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VIVOS INC - Quarter Report: 2014 September (Form 10-Q)

advancedmed_10q-16193.htm


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, 2014
 
OR  
 
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    000-53497
 
ADVANCED MEDICAL ISOTOPE CORPORATION 

(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

(Address of principal executive offices, Zip Code)
 
(509) 736-4000

(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
o
Accelerated filer
o
       
Non-accelerated filer
o
Smaller reporting company
x
 (Do not check if a smaller reporting company)
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
The number of shares of registrant’s common stock outstanding, as of November 10, 2014 was 553,960,494.



 
1

 
 
TABLE OF CONTENTS
 
     
Page
 
PART I – FINANCIAL INFORMATION
 
         
Item 1.
Financial Statements
 
3
 
 
Condensed Balance Sheets as of September 30, 2014 (unaudited) and December 31, 2013
 
3
 
 
Condensed Statements of Operations for the Three Months and the Nine Months ended September 30, 2014 (unaudited) and the Three Months and the Nine Months ended September 30, 2013 (unaudited)
 
4
 
 
Condensed Statement of Changes in Stockholders’ Equity (Deficit) for the period ended September 30, 2014 (unaudited)
 
5
 
 
Condensed Statements of Cash Flow for the Nine Months ended September 30, 2014 (unaudited) and the Nine Months ended September 30, 2013 (unaudited)
 
6
 
 
Notes to Condensed Financial Statements (unaudited)
 
7
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
22
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
35
 
Item 4.
Controls and Procedures
 
35
 
         
PART II – OTHER INFORMATION
         
Item 1A.
Risk Factors
 
36
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
36
 
Item 6.
Exhibits
 
36
 
         
SIGNATURES
 
36
 
 
 
 

 
 
 
 
 
 
 
 
 
 









 
2

 
 
PART I – FINANCIAL INFORMATION
 
Item 1.   Financial Statements.

Advanced Medical Isotope Corporation
Condensed Balance Sheets
             
   
September 30,
   
December 31,
 
   
2014
   
2013
 
   
(unaudited)
       
ASSETS
           
             
Current Assets:
           
Cash
 
$
525
   
$
-
 
Prepaid expenses
   
26,888
     
3,281
 
Prepaid expenses paid with stock, current portion
   
11,591
     
107,763
 
Inventory
   
8,475
     
8,475
 
Deposit
   
1,000
     
-
 
Total current assets
   
48,479
     
119,519
 
                 
Fixed assets, net of accumulated depreciation
   
10,293
     
14,913
 
                 
Other assets:
               
License fees, net of amortization
   
2,797
     
7,171
 
Patents and intellectual property
   
35,482
     
35,482
 
Debt issuance costs
   
52,077
     
19,786
 
Deposits
   
5,406
     
5,406
 
Total other assets
   
95,762
     
67,845
 
                 
Total assets
 
$
154,534
   
$
202,277
 
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
 
$
1,354,658
   
$
1,221,063
 
Accrued interest payable
   
1,509,414
     
1,195,385
 
Payroll liabilities payable
   
139,262
     
81,514
 
Short term loan payable
   
-
     
349,913
 
Convertible notes payable, net
   
512,094
     
375,259
 
Derivative liability
   
1,640,727
     
1,476,615
 
Related party convertible notes payable, net
   
4,326,846
     
4,158,819
 
Current portion of capital lease obligations
   
109,421
     
309,145
 
Total current liabilities
   
9,592,422
     
9,167,713
 
                 
Stockholders’ Equity (Deficit):
               
Preferred stock, $.001 par value, 20,000,000 shares authorized;
               
   zero issued and outstanding
   
     
-
 
Common stock, $.001 par value; 2,000,000,000 shares authorized;
               
   345,816,150 and 120,807,808 shares issued and outstanding, respectively
   
345,817
     
120,807
 
Paid in capital
   
29,540,999
     
27,052,282
 
Accumulated deficit
   
(39,324,704
)
   
(36,138,525
)
Total stockholders’ equity (deficit)
   
(9,437,888
)
   
(8,965,436
)
                 
Total liabilities and stockholders’ equity (deficit)
 
$
154,534
   
$
202,277
 
 
The accompanying notes are an integral part of these condensed financial statements.
 
