UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON D.C. 20549








FORM
10-Q




x
            Quarterly Report Pursuant to
      Section 13 or 15(d) of the Securities Exchange Act of
1934
              For
      the quarterly period ended December 31, 2008oro
            Transition
      Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934
              For the transition period
      from             
                    to




Commission
File Number: 000-29531





ADVANCED
MEDICAL INSTITUTE INC.


(Exact
Name of Registrant as Specified in Its Charter)





NEVADA
                    
                    88-0409144(State or Other Jurisdiction of
                      Incorporation or Organization)
                    
                    (I.R.S. Employer
      Identification
No.)





Level
      1, 204-218 Botany Road
                Alexandria,
      NSW
                Australia
      2015(Address
      of Principal Executive Offices) (Zip
Code)




(61)
      2 9640 5253(Registrant’s
      Telephone Number, Including Area Code)




(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act 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   o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act). Yes o   No x




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





Large accelerated Filer 
      o
                  Accelerated Filer 
      o
                  Non-Accelerated Filer 
      o
                  Smaller Reporting Company 
      x(Do not check if a smaller reporting company)




There were 53,507,450
shares of the Registrant’s Common Stock issued and outstanding on February 13,
2009.


TABLE OF
CONTENTS
 
 PagePart
      I.
                Financial
      Information
                3Item
      1. Financial Statements
                3Consolidated Balance
      Sheets as at December 31, 2008 (unaudited) and June 30,
      2008
                3Consolidated
      Unaudited Statements of Operations for the Three and Six Month Periods
      Ended December 31, 2008 and 2007
                4Consolidated
      Unaudited Statements of Cash Flows for the Three and Six Month Periods
      Ended December 31, 2008 and 2007
                5Notes
      to Consolidated Unaudited Financial Statements
                7Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
                16Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                21Item
      4T. Controls and Procedures
                22Part
      II.
                Other
      Information
                22Item
      1. Legal Proceedings
                22Item
      1A. Risk Factors
                22Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                22Item
      3. Defaults Upon Senior Securities
                22Item
      4. Submission of Matters to a Vote of Security Holders
                22Item
      5. Other Information
                22Item
      6. Exhibits
                22SIGNATURES
                23
  2
 
 PART I -   FINANCIAL
INFORMATION
 
 ITEM 1.   FINANCIAL STATEMENTS
  ADVANCED
MEDICAL INSTITUTE INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE
SHEETS
 
 December 31,
                    2008
                    (Unaudited)
                  
                  
                  June 30, 2008ASSETSCURRENT
      ASSETSCash
      & cash equivalents
                  
                  $
                  1,356,170
                  
                  
                  $
                  3,127,029Receivables,
      net
                  
                  
                  17,846,278
                  
                  
                  
                  18,196,314Receivables
      due from related parties
                  
                  
                  1,645,053
                  
                  
                  
                  751,034Inventory
                  
                  
                  780,912
                  
                  
                  
                  468,950Assets
      related to discontinued operation/entities held for
      disposition
                  
                  
                  91,915
                  
                  
                  
                  408,039Other
      assets
                  
                  
                  546,593
                  
                  
                  
                  701,329TOTAL
      CURRENT ASSETS
                  
                  
                  22,266,921
                  
                  
                  
                  23,652,695NON-CURRENT
      ASSETSSecurity
      deposits
                  
                  
                  151,366
                  
                  
                  
                  124,569Property
      and equipment, net
                  
                  
                  1,212,867
                  
                  
                  
                  1,314,825Assets
      related to discontinued operation
                  
                  
                  336,149
                  
                  
                  
                  128,696Intangible
      assets, net
                  
                  
                  21,227,062
                  
                  
                  
                  30,281,340TOTAL
      NON-CURRENT ASSETS
                  
                  
                  22,927,444
                  
                  
                  
                  31,849,430TOTAL
      ASSETS
                  
                  $
                  45,194,365
                  
                  
                  $
                  55,502,125LIABILITIES AND STOCKHOLDERS’
      EQUITYCURRENT
      LIABILITIESUnearned
      revenue
                  
                  $
                  5,503,498
                  
                  
                  $
                  6,922,800Accounts
      payable & accrued expenses
                  
                  
                  10,011,727
                  
                  
                  
                  9,874,446Payable
      due to related parties
                  
                  
                  483,490
                  
                  
                  
                  -Interest
      bearing liabilities - current
                  
                  
                  44,446
                  
                  
                  
                  422,715Liabilities
      related to discontinued operation
                  
                  
                  997
                  
                  
                  
                  140,403Income
      taxes payable
                  
                  
                  101,801
                  
                  
                  
                  820,674TOTAL
      CURRENT LIABILITIES
                  
                  
                  16,145,959
                  
                  
                  
                  18,181,038NON-CURRENT
      LIABILITIESInterest
      bearing liabilities - non-current
                  
                  
                  1,437,184
                  
                  
                  
                  1,523,716Payable
      due to related parties
                  
                  
                  690,700
                  
                  
                  
                  -Deferred
      tax liabilities
                  
                  
                  2,460,260
                  
                  
                  
                  2,323,212TOTAL
      NON-CURRENT LIABILITIES
                  
                  
                  4,588,144
                  
                  
                  
                  3,846,928TOTAL
      LIABILITIES
                  
                  
                  20,734,103
                  
                  
                  
                  22,027,966Commitments & ContingencySTOCKHOLDERS’
      EQUITYCommon
      stock, par value $0.001 per share,   90,000,000 shares authorized,
        53,507,450 issued and outstanding as at December 31, 2008 and June
      30, 2008
                  
                  
                  53,507
                  
                  
                  
                  53,507Additional
      paid in capital
                  
                  
                  24,149,420
                  
                  
                  
                  24,149,420Other
      comprehensive income
                  
                  
                  (2,542,976
                  )
                  
                  
                  6,972,500Retained
      earnings
                  
                  
                  2,800,311
                  
                  
                  
                  2,298,732TOTAL
      STOCKHOLDERS’ EQUITY
                  
                  
                  24,460,262
                  
                  
                  
                  33,474,159TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
                  $
                  45,194,365
                  
                  
                  $
                  55,502,125
  The
accompanying notes are an integral part of these unaudited financial
statements.
  3
 
 ITEM 1.   FINANCIAL STATEMENTS
(CONTINUED)
 
 ADVANCED
MEDICAL INSTITUTE INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF
INCOME
  Three
      Month Periods Ended
                  
                  
                  Six
      Month Periods EndedDecember 31,
                    2008
                    (Unaudited)
                  
                  
                  December 31,
                    2007
                    (Unaudited)
                  
                  
                  December 31,
                    2008
                    (Unaudited)
                  
                  
                  December 31,
                    2007
                    (Unaudited)NET
      REVENUE
                  
                  $
                  13,211,291
                  
                  
                  $
                  12,331,983
                  
                  
                  $
                  29,160,593
                  
                  
                  $
                  23,540,490COST
      OF REVENUE
                  
                  
                  (2,790,007
                  )
                  
                  
                  (2,806,273
                  )
                  
                  
                  (6,381,207
                  )
                  
                  
                  (5,418,456
                  )GROSS
      PROFIT
                  
                  
                  10,421,284
                  
                  
                  
                  9,525,710
                  
                  
                  
                  22,779,386
                  
                  
                  
                  18,122,034SELLING,
      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  
                  (9,866,877
                  )
                  
                  
                  (7,846,286
                  )
                  
                  
                  (21,674,564
                  )
                  
                  
                  (16,251,897
                  )OPERATING
      INCOME
                  
                  
                  554,407
                  
                  
                  
                  1,679,424
                  
                  
                  
                  1,104,822
                  
                  
                  
                  1,870,137OTHER
      INCOME AND (EXPENSE)Bank
      interest
                  
                  
                  8,119
                  
                  
                  
                  16,556
                  
                  
                  
                  42,729
                  
                  
                  
                  26,215Management
      fee income
                  
                  
                  -
                  
                  
                  
                  7,333
                  
                  
                  
                  -
                  
                  
                  
                  21,717Other
      income (expense)
                  
                  
                  (2,105
                  )
                  
                  
                  (3,730
                  )
                  
                  
                  18,541
                  
                  
                  
                  7,281Interest
      expense
                  
                  
                  (58,335
                  )
                  
                  
                  (67,301
                  )
                  
                  
                  (130,080
                  )
                  
                  
                  (132,054
                  )TOTAL
      OTHER INCOME (EXPENSE)
                  
                  
                  (52,321
                  )
                  
                  
                  (47,142
                  )
                  
                  
                  (68,810
                  )
                  
                  
                  (76,841
                  )INCOME
      FROM CONTINUED OPERATIONS
                  
                  
                  502,086
                  
                  
                  
                  1,632,282
                  
                  
                  
                  1,036,012
                  
                  
                  
                  1,793,296DISCONTINUED
      OPERATIONSGain
      on disposal of subsidiary (including income from discontinued
      operation)
                  
                  
                  119,677
                  
                  
                  
                  -
                  
                  
                  
                  119,677
                  
                  
                  
                  -Loss
      from discontinued operations
                  
                  
                  (72,390
                  )
                  
                  
                  (340,508
                  )
                  
                  
                  (117,823
                  )
                  
                  
                  (352,849
                  )Total
      income (loss) from discontinued operations
                  
                  
                  47,287
                  
                  
                  
                  (340,508
                  )
                  
                  
                  1,854
                  
                  
                  
                  (352,849
                  )INCOME
      BEFORE INCOME TAXES
                  
                  
                  549,373
                  
                  
                  
                  1,291,774
                  
                  
                  
                  1,037,866
                  
                  
                  
                  1,440,447INCOME
      TAX EXPENSE
                  
                  
                  (162,440
                  )
                  
