The accompanying notes are an integral
part of the condensed consolidated financial statements.
The accompanying notes are an integral
part of the condensed consolidated financial statements.
The accompanying notes are an integral
part of the condensed consolidated financial statements.
The accompanying notes are an integral
part of the condensed consolidated financial statements.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
1.
|
Nature
of our Business, Development Stage Company and Continuance of Operations
|
These
unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America applicable to a going concern which contemplated the realization of assets and the satisfaction
of liabilities and commitments in the normal course of business. Since inception, the Company has incurred substantial losses
and there is substantial doubt that the Company will generate sufficient revenues in the foreseeable future to meet its operating
cash requirements. Accordingly, the Company’s ability to continue operations depends on its success in obtaining additional
capital in an amount sufficient to meet its cash needs. This raises substantial doubt about its ability to continue as a going
concern. These financial statements do not include any adjustments that might result from this uncertainty.
Our
independent registered public accounting firm has included an explanatory paragraph in its report on the financial statements
for the year ended October 31, 2013 which raises substantial doubt about our ability to continue as a going concern.
Micro
Imaging Technology, Inc. (the “Company”), a California corporation, is a holding company whose operations are conducted
through its Nevada subsidiary, Micro Imaging Technology (“MIT”). As of January 31, 2014, the Company owned eighty
point seven percent (80.7%) of the issued and outstanding stock of MIT.
The
losses incurred to date which are applicable to the minority stockholders of the Company’s consolidated subsidiary, MIT,
exceed the value of the equity held by the minority stockholders. Such losses have been allocated to the Company as the majority
stockholder and are included in the net loss and accumulated deficit in the condensed consolidated financial statements for the
three months ended January 31, 2014. Any future profits reported by our subsidiary will be allocated to the Company until the
minority’s share of losses previously absorbed by the Company have been recovered.
In
1997, the Company began marketing a small, point-of-use water treatment product aimed at the high purity segment of commercial
and industrial water treatment markets. In February 2000, the Company formed Electropure EDI, Inc. (EDI), a wholly-owned Nevada
subsidiary, through which all manufacturing and sales of its proprietary water treatment products were then conducted. In October
2005, the Company sold the assets of the EDI subsidiary and discontinued operations.
The
Company acquired, in October 1997, an exclusive license to the patent and intellectual property rights involving laser light scattering
techniques to be utilized in the detection and monitoring of toxicants in drinking water. In February 2000, the Company formed
Micro Imaging Technology (MIT), a majority-owned Nevada subsidiary, to conduct research and development based upon advancements
developed and patented from the licensed technology. The technology being developed is a non-biologically based system utilizing
both proprietary hardware and software to rapidly (near real time) determine the specific specie of an unknown microbe present
in a fluid with a high degree of statistical probability (“MIT system”). It will analyze a sample presented to it
and compare its characteristics to a library of known microbe characteristics on file. At present, it is the Company’s only
operation.
Effective
with the sale of its EDI operation in October 2005, the Company’s planned principal operation, the further development and
marketing of its remaining technology, has not produced any significant revenue and, as such, the Company, beginning with the
fiscal year starting November 1, 2005, is considered a development stage enterprise.
The
accompanying unaudited condensed consolidated financial statements include all adjustments, consisting solely of normal recurring
adjustments which management believes are necessary for a fair presentation of the Company’s financial position at January
31, 2014 and results of operations for the periods presented.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed
or omitted.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Results
of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying
condensed consolidated financial statements should be read in conjunction with our audited financial statements and footnotes
as of and for the year ended October 31, 2013, included in our Annual Report on Form 10-K filed with the Securities and Exchange
Commission on February 13, 2014.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of
operations, realization of assets and liabilities and commitments in the normal course of business. The accompanying financial
statements do not reflect any adjustments that might result if the Company is unable to continue as a going concern. The Company
has not generated revenue, and has negative cash flows from operations, which raise substantial doubt about the Company’s
ability to continue as a going concern. The ability of the Company to continue as a going concern and appropriateness of using
the going concern basis is dependent upon, among other things, additional cash infusion. The Company has obtained funds from several
stockholders and believes this funding will continue. Management believes the existing stockholders will provide the additional
cash needed to meet the Company’s obligations as they become due, and will allow the development of its core business.
|
3.
|
Concentration
of Credit Risk and Other Risks and Uncertainties
|
Litigation
and Claims
Alpine
MIT Partners
On
May 16, 2012, Alpine MIT Partners, LLC (Plaintiffs) filed a civil action against the Company and its Chairman and Chief Executive
Officer, Jeffrey G. Nunez, (collectively, the Company), in the Texas District Court, Travis County. Plaintiffs alleged breach
of contract and civil conspiracy, as well as tortious interference with contractual relations and prospective business relations.