 
 
3

 
 
Advanced Medical Isotope Corporation
Condensed Statements of Operations
(unaudited)
 
   
Three months ended September 30,
   
Nine months ended September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Revenues
 
$
-
   
$
115,799
   
$
24,108
   
$
140,603
 
                                 
Operating expenses
                               
   Cost of materials
   
265
     
100,278
     
817
     
104,836
 
   Sales and marketing expenses
   
-
     
2,850
     
1,300
     
9,912
 
   Depreciation and amortization
   
2,998
     
3,817
     
8,994
     
205,634
 
   Professional fees
   
128,597
     
110,688
     
466,581
     
597,377
 
   Stock options granted
   
58,187
     
58,187
     
174,561
     
576,068
 
   Payroll expenses
   
190,994
     
174,271
     
576,089
     
633,159
 
   General and administrative expenses
   
112,281
     
155,096
     
366,868
     
1,181,574
 
      Total operating expenses
   
493,322
     
605,187
     
1,595,210
     
3,308,560
 
                                 
Operating loss
   
(493,322
)
   
(489,388
)
   
(1,571,102
)
   
(3,167,957
)
                                 
Non-operating income (expense)
                               
   Interest expense
   
(365,566
)
   
(389,456
)
   
(1,181,063
)
   
(1,208,825
)
   Net gain (loss) on settlement of debt
   
(44,975
)
   
(27,013
)
   
(120,024
)
   
(198,546
)
   Recognized income from grants
   
-
     
24,241
     
-
     
265,531
 
  Gain (loss) on derivative liability
   
37,076
 
   
(73,254
)
   
(313,990
)
   
2,085,767
 
      Non-operating income (expense), net
   
(373,465
)
   
(465,482
)
   
(1,615,077
)
   
943,927
 
                                 
Loss before income taxes
   
(866,787
)
   
(954,870
)
   
(3,186,179
)
   
(2,224,030
)
                                 
Income tax provision
   
-
     
-
     
-
     
-
 
                                 
Net loss
 
$
(866,787
)
 
$
(954,870
)
 
$
(3,186,179
)
 
$
(2,224,030
)
                                 
Loss per common share
 
$
(0.00
)
 
$
(0.01
)
 
$
(0.02
)
 
$
(0.02
)
                                 
Weighted average common shares outstanding
   
228,882,530
     
102,872,236
     
164,250,895
     
95,850,606
 
 

The accompanying notes are an integral part of these condensed financial statements.

 
4

 
 
Advanced Medical Isotope Corporation
Condensed Statement of Changes in Stockholders’ Equity (Deficit)
(Unaudited)
                         
   
Common Stock
   
Paid in
   
Accumulated
       
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                               
Balances at December 31, 2013 (audited)
   
120,807,808
   
$
120,807
   
$
27,052,282
   
$
(36,138,525
)
 
$
(8,965,436
)
                                         
Common stock issued for:
                                       
Cash and the exercise of warrants
   
29,873,989
     
29,874
     
(23,874
)
   
     
6,000
 
Services and prepaid services
   
371,250
     
371
     
15,929
     
     
16,300
 
Accounts payable and prepaid services
   
100,000
     
100
     
7,400
     
     
7,500
 
Loan fees on convertible debt
   
1,296,609
     
1,297
     
121,014
     
     
122,311
 
Debt converted
   
193,366,494
     
193,368
     
2,074,044
     
     
2,267,412
 
Options and warrants issued for services
   
     
     
174,561
     
     
174,561
 
Beneficial conversion feature
   
     
     
119,643
     
   - 
     
119,643
 
Net loss
   
     
     
  -
     
(3,186,179)
     
(3,186,179
)
Balances at September 30, 2014
   
345,816,150
   
$
345,817
   
 $
29,540,999
     
(39,324,704)
   
$
(9,437,888
)
 
The accompanying notes are an integral part of these condensed financial statements.








 
5

 

Advanced Medical Isotope Corporation
Condensed Statements of Cash Flow
(Unaudited)
   
Nine months ended
 
   
September 30,
 
   
2014
   
2013
 
CASH FLOW FROM OPERATING ACTIVITIES:
           
Net Loss
 
$
(3,186,179
)
 
$
(2,224,030
)
                 
Adjustments to reconcile net loss to net cash
               
used by operating activities:
               
Depreciation of fixed assets
   
4,620
     
198,203
 
Amortization of licenses and intangible assets
   
4,374
     
7,431
 
Amortization of convertible debt discount
   
1,098,129
     
516,066
 
Amortization of debt issuance costs
   
46,900
     
532,099
 
Amortization of prepaid expenses paid with stock
   
96,172
     
-
 
Common stock issued for services
   
16,300
     
89,970
 
Common stock issued for interest
   
-
     
128,130
 
Warrants exercised for services
      -
 
   
20,000
 
Stock options and warrants issued for services
   
174,561
     
576,068
 
Gain (Loss) on derivative liability
   
313,990
     
(2,085,766
)
Loss on settlement of debt
   
120,024
     
198,546
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
-
     
21,239
 
Inventory
   
-
     
(4,375
)
Prepaid expenses
   
(24,607
)
   
(4,083
)
Accounts payable
   
141,095
     
92,950
 
Payroll liabilities
   
57,748
     
(16,830
)
Accrued interest
   
346,017
     
355,436
 
Grant money used to offset expenditures
   
-
     
(265,531
)
Net cash used by operating activities
   
(790,856
)
   
(1,864,567
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Cash used to acquire patents and intellectual property
   
-
     
(7,715
)
Net cash used by investing activities
   
-
     
(7,715
)
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on Washington Trust debt
   
