VIVOS INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
|
(Mark One)
|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED:
SEPTEMBER 30, 2011
|
|
o
|
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
|
COMMISSION FILE NUMBER
0-53497
(Exact name of registrant as specified in its charter)
|
Delaware
|
80-0138937
|
|
(State or other jurisdiction of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
6208 W Okanogan Ave,
Kennewick WA 99336
(509) 736-4000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
x
No
o
Indicate by check mark whether the registrant is a 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.
|
Large accelerated filer
|
o
|
Accelerated filer
|
o
|
|
Non-accelerated filer
|
o
|
Smaller reporting company
|
x
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
The number of shares of registrant’s common stock outstanding, as of November 14, 2011 was 70,432,426.
1
TABLE OF CONTENTS
|
Page
|
||||
|
PART I - FINANCIAL INFORMATION
|
||||
| Item 1. |
Financial Statements
|
3
|
||
|
Balance Sheets as of September 30, 2011 (unaudited) and December 31, 2010
|
3
|
|||
|
Statements of Operations for the Three Months and the Nine Months ended September 30, 2011 (unaudited) and the Three Months and the Nine Months ended September 30, 2010 (unaudited)
|
4
|
|||
|
Statements of Changes in Shareholders’ Equity (Deficit) for the period ended September 30, 2011 (unaudited)
|
5
|
|||
|
Statements of Cash Flows for the nine months ended September 30, 2011 (unaudited) and the nine months ended September 30, 2010 (unaudited)
|
6
|
|||
|
Notes to Condensed Financial Statement (unaudited)
|
7-15
|
|||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
16-32
|
||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk
|
32
|
||
| Item 4. |
Controls and Procedures
|
33
|
||
|
PART II - OTHER INFORMATION
|
||||
| Item 1. |
Legal Proceedings
|
34
|
||
| Item 1A. |
Risk Factors
|
34
|
||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds
|
34
|
||
| Item 3. |
Defaults Upon Senior Securities
|
34
|
||
| Item 5. |
Other Information
|
34
|
||
| Item 6. |
Exhibits
|
34
|
||
|
SIGNATURES
|
35
|
|||
2
Advanced Medical Isotope Corporation
|
September 30,
|
December 31,
|
|||||||
|
2011
|
2010
|
|||||||
|
(unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current Assets:
|
||||||||
|
Cash and cash equivalents
|
$
|
18,652
|
$
|
589,390
|
||||
|
Accounts receivable - trade
|
23,849
|
15,370
|
||||||
|
Accounts receivable - other
|
-
|
425,504
|
||||||
|
Prepaid expenses
|
8,948
|
46,975
|
||||||
|
Prepaid expenses paid with stock, current portion
|
32,250
|
89,949
|
||||||
|
Inventory
|
14,850
|
1,400
|
||||||
|
Total current assets
|
98,549
|
1,168,588
|
||||||
|
Fixed assets, net of accumulated depreciation
|
806,874
|
1,211,664
|
||||||
|
Other assets:
|
||||||||
|
License fees, net of amortization
|
11,392
|
16,390
|
||||||
|
Patents
|
296,897
|
219,803
|
||||||
|
Prepaid expenses paid with stock, long-term portion
|
-
|
21,875
|
||||||
|
Deposits
|
5,406
|
5,406
|
||||||
|
Total other assets
|
313,695
|
263,474
|
||||||
|
Total assets
|
$
|
1,219,118
|
$
|
2,643,726
|
||||
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable and accrued expenses
|
$
|
672,540
|
$
|
591,416
|
||||
|
Accrued interest payable
|
365,334
|
245,105
|
||||||
|
Payroll liabilities payable
|
52,345
|
|
13,229
|
|||||
|
Deferred income
|
1,037,819
|
1,191,492
|
||||||
|
Loans from shareholder
|
93,444
|
126,508
|
||||||
|
Convertible notes payable
|
2,053,151
|
2,006,128
|
||||||
|
Current portion of capital lease obligations
|
425,000
|
405,338
|
||||||
|
Total current liabilities
|
4,699,633
|
4,579,216
|
||||||
|
Long term liabilities:
|
||||||||
|
Capital lease obligations, net of current portion
|
711,556
|
1,029,171
|
||||||
|
Total liabilities
|
5,411,189
|
5,608,387
|
||||||
|
Shareholders’ Equity (Deficit):
|
||||||||
|
Preferred Stock, $.001 par value, 20,000,000 shares authorized;
zero issued and outstanding
|
-
|
-
|
||||||
|
Common stock, $.001 par value; 200,000,000 shares authorized;
|
||||||||
|
70,186,426 and 67,917,983 shares issued and outstanding,
|
||||||||
|
respectively
|
70,186
|
67,918
|
||||||
|
Paid in capital
|
19,052,390
|
18,299,253
|
||||||
|
Accumulated deficit
|
(23,314,647
|
)
|
(21,331,832
|
)
|
||||
|
Total shareholders’ equity (deficit)
|
(4,192,071 | ) | (2,964,661 | ) | ||||
|
Total liabilities and shareholders’ equity (deficit)
|
$ | 1,219,118 | $ | 2,643,726 | ||||
The accompanying notes are an integral part of these financial statements.
