UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
| For the fiscal year ended October 31, 2013 | Commission file number 0-16416 |
MICRO IMAGING TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
| California | 33-0056212 | |
| (State or Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification No.) |
970 Calle Amanecer, Suite F, San Clemente, California 92673
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (949) 388-4546
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]
Indicate by check mark whether the Company 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 if the Exchange Act.
| Large Accelerated filer | [ ] | Accelerated Filer | [ ] | ||
| Non-accelerated filer | [ ] | Smaller Reporting Company | [X] | ||
| (Do not check if a smaller reporting company) | |||||
The registrant had no sales revenues for the twelve months ended October 31, 2013.
As of February 10, 2014, the aggregate market value of the common stock held by non-affiliates of the registrant was $494,050, based on a closing price for the common stock of $0.30 on the OTC Bulletin Board on such date.
At February 10, 2014, 5,313,027 shares of the Registrant’s stock were outstanding.
Documents incorporated by reference are as follows:
| Document | Part
and Item Number of Form 10-K | |
| None |
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Forward-Looking Statements
This Annual Report on Form 10-K, including the Notes to the Consolidated Financial Statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements. The words “believe,” “expect,” “anticipate,” “intends,” “projects,” and similar expressions identify forward-looking statements. Such statements may include, but are not limited to, projections regarding demand for the Company’s products, the impact of the Company’s development and manufacturing process on its research and development costs, future research and development expenditures, and the Company’s ability to obtain new financing as well as assumptions related to the foregoing. Such forward-looking statements are within the meaning of that term in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
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TABLE OF CONTENTS
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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) 388-4546.
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. The Company is also registered to do business under the trade name Micro Identification Technologies.
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. 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 food processing and clinical laboratory 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 also demonstrated, in proof-of-principal testing, identification of the bacteria E. coli, Listeria monocytogenes, Listeria typhi, Salmonella, Pseudomonas aeruginosa, Staphylococcus aureus and Streptococcus pneumoniae. The Company intends to add to the System the ability to identify additional pathogens including, but not limited to, Klebsiella, Proteus, Shigella.
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”) 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 accuracy was 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 Association of Advanced Communities (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.
In April 2012, the Company submitted applications to the AOAC RI for Performance Test Method Certification for the MIT 1000 System’s for accurate bacterial identifications of the pathogens E. coli and Salmonella. When certified for certification 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. Additional microbes will be certified as required by the market.
The food processing and clinical 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 rapid 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, after culturing, in less than 5 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 provided 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 which expired in October 2011 for failure to pay the required maintenance fee.
On May 8, 2012, Alpine MIT Partners, LLC filed a lien against the Company’s patents under the California Uniform Commercial Code. See also “Item 3. Legal Proceedings.”
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.
“Micro Imaging Technology” and “Micro Identification Technologies” are registered trademarks of the Company.
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Research and Development
During fiscal 2013, we expended $411,015 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 2012, we spent $489,044 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.
Personnel
As of October 31, 2013, we employed 5 full-time employees or consultants, of whom three were engaged in administrative, marketing, accounting and clerical functions and two were engaged in research and development of the Company’s MIT System. To implement our MIT business strategies, we anticipate that we will hire additional employees in fiscal 2014. 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 stockholders. 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 stockholders or will be on terms satisfactory to us.
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We have a history of losses which are likely to continue
From our inception in 1979 through October 31, 2013, we have accumulated a loss of $46,408,681 and a net stockholders’ deficit of $1,023,269, 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, 2013 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 may not be able to afford the expenses required to enforce the patent we now or in the future may 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 Jeffrey Nunez, 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, stockholders 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. |
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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 | |
| ● | 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.
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 per month through our lease extension date of March 31, 2014.
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. Our property is not covered by insurance at this time.
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On May 16, 2012, Alpine MIT Partners, LLC (Plaintiffs) filed a civil action against the Company and its Chairman and Chief Executive Officer, Jeffrey G. Nunez, (collectively, the Company), in the Texas District Court, Travis County. Plaintiffs alleged breach of contract and civil conspiracy, as well as tortious interference with contractual relations and prospective business relations. The lawsuit alleges that the Company breached certain provisions of a March 7, 2012 Securities Purchase Agreement the Company executed with the Plaintiff to sell up to $2.0 million of 7% Senior Secured five-year Convertible Debentures convertible into shares of common stock at a conversion rate of $.003 per share. The purchase and sale of the first $1.0 million Debenture was scheduled to close on or before April 6, 2012 and was subject to, among other things, Alpine closing the necessary equity funding to consummate the transactions. No money was ever received by the Company from Alpine.
The lawsuit also suggests that the Company’s Chairman and Chief Executive Officer, Jeffrey G. Nunez, has a history of regulatory and securities law violations. The Company’s Board of Directors has researched the matter and understands that in January 2004, Mr. Nunez was requested by the NASD to appear and provide testimony pursuant to NASD Rule 8210. Mr. Nunez did not appear, but agreed not to associate in any capacity, in the future, with NASD member firms. The Company’s Board of Directors believes this to be of no consequence with respect to Mr. Nunez’ qualifications to serve as a board member and chief executive officer of the Company.
At a hearing on March 7, 2013, the court dismissed the lawsuit against the Company upholding its motion that the Texas court had no jurisdiction over the matter. In August, 2013, Alpine filed an amended Complaint against Jeffrey Nunez in the Texas case alleging tortuous interference and conspiracy to terminate the March 7, 2012 Securities Purchase Agreement. Mr. Nunez believes that the allegations of the lawsuit against him have no merit and intends to vigorously defend the matter.
On January 10, 2013, the Company learned that Plaintiffs had filed a lien against the Company’s patents on May 8, 2012 with the California Secretary of State under the Uniform Commercial Code. On or about January 29, 2013, the Company filed suit against Alpine MIT Partners, LLC in the Orange County, California Superior Court alleging, among other claims, that the UCC filing is unauthorized. The lawsuit also names the managing director and managing member of Alpine as Defendants and alleges that they made false promises, intentional misrepresentations and breached the contract which is the subject of the Texas suit. The Company is seeking damages of $1.6 million.
On or about October 4, 2013, 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.
See also Note 13 – “Subsequent Events.”
Item 4. Submission of Matters to a Vote of Security Holders
On February 8, 2013, pursuant to a Written Consent of a Majority of Shareholders, the Company voted to amend its Articles of Incorporation to:
| ● | Decrease the authorized number of Common Stock of the Company from 2.5 billion to 25 million shares; and | |
| ● | Effect a 500-to-1 reverse split of all classes of its issued and outstanding shares of stock such that the following classes of shares would be reconstituted as of February 8, 2013 as follows: |
| NUMBER OF SHARES | ||||
| ISSUED AND OUTSTANDING | ||||
| TITLE OF SECURITIES | PRE-REVERSE SPLIT | POST-REVERSE SPLIT | ||
| Common Stock | 2,397,818,199 | 4,795,636 | ||
| Class B Common Stock | None | None | ||
| Convertible Preferred Stock | 2,600,000 | 5,200 | ||
| Preferred Stock | None | None | ||
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The total number of shares of common stock outstanding and entitled to vote on February 8, 2013 was 2,397,818,199 (each carrying one [l] vote per share), of which 1,630,849,811 common stock shares voted, with 68.01% shares voting in favor of and approving the amendment. The total number of shares of Convertible Preferred Stock outstanding and entitled to vote is 1,668,371 (each carrying one [1] vote per share), of which 6,663 shares voted, all in favor of and approving the amendment. The total number of shares voting in favor of the amendment equaled or exceeded the voting required for all classes entitled to vote, which percentage vote required was more than fifty percent (50%) of the outstanding shares entitled to vote.
None.
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 |
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| High | Low | |||||
| Fiscal 2012 | First Quarter | 4.65 | 2.10 | |||
| Second Quarter | 2.75 | 1.00 | ||||
| Third Quarter | 2.50 | 0.70 | ||||
| Fourth Quarter | 1.80 | 1.15 | ||||
| Fiscal 2013 | First Quarter | 1.85 | 0.95 | |||
| Second Quarter | 1.45 | 0.55 | ||||
| Third Quarter | 1.00 | 0.50 | ||||
| Fourth Quarter | 1.00 | 0.34 | ||||
| Fiscal 2014 | First Quarter (through February 10, 2014) | 0.75 | 0.30 | |||
The market for our common stock is sporadic and quoted prices may not represent the true value of the securities.
As of October 31, 2013, the Company had approximately 350 holders of record of its common stock.
On November 29, 2012, the Company issued 200,000 shares of common stock to Gregg Newhuis, a Director of the Company, for proceeds of $100,000, or $0.50 per share.
On January 11, 2013, a major stockholder of the Company exercised a warrant to purchase 40,000 shares of common stock at $1.00 per share and the Company received $40,000 pursuant to the exercise.
On January 11, 2013, the Company’s Chief Financial Officer, Victor Hollander, purchased 3,333 shares of Common Stock for proceeds of $5,000, or $1.50 per share.
On January 16, 2013, the Company issued 8,000 shares of common stock in payment for legal services rendered valued at $12,000.
On February 22, 2013, the Company issued an additional 8,000 shares of common stock to legal counsel for services rendered in the sum of $8,400.
Between February 6, 2013 and April 3, 2013, the Company issued 211,764 to a major stockholder for proceeds of $180,000, or $0.85 per share. This stockholder also purchased 60,000 shares of common stock on August 13, 2013 for $0.50 per share and received, as partial consideration, a six-month warrant to purchase an additional 30,000 shares of common stock for $1.00 per share.
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On April 26, 2013, the Company issued 435 and 196 shares of common stock to Jeffrey Nunez at $1.63 and $1.45 per share, respectively, in partial payment of a transaction fee due him pursuant to an April 2012 agreement whereby he received a 5% transaction fee on all monies received by the Company. See also Note 10 – “Securities Transactions – Common Stock Issued in Private Placement Transactions.”
On June 4, 2013, the Company sold 50,000 shares of common stock to a major stockholder for proceeds of $25,000, or $0.50 per share. As partial consideration for the transactions, the stockholder also receive three year warrants to purchase 50,000 shares of common stock at $0.50 per share and warrants to purchase 100,000 shares of common stock at $1.00 per share.
On June 15, 2013, a stockholder converted a $12,500 principal loan, plus $1,299 in accrued interest, into 23,998 shares of common stock at $0.575 per share. On June 28, 2013, this same stockholder purchased 13,333 shares of common stock from the Company for proceeds of $10,000, at $0.75 per share.
Between August 7, 2013 and October 17, 2013, a major stockholder purchased 40,000 shares of common stock for total consideration of $20,000, or $0.50 per share. Additionally, he received six-month warrants to purchase 20,000 shares of common stock at $1.00 per share as partial consideration for these transactions.
On September 5, 2013, an unaffiliated individual purchased 20,000 shares of common stock for $0.50 per share.
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.
Equity Compensation Plan Information
The following table provides information as of October 31, 2013 with respect to shares of our common stock that may be issued under equity compensation plans.
| Plan category | Number of securities issued under the Plan | Weighted average price of securities issued | Number
of securities remaining available for future issuance | |||||||||
| 2012 Employee Benefit Plan | 44,500 | $ | 1.73 | 75,500 | ||||||||
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, 2013 and 2012
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 2013 and 2012. Our limited working capital has not yet allowed us to spend any significant resources on advertising and marketing efforts.
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Research and development expenses for the fiscal year ended October 31, 2013 decreased by $78,029 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 overall decrease primarily reflects a $45,230 reduction in expenditures for materials and supplies; a decrease of $43,123 in temporary labor expense for lab technicians; and a $78,592 reduction in consulting expense in 2013. These decreases were partially offset by a $67,146 increase in salaries and related expenses.
Sales, general and administrative expenses decreased by $149,759 for the fiscal year ended October 31, 2013 compared to the prior year period. The decrease reflects a $183,740 reduction in consulting expense in the current fiscal year and reductions of $23,072 and $36,386 for shareholder relations expense and travel and entertainment expenses, respectively. These decreases were offset by a $55,156 increase in salaries and a $65,576 increase in legal expenses in the current fiscal year.
Interest income is generated from short-term investments and showed no significant change in fiscal 2013.
Interest expense for the fiscal year ended October 31, 2013 decreased by $317,918 compared to the prior fiscal year and primarily reflects the costs of borrowing during the prior fiscal period.
The Company recognized $8,753 and $42,043 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.
Components of other income, other than interest, decreased by $246,492 for the fiscal year ended October 31, 2013 compared fiscal 2012. In the prior year, the Company realized a gain from debt settlements, writing off accrued interest on notes payable, and writing off a number of long-standing accounts payable which the Company contests and for which no demand has been made in over four years.
We recorded the minimum state income tax provision in fiscal 2013 and 2012 as we had cumulative net operating losses in all tax jurisdictions.
Liquidity and Capital Resources
At October 31, 2013, we had working capital deficit of $1,108,839. This represents a working capital decrease of $580,173 compared to that reported at October 31, 2012. 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.
We sold no products in fiscal 2013 or 2012. Our primary source of cash during the fiscal year ended October 31, 2013 was from the issuance of equity and various loans totaling $420,000 and $125,800, respectively. During fiscal 2013, we borrowed $40,800 from various officers and directors of the Company, $4,800 of which has been repaid. An additional $80,000, net of $5,000 in legal fees, was borrowed from an unaffiliated lender in 2013. During fiscal 2013, we sold 598,431 shares of common stock for net proceeds of $380,000. In addition, we issued 40,000 shares of common stock upon the exercise of warrants at $1.00 per share. Because the Company had limited ability to obtain working capital, the terms under which we sold shares and/or borrowed funds were often more costly than if the Company were in a stronger financial position.
Management estimates that it required working capital approximating $45,000 per month to maintain operations during fiscal 2013, compared to the approximate $82,000 per month expended during fiscal 2012.
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.
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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.
