admd_10q-15783.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: September 30, 2013
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OR
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o
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
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COMMISSION FILE NUMBER 000-53497
ADVANCED MEDICAL ISOTOPE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
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80-0138937
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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6208 W. Okanogan Ave.,
Kennewick, WA 99336
(Address of principal executive offices, Zip Code)
(509) 736-4000
(Registrant’s telephone number, including area code)
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 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
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Accelerated filer
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Non-accelerated filer (Do not check if a smaller reporting company)
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Smaller reporting company
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x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of registrant’s common stock outstanding, as of November 14, 2013 was 109,028,604.
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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Condensed Balance Sheets as of September 30, 2013 (unaudited) and December 31, 2012
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Condensed Statements of Operations for the Three Months and the Nine Months ended September 30, 2013 (unaudited) and the Three Months and the Nine Months ended September 30, 2012 (unaudited)
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Condensed Statement of Changes in Stockholders’ Equity (Deficit) for the period ended September 30, 2013 (unaudited)
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Condensed Statements of Cash Flow for the Nine Months ended September 30, 2013 (unaudited) and the Nine Months ended September 30, 2012 (unaudited)
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Notes to Condensed Financial Statements (unaudited)
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Quantitative and Qualitative Disclosures About Market Risk
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PART II - OTHER INFORMATION
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Unregistered Sales of Equity Securities and Use of Proceeds
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Advanced Medical Isotope Corporation
Condensed Balance Sheets
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September 30,
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December 31,
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2013
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2012
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(unaudited)
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Accounts receivable - trade
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Prepaid expenses paid with stock
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Fixed assets, net of accumulated depreciation
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License fees, net of amortization
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Patents and intellectual property
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LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
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Accounts payable and accrued expenses
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Payroll liabilities payable
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Convertible notes payable, net
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Related party convertible notes payable, net
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Current portion of capital lease obligations
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Total current liabilities
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Capital lease obligations, net of current portion
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Stockholders’ Equity (Deficit):
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Preferred Stock, $.001 par value, 20,000,000 shares authorized;
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zero issued and outstanding
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Common stock, $.001 par value; 200,000,000 shares authorized;
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109,016,604 and 81,544,459 shares issued and outstanding, respectively
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Total stockholders’ equity (deficit)
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Total liabilities and stockholders’ equity (deficit)
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The accompanying notes are an integral part of these condensed financial statements.
Advanced Medical Isotope Corporation
Condensed Statements of Operations
(unaudited)
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Three months ended September 30,
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Nine months ended September 30,
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2013
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2012
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2013
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2012
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Sales and marketing expenses
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Depreciation and amortization
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General and administrative expenses
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Non-operating income (expense)
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Net gain (loss) on settlement of debt
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Recognized income from grants
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Gain (loss) on derivative liability
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Non-operating income (expense), net
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Weighted average common shares outstanding
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The accompanying notes are an integral part of these condensed financial statements.
Advanced Medical Isotope Corporation
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Condensed Statement of Changes in Stockholders’ Equity (Deficit)
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(Unaudited)
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Common Stock
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Paid in
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Accumulated
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Shares
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Amount
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Capital
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Deficit
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Total
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Balances at December 31, 2012 (audited)
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Cash and the exercise of warrants
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Services and prepaid services
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Exercise of warrants for services
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Accounts payable and prepaid services
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Loan fees on convertible debt
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Options and warrants issued for services
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Beneficial conversion feature
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Balances at September 30, 2013
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The accompanying notes are an integral part of these condensed financial statements.
Advanced Medical Isotope Corporation
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Condensed Statements of Cash Flow
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(Unaudited)
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Nine months ended
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September 30,
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2013
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2012
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CASH FLOW FROM OPERATING ACTIVITIES:
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Adjustments to reconcile net loss to net cash
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used by operating activities:
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Depreciation of fixed assets
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Amortization of licenses and intangible assets
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Amortization of convertible debt discount
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Amortization of debt issuance costs
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Amortization of prepaid expenses paid with stock
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Common stock issued for services
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Common stock issued for interest
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Warrants exercised for services
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Stock options and warrants issued for services
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Gain on derivative liability
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Loss on settlement of debt
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Changes in operating assets and liabilities:
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Grant money used to offset expenditures
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Net cash used by operating activities
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Cash used to acquire patents and intellectual property
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Cash used to acquire equipment
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Net cash used by investing activities
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Payments on Washington Trust debt
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Principal payments on capital lease
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Proceeds from short term loan
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Payments on short term loan
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Proceeds from convertible debt
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Principal payments on convertible debt
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Principal payments on long-term debt
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Proceeds on sale of stock for cash
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Proceeds from exercise of warrants
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Net cash provided by financing activities
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Net increase (decrease) in cash
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Cash, beginning of period
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Supplemental disclosures of cash flow information:
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Cash paid for income taxes
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The accompanying notes are an integral part of these condensed financial statements.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 1: BASIS OF PRESENTATION
Nature of Organization
The accompanying condensed financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine months ended September 30, 2013, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2013.
Reclassification
Certain prior period amounts in the condensed financial statements have been reclassified to conform to current period presentation.