3
|
Advanced Medical Isotope Corporation
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
|||||||||||||
|
Revenues
|
$
|
55,560
|
$
|
107,490
|
$
|
346,043
|
$
|
310,153
|
||||||||
|
Cost of Goods Sold
|
17,120
|
25,844
|
53,658
|
55,782
|
||||||||||||
|
Gross Profit
|
38,440
|
81,646
|
292,385
|
254,371
|
||||||||||||
|
Operating expenses
|
|
|||||||||||||||
|
Sales and marketing expenses
|
508
|
-
|
59,097
|
15,957
|
||||||||||||
|
Depreciation and amortization
|
136,596
|
136,714
|
409,788
|
408,331
|
||||||||||||
|
Professional fees
|
95,093
|
675,561
|
595,659
|
1,256,164
|
||||||||||||
|
Stock options granted
|
50,000
|
-
|
50,000
|
137,886
|
||||||||||||
|
Payroll expenses
|
163,122
|
124,670
|
575,539
|
469,795
|
||||||||||||
|
General and administrative expenses
|
117,708
|
106,186
|
415,856
|
399,023
|
||||||||||||
|
Total operating expenses
|
563,027
|
1,043,131
|
2,105,939
|
2,687,156
|
||||||||||||
|
Operating loss
|
(524,587
|
)
|
(961,485
|
)
|
(1,813,554
|
)
|
(2,432,785
|
)
|
||||||||
|
|
||||||||||||||||
|
Non-operating income (expense)
|
||||||||||||||||
|
Interest expense
|
(95,890
|
)
|
(220,030
|
)
|
(297,934
|
)
|
(624,743
|
)
|
||||||||
|
Loss on settlement of receivables
|
(25,000
|
)
|
-
|
(25,000
|
)
|
-
|
||||||||||
|
Grant income recognized
|
47,453
|
-
|
153,673
|
-
|
||||||||||||
|
Non-operating income (expense), net
|
(73,437
|
)
|
(220,030
|
)
|
(169,261
|
)
|
(624,743
|
)
|
||||||||
|
Loss before Income Taxes
|
(598,024
|
)
|
(1,181,515
|
)
|
(1,982,815
|
)
|
(3,057,528
|
)
|
||||||||
|
Income Tax Provision
|
-
|
-
|
-
|
-
|
||||||||||||
|
Net Loss
|
$
|
(598,024
|
)
|
$
|
(1,181,515
|
)
|
$
|
(1,982,815
|
)
|
$
|
(3,057,528
|
)
|
||||
|
Loss per common share
|
$
|
(0.01)
|
$
|
(0.02
|
)
|
$
|
(0.03
|
)
|
$
|
(0.06
|
)
|
|||||
|
Weighted average common shares outstanding
|
69,913,167
|
56,032,211
|
68,992,551
|
54,162,607
|
||||||||||||
The accompanying notes are an integral part of these financial statements.
4
|
Advanced Medical Isotope Corporation
|
||||||||||||||||||||
|
Statement of Changes in Shareholders’ Equity (Deficit) (Unaudited)
|
||||||||||||||||||||
|
Common Stock
|
Paid in
|
Accumulated
|
||||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
|
Balances at December 31, 2010 (audited)
|
67,917,983
|
$
|
67,918
|
$
|
18,299,253
|
$
|
(21,331,832
|
)
|
$
|
(2,964,661
|
)
|
|||||||||
|
Common stock issued for:
|
||||||||||||||||||||
|
Stock options exercised
|
1,906,250
|
1,906
|
341,844
|
-
|
343,750
|
|||||||||||||||
|
Services
|
60,000
|
60
|
17,940
|
-
|
18,000
|
|||||||||||||||
|
Debt
|
156,167
|
156
|
46,694
|
-
|
46,850
|
|||||||||||||||
|
Loan fees on convertible debt
|
146,026
|
146
|
62,009
|
-
|
62,155
|
|||||||||||||||
|
Options issued for debt
|
-
|
-
|
234,650
|
-
|
234,650
|
|||||||||||||||
|
Options issued for services
|
-
|
-
|
50,000
|
-
|
50,000
|
|||||||||||||||
|
Net loss
|
-
|
-
|
-
|
(1,982,815
|
)
|
(1,982,815
|
)
|
|||||||||||||
|
Balances at September 30, 2011
|
70,186,426
|
$
|
70,186
|
$
|
19,052,390
|
$
|
(23,314,647
|
)
|
$
|
(4,192,071
|
)
|
|||||||||
The accompanying notes are an integral part of these financial statements.
5
|
Advanced Medical Isotope Corporation
|
||||||||
|
|
||||||||
|
(Unaudited)
|
||||||||
|
Nine months ended
|
||||||||
|
September 30,
|
||||||||
|
2011
|
2010
|
|||||||
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
||||||||
|
Net Loss
|
$
|
(1,982,815
|
)
|
$
|
(3,057,528
|
)
|
||
|
Adjustments to reconcile net loss to net cash
|
||||||||
|
used by operating activities:
|
||||||||
|
Depreciation of fixed assets
|
404,790
|
404,304
|
||||||
|
Amortization of licenses and intangible assets
|
4,998
|
4,027
|
||||||
|
Amortization of convertible debt discount
|
37,861
|
358,741
|
||||||
|
Amortization of prepaid expenses paid with stock
|
79,574
|
176,503
|
||||||
|
Common stock issued for services
|
18,000
|
775,000
|
||||||
|
Stock options issued for services
|
50,000
|
137,886
|
||||||
|
Loss on settlement of receivables
|
25,000 | - | ||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
(8,479
|
)
|
14,970
|
|||||
|
Accounts receivable - other
|
400,504
|
-
|
||||||
|
Inventory
|
(13,450
|
)
|
(2,650
|
)
|
||||
|
Prepaid expenses
|
38,027
|
-
|
||||||
|
Deposits
|
-
|
-
|
||||||
|
Accounts payable
|
362,625
|
248,481
|
||||||
|
Payroll liabilities
|
39,116
|
24,500
|
||||||
|
Stock based consulting fees payable
|
-
|
(39,581
|
)
|
|||||
|
Accrued interest
|
120,229
|
135,641
|
||||||
|
Deferred income
|
(153,673
|
)
|
-
|
|||||
|
Net cash used by operating activities
|
(577,693
|
)
|
(819,706
|
)
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
|
Cash used to purchase equipment
|
-
|
(12,640
|
)
|
|||||
|
Cash used to acquire license fees
|
-
|
(20,000
|
)
|
|||||
|
Cash used to acquire patents
|
(77,094
|
)
|
(41,946
|
)
|
||||
|
Net cash used in investing activities
|
(77,094
|
)
|
(74,586
|
)
|
||||
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
|
Payments on Washington Trust debt
|
(33,064
|
)
|
(27,262
|
)
|
||||
|
Principal payments on capital lease
|
(297,953
|
)
|
(272,217
|
)
|
||||
|
Proceeds from short term loan
|
-
|
60,000
|
||||||
|
Proceeds from convertible note
|
365,066
|
1,032,700
|
||||||
|
Payments on convertible note
|
(293,750
|
)
|
-
|
|||||
|
Proceeds from cash sales of common shares
|
-
|
547,000
|
||||||
|
Proceeds from exercise of options and warrants
|
343,750
|
72,500
|
||||||
|
Net cash provided by financing activities
|
84,049
|
1,412,721
|
||||||
|
Net increase in cash and cash equivalents
|
(570,738
|
)
|
518,429
|
|||||
|
Cash and cash equivalents, beginning of period
|
589,390
|
37,562
|
||||||
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
18,652
|
$
|
555,991
|
||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
122,708
|
$
|
159,195
|
||||
|
Cash paid for income taxes
|
-
|
$
|
-
|
|||||
The accompanying notes are an integral part of these financial statements.
