VIVOS INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
Commission file number: 0-53497
(Exact name of registrant as specified in charter)
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Delaware
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80-0138937
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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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:
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes
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No
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Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference.
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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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
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No
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The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on December 31, 2010 based on the price at which the common equity was last sold on such date was approximately $13,215,345. Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of March 1, 2011, there were 68,134,150 shares of the registrant’s Common Stock outstanding.
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Advanced Medical Isotope Corporation
Report on Form 10-K
TABLE OF CONTENTS
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PART I.
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Item 1.
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Business
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1
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Item 1A.
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Risk Factors
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9
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Item 1B.
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Unresolved Staff Comments
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16
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Item 2.
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Properties
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16
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Item 3.
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Legal Proceedings
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16
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Item 4.
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Submission of Matters to a Vote of Security Holders
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16
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PART II.
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Item 5.
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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17
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Item 6.
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Selected Financial Data
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19
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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19
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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31
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Item 8.
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Financial Statements and Supplementary Data
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31
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Item 9.
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
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32
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Item 9A(T)
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Controls and Procedures
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32
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Item 9B.
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Other Information
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33
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PART III.
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Item 10.
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Directors, Executive Officers and Corporate Governance
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34
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Item 11.
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Executive Compensation
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38
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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43
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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43
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Item 14.
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Principal Accounting Fees and Services
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43
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PART IV.
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Item 15.
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Exhibits, Financial Statement Schedules
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44
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iii
FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this document 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, contain projections of our future results of operations or of our 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 accurately to predict or control. Further, we urge you to be cautious of the forward-looking statements which are contained in this Form 10-K because they involve risks, uncertainties and other factors affecting our operations, market growth, service, products and licenses. The factors listed below in the section captioned “Risk Factors” within Item 1A, “Business” within Item 1, as well as other cautionary language in this Form 10-K, 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 (the “Company”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel. In April 2000, Earth Sports Products, Inc (“ESP”), a corporation registered in Washington, merged with SMSC. In April 2000, HHH Entertainment, Inc (“HHH”), a Nevada corporation, merged with SMSC. As of the date of merger, HHH was the only stockholder of SMSC.
SMSC had limited activity from inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, SMSC changed its name to Advanced Medical Isotope Corporation.
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation and a subsidiary of UTEK Corporation (“UTEK”), a Delaware Corporation, and $310,000 from UTEK in exchange for 100,000 shares of Series A Preferred Stock (which Series A Preferred Stock was later converted to shares of the Company’s common stock in March 2009). The Company conducted the acquisition in order to obtain cash and NHTI’s technology.
On June 13, 2007, the Company acquired the assets of the life sciences business segment of Isonics Corporation (Isonics), a California corporation. The Company acquired the assets in exchange for $850,000 cash payment for the purpose of combining the assets into our business of marketing medical isotopes. The assets acquired consist of intellectual property, agreements with third party companies for purchase and marketing of isotopes, customer lists, and equipment located in Buffalo, New York.
On August 1, 2007 the Company began renting office and warehouse space, known as the Production Facility located in Kennewick, Washington. Through this facility and the use of a proton linear accelerator, on June 30, 2008 we began offering regional distribution of F-18 (FDG).
On October 28, 2010, the Company received $1,215,000 net proceeds from the Department of Energy grant for the Proposed Congressionally Directed Project entitled “Research to Develop and Test an Advanced Resorbable Brachytherapy Seed Research for Controlled Delivery of Yttrium-90 Microspheres in Cancer Treatment.” This grant reimburses the Company for anticipated expenditures related to the development of its Brachytherapy project over the period April 1, 2010 through March 31, 2012. The Company projects this project could cost approximately $5,500,000 however 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.
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ITEM 1.
BUSINESS.
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General Development of Business
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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.
The Company has never filed for bankruptcy and has never been subject to receivership or similar proceedings.
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.
The August 9, 2009 issue of the Los Angeles Times reported that there are currently more than 15 million nuclear medicine procedures are performed each year in the U.S. Approximately one-third of all patients admitted to U.S. hospitals undergo at least one medical procedure that employs the use of medical isotopes.
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.
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.
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ITEM 1.
BUSINESS.
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Products
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Radiochemicals:
F-18:
We currently offer regional distribution of F-18 from our Kennewick, WA production facility. Other regional production facilities are planned throughout the U.S. and abroad. This is the primary PET imaging isotope. It is used for medical 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. 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.
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.
Status of New Products
Within the next three years, we intend to offer the following isotopes:
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.
Thallium-201:
Used in clinical cardiology, heart imaging, myocardial perfusion studies and cellular dosimetry.
Iodine-124
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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
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In-111 Chloride bulk solution for U.S. distribution. This radio chemical is used for infection imaging, cancer treatments, and tracer studies.
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ITEM 1.
BUSINESS.
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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. These regional university centers allow us to become a local supplier for the short-lived isotopes like Fluorine 18 as well as being a domestic supplier of several other isotopes in demand by the medical community.
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 will pay total project costs that will not exceed $45,150. 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 will pay total project costs that will not exceed $75,000. 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 gives 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 with the University of Missouri. This license agreement calls for an upfront license fee and a royalty based on a percent of net sales for licensed products sold. If the University of Missouri’s intellectual property functions as early analysis have indicated, this production facility could be a manufacturing source of critical health care radioisotopes.
In August 2010, we entered into an exclusive license agreement with Battelle Memorial Institute related to patents for the production of radioisotopes. This license agreement calls for an upfront license fee and a royalty based on a percent of net sales for licensed products sold; however the license agreement contains a minimum royalty amount to be paid each year starting with 2012.
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ITEM 1.
BUSINESS.
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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 competitors are closing their facilities or limiting their production. In November 2007, Canadian supplier MDS Nordion was forced to shut down its radioisotope production facility. 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. Approximately half of these were imported directly from the now-defunct MDS Nordion plant and the other half supplied by Covidien (formerly Mallinkrodt). The remaining 10% that are produced in the United States are manufactured in a fragmented, piecemeal manner with companies producing a single isotope instead of a wide variety.
Employees
As of December 31, 2010, we had fourteen employees. At any given time, we utilize eight to ten independent contractors to assist with the company 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 from 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 will 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. suppliers.
Customers
Our customers include 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. Sales for the years ended December 31, 2007 consisted mainly of imported stable isotopes.
In July 2008, we began production of F-18 in our production facilities in Kennewick, Washington. Sales of F-18 for the year ended December 31, 2008 totaled approximately 29% of total revenue.
Our sales for 2009 consisted of both F-18 (70.3% of total revenues) and stable isotopes (29.7% of total revenues). Sales to customers whose sales were greater than 10% of our total sales for the year ended December 31, 2009 totaled 70.3%.
Our sales for 2010 consisted of F-18 (61.3% of total revenues) and Consulting Income (38.7% of total revenues). We had no sales of stable isotopes in 2010 due to the decrease in profit margins for that product; however we are looking into selling more stable isotopes in 2011 and beyond due to the possibility of obtaining lower prices from our vendors. Sales of F-18 for 2010 were 100% to one customer located close to the production facility. 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.
The company is also working with United Pharmacy Partners Inc (UPPI). UPPI has a network of approximately 120 nuclear pharmacies within the United States. We have entered into an affiliation agreement with UPPI to provide to the UPPI network preferred prices and special terms and conditions for certain products that we anticipate to manufacture or re-sell during 2011.
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ITEM 1.
BUSINESS.
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Patents, Trademarks, Licenses
License Agreement:
On September 27, 2006, we acquired the assets of NHTI from UTEK. Included in the acquired assets was a Non-Exclusive License Agreement with the Regents of the University of California (“University”) for a neutron generator in exchange for preferred stock. NHTI paid a non-refundable fee in the amount of $25,000 in connection with the license agreement. The license fee is non-refundable unless our commercialization plan is deemed unacceptable by the University. If the plan is deemed unacceptable, the license agreement will terminate. To date, no commercialization plan has been deemed acceptable or unacceptable. In consideration for the license, we agreed to pay royalties equal to the greater of three percent of the selling price of each licensed product we sell or the maintenance fee according to the following schedule:
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2008
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$
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10,000
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*
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2009
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$
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15,000
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*
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2010
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$
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15,000
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*
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2011
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$
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45,000
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2012 and each year thereafter
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$
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60,000
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$
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145,000
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* These items have not been paid to date.
The License Agreement may be cancelled by giving 90 days written notice to the University. We did not have a relationship with UTEK before the acquisition of Neu Hope Technologies and we do not currently have any business relationship or affiliation with UTEK. In fact, in 2008, due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.
Research and Development / Intellectual Property
We spent approximately $1,168,422, $67,006 and $90,150 during the years ended December 31, 2010, 2009 and 2008, respectively, on research and development. The costs incurred in 2008 and 2009 were to a University for tests involved in the making of isotopes. The costs incurred in 2010 consisted of $513,416 towards the Brachytherapy Project and $655,006 towards the Molybdenum Project. The costs expensed to the twelve months ended December 31, 2010 consist of the following:
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Brachytherapy
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Molybdenum
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Supplies
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$ | 623 | $ | 2,342 | ||||
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Amortization
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1,666 | 1,944 | ||||||
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Conferences & seminars
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639 | 13,968 | ||||||
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Dues & subscriptions
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- | 1,395 | ||||||
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Marketing
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9,500 | 314 | ||||||
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Office Supplies
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87 | 2,927 | ||||||
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Payroll and benefits
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17,496 | 19,560 | ||||||
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Consulting fees
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119,457 | 77,476 | ||||||
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Consulting fees – stock based
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362,250 | 472,402 | ||||||
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Legal fees
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- | 4,000 | ||||||
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Stock options granted
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950 | 14,250 | ||||||
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Telephone
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508 | 2,870 | ||||||
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Travel
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240 | 41,558 | ||||||
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Total
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$ | 513,416 | $ | 655,006 | ||||
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Research and Development / Intellectual Property
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Additionally the Company has made, through acquisitions, the following investments in patent licenses and intellectual property during 2007:
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$75,000 investment in 2007 for a patent license, good for the life of the patent due to expire in 2027, for the production of Actinium 225. The patent concerns methods and processes directed to the preparation of Actinium-225 and daughters having high radiochemical and radionuclidic purity. These isotopes may be used for the preparation of therapeutic radiopharmaceuticals such as those containing monoclonal antibodies, proteins, peptides, antisense, statin, natural products and hormones. Additionally, the alpha-emitting radionuclide Actinium-225 and its daughters may be used for both therapeutic and diagnostic purposes;
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·
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$3,040,000 of preferred stock issuance for a patent license, good for the life of the patent, of a Neutron Generator; and
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·
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$658,750 for the purchase of a company in order to acquire the rights of intellectual property related to the process for the production of isotopes, customer lists, contracts and agreements with third party companies, and certain equipment.
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Additionally the Company has made the following investments in patent licenses and intellectual property during 2010:
The Company made a $10,000 investment in 2010 for a patent license regarding its technology for the production of Mo-99. In May 2010 the Company entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as molybdenum-99 and technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally the Agreement calls for a milestone payment of $250,000, due and payable five years after execution of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life.
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·
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·
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The Company made a $10,000 investment in 2010 for an exclusive patent license with Battelle Memorial Institute regarding its technology for the production of Brachytherapy. In September 2010 the Company entered into a License Agreement for the Patent Rights in the area of a resorbable brachytherapy seed. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
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·
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Calendar Year
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Minimum Royalties per Calendar Year
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2010
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$ | - | ||
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2011
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$ | - | ||
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2012
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$ | 2,500 | ||
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2013
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$ | 5,000 | ||
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2014
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$ | 7,500 | ||
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2015
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$ | 10,000 | ||
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2016 and each calendar year thereafter
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$ | 25,000 | ||
The amortization of these items is computed using the straight-line method over the following estimated useful lives:
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Intellectual property ……….. 3 years
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o
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Contracts and agreements …. 3 years
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o
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Customer lists ……………… 2 years
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7
Research and Development / Intellectual Property
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In 2008, due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license. Since other companies made progress towards the development of the patent license technology and management no longer has the means or interest in pursuing the development of this technology, the Company’s management determined that the patent license for the Neutron Generator no longer had value to the Company and wrote off the net unamortized portion balance of $643,917 in 2008.
Government Regulation
Significant areas of regulation and intervention include the following:
Environmental and Health Compliance.
We are committed to conducting our activities so that there is no or only minimal damage to the environment; there is no assurance, however, that its activities will not at times result in liability under environmental and health regulations.
We spent approximately $950,000 on our facility to meet environmental regulation, including the cost of confinement of the facility, exhaust and air balance systems and waste storage facilities. As we expand our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business.
The current ongoing continuing costs of compliance are immaterial. Future costs and expenses resulting from such liability may, however, materially negatively impact our operations and financial condition. Overall, environmental and health laws and regulations will continue to affect our businesses worldwide.
Import/Export Regulation.
We are subject to significant regulatory oversight of our import and export operations due to the nature of our product offerings. Penalties for non-compliance can be significant and violation can result in adverse publicity for the Company.
Financial Accounting Standards.
Our financial results can be impacted by new or modified financial accounting standards.
Other Regulations.
Our operations are subject to U.S. Nuclear Regulatory Commission, Food and Drug Administration, Department of Transportation, and Department of Homeland Security regulations. The extent these regulations are or become burdensome, our business development could be adversely affected.
Reports to Security Holders
The Company will prepare and file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”). Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at
http://www.sec.gov
. Moreover, the Company maintains a website at
http://www.isotopeworld.com
that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available (i.e., not password protected) and is updated regularly.
8
RISKS ASSOCIATED WITH OUR BUSINESS
Our business plan is at an early stage of development and has a limited operating history.
We have a limited operating history upon which you can base an evaluation of our business and prospects. As a start-up company in the early stage of development, there are substantial risks, uncertainties, expenses and difficulties to which our business is subject. To address these risks and uncertainties, we must do the following:
·
Successfully execute our business strategy;
·
Respond to competitive developments; and,
·
Attract, integrate, retain and motivate qualified personnel.
There can be no assurance that at this time we will operate profitably or that it will have adequate working capital to meet our obligations as they become due. We cannot be certain that our business strategy will be successful or that we will successfully address the risks that face our business. In the event that we do not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected.
We have increasing cash requirements
.
We have generated material operating losses since inception. We have incurred a net loss of $18,444,790 from January 1, 2006 through December 31, 2010, including a net loss of $4,055,026 for the year ended December 31, 2010 and $3,991,994 for the year ended December 31, 2009. We expect to continue to experience net operating losses. Historically, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate raising additional capital within the next 12 months from investors for working capital as well as business expansion and we can provide no assurance that additional investor funds will be available on terms acceptable to us. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. If we are unable to generate profits and unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.
Based on the current cash run rate, approximately $1,000,000 will be needed to fund operations for an additional year. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. We will need to raise an additional $15,000,000 in the next year to develop new isotope manufacturing centers and complete our aggressive growth plans. We may, however, choose to 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. As a development stage company with modest sales from our inception, we are unable to determine the effect of the recent economic crises on our sales.
We were in default on our capital lease obligations
.
We have two capital lease obligations for $1,875,000 and $631,000, secured by equipment and personal guarantee of two of the major shareholders we obtained during September 2007. The purpose of the lease agreements is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $631,000.
We were in default on the capital lease obligations as of December 31, 2009 due to failure to maintain the minimum debt service coverage ratio identified in the leases. Accordingly we recorded the entire value of the leases as a current obligation for the year ended December 31, 2009. However the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2010 and, accordingly, recognized current and long-term portions of the lease on its balance sheet at December 31, 2010.
9
ITEM 1A.
RISK FACTORS.
- continued
RISKS ASSOCIATED WITH OUR BUSINESS
- continued
We will need to increase the size of our organization and may experience difficulties in managing growth.
We are a small organization with a minimal number of employees. We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers. Our future financial performance and its ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.
We are dependent on key personnel and consultants and the loss of these key personnel and consultants could have a material adverse effect on our business, results of operations or financial condition.
Our success is heavily dependent on the continued active participation of our current executive officers listed under Item 8, below. We do not have key-man insurance on any of our officers or consultants. We are highly dependent upon certain consultants and collaborating scientists. Loss of the services of one or more of our officers or consultants could have a material adverse effect upon our business, results of operations or financial condition. Certain key employees have no employment contracts.
If we are unable to hire qualified personnel our business and financial condition may suffer.
Our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. Competition for qualified employees among pharmaceutical and biotechnology companies is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on us. Our inability to attract and retain the necessary technical and managerial personnel and consultants and scientific and/or regulatory consultants and advisors could have a material adverse effect on our business, results of operations or financial condition.
We may rely on third parties to represent us locally in international markets and our revenue may depend on their efforts.
Our future success may depend, in part, on our ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in the products under development and such collaborator’s ability to successfully market and sell any such products. We intend to pursue collaborative arrangements regarding the sales and marketing of our products, however, we may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, they may not have effective sales forces. To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise. To the extent that we depend on third parties for marketing and distribution, any revenues received by us will depend upon the efforts of such third parties, which may not be successful.
Our revenues depend upon suitable markets.
