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EXCEL - IDEA: XBRL DOCUMENT - MICRO IMAGING TECHNOLOGY, INC.Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - MICRO IMAGING TECHNOLOGY, INC.ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - MICRO IMAGING TECHNOLOGY, INC.ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - MICRO IMAGING TECHNOLOGY, INC.ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - MICRO IMAGING TECHNOLOGY, INC.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended January 31, 2014   Commission file number 0-16416

 

MICRO IMAGING TECHNOLOGY, INC.

(Exact name of registrant as specified in its charter)

 

California   33-0056212

(State or Other Jurisdiction of
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) 388-4547

 

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

 

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

 

Common Stock, par value $0.01 per share

(Title of Class)

 

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

 

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

 

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

 

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

 

At March 12, 2014, there were 5,411,333 shares of the Registrant’s common stock outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

 

 

 
 

 

TABLE OF CONTENTS

 

      Page
       
  PART I - FINANCIAL INFORMATION    
       
Item 1. Financial Statements   3
       
  Condensed Consolidated Balance Sheet as of January 31, 2014 (Unaudited) and October 31, 2013 (Audited)   3
       
  Condensed Consolidated Statements of Operations Three months ended January 31, 2014 and January 31, 2014 And the Cumulative Period November 1, 2005 to January 31, 2014 (Unaudited)   4
       
  Condensed Consolidated Statements of Cash Flows Three months ended January 31, 2014 and January 31, 2014 And the Cumulative Period November 1, 2005 to January 31, 2014 (Unaudited)   5
       
  Notes to Condensed Consolidated Financial Statements (Unaudited)   7
       
Item 2. Management’s Discussion and Analysis of Financial Condition and Plan of Operation   18
       
Item 3. Controls and Procedures   21
       
  PART II - OTHER INFORMATION    
       
Item 1. Legal Proceedings   21
       
Item 2. Changes in Securities   22
       
Item 3. Omitted as not applicable   22
       
Item 4. Omitted as not applicable   22
       
Item 5. Other Information   22
       
Item 6. Exhibits and Reports on Form 8-K   22
       
SIGNATURES   23

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Micro Imaging Technology, Inc. and Subsidiary

(A Development Stage Company)

Condensed Consolidated Balance Sheets

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

 

   January 31, 2014   October 31, 2013 
         
ASSETS          
Current assets:          
Cash  $-   $5,007 
Inventories   67,487    67,487 
Prepaid expenses   2,928    897 
Total current assets   70,415    73,391 
           
Fixed assets, net   97,186    111,570 
           
Total assets  $167,601   $184,961 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Liabilities:          
Current liabilities:          
Bank overdraft  $5,983   $- 
Notes payable to stockholder, net of unamortized discount of $0 and $844 in 2014 and 2013, respectively   235,450    200,606 
Convertible notes payable, net of unamortized discount of $57,394 and $60,050 in 2014 and 2013, respectively   109,973    89,818 
Accounts payable - trade   357,259    336,372 
Accounts payable to officers and directors   155,989    131,472 
Accrued payroll   312,681    244,031 
Derivative liability   87,136    75,557 
Anti-dilution liability   20,087    23,358 
Other accrued expenses   87,590    81,016 
Total current liabilities   1,372,148    1,182,230 
           
Long-term liabilities:          
Redeemable convertible preferred stock, $0.01 par value; 5,200 shares authorized, issued and outstanding at January 31, 2014 and October 31, 2013, respectively   26,000    26,000 
Total long term liabilities   26,000    26,000 
           
Total liabilities   1,398,148    1,208,230 
           
Commitments and contingencies          
           
Stockholders’ (deficit):          
Common stock, $0.01 par value; 25,000,000 shares authorized; 5,381,333 and 5,153,027 shares issued and outstanding at January 31, 2014 and October 31, 2013, respectively   53,814    51,531 
Additional paid-in capital   45,699,303    45,335,031 
Accumulated deficit from previous operating activities   (27,809,201)   (27,809,201)
Deficit accumulated during the development stage   (19,174,463)   (18,600,630)
Total stockholders’ (deficit)   (1,230,547)   (1,023,269)
Total liabilities and stockholders’ (deficit)  $167,601   $184,961 