6
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
Nature of Organization
The accompanying condensed financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine months ended September 30, 2011, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2011.
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 raise substantial doubt about the ability of the Company to continue as a going concern. 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 $18,652 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.
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.
7
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
Accounts receivable – other consists of the following at September 30, 2011 and December 31, 2010:
|
September 30, 2011
|
December 31, 2010
|
|||||||
|
Balance due on sale of fixed assets
|
$
|
-
|
$
|
125,000
|
||||
|
Reimbursable expenses
|
-
|
16,675
|
||||||
|
Grant proceeds received February 2011
|
-
|
283,829
|
||||||
|
$
|
-
|
$
|
425,504
|
|||||
|
|
|
Fixed assets consist of the following at September 30, 2011 and December 31, 2010:
|
|
September 30, 2011
|
December 31, 2010
|
|||||||
|
Production equipment
|
$
|
2,116,627
|
$
|
2,116,627
|
||||
|
Building
|
446,772
|
446,772
|
||||||
|
Leasehold improvements
|
3,235
|
3,235
|
||||||
|
Office equipment
|
32,769
|
32,769
|
||||||
|
2,599,403
|
2,599,403
|
|||||||
|
Less accumulated depreciation
|
(1,792,529
|
)
|
(1,387,739
|
)
|
||||
|
$
|
806,874
|
$
|
1,211,664
|
|||||
|
Accumulated depreciation related to fixed assets is as follows:
|
|
September 30, 2011
|
December 31, 2010
|
|||||||
|
Production equipment
|
$
|
1,415,688
|
$
|
1,098,194
|
||||
|
Building
|
355,592
|
273,531
|
||||||
|
Leasehold improvements
|
2,614
|
2,054
|
||||||
|
Office equipment
|
18,635
|
13,960
|
||||||
|
$
|
1,792,529
|
$
|
1,387,739
|
|||||
Depreciation expense for the above fixed assets for the nine months ended September 30, 2011 and 2010, respectively, was $404,790 and $404,304.
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 had not yet completed this upgrade as of December 31, 2010 and was unsure as to whether it intended to complete the upgrade in the near term, the Company wrote off the $150,000 as impairment expense in the twelve months ended December 31, 2010.
8
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
|
|
|||
|
Intangible assets consist of the following at September 30, 2011 and December 31, 2010:
|
|||
|
September 30, 2011
|
December 31, 2010
|
|||||||
|
License Fee
|
$
|
95,000
|
$
|
95,000
|
||||
|
Less accumulated amortization
|
(83,608
|
)
|
(78,610
|
)
|
||||
|
11,392
|
16,390
|
|||||||
|
Patents
|
296,897
|
219,803
|
||||||
|
Intangible assets net of accumulated amortization
|
$
|
308,289
|
$
|
236,193
|
||||
Amortization expense for the above intangible assets for the nine months ended September 30, 2011 and 2010, respectively, was $4,998 and $4,027.
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 one major shareholder who is a director and from the CEO and Chairman, James Katzaroff. 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. This debt is currently under negotiations for another one year extension. There is no security held as collateral for this loan. As of September 30, 2011 and December 31, 2010, the balance was $93,444 and $126,508, respectively, and all payments were current on this shareholder loan.
The Company issued various shares of common stock and convertible promissory notes during the nine months ended September 30, 2011 from a director and major shareholder. The details of these transactions are outlined in NOTE 11 STOCKHOLDERS EQUITY - Common Stock Issued for Convertible Debt
.
9
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
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 1
st
until they become $4,762 as of August 1, 2011. During the nine months ended September 30, 2011 and 2010, respectively, the Company incurred rent expenses for this facility totaling $40,385 and $37,394, 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 nine months ended September 30, 2011 and 2010, respectively, the Company amortized $28,125 and $32,000 of this stock issuance and recognized it as rent expense.
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 nine months ended September 30, 2011 and 2010, respectively, the Company incurred rent expenses for this facility totaling $24,567 and $24,600, 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 $0 and $47,500 for the nine months ended September 30, 2011 and 2010, respectively.
Future minimum rental payments required under the Company’s current rental agreements in excess of one year as of September 30, 2011, are as follows:
|
Production Facility
|
||||
|
Twelve months ended September 30, 2012
|
$
|
47,617
|
||
|
Twelve months ended September 30, 2013
|
-
|
|||
|
Total
|
$
|
47,617
|
||
Rental expense for the nine months ended September 30, 2011 and 2010 consisted of the following:
|
Nine months ended September 30, 2011
|
Nine months ended September 30, 2010
|
|||||||
|
Office and warehouse lease effective August 1, 2007
|
||||||||
|
Monthly rental payments
|
$
|
40,385
|
$
|
37,394
|
||||
|
Rental expense in the form of stock
issuance
|
28,125
|
32,000
|
||||||
|
Corporate office
|
24,567
|
24,600
|
||||||
|
Cyclotron storage
|
-
|
47,500
|
||||||
|
Total Rental Expense
|
$
|
93,077
|
$
|
141,494
|
||||
10
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
The Company has issued stock to companies for various service agreements extending beyond September 30, 2011; however all of which are expected to expire sometime within the next twelve months. 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 September 30, 2012
|
$
|
32,250
|
||
|
For the twelve month period ending September 30, 2013
|
-
|
|||
|
$
|
32,250
|
The Company borrowed $55,000 May 2011, due February 2012, with interest at 8%. The holder of the note had the right, after the first one hundred eighty days of the note (November 8, 2011), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average closing price of the last five trading prices for the common stock ending one trading day prior to the date of conversion.