Our revenues depend upon the successful production, marketing, and sales of the various isotopes we currently market and expect to market in the future. The rate and level of market acceptance of these products may vary depending on the perception by physicians and other members of the healthcare community of its safety and efficacy as compared to that of competing products, if any; the clinical outcomes of any patients treated; the effectiveness of our sales and marketing efforts in the United States, Europe, and Russia; any unfavorable publicity concerning our products or similar products; price of our products relative to other products or competing treatments; any decrease in current reimbursement rates from the Centers for Medicare and Medicaid Services or third-party payers; regulatory developments related to the manufacture or continued use of our products; availability of sufficient supplies to either purchase or manufacture our products; ability to produce sufficient quantities of our products; and the ability of physicians to properly utilize our products and avoid excessive levels of radiation to patients. Any material adverse developments with respect to the commercialization of the products we currently market or expect to market may cause us to continue to incur losses rather than profits in the future.
10
ITEM 1A.
RISK FACTORS.
- continued
RISKS ASSOCIATED WITH OUR BUSINESS
- continued
Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.
Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively.
Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings. In addition, the markets for our products may not develop or grow as we currently anticipate. The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.
General economic conditions in markets in which we do business can impact the demand for our goods and services. Decreased demand for our products and services could have a negative impact on our financial performance and cash flow.
Demand for our products and services, in part, depends on the general economic conditions affecting the countries and industries in which we do business. A downturn in economic conditions in a country or industry that we serve may negatively impact demand for our products and services, in turn negatively impacting our operations and financial results. Further, changes in demand for our products and services can magnify the impact of economic cycles on our businesses. Unanticipated contract terminations by current customers can negatively impact operations, financial results and cash flow.
Our earnings, cash flow and financial position are exposed to financial market risks worldwide, including interest rate and currency exchange rate fluctuations and exchange rate controls. Fluctuations in domestic and world markets could adversely affect interest rates and impact our ability to obtain credit or attract investors. In order to reduce this risk the Company is structuring future agreements in such a manner that they provide for early termination provisions by the Company and continued development of the Company core business segments to such an extent that additional investment would not be required to sustain the Company as a going concern.
Volatility in raw material and energy costs, interruption in ordinary sources of supply and an inability to recover unanticipated increases in energy and raw material costs from customers could result in lost sales or significantly increase the cost of doing business.
Market and economic conditions affecting the costs of raw materials, utilities, energy costs, and infrastructure required to provide for the delivery of those goods and services, are beyond our control and any disruption or halt in supplies, or rapid escalations in costs could affect our ability to manufacture products or to competitively price our products in the marketplace. To date to ultimate impact of these energy costs increases have been mitigated through price increases or offset through improved process efficiencies, however, continuing escalation of energy costs could have a negative impact upon business performance.
We are subject to uncertainties regarding reimbursement for use of our products.
Hospitals and freestanding clinics may be less likely to purchase our products if they cannot be assured of receiving favorable reimbursement for treatments using our products from third-party payers, such as Medicare and private health insurance plans. Third-party payers are increasingly challenging the pricing of certain medical services or devices, and we cannot be sure that they will reimburse our customers at levels sufficient for us to maintain favorable sales and price levels for our products. There is no uniform policy on reimbursement among third-party payers, and we can provide no assurance that our products will continue to qualify for reimbursement from all third-party payers or that reimbursement rates will not be reduced. A reduction in or elimination of third-party reimbursement for treatments using our products would likely have a material adverse effect on our revenues.
11
ITEM 1A.
RISK FACTORS.
- continued
RISKS ASSOCIATED WITH OUR BUSINESS
- continued
Our patented technologies may infringe on other patents, which may expose us to costly litigation.
It is possible that our patented technologies may infringe on patents or other rights owned by others. We may have to alter our products or processes, pay licensing fees, defend an infringement action or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to us. Patent litigation is costly and time consuming, and we may not have sufficient resources to pursue such litigation. If we do not obtain a license under such patents, are found liable for infringement or are not able to have such patents declared invalid, we may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment requiring such licenses.
Protecting our intellectual property is critical to our innovation efforts.
We own or have a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights. Our intellectual property rights may be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms. In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our patents and other intellectual property rights. Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services.
We may not be able to protect our trade secrets and other unpatented proprietary technology which could give our competitors an advantage over us.
We rely upon trade secrets and other unpatented proprietary technology. We may not be able to adequately protect our rights with regard to such unpatented proprietary technology or competitors may independently develop substantially equivalent technology. We seek to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with our employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of such information and as a result our competitors could gain a competitive advantage.
We may incur material losses and costs as a result of product liability claims that may be brought against us.
We face an inherent business risk of exposure to product liability claims in the event that products supplied by us fail to perform as expected or such failure results, or is alleged to result, in bodily injury, and possible adverse publicity, which could damage our reputation by raising questions about our products' safety and efficacy, and could interfere with our efforts to market our products.
We are subject to the risk that certain third parties may mishandle our product.
We rely on third parties, such as Federal Express, to deliver our products, and on other third parties to package our products in certain specialized packaging forms requested by customers. We are subject to the risk that these third parties may mishandle our product, which could result in adverse effects, particularly given the radioactive nature of some of our products. A successful product liability claim against us in excess of our available insurance coverage or established reserves may have a material adverse effect on our business. Although we currently maintain liability insurance in amounts we believe are commercially reasonable, any product liability we incur may exceed our insurance coverage.
12
ITEM 1A.
RISK FACTORS.
- continued
RISKS ASSOCIATED WITH OUR BUSINESS
- continued
We are subject to extensive government regulation in jurisdictions around the globe in which we do business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and can significantly increase the cost of doing business, which in turn can negatively impact our operations, financial results and cash flow.
As we expand our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business. Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs and changes to current regulations with which we comply can necessitate further capital expenditures and increases in operating costs to enable continued compliance. Additionally, from time to time, we may be involved in proceedings under certain of these laws and regulations. Foreign operations are subject to political instabilities, restrictions on funds transfers, import/export restrictions and currency fluctuation.
Our operations expose us to the risk of material environmental liabilities.
We are subject to potentially material liabilities related to the remediation of environmental hazards and to personal injuries or property damages that may be caused by hazardous substance releases and exposures. We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment. These laws and regulations can impose substantial fines and criminal sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. We expect to incur capital and operating costs to comply with these laws and regulations. In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, or the imposition of new clean-up requirements or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations. Operational hazards could result in the spread of contamination within our facility and require additional funding to correct.
Future production increases will depend on our ability to acquire larger quantities of O-18.
We currently obtain O-18 through international sources. The amount of O-18 that can be produced from a given source is limited by the power level and volume available within the reactor for irradiating targets. There is no assurance that the Company will have a continuing sufficient supply of O-18 and if sufficient supplies are attained, we will need to increase our manufacturing staff.
We Rely Heavily On A Limited Number Of Suppliers.
Some of the products we market and some of the materials used in the products we manufacture are currently available only from a limited number of suppliers; many of which are from international suppliers. The Company plans to expand the availability of its supplies and products utilizing manufacturing capability at reactors located at National Laboratories as well as production capabilities at various universities and foreign countries other than Russia. This strategy will reduce the risk associated with concentrating isotope production at a single reactor facility. Failure to obtain deliveries from these sources could have a material adverse effect on our production and there may be a delay before we could locate alternative suppliers. We may not be able to locate alternative suppliers capable of producing the level of output of at the quality standards we require. Additional factors that could cause interruptions or delays in our source of materials include limitations on the availability of raw materials or manufacturing performance experienced by our suppliers and a breakdown in our commercial relations with one or more suppliers. Some of these factors may be completely out of our and our suppliers’ control. We do not have formal written agreements with any key supplier. Any interruption or delay in the supply of materials required to produce our products could harm our business if we were unable to obtain an alternative supplier or substitute equivalent materials in a cost-effective and timely manner.
13
ITEM 1A.
RISK FACTORS.
- continued
RISKS RELATED TO OUR COMMON STOCK
There is a limited public market for our common stock. Failure to develop or maintain a trading market could negatively affect the value of our shares and make it difficult or impossible for shareholders to sell their shares
To date there is a limited trading market in our common stock on the OTC Bulletin Board and Pink Sheets. Failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult for our shareholders to sell their shares or recover any part of their investment in us. The market price of our common stock may be highly volatile. In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.
Our stock price is likely to be volatile.
There is generally significant volatility in the market prices and limited liquidity of securities of early stage companies, and particularly of early stage medical product companies. Contributing to this volatility are various events that can affect our stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or actions; market acceptance and sales growth of our products; litigation involving the Company or our industry; developments or disputes concerning our patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of our securities; fluctuations in our financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions. If any of these events occur, it could cause our stock price to fall.
Future sales by shareholders, or the perception that such sales may occur, may depress the price of our common stock.
The sale or availability for sale of substantial amounts of our shares in the public market, including shares issuable upon exercise of warrants and options, or the perception that such sales could occur, could adversely affect the market price of our common stock and also could impair our ability to raise capital through future offerings of our shares.
Our controlling shareholders may exercise significant control over us.
Our directors, executive officers and principal shareholders beneficially own approximately 54.7% of the outstanding shares of our common stock. Our shareholders do not have cumulative voting rights with respect to the election of directors. If our principal shareholders vote together, they could effectively elect all of our directors.
The issuance of shares upon exercise of derivative securities may cause immediate and substantial dilution to our existing shareholders.
We have outstanding options and warrants for the issuance of 9,295,912 shares as of the year ended December 31, 2010. Any decline in the price of our common stock may encourage short sales, which could place further downward pressure on the price of our common stock and may impair our ability to raise additional capital through the sale of equity securities. The issuance of shares upon the exercise of warrants and options may result in substantial dilution to the interests of other shareholders since these selling shareholders may ultimately convert or exercise and sell all or a portion of the full amount issuable upon exercise. The issuance of these shares will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock.
We do not expect to pay any dividends for the foreseeable future.
We do not anticipate paying any dividends to our shareholders for the foreseeable future. The terms of certain of our outstanding indebtedness substantially restrict the ability of us to pay dividends. Accordingly, shareholders must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant.
14
RISKS RELATED TO OUR COMMON STOCK
Our common stock is subject to the “Penny Stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker or dealer approve a person's account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
15
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Our headquarters has office and production space which makes it adequate for the Company to conduct its ongoing business operations.
On July 17, 2007, the Company entered into a lease at 6211 West Okanogan Avenue, Kennewick Washington, 99336 to be used as the Company’s production center. The term of the lease was five years and it commenced on August 1, 2007. Monthly rent for the first year of tenancy was $3,500. Under the terms of the lease, the monthly rent would increase 8% each year so that monthly rent for the year beginning August 1, 2008 was $3,780, monthly rent for the year beginning August 1, 2009 was $4,082 and August 1, 2010 was $4,408. The landlord of this space is a non-affiliated shareholder of the Company, though one that holds less than 5 percent of the total outstanding shares.
Additionally, in June 2008, the Company entered into two 12-month leases for its corporate offices with three 4-month options to renew but in no event will the lease extend beyond December 31, 2010. Subsequent to December 31, 2010 the Company is renting this space on a month to month basis. These lease agreements call for monthly rental payments of $2,733 and $2,328 per month respectively. Effective November 1, 2009, the Company terminated that portion of the lease agreements consisting of the $2,328 per month payment.
Presently, there are not any material pending legal proceedings to which the Registrant is a party or as to which any of its property is subject, and the Registrant does not know nor is it aware of any legal proceedings threatened or contemplated against it.
During the fourth quarter of 2010, there were no matters submitted to a vote of the shareholders.
16
Market Information
Our common stock is traded on the OTC Bulletin Board under the symbol “ADMD.OB.” The following table sets forth, in U.S. dollars the high and low bid prices for each of the calendar quarters indicated, as reported by the Bulletin Board for the past two fiscal years. The prices in the table may not represent actual transactions and do not include retail markups, markdowns or commissions.
|
Company Common Stock
Bid Prices
|
||||||||
|
High
|
Low
|
|||||||
|
2010
|
||||||||
|
Quarter ended December 31
|
$
|
0.48
|
$
|
0.11
|
||||
|
Quarter ended September 30
|
0.23
|
0.09
|
||||||
|
Quarter ended June 30
|
0.47
|
0.14
|
||||||
|
Quarter ended March 31
|
0.57
|
0.20
|
||||||
|
2009
|
||||||||
|
Quarter ended December 31
|
$
|
0.65
|
$
|
0.29
|
||||
|
Quarter ended September 30
|
0.39
|
0.18
|
||||||
|
Quarter ended June 30
|
0.35
|
0.21
|
||||||
|
Quarter ended March 31
|
0.50
|
0.27
|
||||||
Holders
As of March 1, 2011 there were 68,134,150 shares of common stock outstanding and approximately 180 stockholders of record.
Dividend Policy
We have not paid any cash dividends on our common stock to date and do not anticipate we will pay dividends in the foreseeable future. The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and our general financial condition. The payment of any dividends will be within the discretion of the then Board of Directors. It is the present intention of the Board of Directors to retain all earnings, if any, for use in the business operations. Accordingly, the Board does not anticipate declaring any dividends in the foreseeable future.
17
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. -
continued
Securities Authorized for Issuance Under Equity Compensation Plans
We currently do not have any compensation plan under which equity securities are authorized for issuance. We have however granted and issued options and warrants to purchase and acquire shares of our common stock. The following table sets forth information as of December 31, 2010 and 2009, with respect to our equity compensation plans previously approved by shareholders and equity compensation plans not previously approved by shareholders.
|
Equity Compensation Plan Information
|
||||||||||||||
|
Plan Category
|
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
|
|||||||||||
|
(a)
|
(b)
|
(c)
|
||||||||||||
|
Equity compensation plans approved by stockholders
|
0 | $ | 0 | 0 | ||||||||||
|
Equity compensation plans not approved by stockholders
|
7,775,000 | $ | 0.24 | 0 | ||||||||||
|
Total
|
7,775,000 |
(1)
|
$ | 0.24 |
(1)
|
0 | ||||||||
(1)
This information is provided in conjunction with the instructions to Paragraph (d) as required for Item 201 of Regulation S-K. While there are no equity compensation plans in general, the Company does have individual compensation arrangements under which equity securities are authorized for issuance in exchange for consideration in the form of goods or services of certain individuals.
Recent Sales of Unregistered Securities
In October 2010 the Company issued 551,632 restricted shares of its common stock in exchange for services of $56,698 and accrued liabilities of $68,250. No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.
In December 2010 the Company issued 5,784,792 restricted shares of its common stock in exchange for a conversion of $825,000 in convertible notes plus $70,138 of accrued interest. No underwriters were used. The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.
18
Subsequent to the Period Covered by this Report
In January 2011 the Company issued 102,000 restricted shares of its common stock in exchange for services of $30,600. No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.
In January 2011 the Company issued 156,167 restricted shares of its common stock for liabilities accrued as of December 31, 2010. No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.
In February 2011 the Company issued 60,000 restricted shares of its common stock in exchange for services of $18,000. No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this report.
Comparison for the Year Ended December 31, 2010 and December 31, 2009
The following table sets forth information from our statements of operations for the years ended December 31, 2010 and 2009.
|
Year Ended
December 31, 2010
|
Year Ended
December 31, 2009
|
|||||||
|
Revenues
|
$
|
360,613
|
$
|
320,363
|
||||
|
Cost of goods sold
|
70,130
|
125,685
|
||||||
|
Gross profit
|
290,483
|
194,678
|
||||||
|
Operating expenses
|
4,015,822
|
2,744,327
|
||||||
|
Operating loss
|
(3,725,339
|
)
|
(2,549,649
|
)
|
||||
|
Non-operating income (expenses)
|
||||||||
|
Loss on sale of assets
|
(10,000
|
)
|
-
|
|||||
|
Net gain (loss) on settlement of debt
|
27,500
|
(602,718
|
)
|
|||||
|
Recognized income from grants
|
512,466
|
-
|
||||||
|
Interest income
|
599
|
-
|
||||||
|
Interest expense
|
(860,252
|
)
|
(839,627
|
)
|
||||
|
Net income (loss)
|
$
|
(4,055,026
|
)
|
$
|
(3,991,9954
|
)
|
||
Revenue
Revenue was $360,613 for the year ended December 31, 2010 and $320,363 for the year ended December 31, 2009. The increase was the result of consulting revenues. In July 2008 we established our linear accelerator production center and began the production and marketing of F-18 in August 2008. F-18 sales accounted for $221,220 of the total twelve months ended December 31, 2010 revenues and $225,300 of the total twelve months ended December 31, 2009 revenues. Revenues for F-18 were lower in the twelve months ended December 31, 2010 as a result of a reduction in price to our sole customer effective April 2010. The number of doses sold increased for the twelve months ended December 31, 2010 over the twelve months ended December 31, 2009, however due to the drop in price effective April 2010 the revenue dollars decreased. Stable isotope sales were $0 and $95,063 for the twelve months ended December 31, 2010 and 2009 respectively. The Company discontinued the sale of stable isotopes in the twelve months ended December 31, 2009 due to the reduction in profitability of that line of product. Consulting revenues consisted of $139,393 and $0 of the total twelve months ended December 31, 2010 and 2009 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.