 

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

 

3
 

 

Micro Imaging Technology, Inc. and Subsidiary

(A Development Stage Company)

Condensed Consolidated Statements of Operations

Three months Ended January 31, 2014 and January 31, 2013

And the Cumulative Period November 1, 2005 to January 31, 2014

(Unaudited)

 

       Cumulative period 
       from 
   Three months ended   November 1, 2005 
   January 31,   through 
   2014   2013   January 31, 2014 
             
Sales  $-   $-   $58,000 
Cost of Sales   -    -    29,886 
                
Gross profit   -    -    28,114 
                
Operating costs and expenses:               
Research and development   170,135    143,310    6,012,478 
Sales, general and administrative   297,789    142,236    8,775,752 
                
Total operating expenses   467,924    285,546    14,788,230 
                
Loss from operations   (467,924)   (285,546)   (14,760,116)
                
Other income (expense):               
Interest income   -    11    11,464 
Interest expense   (116,343)   (7,935)   (5,093,978)
Gain on derivative instruments   8,763    -    166,820 
Gain on anti-dilution provision   3,271    -    45,314 
Other income (expense), net   -    -    470,433 
Total other income (expense), net   (104,309)   (7,924)   (4,399,947)
                
Loss from operations:               
Before provision for income tax   (572,233)   (293,470)   (19,160,063)
Provision for income tax   (1,600)   (1,600)   (14,400)
Net loss   (573,833)   (295,070)   (19,174,463)
Net loss attributable to:               
Non-controlling interest   (48,657)   (39,955)   (1,430,140)
Micro Imaging Technology, Inc. stockholders   (525,176)   (255,115)   (17,744,323)
Net loss  $(573,833)  $(295,070)  $(19,174,463)
                
Net loss per share, basic and diluted  $(0.11)  $(0.06)     
                
Shares used in computing net loss per share, basic and diluted   5,281,524    4,623,019      

 

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

 

4
 

  

Micro Imaging Technology, Inc. and Subsidiary

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows

Three months Ended January 31, 2014 and January 31, 2013

And the Cumulative Period November 1, 2005 to January 31, 2014

(Unaudited)

 

       Cumulative period 
       from 
   Three months ended   November 1, 2005 
   January 31,   to 
   2014   2013   January 31, 2014 
             
Cash flows from operating activities:               
Net loss  $(573,833)  $(295,070)  $(19,174,463)
Adjustments to reconcile net loss to net cash used in operating activities:               
Depreciation and amortization   15,654    12,764    280,528 
Gain on extinguishment of debt   -    -    (288,192)
Change in value of derivatives   (8,763)   -    (166,820)
Change in anti-dilution liability   (3,271)   -    (45,314)
Amortization of costs and fees related to convertible debentures   35,114    5,057    1,377,651 
Common stock issued for services   -    -    2,144,790 
Common stock issued to officers, directors and consultants for services   -    -    3,212,484 
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   -    -    296,583 
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   260,282    -    892,205 
Costs and fees related to issuance of convertible debt   -    -    542,540 
Interest expense related to beneficial conversion feature   -    -    1,942,820 
Interest paid with common stock   -    -    118,487 
Interest on notes receivable for common stock   -    -    (1,373)
                
(Increase) decrease in assets:               
Related party receivables   -    3,254    - 
Prepaid expenses   (2,031)   14,979    22,663 
Inventories   -    (41,887)   (143,275)
Increase (decrease) in liabilities:               
Trade accounts payable   20,887    57,165    690,575 
Accounts payable to officers and directors   24,517    16,635    863,029 
Accrued payroll and other expenses   75,224    20,933    637,623 
Net cash used in operating activities   (156,220)   (206,170)   (6,475,847)
                