                  
                  (545,043
                  )
                  
                  
                  (536,287
                  )
                  
                  
                  (755,253
                  )NET
      INCOME
                  
                  
                  386,933
                  
                  
                  
                  746,731
                  
                  
                  
                  501,579
                  
                  
                  
                  685,194Other
      Comprehensive item - Foreign currency translation income
      (loss)
                  
                  
                  (4,660,654
                  )
                  
                  
                  (256,659
                  )
                  
                  
                  (9,515,476
                  )
                  
                  
                  969,732Net
      Comprehensive Income (loss)
                  
                  $
                  (4,273,721
                  )
                  
                  $
                  490,072
                  
                  
                  $
                  (9,013,897
                  )
                  
                  $
                  1,654,926Earnings
      per common share, basic & diluted
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.01
                  
                  
                  $
                  0.01Weighted
      average number of shares, basic & diluted
                  
                  
                  53,507,450
                  
                  
                  
                  53,507,450
                  
                  
                  
                  53,507,450
                  
                  
                  
                  53,507,450
 
 The
accompanying notes are an integral part of these unaudited financial
statements.
  4
  ITEM 1.   FINANCIAL STATEMENTS
(CONTINUED)
 
 ADVANCED
MEDICAL INSTITUTE INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 
 For The Six Month Periods EndedDecember 31,
                    2008
                    (Unaudited)
                  
                  
                  December 31,
                    2007
                    (Unaudited)Cash
      Flows from Operating ActivitiesReceipts
      from Customers
                  
                  $
                  21,182,648
                  
                  
                  $
                  20,407,589Interest
      Received
                  
                  
                  42,729
                  
                  
                  
                  25,943Payment
      to Suppliers & Employees
                  
                  
                  (21,602,576
                  )
                  
                  
                  (18,421,862
                  )Interest
      Paid
                  
                  
                  (130,080
                  )
                  
                  
                  (132,054
                  )Income
      Tax Paid
                  
                  
                  (101,400
                  )
                  
                  
                  (85,676
                  )Net
      cash (used in) provided by operating activities of continued
      operations
                  
                  
                  (608,679
                  )
                  
                  
                  1,793,940Net
      cash used in discontinued operations
                  
                  
                  (138,963
                  )
                  
                  
                  (33,723
                  )Net
      cash (used in) provided by operating activities
                  
                  
                  (747,642
                  )
                  
                  
                  1,760,217Cash
      Flows from Investing ActivitiesLoans
      to related entities
                  
                  
                  (1,264,699
                  )
                  
                  
                  -Proceeds
      from Sale of Investment
                  
                  
                  250,368
                  
                  
                  
                  -Payment
      for Property, Plant & Equipment
                  
                  
                  (286,237
                  )
                  
                  
                  (194,542
                  )Payment
      for Intangible Assets
                  
                  
                  (34,635
                  )
                  
                  
                  (47,566
                  )Net
      cash used in investing activities
                  
                  
                  (1,335,203
                  )
                  
                  
                  (242,108
                  )Cash
      Flows From Financing ActivitiesProceeds
      from Borrowings
                  
                  
                  3,529,040
                  
                  
                  
                  -Repayment
      of Borrowings
                  
                  
                  (2,234,369
                  )
                  
                  
                  (175,802
                  )Net
      cash provided by (used in) financing activities
                  
                  
                  1,294,671
                  
                  
                  
                  (175,802
                  )Net
      (decrease) increase in cash and cash equivalents
                  
                  
                  (788,174
                  )
                  
                  
                  1,342,307Effect
      of exchange rate on cash
                  
                  
                  (982,686
                  )
                  
                  
                  (470,311
                  )Cash
      and cash equivalents at beginning of period
                  
                  
                  (982,685
                  
                  
                  
                  864,481Cash
      and cash equivalents at end of period
                  
                  $
                  1,356,170
                  
                  
                  $
                  1,736,477
 
 The
accompanying notes are an integral part of these unaudited financial
statements.
  5
  ITEM 1.   FINANCIAL STATEMENTS
(CONTINUED)
 
 ADVANCED
MEDICAL INSTITUTE, INC. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (CONTINUED)
 
 Six Months EndedDecember 31,
                    2008
                    (Unaudited)
                  
                  
                  December 31,
                    2007
                    (Unaudited)Reconciliation
      of Cash & Cash EquivalentsCash
      & cash equivalents at the end of financial period as shown in the
      Statement of Cash Flows is reconciled to the related items in the
      Consolidated Balance Sheets as follows:Cash
      & Cash Equivalents
                  
                  $
                  1,356,170
                  
                  
                  $
                  1,736,477Reconciliation
      of Cash Flow from Operations with Profit from Ordinary Activities after
      Income TaxNet
      Income
                  
                  $
                  501,579
                  
                  
                  $
                  685,194Non-Cash
      Flows in Profit from Ordinary ActivitiesDepreciation
      and amortisation
                  
                  
                  803,908
                  
                  
                  
                  866,969Provision
      for doubtful accounts
                  
                  
                  3,170,063
                  
                  
                  
                  1,519,741Gain
      on disposal of investments
                  
                  
                  (119,677
                  )
                  
                  
                  -Changes
      in Assets and Liabilities(Increase)
      decrease in inventories
                  
                  
                  (502,992
                  )
                  
                  
                  61,265Increase
      in receivables
                  
                  
                  (8,600,663
                  )
                  
                  
                  (2,977,292
                  )Increase
      in unearned revenue
                  
                  
                  600,883
                  
                  
                  
                  71,251Increase
      in payables
                  
                  
                  3,161,964
                  
                  
                  
                  800,225Increase
      in provisions for compensated absences
                  
                  
                  143,842
                  
                  
                  
                  100,592Increase
      in deferred tax liabilities
                  
                  
                  855,058
                  
                  
                  
                  193,781Increase
      in security deposit
                  
                  
                  (70,096
                  )
                  
                  
                  (4,112
                  )(Decrease)
      increase in income tax payable
                  
                  
                  (552,548
                  )
                  
                  
                  476,326Net
      cash (used in) provided by operating activities of continued
      operations
                  
                  
                  (608,679
                  )
                  
                  
                  1,793,940Net
      cash used in operating activities of discontinued
operation
                  
                  
                  (138,963
                  )
                  
                  
                  (33,723
                  )Net
      cash (used in) provided by operating activities
                  
                  $
                  (747,642
                  )
                  
                  $
                  1,760,217Supplemental
      Cash Flow Disclosures:Interest
      paid
                  
                  $
                  130,080
                  
                  
                  $
                  132,054Income
      tax paid
                  
                  $
                  233,604
                  
                  
                  $
                  85,676Non-Cash
      Investing/Financing Activities:Assets
      acquired under capital leases
                  
                  $
                  114,656
                  
                  
                  $
                  23,238
 
 The
accompanying notes are an integral part of these unaudited financial
statements.
  6
 
 ADVANCED
MEDICAL INSTITUTE INC.
 AND
SUBSIDIARIES
  NOTES
TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
 
 1.
              NATURE OF
      BUSINESS
 
 Nature of
Business
  We were
originally incorporated under the name of Hawksdale Financial Visions, Inc. on
December 6, 1996 under the laws of the State of Nevada. We were involved in the
business of timeshares, but became dormant on March 31, 1997, and until January
28, 2005, we were a “blank check” company with nominal assets. On October 15,
2004, we changed our name to “Advanced Medical Institute Inc.” On March 21,
2005, we completed a Share Exchange Agreement with Advanced Medical Institute
Pty Limited, a privately owned Australian company (“AMI Australia”), whereby AMI
Australia became our wholly-owned subsidiary. On November 17, 2005, we entered
into a Share Exchange Agreement with PE Patent Holdco Pty Limited, a privately
owned Australian company (“PE Patent Holdco”), whereby PE Patent Holdco became
our wholly-owned subsidiary. On September 8, 2006, we entered into a Share
Exchange Agreement with Worldwide PE Patent Holdco Pty Limited (ACN 117 157
727), a privately owned Australian company (“Worldwide PE”), whereby Worldwide
PE became our wholly-owned subsidiary.
  Business
Overview
  AMI is a
service provider company, which arranges for patients with sexual dysfunction
and prostate problems in Australia, New Zealand, China and the United Kingdom to
be provided with medical services, pharmaceuticals and associated clinical
support services.
  On
September 15, 2008, we announced expansion of our operations to the United
Kingdom where we opened up our treatment centers, contracts with independent
doctors and pharmacies and began airing infomercials throughout the
country.
  For the
year ended June 30, 2008, AMI’s revenues were approximately $51.9
million.
 
 2.
              BASIS OF
      PRESENTATION
 
 The
accounting and reporting policies of the Company conform to accounting
principles generally accepted in the United States of America. In the opinion of
management, the accompanying unaudited consolidated financial statements include
all adjustments, consisting only of normal, recurring adjustments, necessary for
a fair presentation of AMI’s financial position and the results of operations
for the interim periods presented. Notes to the unaudited consolidated financial
statements that would substantially duplicate the disclosures contained in AMI’s
audited consolidated financial statements for its most recent fiscal year have
been omitted.
 
 3.
              RECENT
      PRONOUNCEMENTS
 
 In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations” (“SFAS 141R”). The objective of this statement will significantly
change the accounting for business combinations. Under SFAS141R, an acquiring
entity will be required to recognize all the assets acquired and liabilities
assumed in a transaction at the acquisition date fair value with limited
exceptions. SFAS141R applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company does not expect the
adoption of SFAS No. 141R to have a material impact on the consolidated
financial statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements-An Amendment of ARB No. 51 (“SFAS 160”). The
objective of this Statement is to establish new accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. SFAS160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The Company does not expect the adoption of SFAS160 to have a material
impact on the consolidated financial statements.
 
