Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
Medical International Technology, Inc. is based in Montreal, Canada; specializing in production, marketing and sale of needle-free jet injector products designed for humans and animals, for single and mass injections. Needle-free jet injector technology and products provide advantages over traditional needle injection techniques and products, including; efficiency, handling security, biological waste elimination, and patient stress reduction.
The Company's major source of revenues is from sales. The Company has maintained operations from these revenues and through equity and debt financing. The company has been dependent on advances from related parties to maintain operations. There are no agreements, assurances or commitments to continue providing these advances. Products are currently developed, assembled and shipped from our facility. Component manufacturing is subcontracted to various suppliers and machine shops.
The creation of MIT China in June of 2009 has given MIT a unique advantage to expand its production operations and increase its sales and profits in the multi-billion dollar worldwide needle-free injector market. Furthermore, MIT China venture will help MIT supply large production volumes in lesser time, which will attract large medical and pharmaceutical partners.
The introduction of our Agro-Jet needle-free injector for animal application is progressing well, and our our veterinary staff has been successfully training our distributors in various regions. The Company expects that these efforts will result in sales growth in the next fiscal year.
During the third quarter of fiscal year 2011, MIT China purchased 151,000 sq. ft. of land and began construction of our first building in Taizhou (China Medical City). This first building of 40,000 sq. ft. when finalized will be used for the production of injectors for the Chinese market only.
Work in progress at MIT China for the construction of its 40,000 sq. ft. building, the first stage (the offices) has been completed, and our first move of all our employees to Taishou was conducted in the beginning of August 2012. The other part of the construction is scheduled to be completed in the first quarter of 2013, our managements and engineers are working hard to plan the purchasing of the equipment and tools necessary for the assembly and production of some of our Agro-Jet and Med-Jet products. The production facility should be able to supply a large number of injectors and disposables to the Chinese market.
Per the recent discussions and understanding of our general manager, Ethan Sun, with our Joint Venture partner, our plan of sales and expansion into the Chinese market is progressing and MIT China agreed and sold 9% of their joint venture for an investment of 18,000,000 RMB (US$3,000,000). MIT China now has 46.41%, we have 44.59%, and Taizhou Amazon Investment Center has 9% ownership in such venture.
We have recently supplied a CDC (Centre of Disease Control) vaccination clinic in China with one Med-Jet model MIT H-III, and requested an MIT China nurse to be present at the clinic at all times for training, supervision of the proper usage and procedures of our Med-Jet for vaccination., the results are very good so far and we expect more uses of our Med-Jet H-III from many of the CDC clinics and hospitals across China in fiscal year 2013.
We are proceeding positively with our SFDA for our new Med-Jet model H-4. We expect our certification in 2013 fiscal year.
Our Model Med-Jet H-4 will target all vaccination clinics, hospitals, all CDC Centers and many other departments that have needs for any biologic injections.
Our objective is to ensure that our injectors become an indispensable and environmentally friendly product for doctors, dentists, veterinarians and home users around the world.
The Company is pleased to continue providing a safe and effective means to help prevent the spread of deadly diseases to both humans and animals through the use of the Med-Jet� and Agro-Jet� needle-free injection system.
Management Plan of Operations
Medical International Technology's intends to concentrate its activities in the medical and veterinary sectors, in particular, in the field of equipment and instrumentation. The company's strategy is to build good, reliable and cost effective products, seek and establish strategic alliances with different pharmaceutical companies and manufacturers to ensure good distribution channels for its products.
MIT promotes and sells products in over 30 countries including the United States of America. MIT is exerting every effort and using its resources to promote its products and to open markets for its technology. As we continue to market our products, we hope to gain broader acceptance of the needle-free injection technology. MIT is continually researching and developing its products to the market needs.
We will continue to seek additional funding to expand operations and develop sales revenue to a volume sufficient to sustain operations.
Results of Operations
Comparison for the year ended September 30, 2012 to the year ended September 30, 2011
The following table presents the statement of operations for the year ended September 30, 2012 was compared to the comparable period of the year ended September 30, 2011. The discussion following the table is based on these results.
| Years Ended September 30, 2012 2011 Revenues $ 996,433 $ 437,378 Cost of sales 259,069 200,848 Gross profit 737,365 236,533 Operating expenses Selling, general and administrative expenses 710,025 702,169 Total operating expenses 710,025 702,169 Operating income (loss) 27,340 (465,636 ) Other: Equity earnings (loss) on MIT China Joint Venture (95,714 ) (130,762 ) Amortization non-refundable Distribution Rights Deposit - - Interest expense (41,619 ) (47,041 ) Total other income (expense) (137,333 ) (177,803 ) Income (loss) before provision for income taxes (109,993 ) (634,439 ) Net loss $ (109,993 ) $ (634,439 )
The Company's consolidated revenues increased by $559,055 or 127 % to $996,433 during the fiscal year ending September 30, 2012. This considerable growth in sales was primarily due to the market situation in general.