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 September 30, 2013 and December 31, 2012, 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. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2013:
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Total
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Level 1
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Level 2
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Level 3
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Total Assets Measured at Fair Value
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
1,389,649 |
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$ |
- |
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$ |
- |
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|
$ |
1,389,649 |
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Total Liabilities Measured at Fair Value
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$ |
1,389,649 |
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$ |
- |
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$ |
- |
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|
$ |
1,389,649 |
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Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 2: 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 September 30, 2013 we have $26,221 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 Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
Fixed assets consist of the following at September 30, 2013 and December 31, 2012:
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September 30, 2013
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December 31, 2012
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Less accumulated depreciation
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Accumulated depreciation related to fixed assets is as follows:
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September 30, 2013
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December 31, 2012
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Depreciation expense for the above fixed assets for the nine months ended September 30, 2013 and 2012, respectively, was $198,203 and $373,710.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 4: INTANGIBLE ASSETS
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Intangible assets consist of the following at September 30, 2013 and December 31, 2012:
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September 30, 2013
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December 31, 2012
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Less accumulated amortization
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Patents and intellectual property
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Intangible assets net of accumulated amortization
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Amortization expense for the above intangible assets for the nine months ended September 30, 2013 and 2012, respectively, was $7,431 and $8,036.
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 September 30, 2013, the payment due September 30, 2013 was not paid. This September 30, 2013 payment was paid on October 15, 2013. The Company paid $35,084 in principal and $1,818 in interest to the holders of this loan for the nine months ended September 30, 2013. As of September 30, 2013 and December 31, 2012, the outstanding balance on this loan was $8,265 and $43,349, respectively.
The Company issued various shares of common stock and convertible promissory notes during the nine months ended September 30, 2013 to a director and major stockholder. The details of these transactions are outlined in NOTE 11 STOCKHOLDERS’ EQUITY - Common Stock Issued for Convertible Debt.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 5: RELATED PARTY TRANSACTIONS - continued
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 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 nine months ended September 30, 2013 and 2012 the Company incurred rent expenses for this facility totaling $107,138 and $52,374, 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 which became fully amortized as of July 31, 2012. For the nine months ended September 30, 2013 and 2012 the Company amortized $0 and $21,875 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. 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 September, 2012. Effective October 2012 the monthly rental was adjusted to $2,910. During the nine months ended September 30, 2013 and 2012 the Company incurred rent expenses for this facility totaling $26,190 and $24,367, respectively.
There are no future minimum rental payments as the Company’s current rental agreements either expired as of July 2012 or are on a month to month basis.
Rental expense for the nine months ended September 30, 2013 and 2012 consisted of the following:
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Nine months ended September 30, 2013
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Nine months ended September 30, 2012
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Office and warehouse lease effective August 1, 2007
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Rental expense in the form of stock issuance
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Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 6: PREPAID EXPENSES PAID WITH STOCK
In prior periods, the Company has issued stock to companies for a service agreement which expired June 2012. Additionally, the Company issued stock for prepaid rent which expired annually through July 2012 at the rate of $37,500 per year. These prepaid expenses paid with stock fully expired as of December 31, 2012. The Company issued stock to a company for a service agreement effective January 2013 and expires June 2013. In August, 2013, the Company issued 1,500,000 shares of restricted common stock valued at $0.052 for a service agreement expiring in August 2014. As of September 30, 2013 and December 31, 2012, the prepaid services paid with stock were $71,500 and $0, respectively.
NOTE 7: 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 and was paid in full during January 2013.
The Company had research costs of $349,913 that was converted to an unsecured promissory note May 1, 2013. The note calls for 10% interest and is due May 1, 2014. Interest in the amount of $14,571 has been accrued on this note as of September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE
As of September 30, 2013 and December 31, 2012 the Company had the following convertible notes outstanding:
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September 30, 2013
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December 31, 2012
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Principal (net)
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Accrued Interest
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Principal (net)
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Accrued Interest
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October 2012 $63,000 Convertible Note, 8% interest, due April 2013, net of debt discount of $0 and $22,209, respectively
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November 2012 $42,500 Convertible Note, 8% interest, due May 2013, net of debt discount of $0 and $16,724, respectively
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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 $0 and $5,839, respectively
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January 2013 $30,024 Convertible Note, 10% one-time interest, due January 2014, with a 10% original issue discount, net of debt discount of $5,088 and $0, respectively
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March 2013 $60,000 Convertible Note, 0% interest for the first 90 days, due March 2014, with a 8% original issue discount, net of debt discount of $0 and $0, respectively
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July and August 2012 $1,060,000 Convertible Notes, 12% interest, due December 2013 and January 2014 (18 month notes), $195,000 and $888,500 outstanding , net of debt discount of $41,936 and $628,846, respectively
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September and October 2012 $115,000 Convertible Notes, 12% interest, due February and March 2014 (18 month notes), $0 and $115,000 outstanding, net of debt discount of $0 and $95,280, respectively
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May 2013 $220,000 Convertible Notes, 12% interest, due November 2014 (18 month notes), $220,000 and $0 outstanding, net of debt discount of $164,699 and $0, respectively
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April 2013 $74,880 Convertible Note, 0% interest for the first 90 days, due April 2014, with a 10% original issue discount, net of debt discount of $37,952 and $0, respectively
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April 2013 $53,000 Convertible Note, 8% interest, due November 2013, net of debt discount of $12,122 and $0, respectively
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June 2013 $34,560 Convertible Note, 0% interest for the first 90 days, due June 2014, with a 10% original issue discount, net of debt discount of $23,387 and $0, respectively
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July 2013 $53,000 Convertible Note, 8% interest, due February 2014, net of debt discount of $37,565 and $0, respectively
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July 2013 $30,024 Convertible Note, 10% one-time interest, due July 2014, with a 10% original issue discount, net of debt discount of $23,443 and $0, respectively
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August 2013 $53,000 Convertible Note, 8% interest, due March 2014, net of debt discount of $46,677 and $0, respectively
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September 2013 $10,000 Convertible Note, 10% interest, due September 2014 (12 month note), $10,000 and $0 outstanding, net of debt discount of $180 and $0, respectively
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September 2013 $30,000 Convertible Note, 12% interest, due September 2014, with a $1,500 original issue discount, net of debt discount of $24,060 and $0, respectively
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Total Convertible Notes Payable, Net
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Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE- continued
(1) 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. 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. During the nine months ending September 30, 2013 total amortization was recorded in the amount of $22,209 resulting in a debt discount of $0 at September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $849 was recorded for the note. The note was paid in full on April 9, 2013
(2) 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. 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. During the nine months ending September 30, 2013 total amortization was recorded in the amount of $16,724 resulting in a debt discount of $0 at September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $641 was recorded for the note. The note was paid in full on May 8, 2013
(3) 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. 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. During the nine months ending September 30, 2013 total amortization was recorded in the amount of $5,839 resulting in a debt discount of $0 at September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $6,116 was recorded for the note. The note was paid in full as of August 22, 2013
(4) The Company borrowed $27,000 January 2013, due January 2014, with a one-time interest charge of 10%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $3,024 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $30,024 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2013, interest expense of $3,002 was recorded, and total amortization of $24,936 was recorded resulting in a debt discount of $0 at September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE - continued
(5) The Company borrowed $60,000 March 2013, due December 2013, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (September 13, 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 $30,000 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $30,000 resulting in a debt discount of $0 September 30, 2013. The note was fully converted as of September 27, 2013.
