admd_10k-15471.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|
|
x
|
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the fiscal year ended December 31, 2012
or
|
|
o
|
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: 0-53497
ADVANCED MEDICAL ISOTOPE CORPORATION
(Exact name of registrant as specified in its charter)
|
Delaware
|
80-0138937
|
|
(State or other jurisdiction of
|
(I.R.S. Employer
|
|
incorporation or organization)
|
Identification No.)
|
6208 W. Okanogan Ave., Kennewick, WA 99336
(Address of principal executive offices) (Zip Code)
(509) 736-4000
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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 the definitions 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)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2012 based on the price at which the common equity was last sold on such date ($0.25 per share) was approximately $10,299,414. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of March 21, 2013, there were 92,532,661 shares of the registrant’s Common Stock outstanding.
Advanced Medical Isotope Corporation
Report on Form 10-K
TABLE OF CONTENTS
|
PART I.
|
|
|
|
|
|
|
|
|
|
|
|
Unresolved Staff Comments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
|
|
Financial Statements and Supplementary Data
|
|
|
|
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors, Executive Officers and Corporate Governance
|
|
|
|
|
|
|
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
|
|
|
Certain Relationships and Related Transactions, and Director Independence
|
|
|
|
Principal Accountant Fees and Services
|
|
|
|
|
|
Exhibits and Financial Statement Schedules
|
|
PART I.
FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this Form 10-K report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss our future expectations, including our expectations of our future results of operations or financial position, or state other “forward-looking” information. Advanced Medical Isotope Corporation believes that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or to control. Further, we urge you to be cautious of the forward-looking statements which are contained in this Form 10-K report because they involve risks, uncertainties and other factors affecting our operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of our Form 10-K, as well as other cautionary language in this Form 10-K report, describe such risks, uncertainties and events that may cause our actual results and achievements, whether expressed or implied, to differ materially from the expectations we describe in our forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on our business, results of operations and financial position.
ITEM 1. BUSINESS.
General Development of Business
Advanced Medical Isotope Corporation (“we” or the “Company”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel. In April 2000, Earth Sports Products, Inc (“ESP”), a corporation registered in Washington, merged with SMSC. In April 2000, HHH Entertainment, Inc (“HHH”), a Nevada corporation, merged with SMSC. As of the date of merger, HHH was the only stockholder of SMSC.
SMSC had limited activity from inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, SMSC changed its name to Advanced Medical Isotope Corporation.
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation and a subsidiary of UTEK Corporation (“UTEK”), a Delaware corporation, and $310,000 from UTEK in exchange for 100,000 shares of Series A Preferred Stock (which Series A Preferred Stock was later converted to shares of the Company’s common stock in March 2009). The Company conducted the acquisition in order to obtain cash and NHTI’s technology.
On June 13, 2007, the Company acquired the assets of the life sciences business segment of Isonics Corporation (Isonics), a California corporation. The Company acquired the assets in exchange for $850,000 cash payment for the purpose of combining the assets into our business of marketing medical isotopes. The assets acquired consist of intellectual property, agreements with third party companies for purchase and marketing of isotopes, customer lists, and equipment located in Buffalo, New York.
On August 1, 2007, the Company began renting office and warehouse space, known as the Production Facility located in Kennewick, Washington. Through this facility and the use of a proton linear accelerator, on June 30, 2008 we began offering regional distribution of F-18 (FDG).
On October 28, 2010, the Company received $1,215,000 net proceeds from the Department of Energy grant for the Proposed Congressionally Directed Project entitled “Research to Develop and Test an Advanced Resorbable Brachytherapy Seed Research for Controlled Delivery of Yttrium-90 Microspheres in Cancer Treatment.” This grant reimburses the Company for anticipated expenditures related to the development of its Brachytherapy project since April 1, 2010. The Company projects this project could cost approximately $5,500,000; however, the Company recognizes the costs could be as high as $8,000,000 before it gets to production.
On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for this same Brachytherapy Project. The $244,479 grant was received February 4, 2011. This grant reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010.
ITEM 1. BUSINESS. - continued
General Development of Business - continued
On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for the Molybdenum Project. On December 3, 2010, the Company received $205,129 and the remaining $39,350 of the grant was received February 4, 2011. The grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. We are a company that has a limited amount of revenue and that has accumulated deficits since inception. If we cannot obtain sufficient funding, we may have to delay the implementation of our business strategy.
Narrative Description of Business
We are engaged in the production and distribution of medical isotopes and medical isotope technologies that are changing the practice of medicine and ushering in a new era of improved patient care. Isotopes are a form of chemical element with the same atomic number as another element but with a different atomic mass. Medical isotopes are used in molecular imaging, therapy, and nuclear medicine to diagnose, manage and treat diseases.
Over 10,000 hospitals worldwide use radioisotopes in medicine, and about 90% of the procedures are for diagnosis. The most common radioisotope used in diagnosis is technetium-99, with some 30 million procedures per year, accounting for 80% of all nuclear medicine procedures worldwide. In developed countries (26% of world population), the frequency of diagnostic nuclear medicine is 1.9% per year, and the frequency of therapy with radioisotopes is about one tenth of this. In the United States there are some 18 million nuclear medicine procedures per year among 311 million people, and in Europe about 10 million among 500 million people. In Australia there are about 560,000 per year among 21 million people, 470,000 of these using reactor isotopes. The use of radiopharmaceuticals in diagnosis is growing at over 10% per year. All of the information in this paragraph is derived from “Radioisotopes in Medicine” (updated October 2011) posted by the World Nuclear Association at www.world-nuclear.org/info/inf55.html.
We employ innovative production methods to offer a wide range of reliable, domestically produced medical isotopes as well as in vivo delivery systems to aid medical practitioners and medical researchers in the timely diagnosis and effective treatment of diseases such as cancer, heart disease, neurological disorders, and many other medical conditions.
Our objective is to empower physicians, medical researchers, and ultimately, patients, by providing them with essential medical isotopes that, until now, have not been practical or economical to produce, in an effort to detect, manage, and cure human disease, and improve the lives of patients.
We are reviewing possible acquisition candidates as a means of achieving our objective.
Products
We currently offer the following products:
Stable Isotopes:
We currently offer worldwide distribution of O-18 enriched water and a wide range of other stable isotopes. Our product line of stable isotopes includes the following elements: Antimony, Barium, Cadmium, Calcium, Cerium, Chromium, Copper, Dysprosium, Erbium, Europium, Gadolinium, Gallium, Germanium, Hafnium, Indium, Iron, Krypton, Lanthanum, Lead, Lutetium, Magnesium, Mercury, Molybdenum, Neodymium, Nickel, Osmium, Palladium, Platinum, Potassium, Rhenium, Rubidium, Ruthenium, Samarium, Selenium, Silicon, Silver, Strontium, Sulphur, Tellurium, Thallium, Tin, Titanium, Tungsten, Vanadium, Xenon, Ytterbium, Zinc, and Zirconium.
ITEM 1. BUSINESS. - continued
Products - continued
Radiopharmaceuticals:
Many of our products are used in connection with Positron Emission Tomography (“PET”). In cancer, changes in biochemistry occur before tumor mass forms. As a result, PET can often identify the presence of disease earlier than a test which looks for a tumor mass. Isotopes identified by PET include radiopharmaceutical Fluorodeoxyglucose (“FDG”), a sugar compound that is labeled with radioactive fluoride.
F-18 FDG: We currently offer regional distribution of F-18 FDG from our Kennewick, WA production facility. Other regional production facilities are being considered throughout the U.S. and abroad.
Radio Chemicals:
F-18: We currently offer regional distribution of F-18 from our Kennewick, WA production facility. Other regional production facilities are being considered throughout the U.S. and abroad. This is the primary PET imaging isotope. It is used for medical and diagnostic purposes, such as cancer detection, heart imaging, and brain imaging.
Strontium-82: Used as a myocardial imaging agent, early detection of coronary artery disease, PET imaging, blood flow tracers.
Germanium-68: It is used for study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic cancer, and attenuation correction.
Actinium-225: Used for advanced research in therapy of leukemia and other cancers. We believe that it holds great promise for treating HIV/AIDS, and we are negotiating with a foreign manufacturer to commence U.S. shipments.
Generators:
Strontium-82/Rubidium-82 generators: Used as a myocardial imaging agent, early detection of coronary artery disease, PET imaging, blood flow tracers. We have access via a foreign manufacturer and are in negotiations with a domestic source.
Germanium-68/Gallium-68 generators: It is used for study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic cancer, and attenuation correction. We have access via a foreign manufacturer.
Actinium-225/Bismuth-213 generators: Actinium-225 is the parent of Bismuth-213, an isotope which has been used in animal trials to kill human HIV virus. Bismuth-213 has been used in human clinical trials for the treatment of Acute Myelogenous Leukemia (AML). We are negotiating with a foreign manufacturer for a new patented process to commence manufacturing in the U.S.
Potential New Products
Within the next several years, we intend to offer the following products:
A Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides; and a Brachytherapy treatment utilizing a radiogel technology.
Carbon-11: Used in cancer diagnosis/staging. Radiotracer in PET scans to study normal/abnormal brain functions related to various drug addictions and is also used to evaluate disease such as Alzheimer’s, epilepsy, Parkinson’s and heart disease.
Cobalt-57: Used for gamma camera calibration. Also used as radiotracer in research and a source for X-ray fluorescence spectroscopy.
Copper-64: PET scanning, planar imaging, SPECT imaging, dosimetry studies, cerebral and myocardial blood flow. This isotope is used in stem cell research, and cancer treatments.
ITEM 1. BUSINESS. - continued
Products - continued
Iodine-123: Used in brain, thyroid, kidney, and myocardial imaging, cerebral blood flow (ideal for imaging) and neurological disease (Alzheimer's).
Molybdenum-99 / Technitium 99: It is the favored choice among medical professionals because its chemical properties allow it to be bonded to many different chemical materials, thus allowing use for a wide variety of diagnoses. Up to 90% of all procedures involving medical isotopes use this isotope.
Thallium-201: Used in clinical cardiology, heart imaging, myocardial perfusion studies and cellular dosimetry.
Iodine-124: This is a radiotracer primarily used in PET imaging and to create images of human thyroid. Other treatment uses include apoptosis, cancer biotherapy, glioma, heart disease, mediastinal micrometastases, and thyroid cancer.
Indium-111: In-111 Chloride bulk solution for U.S. distribution. This radio chemical is used for infection imaging, cancer treatments, and tracer studies.
Manufacturing
The cornerstone equipment selected for our production center is a proton linear accelerator. Our proton linear accelerator is designed to replace large and demanding cyclotron systems for the production of positron emitting isotopes. Large amounts of fluorine-18, carbon-11, nitrogen-13, and oxygen-15 can be produced for synthesis into compounds used in oncology, cardiology, neurology, and molecular imaging. The radio-labeled glucose analog, FDG, can be synthesized and distributed for use in Positron Emission Tomography.
Based on our experience in the industry, it is our belief that no other accelerator in North America has sufficient flexibility to produce the full spectrum of PET imaging radioisotopes, as well as other high-demand isotopes, both short and long lived, for diagnostic and therapeutic applications.
We are also engaged in a number of collaborative efforts with U.S. national laboratories and universities, along with several international teaming partners. These collaborative effort projects include complementary isotope manufacturing technologies as well as isotope devices. We have entered into agreements to produce isotopes in conjunction with the University of Missouri at Columbia, Pacific Northwest National Laboratory, operated by Battelle, and the University of Utah.
In May 2008, we entered into a research agreement with the University of Utah related to the use of brachytherapy seeds for cancer treatments. Pursuant to the research agreement, we paid the University total project costs of $45,150 in 2008 and 2009 for that research. We plan to work with the University of Utah to develop and manufacture cancer treatments using brachytherapy seeds.
In June 2008, we entered into a research agreement with the University of Missouri related to the production of radio isotopes. Pursuant to the research agreement, we paid the University total project costs of $67,500 during 2009 and 2010. We also entered into a one year option agreement in June 2008, which was extended for another year in June 2009, with the University of Missouri. The option agreement gave us the option to enter into a licensing agreement to utilize certain intellectual property held by the University of Missouri for the production of medical, research, and industrial radioisotopes. In May 2010, we exercised our option agreement by entering into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as Molybdenum-99 and Technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally, the Agreement calls for a milestone payment of $250,000, due and payable five years after the May 14, 2010 effective date of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The University has the right to either terminate or render the license non-exclusive in a licensed field or individual countries if the Company (i) has not demonstrated within 3 years after the effective date of this agreement access to $25,000,000 of available operating capital to proceed with commercialization of licensed products in such a manner as to cause the expenditure of that capital 4 years after the effective date; (ii) has not within 3 years after the effective date obtained the University’s approval of a new commercialization plan for licensed products not previously introduced by the Company into commercial use; or (iii) has not within 5 years after the effective date achieved, or does not each year thereafter maintain, sales levels of licensed products that result in specified royalties to the University.
ITEM 1. BUSINESS. – continued
Manufacturing- continued
In August 2010, we made a $10,000 investment for an exclusive license agreement with Battelle Memorial Institute regarding its technology for the production of a Brachytherapy seed. This license agreement calls for a $10,000 nonrefundable license fee and a royalty based on a percent of net sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with $2,500 due January 2012, which has not yet been paid.
In February 2011, we paid $5,000 for a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012. Effective March 2012, we entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented radiogel technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
In October 2012, the Company, as the initial step in the FDA’s pre-market review process, submitted data on its RadioGel device to the FDA and requested a collaborative meeting. Based on favorable results of animal studies recently concluded at the Pacific Northwest National Laboratory, operated by Battelle, the Company also submitted to the Washington State Department of Health the information required for a Sealed Source and Device registration, which will allow the use of Y-90 RadioGel in hospitals and clinics to be authorized in Nuclear Regulatory Commission Agreement States.
Competitors
The suppliers of radioisotopes for diagnosis, treatment, and research for a wide variety of diseases, in particular cancer, vary in size and product offerings. Competition is limited because there are many barriers to entry, including regulatory hurdles, including licensing, government approvals and capital outlays associated with starting an isotope company. Many current competitors are international companies.
Further, competition is limited as some suppliers are closing their facilities or limiting their production. At one time, the U.S. government was supposed to be the source of medical isotopes, but over the course of the last two decades, it has either closed or failed to adequately fund its production facilities.
About 90% of all the non PET radioisotopes used in the United States are imported from two companies, Nordion Inc. (formerly MDS Inc.) and Covidien (formerly Mallinckrodt). The remaining 10% that are produced in the United States are manufactured in a fragmented, piecemeal manner with companies producing a single isotope instead of a wide variety.
Employees
As of December 31, 2012, we had ten employees, of whom three were full-time employees. At any given time, we utilize eight to ten independent contractors to assist with our operations. We do not have a collective bargaining agreement with any of our employees, and we believe our relations with our employees are good.
Raw Materials
Some of the materials used in the products we manufacture are currently available only from a limited number of suppliers, many of which are international suppliers. We obtain many of our stable isotopes from suppliers in Russia. The Company plans to expand the availability of its supplies and products utilizing manufacturing capability at reactors located at the U.S. Department of Energy's National Laboratories (“National Laboratories”) as well as production capabilities at various universities and foreign countries other than Russia. This strategy is intended to reduce the risk associated with concentrating isotope production at a single facility. We obtain supplies, hardware, handling equipment and packaging from several different U.S. and foreign suppliers.
Customers
Our customers for sales of stable isotopes have included a broad range of hospitals, universities, research centers and national laboratories, in addition to academic and government institutions. These customers are located in essentially all major U.S. and international markets.
Our sales for 2011 consisted of F-18 (49.2% of total revenues) and Consulting Income (45.5% of total revenues) and sales of stable isotopes (5.3% of total revenues). Sales of F-18 for 2011 were 100% to Kadlec Hospital in Richland, Washington. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.
ITEM 1. BUSINESS. - continued
Customers- continued
Our sales for 2012 consisted of F-18 (97.5% of total revenues) and Consulting Income (2.5% of total revenues). We had no sales of stable isotopes in 2012 due to the decrease in profit margins for that product; however we are looking into selling more stable isotopes in 2013 and beyond due to the possibility of obtaining lower prices from our vendors. Sales of F-18 for 2012 were to two regional hospitals, Kadlec Hospital in Richland, Washington and Kennewick General Hospital in Kennewick, WA. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.
Patents, Trademarks, Licenses
License Agreement:
On September 27, 2006, we acquired the assets of Neu-Hope Technologies (“NHTI”) from UTEK. Included in the acquired assets was a Non-Exclusive License Agreement with the Regents of the University of California (“University”) for a neutron generator in exchange for preferred stock. NHTI paid a non-refundable fee in the amount of $25,000 in connection with the license agreement. The license fee is non-refundable unless our commercialization plan is deemed unacceptable by the University. If the plan is deemed unacceptable, the license agreement will terminate. To date, no commercialization plan has been deemed acceptable or unacceptable. In consideration for the license, we agreed to pay royalties equal to the greater of three percent of the selling price of each licensed product we sell or the maintenance fee according to the following schedule:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 and each year thereafter
|
|
|
|
|
| |
|
|
|
|
* These items have not been paid to date.
The License Agreement may be cancelled by giving 90 days written notice to the University. We did not have a relationship with UTEK before the acquisition of Neu-Hope Technologies, and we do not currently have any business relationship or affiliation with UTEK. In 2008, partially due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license. Since other companies made progress towards the development of the patent license technology and management no longer had the means or interest in pursuing the development of this technology, the Company’s management determined that the patent license for the neutron generator no longer had value to the Company and wrote off the net unamortized balance of $643,917 in 2008. Additionally, because there has been no communication between the Company and the University since 2008 the Company believes the royalties stipulated above will never be required to be paid.
Additionally the Company has made the following investments in patent licenses and intellectual property during 2011:
In February 2011, the Company paid $5,000 for a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012. This fee was fully expensed in the twelve months ended December 31, 2011. Effective March 2012, we entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented radiogel technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
Patent filing costs totaling $77,412, and $97,421, were capitalized during the twelve months ended December 31, 2012 and 2011; resulting in a total $360,475 of capitalized patents at December 31, 2012. The patents are pending and are being developed, and as such, the patents and filing costs associated with them are not being amortized. Management has determined the economic life of the patents to be 10 years, and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
ITEM 1. BUSINESS. - continued
Research and Development
We spent approximately $513,416 towards the Brachytherapy Project and $655,006 towards the Molybdenum Project, for a total cost of $1,168,422 during the twelve months ended December 31, 2010. The costs incurred in the twelve months ended December 31, 2011 were $245,727 towards the Brachytherapy Project and $235,950 towards the Molybdenum Project, for a total cost of $481,677. The costs incurred in the twelve months ended December 31, 2012 were $680,234 towards the Brachytherapy Project and $293,377 towards the Molybdenum Project, for a total cost of $973,611. The costs expensed to the twelve months ended December 31, 2012 and 2011 consist of the following:
| |
|
For the twelve months ended
|
|
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
| |
|
Brachytherapy
|
|
|
Molybdenum
|
|
|
Brachytherapy
|
|
|
Molybdenum
|
|
|
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,175 |
|
|
$ |
390 |
|
|
|
|
|
7,829 |
|
|
|
3,333 |
|
|
|
3,334 |
|
|
|
3,334 |
|
|
|
|
|
- |
|
|
|
1,034 |
|
|
|
8,338 |
|
|
|
10,682 |
|
|
|
|
|
1,475 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
688 |
|
|
|
1,335 |
|
|
|
|
|
2,350 |
|
|
|
- |
|
|
|
12,070 |
|
|
|
19,441 |
|
|
|
|
|
546 |
|
|
|
134 |
|
|
|
1,119 |
|
|
|
942 |
|
|
|
|
|
102,397 |
|
|
|
27,018 |
|
|
|
32,290 |
|
|
|
78,739 |
|
|
|
|
|
102,047 |
|
|
|
239,107 |
|
|
|
67,116 |
|
|
|
36,832 |
|
Consulting fees – stock based
|
|
|
- |
|
|
|
- |
|
|
|
8,000 |
|
|
|
- |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
51,794 |
|
|
|
77,794 |
|
|
|
|
|
369,361 |
|
|
|
- |
|
|
|
54,174 |
|
|
|
- |
|
|
|
|
|
93,000 |
|
|
|
6,000 |
|
|
|
50 |
|
|
|
750 |
|
|
|
|
|
649 |
|
|
|
221 |
|
|
|
852 |
|
|
|
867 |
|
|
|
|
|
580 |
|
|
|
16,530 |
|
|
|
727 |
|
|
|
4,844 |
|
|
|
|
$ |
680,234 |
|
|
$ |
293,377 |
|
|
$ |
245,727 |
|
|
$ |
235,950 |
|
ITEM 1. BUSINESS. – continued
Government Regulation
Significant areas of regulation and intervention include the following:
Environmental and Health Compliance. We are committed to conducting our activities so that there is no or only minimal damage to the environment; there is no assurance, however, that our activities will not at times result in liability under environmental and health regulations.
We have spent approximately $950,000 on our facility to meet environmental regulation, including the cost of confinement of the facility, exhaust and air balance systems and waste storage facilities. As we expand our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business.
The current ongoing continuing costs of compliance are immaterial. Future costs and expenses resulting from such liability may, however, materially negatively impact our operations and financial condition. Overall, environmental and health laws and regulations will continue to affect our businesses worldwide.
Import/Export Regulation. We are subject to significant regulatory oversight of our import and export operations due to the nature of our product offerings. Penalties for non-compliance can be significant, and violation can result in adverse publicity and financial risk for the Company.
Financial Accounting Standards. Our financial results can be impacted by new or modified financial accounting standards.
Other Regulations. Our operations are subject to rules and regulations administered by the U.S. Nuclear Regulatory Commission, Department of Energy, Food and Drug Administration, Department of Transportation, Department of Homeland Security, and other regulatory bodies. To the extent that these regulations are or become burdensome, our business development could be adversely affected.