During fiscal 2013, the Company issued $85,000 in convertible debentures to Asher Enterprises, Inc. which are convertible into shares of common stock, at the discretion of the holder, commencing 180 days following the date of the Note. The loans carry anti-dilution provisions and bear interest at 8% per annum. They 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. See also Item 13 – “Subsequent Events.”
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 Systems were received in July 2012, with three additional Systems received in November 2012. The Company participated in several food safety conferences during 2012 and 2013 and brought significant attention to its MIT 1000 which has led to follow-up contacts from several high profile independent laboratories, multinational food and food safety industry leaders, as well as from prominent academic research institutes.
In October 2013, the Company announced that it is collaborating with the Northern Michigan University (NMU) Department of Biology to identify and differentiate Staphylococcus aureus (S. aureus) and the “superbug,” Methicillin Resistant S. aureus (MRSA). The goal of this strategic research with NMU is to rapidly and cost-effectively identify these two particular healthcare threats using the MIT 1000 System. Staph infections can range from mild skin problems to potentially fatal conditions if the bacteria invade deeper into the body. Most can be easily treated. Some Staphs, however, are drug-resistant. The faster the responsible disease causing bacteria is identified, the faster the appropriate treatment can begin. This is the driving goal behind the NMU/MIT collaboration using the MIT 1000 to differentiate between the common S. aureus and MRSA. At this stage, the collaboration involves scientists from MIT and NMU gathering preliminary data and developing collaborative research proposals seeking funding in support of continued research.
Also in October 2013, the Company announced a strategic research collaboration with Purdue University to prove the concept of faster, cheaper, and easier pathogen testing for Listeria and Listeria monocytogenes in foods using laser light scattering. The partnership pairs similar laser light scattering technologies developed independently by each contributor to demonstrate the speed and accuracy of using non-biological methods to provide a simple, rapid, and cost-effective solution to food pathogen testing.
In December 2013, the Company announced that its MIT 1000 System can now identify the potentially life-threatening bacteria Staphylococcus. Staph is one of the five most common causes of infections after injury or surgery and can lead to very serious complications with the lung (pneumonia), brain (meningitis), bone (osteopmyelitis), heart (endorcarditis), and blood (bacteremia and septicemia). The addition of this Identifier opens the door for the MIT 1000 Technology to enter the clinical pathogen detection and identification arena. 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.
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In the opinion of management, funds anticipated from forthcoming loans and equity sales are expected to satisfy our working capital requirements through March 2014. However, no assurances can be given that the Company will secure additional financing or revenues in a timely manner, if at all, or that such funds would be sufficient to achieve our intended business objectives.
The Company will be required to raise substantial amounts of new financing in the form of additional equity investments, loan financings, or from strategic partnerships, to carry out our business objectives. There can be no assurance that the Company will be able to obtain additional financing on terms that are acceptable to us and at the time required by us, or at all. Further, any financing may cause dilution of the interests of our current stockholders. If the Company is unable to obtain additional equity or loan financing, our financial condition and results of operations will be materially adversely affected. Moreover, estimates of our cash requirements to carry out our current business objectives are based upon various assumptions, including assumptions as to our revenues, net income or loss and other factors, and there can be no assurance that these assumptions will prove to be accurate or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could have a material adverse effect on us and our plans. If the Company is not successful in obtaining financing for future developments, whether in the form of loans, licenses or equity transactions, it is unlikely that the Company will have sufficient cash to continue to conduct operations, particularly research and development programs, as currently planned. The Company believes that in order to raise needed capital, the Company may be required to issue debt at significantly higher interest rates or equity securities that are significantly lower than the current market price of our common stock.
No assurances can be given that currently available funds will satisfy our working capital needs for the period estimated, or that the Company can obtain additional working capital through the sale of common stock or other securities, the issuance of indebtedness or otherwise or on terms acceptable to us. Further, no assurances can be given that any such equity financing will not result in a further substantial dilution to the existing stockholders or will be on terms satisfactory to us.
Impact of Recently Issued Accounting Pronouncements
On January 31, 2013, the FASB issued Accounting Standards Update [ASU] 2013-01, entitled Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The guidance in ASU 2013-01 amends the requirements in the FASB Accounting Standards Codification [FASB ASC] Topic 210, entitled Balance Sheet. The ASU 2013-01 amendments to FASB ASC 210 clarify that ordinary trade receivables and receivables in general are not within the scope of ASU 2011-11, entitled Disclosure about Offsetting Assets and Liabilities, where that ASU amended the guidance in FASB ASC 210. As those disclosures now are modified with the ASU 2013-01 amendments, the FASB ASC 210 balance sheet offsetting disclosures now clearly are applicable only where reporting entities are involved with bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, and securities borrowing and lending transactions that either are offset using the FASB ASC 210 or 815 requirements, or that are subject to enforceable master netting arrangements or similar agreements. ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is not expected to have a material impact on our financial statements.
On February 28, 2013, the FASB issued Accounting Standards Update [ASU] 2013-04, entitled Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The ASU 2013-04 amendments add to the guidance in FASB Accounting Standards Codification [FASB ASC] Topic 405, entitled Liabilities and require reporting entities to measure obligations resulting from certain joint and several liability arrangements where the total amount of the obligation is fixed as of the reporting date, as the sum of the following:
| ● | The amount the reporting entity agreed to pay on the basis of its arrangement among co-obligors. | |
| ● | Any additional amounts the reporting entity expects to pay on behalf of its co-obligors. |
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While early adoption of the amended guidance is permitted, for public companies, the guidance is required to be implemented in fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments need to be implemented retrospectively to all prior periods presented for obligations resulting from joint and several liability arrangements that exist at the beginning of the year of adoption. The adoption of ASU 2013-04 is not expected to have a material effect on the Company’s operating results or financial position.
On April 22, 2013, the FASB issued Accounting Standards Update [ASU] 2013-07, entitled Liquidation Basis of Accounting. With ASU 2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation of Financial Statements. The amendments serve to clarify when and how reporting entities should apply the liquidation basis of accounting. The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit entities. The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related financial statement presentation requirements. The requirements in ASU 2013-07 are effective for annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods. Reporting entities are required to apply the requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption of ASU 2013-07 is not expected to have a material effect on the Company’s operating results or financial position.
On July 18, 2013, the FASB issued ASU 2013-11, which provides guidance on financial statement presentation of an unrecognized tax benefit2 when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. Under the ASU, an entity must present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when:
| ● | An NOL carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position. | |
| ● | The entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice). |
If either of these conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.
ASU 2013-11 is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. The adoption of ASU 2013-11 is not expected to have a material effect on the Company’s operating results or financial position.
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.
Item 7. Financial Statements and Supplementary Data
The information required by Item 7 is included on pages F-1 to F-30.
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.
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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, 2013.
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.
None
Item 10. Directors and Executive Officers of the Registrant Directors and Executive Officers
Our directors and executive officers are as follows:
| Name | Age | Position | ||
| Jeffrey G. Nunez | 54 | Director (Chairman) and Chief Executive Officer | ||
| Victor A. Hollander | 81 | Director and Chief Financial Officer | ||
| Gregg J. Newhuis | 54 | Director | ||
| Catherine Patterson | 61 | Corporate Secretary |
The Company does not currently have an Audit Committee and as of October 31, 2013, there are two vacancies on the Board of Directors.
Jeffrey G. Nunez, 54, was named to the Board of Directors and appointed Chief Executive Officer on April 20, 2012. Mr. Nunez has provided investment and public relations consulting services to the Company since October 2006 and has assisted the Company in negotiating and concluding numerous financing arrangements during his consultancy. Previously, Mr. Nunez served as Chairman of Lexicon, and led its Advisory Services division. His early work with Government Securities, Corporate Bonds and Municipal Bonds led him to Shearson Lehman Brothers as Vice President of Investments and then Prudential Securities Inc. as Senior Vice President of Investments. His career is benchmarked by high production levels (consistently ranked in the national top ten percent).
In 1997, Mr. Nunez was recruited to join Fordham Financial Management Inc. and accepted the position of Senior Vice President of Investment to lead their Wall Street Broker – Dealer operations. In late 1999, he opened his own office of Supervisory Jurisdiction (OSJ) on the 85th Floor of the World Trade Center, Tower One. That OSJ under Providential Securities, Inc. grew from core staff into 20 Brokers with complete support office staff, by late 2000. Then, the Office of Supervisory Jurisdiction Providential Securities, Inc. through market events, transitioned into the Chicago Investment Group, Inc. Jeff was appointed President of this consolidated group (OSJ) and Senior Vice president of Investments. In these positions, he filled a number of different roles and responsibilities from investment banking, mergers and acquisitions, to securities trading.
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Mr. Nunez then began consultation for public companies, and companies about to go public through Broad Street Capital Inc. a consulting company through which he formerly operated his offices of Supervisory Jurisdiction for Chicago Investment Group and Providential Securities. While serving as Chairman of Lexicon United, Inc. on February 27, 2006, Lexicon acquired ATN Capital Inc. a Brazilian Limited Company engaged in the business of managing and servicing accounts receivables for large financial institutions in Brazil. On July 27, 2007, Lexicon became a public company. Mr. Nunez served as Vice-President and Secretary of and maintained a directorial position with Lexicon until March 2011, and remained as a consultant to the company until March 2012.
Mr. Nunez formed Media 3 Communications in January of 2011, and remains the sole owner of this telecommunications company, which owns a California State video franchise.
Victor A. Hollander, 81, 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 had 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.
Gregg J. Newhuis, 54, joined the Board of Directors of Micro Imaging Technology, Inc. on May 7, 2012. Mr. Newhuis brings over thirty years of equipment leasing, asset-based financing as well as commercial and retail banking experience to the Board. A 1981 graduate of Eastern Illinois University, he earned a Bachelor of Science degree with a major in Finance and minor in Economics. Mr. Newhuis started his finance career in 1981 with Walter E. Heller & Co., working in the Municipal Finance and the Commercial Industries divisions. In 1987, he accepted a position with Phoenixcor Financial, a New York-based finance company, to open and manage an office for them in Hinsdale, IL. In 1991, Mr. Newhuis accepted an offer from Toshiba Machine Co., America (a seller of plastic injection molding machines, machine tools, aluminum die cast machines and robotic equipment) to start and run an in-house private label finance company. He currently continues to operate in this capacity.
Mr. Newhuis’ banking experience dates back to 2001 when he was part of a group of eleven individuals that originated Advantage National Bank and Trust Company, N.A., a de novo bank located in Elk Grove Village, Il. In 2003, they successfully sold the bank to Wintrust Financial Corporation (Nasdaq:WTFC). Mr. Newhuis continues to serve on the Board of Directors of the surviving bank (Schaumburg Bank & Trust Company, N.A.) and, more specifically, on its Credit and Risk Committees.
Catherine Patterson, 61, originally became our Secretary in May 1989, was Assistant Secretary from May 1986 to May 1988, held the position of Treasurer from August 1984 to February 1986, and was a director for a short time in 1984. She served as Chief Financial Officer from June 1990 through October 1998. Ms. Patterson took a two-year sabbatical and returned to the Company in April 2012 and served as Corporate Secretary and Chief Accounting Officer. From 1971 until she joined us in 1981, she was a legal secretary for various Michigan law offices, including General Motors Corporation, where she dealt closely with various corporate sectors and counsels throughout the United States and Puerto Rico and portions of Canada and South America. Ms. Patterson left the Company’s employ in December 2013. Her resignation was not the result of any disagreement with the Company.
Directors serve until the next Annual Meeting of Stockholders when their successors are elected and qualified. Officers, subject to any employment agreements, serve at the pleasure of the Board of Directors.
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Key Employees
David Haavig, 59, 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, 2013:
| Name of Reporting Person | Type of Report Filed Late | No.
of Transactions Reported Late | |||
| Victor A. Hollander | Form 4 – Statement of Changes in Beneficial Ownership | 1 | |||
| Gregg J. Newhuis | 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 and resigned from the Company in April 2012, was being compensated at the rate provided in his employment arrangement described below under “Employment Agreements.”
Jeffrey G. Nunez was appointed Chief Executive Officer on April 20, 2012 and received $8,000 per month in compensation through August 2012. His compensation increased to $12,000 per month effective October 1, 2012.
The following table sets forth summary information regarding compensation paid for the years ended October 31, 2013, 2012, and 2011 to the officers of the Company.