(6) 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 $0.06, 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.
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.
During the nine months ending September 30, 2013 the holders of the Convertible Debt instruments exercised their conversion rights and converted $693,500 and $149,796 of the outstanding principal and accrued interest balances, respectively, into 6,945,173 shares of the Company’s 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. During the nine months ending September 30, 2013 total amortization was recorded in the amount of $584,792 resulting in a debt discount of $44,054 at September 30, 2013. During the nine months ending September 30, 2013 interest expense of $129,839 was recorded for the Convertible Debt Instruments.
(7) 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 $0.10. In addition the Convertible Debt instruments have an equal amount of $0.06, 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.
During the nine months ending September 30, 2013 the holders of the Convertible Debt instruments exercised their conversion rights and converted $115,000 and $24,840 of the outstanding principal and accrued interest balances, respectively, into 1,408,533 shares of the Company’s 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 $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. During the nine months ending September 30, 2013 total amortization was recorded in the amount of $95,280 resulting in a debt discount of $0 at September 30, 2013. During the nine months ending September 30, 2013 interest expense of $21,265 was recorded for the Convertible Debt Instruments.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE – continued
(8) The Company had received $220,000 in cash as of September 30, 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 $0.06. In addition the Convertible Debt instruments have an equal amount of $0.06, five year common stock warrants. The Company recorded a debt discount of $220,000 related to the conversion feature of the notes and the attached warrants, along with a derivative liability at inception.
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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $55,301 resulting in a debt discount of $164,699 at September 30, 2013. During the nine months ending September 30, 2013 interest expense of $10,126 was recorded for the Convertible Debt Instruments.
(9) The Company borrowed $74,880 April 2013, due April 2014. The holder of the note has the right, after the first one hundred eighty days of the note (September 30, 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 ($83,267) 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% ($83,267) of the outstanding principal balance of the note plus a onetime interest charge of 10% applied to the principal ($7,488) for a total repayment amount of $82,368. The Company recorded a debt discount of $74,880 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $36,927 resulting in a debt discount of $37,953 at September 30, 2013.
(10) The Company borrowed $53,000 April 2013, due January 2014, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (October 27, 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 $26,500 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $14,378 resulting in a debt discount of $12,122 September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $1,777 was recorded for the note.
(11) The Company borrowed $34,560 June 2013, due June 2014. The holder of the note has the right, after the first one hundred eighty days of the note (December 1, 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 ($38,431) 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% ($38,431) of the outstanding principal balance of the note plus a onetime interest charge of 10% applied to the principal ($3,456) for a total repayment amount of $38,016. The Company recorded a debt discount of $34,560 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $11,173 resulting in a debt discount of $23,387 at September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE – continued
(12) The Company borrowed $53,000 July 2013, due February 2014, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (January 6, 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 $53,000 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $15,435 resulting in a debt discount of $37,565 September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $964 was recorded for the note.
(13) The Company borrowed $30,024 July 2013, due July 2014, with a one-time interest charge of 10%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $3,024 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $30,024 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2013, interest expense of $3,002 was recorded, and total amortization of $6,581 was recorded resulting in a debt discount of $23,443 at September 30, 2013.
(14) The Company borrowed $53,000 August 2013, due March 2014, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (January 6, 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 $53,000 related to the conversion feature of the note, along with a derivative liability at inception. 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 the nine months ending September 30, 2013 total amortization was recorded in the amount of $6,323 resulting in a debt discount of $46,677 September 30, 2013. Also during the nine months ending September 30, 2013, interest expense of $393 was recorded for the note.
(15) The Company issued 4,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in September 2013. The Note matures in September of 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 $0.10 per share. The value of the $10,000 debt plus the $0.10 fair market value of the 4,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 4,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,804 toward the debt and $196 to the shares and $0 to the beneficial conversion feature. The $196 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. $16 of the debt discount has been amortized bringing the total debt balance related to this convertible promissory note to $9,820 as of September 30, 2013. Additionally, $80 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 8: CONVERTIBLE NOTES PAYABLE – continued
(16) The Company borrowed $28,500 September 2013, due July 2014. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $1,500 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $24,259 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2013, no interest expense was recorded, and total amortization of $199 was recorded resulting in a debt discount of $24,060 at September 30, 2013.