The Company had the right to prepay the note and accrued interest during the first ninety days following the date of the note. During that time the amount of any prepayment would equal 135% of the outstanding principal balance of the note plus accrued interest on the note. The Company prepaid the note in full on August 3, 2011 and therefore has accrued interest expense of $20,046 related to the prepayment cost in the accompanying financial statements for the nine months ending September 30, 2011. If the Company had not paid off the note and related accrued interest by August 10, 2011, the Company could have paid off the note between the period ninety-one days to one hundred twenty days following the issue date and the prepayment would have equaled 140% of the outstanding principal balance of the note plus accrued interest on the note. If the Company had not paid off the note and related accrued interest by November 8, 2011, 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.
NOTE 9: INCOME FROM GRANTS AND DEFERRED INCOME
The Company has chosen to recognize grant money received as income as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
For the twelve months ended December 31, 2010 the Company recognized $23,508 of a $1,215,000 Department of Energy grant as income with the remaining $1,191,492 recorded as deferred income as of December 31, 2010. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010. For the nine months ended September 30, 2011 the Company recognized an additional $153,673 as income leaving a remaining balance of $1,037,819 recorded as deferred income as of September 30, 2011. The $153,673 was for costs incurred for the nine months ended September 30, 2011.
The Company fully recognized $244,479 grant money received on both a Molybdenum tax grant and a Brachytherapy tax grant as income in the twelve months ended December 31, 2010.
11
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
As of September 30, 2011 the grant money received and grant money recognized as income and deferred income can be summarized as follows:
|
$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 in 2010 from grants
|
23,508
|
244,479
|
244,479
|
512,466
|
||||||||||||
|
Deferred income at December 31, 2010
|
1,191,492
|
-
|
-
|
1,191,492
|
||||||||||||
|
Recognized income for the nine months ended September 30, 2011 from grants
|
153,673
|
-
|
-
|
153,673
|
||||||||||||
|
Deferred income at September 30, 2011
|
$
|
1,037,819
|
$
|
-
|
$
|
-
|
$
|
1,037,819
|
||||||||
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 following schedule summarizes the changes in the Company’s stock option plan during the nine months ended September 30, 2011:
|
Weighted
|
Weighted
|
||||||||||||||||
|
Options Outstanding
|
Average
|
Average
|
|||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
|||||||||||||
|
Of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
|||||||||||||
|
Shares
|
Per Share
|
Life
|
Value
|
Per Share
|
|||||||||||||
|
Balance at December 31, 2010
|
9,295,912 | $ | 0.15-0.87 |
0.90 years
|
$ | 465,000 | $ | 0.29 | |||||||||
|
Options granted
|
2,235,000 | $ | 0.20-0.30 |
1.61 years
|
$ | - | $ | 0.26 | |||||||||
|
Options exercised
|
(1,906,250 | ) | $ | 0.15-0.20 | $ | 0.18 | |||||||||||
|
Options expired
|
(4,134,662 | ) | $ | 0.20-0.87 | $ | 0.22 | |||||||||||
|
Balance at September 30, 2011
|
5,490,000 | $ | 0.20-0.55 |
1.00 years
|
$ | 315,000 | $ | 0.37 | |||||||||
|
Exercisable at December 31, 2010
|
9,295,912 | $ | 0.15-0.87 |
0.90 years
|
$ | 465,000 | $ | 0.29 | |||||||||
|
Exercisable at September 30, 2011
|
5,490,000 | $ | 0.20-0.55 |
1.00 years
|
$ | 315,000 | $ | 0.37 | |||||||||
12
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
NOTE 11: STOCKHOLDERS’ EQUITY
Common Stock Sale
In March 2011 the Company issued 750,000 shares of common stock for the exercise of options at $0.15 per share for total cash proceeds of $112,500.
In July 2011 the Company issued 1,000,000 shares of common stock for the exercise of options at $0.20 per share for total cash proceeds of $200,000.
In September 2011 the Company issued 156,250 shares of common stock for the exercise of options at $0.20 per share for total cash proceeds of $31,250.
Common Stock Issued for Services and Other
In February 2011 the Company issued 60,000 shares of common stock for services. The fair market value of the shares issued were $0.30 per share for a total fair market value of $18,000.
Common Stock Issued for Convertible Debt
On June 9, 2011 the Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in 2011. The Note matures in June of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.22 per share. The value of the $50,000 debt plus the $0.22 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $45,956 toward the debt and $4,044 to the shares and $4,044 to the beneficial conversion feature. The $4,044 value of the shares and the $4,044 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $340 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
On June 17, 2011 the Company issued 15,400 shares of its common stock and a convertible promissory note in the amount of $38,500 with interest payable at 10% per annum in 2011. The Note matures in June of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.20 per share. The value of the $38,500 debt plus the $0.20 fair market value of the 15,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $38,500 debt and the value of the 15,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $35,517 toward the debt and $2,983 to the shares and $2,983 to the beneficial conversion feature. The $2,983 value of the shares and the $2,983 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $250 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
On June 30, 2011 the Company issued 40,346 shares of its common stock and a convertible promissory note in the amount of $100,866 with interest payable at 10% per annum in 2011. The Note matures in June of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.20 per share. The value of the $100,866 debt plus the $0.20 fair market value of the 40,346 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,866 debt and the value of the 40,346 shares and the beneficial conversion feature. The computation resulted in an allocation of $93,050 toward the debt and $7,816 to the shares and $7,816 to the beneficial conversion feature. The $7,816 value of the shares and the $7,816 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $0 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
13
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
Common Stock Issued for Convertible Debt
- continued
On August 31, 2011 the Company issued 40,280 shares of its common stock and a convertible promissory note in the amount of $100,700 with interest payable at 10% per annum in 2011. The Note matures in August of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.25 per share. The value of the $100,700 debt plus the $0.25 fair market value of the 40,280 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,700 debt and the value of the 40,280 shares and the beneficial conversion feature. The computation resulted in an allocation of $91,545 toward the debt and $9,155 to the shares and $9,155 to the beneficial conversion feature. The $9,155 value of the shares and the $9,155 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $3,050 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
On September 22, 2011 the Company issued 10,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in 2011. The Note matures in September of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $25,000 debt plus the $0.28 fair market value of the 10,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 10,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $22,482 toward the debt and $2,518 to the shares and $2,518 to the beneficial conversion feature. The $2,518 value of the shares and the $2,518 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $315 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
On September 30, 2011 the Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in 2011. The Note matures in September of 2012. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $50,000 debt plus the $0.28 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $44,964 toward the debt and $5,036 to the shares and $5,036 to the beneficial conversion feature. The $5,036 value of the shares and the $5,036 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $0 has been recognized in the accompanying financial statements for the nine months ending September 30, 2011.