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| SUMMARY COMPENSATION TABLE | ||||||||||||||||||||||||||||||||||||
| Name and principal position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($)(3) | Total ($) | |||||||||||||||||||||||||||
| Michael Brennan | 2012 | 78,161 | - | 1,279 | - | - | - | - | 79,440 | |||||||||||||||||||||||||||
| CEO (4) | 2011 | 180,000 | - | 41,385 | 29 | - | - | - | 221,414 | |||||||||||||||||||||||||||
| Jeffrey G. Nunez | 2013 | 144,000 | - | - | - | - | - | 7,000 | 151,000 | |||||||||||||||||||||||||||
| CEO (5) | 2012 | 60,000 | 20,000 | 78,300 | - | - | - | 65,950 | 224,250 | |||||||||||||||||||||||||||
| Victor Hollander | 2013 | 60,000 | - | - | - | - | - | - | 60,000 | |||||||||||||||||||||||||||
| CFO (6) | 2012 | 90,000 | - | - | - | - | - | - | 90,000 | |||||||||||||||||||||||||||
| 2011 | 120,000 | - | 18,000 | - | - | - | - | 138,000 | ||||||||||||||||||||||||||||
| Catherine Patterson | 2013 | 75,600 | - | - | - | - | - | - | 75,600 | |||||||||||||||||||||||||||
| Secretary (7) | 2012 | 40,950 | - | - | - | - | - | - | 40,950 | |||||||||||||||||||||||||||
| (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. | |
| (2) | The values of the option awards granted, if any, 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. | |
| (4) | Mr. Brennan was named Chief Executive Officer on August 2, 2006. Until he resigned on April 13, 2012, he received cash compensation of $15,000 and 100 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 provided that he receive an annual award of 1,200 two-year options in August of each year to purchase common stock at an exercise price of $150.00 per share. No such options were issued in fiscal 2012. |
| (A) | During fiscal 2011, pursuant to his employment arrangement, Mr. Brennan received $180,000 in compensation; 1,200 shares of common stock at prices ranging from $2.00 to $5.00 per share for an aggregate value of $5,385; and options to purchase 200 shares of common stock valued at $29. | |
| As consideration for additional services rendered during fiscal 2011, Mr. Brennan also received 12,000 shares of common stock at $3.00 per share, for a total value of $36,000. | ||
| (B) | Between November 1, 2011 and April 13, 2012, the date of Mr. Brennan’s resignation from the Company, he received $78,161 in compensation and 500 shares of common stock at prices ranging from $1.80 to $3.25 per share for an aggregate value of $1,279. |
| 21 |
| (5) | Mr. Nunez was appointed Chief Executive Officer effective April 1, 2012. |
| (A) | Mr. Nunez received compensation at the rate of $8,000 per month from April through September 2012. His compensation increased to $12,000 per month commencing October 1, 2012. Pursuant to his April 1, 2012 consulting arrangement, he received a signing bonus of $20,000 and 40,000 shares of common stock in April 2012. Mr. Nunez also received reimbursement for a total of $12,950 in expenses associated with his relocation from Austin, Texas to California in September 2012. As of October 31, 2012, Mr. Nunez had received $13,269 in excess of fees and expenses due him. Such amount was recorded as a receivable by the Company at October 31, 2012. | |
| (B) | Per the April 1, 2012 Consulting Agreement with Mr. Nunez, the Company agreed to pay Mr. Nunez a 5% “Transaction Fee” on all proceeds received by the Company. The fee is payable in common stock valued as the average closing price of the common stock for the five (5) trading days prior to the transaction. In fiscal 2012, the Company issued Mr. Nunez 35,513 shares of common stock, valued at $53,000, pursuant to this arrangement. In fiscal 2013, Mr. Nunez received an additional $7,000 in cash and stock as commission. This provision of the agreement was terminated by mutual consent as of January 31, 2013. |
| (6) | Mr. Hollander was named Chief Financial Officer effective November 1, 2008. He received an accrued salary of $10,000 per month from November 2011 through April 2012. Commencing May 1, 2012, Mr. Hollander’s salary accrues at the rate of $5,000 per month. |
| (A) | During fiscal 2011, Mr. Hollander received accrued compensation of $120,000. For additional services rendered during fiscal 2011, Mr. Hollander also received 6,000 shares of common stock at $3.00 per share, valued at $18,000. | |
| (B) | Mr. Hollander received compensation of $90,000 for services rendered during fiscal 2012, which amount was accrued. | |
| (C) | Compensation of $60,000 was accrued for services rendered by Mr. Hollander during fiscal 2013. |
| (7) | Ms. Patterson was compensated at the rate of $7,300 per month. Ms. Patterson resigned from the Company effective December 26, 2013. |
Compensation Committee Interlocks and Insider Participation
Compensation of executive officers is determined by the Board of Directors.
Michael W. Brennan – resigned from the Company effective April 13, 2012
On 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. Mr. Brennan resigned from his positions on the Company’s Board of Directors and as Chief Executive Officer in April 2012. The resignation of Mr. Brennan was not the result of any disagreements with the Company. As Chief Executive Officer, his compensation arrangement provided 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 1,200 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. Commencing November 1, 2008, Mr. Brennan’s salary increased to $15,000 per month through his resignation date. | |
| ● | For each year of service, Mr. Brennan was granted two-year warrants to purchase 200 shares of restricted common stock at an exercise price of $1.50 per share. Such warrants vest in their entirety at the conclusion of each year of service. |
| 22 |
Jeffrey G. Nunez
On April 1, 2012, the Company entered into a one-year Consulting Agreement with Mr. Nunez which provided for the following consideration:
| ● | Compensation of $8,000 per month during the term of the agreement. | ||
| ● | A retainer fee in the amount of $20,000 and 40,000 shares of the Company’s common stock valued at $78,300. | ||
| ● | A 5% “transaction fee” on all proceeds received by the Company during the term of the agreement, payable in common stock of the Company. This provision of the agreement was terminated by mutual consent as of January 31, 2013. |
On April 20, 2012, Mr. Nunez was appointed to the Board of Directors and named President and Chief Executive Officer. The Board of Directors increased his monthly compensation to $12,000 effective October 1, 2012.
Compensation of Directors
No Board members received compensation for their service during fiscal 2013.
Equity Compensation Plans
2012 Employee Benefit Plan
On February 14, 2012, the Board of Directors adopted the 2012 Employee Benefit Plan which is authorized to grant up to 120,000 shares of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility is determined by the Board of Directors. On April 30, 2012, the Company issued 28,500 shares of common stock under the Plan to a consultant for services rendered. The value of the shares was $57,000, or $2.00 per share. An additional 8,000 shares of common stock were issued to legal counsel for services rendered both on January 16, 2013 and February 22, 2013 at a fair market value of $1.50 and $1.00 per share, respectively.
See also Item 14 – “Subsequent Events.”
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, 2013:
| 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 | |||||||||||||
| Catherine Patterson | 2,000 | — | $ | 7.69 | 02/05/14 | — | — | |||||||||||
| 23 |
Item 12. Security Ownership of Certain Beneficial Owners and Management.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 10, 2014 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 |
||||||||||||||
| Anthony M. Frank 320 Meadowood Court Pleasant Hill, CA 94523 | 541,040 | 9.1 | % | — | — | 9.1 | % | ||||||||||||
| Victor A. Hollander 970 Calle Amanecer, Suite F San Clemente, CA 92673 | 375,824 | 6.3 | % | — | — | 6.3 | % | ||||||||||||
| Gregg J. Newhuis 970 Calle Amanecer, Suite F San Clemente, CA 92673 | 1,875,645 | 31.5 | % | — | — | 31.5 | % | ||||||||||||
| Jeffrey G. Nunez 970 Calle Amanecer, Suite F San Clemente, CA 92673 | 332,294 | 5.6 | % | — | — | 5.6 | % | ||||||||||||
| Catherine A. Patterson | 52,101 | * | 4 | * | * | ||||||||||||||
| Robert A. Pett 970 Calle Amanecer, Suite F San Clemente, CA 92673 | 976,291 | 16.4 | % | 9 | * | 16.4 | % | ||||||||||||
| Estate of Harry M. O’Hare, Sr. (5) 1000 El Centro S. Pasadena, CA 91030 | 173 | * | 1,863 | 35.8 | % | * | |||||||||||||
All officers and directors as a group (4 persons) | 2,635,864 | 44.3 | % | 4 | * | 44.2 | % | ||||||||||||
| * | Less than 1% |
| ** | Includes address of five percent or more stockholders of any class. |
| (1) | Includes 168 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 277,000 shares of the Company’s common stock held by the officers and directors referred to in the above table. |
| (3) | 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 $5.00 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.” |
| (4) | 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. |
| 24 |
Item 13. Certain Relationships and Related Transactions.
Mr. Michael W. Brennan
Mr. Brennan resigned from the Company’s Board of Directors and as Chief Executive Officer on April 13, 2012. His resignation was not the result of any disagreements with the Company. As of April 13, 2012, the Company owed Mr. Brennan $160,000 in principal loans; $24,339 in accrued interest; and $13,111 in accrued consulting fees – for an aggregate total of $197,450. The Company agreed to pay Mr. Brennan the amount due over a 25-month payment schedule without interest. However, due to lack of funds, except for a $1,000 payment in August 2013, payments due Mr. Brennan since February 2013, each in the amount of $7,500, have not been made per the payment schedule. In October 2013, Mr. Brennan filed a lawsuit against the Company for breach of the payment contract seeking $123,509 in damages, plus interest, attorney fees and expenses. See Item 3 – “Legal Proceedings.” See also Note 6 – “Notes Payable to an Officer and Stockholders” – in the Notes to Consolidated Financial Statements.
Mr. Anthony M. Frank
In February 2013, Mr. Frank entered into a Subscription Agreement to purchase 211,764 shares of common stock at $0.85 per share for which the Company received $180,000.
Mr. Frank purchased an additional 60,000 shares of common stock on August 13, 2013 for $30,000, or $0.50 per share.
See also Item 14 – “Subsequent Events.”
Mr. Victor A. Hollander
On January 11, 2013, Mr. Hollander, the Company’s Chief Financial Officer, purchased 3,333 shares of common stock and paid $5,000, or $1.50 per share.
On June 3, 2013, Mr. Hollander loaned the Company the sum of $5,000. The loan bears 6% annual interest and is payable on demand.
Gregg J. Newhuis
On May 8, 2012, Board member, Gregg J. Newhuis, entered into a Subscription Agreement, as amended on October 31, 2012, to purchase a total of 1,800,000 shares of the Company’s common stock at $0.50 per share over a six-month period. Mr. Newhuis also received a one-year option to purchase up to an additional 266,667 shares of common stock at $1.50 per share in September 2012. This option was cancelled in October 2012. The Company received the final $100,000 from Mr. Newhuis on November 29, 2012 pursuant to his May 2012 subscription arrangement and issued 200,000 shares of common stock at $0.50 per share.
Between May 20, 2013 and October 18, 2013, Mr. Newhuis loaned the Company a total of $31,000. The loans bear interest at 6% per annum and are payable on demand.
See also Item 14 – “Subsequent Events.”
Jeffrey G. Nunez
Pursuant to an April 1, 2012 consulting arrangement, the Company agreed to pay Jeffrey Nunez a five percent (5%) transaction fee on all proceeds received by the Company during the one year term of such agreement. The fee is payable in shares of the Company’s common stock which are to be valued as the average closing price of the common stock for the five (5) trading days prior to the transaction which triggers the fee. Between April 20 and October 31, 2012, the Company issued Mr. Nunez a total of 35,512 shares of common stock valued at $53,000 pursuant to the transaction fee arrangement. As of January 31, 2013, an additional $7,000 was due Mr. Nunez under this arrangement at which time the transaction fee arrangement was terminated by mutual agreement. On April 26, 2013, $6,007 of the transaction fee due him was credited against a receivable that Mr. Nunez owed the Company and the remaining $993 balance was paid in the form of 435 and 196 shares of common stock at $1.63 and $1.45 per share, respectively.
| 25 |
See also Item 14 – “Subsequent Events.”
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.
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 Sheets as of October 31, 2013 and 2012 | ||
| Statements of Operations for the years ended October 31, 2013 and 2012 | ||
| Statements of Stockholders’ Deficit for the years ended October 31, 2013 and 2012 | ||
| Statements of Cash Flows for the years ended October 31, 2013 and 2012 | ||
| Notes to Financial Statements |
| (b) | Reports on Form 8-K |
| On June 14, 2013, the Company filed Form 8-K to report an Amendment to its Articles of Incorporation decreasing the total number of authorized shares of the Company’s common stock from 2,500,000,000 shares to 25,000,000 and a 500-to-1 reverse split with respect to its common stock and convertible preferred stock.. |
| (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). | |
| 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 Ascendant Capital Group, LLC (incorporated by reference to Exhibit 10.68 to Form 8-K filed on October 6, 2009. |
| 26 |
| 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 * |
| 101.INS | XBRL Instance Document** | |
| 101.SCH | XBRL Taxonomy Extension Schema Document** | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document** | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document** | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document** | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document** |
* Filed herewith
** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Annual Report on Form 10-K shall be deemed “furnished” and not “filed”.
Item 15. Principal Accountant Fees and Services.
Audit Fees.
The aggregate fees billed to the Company for professional services rendered by Farber Hass Hurley LLP 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, 2013 and 2012 were $13,500 and $43,500, respectively. Management estimate that the fees associated with the audit of the Company’s financial statements for the fiscal year ended October 31, 2013 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 $5,000 for the fiscal year ended October 31, 2012. We anticipate incurring fees for fiscal 2013 tax services following the submission of this Annual Report on Form 10-K of approximately $5,000.
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 $4,875 for the fiscal year ended October 31, 2012.
Fees bill to the Company for similar professional services rendered by Farber Hass Hurley LLP for the fiscal year ended October 31, 2012 were $2,500.
The Company did not incur similar professional fees during fiscal 2013.
| 27 |
Pursuant to the requirements of the Securities Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto.
| Dated: February 13, 2014. | |
| MICRO IMAGING TECHNOLOGY, INC. | |
| /S/ JEFFREY G. NUNEZ | |
| JEFFREY G. NUNEZ | |
| 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/ JEFFREY G. NUNEZ | Chairman and Chief Executive Officer |
February 13, 2014 |
| JEFFREY G. NUNEZ | (principal executive officer) | |
/S/ VICTOR A. HOLLANDER |
Director and Chief Financial Officer |
February 13, 2014 |
| VICTOR A. HOLLANDER | (principal financial and accounting officer) |
| 28 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Table of Contents
October 31, 2013 and 2012
| Consolidated Financial Statements | Page | |
| Report of Independent Registered Public Accounting Firm | F-1 | |
| Consolidated Balance Sheets | F-2 | |
| Consolidated Statements of Operations | F-3 | |
| Consolidated Statements of Stockholders’ Deficit | F-4 - F-10 | |
| Consolidated Statements of Cash Flows | F-11 - F-12 | |
| Notes to the Consolidated Financial Statements | F-13 - F-30 |
| 29 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Micro Imaging Technology, Inc.