NOTE 9: INCOME FROM GRANTS AND DEFERRED INCOME
The Company has chosen to recognize 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, 2012 the Company recognized $680,234 of a $1,215,000 Department of Energy grant as income leaving a remaining balance of $265,531 recorded as deferred income as of December 31, 2012. The $680,234 was for costs incurred for the twelve months ended December 31, 2012. For the nine months ended September 30, 2013 the Company recognized an additional $265,531 as income, leaving a remaining balance of $0 recorded as deferred income as of September 30, 2013. The $265,531 was for costs incurred for the nine months ended September 30, 2013.
As of September 30, 2013 the grant money received and grant money recognized as income and deferred income can be summarized as follows:
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$1,215,000 Brachytherapy Grant
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Grant money received during 2010
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Recognized income from grants in 2010
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Deferred income at December 31, 2010
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Recognized income from grants in 2011
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Deferred income at December 31, 2011
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Recognized income from grants in 2012
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Deferred income at December 31, 2012
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Recognized income from grants for the nine months ended September 30, 2013
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Deferred income at September 30, 2013
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Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 10: COMMON STOCK OPTIONS AND WARRANTS
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options and warrants, 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 following schedule summarizes the changes in the Company’s stock options during the nine months ended September 30, 2013:
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Weighted
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Weighted
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Options Outstanding
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Average
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Average
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Number
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Exercise
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Remaining
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Aggregate
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Exercise
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Of
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Price
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Contractual
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Intrinsic
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Price
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Shares
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Per Share
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Life
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Value
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Per Share
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Balance at December 31, 2012
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Balance at September 30, 2013
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Exercisable at December 31, 2012
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Exercisable at September 30, 2013
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The following schedule summarizes the changes in the Company’s stock warrants during the nine months ended September 30, 2013:
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Weighted
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Weighted
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Warrants Outstanding
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Average
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Average
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Number
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Exercise
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Remaining
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Aggregate
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Exercise
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Of
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Price
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Contractual
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Intrinsic
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Price
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Shares
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Per Share
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Life
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Value
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Per Share
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Balance at December 31, 2012
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Balance at September 30, 2013
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Exercisable at December 31, 2012
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Exercisable at September 30, 2013
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Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 10: COMMON STOCK OPTIONS AND WARRANTS - continued
The following summarizes the exercise price per share and expiration date of the Company’s outstanding and exercisable warrants to purchase common stock at September 30, 2013:
Number
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Exercise Price
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Expiration Date
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NOTE 11: STOCKHOLDERS’ EQUITY
Common Stock Issued for Cash and the Exercise of Warrants
In February 2013, the Company issued 60,000 restricted shares of its common stock shares in exchange for $6,000 in exchange for the cancellation of the Additional Investment Rights attached to a convertible note received August 1, 2012. In addition the Company also issued on February 4, 2013 60,000 restricted shares of its restricted stock in exchange for $9,000 in exchange for the cancellation of the warrants attached to the Additional Investment Rights. In addition the Company also issued on February 4, 2013 150,000 restricted shares of its common stock shares for the exercise of warrants for $22,500 cash.
In March 2013 the Company issued 166,666 shares of common stock with a total fair market value of $25,000 to the Chief Executive Office and the Chief Financial Officer of the Company. The fair market value of the shares issued was $0.15 per share. The shares were issued for $25,000 cash.
In March 2013 the Company sold 3,333,333 restricted shares of its common stock for $500,000.
In April 2013, the Company issued 40,000 restricted shares of its common stock shares in exchange for $4,000 in exchange for the cancellation of the Additional Investment Rights attached to a convertible note received August 1, 2012.
In April 2013 the Company sold 2,857,142 restricted shares of its common stock for $300,000.
In August 2013 the Company sold 214,285 restricted shares of its common stock at $0.07 per share for cash of $15,000. In addition to the common stock shares the Company issued 214,285 $0.10 warrants good until August 5, 2014.
In September 2013 the Company issued 416,667 restricted shares of its common stock in exchange for $25,000 in conjunction with the exercise of the Warrants attached to a convertible note received August 1, 2012.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 11: STOCKHOLDERS’ EQUITY– continued
Common Stock Issued for Services and Prepaid Services
In January 2013 the Company issued 80,000 shares of common stock with a total fair market value of $15,600. The fair market value of the shares was $0.195 per share. The shares were issued to extinguish $7,800 of a current year liability and $7,800 of prepaid liabilities.
In April 2013 the Company issued 500,000 shares of common stock with a total fair market value of $57,500. The fair market value of the shares was $0.115 per share. The shares were issued to a consultant for services.
In May 2013 the Company issued 100,000 shares of common stock with a total fair market value of $7,500. The fair market value of the shares was $0.075 per share. The shares were issued to consultants for services.
In August 2013 the Company issued 1,500,000 shares of common stock with a total fair market value of $78,000. The fair market value of the shares was $0.52 per share. The shares were issued to consultants for services.
Common Stock Issued for the Exercise of Warrants for Services
In January 2013 the Company issued 222,222 shares of common stock with a total fair market value of $20,000. The fair market value if the shares issued was $0.09 per share. The shares were exchanged for 222,222 warrants and were issued for $20,000 worth of current year services.
Common Stock Issued for Accounts Payable and Prepaid Services
In January 2013 the Company issued 35,500 shares of common stock with a total fair market value of $6,000. The fair market value of the shares was $0.17 per share. The shares were issued to extinguish $2,130 of a prior year liability and $2,870 of prepaid services, and $1,000 was recorded as a loss on the transaction.
In September 2013 the Company issued 1,000,000 shares of common stock with a total fair market value of $44,000. The fair market value of the shares was $0.044 per share. The shares were issued to extinguish $44,000 of a prior year liability.