Available Information
The Company prepares and files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”). Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Moreover, the Company maintains a website at http://www.isotopeworld.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available (i.e., not password protected) and is updated regularly. The content on any website referred to in this Form 10-K report is not incorporated by reference into this Form 10-K report, unless (and only to the extent) expressly so stated herein.
ITEM 1A. RISK FACTORS.
Any of the risk factors described below could cause our business or financial performance to differ from any expectations or other forward-looking statements set forth in this Form 10-K report. Any of the risks described below, as well as other risks or uncertainties set forth elsewhere in this report, could materially and adversely affect our business, operations, prospects, results of operation, financial condition, or the value of our stock or other securities.
RISKS ASSOCIATED WITH OUR BUSINESS
Our independent registered public accounting firm’s report on our financial statements questions our ability to continue as a going concern.
Our independent registered public accounting firm’s report on our financial statements for the years ended December 31, 2012 and 2011 expresses doubt about our ability to continue as a going concern. The report includes an explanatory paragraph stating that we have suffered recurring losses, used significant cash in support of our operating activities and, based on our current operating levels, require additional capital or significant restructuring to sustain our operation for the foreseeable future. There is no assurance that we will be able to obtain sufficient additional capital to continue our operations and to alleviate doubt about our ability to continue as a going concern. If we obtain additional financing, such funds may not be available on favorable terms. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that restrict our ability to conduct our business. Inclusion of a “going concern qualification” in the report of our independent accountants or in any future report may have a negative impact on our ability to obtain debt or equity financing and may adversely impact our stock price.
We have generated operating losses since inception, which are expected to continue, and we have increasing cash requirements, which we may be unable to satisfy.
We have generated material operating losses since inception. We have had reaccuring net losses since inception which has resulted in a total Retained Earnings Accumulated Deficit of $32,667,712, including a net loss of $2,749,616 for the year ended December 31, 2011 and a net loss of $8,586,264 for the year ended December 31, 2012. We expect to continue to experience net operating losses for the foreseeable future. Historically, we have relied upon investor funds to maintain our operations and develop our business. We need to raise additional capital within the next 12 months from investors for working capital as well as business expansion, and there is no assurance that additional investor funds will be available on terms acceptable to us, or at all. If we are unable to unable to obtain additional financing to meet our working capital requirements, we may have to curtail or cease our operations.
Based on our current cash run rate, approximately $1,500,000 will be needed to fund operations for an additional year. We are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond, but there is no assurance that we will be able to raise additional funds. We will need to raise an additional $15,000,000 in the next year to develop new isotope manufacturing centers and complete our aggressive growth plans. However, we may choose to modify our growth and operating plans to the extent of available funding, if any.
Recent economic events, including the substantial decline in global capital markets, as well as the lack of liquidity in the capital markets, could adversely impact our ability to obtain financing and our ability to execute our business plan. As a company with modest sales from our inception, we are unable to determine the effect of the recent economic crises on our business.
Our business plan is at an early stage of development, and we have a limited operating history, which may make it difficult to evaluate our business and prospects.
We have a limited operating history upon which you can base an evaluation of our business and prospects. As a start-up company in the early stage of development, there are substantial risks, uncertainties, expenses and difficulties to which our business is subject. To address these risks and uncertainties, we must do the following:
|
|
·
|
Successfully develop and execute our business strategy;
|
|
|
·
|
Respond to competitive developments; and
|
|
|
·
|
Attract, integrate, retain and motivate qualified personnel.
|
There is no assurance that we will achieve or maintain profitable operations or that we will obtain or maintain adequate working capital to meet our obligations as they become due. We cannot be certain that our business strategy will be successfully developed and implemented or that we will successfully address the risks that face our business. In the event that we do not successfully address these risks, our business, prospects, financial condition, and results of operations could be materially and adversely affected.
ITEM 1A. RISK FACTORS. - continued
RISKS ASSOCIATED WITH OUR BUSINESS - continued
We are heavily dependent on our key personnel and consultants. The loss of any of these key personnel or consultants could have a material adverse effect on our business, results of operations and financial condition.
Our success is heavily dependent on the continued active participation of our current executive officers and certain consultants and collaborating scientists. Certain key employees have no written employment contracts. We do not have key-man insurance on any of our executive officers or consultants. Loss of the services of any one or more of our executive officers or consultants could have a material adverse effect upon our business, results of operations and financial condition.
If we are unable to hire and retain additional qualified personnel, our business and financial condition may suffer.
Our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain highly qualified technical, scientific, regulatory and managerial employees, consultants and advisors. Competition for qualified personnel among pharmaceutical and biotechnology companies is intense, and an inability to attract and motivate additional highly skilled personnel required for the expansion of our activities, or the loss of any such persons, could have a material adverse effect on our business, results of operations and financial condition.
Our revenues have been derived from sales made to a small number of customers. We need to expand the number of customers purchasing our products and services.
Our sales of F-18 for the year ended December 31, 2011 were made to one hospital located close to our production facility, and those sales constituted 49.2% of our total revenues for that year. In April 2012 we began sales of F-18 to a second local hospital and the total sales of F-18 for both of those hospitals consisted of 97.5% of our total revenues for 2012. Our Consulting revenues for the years ended December 31, 2011 and 2012 were made to one customer, and those sales constituted 45.5% and 2.5%, respectively, of our total revenues for those years. We need to expand the number of customers purchasing our products and services in order to increase our revenues and implement our business strategy. There is no assurance that we will be successful in achieving an expansion of the customers purchasing our products and services.
Our future revenues depend upon acceptance of our current and future products in the markets in which they compete.
Our future revenues depend upon the successful production, marketing, and sales of the various isotopes we currently market and expect to market in the future. The rate and level of market acceptance of each of these products may vary depending on the perception by physicians and other members of the healthcare community of its safety and efficacy as compared to that of any competing products; the clinical outcomes of any patients treated; the effectiveness of our sales and marketing efforts in the United States, Europe, and Russia; any unfavorable publicity concerning our products or similar products; the price of our products relative to other products or competing treatments; any decrease in current reimbursement rates from the Centers for Medicare and Medicaid Services or third-party payers; regulatory developments related to the manufacture or continued use of our products; availability of sufficient supplies to either purchase or manufacture our products; our ability to produce sufficient quantities of our products; and the ability of physicians to properly utilize our products and avoid excessive levels of radiation to patients. Any material adverse developments with respect to the commercialization of the products we currently market or expect to market may adversely affect our revenues and may cause us to continue to incur losses in the future.
Many of our competitors have greater resources and experience than we have.
Many of our competitors have greater financial resources, longer history, broader experience, greater name recognition, and more substantial operations than we have, and they represent substantial long-term competition for us. Our competitors may be able to devote more financial and human resources than we can to research, new product development, regulatory approvals, and marketing and sales. Our competitors may develop or market products that are viewed by customers as more effective or more economical than our products. There is no assurance that we will be able to compete effectively against our current and future competitors, and such competitive pressures may adversely affect our business and results of operations.
ITEM 1A. RISK FACTORS. - continued
RISKS ASSOCIATED WITH OUR BUSINESS - continued
Future production increases will depend on our ability to acquire larger quantities of O-18.
We currently obtain O-18 through international sources. The amount of O-18 that can be produced from a given source is limited by the power level and volume available within the reactor for irradiating targets. There is no assurance that we will have a continuing sufficient supply of O-18.
We rely heavily on a limited number of suppliers.
Some of the products we market and some of the materials used in the products we manufacture are currently available only from a limited number of suppliers, many of which are international suppliers. We plan to expand the availability of our supplies and products utilizing manufacturing capability at reactors located at National Laboratories as well as production capabilities at various universities and foreign countries other than Russia. This strategy is intended to reduce the risks associated with concentrating isotope production at a single reactor facility. Failure to obtain deliveries from these sources could have a material adverse effect on our production, and there may be a delay before we could locate alternative suppliers. We may not be able to locate alternative suppliers capable of producing the level of output at the quality standards we require. Additional factors that could cause interruptions or delays in our source of materials include limitations on the availability of raw materials or manufacturing performance experienced by our suppliers or a breakdown in our commercial relations with one or more suppliers. Some of these factors may be completely out of our control and our suppliers’ control. We do not have formal written agreements with any key supplier. Any interruption or delay in the supply of materials required to produce our products could harm our business if we were unable to obtain an alternative supplier or substitute equivalent materials in a cost-effective and timely manner.
We are in default on a financial covenant in the capital leases that finance our isotope production system. That default may adversely affect our ability to continue to use the production system, which may adversely affect our operations and financial results.
We have two capital lease obligations, initially for $1,875,000 and $631,000, secured by equipment and the personal guarantee of two of our major stockholders, which we obtained in September 2007. The purpose of the capital lease agreements was to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000, plus ancillary equipment and facility for $631,000. We were in default on the capital lease obligations as of December 31, 2009 due to failure to maintain the minimum debt service coverage ratio required by the leases. We were in compliance with the minimum debt service coverage ratio as of December 31, 2010. We were in default on the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. During the twelve months ended December 31, 2012 the Company was able to come into compliance with the minimum debt service coverage ratio stipulated in the loan covenants due to the additional convertible debt raised during the period. Due to the Company coming into compliance we recognized current and long term portions of the lease on our balance sheet at December 31, 2012 and accordingly reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date.
We may incur material losses and costs as a result of product liability claims that may be brought against us.
We face an inherent business risk of exposure to product liability claims in the event that products supplied by us fail to perform as expected or such products result, or are alleged to result, in bodily injury. Any such claims may also result in adverse publicity, which could damage our reputation by raising questions about the safety and efficacy of our products, and could interfere with our efforts to market our products. A successful product liability claim against us in excess of our available insurance coverage or established reserves may have a material adverse effect on our business. Although we currently maintain liability insurance in amounts we believe are commercially reasonable, any product liability we incur may exceed our insurance coverage.
We are subject to the risk that certain third parties may mishandle our product.
We rely on third parties, such as commercial air courier companies, to deliver our products, and on other third parties to package our products in certain specialized packaging forms requested by customers. We are subject to the risk that these third parties may mishandle our product, which could result in material adverse effects, particularly given the radioactive nature of some of our products.
ITEM 1A. RISK FACTORS. - continued
RISKS ASSOCIATED WITH OUR BUSINESS - continued
Our operations expose us to the risk of material environmental liabilities.
We are subject to potentially material liabilities related to the remediation of environmental hazards and to personal injuries or property damages that may be caused by hazardous substance releases and exposures. We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal sanctions for violations, and can require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. We expect to incur capital and operating costs to comply with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, or the imposition of new clean-up requirements or remedial techniques may require us to incur costs in the future that would have a negative effect on our financial condition or results of operations. Operational hazards could result in the spread of contamination within our facility and require additional funding to correct.
We are subject to uncertainties regarding reimbursement for use of our products.
Hospitals and freestanding clinics may be less likely to purchase our products if they cannot be assured of receiving favorable reimbursement for treatments using our products from third-party payers, such as Medicare and private health insurance plans. Third-party payers are increasingly challenging the pricing of certain medical services or devices, and there is no assurance that they will reimburse our customers at levels sufficient for us to maintain favorable sales and price levels for our products. There is no uniform policy on reimbursement among third-party payers, and there is no assurance that our products will continue to qualify for reimbursement from all third-party payers or that reimbursement rates will not be reduced. A reduction in or elimination of third-party reimbursement for treatments using our products would likely have a material adverse effect on our revenues.
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.
Our business operates in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively. Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our business, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
We may rely on third parties to represent us locally in the marketing and sales of our products in international markets, and our revenue may depend on the efforts and results of those third parties.
Our future success may depend, in part, on our ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in our products and our products under development, and the collaborator’s ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the marketing and sales of our products; however, we may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, our collaborators may not be effective in marketing and selling our products. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. To the extent that we depend on third parties for marketing and distribution, any revenues received by us will depend upon the efforts and results of such third parties, which may not be successful.
ITEM 1A. RISK FACTORS. - continued
RISKS ASSOCIATED WITH OUR BUSINESS - continued
We may pursue strategic acquisitions that may have an adverse impact on our business.
Executing our business strategy may involve pursuing and consummating strategic transactions to acquire complementary businesses or technologies. In pursuing these strategic transactions, even if we do not consummate them, or in consummating such transactions and integrating the acquired business or technology, we may expend significant financial and management resources and incur other significant costs and expenses. There is no assurance that any strategic transactions will result in additional revenues or other strategic benefits for our business. We may issue our stock as consideration for acquisitions, joint ventures or other strategic transactions, and the use of stock as purchase consideration could dilute the interests of our current stockholders. In addition, we may obtain debt financing in connection with an acquisition. Any such debt financing could involve restrictive covenants relating to capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities, including potential acquisitions. In addition, such debt financing may impair our ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes, and a substantial portion of cash flows, if any, from our operations may be dedicated to interest payments and debt repayment, thereby reducing the funds available to us for other purposes.
We will need to hire additional qualified accounting personnel in order to remediate a material weakness in our internal control over financial accounting, and we will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of our internal control over financial reporting and our disclosure controls and procedures.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. Our management is required to evaluate and disclose its assessment of the effectiveness of our internal control over financial reporting as of each year-end, including disclosing any “material weakness” in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of its assessment, management has determined that there is a material weakness due to the lack of segregation of duties and, due to this material weakness, management concluded that, as of December 31, 2012, our internal control over financial reporting was ineffective. This material weakness was first identified in our Form 10-K/A amended annual report for the year ended December 31, 2008. This material weakness has the potential of adversely impacting our financial reporting process and our financial reports. Because of this material weakness, management also concluded that our disclosure controls and procedures were ineffective as of December 31, 2012. See Item 9A of this Form 10-K report. We need to hire additional qualified accounting personnel in order to resolve this material weakness. We also will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of our internal control over financial reporting and our disclosure controls and procedures.
Our patented or other technologies may infringe on other patents, which may expose us to costly litigation.
It is possible that our patented or other technologies may infringe on patents or other rights owned by others. We may have to alter our products or processes, pay licensing fees, defend infringement actions or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to us. Patent litigation is costly and time consuming, and we may not have sufficient resources to pursue such litigation. If we do not obtain a license under such patents, if we are found liable for infringement, or if we are not able to have such patents declared invalid, we may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment requiring such licenses.
Protecting our intellectual property is critical to our innovation efforts.
We own or have a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights. Our intellectual property rights may be challenged, invalidated or infringed upon by third parties, or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can adversely affect the scope or enforceability of our patents and other intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, or temporarily or permanently disrupt our sales and marketing of the affected products or services.
ITEM 1A. RISK FACTORS. - continued
RISKS ASSOCIATED WITH OUR BUSINESS - continued
We may not be able to protect our trade secrets and other unpatented proprietary technology, which could give our competitors an advantage over us.
We rely upon trade secrets and other unpatented proprietary technology. We may not be able to adequately protect our rights with regard to such unpatented proprietary technology, or competitors may independently develop substantially equivalent technology. We seek to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with our employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of such information, and as a result our competitors could gain a competitive advantage.
General economic conditions in markets in which we do business can impact the demand for our goods and services. Decreased demand for our products and services could have a negative impact on our financial performance and cash flow.
Demand for our products and services, in part, depends on the general economic conditions affecting the countries and industries in which we do business. A downturn in economic conditions in a country or industry that we serve may adversely affect the demand for our products and services, in turn negatively impacting our operations and financial results. Further, changes in demand for our products and services can magnify the impact of economic cycles on our businesses. Unanticipated contract terminations by current customers can negatively impact operations, financial results and cash flow. Our earnings, cash flow and financial position are exposed to financial market risks worldwide, including interest rate and currency exchange rate fluctuations and exchange rate controls. Fluctuations in domestic and world financial markets could adversely affect interest rates and impact our ability to obtain credit or attract investors.
We are subject to extensive government regulation in jurisdictions around the world in which we do business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and those regulations can significantly increase the cost of doing business, which in turn can negatively impact our operations, financial results and cash flow.
If we are successful in expanding our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business. Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs, and changes to current regulations with which we comply can necessitate further capital expenditures and increases in operating costs to enable continued compliance. Additionally, from time to time, we may be involved in proceedings under certain of these laws and regulations. Foreign operations are subject to political instabilities, restrictions on funds transfers, import/export restrictions, and currency fluctuation.
Volatility in raw material and energy costs, interruption in ordinary sources of supply, and an inability to recover from customers our unanticipated increases in energy and raw material costs could result in lost sales or could increase significantly the cost of doing business.
Market and economic conditions affecting the costs of raw materials, utilities, energy costs, and infrastructure required to provide for the delivery of our products and services are beyond our control. Any disruption or halt in supplies, or rapid escalations in costs, could adversely affect our ability to manufacture products or to competitively price our products in the marketplace. To date, the ultimate impact of energy costs increases have been mitigated through price increases or offset through improved process efficiencies; however, continuing escalation of energy costs could have a negative impact upon our business and financial performance.
If we are successful in increasing the size of our organization, we may experience difficulties in managing growth.
We are a small organization with a minimal number of employees. If we are successful, we may experience a period of significant expansion in headcount, facilities, infrastructure and overhead, and further expansion may be required to address potential growth and market opportunities. Any such future growth will impose significant added responsibilities on members of management, including the need to improve our operational and financial systems and to identify, recruit, maintain and integrate additional managers. Our future financial performance and our ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.
ITEM 1A. RISK FACTORS. - continued
RISKS RELATED TO OUR COMMON STOCK
There is a limited public market for our common stock. Failure to develop or maintain a more active trading market may negatively affect the value of our common stock, may deter some potential investors from purchasing our common stock or other equity securities, and may make it difficult or impossible for stockholders to sell their shares of common stock.
There is a limited public trading market for our common stock on the OTC Bulletin Board. Our average daily volume of shares traded for the years ended December 31, 2012 and 2011 was 37,464 and 8,430, respectively. Failure to develop or maintain an active trading market may negatively affect the value of our common stock, may make some potential investors unwilling to purchase our common stock or equity securities that are convertible into or exercisable for our common stock, and may make it difficult or impossible for our stockholders to sell their shares of common stock and recover any part of their investment in us.
Our outstanding securities, the stock or securities that we may become obligated to issue under existing agreements, and certain provisions of those securities, may cause immediate and substantial dilution to our existing stockholders and may make it more difficult for us to raise additional equity capital.
We had 92,532,661 shares of common stock outstanding on March 21, 2013. We also had outstanding on that date derivative securities consisting of options and convertible notes that if they had been exercised and converted in full on March 20, 2013, would have resulted in the issuance of a total of 80,806,967 additional shares of common stock. The issuance of shares upon the exercise of options or the conversion of convertible notes may result in substantial dilution to each stockholder by reducing that stockholder’s percentage ownership of our total outstanding common stock. One outstanding convertible note provides for conversion of principal at 50%, and the payment in shares of accrued interest at 100%, of the market price of our common stock determined over the 10 trading days preceding the date of conversion, and so the amount of dilution to other stockholders will depend upon the market price for our stock and the resulting conversion price when the note is converted by the holder. Conversion of that note on March 20, 2013 would have resulted in the issuance of 6,738,204 shares, which are included in the total above. See Item 13 of this Form 10-K report regarding our convertible notes. Additionally, we have outstanding notes that if not prepaid by specific dates entitle the holder to convert the principal and accrued interest into common stock at 61% of an average trading price of our common stock prior to conversion as provided in the notes. See Note 11 of the Notes to our Financial Statements included in this Form 10-K report. In addition, under an existing agreement, we may become obligated to issue additional warrants to purchase up to 7,046,666 shares of common stock with an exercise price of $0.15 per share, and those warrants would require a reduction in the exercise price if we issued stock below the then-applicable exercise price of the warrants, or if we issued stock below the market price of our stock. See the section entitled “Agreement for Strategic Relationship” in Item 1 above. The issuance of some or all of those warrants and any exercise of those warrants will have the effect of further diluting the percentage ownership of our other stockholders. That agreement also provides for stock compensation for consulting services. The existence and terms of these derivative securities and other obligations may make it more difficult for us to raise additional capital through the sale of stock or other equity securities.
Future sales of our stock, including sales following exercise or conversion of derivative securities, or the perception that such sales may occur, may depress the price of our common stock and could encourage short sales.
The sale or availability for sale of substantial amounts of our shares in the public market, including shares issuable upon exercise of options or warrants or upon the conversion of convertible securities, or the perception that such sales may occur, may adversely affect the market price of our common stock. Any decline in the price of our common stock may encourage short sales, which could place further downward pressure on the price of our common stock.
Our stock price is likely to be volatile.
For the year ended December 31, 2012, the reported low closing price for our common stock was $0.08 per share, and the reported high closing price was $0.29 per share. For the year ended December 31, 2011, the reported low closing price for our common stock was $0.09 per share, and the reported high closing price was $0.48 per share. There is generally significant volatility in the market prices, as well as limited liquidity, of securities of early stage companies, particularly early stage medical product companies. Contributing to this volatility are various events that can affect our stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or other actions; market acceptance and sales growth of our products; litigation involving us or our industry; developments or disputes concerning our patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of our securities; fluctuations in our financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions. If any of these events occur, it could cause our stock price to fall, and any of these events may cause our stock price to be volatile.
ITEM 1A. RISK FACTORS. - continued
RISKS RELATED TO OUR COMMON STOCK - continued
Our common stock is subject to the “Penny Stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker or dealer approve a person's account for transactions in penny stocks and that the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and must make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and may cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
Our controlling stockholders may exercise significant control over us.
Our directors, executive officers and principal stockholders beneficially own approximately 35.0% of the outstanding shares of our common stock as of March 20, 2013 Our stockholders do not have cumulative voting rights with respect to the election of directors. If our principal stockholders vote together, they could effectively elect all of our directors, and they could determine or influence the outcome of any other matter submitted for a vote of stockholders.
If we were to issue preferred stock, the rights of holders of our common stock and the value of our common stock may be adversely affected.
Our board of directors is authorized to issue classes or series of preferred stock, without any action on the part of the stockholders. Our board of directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our business, and other terms. If we issue preferred stock in the future that has a preference over the common stock, with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the value of the common stock may be adversely affected.