-
     
(35,084
)
Principal payments on capital lease
   
(199,724
)
   
(258,663
)
Proceeds from short term debt
   
(349,913
)
   
349,913
 
Debt issuance costs
   
(79,191
)
   
-
 
Payments on short term loan
   
-
     
(35,846
)
Proceeds from convertible debt
   
1,424,209
     
1,070,772
 
Principal payments on convertible debt
   
(10,000
)
   
(105,500
)
Proceeds on sale of stock for cash
   
-
     
881,500
 
Proceeds from exercise of warrants
   
6,000
     
25,000
 
Net cash provided by financing activities
   
791,381
     
1,892,092
 
                 
Net increase (decrease) in cash
   
525
 
   
19,810
 
Cash, beginning of period
   
-
     
6,411
 
                 
CASH, END OF PERIOD
 
$
525
   
$
26,221
 
                 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
213,415
   
$
126,494
 
Cash paid for income taxes
 
$
                -
   
$
                -
 
   
The accompanying notes are an integral part of these condensed financial statements.

 
6

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

 NOTE 1:                   BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

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, 2014, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2014.
 
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.

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2014 and December 31, 2013, the balances reported for cash, prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.

The Company adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2014:

   
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets 
                       
Total Assets Measured at Fair Value
 
$
-
   
$
-
   
$
-
   
$
-
 
                                 
Liabilities
                               
Derivative Liability
 
$
1,640,727
   
$
-
   
$
-
   
$
1,640,727
 
Total Liabilities Measured at Fair Value
 
$
1,640,727
   
$
-
   
$
-
   
$
1,640,727
 
 


 
7

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 1:                       BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES- continued

Recent Accounting Pronouncements

There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.

NOTE 2:                       GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.  As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. This raises substantial doubt about the Company’s ability to continue as a going concern. Historically, the Company has relied upon outside investor funds to maintain the Company’s operations and develop the Company’s business. The Company anticipates it will continue to require funding from investors for working capital as well as business expansion during this fiscal year and it can provide no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable time. In addition, the Company’s 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 it operates.

The Company anticipates a requirement of $1.5 million in funds over the next twelve months to maintain current operation activities. In addition the Company anticipates spending from approximately $2 million to $7 million over that period to fund the initial deployment of the Company’s brachytherapy products should FDA clearance be obtained, a modest distribution capability for third party isotopes and equipment and the potential acquisition of a controlling interest in a European company with which it is having discussions. As of September 30, 2014 the Company has $525 cash on hand which means there will be an anticipated shortfall of the full $2 to $7 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 the Company’s current lease commitments that will necessitate liquidation of the Company if it is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.

Assuming the Company is successful in the Company’s sales/development effort it believes that it will be able to raise additional funds through the sale of the Company’s stock to either current or new stockholders. There is no guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.
 
The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability.  The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure.  There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 NOTE 3:                     FIXED ASSETS
 
Fixed assets consist of the following at September 30, 2014 and December 31, 2013:
 
   
September 30,
2014
   
December 31,
2013
 
Production equipment
 
$
2,131,377
   
$
2,131,377
 
Building
   
446,772
     
446,772
 
Leasehold improvements
   
3,235
     
3,235
 
Office equipment
   
32,769
     
32,769
 
     
2,614,153
     
2,614,153
 
Less accumulated depreciation
   
(2,603,860
)
   
(2,599,240
)
   
$
10,293
   
$
14,913
 
 
Accumulated depreciation related to fixed assets is as follows:
 
   
September 30,
2014
   
December 31,
2013
 
Production equipment
 
$
2,122,554
   
$
2,119,830
 
Building
   
446,772
     
446,772
 
Leasehold improvements
   
3,235
     
3,235
 
Office equipment
   
31,299
     
29,403
 
   
$
2,603,860
   
$
2,599,240
 

Depreciation expense for the above fixed assets for the nine months ended September 30, 2014 and 2013, respectively, was $4,620 and $198,203.
 
 
8

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

 
NOTE 4:                   INTANGIBLE ASSETS
       
Intangible assets consist of the following at September 30, 2014 and December 31, 2013:
 
   
September 30,
 2014
   
December 31,
2013
 
License Fee
 
$
112,500
   
$
112,500
 
Less accumulated amortization
   
(109,703
)
   
(105,329
)
     
2,797
     
7,171
 
Patents and intellectual property
   
35,482
     
35,482
 
Intangible assets net of accumulated amortization
 
$
38,279
   
$
42,653
 

Amortization expense for the above intangible assets for the nine months ended September 30, 2014 and 2013, respectively, was $4,374 and $7,431.