Cost of Sales
The cost of sales increased slightly by $58,221 in 2012. This slight increase was related to our marketing and selling initiatives in the selected niche markets.
The gross profit increased by 211% for the year ending September 30, 2012, This increase is due primarily to the marketing and selling initiatives in the selected niche markets that have secured our monthly sales.
Selling, general and administrative expenses increased by $7,856 to $710,025.
Liquidity and Capital Resources
During the fiscal year ending September 30, 2012 the Company's cash position increased by $290,608. Net cash used by operating activities was $370,660, resulting primarily from deferred income and accounts payable. Net cash provided by financing activities was $3,841, resulting primarily from the issuance of stock in private placements netting cash proceeds of $63,340, used bank line of 70,493 and decrease in amounts due to related parties of 152,723. Net cash used by investing activities was $84,537 resulting primarily from the acquisition of Tooling and machinery of 49,434 and acquisition of patent of 35,103. The effect of exchange rates on cash during fiscal 2012 resulted in an increase in cash value of $2,644.
During the fiscal year ending September 30, 2011 the Company's cash position decreased by $15,827. Net cash used by operating activities was $585,863, resulting primarily from accounts payable, accrued liabilities and inventories. Net cash provided by financing activities was $954,943, resulting primarily from the issuance of stock in private placements netting cash proceeds of $772,572. Net cash used by investing activities was $398,116 resulting primarily from the acquisition of Tooling and machinery of 363,379. The effect of exchange rates on cash during fiscal 2011 resulted in an increase in cash value of $13,209.
The Company has reported a negative working capital position of $1,075,553 and has accumulated operation losses since inception of $13,172,164, which raises substantial doubt about the Company's ability to continue as a going concern. The continuation of the Company is dependent upon the continuing financial support of creditors and stockholders and upon obtaining the capital requirements for the continuing operations of the Company. Management believes actions planned and presently being taken provides the opportunity for the Company to continue as a going concern.
During the year ended September 30, 2012, the Company issued 4,714,000 shares of common stock in connection with private placements, debt reductions and for services. The Company issued 180,000 shares at $0.10 per share for total debt reductions of $18,000, and 4,534,000 shares were issued at $.01 per share for services rendered of $45,340. The private placement proceeds were used to provide additional working capital.
The Company expects that revenues from existing and developing sales may not meet its liquidity requirements for the next 12-month period at its current level of operations. The company has been dependent on advances from related parties to maintain operations. There are no agreements, assurances or commitments to continue providing these advances. The company continues to rely on management to develop the business and work to develop sales. Management has and may continue to supplement cash flows from sales with additional equity and debt financing. Substantially, expanded operations are expected to require additional capital, either from a future offering of equity or the company pursuing other methods of financing, as appropriate.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities" (SPEs).
Critical Accounting Policies
The accompanying discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience and all available information. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. US GAAP requires us to make estimates and judgments in several areas, including those related to recording various accruals, income taxes, the useful lives of long-lived assets, such as property and equipment and intangible assets, and potential losses from contingencies and litigation. We believe the policies discussed below are the most critical to our financial statements because they are affected significantly by management's judgments, assumptions and estimates.
Foreign Currency Translations
The Company operates out of its offices in Montreal, Canada and maintains its books and records in Canadian Dollars. The financial statements herein have been converted into U.S. Dollars. Balance sheet accounts have been translated at exchange rates in effect at the end of the year. Income statement accounts have been translated at average exchange rates for the year. Translation gains and losses are included as a separate component of stockholders' equity.
New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that revises the manner in which entities present comprehensive income in their financial statements. The guidance requires entities to report comprehensive income in either a single, continuous statement or two separate but consecutive statements. This guidance will become effective for fiscal years beginning after December 15, 2011; however, we have early adopted this guidance as of the end of our fiscal 2011 reporting period as permitted by the guidance. The adoption of this new guidance had no impact on our consolidated financial condition and results of operations.
In May 2011, the FASB issued authoritative guidance to amend the fair value measurement and disclosure requirements. The guidance requires the disclosure of quantitative information about unobservable inputs used a description of the valuation processes used and a qualitative discussion around the sensitivity of the measurements. The guidance will become effective for the Company at the beginning of our second quarter of fiscal 2012. We expect adoption to have no impact on our consolidated financial condition and results of operations.