The lawsuit alleges that the Company breached certain provisions of a March 7, 2012 Securities Purchase Agreement the Company
executed with the Plaintiff to sell up to $2.0 million of 7% Senior Secured five-year Convertible Debentures convertible into
shares of common stock at a conversion rate of $.003 per share. The purchase and sale of the first $1.0 million Debenture was
scheduled to close on or before April 6, 2012 and was subject to, among other things, Alpine closing the necessary equity funding
to consummate the transactions. No money was ever received by the Company from Alpine. At a March 7, 2013 hearing, the Texas court
upheld the Company’s argument and dismissed the complaint against the Company for lack of jurisdiction.
In
August, 2013, Alpine filed an amended Complaint against Jeffrey Nunez in the Texas case alleging tortuous interference and conspiracy
to terminate the March 7, 2012 Securities Purchase Agreement.
On
January 10, 2013, the Company learned that Plaintiffs had filed a lien against the Company’s patents on May 8, 2012 with
the California Secretary of State under the Uniform Commercial Code. On or about January 29, 2013, the Company filed suit against
Alpine MIT Partners, LLC in the Orange County, California Superior Court alleging, among other claims, that the UCC filing is
unauthorized. The lawsuit also names the managing director and managing member of Alpine as Defendants and alleges that they made
false promises, intentional misrepresentations and breached the contract which is the subject of the Texas suit. The Company is
seeking damages of $1.6 million. This lawsuit is currently in the discovery phase.
Michael
W. Brennan
Concurrent
with his April 13, 2012 resignation as Chairman of the Board of Directors and Chief Executive Officer, the Company agreed to repay
a total of $160,000 in principal loans, $24,339 in accrued interest and $13,120 in unpaid fees and expenses due Michael Brennan
over a 25-month payment schedule commencing May 1, 2012. Due to lack of funds, the Company has not made payments due Mr. Brennan
since February 2013, each in the amount of $7,500. As of January 31, 2014, the principal balance due under the agreement amounted
to $113,450 and, although Mr. Brennan originally waived interest on the note, the Company has accrued $13,466 in interest on that
amount as of January 31, 2014.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
On
or about October 4, 2013, Mr. Brennan filed a lawsuit in the California Superior Court of Los Angeles for breach of contract for
failure to pay monies due him under the above 2012 agreement. The lawsuit seeks $123,509 in principal damages, plus interest,
costs and attorney fees. The Company has filed an answer to the complaint and is contesting the amount due Mr. Brennan. This lawsuit
is currently in the discovery phase.
Other
Litigation
On
or about November 12, 2013, a vendor filed suit in the Orange County California Superior Court for non-payment of $9,894 in fees
for services rendered. In or around December 2013, the vendor received a default judgment in the case and on January 23, 2014
filed a lien against the Company with the California Secretary of State. The Company anticipates negotiating a payment schedule
with this vendor.
We
are subject from time to time to litigation, claims and suits arising in the ordinary course of business. Other than the above-described
litigation, as of January 31, 2014, we were not a party to any material litigation, claim or suit whose outcome could have a material
effect on our financial statements.
In
accordance with accounting standards regarding loss contingencies, the Company accrues an undiscounted liability for those contingencies
where the incurrence of a loss is probable and the amount can be reasonably estimated, and the Company discloses the amount accrued
and the amount of a reasonably possible loss in excess of the amount accrued, if such disclosure is necessary for its financial
statements not to be misleading. The Company does not record liabilities when the likelihood that the liability has been incurred
is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or
remote.