Common Stock Issued for Convertible Debt
The Company issued 40,509 shares of its common stock and a convertible promissory note in the amount of $101,272 with interest payable at 10% per annum in January 2013 to our major stockholder, who is also a Director. The Note matures in January of 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 $0.17 per share. The value of the $101,272 debt plus the $0.17 fair market value of the 40,509 shares at the date of the agreement was prorated to arrive at the allocation of the original $101,272 debt and the value of the 40,509 shares and the beneficial conversion feature. The computation resulted in an allocation of $88,376 toward the debt and $6,448 to the shares and $6,448 to the beneficial conversion feature. The $6,448 value of the shares and the $6,448 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $9,138 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $97,514 as of September 30, 2013. Additionally, $7,164 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2012.
The Company issued 16,400 shares of its common stock and a convertible promissory note in the amount of $41,000 with interest payable at 10% per annum in January 2013 to our major stockholder, who is also a Director. The Note matures in January of 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 $0.17 per share. The value of the $41,000 debt plus the $0.17 fair market value of the 16,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $41,000 debt and the value of the 16,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $35,780 toward the debt and $2,610 to the shares and $2,610 to the beneficial conversion feature. The $2,610 value of the shares and the $2,610 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,700 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $39,480 as of September 30, 2013. Additionally, $2,900 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 11: STOCKHOLDERS’ EQUITY– continued
Common Stock Issued for Convertible Debt– continued
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 June 2013 to our major stockholder, who is also a Director. The Note matures in June of 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 $0.069 per share. The value of the $50,500 debt plus the $0.069 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 $47,788 toward the debt and $1,356 to the shares and $1,356 to the beneficial conversion feature. The $1,356 value of the shares and the $1,356 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $791 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $48,579 as of September 30, 2013. Additionally, $1,473 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
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 July 2013 to our major stockholder, who is also a Director. The Note matures in July of 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 $0.068 per share. The value of the $50,500 debt plus the $0.068 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 $47,826 toward the debt and $1,337 to the shares and $1,337 to the beneficial conversion feature. The $1,337 value of the shares and the $1,337 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $558 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $48,384 as of September 30, 2013. Additionally, $1,053 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
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 August 2013 to our major stockholder, who is also a Director. The Note matures in August of 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 $0.10 per share. The value of the $50,000 debt plus the $0.10 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 $49,020 toward the debt and $980 to the shares and $0 to the beneficial conversion feature. The $980 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $160 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $49,180 as of September 30, 2013. Additionally, $833 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
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 August 2013 to our major stockholder, who is also a Director. The Note matures in August of 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 $0.10 per share. The value of the $50,500 debt plus the $0.10 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 $49,510 toward the debt and $990 to the shares and $0 to the beneficial conversion feature. The $990 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $125 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $49,635 as of September 30, 2013. Additionally, $630 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 11: STOCKHOLDERS’ EQUITY– continued
Common Stock Issued for Convertible Debt– continued
The Company issued 40,200 shares of its common stock and a convertible promissory note in the amount of $100,500 with interest payable at 10% per annum in September 2013 to our major stockholder, who is also a Director. The Note matures in September of 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 $0.10 per share. The value of the $100,500 debt plus the $0.10 fair market value of the 40,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,500 debt and the value of the 40,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $98,529 toward the debt and $1,971 to the shares and $0 to the beneficial conversion feature. The $1,971 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $125 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $98,654 as of September 30, 2013. Additionally, $630 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
The Company issued 4,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in September 2013. The Note matures in September of 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 $0.10 per share. The value of the $10,000 debt plus the $0.10 fair market value of the 4,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 4,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,804 toward the debt and $196 to the shares and $0 to the beneficial conversion feature. The $196 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $16 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $9,822 as of September 30, 2013. Additionally, $80 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
NOTE 12: SUPPLEMENTAL CASH FLOW INFORMATION
During the nine months ended September 30, 2012, the Company issued 15,000 shares of common stock for an extinguishment of $2,550 worth of debt.
During the nine months ending September 30, 2013, the Company issued a total of 2,180,000 shares of common stock for services and prepaid services valued at $158,600. Of that amount, as of September 30, 2013, $71,500 was still recorded as prepaid expenses.
During the nine months ended September 30, 2013, the Company issued 1,035,500 shares of common stock for an extinguishment of $46,130 worth of debt, $2,870 worth of services, and recorded a loss of $1,000.
During the nine months ended September 30, 2013, the Company issued 181,709 shares of stock valued at $27,639 recorded as a reduction to related party notes payable in conjunction with convertible notes for a debt discount.
During the nine months ended September 30, 2013, the Company issued 16,554,621 shares of stock to settle convertible notes payable with a principal note balance of $935,828, accrued interest of $58,023, interest expense of $128,131, debt discount of $503,000, and derivative liabilities valued at $1,011,667.
During the nine months ending September 30, 2013, the Company recorded $22,759 in additional paid in capital and as a debt discount for a beneficial conversion feature on a convertible note.
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2013 (unaudited) and the year ended December 31, 2012
NOTE 13: SUBSEQUENT EVENTS
The Company issued 12,000 shares of its common stock and a convertible promissory note in the amount of $30,000 with interest payable at 10% per annum in October 2013 to our major stockholder, who is also a Director. The Note matures in October of 2014.
In October 2013 the Company issued an 8% Convertible Promissory Note in the amount of $37,500 to an unrelated company. The note calls for a $2,500 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 $37,500 and the accrued interest.
In October 2013 the Company granted 7,046,666 warrants valued at $7,047 to a Director for services. The warrants have an exercise price of $0.10 and expire December 31, 2020.
In October 2013 the Company issued a Convertible Promissory Note in the amount of $97,700 to an unrelated company. The note calls for a $2,500 loan fee to be paid from the proceeds and a 12% original issue discount in the amount of $10,200. The note is not convertible by the holder for the first 90 days, in which time the Company can repay the note.