We do not expect to pay any dividends on our common stock for the foreseeable future.
We have not paid any cash dividends on our common stock to date and do not anticipate we will pay cash dividends on our common stock in the foreseeable future. Accordingly, stockholders must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors that our board deems relevant.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
ITEM 2. PROPERTIES.
Our headquarters has office and production space which makes it adequate for the Company to conduct its ongoing business operations.
On July 17, 2007, the Company entered into a lease at 6208 West Okanogan Avenue, Kennewick, Washington, 99336 which has been used as the Company’s production center. The term of the lease was five years, commencing on August 1, 2007. Monthly rent for the first year of tenancy was $3,500. Under the terms of the lease, the monthly rent would increase 8% each year so that monthly rent for the year beginning August 1, 2008 was $3,780, monthly rent for the year beginning August 1, 2009 was $4,082, monthly rent for the year beginning August 1, 2010 was $4,408, and monthly rent for the year beginning August 1, 2011 was $4,762. Subsequent to July 31, 2012 the Company is renting this space on a month to month basis at $11,904 per month. The landlord of this space is a non-affiliated stockholder of the Company, who holds less than 5 percent of the total outstanding shares.
Additionally, in June 2008, the Company entered into two 12-month leases for its corporate offices with three four month options to renew but in no event will the lease extend beyond December 31, 2010. Subsequent to December 31, 2010, the Company is renting this space on a month to month basis. These lease agreements call for monthly rental payments of $2,733 and $2,328 per month respectively. Effective November 1, 2009, the Company terminated that portion of the lease agreements consisting of the $2,328 per month payment. Effective February 28, 2012 and retroactive back to December 1, 2011, the $2,328 rental payment per month was adjusted to $2,500 rental payment per month. The monthly rental was again adjusted to $2,675 for the months of March and April, 2012 and adjusted again to $2,850 effective for the months May through October, 2012. The monthly rent was again adjusted to $2,910 effective November, 2012.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company is a party or as to which any of its property is subject, and the Company does not know of any legal proceedings contemplated against it.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is traded on the OTC Bulletin Board under the symbol “ADMD.OB.” The following table sets forth, in U.S. dollars the high and low closing prices for each of the calendar quarters indicated, as reported by the Bulletin Board for the past two fiscal years. The prices in the table may not represent actual transactions and do not include retail markups, markdowns or commissions.
| |
|
|
|
| |
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
|
|
|
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended December 31
|
|
|
|
|
|
|
|
|
Quarter ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Holders
As of March 21, 2013 there were 92,532,661 shares of common stock outstanding and approximately 200 stockholders of record.
Dividend Policy
We have not paid any cash dividends on our common stock to date and do not anticipate we will pay cash dividends on our common stock in the foreseeable future. The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and our general financial condition. The payment of any dividends will be within the discretion of the board of directors. It is the present intention of the board of directors to retain all earnings, if any, for use in the business operations. Accordingly, the board does not anticipate declaring any dividends on our common stock in the foreseeable future.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. - continued
Securities Authorized for Issuance Under Equity Compensation Plans
We currently do not have any compensation plan under which equity securities are authorized for issuance. We have however granted and issued options and warrants to purchase and acquire shares of our common stock. The following table sets forth information as of December 31, 2012 with respect to our equity compensation plans previously approved by stockholders and equity compensation plans not previously approved by stockholders.
| |
|
Equity Compensation Plan Information
|
|
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding
options, warrants
and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining available for future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|
| |
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
Equity compensation plans approved by stockholders
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
Equity compensation plans not approved by stockholders
|
|
|
13,888,070 |
|
|
$ |
0.16 |
|
|
|
- |
|
|
|
|
|
13,888,070 |
(1) |
|
$ |
0.16 |
(1) |
|
|
- |
|
(1) While there are no equity compensation plans in general, the Company does have individual compensation arrangements under which equity securities are authorized for issuance in exchange for consideration in the form of goods or services of certain individuals.
Recent Sales of Unregistered Securities
On October 15, 2012, in exchange for $145,000, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 58,000 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $145,000. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.15 per share.
On October 29, 2012, in exchange for $110,000, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 44,000 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $110,000. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.14 per share.
On November 1, 2012, in exchange for $12,500, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 5,000 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $12,500. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.16 per share.
On November 2, 2012, the Company issued 750,000 restricted shares of its common stock to Leonard Jolliff, who is the CFO of the Company in exchange for services of $150,000.
On November 15, 2012, the Company issued 300,000 restricted shares of its common stock to two consultants in payment of services of $51,000.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. - continued
Recent Sales of Unregistered Securities (continued)
On December 17, 2012, in exchange for $150,000, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 60,000 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $150,000. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.18 per share.
Subsequent to the Period Covered by this Report
On January 7, 2013, the Company issued 35,500 restricted shares of its common stock, representing $6,000, to a consultant for $2,130 in services owed for the year 2012, and $2,870 in prepaid services for the year 2013.
On January 18, 2013, in exchange for $101,272, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 40,509 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $101,272. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.17 per share.
On January 22, 2013, in exchange for $41,000, the Company issued to Carlton Cadwell, who is a director and principal stockholder of the Company, 16,400 restricted shares of its common stock and a one-year convertible promissory note in the principal amount of $41,000. The note bears interest at 10% per annum. At the option of the holder, the principal and interest is convertible into common stock at $0.17 per share.
On January 25, 2013, the Company issued 80,000 restricted shares of its common stock, representing $15,600, to a consultant for services.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. - continued
Recent Sales of Unregistered Securities (continued)
On January 25, 2013, the Company issued 222,222 restricted shares of its common stock, representing $20,000, to a consultant for services in exchange for 222,222 warrants.
On February 4, 2013, the Company issued 60,000 restricted shares of its common stock shares in exchange for $6,000 as a result of an exercise of the Additional Investment Rights attached to a convertible note received August 1, 2012 and converted December 13, 2012. In addition the Company also issued on February 4, 2013 60,000 restricted shares of its restricted stock in exchange for $9,000 as a result of an exercise of the warrants attached to the Additional Investment Rights.
On February 12, 2013, the Company issued 354,667 restricted shares of its common stock shares. The shares were issued in exchange for a $35,000 convertible note received September 26, 2012 plus interest of $7,560.
On February 12, 2013, the Company issued 658,667 restricted shares of its common stock shares. The shares were issued in exchange for a $65,000 convertible note received September 26, 2012 plus interest of $14,040.
On February 22, 2013, the Company issued 152,000 restricted shares of its common stock shares. The shares were issued in exchange for a $15,000 convertible note received October 2, 2012 plus interest of $3,240.
On March 1, 2013, the Company issued 3,333,333 restricted shares of its common stock shares. The shares were issued in exchange for $500,000.
On March 15, 2013 the Company issued 133,333 shares of restricted stock to an officer and director in exchange for $20,000 cash.
On March 15, 2013 the Company issued 33,333 shares of restricted stock to an officer in exchange for $5,000 cash.
As to all of the transactions set forth above, no underwriters were used, and the Company relied upon the exemption from registration set forth in section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder, based upon the private nature and the limitations of the transactions.
ITEM 6. SELECTED FINANCIAL DATA.
This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Form 10-K report.
Results of Operations
Comparison for the Year Ended December 31, 2012 and December 31, 2011
The following table sets forth information from our statements of operations for the years ended December 31, 2012 and 2011.
| |
|
Year Ended
December 31,
2012
|
|
|
Year Ended
December 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Non-operating income (expenses)
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Revenue was $247,968 for the year ended December 31, 2012 and $393,603 for the year ended December 31, 2011. The decrease was the result of the decrease in consulting revenues. In July 2008 we established our linear accelerator production center and began the production and marketing of F-18 in August 2008. F-18 sales accounted for $241,860 of the total twelve months ended December 31, 2012 revenues and $193,720 of the total twelve months ended December 31, 2011 revenues. Revenues for F-18 were higher in the twelve months ended December 31, 2012 as a result of adding a second hospital in April 2012 for F-18 and the increase in F-18 sold during the twelve months ended December 31, 2012 (851 doses) versus the twelve months ended December 31, 2011 (662 doses). Stable isotope sales were $0 and $20,700 for the twelve months ended December 31, 2012 and 2011 respectively. The Company discontinued the sale of stable isotopes in the twelve months ended December 31, 2012 due to the reduction in profitability of that line of product. Consulting revenues consisted of $6,108 and $179,114 of the total twelve months ended December 31, 2012 and 2011 revenues. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.
Revenue for the twelve months ended December 31, 2012 and 2011 consists of the following:
| |
|
|
Twelve months ended
December 31, 2012
|
|
|
Twelve months ended
December 31, 2011
|
|
| F-18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Cost of Goods Sold
Effective with the Statement of Operations for the year ended December 31, 2011, the Company changed its method of reflecting the Cost of Goods Sold. The Company has moved the Cost of Goods Sold into Operating Expenses versus reflecting it as a reduction to Revenues with the resulting Gross Profit. The change has been made to be in accordance with FASB ASC 225-10-S99, SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales.
Operating Expenses
Operating expenses for the twelve months ended December 31, 2012 and 2011 were $6,118,661 and $2,955,472 respectively. The increase in operating expenses from 2011 to 2012 can be attributed largely to professional fees ($2,058,273 for the twelve months ended December 31, 2012 versus $906,417 for the twelve months ended December 31, 2011), general and administrative expenses ($1,118,927 for the twelve months ended December 31, 2012 versus $564,655 for the twelve months ended December 31, 2011), and stock options granted ($1,638,523 for the twelve months ended December 31, 2012 versus $63,602 for the twelve months ended December 31, 2011) partially offset by a decrease in sales and marketing expenses ($18,309 for the twelve months ended December 31, 2012 versus $58,880 for the twelve months ended December 31, 2011) and depreciation and amortization expense ($483,200 for the twelve months ended December 31, 2012 versus $546,388 for the twelve months ended December 31, 2011.).
Operating expenses for the twelve months ended December 31, 2012 and 2011 consists of the following:
| |
|
Twelve months ended
December 31, 2012
|
|
|
Twelve months ended
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
Sales and marketing expense
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Non-Operating Income (Expense)
Non-operating income (expense) for the twelve months ended December 31, 2012 varied from the twelve months ended December 31, 2011 primarily due to an increase of interest expense from $408,474 in 2011 versus $1,102,137 in 2012 and $680,234 of recognized income from grants in 2012 versus $245,727 in 2011 and $2,228,538 of loss on derivative liability in 2012 versus $0 in 2011.
Non-Operating income (expense) for the twelve months ended December 31, 2012 and 2011 consists of the following:
| |
|
Twelve months ended
December 31, 2012
|
|
|
Twelve months ended
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of assets
|
|
|
|
|
|
|
|
|
Net gain (loss) on settlement of debt
|
|
|
|
|
|
|
|
|
Recognized income from grants
|
|
|
|
|
|
|
|
|
Loss on derivative liability
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Income from Grants
On October 28, 2010, the Company received $1,215,000 net proceeds from the Department of Energy grant for the Proposed Congressionally Directed Project entitled “Research to Develop and Test an Advanced Resorbable Brachytherapy Seed Research for Controlled Delivery of Yttrium-90 Microspheres in Cancer Treatment.” This grant reimburses the Company for anticipated expenditures related to the development of its Brachytherapy project since April 1, 2010. The Company projects this project could cost approximately $5,500,000; however, the Company recognizes the costs could be as high as $8,000,000 before it gets to production.
Additionally, on October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for this same Brachytherapy Project. The $244,479 grant was received February 4, 2011. This grant reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 allowable expenditures available for this grant, and so the $244,479 has been recorded as a receivable as of December 31, 2010.
On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for the Molybdenum Project. On December 3, 2010, the Company received $205,129 and the remaining $39,350 of the grant was received February 4, 2011. The $205,129 grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009. And the $39,350 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 for the years 2009 and 2010 allowable expenditures available for this grant. The $39,350 has been recorded as a receivable as of December 31, 2010.
The Company has chosen to recognize the grant money received as income as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet. For the twelve months ended December 31, 2010 the Company recognized $23,508 of the $1,215,000 Department of Energy grant as income with the remaining $1,191,492 recorded as deferred income as of December 31, 2010. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010. For the twelve months ended December 31, 2011 the Company recognized $245,727 of the $1,215,000 Department of Energy grant as income with the remaining $945,765 recorded as deferred income as of December 31, 2011. The $245,727 recognized as of December 31, 2011 was for costs incurred for the twelve months ended December 31, 2011. For the twelve months ended December 31, 2012 the Company recognized $680,234 of the $1,215,000 Department of Energy grant as income with the remaining $265,531 recorded as deferred income as of December 31, 2012. The $680,234 recognized as of December 31, 2012 was for costs incurred for the twelve months ended December 31, 2012.
The Company fully recognized the $244,479 grant money received on both the Molybdenum tax grant and the Brachytherapy tax grant as income in the twelve months ended December 31, 2010.
As of December 31, 2012 and 2011 the grant money received and grant money recognized as income and deferred income is:
| |
|
$1,215,000 Brachytherapy Grant
|
|
|
$244,479 Molybdenum Grant
|
|
|
$244,479 Brachytherapy Grant
|
|
|
Total
|
|
Grant money received during 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant money recorded as account receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized income from grants in 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized income from grants in 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized income from grants in 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
Our net loss for the twelve months ended December 31, 2012 and 2011 was $8,586,264 and $2,749,616, respectively, as a result of the items described above.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Liquidity and Capital Resources
At December 31, 2012, we had negative working capital of $10,704,593, as compared to $5,236,107 at December 31, 2011. During the twelve months ended December 31, 2012 we experienced negative cash flow from operations of $1,799,243 and we expended $92,162 for investing activities while adding $1,845,259 of cash flows from financing activities. As of December 31, 2012, we had $0 commitments for capital expenditures.
Cash used in operating activities increased from $858,844 for the twelve month period ending December 31, 2011 to $1,799,243 for the twelve month period ending December 31, 2012. Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as loss on derivative liability and amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses. Cash used in investing activities decreased from $97,421 for the twelve month period ended December 31, 2011 to $92,162 for the twelve month period ended December 31, 2012. Cash was used to acquire equipment and patents during the 2012 and 2011 twelve month periods. Cash provided from financing activities increased from $419,432 for the twelve month period ending December 31, 2011 to $1,845,259 for the twelve month period ending December 31, 2012. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt along with payments on convertible debt, and a decrease in proceeds from the exercise of options and warrants.
We have generated material operating losses since inception. We have incurred a net loss of $29,780,670 from January 1, 2006 through December 31, 2012, including a net loss of $8,586,264 for the twelve months ended December 31, 2012, and a net loss of $2,749,616 for the twelve months ended December 31, 2011. We expect to continue to experience net operating losses. Historically, we have relied upon investor funds to maintain our operations and develop our business. We anticipate raising additional capital within the next twelve months from investors for working capital as well as business expansion, although we can provide no assurance that additional investor funds will be available on terms acceptable to us. If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.
We have modified our growth and operating plans as a result of our continuing losses. The going concern disclosure in Note 1 to our audited financial statements for the years ended December 31, 2010 anticipated that we would need $1 million in funds over the next twelve months to maintain current operation activities, and for the years ended December 31, 2011 anticipated that we would need $1.5 million in funds over the next twelve months to maintain current operation activities. As a result of changes and additions to our business plans, our current cash run rate is approximately $1.5 million.
Based on the current cash run rate, approximately $1,500,000 will be needed to fund operations for an additional year. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. We will need to raise an additional $15,000,000 in the next year to develop an infrastructure for Brachytherapy production and distribution as well as to initiate a Molybdenum 99 production facility. However, we may choose to further modify our growth and operating plans to the extent of available funding, if any.
The recent economic events, including the substantial decline in global capital markets, as well as the lack of liquidity in the capital markets, could impact our ability to obtain financing and our ability to execute our business plan. Although market conditions have deteriorated, we believe healthcare institutions will continue to purchase the medical solutions that we distribute. Having only modest sales since our inception, we are unable to determine the effect of the recent economic crises on our sales.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Contractual Obligations (payments due by period as of December 31, 2012)
|
Contractual Obligation
|
|
Total Payments Due
|
|
|
Less
than
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
More than
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Agreement with Regents
of the University of California
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License Agreement with Battelle Memorial Institute
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The capital lease obligations represent two lease agreements for $1,875,000 and $631,000, secured by equipment and personal guarantee of two of our major stockholders, which we obtained during September 2007. The purpose of the lease agreements was to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $631,000.
We were in default on the capital lease obligation as of December 31, 2008 due to failure to maintain the minimum debt service coverage ratio identified in the Lease by an amount of $35,000 as per notice from the debtor. We believed at the time of the issuance of the December 31, 2008 financial statements that we had remedied the default which existed at year end. Accordingly we recorded a current and long term portion of the capital leases. Subsequent to the issuance of the December 31, 2008 financial statements, we determined that more likely than not that the Company is in default of the terms of the capital leases. Accordingly we recorded the entire value of the leases as a current obligation. The Company was in default on the capital lease obligation as of December 31, 2009 due to failure to maintain the minimum debt service ratio identified in the lease. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2010 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2010. We were in default on a covenant in the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. Accordingly we recorded the entire value of the leases as a current obligation in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date. The reason the Company was able to come into compliance with the minimum debt service coverage ratio stipulated in the loan covenants was due to the additional convertible debt raised during the year ended December 31, 2012.
We began renting office and warehouse space effective August 1, 2007, located in Kennewick, Washington from a non-affiliated stockholder. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011 and continue through the month ended July 31, 2012. Subsequent to July 31, 2012, the Company is renting this space on a month to month basis at $11,904 per month. During the year ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $88,087 and $54,869, respectively. In addition, the lease agreement calls for the issuance of $187,500 in common stock valued at $0.40 per share for a total of 416,667 shares. The Company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease. For the twelve months ended December 31, 2012 and 2011 the Company amortized $21,875 and $37,500, respectively, of this stock issuance and recognized it as rent expense.
There are no future minimum rental payments required under this rental agreement because it expired as of July 31, 2012 and subsequent to that date the Company is renting this space on a month to month basis.
Additionally, in June 2008, the Company entered into two twelve month leases for its corporate offices with three four month options to renew but in no event will the lease extend beyond December 31, 2010. Subsequent to December 31, 2010 the Company is renting this space on a month to month basis. These lease agreements calls for monthly rental payments of $2,733 and $2,328 per month for two separate office areas. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month. During the years ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $33,217 and $32,700, respectively.
There are no future minimum rental payments required under this rental agreement because it expired as of December 31, 2010 and subsequent to that date the Company is renting this space on a month to month basis.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Changes in Accounting and Financial Disclosures
Effective with the Statement of Operations for the year ended December 31, 2011, the Company changed its method of reflecting the Cost of Goods Sold. The Company has moved the Cost of Goods Sold into Operating Expenses versus reflecting it as a reduction to Revenues with the resulting Gross Profit. The change has been made to be in accordance with FASB ASC 225-10-S99, SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales. The Statement of Operations for the year ended December 31, 2010 was changed from the way it was originally reflected to correspond with the changes made for the year ended December 31, 2011.
We were in default on a covenant in the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. Accordingly we recorded the entire value of the leases as a current obligation in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2012, the Company has experienced no bad debt write offs from operations.
Inventory
Inventory is reported at the lower of cost or market, determined using the first-in, first-out basis, or net realizable value. All inventories consist of Finished Goods. The company had no Raw Materials or Work in Process.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment |
3 to 7 years |
| Office equipment |
2 to 5 years |
| Furniture and fixtures |
2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
The types of events and circumstances that management believes could indicate impairment are as follows:
|
|
·
|
A significant decrease in the market price of a live-lived asset.
|
|
|
·
|
A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.
|
|
|
·
|
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator.
|
|
|
·
|
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.
|
|
|
·
|
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
|
|
|
·
|
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
The fair value of assets is first determined by quoted market prices, if available. Otherwise, the estimate of fair value is based on the best information available in the circumstances, including prices for similar assets and the results of using other valuation techniques. If quoted market prices are not available a present value technique is often the best available valuation technique with which to estimate fair value. It is believed that an expected present value technique is superior to a traditional present value technique, especially in situations in which the timing or amount of estimated future cash flows is certain.
The traditional approach is useful for many measurements, especially those in which comparable assets and liabilities can be observed in the marketplace. However, the traditional approach does not provide the tools needed to address some complex measurement problems, including the measurement of nonfinancial assets and liabilities for which no market for the item or a comparable item exists. The traditional approach places most of the emphasis on selection of an interest rate. A proper search for “the rate commensurate with the risk” requires analysis of at least two items – one asset or liability that exists in the marketplace and has an observed interest rate and the asset or liability being measured. The appropriate rate of interest for the cash flows being measured must be inferred from the observable rate of interest in some other asset or liability and, to draw that inference, the characteristics of the cash flows must be similar to those of the asset being measured.
Although management has made its best estimate of the factors that affect the carrying value based on current conditions, it is reasonably possible that changes could occur which could adversely affect management’s estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
License Fees
The Company made an acquisition of a patent license in 2007, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000. The cost of the patent license was capitalized as License Fees and amortized on the straight line basis over a three life. This license fee was fully amortized as of December 31, 2010.
The Company made a $10,000 investment in 2010 for a patent license regarding its technology for the production of Mo-99. In May 2010 the Company entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as Molybdenum-99 and Technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally, the Agreement calls for a milestone payment of $250,000, due and payable five years after execution of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life.