14
Advanced Medical Isotope Corporation
Notes to Consolidated Financial Statements
For the nine months ended September 30, 2011 (unaudited) and the year ended December 31, 2010
During the nine months ended September 30, 2010, the Company had the following non-cash investing and financing activities:
|
|
·
|
Converted $50,000 and $7,499 worth of Convertible Debt and Accrued Interest, respectively, into 143,750 shares of Common Stock, increasing Common Stock by $144 and Additional Paid in Capital by $57,355.
|
|
|
·
|
Recognized Debt Discounts on Convertible Debt of $187,024 and increased Common Stock by $413 and Additional Paid in Capital by $186,611.
|
During the nine months ended September 30, 2011, the Company had the following non-cash investing and financing activities:
|
|
·
|
Issued 156,167 shares of common stock for an extinguishment of $46,850 worth of debt.
|
|
|
·
·
|
Issued 1,235,000 options for an extinguishment of $234,650 worth of debt.
Issued 146,026 shares of common stock for loan fees on convertible debt of $62,155.
|
In October 2011 the Company issued an 8% Convertible Promissory Note in the amount of $53,000 to an unrelated company. The note calls for a $3,000 loan fee to be paid from the proceeds. The note is not convertible by the holder for the first 90 days, in which time the Company can repay the note at the rate of the 8% accrued interest plus 50% additional of both the original $53,000 and the accrued interest.
In October 2011 the Company issued 200,000 shares of its common stock valued at $0.22 per share on the date of issuance, in exchange for services of $44,000.
In October 2010 the Company received $15,000 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $0.22 per share. In addition the Company issued the note holder 6,000 shares of its common stock as a loan origination fee.
In October 2010 the Company received $100,000 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $0.24 per share. In addition the Company issued the note holder 40,000 shares of its common stock as a loan origination fee.
The Company evaluated subsequent events pursuant ASC Topic 855 and has determined that there are no additional events to report.
15
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-Q 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, “Description of Business,” as well as other cautionary language in this Form 10-Q, 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.
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 and received in February
2011 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
General Development of Business
- continued
The Company has never filed for bankruptcy and has never been subject to receivership or similar proceedings.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has a limited amount of revenue which has accumulated deficits since inception. If we cannot obtain sufficient funding, we may have to delay the implementation of our business strategy.
Narrative Description of Business
We are engaged in the production and distribution of medical isotopes and medical isotope technologies that are changing the practice of medicine and ushering in a new era of improved patient care. Isotopes are a form of chemical element with the same atomic number as another element but with a different atomic mass. Medical isotopes are used in molecular imaging, therapy, and nuclear medicine to diagnose, manage and treat diseases.
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.
Accordingly, the Company is reviewing possible acquisition candidates.
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.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Products
-
continued
Radio Chemicals:
F-18:
We currently offer regional distribution of F-18 from our Kennewick, WA production facility. Other regional production facilities are planned throughout the U.S. and abroad. This is the primary PET imaging isotope. It is used for medical and diagnostic purposes, such as cancer detection, heart imaging, and brain imaging.
Strontium-82:
Used as a myocardial imaging agent, early detection of coronary artery disease, PET imaging, blood flow tracers
Germanium-68:
It is used for study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic cancer, and attenuation correction.
Actinium-225:
Used for advanced research in therapy of leukemia and other cancers. 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
:
This is a radiotracer primarily used in PET imaging and to create images of human thyroid. Other treatment
uses include apoptosis, cancer biotherapy, glioma, heart disease, mediastinal micrometastases, and thyroid cancer.
Indium-111
:
In-111 Chloride bulk solution for U.S. distribution. This radio chemical is used for infection imaging, cancer treatments, and tracer studies.
18
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
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 will 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 hope 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.
In February 2011, we entered into a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute related to patents for the production of radioisotopes. This option agreement calls for an upfront option fee.
19
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Competitors
The suppliers of radioisotopes for diagnosis, treatment, and research for a wide variety of diseases, in particular cancer, vary in size and product offerings. Competition is limited because there are many barriers to entry, including regulatory hurdles, including licensing, government approvals and capital outlays associated with starting an isotope company. Many current competitors are international companies.
Further, competition is limited as some suppliers are closing their facilities or limiting their production. At one time, the U.S. government was supposed to be the source of medical isotopes, but over the course of the last two decades, it has either closed or failed to adequately fund its production facilities.
About 90% of all the non PET radioisotopes used in the United States are imported from two companies, Nordion Inc. (formerly MDS Inc.) and Covidien (formerly Mallinkrodt). (Atomic Energy of Canada Limited’s National Research Universal reactor returned to operation in August, 2010 after a temporary shut down, and accordingly, Nordion resumed its role in the medical isotope supply chain and continues to be a supplier to the U.S. market.) The remaining 10% that are produced in the United States are manufactured in a fragmented, piecemeal manner with companies producing a single isotope instead of a wide variety.
Employees
As of September 30, 2011, we had thirteen 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 hospital located close to the production facility in Richland, WA. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this Consulting.
20
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
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:
|
2008
|
$
|
10,000
|
*
|
|
|
2009
|
$
|
15,000
|
*
|
|
|
2010
|
$
|
15,000
|
*
|
|
|
2011
|
$
|
45,000
|
||
|
2012 and each year thereafter
|
$
|
60,000
|
||
|
$
|
145,000
|
* 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.
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.
21
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Patents, Trademarks, Licenses
-
continued
License Agreement: -
continued
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:
|
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 amortization of these items is computed using the straight-line method over the following estimated useful lives:
|
|
o
|
Intellectual property ……..….. 3 years
|
|
|
o
|
Contracts and agreements …. 3 years
|
|
|
o
|
Customer lists …………..…… 2 years
|
Patents:
Patent filing costs totaling $77,094, and $41,946, were capitalized during the nine months ended September 30, 2011, and 2010; resulting in a total $296,897 of capitalized patents at September 30, 2011. 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.