Because
litigation outcomes are inherently unpredictable, the Company’s evaluation of legal proceedings often involves a series
of complex assessments by management about future events and can rely heavily on estimates and assumptions. If the assessments
indicate that loss contingencies that could be material to any one of its financial statements are not probable, but are reasonably
possible, or are probable, but cannot be estimated, then the Company discloses the nature of the loss contingencies, together
with an estimate of the range of possible loss or a statement that such loss is not reasonably estimable. While the consequences
of certain unresolved proceedings are not presently determinable, and an estimate of the probable and reasonably possible loss
or range of loss in excess of amounts accrued for such proceedings cannot be reasonably made, an adverse outcome from such proceedings
could have a material adverse effect on its financial statements in any given reporting period. However, in the opinion of Management,
after consulting with legal counsel, the ultimate liability related to the current outstanding litigation is not expected to have
a material adverse effect on its financial statements.
Management
is of the opinion that the ultimate resolution of such matters now pending will not have a material adverse effect on the Company’s
consolidated results of operations, financial position or cash flows. However, the outcome of legal proceedings cannot be predicted
with any degree of certainty.
Antidilution
Liability
The
Company has recorded a $20,087 liability to allow for the possible dilutive impact of equity issuances that alter or effect conversion
or exchange rates existing on the various dates of conversion or exercise of securities having adjustable conversion rates. The
liability is adjusted to reflect current fair market value at the end of each fiscal period. Due to the decline in the Company’s
stock price, we recorded a gain of $42,043 and $3,271 at October 31, 2013 and January 31, 2014, respectively.
Accrued
Payroll, Payroll Taxes and Benefits
From
April 2010 through March 2012, payments made to two employees were recorded as reductions in accrued and unpaid payroll. In April
2012, the Company reclassified such payments as net payroll payments; calculated and recorded the employer and employee taxes
that should have been withheld on such payment. Federal and state payroll tax returns have been filed for the last three quarters
of 2010, all of 2011 and the first quarter of 2012. The Company recorded a total of $81,206 and $20,560 in federal and state payroll
taxes due, respectively. Estimated federal penalties and interest on the late filings and payments, in the sum of $24,196, have
been accrued as of October 31, 2013. On September 20, 2012 and May 14, 2013, the Internal Revenue Service filed a Notice of Federal
Tax Lien against the Company assessing $58,858 and $13,605, respectively for unpaid taxes, penalties and interest. The Company
is in contact with the Internal Revenue Service to work out a payment schedule for the amounts due.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
In
November 2013, the Internal Revenue Service assessed a $36,414 penalty against the Company’s Chief Scientist, David Haavig,
under the federal Trust Fund Recovery Act because the above payroll taxes were not reported and paid in a timely manner. The Company
assumed the liability and has provided payment to the employee for indemnification. In addition, the Company has determined that
it will indemnify its Chief Financial Officer, Victor Hollander, in the event he is found liable for a similar penalty, which
has not yet been determined. As a result, the Company has recorded an additional $34,632 in interest expense as of January 31,
2014.
Estimated
state penalties and interest of $4,316 on the above late filings were accrued. A Notice of Tax Lien for a portion of the taxes
due was filed by the State of California on November 9, 2012 in the amount of $8,206, including penalty and interest. In October
2013, the California tax authority levied the Company’s account in the sum of $13,807 with an additional levy of $5,451
in November 2013. On December 17, 2013, the Company entered into an installment agreement with the California tax authority to
pay $304 per month commencing January 27, 2014 until the remaining balance due has been satisfied.
Accrued
Payroll and Benefits consist of the above payroll taxes, salaries, wages, and vacation benefits earned by employees, but not disbursed
as of January 31, 2014 and includes payroll earned, but unpaid to various employees between January 16, 2013 and January 31, 2014.
Accrued Payroll also includes the above estimated penalties and interest due on such unpaid payroll taxes. Liability for vacation
benefits is accrued when earned monthly and reduced when taken. At the end of each fiscal period, the balance in the accrued vacation
benefits liability account is adjusted to reflect current pay rates. Annual leave earned but not taken is considered an unfunded
liability since this leave will be funded from future appropriations when it is actually taken by employees.