NOTE 5:                   RELATED PARTY TRANSACTIONS

Loans from Stockholder

The Company had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009.  The Company had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time the line of credit was paid off and replaced with a loan in the initial principal amount of $199,908 from James C. Katzaroff and Carlton M. Cadwell.  Mr. Katzaroff is the Company’s chief executive officer, and Mr. Katzaroff and Mr. Cadwell are directors and beneficial owners of more than 10% of the Company’s common stock.  The loan calls for $4,066 monthly payments, including 8% interest, beginning November 30, 2008, with a balloon payment for the balance at October 31, 2009, at which time the note was extended for another year to October 31, 2010, at which time the note was extended for another year to October 31, 2011, at which time the note was extended for another year to October 31, 2012 with monthly payments increasing to $4,090, at which time the note was extended for another year to October 31, 2013 with monthly payments increasing to $4,100. There is no security held as collateral for this loan.  The Company paid this loan in full as of December 31, 2013.

Related Party Convertible Notes Payable

The Company issued various shares of common stock and convertible promissory notes during the nine months ended September 30, 2014 to a director and major stockholder. The details of these transactions are outlined in Note 10: Stockholders’ Equity - Common Stock Issued for Convertible Debt.

Rent Expenses

On July 17, 2007, the Company entered into a lease at 6208 West Okanogan Avenue, Kennewick, Washington, 99336 which has been used as the Company’s production center.  The original term of the lease was five years, commencing on August 1, 2007, however, subsequent to July 31, 2012 the Company began renting this space on a month to month basis at $11,904 per month. The landlord of this space is a non-affiliated stockholder of the Company, who holds less than 5 percent of the total outstanding shares.  In January 2014, the Company entered into a new 12-month lease for its corporate offices for a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a Director of the Company

Rental expense for the nine months ended September 30, 2014 and 2013 consisted of the following:
 
   
 
Nine months ended September 30, 2014
   
 
Nine months ended September 30, 2013
 
Office and warehouse lease effective August 1, 2007
           
Monthly rental payments
 
$
107,139
   
$
107,138
 
Rental expense in the form of stock issuance
   
-
     
-
 
Corporate office
   
13,500
     
26,190
 
Total Rental Expense
 
$
120,639
   
$
133,328
 


 


 
9

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 6:                   PREPAID EXPENSES PAID WITH STOCK

The Company issued stock for prepaid services for the year ended December 31, 2013 in the amount of $78,000 of which $26,000 expired in 2013 and was expensed and recorded as stock issued for services and $39,000 expired in the nine months ending September 30, 2014 and was expensed and recorded as stock issued for services. The $13,000 balance will expire through December 2014. The Company also issued stock for prepaid services for the year ended December 31, 2013 in the amount of $69,550 of which $5,796 expired in 2013 and was expensed and recorded as stock issued for services and $34,776 expired in the nine months ending September 30, 2014 and was expensed and recorded as stock issued for services. The $28,978 balance will expire through December 2014. The Company also issued stock for prepaid services for the year ended December 31, 2013 in the amount of $3,600 of which $0 expired in 2013 and $3,600 expired in the nine months ending September 30, 2014 and was expensed and recorded as stock issued for services. Prepaid expenses are expected to mature as follows:
 
For the twelve month period ending December 31, 2014
 
11,591
 
Thereafter
   
-
 
   
$
11,591
 

NOTE 7:                   SHORT TERM LOAN PAYABLE
 
The Company had research costs of $349,913 that were converted to an unsecured promissory note May 1, 2013. The note calls for 10% interest and was due May 1, 2014. On May 15, 2014 the Company renewed the unsecured promissory note as a 10% convertible debenture, due May 15, 2015, in the principal amount of $350,000 along with a warrant exercisable for shares of common stock of the Company and 532,609 shares of Common Stock. On June 6, 2014 the convertible debenture was converted into common stock of the Company for a total issuance of 16,530,974 shares of Common Stock.
 
The Warrant is exercisable for three years from issuance to purchase up to the number of shares of Common Stock equal to the quotient obtained by dividing the original principal amount of the Debenture ($350,000) by the Warrant Exercise Price (subject to adjustment to maintain the original value proposition and to support the ability of Battelle to convert the full value of the indebtedness to shares of Common Stock) at a price per share equal to the Warrant Exercise Price in cash.  The “Warrant Exercise Price” is equal to the lesser of the market value (defined as the mean market closing price per share over the 10 trading days immediately prior to the notice date of exercise) and $0.046 per share.
 
Interest in the amount of $2,031 was paid on this note for the nine months ended September 30, 2014.
 