We have audited the accompanying balance sheets of Micro Imaging Technology, Inc. and Subsidiary (the “Company”) (A Development Stage Company) as of October 31, 2013 and 2012, and the related statements of operations, stockholders’ deficit, and cash flows for the years ended October 31, 2013 and 2012 and the cumulative period from November 1, 2005 (date of inception) to October 31, 2013. Micro Imaging Technology, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included 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, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Micro Imaging Technology, Inc. and Subsidiary (A Development Stage Company) as of October 31, 2013 and 2012 and the results of their operations and their cash flows for the years ended October 31, 2013 and 2012 and the cumulative period from November 1, 2005 (date of inception) to October 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency of $1,023,269 that raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Farber Hass Hurley LLP | |
| Granada Hills, California | |
| February 13, 2014 |
| F-1 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
| October 31, | ||||||||
| 2013 | 2012 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 5,007 | $ | 90,132 | ||||
| Related party receivables | - | 15,269 | ||||||
| Inventories | 67,487 | 25,600 | ||||||
| Prepaid expenses | 897 | 31,120 | ||||||
| Total current assets | 73,391 | 162,121 | ||||||
| Fixed assets, net | 111,570 | 123,041 | ||||||
| Total assets | $ | 184,961 | $ | 285,162 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Liabilities: | ||||||||
| Current liabilities: | ||||||||
| Notes payable to stockholder, net of unamortized discount of $844 and $5,536 in 2013 and 2012, respectively | $ | 200,606 | $ | 136,464 | ||||
| Convertible notes payable, net of unamortized discount of $60,050 and $3,202 in 2013 and 2012, respectively | 89,818 | 74,166 | ||||||
| Accounts payable - trade | 336,372 | 171,578 | ||||||
| Accounts payable to officers and directors | 131,472 | 45,583 | ||||||
| Accrued payroll | 244,031 | 139,040 | ||||||
| Derivative liability | 75,557 | - | ||||||
| Anti-dilution liability | 23,358 | 65,401 | ||||||
| Other accrued expenses | 81,016 | 58,555 | ||||||
| Total current liabilities | 1,182,230 | 690,787 | ||||||
| Long-term liabilities: | ||||||||
| Note payable to stockholder, net of unamortized discount of $0 and $844 in 2013 and 2012, respectively | - | 46,106 | ||||||
| Redeemable convertible preferred stock, $0.01 par value; 5,200 shares authorized, issued and outstanding at October 31, 2013 and October 31, 2012 | 26,000 | 26,000 | ||||||
| Total long term liabilities | 26,000 | 72,106 | ||||||
| Total liabilities | 1,208,230 | 762,893 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ (deficit): | ||||||||
| Common stock, $0.01 par value; 25,000,000 shares authorized; 5,153,027 and 4,473,715 shares issued and outstanding at October 31, 2013 and October 31, 2012, respectively | 51,531 | 44,737 | ||||||
| Additional paid-in capital | 45,335,031 | 44,889,013 | ||||||
| Accumulated deficit from previous operating activities | (27,809,201 | ) | (27,809,201 | ) | ||||
| Deficit accumulated during the development stage | (18,600,630 | ) | (17,602,280 | ) | ||||
| Total stockholders’ (deficit) | (1,023,269 | ) | (477,731 | ) | ||||
| Total liabilities and stockholders’ (deficit) | $ | 184,961 | $ | 285,162 | ||||
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 Years Ended October 31, 2013 and 2012 and
Cumulative period from November 1, 2005 through October 31, 2013
| Cumulative period | ||||||||||||
| from | ||||||||||||
| November 1, 2005 | ||||||||||||
| October 31, | through | |||||||||||
| 2013 | 2012 | October 31, 2013 | ||||||||||
| Sales | $ | - | $ | - | $ | 58,000 | ||||||
| Cost of Sales | - | - | 29,886 | |||||||||
| Gross profit | - | - | 28,114 | |||||||||
| Operating costs and expenses: | ||||||||||||
| Research and development | 411,015 | 489,044 | 5,842,343 | |||||||||
| Sales, general and administrative | 566,883 | 716,642 | 8,477,963 | |||||||||
| Total operating expenses | 977,898 | 1,205,686 | 14,320,306 | |||||||||
| Loss from operations | (977,898 | ) | (1,205,686 | ) | (14,292,192 | ) | ||||||
| Other income (expense): | ||||||||||||
| Interest income | 13 | 92 | 11,464 | |||||||||
| Interest expense | (67,045 | ) | (384,963 | ) | (4,977,635 | ) | ||||||
| Gain on derivative instruments | 8,753 | 56,747 | 158,057 | |||||||||
| Other income (expense), net | 39,427 | 285,919 | 512,476 | |||||||||
| Total other income (expense), net | (18,852 | ) | (42,205 | ) | (4,295,638 | ) | ||||||
| Loss from operations: | ||||||||||||
| Before provision for income tax | (996,750 | ) | (1,247,891 | ) | (18,587,830 | ) | ||||||
| Provision for income tax | (1,600 | ) | (1,600 | ) | (12,800 | ) | ||||||
| Net loss | (998,350 | ) | (1,249,491 | ) | (18,600,630 | ) | ||||||
| Net loss attributable to: | ||||||||||||
| Non-controlling interest | (131,721 | ) | (92,409 | ) | (1,381,483 | ) | ||||||
| Micro Imaging Technology, Inc. stockholders | (866,629 | ) | (1,157,082 | ) | (17,219,147 | ) | ||||||
| Net loss | $ | (998,350 | ) | $ | (1,249,491 | ) | $ | (18,600,630 | ) | |||
| Net loss per share, basic and diluted | $ | (0.20 | ) | $ | (0.52 | ) | ||||||
| Shares used in computing net loss per share, basic and diluted | 4,880,189 | 2,406,315 | ||||||||||
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
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Series C | Series D | Series C | Series D | ||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Class B | Convertible | Convertible | Class B | Note | |||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Preferred | Preferred | Common | Common | Additional | Receivable | ||||||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Paid-in | Common | Accumulated | |||||||||||||||||||||||||||
| (Shares) | (Shares) | (Shares) | (Shares) | ($) | ($) | ($) | ($) | Capital | Stock | Deficit | Total | ||||||||||||||||||||||||||
| Balance, October 31, 2005 | 250,000 | 250,000 | 25,932 | 168 | $ | 250,000 | $ | 250,000 | $ | 259 | $ | 2 | $ | 25,964,733 | $ | (36,247 | ) | $ | (27,809,201 | ) | $ | (1,380,454 | ) | ||||||||||||||
| Common stock issued for convertible debt, $70.00 per share | - | - | 617 | - | - | - | 6 | - | 43,215 | - | - | 43,221 | |||||||||||||||||||||||||
| Common stock and warrants issued in exchange for surrender of common stock in subsidiary, $170.00 per share | - | - | 2,353 | - | - | - | 23 | - | 253,978 | - | - | 254,001 | |||||||||||||||||||||||||
| Interest expense related to beneficial conversion feature on stock exchanged for subsidiary stock | - | - | - | - | - | - | - | - | 1,944,800 | - | - | 1,944,800 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $40.00 per share | - | - | 100 | - | - | - | 1 | - | 3,999 | - | - | 4,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $70.00 per share | - | - | 100 | - | - | - | 1 | - | 6,999 | - | - | 7,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $90.00 per share | - | - | 100 | - | - | - | 1 | - | 8,999 | - | - | 9,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $100.00 per share | - | - | 100 | - | - | - | 1 | - | 9,999 | - | - | 10,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $115.00 per share | - | - | 100 | - | - | - | 1 | - | 11,499 | - | - | 11,500 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $125.00 per share | - | - | 100 | - | - | - | 1 | - | 12,499 | - | - | 12,500 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $130.00 per share | - | - | 100 | - | - | - | 1 | - | 12,999 | - | - | 13,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $140.00 per share | - | - | 100 | - | - | - | 1 | - | 13,999 | - | - | 14,000 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $170.00 per share | - | - | 150 | - | - | - | 1 | - | 25,499 | - | - | 25,500 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $225.00 per share | - | - | 150 | - | - | - | 2 | - | 33,748 | - | - | 33,750 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $250.00 per share | - | - | 150 | - | - | - | 2 | - | 37,498 | - | - | 37,500 | |||||||||||||||||||||||||
| Common stock issued to officers for services, $255.00 per share | - | - | 100 | - | - | - | 1 | - | 25,499 | - | - | 25,500 | |||||||||||||||||||||||||
| Common stock issued to directors for services, $170.00 per share | - | - | 400 | - | - | - | 4 | - | 67,996 | - | - | 68,000 | |||||||||||||||||||||||||
| Common stock issued for services, $70.00 per share | - | - | 400 | - | - | - | 4 | - | 27,996 | - | - | 28,000 | |||||||||||||||||||||||||
| Common stock issued for services, $170.00 per share | - | - | 400 | - | - | - | 4 | - | 67,996 | - | - | 68,000 | |||||||||||||||||||||||||
| Common stock issued as commission, $250.00 per share | - | - | 12 | - | - | - | 1 | - | 2,999 | - | - | 3,000 | |||||||||||||||||||||||||
| Options and warrants granted to employees and consultants for services | - | - | - | - | - | - | - | - | 45,875 | - | - | 45,875 | |||||||||||||||||||||||||
| Interest recognized on notes receivable for common stock | - | - | - | - | - | - | - | - | - | (1,373.00 | ) | - | (1,373 | ) | |||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | - | (3,798,713 | ) | (3,798,713 | ) | |||||||||||||||||||||||
| Balance, October 31, 2006 | 250,000 | 250,000 | 31,464 | 168 | $ | 250,000 | $ | 250,000 | $ | 315 | $ | 2 | $ | 28,622,824 | $ | (37,620 | ) | $ | (31,607,914 | ) | $ | (2,522,393 | ) | ||||||||||||||
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 Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Series C | Series D | Series C | Series D | |||||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Class B | Convertible | Convertible | Class B | Note | ||||||||||||||||||||||||||||||||||||||||||
| Preferred | Preferred | Common | Common | Preferred | Preferred | Common | Common | Additional | Receivable | |||||||||||||||||||||||||||||||||||||||
| Stock | Stock | Stock | Stock | Stock | Stock | Stock | Stock | Paid-in | Common | Accumulated | ||||||||||||||||||||||||||||||||||||||
| (Shares) | (Shares) | (Shares) | (Shares) | ($) | ($) | ($) | ($) | Capital | Stock | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, October 31, 2006 | 250,000 | 250,000 | 31,464 | 168 | $ | 250,000 | $ | 250,000 | $ | 315 | $ | 2 | $ | 28,622,824 | $ | (37,620 | ) | $ | (31,607,914 | ) | $ | (2,522,393 | ) | |||||||||||||||||||||||||
| Common stock issued to officers for services, $50.00 per share | - | - | 150 | - | - | - | 2 | - | 7,498 | - | - | 7,500 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $80.00 per share | - | - | 150 | - | - | - | 2 | - | 11,998 | - | - | 12,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $120.00 per share | - | - | 300 | - | - | - | 3 | - | 35,997 | - | - | 36,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $125.00 per share | - | - | 450 | - | - | - | 4 | - | 56,246 | - | - | 56,250 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $150.00 per share | - | - | 150 | - | - | - | 2 | - | 22,498 | - | - | 22,500 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $160.00 per share | - | - | 150 | - | - | - | 2 | - | 23,998 | - | - | 24,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $175.00 per share | - | - | 150 | - | - | - | 2 | - | 26,248 | - | - | 26,250 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers for services, $200.00 per share | - | - | 300 | - | - | - | 3 | - | 59,997 | - | - | 60,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to officers and directors for consulting services, $185.00 per share | 4,000 | - | - | - | 40 | - | 739,960 | - | - | 740,000 | ||||||||||||||||||||||||||||||||||||||
| Common stock issued in private placement offering, $60.00 per share | - | - | 4,228 | - | - | - | 42 | - | 239,569 | - | - | 239,611 | ||||||||||||||||||||||||||||||||||||
| Common stock issued in private placement offering, $250.00 per share | - | - | 5,520 | - | - | - | 55 | - | 1,329,945 | - | - | 1,330,000 | ||||||||||||||||||||||||||||||||||||
| Common stock issued as commission, $60.00 per share | - | - | 61 | - | - | - | 1 | - | 3,682 | - | - | 3,683 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for debt, $100.00 per share | - | - | 422 | - | - | - | 4 | - | 42,219 | 37,620 | - | 79,843 | ||||||||||||||||||||||||||||||||||||
| Common stock issued for convertible debt, $125.00 per share | - | - | 12,599 | - | - | - | 126 | - | 1,574,718 | - | - | 1,574,844 | ||||||||||||||||||||||||||||||||||||
| Common stock issued to former licensee for debt, $40.00 per share | - | - | 1,033 | - | - | - | 10 | - | 41,309 | - | - | 41,319 | ||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of Series C Preferred stock | (250,000 | ) | 2,000 | - | (250,000 | ) | 20 | - | 249,980 | - | - | - | ||||||||||||||||||||||||||||||||||||
| Common stock issued upon conversion of Series D Preferred stock | - | (250,000 | ) | 1,000 | - | - | (250,000 | ) | 10 | - | 249,990 | - | - | - | ||||||||||||||||||||||||||||||||||