22
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Research and Development
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 in the nine months ended September 30, 2011 and 2010 were $297,965 and $1,023,991, respectively. The $297,965 spent for the nine months ended September 30, 2011 consist of the following:
|
Brachytherapy
|
Molybdenum
|
|||||||
|
Supplies
|
$
|
5,175
|
$
|
390
|
||||
|
Amortization
|
2,499
|
2,499
|
||||||
|
Conferences & seminars
|
7,087
|
9,432
|
||||||
|
Dues & subscriptions
|
-
|
32
|
||||||
|
Marketing
|
9,153
|
16,525
|
||||||
|
Office Supplies
|
117
|
180
|
||||||
|
Payroll and benefits
|
26,900
|
59,171
|
||||||
|
Consulting fees
|
64,408
|
28,242
|
||||||
|
Consulting fees – stock based
|
7,000
|
-
|
||||||
|
Legal fees
|
-
|
26,000
|
||||||
|
Research
|
30,776
|
-
|
||||||
|
Stock options granted
|
50
|
750
|
||||||
|
Telephone
|
508
|
522
|
||||||
|
Travel
|
-
|
549
|
||||||
|
Total
|
$
|
153,673
|
$
|
144,292
|
||||
23
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Results of Operations – Nine Months Ended
The following table sets forth information from our statements of operations for the nine months ended September 30, 2011 and 2010.
|
Nine Months Ended
September 30, 2011
|
Nine Months Ended
September 30, 2010
|
|||||||
|
Revenues
|
$
|
346,043
|
$
|
310,153
|
||||
|
Cost of goods sold
|
53,658
|
55,782
|
||||||
|
Gross profit
|
292,385
|
254,371
|
||||||
|
Operating expenses
|
2,105,939
|
2,687,156
|
||||||
|
Operating loss
|
(1,813,554
|
)
|
(2,432,785
|
)
|
||||
|
Loss on settlement of receivables
|
(25,000
|
)
|
-
|
|||||
|
Recognized income from grants
|
153,673
|
-
|
||||||
|
Interest expense
|
(297,934
|
)
|
(624,743
|
)
|
||||
|
Net income (loss)
|
$
|
(1,982,815
|
)
|
$
|
(3,057,528
|
)
|
||
Details related to Revenues and Cost of Goods Sold for the nine months ended September 30, 2011 and 2010 are as follows:
|
Nine Months Ended
September 30, 2011
|
Nine Months Ended
September 30, 2010
|
|||||||||
|
Revenues
|
||||||||||
|
Consulting
|
$
|
179,114
|
$
|
139,393
|
||||||
|
Stable Isotopes
|
20,769
|
-
|
||||||||
| F-18 |
146,160
|
170,760
|
||||||||
|
Total Revenue
|
$
|
346,043
|
$
|
310,153
|
||||||
|
Cost of Goods Sold
|
||||||||||
|
Stable Isotopes
|
$
|
17,075
|
$
|
-
|
||||||
| F-18 |
36,583
|
55,782
|
||||||||
|
Total Cost of Goods Sold
|
$
|
53,658
|
$
|
55,782
|
||||||
Revenue
Revenue was $346,043 for the nine months ended September 30, 2011 and $310,153 for the nine months ended September 30, 2010. 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 $146,160 of the total nine months ended September 30, 2011 revenues and $170,760 of the total nine months ended September 30, 2010 revenues. Revenues for F-18 were lower in the nine months ended September 30, 2011 as a result of a reduction in price to our sole customer effective April 2010 and a reduction in the number of doses sold for the nine months ended September 30, 2011 (503) from the nine months ended September 30, 2010 (563). The reason the number of doses sold was lower is due to one week of lost production due to annual maintenance and two weeks of lost production due to a part that stopped working and was back ordered. Stable isotope sales were $20,769 and $0 for the nine months ended September 30, 2011 and 2010 respectively. The Company discontinued the sale of stable isotopes in the nine months ended September 30, 2010 due to the reduction in profitability of that line of product. The Company intends to continue to minimize stable isotope sales at this time due to the low profitability. Consulting revenues consisted of $179,114 and $139,393 of the total nine months ended September 30, 2011 and 2010 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.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Results of Operations – Nine Months Ended
- continued
Cost of Goods Sold
Cost of Goods Sold for the nine months ended September 30, 2011 was $53,658, or 15.5% of total revenues. Cost of Goods Sold for the nine months ended September 30, 2010 was $55,782, or 18.0% of total revenues. Cost for the F-18 production (consisting mostly of supplies) was $36,583 for the nine months ended September 30, 2011, which was 25.0% of total F-18 revenues. Cost for the stable isotopes we purchased from our vendors was $17,075 for the nine months ended September 30, 2011, which was 82.2% of total stable isotopes revenues. Cost for the F-18 production (consisting mostly of supplies) was $55,782 for the nine months ended September 30, 2010, which was 32.7% of total F-18 revenues.
Operating Expenses
Operating expenses for the nine months ended September 30, 2011 and 2010 was $2,105,939 and $2,687,156 respectively. The decrease in operating expenses from 2010 to 2011 can be attributed to the reduction in Stock Options Granted expense ($50,000 for the nine months ended September 30, 2011 versus $137,886 for the nine months ended September 30, 2010) and the reduction of Professional Fees ($595,659 for the nine months ended September 30, 2011 versus $1,256,164 for the nine months ended September 30, 2010). Part of this reduction in expenses was offset by an increase in Payroll expenses ($575,539 for the nine months ended September 30, 2011 versus $469,795 for the nine months ended September 30, 2010).
|
Nine Months Ended
September 30, 2011
|
Nine Months Ended
September 30, 2010
|
|||||||
|
Depreciation and amortization expense
|
$
|
409,788
|
$
|
408,331
|
||||
|
Professional fees
|
595,659
|
1,256,164
|
||||||
|
Stock options granted
|
50,000
|
137,886
|
||||||
|
Payroll expenses
|
575,539
|
469,795
|
||||||
|
General and administrative expenses
|
415,856
|
399,023
|
||||||
|
Sales and marketing expense
|
59,097
|
15,957
|
||||||
|
$
|
2,105,939
|
$
|
2,687,156
|
|||||
Non-Operating Expense
Non-operating expense for the nine months ended September 30, 2011 and 2010 was $169,261 and $624,743, respectively. The decrease in non-operating expense was due to a decrease in interest expense ($297,934 for the nine months ended September 30, 2011 versus $624,743 for the nine months ended September 30, 2010) and an increase in grant income recognized ($153,673 for the nine months ended September 30, 2011 versus $0 for the nine months ended September 30, 2010) along with a loss on settlement of receivable - other related to the sale of an asset in a prior period.