Inventory
is stated at the lower of cost or market and comprised entirely of finished goods. Cost is determined on a first-in, first-out
(FIFO) basis. The Company’s management monitors inventory for excess and obsolete items and makes necessary valuation corrections
when such adjustments are required.
|
5.
|
Property
and Equipment
|
Property
and equipment are recorded at cost and are depreciated using the straight-line method over an expected useful life of 3 or 5 years.
The leasehold improvements made to the Company’s leased facility are being depreciated over an expected useful life of 5
years. Expenditures for normal maintenance and repairs are charged to operations. The cost and related accumulated depreciation
of assets are removed from the accounts upon retirement or other disposition, and the resulting profit or loss is reflected in
the Statement of Operations. Renewals and betterments that materially extend the life of the assets are capitalized.
The
production tooling for the Company’s revised MIT 1000 has been capitalized and the $14,000 cost is being amortized over
an estimated useful life of 3 years.
The
Company capitalized $35,313 in fiscal 2013 in the development of proprietary software for the MIT 1000 rapid microbial identification
system. The cost of the software is being amortized on a straight-line basis over 3 years.
|
6.
|
Summary
of Significant Accounting Policies
|
The
accounting policies followed are as set forth in Note 1 of the Notes to Financial Statements in the Company’s 2013 Annual
Report on Form 10-K. The Company has not experienced any material change in its critical accounting policies since November 1,
2013. The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires the Company to make estimates and judgments regarding uncertainties
that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates its
estimates, which are based upon historical experience and on other assumptions that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates under different assumptions or conditions. The Company considers the following
accounting policies to be most critical in their potential effect on its financial position or results of operations.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
New
Accounting Pronouncements
From
time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies
that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting
pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting
or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
Earnings
Per Share
Basic
earnings per share are based on the weighted average number of shares outstanding for a period. Diluted earnings per share are
based upon the weighted average number of shares and potentially dilutive common shares outstanding. Potential common shares outstanding
principally include convertible notes payable and stock options under our stock plan. Since the Company has incurred losses, the
effect of any common stock equivalent would be anti-dilutive.
Stock
Based Compensation
Stock-based
compensation costs for stock options issued to employees is measured at the grant date, based on the fair value of the award using
the Black Scholes Option Pricing Model, and is recognized as an expense over the employee’s requisite service period (generally
the vesting period of the equity grant).
The
Company recognized share-based compensation expense of $260,282 for options granted to various employees and consultants in November
2013, $80,348 of which is included in research and development expense and $179,934 is recorded as sales, general and administrative
expense.
On
November 19, 2013, the Board of Directors adopted the 2014 Employee Benefit Plan which is authorized to grant up to 525,000 shares
of common stock or options to purchase common stock to eligible employees, directors, officers, consultants or advisors. Eligibility
and vesting, in the case of options, is determined by the Board of Directors. On November 19, 2013, the Company issued three-year
options to purchase 100,000 shares of common stock which vested immediately under the Plan to the Company’s President, Jeffrey
Nunez, for services rendered at an exercise price of $0.50 per share at a fair market value of $67,447. Additional three-year
options to purchase 300,000 shares of common stock, in the aggregate, were issued to Mr. Nunez and three other employees of the
Company on November 19, 2013 at an exercise price of $1.00 per share, for an aggregate value of $192,835.
The
following table summarizes information about options granted under the Company’s equity compensation plans through January
31, 2014 and otherwise to employees, directors and consultants of the Company. Generally, options vest on an annual pro rata basis
over various periods of time and are exercisable, upon proper notice, in whole or in part at any time upon vesting. Typically,
options granted have contractual lives ranging from two to ten years and, in the case of an employee, vested options terminate
90 days after an employee leaves the Company. All of the options granted on November 19, 2013 vested in their entirety at the
time of issuance.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at October 31, 2013
|
|
|
4,400
|
|
|
$
|
13.35
|
|
|
|
0.4
|
|
|
$
|
—
|
|
|
Granted
|
|
|
400,000
|
|
|
|
.88
|
|
|
|
2.8
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2014
|
|
|
404,400
|
|
|
$
|
1.01
|
|
|
|
2.8
|
|
|
$
|
—
|
|
Summary
information about the Company’s options outstanding at January 31, 2014 is set forth in the table below. Options outstanding
at January 31, 2014 expire between February 2014 and November 2016.