The Company made a $10,000 investment in 2010 for an exclusive license agreement with Battelle Memorial Institute regarding its technology for the production of a Brachytherapy seed. In August 2010 the Company entered into a License Agreement for the Patent Rights in the area of a Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
|
Calendar Year
|
|
Minimum Royalties per Calendar Year
|
|
|
|
|
$ |
- |
|
|
|
|
$ |
- |
|
|
|
|
$ |
2,500 |
|
|
|
|
$ |
5,000 |
|
|
|
|
$ |
7,500 |
|
|
|
|
$ |
10,000 |
|
2016 and each calendar
year thereafter
|
|
$ |
25,000 |
|
Additionally the Company has made the following investments in patent licenses and intellectual property during 2011 and 2012:
In February 2011, we paid $5,000 for a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012. Effective March 2012, we entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented radiogel technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $11,162, and $6,666 for the years ended December 31, 2012, and 2011, respectively. Based on the license fees recorded at December 31, 2012, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $16,060, will be fully amortized during the year ending December 31, 2015. Future annual amortization is expected to be as follows:
|
Calendar Year
|
|
Annual Amortization
|
|
|
|
|
$ |
8,888 |
|
|
|
|
$ |
5,832 |
|
|
|
|
$ |
1,340 |
|
The Company periodically reviews the carrying values of capitalized license fees and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Patents and Intellectual Property
Patent filing costs and intellectual property costs totaling $77,412, and $97,421, were capitalized during the twelve months ended December 31, 2012, and 2011; resulting in a total $360,475 and $317,224 of capitalized patents and intellectual property costs at December 31, 2012 and 2011, respectively.
While patents are being developed or pending they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.
The Company evaluates the recoverability of intangible assets, including patents and intellectual property on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2012 consisted of the sales of Flouride 18 and Consulting Revenue. Revenue for the fiscal year ended December 31, 2011 consisted of the sales of Oxygen 18 (stable isotope), Flouride 18 and Consulting Revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
Income from Grants
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
For the twelve months ended December 31, 2011 the Company recognized $245,727 of the $1,215,000 Department of Energy grant as income. The $245,727 recognized as of December 31, 2011 was for costs incurred for the twelve months ended December 31, 2011.
For the twelve months ended December 31, 2012 the Company recognized $680,234 of the $1,215,000 Department of Energy grant as income. The $680,234 recognized as of December 31, 2012 was for costs incurred for the twelve months ended December 31, 2012.
As of December 31, 2012 and 2011 the grant money received and grant money recognized as income and deferred income is:
| |
|
$1,215,000 Brachytherapy Grant
|
|
Deferred income at December 31, 2010
|
|
$ |
1,191,492 |
|
Recognized income from grants in 2011
|
|
|
245,727 |
|
Deferred income at December 31, 2011
|
|
|
945,765 |
|
Recognized income from grants in 2012
|
|
|
680,234 |
|
Deferred income at December 31, 2012
|
|
$ |
265,531 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Net Loss Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2012 and 2011 are as follows:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potential dilutive securities
|
|
|
|
|
|
|
|
|
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
The Company incurred $973,611, and $481,677 research and development costs for the years ended December 31, 2012, and 2011, respectively, all of which were recorded in our operating expenses noted on the income statements for the years then ended.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were no tradeshow expenses incurred and not expensed as of the years ended December 31, 2012 and 2011. During the twelve months ended December 31, 2012 and 2011, the Company incurred $1,050 and $8,025, respectively, in advertising costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of product sales.
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company files income tax returns in the U.S. federal jurisdiction, and Delaware. The Company did not have any tax expense for the years ended December 31, 2012 and 2011. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2012 and 2011.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the years ended December 31, 2012 and 2011, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2012 and 2011, the balances reported for cash, prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.
We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
We measure certain financial instruments at fair value on a recurring basis. There were no assets or liabilities measured at fair value as of December 31, 2011. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2012:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,938,318 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,938,318 |
|
Total Liabilities Measured at Fair Value
|
|
$ |
3,938,318 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,938,318 |
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All financial information required by this Item is included on the pages immediately following the Index to Financial Statements appearing on page F-1, and is hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, because of a previously disclosed material weakness in our internal control over financial reporting, our disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2012, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there is a material weakness due to the lack of segregation of duties and, due to this material weakness management concluded that, as of December 31, 2012, our internal control over financial reporting was ineffective. This material weakness was first identified in our Form 10-K/A amended annual report for the year ended December 31, 2008. In order to address and resolve this weakness we will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as our financial means allow. To date, our limited financial resources have not allowed us to hire the additional personnel necessary to address this material weakness.
ITEM 9A. CONTROLS AND PROCEDURES. - continued
Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this annual report.
Changes in Internal Control Over Financial Reporting
In previous filings the Company has disclosed a significant deficiency related to data backup processes. During the year ending December 31, 2012 the Company implemented controls to ensure financial information was being backed up on a regular basis.
Other than this implementation of a formal electronic backup process, there have been no other changes in our internal control over financial reporting that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
(a)
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
|
|
(b)
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
|
|
(c)
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.
|
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Identification of directors and executive officers
Our current directors and executive officers are as follows:
|
NAME
|
|
AGE
|
|
POSITION
|
|
|
|
56 |
|
|
|
|
|
63 |
|
|
|
|
|
69 |
|
|
|
|
|
57 |
|
|
In addition, Bruce W. Ratchford served as a director of the Company during 2011 and until his resignation on March 9, 2012.
Term of Office
All of our directors hold office until the next annual meeting of the stockholders or until their successors are elected and qualified. Our executive officers are appointed by our board of directors and hold office until their resignation, removal, death or retirement.
Background and Business Experience
The business experience during the past five years of each of our directors and executive officers is as follows:
James C. Katzaroff, the Chief Executive Officer and Chairman of the Board, is the founder of Advanced Medical Isotope Corporation. Initially a financial consultant with Wall Street firms Bateman Eichler, Smith Barney and EF Hutton, Mr. Katzaroff has been responsible for senior-level corporate strategy, fostering investment banking relationships, and served as a senior financial advisor for numerous start-ups and development-stage companies. From 1998 to 2001, Mr. Katzaroff held senior positions including Chief Financial Officer, Senior Vice President of Finance, Senior Vice President, and Corporate Secretary of Telemac Corporation, an international communications company active in the wireless telephony market. In 2001 he became Chairman and CEO of Apogee Biometrics, and in 2004 became President of Manakoa Services Corporation, serving as its interim CEO. He holds a Bachelor’s Degree in Business Economics from the University of California, Santa Barbara, and has completed advanced management courses at the University of Washington.
Leonard Bruce Jolliff, the Chief Financial Officer, joined Advanced Medical Isotope Corporation as chief financial officer in 2006. For nine years prior to joining the Company, Mr. Jolliff was a sole practitioner in the role of CFO for Hire and as a Forensic Accountant, working with companies ranging from Fortune 500 to small family operations. Mr. Jolliff is a CPA and a member of the Washington Society of CPAs. He is also a CFE and a member of the Association of Certified Fraud Examiners. Mr. Jolliff has held CFO and Controller positions in an array of industries and has worked as a CPA in public practice.
Carlton M. Cadwell, a Director, joined Advanced Medical Isotope Corporation as a director in 2006. Dr. Cadwell brings over 30 years of experience in business management, strategic planning, and implementation. He co-founded Cadwell Laboratories, Inc. in 1979 and has served as its President since its inception. Cadwell Laboratories, Inc. is a major international provider of neurodiagnostic medical devices. After receiving his bachelor’s degree from the University of Oregon in 1966 and a doctoral degree from the University of Washington in 1970, he began his career serving in the United States Army as a dentist for 3 years. From 1973 to 1980, Dr. Cadwell practiced dentistry in private practice and since has started several businesses.
Thomas J. Clement, a Director, joined Advanced Medical Isotope Corporation as a Director in 2013. Mr. Clement has over 30 years experience in product development engineering, engineering management, and senior management. He has participated in two Company startups through full production. He was responsible for development of seven novel medical devices through commercial launch; one device was the leading royalty generator for the University of Washington for nearly ten years and another generated revenues of more than $140 million for a leading medical device company.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. - continued
Identification of Significant Employees
Fu-Min Su, Ph.D., Chief RadioChemist, was appointed as Advanced Medical Isotope Corporation’s Chief RadioChemist and Radiation Safety Officer in 2007. With over 20 years experience in medical isotope R&D and manufacture, Dr. Su is also knowledgeable in the area of coordinating and conducting clinical trials. He has worked as a senior scientist for a several bio-technology firms, including NeoRx Corporation from 1987 through 1998, Nycomed-Amersham Imaging in 1999, Bristol-Myers Squibb from 2000 to 2006, and Cellectar, LLC in 2007, during which time he developed various radiopharmaceuticals, isotope production methods and generator systems. Dr. Su has authored a number of scientific papers, and has written numerous abstracts for the Journal of Nuclear Medicine. He also holds several patents relating to radionuclide production and preparation. Dr. Su received his Ph.D. from the University of Washington.
Robert E. Schenter, Ph.D., Chief Science Officer, with over 25 years experience in the area of radioisotope production for applications in the treatment and diagnostics of major diseases, such as cancer, heart disease, and arthritis. With more than 35 years experience in the use and production of nuclear data as applied to fission reactor systems, Dr. Schenter brings a legacy of successful application to nuclear technology projects. Dr. Schenter has been the site manager for production of medical isotopes at Westinghouse Hanford and at The Department of Energy’s Pacific Northwest National Laboratory. Dr. Schenter has been the Chief Science Officer of the Company since 2006.
Michael K. Korenko, Ph.D., Dr. Korenko was the Westinghouse Vice President in charge of the 300 and 400 areas, including the Fast Flux Testing Facility (FFTF) and all the engineering, safety analysis, and projects for the Hanford site. He was also the Executive Vice President of Closure for Safe Sites of Colorado at Rocky Flats. His most previous assignment was Chief Operating Officer for Curtiss-Wright, who produces the nuclear components for all the United States submarine and aircraft carriers as well as components for commercial nuclear power companies. During the last five years, Dr. Korenko led the business development activities for Curtiss-Wright EMD, covering the west coast of the US. This entailed visiting over one hundred small businesses to determine strategic business relationships with the parent company. This ranged from qualifying new vendors, establishing new customer, to locating acquisition targets. Three years ago he started the company Kor Ideas, LLC that focuses on improving small commercial businesses.
Dr. Korenko has a Doctor of Science from MIT, was a NATO Postdoctoral Fellow at Oxford University, and was selected as a White House Fellow for the Department of Defense, reporting to Secretary Cap Weinberger. Mike Korenko currently is the author of 28 patents and has received many awards, including the National Energy Resources Organization Research and Development Award, the U.S. Steelworkers Award for Excellence in Promoting Safety, and the Westinghouse Total Quality Award for Performance Manager of the Year.
Most relevant to AMIC, Dr. Korenko is the co-inventor with AMIC Chief Science Officer Dr. Robert Schenter, of a patent-pending process converting nuclear waste into medical isotopes.
Alan E. Waltar, Ph.D., Chairman of Scientific Advisory Board. Dr. Waltar served as director of Nuclear Energy for the Pacific Northwest National Laboratory (PNNL) in Richland, Wash. Since 2004, he has continued his affiliation with PNNL as a Senior Advisor. Waltar's other professional appointments include director of International Programs at Advanced Nuclear Medical Systems; manager of various Fast Reactor Safety and Fuels Organizations of Westinghouse Hanford Company; and as professor and department head of Nuclear Engineering at Texas A&M University.
His other teaching experience includes stints at the Joint Center for Graduate Study in Richland Wash., the University of Virginia, and Los Alamos National Laboratory. Formerly the president of the American Nuclear Society, Waltar has served on a number of international nuclear science and radiation panels, societies, and committees. He is the author of three books: Fast Breeder Reactors, America the Powerless: Facing Our Nuclear Energy Dilemma, and Radiation and Modern Life: Fulfilling Marie Curie's Dream, and has penned over 70 open literature papers.
Dr. Waltar earned his M.S. in Nuclear Engineering from M.I.T. and his PhD in Engineering Science from the University of California, Berkeley.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. - continued
Identification of Significant Employees - continued
Nigel R. Stevenson, Ph.D., Scientific Advisory Committee. Dr. Nigel Stevenson is a world renowned expert in the production of medical isotopes. He holds a Ph.D. in Nuclear Physics from the University of London and has directed many corporate innovations for imaging and therapeutic nuclide agents. For the past five years he has served as Chief Operating Officer for Clear Vascular Inc. and was previously Chief Operating Officer of Trace Life Sciences, which produced a range of medical radiochemicals and radiopharmaceuticals. Prior to this, he had been VP Production and Research for Theragenics Corp. and directed operations in Atlanta for the world’s largest cyclotron facility (14 cyclotrons) that produced brachytherapy seeds. Dr. Stevenson was also Head of Isotope Production and Research at TRIUMF (Canadian National Accelerator Laboratory) where he managed the production of medical radioisotopes for MDS Nordion.
Donald A. Ludwig, Ph.D., Scientific Advisory Committee. Dr. Ludwig is an expert in particle accelerator applications in radiation therapy, nuclear medicine and radioisotope production. Since 1988 he has served as an advisor to numerous entities in the field, both domestic and foreign. Among these are the Atomic Energy of Canada, the U. S. Department of Energy Labs at Los Alamos, Berkeley, Fermi, Hanford and Oak Ridge, the Israel Atomic Energy Agency, the Australian Nuclear Science and Technology Organization, the Kurchatov Russian Research Institute in Moscow and the Bhabha Atomic Research Center in Mumbai, India. He holds a Ph.D. from UCLA in Medical Physics as well as an MS in Nuclear Physics from Cal Tech, a BS in Physics from the U. S. Military Academy at West Point and an MBA in Theoretical Marketing from the University of Southern California.
Family Relationships
We currently do not have any executive officers or directors who are related to each other.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than 10% of the Company's common stock to file with the SEC initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4, and an annual statement of beneficial ownership on Form 5. Such executive officers, directors and greater than 10% stockholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.
Based solely on its review of such forms filed with the SEC and received by the Company and representations from certain reporting persons, the Company believes that for the fiscal year ended December 31, 2012, all the executive officers, directors and more than 10% beneficial owners complied with the above described filing requirements.
Code of Ethics
Our board of directors has not adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, because of our limited number of executive officers and employees that would be covered by such a code and our limited financial resources. We anticipate that we will adopt a code of ethics after we increase the number of executive officers and employees and obtain additional financial resources.
Audit Committee and Audit Committee Financial Expert
As of the date of this report, we have not established an audit committee, and therefore, our board of directors performs the functions that customarily would be undertaken by an audit committee. Our board of directors during 2012 was comprised of three directors, two of whom we have determined satisfied the general independence standards of the Nasdaq listing requirements. See Item 13 of this Form 10-K report. However, under Nasdaq listing and SEC requirements, a member of an audit committee of a listed issuer, in addition to satisfying those independence standards, cannot be an “affiliated person” of the issuer, which depends in part upon the amount of beneficial ownership such member has of the issuer’s stock. We have determined that our independent directors during 2012 did not satisfy this additional requirement.
Our board of directors has determined that none of its current members qualifies as an “audit committee financial expert,” as defined by the rules of the SEC. In the future, we intend to establish board committees and to appoint such persons to those committees as are necessary to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a national securities exchange.
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the compensation paid to our Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve month periods ended December 31, 2012 and 2011 (collectively, the “Named Executive Officers”):
|
Name and Principal Position
|
Year
|
|
Salary ($)
|
|
|
Bonus ($) (5)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($) (1)
|
|
|
Total ($)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
250,000 |
(2) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,000 |
(a) |
|
$ |
265,000 |
|
|
|
|
|
$ |
209,285 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
47,500 |
(b) |
|
$ |
256,785 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
156,000 |
(3) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
13,500 |
(c) |
|
$ |
169,500 |
|
|
|
|
|
$ |
140,000 |
(4) |
|
$ |
10,000 |
|
|
$ |
- |
|
|
$ |
47,500 |
(b) |
|
$ |
197,500 |
|
|
(1)
|
The amounts shown in this column do not reflect an amount paid to or earned or realized by any executive officer, but rather reflect the aggregate grant date fair value (computed in accordance with FASB ASC Topic 718) of the stock options granted to our executive officers. There is no assurance that any executive officer will realize the value shown, or any other value, from these options.
|
|
|
a.
|
The value shown is based on 250,000 options valued at $0.06 per option. The $0.06 value per option was derived utilizing the Black-Scholes option-pricing model and consisted of a $0.09 per share stock price at the valuation date and exercise price, a three year maturity, a .51% risk free rate and a 119.87 volatility.
|
|
|
b.
|
The value shown is based on 250,000 options valued at $0.19 per option. The $0.19 value per option was derived utilizing the Black-Scholes option-pricing model and consisted of a $0.30 per share stock price at the valuation date and exercise price, a three year maturity, a .99% risk free rate and a 106.53 volatility.
|
|
|
c.
|
The value shown is based on 225,000 options valued at $0.06 per option. The $0.06 value per option was derived utilizing the Black-Scholes option-pricing model and consisted of a $0.09 per share stock price at the valuation date and exercise price, a three year maturity, a .51% risk free rate and a 119.87 volatility.
|
|
(2)
|
Of this amount $64,716 was not paid in 2012, but was accrued as of December 31, 2012.
|
|
(3)
|
Of this amount $1,233was not paid in 2012, but was accrued as of December 31, 2012.
|
|
(4)
|
Of this amount, $13,267 was not paid in 2011, but was accrued as of December 31, 2011.
|
|
(5)
|
Mr. Jolliff received the additional $10,000 in 2011 to compensate him for additional duties he performed that were not contemplated in his employment contract.
|
Narrative Disclosure to Summary Compensation Table
We have an employment agreement with our CFO, L. Bruce Jolliff that determines the compensation paid to him. Our Chief Executive Officer, James C. Katzaroff, does not have a written employment agreement and therefore no structured amount or schedule of pay, however his projected rate of pay is $250,000 and so accruals were made for his compensation in 2012 to bring his recorded salary to $250,000. In 2011 Mr. Katzaroff received $209,285 in salary and an additional $40,715 was accrued as of December 31, 2011. In 2012 Mr. Katzaroff received $185,284 and an additional $64,716 was accrued as of December 31, 2012.
We paid bonuses to certain employees based on their performance, our need to retain such employees and funds available. All bonus payments were approved by our board of directors.
Employment Agreement with L. Bruce Jolliff
Mr. Jolliff has a May 2007 employment agreement with the Company which provides for a salary of $100,000 per year which was increased beginning January 1, 2011 to $140,000, of which $13,267 was not paid in 2011 and was accrued as of December 31, 2011. His salary was again adjusted beginning January 1, 2012 to $156,000, of which $1,233 was not paid in 2012 and was accrued as of December 31, 2012. Mr. Jolliff received bonuses in the amount of $10,000 for the year ended December 31, 2011. The Company may terminate the agreement without cause at any time upon 30 days' written notice. Upon termination, the Company will pay Mr. Jolliff a severance allowance of two month’s salary.
ITEM 11. EXECUTIVE COMPENSATION. - continued
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth all outstanding equity awards held by our Named Executive Officers as of the end of last fiscal year.
|
Name
|
Option Awards
|
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
|
Option Exercise Price
($)
|
|
Option Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Narrative Disclosure
During January 2011, the Company granted James C. Katzaroff and L. Bruce Jolliff, each, an option to purchase 250,000 shares of the Company’s common stock. All options issued in January 2011 have an exercise price of $0.30 per share and are fully vested and expire on January 12, 2014. The quoted market price of the common stock at the time of issuance of the options was $0.30 per share.
During March 2012, the Company granted James C. Katzaroff and L. Bruce Jolliff, each, an option to purchase 250,000 shares of the Company’s common stock and 225,000 shares of the Company’s common stock, respectively. All options issued in March 2012 have an exercise price of $0.09 per share and are fully vested and expire on March 9, 2015. The quoted market price of the common stock at the time of issuance of the options was $0.09 per share.
Retirement, Pension, Profit Sharing or Insurance Plans
No retirement, pension, profit sharing, or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees.
Employment Agreement with Significant Employee
Employment Agreement with Dr. Fu Min-Su
In January 2008, the Company entered into a five-year employment agreement with Dr. Fu Min-Su pursuant to which the Company agreed to pay Dr. Fu Min-Su an annual salary equal to $90,000, which was increased to $95,000 on January 1, 2010 and $110,000 on January 1, 2011.
In the event the employment is terminated by the Company without cause, by Dr. Fu Min-Su for good reason or a change in control, the Company will have to provide Dr. Fu Min-Su with one month of his base salary and any portion of an annual bonus allocated by the board of directors, disability and other welfare plan benefits for a period of one year from the date of termination and pro-rated vesting of all outstanding options, stock grants, shares of restricted stock and any other equity incentive compensation; provided, that the stock options shall be exercisable only until the earlier to occur of (i) two years from the date of the termination, or (ii) the date the option would have otherwise expired if Dr. Fu Min-Su had not terminated employment.
During the term of the employment agreement, including any extension thereof, and for a period of one year thereafter, Dr. Fu Min-Su shall not provide services that he provides for the Company for a business in the production, import for resale, and distribution of radioisotopes for use in the medical industries.
ITEM 11. EXECUTIVE COMPENSATION. - continued
Compensation of Directors
The following table sets forth information regarding compensation earned by our non-employee directors for the year ended December 31, 2012. Mr. Ratchford served as a director during 2011 and until his resignation on March 9, 2012. Mr Clement became a director effective September 6, 2012. Mr. Katzaroff is not included in this table because he is an employee and he received no compensation for his service as a director. His compensation as an employee is shown in the Summary Compensation Table above.
|
Name
|
|
Fees Earned or Paid in Cash ($)
|
|
|
Stock Awards ($)
|
|
|
Option Awards ($)(1)(2)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The amounts shown in this column do not reflect an amount paid to or earned or realized by any director, but rather reflect the aggregate grant date fair value (computed in accordance with FASB ASC Topic 718) of the stock options granted to our non-employee directors for 2011. There is no assurance that any director will realize the value shown, or any other value, from these options. The value shown for Mr. Cadwell is based on 250,000 options, valued at $0.06 per option. The $0.06 value per option was derived utilizing the Black-Scholes option-pricing model and consisted of a $0.09 per share stock price at the valuation date and exercise price, a three year maturity, a .51% risk free rate and a 119.87 volatility. The value shown for Mr. Clement is based on 250,000 options, valued at $0.16 per option. The $0.16 value per option was derived utilizing the Black-Scholes option-pricing model and consisted of a $0.21 per share stock price at the valuation date and exercise price, a three year maturity, a .34% risk free rate and a 131.37 volatility.