Net Loss
Our net loss for the nine months ended September 30, 2011 and 2010 was $1,982,815 and $3,057,528, respectively.
25
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Results of Operations – Three Months Ended
The following table sets forth information from our statements of operations for the three months ended September 30, 2011 and 2010 are as follows:
|
Three Months Ended
September 30, 2011
|
Three Months Ended
September 30, 2010
|
|||||||
|
Revenues
|
$
|
55,560
|
$
|
107,490
|
||||
|
Cost of goods sold
|
17,120
|
25,844
|
||||||
|
Gross profit
|
38,440
|
81,646
|
||||||
|
Operating expenses
|
563,027
|
1,043,131
|
||||||
|
Operating loss
|
(524,587
|
)
|
(961,485
|
)
|
||||
|
Loss on settlement of receivables
|
(25,000
|
)
|
-
|
|||||
|
Recognized income from grants
|
47,453
|
-
|
||||||
|
Interest expense
|
(95,890
|
)
|
(220,030
|
)
|
||||
|
Net income (loss)
|
$
|
(598,024
|
)
|
$
|
(1,181,515
|
)
|
||
Details related to Revenues and Cost of Goods Sold for the three months ended September 30, 2011 and 2010 are as follows:
|
Three Months Ended
September 30, 2011
|
Three Months Ended
September 30, 2010
|
|||||||||
|
Revenues
|
||||||||||
|
Consulting
|
$
|
3,000
|
$
|
52,530
|
||||||
|
Stable Isotopes
|
5,000
|
-
|
||||||||
| F-18 |
47,560
|
54,960
|
||||||||
|
Total Revenue
|
$
|
55,560
|
$
|
107,490
|
||||||
|
Cost of Goods Sold
|
||||||||||
|
Stable Isotopes
|
$
|
3,895
|
$
|
-
|
||||||
| F-18 |
13,225
|
25,844
|
||||||||
|
Total Cost of Goods Sold
|
$
|
17,120
|
$
|
25,844
|
||||||
Revenue
Revenue was $55,560 for the three months ended September 30, 2011 and $107,490 for the three months ended September 30, 2010. During 2007 we began our stable isotope marketing program which was acquired through the purchase of the Life Science division of Isonics, Inc. During the three months ended September 30, 2011, we continued the stable isotope marketing program generating $5,000 in stable isotope revenues for that period compared to $0 for the three months ended September 30, 2010. The Company has minimized the sales of stable isotopes due to the decrease in profitability of sales of stable isotopes. In July 2008 we established our linear accelerator production center and began the production and marketing of F-18 in August 2008, accounting for $47,560 of the total revenues for the three months ended September 30, 2011 and for $54,960 of the total revenues for the three months ended September 30, 2010. During the three months ended September 30, 2010 we began generating consulting revenue, which accounted for $52,530 of the total revenues for those three months and $3,000 of the total revenues for the three months ended September 30, 2011.
Cost of Goods Sold
Cost of Goods Sold for the three months ended September 30, 2011 was $17,120, or 30.8% of total revenues. Cost of Goods Sold for the three months ended September 30, 2010 was $25,844, or 24.0% of total revenues. Cost for the F-18 production (consisting mostly of supplies) was $13,225 for the three months ended September 30, 2011, which was 27.8% of total F-18 revenues. Cost for the stable isotopes we purchased from our vendors was $3,895 for the three months ended September 30, 2011, which was 77.9% of total stable isotopes revenues. Cost for the F-18 production (consisting mostly of supplies) was $25,844 for the three months ended September 30, 2010, which was 47.0% of total F-18 revenues.
26
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Results of Operations – Three Months Ended -
continued
Operating Expenses
Operating expenses for the three months ended September 30, 2011 and 2010 was $563,027 and $1,043,131 respectively. The decrease in operating expenses from 2010 to 2011 can be attributed largely to the decrease in Professional Fees ($95,092 for the three months ended September 30, 2011 and $675,561 for the three months ended September 30, 2010), offset by an increase in Stock Options Granted ($50,000 for the three months ended September 30, 2011 versus $0 for the three months ended September 30, 2010), and Payroll expenses ($163,122 for the three months ended September 30, 2011 and $124,670 for the three months ended September 30, 2010),
|
Three Months Ended
September 30, 2010
|
Three Months Ended
September 30, 2009
|
|||||||
|
Depreciation and amortization expense
|
$
|
136,596
|
$
|
136,714
|
||||
|
Professional fees
|
95,092
|
675,561
|
||||||
|
Stock options granted
|
50,000
|
-
|
||||||
|
Payroll expenses
|
163,122
|
124,670
|
||||||
|
General and administrative expenses
|
117,708
|
106,186
|
||||||
|
Sales and marketing expense
|
508
|
-
|
||||||
|
$
|
563,027
|
$
|
1,043,131
|
|||||
Non-Operating Expense
Non-operating expense for the three months ended September 30, 2011 and 2010 was $73,437 and $220,030, respectively. The decrease in non-operating expense was due to a decrease in interest expense ($95,890 for the three months ended September 30, 2011 versus $220,030 for the three months ended September 30, 2010) and an increase in grant income recognized ($47,453 for the three months ended September 30, 2011 versus $0 for the three months ended September 30, 2010) along with a loss on settlement of receivable - other related to the sale of an asset in a prior period.
Net Loss
Our net loss for the three months ended September 30, 2011 and 2010 was $598,024 and $1,181,515, respectively.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Liquidity and Capital Resources
At September 30, 2011, we had negative working capital of $4,601,084, as compared to $3,410,628 December 31, 2010. During the nine months ended September 30, 2011 we experienced negative cash flow from operations of $577,693, and we expended $77,094 for investing activities and received $84,049 from financing activities. As of September 30, 2011, we had $0 commitments for capital expenditures.