 In March,
2008, the Financial Accounting Standards Board (“FASB”) issued FASB Statement
No. 161, “Disclosures about Derivative Instruments and Hedging Activities”(“SFAS
161”). The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The new standard also improves
transparency about the location and amounts of derivative instruments in an
entity’s financial statements; how derivative instruments and related hedged
items are accounted for under SFAS133; and how derivative instruments and
related hedged items affect its financial position, financial performance, and
cash flows. SFAS161 achieves these improvements by requiring disclosure of the
fair values of derivative instruments and their gains and losses in a tabular
format. It also provides more information about an entity’s liquidity by
requiring disclosure of derivative features that are credit risk-related.
Finally, it requires cross-referencing within footnotes to enable financial
statement users to locate important information. Based on current conditions,
the Company does not expect adoption of SFAS 161 to have a significant impact on
its results of operations or financial position.
  7
 
 In May
2008, FASB issued SFASB No.162, “The Hierarchy of Generally Accepted Accounting
Principles”. The pronouncement mandates the GAAP hierarchy reside in the
accounting literature as opposed to the audit literature. This has the practical
impact of elevating FASB Statements of Financial Accounting Concepts in the GAAP
hierarchy. This pronouncement will become effective 60 days following SEC
approval. The Company does not believe this pronouncement will impact its
financial statements.
 
 In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance
Contracts-an interpretation of FASB Statement No. 60”. The scope of the
statement is limited to financial guarantee insurance (and reinsurance)
contracts. The pronouncement is effective for fiscal years beginning after
December 31, 2008. The Company does not believe this pronouncement will impact
its financial statements.
 
 On
December 30, 2008 FASB issued FIN 48-3, “Effective Date of FASB Interpretation
No. 48 for Certain Nonpublic Enterprises”. This FSP defers the effective date of
FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes, for certain non-public enterprises as defined in paragraph 289, as
amended, of FASB Statement No. 109, Accounting for Income Taxes,
including non-public not-for-profit organizations. However, non-public
consolidated entities of public enterprises that apply U. S. GAAP are not
eligible for the deferral. Nonpublic enterprises that have applied the
recognition, measurement, and disclosure provisions of Interpretation 48 in a
full set of annual financial statements issued prior to the issuance of this FSP
also are not eligible for the deferral. This FSP shall be effective upon
issuance. The Company does not believe this pronouncement will impact its
financial statements.
 
 On
January 12, 2009 FASB issued FSP EITF 99-20-01, “Amendment to the Impairment
Guidance of EITF Issue No. 99-20”. This FSP amends the impairment guidance in
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to be Held
by a Transferor in Securitized Financial Assets,” to achieve more consistent
determination of whether an other-than-temporary impairment has occurred. The
FSP also retains and emphasizes the objective of an other-than-temporary
impairment assessment and the related disclosure requirements in FASB Statement
No. 115, Accounting for
Certain Investments in Debt and Equity Securities, and other related
guidance. The FSP is shall be effective for interim and annual reporting periods
ending after December 15, 2008, and shall be applied prospectively.
Retrospective  application to a prior interim or  annual
reporting period is not permitted. The Company does not believe this
pronouncement will impact its financial statements.
 
 4.
              INTANGIBLE
      ASSETS
 
 The
Company applies the criteria specified in SFAS No. 141, “Business
Combinations” to determine whether an intangible asset should be recognized
separately from goodwill. Intangible assets acquired through business
acquisitions are recognized as assets separate from goodwill if they satisfy
either the “contractual-legal” or “separability” criterion. Per SFAS 142,
intangible assets with definite lives are amortized over their estimated useful
life and reviewed for impairment in accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-lived Assets.” Intangible
assets, such as purchased technology, trademark, customer list, user base and
non-compete agreements, arising from the acquisitions of subsidiaries and
variable interest entities are recognized and measured at fair value upon
acquisition. Intangible assets are amortized over their estimated useful lives
from one to ten years. The Company reviews the amortization methods and
estimated useful lives of intangible assets at least annually or when events or
changes in circumstances indicate that it might be impaired. The recoverability
of an intangible asset to be held and used is evaluated by comparing the
carrying amount of the intangible asset to its future net undiscounted cash
flows. If the intangible asset is considered to be impaired, the impairment loss
is measured as the amount by which the carrying amount of the intangible asset
exceeds the fair value of the intangible asset, calculated using a discounted
future cash flow analysis. The Company uses estimates and judgments in its
impairment tests, and if different estimates or judgments had been utilized, the
timing or the amount of the impairment charges could be different.
 
 Goodwill,
trademarks, patents and other intangible assets determined to have indefinite
useful lives are not amortized. We test such trademarks and other intangible
assets with indefinite useful lives for impairment annually, or more frequently
if events or circumstances indicate that an asset might be impaired. Goodwill,
trademarks, patents and other intangible assets determined to have definite
lives are amortized over their estimated useful lives or the life of the
trademark, patent and other intangible asset, whichever is less.
 
 Impairment
is determined by assessing the recoverable amount of the cash-generating unit
(group of cash-generating units), to which the intangible asset relates. When
the recoverable amount of the cash-generating unit (group of cash-generating
units) is less than the carrying amount, an impairment loss is
recognised.
  8
 
 At
December 31, 2008 and June 30, 2008, intangibles consist of the
following:
  Intangibles
                  
                  Gross Carrying
                    Amount
                  
                  
                  Accumulated
                    Amortization
                  
                  
                  ImpairmentLoss
                  
                  
                  Net Carrying
                    AmountDecember 31,
                    2008
                    (Unaudited)
                  
                  
                  Net Carrying
                    AmountJune 30, 2008Amortized
      intangibles:Australian
      Patents
                  
                  $
                  4,561,072
                  
                  
                  $
                  (761,872
                  )
                  
                  $
                  -
                  
                  
                  $
                  3,799,200
                  
                  
                  $
                  5,458,430Worldwide
      Patents
                  
                  $
                  3,453,497
                  
                  
                  $
                  (446,478
                  )
                  
                  $
                  (565,683
                  )
                  
                  $
                  2,441,336
                  
                  
                  $
                  3,534,861Intellectual
      Property
                  
                  
                  14,047,172
                  
                  
                  
                  (1,774,765
                  )
                  
                  
                  -
                  
                  
                  
                  12,272,407
                  
                  
                  
                  17,510,605Computer
      Software
                  
                  
                  370,483
                  
                  
                  
                  (236,892
                  )
                  
                  
                  -
                  
                  
                  
                  133,591
                  
                  
                  
                  185,180Unamortized
      intangibles:Intellectual
      Property
                  
                  
                  2,580,528
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,580,528
                  
                  
                  
                  3,592,264$
                  25,012,752
                  
                  
                  $
                  (3,220,007
                  )
                  
                  $
                  (565,683
                  )
                  
                  $
                  21,227,062
                  
                  
                  $
                  30,281,340
 
 The Company assigned an 18 year life to the patents that are held
by Worldwide PE Patent and a 19 year life to the patents that are held by PE
Patent.
 
 The
exchange rate used for the period ended June 30, 2008
was A$:US$ 1:0.96150, and the rate used for the period ended December
31, 2008 was A$:US$ 1:0.69070. The rate change caused the decrease in the net
book value of intangible assets in addition to accumulated
amortization.
  For
intellectual property, the Company assigned an 18 year life to the intellectual
property that arose from Worldwide PE Patent, a 19 year life to the intellectual
property that arose from PE Patent, and indefinite life to the intellectual
property that arose from IMT.
  Computer
software was assigned as having a 3 year life.
  Amortization
expense from continuing operations for the six months ended December 31, 2008
and 2007 were $714,611 and $768,978, respectively. The Company expects the
amortization expenses for the next five years to be as follows:
  Year Ending December
      31,
                    
                    Annual Amount2009
                    
                    $
                    1,429,0002010
                    
                    $
                    1,429,0002011
                    
                    $
                    1,429,0002012
                    
                    $
                    1,429,0002013
                    
                    $
                    1,429,000
  5.
              OTHER
      ASSETS
  Following
is the summary of other assets as of December 31, 2008 and June 30,
2008.
 
 December 31(Unaudited)
                          
                          
                          June 30Bank guarantees
                          
                          $
                          80,640
                          
                          
                          $
                          112,256Advances
      and prepayments
                          
                          
                          54,817
                          
                          
                          
                          23,220Other
      receivables
                          
                          
                          15,541
                          
                          
                          
                          67,305Other
      debtors
                          
                          
                          395,595
                          
                          
                          
                          498,548Total
                          
                          $
                          546,593
                          
                          
                          $
                          701,329
  9
  6.
              PROPERTY,
      PLANT AND EQUIPMENT
 
 Property,
plant and equipment comprised of the following as of December 31, 2008 and June
30, 2008:
 
 December 31(Unaudited)
                        
                        
                        June 30Leasehold
      improvements
                        
                        $
                        409,698
                        
                        
                        $
                        557,408Less:
      Accumulated depreciation
                        
                        
                        97,073
                        
                        
                        
                        118,234312,625
                        
                        
                        
                        439,174Motor
      Vehicles
                        
                        
                        64,568
                        
                        
                        
                        89,884Less:
      Accumulated Depreciation
                        
                        
                        29,796
                        
                        
                        
                        36,31634,772
                        
                        
                        
                        53,568Office
      Furniture & Equipment
                        
                        
                        892,307
                        
                        
                        
                        803,398Less:
      Accumulated Depreciation
                        
                        
                        156,632
                        
                        
                        
                        177,720735,675
                        
                        
                        
                        625,678Computer
      Hardware
                        
                        
                        341,516
                        
                        
                        
                        462,013Less:
      Accumulated Depreciation
                        
                        
                        250,134
                        
                        
                        
                        318,14191,382
                        
                        
                        
                        143,872Low
      Value Pooled Fixed Assets
                        
                        
                        144,029
                        
                        
                        
                        188,491Less:
      Accumulated Depreciation
                        
                        
                        105,616
                        
                        
                        
                        135,95838,413
                        
                        
                        
                        52,533Total
      Property, Plant and Equipment, net
                        
                        $
                        1,212,867
                        
                        
                        $
                        1,314,825
 
 Included in property and equipment
are assets of approximately $231,998 and $163,348, as of December 31, 2008 and
June 30, 2008, that are leased under non-cancellable leases and accounted for as
capital leases, which expire through October 2013. The accumulated depreciation
included in the property and equipment for these leases is approximately $64,143
and $68,284 as of December 31, 2008 and June 30, 2008.
 