19
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Cost of Goods Sold
Cost of goods sold for the twelve months ended December 31, 2010 was $70,130. Cost of Goods Sold for the twelve months ended December 31, 2009 was $125,685. The cost of goods sold of $69,466 for the twelve months ended December 31, 2010, equal to 19.4% of total revenues, consists of F-18 costs. The $125,685 cost of goods sold for the twelve months ended December 31, 2009, equal to 39.2% of total revenues, consists of $69,178, 72.8% of associated revenues for stable isotopes and $56,507, 25.1% of associated revenues for F-18 production (consisting mostly of supplies). The reason for the overall decrease in the cost of goods sold percentage from the twelve months ended December 31, 2009 (39.2%) to the twelve months ended December 31, 2010 (19.4%) was due to the Company incurring no stable isotope sales, which had an increasingly lower gross margin, and an increase in Consulting revenue which has no cost of goods sold associated with it. The reason for the overall increase in the cost of goods sold percentage for F-18 sales from the twelve months ended December 31, 2009 (25.1%) to the twelve months ended December 31, 2010 (31.7%) was an increase in the volume of production and distribution of F-18, although the sales dollars were less due to a decrease in the sales price.
|
Twelve months ended December 31, 2010
|
Twelve months ended December 31, 2009
|
|||||||||||||||||||||||
|
F-18
|
Consulting Revenue
|
F-18
|
Stable Isotopes
|
|||||||||||||||||||||
|
Revenues
|
$
|
221,220
|
100
|
%
|
$
|
139,393
|
100
|
%
|
$
|
225,300
|
100
|
%
|
$
|
95,063
|
100
|
%
|
||||||||
|
Cost of goods sold
|
$
|
70,130
|
31.7
|
%
|
$
|
-
|
-
|
%
|
$
|
56,507
|
25.1
|
%
|
$
|
69,178
|
72.8
|
%
|
||||||||
Operating Expenses
Operating expenses for the twelve months ended December 31, 2010 and 2009 were $4,015,822 and $2,744,327 respectively. The increase in operating expenses from 2009 to 2010 can be attributed largely to professional fees ($1,492,883 for the twelve months ended December 31, 2010 versus $766,861 for the twelve months ended December 31, 2009), impairment expense ($150,000 for the twelve months ended December 31, 2010), and payroll expense ($853,641 for the twelve months ended December 31, 2010 versus $433,175 for the twelve months ended December 31, 2009) partially offset by a decrease in stock options granted ($400,535 for the twelve months ended December 31, 2010 versus $480,024 for the twelve months ended December 31, 2009).
Operating expenses for the twelve months ended December 31, 2010 and 2009 consists of the following:
|
Twelve months ended
December 31, 2010
|
Twelve months ended
December 31, 2009
|
|||||||
|
Depreciation and amortization expense
|
$
|
545,192
|
$
|
562,671
|
||||
|
Impairment expense
|
150,000
|
-
|
||||||
|
Professional fees
|
1,492,883
|
766,861
|
||||||
|
Stock options granted
|
400,535
|
480,024
|
||||||
|
Payroll expenses
|
853,641
|
433,175
|
||||||
|
General and administrative expenses
|
544,499
|
494,969
|
||||||
|
Sales and marketing expense
|
29,072
|
6,627
|
||||||
|
$
|
4,015,822
|
$
|
2,744,327
|
|||||
20
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Non-Operating Income (Expense)
Non operating income (expense) for the twelve months ended December 31, 2010 varied from the twelve months ended December 31, 2009 primarily due to a $27,500 net gain on settlement of debt in 2010 versus a $602,718 net loss in settlement of debt in 2009 and $512,466 of recognized income from grants in 2010 versus $0 in 2009.
Non-Operating income (expense) for the twelve months ended December 31, 2010 and 2009 consists of the following:
|
Twelve months ended
December 31, 2010
|
Twelve months ended
December 31, 2009
|
|||||||
|
Interest expense
|
$
|
(860,252
|
)
|
$
|
(839,627
|
)
|
||
|
Loss on sale of assets
|
(10,000
|
)
|
-
|
|||||
|
Net gain (loss) on settlement of debt
|
27,500
|
(602,718
|
)
|
|||||
|
Recognized income from grants
|
512,466
|
-
|
||||||
|
Interest income
|
599
|
-
|
||||||
|
$
|
(329,687
|
)
|
$
|
(1,442,345
|
)
|
|||
Income from Grants
On October 28, 2010, the Company received $1,215,000 net proceeds from the Department of Energy grant for the Proposed Congressionally Directed Project entitled “Research to Develop and Test an Advanced Resorbable Brachytherapy Seed Research for Controlled Delivery of Yttrium-90 Microspheres in Cancer Treatment.” This grant reimburses the Company for anticipated expenditures related to the development of its Brachytherapy project over the period April 1, 2010 through March 31, 2012. The Company projects this project could cost approximately $5,500,000 however recognizes the costs could be as high as $8,000,000 before it gets to production.
Additionally, on October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for this same Brachytherapy Project. The $244,479 grant was received February 4, 2011. This grant reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 allowable expenditures available for this grant, and so the $244,479 has been recorded as a receivable as of December 31, 2010.
On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for the Molybdenum Project. On December 3, 2010, the Company received $205,129 and the remaining $39,350 of the grant was received February 4, 2011. The $205,129 grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009. And the $39,350 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 for the years 2009 and 2010 allowable expenditures available for this grant. The $39,350 has been recorded as a receivable as of December 31, 2010.
The Company has chosen to recognize the grant money received as income as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet. For the twelve months ended December 31, 2010 the Company recognized $23,508 of the $1,215,000 Department of Energy grant as income with the remaining $1,191,492 recorded as deferred income as of December 31, 2010. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010.
The Company fully recognized the $244,479 grant money received on both the Molybdenum tax grant and the Brachytherapy tax grant as income in the twelve months ended December 31, 2010.
21
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Income from Grants
- continued
As of December 31, 2010 the grant money received and grant money recognized as income and deferred income is:
| $ 1,215,000 | $ 244,479 | $ 244,479 | ||||||||||||||
|
Brachytherapy Grant
|
Molybdenum Grant
|
Brachytherapy Grant
|
Total
|
|||||||||||||
|
Grant money received
|
$ | 1,215,000 | $ | 205,129 | $ | - | $ | 1,420,129 | ||||||||
|
Grant money recorded as account receivable
|
- | 39,350 | 244,479 | 283,829 | ||||||||||||
|
Total grant money
|
1,215,000 | 244,479 | 244,479 | 1,703,958 | ||||||||||||
|
Recognized income from grants
|
23,508 | 244,479 | 244,479 | 512,466 | ||||||||||||
|
Deferred income
|
$ | 1,191,492 | $ | - | $ | - | $ | 1,191,492 | ||||||||
Net Loss
Our net loss for the twelve months ended December 31, 2010 and 2009 was $4,055,026, and $3,991,994, respectively, as a result of the items described above.
Liquidity and Capital Resources
Twelve Months Ended December 31, 2010
At December 31, 2010, we had negative working capital of $4,439,799, as compared to $4,148,647 at December 31, 2009. During the twelve months ended December 31, 2010 we experienced negative cash flow from operations of $634,319, and we expended $24,377 for investing activities while adding $2,118,187 of cash flows from financing activities. As of December 31, 2010, we had $0 commitments for capital expenditures.
Cash used in operating activities decreased from $1,013,028 for the twelve month period ending December 31, 2009 to $634,319 for the twelve month period ending December 31, 2010. Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses. Cash used in investing activities decreased from $316,882 for the twelve month period ended December 31, 2009 to $24,377 for the twelve month period ended December 31, 2010. Cash was used to acquire equipment and patents during the 2010 and 2009 twelve month periods. This purchase of equipment and patents in 2010 was largely offset by the $125,000 received from the sale of a cyclotron. Cash provided from financing activities decreased from $1,280,841 for the twelve month period ending December 31, 2009 to $1,210,524 for the twelve month period ending December 31, 2010. The decrease in cash provided from financing activities was primarily a result of proceeds from increase in principal payments on capital lease and decrease in proceeds from convertible debt.
We have generated material operating losses since inception. We have incurred a net loss of $18,444,790 from January 1, 2006 through December 31, 2010, including a net loss of $4,055,026 for the twelve months ended December 31, 2010. We expect to continue to experience net operating losses. Historically, we have relied upon outside 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 and we can provide no assurance that additional investor funds will be available on terms acceptable to us. If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.
We have modified our growth and operating plans as a result of our continuing losses. The going concern disclosure in Note 1 to our audited financial statements for the years ended December 31, 2010 and 2009 anticipated that we would need $1 million in funds over the next twelve months to maintain current operation activities. As a result of changes to our business plans since the date of this filing, our current cash run rate is approximately $1 million.
22
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Liquidity and Capital Resources -
continued
Based on the current cash run rate, approximately $1,000,000 will be needed to fund operations for an additional year. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. We will need to raise an additional $15,000,000 in the next year to develop an infrastructure for Brachytherapy production and distribution as well as to initiate a Molybdenum 99 production facility. We may, however, 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.
Twelve Months Ended December 31, 2009
At December 31, 2009, we had negative working capital of $4,145,881, as compared to $6,278,593 at December 31, 2008. During the twelve months ended December 31, 2009 we experienced negative cash flow from operations of $1,013,028, and we expended $316,882 for investing activities while adding $1,280,841 of cash flows from financing activities. As of December 31, 2009, we had $0 commitments for capital expenditures.
Cash used in operating activities decreased from $1,543,998 for the twelve month period ending December 31, 2008 to $1,013,028 for the twelve month period ending December 31, 2009. Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses. Cash used in investing activities decreased from $1,710,590 for the twelve month period ended December 31, 2008 to $316,882 for the twelve month period ended December 31, 2009. Cash was used to acquire equipment during the 2008 twelve month period. We generated less cash from investing activities in the twelve months ended December 31, 2009 as we had lower proceeds of cash from sales of common stock and we had proceeds from a capital lease in the twelve month period ended December 31, 2008.
We have generated material operating losses since inception. We have incurred a net loss of $14,392,764 from January 1, 2006 through December 31, 2009, including a net loss of $3,991,995 for the twelve months ended December 31, 2009. We expect to continue to experience net operating losses. Historically, we have relied upon outside 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 and 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. Cash provided from financing activities decreased from $1,280,841 for the twelve month period ending December 31, 2009 to $1,210,524 for the twelve month period ending December 31, 2010. The decrease in cash provided from financing activities was primarily a result of proceeds from increase in principal payments on capital lease and decrease in proceeds from convertible debt.
We have modified our growth and operating plans as a result of our continuing losses. The going concern disclosure in Note 1 to our audited financial statements for the years ended December 31, 2009 and 2008 anticipated that we would need $1 million in funds over the next twelve months to maintain current operation activities. Our financial statements were issued on February 26, 2010. As a result of changes to our business plans since that date, our current cash run rate is approximately $1 million.
Based on the current cash run rate, approximately $1,000,000 will be needed to fund operations for an additional year. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. We will need to raise an additional $15,000,000 in the next year to develop an infrastructure for Brachytherapy production and distribution as well as to initiate a Molybdenum 99 production facility. We may, however, 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.
23
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Contractual Obligations (payments due by period as of December 31, 2010)
|
Contractual Obligation
|
Total Payments Due
|
Less
than
1 Year
|
1-3 Years
|
3-5 Years
|
More than
5 Years
|
||||||||||||||
|
Capital Lease Obligation
|
$
|
1,434,509
|
$
|
405,338
|
$
|
981,450
|
$
|
47,721
|
$
|
-
|
|||||||||
|
Production Center Lease
|
$
|
88,004
|
$
|
54,672
|
$
|
33,332
|
$
|
-
|
$
|
-
|
|||||||||
|
License Agreement with Regents of the University of California
|
$
|
445,000
|
$
|
40,000
|
$
|
165,000
|
$
|
180,000
|
$
|
60,000 per year
|
|||||||||
|
License Agreement with Battelle Memorial Institute
|
$
|
75,000
|
$
|
-
|
$
|
7,500
|
$
|
42,500
|
$
|
25,000 per year
|
|||||||||
The capital lease obligations represent two lease agreements for $1,875,000 and $631,000, secured by equipment and personal guarantee of two of the major shareholders we obtained during September 2007. The purpose of the lease agreements is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $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 it 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 began renting office and warehouse space effective August 1, 2007, located in Kennewick, Washington from a non-affiliated shareholder. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011. During the year ended December 31, 2010 and 2009 the Company incurred rent expenses for this facility totaling $50,622 and $46,872, 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, 2010 and 2009 the Company amortized $37,500 and $37,500, respectively, of this stock issuance and recognized it as rent expense.
24
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Contractual Obligations (payments due by period as of December 31, 2010)
- continued
Future minimum rental payments required under the Company’s current rental agreement in excess of one year as of December 31, 2010, are as follows:
|
Twelve months ended December 31, 2011
|
$
|
54,672
|
||
|
Twelve months ended December 31, 2012
|
33,332
|
|||
|
Twelve months ended December 31, 2013
|
-
|
|||
|
Twelve months ended December 31, 2014
|
-
|
|||
|
Total
|
$
|
88,004
|
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. The lease agreement calls for monthly rental payments of $2,733 and $2,328 per month for two separate office areas. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month. During the twelve months ended December 31, 2010 and 2009 the Company incurred rent expenses for this facility totaling $32,800 and $56,076, respectively.
There are no future minimum rental payments required under this rental agreement because it expired as of December 31, 2010 and subsequent to that date the Company is renting this space on a month to month basis.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
25
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
- continued
Critical Accounting Policies
- continued
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2010, 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.
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
|
|
·
|
Production equipment
|
3 to 7 years
|
|
|
·
|
Office equipment
|
2 to 5 years
|
|
|
·
|
Furniture and fixtures
|
2 to 5 years
|
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
The types of events and circumstances that management believes could indicate impairment are as follows:
|
|
·
|
A significant decrease in the market price of a live-lived asset.
|
|
|
·
|
A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.
|
|
|
·
|
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator.
|
|
|
·
|
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.
|
|
|
·
|
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
|
|
|
·
|
A
current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
26
Critical Accounting Policies
- continued
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.
License Fees
The Company made an acquisition of a patent license in 2007, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000. The cost of the patent license was capitalized as License Fees and amortized on the straight line basis over a three life. This license fee was fully amortized as of December 31, 2010.
The Company made a $10,000 investment in 2010 for a patent license regarding its technology for the production of Mo-99. In May 2010 the Company entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as molybdenum-99 and technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally the Agreement calls for a milestone payment of $250,000, due and payable five years after execution of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life.
The Company made a $10,000 investment in 2010 for an exclusive patent license with Battelle Memorial Institute regarding its technology for the production of Brachytherapy. In September 2010 the Company entered into a License Agreement for the Patent Rights in the area of resorbable brachytherapy seed. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
|
Calendar Year
|
Minimum Royalties per Calendar Year
|
|||
|
2010
|
$ | - | ||
|
2011
|
$ | - | ||
|
2012
|
$ | 2,500 | ||
|
2013
|
$ | 5,000 | ||
|
2014
|
$ | 7,500 | ||
|
2015
|
$ | 10,000 | ||
|
2016 and each calendar year thereafter
|
$ | 25,000 | ||
27
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
– continued
Critical Accounting Policies
- continued
License Fees
– continued
Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $5,693, and $25,000 for the years ended December 31, 2010, and 2009, respectively. Based on the license fees recorded at December 31, 2010, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $16,390, will be fully amortized during the year ending December 31, 2013. Future annual amortization is expected to be as follows:
|
Calendar Year
|
Annual Amortization
|
|||
|
2011
|
$ | 6,666 | ||
|
2012
|
$ | 6,666 | ||
|
2013
|
$ | 3,056 | ||
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
Patent filing costs totaling $113,326, and $81,882, were capitalized during the twelve months ended December 31, 2010, and 2009; resulting in a total $219,803 of capitalized patents at December 31, 2010. The patents are pending and are being developed, as such, they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2009 consisted of both the sales of Oxygen 18 (staple isotope) and Flouride 18. Revenue for the fiscal year ended December 31, 2010 consisted of the sales of Flouride 18 and Consulting Revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
28
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
– continued
Critical Accounting Policies
- continued
Income from Grants
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
For the twelve months ended December 31, 2010 the Company recognized $23,508 of the $1,215,000 Department of Energy grant as income. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010.
The Company fully recognized the $244,479 grant money received on both the Molybdenum tax grant and the Brachytherapy tax grant as income in the twelve months ended December 31, 2010.
As of December 31, 2010 the grant money received and grant money recognized as income and deferred income is:
|
$1,215,000 Brachytherapy Grant
|
$244,479 Molybdenum Grant
|
$244,479 Brachytherapy Grant
|
Total
|
|||||||||||||
|
Grant money received
|
$ | 1,215,000 | $ | 205,129 | $ | - | $ | 1,420,129 | ||||||||
|
Grant money recorded as account receivable
|
- | 39,350 | 244,479 | 283,829 | ||||||||||||
|
Total grant money
|
1,215,000 | 244,479 | 244,479 | 1,703,958 | ||||||||||||
|
Recognized income from grants
|
23,508 | 244,479 | 244,479 | 512,466 | ||||||||||||
|
Deferred income
|
$ | 1,191,492 | $ | - | $ | - | $ | 1,191,492 | ||||||||
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 shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2010 and 2009 are as follows:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Convertible debt
|
4,775,415
|
5,150,333
|
||||||
|
Common stock options
|
9,295,912
|
5,049,327
|
||||||
|
Total potential dilutive securities
|
14,071,327
|
10,199,660
|
||||||
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
The Company incurred $1,168,422, and $67,006 research and development costs for the years ended December 31, 2010, and 2009, respectively, all of which were recorded in our operating expenses noted on the income statements for the years then ended.