Cash flows from investing activities:               
Purchase of fixed assets   (1,270)   (3,500)   (260,130)
Capitalization of software   -    -    (35,313)
Net cash used in investing activities   (1,270)   (3,500)   (295,443)

 

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

 

5
 

 

Micro Imaging Technology, Inc. and Subsidiary

(A Development Stage Company)

Condensed Consolidated Statements of Cash Flows (Continued)

Three months Ended January 31, 2014 and January 31, 2013

And the Cumulative Period November 1, 2005 to January 31, 2014

(Unaudited)

 

       Cumulative period 
       from 
   Three months ended   November 1, 2005 
   January 31,   to 
   2014   2013   January 31, 2014 
             
Cash flows from financing activities:               
Bank overdraft   5,983    -    5,983 
Principal payments on notes payable to stockholder   -    (22,500)   (1,301,800)
Proceeds from issuance of notes payable to a related party   34,000    -    1,194,600 
Proceeds from issuance of notes and convertible notes payable   32,500    -    1,721,734 
Proceeds from issuance of common stock   80,000    145,000    3,955,475 
Net cash provided by financing activities   152,483    122,500    5,575,992 
                
Net change in cash   (5,007)   (87,170)   (1,195,298)
                
Cash at beginning of period   5,007    90,132    1,195,298 
                
Cash at end of period  $-   $2,962   $- 
                
Supplemental Disclosure of Cash Flow Information               
                
Interest paid  $-   $-   $- 
Income taxes paid  $-   $1,600   $- 
                
Supplemental Schedule of Non-Cash Investing and Financing Activities               
               
Conversion of convertible notes payable to shares of common stock  $15,000   $-      
                
Common stock issued in consideration for accounts payable and accrued payroll  $-   $12,000      

 

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

 

6
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.Nature of our Business, Development Stage Company and Continuance of Operations

 

These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern which contemplated the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Since inception, the Company has incurred substantial losses and there is substantial doubt that the Company will generate sufficient revenues in the foreseeable future to meet its operating cash requirements. Accordingly, the Company’s ability to continue operations depends on its success in obtaining additional capital in an amount sufficient to meet its cash needs. This raises substantial doubt about its ability to continue as a going concern. These financial statements do not include any adjustments that might result from this uncertainty.

 

Our independent registered public accounting firm has included an explanatory paragraph in its report on the financial statements for the year ended October 31, 2013 which raises substantial doubt about our ability to continue as a going concern.

 

Micro Imaging Technology, Inc. (the “Company”), a California corporation, is a holding company whose operations are conducted through its Nevada subsidiary, Micro Imaging Technology (“MIT”). As of January 31, 2014, the Company owned eighty point seven percent (80.7%) of the issued and outstanding stock of MIT.

 

The losses incurred to date which are applicable to the minority stockholders of the Company’s consolidated subsidiary, MIT, exceed the value of the equity held by the minority stockholders. Such losses have been allocated to the Company as the majority stockholder and are included in the net loss and accumulated deficit in the condensed consolidated financial statements for the three months ended January 31, 2014. Any future profits reported by our subsidiary will be allocated to the Company until the minority’s share of losses previously absorbed by the Company have been recovered.

 

In 1997, the Company began marketing a small, point-of-use water treatment product aimed at the high purity segment of commercial and industrial water treatment markets. In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned Nevada subsidiary, through which all manufacturing and sales of its proprietary water treatment products were then conducted. In October 2005, the Company sold the assets of the EDI subsidiary and discontinued operations.

 

The Company acquired, in October 1997, an exclusive license to the patent and intellectual property rights involving laser light scattering techniques to be utilized in the detection and monitoring of toxicants in drinking water. In February 2000, the Company formed Micro Imaging Technology (MIT), a majority-owned Nevada subsidiary, to conduct research and development based upon advancements developed and patented from the licensed technology. The technology being developed is a non-biologically based system utilizing both proprietary hardware and software to rapidly (near real time) determine the specific specie of an unknown microbe present in a fluid with a high degree of statistical probability (“MIT system”). It will analyze a sample presented to it and compare its characteristics to a library of known microbe characteristics on file. At present, it is the Company’s only operation.