Range of
Exercise Prices
|
|
Options
Outstanding
January 31, 2014
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Options
Exercisable
January 31, 2014
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.50-$1.00
|
|
|
400,000
|
|
|
|
2.8
|
|
|
$
|
0.88
|
|
|
|
400,000
|
|
|
$
|
0.88
|
|
|
$7.68-$70.00
|
|
|
4,400
|
|
|
|
0.2
|
|
|
$
|
13.35
|
|
|
|
4,400
|
|
|
$
|
13.35
|
|
|
TOTAL:
|
|
|
404,400
|
|
|
|
|
|
|
|
|
|
|
|
404,400
|
|
|
|
|
|
As
of January 31, 2014, all outstanding options had fully vested and there was no estimated unrecognized compensation from unvested
stock options.
The
following table summarizes the information relating to warrants granted to non-employees as of October 31, 2013 and changes during
the three months ended January 31, 2014:
|
|
|
Number
of
Warrants
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding at October 31, 2013
|
|
|
240,000
|
|
|
$
|
0.90
|
|
|
|
1.9
|
|
|
$
|
—
|
|
|
Granted
|
|
|
30,000
|
|
|
|
1.00
|
|
|
|
0.3
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2014
|
|
|
270,000
|
|
|
$
|
0.91
|
|
|
|
1.5
|
|
|
$
|
—
|
|
Summary
information about the Company’s warrants outstanding at January 31, 2014 is set forth in the table below. Warrants outstanding
at January 31, 2014 expire between February 2014 and June 2016.
Range of
Exercise Prices
|
|
Warrants
Outstanding
January 31, 2014
|
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Warrants
Exercisable
January 31, 2014
|
|
|
Weighted
Average
Exercise
Price
|
|
|
$0.50 - $1.00
|
|
|
270,000
|
|
|
|
1.5
|
|
|
$
|
0.91
|
|
|
|
270,000
|
|
|
$
|
0.91
|
|
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
270,000
|
|
|
|
|
|
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
7.
|
Convertible
Debentures
|
Series
1 Notes
Under
the provisions of ASC 815-40-15, “Derivatives and Hedging-Contracts in Entity’s Own Equity-Scope and Scope Exceptions,”
a number of our outstanding Convertible notes are not considered indexed to our stock, as a result of an anti-dilution protection
provision in these notes. The application of ASC 815-40-15, effective August 1, 2011, resulted in our accounting for these notes
as derivative instruments, and they are recognized as liabilities in our consolidated balance sheets.
Between
August 16, 2010 and February 21, 2012, the Company entered into a Securities Purchase Agreement with an unaffiliated lender in
connection with the issuance of eleven (11) separate 8% convertible notes in various principal amounts, aggregating $387,500.
As of September 14, 2012, the lender had converted all of the $387,500 in principal notes, plus $45,000 and $15,500 in principal
penalties and accrued interest, respectively, on such notes and received a total of 663,219 shares of common stock upon the conversions
at prices ranging from $0.20 to $1.95 per share.
Between
July 18, 2013 and January 9, 2014, the Company entered into three new Securities Purchase Agreements with the lender, for total
proceeds of $117,500, and paid a total of $15,000 out of the proceeds of the notes to lender for legal fees and expenses related
to the referenced agreements. The notes mature between April 22, 2014 and October 13, 2014 and are convertible into shares of
common stock at a discount of 39% of the average of the lowest three closing bid prices of the common stock during the ten trading
days prior to the conversion date. The Series I Notes contain a provision requiring an adjustment to the conversion price of the
note in the event the Company issues or sells any shares of common stock, or securities convertible into or exercisable for common
stock, at a price per share lower than such conversion price. Accordingly, the Series I Notes are accounted for as a derivative
liability, measured at fair value, with changes in fair value recognized as gain or loss for each reporting period thereafter.
The notes were recorded at fair value, using the Binomial valuation model, and a derivative liability of $87,136 has been recorded
for the fiscal period ended January 31, 2014. This liability will be revalued each reporting period and gains and losses will
be recognized in the statement of operations under “Other Income (Expense)”.