In November 2013 the Company issued an 8% Convertible Promissory Note in the amount of $42,500 to an unrelated company. The note calls for a $2,500 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 $42,500 and the accrued interest.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Except for statements of historical fact, certain information described in this Form 10-Q 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-Q 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 report for the year ended December 31, 2012, as well as other cautionary language in this Form 10-Q 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.
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 Develope 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.
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.
On October 26, 2013, the Company was notified that a Molybdenum-99 production process with Russia has been postponed.
On November 3, 2013, the Company filed a 510(k) Pre-Market Notification for FDA clearance of Yttrium-90 RadioGelTM Brackytherapy Product.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
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.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Products - continued
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.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Status of New Products - continued
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.
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Manufacturing - continued
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.
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 September 30, 2013, 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 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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Patents, Trademarks, Licenses
License Agreement:
The Company has made the following investments in patent licenses and intellectual property during 2012:
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, were capitalized during the twelve months ended December 31, 2012; resulting in a total $360,475 of capitalized patents and intellectual property 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.
Patent filing costs totaling $7,715, and $81,927 were capitalized during the nine months ended September 30, 2013, and 2012; resulting in a total $368,190 of capitalized patents at September 30, 2013. The patents are pending and are being developed, and as such, they 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.
Research and Development
The costs expensed in the nine months ended September 30, 2013 and 2012 were $322,100 and $668,541, respectively. The $668,541 spent for the nine months ended September 30, 2012 were $410,445 towards the Brachytherapy Project and $144,292 towards the Molybdenum Project. The $322,100 spent for the nine months ended September 30, 2013 were $307,916 towards the Brachytherapy Project and $14,183 towards the Molybdenum Project and consists of the following:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Results of Operations
Comparison of the Nine Months Ended September 30, 2013 and 2012
The following table sets forth information from our statements of operations for the nine months ended September 30, 2013 and 2012.
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September 30, 2013
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Recognized income from grants
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Revenue
Revenue was $140,603 for the nine months ended September 30, 2013 and $181,268 for the nine months ended September 30, 2012. The decrease was the result of F-18 sales. 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 $21,750 of the total nine months ended September 30, 2013 revenues and $175,160 of the total nine months ended September 30, 2012 revenues. Revenues for F-18 were lower in the nine months ended September 30, 2013 as a result of our linear accelerator being down and having no production for several months; thereby decreasing the number of doses sold for the nine months ended September 30, 2013 (72) from the nine months ended September 30, 2012 (623). Stable isotope sales were $101,745 and $0 for the nine months ended September 30, 2013 and 2012, respectively. The Company had discontinued the sale of stable isotopes in the nine months ended September 30, 2012 due to the reduction in profitability of that line of product. Consulting revenues consisted of $17,108 and $6,108 of the total nine months ended September 30, 2013 and 2012 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. No proprietary information belonging to our Company is shared during the process of this consulting.
Revenue for the nine months ended September 30, 2013 and 2012 consists of the following:
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Nine months ended
September 30, 2013
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Nine months ended
September 30, 2012
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F-18 |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Results of Operations – Comparison of the Nine Months Ended September 30, 2013 and 2012 - continued
Operating Expenses
Operating expenses for the nine months ended September 30, 2013 and 2012 was $3,308,560 and $4,526,102, respectively. The decrease in operating expenses from 2012 to 2013 can be attributed to the decrease in Depreciation and Amortization expenses ($381,746 for the nine months ended September 30, 2012 versus $205,634 for the nine months ended September 30, 2013); and the decrease in Professional Fees expenses ($1,696,882 for the nine months ended September 30, 2012 versus $597,377 for the nine months ended September 30, 2013); and the decrease in Stock Options Granted expense ($1,052,980 for the nine months ended September 30, 2012 versus $576,068 for the nine months ended September 30, 2013). Part of this decrease in expenses was offset by an increase in Cost of Materials ($57,444 for the nine months ended September 30, 2012 versus $104,836 for the nine months ended September 30, 2012); and the increase in Payroll Expenses ($534,376 for the nine months ended September 30, 2012 versus $633,159 for the nine months ended September 30, 2012); and the increase of General and Administrative Expenses ($785,215 for the nine months ended September 30, 2012 versus $1,181,574 for the nine months ended September 30, 2013).
Operating expenses for the nine months ended September 30, 2013 and 2012 consists of the following:
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Nine Months Ended
September 30, 2013
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Nine Months Ended
September 30, 2012
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Depreciation and amortization expense
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General and administrative expenses
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Sales and marketing expense
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Non-Operating Income (Expense)
Non-operating income (expense) for the nine months ended September 30, 2013 varied from the nine months ended September 30, 2012 primarily due to an increase of gain on derivative liability from $0 for the nine months ended September 30, 2012 to $2,085,797 for the nine months ended September 30, 2013; and an increase in recognized income from grants from $410,445 for the nine months ended September 30, 2012 to $265,531 for the nine months ended September 30, 2013. Part of this increase in non-operating income was offset by an increase in interest expense $(1,208,825) for the nine months ended September 30, 2013 versus $(682,086) for the nine months ended September 30, 2012); and an increase in net loss on settlement of debt expense ($198,546) for the nine months ended September 30, 2013 versus $(550) for the nine months ended September 30, 2012).
Non-Operating income (expense) for the nine months ended September 30, 2013 and 2012 consists of the following:
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September 30, 2013
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Nine months ended
September 30, 2012
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Net loss on settlement of debt
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Recognized income from grants
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Gain on derivative liability
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Net Loss
Our net loss for the nine months ended September 30, 2013 and 2012 was $2,224,030 and $4,617,025, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Results of Operations
Comparison of the Three Months Ended September 30, 2013 and 2012
The following table sets forth information from our statements of operations for the three months ended September 30, 2013 and 2012.