 

Effective with the sale of its EDI operation in October 2005, the Company’s planned principal operation, the further development and marketing of its remaining technology, has not produced any significant revenue and, as such, the Company, beginning with the fiscal year starting November 1, 2005, is considered a development stage enterprise.

 

2.Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting solely of normal recurring adjustments which management believes are necessary for a fair presentation of the Company’s financial position at January 31, 2014 and results of operations for the periods presented.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted.

 

7
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes as of and for the year ended October 31, 2013, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2014.

 

Going Concern

 

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

 

3.Concentration of Credit Risk and Other Risks and Uncertainties

 

Litigation and Claims

 

Alpine MIT Partners

 

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

 

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

 

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

 

Michael W. Brennan

 

Concurrent with his April 13, 2012 resignation as Chairman of the Board of Directors and Chief Executive Officer, the Company agreed to repay a total of $160,000 in principal loans, $24,339 in accrued interest and $13,120 in unpaid fees and expenses due Michael Brennan over a 25-month payment schedule commencing May 1, 2012. Due to lack of funds, the Company has not made payments due Mr. Brennan since February 2013, each in the amount of $7,500. As of January 31, 2014, the principal balance due under the agreement amounted to $113,450 and, although Mr. Brennan originally waived interest on the note, the Company has accrued $13,466 in interest on that amount as of January 31, 2014.

 

8
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

Other Litigation

 

On or about November 12, 2013, a vendor filed suit in the Orange County California Superior Court for non-payment of $9,894 in fees for services rendered. In or around December 2013, the vendor received a default judgment in the case and on January 23, 2014 filed a lien against the Company with the California Secretary of State. The Company anticipates negotiating a payment schedule with this vendor.

 

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

 

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

 

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

 

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

 

Antidilution Liability

 

The Company has recorded a $20,087 liability to allow for the possible dilutive impact of equity issuances that alter or effect conversion or exchange rates existing on the various dates of conversion or exercise of securities having adjustable conversion rates. The liability is adjusted to reflect current fair market value at the end of each fiscal period. Due to the decline in the Company’s stock price, we recorded a gain of $42,043 and $3,271 at October 31, 2013 and January 31, 2014, respectively.

 

Accrued Payroll, Payroll Taxes and Benefits

 

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

 

9
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

Estimated state penalties and interest of $4,316 on the above late filings were accrued. A Notice of Tax Lien for a portion of the taxes due was filed by the State of California on November 9, 2012 in the amount of $8,206, including penalty and interest. In October 2013, the California tax authority levied the Company’s account in the sum of $13,807 with an additional levy of $5,451 in November 2013. On December 17, 2013, the Company entered into an installment agreement with the California tax authority to pay $304 per month commencing January 27, 2014 until the remaining balance due has been satisfied.

 

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

 

4.Inventory

 

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

 

5.Property and Equipment

 

Property and equipment are recorded at cost and are depreciated using the straight-line method over an expected useful life of 3 or 5 years. The leasehold improvements made to the Company’s leased facility are being depreciated over an expected useful life of 5 years. Expenditures for normal maintenance and repairs are charged to operations. The cost and related accumulated depreciation of assets are removed from the accounts upon retirement or other disposition, and the resulting profit or loss is reflected in the Statement of Operations. Renewals and betterments that materially extend the life of the assets are capitalized.

 

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

 

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

 

6.Summary of Significant Accounting Policies

 

The accounting policies followed are as set forth in Note 1 of the Notes to Financial Statements in the Company’s 2013 Annual Report on Form 10-K. The Company has not experienced any material change in its critical accounting policies since November 1, 2013. The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates its estimates, which are based upon historical experience and on other assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. The Company considers the following accounting policies to be most critical in their potential effect on its financial position or results of operations.

