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.
Medical International Technology, Inc. (MIT) is receiving revenues 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.
On May 21, 2009 MIT signed a Joint Venture Agreement with the largest manufacturer of rubber stopper in China supplying to most of the Pharmaceutical Corporation MIT has also received an initial order of 120 Agro-Jet� for vaccination of livestock and poultry from the joint venture. The name of the joint venture company is "Jiangsu Hualan MIT Medical Technology (MIT China) Ltd" and it is located in Taizhou city in the Jiangsu province. This prime location, supported by the central government, will become the most important medical city in China through the relocation of the pharmaceutical and medical devices corporations. MIT Canada/USA has 49% equity in "Jiangsu Hualan MIT Medical Technology (MIT China) Ltd". The total investment by both parties is US$ 1.4 million dollars.
MIT China received all the legal documents pertaining to the licenses for the manufacturing of all MIT Canada products and has started assembling the Agro-Jet models in September 2009 for the sales to the Chinese market. MIT Canada will continue to produce and supply most of the components for the joint venture. Our plan is to implement step by step the assembly and production of all our models for the Human "MED-JET" and Animal "AGRO-JET" needle-free technologies.
Our associations with "Jiangsu Hualan" the largest manufacturer of rubber stopper in China will help Medical International Technologies (MIT Canada) Inc. become a world leader in the Needle-Free technology and reduce the world's dependence on needles. Moreover, it will ensure that MIT injectors become an indispensable, environmentally friendly product for single and mass vaccination and biologics injectables for doctors and users around the world. MIT's mission is to help make the world needle-free.
Medical International Technology Inc. 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.
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.
Medical International Technology, Inc.
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 January 2010, the Financial Accounting Standards Board ("FASB") amended the guidance on fair value to add new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances, and settlements relating to Level 3 measurements. It also clarified existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The amendment also revised the guidance on employers' disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The new guidance is effective for the first reporting period beginning after December 15, 2009, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company does not believe this amendment will have a material impact on the Company's financial statements.
In April 2010, the FASB issued Accounting Standards Update 2010-12 ("ASU 2010-12"), Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts. On March 30, 2010, the President of the United States signed the Health Care and Education Reconciliation Act of 2010, which is a reconciliation bill that amends the Patient Protection and Affordable Care Act that was signed on March 23, 2010 (collectively, the "Acts"). ASU No. 2010-12 allows entities to consider the two Acts together for accounting purposes. Upon adoption, the elimination of the future tax deduction for prescription drug costs associated with the Company's post-retirement medical and dental plans was not material to the Company's financial position, results of operations or cash flows. The Company does not believe this amendment will have a material impact on the Company's financial statements.
Medical International Technology, Inc.
Results of Operations for the Year ended September 30, 2010 Comparing to the Year ended September 30, 2009
The following table presents the statement of operations for the year ended September 30, 2010 as compared to the comparable period of the year ended September 30, 2009. The discussion following the table is based on these results.
| Years Ended September 30, 2010 2009 Revenues $ 640,893 $ 656,477 Cost of sales 228,408 228,334 Gross profit 412,485 428,143 Operating expenses Research and development costs - 1,981,104 Selling, general and administrative expenses 1,066,293 778,364 Total operating expenses 1,066,293 2,759,468 Operating income (loss) (653,808 ) (2,331,325 ) Other income (expense): Equity earnings (loss) on MIT China Joint Venture (88,681 ) - Interest income - 956 Interest expense (8,620 ) (3,841 ) Total other income (expense) (97,301 ) (2,885 ) Income (loss) before provision for income taxes (751,109 ) (2,334,210 ) Net loss $ (751,109 ) $ (2,334,210 )
The company's consolidated revenues decreased by $15,584 or 0.02% to $640,893 during the fiscal year ending September 30, 2010. This slight reduction in sales was primarily due to the market situation in general.
Cost of Sales
The cost of sales increased slightly by $74 in 2010. This slight increase was related to our marketing and selling initiatives in the selected niche markets.
The gross profit decreased by 3.65% for the year ending September 30, 2010, This decrease 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 approximately $287,929 to $1,066,293. This increase stemmed primarily from the costs related to the production, investment in moulds and marketing initiatives in the various business segments.
The company's net loss decreased to $751,109 from $2,334,210, due to the fact that during the third quarter ended June 30, 2010, the Company received notification from Idee that the board of directors of Idee had agreed to terminate the agreement and release the Company of its obligations due of $3,403,982.
Medical International Technology, Inc.
Liquidity and Capital Resources
During the fiscal year ending September 30, 2010 the Company's cash position decreased by $50,745. Net cash used by operating activities was $3,014,516, resulting primarily from increases in related party payables and common stock issued for services. Net cash provided by financing activities was $2,813,706, resulting primarily from the issuance of stock in private placements netting cash proceeds of $346,004 and reduction in amounts due to related parties of 3,153,696. Net cash used by investing activities was $20,910. The effect of exchange rates on cash during fiscal 2010 resulted in a decrease in cash value of $230,645.
During the fiscal year ending September 30, 2009 the Company's cash position decreased by $17,373. Net cash used by operating activities was $166,389 resulting primarily from increases in related party payables and common stock issued for services. Net cash provided by financing activities was $690,917, resulting primarily from the issuance of stock in private placements netting cash proceeds of $628,571. Net cash used by investing activities was $415,257, of which $406,100 was used for the Company acquisition in the MIT China joint venture. The effect of exchange rates on cash during fiscal 2009 resulted in a decrease in cash value of $126,644.
The Company has reported a negative working capital position of $4,717,140 and has accumulated operation losses since inception of $11,667,623, 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, 2010, the Company issued 7,172,500 shares of common stock in connection with private placements for additional capital of $700,000 (SB 700,000), of which 4,500,000 shares were issued at $0.10 per share for total proceeds of $450,000 and 1,785,174 shares were issued at $.014 per share for total proceeds of $250,000. These proceeds were used to fund the Company's acquisition in the MIT China joint venture as well as provided additional working capital.
Medical International Technology, Inc. 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.
Management Plan of Operations
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.
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 its products in many 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.
Medical International Technology, Inc. will continue to seek additional funding to expand operations and develop sales revenue to a volume sufficient to sustain operations.
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).