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Three Months Ended
September 30, 2013
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Three Months Ended
September 30, 2012
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Non-operating income (expense)
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Recognized income from grants
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Net gain (loss) on settlement of debt
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Gain on derivative liability
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Revenue
Revenue was $115,799 for the three months ended September 30, 2013 and $65,250 for the three months ended September 30, 2012. The increase was due to an increase in Stable Isotopes consisting of $101,745 and $0 for the three months ending September 30, 2013 and 2012, respectively; and due to an increase in Consulting revenues consisted of $14,054 and $0 of the total revenue for the three months ended September 30, 2013 and 2012, respectively. 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. The increase in total revenues was offset by a decrease in F-18 sales. 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 $0 of the total three months ended September 30, 2013 revenues and $65,250 of the total three months ended September 30, 2012 revenues. Revenues for F-18 were lower in the three months ended September 30, 2013 as a result of our linear accelerator being down and having no production for the three months; thereby decreasing the number of doses sold for the three months ended September 30, 2013 (0) from the three months ended September 30, 2012 (235).
Revenue for the three months ended September 30, 2013 and 2012 consists of the following:
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Three months ended
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Results of Operations – Comparison of the Three Months Ended September 30, 2013 and 2012 - continued
Operating Expenses
Operating expenses for the three months ended September 30, 2013 and 2012 were $605,186 and $2,344,777, respectively. The decrease in operating expenses from 2012 to 2013 can be attributed to the decrease in General and Administrative Expenses ($155,095 for the three months ended September 30, 2013 versus $500,716 for the three months ended September 30, 2012; decrease in Professional fees ($110,688 for the three months ended September 30, 2013 versus $902,654 for the three months ended September 30, 2012; decrease in Stock Options Granted ($58,187 for the three months ended September 30, 2013 versus $640,000 for the three months ended September 30, 2012; and decrease in Depreciation and amortization expense ($3,817 for the three months ended September 30, 2013 versus $101,454 for the three months ended September 30, 2012). These decreases were partially offset by an increase in Cost of materials ($100,278 for the three months ended September 30, 2013 versus $22,292 for the three months ended September 30, 2012).
Operating expenses for the three months ended September 30, 2013 and 2012 consists of the following:
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Three Months Ended
September 30, 2013
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Three Months Ended
September 30, 2012
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Depreciation and amortization expense
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General and administrative expenses
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Sales and marketing expense
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Non-Operating Income (Expense)
Non-operating expense for the three months ended September 30, 2013 and 2012 was $465,483 and $83,319, respectively. The increase in non-operating expense was due to an increase in Loss on Derivative Liability ($73,254 for the three months ended September 30, 2013 and $0 for the three months ended September 30, 2012); an increase in the Net Loss on Settlement of Debt ($27,013 for the three months ended September 30, 2013 versus $0 for the three months ended September 30, 2012); an increase in interest expense ($389,456 for the three months ended September 30, 2013 versus $325,481 for the three months ended September 30, 2012); and a decrease in Recognized income from Grants ($24,241 for the three months ended September 30, 2013 versus $0 for the three months ended September 30, 2012).
Non-Operating income (expense) for the three months ended September 30, 2013 and 2012 consists of the following:
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September 30, 2013
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September 30, 2012
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Net gain (loss) on settlement of debt
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Recognized income from grants
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Loss on derivative liability
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Net Loss
Our net loss for the three months ended September 30, 2013 and 2012 was $954,870 and $2,362,846, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Liquidity and Capital Resources
At September 30, 2013, we had negative working capital of $8,785,934, as compared to $6,234,036 at September 30, 2012. During the nine months ended September 30, 2013 we experienced negative cash flow from operations of $1,864,567 and we expended $7,715 for investing activities while adding $1,892,092 of cash flows from financing activities. As of September 30, 2013, we had $0 commitments for capital expenditures.
Cash used in operating activities increased from $1,447,998 for the nine month period ending September 30, 2012 to $1,864,567 for the nine month period ending September 30, 2013. Cash used in operating activities was primarily a result of gain on our net loss, and by non-cash items, such as amortization and depreciation, included in that net loss, offset by gain on derivative liability and a decrease in payroll liabilities. Cash used in investing activities decreased from $114,178 for the nine month period ended September 30, 2012 to $7,715 for the nine month period ended September 30, 2013. Cash was used to acquire patents and intellectual property during the 2013 nine month period and patents and intellectual property during the 2012 nine month period. Cash provided from financing activities increased from $1,557,000 for the nine month period ending September 30, 2012 to $1,892,092 for the nine month period ending September 30, 2013. The increase in cash provided from financing activities was primarily a result of increase in proceeds from the sale of common stock and from the proceeds from convertible debt.
We have generated material operating losses since inception. We have incurred a net loss of $34,891,742 from January 1, 2006 through September 30, 2013, including a net loss of $2,224,030 for the nine months ended September 30, 2013, and a net loss of $4,617,025 for the nine months ended September 30, 2012. 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 year ended December 31, 2012 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 set forth in our Form 10-K report for the year ended December 31, 2011, 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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Liquidity and Capital Resources - continued
Contractual Obligations (payments due by period as of September 30, 2013)
Contractual Obligation
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Total Payments Due
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Less than 1 Year
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1-3 Years
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4-5 Years
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License Agreement with Battelle Memorial Institute
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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. 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 twelve months 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 the Company incurred rent expenses for this facility totaling $88,087. During the three months ended March 31, 2013 and 2012 the Company incurred rent expenses for this facility totaling $35,712 and $14,284, 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 the Company amortized $21,875 of this stock issuance and recognized it as rent expense. For the nine months ended September 30, 2013 and 2012 the Company amortized $0 and $21,875, respectively, of this stock issuance and recognized it as rent expense.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Critical Accounting Policies
The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.