(2) The following table sets forth, for each of our non-employee directors who served during 2012, the aggregate number of stock awards and the aggregate number of stock option awards that were outstanding as of December 31, 2012:
| |
|
Outstanding
|
|
|
Outstanding
|
|
| |
|
Stock
|
|
|
Stock
|
|
|
Name
|
|
Awards (#)
|
|
|
Options (#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During March 2012, the Company granted Mr. Cadwell options to purchase 250,000 shares of common stock at an exercise price of $0.09 per share. The options are fully vested and expire March 9, 2015. During September 2012, the Company granted Mr. Clement options to purchase 250,000 shares of common stock at an exercise price of $0.21 per share. The options are fully vested and expire September 5, 2015.
There are no employment contracts or compensatory plans or arrangements with respect to any director that would result in payments by the Company to such person because of his or her resignation as a director or any change in control of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership of Our Common Stock
The following table sets forth, as of March 20, 2013, the number of shares of Common Stock beneficially owned by the following persons: (i) all persons we know to be beneficial owners of at least 5% of our Common Stock, (ii) our directors, (iii) our executive officers, both of whom are named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group. As of March 20, 2013, there were 84,556,061 shares outstanding, and 71,253,185 shares issuable upon exercise of outstanding options and conversion of outstanding convertible securities, assuming exercise and conversion occurred as of that date, for a total of 155,809,246 shares.
|
Name and
Address of
Beneficial
Owner(1)
|
|
Amount and
Nature of
Beneficial
Ownership(2)
|
|
|
Percent of
Class
|
|
Cadwell Family Irrevocable Trust
|
|
|
21,529,907 |
|
|
|
23.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
52,318,897 |
|
|
|
44.1 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
6,131,831 |
|
|
|
06.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
|
|
00.3 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
4,508,333 |
|
|
|
4.9 |
% |
| |
|
|
|
|
|
|
|
|
All Current Directors and Executive Officers as a group (4 individuals)
|
|
|
63,209,061 |
|
|
|
51.4 |
% |
|
(1)
|
The address of each of the beneficial owners above is c/o Advanced Medical Isotope Corporation, 6208 W. Okanogan Avenue, Kennewick, WA 99336, except that the address of the Cadwell Family Irrevocable Trust (the “Cadwell Trust”) is 909 North Kellogg Street, Kennewick, WA 99336.
|
|
(2)
|
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired upon exercise of options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on March 20, 2013, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on March 20, 2013, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and upon exercise of the options. Subject to community property laws where applicable, we believe that each beneficial owner has sole power to vote and dispose of its shares, except that Mr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the shares beneficially owned by the Cadwell Trust.
|
|
(3)
|
The beneficial ownership of Carlton M. Cadwell includes the shares beneficially owned by the Cadwell Trust, as such shares may also be deemed to be beneficially owned by Mr. Cadwell. The beneficial ownership of Mr. Cadwell also includes: (i) 500,000 shares issuable under options held by him; (ii) 19,319,330 shares issuable under convertible notes held by him with fixed conversion prices; and (iii) 6,738,204 shares issuable under a convertible note held by him with a conversion price that is dependent on the market price of our common stock prior to conversion, which for this purpose has been assumed to convert on March 20, 2013. See Item 13 of this Form 10-K report regarding our outstanding convertible notes.
|
|
(4)
|
Includes 3,750,000 shares issuable under options held by Mr. Katzaroff.
|
|
(5)
|
Includes 250,000 shares issuable under options held by Mr. Clement.
|
|
(6)
|
Includes 475,000 shares issuable under options held by Mr. Jolliff.
|
Changes in Control
We do not know of any arrangements, including any pledges of our securities that may result in a change in control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Indebtedness from related parties
The Company had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009. We had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time the line of credit was paid off and replaced with a loan in the initial principal amount of $199,908 from James C. Katzaroff and Carlton M. Cadwell. Mr. Katzaroff is our chief executive officer, and Mr. Katzaroff and Mr. Cadwell are directors and beneficial owners of more than 10% of our common stock. The loan calls for $4,066 monthly payments, including 8% interest, beginning November 30, 2008, with a balloon payment for the balance at October 31, 2009, at which time the note was extended for another year to October 31, 2010, at which time the note was extended for another year to October 31, 2011, at which time the note was extended for another year to October 31, 2012 with monthly payments increasing to $4,090, at which time the note was extended for another year to October 31, 2013 with monthly payments increasing to $4,100 There is no security held as collateral for this loan. As of December 31, 2012, the December payment due December 31, 2012 was not paid until January 18, 2013. Since January 1, 2010, the Company has paid $119,926 in principal and $23,776 in interest to the holders of this loan. As of February 5, 2013, the outstanding balance on this loan was $39,563.
Beginning in December, 2008, we have obtained financing from Carlton M. Cadwell, one of our directors and a beneficial owner of more than 10% of our common stock, in transactions which involved our issuance of convertible notes and common stock. The table below sets forth the following information as to such financing transactions that have occurred since January 1, 2010: (i) the date of the transaction, (ii) the amount invested, (iii) the initial principal amount of the note, (iv) the conversion price at which the principal amount and accrued interest may be converted into common stock, (v) the current maturity date of the note (including extensions granted by the holder), (vi) the principal balance of the note as of February 5, 2013, and (vii) the shares of our common stock issued on the transaction date. For each of the notes, the initial principal amount shown below was the largest aggregate amount of principal outstanding since January 1, 2010.
|
Transaction
Date
|
|
Amount Invested
|
|
|
Initial
Principal Amount
|
|
|
Conversion
Price
|
|
Maturity Date
|
|
Principal Balance
|
|
Shares Issued
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the above notes bear interest at 10% per annum, with the principal and accrued interest payable on the maturity date. No principal or interest has been paid on the notes set forth in the table above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. - continued
Indebtedness from related parties - continued
The total principal balance of all convertible notes payable to Mr. Cadwell that are outstanding as of March 19, 2013 (including convertible notes issued prior to January 1, 2011) is $3,780,838, and the total accrued interest on those notes as of March 19, 2013, is $807,428. All of the outstanding convertible notes have a fixed conversion price, except for one convertible note dated December 16, 2008, in the initial principal amount of $375,000, with interest payable at 10% per annum, and a current maturity date, as extended, of December 16, 2013. At the option of the holder, that note is convertible into common stock by taking the principal to be converted and dividing it by 50% of the volume-weighted average trading price of our common stock for the 10 consecutive trading days immediately preceding the date of conversion. That note also provides that interest may be paid in shares using a 10 day moving average at the discretion of the note holder. As of March 20, 2013, the note has a principal balance of $375,000, and accrued but unpaid interest of $159,658. The convertible notes with fixed conversion prices are in book-entry form.
For additional information on our convertible notes, see the section entitled “Common Stock Issued for Convertible Debt” in Note 12 of the Notes to our Financial Statements included in this Form 10-K report.
Independent Directors
Our common stock is traded on the OTC Bulletin Board, which does not impose any independence requirements on the board of directors or the board committees of the companies whose stock is traded on that market. We have decided to adopt the independence standards of the Nasdaq listing rules in determining whether our directors are independent. Generally, under those rules a director does not qualify as an independent director if the director or a member of the director’s immediate family has had in the past three years certain relationships or affiliations with the company, the company’s auditors, or other companies that do business with the company. Our board of directors has determined that Mr. Cadwell and Mr. Clement each qualified as an independent director under those Nasdaq rules, and accordingly, each would have been qualified under those rules to serve on a compensation committee or a nominating committee, if we had established such committees of our board of directors. Mr. Katzaroff is not an independent director due to his employment by the Company as an executive officer.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees incurred by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2012 and 2011 were $82,000 and $52,000, respectively.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2012 and 2011 were $4,000 and $2,000, respectively. These fees related to the preparation of federal income returns.
All Other Fees
There were no other fees billed for products or services provided by our principal accountant during the fiscal years ended December 31, 2012 and 2011.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Report.
1. Financial Statements. The Advanced Medical Isotope Corporation Balance Sheets as of December 31, 2012 and 2011, the Statements of Operations for the years ended December 31, 2012 and 2011, the Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and December 31, 2011, and the Statements of Cash Flows for the years ended December 31, 2012 and 2011, together with the notes thereto and the report of HJ & Associates, LLC as required by Item 8 are included in this 2011 Annual Report on Form 10-K as set forth in Item 8 above.
2. Financial Statement Schedules. All financial statement schedules have been omitted since they are either not required or not applicable, or because the information required is included in the financial statements or the notes thereto.
3. Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K. Exhibits 10.3, 10.5, 10.7 and 10.10 relate to compensatory plans included or incorporated by reference as exhibits hereto.
|
Exhibit
|
|
|
Number
|
Description
|
| |
|
|
|
|
|
Certificate of Incorporation of Savage Mountain Sports Corporation, dated January 11, 2000 (incorporated by reference to Exhibit 3.1 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
By-Laws (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Articles and Certificate of Merger of HHH Entertainment Inc. and Savage Mountain Sports Corporation, dated April 3, 2000 (incorporated by reference to Exhibit 3.3 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Articles and Certificate of Merger of Earth Sports Products Inc. and Savage Mountain Sports Corporation, dated May 11, 2000 (incorporated by reference to Exhibit 3.4 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Certificate of Amendment of Certificate of Incorporation changing the name of the Company to Advanced Medical Isotope Corporation, dated May 23, 2006 (incorporated by reference to Exhibit 3.5 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Certificate of Amendment of Certificate of Incorporation increasing authorized capital dated September 26, 2006 (incorporated by reference to Exhibit 3.6 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Certificate of Amendment to the Certificate of Incorporation increasing authorized common stock and authorizing preferred stock, dated May 18, 2011 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 18, 2011).
|
|
|
|
Agreement and Plan of Reorganization, dated as of December 15, 1998, by and among HHH Entertainment, Inc. and Earth Sports Products, Inc. (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008).
|
|
|
|
Agreement and Plan of Merger of HHH Entertainment, Inc. and Savage Mountain Sports Corporation, dated as of January 6, 2000 (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Employment Agreement dated August 15, 2006 with William J. Stokes (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Agreement and Plan of Acquisition by and between Neu-Hope Technologies, Inc., UTEK Corporation and Advanced Medical Isotope Corporation, dated September 22, 2006 (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Employment Agreement dated May 16, 2007 with Leonard Bruce Jolliff (incorporated by reference to Exhibit 10.5 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Agreement and Plan of Acquisition by and between Isonics Corporation and Advanced Medical Isotope Corporation dated June 13, 2007 (incorporated by reference to Exhibit 10.6 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Employment Agreement dated January 15, 2008 with Dr. Fu-Min Su (incorporated by reference to Exhibit 10.7 to our Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008).
|
|
|
|
Master Lease Agreement dated September 20, 2007 between BancLeasing, Inc. and Advanced Medical Isotope Corporation, and related documents (incorporated by reference to Exhibit 10.8 to our Annual Report on Form 10-K/A filed on December 2, 2011).
|
|
|
|
Lease Agreement dated July 17, 2007 between Robert L. and Maribeth F. Myers and Advanced Medical Isotope Corporation (incorporated by reference to Exhibit 10.9 to our Annual Report on Form 10-K/A filed on December 2, 2011).
|
|
|
|
Form of Non-Statutory Stock Option Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 15, 2012).
|
|
|
|
Promissory Note dated December 16, 2008 between Advanced Medical Isotope Corporation and Carlton M. Cadwell (incorporated by reference to Exhibit 10.11 to our Annual Report on Form 10-K filed on March 3, 2012).
|
|
|
|
Memorandum of Agreement for Strategic Relationship dated August 19, 2011 between Advanced Medical Isotope Corporation and Spivak Management Inc. (incorporated by reference to Exhibit 10.12 to our Annual Report on Form 10-K filed on March 3, 2012).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
|
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
* Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
ADVANCED MEDICAL ISOTOPE CORPORATION
|
| |
|
|
|
Date: March 29, 2013
|
By:
|
/s/ James C. Katzaroff
|
| |
|
Name: James C. Katzaroff
|
| |
|
Title: Chief Executive Officer and Chairman
|
| |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| |
|
| |
|
|
|
Date: March 29, 2013
|
By:
|
/s/ James C. Katzaroff
|
| |
|
Name: James C. Katzaroff
|
| |
|
Title: Chief Executive Officer, Director and Chairman
(Principal Executive Officer)
|
| |
|
|
| |
|
|
|
Date: March 29, 2013
|
By:
|
/s/ L. Bruce Jolliff
|
| |
|
Name: L. Bruce Jolliff
|
| |
|
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
|
| |
|
|
| |
|
|
|
Date: March 29, 2013
|
By:
|
/s/ Carlton M. Cadwell
|
| |
|
Name: Carlton M. Cadwell
|
| |
|
Title: Director
|
Advanced Medical Isotope Corporation
Index to Financial Statements
| |
Pages
|
| |
|
Report of Independent Registered Public Accounting Firm for 2012 and 2011
|
|
| |
|
|
|
|
| |
|
Balance Sheets as of December 31, 2012 and 2011
|
|
| |
|
Statements of Operations for the years ended December 31, 2012 and 2011
|
|
| |
|
Statement of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011
|
|
| |
|
Statements of Cash Flow for the years ended December 31, 2012 and 2011
|
|
| |
|
Notes to Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Advanced Medical Isotope Corporation
We have audited the accompanying balance sheets of Advanced Medical Isotope Corporation as of December 31, 2012 and 2011, and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Medical Isotope Corporation as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant restructuring to sustain its operation for the foreseeable future. These issues raise substantial doubt about the Company's ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
March 29, 2013
Advanced Medical Isotope Corporation
Balance Sheets
| |
|
December 31,
|
|
|
December 31,
|
|
| |
|
2012
|
|
|
2011
|
|
|
ASSETS
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable - trade
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses paid with stock, current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
License fees, net of amortization
|
|
|
|
|
|
|
|
|
Patents and intellectual property
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll liabilities payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes payable, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related party convertible notes payable, net
|
|
|
|
|
|
|
|
|
Current portion of capital lease obligations
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 20,000,000 shares authorized;
zero issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value; 200,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
81,544,459 and 70,653,399 shares issued and outstanding,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity (deficit)
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Advanced Medical Isotope Corporation
Statements of Operations
| |
|
Years ended
|
|
| |
|
December 31,
|
|
| |
|
2012
|
|
|
2011
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on impairment of assets
|
|
|
|
|
|
|
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
|
|
Recognized income from grants
|
|
|
|
|
|
|
|
|
Loss on derivative liability
|
|
|
|
|
|
|
|
|
Non-operating income (expense), net
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Advanced Medical Isotope Corporation
Statements of Changes in Stockholders’ Equity (Deficit)
| |
|
Series A Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Stock
|
|
|
Common Stock
|
|
|
Paid in
|
|
|
Accumulated
|
|
|
|
|
| |
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2010
|
|
|
- |
|
|
$ |
- |
|
|
|
67,917,983 |
|
|
$ |
67,918 |
|
|
$ |
18,299,253 |
|
|
$ |
(21,331,832 |
) |
|
$ |
(2,964,661 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
393,333 |
|
|
|
393 |
|
|
|
80,607 |
|
|
|
- |
|
|
|
81,000 |
|
Loan fees on convertible debt
|
|
|
- |
|
|
|
- |
|
|
|
279,666 |
|
|
|
280 |
|
|
|
108,334 |
|
|
|
- |
|
|
|
108,614 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
1,906,250 |
|
|
|
1,906 |
|
|
|
341,844 |
|
|
|
- |
|
|
|
343,750 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
156,167 |
|
|
|
156 |
|
|
|
46,694 |
|
|
|
- |
|
|
|
46,850 |
|
Options granted for accrued expenses
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
234,650 |
|
|
|
- |
|
|
|
234,650 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63,602 |
|
|
|
- |
|
|
|
63,602 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2,749,616 |
) |
|
|
(2,749,616 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2011
|
|
|
- |
|
|
|
- |
|
|
|
70,653,399 |
|
|
|
70,653 |
|
|
|
19,174,984 |
|
|
|
(24,081,448 |
) |
|
|
(4,835,811 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
8,310,500 |
|
|
|
8,311 |
|
|
|
1,383,635 |
|
|
|
- |
|
|
|
1,391,946 |
|
Loan fees on convertible debt
|
|
|
- |
|
|
|
- |
|
|
|
480,120 |
|
|
|
480 |
|
|
|
127,453 |
|
|
|
|
|
|
|
127,933 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
15,000 |
|
|
|
15 |
|
|
|
2,535 |
|
|
|
- |
|
|
|
2,550 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
2,085,440 |
|
|
|
2,085 |
|
|
|
408,496 |
|
|
|
- |
|
|
|
410,581 |
|
Vesting of stock options and warrants
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,638,523 |
|
|
|
- |
|
|
|
1,638,523 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(8,586,264 |
) |
|
|
(8,586,264 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31, 2012
|
|
|
- |
|
|
$ |
- |
|
|
|
81,544,459 |
|
|
$ |
81,544 |
|
|
$ |
22,735,626 |
|
|
$ |
(32,667,712 |
) |
|
$ |
(9,850,542 |
) |
The accompanying notes are an integral part of these financial statements.
Advanced Medical Isotope Corporation
Statements of Cash Flow
| |
|
Year ended
|
|
|
Year ended
|
|
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of fixed assets
|
|
|
|
|
|
|
|
|
Amortization of licenses and intangible assets
|
|
|
|
|
|
|
|
|
Amortization of convertible debt discount
|
|
|
|
|
|
|
|
|
Amortization of prepaid expenses paid with stock
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
|
|
|
|
|
|
Loss on derivative liability
|
|
|
|
|
|
|
|
|
Loss on settlement of debt
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
|
|
|
|
|
|
Stock options and warrants issued for services
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable – trade
|
|
|
|
|
|
|
|
|
Accounts receivable - other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net cash used by operating activities
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash used to acquire equipment
|
|
|
|
|
|
|
|
|
Cash used to acquire patents and intellectual property
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Payments on Washington Trust debt
|
|
|
|
|
|
|
|
|
Principal payments on capital lease
|
|
|
|
|
|
|
|
|
Proceeds from convertible note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on convertible debt
|
|
|
|
|
|
|
|
|
Payments on convertible debt
|
|
|
|
|
|
|
|
|
Payments on short term debt
|
|
|
|
|
|
|
|
|
Proceeds from exercise of options and warrants
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
$ |
155,865 |
|
|
$ |
204,455 |
|
Cash paid for income taxes
|
|
$ |
- |
|
|
$ |
- |
|
The accompanying notes are an integral part of these financial statements.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 1: BASIS OF PRESENTATION
Nature of Organization
Advanced Medical Isotope Corporation (the “Company” or “AMIC”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel. The Company had limited activity since inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMIC has an authorized capital of 200,000,000 shares of Common Stock, $.001 par value per share and 20,000,000 shares of Preferred Stock, $.001 par value per share.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Historically, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate we will continue to require funding from investors for working capital as well as business expansion during this fiscal year and we can provide no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable time. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.
We anticipate a requirement of $1.5 million in funds over the next twelve months to maintain current operation activities. In addition we anticipate a requirement of approximately $15 million in funds over the next twelve months due to the anticipation of adding additional staff in the future assuming we are successful in selling our medical isotopes and/or the start of development by us on future manufacturing sites or other projects. As of December 31, 2012 we have $6,411 cash on hand which means there will be an anticipated shortfall of nearly the full $16.5 million requirement in additional funds over the next twelve months. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CFO and other employees of the Company and our current lease commitments that will necessitate liquidation of the Company if we are unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.
Assuming we are successful in our sales/development effort we believe that we will be able to raise additional funds through the sale of our stock to either current or new stockholders. There is no guarantee that we will be able to raise additional funds or to do so at an advantageous price.
The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Changes in Accounting and Financial Disclosures
Effective with the Statement of Operations for the year ended December 31, 2011, the Company changed its method of reflecting the Cost of Materials. The Company has moved the Cost of Materials into Operating Expenses versus reflecting it as a reduction to Revenues with the resulting Gross Profit. The change has been made to be in accordance with FASB ASC 225-10-S99, SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales.
We were in default on a covenant in the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. Accordingly we recorded the entire value of the leases as a current obligation in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2012, the Company has experienced no bad debt write offs from operations.
Inventory
Inventory is reported at the lower of cost or market, determined using the first-in, first-out basis, or net realizable value. All inventories consist of Finished Goods. The Company had no Raw Materials or Work in Process.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment |
3 to 7 years |
| Office equipment |
2 to 5 years |
| Furniture and fixtures |
2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
The types of events and circumstances that management believes could indicate impairment are as follows:
|
|
·
|
A significant decrease in the market price of a live-lived asset.
|
|
|
·
|
A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.
|
|
|
·
|
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator.
|
|
|
·
|
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.
|
|
|
·
|
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
|
|
|
·
|
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
The fair value of assets is first determined by quoted market prices, if available. Otherwise, the estimate of fair value is based on the best information available in the circumstances, including prices for similar assets and the results of using other valuation techniques. If quoted market prices are not available a present value technique is often the best available valuation technique with which to estimate fair value. It is believed that an expected present value technique is superior to a traditional present value technique, especially in situations in which the timing or amount of estimated future cash flows is certain.
The traditional approach is useful for many measurements, especially those in which comparable assets and liabilities can be observed in the marketplace. However the traditional approach does not provide the tools needed to address some complex measurement problems, including the measurement of nonfinancial assets and liabilities for which no market for the item or a comparable item exists. The traditional approach places most of the emphasis on selection of an interest rate. A proper search for “the rate commensurate with the risk” requires analysis of at least two items – one asset or liability that exists in the marketplace and has an observed interest rate and the asset or liability being measured. The appropriate rate of interest for the cash flows being measured must be inferred from the observable rate of interest in some other asset or liability and, to draw that inference, the characteristics of the cash flows must be similar to those of the asset being measured.