Pursuant
to the terms of the Series I Notes, the Company instructed its stock transfer agent to reserve 2,400,000 shares of the Company’s
common stock
to be issued if the notes are converted. On January 27, 2014, the lender converted $15,000
of such notes and received 68,306 shares of common stock at a conversion price of $0.2196 per share. The balance of 2,331,694
shares has been reserved, but is not considered as issued and outstanding. If the remaining Series I Notes had been converted
as of January 31, 2014, the Company would have issued a total of 466,768 shares of common stock the value of which would exceed,
by $130,706 the principal balance due on the notes.
Fair
value of financial instruments
The
accounting standards regarding fair value of financial instruments and related fair value measurements defines financial instruments
and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount
of cash and other current assets and liabilities to approximate their fair values because of the short period of time between
the origination of such instruments and their expected realization.
The
Company has also adopted ASC 820-10 (“Fair Value Measurements”) which defines fair value, establishes a three-level
valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The
three levels are defined as follows:
|
|
●
|
Level
1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
|
|
|
|
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities
in active markets, and inputs that are observable for the assets or liability, either
directly or indirectly, for substantially the full term of the financial instruments.
|
|
|
|
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value.
|
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
The
carrying amounts of our financial instruments, including cash, accounts payable and accrued expenses approximate fair value because
of their generally short maturities.
The
Company measured the fair value of the Series 1 Note by using the Binomial Valuation model. As of January 31, 2014, the assumptions
used to measure fair value of the liability embedded in our outstanding Series I Note included an exercise price of $0.26 per
share, a common share price of $0.43, a discount rate of 0.02% or 0.06%, and a volatility of 143%.
The
anti-dilution liability is calculated by an approximate number of shares multiplied by the quoted market price of the Company’s
common stock at the measurement date.
The
following table sets forth, by level within the fair value hierarchy, our financial instrument liabilities as of January 31, 2014
(See also Note 7 – Convertible Debentures – “Series 1 Notes”):
|
|
|
Quoted
Prices in
Active
Markets
For
Identical
Assets
|
|
|
Significant
Other
Observable
Inputs
|
|
|
Significant
Unobservable
Inputs
|
|
|
|
|
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
Total
|
|
|
Anti-dilution liability
|
|
$
|
20,087
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,087
|
|
|
Derivative liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
87,136
|
|
|
$
|
87,136
|
|
|
Total
|
|
$
|
20,087
|
|
|
$
|
—
|
|
|
$
|
87,136
|
|
|
$
|
107,223
|
|
The
following table sets forth a summary of changes in the fair value of our Level 3 financial instrument liability for the fiscal
year ended October 31, 2013 and for the three month period ended January 31, 2014:
|
|
|
Fair
Value
Measurements
Using
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Balance October 31, 2013
|
|
$
|
75,557
|
|
|
Additions
|
|
|
31,615
|
|
|
Net gain included in earnings
|
|
|
(8,763
|
)
|
|
Settlements
|
|
|
(11,273
|
)
|
|
Balance January 31, 2014
|
|
$
|
87,136
|
|
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Other
Convertible Notes
On
November 10, 2010, the Company entered into a convertible note for $64,868 with a stockholder. The Note matured on May 31, 2012
and bears interest at the rate of ten percent (10%) per annum. The Note is convertible into shares of common stock at a forty
two percent (42%) discount to the average of the lowest three (3) closing bid prices of the common stock during the ten (10) trading
days prior to the conversion date. The note holder may convert any or all of the unpaid principal note prior to the maturity date.
The Company calculated the intrinsic value of the conversion feature to be $46,973 as of the date of issuance of the debentures
using the same criteria as noted above, which amount was fully amortized as of July 31, 2012. The Company has expensed $20,935
in accrued interest on the note as of January 31, 2014. If the note had been converted as of January 31, 2014, the Company would
have issued a total of 310,670 shares of common stock the value of which would exceed, by $68,720 the principal balance due on
the note. The Company is currently negotiating with the lender to settle or renegotiate the Note.