 

10
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

New Accounting Pronouncements

 

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

 

Earnings Per Share

 

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

 

Stock Based Compensation

 

Stock-based compensation costs for stock options issued to employees is measured at the grant date, based on the fair value of the award using the Black Scholes Option Pricing Model, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity grant).

 

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

 

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

 

The following table summarizes information about options granted under the Company’s equity compensation plans through January 31, 2014 and otherwise to employees, directors and consultants of the Company. Generally, options vest on an annual pro rata basis over various periods of time and are exercisable, upon proper notice, in whole or in part at any time upon vesting. Typically, options granted have contractual lives ranging from two to ten years and, in the case of an employee, vested options terminate 90 days after an employee leaves the Company. All of the options granted on November 19, 2013 vested in their entirety at the time of issuance.

 

11
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

   Number of
Options
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(in years)
   Aggregate
Intrinsic
Value
 
Outstanding at October 31, 2013   4,400   $13.35    0.4   $ 
Granted   400,000    .88    2.8      
Exercised                  
Expired                  
Canceled                  
Outstanding at January 31, 2014   404,400   $1.01    2.8   $ 

 

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

 

Range of
Exercise Prices
  Options
Outstanding
January 31, 2014
   Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
   Options
Exercisable
January 31, 2014
   Weighted
Average
Exercise
Price
 
$0.50-$1.00   400,000    2.8   $0.88    400,000   $0.88 
$7.68-$70.00   4,400    0.2   $13.35    4,400   $13.35 
TOTAL:   404,400              404,400      

 

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

 

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

 

   Number of
Warrants
   Weighted
Average
Exercise
Price
   Weighted
Average
Remaining
Contractual
Term
(in years)
   Aggregate
Intrinsic
Value
 
Outstanding at October 31, 2013   240,000   $0.90    1.9   $ 
Granted   30,000    1.00    0.3      
Exercised                  
Expired                  
Canceled                  
Outstanding at January 31, 2014   270,000   $0.91    1.5   $ 

 

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

 

Range of
Exercise Prices
  Warrants
Outstanding
January 31, 2014
   Weighted
Average
Remaining
Contractual
Life
   Weighted
Average
Exercise
Price
   Warrants
Exercisable
January 31, 2014
   Weighted
Average
Exercise
Price
 
$0.50 - $1.00   270,000    1.5   $0.91    270,000   $0.91 
    270,000              270,000      

 

12
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

7.Convertible Debentures

 

Series 1 Notes

 

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

 

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

 

Between July 18, 2013 and January 9, 2014, the Company entered into three new Securities Purchase Agreements with the lender, for total proceeds of $117,500, and paid a total of $15,000 out of the proceeds of the notes to lender for legal fees and expenses related to the referenced agreements. The notes mature between April 22, 2014 and October 13, 2014 and are convertible into shares of common stock at a discount of 39% of the average of the lowest three closing bid prices of the common stock during the ten trading days prior to the conversion date. The Series I Notes contain a provision requiring an adjustment to the conversion price of the note in the event the Company issues or sells any shares of common stock, or securities convertible into or exercisable for common stock, at a price per share lower than such conversion price. Accordingly, the Series I Notes are accounted for as a derivative liability, measured at fair value, with changes in fair value recognized as gain or loss for each reporting period thereafter. The notes were recorded at fair value, using the Binomial valuation model, and a derivative liability of $87,136 has been recorded for the fiscal period ended January 31, 2014. This liability will be revalued each reporting period and gains and losses will be recognized in the statement of operations under “Other Income (Expense)”.

 

Pursuant to the terms of the Series I Notes, the Company instructed its stock transfer agent to reserve 2,400,000 shares of the Company’s common stock to be issued if the notes are converted. On January 27, 2014, the lender converted $15,000 of such notes and received 68,306 shares of common stock at a conversion price of $0.2196 per share. The balance of 2,331,694 shares has been reserved, but is not considered as issued and outstanding. If the remaining Series I Notes had been converted as of January 31, 2014, the Company would have issued a total of 466,768 shares of common stock the value of which would exceed, by $130,706 the principal balance due on the notes.