29
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
– continued
Critical Accounting Policies
- continued
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 year ended December 31, 2009. There were $12,675 tradeshow expenses incurred and not expensed as of the year ended December 31, 2010 which are prepayment costs for 2011 tradeshow expenses. During the twelve months ended December 31, 2010 and 2009 the Company incurred $1,750 and $1,750, respectively, in advertising costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of product sales.
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
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 or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and Delaware. The Company did not have any tax expense for the years ended December 31, 2010 and 2009. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2010 and 2009.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the years ended December 31, 2010 and 2009, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.
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.
30
Critical Accounting Policies
- continued
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 of Exhibit FS and is hereby incorporated by reference.
31
Previously disclosed in our Form 10 filed November 12, 2008.
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by 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 our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2010, using the criteria established in
Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there is a material weakness due to the lack of segregation of duties. In order to address and resolve this weakness we will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as our financial means allow. To date, our limited financial resources have not allowed us to hire the additional personnel necessary to address this material weakness.
This Annual Report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.
32
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
|
|
(a)
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
|
|
|
(b)
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
|
|
|
(c)
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.
|
None.
33
Identification of directors and executive officers
Our current directors and executive officers are as follows:
|
NAME
|
AGE
|
POSITION
|
|||
|
James C. Katzaroff
|
53 |
CEO and Chairman
|
|||
|
L. Bruce Jolliff
|
60 |
Chief Financial Officer
|
|||
|
Carlton Cadwell
|
65 |
Director
|
|||
|
Bruce W. Ratchford
|
56 |
Director
|
|||
Term of Office
All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.
Background and Business Experience
The business experience during the past five years of each of the persons presently listed above as an Officer or Director of the Company is as follows:
James C. Katzaroff
,
the Chief Executive Officer and Chairman of the Board is the founder of Advanced Medical Isotope Corporation. Initially a financial consultant with Wall Street firms Bateman Eichler, Smith Barney and EF Hutton, Mr. Katzaroff has been responsible for senior-level corporate strategy, fostering investment banking relationships, and served as a senior financial advisor for numerous start-ups and development-stage companies. From 1998 to 2001, Mr. Katzaroff held senior positions including Chief Financial Officer, Senior Vice President of Finance, Senior Vice President, and Corporate Secretary of Telemac Corporation, an international communications company active in the wireless telephony market. In 2001 he became Chairman and CEO of Apogee Biometrics, and in 2004 became President of Manakoa Services Corporation, serving as its interim CEO. He holds a Bachelor’s Degree in Business Economics from the University of California, Santa Barbara, and has completed advanced management courses at the University of Washington.
Leonard Bruce Jolliff
,
the Chief Financial Officer, joined Advanced Medical Isotope Corporation as chief financial officer in 2006. For nine years prior to joining the Company, Mr. Jolliff was a sole practitioner in the role of CFO for Hire and as a Forensic Accountant, working with companies ranging from Fortune 500 to small family operations. Mr. Jolliff is a CPA and a member of the Washington Society of CPAs. He is also a CFE and a member of the Association of Certified Fraud Examiners. Mr. Jolliff has held CFO and Controller positions in an array of industries and has worked as a CPA in public practice.
Carl Cadwell
,
a Director, joined Advanced Medical Isotope Corporation as a director in 2006. Dr. Cadwell brings over 30 years of experience in business management, strategic planning, and implementation. He co-founded Cadwell Laboratories, Inc. in 1979 and has served as its President since its inception. Cadwell Laboratories, Inc. is a major international provider of neurodiagnostic medical devices. After receiving his bachelor’s degree from the University of Oregon in 1966 and a doctoral degree from the University of Washington in 1970, he began his career serving in the United States Army as a dentist for 3 years. From 1973 to 1980, Dr. Cadwell practiced dentistry in private practice and since has started several businesses.
Bruce W. Ratchford,
a Director, joined Advanced Medical Isotope Corporation as a director in 2010. Mr. Ratchford is the founder, President and CEO of Apollo, based in Kennewick, Washington and is also a Founder and current board member of Kennewick based Community First Bank. Apollo is a mechanical and specialty contractor nationally rated in the top 25 for revenue by Engineering News-Record and has over 500 employees.
34
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
- continued
Identification of Significant Employees
Fu-Min Su, Ph.D
.
,
Chief Radiochemist, was appointed as Advanced Medical Isotope Corporation’s Chief Radio-Chemist and Radiation Safety Officer in 2007. With over 20 years experience in medical isotope R&D and manufacture, Dr. Su is also knowledgeable in the area of coordinating and conducting clinical trials. He has worked as a senior scientist for a several bio-technology firms, including NeoRx Corporation from 1987 through 1998, Nycomed-Amersham Imaging in 1999, Bristol-Myers Squibb from 2000 to 2006, and Cellectar, LLC in 2007, during which time he developed various radiopharmaceuticals, isotope production methods and generator systems. Dr. Su has authored a number of scientific papers, and has written numerous abstracts for the Journal of Nuclear Medicine. He also holds several patents relating to radionuclide production and preparation. Dr. Su received his Ph.D. from the University of Washington.
Robert E. Schenter, Ph.D
.
,
Chief Science Officer, with over 25 years experience in the area of radioisotope production for applications in the treatment and diagnostics of major diseases, such as cancer, heart disease, and arthritis. With more than 35 years experience in the use and production of nuclear data as applied to fission reactor systems, Dr. Schenter brings a legacy of successful application to nuclear technology projects. Dr. Schenter has been the site manager for production of medical isotopes at Westinghouse Hanford and at The Department of Energy’s Pacific Northwest National Laboratory.
Michael K. Korenko, Ph.D
. Dr. Korenko was the Westinghouse Vice President in charge of the 300 and 400 areas, including the Fast Flux Testing Facility (FFTF) and all the engineering, safety analysis, and projects for the Hanford site. He was also the Executive Vice President of Closure for Safe Sites of Colorado at Rocky Flats. His most previous assignment was Chief Operating Officer for Curtiss-Wright, who produces the nuclear components for all the United States submarine and aircraft carriers as well as components for commercial nuclear power companies.
Dr. Korenko has a Doctor of Science from MIT, was a NATO Postdoctoral Fellow at Oxford University, and was selected as a White House Fellow for the Department of Defense, reporting to Secretary Cap Weinberger. Mike Korenko currently is the author of 28 patents and has received many awards, including the National Energy Resources Organization Research and Development Award, the U.S. Steelworkers Award for Excellence in Promoting Safety, and the Westinghouse Total Quality Award for Performance Manager of the Year.
Most relevant to AMIC, Dr. Korenko is the co-inventor with AMIC Chief Science Officer Dr. Robert Schenter, of a patent-pending process converting nuclear waste into medical isotopes
.
Alan E. Waltar, Ph.D.,
Chairman of
Scientific Advisory Board
.
Dr. Waltar served as director of Nuclear Energy for the Pacific Northwest National Laboratory (PNNL) in Richland, Wash. Since 2004, he has continued his affiliation with PNNL as a Senior Advisor. Waltar's other professional appointments include director of International Programs at Advanced Nuclear Medical Systems; manager of various Fast Reactor Safety and Fuels Organizations of Westinghouse Hanford Company; and as professor and department head of Nuclear Engineering at Texas A&M University.
His other teaching experience includes stints at the Joint Center for Graduate Study in Richland Wash., the University of Virginia, and Los Alamos National Laboratory. Formerly the president of the American Nuclear Society, Waltar has served on a number of international nuclear science and radiation panels, societies, and committees. He is the author of three books: Fast Breeder Reactors, America the Powerless: Facing Our Nuclear Energy Dilemma, and Radiation and Modern Life: Fulfilling Marie Curie's Dream, and has penned over 70 open literature papers.
Dr. Waltar earned his M.S. in Nuclear Engineering from M.I.T. and his PhD in Engineering Science from the University of California, Berkeley.
35
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
- continued
Identification of Significant Employees
- continued
Nigel R. Stevenson, Ph.D.,
Scientific Advisory Committee
.
Dr. Nigel Stevenson is a world renowned expert in the production of medical isotopes. He holds a Ph.D. in Nuclear Physics from the University of London and has directed many corporate innovations for imaging and therapeutic nuclide agents. He currently serves as Chief Operating Officer for Clear Vascular Inc. and was previously Chief Operating Officer of Trace Life Sciences, which produced a range of medical radiochemicals and radiopharmaceuticals. Prior to this, he had been VP Production and Research for Theragenics Corp. and directed operations in Atlanta for the world’s largest cyclotron facility (14 cyclotrons) that produced brachytherapy seeds.
Dr. Stevenson was also Head of Isotope Production and Research at TRIUMF (Canadian National Accelerator Laboratory) where he managed the production of medical radioisotopes for MDS Nordion.
Donald A. Ludwig, PhD.,
Scientific Advisory Committee. Dr. Ludwig is an expert in particle accelerator applications in radiation therapy, nuclear medicine and radioisotope production. He serves as an advisor to numerous entities in the field, both domestic and foreign. Among these are the Atomic Energy of Canada, the U. S. Department of Energy Labs at Los Alamos, Berkeley, Fermi, Hanford and Oak Ridge, the Israel Atomic Energy Agency, the Australian Nuclear Science and Technology Organization, the Kurchatov Russian Research Institute in Moscow and the Bhabha Atomic Research Center in Mumbai, India. He holds a Ph.D. from UCLA in Medical Physics as well as an MS in Nuclear Physics from Cal Tech, a BS in Physics from the U. S. Military Academy at West Point and an MBA in Theoretical Marketing from the University of Southern California.
Family Relationships
We currently do not have any officers or directors of our company who are related to each other.
Involvement in Certain Legal Proceedings
During the last five years no director, executive officer, promoter or control person of the Company has had or has been subject to:
|
|
(1)
|
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
|
|
|
(2)
|
any conviction in a criminal proceeding or being subject to a pending criminal proceeding;
|
|
|
(3)
|
any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
|
|
|
(4)
|
being found by a court of competent jurisdiction, the Commission or the Commodity Futures Trading Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
36
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC. Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.
Based solely on its review of the copies of such forms filed with the SEC electronically, received by the Company and representations from certain reporting persons, the Company believes that for the fiscal year ended December 31, 2010, all the officers, directors and more than 10% beneficial owners complied with the above described filing requirements.
Code of Ethics
Our board of directors has not adopted a code of ethics due to the fact that we presently only have three directors. We anticipate that we will adopt a code of ethics when we increase either the number of our directors and officers or the number of our employees.
Audit Committee and Audit Committee Financial Expert
Our board of directors is comprised of three directors, two of which are outside independent directors, and as of the date hereof we have not established an audit committee. Accordingly, our board of directors presently performs the functions that would customarily be undertaken by an audit committee.
Our board of directors has determined that none of them qualify as an “audit committee financial expert”, as defined by the rules of the SEC. We intend to appoint such persons to the Board of Directors and committees of the Board of Directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a securities exchange. We do not currently have any independent directors.
37
Summary Compensation Table
The following table sets forth the compensation paid to our Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve month periods ended December 31, 2010 and 2009 (collectively, the “Named Executive Officers”):
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Total ($)
|
|||||||||||||||
|
James C. Katzaroff,
|
2010
|
$ | 439,489 | $ | - | $ | - | $ | - | $ | 439,489 | ||||||||||
|
CEO and Chairman
|
2009
|
$ | 113,150 | $ | - | $ | - | $ | - | $ | 113,150 | ||||||||||
|
L. Bruce Jolliff,
|
2010
|
$ | 221,688 | $ | - | $ | - | $ | - | $ | 221,688 | ||||||||||
|
CFO
(1)
|
2009
|
$ | 130,000 | $ | - | $ | - | $ | - | $ | 130,000 | ||||||||||
|
Fu-Min Su,
|
2010
|
$ | 95,000 | $ | 3,654 | $ | - | $ | - | $ | 98,654 | ||||||||||
|
Chief Radiochemist
|
2009
|
$ | 90,000 | $ | 5,000 | $ | 19,500 | $ | - | $ | 114,500 | ||||||||||
|
|
(1)
|
Mr. Jolliff received an additional $121,688 and $30,000 in 2010 and 2009, respectively, to compensate him for additional duties he performed that were not contemplated in his employment contract.
|
Narrative Disclosure to Summary Compensation Table
We have employment agreements with L. Bruce Jolliff and Fu-Min Su that determine the compensation paid to each of them. Our Chief Executive Officer, James C. Katzaroff, does not have a written employment agreement and therefore no structured amount or schedule of pay so no accruals are made for his compensation. In 2009 and 2010, he received $113,150 and $439,489, respectively, in salary. During the period of limited liquidity for the Company the CEO had taken limited compensation.
We paid bonuses to certain employees based on their performance, our need to retain such employees and funds available. All bonus payments were approved by our board of directors.
38
ITEM 11.
EXECUTIVE COMPENSATION
- continued
Narrative Disclosure to Summary Compensation Table
- continued
Employment Agreement with L. Bruce Jolliff
In August 2007, Mr. Jolliff signed an employment agreement with the Company and will receive a salary of $100,000 per year. He also received 1,500,000 options (500,000 options per year beginning in August 2008) to purchase the Company’s common stock at $0.50. Mr. Jolliff received bonuses in the amount of $121,688 and $30,000 for the twelve months ended December 31, 2010 and 2009, respectively.
The Company may terminate the agreement without cause at any time upon 30 days' written notice. Upon termination, the Company will pay Mr. Jolliff a severance allowance of two month’s salary.
Employment Agreement with Dr. Fu Min-Su
In January 2008, the Company entered into a five-year employment agreement with Dr. Fu Min-Su pursuant to which the Company agreed to pay Dr. Fu Min-Su an annual salary equal to $90,000 which was increased to $95,000 January 1, 2010.
In the
event the employment is terminated by the Company without cause, by Dr. Fu Min-Su for good reason or a change in control, the Company will have to provide Dr. Fu Min-Su with one month of his base salary and any portion of an annual bonus allocated by the Board of Directors, disability and other welfare plan benefits for a period of one year from the date of termination and pro-rated vesting of all
outstanding options, stock grants, shares of restricted stock and any other equity incentive compensation; provided, that the stock options shall be exercisable only until the earlier to occur of (A) two years from the date of the termination, or (B) the date the option would have otherwise expired if Dr. Fu Min-Su had not terminated
employment.
During the term of the employment agreement, including any extension thereof, and for a period of one year thereafter, Dr. Fu Min-Su shall not provide services that he provides for the Company for a business in the production, import for resale, and distribution of radioisotopes for use in the medical industries.
Outstanding Equity Awards
The following table sets forth all outstanding equity awards held by our Named Executive Officers as of the end of last fiscal year.
|
Name
|
Option Awards
|
||||||
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
Number of Securities Underlying Unexercised Unearned Options (#)
Unexercisable
|
Option Exercise Price
($)
|
Option Expiration Date
|
||||
|
James C. Katzaroff
|
100,000
|
-
|
$
|
0.55
|
11-26-2011
|
||
|
L. Bruce Jolliff
|
1,500,000
|
-
|
$
|
0.50
|
5-16-2012
|
||
|
50,000
|
-
|
$
|
0.55
|
11-26-2011
|
|||
|
Fu-Min Su
|
50,000
|
-
|
$
|
0.55
|
11-26-2011
|
||
Narrative Disclosure to Outstanding Equity Awards
During May 2007, the Company granted L. Bruce Jolliff an option to purchase an aggregate of 1,500,000 shares of the Company’s common stock at an exercise price of $0.50 per share. The options vest at 500,000 shares May 2008, 500,000 shares May 2009, and 500,000 shares May 2010 and expire May 2012. The quoted market price of the common stock at the time of issuance of the options was $0.70 per share.
During November 2008, the Company granted James C. Katzaroff an option to purchase 100,000 shares and granted Fu-Min Su and L. Bruce Jolliff, each, an option to purchase 50,000 shares of the Company’s common stock. All options issued in November 2008 have an exercise price of $0.55 per share and are fully vested and expire on November 26, 2011. The quoted market price of the common stock at the time of issuance of the options was $0.51 per share.
39
Equity Compensation, Pension or Retirement Plans
No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees.
Compensation of Directors
The following table sets forth information relating to compensation paid to our directors in 2010 and 2009:
|
Fees Earned
|
||||||||||||||||
|
or Paid
|
Stock
|
Option
|
||||||||||||||
|
Name
|
in Cash ($)
|
Awards ($)
|
Awards ($)
|
Total ($)
|
||||||||||||
|
Carlton Cadwell
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
William Root
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
Michael Korenko
|
$
|
-
|
$
|
-
|
$
|
131,000
|
$
|
131,000
|
||||||||
|
Bruce Ratchford
|
$
|
-
|
$
|
-
|
$
|
12,500
|
$
|
12,500
|
||||||||
William E. Root resigned effective May 12, 2009.
Michael Korenko resigned effective March 2, 2010.
Bruce Ratchford became a Director effective November 17, 2010.
During May 2009, the Company granted a board member options to purchase 200,000 shares of the Company’s common stock, at an exercise price of $0.26 per share. The options are fully vested and expire May 8, 2012.
During August 2009, the Company granted a board member options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $0.27 per share. The options are fully vested and expire August 6, 2012.