| Common stock issued or surrendered for uncollectible debt, $150.00 per share | - | 137 | - | - | - | 1 | - | 20,477 | - | - | 20,478 | |||||||||||||||||||||||||||||||||||||
| Common stock of subsidiary issued to employees and consultants, $0.001 per share | - | - | - | - | - | - | - | 2,665 | - | - | 2,665 | |||||||||||||||||||||||||||||||||||||
| Options and warrants granted to employees and consultants for services | - | - | - | - | - | - | - | - | 93,035 | - | - | 93,035 | ||||||||||||||||||||||||||||||||||||
| Common stock exchanged for Class B common stock | - | - | 168 | (168 | ) | - | - | 2 | (2 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | (2,040,137 | ) | (2,040,137 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, October 31, 2007 | - | - | 64,432 | - | $ | - | $ | - | $ | 646 | $ | (0 | ) | $ | 33,454,853 | $ | - | $ | (33,648,051 | ) | $ | (192,552 | ) | |||||||||||||||||||||||||
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 Stockholders’ Deficit (Continued)
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock | Paid-in | Accumulated | |||||||||||||||||
| (Shares) | ($) | Capital | (Deficit) | Total | ||||||||||||||||
| Balance, October 31, 2007 | 64,432 | $ | 646 | $ | 33,454,853 | $ | (33,648,051 | ) | $ | (192,552 | ) | |||||||||
| Common stock issued to officers for services, $175.00 per share | 150 | 2 | 26,248 | - | 26,250 | |||||||||||||||
| Common stock issued to officers for services, $150.00 per share | 150 | 2 | 22,498 | - | 22,500 | |||||||||||||||
| Common stock issued to officers for services, $135.00 per share | 150 | 2 | 20,248 | - | 20,250 | |||||||||||||||
| Common stock issued to officers for services, $125.00 per share | 450 | 5 | 56,245 | - | 56,250 | |||||||||||||||
| Common stock issued to officers for services, $115.00 per share | 150 | 2 | 17,248 | - | 17,250 | |||||||||||||||
| Common stock issued to officers for services, $100.00 per share | 150 | 2 | 14,998 | - | 15,000 | |||||||||||||||
| Common stock issued to officers for services, $90.00 per share | 150 | 1 | 13,499 | - | 13,500 | |||||||||||||||
| Common stock issued to officers for services, $75.00 per share | 150 | 1 | 11,249 | - | 11,250 | |||||||||||||||
| Common stock issued to officers for services, $70.00 per share | 150 | 1 | 10,499 | - | 10,500 | |||||||||||||||
| Common stock issued to officers for services, $17.50 per share | 150 | 1 | 2,624 | - | 2,625 | |||||||||||||||
| Common stock issued to officers, directors and consultants for debt, $150.00 per share | 1,169 | 11 | 175,331 | - | 175,342 | |||||||||||||||
| Common stock issued to consultants for services, $140.00 per share | 2,000 | 20 | 279,980 | - | 280,000 | |||||||||||||||
| Common stock issued to consultants for services, $125.00 per share | 550 | 5 | 68,745 | - | 68,750 | |||||||||||||||
| Common stock issued to consultants for services, $40.00 per share | 500 | 5 | 19,995 | - | 20,000 | |||||||||||||||
| Common stock issued to officers and directors for consulting services, $135.00 per share | 2,000 | 20 | 269,980 | - | 270,000 | |||||||||||||||
| Common stock issued to officers and directors for consulting services, $25.00 per share | 4,000 | 40 | 99,960 | - | 100,000 | |||||||||||||||
| Common stock issued in private placement offering, $83.50 per share - | 720 | 7 | 59,993 | - | 60,000 | |||||||||||||||
| Common stock issued in private placement offering, $60.00 per share - | 2,200 | 22 | 131,978 | - | 132,000 | |||||||||||||||
| Common stock issued as commission, $200.00 per share | 1,200 | 12 | 239,988 | - | 240,000 | |||||||||||||||
| Common stock issued upon exercise of warrants, $30.00 per share | 400 | 4 | 11,996 | - | 12,000 | |||||||||||||||
| Common stock of subsidiary issued to employees and consultants, $0.001 per share - | - | - | 150 | - | 150 | |||||||||||||||
| Options and warrants granted to employees and consultants for services | - | - | 323,860 | - | 323,860 | |||||||||||||||
| Interest recognized on beneficial conversion feature of convertible debentures issued | - | - | 153,333 | - | 153,333 | |||||||||||||||
| Net loss | - | - | - | (2,461,976 | ) | (2,461,976 | ) | |||||||||||||
| Balance, October 31, 2008 | 80,971.00 | $ | 811 | $ | 35,485,498 | $ | (36,110,027 | ) | $ | (623,718 | ) | |||||||||
| Common stock issued to officers, directors and consultants | ||||||||||||||||||||
| for services, $6.00 per share | 150 | 2 | 898 | 900 | ||||||||||||||||
| for services, $7.69 per share | 24,000 | 240 | 184,260 | - | 184,500 | |||||||||||||||
| for services, $7.75 per share | 150 | 2 | 1,159 | - | 1,161 | |||||||||||||||
| for services, $8.83 per share | 150 | 2 | 1,322 | - | 1,324 | |||||||||||||||
| for services, $9.31 per share | 150 | 2 | 1,395 | - | 1,397 | |||||||||||||||
| for services, $20.00 per share | 150 | 2 | 2,998 | - | 3,000 | |||||||||||||||
| for services, $26.84 per share | 150 | 2 | 4,023 | - | 4,025 | |||||||||||||||
| for services, $28.09 per share | 1,000 | 10 | 28,078 | 28,088 | ||||||||||||||||
| for services, $31.25 per share | 150 | 2 | 4,686 | - | 4,688 | |||||||||||||||
| for services, $35.00 per share | 2,143 | 21 | 74,979 | - | 75,000 | |||||||||||||||
| for services, $44.00 per share | 150 | 2 | 6,598 | - | 6,600 | |||||||||||||||
| for services, $45.00 per share | 150 | 2 | 6,748 | - | 6,750 | |||||||||||||||
| for services, $55.00 per share | 150 | 2 | 8,248 | - | 8,250 | |||||||||||||||
| for services, $58.25 per share | 4,000 | 40 | 232,960 | - | 233,000 | |||||||||||||||
| for services, $70.25 per share | 150 | 1 | 10,537 | - | 10,538 | |||||||||||||||
| for services, $76.00 per share | 150 | 1 | 11,399 | - | 11,400 | |||||||||||||||
| for services, $77.25 per share | 12,200 | 122 | 942,328 | - | 942,450 | |||||||||||||||
| Common stock issued for convertible debt, $4.50 per share | 7,778 | 77 | 34,923 | - | 35,000 | |||||||||||||||
| Common stock issued for convertible debt, $4.50 per share | 63,185 | 631 | 302,739 | - | 303,370 | |||||||||||||||
| Common stock issued for convertible debt, $6.41 per share | 2,339 | 23 | 14,977 | - | 15,000 | |||||||||||||||
| Common stock issued for convertible debt, $22.77 per share | 17,567 | 175 | 399,825 | - | 400,000 | |||||||||||||||
| Common stock issued in settlement of lawsuit, $37.40 per share | 11,800 | 118 | 443,627 | - | 443,745 | |||||||||||||||
| Common stock issued in private placement offering, $25.00 per share | 4,000 | 40 | 99,960 | - | 100,000 | |||||||||||||||
| Common stock issued to officers, directors and consultants | ||||||||||||||||||||
| for debt, $50.00 per share | 2,500 | 25 | 128,971 | - | 128,996 | |||||||||||||||
| for debt, $26.46 share | 350 | 3 | 9,259 | - | 9,262 | |||||||||||||||
| for debt, $7.69 per share | 3,356 | 33 | 25,769 | - | 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 | $ | 238,989 | $ | 2,391 | $ | 38,744,398 | $ | (39,585,919 | ) | $ | (839,130 | ) | ||||||||
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 Stockholders’ Deficit (Continued)
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock | Paid-in | Accumulated | |||||||||||||||||
| (Shares) | ($) | Capital | (Deficit) | Total | ||||||||||||||||
| Balance, October 31, 2009 | 238,989 | $ | 2,391 | $ | 38,744,398 | $ | (39,585,919 | ) | $ | (839,130 | ) | |||||||||
| Common stock issued to officers, directors and consultants | ||||||||||||||||||||
| for services, $6.50 per share | 22,000 | 220 | 142,780 | - | 143,000 | |||||||||||||||
| for services, $8.25 per share | 150 | 2 | 1,236 | - | 1,238 | |||||||||||||||
| for services, $10.00 per share | 150 | 2 | 1,498 | - | 1,500 | |||||||||||||||
| for services, $12.00 per share | 150 | 2 | 1,798 | - | 1,800 | |||||||||||||||
| for services, $13.00 per share | 150 | 2 | 1,948 | - | 1,950 | |||||||||||||||
| for services, $16.75 per share | 150 | 2 | 2,511 | - | 2,513 | |||||||||||||||
| for services, $18.75 per share | 4,000 | 40 | 74,960 | - | 75,000 | |||||||||||||||
| for services, $19.50 per share | 20,000 | 200 | 389,800 | - | 390,000 | |||||||||||||||
| for services, $20.00 per share | 19,950 | 199 | 398,801 | 399,000 | ||||||||||||||||
| for services, $22.50 per share | 300 | 3 | 6,747 | - | 6,750 | |||||||||||||||
| for services, $23.25 per share | 150 | 1 | 3,486 | - | 3,487 | |||||||||||||||
| for services, $24.00 per share | 12,000 | 120 | 287,880 | - | 288,000 | |||||||||||||||
| for services, $25.00 per share | 150 | 1 | 3,749 | 3,750 | ||||||||||||||||
| Common stock issued for loans, $25.00 per share | 21,280 | 213 | 531,787 | - | 532,000 | |||||||||||||||
| Common stock issued in private placement offering, $8.75 per share | 856 | 8 | 7,482 | - | 7,490 | |||||||||||||||
| Common stock issued in private placement offering, $11.25 per share | 2,261 | 22 | 25,418 | - | 25,440 | |||||||||||||||
| Common stock issued in private placement offering, $14.60 per share | 12,000 | 120 | 174,880 | - | 175,000 | |||||||||||||||
| Common stock issued in private placement offering, $50.00 per share | 100 | 1 | 4,999 | - | 5,000 | |||||||||||||||
| Common stock issued for debt, $18.00 per share | 1,600 | 16 | 29,002 | - | 29,018 | |||||||||||||||
| Common stock issued for debt, $20.00 per share | 1,000 | 10 | 19,990 | - | 20,000 | |||||||||||||||
| Common stock redeemed for cash, $20.00 per share | (1,500 | ) | (15 | ) | (14,985 | ) | - | (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 | 355,886 | $ | 3,560 | $ | 41,004,719 | $ | (42,666,383 | ) | $ | (1,658,104 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-7 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders’ Deficit (Continued)
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock | Paid-in | Accumulated | |||||||||||||||||
| (Shares) | ($) | Capital | (Deficit) | Total | ||||||||||||||||
| Balance, October 31, 2010 | 355,886 | $ | 3,560 | $ | 41,004,719 | $ | (42,666,383 | ) | $ | (1,658,104 | ) | |||||||||
| Common stock issued to officers, directors and consultants | ||||||||||||||||||||
| for services, $2.00 per share | 6,000 | 60 | 11,940 | 12,000 | ||||||||||||||||
| for services, $2.25 per share | 100 | 1 | 224 | 225 | ||||||||||||||||
| for services, $2.505 per share | 100 | 1 | 249 | 250 | ||||||||||||||||
| for services, $3.00 per share | 18,000 | 180 | 53,820 | 54,000 | ||||||||||||||||
| for services, $4.10 per share | 100 | 1 | 409 | 410 | ||||||||||||||||
| for services, $5.00 per share | 7,050 | 71 | 35,179 | 35,250 | ||||||||||||||||
| Common stock issued for loan, $1.78 per share | 1,200 | 12 | 2,128 | 2,140 | ||||||||||||||||
| Common stock issued in private placement offering, $2.04 per share | 8,033 | 80 | 16,328 | 16,408 | ||||||||||||||||
| Common stock issued in private placement offering, $2.47 per share | 9,364 | 93 | 23,036 | 23,129 | ||||||||||||||||
| Common stock issued in private placement offering, $2.80 per share | 4,381 | 44 | 12,233 | 12,277 | ||||||||||||||||
| Common stock issued in private placement offering, $2.85 per share | 5,000 | 50 | 14,201 | 14,251 | ||||||||||||||||
| Common stock issued in private placement offering, $2.93 per share | 2,360 | 24 | 6,900 | 6,924 | ||||||||||||||||
| Common stock issued in private placement offering, $3.00 per share | 942 | 9 | 2,818 | 2,827 | ||||||||||||||||
| Common stock issued in private placement offering, $3.09 per share | 4,000 | 40 | 12,310 | 12,350 | ||||||||||||||||
| Common stock issued in private placement offering, $3.18 per share | 686 | 7 | 2,176 | 2,183 | ||||||||||||||||
| Common stock issued in private placement offering, $3.33 per share | 773 | 8 | 2,562 | 2,570 | ||||||||||||||||
| Common stock issued in private placement offering, $6.51 per share | 1,616 | 16 | 10,501 | 10,517 | ||||||||||||||||
| Common stock issued for debt, $0.20 per share | 182,000 | 1,820 | 34,580 | 36,400 | ||||||||||||||||
| Common stock issued for debt, $0.35 per share | 71,429 | 714 | 24,286 | 25,000 | ||||||||||||||||
| Common stock issued for debt, $0.38 per share | 39,920 | 399 | 14,601 | 15,000 | ||||||||||||||||
| Common stock issued for debt, $0.45 per share | 28,889 | 289 | 12,711 | 13,000 | ||||||||||||||||
| Common stock issued for debt, $0.65 per share | 20,000 | 200 | 12,800 | 13,000 | ||||||||||||||||
| Common stock issued for debt, $0.70 per share | 54,286 | 543 | 37,457 | 38,000 | ||||||||||||||||
| Common stock issued for debt, $0.80 per share | 6,250 | 63 | 4,937 | 5,000 | ||||||||||||||||
| Common stock issued for debt, $0.90 per share | 28,196 | 282 | 25,094 | 25,376 | ||||||||||||||||
| Common stock issued for debt, $1.05 per share | 9,524 | 95 | 9,905 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $1.35 per share | 7,407 | 74 | 9,926 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $1.45 per share | 10,345 | 103 | 14,897 | 15,000 | ||||||||||||||||
| Common stock issued for debt, $1.50 per share | 8,000 | 80 | 11,920 | 12,000 | ||||||||||||||||
| Common stock issued for debt, $1.65 per share | 6,061 | 61 | 9,939 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $1.70 per share | 16,391 | 164 | 27,701 | 27,865 | ||||||||||||||||