 7.
              INTEREST BEARING
      LIABILITIES
 
 Interest
bearing liabilities comprised of the following as of December 31, 2008 and June
30, 2008:
 
 December 31(Unaudited)
                          
                          
                          June 30Current,
      as of the period endedCapitalized
      lease liability
                          
                          $
                          44,446
                          
                          
                          $
                          45,037Secured
      loan
                          
                          
                          -
                          
                          
                          
                          377,678$
                          44,446
                          
                          
                          $
                          422,715Non-current,
      as of the period endedCapitalized
      lease liability
                          
                          $
                          130,150
                          
                          
                          $
                          26,061Secured
      loan
                          
                          
                          1,307,034
                          
                          
                          
                          1,497,655Total
      non-current
                          
                          $
                          1,437,184
                          
                          
                          $
                          1,523,716
  The
interest bearing liabilities require monthly payments of principal and interest
at a per annum interest rate ranging from 5.5% to 14.30%. Interest expense on
the interest bearing liabilities amounted to $130,080 and $132,502 for the six
month periods ended December 31, 2008 and 2007, respectively.
 
 Obligations
under the notes are secured by the financed assets included in property and
equipment. The secured loans are secured over all of AMI Australia’s assets and
undertakings. The principal of the loan matures in December
2011.
  10
  8.
              LEGAL
      PROCEEDINGS
  
 "AMI
Australia and Others v Bade Medical Institute and Others - Federal Court
Proceedings NSD. 2448 of 2007
 
 On
December 13, 2007, Advanced Medical Institute and AMI Australia
(collectively "AMI")  commenced proceedings by way of an Application
in the Federal Court of Australia against Bade Medical Institute Pty Limited,
World Wide Internet Services, Mr David Wade, Ms Georgina Wade and Dr Buddy Beani
(collectively "Bade") alleging that Bade had infringed AMI Australia's
trademarks and other intellectual property rights.
 
 On
December 19, 2007, Bade consented to orders that Bade transfer ownership of
certain domain names and telephone numbers to AMI Australia and consented to
orders that Bade would not use certain names which contained the word AMI. Bade
appears to have ceased operation since the orders were obtained.
 
 On April
10, 2008, a subpoena was served on Bade requiring the production of, among
other things, its bank records. However, despite the Subpoena being stood over
on 9 occasions, it was never sufficiently answered by Bade.
 
 As Bade
failed to properly answer the subpoena, AMI Australia has had to issue subpoenas
to third parties to attain the evidence it requires to quantify its
damages.
 
 As these
proceedings were commenced by way of Application, On 8 August 2008, AMI
Australia filed and served a statement of claim so that it could file for
default or summary judgment if Bade failed to file and serve defences or if Bade
fails to file and serve defences that reasonably answer AMI Australia's
case.
 
 On
September 16, 2008 this matter was listed for further directions
and orders were made that:
 1.
              The
      matter be fixed for hearing on December
  17-19, 2008.
 2.
              Bade
      to file and serve any Defences upon which they propose to rely by
      September 20 2008 (Defences were filed on September 10, 2008, September
      11, 2008 and October 1, 2008).
 3.
              AMI
      Australia to file and serve any Affidavits upon which they propose to
      rely by November 5, 2008 (Affidavits were served on 10 and 25 November
      2008).
 4.
              Bade
      are to file and serve any Affidavits in reply by December 9, 2008
      (Affidavits were served on September 15, 2009, September 29, 2008 and
      September 30, 2008)
 
 On
December 17, 2008 the matter was listed for hearing, however, it was adjourned
later the same day on the basis that:
 (a)
              The
      Fifth Respondent, Georgina Wade, did not appear and was not
      legally represented; and
 (b)
              AMI
      Australia required Ms. Wade's attendance for
      cross-examination.
 
 The Court
made the following orders at the adjourned hearing:
 1.
              The
      hearing dates for the present proceeding of December 17-19, 2008 be
      vacated.
 2.
              The
      hearing of the proceeding be adjourned to April 8-9,
      2009.
 3.
              Any
      such further evidence as AMI Australia may wish to rely upon is
      to be filed and served by 15 January
2009.
 4.
              Any
      Notice of Motion seeking leave for the Fourth Respondent, David Wade, to
      appear for and defend the proceeding on the part of the Fifth
      Respondent, Ms. Wade, together with any Affidavits in support, is to
      be filed and served by January
29, 2009.
 5.
              Any
      such further evidence as may be relied upon by Bade is to be filed and
      served by February 23, 2009.
 6.
              Liberty
      to apply by any party reserved on 2 days notice in
  writing.
 
 On
January 15, 2009, AMI Australia served the balance of the evidence it intends to
rely upon.
 
 The
Fourth Respondent, Mr Wade, has not served any notice of motion in accordance
with Order 4 above. Further, Bade has not served any further evidence as yet,
however, Bade has until February 23, 2009 to serve same. Subject to receipt of
further evidence from Bade, AMI's evidence is complete. The only remaining
matters to be addressed for the hearing commencing April 8, 2009 will be the
preparation of a judge's bundle which will facilitate the conduct of the
trial itself.
 
 Trade
Mark Dispute with Bade Medical Institute - "AMI Nasal Spray"
 
 On
October 25, 2006, Bade applied for Trade Mark No. 114322021 in respect of the
words "AMI Nasal Spray". AMI Australia lodged an objection to the registration
of that application with IP Australia on 21 June 2007 and filed all evidence
upon which it relies by 19 March 2008.
 
 Bade was
to file and serve all evidence in answer to AMI Australia's opposition on or by
21 June 2008, but failed to do so.
 
 On 8
August 2008, AMI Australia filed written submissions supporting the evidence it
has already filed.
  11
  On
January 7, 2009, IP Australia decided that AMI Australia had not
established a ground of opposition under the Trade Marks Act 1995 and directed
that the subject trade mark may proceed to registration after one month from the
date of the decision unless AMI Australia files
an appeal.
  On January
28, 2009, AMI Australia filed a Notice of Appeal with the Federal Court of
Australia in respect of IP Australia's decision described above.  The
appeal is first before the Court on February 27, 2009."
 
 9.
              LEASE
      COMMITMENTS
  The
Company is party to long-term, non-cancellable operating leases for its
administrative offices and clinic locations. The future aggregate minimum annual
lease payments arising from these leases are as follows:
  December 31
                        (Unaudited)Due
      during the period ended,2009
                      
                      $
                      622,3792010
                      
                      
                      415,9922011
                      
                      
                      341,9272012
                      
                      
                      278,7312013
                      
                      
                      250,0222014
                      
                      
                      233,8352015
                      
                      
                      233,835$
                      2,376,721
 
 Rent paid for the Six Month Periods Ended December 31, 2008 and
2007 were $582,435 and $522,621, respectively.
 
 10.
              DISCONTINUED
      OPERATION
 
 Whygo
Video Conferencing Pty Limited
 
 On April
30, 2008, AMI Australia Holdings Pty Limited, a wholly owned subsidiary of
Advanced Medical Institute Inc., entered a Share Sale Agreement with Mr. James
Matthews pursuant to which AMI Australia agreed to sell its 50% interest in
Whygo Video Conferencing Pty Limited (ACN 105 732 492), a privately owned
Australian company, in exchange for the payment of A$330,000 (US$258,192) by Mr.
Matthews.
  Consideration
has been fully settled as at December 31, 2008 and the ownership of Whygo is
considered to be disposed.
 
 Gain on
disposal is shown below:
 
 December 31
                            (Unaudited)Consideration
                          
                          $
                          258,192Discount
      on early repayment
                          
                          
                          (7,824
                          )Total
      money received
                          
                          
                          250,368Net
      book value of Whygo as at December 31, 2008
                          
                          
                          (130,691
                          )Gain
      on disposal (including income of $15,181 from discontinued
      operations)
                          
                          $
                          119,677
  12
  The
components of income from operations related to the entity held for disposal for
the period ended December 31, 2008 are shown below.
  December 31
                        (Unaudited)Net
      sales
                      
                      $
                      433,331Operating
      expensesSelling,
      general and administrative
                      
                      
                      442,154Loss
      from operations
                      
                      
                      (8,823
                      )Non-operating
      income (expenses) :-Other
      income
                      
                      
                      23,633Interest
      income
                      
                      
                      371Net
      profit
                      
                      $
                      15,181
 11.
              RELATED PARTY
      TRANSACTIONS
 
 December 31,
                            2008
                            (Unaudited)
                          
                          
                          June 30, 2008Related
      party transactions comprised of the following:Advanced Medical Institute of the United
      States, Inc.Relationship:
      Under common management control by Jack VaismanReceivable
      from this related party
                          
                          $
                          1,224,997
                          
                          
                          $
                          151,074Prostate
      Health Clinic Pty. Ltd. (an AU co.)Relationship:
      Under common management control by Jack VaismanReceivable
      from this related party - current
                          
                          
                          1,329
                          
                          
                          
                          1,850Loan
      to affiliate in Indonesia
                          
                          
                          418,727
                          
                          
                          
                          598,110Receivable
      due form related parties
                          
                          $
                          1,645,053
                          
                          
                          $
                          751,034Jacov
      VaismanRelationship:
      Director of the companyPayable
      to this related party - current
                          
                          $
                          483,490
                          
                          
                          $
                          -Secare
      Health Centre Pty LimitedRelationship:
      Under common management control by Jack VaismanPayable
      to this related party – non current
                          
                          $
                          690,700
                          
                          
                          $
                          -
 
 Total
receivables due from related parties included in the Company’s statement of
financial position were $1,645,053
and $751,034, as of December 31, 2008 and June 30, 2008,
respectively.
  Total
payables due to related parties included in the Company’s statement of financial
position were $483,490 (current) and $690,700 (non-current) as of December 31,
2008 and $0 as of June 30, 2008.
 