NOTE 8:                   CONVERTIBLE NOTES PAYABLE

As of September 30, 2014 and December 31, 2013 the Company had the following convertible notes outstanding:

   
September 30, 2014
   
December 31, 2013
 
   
Principal (net)
   
Accrued Interest
   
Principal (net)
   
Accrued Interest
 
July and August 2012 $1,060,000 Convertible Notes, 12% interest, due December 2013 and January 2014 (18 month notes), $170,000 and $180,000 outstanding , net of debt discount of $0 and $8,576, respectively
 
$
170,000
   
$
44,172
   
$
171,424
   
$
30,610
 
May 2013 $224,000 Convertible Note, 12% interest, due November 2014 (18 month note), $0 and $30,000, net of debt discount of $0 and $17,450, respectively
   
-
     
-
     
12,550
     
2,257
 
April 2013 $72,280 Convertible Note, 0% interest for the first 90 days, due April 2014, with a 10% original issue discount, $0 and $16,646 outstanding, net of debt discount of $0 and $4,241, respectively
   
-
     
-
     
12,405
     
-
 
June 2013 $34,560 Convertible Note, 0% interest for the first 90 days, due June 2014, with a 10% original issue discount, $0 and $34,650 outstanding,  net of debt discount of $0 and $14,676, respectively
   
-
     
-
     
19,884
     
3,456
 
July 2013 $53,000 Convertible Note, 8% interest, due February 2014, $0 and $53,000 outstanding, net of debt discount of $0 and $19,395, respectively
   
-
     
-
     
33,605
     
2,033
 
July 2013 $30,024 Convertible Note, 10% one-time interest, due July 2014, with a 10% original issue discount, $0 and $30,024 outstanding,  net of debt discount of $0 and $15,876, respectively
   
-
     
-
     
14,148
     
3,002
 
August 2013 $53,000 Convertible Note, 8% interest, due March 2014, $0 and $53,000 outstanding, net of debt discount of $0 and $28,716, respectively
   
-
     
-
     
24,284
     
1,464
 
September 2013 $10,000 Convertible Note, 10% interest, due September 2014 (12 month note), $0 and $10,000 outstanding, net of debt discount of $0 and $131, respectively
   
-
     
-
     
9,869
     
330
 
September 2013 $30,000 Convertible Note, 12% interest, due September 2014, with a $1,500 original issue discount, $0 and $30,000 outstanding, net of debt discount of $0 and $17,945, respectively
   
-
     
-
     
12,055
     
937
 
October 2013 $37,500 Convertible Note, 8% interest, due July 2014, $0 and $37,500 outstanding, net of debt discount of $0 and $26,182, respectively
   
-
     
    -
     
11,318
     
682
 
October 2013 $97,700 Convertible Note, 8% interest, due April 2014, with a 12% original issue discount, $17,700 and $97,700 outstanding, net of debt discount of $0 and $64,774, respectively
   
17,700
     
    1,944
     
32,926
     
1,954
 
November 2013 $42,500 Convertible Note, 8% interest, due August 2014, $0 and $42,500 outstanding, net of debt discount of $0 and $34,368, respectively
   
-
     
    -
     
8,132
     
494
 
 
 
10

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8:                   CONVERTIBLE NOTES PAYABLE - continued

   
September 30, 2014
     
December 31, 2013
 
   
Principal (net)
   
Accrued Interest
     
Principal (net)
   
Accrued Interest
 
November 2013 $27,800 Convertible Note, 10% one-time interest, due November 2014, with a 10% original issue discount, $0 and $27,800 outstanding, net of debt discount of $0 and $24,296, respectively
   
-
     
-
     
3,504
     
2,780
 
December 2013 $27,500 Convertible Note, 8% interest, due September 2014, $0 and $27,500 outstanding, net of debt discount of $0 and $26,005, respectively
   
-
     
-
     
1,495
     
90
 
December 2013 $69,120 Convertible Note, 0% interest for the first 90 days, due December 2014, with a 10% original issue discount, $0  and $69,120 outstanding, net of debt discount of $0 and $65,143, respectively
   
-
     
-
     
3,977
     
6,912
 
December 2013 $55,000 Convertible Note, 12% interest, due December 2014, with a $3,300 original issue discount, $0 and $55,000 outstanding,  net of debt discount of $0 and $51,317, respectively
   
-
     
-
     
3,683
     
442
 
January 2014 $50,000 Convertible Note, 8% interest, due January 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
-
     
-
     
-
 (1)
January 2014 $50,000 Convertible Note, 8% interest, due January 2015, $50,000 and $0 outstanding, net of debt discount of $23,080 and $0, respectively
   
26,920
     
2,685
     
-
     
-
 (2)
January 2014 $55,500 Convertible Note, 10% interest, due October 2014, with a $5,500 original issue discount, $0 and $0 outstanding,  net of debt discount of $0 and $0, respectively
   
-
     
-
     
-
     
-
 (3)
January 2014 $55,500 Convertible Note, 10% interest, due October 2014, with a $5,500 original issue discount, $27,481 and $0 outstanding,  net of debt discount of $6,759 and $0, respectively
   
20,722
     
1,875
     
-
     
-
 (4)
January 2014 $50,000 Convertible Note, 12% interest, due January 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
-
     
-
     
-
 (5)
February 2014 $50,000 Convertible Note, 8% interest, due February 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
-
     
-
     
-
(6)
February 2014 $46,080 Convertible Note, 8% interest, due February 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
-
     