| Common stock issued for debt, $1.75 per share | 6,857 | 69 | 11,931 | 12,000 | ||||||||||||||||
| Common stock issued for debt, $1.80 per share | 8,333 | 83 | 14,917 | 15,000 | ||||||||||||||||
| Common stock issued for debt, $1.95 per share | 17,333 | 173 | 33,627 | 33,800 | ||||||||||||||||
| Common stock issued for debt, $2.70 per share | 3,704 | 37 | 9,963 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $3.02 per share | 11,467 | 115 | 34,460 | 34,575 | ||||||||||||||||
| Common stock issued for debt, $3.00 per share | 6,000 | 60 | 17,940 | 18,000 | ||||||||||||||||
| Common stock issued for debt, $3.70 per share | 2,703 | 27 | 9,973 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $3.75 per share | 4,000 | 40 | 14,960 | 15,000 | ||||||||||||||||
| Options and warrants granted to employees and consultants for services | - | - | 29 | - | 29 | |||||||||||||||
| Interest recognized on beneficial conversion feature of convertible debentures issued | - | - | 218,532 | - | 218,532 | |||||||||||||||
| Net loss | (1,495,607 | ) | (1,495,607 | ) | ||||||||||||||||
| Balance, October 31, 2011 | 974,686 | $ | 9,748 | $ | 41,828,819 | $ | (44,161,990 | ) | $ | (2,323,423 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-8 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders’ Deficit (Continued)
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock | Paid-in | Accumulated | |||||||||||||||||
| (Shares) | ($) | Capital | (Deficit) | Total | ||||||||||||||||
| Balance, October 31, 2011 | 974,686 | $ | 9,748 | $ | 41,828,819 | $ | (44,161,990 | ) | $ | (2,323,423 | ) | |||||||||
| Common stock issued to officers, directors and consultants | ||||||||||||||||||||
| for services, $1.19 per share | 4,202 | 42 | 4,958 | 5,000 | ||||||||||||||||
| for services, $1.21 per share | 2,066 | 21 | 2,479 | 2,500 | ||||||||||||||||
| for services, $1.41 per share | 3,546 | 35 | 4,965 | 5,000 | ||||||||||||||||
| for services, $1.46 per share | 5,137 | 51 | 7,449 | 7,500 | ||||||||||||||||
| for services, $1.48 per share | 3,378 | 34 | 4,966 | 5,000 | ||||||||||||||||
| for services, $1.51 per share | 3,311 | 33 | 4,967 | 5,000 | ||||||||||||||||
| for services, $1.54 per share | 3,247 | 33 | 4,967 | 5,000 | ||||||||||||||||
| for services, $1.56 per share | 962 | 10 | 1,490 | 1,500 | ||||||||||||||||
| for services, $1.61 per share | 3,106 | 31 | 4,969 | 5,000 | ||||||||||||||||
| for services, $1.65 per share | 3,030 | 30 | 4,970 | 5,000 | ||||||||||||||||
| for services, $1.80 per share | 100 | 1 | 179 | 180 | ||||||||||||||||
| for services, $1.78 per share | 1,685 | 17 | 2,983 | 3,000 | ||||||||||||||||
| for services, $1.90 per share | 1,842 | 18 | 3,482 | 3,500 | ||||||||||||||||
| for services, $1.95 per share | 100 | 1 | 194 | 195 | ||||||||||||||||
| for services, $1.96 per share | 40,000 | 400 | 77,900 | 78,300 | ||||||||||||||||
| for services, $2.75 per share | 100 | 1 | 274 | 275 | ||||||||||||||||
| for services, $3.05 per share | 100 | 1 | 304 | 305 | ||||||||||||||||
| for services, $3.25 per share | 100 | 1 | 324 | 325 | ||||||||||||||||
| Common stock issued for loan, $2.74 per share | 1,200 | 12 | 3,276 | 3,288 | ||||||||||||||||
| Common stock issued in private placement offering, $0.50 per share | 2,000,000 | 20,000 | 980,000 | 1,000,000 | ||||||||||||||||
| Common stock issued in private placement offering, $0.75 per share | 80,000 | 800 | 59,200 | 60,000 | ||||||||||||||||
| Common stock issued in private placement offering, $1.36 per share | 22,131 | 221 | 29,779 | 30,000 | ||||||||||||||||
| Common stock issued in private placement offering, $1.50 per share | 69,244 | 692 | 103,175 | 103,867 | ||||||||||||||||
| Common stock issued in private placement offering, $1.90 per share | 5,140 | 51 | 9,715 | 9,766 | ||||||||||||||||
| Common stock issued in private placement offering, $2.00 per share | 10,598 | 106 | 21,090 | 21,196 | ||||||||||||||||
| Common stock issued in private placement offering, $2.66 per share | 5,806 | 58 | 15,386 | 15,444 | ||||||||||||||||
| Common stock issued in private placement offering, $2.80 per share | 11,979 | 120 | 33,421 | 33,541 | ||||||||||||||||
| Common stock issued for debt, $0.55 per share, net | 19,091 | 191 | 10,309 | 10,500 | ||||||||||||||||
| Common stock issued for debt, $0.60 per share, net | 19,167 | 192 | 11,308 | 11,500 | ||||||||||||||||
| Common stock issued for debt, $0.65 per share, net | 50,462 | 505 | 20,147 | 20,652 | ||||||||||||||||
| Common stock issued for debt, $0.70 per share, net | 60,000 | 600 | 29,400 | 30,000 | ||||||||||||||||
| Common stock issued for debt, $0.75 per share, net | 126,933 | 1,269 | 52,678 | 53,947 | ||||||||||||||||
| Common stock issued for debt, $0.80 per share, net | 53,875 | 539 | 42,561 | 43,100 | ||||||||||||||||
| Common stock issued for debt, $0.85 per share, net | 17,647 | 176 | 14,824 | 15,000 | ||||||||||||||||
| Common stock issued for debt, $0.95 per share, net | 45,263 | 453 | 42,547 | 43,000 | ||||||||||||||||
| Common stock issued for debt, $1.00 per share, net | 297,035 | 2,970 | 294,065 | 297,035 | ||||||||||||||||
| Common stock issued for debt, $1.49 per share, net | 8,400 | 84 | 12,416 | 12,500 | ||||||||||||||||
| Common stock issued for debt, $1.50 per share, net | 45,218 | 452 | 67,375 | 67,827 | ||||||||||||||||
| Common stock issued for debt, $1.75 per share, net | 438,185 | 4,382 | 762,442 | 766,824 | ||||||||||||||||
| Common stock issued for debt, $2.00 per share, net | 28,500 | 285 | 56,715 | 57,000 | ||||||||||||||||
| Common stock issued for debt, $3.50 per share, net | 7,143 | 71 | 24,929 | 25,000 | ||||||||||||||||
| Interest recognized on beneficial conversion feature of convertible debentures issued | - | - | 231,616 | 231,616 | ||||||||||||||||
| Net loss | (1,249,491 | ) | (1,249,491 | ) | ||||||||||||||||
| Balance, October 31, 2012 | 4,473,715 | $ | 44,737 | $ | 44,889,013 | $ | (45,411,481 | ) | $ | (477,731 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-9 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders’ Deficit (Continued)
For the Period from November 1, 2005 (Inception of Development Stage) through October 31, 2013
| Common | Common | Additional | ||||||||||||||||||
| Stock | Stock | Paid-in | Accumulated | |||||||||||||||||
| (Shares) | ($) | Capital | (Deficit) | Total | ||||||||||||||||
| Balance, October 31, 2012 | 4,473,715 | $ | 44,737 | $ | 44,889,013 | $ | (45,411,481 | ) | $ | (477,731 | ) | |||||||||
| Common stock issued in private placement offering, $0.50 per share | 370,000 | 3,700 | 181,300 | 185,000 | ||||||||||||||||
| Common stock issued in private placement offering, $0.85 per share | 211,765 | 2,118 | 177,882 | 180,000 | ||||||||||||||||
| Common stock issued in private placement offering, $1.50 per share | 3,333 | 33 | 4,967 | 5,000 | ||||||||||||||||
| Common stock issued in private placement offering, $0.75 per share | 13,333 | 134 | 9,866 | 10,000 | ||||||||||||||||
| Common stock issued for debt, $1.00 per share, net | 8,000 | 80 | 7,920 | 8,000 | ||||||||||||||||
| Common stock issued for debt, $1.50 per share, net | 8,000 | 80 | 11,920 | 12,000 | ||||||||||||||||
| Common stock issued for debt, $0.575 per share, net | 23,998 | 240 | 13,559 | 13,799 | ||||||||||||||||
| Common stock issued on exercise of options, $1.00 per share | 40,000 | 400 | 39,600 | 40,000 | ||||||||||||||||
| Common stock issued to officers, directors and consultants | - | |||||||||||||||||||
| for services, $1.63 per share | 435 | 4 | 705 | 709 | ||||||||||||||||
| for services, $1.45 per share | 196 | 2 | 282 | 284 | ||||||||||||||||
| Adjustment as a result of for reverse stock split | 252 | 3 | (3 | ) | - | |||||||||||||||
| Interest recognized on beneficial conversion feature of convertible debentures issued | - | - | (1,980 | ) | (1,980 | ) | ||||||||||||||
| Net loss | (998,350 | ) | (998,350 | ) | ||||||||||||||||
| Balance, October 31, 2013 | 5,153,027 | $ | 51,531 | $ | 45,335,031 | $ | (46,409,831 | ) | $ | (1,023,269 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-10 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended October 31, 2013 and 2012 and
Cumulative period from November 1, 2005 through October 31, 2013
| Cumulative period | ||||||||||||
| from | ||||||||||||
| November 1, 2005 | ||||||||||||
| October 31, | to | |||||||||||
| 2013 | 2012 | October 31, 2013 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (998,350 | ) | $ | (1,249,491 | ) | $ | (18,600,630 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Depreciation and amortization | 53,188 | 35,925 | 229,561 | |||||||||
| Gain on extinguishment of debt | - | (288,192 | ) | (288,192 | ) | |||||||
| Change in value of derivatives | (8,753 | ) | (55,195 | ) | (158,057 | ) | ||||||
| Change in anti-dilution liability | (42,043 | ) | - | (42,043 | ) | |||||||
| Amortization of costs and fees related to convertible debentures | 32,999 | 235,817 | 1,418,094 | |||||||||
| Common stock issued for services | - | - | 2,144,790 | |||||||||
| Common stock issued to officers, directors and consultants for services | 993 | 132,796 | 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 | - | - | 631,923 | |||||||||
| Costs and fees related to issuance of convertible debt | - | 3,288 | 542,540 | |||||||||
| Interest expense related to beneficial conversion feature | (1,980 | ) | - | 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 | 15,269 | (15,269 | ) | - | ||||||||
| Prepaid expenses | 30,223 | (30,900 | ) | 24,694 | ||||||||
| Inventories | (41,887 | ) | (25,600 | ) | (143,275 | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||||||
| Trade accounts payable | 184,794 | (131,650 | ) | 669,688 | ||||||||
| Accounts payable to officers and directors | 85,889 | 92,541 | 838,512 | |||||||||
| Accrued payroll and other expenses | 128,750 | 172,332 | 562,399 | |||||||||
| Net cash used in operating activities | (560,908 | ) | (1,123,598 | ) | (6,279,383 | ) | ||||||
| Cash flows from investing activities: | ||||||||||||
| Purchase of fixed assets | (6,404 | ) | (79,789 | ) | (223,547 | ) | ||||||
| Capitalization of software | (35,313 | ) | - | (35,313 | ) | |||||||
| Net cash used in investing activities | (41,717 | ) | (79,789 | ) | (258,860 | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-11 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
For the Years Ended October 31, 2013 and 2012 and
Cumulative period from November 1, 2005 through October 31, 2013
| Cumulative period | ||||||||||||
| from | ||||||||||||
| November 1, 2005 | ||||||||||||
| October 31, | to | |||||||||||
| 2013 | 2012 | October 31, 2013 | ||||||||||
| Cash flows from financing activities: | ||||||||||||
| Principal payments on notes payable to stockholder | (28,300 | ) | (140,500 | ) | (1,301,800 | ) | ||||||
| Proceeds from issuance of notes payable to a related party | 40,800 | 80,000 | 1,160,600 | |||||||||
| Proceeds from issuance of notes and convertible notes payable | 85,000 | 75,000 | 1,689,234 | |||||||||
| Proceeds from issuance of common stock | 420,000 | 1,273,813 | 3,875,475 | |||||||||
| Net cash provided by financing activities | 517,500 | 1,288,313 | 5,423,509 | |||||||||
| Net change in cash | (85,125 | ) | 84,926 | (1,190,291 | ) | |||||||
| Cash at beginning of period | 90,132 | 5,206 | 1,195,298 | |||||||||
| Cash at end of period | $ | 5,007 | $ | 90,132 | $ | 80,564 | ||||||
| Supplemental Disclosure of Cash Flow Information | ||||||||||||
| Interest paid | $ | 271 | $ | - | $ | 11,256 | ||||||
| Income taxes paid | $ | - | $ | - | $ | 20,240 | ||||||
| Supplemental Schedule of Non-Cash Investing and Financing Activities | ||||||||||||
| Conversion of convertible notes payable to shares of common stock | $ | 12,500 | $ | 395,000 | ||||||||
| Common stock issued in consideration for accounts payable and accrued payroll | $ | 20,000 | $ | 680,804 | ||||||||
| Notes converted by stockholders | $ | - | $ | 315,500 | ||||||||
| Interest paid with common stock | $ | 1,299 | $ | 127,982 | ||||||||
| Common stock issued in consideration for loan | $ | - | $ | 3,288 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-12 |
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, 2013. In accordance with the guidance provided under FASB Codification No. 810, (Consolidation-Noncontrolling Interests) the Company’s annual and interim reports 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 considered a development stage enterprise.
2. Basis of Presentation
The Company incurred net losses from continuing operations of $998,350 and $1,249,491 for the fiscal years ended October 31, 2013 and 2012, respectively. At October 31, 2013 the Company had an accumulated deficit of $46,409,831 and is in default under the redemption provisions of its redeemable preferred stock (Note 7). 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 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-13 |
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.
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.