During November 2010, the Company granted a board member options to purchase 50,000 shares of the Company’s common stock, at an exercise price of $0.40 per share. The options are fully vested and expire November 16, 2013.
There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any Director that would result in payments to such person because of his or her resignation with the Company, or its subsidiaries, any change in control of the Company. There are no agreements or understandings for any Director to resign at the request of another person. None of our Directors or executive officers acts or will act on behalf of or at the direction of any other person.
40
Security ownership of certain beneficial owners
The following table sets forth the amount and nature of beneficial ownership of any class of the Company’s voting securities of any person known to the Company to be the beneficial owner of more than five percent, as of the close of business on March 1 2011.
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner
(1)
|
Percent of
Class
|
|
Common Stock
|
James C. Katzaroff
6208 W Okanogan Avenue
Kennewick, WA 99336
|
7,219,002
|
9.1%
|
|
Common Stock
|
Carlton Cadwell
6208 W Okanogan Avenue
Kennewick, WA 99336
|
30,069,992
|
37.9%
|
|
Common Stock
|
Bruce Ratchford
6208 W Okanogan Avenue
Kennewick, WA 99336
|
11,121,044
|
14.0%
|
|
(1)
|
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on March 1, 2011, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on March 1, 2011, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the preferred and on exercise of the warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. Beneficial ownership of shares includes 350,000 options currently exercisable by James C. Katzaroff, 5,750,000 currently exercisable by Bruce W. Ratchford, and 5,125,415 options and convertible debt currently exercisable by Carlton Caldwell.
|
41
Security ownership of Managements
The following table sets forth, as of March 1, 2011, the number of shares of Common Stock owned of record and beneficially by executive officers, directors and persons who hold 5% or more of the outstanding Common Stock of the Company. As of March 1, 2011, there were 79,245,398 shares outstanding.
|
Title of
Class
|
Name and
Address of
Beneficial
Owner
|
Amount and
Nature of
Beneficial
Owner
(1)
|
Percent of
Class
|
|
Common Stock
|
James C. Katzaroff
6208 W Okanogan Avenue
Kennewick, WA 99336
|
7,219,002
|
9.1%
|
|
Common Stock
|
L. Bruce Jolliff
6208 W Okanogan Avenue
Kennewick, WA 99336
|
1,550,000
|
2.0%
|
|
Common Stock
|
Carlton Cadwell
6208 W Okanogan Avenue
Kennewick, WA 99336
|
30,069,992
|
37.9%
|
|
Common Stock
|
Bruce Ratchford
6208 W Okanogan Avenue
Kennewick, WA 99336
|
11,121,044
|
14.0%
|
|
All Officers and Directors as a group
(4 individuals)
|
49,960,038
|
63.0%
|
|
(1)
|
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date. In determining the percent of common stock owned by a person or entity on March 1, 2011, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on March 1, 2011, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and on exercise of the warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares. Beneficial ownership of shares includes 350,000 options currently exercisable by James C. Katzaroff, 1,550,000 options currently exercisable by L. Bruce Jolliff, 5,750,000 currently exercisable by Bruce W. Ratchford, and 5,125,415 options and convertible debt currently exercisable by Carlton Caldwell.
|
Changes in Control
There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.
42
In February and March of 2009, we received $40,800 from James C. Katzaroff for funds needed to meet operating expenses. The Company repaid the loan during 2009. There was no interest being charged on the loan.
We 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 from James C. Katzaroff and Carlton Cadwell. 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. There is no security held as collateral for this loan. As of December 31, 2010, all payments were current on this shareholder loan.
Audit Fees
The aggregate fees incurred by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2010 and 2009 were $56,000 and $62,000, respectively.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2010 and 2009 were $4,500 and $1,500, respectively. These fees related to the preparation of federal income returns.
All Other Fees
There were no other fees billed for products or services provided by our principal accountant during the fiscal years ended December 31, 2010 and 2009.
43
(a) Documents filed as part of this Report.
1.
Financial Statements
.
The Balance Sheet of Advanced Medical Isotope Corporation as of December 31, 2010 and 2009, the Statements of Operations for the years ended December 31, 2010 and 2009, the Statement of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2010 and December 31, 2009, and Statements of Cash Flows for the years ended December 31, 2010 and 2009, and together with the notes thereto and the report of HJ & Associates, LLC as required by Item 8 are included in this 2010 Annual Report on Form 10-K as Exhibit FS and is hereby incorporated by reference.
3.
Exhibits
. The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601of Regulation S-K. Exhibits 10.1 through 10.20 relate to compensatory plans incorporated by reference as exhibits hereto pursuant to Item 15(b) of Form 10-K.
|
Exhibit
|
||
|
Number
|
Description
|
|
|
3.1
|
Certificate of Incorporation of Savage Mountain Sports Corporation dated January 11, 2000.
(1)
|
|
|
3.2
|
By-Laws
(1)
|
|
|
3.3
|
Articles and Certificate of Merger of HHH Entertainment Inc. and Savage Mountain Sports Corporation dated April 3, 2000.
(1)
|
|
|
3.4
|
Articles and Certificate of Merger of Earth Sports Products Inc. and Savage Mountain Sports Corporation dated May 11, 2000.
(1)
|
|
|
3.5
|
Certificate of Amendment of Certificate of Incorporation changing the name of the Company to Advanced Medical Isotope Corporation dated May 23, 2006.
(1)
|
|
|
3.6
|
Certificate of Amendment of Certificate of Incorporation increasing authorized capital dated September 26, 2006.
(1)
|
|
|
10.1
|
Agreement and Plan of Reorganization, dated as of December 15, 1998, by and among HHH Entertainment, Inc. and Earth Sports Products, Inc.
(1)
|
|
|
10.2
|
Agreement and Plan of Merger of HHH Entertainment, Inc. and Savage Mountain Sports Corporation, dated as of January 6, 2000.
(1)
|
|
|
10.3
|
Employment Agreement dated August 15, 2006 with William J. Stokes.
(1)
|
|
|
10.4
|
Agreement and Plan of Acquisition by and between Neu-Hope Technologies, Inc., UTEK Corporation and Advanced Medical Isotope Corporation dated September 22, 2006.
(1)
|
|
|
10.5
|
Employment Agreement dated May 16, 2007 with Leonard Bruce Jolliff.
(1)
|
|
|
10.6
|
Agreement and Plan of Acquisition by and between Isonics Corporation and Advanced Medical Isotope Corporation dated June 13, 2007.
(1)
|
|
|
10.7
|
Employment Agreement dated January 15, 2008 with Dr. Fu-Min Su.
(1)
|
|
|
23.1
|
Consent of HJ & Associates, LLC
(3)
|
|
|
31.1
|
Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002
(4)
|
|
|
31.2
|
Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002
(4)
|
|
|
32
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350
(4)
|
|
|
FS
|
Advanced Medical Isotope Corporation Financial Statements for year ended December 31, 2009
(4)
|
|
(1)
Incorporated by reference to the Company's Registration Statement on Form 10 as filed with the SEC on November 12, 2008.
(2)
Incorporated by reference to the Company's Registration Statement on Form 10/A as filed with the SEC on February 17, 2009.
(3)
Incorporated by reference to the Company's Annual Report of Form 10-K as filed with the SEC on April 15, 2009.
(4)
Filed herewith.
44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
ADVANCED MEDICAL ISOTOPE CORPORATION
|
||
|
Date: March 1, 2011
|
By:
|
/s/ James C. Katzaroff
|
|
Name: James C. Katzaroff
|
||
|
Title: Chief Executive Officer, Director and Chairman
|
||
|
Date: March 1, 2011
|
By:
|
/s/ L. Bruce Jolliff
|
|
Name: L. Bruce Jolliff
|
||
|
Title: Chief Financial Officer
|
||
|
Date: March 1, 2011
|
By:
|
/s/ Carlton Cadwell
|
|
Name: Carlton Cadwell
|
||
|
Title: Director
|
||
|
Date: March 1, 2011
|
By:
|
/s/ Bruce Ratchford
|
|
Name: Bruce Ratchford
|
||
|
Title: Director
|
||
45
Exhibit FS
Advanced Medical Isotope Corporation
Index to Financial Statements
|
Pages
|
|
|
Report of Independent Registered Public Accounting Firm for 2010 and 2009
|
F-2
|
|
Financial Statements:
|
|
|
Balance Sheets as of December 31, 2010 and 2009
|
F-3
|
|
Statements of Operations for the years ended December 31, 2010 and 2009
|
F-4
|
|
Statement of Shareholders’ Equity (Deficit) for the years ended December 31, 2010 and 2009
|
F-5
|
|
Statements of Changes in Cash Flow for the years ended December 31, 2010 and 2009
|
F-6 - 7
|
|
Notes to Financial Statements
|
F-8
|
F-1
Report of Independent Registered Public Accounting Firm
To The Board of Directors and Shareholders
Advanced Medical Isotope Corporation
Kennewick, Washington
We have audited the accompanying balance sheets of Advanced Medical Isotope Corporation as of December 31, 2010 and 2009, and the related statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Advanced Medical Isotope Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses, used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant restructuring to sustain its operation for the foreseeable future. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of uncertainty.
HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
March 1, 2011
F-2
Advanced Medical Isotope Corporation
|
ASSETS
|
||||||||
|
December 31,
|
December 31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
589,390
|
$
|
37,562
|
||||
|
Accounts receivable - trade
|
15,370
|
19,030
|
||||||
|
Accounts receivable - other
|
425,504
|
-
|
||||||
|
Prepaid expenses
|
46,975
|
-
|
||||||
|
Prepaid expenses paid with stock, current portion
|
89,949
|
151,432
|
||||||
|
Inventory
|
1,400
|
1,550
|
||||||
|
Total current assets
|
1,168,588
|
209,574
|
||||||
|
Fixed assets, net of accumulated depreciation
|
1,211,664
|
1,970,113
|
||||||
|
Other assets:
|
||||||||
|
License fees, net of amortization
|
16,390
|
2,083
|
||||||
|
Patents
|
219,803
|
106,476
|
||||||
|
Prepaid expenses paid with stock, long-term portion
|
21,875
|
103,125
|
||||||
|
Deposits
|
5,406
|
158,171
|
||||||
|
Total other assets
|
263,474
|
369,855
|
||||||
|
Total assets
|
$
|
2,643,726
|
$
|
2,549,542
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$
|
591,416
|
$
|
622,713
|
||||
|
Accrued interest payable
|
245,105
|
131,264
|
||||||
|
Payroll liabilities payable
|
13,229
|
20,047
|
||||||
|
Deferred income
|
1,191,492
|
-
|
||||||
|
Loans from shareholder
|
126,508
|
163,275
|
||||||
|
Convertible notes payable
|
2,006,128
|
1,581,504
|
||||||
|
Current portion of capital lease obligations
|
405,338
|
1,839,418
|
||||||
|
Total current liabilities
|
4,579,216
|
4,358,221
|
||||||
|
Long term liabilities:
|
||||||||
|
Capital lease obligations, net of current portion
|
1,029,171
|
-
|
||||||
|
Total liabilities
|
5,608,387
|
4,358,221
|
||||||
|
Shareholders’ Equity (Deficit):
|
||||||||
|
Common stock, $.001 par value; 100,000,000 shares authorized;
|
||||||||
|
67,917,983 and 52,128,817 shares issued and outstanding,
|
||||||||
|
respectively
|
67,918
|
52,129
|
||||||
|
Paid in capital
|
18,299,253
|
15,415,998
|
||||||
|
Accumulated deficit
|
(21,331,832
|
)
|
(17,276,806
|
)
|
||||
|
Total shareholders’ equity (deficit)
|
(2,964,661
|
)
|
(1,808,679
|
)
|
||||
|
Total liabilities and shareholders’ equity (deficit)
|
$
|
2,643,726
|
$
|
2,549,542
|
||||
The accompanying notes are an integral part of these financial statements.
F-3
Advanced Medical Isotope Corporation
|
Years ended
|
||||||||
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
Revenues
|
$
|
360,613
|
$
|
320,363
|
||||
|
Cost of goods sold (exclusive of depreciation, shown separately below)
|
70,130
|
125,685
|
||||||
|
Gross profit
|
290,483
|
194,678
|
||||||
|
Operating expenses
|
||||||||
|
Sales and marketing expenses
|
29,072
|
6,627
|
||||||
|
Depreciation and amortization expense
|
545,192
|
562,671
|
||||||
|
Impairment expense
|
150,000
|
-
|
||||||
|
Professional fees
|
1,492,883
|
766,861
|
||||||
|
Stock options granted
|
400,535
|
480,024
|
||||||
|
Payroll expenses
|
853,641
|
433,175
|
||||||
|
General and administrative expenses
|
544,499
|
494,969
|
||||||
|
Total operating expenses
|
4,015,822
|
2,744,327
|
||||||
|
Operating loss
|
(3,725,339
|
)
|
(2,549,649
|
)
|
||||
|
Non-operating income (expense):
|
||||||||
|
Interest expense
|
(860,252
|
)
|
(839,627
|
)
|
||||
|
Loss on sale of assets
|
(10,000
|
)
|
-
|
|||||
|
Net gain (loss) on settlement of debt
|
27,500
|
(602,718
|
)
|
|||||
|
Recognized income from grants
|
512,466
|
-
|
||||||
|
Interest income
|
599
|
-
|
||||||
|
Non-operating income (expense), net
|
(329,687
|
)
|
(1,442,345
|
)
|
||||
|
Loss before Income Taxes
|
(4,055,026
|
)
|
(3,991,994
|
)
|
||||
|
Income Tax Provision
|
-
|
-
|
||||||
|
Net loss
|
(4,055,026
|
)
|
$
|
(3,991,994
|
)
|
|||
|
Loss per common share
|
$
|
(0.07
|
)
|
$
|
(0.08
|
)
|
||
|
Weighted average common shares outstanding
|
56,172,887
|
48,168,743
|
||||||
The accompanying notes are an integral part of these financial statements.
F-4
Advanced Medical Isotope Corporation
Statements of Changes in Shareholders’ Equity (Deficit)
|
Series A Preferred
|
||||||||||||||||||||||||||||
|
Stock
|
Common Stock
|
Paid in
|
Accumulated
|
|||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital |
Deficit
|
Total | ||||||||||||||||||||||
|
Balances at December 31, 2008
|
95,000 | $ | 95 | 36,778,612 | $ | 36,779 | $ | 9,546,087 | $ | (13,284,812 | ) | $ | (3,701,851 | ) | ||||||||||||||
|
Common stock issued for:
|
||||||||||||||||||||||||||||
|
Cash
|
- | - | 2,396,920 | 2,397 | 452,803 | - | 455,200 | |||||||||||||||||||||
|
Services & other
|
- | - | 1,629,583 | 1,629 | 541,738 | - | 543,367 | |||||||||||||||||||||
|
Loan fees on convertible debt
|
- | - | 466,560 | 467 | 157,379 | - | 157,846 | |||||||||||||||||||||
|
Convert 95,000 convertible
|
||||||||||||||||||||||||||||
|
preferred shares ($.351
|
||||||||||||||||||||||||||||
|
per share)
|
(95,000 | ) | (95 | ) | 10,857,142 | 10,857 | 3,800,095 | - | 3,810,857 | |||||||||||||||||||
|
Stock options granted for
|
||||||||||||||||||||||||||||
|
payables
|
- | - | - | - | 237,000 | - | 237,000 | |||||||||||||||||||||
|
Intrinsic value of convertible
|
||||||||||||||||||||||||||||
|
debt issued
|
- | - | - | - | 200,872 | - | 200,872 | |||||||||||||||||||||
|
Vesting of stock options
|
- | - | - | - | 480,024 | - | 480,024 | |||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | (3,991,994 | ) | (3,991,994 | ||||||||||||||||||||
|
Balances at December 31, 2009
|
- | $ | - | 52,128,817 | $ | 52,129 | $ | 15,415,998 | $ | (17,276,806 | ) | $ | (1,808,679 | ) | ||||||||||||||
|
Common stock issued for:
|
||||||||||||||||||||||||||||
|
Cash
|
- | - | 5,090,912 | 5,091 | 541,909 | - | 547,000 | |||||||||||||||||||||
|
Services & other
|
- | - | 4,106,632 | 4,107 | 969,891 | - | 973,998 | |||||||||||||||||||||
|
Loan fees on convertible debt
|
- | - | 413,080 | 413 | 186,611 | - | 187,024 | |||||||||||||||||||||
|
Options exercised
|
- | - | 250,000 | 250 | 72,250 | - | 72,500 | |||||||||||||||||||||
|
Debt converted
|
- | - | 5,928,542 | 5,928 | 946,708 | - | 952,636 | |||||||||||||||||||||
|
Vesting of stock options
|
- | - | - | - | 165,886 | - | 165,886 | |||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | (4,055,026 | ) | (4,055,026 | ) | |||||||||||||||||||
|
Balances at December 31, 2010
|
- | $ | - | 67,917,983 | $ | 67,918 | $ | 18,299,253 | $ | (21,331,832 | ) | (2,964,661 | ) | |||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-5
Advanced Medical Isotope Corporation
|
Year ended
|
Year ended
|
|||||||
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
||||||||
|
Net Loss
|
$
|
(4,055,026
|
)
|
$
|
(3,991,994
|
)
|
||
|
Adjustments to reconcile net loss to net cash
|
||||||||
|
used by operating activities:
|
||||||||
|
Depreciation of fixed assets
|
539,499
|
537,671
|
||||||
|
Amortization of licenses and intangible assets
|
5,693
|
25,000
|
||||||
|
Amortization of convertible debt discount
|
410,198
|
526,341
|
||||||
|
Amortization of prepaid expenses paid with stock
|
205,233
|
148,397
|
||||||
|
Impairment of intangible assets
|
150,000
|
-
|
||||||
|
Common stock issued for services
|
843,248
|
182,150
|
||||||
|
Stock options issued for services
|
165,886
|
480,024
|
||||||
|
Net (gain) loss on settlement of debt
|
(27,500
|
)
|
602,718
|
|||||
|
Net (gain) loss on sale of fixed assets
|
10,000
|
-
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable – trade
|
3,660
|
16,717
|
||||||
|
Accounts receivable - other
|
(41,675
|
)
|
-
|
|||||
|
Inventory
|
150
|
5,549
|
||||||
|
Prepaid expenses
|
(46,975
|
)
|
3,000
|
|||||
|
Deposits
|
2,765
|
-
|
||||||
|
Accounts payable
|
64,453
|
316,114
|
||||||
|
Payroll liabilities
|
(6,818
|
)
|
10,949
|
|||||
|
Stock based consulting fees payable
|
-
|
10,400
|
||||||
|
Accrued interest
|
235,227
|
113,936
|
||||||
|
Deferred income
|
(907,663
|
)
|
-
|
|||||
|
Net cash used by operating activities
|
(634,319
|
)
|
(1,013,028
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Cash used to acquire equipment
|
(16,050
|
)
|
(235,000
|
)
|
||||
|
Cash used to acquire patents
|
(113,327
|
)
|
(81,882
|
)
|
||||
|
Purchase of intangibles
|
(20,000
|
)
|
-
|
|||||
|
Sale of fixed assets
|
125,000
|
-
|
||||||
|
Net cash used in investing activities
|
(24,377
|
)
|
(316,882
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Payments on Washington Trust debt
|
(36,767
|
)
|
(31,324
|
)
|
||||
|
Principal payments on capital lease
|
(404,909
|
)
|
(299,435
|
)
|
||||
|
Proceeds from convertible note
|
1,032,700
|
1,156,400
|
||||||
|
Proceeds from officers related party debt
|
-
|
40,800
|
||||||
|
Payments on officers related party debt
|
-
|
(40,800
|
)
|
|||||
|
Proceed from short term loan
|
60,000
|
-
|
||||||
|
Payment on short term loan
|
(60,000
|
)
|
-
|
|||||
|
Proceeds from cash sales of common shares
|
547,000
|
455,200
|
||||||
|
Proceeds from exercise of options and warrants
|
72,500
|
-
|
||||||
|
Net cash provided by financing activities
|
$
|
1,210,524
|
$
|
1,280,841
|
||||
The accompanying notes are an integral part of these financial statements.