 

Fair value of financial instruments

 

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

 

The Company has also adopted ASC 820-10 (“Fair Value Measurements”) which defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
     
 

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

     
 

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

13
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

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

 

The Company measured the fair value of the Series 1 Note by using the Binomial Valuation model. As of January 31, 2014, the assumptions used to measure fair value of the liability embedded in our outstanding Series I Note included an exercise price of $0.26 per share, a common share price of $0.43, a discount rate of 0.02% or 0.06%, and a volatility of 143%.

 

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

 

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

 

   Quoted
Prices in
Active
Markets
For
Identical
Assets
   Significant
Other
Observable
Inputs
   Significant
Unobservable
Inputs
     
   (Level 1)   (Level 2)   (Level 3)   Total 
Anti-dilution liability  $20,087   $   $   $20,087 
Derivative liability  $   $   $87,136   $87,136 
Total  $20,087   $   $87,136   $107,223 

 

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

 

   Fair Value
Measurements
Using
Significant
Unobservable
Inputs
(Level 3)
 
Balance October 31, 2013  $75,557 
Additions   31,615 
Net gain included in earnings   (8,763)
Settlements   (11,273)
Balance January 31, 2014  $87,136 

 

14
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

Other Convertible Notes

 

On November 10, 2010, the Company entered into a convertible note for $64,868 with a stockholder. The Note matured on May 31, 2012 and bears interest at the rate of ten percent (10%) per annum. The Note is convertible into shares of common stock at a forty two percent (42%) discount to the average of the lowest three (3) closing bid prices of the common stock during the ten (10) trading days prior to the conversion date. The note holder may convert any or all of the unpaid principal note prior to the maturity date. The Company calculated the intrinsic value of the conversion feature to be $46,973 as of the date of issuance of the debentures using the same criteria as noted above, which amount was fully amortized as of July 31, 2012. The Company has expensed $20,935 in accrued interest on the note as of January 31, 2014. If the note had been converted as of January 31, 2014, the Company would have issued a total of 310,670 shares of common stock the value of which would exceed, by $68,720 the principal balance due on the note. The Company is currently negotiating with the lender to settle or renegotiate the Note.

 

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

 

   January 31, 2014   October 31, 2013 
Series 1 Notes, principal and interest at 8% maturing through October 13, 2014  $102,500   $85,000 
           
Convertible note payable to stockholder; principal and interest at 10% due on May 31, 2012.   64,868    64,868 
    167,368    149,868 
Less current maturities   167,368    148,868 
           
Long term portion of Convertible and Series 1 notes payable  $   $ 

 

Of the above notes, $64,868 is currently due and payable. The Company’s outstanding notes mature as follows for the years ending October 31:

 

2014  $167,368 
Thereafter    
   $167,368 

 

15
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

8.Notes Payable

 

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

 

   January 31, 2014   October 31, 2013 
       (Audited) 
Unsecured, interest-free convertible notes payable to former officer/director of the Company; principal due on payment schedule through May 2014.  $113,450   $113,450 
           
Unsecured convertible note payable to various stockholders; principal and interest at 6% due between December 9, 2010 and March 31, 2013.   52,000    52,000 
           
Unsecured notes payable to officers and directors of the Company; principal and interest at 6% payable on demand   70,000    36,000 
    235,450    201,450 
Less current maturities   235,450    201,450 
           
Long term portion of notes payable  $   $ 

 

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

 

2014  $235,450 
Thereafter    
   $235,450 

 

9.Employee Retirement Plan

 

Commencing on January 1, 2005, the Company sponsored a Simple IRA retirement plan which covers substantially all qualified full-time employees. Participation in the plan is voluntary and employer contributions are determined on an annual basis. Employer contributions would be made at the rate of three percent (3%) of the employees’ base annual wages. However, the Company has made no contributions to the IRA plan since January 2010.