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.
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 September 30, 2013, 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 2. 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
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Office equipment
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2 to 5 years
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Furniture and fixtures
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2 to 5 years
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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:
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A significant decrease in the market price of a live-lived asset.
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A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.
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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.
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An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.
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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.
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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.
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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 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
License Fees
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 periodically reviews the carrying values of patents and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Patents and Intellectual Property
The Company has determined that the economic life of its patents and intellectual property to be 10 years and will begin amortization over such 10-year period and on a straight-line basis 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.
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 nine months ended September 30, 2013 and for the nine months ended September 30, 2012 consisted of the sales of Flouride 18, Stable Isotopes, 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 and Deferred Income
The Company has chosen to recognize 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.
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 September 30, 2013 and September 30, 2012 are as follows:
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
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.
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 nine months ended September 30, 2013 and 2012. During the nine months ended September 30, 2013 and 2012, the Company incurred $9,912 and $17,459, respectively, in advertising marketing 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.
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 year ended December 31, 2012 or the nine months ended September 30, 2013. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2012 or on September 30, 2013.
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 year ended December 31, 2012 and the nine months ended September 30, 2013, 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 during the year 2013.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
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 September 30, 2013 and December 31, 2012, 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. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2013:
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets Measured at Fair Value
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,389,649 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,389,649 |
|
Total Liabilities Measured at Fair Value
|
|
$ |
1,389,649 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,389,649 |
|
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.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued
Recently Issued Accounting Pronouncements
The Company reviews recently issued accounting pronouncements on a quarterly basis. As of September 30, 2013 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 3. 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 4. 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.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during this current fiscal quarter (our third fiscal quarter of 2013) 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.
PART II
Item 1A. Risk Factors.
There have been no material changes to the risk factors set forth in Item 1A in our Form 10-K report for the year ended December 31, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In August 2013, the Company issued 214,285 restricted shares of its common stock shares in exchange for $15,000 in cash.
In September 2013 the Company issued 1,500,000 restricted shares of its common stock with a total fair market value of $78,000. The fair market value of the shares was $0.10 per share. The shares were issued to a consultant for services.
In September 2013, the Company issued 416,667 restricted shares of its common stock shares in exchange for $25,000 in exchange for the cancellation of the warrants attached to a convertible note received July 13, 2012.
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 July 2013 to our major stockholder, who is also a Director. The Note matures in July of 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 $0.068 per share. The value of the $50,500 debt plus the $0.068 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 $47,826 toward the debt and $1,337 to the shares and $1,337 to the beneficial conversion feature. The $1,337 value of the shares and the $1,337 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $558 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $48,384 as of September 30, 2013. Additionally, $1,053 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
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 August 2013 to our major stockholder, who is also a Director. The Note matures in August of 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 $0.10 per share. The value of the $50,000 debt plus the $0.10 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 $49,020 toward the debt and $980 to the shares and $0 to the beneficial conversion feature. The $980 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $160 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $49,180 as of September 30, 2013. Additionally, $833 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
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 August 2013 to our major stockholder, who is also a Director. The Note matures in August of 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 $0.10 per share. The value of the $50,500 debt plus the $0.10 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 $49,510 toward the debt and $990 to the shares and $0 to the beneficial conversion feature. The $990 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $125 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $49,635 as of September 30, 2013. Additionally, $630 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. - continued
The Company issued 40,200 shares of its common stock and a convertible promissory note in the amount of $100,500 with interest payable at 10% per annum in September 2013 to our major stockholder, who is also a Director. The Note matures in September of 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 $0.10 per share. The value of the $100,500 debt plus the $0.10 fair market value of the 40,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,500 debt and the value of the 40,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $98,529 toward the debt and $1,971 to the shares and $0 to the beneficial conversion feature. The $1,971 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $125 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $98,654 as of September 30, 2013. Additionally, $630 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
The Company issued 4,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in September 2013. The Note matures in September of 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 $0.10 per share. The value of the $10,000 debt plus the $0.10 fair market value of the 4,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 4,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,804 toward the debt and $196 to the shares and $0 to the beneficial conversion feature. The $196 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $16 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $9,820 as of September 30, 2013. Additionally, $80 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2013.
Item 6. Exhibits.
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Exhibit
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Number
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Description
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10.1
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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).
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99.1 |
* |
Temporary Hardship Exemption |
|
|
101.INS
|
**
|
XBRL Instance Document
|
|
|
101.SCH
|
**
|
XBRL Taxonomy Extension Schema
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|
|
101.CAL
|
**
|
XBRL Taxonomy Extension Calculation Linkbase
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101.DEF
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**
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XBRL Taxonomy Extension Definition Linkbase
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|
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101.LAB
|
**
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XBRL Taxonomy Extension Label Linkbase
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|
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101.PRE
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**
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XBRL Taxonomy Extension Presentation Linkbase
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* Filed herewith.
** To be furnished by amendment per Temporary Hardship Exemption under Regulation S-T.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ADVANCED MEDICAL ISOTOPE CORPORATION
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Date: November 14, 2013
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By:
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/s/ James C. Katzaroff
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Name:
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James C. Katzaroff
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Title:
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Chairman and Chief Executive Officer
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(Principal Executive Officer)
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Date: November 14, 2013
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By:
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/s/ L. Bruce Jolliff
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Name:
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L. Bruce Jolliff
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Title:
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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