F-6
Advanced Medical Isotope Corporation
Statements of Cash Flow (continued)
Statements of Cash Flow –
continued
|
Net increase (decrease) in cash and cash equivalents
|
$
|
551,828
|
$
|
(49,069
|
)
|
|||
|
Cash and cash equivalents, beginning of period
|
37,562
|
86,631
|
||||||
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
589,390
|
$
|
37,562
|
||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
204,455
|
$
|
211,167
|
||||
|
Cash paid for income taxes
|
$
|
-
|
$
|
-
|
The accompanying notes are an integral part of these financial statements.
F-7
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Nature of Organization
Advanced Medical Isotope Corporation (the “Company” or “AMIC”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel. The Company had limited activity since inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMIC has an authorized capital of 100,000,000 shares of Common Stock, $.001 par value per share and 100,000 of Series A Preferred Stock, $.001 par value per share.
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Historically, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate we will continue to require funding from investors for working capital as well as business expansion during this fiscal year and we can provide no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable time. In addition, our ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which we operate.
We anticipate a requirement of $1 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. Currently we have $589,390 cash on hand which means there will be an anticipated shortfall of nearly the full $15 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.
F-8
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Going Concern
- continued
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 shareholders. 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.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2010, 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.
F-9
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
Production equipment 3 to 7 years
Office equipment 2 to 5 years
Furniture and fixtures 2 to 5 years
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.
The types of events and circumstances that management believes could indicate impairment are as follows:
|
|
·
|
A significant decrease in the market price of a live-lived asset.
|
|
|
·
|
A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.
|
|
|
·
|
A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator.
|
|
|
·
|
An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.
|
|
|
·
|
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.
|
|
|
·
|
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.
|
The fair value of assets is first determined by quoted market prices, if available. Otherwise, the estimate of fair value is based on the best information available in the circumstances, including prices for similar assets and the results of using other valuation techniques. If quoted market prices are not available a present value technique is often the best available valuation technique with which to estimate fair value. It is believed that an expected present value technique is superior to a traditional present value technique, especially in situations in which the timing or amount of estimated future cash flows is certain.
The traditional approach is useful for many measurements, especially those in which comparable assets and liabilities can be observed in the marketplace. However the traditional approach does not provide the tools needed to address some complex measurement problems, including the measurement of nonfinancial assets and liabilities for which no market for the item or a comparable item exists. The traditional approach places most of the emphasis on selection of an interest rate. A proper search for “the rate commensurate with the risk” requires analysis of at least two items – one asset or liability that exists in the marketplace and has an observed interest rate and the asset or liability being measured. The appropriate rate of interest for the cash flows being measured must be inferred from the observable rate of interest in some other asset or liability and, to draw that inference, the characteristics of the cash flows must be similar to those of the asset being measured.
Although management has made its best estimate of the factors that affect the carrying value based on current conditions, it is reasonably possible that changes could occur which could adversely affect management’s estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.
F-10
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
License Fees
License fees resulted from the acquisition of a patent license, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000, and from the result of the acquisition of a patent license, for a Nutron Generator, from Neu-Hope Technologies for preferred stock valued, at the time of acquisition, at $3,040,000, discounted for 4.25% incremental borrowing rate to $2,897,625. License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets.
The Company made a $10,000 investment in 2010 for a patent license regarding its technology for the production of Mo-99. In May 2010 the Company entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerator(s) for creating short lived radioisotopes such as molybdenum-99 and technetium-99 with the University of Missouri. This Agreement calls for a $10,000 nonrefundable fee paid upon execution, a royalty agreement on sales, and an equipment licensing fee on equipment sales. Additionally the Agreement calls for a milestone payment of $250,000, due and payable five years after execution of this agreement and a milestone payment of $250,000, due and payable upon reaching $50,000,000 in cumulative net sales. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life.
The Company made a $10,000 investment in 2010 for an exclusive patent license with Battelle Memorial Institute regarding its technology for the production of Brachytherapy. In September 2010 the Company entered into a License Agreement for the Patent Rights in the area of resorbable brachytherapy seed. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
|
Calendar Year
|
Minimum Royalties per Calendar Year
|
|||
|
2010
|
$ | - | ||
|
2011
|
$ | - | ||
|
2012
|
$ | 2,500 | ||
|
2013
|
$ | 5,000 | ||
|
2014
|
$ | 7,500 | ||
|
2015
|
$ | 10,000 | ||
|
2016 and each calendar year thereafter
|
$ | 25,000 | ||
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.
Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $5,693 and $25,000 for the years ended December 31, 2010 and 2009, respectively. Based on the license fees recorded at December 31, 2010, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $16,390, will be fully amortized during the year ending December 31, 2013. Future annual amortization is expected to be as follows:
|
Calendar Year
|
Annual Amortization
|
|||
|
2011
|
$ | 6,666 | ||
|
2012
|
$ | 6,666 | ||
|
2013
|
$ | 3,056 | ||
F-11
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Patents
Patent filing costs totaling $113,326, and $81,882, were capitalized during the twelve months ended December 31, 2010, and 2009; resulting in a total $219,803 of capitalized patents at December 31, 2010. The patents are pending and are being developed, as such, they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2009 consisted of both the sales of Oxygen 18 (staple isotope) and Flouride 18. Revenue for the fiscal year ended December 31, 2010 consisted of the sales of Flouride 18 and Consulting Revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.
Income from Grants
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
For the twelve months ended December 31, 2010 the Company recognized $23,508 of the $1,215,000 Department of Energy grant as income with the remaining $1,191,492 recorded as deferred income as of December 31, 2010. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010.
The Company fully recognized the $244,479 grant money received on both the Molybdenum tax grant and the Brachytherapy tax grant as income in the twelve months ended December 31, 2010.
As of December 31, 2010 the grant money received and grant money recognized as income and deferred income is:
| $1,215,000 | $244,479 | $244,479 | ||||||||||||||
|
Brachytherapy Grant
|
Molybdenum Grant
|
Brachytherapy Grant
|
Total
|
|||||||||||||
|
Grant money received
|
$ | 1,215,000 | $ | 205,129 | $ | - | $ | 1,420,129 | ||||||||
|
Grant money recorded as account receivable
|
- | 39,350 | 244,479 | 283,829 | ||||||||||||
|
Total grant money
|
1,215,000 | 244,479 | 244,479 | 1,703,958 | ||||||||||||
|
Recognized income from grants
|
23,508 | 244,479 | 244,479 | 512,466 | ||||||||||||
|
Deferred income
|
$ | 1,191,492 | $ | - | $ | - | $ | 1,191,492 | ||||||||
F-12
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- continued
Net Loss Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents since the impact would be anti-dilutive. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2010 and 2009 are as follows:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Convertible debt
|
4,775,415
|
5,150,333
|
||||||
|
Common stock options
|
9,295,912
|
5,049,327
|
||||||
|
Total potential dilutive securities
|
14,071,327
|
10,199,660
|
||||||
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
The Company incurred $1,168,422, and $67,006 research and development costs for the years ended December 31, 2010, and 2009, respectively, all of which were recorded in our operating expenses noted on the income statements for the years then ended.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were no tradeshow expenses incurred and not expensed as of the year ended December 31, 2009. There were $12,675 tradeshow expenses incurred and not expensed as of the year ended December 31, 2010 which are prepayment costs for 2011 tradeshow expenses. During the twelve months ended December 31, 2010 and 2009 the Company incurred $1,750 and $1,750, respectively, in advertising costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of product sales.
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
F-13
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
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 or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and Delaware. The Company did not have any tax expense for the years ended December 31, 2010 and 2009. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2010 and 2009.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the years ended December 31, 2010 and 2009, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.
Fair Value of Financial Instruments
The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the consolidated financial statements of the Company.
F-14
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Accounts receivable – other consist of the following at December 31, 2010 and 2009:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Balance due on sale of fixed asset
|
$
|
125,000
|
$
|
-
|
||||
|
Reimbursable expenses
|
16,675
|
-
|
||||||
|
Grant proceeds received February 2011
|
283,829
|
-
|
||||||
|
$
|
425,504
|
$
|
-
|
|||||
|
Accounts receivable – other consist of the following at December 31, 2010 and 2009:
|
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Balance due on sale of fixed asset
|
$
|
125,000
|
$
|
-
|
||||
|
Reimbursable expenses
|
16,675
|
-
|
||||||
|
Grant proceeds received February 2011
|
283,829
|
-
|
||||||
|
$
|
425,504
|
$
|
-
|
|||||
|
Fixed assets consist of the following at December 31, 2010 and 2009:
|
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Production equipment
|
$
|
2,116,627
|
$
|
2,113,218
|
||||
|
Production equipment, not in use
|
-
|
235,000
|
||||||
|
Building
|
446,772
|
446,772
|
||||||
|
Leasehold improvements
|
3,235
|
3,235
|
||||||
|
Office equipment
|
32,769
|
20,128
|
||||||
|
2,599,403
|
2,818,353
|
|||||||
|
Less accumulated depreciation
|
(1,387,739
|
)
|
(848,240
|
)
|
||||
|
$
|
1,211,664
|
$
|
1,970,113
|
|||||
|
Accumulated depreciation related to fixed assets is as follows:
|
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Production equipment
|
$
|
1,098,194
|
$
|
675,403
|
||||
|
Production equipment, not in use
|
-
|
-
|
||||||
|
Building
|
273,531
|
164,119
|
||||||
|
Leasehold improvements
|
2,054
|
7,411
|
||||||
|
Office equipment
|
13,960
|
1,370
|
||||||
|
$
|
1,387,739
|
$
|
848,240
|
|||||
Depreciation expense for the above fixed assets for the years ended December 31, 2010 and 2009, respectively, was $539,499 and $537,671.
The Company had paid an upfront fee of $150,000 towards the upgrade of its linear accelerator purchased in 2008. This fee was for the eventual upgrade of the accelerator from a 7.5 MeV to a 10 MeV accelerator. Because the Company has not yet completed this upgrade and is unsure as to whether it intends to complete the upgrade in the near term, it has chosen to write off the $150,000 as impairment expense in the twelve months ended December 31, 2010.
F-15
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
|
|
|||
|
Intangible assets consist of the following at December 31, 2010 and December 31, 2009:
|
|||
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
License Fee
|
$
|
95,000
|
$
|
75,000
|
||||
|
Less accumulated amortization
|
(78,610
|
)
|
(72,917
|
)
|
||||
|
16,390
|
2,083
|
|||||||
|
Patents
|
219,803
|
106,476
|
||||||
|
Intangible assets net of accumulated amortization
|
$
|
236,193
|
$
|
108,559
|
||||
Amortization expense for the above intangible assets for the years ended December 31, 2010 and 2009, respectively, was $5,693 and $25,000.
Indebtedness from Related Parties
The Company had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009. The Company had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time it was paid off and replaced with a loan from two of the major shareholders. 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 loan was extended for one year with a balloon payment for the balance due at October 31, 2010, at which time the loan was extended for one year with a balloon payment for the balance due at October 31, 2011. There is no security held as collateral for this loan. As of December 31, 2010, the balance was $126,508 and all payments were current on this shareholder loan.
During the first three months of 2009 the Company received a total of $22,800 from a shareholder and officer in the form of a loan and the Company repaid the entire balance in April 2009. There was no interest obligation on this loan to the Company.
The Company issued various shares of common stock and convertible promissory notes during the twelve months ended December 31, 2010 and 2009 from a director and major shareholder. The details of these transactions are outlined in NOTE 12 STOCKHOLDERS EQUITY - Common Stock Issued for Convertible Debt
.
.
F-16
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
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 shareholder holding less that 5% of the total shares outstanding. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011. During the years ended December 31, 2010 and 2009 the Company incurred rent expenses for this facility totaling $50,622 and $46,872, respectively. In addition, the lease agreement called for the issuance of $187,500 in common stock valued at $0.40 per share for a total of 416,667 shares. The company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease. For the years ended December 31, 2010 and 2009 the Company amortized $37,500 and $37,500 of this stock issuance and recognized it as rent expense. Additionally, during the years ended December 31, 2010 and 2009 the Company recognized an additional rent expense of $20,125 and $11,625. Respectively, for additional shares issued to the Company’s landlord.
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. The lease agreement calls for monthly rental payments of $2,733 and $2,328 per month for two separate office areas. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month. During the years ended December 31, 2010 and 2009 the Company incurred rent expenses for this facility totaling $32,800 and $56,076, respectively.
The Company purchased a used Cyclotron April 2009 and paid storage fees from that time until it was sold November 2010. The storage fees began at $2,050 per month until December 2009 when they were increased to $5,600 per month. Storage fees for the Cyclotron were $32,800 and $56,076 for the twelve months ended December 31, 2010 and 2009, respectively.
Future minimum rental payments required under the Company’s current rental agreements in excess of one year as of December 31, 2010, are as follows:
|
Production
|
||||
|
Facility
|
||||
|
Twelve months ended December 31, 2011
|
$
|
54,672
|
||
|
Twelve months ended December 31, 2012
|
33,332
|
|||
|
Twelve months ended December 31, 2013
|
-
|
|||
|
Twelve months ended December 31, 2014
|
-
|
|||
|
Total
|
$
|
88,004
|
||
Rental expense for the years ended December 31, 2010 and 2009 consisted of the following:
|
Year ended
December 31, 2010
|
Year ended
December 31, 2009
|
|||||||
|
Office and warehouse space
|
$
|
50,622
|
$
|
46,872
|
||||
|
Rental expense in the form of stock issuance
|
57,625
|
49,125
|
||||||
|
Corporate office
|
32,800
|
56,076
|
||||||
|
Cyclotron storage
|
47,500
|
27,900
|
||||||
|
Total Rental Expense
|
$
|
188,547
|
$
|
179,973
|
||||
F-17
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation and a subsidiary of UTEK Corporation (“UTEK”), a Delaware Corporation. We did not have a relationship with UTEK before the acquisition of Neu Hope Technologies and we do not currently have any business relationship or affiliation with UTEK. On August 30, 2006, NHTI had entered into a Non-Exclusive License Agreement with the Regents of the University of California. NHTI paid a non-refundable License Issue Fee in the amount of $25,000. The license fee is non-refundable unless the Company’s commercialization plan is deemed unacceptable by the University. If the plan is deemed unacceptable, the license agreement will terminate and may be converted to a non-exclusive license. To date, no commercialization plan has been deemed acceptable or unacceptable.