 

16
 

 

MICRO IMAGING TECHNOLOGY, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

10.Securities Transactions

 

Common Stock Issued in Private Placement Transactions

 

On November 8, 2013, the Company entered into a Subscription Agreement with a major stockholder to purchase 20,000 shares of the Company’s common stock at $0.50 per share, for a total of $10,000. As additional consideration, the purchaser was granted a six-month option to purchase an additional 10,000 shares of common stock at $1.00 per share. On December 13, 2013, this same stockholder purchased an additional 20,000 shares of common stock at $0.50 per share and received a six-month option to purchase an additional 10,000 shares of common stock at $1.00 per share.

 

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

 

On December 19, 2013, a major stockholder purchased 20,000 shares of common stock for proceeds of $10,000, or $0.50 per share. He received six-month warrants to purchase an additional 10,000 shares of common stock at $1.00 per share as part of the purchase transaction.

 

11.Subsequent Events

 

On February 27, 2014, a member of the Board of Directors loaned the Company $15,000. The loan bears interest at 6% per annum and is payable on demand.

 

On February 28, 2014, a major stockholder purchased 30,000 shares of common stock for proceeds of $15,000, or $0.50 per share. He received a six-month warrant to purchase an additional 15,000 shares of common stock at $1.00 per share in connection with this transaction.

 

17
 

 

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

 

Forward-Looking Statements

 

This Quarterly Report, including the Notes to the Condensed Consolidated Financial Statements and the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intends,” “projects,” and similar expressions identify forward-looking statements. Such statements may include, but are not limited to, projections regarding demand for the Company’s products, the impact of the Company’s development and manufacturing process on its research and development costs, future research and development expenditures, and the Company’s ability to obtain new financing as well as assumptions related to the foregoing. Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements in this Quarterly Report, whether as a result of new information, future events or circumstances, or otherwise.

 

Results of Operations

 

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

 

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

 

Research and development expenses for the three month period ended January 31, 2014 increased by $26,825 compared to the prior year. These expenses arose from the program which the Company initiated in December 1997 to develop the micro imaging technology for detecting and identifying contaminants in fluids. The increase reflects the expense related to the issuance of options to employees in November 2013 which was partially offset by lower expenses for consulting and temporary labor, with moderate decreases in expenditures for marketing, computer supplies, license fees and trade shows.

 

Sales, general and administrative expenses increased by $155,553 for the three months ended January 31, 2014 compared to the prior year period. The increase resulted from the expense associated with the issuance of options to various employees in November 2013 and was partially offset by a decrease in expenditures for advertising, travel and entertainment expenses.

 

The Company had no interest income during the three months ended January 31, 2014 as all available capital was utilized to sustain operations. Interest expense for the three month period ended January 31, 2014 increased by $108,408 compared to the prior period reflecting payroll tax penalties and the cost of borrowings conducted by the Company commencing in July 2013.

 

18
 

 

The Company recognized $8,763 and $3,271 in non-cash gains due to certain convertible notes and anti-dilution provisions, respectively. These gains are a result of the Company’s accounting for these features at each measurement period.

 

The Company recorded no other income or expense for the three month periods ended January 31, 2014 and 2013.

 

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

 

Liquidity and Capital Resources

 

At January 31, 2014, the Company had a working capital deficit of $1,301,733. This represents a working capital decrease of $192,894 compared to that reported at October 31, 2013. The decrease primarily reflects overall increases in current liabilities, i.e., accounts payable, accrued payroll, notes payable and derivative liabilities, while utilizing available cash for operating activities.

 

Our only source of cash during the three months ended January 31, 2014 has been from the sale of common stock totaling $80,000 and $64,000 in net short term loans. Management estimates that it utilized $59,250 per month in working capital on operations for the three months ended January 31, 2014, compared to the approximate $64,600 per month expended during the three month period ended January 31, 2013.

 

Plan of Operation

 

Our independent registered public accounting firm has included an explanatory paragraph in its report on the financial statements for the year ended October 31, 2013 which raises substantial doubt about our ability to continue as a going concern.

 

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.