Changes in Capitalization and Reverse Stock Split
On February 8, 2013, the Company amended its Articles of Incorporation and decreased the authorized number of shares of Common Stock from 2.5 billion to 25 million shares. At the same time, the Company underwent a five hundred-for-one (500:1) reverse stock split of its Common Stock and Redeemable Convertible Preferred Stock. For purposes of this Annual Report, all issuances of common stock and options or warrants to purchase common stock, if any, are reflected retroactively in post-reverse split amounts. As of October 31, 2013, the reverse split effected by the Company resulted in a reduction in capital stock and an increase in additional paid-in capital in the amount of $24,677,786.
Cash and Cash Equivalents
For purposes of reporting within the statement of cash flows, the Company considers all cash on hand, cash accounts not subject to withdrawal restrictions or penalties, and all highly liquid debt instruments purchased with a maturity of three months or less to be cash and cash equivalents.
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, 2013 and 2012.
Inventory
Inventory is stated at the lower of cost or market. 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.
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.
| F-14 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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.
Software Costs
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.
Advertising Costs
The Company charges advertising costs to expense as incurred. The Company incurred $17,123 and $25,357 in advertising expense during the fiscal year ended October 31, 2013 and 2012, 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.
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 October 31, 2013 and includes payroll earned, but unpaid to various employees between January 16, 2013 and October 31, 2013. 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.
Concentration of Credit Risk and Other Risks and Uncertainties
Accounts Payable – Trade
As of October 31, 2013, the amount due to a former consultant to the Company, $112,000, represented 33% of the total amount due for accounts payable to non-affiliates. As of October 31, 2013, the Company owed its current independent accounting firm $33,500, which represents 10% of the total amount due for accounts payable. An additional 19% of accounts payable, or $64,952, is due legal counsel in the Alpine MIT Partners litigation in Texas. The Company also owes local counsel $34,749 in accrued fees as of October 31, 2013, which represents 10% of the total amount due for accounts payable.
| F-15 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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. 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. 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 October 31, 2013, the principal balance due under the agreement amounted to $114,450 and, although Mr. Brennan originally waived interest on the note, the Company has accrued $11,750 in interest on that amount as of October 31, 2013.
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.
See also Item 13 – “Subsequent Events.”
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.
| F-16 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated 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 $23,358 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 at October 31, 2013.
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.
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 no share-based compensation expense during the fiscal years ended October 31, 2013 and 2012.
Activity under the Company’s stock option plans is included in Note 9.
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.
The Company has not yet completed its state and federal corporate income tax returns for the fiscal year ended October 31, 2012, which were due to be filed (with an extension), by July 15, 2013. Neither has the Company paid the $1,600 state income tax due for fiscal 2012 or the estimated tax of $1,600 due to the state for the fiscal year ended October 31, 2013. The Company has accrued $1,150 as of October 31, 2013 as penalties and interest related to these late payments and filings.
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 872,363 and 254,877 as of October 31, 2013 and 2012, respectively, have been omitted from the earnings (loss) per share calculation, as their effect would be antidilutive.
| F-17 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
New Accounting Pronouncements
On January 31, 2013, the FASB issued Accounting Standards Update [ASU] 2013-01, entitled Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities. The guidance in ASU 2013-01 amends the requirements in the FASB Accounting Standards Codification [FASB ASC] Topic 210, entitled Balance Sheet. The ASU 2013-01 amendments to FASB ASC 210 clarify that ordinary trade receivables and receivables in general are not within the scope of ASU 2011-11, entitled Disclosure about Offsetting Assets and Liabilities, where that ASU amended the guidance in FASB ASC 210. As those disclosures now are modified with the ASU 2013-01 amendments, the FASB ASC 210 balance sheet offsetting disclosures now clearly are applicable only where reporting entities are involved with bifurcated embedded derivatives, repurchase agreements, reverse repurchase agreements, and securities borrowing and lending transactions that either are offset using the FASB ASC 210 or 815 requirements, or that are subject to enforceable master netting arrangements or similar agreements. ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU is not expected to have a material impact on our financial statements.
On February 28, 2013, the FASB issued Accounting Standards Update [ASU] 2013-04, entitled Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The ASU 2013-04 amendments add to the guidance in FASB Accounting Standards Codification [FASB ASC] Topic 405, entitled Liabilities and require reporting entities to measure obligations resulting from certain joint and several liability arrangements where the total amount of the obligation is fixed as of the reporting date, as the sum of the following:
| ● | The amount the reporting entity agreed to pay on the basis of its arrangement among co-obligors. | |
| ● | Any additional amounts the reporting entity expects to pay on behalf of its co-obligors. |
While early adoption of the amended guidance is permitted, for public companies, the guidance is required to be implemented in fiscal years, and interim periods within those years, beginning after December 15, 2013. The amendments need to be implemented retrospectively to all prior periods presented for obligations resulting from joint and several liability arrangements that exist at the beginning of the year of adoption. The adoption of ASU 2013-04 is not expected to have a material effect on the Company’s operating results or financial position.
On April 22, 2013, the FASB issued Accounting Standards Update [ASU] 2013-07, entitled Liquidation Basis of Accounting. With ASU 2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation of Financial Statements. The amendments serve to clarify when and how reporting entities should apply the liquidation basis of accounting. The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit entities. The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related financial statement presentation requirements. The requirements in ASU 2013-07 are effective for annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods. Reporting entities are required to apply the requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption of ASU 2013-07 is not expected to have a material effect on the Company’s operating results or financial position.
On July 18, 2013, the FASB issued ASU 2013-11, which provides guidance on financial statement presentation of an unrecognized tax benefit2 when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. This ASU applies to all entities with unrecognized tax benefits that also have tax loss or tax credit carryforwards in the same tax jurisdiction as of the reporting date. Under the ASU, an entity must present an unrecognized tax benefit, or a portion of an unrecognized tax benefit, in the financial statements as a reduction to a deferred tax asset for an NOL carryforward, a similar tax loss, or a tax credit carryforward except when:
| ● | An NOL carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date under the governing tax law to settle taxes that would result from the disallowance of the tax position. | |
| ● | The entity does not intend to use the deferred tax asset for this purpose (provided that the tax law permits a choice). |
| F-18 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
If either of these conditions exists, an entity should present an unrecognized tax benefit in the financial statements as a liability and should not net the unrecognized tax benefit with a deferred tax asset.
ASU 2013-11 is effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. The adoption of ASU 2013-11 is not expected to have a material effect on the Company’s operating results or financial position.
There were various other updates recently issued, many of which represented technical corrections to the accounting literature or application to specific industries. N one 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:
| 2013 | 2012 | |||||||
| Machinery and equipment | $ | 235,504 | $ | 229,100 | ||||
| Furniture and fixtures | 74,326 | 74,326 | ||||||
| Leasehold improvements | 77,779 | 77,779 | ||||||
| Production molding | 14,000 | 14,000 | ||||||
| Software | 35,313 | - | ||||||
| 436,922 | 395,205 | |||||||
| Less: accumulated depreciation | (325,352 | ) | (272,164 | ) | ||||
| Total property and equipment, net | $ | 111,570 | $ | 123,041 | ||||
Depreciation and amortization expense for the years ended October 31, 2013 and 2012 was $53,188 and $35,925, respectively.
5. 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.
On July 18, 2013 and September 18, 2013, the Company entered into new Securities Purchase Agreements with the lender, each in the sum of $42,500, and paid a total of $5,000 out of the proceeds of the notes to lender for legal fees and expenses related to the referenced agreements. The notes mature on April 22, 2014 and June 20, 2014, respectively, 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 $75,557 has been recorded for the fiscal period ended October 31, 2013. This liability will be revalued each reporting period and gains and losses will be recognized in the statement of operations under “Other Income (Expense)”.
| F-19 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Pursuant to the terms of the Series I Notes, the Company has instructed its stock transfer agent to reserve 1,400,000 shares of the Company’s common stock to be issued if the notes are converted. Such shares have been reserved, but are not considered as issued and outstanding. If the Series I Notes had been converted as of October 31, 2013, the Company would have issued a total of 348,360 shares of common stock the value of which would exceed, by $89,180 the principal balance due on the note.
See also Note 13 – “Subsequent Events.”
Fair value of financial instruments
The accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash and other current assets and liabilities to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.
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.
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 October 31, 2013, the assumptions used to measure fair value of the liability embedded in our outstanding Series I Note included an exercise price of $0.31 per share, a common share price of $0.50, a discount rate of 0.08%, and a volatility of 138%.
| F-20 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
The following table sets forth, by level within the fair value hierarchy, our financial instrument liabilities as of October 31, 2013 (See also Note 6 – Convertible Debentures – “Series 1 Notes”):
| Quoted Prices in Active Markets For Identical Assets | Significant Other Observable Inputs | Significant Unobservable Inputs | Total | |||||||||||||
| (Level 3) | (Level 3) | (Level 3) | ||||||||||||||
| Derivative liability | $ | — | $ | — | $ | 75,557 | $ | 75,557 | ||||||||
| Total | $ | — | $ | — | $ | 75,557 | $ | 75,557 | ||||||||
The following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the fiscal years ended October 31, 2012 and 2013:
| Fair
Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||
| Balance October 31, 2012 | $ | - | ||
| Additions | 84,310 | |||
| Net gain included in earnings | (8,753 | ) | ||
| Settlements | - | |||
| Balance October 31, 2013 | $ | 75,557 | ||
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 $19,300 in accrued interest on the note as of October 31, 2013. If the note had been converted as of October 31, 2013, the Company would have issued a total of 279,603 shares of common stock the value of which would exceed, by $74,934 the principal balance due on the note. The Company is currently negotiating with the lender to settle or renegotiate the Note.
On November 27, 2009, the Company borrowed $25,000 from an unaffiliated lender. In September 2011, the lender converted $12,500 of the principal and $2,876 in accrued interest into 17,084 shares of common stock. The Company issued an Amended and Restated Convertible Note for the $12,500 principal balance of the loan bearing 6% annual interest. The amended note matured on December 31, 2012 and on June 15, 2013, the lender converted the remaining $12,500 principal plus $1,299 in accrued interest into 23,998 shares of common stock at a conversion rate of $0.575 per share. Because the original note carried a beneficial conversion feature, the Company amortized a total of $10,507 as the intrinsic value of the note, including $3,202 which was expensed during fiscal 2013.
| F-21 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
At October 31, 2013 and 2012, without taking into effect any unamortized discounts, convertible debentures and Series 1 notes consisted of the following:
| 2013 | 2012 | |||||||
| Series 1 Notes, principal and interest at 8% maturing through May 25, 2012. | $ | 85,000 | $ | — | ||||
| Convertible note payable to stockholder; principal and interest at 10% due on May 31, 2012. | $ | 64,868 | $ | 64,868 | ||||
| Convertible notes payable to various stockholders; principal and interest at 6% due on August 1, 2012 and December 31, 2012. | $ | — | $ | 12,500 | ||||
| 149,868 | 77,368 | |||||||
| Less current maturities | $ | 149,868 | $ | 77,368 | ||||
| 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 | $ | 85,000 | |||
| Thereafter | — | ||||
| $ | 85,000 |
6. Notes Payable to an Officer and Stockholders
At October 31, 2012 and 2011, without taking into effect any unamortized discounts, notes payable to an officer and to stockholders consisted of the following:
| 2013 | 2012 | |||||||
| Unsecured, interest-free convertible notes payable to former officer/director of the Company; principal due on payment schedule through May 2014. | $ | 113,450 | $ | 136,950 | ||||
| Unsecured notes payable to officers/directors of the Company; principal and interest at 6% due on demand. | $ | 36,000 | $ | — | ||||
| 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 | ||||
| 201,450 | 188,950 | |||||||
| Less current maturities | $ | 201,450 | $ | 142,844 | ||||
| Long term portion of notes payable | $ | — | $ | 46,106 | ||||
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 | $ | 201,450 | |||
| Thereafter | — | ||||
| $ | 201,450 |
| F-22 |
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:
| 2013 | 2012 | |||||||
| 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, 2013 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 | $ | 10,782,000 | ||
| Other credit carryforward | 165,000 | |||
| Depreciation and amortization | — | |||
| Total noncurrent deferred tax assets | 10,947,000 | |||
| Valuation allowance | (10,947,000 | ) | ||
| 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, 2013 was an increase of $396,000.
Reconciliation of the effective income tax rate to the U.S. statutory income tax rate is as follows:
| 2013 | 2012 | |||||||
| 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-23 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
As of October 31, 2013, the Company has federal and state net operating loss carryforwards of $27,091,000 and $21,561,000, respectively. The federal and state net operating loss carryforwards begin expiring through 2013 and 2023. The Company also has federal and state research and development tax credit carryforwards of $165,000 and $130,000, respectively.
Management regularly evaluates the likelihood of realizing the benefit for income tax positions taken by the Company in various federal and state filings by considering all relevant facts, circumstances and information available. If management believes it is more likely than not that a position will be sustained, the Company will recognize a benefit at the largest amount which is cumulatively greater than 50% likely to be realized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as a component of the provision for income taxes. The Company has not recognized any contingencies for uncertain tax positions for the years ended October 31, 2013 and 2012. Although, the IRS is not currently examining any of the Company’s income tax returns, tax years 2009 through 2013 remain open and are subject to examination.
8. Stockholders’ Deficit
Common Stock
On November 29, 2012, the Company issued 200,000 shares of common stock to Gregg Newhuis, a Director of the Company, for proceeds of $100,000, or $0.50 per share.
On January 11, 2013, a major stockholder of the Company exercised a warrant to purchase 40,000 shares of common stock at $1.00 per share and the Company received $40,000 pursuant to the exercise.
On January 11, 2013, the Company’s Chief Financial Officer, Victor Hollander, purchased 3,333 shares of Common Stock for proceeds of $5,000, or $1.50 per share.
Between January 16, 2013 and February 22, 2013, the Company issued a total of 16,000 shares of common stock in payment for legal services rendered valued at $20,000.