 Receivables
from related parties are unsecured, interest-free, and due on
demand.
  13
 
 Payables
to related parties are as follows:
 Jack
Vaisman: Unsecured, interest charge at Australian Reserve Bank cash rate plus
4.5%, and due on demand.
 Secare
Health Centre Pty Ltd: Unsecured, interest charge at 10% per annum, and due for
repayment in December 2011.
 
 12.
              INCOME
      TAXES
 
 Total
income tax expense for the six months ended December 31, 2008 and 2007 amounted
to $536,287 and $755,253, respectively. For the six month periods ended December
31, 2008 and 2007 there is a difference of 1% between the Australian federal
statutory tax rate and the effective tax rate. This difference is due to the
domicile of operating profits and losses in the Group as well as the impact of
timing and past operating profits (losses) on these matters.
 
 December
      31, 2008
                    
                    U.S.
                    
                    
                    State
                    
                    
                    International
                    
                    
                    TotalCurrent
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    423,816
                    
                    
                    $
                    423,816Deferred
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    112,471
                    
                    
                    $
                    112,471Total
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    536,287
                    
                    
                    $
                    536,287
 
 December
      31, 2007
                    
                    U.S.
                    
                    
                    State
                    
                    
                    International
                    
                    
                    TotalCurrent
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    432,134
                    
                    
                    $
                    432,134Deferred
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    323,119
                    
                    
                    $
                    323,119Total
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    755,253
                    
                    
                    $
                    755,253
 
 Reconciliation of the differences between the statutory U.S.
Federal income tax rate and the effective rate is as follows:
 
 December 31,
                        2008
                      
                      June 30,
                        2008Federal
      statutory tax rate
                      
                      
                      34
                      %
                      34
                      %Increase
      (decrease) in rate resulting from:Non
      US income taxed at different rates
                      
                      
                      (1
                      )%
                      (1
                      )%33
                      %
                      33
                      %Temporary
      Difference
                      
                      
                      5
                      %
                      108
                      %Effective
      Tax Rate
                      
                      
                      38
                      %
                      141
                      %
  Deferred
tax liability arises due to the following temporary differences:
 
 December 31,
                          2008
                        
                        
                        Future tax
                          rate %
                        
                        
                        Deferred tax
                          liability
                        
                        
                        June 30, 2008
                        
                        
                        Future tax
                          rate %
                        
                        
                        Deferred tax
                          liabilityOwing by
      patients via ACFC
                        
                        $
                        22,621,980
                        
                        
                        
                        30
                        %
                        
                        $
                        6,786,594
                        
                        
                        $
                        24,444,765
                        
                        
                        
                        30
                        %
                        
                        $
                        7,333,430Provision
      DDR cancellation
                        
                        
                        (12,183,948
                        )
                        
                        
                        30
                        %
                        
                        
                        (3,655,184
                        )
                        
                        
                        (13,746,000
                        )
                        
                        
                        30
                        %
                        
                        
                        (4,123,800
                        )Provision
      un-dispensed DDR medications
                        
                        
                        (1,013,257
                        )
                        
                        
                        30
                        %
                        
                        
                        (303,977
                        )
                        
                        
                        (1,253,000
                        )
                        
                        
                        30
                        %
                        
                        
                        (375,900
                        )Accrued
      ACFC collection and commission
                        
                        
                        (2,217,147
                        )
                        
                        
                        30
                        %
                        
                        
                        (665,144
                        )
                        
                        
                        (2,506,000
                        )
                        
                        
                        30
                        %
                        
                        
                        (751,800
                        )Provision
      for patient refund
                        
                        
                        (124,326
                        )
                        
                        
                        30
                        %
                        
                        
                        (37,298
                        )
                        
                        
                        (190,000
                        )
                        
                        
                        30
                        %
                        
                        
                        (57,000
                        )Amortization
      of patents
                        
                        
                        1,541,836
                        
                        
                        
                        30
                        %
                        
                        
                        462,551
                        
                        
                        
                        714,329
                        
                        
                        
                        30
                        %
                        
                        
                        214,299Other
      miscellaneous
                        
                        
                        (424,271
                        )
                        
                        
                        30
                        %
                        
                        
                        (127,282
                        )
                        
                        
                        279,946
                        
                        
                        
                        30
                        %
                        
                        
                        83,983Total
                        
                        $
                        8,200,867
                        
                        
                        
                        30
                        %
                        
                        $
                        2,460,260
                        
                        
                        $
                        7,744,040
                        
                        
                        
                        30
                        %
                        
                        $
                        2,323,212
  14
  13.
              OTHER
      COMPREHENSIVE INCOME (LOSS)
 
 Balances
of related after-tax components comprising accumulated other comprehensive
income (loss), included in stockholders’ equity, at December 31, 2008 and June
30, 2008 are as follows:
 
 Accumulated
                        Other
                        Comprehensive
                        IncomeBalance
      at June 30, 2007
                      
                      $
                      3,171,506Change
      for year ended June 30, 2008
                      
                      
                      3,800,994Balance
      at June 30, 2008
                      
                      $
                      6,972,500Change
      for six months ended December 31, 2008
                      
                      
                      (9,515,476
                      )Balance
      at December 31, 2008
                      
                      $
                      (2,542,976
                      )
 
 14.
              ACQUISITIONS
 
 On July
3, 2008, the Company entered a Share Exchange Agreement with AMI Clinic Limited,
a privately owned company in the United Kingdom (“AMI UK”), and AMI UK’s
shareholders pursuant to which the Company acquired all of the issued and
outstanding shares of stock of AMI UK without any consideration.
 
 On August
14, 2008, the Company entered a Share Exchange Agreement with Australian
Lifestyle Clinic Pty Limited (ACN 128 711 615), a privately owned Australian
company (“Australian Lifestyle”), and Australian Lifestyle’s shareholders
pursuant to which the Company acquired all of the issued and outstanding shares
of stock of Australian Lifestyle without any consideration.
 
 Both the
entities acquired by the Company were dormant with no significant assets and
liabilities.
  15
 
 ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 THE
FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE INFORMATION
CONTAINED IN THE FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
APPEARING ELSEWHERE HEREIN AND IN CONJUNCTION WITH THE MANAGEMENT’S DISCUSSION
AND ANALYSIS SET FORTH IN THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED JUNE 30, 2008.
 
 Preliminary
Note Regarding Forward-Looking Statements
  The
statements contained in this Form 10-Q that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These include statements about the Company’s expectations, beliefs,
intentions or strategies for the future, which are indicated by words or phrases
such as “anticipate,” “expect,” “intend,” “plan,” “will,” “the Company
believes,” “management believes” and similar words or phrases. The
forward-looking statements are based on the Company’s current expectations and
are subject to certain risks, uncertainties and assumptions. The Company’s
actual results could differ materially from results anticipated in these
forward-looking statements. All forward-looking statements included in this
document are based on information available to the Company on the date hereof,
and the Company assumes no obligation to update any such forward-looking
statements.
  Overview
  We were
originally incorporated under the name of Hawksdale Financial Visions, Inc. on
December 6, 1996 under the laws of the State of Nevada. We were involved in the
business of timeshares, but became dormant on March 31, 1997, and until January
28, 2005, we were a “blank check” company with nominal assets. On October 15,
2004, we changed our name to “Advanced Medical Institute Inc.” On March 21,
2005, we completed a Share Exchange Agreement with Advanced Medical Institute
Pty Limited, a privately owned Australian company (“AMI Australia”), whereby AMI
Australia became our wholly-owned subsidiary. On November 17, 2005, we entered
into a Share Exchange Agreement with PE Patent Holdco Pty Limited, a privately
owned Australian company (“PE Patent Holdco”), whereby PE Patent Holdco became
our wholly-owned subsidiary. On September 8, 2006, we entered into a Share
Exchange Agreement with Worldwide PE Patent Holdco Pty Limited (ACN 117 157
727), a privately owned Australian company (“Worldwide PE”), whereby Worldwide
PE became our wholly-owned subsidiary.
  Business
Overview
  AMI is a
service provider company, which arranges for patients with sexual dysfunction
and prostate problems in Australia, New Zealand, China and the United Kingdom to
be provided with medical services, pharmaceuticals and associated clinical
support services.
  On
September 15, 2008, we announced expansion of our operations to the United
Kingdom where we opened up our treatment centers, contracts with independent
doctors and pharmacies and began airing infomercials throughout the
country.
 
 CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
  Our
discussion and analysis of financial condition and results is based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenue and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates, including those related to accounts receivable
reserves, provisions for impairment losses of affiliated companies and other
intangible assets, income taxes and contingencies. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
 
 We
believe the following critical accounting policies reflect our more significant
estimates and assumptions used in the preparation of our consolidated financial
statements:
 
 REVENUE
RECOGNITION   Sales are reported as deferred income when the
sales contracts are executed and the term of the contract exceeds three months.
Up to three months medication is delivered to the patient upon the signing of a
contract. Generally the terms of the sales contracts are up to one year, but
they can be for longer periods of time. The deferred income arising from the
contracts that exceed three months is then amortized, on a straight-line basis,
into income during the approximated composite remaining medication delivery
period. This approximated composite is an estimate that may vary from period to
period.
  ALLOWANCE
FOR DOUBTFUL ACCOUNTS   We evaluate the collectibility of our
trade receivables based on a combination of factors. We regularly analyze our
significant customer accounts, and, when we become aware of a specific
customer’s inability to meet its financial obligations to us, such as in the
case of bankruptcy filings or deterioration in the customer’s ability to pay for
our services, we record a specific reserve for bad debt to reduce the related
receivable to the amount we reasonably believe is collectible. The allowances
are calculated based on detailed review of certain individual customer accounts,
historical rates and an estimation of the overall economic conditions affecting
our customer base. We review a customer’s credit history with the Company before
extending credit. If the financial condition of our customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.
  16
 
 INCOME
TAXES   We record a valuation allowance to reduce our deferred
tax assets to the amount that is more likely than not to be realized. We have
considered future market growth, forecasted earnings, future taxable income, and
prudent and feasible tax planning strategies in determining the need for a
valuation allowance.
 
 CONTINGENCIES   We
may be subject to certain asserted and unasserted claims encountered in the
normal course of business. It is our belief that the resolution of these matters
will not have a material adverse effect on our financial position or results of
operations; however, we cannot provide assurance that damages that result in a
material adverse effect on our financial position or results of operations will
not be imposed in these matters. We account for contingent liabilities when it
is probable that future expenditures will be made, and such expenditures can be
reasonably estimated.
 
 LONG-LIVED
ASSETS   We periodically assesses the need to record impairment
losses on long-lived assets, such as property, plant and equipment, goodwill and
purchased intangible assets, used in operations and its investments, when
indicators of impairment are present indicating the carrying value may not be
recoverable. An impairment loss is recognized when estimated undiscounted future
cash flows expected to result from the use of the asset plus net proceeds
expected from disposition of the asset (if any) are less than the carrying value
of the asset. When impairment is identified, the carrying amount of the asset is
reduced to its estimated fair value. Goodwill is no longer amortized, and
potential impairment of goodwill and purchased intangible assets with indefinite
useful lives are evaluated using the specific guidance provided by SFAS No. 142
and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived
Assets.” This impairment analysis is performed at least annually. For
investments in affiliated companies that are not majority-owned or controlled,
indicators of value generally include revenue growth, operating results, cash
flows and other measures. Management then determines whether there has been a
permanent impairment of value based upon events and circumstances that have
occurred since acquisition. It is reasonably possible that the impairment
factors evaluated by management will change in subsequent periods, given that
the Company operates in a volatile environment. This could result in material
impairment charges in future periods.
 
 CURRENCY
CONVERSION   As of December 31, 2008 and 2007, the accounts of
AMI Australia were maintained, and its financial statements were expressed, in
Australian Dollars (A$). Such financial statements were translated into US
Dollars (US$) in accordance with Statement of Financial Accounts Standards
(“SFAS”) No. 52, “Foreign Currency Translation”, with the Australian
Dollar as the functional currency. In accordance with the Statement, all
assets and liabilities were translated at the exchange rate (A$1 = US$0.69070)
as of December 31, 2008, stockholder’s equity are translated at the historical
rates and income statement items are translated at the weighted-average exchange
rate for the period. The resulting translation adjustments are reported under
other comprehensive income in accordance with SFAS No. 130, “Reporting
Comprehensive Income”.
 
 The
following table sets forth, for the periods indicated, certain operating
information expressed as a percentage of revenue:
  Results of
operations:
  Three
                              Months
                              ended
                              December
                              31,
                            
                            
                            Three
                              Months
                              ended
                              December
                              31,
                            
                            
                            Six
                              Months
                              ended
                              December
                              31,
                            
                            
                            Six
                              Months
                              ended
                              December
                              31,2008
                            
                            
                            2007
                            
                            
                            2008
                            
                            
                            2007Revenue
                            
                            
                            100
                            %
                            
                            
                            100
                            %
                            
                            
                            100
                            %
                            
                            
                            100
                            %Cost
      of revenue
                            
                            
                            21.1
                            %
                            
                            
                            22.8
                            %
                            
                            
                            21.9
                            %
                            
                            
                            23.0
                            %Gross
      profit
                            
                            
                            78.9
                            %
                            
                            
                            77.2
                            %
                            
                            
                            78.1
                            %
                            
                            
                            77.0
                            %Selling,
      general and administrative expenses
                            
                            
                            74.7
                            %
                            
                            
                            63.6
                            %
                            
                            
                            74.3
                            %
                            
                            
                            69.0
                            %Other
      income and expenses
                            
                            
                            0.4
                            %
                            
                            
                            0.4
                            %
                            
                            
                            (0.2
                            )%
                            
                            
                            (0.2
                            )%Discontinued
      operation
                            
                            
                            0.4
                            %
                            
                            
                            (3.0
                            )%
                            
                            
                            0.01
                            %
                            
                            
                            1.5
                            %Income
      before income tax
                            
                            
                            4.2
                            %
                            
                            
                            10.5
                            %
                            
                            
                            3.6
                            %
                            
                            
                            6.1
                            %Income
      tax expenses
                            
                            
                            1.3
                            %
                            
                            
                            4.4
                            %
                            
                            
                            2.0
                            %
                            
                            
                            3.2
                            %Net
      income
                            
                            
                            2.9
                            %
                            
                            
                            6.1
                            %
                            
                            
                            1.7
                            %
                            
                            
                            2.9
                            %
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
December 31, 2008, we had total liabilities of $20,734,103, including unearned
revenue of $5,503,498, and we had a positive net worth of $24,460,262.
As of June 30, 2008, we had total liabilities of $22,027,966, including unearned
revenue of $6,922,800, and we had a positive net worth of $33,474,159.  
The predominant reason for the significant reduction in the net worth of the
Company between June 30, 2008 and December 31, 2008 is due to a significant
deterioration in the A$ exchange rate as compared to the US$ exchange
rate.
  17
  Our
aggregate cash balances as at December 31, 2008 were $1,356,170, our inventory
was $780,912, and our net receivables were approximately $17.8 million. These
receivables are due on average within 90-180 days. We forecast that we will be
able to generate sufficient funds from our business to fund our operations in
the ordinary course during the next 12 months. Management has expanded our
business into the United Kingdom and China and is considering further
international expansion through establishing new sales clinic
operations.
 
 The
Company borrowed A$3 million from ANZ Nominees Limited in its capacity as
custodian of the Professional Pensions PST in September 2006.  The
outstanding balance of this loan was fully repaid in December 2008 using funds
from the St George facility discussed below.
 
 The
Company borrowed A$2.4 million from St George Bank Limited in December 2008
comprising a A$1.9 million term facility and a A$500,000 overdraft facility. The
loan is secured by a first ranking security interest in all of AMI Australia’s
assets and undertakings (including its existing equity interests in PE Patent
Holdco Pty Limited, Intelligent Medical Technologies Pty Limited and Advanced
Medical Institute (NZ) Limited). The term
facility is a commercial bill acceptance/discount facility whereby the Company
regularly discounts bills with the bank at the prevailing interest rate plus a
margin of 1.65%. The average all-up cost of this facility during the period was
6.58%.On each rollover the interest rate is reset and it is likely that
the current annual interest rate will fall on the next rollover due to the
Australian Reserve Bank cutting the Australian cash rate in February 2009 by 100
basis points from 4.25% to 3.25%   No repayment of this loan has
been made up to December 31, 2008.  The loan is due for repayment in
December 2011, however the Company is required to make principal repayments of
A$50,000 per month during each month of the term.  The A$500,000
overdraft facility was undrawn as at December 31, 2008.
 
 The
Company borrowed a further A$1 million from Secare Health Centre Pty Limited
(“Secare”) in December 2008.  Secare is controlled by the company’s
chief executive officer and founder, Jack Vaisman. The loan is secured by a
second ranking security interest in all of AMI Australia’s assets and
undertakings (including its existing equity interests in PE Patent Holdco Pty
Limited, Intelligent Medical Technologies Pty Limited and Advanced Medical
Institute (NZ) Limited). The loan attracts an interest cost of 10% per
annum.  No repayment of this loan has been made up to December 31,
2008.  The loan is due for repayment in December 2011.
 