We have generated material operating losses since inception. We have incurred a net loss of $23,314,647 from inception through September 30, 2011, including a net loss of $1,982,815 for the nine months ended September 30, 2011. 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.
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. 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.
Contractual Obligations (payments due by period as of September 30, 2011)
|
Contractual Obligation
|
Total Payments Due
|
Less than 1 Year
|
1-3 Years
|
3-5 Years
|
More than 5 Years
|
||||||||||||
|
Capital Lease Obligation
|
$
|
1,136,556
|
$
|
425,000
|
$
|
711,556
|
$
|
-
|
$
|
-
|
|||||||
|
Production center lease
|
$
|
47,617
|
$
|
47,617
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||
|
License agreement with Regents of the University of California
|
$
|
565,000
|
$
|
145,000
|
$
|
180,000
|
$
|
180,000
|
$
|
60,000 each year
|
|||||||
|
License Agreement with Battelle Memorial Institute
|
$
|
125,000
|
$
|
2,500
|
$
|
22,500
|
$
|
75,000
|
$
|
25,000 each 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 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 the Company incurred rent expenses for this facility totaling $50,622. During the nine months ended September 30, 2011 and 2010 the Company incurred rent expenses for this facility totaling $40,385 and $37,394, 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 the Company amortized $37,500, of this stock issuance and recognized it as rent expense. For the nine months ended September 30, 2011 and 2010 the Company amortized $28,125 and $28,125, respectively, of this stock issuance and recognized it as rent expense.
28
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Critical Accounting Policies
The Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed to be critical within the SEC definition.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of September 30, 2011, 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 periodically reviews the net carrying value of all of its equipment on an asset by asset basis. 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. 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.
29
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
- continued
Fixed Assets
- continued
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.
License Fees
License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets. The Company periodically reviews the carrying values of patents and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Patents
The Company has determined that the economic life of its patents to be 10 years and will begin amortization over such 10-year period and on a straight-line basis once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
The Company recognizes revenue once an order has been received and shipped to the customer. 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.
30
Income from Grants and Deferred Income
The Company has chosen to recognize grant money received as income as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
Net Loss Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common 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 September 30, 2011 and December 31, 2010 are as follows:
|
September 30,
2011
|
December 31,
2010
|
|||||||
|
Convertible debt
|
7,255,493
|
4,775,415
|
||||||
|
Common stock options
|
5,490,000
|
9,295,912
|
||||||
|
Total potential dilutive securities
|
12,745,493
|
14,071,327
|
||||||
Research and Development Costs
Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.
Advertising and Marketing Costs
Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were $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 nine months ended September 30, 2011 and 2010 the Company incurred $59,097 and $15,957, respectively, in advertising and marketing costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of product sales.
Legal Contingencies
In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.
31
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 year ended December 31, 2010. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2010.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's financial statements. For the year ended December 31, 2010, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease during the year 2011.
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.
Recently Issued Accounting Pronouncements
The Company reviews recently issued account pronouncements on a quarterly basis. As of September 30, 2011 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.
32
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 ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during this current fiscal quarter (our third fiscal quarter of 2011) 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.
33
We are not a party to any pending legal proceeding, nor are our properties the subject of any pending legal proceedings, that are not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.
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.
Common stock sale
In March 2011 the Company issued 750,000 shares of common stock for the exercise of options at $0.15 per share for total cash proceeds of $112,500.
During the nine months ended September 30, 2011 the Company issued 1,156,250 shares of common stock for the exercise of options at $0.20 per share for total cash proceeds of $231,250.
Common stock issued for services and other
During the nine months ended September 30, 2011 the Company issued 60,000 shares of common stock for services. The fair market value of the shares issued were $0.30 per share for a total value of $18,000.
During the nine months ended September 30, 2011 the Company issued 146,026 shares of common stock for loan fees on convertible debt. The fair market value of the shares ranged from $0.21 to $0.28 per share for a total value of $62,155.
As to the forgoing transactions, the Company relied upon the exemption from registration set forth in section 4(2) of the Securities Act of 1933, as amended, based upon the private nature and the limitations of the transactions.
Not applicable.
Not applicable.
|
(a)
|
Exhibits
|
|||
|
Number
|
Description
|
|||
| 101 |
The financial information from the Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2011, furnished electronically herewith, and formatted in XBRL (Extensible Business Reporting Language): Consolidated Balance Sheets; Consolidated Statements of Operations; Consolidated Statements of Changes in Shareholder' Equity (Deficit); Consolidated Statements of Cash Flows; and Notes to Consolidated Financial Statements, tagged as blocks of text. (Filed herewith)
|
34
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
ADVANCED MEDICAL ISOTOPE CORPORATION
|
||
|
Date: November 14, 2011
|
By:
|
/s/
James C. Katzaroff
|
|
Name:
|
James C. Katzaroff
|
|
|
Title:
|
Chairman and Chief Executive Officer
|
|
|
|
||
|
By:
|
/s/
L. Bruce Jolliff
|
|
|
Name:
|
L. Bruce Jolliff
|
|
|
Title:
|
Chief Financial Officer
|
35
TABLE OF CONTENTS
Part I - Financial InformationItem 1. Financial StatementsNote 1: Basis Of PresentationNote 2: Going ConcernNote 3: Accounts Receivable OtherNote 4: Fixed AssetsNote 5: Intangible Assets Intangible Assets Consist Of The Following At September 30, 2011 and December 31, 2010:Note 5: Intangible AssetsNote 6: Related Party TransactionsNote 6: Related Party Transactions - ContinuedNote 6: Related Party Transactions -Note 7: Prepaid Expenses Paid with StockNote 8: DebtNote 9: Income From Grants and Deferred IncomeNote 9: Income From Grants and Deferred Income ContinuedNote 10: Common Stock OptionsNote 11: Stockholders EquityNote 11: Stockholders Equity - ContinuedNote 12: Supplemental Cash Flow InformationNote 13: Subsequent EventsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations - ContinuedItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart IIItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 5. Other InformationItem 6. Exhibits