-
     
-
(7)
February 2014 $28,800 Convertible Note, 10% one-time interest, due February 2015, with a 10% original issue discount, $11,700 and $0 outstanding, net of debt discount of $5,293 and $0, respectively
   
6,407
     
734
     
-
     
-
(8)
February 2014 $55,000 Convertible Note, 12% interest, due February 2015, with a $3,300 original issue discount, $11,000 and $0 outstanding,  net of debt discount of $4,253 and $0, respectively
   
3,447
     
605
     
-
     
-
(9)
March 2014 $37,500 Convertible Note, 8% interest, due December 2014, $37,500 and $0 outstanding, net of debt discount of $16,089 and $0, respectively
   
21,411
     
1,595
     
-
     
-
(10)
March 2014 $50,000 Convertible Note, 10% interest, due March 2015, $47,500 and $0 outstanding, net of debt discount of $22,376 and $0, respectively
   
25,124
     
2,512
     
-
     
-
(11)
March 2014 $165,910 Convertible Note, 10% interest, due April 2015, with a $16,450 original issue discount, $133,410 and $0 outstanding,  net of debt discount of $71,924 and $0, respectively
   
61,486
     
5,760
     
-
     
-
(12)
April 2014 $32,000 Convertible Note, 10% interest, due April 2015, $32,000 and $0 outstanding,  net of debt discount of $15,462 and $0, respectively
   
16,538
     
1,569
     
-
     
-
 (13)
April 2014 $46,080 Convertible Note, 10% interest due April 2015, $46,080 and $0 outstanding, net of debt discount of $24,744 and $0, respectively
 
 
21,336
     
2,134
     
-
     
-
(14)
May 2014 $42,500 Convertible Note, 8% interest, due February 2015, $42,500 and $0 outstanding, net of debt discount of $24,081 and $0, respectively
   
18,419
     
1,248
     
-
     
-
(15) 
May 2014 $55,000 Convertible Note, 12% interest, due May 2015, with a $5,000 original issue discount, $50,000 and $0 outstanding,  net of debt discount of $31,918 and $0, respectively
   
18,082
     
    2,170
     
-
     
-
 (16)
June 2014 $37,500 Convertible Note, 8% interest, due March 2015, $37,500 and $0 outstanding, net of debt discount of $24,689 and $0, respectively
   
12,811
     
896
     
-
     
-
(17) 
June 2014 $28,800 Convertible Note, 10% interest due June 2015, $28,800 and $0 outstanding, net of debt discount of $20,989 and $0, respectively
 
 
7,811
     
781
     
-
     
-
(18)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $0 outstanding, net of debt discount of $29,480 and $0, respectively
   
10,520
     
1,052
     
-
     
-
(19)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $0 outstanding, net of debt discount of $39,562 and $0, respectively
   
438
     
1,052
     
-
     
-
(20)
June 2014 $56,589 Convertible Note, 10% interest, due July 2015, with a $5,611 original issue discount, $56,589 and $0 outstanding, net of debt discount of $42,325 and $0, respectively
   
14,264
     
-
     
-
     
-
(21)
July 2014 $37,500 Convertible Note, 12% interest, due July 2015, $37,500 and $0 outstanding, net of debt discount of $30,495 and $0, respectively
   
7,005
     
838
     
-
     
-
(22)
July 2014 $37,500 Convertible Note, 8% interest, due April 2015, $37,500 and $0 outstanding, net of debt discount of $28,870 and $0, respectively
   
8,630
     
690
     
-
     
-
(23) 
 
 
11

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8: CONVERTIBLE NOTES PAYABLE - continued
 
August 2014 $22,500 Convertible Note, 8% interest, due May 2015, $22,500 and $0 outstanding, net of debt discount of $17,312 and $0, respectively
   
5,188
     
271
     
-
     
-
(24)
August 2014 $36,750 Convertible Note, 10% interest, due April 2015, $36,750 and $0 outstanding, net of debt discount of $32,018 and $0, respectively
   
4,732
     
473
     
-
     
-
(25)
August 2014 $33,500 Convertible Note, 0% interest, due February 2015, with a $8,500 original issue discount, $33,500 and $0 outstanding,  net of debt discount of $21,629 and $0, respectively
   
11,871
     
    0
     
-
     
-
 (26)
September 2014 $37,500 Convertible Note, 12% interest, due September 2015, with a $5,000 original issue discount, $37,500 and $0 outstanding, net of debt discount of $36,268 and $0, respectively
 
   
1,232
     
148
     
-
     
-
(27)
                                 
Total Convertible Notes Payable, Net
 
$
512,094
   
$
75,204
   
$
375,259
   
$
57,443
 

 (1) The Company borrowed $50,000 January 2014, due January 2015. The holder of the note has the right, after the first one hundred eighty days of the note (July 16, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.07 or 58% of the lowest trade price in the 10 trading days previous to the conversion. The Company recorded a debt discount of $46,249 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ended September 30, 2014, $1,797 interest expense was recorded, and total amortization of $46,249 was recorded resulting in a debt discount of $0 at September 30, 2014.