At
January 31, 2014 and October 31, 2013, without taking into effect any unamortized discounts, convertible debentures and Series
1 notes consisted of the following:
|
|
|
January
31, 2014
|
|
|
October
31, 2013
|
|
|
Series 1 Notes, principal and interest at 8% maturing
through October 13, 2014
|
|
$
|
102,500
|
|
|
$
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible note payable to stockholder; principal and
interest at 10% due on May 31, 2012.
|
|
|
64,868
|
|
|
|
64,868
|
|
|
|
|
|
167,368
|
|
|
|
149,868
|
|
|
Less current maturities
|
|
|
167,368
|
|
|
|
148,868
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion of Convertible and Series 1 notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
Of
the above notes, $64,868 is currently due and payable. The Company’s outstanding notes mature as follows for the years ending
October 31:
|
2014
|
|
$
|
167,368
|
|
|
Thereafter
|
|
|
—
|
|
|
|
|
$
|
167,368
|
|
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
At
January 31, 2014 and October 31, 2013, without taking into effect any unamortized discounts, notes payable to an officer and to
stockholders consisted of the following:
|
|
|
January 31, 2014
|
|
|
October 31, 2013
|
|
|
|
|
|
|
|
(Audited)
|
|
|
Unsecured, interest-free convertible notes payable
to former officer/director of the Company; principal due on payment schedule through May 2014.
|
|
$
|
113,450
|
|
|
$
|
113,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured convertible note payable to various stockholders; principal
and interest at 6% due between December 9, 2010 and March 31, 2013.
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Unsecured notes payable to officers and directors of the Company;
principal and interest at 6% payable on demand
|
|
|
70,000
|
|
|
|
36,000
|
|
|
|
|
|
235,450
|
|
|
|
201,450
|
|
|
Less current maturities
|
|
|
235,450
|
|
|
|
201,450
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion of notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
Of
the above notes payable, $113,450 is the subject of a lawsuit brought against the Company by former officer and director, Michael
Brennan. The Company is currently negotiating with the holders of $52,000 of the above notes to either extend the maturity date
or convert the notes into shares of common stock. The Company’s outstanding notes mature as follows for the years ending:
|
2014
|
|
$
|
235,450
|
|
|
Thereafter
|
|
|
—
|
|
|
|
|
$
|
235,450
|
|
|
9.
|
Employee
Retirement Plan
|
Commencing
on January 1, 2005, the Company sponsored a Simple IRA retirement plan which covers substantially all qualified full-time employees.
Participation in the plan is voluntary and employer contributions are determined on an annual basis. Employer contributions would
be made at the rate of three percent (3%) of the employees’ base annual wages. However, the Company has made no contributions
to the IRA plan since January 2010.
MICRO
IMAGING TECHNOLOGY, INC. AND SUBSIDIARY
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
10.
|
Securities
Transactions
|
Common
Stock Issued in Private Placement Transactions
On
November 8, 2013, the Company entered into a Subscription Agreement with a major stockholder to purchase 20,000 shares of the
Company’s common stock at $0.50 per share, for a total of $10,000. As additional consideration, the purchaser was granted
a six-month option to purchase an additional 10,000 shares of common stock at $1.00 per share. On December 13, 2013, this same
stockholder purchased an additional 20,000 shares of common stock at $0.50 per share and received a six-month option to purchase
an additional 10,000 shares of common stock at $1.00 per share.
On
November 13, 2013, the Company’s Chief Scientist, David Haavig, purchased 100,000 shares of common stock for $0.50 per share,
or $50,000.
On
December 19, 2013, a major stockholder purchased 20,000 shares of common stock for proceeds of $10,000, or $0.50 per share. He
received six-month warrants to purchase an additional 10,000 shares of common stock at $1.00 per share as part of the purchase
transaction.
On
February 27, 2014, a member of the Board of Directors loaned the Company $15,000. The loan bears interest at 6% per annum and
is payable on demand.
On
February 28, 2014, a major stockholder purchased 30,000 shares of common stock for proceeds of $15,000, or $0.50 per share. He
received a six-month warrant to purchase an additional 15,000 shares of common stock at $1.00 per share in connection with this
transaction.