance that the Company will ever have sufficient earnings to declare and pay dividends to the holders of our common stock, and in any event, a decision to declare and pay dividends is at the sole discretion of the our Board of Directors. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.

Item 2.
Properties

In January 2006, we executed a one-year lease, with an option to renew for up to five one-year terms, on a 4,100 sq. ft. facility in San Clemente, California commencing on April 1, 2006 at the rate of $3,650 per month.  On April 1, 2008, our lease payment increased to and remains at $3,895.00 per month through our lease extension date of March 31, 2011.
 
Management believes that our present facilities in San Clemente, California will be adequate for all of our current operations, and those contemplated for the foreseeable future. We also believe that our property is adequately covered by insurance.
 
Item 3.
Legal Proceedings

None            

Item 4.
Submission of Matters to a Vote of Security Holders
 
None.

 
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PART II

Item 5. 
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.
 
SUMMARY COMPENSATION TABLE
Name and  
principal position
Year
Salary ($)
Bonus ($)
Stock
Awards ($)(1)
Option
Awards ($)(2)
Non-Equity
Incentive Plan
Compensation ($)
Nonqualified
Deferred
Compensation
Earnings ($)
All Other Compensation ($)(3)
Total ($)
Michael Brennan/CEO (4)
2010
180,000
-
294,325
   1,713
-
-
 
478,038
 
2009
180,000
-
423,236
  14,772
-
-
 
618,108
 
2008
60,000
-
315,350
102,341
-
-
 
477,691
Victor Hollander/CFO(5)
2010
120,000
-
260,000
-
-
-
 
380,000
 
2009
120,000
-
200,625
-
-
-
 
320,625
 

 
(1)
The Company determines the fair market value of stock awards issued as the closing bid price of the Company’s common stock as of the trading date immediately prior to the award.  Commencing October 1, 2009, the Company modified its calculation of fair market value to the average closing bid of the Common Stock for the twenty (20) trading days preceding the date of the award.
 
 
(2)
The values of the option awards granted were estimated using the Black-Scholes Option Pricing Model.
 
 
(3)
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 $10,000.  The Company has provided no officer with any personal benefits, including, but not limited to, allowances for vacations, automobiles, or health insurance.
 
 
17

 
 
 
(4)
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 as his base salary.  Between September 1, 2007 and December 31, 2007, also as part of his base salary, Mr. Brennan received 50,000 shares of common stock of the Company’s Nevada subsidiary, Micro Imaging Technology.  Mr. Brennan’s employment arrangement also provides that he receive an annual award of 100,000 two-year options to purchase common stock at an exercise price of $0.30 per share.
 
 
(A)
During fiscal 2008, pursuant to his employment arrangement, Mr. Brennan received $60,000 in cash compensation; 600,000 shares of common stock at prices ranging from $0.035 to $0.35 per share for an aggregate value of $130,250; 100,000 shares of common stock of the Company’s Nevada subsidiary valued at $100 ($0.01 per share); and options to purchase 100,000 shares of common stock valued at $23,702.
 
As consideration for additional services rendered during fiscal 2008, Mr. Brennan also received 1,500,000 shares of common stock at prices ranging from $0.05 to $0.27 per share, valued at $185,000 and a two-year option to purchase 1,000,000 shares of common stock at an exercise price of $0.10 per share, valued at $78,639.
 
 
(B)
During fiscal 2009, pursuant to his employment arrangement, Mr. Brennan received $180,000 in cash compensation; 600,000 shares of common stock at prices ranging from $0.012 to $0.15 per share for an aggregate value of $40,023; and options to purchase 100,000 shares of common stock valued at $14,722.
 
As consideration for additional services rendered during fiscal 2009, Mr. Brennan also received 5,500,000 shares of common stock at prices ranging from $0.015 to $0.154 per share, valued at $383,213.
 
 
(C)
During fiscal 2010, pursuant to his employment arrangement, Mr. Brennan received $180,000 in cash compensation; 600,000 shares of common stock at prices ranging from $0.016 to $0.046 per share for an aggregate value of $21,325; and options to purchase 100,000 shares of common stock valued at $1,713.
 
As consideration for additional services rendered during fiscal 2010, Mr. Brennan also received 11,000,000 shares of common stock at prices ranging from $0.013 to $0.039 per share, valued at $273,000.
 
 
(5)
Mr. Hollander was named Chief Financial Officer effective November 1, 2008.  He receives an accrued salary of $10,000 per month.
 
 
(A)
During fiscal 2009, Mr. Hollander received cash compensation of $120,000.  For additional services rendered, Mr. Hollander also received 4,000,000 shares of common stock at prices ranging from $0.015 to $0.154 per share, for an aggregate value of $200,625.
 
 
(B)
During fiscal 2010, Mr. Hollander received cash compensation of $120,000.  For additional services rendered during fiscal 2010, Mr. Hollander also received 10,000,000 shares of common stock at prices ranging from $0.013 to $0.039 per share, for an aggregate value of $260,000.
 
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.
 
October 12, 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)
October 12, 2011
MICHAEL W. BRENNAN
 and
 
     
 /S/ Victor A. Hollander
Director and Chief Financial Officer
(principal financial and accounting officer)
October 12, 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