(2) The Company borrowed $50,000 January 2014, due January 2015. The holder of the note has the right, after the first one hundred eighty days of the note (July 27, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.09 or 58% of the lowest trade price in the 10 trading days previous to the conversion. The Company recorded a debt discount of $49,636 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ended September 30, 2014, $2,685 interest expense was recorded, and total amortization of $26,556 was recorded resulting in a debt discount of $23,080 at September 30, 2014.

(3) The Company borrowed $55,500 January 2014, due October 2014. The holder of the note has the right, after the first one hundred eighty days of the note (July 21, 2014), to convert the note and accrued interest into common stock at a price per share equal to  the lesser of $0.28 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note during the first ninety days following the date of the note. During that time the amount of any prepayment would equal 111.2% of the outstanding principal balance of the note ($61,716) with no interest on the note. The Company recorded a debt discount of $55,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $55,500 resulting in a debt discount of $0 at September 30, 2014.  

(4) The Company borrowed $55,500 January 2014, due October 2014. The holder of the note has the right, after the first one hundred eighty days of the note (July 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to  the lesser of $0.28 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note during the first ninety days following the date of the note. During that time the amount of any prepayment would equal 111.2% of the outstanding principal balance of the note ($61,716) with no interest on the note. The Company recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $43,241 resulting in a debt discount of $6,759 at September 30, 2014.  

(5) The Company borrowed $50,000 January 2014, due January 2015. The holder of the note has the right, after the first one hundred eighty days of the note (July 27, 2014), to convert the note and accrued interest into common stock at a price per share equal to 40% of the lowest trade price in the 15 trading days previous to the conversion. The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ended September 30, 2014, $2,532 interest expense was recorded, and total amortization of $50,000 was recorded resulting in a debt discount of $0 at September 30, 2014.

 
12

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8:                   CONVERTIBLE NOTES PAYABLE – continued

(6) The Company borrowed $50,000 February 2014, due February 2015. The holder of the note has the right, after the first one hundred eighty days of the note (August 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.07 or 58% of the lowest trade price in the 10 trading days previous to the conversion. The Company recorded a debt discount of $37,307 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ended September 30, 2014, $1,523 interest expense was recorded, and total amortization of $37,307 was recorded resulting in a debt discount of $0 at September 30, 2014.

(7) The Company borrowed $46,080 February 2014, due February 2015. The holder of the note has the right, after the first one hundred eighty days of the note (August 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to  the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt discount of $42,653 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $42,653 resulting in a debt discount of $0 at September 30, 2014.  

(8) The Company borrowed $28,800 February 2014, due February 2015, with a one-time interest charge of 10%.  The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The note has an original issue discount of $2,800 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $28,800 related to the conversion feature and original issue discount, along with a derivative liability at inception.  Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, interest expense of $734 was recorded, and total amortization of $22,877 was recorded resulting in a debt discount of $5,923 at September 30, 2014.

(9) The Company borrowed $51,700 February 2014, due February 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.16 or 55% of the lowest trade price in the 20 trading days previous to the conversion.  The note has an original issue discount of $3,300 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $51,700 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $605 of interest expense was recorded, and total amortization of $47,447 was recorded resulting in a debt discount of $4,253 at September 30, 2014.

(10) The Company borrowed $37,500 March 2014, due December 2014, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (September 16, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed.  The Company recorded a debt discount of $37,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $21,411 resulting in a debt discount of $16,089 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $1,595 was recorded for the note.







 
13

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

 NOTE 8:                   CONVERTIBLE NOTES PAYABLE – continued

(11) The Company borrowed $50,000 March 2014, due March 2015. The holder of the note has the right, after the first one hundred eighty days of the note (September 18, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company recorded a debt discount of $50,000 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, $2,512 of interest expense was recorded, and total amortization was recorded in the amount of $27,624 resulting in a debt discount of $22,376 at September 30, 2014.  

(12) The Company borrowed $165,910 March 2014, due April 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the three lowest trading prices in the 20 trading days previous to the conversion.  The note has an original issue discount of $16,450 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $163,394 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $5,760 of interest expense was recorded, and total amortization of $91,470 was recorded resulting in a debt discount of $71,924 at September 30, 2014.

(13) The Company borrowed $32,000 April 2014, due April 2015. The holder of the note has the right, after the first one hundred eighty days of the note (October 1, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company recorded a debt discount of $27,143 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $11,681 resulting in a debt discount of $15,462 at September 30, 2014.  

(14) The Company borrowed $46,080 April 2014, due April 2015. The holder of the note has the right, after the first one hundred eighty days of the note (October 11, 2014), to convert the note and accrued interest into common stock at a price per share equal to  the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt discount of $46,080 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $21,336 resulting in a debt discount of $24,744 at September 30, 2014.  