Although management has made its best estimate of the factors that affect the carrying value based on current conditions, it is reasonably possible that changes could occur which could adversely affect management’s estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
License Fees
License fees resulting from the acquisition of a patent license, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000, and from the result of the acquisition of a patent license, for a Neutron Generator, from Neu-Hope Technologies for preferred stock valued, at the time of acquisition, at $3,040,000, discounted for 4.25% incremental borrowing rate to $2,897,625, were fully amortized as of December 31, 2010. License fees related to a Mo-99 patent license acquired in June 2010 for $10,000 and license fees related to a Brachytherapy patent license acquired in September 2010 for $10,000 are currently being amortized over a three year period. License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets.
The Company made a $10,000 investment in 2010 for a patent license regarding its technology for the production of Mo-99. In May 2010 the Company entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as Molybdenum-99 and Technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally the Agreement calls for a milestone payment of $250,000, due and payable five years after execution of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life.
The Company made a $10,000 investment in 2010 for an exclusive license with Battelle Memorial Institute regarding its technology for the production of a Brachytherapy seed. In August 2010 the Company entered into a License Agreement for the Patent Rights in the area of a Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
|
Calendar Year
|
|
Minimum Royalties per Calendar Year
|
|
|
|
|
$ |
- |
|
|
|
|
$ |
- |
|
|
|
|
$ |
2,500 |
|
|
|
|
$ |
5,000 |
|
|
|
|
$ |
7,500 |
|
|
|
|
$ |
10,000 |
|
2016 and each calendar
year thereafter
|
|
$ |
25,000 |
|
The Company made a $5,000 investment in February 2011 for a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012 and was fully expensed in the twelve months ended December 31, 2011. Effective March 2012, we entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented radiogel technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
The Company periodically reviews the carrying values of capitalized license fees and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
License Fees – continued
Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $11,162, and $6,666 for the years ended December 31, 2012, and 2011, respectively. Based on the license fees recorded at December 31, 2012, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $16,060, will be fully amortized during the year ending December 31, 2015. Future annual amortization is expected to be as follows:
|
Calendar Year
|
|
Annual Amortization
|
|
|
|
|
$ |
8,888 |
|
|
|
|
$ |
5,832 |
|
|
|
|
$ |
1,340 |
|
Patents and Intellectual Property
Patent filing costs and intellectual property costs totaling $77,412, and $97,421, were capitalized during the twelve months ended December 31, 2012, and 2011; resulting in a total $360,475 and $317,224 of capitalized patents and intellectual property costs at December 31, 2012 and 2011, respectively.
While patents are being developed or pending they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.
The Company evaluates the recoverability of intangible assets, including patents and intellectual property, on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2012 consisted of the sales of Flouride 18 and Consulting Revenue. Revenue for the fiscal year ended December 31, 2011 consisted of the sales of Oxygen 18 (stable isotope), Flouride 18 and Consulting Revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
Income from Grants
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
For the twelve months ended December 31, 2011 the Company recognized $245,727 of the $1,215,000 Department of Energy grant as income. The $245,727 recognized as of December 31, 2011 was for costs incurred for the twelve months ended December 31, 2011.
For the twelve months ended December 31, 2012 the Company recognized $680,234 of the $1,215,000 Department of Energy grant as income. The $680,234 recognized as of December 31, 2012 was for costs incurred for the twelve months ended December 31, 2012.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Income from Grants – continued
As of December 31, 2012 and 2011 the grant money received and grant money recognized as income and deferred income is:
| |
|
$1,215,000 Brachytherapy Grant
|
|
Deferred income at December 31, 2010
|
|
|
1,191,492 |
|
Recognized income from grants in 2011
|
|
|
245,727 |
|
Deferred income at December 31, 2011
|
|
|
945,765 |
|
Recognized income from grants in 2012
|
|
|
680,234 |
|
Deferred income at December 31, 2012
|
|
$ |
265,531 |
|
Net Loss Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common stockholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents since the impact would be anti-dilutive. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2012 and 2011 are as follows:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total potential dilutive securities
|
|
|
|
|
|
|
|
|
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
The Company incurred $973,611, and $481,677 research and development costs for the years ended December 31, 2012, and 2011, respectively, all of which were recorded in our operating expenses noted on the income statements for the years then ended.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were no tradeshow expenses incurred and not expensed as of the years ended December 31, 2012 and 2011. During the twelve months ended December 31, 2012 and 2011, the Company incurred $1,050 and $8,025, respectively, in advertising costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of product sales.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company files income tax returns in the U.S. federal jurisdiction, and Delaware. The Company did not have any tax expense for the years ended December 31, 2012 and 2011. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2012 and 2011.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the years ended December 31, 2012 and 2011, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2012 and 2011, the balances reported for cash, prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.
We adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – continued
Fair Value of Financial Instruments – continued
We measure certain financial instruments at fair value on a recurring basis. There were no assets or liabilities measured at fair value as of December 31, 2011. Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2012:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,938,317 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,938,317 |
|
Total Liabilities Measured at Fair Value
|
|
$ |
3,938,317 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,938,317 |
|
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the Company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 3: FIXED ASSETS
Fixed assets consist of the following at December 31, 2012 and 2011:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Accumulated depreciation related to fixed assets is as follows:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Depreciation expense for the above fixed assets for the years ended December 31, 2012 and 2011, respectively, was $472,038 and $539,720.
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2012 and December 31, 2011:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated amortization
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Patents and intellectual property
|
|
|
|
|
|
|
|
|
Intangible assets net of accumulated amortization
|
|
|
|
|
|
|
|
|
Amortization expense for the above intangible assets for the years ended December 31, 2012 and 2011, respectively, was $11,162 and $6,668.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 5: RELATED PARTY TRANSACTIONS
Loans from Stockholder
The Company had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009. We had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time the line of credit was paid off and replaced with a loan in the initial principal amount of $199,908 from James C. Katzaroff and Carlton M. Cadwell. Mr. Katzaroff is our chief executive officer, and Mr. Katzaroff and Mr. Cadwell are directors and beneficial owners of more than 10% of our common stock. The loan calls for $4,066 monthly payments, including 8% interest, beginning November 30, 2008, with a balloon payment for the balance at October 31, 2009, at which time the note was extended for another year to October 31, 2010, at which time the note was extended for another year to October 31, 2011, at which time the note was extended for another year to October 31, 2012 with monthly payments increasing to $4,090, at which time the note was extended for another year to October 31, 2013 with monthly payments increasing to $4,100 There is no security held as collateral for this loan. As of December 31, 2012, the December payment due December 31, 2012 was not paid until January 18, 2013. From January 1, 2010 through March 12, 2013, the Company has paid $127,593 in principal and $24,310 in interest to the holders of this loan. As of December 31, 2012 and March 12, 2013, the outstanding principal balance on this loan was $43,349 and $31,897, respectively.
Related Party Convertible Notes Payable
The Company issued various shares of common stock and convertible promissory notes during the twelve months ended December 31, 2012 and 2011 to a director and major stockholder. The details of these transactions are outlined in Note 12: Stockholders’ Equity - Common Stock Issued for Convertible Debt.
Rent Expenses
On August 1, 2007 the Company began renting office and warehouse space, known as the Production Facility, located in Kennewick, Washington from a stockholder holding less that 5% of the total shares outstanding. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011. During the years ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $88,087 and $54,869 respectively. In addition, the lease agreement called for the issuance of $187,500 in common stock valued at $0.40 per share for a total of 416,667 shares. The Company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease. For the years ended December 31, 2012 and 2011 the Company amortized $21,875 and $37,500 of this stock issuance and recognized it as rent expense. Additionally, during the years ended December 31, 2012 and 2011 the Company recognized an additional rent expense of $0 and $3,000, respectively, for additional shares issued to the Company’s landlord.
There are no future minimum rental payments required under this rental agreement because it expired as of July 31, 2012 and subsequent to that date the Company is renting this space on a month to month basis.
Additionally, in June 2008, the Company entered into two twelve month leases for its corporate offices with three four month options to renew but in no event will the lease extend beyond December 31, 2010. Subsequent to December 31, 2010 the Company is renting this space on a month to month basis. These lease agreements calls for monthly rental payments of $2,733 and $2,328 per month for two separate office areas. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month. During the years ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $33,217 and $32,700, respectively.
There are no future minimum rental payments required under this rental agreement because it expired as of December 31, 2010 and subsequent to that date the Company is renting this space on a month to month basis.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 6: RELATED PARTY TRANSACTIONS - continued
Rental expense for the years ended December 31, 2012 and 2011 consisted of the following:
| |
|
Year ended
December 31, 2012
|
|
|
Year ended
December 31, 2011
|
|
Office and warehouse space
|
|
|
|
|
|
|
|
|
Rental expense in the form of stock issuance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7: COMMITMENTS AND CONTINGENCIES
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation and a subsidiary of UTEK Corporation (“UTEK”), a Delaware Corporation. We did not have a relationship with UTEK before the acquisition of Neu Hope Technologies and we do not currently have any business relationship or affiliation with UTEK. On August 30, 2006, NHTI had entered into a Non-Exclusive License Agreement with the Regents of the University of California. NHTI paid a non-refundable License Issue Fee in the amount of $25,000. The license fee is non-refundable unless the Company’s commercialization plan is deemed unacceptable by the University. If the plan is deemed unacceptable, the license agreement will terminate and may be converted to a non-exclusive license. To date, no commercialization plan has been deemed acceptable or unacceptable.
In consideration for the license, the Company agreed to the following payments:
|
|
·
|
$25,000 License Issue Fee, described above;
|
|
|
·
|
$25,000 upon submission by University of California to U.S. Federal Drug Administration (or comparable agency) of either notification of or request for approval of (as applicable), a Licensed Product;
|
|
|
·
|
$100,000 upon satisfaction of necessary requirements (e.g., notification or receipt of approval, as applicable) by Federal Drug Administration (or comparable agency) for commercial sale of a Licensed Product;
|
|
|
·
|
Royalties equal to the greater of three percent of the Selling Price of each Licensed Product Licensee sells or the maintenance fee according to the following schedule:
|
|
|
|
$ |
10,000 |
|
|
|
|
|
$ |
15,000 |
|
|
|
|
|
$ |
15,000 |
|
|
|
|
|
$ |
45,000 |
|
|
2012 (and each year thereafter)
|
|
$ |
60,000 |
|
|
The License Agreement may be cancelled by giving 90 days written notice to the University. In 2008, partially due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 8: PREPAID EXPENSES PAID WITH STOCK
The Company has issued stock to companies for various service agreements extending beyond December 31, 2011. Additionally, the Company issued stock for prepaid rent which expired annually through July 2012 at the rate of $37,500 per year. Prepaid expenses paid with stock have fully expired as of December 31, 2012.
NOTE 9: CAPITAL LEASE OBLIGATIONS
During September 2007, the Company obtained two master lease agreements for $1,875,000 and $631,000, with interest on both leases accruing at 8.6% annually, secured by equipment and personal guarantee of two of the major stockholders. These long-term agreements shall be deemed capital lease obligations for purposes of financial statement reporting. The purpose of the lease is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $933,888. Advances made by the Lessor for the benefit of the Company, less payments, total $631,270 as of December 31, 2012.
This capital lease and its resulting obligation is recorded at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding any portion of the payments representing taxes to be paid by the Company. This amount does not exceed the fair value of the leased property at the lease inception, so the recorded amount is the fair value.
| |
|
Capital Lease Obligation
|
|
| |
|
PET Isotope Production System
|
|
|
Ancillary Equipment
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances made for purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal portion of payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance of advances payable
|
|
|
|
|
|
|
|
|
|
|
|
|
Add factor to arrive at total future minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due within one year
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts due after one year
|
|
|
|
|
|
|
|
|
|
|
|
|
The lease requires the Company to maintain a minimum debt service coverage ratio of 1:1 measured at fiscal year-end; non-compliance with this provision shall constitute a default and guarantors must contribute capital sufficient to fund any deficit in the debt service coverage ratio.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 9: CAPITAL LEASE OBLIGATIONS - continued
The definition of debt service coverage ratio is EBITDA (earnings before interest, taxes, depreciation and amortization), minus cash taxes, minus unfunded capital expenditures, plus capital injections, divided by (interest plus current portion of long-term debt). According to the debt service coverage ratio computation, at December 31, 2009 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants, accordingly the Company recorded the entire value of the leases as a current value at December 31, 2009. However the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2010, and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2010. We were in default on a covenant in the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. Accordingly we recorded the entire value of the leases as a current obligation in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date. The reason the Company was able to come into compliance with the minimum debt service coverage ratio stipulated in the loan covenants was due to the additional convertible debt raised during the year ended December 31, 2012.
The Company’s results of the minimum debt service ratio calculation for the years December 31, 2012 and 2011 are as follows:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Unfunded capital expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based consulting fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivative liability
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Interest plus current portion of long-term debt
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Debt service coverage ratio
|
|
|
|
|
|
|
|
|
* Cash for stock and convertible debt.
** Other deductions from net income (add back for net loss) that were not explicitly stated in
Calculation for EBITDA, but are implied as they are non-cash expenditures.
Principal maturities on the amount of the capital lease obligations advanced through December 31, 2012 are due as follows:
|
Year ended December 31,
|
|
Production
Facility
|
|
|
Ancillary
Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
The capital lease obligation is the only Company debt that contains covenants.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 10: SHORT TERM LOAN PAYABLE
The Company had credit card debt of $46,725 that was converted to a promissory note March 15, 2012 secured by personal guarantees of Mr. Katzaroff, CEO and Mr. Jolliff, CFO of the Company. The note calls for $2,500 up front payment and nineteen payments of $2,568 including interest of twelve percent. As of December 31, 2012 the payments for August through December, 2012 had not yet been paid. For the twelve month period ending December 31, 2012 the Company paid $10,879 in principal and $1,894 in interest towards the debt. The note was called effective January 23, 2013 and the $5,301 of interest and collection costs as of that date have been accrued in the accompanying financial statement for the twelve months ending December 31, 2012. The principal balance of the loan was $35,846 and accrued interest of $5,326 was recorded as of December 31, 2012, all of which was recorded as current liabilities.
NOTE 11: CONVERTIBLE NOTES PAYABLE
As of December 31, 2012 and 2011 the Company had the following convertible notes outstanding:
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
May 2011 $55,000 Convertible Note, 8% interest, due February 2012, net of debt discount of $0 and $0, respectively
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
(1) |
October 2011 $53,000 Convertible Note, 8% interest, due July 2012, net of debt discount of $0 and $0, respectively
|
|
|
- |
|
|
|
- |
|
|
|
53,000 |
|
|
|
871 |
(2) |
November 2011 $63,000 Convertible Note, 8% interest, due August 2012, net of debt discount of $0 and $0, respectively
|
|
|
- |
|
|
|
- |
|
|
|
63,000 |
|
|
|
621 |
(3) |
February 2012 $45,000 Convertible Note, 8% interest, due August 2012, net of debt discount of $0 and $0, respectively
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
(4) |
April 2012 $60,000 Convertible Note, 8% interest, due October 2012, net of debt discount of $0 and $0, respectively
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
(5) |
October 2012 $63,000 Convertible Note, 8% interest, due April 2013, net of debt discount of $22,209 and $0, respectively
|
|
|
40,791 |
|
|
|
1,155 |
|
|
|
- |
|
|
|
- |
(6) |
November 2012 $42,500 Convertible Note, 8% interest, due May 2013, net of debt discount of $16,724 and $0, respectively
|
|
|
25,776 |
|
|
|
525 |
|
|
|
- |
|
|
|
- |
(7) |
December 2012 $55,000 Convertible Note, 0% interest for the first 90 days, due December 2013, with a 10% original issue discount, net of debt discount of $5,839 and $0, respectively
|
|
|
49,161 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
(8) |
July and August 2012 $1,060,000 Convertible Notes, 12% interest, due December 2013 and January 2014 (18 month notes), $888,500 and $0 outstanding , net of debt discount of $628,846 and $0, respectively
|
|
|
259,654 |
|
|
|
47,199 |
|
|
|
- |
|
|
|
- |
(9) |
September and October 2012 $115,000 Convertible Notes, 12% interest, due February and March 2014 (18 month notes), net of debt discount of $95,280 and $0, respectively
|
|
|
19,720 |
|
|
|
3,575 |
|
|
|
- |
|
|
|
- |
(10) |
Total Convertible Notes Payable, Net
|
|
$ |
395,102 |
|
|
$ |
52,454
|
|
|
$ |
116,000 |
|
|
$ |
1,492 |
|
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 11: CONVERTIBLE NOTES PAYABLE - continued
(1) The Company borrowed $55,000 May 2011, due February 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (November 8, 2011), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average closing price of the last five trading prices for the common stock ending one trading day prior to the date of conversion. The Company had the right to prepay the note and accrued interest during the first ninety days following the date of the note. During that time the amount of any prepayment would equal 135% of the outstanding principal balance of the note plus accrued interest on the note. The Company prepaid the note in full on August 3, 2011 and therefore has accrued interest expense of $20,046 related to the prepayment cost in the accompanying financial statements for the six months ending June 30, 2011.
(2) The Company borrowed $53,000 October 2011, due July 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (April 15, 2012), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company prepaid the note in full April 13, 2012, at which time they incurred a prepayment penalty of 150%, therefore has recorded interest expense of $26,500 related to the prepayment cost in the accompanying financial statements for the twelve months ending December 31, 2012.
(3) The Company borrowed $63,000 November 2011, due August 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (May 15, 2012), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company prepaid the note in full May 18, 2012, at which time they incurred a prepayment penalty of 150%, therefore has recorded interest expense of $31,500 related to the prepayment cost in the accompanying financial statements for the twelve months ending December 31, 2012.
(4) The Company borrowed $45,000 February 27, 2012, due August 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (August 24, 2012), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company prepaid the note in full July 17, 2012, at which time they incurred a prepayment penalty of 145%, therefore has recorded interest expense of $20,250 related to the prepayment cost in the accompanying financial statements for the twelve months ending December 31, 2012.
(5) The Company borrowed $60,000 April 13, 2012, due October 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (October 19, 2012), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company prepaid the note in full October 15, 2012, at which time they incurred a prepayment penalty of 150%, therefore has recorded interest expense of $30,000 related to the prepayment cost in the accompanying financial statements for the twelve months ending December 31, 2012.
(6) The Company borrowed $63,000 October 2012, due April 2013, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (April 10, 2013), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $31,500 related to the conversion feature of the note, along with a derivative liability at inception (see Note 12: Derivative Liability). Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note. During 2012 total amortization was recorded in the amount of $9,291 resulting in a debt discount of $22,209 December 31, 2012. Also during 2012, interest expense of $1,155 was recorded for the note.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 11: CONVERTIBLE NOTES PAYABLE - continued
(7) The Company borrowed $42,500 November 2012, due May 2013, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (May 2, 2013), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $21,250 related to the conversion feature of the note, along with a derivative liability at inception (see Note 12: Derivative Liability). Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note. During 2012 total amortization was recorded in the amount of $4,526 resulting in a debt discount of $16,724 December 31, 2012. Also during 2012, interest expense of $572 was recorded for the note.
(8) The Company borrowed $55,000 December 2012, due December 2013. The holder of the note has the right, after the first one hundred eighty days of the note (June 7, 2013), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.28 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note during the first ninety days following the date of the note. During that time the amount of any prepayment would equal 111.2% of the outstanding principal balance of the note ($61,160) with no interest on the note. The Company had the right to prepay the note and accrued interest during the next ninety days following the date of the note. During that time the amount of any prepayment would equal 111.2% ($61,160) of the outstanding principal balance of the note plus a onetime interest charge of 10% applied to the principal ($5,500) for a total repayment amount of $66,660. The Company recorded a debt discount of $6,160 related to the conversion feature of the note, along with a derivative liability at inception (see Note 12: Derivative Liability). Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note. During 2012 total amortization was recorded in the amount of $321 resulting in a debt discount of $5,839 December 31, 2012. Also during 2012, interest expense of $0 was recorded for the note.
(9) The Company had received $1,060,000 in cash as of December 31, 2012 in exchange for Convertible Debt instruments. These Convertible Debt instruments have an eighteen month term, accrued interest at an annual rate of 12% and a conversion price of $0.10. In addition the Convertible Debt instruments have an equal amount of $0.15, five year common stock warrants and Additional Investment Rights to enter into an additional convertible note with a corresponding amount of warrants equal to forty percent of the convertible note principal. The Company recorded a debt discount of $1,060,000 related to the conversion feature of the notes and the attached warrants, along with a derivative liability at inception (see Note 12: Derivative Liability).
During December of 2012 the holders of the Convertible Debt instruments exercised their conversion rights and converted $171,500 and $37,044 of the outstanding principal and accrued interest balances, respectively, into 2,085,440 shares of the Company’s common stock (see Note 14: Common Stock).
Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the Convertible Debt instruments. During 2012 total amortization was recorded in the amount of $431,154 resulting in a debt discount of $628,846 at December 31, 2012. During 2012 interest expense of $84,243 was recorded for the Convertible Debt Instruments.
(10) The Company had received $115,000 in cash as of December 31, 2012 in exchange for Convertible Debt instruments. These Convertible Debt instruments have an eighteen month term, accrued interest at an annual rate of 12% and a conversion price of $0.12. In addition the Convertible Debt instruments have an equal amount of $0.18, five year common stock warrants and Additional Investment Rights to enter into an additional convertible note with a corresponding amount of warrants equal to forty percent of the convertible note principal. The Company recorded a debt discount of $115,000 related to the conversion feature of the notes and the attached warrants, along with a derivative liability at inception (see Note 12: Derivative Liability).
Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the Convertible Debt instruments. During 2012 total amortization was recorded in the amount of $19,720 resulting in a debt discount of $95,280 at December 31, 2012. During 2012 interest expense of $3,575 was recorded for the Convertible Debt Instruments.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 12: DERIVATIVE LIABILITY
During the twelve months ending December 31, 2012 the Company had the following activity in their derivative liability account:
| |
|
Derivative Liability at Inception
|
|
|
Conversions
|
|
|
(Gain) Loss on Derivative Liability
|
|
|
Derivative Liability at 12/31/12
|
|
Conversion feature of October 2012 $63,000 Convertible Note
|
|
$ |
31,500 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
31,500 |
(1) |
Conversion feature of November 2012 $42,500 Convertible Note
|
|
|
21,250 |
|
|
|
- |
|
|
|
- |
|
|
|
21,250 |
(2) |
Conversion feature of December 2012 $55,000 Convertible Note
|
|
|
6,160 |
|
|
|
- |
|
|
|
- |
|
|
|
6,160 |
(3) |
Conversion feature of July and August 2012 $1,060,000 Convertible Notes
|
|
|
2,041,136 |
|
|
|
(280,185 |
) |
|
|
(371,337 |
) |
|
|
1,389,614 |
(4) |
10,600,000 Warrants attached to the July and August 2012 $1,060,000 Convertible Notes
|
|
|
2,362,370 |
|
|
|
- |
|
|
|
(736,330 |
) |
|
|
1,626,040 |
(4) |
Conversion feature of September and October 2012 $115,000 Convertible Notes
|
|
|
126,554 |
|
|
|
- |
|
|
|
19,880 |
|
|
|
146,434 |
(5) |
958,334 Warrants attached to the September and October 2012 $115,000 Convertible Notes
|
|
|
153,834 |
|
|
|
- |
|
|
|
(10,276 |
) |
|
|
143,558 |
(5) |
3,740,297 Warrants issued for debt issuance costs
|
|
|
756,055 |
|
|
|
- |
|
|
|
(182,293 |
) |
|
|
573,762 |
(6) |
|
|
|
$ |
5,498,859 |
|
|
$ |
(280,185 |
) |
|
|
(1,280,356 |
) |
|
$ |
3,938,318 |
|
Loss on Derivative Liability Recognized at Inception for conversion feature and attached warrants of July and August 2012 $1,060,000 Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
3,343,506 |
|
|
|
|
(4) |
Loss on Derivative Liability Recognized at Inception for conversion feature and attached warrants of September and October 2012 $115,000 Convertible Notes
|
|
|
|
|
|
|
|
|
|
|
165,388 |
|
|
|
|
(5) |
Total Loss on Derivative Liability
|
|
|
|
|
|
|
|
|
|
$ |
2,228,538 |
|
|
|
|
|
(1) At inception, the Company recorded a derivative liability and debt discount (see Note 11: Convertible Notes Payable) in the amount of $31,500 for the Company’s fair value estimate of the conversion feature of their $63,000 October 2012 note based on the 150% prepayment penalty. The fair value has not changed at December 31, 2012, therefore no gain or loss on the derivative has been recorded as of that date.
(2) At inception, the Company recorded a derivative liability and debt discount (see Note 11: Convertible Notes Payable) in the amount of $21,250 for the Company’s fair value estimate of the conversion feature of their $42,500 November 2012 note based on the 150% prepayment penalty. The fair value has not changed at December 31, 2012, therefore no gain or loss on the derivative has been recorded as of that date.
(3) At inception, the Company recorded a derivative liability and debt discount (see Note 11: Convertible Notes Payable) in the amount of $6,160 for the Company’s fair value estimate of the conversion feature of their $55,000 December 2012 note based on the notes 10% original issue discount. The fair value has not changed at December 31, 2012, therefore no gain or loss on the derivative has been recorded as of that date.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 12: DERIVATIVE LIABILITY - continued
(4) At inception the Company recorded a derivative liability for the conversion feature of their $1,060,000 convertible notes and its 10,600,000 warrants of $2,041,136 and $2,362,370, respectively, a debt discount of $1,060,000 (see Note 11: Convertible Notes Payable), and a loss on derivative liability of $3,343,506. During December of 2012 the holders of the Convertible Debt instruments exercised their conversion rights and converted $171,500 and $37,044 of the outstanding principal and accrued interest balances, respectively, into 2,085,440 shares of the Company’s common stock. As a result of the conversion the Company reduced the derivative liability by $280,185 and recorded an increase in equity for the value of the shares issued. At December 31, 2012 the Company measured the fair value of the derivative for the remaining Convertible Debt instruments and warrants of $1,389,614 and $1,626,040, respectively. The fair values of the derivative liabilities were calculated using the Black-Scholes pricing model with the following assumptions:
| |
|
At Inception
|
|
At Conversion
|
|
At December 31, 2012
|
| |
|
Conversion Feature
|
|
Warrants
|
|
Conversion Feature
|
|
Warrants
|
|
Conversion Feature
|
|
Warrants
|
|
Risk-free interest rate
|
|
0.18%
- 0.19%
|
|
0.61%
- 0.63%
|
|
0.14%
-0.16%
|
|
-
|
|
0.16%
|
|
0.70%
|
|
Expected life in years
|
|
1.50
|
|
5.00
|
|
1.1
|
|
-
|
|
1.25
|
|
4.75
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
-
|
|
0%
|
|
0%
|
|
Expected volatility
|
|
117.38%
- 118.36%
|
|
113.84%
- 114.10%
|
|
221.38%
|
|
-
|
|
206.14%
|
|
112.26%
|
(5) At inception the Company recorded a derivative liability for the conversion feature of their $115,000 convertible notes and its 958,334 warrants of $126,554 and $153,834, respectively, a debt discount of $115,000 (see Note 11: Convertible Notes Payable), and a loss on derivative liability of $165,388. At December 31, 2012 the Company measured the fair value of the derivative for the Convertible Debt instruments and warrants at $146,434 and $143,558, respectively. The fair values of the derivative liabilities were calculated using the Black-Scholes pricing model with the following assumptions:
| |
|
At Inception
|
|
At December 31, 2012
|
| |
|
Conversion Feature
|
|
Warrants
|
|
Conversion Feature
|
|
Warrants
|
|
Risk-free interest rate
|
|
0.18%
|
|
0.63%
- 0.67%
|
|
0.16%
|
|
0.70%
|
|
Expected life in years
|
|
1.50
|
|
5.00
|
|
1.25
|
|
4.75
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
|
Expected volatility
|
|
119.96%
|
|
109.53%
|
|
206.14%
|
|
112.26%
|
(6) At inception the Company recorded a derivative liability for the 3,740,297 warrants issued for loan costs of $756,055 and capitalized debt issuance costs for the same (See Note 15: Debt Issuance Costs). At December 31, 2012 the Company measured the fair value of the derivative for the warrants at $573,762. The fair values of the derivative liabilities were calculated using the Black-Scholes pricing model with the following assumptions:
| |
|
At Inception
|
|
At December 31, 2012
|
|
Risk-free interest rate
|
|
0.63%
|
|
0.70%
|
|
Expected life in years
|
|
5.00
|
|
4.75
|
|
Dividend yield
|
|
0%
|
|
0%
|
|
Expected volatility
|
|
113.84%
|
|
112.26%
|
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 13: INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2012 and 2011:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
Net operating loss carryover
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income from continuing operations for the years ended December 31, 2012 and 2011 due to the following:
| |
|
December 31, 2012
|
|
|
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash interest expense
|
|
|
|
|
|
|
|
|
Other non-deductable expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012, the Company had net operating loss carryforwards of approximately $16,928,300 that may be offset against future taxable income from the year 2013 through 2033.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2012, the Company had no accrued interest or penalties related to uncertain tax positions.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 13: INCOME TAXES – continued
The Company files income tax returns in the U.S. federal jurisdiction and in the state of Washington. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.
NOTE 14: STOCKHOLDERS’ EQUITY
Common Stock Sale
The Company issued 1,906,250 shares of common stock for cash during 2011 for options exercised at prices ranging from $0.15 to $0.20 per share.
Common Stock Issued for Services and Other
In 2011, the Company issued 393,333 shares of common stock with a total fair market value of $81,000. The fair market value of the shares issued ranged from $0.09 to $0.30 per share. The shares were issued for $16,000 worth of prepaid services, and for $65,000 worth of current year services.
In March 2012 the Company issued 3,990,500 shares of common stock with a total fair market value of $359,145. The fair market value of the shares issued was $0.09 per share. The shares were issued for $359,145 worth of current year services.
In April 2012 the Company issued 20,000 shares of common stock with a total fair market value of $1,800. The fair market value of the shares issued was $0.09 per share. The shares were issued for $1,800 worth of current year services.
In June 2012 the Company issued 250,000 shares of common stock with a total fair market value of $50,000. The fair market value of the shares issued was $0.20 per share. The shares were issued for $50,000 worth of current year services.
In August 2012 the Company issued 3,000,000 shares of common stock with a total fair market value of $780,000. The fair market value of the shares issued was $0.26 per share. The shares were issued for $780,000 worth of current year services.
In November 2012 the Company issued 750,000 shares of common stock with a total fair market value of $150,000. The fair market value of the shares issued was $0.20 per share. The shares were issued for $150,000 worth of current year services.
In November 2012 the Company issued 300,000 shares of common stock with a total fair market value of $51,000. The fair market value of the shares issued was $0.17 per share. The shares were issued for $51,000 worth of current year services.
Common Stock Issued for Accounts Payable
During January of 2011 the Company issued 156,167 shares of common stock with a total fair market value of $46,850. The fair market value of the shares issued was $0.30 per share. The shares were issued to extinguish $46,850 of a prior year liability.
In February 2012 the Company issued 15,000 shares of common stock with a total fair market value of $2,550. The fair market value of the shares issued was $0.17 per share. The shares were issued to extinguish $2,000 of a prior year liability and a loss on the extinguishment of debt was recorded for $550.
Common Stock Issued for Loan Fees on Convertible Debt
The Company issued 100,000 shares of its common stock in exchange for a $250,000 convertible note in 2008. The value of the $250,000 debt plus the $0.70 fair market value of the 100,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $250,000 debt and the value of the 100,000 shares. This computation resulted in an allocation of $195,313 toward the debt and $54,687 to the shares. The $54,687 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $36,459 was accreted and added to the note payable bringing the total debt balance to $250,000 as of December 31, 2009. The note was rewritten May 26, 2010 for the original $250,000 note plus $43,750 of interest for the period September 4, 2008 through May 26, 2010 for a new note of $293,750, 10%, expiration date of September 30, 2010. The Company recognized interest expense on the notes principal balance of $730 and $27,553 in the accompanying financial statements for the years ended December 31, 2011 and 2010, respectively. The $293,750 original value of the note plus $17,866 interest from May 26, 2010 through January 3, 2011, for a total of $311,616, was paid January 3, 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY - continued
Common Stock Issued for Convertible Debt - continued
The Company issued a convertible promissory note in the amount of $375,000 with interest payable at 10% per annum in 2008 to our major stockholder, who is also a Director. The Note matures on December 16, 2009 (the "Maturity Date"). The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. Interest on the Note is payable every six months until the Note is paid in full. Additionally, in connection with the convertible note, 150,000 shares of the Company’s common stock were issued to the note holder. At the option of the holder, the note is convertible, in whole or in part, into the Company’s common stock by taking the principal to be converted and dividing it by fifty percent of the volume-weighted average trading price of the Company’s common stock for the 10 consecutive trading days immediately preceding the date of conversion. The note is convertible at any time.
The embedded conversion feature within the convertible promissory note was assessed to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.
The Company believes that the embedded derivative instrument shall not be separated from the host contract and accounted for as a derivative instrument because the criteria for that treatment has not been met as the Company’s stock is not considered to be readily convertible to cash. Per the agreement the Company is required to deliver shares of its common stock and there is no mechanism outside the contract that facilitates that. Therefore the Company concluded that conversion feature should not be bifurcated from the host instrument.
The Company allocated the proceeds to the shares issued and the debt and then calculated a beneficial conversion feature. The Company performed these calculations which resulted in a beneficial conversion feature with an intrinsic value of $322,234. The 150,000 shares of common stock were valued at $46,053 and the debt was recorded at $6,713. Because the debt is immediately convertible, the value of the beneficial conversion feature is calculated as if converted on the commitment date. The $322,234 allocated to the beneficial conversion feature along with the $46,053 allocated to the 150,000 shares of common stock is being accreted to interest expense over the twelve month life of the debt. Interest expense of $368,287 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $375,000 as of December 31, 2009. The note expired December 16, 2009, was extended by the note holder for another year until December 16, 2010, and another year to December 16, 2011, and another year to December 16, 2012, and another year to December 16, 2013. The Company recognized interest expense of $37,500 and $37,500 in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in March 2009 to our major stockholder, who is also a Director. The Note matured in March of 2010, was extended by the note holder for another year until March, 2011, and another year until March, 2012, and another year until March, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $100,000 debt plus the $0.31 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $74,603 toward the debt and $11,032 to the shares and $14,365 to the beneficial conversion feature. The $11,032 value of the shares and the $14,365 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $25,397 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2010. Additionally, $10,000 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY - continued
Common Stock Issued for Convertible Debt - continued
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in April 2009 to our major stockholder, who is also a Director. The Note matured in April of 2010, was extended by the note holder for another year until April, 2011, and extended again until April, 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $50,000 debt plus the $0.31 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $31,268 toward the debt and $6,140 to the shares and $12,592 to the beneficial conversion feature. The $6,140 value of the shares and the $12,592 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $18,732 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 as of December 31, 2010. Additionally, $5,000 and $5,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 90,560 shares of its common stock and a convertible promissory note in the amount of $226,400 with interest payable at 10% per annum in September 2009 to our major stockholder, who is also a Director. The Note matured in September of 2010, was extended by the note holder for another year until September, 2011, and extended again until September 2012, and extended again until September 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $226,400 debt plus the $0.39 fair market value of the 90,560 shares at the date of the agreement was prorated to arrive at the allocation of the original $226,400 debt and the value of the 90,560 shares and the beneficial conversion feature. The computation resulted in an allocation of $106,870 toward the debt and $30,552 to the shares and $88,978 to the beneficial conversion feature. The $30,552 value of the shares and the $88,978 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $119,530 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $226,400 as of December 31, 2010. Additionally, $22,640 and $22,640 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 66,000 shares of its common stock and a convertible promissory note in the amount of $155,000 with interest payable at 10% per annum in October 2009 to our major stockholder, who is also a Director. The Note matured in October of 2010, was extended by the note holder for another year until October, 2011, and extended another year to October 2012, and extended another year to October 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.51 per share. The value of the $155,000 debt plus the $0.51 fair market value of the 66,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $155,000 debt and the value of the 66,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $99,690 toward the debt and $27,655 to the shares and $27,655 to the beneficial conversion feature. The $27,655 value of the shares and the $27,655 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $55,310 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $155,000 as of December 31, 2010. Additionally, $15,500 and $15,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY - continued
Common Stock Issued for Convertible Debt - continued
The Company issued 80,000 shares of its common stock and a convertible promissory note in the amount of $200,000 with interest payable at 10% per annum in November 2009 to our major stockholder, who is also a Director. The Note matured in November of 2010, was extended by the note holder for another year until November, 2011, and extended another year until November 2012, and extended another year until November 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $200,000 debt plus the $0.59 fair market value of the 80,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $200,000 debt and the value of the 80,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $123,624 toward the debt and $38,188 to the shares and $38,188 to the beneficial conversion feature. The $38,188 value of the shares and the $38,188 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $76,376 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $200,000 as of December 31, 2010, respectively. Additionally, $20,000 and $20,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in December 2009 to our major stockholder, who is also a Director. The Note matured in December of 2010, was extended by the note holder for another year until December, 2011, and another year to December, 2012, and another year to December, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $100,000 debt plus the $0.59 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $61,812 toward the debt and $19,094 to the shares and $19,094 to the beneficial conversion feature. The $19,094 value of the shares and the $19,094 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $38,188 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2010. Additionally, $10,000 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in January 2010 to our major stockholder, who is also a Director. The Note matures in January of 2011, was extended by the note holder for another year until January, 2012, and extended another year to January, 2013, and extended another year to January, 2014. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.45 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $79,492 toward the debt and $15,254 to the shares and $5,254 to the beneficial conversion feature. The $15,254 value of the shares and the $5,254 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $20,508 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2011. Additionally, $10,000 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY - continued
Common Stock Issued for Convertible Debt - continued
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in February 2010 to our major stockholder, who is also a Director. The Note matures in February of 2011, was extended by the note holder for another year until February, 2012, and extended another year to February, 2013, and extended another year to February, 2014. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.49 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $69,224 toward the debt and $16,388 to the shares and $14,388 to the beneficial conversion feature. The $16,388 value of the shares and the $14,388 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $30,776 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2011. Additionally, $10,000 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 90,000 shares of its common stock and a convertible promissory note in the amount of $225,000 with interest payable at 10% per annum in March 2010. The Note matures in March of 2011, was extended by the note holder for another year until March, 2012, and was extended by the note holder for another year until March, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $225,000 debt plus the $0.40 fair market value of the 90,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $225,000 debt and the value of the 90,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $162,932 toward the debt and $31,034 to the shares and $31,034 to the beneficial conversion feature. The $31,034 value of the shares and the $31,034 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $62,068 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $225,000 as of December 31, 2011. Additionally, $22,500 and $22,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in April 2010 to our major stockholder, who is also a Director. The Note matures in April of 2011, was extended by the note holder for another year until April, 2012, and was extended by the note holder for another year until April, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $50,500 debt plus the $0.40 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $36,568 toward the debt and $6,966 to the shares and $6,966 to the beneficial conversion feature. The $6,966 value of the shares and the $6,966 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $13,932 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,500 December 31, 2011. Additionally, $5,050 and $5,050 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY - continued
Common Stock Issued for Convertible Debt – continued
The Company issued 22,880 shares of its common stock and a convertible promissory note in the amount of $57,200 with interest payable at 10% per annum in May 2010 to our major stockholder, who is also a Director. The Note matures in May of 2011, was extended by the note holder for another year until May, 2012, and extended by the note holder for another year until May, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $57,200 debt plus the $0.30 fair market value of the 22,880 shares at the date of the agreement was prorated to arrive at the allocation of the original $57,200 debt and the value of the 22,880 shares and the beneficial conversion feature. The computation resulted in an allocation of $44,942 toward the debt and $6,129 to the shares and $6,129 to the beneficial conversion feature. The $6,129 value of the shares and the $6,129 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $12,258 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $57,200 as of December 31, 2011. Additionally, $5,720 and $5,720 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in June 2011 to our major stockholder, who is also a Director. The Note matures in June of 2012 and was extended by the note holder for another year until June, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.22 per share. The value of the $50,000 debt plus the $0.22 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $41,912 toward the debt and $4,044 to the shares and $4,044 to the beneficial conversion feature. The $4,044 value of the shares and the $4,044 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,704 and $4,384 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 and $46,296 as of December 31, 2012 and 2011, respectively. Additionally, $5,000 and $2,700 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 15,400 shares of its common stock and a convertible promissory note in the amount of $38,500 with interest payable at 10% per annum in June 2011 to our major stockholder, who is also a Director. The Note matures in June of 2012, and was extended by the note holder for another year until June, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.20 per share. The value of the $38,500 debt plus the $0.20 fair market value of the 15,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $38,500 debt and the value of the 15,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $32,796 toward the debt and $2,852 to the shares and $2,852 to the beneficial conversion feature. The $2,852 value of the shares and the $2,852 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,602 and $3,102 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $38,500 and $35,899 as of December 31, 2012 and 2011, respectively. Additionally, $3,851 and $2,086 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 40,346 shares of its common stock and a convertible promissory note in the amount of $100,866 with interest payable at 10% per annum in June 2011 to our major stockholder, who is also a Director. The Note matures in June of 2012, and was extended by the note holder for another year until June, 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.20 per share. The value of the $100,866 debt plus the $0.20 fair market value of the 40,346 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,866 debt and the value of the 40,346 shares and the beneficial conversion feature. The computation resulted in an allocation of $85,922 toward the debt and $7,472 to the shares and $7,472 to the beneficial conversion feature. The $7,472 value of the shares and the $7,472 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $7,472 and $8,160 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,866 and $93,394 as of December 31, 2012 and 2011, respectively. Additionally, $10,008 and $5,044 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 40,280 shares of its common stock and a convertible promissory note in the amount of $100,700 with interest payable at 10% per annum in August 2011 to our major stockholder, who is also a Director. The Note matures in August of 2012, and was extended by the note holder for another year until August 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.25 per share. The value of the $100,700 debt plus the $0.25 fair market value of the 40,280 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,700 debt and the value of the 40,280 shares and the beneficial conversion feature. The computation resulted in an allocation of $82,390 toward the debt and $9,155 to the shares and $9,155 to the beneficial conversion feature. The $9,155 value of the shares and the $9,155 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $10,683 and $7,627 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,700 and $90,017 as of December 31, 2012 and 2011, respectively. Additionally, $10,072 and $4,198 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 10,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in September 2011 to our major stockholder, who is also a Director. The Note matures in September of 2012, and was extended by the note holder for another year until September 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $25,000 debt plus the $0.28 fair market value of the 10,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 10,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $19,964 toward the debt and $2,518 to the shares and $2,518 to the beneficial conversion feature. The $2,518 value of the shares and the $2,518 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,462 and $1,574 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,000 and $21,538 as of December 31, 2012 and 2011, respectively. Additionally, $2,500 and $781 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in September 2011 to our major stockholder, who is also a Director. The Note matures in September of 2012, and was extended by the note holder for another year until September 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $50,000 debt plus the $0.28 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $39,928 toward the debt and $5,036 to the shares and $5,036 to the beneficial conversion feature. The $5,036 value of the shares and the $5,036 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $7,554 and $2,518 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 and $42,446 as of December 31, 2012 and 2011, respectively. Additionally, $5,000 and $1,250 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 6,000 shares of its common stock and a convertible promissory note in the amount of $15,000 with interest payable at 10% per annum in October 2011 to our major stockholder, who is also a Director. The Note matures in October of 2012, and was extended by the note holder for another year until October 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.22 per share. The value of the $15,000 debt plus the $0.22 fair market value of the 6,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $15,000 debt and the value of the 6,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $12,574 toward the debt and $1,213 to the shares and $1,213 to the beneficial conversion feature. The $1,213 value of the shares and the $1,213 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,926 and $500 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $15,000 and $13,074 as of December 31, 2012 and 2011, respectively. Additionally, $1,500 and $300 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in October 2011 to our major stockholder, who is also a Director. The Note matures in October of 2012, and was extended by the note holder for another year until October 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.24 per share. The value of the $100,000 debt plus the $0.24 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $82,482 toward the debt and $8,759 to the shares and $8,759 to the beneficial conversion feature. The $8,759 value of the shares and the $8,759 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $14,598 and $2,920 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 and $85,402 as of December 31, 2012 and 2011, respectively. Additionally, $10,000 and $1,666 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 42,200 shares of its common stock and a convertible promissory note in the amount of $105,500 with interest payable at 10% per annum in November 2011 to our major stockholder, who is also a Director. The Note matures in November of 2012, and was extended by the note holder for another year until November 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.23 per share. The value of the $105,500 debt plus the $0.23 fair market value of the 42,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $105,500 debt and the value of the 42,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $87,724 toward the debt and $8,888 to the shares and $8,888 to the beneficial conversion feature. The $8,888 value of the shares and the $8,888 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $16,296 and $1,480 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $105,500 and $89,204 as of December 31, 2012 and 2011, respectively. Additionally, $10,552 and $880 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 45,440 shares of its common stock and a convertible promissory note in the amount of $113,600 with interest payable at 10% per annum in December 2011 to our major stockholder, who is also a Director. The Note matures in December of 2012, and was extended by the note holder for another year until December 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $113,600 debt plus the $0.10 fair market value of the 45,440 shares at the date of the agreement was prorated to arrive at the allocation of the original $113,600 debt and the value of the 45,440 shares and the beneficial conversion feature. The computation resulted in an allocation of $104,862 toward the debt and $4,369 to the shares and $4,369 to the beneficial conversion feature. The $4,369 value of the shares and the $4,369 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $8,738 and $0 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $113,600 and $104,862 as of December 31, 2012, and 2011, respectively. Additionally, $11,360 and $0 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012 and 2011.