 In the
event that we continue to expand our business, we may need to raise additional
debt or equity funding in order to undertake such expansion. However, there can
be no assurance that we can or will obtain sufficient funds from operations or
from additional financings on terms acceptable to us. If we are unable to obtain
sufficient additional financing, we may not be able to expand our operations as
considered or we could be required to reduce spending and
operations.
  RESULTS
OF OPERATIONS
 
 SIX
MONTHS ENDED DECEMBER 31, 2008 COMPARED TO SIX MONTHS ENDED DECEMBER 31,
2007
 
 Revenue.
Revenue was $29,160,593 in the six months ended December 31, 2008, compared to
$23,540,490 in the six months ended December 31, 2007, an increase of
$5,620,103, or 23.9%. We attribute this increase primarily to the following
factors: (1) expansion into U.K., (2) increased effectiveness of advertising
campaigns; (3) increased brand name recognition; and (4) effectiveness of our
products.
  Our
unearned revenue as at December 31, 2008 was $5,503,498 compared to $5,340,856
as at December 31, 2007. The gross increase in unearned revenue from the six
months ended December 31, 2007 to the six months ended December 31, 2008 was
$162,642, or an increase of 3.0%. The increase in the six-month period ended
December 31, 2008 is primarily attributable to the increase in the number of
patients buying treatment programs from us than in the same period in 2007. We
attribute this increase to the following factors: (1) increased advertising
campaigns with improved target marketing in the premature ejaculation segment;
(2) increased brand name recognition; and (3) effectiveness of our
products.
  Revenue
in AMI Australia’s premature ejaculation (PE) treatments has increased by $4,343,136or 38.2% to $15,723,133, and revenue in AMI Australia’s erectile
dysfunction (ED) treatments increased by $11,493,363
or 13.5%to $12,517,390, in the six months ended December 31, 2008,
compared to the six months ended December 31, 2007. The numbers of patients in
AMI Australia’s PE treatments and ED treatments are stable compared to the six
months ending December 31, 2007. We attribute the increase in revenue in our PE
treatments and ED treatments to the increase in the number of sales per patient,
along with the higher sales price of the treatment programs sold. Revenue in AMI
Australia’s prostate treatments has decreased by $428,026 or 35.9%, to $765,690,
in the six months ended December 31, 2008, compared to the six months ended
December 31, 2007. We attribute the decrease in revenue in our prostate
treatments to decreases in the number of patients. The number of patients in AMI
Australia’s prostate treatments decreased by 541 compared to the six months
ended December 31, 2007.
 
 Revenue
in our Australian operations was $25,142,030 in the six months ended December
31, 2008, compared to $22,944,529 in the six months ended December 31, 2007.
Compared to the same period in the previous year, there is an increase of
$2,197,501, or 9.6%, in the six months ended December 31, 2008. We attribute
this increase to the following factors: (1) increased advertising campaigns with
improved target marketing in the premature ejaculation segment; (2) increased
brand name recognition; and (3) effectiveness of our products.
 
 Revenue
in our UK operations was $3,504,624 in the six months ended December 31, 2008,
compared to $Nil in the six months ended December 31, 2007.  UK
operation started its business activities in September 2008.
  18
 
 Revenue
in our Chinese operations was $5,147 in the six months ended December 31, 2008,
compared to $22,589 during the six months ended December 31, 2007. The decrease
of $17,442, or 77.2%, in revenue in the six months ended December 31, 2008 is
primarily attributable to the decrease in the number of patients buying
treatments from us during the 2008 period.
  Cost of
Revenue. Cost of revenue was $6,381,207 in the six months ended December
31, 2008, compared to $5,418,456 in the six months ended December 31, 2007. The
increase in cost of revenue was attributable to an increase in the medication
cost incurred by AMI Australia and AMI’s UK operation. As a percentage of
revenue, cost of revenue was 21.9% in the six months ended December 31, 2008,
compared to 23.0% in the six months ended December 31, 2007. The decrease in
cost of revenue percentage in the quarter ended December 31, 2008 is primarily
attributable to a significant decrease in the scale of the Company’s
unprofitable Japanese and Chinese operations.
 Gross Profit. Gross profit was
$22,779,386 in the six months ended December 31, 2008, compared to $18,122,034
in the 2007 comparable period. As a percentage of revenue, gross profit
increased to 78.1% in the quarter ended December 31, 2008 from 77.0% in the 2007
quarter. The 1.1% increase in the gross profit percentage in 2008 is primarily
attributable to a significant decrease in the scale of the Company’s
unprofitable Japanese and Chinese operations.
  Selling, General
and Administrative Expenses. Selling, general and administrative expenses
were $21,674,564 in the six months ended December 31, 2008, compared to
$16,251,897 in the six months ended December 31, 2007. As a percentage of
revenue, selling, general and administrative expenses increased to 74.3% in the
six months ended December 31, 2008 from 69.0% in the six months ended December
31, 2007. The increase in the six months ended December 31, 2008 is primarily
attributable to the establishment of UK operations. The Company’s UK operations
started its business activities in September 2008.  The initial stage
of UK operation led to a high percentage of selling, general and administrative
expenses to revenue due to the operation being a start up
business.  Its revenue shows a growing pace following the increase in
its brand name recognition.
 
 Selling,
general and administrative expenses in our Chinese operations were $120,537 in
the six months ended December 31, 2008, compared to $394,623 in the six months
ended December 31, 2007. Major expenses were staff costs.
  Other
Income. Other income and expenses were ($68,810) in the six months ended
December 31, 2008, compared to ($76,841) in the six months ended December 31,
2007. As a percentage of revenue, other income and expenses was (0.2%) in the
six months ended December 31, 2008 and (0.33%) in the six months ended December
31, 2007.
 
 Net
Income Before Income Tax and Income Tax Expenses.
  Income
before income tax was $1,037,866 in the six months ended December 31, 2008,
compared to $1,440,447 in the six months ended December 31, 2007. The decrease
is attributable to the depreciation in Australian dollar against the US dollar
from the average rate of A$:US$ 1:0.86892 for the six-month period ended
December 31, 2007 to A$:US$ 1:0.78240 for the six-month period ended
December 31, 2008.
  Income
tax expenses were $536,287 in the six months ended December 31, 2008 compared to
$755,253 in the six months ended December 31, 2007. As a percentage of revenue,
income tax expense decreased to 2.0% in the six months ended December 31, 2008
from 3.2% in the six months ended December 31, 2007. This decrease is
attributable to a significant decrease in the scale of the Company’s
unprofitable Japanese and Chinese operations, losses from which were unable to
be offset against Australian profits for income tax expense
purposes.
 Net Income
..Net income was $501,579 in the six months ended December 31, 2008, compared to
$685,194 in the six months ended December 31, 2007. This decrease in the 2008
quarter compared to the 2007 quarter is attributable to the depreciation in
Australian dollar against the US dollar from the average rate of
A$:US$ 1:0.86892 for the six-month period ended December 31, 2007 to
A$:US$ 1:0.78240 for the six-month period ended December 31,
2008.
 Net
income in our Australian operations was $1,237,646 in the six months ended
December 31, 2008, compared to $1,768,923 in the six months ended December 31,
2007. The decrease is predominantly attributable to the depreciation in
Australian dollar against the US dollar from the average rate of
A$:US$ 1:0.86892 for the six-month period ended December 31, 2007 to
A$:US$ 1:0.78240 for the six-month period ended December 31,
2008.
 
 Net loss
in our UK operations was ($37,305) in the six months ended December 31, 2008,
compared to $Nil in the six months ended December 31, 2007.
 
 Net loss
in our Chinese operations was ($115,460) in the six months ended December 31,
2008, compared to ($372,788) in the six months ended December 31, 2007. The
decrease is due to the reduction in operations.
 
 Net loss
in our Japanese operations, which were discontinued during the 2008 period, was
($117,823) in the six months ended December 31, 2008, compared to ($386,571) in
the six months ended December 31, 2007. The decrease in the loss resulted from
the reduction of expenditures due to the discontinuation of the Japanese
operations.
 
 The above
discussions of results exclude those entities which have no, or what management
deems insignificant operations.
  19
  THREE
MONTHS ENDED DECEMBER 31, 2008 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2007
 
 Revenue.
Revenue was $13,211,291 in the three months ended December 31, 2008, compared to
$12,331,983 in the three months ended December 31, 2007, an increase of
$879,308, or 7.1%. We attribute this increase primarily to the following
factors: (1) expansion into U.K., (2) increased effectiveness of advertising
campaigns; (3) increased brand name recognition; and (4) effectiveness of our
products.
  Our
unearned revenue as at December 31, 2008 was $5,503,498 compared to $5,340,856
as at December 31, 2007. The gross increase in unearned revenue from the three
months ended December 31, 2007 to the three months ended December 31, 2008 was
$162,642, or an increase of 3.0%. The increase in the three-month period ended
December 31, 2008 is primarily attributable to the increase in the number of
patients buying treatment programs from us compared with the same period in
2007. We attribute this increase to the following factors: (1) increased
advertising campaigns with improved target marketing in the premature
ejaculation segment; (2) increased brand name recognition; and (3) effectiveness
of our products.
 Revenue
in our PE treatments has increased by $2,473,197 or 43.4% to $8,167,708, and
revenue in our ED treatments decreased by $1,713,472 or 26.6% to $4,738,003, in
the three months ended December 31, 2008, compared to the three months ended
December 31, 2007. The numbers of patients in our PE treatments are stable
compared to the three months ending December 31, 2007. We attribute the increase
in revenue in our PE treatments to the increase in the number of sales per
patient along with the higher sales price of the treatment programs sold.
Revenue in our prostate treatments has decreased by $357,596 or 58.6%, to
$252,934, in the three months ended December 31, 2008, compared to the three
months ended December 31, 2007. We attribute the decrease in revenue in our
prostate treatments to decreases in the number of patients. The number of
patients in our ED prostate treatments decreased by 255 compared to the three
months ended December 31, 2007.
  Revenue
in our Australian operations was $9,734,524 in the three months ended December
31, 2008, compared to $12,055,332 in the three months ended December 31, 2007.
Compared to the same period in the previous year, there is a decrease of
$2,320,808, or 19.3%, in the three months ended December 31, 2008. We attribute
this decrease predominantly to the depreciation in Australian dollar against the
US dollar from the average rate of A$:US$ 1:0.86892 for the six-month
period ended December 31, 2007 to A$:US$ 1:0.78240 for the six-month period
ended December 31, 2008. Revenue in our Australian operation was A$14,856,471 in
the three months ended December 31, 2008, compared to A$13,988,367 in the three
months ended December 31, 2007,
 
 Revenue
in our UK operations was $3,355,212 in the three months ended December 31, 2008,
compared to $Nil in the three months ended December 31, 2007.  The
Company’s UK operation started its business activities in September
2008.
 