In consideration for the license, the Company agreed to the following payments:
|
|
·
|
$25,000 License Issue Fee, described above;
|
|
|
·
|
$25,000 upon submission by University of California to U.S. Federal Drug Administration (or comparable agency) of either notification of or request for approval of (as applicable), a Licensed Product;
|
|
|
·
|
$100,000 upon satisfaction of necessary requirements (e.g., notification or receipt of approval, as applicable) by Federal Drug Administration (or comparable agency) for commercial sale of a Licensed Product;
|
|
|
·
|
Royalties equal to the greater of three percent of the Selling Price of each Licensed Product Licensee sells or the maintenance fee according to the following schedule:
|
|
2008
|
$ | 10,000 |
(not yet paid)
|
||
|
2009
|
$ | 15,000 |
(not yet paid)
|
||
|
2010
|
$ | 15,000 |
(not yet paid)
|
||
|
2011
|
$ | 45,000 | |||
|
2012 (and each year thereafter)
|
$ | 60,000 |
The Company entered into an agreement effective January 22, 2009 for a two year project to develop and bring to market an innovative compact-systems technology for producing critically needed medical isotopes. The Company is to contribute $760,000 in the form of services to this project. To date, no services have been performed.
The Company has issued stock to companies for various service agreements extending beyond December 31, 2010. Additionally, the Company issued stock for prepaid rent which will expire annually through July 2012 at the rate of $37,500 per year. Prepaid expenses are expected to mature as follows:
|
For the twelve month period ending December 31, 2011
|
$
|
89,949
|
||
|
For the twelve month period ending December 31, 2012
|
21,875
|
|||
|
For the twelve month period ending December 31, 2013
|
-
|
|||
|
For the twelve month period ending December 31, 2014
|
-
|
|||
|
$
|
111,824
|
F-18
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
During September 2007, the Company obtained two master lease agreements for $1,875,000 and $631,000, with interest on both leases accruing at 8.6% annually, secured by equipment and personal guarantee of two of the major shareholders. These long-term agreements shall be deemed capital lease obligations for purposes of financial statement reporting. The purpose of the lease is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $933,888. Advances made by the Lessor for the benefit of the Company, less payments, total $1,839,418 as of December 31, 2010.
This capital lease and its resulting obligation is recorded at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding any portion of the payments representing taxes to be paid by the Company. This amount does not exceed the fair value of the leased property at the lease inception, so the recorded amount is the fair value.
|
Capital Lease Obligation
|
||||||||||||
|
PET Isotope Production System
|
Ancillary Equipment
|
Total
|
||||||||||
|
Total lease commitment
|
$
|
1,875,000
|
$
|
933,888
|
$
|
2,808,888
|
||||||
|
Advances made for purchases
|
$
|
1,511,268
|
$
|
933,888
|
$
|
2,445,156
|
||||||
|
Principal portion of payments
|
541,927
|
468,720
|
1,010,647
|
|||||||||
|
Net balance of advances payable
|
969,341
|
465,168
|
1,434,509
|
|||||||||
|
Add factor to arrive at total future minimum lease payments
|
164,426
|
40,335
|
204,761
|
|||||||||
|
Total future minimum lease payments
|
1,133,767
|
505,503
|
1,639,270
|
|||||||||
|
Less amount representing interest
|
164,426
|
40,335
|
204,761
|
|||||||||
|
Present value of net minimum lease payments
|
969,341
|
465,168
|
1,434,509
|
|||||||||
|
Amounts due within one year
|
208,957
|
196,381
|
405,338
|
|||||||||
|
Amounts due after one year
|
$
|
760,384
|
$
|
268,787
|
$
|
1,029,171
|
||||||
The lease requires the Company to maintain a minimum debt service coverage ratio of 1:1 measured at fiscal year- end; non compliance with this provision shall constitute a default and guarantors must contribute capital sufficient to fund any deficit in the debt service coverage ratio.
The definition of debt service coverage ratio is EBITDA (earnings before interest, taxes, depreciation and amortization), minus cash taxes, minus unfunded capital expenditures, plus capital injections, divided by (interest plus current portion of long-term debt). According to the debt service coverage ratio computation, at December 31, 2009 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants, accordingly the Company recorded the entire value of the leases as a current value at December 31, 2009. However the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2010, and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2010.
F-19
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
The Company’s actual results of the minimum debt service ratio calculation for the years December 31, 2010 and 2009 are as follows:
| December 31, | December 31, | |||||||
|
2010
|
2009
|
|||||||
|
Net loss
|
$
|
(4,013,736
|
)
|
$
|
(3,991,994
|
)
|
||
|
Interest
|
860,252
|
839,628
|
||||||
|
Depreciation and amortization
|
545,192
|
562,671
|
||||||
|
Unfunded capital expenditures
|
-
|
-
|
||||||
|
Capital injections
|
4,084,965
|
1,664,100
|
||||||
|
$
|
1,476,673
|
$
|
(925,595
|
)
|
||||
|
Interest plus current portion of long-term debt
|
$
|
1,434,509
|
$
|
1,222,988
|
||||
|
Debt service coverage ratio
|
$
|
1.03
|
$
|
(0.76
|
)
|
|||
Principal maturities on the amount of the capital lease obligations advanced through December 31, 2010 are due as follows:
|
Year ended December 31,
|
Production
Facility
|
Ancillary
Equipment
|
||||||
|
2011
|
$
|
208,957
|
$
|
196,381
|
||||
|
2012
|
228,209
|
200,534
|
||||||
|
2013
|
248,916
|
68,253
|
||||||
|
2014
|
235,538
|
-
|
||||||
|
2015
|
47,721
|
-
|
||||||
|
Thereafter
|
-
|
-
|
||||||
|
$
|
969,341
|
$
|
465,168
|
|||||
The capital lease obligation is the only Company debt that contains covenants.
The Company borrowed $60,000 July 2010, due April 2011, with interest at 8%. The holder of the note had the right, after the first ninety days of the note (October 19, 2010), to convert the note and accrued interest into common stock at a price per share equal to 58% (representing a discount rate of 42%) of the average closing price of the last five trading prices for the common stock ending one trading day prior to the date of conversion.
The Company had the right to prepay the note and accrued interest during the first ninety days following the date of the note. The amount of any prepayment equals 150% of the outstanding principal balance of the note plus accrued interest on the note. The Company prepaid the note in full prior to October 19, 2010 and therefore had recorded interest expense of $30,467 related to the prepayment cost in the accompanying financial statements for the year ending December 31, 2010. If the Company had not paid off the note and related accrued interest by October 19, 2010, the note would have become convertible and the Company would have had to accrue an additional $12,981 to interest expense to account for the beneficial conversion feature of the note. The Company paid the debt in full as of October 7, 2010.
F-20
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the following components as of December 31, 2010 and 2009:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Deferred tax assets:
|
||||||||
|
Net operating loss carryover
|
$
|
5,042,968
|
$
|
4,363,957
|
||||
|
Related party accrued interest
|
88,844
|
32,533
|
||||||
|
Deferred tax liabilities:
|
||||||||
|
Depreciation
|
(248,808
|
)
|
(362,550
|
)
|
||||
|
Valuation allowance
|
(4,883,004
|
)
|
(4,033,940
|
)
|
||||
|
Net deferred tax asset
|
$
|
-
|
$
|
-
|
||||
The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income from continuing operations for the years ended December 31, 2010 and 2009 due to the following:
|
December 31, 2010
|
December 31, 2009
|
|||||||
|
Book income
|
$
|
(1,581,460
|
)
|
$
|
(1,556,878
|
)
|
||
|
Depreciation
|
113,742
|
98,113
|
||||||
|
Meals and entertainment
|
3,514
|
1,224
|
||||||
|
Stock for services
|
328,867
|
132,969
|
||||||
|
Options expense
|
64,696
|
187,209
|
||||||
|
Related party interest
|
56,311
|
31,924
|
||||||
|
Loss on settlement of debt
|
-
|
242,314
|
||||||
|
Non-cash interest expense
|
255,760
|
245,100
|
||||||
|
Other
|
16,136
|
-
|
||||||
|
Valuation allowance
|
742,434
|
618,025
|
||||||
|
$
|
-
|
$
|
-
|
|||||
At December 31, 2010, the Company had net operating loss carryforwards of approximately $12,930,688 that may be offset against future taxable income from the year 2011 through 2031.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
F-21
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2010, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction and in the state of Washington. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.
Common Stock Sale
The Company issued 2,396,920 shares of common stock for cash during 2009. The price per share ranged from $0.15 to $0.58 per share. The Company also granted 2,669,327 warrants in conjunction with these stock for cash issuances, with an exercise price ranging from $0.15 to $0.87 and an exercise period ranging from one to two years.
The Company issued 5,090,912 shares of common stock for cash during 2010. The price per share ranged from $0.10 to $0.58 per share. The Company also granted 5,090,912 warrants in conjunction with these stock for cash issuances, with an exercise price per share ranging from $0.20 to $0.87 and an exercise period of one year.
The Company issued 250,000 shares of common stock for cash during 2010 for options exercised at $0.29 per share.
Preferred Stock
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware corporation. UTEK is a shareholder of less than 5% of the Company’s issued and outstanding common stock. The Company acquired NHTI’s assets from UTEK in exchange for 100,000 shares of the Company’s Series A preferred stock. At any time after September 27, 2007, these Series A preferred stock shares can be converted to unrestricted common stock in the amount of $3,350,000. The number of shares shall be calculated based on the previous 10 day average closing price on the day of conversion. Additionally, during the initial twelve months period in which UTEK is holding said preferred stock, interest shall accrue at the annual rate of five percent, compounded quarterly, payable in cash or in common shares of the Company. The Company conducted the acquisition in order to obtain NHTI’s cash, rights, and customer relationships.
In December 2007, 5,000 shares of the Company’s Series A preferred stock were converted to 299,642 shares of common stock at $0.56 per share by an executive and director of the UTEK.
F-22
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Preferred Stock
- continued
A board member of the Company acquired the remaining 95,000 shares of the Company’s Series A Preferred Stock from UTEK in February 2009. In March 2009 the board member converted the 95,000 shares of the Company’s Series A Preferred Stock and the related accrued interest into 10,857,142 shares of the Company’s common stock. The value of the transaction totaled $3,810,857 based on common stock’s average closing price for the ten trading days before the date of conversion of $0.35 per share. The Company’s Preferred Stock Redeemable as common liability was reduced by $3,182,405, accrued interest was reduced by $171,628, preferred stock was reduced by $95, and a loss on settlement of debt of $456,823 has been recognized in the accompanying financial statements for the twelve months ended December 31, 2009.
Common Stock Issued for Services and Other
In 2009, the company issued 1,629,583 shares of common stock with a total fair market value of $543,367. The fair market value of the shares issued ranged from $0.27 to $0.43. The shares were issued for $182,150 in services, $165,500 in prepaid expenses, $58,750 in stock based consulting fees, $129,973 in accounts payable and $6,994 in loss on settlement of debt.
In 2010, the Company issued 4,106,632 shares of common stock with a total fair market value of $973,998. The fair market value of the shares issued ranged from $0.11 to $0.50. The shares were issued to extinguish $68,250 of a prior year liability, for $62,500 worth of prepaid services, and for $843,248 worth of current year services.
Common Stock Issued for Convertible Debt
The Company issued 100,000 shares of its common stock in exchange for a $250,000 convertible note in 2008. The value of the $250,000 debt plus the $0.70 fair market value of the 100,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $250,000 debt and the value of the 100,000 shares. This computation resulted in an allocation of $195,313 toward the debt and $54,687 to the shares. The $54,687 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $36,459 has been accreted and added to the note payable bringing the total debt balance to $250,000 as of December 31, 2009. The note was rewritten May 26, 2010 for the original $250,000 note plus $43,750 of interest for the period September 4, 2008 through May 26, 2010 for a new note of $293,750, 10%, expiration date of September 30, 2010. The Company recognized interest expense on the notes principal balance of $25,000 and $27,553 in the accompanying financial statements for the years ended December 31, 2009 and 2010, respectively. The $293,750 original value of the note plus $17,866 interest from May 26, 2010 through January 3, 2011, for a total of $311,616, was paid January 3, 2011.
The Company issued 20,000 shares of its common stock in exchange for $50,000 convertible note in 2008. The value of the $50,000 debt plus the $0.53 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. This computation resulted in an allocation of $16,258 toward the debt and $8,746 to the shares and $24,996 to the beneficial conversion feature. The $8,746 value of the shares and the $24,996 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense for the beneficial conversion feature of $0 and $28,118 has been recognized in the accompanying financial statements for the years ended December 31, 2010 and 2009. The Company recognized interest expense for the note of $1,667 and $5,000 in the accompanying financial statements for the years ended December 31, 2010 and 2009, respectively. The $50,000 original value of the note plus $7,500 interest from October 27, 2008 through April 30, 2010, for a total of $57,500, was converted into 143,750 shares of the Company’s common stock at a price of $0.40 per share effective April 30, 2010.
.
F-23
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Issued for Convertible Debt
- continued
The Company issued a convertible promissory note in the amount of $375,000 with interest payable at 10% per annum in 2008. The Note matures on December 16, 2009 (the "Maturity Date"). The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. Interest on the Note is payable every six months until the Note is paid in full. Additionally, in connection with the convertible note, 150,000 shares of the Company’s common stock were issued to the note holder. At the option of the holder, the note is convertible, in whole or in part, into the Company’s common stock by taking the principal to be converted and dividing it by fifty percent of the volume-weighted average trading price of the Company’s common stock for the 10 consecutive trading days immediately preceding the date of conversion. The note is convertible at any time.
The embedded conversion feature within the convertible promissory note was assessed to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.
The company believes that the embedded derivative instrument shall not be separated from the host contract and accounted for as a derivative instrument because the criteria for that treatment has not been met as the Company’s stock is not considered to be readily convertible to cash. Per the agreement the Company is required to deliver shares of its common stock and there is no mechanism outside the contract that facilitates that. Therefore the company concluded that conversion feature should not be bifurcated from the host instrument.
The Company allocated the proceeds to the shares issued and the debt and then calculated a beneficial conversion feature. The company performed these calculations which resulted in a beneficial conversion feature with an intrinsic value of $322,234. The 150,000 shares of common stock were valued at $46,053 and the debt was recorded at $6,713. Because the debt is immediately convertible, the value of the beneficial conversion feature is calculated as if converted on the commitment date. The $322,234 allocated to the beneficial conversion feature along with the $46,053 allocated to the 150,000 shares of common stock is being accreted to interest expense over the twelve month life of the debt. Interest expense of $368,287 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $375,000 as of December 31, 2009. The note expired December 16, 2009, was extended by the note holder for another year until December 16, 2010, and another year to December 16, 2011. The Company recognized interest expense of $37,500 in the accompanying financial statements for the twelve months ending December 31, 2010 and interest expense of $1,562 for the period from December 16 through December 31, 2009 in the accompanying financial statements for the twelve months ended December 31, 2009.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in 2009. The Note matured in March of 2010, was extended by the note holder for another year until March, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $100,000 debt plus the $0.31 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $74,603 toward the debt and $11,032 to the shares and $14,365 to the beneficial conversion feature. The $11,032 value of the shares and the $14,365 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $20,105 and $5,292 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $94,708 and $100,000 as of December 31, 2009 and 2010, respectively. Additionally, $7,915 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
F-24
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Issued for Convertible Debt
- continued
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in 2009. The Note matured in April of 2010, was extended by the note holder for another year until April, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $50,000 debt plus the $0.31 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $31,268 toward the debt and $6,140 to the shares and $12,592 to the beneficial conversion feature. The $6,140 value of the shares and the $12,592 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $12,488 and $6,244 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $43,756 and $50,000 as of December 31, 2009 and 2010, respectively. Additionally, $3,333 and $5,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
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 2009. The Note matured in May of 2010, was extended by the note holder for another year until May, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $50,000 debt plus the $0.21 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 $46,125 toward the debt and $3,875 to the shares and resulted in no beneficial conversion feature. The $3,875 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $2,342 and $1,533 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $48,467 as of December 31, 2009 and $50,000 as of December 29, 2010, the date the note was paid. Additionally, $3,020 and $5,035 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010. The $50,000 original value of the note plus $8,055 interest from May 20, 2009 through December 29, 2010, for a total of $58,055, was converted into 207,339 shares of the Company’s common stock at a price of $0.28 per share effective December 29, 2010.
The Company issued 110,000 shares of its common stock and a convertible promissory note in the amount of $275,000 with interest payable at 10% per annum in 2009. The Note matured in June of 2010, was extended by the note holder for another year until June, 2011. 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 $0.27 per share. The value of the $275,000 debt plus the $0.21 fair market value of the 110,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $275,000 debt and the value of the 110,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $253,690 toward the debt and $21,310 to the shares and resulted in no beneficial conversion feature. The $21,310 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $11,986 and $9,324 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $265,676 as of December 31, 2009 and $275,000 as of December 29, 2010, the date the note was paid. Additionally, $15,470 and $27,174 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010. The $275,000 original value of the note plus $42,644 interest from June 11, 2009 through December 29, 2010, for a total of $317,644, was converted into 1,176,459 shares of the Company’s common stock at a price of $0.27 per share effective December 29, 2010.