The Company issued 51,400 shares of its common stock and a convertible promissory note in the amount of $128,500 with interest payable at 10% per annum in January 2012 to our major stockholder, who is also a Director. The Note matures in January of 2013, and was extended by the note holder for another year until December 2014. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.15 per share. The value of the $128,500 debt plus the $0.15 fair market value of the 51,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $128,500 debt and the value of the 51,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $113,952 toward the debt and $7,274 to the shares and $7,274 to the beneficial conversion feature. The $7,274 value of the shares and the $7,274 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $13,336 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $127,288 as of December 31, 2012. Additionally, $11,781 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 48,600 shares of its common stock and a convertible promissory note in the amount of $121,500 with interest payable at 10% per annum in February 2012 to our major stockholder, who is also a Director. The Note matures in February of 2013, and was extended by the note holder for another year until February 2014. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.16 per share. The value of the $121,500 debt plus the $0.16 fair market value of the 48,600 shares at the date of the agreement was prorated to arrive at the allocation of the original $121,500 debt and the value of the 48,600 shares and the beneficial conversion feature. The computation resulted in an allocation of $106,884 toward the debt and $7,308 to the shares and $7,308 to the beneficial conversion feature. The $7,308 value of the shares and the $7,308 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $12,484 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $119,368 as of December 31, 2012. Additionally, $10,379 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 46,000 shares of its common stock and a convertible promissory note in the amount of $115,000 with interest payable at 10% per annum in March 2012 to our major stockholder, who is also a Director. The Note matures in March of 2013, and was extended by the note holder for another year until March 2014. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.14 per share. The value of the $115,000 debt plus the $0.14 fair market value of the 46,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $115,000 debt and the value of the 46,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $102,804 toward the debt and $6,098 to the shares and $6,098 to the beneficial conversion feature. The $6,098 value of the shares and the $6,098 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $9,401 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $112,205 as of December 31, 2012. Additionally, $8,865 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 53,120 shares of its common stock and a convertible promissory note in the amount of $132,800 with interest payable at 10% per annum in April 2012 to our major stockholder, who is also a Director. The Note matures in April of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.09 per share. The value of the $132,800 debt plus the $0.09 fair market value of the 53,120 shares at the date of the agreement was prorated to arrive at the allocation of the original $132,800 debt and the value of the 53,120 shares and the beneficial conversion feature. The computation resulted in an allocation of $123,570 toward the debt and $4,615 to the shares and $4,615 to the beneficial conversion feature. The $4,615 value of the shares and the $4,615 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $6,514 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $130,084 as of December 31, 2012. Additionally, $9,340 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in April 2012 to our major stockholder, who is also a Director. The Note matures in April of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $100,000 debt plus the $0.10 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $92,308 toward the debt and $3,846 to the shares and $3,846 to the beneficial conversion feature. The $3,846 value of the shares and the $3,846 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $5,126 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $97,434 as of December 31, 2012. Additionally, $6,670 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 22,000 shares of its common stock and a convertible promissory note in the amount of $55,000 with interest payable at 10% per annum in May 2012 to our major stockholder, who is also a Director. The Note matures in May of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.09 per share. The value of the $55,000 debt plus the $0.09 fair market value of the 22,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $55,000 debt and the value of the 22,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $51,178 toward the debt and $1,911 to the shares and $1,911 to the beneficial conversion feature. The $1,911 value of the shares and the $1,911 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,390 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $53,568 as of December 31, 2012. Additionally, $3,438 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 28,000 shares of its common stock and a convertible promissory note in the amount of $70,000 with interest payable at 10% per annum in May 2012 to our major stockholder, who is also a Director. The Note matures in May of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $70,000 debt plus the $0.10 fair market value of the 28,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $70,000 debt and the value of the 28,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $64,616 toward the debt and $2,692 to the shares and $2,692 to the beneficial conversion feature. The $2,692 value of the shares and the $2,692 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,142 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $67,758 as of December 31, 2012. Additionally, $4,080 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 24,000 shares of its common stock and a convertible promissory note in the amount of $60,000 with interest payable at 10% per annum in August 2012 to our major stockholder, who is also a Director. The Note matures in August of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.245 per share. The value of the $60,000 debt plus the $0.245 fair market value of the 24,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $60,000 debt and the value of the 24,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $49,290 toward the debt and $5,355 to the shares and $5,355 to the beneficial conversion feature. The $5,355 value of the shares and the $5,355 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,568 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $52,858 as of December 31, 2012. Additionally, $2,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 58,000 shares of its common stock and a convertible promissory note in the amount of $145,000 with interest payable at 10% per annum in October 2012 to our major stockholder, who is also a Director. The Note matures in August of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.15 per share. The value of the $145,000 debt plus the $0.15 fair market value of the 58,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $145,000 debt and the value of the 58,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $128,585 toward the debt and $8,208 to the shares and $8,208 to the beneficial conversion feature. The $8,208 value of the shares and the $8,208 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,420 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $132,004 as of December 31, 2012. Additionally, $3,020 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 44,000 shares of its common stock and a convertible promissory note in the amount of $110,000 with interest payable at 10% per annum in October 2012 to our major stockholder, who is also a Director. The Note matures in August of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.14 per share. The value of the $110,000 debt plus the $0.14 fair market value of the 44,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $110,000 debt and the value of the 44,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $98,334 toward the debt and $5,833 to the shares and $5,833 to the beneficial conversion feature. The $5,833 value of the shares and the $5,833 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,950 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,284 as of December 31, 2012. Additionally, $1,830 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
The Company issued 5,000 shares of its common stock and a convertible promissory note in the amount of $12,500 with interest payable at 10% per annum in November 2012 to our major stockholder, who is also a Director. The Note matures in November of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.16 per share. The value of the $12,500 debt plus the $0.16 fair market value of the 5,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $12,500 debt and the value of the 5,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $10,996 toward the debt and $752 to the shares and $752 to the beneficial conversion feature. The $752 value of the shares and the $752 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $250 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $11,246 as of December 31, 2012. Additionally, $210 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Issued for Convertible Debt – continued
The Company issued 60,000 shares of its common stock and a convertible promissory note in the amount of $150,000 with interest payable at 10% per annum in December 2012 to our major stockholder, who is also a Director. The Note matures in December of 2013. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.18 per share. The value of the $150,000 debt plus the $0.18 fair market value of the 60,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $150,000 debt and the value of the 60,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $129,850 toward the debt and $10,075 to the shares and $10,075 to the beneficial conversion feature. The $10,075 value of the shares and the $10,075 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,679 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $131,529 as of December 31, 2012. Additionally, $1,250 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2012.
Common Stock Issued for Debt Converted
During December of 2012 the holders of the Convertible Debt instruments exercised their conversion rights and converted $171,500 and $37,044 of the outstanding principal and accrued interest balances, respectively, into 2,085,440 shares of the Company’s common stock. The fair market value of the shares issued ranged from $0.16 to $0.26, determined based on the market value of the shares on the date of conversion. The total fair market value of the shares issued was $410,581 and a debt discount of $126,067 was written off to equity for the unamortized balance of the debt converted. Additionally, the derivative liability for the debt converted of $280,185 was written off, resulting in a loss on extinguishment of debt of $47,919.
Common Stock Options
During January 2011, the Company granted consultants options to purchase 15,000 shares of the Company’s common stock, at an exercise price of $0.30 per share. The options are fully vested and expire January 12, 2014. The quoted market price of the common stock at the time of issuance of the options was $0.30 per share. The fair value of the options totaled $2,850 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.03%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 109.2%.
During January 2011, the Company granted directors options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $0.30 per share. The options are fully vested and expire January 12, 2014. The quoted market price of the common stock at the time of issuance of the options was $0.30 per share. The fair value of the options totaled $95,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 1.03%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 109.2%.
During July 2011, the Company granted a director options to purchase 1,000,000 shares of the Company’s common stock, at an exercise price of $0.20 per share. The options are fully vested and expire July 6, 2012. The quoted market price of the common stock at the time of issuance of the options was $0.20 per share. The fair value of the options totaled $50,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.37%, ii) expected life of 1 year, iii) dividend yield of 0%, iv) expected volatility of 59.0%.
During October 2011, the Company granted a consultant options to purchase 100,000 shares of the Company’s common stock, at an exercise price of $0.28 per share. The options are fully vested and expire October 20, 2014. The quoted market price of the common stock at the time of issuance of the options was $0.22 per share. The fair value of the options totaled $13,602 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.47%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 109.9%.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Options – continued
During March 2012, the Company granted consultants and employees options to purchase 1,450,000 shares of the Company’s common stock, at an exercise price of $0.09 per share. The options are fully vested and expire March 9, 2015. The quoted market price of the common stock at the time of issuance of the options was $0.09 per share. The fair value of the options totaled $87,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.51%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 119.9%.
During March 2012, the Company granted directors options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $0.09 per share. The options are fully vested and expire March 9, 2015. The quoted market price of the common stock at the time of issuance of the options was $0.09 per share. The fair value of the options totaled $30,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.51%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 119.9%.
During June 2012, the Company granted consultants options to purchase 750,000 shares of the Company’s common stock, at an exercise price of $0.20 per share. The options are fully vested and expire June 2015. The quoted market price of the common stock at the time of issuance of the options was $0.09 per share. The fair value of the options totaled $111,980 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.39%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 131.4%.
During September 2012, the Company granted a director options to purchase 250,000 shares of the Company’s common stock, at an exercise price of $0.21 per share. The options are fully vested and expire September 5, 2015. The quoted market price of the common stock at the time of issuance of the options was $0.21 per share. The fair value of the options totaled $40,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.34%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 131.4%.
During November 2012, the Company granted a consultant options to purchase 700,000 shares of the Company’s common stock, at an exercise price of $0.15 per share. The options are fully vested and expire November 14, 2015. The quoted market price of the common stock at the time of issuance of the options was $0.16 per share. The fair value of the options totaled $84,000 using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.36%, ii) expected life of 3 years, iii) dividend yield of 0%, iv) expected volatility of 134.7%.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Options – continued
The following schedule summarizes the changes in the Company’s stock options:
| |
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
| |
|
Options Outstanding
|
|
|
Average
|
|
|
|
|
|
Average
|
|
| |
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Exercise
|
|
| |
|
Of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Price
|
|
| |
|
Shares
|
|
|
Per Share
|
|
|
Life
|
|
|
Value
|
|
|
Per Share
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock Warrants
During the year ended December 31, 2012, the Company granted lenders a total of 11,558,334 warrants to purchase the Company’s common stock in conjunction with convertible debt (see Note 11: Convertible Notes Payable), which resulted in a debt discount, derivative liability (see Note 12: Derivative Liability), and loss on derivative being recorded upon issuance.
During the year ending December 31, 2012 the Company issued 3,740,297 warrants for fees incurred in conjunction with their debt financing arrangement. At inception the fair value of the warrants were recognized as debt offering costs (see Note 15: Debt Offering Costs) and as a derivative liability (see Note 12: Derivative Liability).
During the year ended December 31, 2012, the Company granted consultants 9,113,070 warrants to purchase the Company’s common stock for services provided. The $1,285,381 fair value of the warrants was recognized in earnings and determined using the Black-Scholes option pricing model with the following assumptions: i) risk free interest rate of 0.36% to 0.62%, ii) expected life of 3 to 5 years, iii) dividend yield of 0%, iv) expected volatility of 113.8% to 131.5%.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 14: STOCKHOLDERS’ EQUITY – continued
Common Stock Warrants – continued
The following schedule summarizes the changes in the Company’s stock warrants:
| |
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
| |
|
Warrants Outstanding
|
|
|
Average
|
|
|
|
|
|
Average
|
|
| |
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Exercise
|
|
| |
|
Of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Price
|
|
| |
|
Shares
|
|
|
Per Share
|
|
|
Life
|
|
|
Value
|
|
|
Per Share
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes the exercise price per share and expiration date of the Company’s outstanding and exercisable warrants to purchase common stock at December 31, 2012:
|
Number
|
|
|
Exercise Price
|
|
Expiration Date
|
| |
1,200,000 |
|
|
$ |
0.09 |
|
June 4, 2015
|
| |
2,000,000 |
|
|
$ |
0.25 |
|
June 4, 2015
|
| |
3,000,000 |
|
|
$ |
0.15 |
|
July 1, 2017
|
| |
9,240,297 |
|
|
$ |
0.15 |
|
July 13, 2017
|
| |
1,000,000 |
|
|
$ |
0.15 |
|
July 30, 2017
|
| |
2,350,000 |
|
|
$ |
0.15 |
|
August 1, 2017
|
| |
1,750,000 |
|
|
$ |
0.15 |
|
August 2, 2017
|
| |
833,334 |
|
|
$ |
0.18 |
|
September 26, 2017
|
| |
125,000 |
|
|
$ |
0.18 |
|
October 5, 2017
|
| |
2,913,070 |
|
|
$ |
0.10 |
|
April 11, 2013
|
| |
24,411,701 |
|
|
|
|
|
|
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 15: CONCENTRATIONS OF CREDIT AND OTHER RISKS
Accounts Receivable
The Company’s accounts receivable result from credit sales to customers. The Company had one customer that represented 72.7% and 49.2% of the Company’s total revenues for the years ended December 31, 2012 and 2011; and 100% of the total F-18 sales for the years ended December 31, 2011 and 2010. This same customer accounted for 46.4% and 100% of the Company’s net accounts receivable balance at December 31, 2012 and 2011.
The loss of this significant customer would have a temporary adverse effect on the Company’s revenues, which would continue until the Company located new customers to replace them
The Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary.
Inventories
The Company has two products, one of which is produced in the Company’s production facility and the other product sold by the Company is purchased from one supplier. The failure of this supplier to meet its commitment on schedule could have a material adverse effect on the Company’s business, operating results and financial condition. If the sole-source supplier were to go out of business or otherwise become unable to meet its supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time the Company’s sales could be delayed. Such delays could have a material adverse effect on the Company’s business, operating results and financial condition.
NOTE 16: DEBT ISSUANCE COSTS
During the year ending December 31, 2012 the Company issued 3,740,297 warrants for fees incurred in conjunction with their debt financing arrangement. The warrants were valued at $756,054 (see Note 14: Common Stock) and were recorded as debt issuance costs with a corresponding derivative liability (see Note 12: Derivative Liability). Additionally, the Company paid $123,000 in cash for debt arrangements during the year ended December 31, 2012. The Company amortizes debt issuance costs on a straight-line basis over the life of the debt arrangements. During the twelve months ending December 31, 2012 the Company had the following activity in their debt issuance cost account:
3,740,297 Warrants issued as fees for debt financing arrangements
|
|
|
|
|
Cash paid as fees for debt arrangements
|
|
|
|
|
Total debt issuance costs incurred in 2012
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
Debt issuance costs at December 31, 2012
|
|
|
|
|
NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2012, the Company had the following non-cash investing and financing activities:
|
|
·
|
Issued 15,000 shares of common stock for an extinguishment of $2,000 worth of debt.
|
|
|
·
|
Decreased related party convertible notes payable by $127,933 and increased additional paid in capital by $127,453 and increased common stock by $480 due to 480,120 shares issued in conjunction with convertible notes for a debt discount.
|
|
|
·
|
Issued 2,085,440 shares of common stock for an extinguishment of $171,500 worth of principal on convertible notes payable, $37,044 worth of accrued interest, $280,184 worth of derivative liabilities, and $126,065 worth of debt discount.
|
|
|
·
|
Increased derivative liability and decreased convertible notes payable by $1,989,965.
|
|
|
·
|
Converted $46,725 worth of accounts payable into a short term loan.
|
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 17: SUPPLEMENTAL CASH FLOW INFORMATION - continued
During the year ended December 31, 2011, the Company had the following non-cash investing and financing activities:
|
|
·
|
Increased prepaid expenses by $16,000 and increased paid in capital by $15,900 and increased common stock by $100 due to shares issued for prepaid services.
|
|
|
·
|
Issued 156,167 shares of common stock for an extinguishment of $46,850 worth of debt.
|
|
|
·
|
Issued 1,235,000 options for an extinguishment of $234,650 worth of debt.
|
|
|
·
|
Decreased related party convertible notes payable by $108,614 and increased additional paid in capital by $108,334 and increased common stock by $280 due to 279,666 shares issued in conjunction with convertible notes for a debt discount.
|
NOTE 18: SUBSEQUENT EVENTS
In January 2013 the Company issued 35,500 shares of its common stock to a consultant in payment of $6,000 in fees owed.
In January 2013 the Company received $101,272 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $0.17 per share. In addition the Company issued the note holder 40,509 shares of its common stock as a loan origination fee.
In January 2013 the Company received $41,000 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $0.17 per share. In addition the Company issued the note holder 16,400 shares of its common stock as a loan origination fee.
In January 2013 the Company issued 80,000 restricted shares of its common stock, representing $15,600, to a consultant for services.
In January 2013 the Company issued 222,222 restricted shares of its common stock, representing $20,000, in exchange for warrants.
In January 2013 the Company issued an 8% Convertible Promissory Note in the amount of $27,000 to an unrelated company. The note calls for a $2,000 loan fee to be paid from the proceeds. The note is not convertible by the holder for the first 180 days, in which time the Company can repay the note plus interest. If the Company repays the note within the first 90 days the interest rate is zero. If the Company repays the note after the first 90 days but before the 180 days the interest rate is 10% of the original $29,000.
On February 4, 2013, the Company issued 82,500 unrestricted shares of its common stock shares included in its S-1 filing that was effective December 7, 2012 and 67,500 restricted shares. The shares were issued in exchange for $22,500 received in exchange for warrants issued along with the convertible debt received August 1, 2012 and converted December 13, 2012.
On February 4, 2013, the Company issued 60,000 restricted shares of its common stock shares in exchange for $6,000 as a result of an exercise of the Additional Investment Rights attached to a convertible note received August 1, 2012 and converted December 13, 2012. In addition the Company also issued on February 4, 2013 60,000 restricted shares of its restricted stock in exchange for $9,000 as a result of an exercise of the warrants attached to the Additional Investment Rights.
On February 11, 2013, the Company issued three-year options to purchase 1,790,000 shares of its common stock with an exercise price of $0.20 per share to employees, executive officers and directors.
On February 11, 2013, the Company issued ten-year options to purchase 3,250,000 shares of its common stock with an exercise price of $0.20 per share to an officer and director. Of these shares, 800,000 are immediately vested and the remaining 2,450,000 are to be vested ratably over the next 24 months.
In March the Company sold 3,333,333 restricted shares of its common stock for $500,000.
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2012 and 2011
NOTE 18: SUBSEQUENT EVENTS – continued
In March 2013 the Company issued an 8% Convertible Promissory Note in the amount of $60,000 to an unrelated company. The note calls for a $3,000 loan fee to be paid from the proceeds. The note is not convertible by the holder for the first 180 days, in which time the Company can repay the note at the rate of the 8% accrued interest plus 50% additional of both the original $60,000 and the accrued interest. After the first one hundred eighty days the holder has the right to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.
During the months of January, February, and March 2013 the Company issued 4,653,160 shares of unrestricted stock in exchange for $465,316 of convertible debt raised in July and August 2012. The Company also issued 1,005,080 shares of unrestricted stock representing $100,508 of interest on the $465,316 convertible debt that was converted.
During the month February 2013 the Company issued 958,332 shares of unrestricted stock in exchange for $115,000 of convertible debt raised in September 2012. The Company also issued 207,000 shares of unrestricted stock representing $24,840 of interest on the $115,000 convertible debt that was converted.
On March 15, 2013 the Company issued 133,333 shares of restricted stock to an officer and director in exchange for $20,000 cash.
On March 15, 2013 the Company issued 33,333 shares of restricted stock to an officer in exchange for $5,000 cash.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.