 Revenue
in our Chinese operations was $293 in the three months ended December 31, 2008,
compared to $15,382 during the three months ended December 31, 2007. The
decrease of $15,089, or 98.1%, in revenue in the three months ended December 31,
2008 is primarily attributable to the decrease in the number of patients buying
treatments from us during the 2008 period.
  Cost of
Revenue. Cost of revenue was $2,790,007 in the three months ended
December 31, 2008, compared to $2,806,273 in the three months ended December 31,
2007. The decrease in cost of revenue was attributable to a decrease in the
medication cost incurred by AMI Australia and the Company’s UK operation. As a
percentage of revenue, cost of revenue was 21.1% in the three months ended
December 31, 2008, compared to 22.8% in the three months ended December 31,
2007. The decrease in cost of revenue percentage in the three months ended
December 31, 2008 is primarily attributable to a significant decrease in the
scale of the Company’s unprofitable Japanese and Chinese
operations.
  Gross Profit. Gross profit was
$10,421,284 in the three months ended December 31, 2008, compared to $9,525,710
in the 2007 comparable period. As a percentage of revenue, gross profit
increased to 78.9% in the quarter ended December 31, 2008 from 77.2% in the 2007
quarter. The 1.7% increase in the gross profit percentage in 2008 is primarily
attributable to a significant decrease in the scale of the Company’s
unprofitable Japanese and Chinese operations.
  Selling, General
and Administrative Expenses. Selling, general and administrative expenses
were $9,866,877 in the three months ended December 31, 2008, compared to
$7,846,286 in the three months ended December 31, 2007. As a percentage of
revenue, selling, general and administrative expenses increased to 74.7% in the
three months ended December 31, 2008 from 63.6% in the three months ended
December 31, 2007. The increase in the three months ended December 31, 2008 is
primarily attributable to the establishment of UK operations. The Company’s UK
operation started its business activities in September 2008.  The
initial stage of UK operation led to a high percentage of selling, general and
administrative expenses to revenue due to the start up nature of the
operation.  Its revenue shows a growing pace following the increase in
its brand name recognition.
  Selling,
general and administrative expenses in our Chinese operations were $66,114 in
the three months ended December 31, 2008, compared to $222,550 in the three
months ended December 31, 2007. Major expenses were staff costs.
 
 Other
Income. Other income and expenses were ($52,321) in the three months
ended December 31, 2008, compared to ($47,142) in the three months ended
December 31, 2007. As a percentage of revenue, other income and expenses was
(0.4%) in the three months ended December 31, 2008 and in the three months ended
December 31, 2007.
  20
 
 Net
Income Before Income Tax and Income Tax Expenses.
  Income
before income tax was $549,373 in the three months ended December 31, 2008,
compared to $1,291,774 in the three months ended December 31, 2007. This
decrease was primarily attributable to the increase in selling, general and
administrative expenses in the three months ended December 31,
2008.
  Income
tax expenses were $162,440 in the three months ended December 31, 2008 compared
to $545,043 in the three months ended December 31, 2007. As a percentage of
revenue, income tax expense decreased to 1.3% in the three months ended December
31, 2008 from 4.4% in the three months ended December 31, 2007. This decrease is
attributable to a significant decrease in the scale of the Company’s
unprofitable Japanese and Chinese operations, losses from which were unable to
be offset against Australian profits for income tax expense
purposes.
  Net Income
..Net income was $386,933 in the three months ended December 31, 2008, compared
to $746,731 in the three months ended December 31, 2007. This decrease in the
2008 quarter compared to the 2007 quarter is attributable to the depreciation in
Australian dollar against the US dollar from the average rate of
A$:US$ 1:0.86892 for the six-month period ended December 31, 2007 to
A$:US$ 1:0.78240 for the six-month period ended December 31,
2008.
  Net
income in our Australian operations was $361,461 in the three months ended
December 31, 2008, compared to $1,336,881 in the three months ended December 31,
2007. The decrease is primarily attributable to the depreciation in Australian
dollar against the US dollar from the average rate of A$:US$ 1:0.86892 for
the six-month period ended December 31, 2007 to A$:US$ 1:0.78240 for the
six-month period ended December 31, 2008.
 
 Net
income in our UK operations was $471,681 in the three months ended December 31,
2008, compared to $Nil in the three months ended December 31,
2007.
 
 Net loss
in our Chinese operations was ($65,891) in the three months ended December 31,
2008, compared to ($207,834) in the three months ended December 31, 2007. The
decrease is due to the reduction in operations.
 
 Net loss
in our Japanese operations, which were discontinued during the 2008 period, was
($70,137) in the three months ended December 31, 2008, compared to ($118,415) in
the three months ended December 31, 2007. The decrease in the loss resulted from
the reduction of expenditures due to the discontinuation of the Japanese
operations.
 
 The above
discussions of results exclude those entities which have no or what management
deems insignificant operations.
 
 OFF-BALANCE SHEET
ARRANGEMENTS
 
 We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a material current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.
 
 ITEM 3.   QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
 
 We may be
exposed to changes in financial market conditions in the normal course of
business. Market risk generally represents the risk that losses may occur as a
result of movements in interest rates and equity prices. We currently do not use
financial instruments in the normal course of business that are subject to
changes in financial market conditions.
 
 Currency
Fluctuations and Foreign Currency Risk.
 The
majority of our operations are conducted in Australia, except for our U.K.
operations and small parts of our operations located in New Zealand and China.
Most of our sales and purchases are conducted in Australia in Australian
Dollars. Hence, the effect of fluctuations of exchange rate is considered
minimal to our business operations, as the vast majority of both our revenues
and expenses are denominated in Australian dollars, which is the official
currency of Australia.
 
 The
Company does, however, use United States Dollars for financial reporting
purposes. Conversion of Australian Dollars into foreign currencies is regulated
by the Reserve Bank of Australia through a unified floating exchange rate
system. Although the Australian government has stated its intention to support
the value of the Australian Dollar, the Australian Dollar has depreciated
significantly against the U.S. Dollar and there can be no assurance that further
depreciation will not occur. In this respect we note that the Australian dollar
has weakened significantly against the United States Dollar over the last three
to six months.
 
 Interest
Rate Risk.
 Our first
ranking long term debt is subject to a variable interest rate. The interest rate
applicable to that debt has decreased from 10.5 % in September 2006 (when the
facility commenced) to 5.5% now due to changes in the official Australian
government interest rate on which the rate is based and also due to changes in
the manner in which the rate is calculated following the refinance of the
facility in December 2008.
  21
 
 Credit
Risk.
 Our
receivables are consumer based with a broad spread of concentration with average
receivable size less than $1,500. The Company has made significant provisions
against our receivables in line with historical collection levels. Our
receivables are regularly monitored by our credit manager.
  ITEM
4(T).   CONTROLS AND PROCEDURES
  Disclosure
Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our chief
executive officer and the chief financial officer, we conducted an evaluation of
the effectiveness of the design and operation of our disclosure controls and
procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as of December 31, 2008, the end of the period covered by this report (the
“Evaluation Date”). Based on this evaluation, our chief executive officer and
chief financial officer concluded as of the Evaluation Date that our disclosure
controls and procedures were effective such that the material information
required to be included in our Securities and Exchange Commission (“SEC”)
reports is recorded, processed, summarized and reported within the time periods
specified in SEC rules and forms relating to us and our consolidated
subsidiaries, and was made known to others within those entities, particularly
during the period when this report was being prepared.
  Changes
in internal controls over financial reporting
  There
were no significant changes in our internal controls over financial reporting
(as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) during
the three months ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
 
 PART II -
OTHER INFORMATION
 
 ITEM 1.   LEGAL PROCEEDINGS.
  Please
see Note 8 to our financial statements above.
  ITEM 1A.   RISK FACTORS
  There
have been no material changes in our business, operations or prospects that
would require a change to the Risk Factor disclosure included in our most recent
Annual Report on Form 10-K for the year ended June 30, 2008 that have not
already been disclosed.
 
 ITEM 6.   EXHIBITS.
  The
following exhibits are filed as part of this report:
 
 Exhibit
      Number
                    
                    Description10.1
                    
                    Facility
      Agreement with St. George Bank Limited, dated October 22,
    200810.2
                    
                    Amendment
      to Facility Agreement with St. George Bank Limited, dated November 21,
      200810.3
                    
                    Loan
      Agreement with Secare health Centre Pty Limited, dated December 4,
      200831.1
                    
                    Certification
      of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                    
                    Certification
      of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                    
                    Certification
      of Chief Executive Officer and the Chief Financial Officer Pursuant to 18
      U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
    2002).
  22
 
 SIGNATURES
 
 In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
  Date:
      February 17, 2009
                By:
                /s/ 
      Jacov (Jack) VaismanJacov
      (Jack) VaismanChief
      Executive Officer
  Date:
      February 17, 2009
                By:
                /s/
      Dilip ShresthaDilip
      ShresthaChief
      Financial Officer
  23
  Exhibit
Index
 
 Exhibit
      Number
                    
                    Description10.1
                    
                    Facility
      Agreement with St. George Bank Limited, dated October 22,
    200810.2
                    
                    Amendment
      to Facility Agreement with St. George Bank Limited, dated November 21,
      200810.3
                    
                    Loan
      Agreement with Secare health Centre Pty Limited, dated December 4,
      200831.1
                    
                    Certification
      of Chief Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                    
                    Certification
      of the Chief Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
                    
                    Certification
      of Chief Executive Officer and the Chief Financial Officer Pursuant to 18
      U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of
    2002).
  24