F-25
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Issued for Convertible Debt
- continued
The Company issued 90,560 shares of its common stock and a convertible promissory note in the amount of $226,400 with interest payable at 10% per annum in 2009. The Note matured in September of 2010, was extended by the note holder for another year until September, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $226,400 debt plus the $0.39 fair market value of the 90,560 shares at the date of the agreement was prorated to arrive at the allocation of the original $226,400 debt and the value of the 90,560 shares and the beneficial conversion feature. The computation resulted in an allocation of $106,870 toward the debt and $30,552 to the shares and $88,978 to the beneficial conversion feature. The $30,552 value of the shares and the $88,978 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $39,844 and $79,686 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $146,714 and $226,400 as of December 31, 2009 and 2010, respectively. Additionally, $7,547 and $22,640 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
The Company issued 66,000 shares of its common stock and a convertible promissory note in the amount of $155,000 with interest payable at 10% per annum in 2009. The Note matured in October of 2010, was extended by the note holder for another year until October, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.51 per share. The value of the $155,000 debt plus the $0.51 fair market value of the 66,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $155,000 debt and the value of the 66,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $99,690 toward the debt and $27,655 to the shares and $27,655 to the beneficial conversion feature. The $27,655 value of the shares and the $27,655 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $11,520 and $43,790 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $111,210 and $155,000 as of December 31, 2009 and 2010, respectively. Additionally, $3,230 and $15,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
The Company issued 80,000 shares of its common stock and a convertible promissory note in the amount of $200,000 with interest payable at 10% per annum in 2009. The Note matured in November of 2010, was extended by the note holder for another year until November, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $200,000 debt plus the $0.59 fair market value of the 80,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $200,000 debt and the value of the 80,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $123,624 toward the debt and $38,188 to the shares and $38,188 to the beneficial conversion feature. The $38,188 value of the shares and the $38,188 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $8,150 and $68,226 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $131,774 and $200,000 as of December 31, 2009 and 2010, respectively. Additionally, $2,500 and $20,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in 2009. The Note matured in December of 2010, was extended by the note holder for another year until December, 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $100,000 debt plus the $0.59 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $61,812 toward the debt and $19,094 to the shares and $19,094 to the beneficial conversion feature. The $19,094 value of the shares and the $19,094 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,387 and $35,801 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $64,199 and $100,000 as of December 31, 2009 and 2010, respectively. Additionally, $625 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009 and 2010.
F-26
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Issued for Convertible Debt
- continued
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in January 2010. The Note matures in January of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.45 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $79,492 toward the debt and $15,254 to the shares and $5,254 to the beneficial conversion feature. The $15,254 value of the shares and the $5,254 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $19,231 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $98,723 as of December 31, 2010. Additionally, $9,452 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in February 2010. The Note matures in February of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.49 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $69,224 toward the debt and $16,388 to the shares and $14,388 to the beneficial conversion feature. The $16,388 value of the shares and the $14,388 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $26,932 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $96,156 as of December 31, 2010. Additionally, $8,750 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010.
The Company issued 90,000 shares of its common stock and a convertible promissory note in the amount of $225,000 with interest payable at 10% per annum in March 2010. The Note matures in March of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $225,000 debt plus the $0.40 fair market value of the 90,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $225,000 debt and the value of the 90,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $162,932 toward the debt and $31,034 to the shares and $31,034 to the beneficial conversion feature. The $31,034 value of the shares and the $31,034 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $49,131 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $212,063 as of December 31, 2010. Additionally, $17,815 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010.
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in April 2010. The Note matures in April of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $50,500 debt plus the $0.40 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $36,568 toward the debt and $6,966 to the shares and $6,966 to the beneficial conversion feature. The $6,966 value of the shares and the $6,966 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $9,866 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $46,434 as of December 31, 2010. Additionally, $3,431 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010.
F-27
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Issued for Convertible Debt
– continued
The Company issued 22,880 shares of its common stock and a convertible promissory note in the amount of $57,200 with interest payable at 10% per annum in May 2010. The Note matures in May of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $57,200 debt plus the $0.30 fair market value of the 22,880 shares at the date of the agreement was prorated to arrive at the allocation of the original $57,200 debt and the value of the 22,880 shares and the beneficial conversion feature. The computation resulted in an allocation of $44,942 toward the debt and $6,129 to the shares and $6,129 to the beneficial conversion feature. The $6,129 value of the shares and the $6,129 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $7,660 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $52,602 as of December 31, 2010. Additionally, $3,575 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in June 2010. The Note matures in June of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.18 per share. The value of the $100,000 debt plus the $0.18 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $86,568 toward the debt and $6,716 to the shares and $6,716 to the beneficial conversion feature. The $6,716 value of the shares and the $6,716 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $13,432 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 29, 2010, the date the note was paid. Additionally, $5,233 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010. The $100,000 original value of the note plus $5,233 interest from June 21, 2010 through December 29, 2010, for a total of $105,233, was converted into 584,627 shares of the Company’s common stock at a price of $0.18 per share effective December 29, 2010.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in 2010. The Note matures in July of 2011. 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 $0.13 per share. The value of the $100,000 debt plus the $0.13 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $90,114 toward the debt and $4,943 to the shares and $4,943 to the beneficial conversion feature. The $4,943 value of the shares and the $4,943 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $9,886 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 29, 2010, the date the note was paid. Additionally, $4,466 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010. The $100,000 original value of the note plus $4,466 interest from July 19, 2010 through December 29, 2010, for a total of $104,466, was converted into 584,627 shares of the Company’s common stock at a price of $0.13 per share effective December 29, 2010.
The Company issued 60,000 shares of its common stock and a convertible promissory note in the amount of $150,000 with interest payable at 10% per annum in 2010. The Note matures in August of 2011. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.09 per share. The value of the $150,000 debt plus the $0.09 fair market value of the 60,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $150,000 debt and the value of the 60,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $139,575 toward the debt and $5,212 to the shares and $5,212 to the beneficial conversion feature. The $5,212 value of the shares and the $5,212 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $10,424 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 29, 2010, the date the note was paid. Additionally, $5,384 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010. The $150,000 original value of the note plus $5,384 interest from August 20, 2010 through December 29, 2010, for a total of $155,384, was converted into 1,726,484 shares of the Company’s common stock at a price of $0.09 per share effective December 29, 2010.
F-28
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Common Stock Issued for Convertible Debt
– continued
The Company issued 60,000 shares of its common stock and a convertible promissory note in the amount of $150,000 with interest payable at 10% per annum in 2010. The Note matures in September of 2011. 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 $0.12 per share. The value of the $150,000 debt plus the $0.12 fair market value of the 60,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $150,000 debt and the value of the 60,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $136,260 toward the debt and $6,870 to the shares and $6,870 to the beneficial conversion feature. The $6,870 value of the shares and the $6,870 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $13,740 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $150,000 as of December 29, 2010, the date the note was paid. Additionally, $4,356 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2010. The $150,000 original value of the note plus $4,356 interest from September 14, 2010 through December 29, 2010, for a total of $154,356, was converted into 1,286,301 shares of the Company’s common stock at a price of $0.12 per share effective December 29, 2010.
Common Stock Options
Options granted to non-employees, accounted for under the fair value method
During February 2009, the Company granted three consultants options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $0.50 per share. The options are fully vested and expire February 5, 2012. The quoted market price of the common stock at the time of issuance of the options was $0.49 per share. The fair value of the options totaled $230,000 using the Black-Scholes option pricing model. The Company’s accounts payable was reduced by $79,500 and a loss on settlement of debt of $150,500 has been recognized in the accompanying financial statements for the year ended December 31, 2009.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
1.37
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
211.2
|
%
|
||
|
Weighted average expected life
|
3 years
|
|||
During May 2009, the Company granted a board member options to purchase 200,000 shares of the Company’s common stock, at an exercise price of $0.26 per share. The options are fully vested and expire May 8, 2012. The quoted market price of the common stock at the time of issuance of the options was $0.26 per share. The fair value of the options totaled $36,000 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
1.39
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
120.2
|
%
|
||
|
Weighted average expected life
|
3 years
|
|||
F-29
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
NOTE 12:
STOCKHOLDERS’ EQUITY -
continued
Common Stock Options
– continued
During August 2009, the Company granted a board member options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $0.27 per share. The options are fully vested and expire August 6, 2012. The quoted market price of the common stock at the time of issuance of the options was $0.27 per share. The fair value of the options totaled $95,000 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
1.65
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
98.3
|
%
|
||
|
Weighted average expected life
|
3 years
|
|||
During December 2009, the Company granted a consultant options to purchase 50,000 shares of the Company’s common stock, at an exercise price of $0.43 per share. The options are fully vested and expire December 30, 2010. The quoted market price of the common stock at the time of issuance of the options was $0.43 per share. The fair value of the options totaled $7,000 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
0.37
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
81.9
|
%
|
||
|
Weighted average expected life
|
1 year
|
|||
During April 2010, the Company granted a consultant options to purchase 50,000 shares of the Company’s common stock, at an exercise price of $0.26 per share. The options are fully vested and expire April 15, 2013. The quoted market price of the common stock at the time of issuance of the options was $0.26 per share. The fair value of the options totaled $7,000 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
1.64
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
86.2
|
%
|
||
|
Weighted average expected life
|
3 year
|
|||
During November 2010, the Company granted a director options to purchase 50,000 shares of the Company’s common stock, at an exercise price of $0.40 per share. The options are fully vested and expire November 16, 2013. The quoted market price of the common stock at the time of issuance of the options was $0.39 per share. The fair value of the options totaled $12,500 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
0.67
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
106.1
|
%
|
||
|
Weighted average expected life
|
3 year
|
|||
F-30
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Common Stock Options
– continued
During November 2010, the Company granted a consultant options to purchase 100,000 shares of the Company’s common stock, at an exercise price of $0.39 per share. The options are fully vested and expire January 31, 2011. The quoted market price of the common stock at the time of issuance of the options was $0.39 per share. The fair value of the options totaled $15,500 using the Black-Scholes option pricing model.
The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
|
Risk-free interest rate
|
0.67
|
%
|
||
|
Dividend yield
|
0
|
%
|
||
|
Volatility factor
|
175.8
|
%
|
||
|
Weighted average expected life
|
2.5 month
|
|||
The following schedule summarizes the changes in the Company’s stock option plan:
|
Weighted
|
Weighted
|
|||||||||||||||||||
|
Options Outstanding
|
Average
|
Average
|
||||||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
||||||||||||||||
|
Of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
||||||||||||||||
|
Shares
|
Per Share
|
Life
|
Value
|
Per Share
|
||||||||||||||||
|
Balance at December 31, 2008
|
5,609,021
|
$
|
0.15-1.05
|
1.52 years
|
$
|
422,029
|
$
|
0.75
|
||||||||||||
|
Options granted
|
2,644,327
|
$
|
0.15-0.87
|
1.54 years
|
165,000
|
$
|
0.33
|
|||||||||||||
|
Options exercised
|
-
|
$
|
-
|
-
|
-
|
$
|
-
|
|||||||||||||
|
Options expired
|
(3,204,021
|
)
|
$
|
0.17-1.05
|
-
|
(87,029
|
)
|
$
|
0.95
|
|||||||||||
|
Balance at December 31, 2009
|
5,049,327
|
$
|
0.15-0.87
|
1.72 years
|
500,000
|
$
|
0.40
|
|||||||||||||
|
Options granted
|
5,290,912
|
$
|
0.20-0.87
|
0.76 years
|
-
|
$
|
0.22
|
|||||||||||||
|
Options exercised
|
(250,000
|
)
|
$
|
0.29
|
-
|
-
|
$
|
0.29
|
||||||||||||
|
Options expired
|
(794,327
|
)
|
$
|
0.40-0.87
|
-
|
(35,000
|
)
|
$
|
0.46
|
|||||||||||
|
Balance at December 31, 2010
|
9,295,912
|
$
|
0.15-0.87
|
0.90 years
|
$
|
465,000
|
$
|
0.29
|
||||||||||||
|
Exercisable at December 31, 2009
|
5,049,327
|
$
|
0.15-0.87
|
1.72 years
|
$
|
500,000
|
$
|
0.40
|
||||||||||||
|
Exercisable at December 31, 2010
|
9,295,912
|
$
|
0.15-0.87
|
0.90 years
|
$
|
465,000
|
$
|
0.29
|
||||||||||||
F-31
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
Accounts Receivable
The Company’s accounts receivable result from credit sales to customers. The Company had one customer that represented 61.3% and 70.0% of the Company’s total revenues for the years ended December 31, 2010 and 2009; and 100% of the total F-18 sales for the years ended December 31, 2010 and 2009. This same customer accounted for 100% of the Company’s net accounts receivable balance at December 31, 2010 and 2009.
The loss of this significant customer would have a temporary adverse effect on the Company’s revenues, which would continue until the Company located new customers to replace them
The Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary.
Inventories
The Company has two products, one of which is produced in the Company’s production facility and the other product sold by the Company is purchased from one supplier. The failure of this supplier to meet its commitment on schedule could have a material adverse effect on the Company’s business, operating results and financial condition. If the sole-source supplier were to go out of business or otherwise become unable to meet its supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time the Company’s sales could be delayed. Such delays could have a material adverse effect on the Company’s business, operating results and financial condition.
During the year ended December 31, 2010, the Company had the following non-cash investing and financing activities:
|
|
·
|
Increased prepaid expenses by $62,500 and increased paid in capital by $62,250 and increased common stock by $250 due to shares issued for prepaid services.
|
|
|
·
|
Increased accounts receivable - other by $125,000 and increased fixed assets by $125,000 due to cash not yet received for the sale of fixed assets.
|
|
|
·
|
Decreased accrued expenses by $68,250 and increased paid in capital by $27,105 and increased common stock by $195 and decreased expenses by $40,950 due to stock issued for a stock subscription payable.
|
|
|
·
|
Increased accounts receivable - other by $283,829 and increased deferred income by $283,829 due to grant revenue not yet received or recognized.
|
|
|
·
|
Increased convertible notes payable by $43,750 and decreased accrued interest by $43,750 due to accrued interest capitalized to notes payable.
|
|
|
·
|
Decreased convertible notes payable by $187,024 and increased additional paid in capital by $186,611 and increased common stock by $413 due to shares issued in conjunction with convertible notes for a debt discount.
|
|
|
·
|
Decreased convertible notes payable by $875,000 and decreased accrued interest by $77,636 and increased additional paid in capital by $946,707 and increased common stock by $5,929 due to shares issued for debt conversion.
|
During the year ended December 31, 2009, the Company had the following non-cash investing and financing activities:
|
|
·
|
Increased prepaid expenses by $165,500 and increased paid in capital by $164,950 and increased common stock by $550 due to shares issued for prepaid services.
|
|
|
·
|
Decreased Accrued Interest Payable by $171,628 and decreased Preferred Stock Redeemable by $3,182,405 and decreased Preferred Stock by $95 and increased Paid In Capital by $3,800,095 and increased Common Stock by $10,857 and increased loss on settlement of debt by $456,824 due to preferred stock converted to common stock.
|
F-32
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2010 and 2009
In January 2011 the Company issued 156,167 shares of its common stock valued at $0.30 per share on the date of issuance, in exchange for services of $46,850. This value was recorded by the Company as an expense and an accrued liability as of December 31, 2010.
In January 2011 the Company granted eleven employees, two consultants and two directors options to purchase a total of 1,235,000 shares of the Company’s common stock, at an exercise price of $0.30 per share. The options are fully vested upon grant and expire January 12, 2014. The quoted market price of the common stock at the time of issuance of the options was $0.30 per share. The fair value of the options totaled $234,650 using the Black-Scholes option pricing model and was recorded as option expense and an accrued liability as of December 31, 2010.
In February 2011 the Company issued 60,000 shares of its common stock valued at $0.30 per share on the date of issuance, in exchange for services of $18,000.
The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.
F-33
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1. Business. - ContinuedItem 1. Business. ContinuedItem 1A. Risk FactorsItem 1A. Risk Factors. - ContinuedItem 1B. Unresolved Staff CommentsItem 2. PropertiesItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of The Security HoldersPart IIItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 5. Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity Securities. - ContinuedItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations. - ContinuedItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of Operations. ContinuedItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9a(t). Controls and ProceduresItem 9a(t). Controls and Procedures. - ContinuedItem 9a(t)Item 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 10. Directors, Executive Officers and Corporate Governance. - ContinuedItem 11. Executive CompensationItem 11. Executive Compensation - ContinuedItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder Matters. - ContinuedItem 13. Certain Relationships and Related Transactions, and Director IndependenceItem 14. Principal Accountant Fees and ServicesItem 15. ExhibitsNote 1: Basis Of PresentationNote 1: Nature Of Organization - ContinuedNote 2: Summary Of Significant Accounting PoliciesNote 2: Summary Of Significant Accounting Policies - ContinuedNote 3: Accounts Receivable - OtherNote 4: Fixed AssetsNote 5: Intangible Assets Intangible Assets Consist Of The Following At December 31, 2010 and December 31, 2009:Note 5: Intangible AssetsNote 6: Related Party TransactionsNote 6: Related Party Transactions - ContinuedNote 7: Commitments and ContingenciesNote 8: Prepaid Expenses Paid with StockNote 9: Capital Lease ObligationsNote 9: Capital Lease Obligations - ContinuedNote 10: DebtNote 11: Income TaxesNote 11: Income Taxes - ContinuedNote 12: Stockholders EquityNote 12: Stockholders Equity - ContinuedNote 12: Stockholders Equity ContinuedNote 13: Concentrations Of Credit and Other RisksNote 14: Supplemental Cash Flow InformationNote 15: Subsequent Events