 

The Company is in the process of identifying commercial, technical and scientific partners that can aid in advancing the MIT expertise, provide external endorsements of the technology, and accelerate introduction to the market. This strategy is dependent upon our ability to identify and attract the right customers and partners over the next 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 the Company will be able to raise sufficient capital to implement our plans or to continue operations.

 

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

 

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

 

19
 

 

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

 

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

 

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

 

In June 2009, the Company received Performance Test Method (PTM) Certification from the Association of Advanced Communities Research Institute (AOAC RI) for its IdentifierTM for the Listeria bacteria species, a rare but lethal food-borne infection. In 2012, the Company’s protocols for testing the pathogens E. Coli and Salmonella were accepted by the AOAC so that, once it has completed internal testing procedures (expected in early 2014), the Company will also apply for AOAC PTM Certification for those additional pathogens. When certified for the two additional pathogenic bacteria identification processes, the Company’s System will have the proven capability of identifying over 90 percent of all bacteria-causing, food-related illnesses. Concurrently, the Company is developing an IdentifierTM for Staphylococcus aureus, the potentially life-threatening, contagious bacterium that can cause widespread infections, particularly in hospitals and medical clinics.

 

In the opinion of management, funds anticipated from forthcoming loans and equity sales are expected to satisfy our working capital requirements through April 2014. However, no assurances can be given that the Company will secure additional financing or revenues in a timely manner, if at all, or that such funds would be sufficient to achieve our intended business objectives.

 

The Company will be required to raise substantial amounts of new financing in the form of additional equity investments, loan financings, or from strategic partnerships, to carry out our business objectives. There can be no assurance that the Company will be able to obtain additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any financing may cause dilution of the interests of our current stockholders. If the Company is unable to obtain additional equity or loan financing, our financial condition and results of operations will be materially adversely affected. Moreover, estimates of our cash requirements to carry out our current business objectives are based upon various assumptions, including assumptions as to our revenues, net income or loss and other factors, and there can be no assurance that these assumptions will prove to be accurate or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on us and our plans. If the Company is not successful in obtaining financing for future developments, whether in the form of loans, licenses or equity transactions, it is unlikely that the Company will have sufficient cash to continue to conduct operations, particularly research and development programs, as currently planned. The Company believes that in order to raise needed capital, the Company may be required to issue debt at significantly higher interest rates or equity securities that are significantly lower than the current market price of our common stock.

 

20
 

 

No assurances can be given that currently available funds will satisfy our working capital needs for the period estimated, or that the Company can obtain additional working capital through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing stockholders or will be on terms satisfactory to us.

 

Item 3. Controls and Procedures

 

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

 

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

 

PART II - OTHER INFORMATION

 

Item 1.Legal Proceedings

 

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

 

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

 

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

 

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

 

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

 

On or about November 12, 2013, the Company was served with a Complaint brought in the Superior Court of Orange County, California by a vendor for non-payment of $9,894 in services performed. The Company has not contested the amount due and expects to negotiate a payment arrangement with the vendor in the near future.

 

Item 2.Changes in Securities

 

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

 

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

 

On December 19, 2013, the Company issued 20,000 shares of common stock and a six-month warrant to purchase 10,000 shares of common stock at $1.00 per share to a major stockholder of the Company, for proceeds of $10,000.

 

On January 27, 2014, a lender converted $15,000 of a $42,500 principal loan into 68,306 shares of common stock at $0.2196 per share.

 

Item 3and 4. Omitted as not applicable.

 

Item 5. Other Information

 

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

 

Item 6.Exhibits and Reports on Form 8-K

 

(a) Exhibits:

 

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

 


 

* Filed herewith

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

 

(b) Reports on Form 8-K.

 

None.

 

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SIGNATURES

 

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

 

Dated: March 17, 2014 MICRO IMAGING TECHNOLOGY, INC.
   
  By /S/ Victor A. Hollander
    Victor A. Hollander
    (Chief Financial Officer with responsibility to sign on behalf of Registrant as a duly authorized officer and principal financial officer)

 

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