Between February 6, 2013 and April 3, 2013, the Company issued a total of 211,764 to a major stockholder for proceeds of $180,000, or $0.85 per share. This same stockholder purchased an additional 60,000 shares of common stock for $30,000, or $0.50 per share, on August 13, 2013.
On April 26, 2013, the Company issued 435 and 196 shares of common stock to Jeffrey Nunez at $1.63 and $1.45 per share, respectively, in partial payment of previous transaction fees due him pursuant to an April 2012 agreement whereby he received a 5% transaction fee on all monies received by the Company.
On June 4, 2013, the Company sold 50,000 shares of common stock to a major stockholder for proceeds of $25,000, or $0.50 per share. As partial consideration for the transactions, the stockholder also received a three year warrant to purchase 50,000 shares of common stock at $0.50 per share and warrants to purchase 100,000 shares of common stock at $1.00 per share.
Between August 7, 2013 and October 17, 2013, the above-referenced major stockholder purchased an additional 40,000 shares of common stock at $0.50 per share, for proceeds of $20,000. The stockholder also received six-month warrants purchase an additional 20,000 shares of common stock for $1.00 per share.
On June 15, 2013, a stockholder converted a $12,500 principal loan, plus $1,299 in accrued interest, into 23,998 shares of common stock at $0.575 per share. And on June 28, 2013, this same stockholder purchased 13,333 shares of common stock from the Company for proceeds of $10,000, at $0.75 per share.
On September 5, 2013, an unaffiliated investor purchased 20,000 shares of common stock at $0.50 per share for total proceeds of $10,000.
| F-24 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
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, 2012, there were no shares of Series C preferred stock issued or outstanding.
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, 2012.
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.
| F-25 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
9. Stock Options and Warrants
Common Stock Options
On February 14, 2012 the Board of Directors authorized the formation of the 2012 Employee Benefit Plan which is authorized to grant up to 120,000 shares of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility is determined by the Board of Directors. During the fiscal year ended October 31, 2013, the Company issued 16,000 shares of common stock under the Benefit Plan to legal counsel for services rendered in the aggregate sum of $20,000. Under the 2012 Plan, there are still 44,500 options or shares available to be issued. 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, 2011 | 6,000 | $ | 45.00 | 2.1 | $ | — | |||||||||||
| Granted | — | — | |||||||||||||||
| Exercised | — | — | |||||||||||||||
| Expired | (400 | ) | 80.00 | ||||||||||||||
| Canceled | — | — | |||||||||||||||
| Outstanding at October 31, 2012 | 5,600 | 40.00 | 1.2 | $ | — | ||||||||||||
| Granted | — | — | |||||||||||||||
| Exercised | — | — | |||||||||||||||
| Expired | (1,200 | ) | 145.83 | ||||||||||||||
| Canceled | — | — | |||||||||||||||
| Outstanding at October 31, 2013 | 4,400 | $ | 13.35 | 0.4 | $ | — | |||||||||||
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 2013 and 2012.
| 2013 | 2012 | |||||||
| Risk-free interest rate | — | — | % | |||||
| Expected dividend yield | — | — | ||||||
| Expected stock price volatility | — | — | ||||||
| Expected life in years | — | — |
Summary information about the Company’s options outstanding at October 31, 2013 is set forth in the table below. Options outstanding at October 31, 2013 expire between February 2014 and January 2016.
| F-26 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
| Range
of Exercise Prices | Options Outstanding October 31, 2013 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Options Exercisable October 31, 2013 | Weighted Average Exercise Price | |||||||||||||||||
| $ | 7.69 | 4,000 | 0.3 | $ | 7.69 | 4,000 | $ | 7.69 | ||||||||||||||
| $ | 70.00 | 400 | 2.2 | $ | 70.00 | 400 | $ | 70.00 | ||||||||||||||
| TOTAL: | 4,400 | 4,400 | ||||||||||||||||||||
There were no unvested stock options as of October 31, 2013. See also Note 14 – “Subsequent Events.”
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.
As of October 31, 2013, of 146,667 warrants outstanding at the end of fiscal year 2012, 66,667 warrants were surrendered and cancelled and 40,000 warrants were exercised. During the fiscal year ended October 31, 2013, the Company granted warrants as follows:
On June 4, 2013, as partial consideration for his purchase of 50,000 shares of common stock for $25,000, a major stockholder received three-year warrants to purchase an additional 50,000 shares of common stock at $0.50 per share and another 100,000 shares of common stock at $1.00 per share.
On August 7, 2013, the above major stockholder received a six-month warrant to purchase 10,000 shares of common stock at $1.00 per share as consideration for a $10,000 purchase of stock at $0.50 per share.
On October 17, 2013, the Company issued six-month warrants to purchase an additional 10,000 shares of common stock to the same stockholder for $1.00 per share for a similar $10,000 purchase of common stock.
On August 13, 2013, a major stockholder received six-month warrants to purchase 30,000 shares of common stock at $1.00 per share as partial consideration for a $30,000 purchase of common stock at $0.50 per share.
The following table summarizes the information relating to warrants granted to non-employees as of October 31, 2013 and 2012 and changes during the years then ended. Warrants outstanding at October 31, 2013 expire between February 2014 and June 2016.
See also Note 13 – “Subsequent Events.”
| F-27 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
| Number
of Warrants | Weighted Average Exercise Price | ||||||||
| Outstanding at October 31, 2011 | 10,000 | $ | 5.00 | ||||||
| Granted | 413,334 | 1.00 | |||||||
| Exercised | — | — | |||||||
| Cancelled | (266,667 | ) | 1.50 | ||||||
| Expired | (10,000 | ) | 5.00 | ||||||
| Outstanding at October 31, 2012 | 146,667 | 1.00 | |||||||
| Granted | 200,000 | 0.88 | |||||||
| Exercised | (40,000 | ) | 1.00 | ||||||
| Cancelled | (66,667 | ) | 1.50 | ||||||
| Expired | — | — | |||||||
| Outstanding at October 31, 2013 | 240,000 | $ | 0.90 | ||||||
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 2013 and 2012:
| 2013 | 2012 | |||||||
| Risk-free interest rate | 0.71 | % | 0.72 | % | ||||
| Expected dividend yield | — | — | ||||||
| Expected stock price volatility | 1.42 | 1.89 | ||||||
| Expected life in years | 2.0 years | 1.7 years | ||||||
Summary information about the Company’s warrants outstanding at October 31, 2013 is as follows:
| Range of Exercise Prices | Warrants October 31, 2013 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Warrants Exercisable October 31, 2013 | Weighted Average Exercise Price | |||||||||||||||||
| $ | 0.50 | 50,000 | 2.6 | $ | 0.50 | 50,000 | $ | 0.50 | ||||||||||||||
| $ | 1.00 | 190,000 | 1.8 | $ | 1.00 | 190,000 | $ | 1.00 | ||||||||||||||
| TOTAL: | 240,000 | 240,000 | ||||||||||||||||||||
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 Company has signed an extension of the lease through March 2014 at the same monthly rate.
Future minimum facilities lease payments as of October 31, 2013 are as follows:
| 2014 | $ | 19,475 | |||
| 2015 | $ | — |
| F-28 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
Employment Contracts
Jeffrey Nunez
On April 1, 2012, the Company entered into a one-year Consulting Agreement with Mr. Nunez which provides for compensation of $8,000 per month during the term of the agreement. On April 20, 2012, Mr. Nunez was appointed to the Board of Directors and named Chief Executive Officer of the Company. Effective October 1, 2012, the Board of Directors increased Mr. Nunez’ monthly compensation to $12,000. In October 2012, Mr. Nunez also received a bonus in the amount of $20,000 and 40,000 shares of the Company’s common stock valued at $78,300.
Pursuant to the consulting arrangement, Mr. Nunez was entitled to a 5% “transaction fee” on all proceeds received by the Company during the term of the agreement, payable in common stock of the Company. Mr. Nunez received fees aggregating $60,000 pursuant to this provision on monies received through January 31, 2013, at which time this arrangement was terminated by mutual consent.
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. No contributions to the IRA plan were made during fiscal 2012 or 2013.
13. Subsequent Events (Unaudited)
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.
On November 8, 2013 and on December 13, 2013, the Company issued 20,000 shares of common stock to a major stockholder for proceeds of $20,000, or $0.50 per share. The stockholder also received six-month warrants to purchase an additional 20,000 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.
On November 19, 2013, the Company established the 2014 Employee Benefit Plan (the “Plan”) which authorizes the issuance of up to 525,000 shares, or options underlying shares, to eligible employees, consultants or advisors of the Company. On November 19, 2013, the Board of Directors granted three-year options to purchase 100,000 and 125,000 shares of common stock under the Plan to the Company’s President, Jeffrey Nunez, at exercise prices of $0.50 and $1.00 per share, respectively. Additional three-year options to purchase 175,000 shares of common stock at $1.00 per share were also granted under the Plan to three other employees of the Company on November 19, 2013.
Between November 8, 2013 and January 29, 2014, Gregg Newhuis, a member of the Board of Directors, loaned the Company $34,000. The loans bear interest at the rate of 6% per annum and are payable on demand.
| F-29 |
Micro Imaging Technology, Inc. and Subsidiary
(A Development Stage Company)
Notes to the Consolidated Financial Statements
On January 9, 2014, the Company entered into a Securities Purchase Agreement and executed a Convertible Promissory Note with Asher Enterprises in the sum of $32,500. On or about January 29, 2014, the proceeds of the note, net of $2,500 in legal fees, were paid to the Company’s independent accounting firm.
On January 27, 2014, the Company issued 68,306 shares of common stock upon the conversion of $15,000 in convertible debentures held by Asher Enterprises at a conversion price of $0.2196 per share.
| F-30 |
EXHIBIT 21.1
SUBSIDIARIES OF MICRO IMAGING TECHNOLOGY, INC.
The Company owns the indicated percentage of the issued and outstanding stock of the following corporations:
| Name of Subsidiary | State of Incorporation | Ownership Percentage | ||||||
| Micro Imaging Technology | Nevada | 80.73 | % | |||||
EXHIBIT 31.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey G. Nunez, certify that:
1. I have reviewed this annual report on Form 10-K for the fiscal year ended October 31, 2013, of Micro Imaging Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| /s/ Jeffrey G. Nunez | |
| Jeffrey
G. Nunez Chief Executive Officer | |
| February 13, 2014 |
EXHIBIT 31.2
CERTIFICATION
OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Victor A. Hollander, certify that:
1. I have reviewed this annual report on Form 10-K for the fiscal year ended October 31, 2013, of Micro Imaging Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.
| /s/ Victor A. Hollander | |
| Victor A. Hollander Chief Financial Officer | |
| February 13, 2014 |
EXHIBIT 32.1
CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICERS
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Annual Report of Micro Imaging Technology, Inc. (the “Company”) on Form 10-K for the fiscal year ended October 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeffrey G. Nunez, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.
| /s/ Jeffrey G. Nunez | |
| Jeffrey G. Nunez President and Chief Executive Officer | |
| February 13, 2014 |
EXHIBIT 32.2
CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICERS
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Annual Report of Micro Imaging Technology, Inc. (the “Company”) on Form 10-K for the fiscal year ended October 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Victor A. Hollander, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of the Company.
| /s/ Victor A. Hollander | |
| Victor A. Hollander Chief Financial Officer | |
| February 13, 2014 |
|
Notes Payable to an Officer and Stockholder (Details Narrative) (USD $)
|
Oct. 31, 2013
|
Oct. 31, 2012
|
|---|---|---|
| Notes payable gross | $ 201,450 | $ 188,950 |
|
Officer And Director [Member]
|
||
| Notes payable gross | 113,450 | |
|
Various Stockholders [Member]
|
||
| Notes payable gross | $ 52,000 |
|
Stock Options and Warrants (Details Narrative) (USD $)
|
0 Months Ended | 1 Months Ended | 12 Months Ended | 96 Months Ended | 0 Months Ended | 12 Months Ended | 0 Months Ended | 12 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Aug. 13, 2013
|
Aug. 07, 2013
|
Jun. 28, 2013
|
Feb. 22, 2013
|
Oct. 31, 2013
|
Oct. 31, 2012
|
Oct. 31, 2013
|
Oct. 17, 2013
Warrant [Member]
|
Aug. 13, 2013
Warrant [Member]
|
Aug. 07, 2013
Warrant [Member]
|
Oct. 31, 2013
Warrant [Member]
|
Jun. 04, 2013
Major Shareholder [Member]
|
Jun. 04, 2013
Major Shareholder [Member]
Warrant [Member]
|
Jun. 04, 2013
Major Stockholder [Member]
Warrant [Member]
|
Oct. 31, 2013
2012 Employee Benefit Plan [Member]
|
Feb. 14, 2012
2012 Employee Benefit Plan [Member]
|
|
| Number of options available to grant under stock plan | 44,500 | 120,000 | ||||||||||||||
| Issuance of authorized common stock under stock plan | 16,000 | |||||||||||||||
| Stock issued during period for consideration of services under benefit plan | $ 20,000 | $ 993 | $ 132,796 | $ 3,212,484 | $ 20,000 | |||||||||||
| Outstanding stock options expiration term |
expire between February 2014 and January 2016 |
expire between February 2014 and June 2016 |
||||||||||||||
| Number of warrants outstanding | 146,667 | 146,667 | ||||||||||||||
| Number of warrants surrender or cancelled | 66,667 | |||||||||||||||
| Warrants exercised to purchase common stock | 40,000 | |||||||||||||||
| Common stock issued during period, shares | 13,333 | 50,000 | ||||||||||||||
| Common stock issued during period | $ 30,000 | $ 10,000 | $ 10,000 | $ 10,000 | $ 25,000 | |||||||||||
| Common stock price per share | $ 0.50 | $ 0.50 | $ 0.75 | $ 1.00 | $ 1.00 | $ 1.00 | $ 0.50 | $ 0.50 | $ 1.00 | |||||||
| Warrant issued to purchase number of common stock, shares | 10,000 | 30,000 | 10,000 | 50,000 | 100,000 | |||||||||||