(15) The Company borrowed $42,500 May 2014, due February 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (November 16, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed.  The Company recorded a debt discount of $42,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the nine month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $18,419 resulting in a debt discount of $24,081 at June 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $1,248 was recorded for the note.













 
14

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8:                   CONVERTIBLE NOTES PAYABLE – continued

 (16) The Company borrowed $55,000 May 2014, due May 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.03 or 55% of the lowest trade price in the 20 trading days previous to the conversion.  The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $2,170 of interest expense was recorded, and total amortization of $18,082 was recorded resulting in a debt discount of $31,918 at September 30, 2014.

(17) The Company borrowed $37,500 June 2014, due March 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (December 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed.  The Company recorded a debt discount of $37,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $12,811 resulting in a debt discount of $24,689 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $896 was recorded for the note.

(18) The Company borrowed $28,800 June 2014, due June 2015. The holder of the note has the right, after the first one hundred eighty days of the note (December 20, 2014), to convert the note and accrued interest into common stock at a price per share equal to  the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt discount of $28,800 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $7,811 resulting in a debt discount of $20,989 at September 30, 2014.  

(19) The Company borrowed $40,000 June 2014, due June 2015. The holder of the note has the right, after the first one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of the prepayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $10,520 resulting in a debt discount of $29,480 at September 30, 2014.  

(20) The Company borrowed $40,000 June 2014, due June 2015. The holder of the note has the right, after the first one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion.  The Company has the right to prepay the note and accured interest during the first one hundred eighty days following the date of the note. During that time the amount of any repayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $438 resulting in a debt discount of $39,562 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $1,052 was recorded for the note.









 
15

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8:                   CONVERTIBLE NOTES PAYABLE – continued

(21) The Company borrowed $56,589 July 2014, due July 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the three lowest trading prices in the 20 trading days previous to the conversion.  The note has an original issue discount of $5,611 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $56,589 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $0 of interest expense was recorded, and total amortization of $14,264 was recorded resulting in a debt discount of $42,325 at September 30, 2014.

(22) The Company borrowed $37,500 June 2014, due July 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 50% of the lowest of the lowest trading price in the 15 trading days previous to the conversion. The Company recorded a debt discount of $37,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the twelve month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $7,005 resulting in a debt discount of $30,495 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $838 was recorded for the note.

(23) The Company borrowed $37,500 July 2014, due April 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (January 5, 2015), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed.  The Company recorded a debt discount of $37,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $8,630 resulting in a debt discount of $28,870 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $690 was recorded for the note.

(24) The Company borrowed $22,500 June 2014, due August 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (February 2, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed.  The Company recorded a debt discount of $22,500 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $5,188 resulting in a debt discount of $17,312 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $271 was recorded for the note.

(25) The Company borrowed $36,750 August 2014, due August 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (February 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% (representing a discount rate of 40%) of the lowest trading price for the Common Stock during the twenty five trading day period ending one trading day including the date of Conversion Notice.  The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment is 145% of the outstanding amounts owed.  The Company recorded a debt discount of $36,750 related to the conversion feature of the note, along with a derivative liability at inception.  Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen month life of the note.  During the nine months ending September 30, 2014, total amortization was recorded in the amount of $4,732 resulting in a debt discount of $32,018 at September 30, 2014.  Also during the nine months ending September 30, 2014, interest expense of $473 was recorded for the note.





 
16

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 8:                   CONVERTIBLE NOTES PAYABLE – continued
 
(26) The Company borrowed $33,500 August 2014, due February 2015. The Company may prepay the note for a net payment of $33,500 at any time prior to November 27, 2014. After November 27, 2014, the holder has the right to refuse any further payments and to convert this note when it matures, February 27, 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 40% of the average three lowest trade prices in the 20 trading days previous to the conversion.  The note has an original issue discount of $8,500 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $26,387 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $0 of interest expense was recorded, and total amortization of $4,758 was recorded resulting in a debt discount of $21,629 at September 30, 2014.

(76) The Company borrowed $37,500 September 2014, due September 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 45% of the lowest trade prices in the 15 trading days previous to the conversion.  The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.  The Company recorded a debt discount of $37,500 related to the conversion feature and original issue discount. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the nine months ended September 30, 2014, $0 of interest expense was recorded, and total amortization of $1,232 was recorded resulting in a debt discount of $36,268 at September 30, 2014.

NOTE 9:                   COMMON STOCK OPTIONS AND WARRANTS

The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options and warrants, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.

The following schedule summarizes the changes in the Company’s stock options during the nine months ended September 30, 2014:
 
               
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, 2013
   
10,350,000
   
$
0.08-0.28
   
3.78 years
   
$
-
   
$
0.14
 
   Options granted
   
-
   
$
-
   
-
           
$
-
 
   Options exercised
   
-
   
$
-
     
-
           
$
-
 
   Options expired
   
(1,465,000
)
 
$
0.08-0.15
     
-
           
$
0.02
 
Balance at September 30, 2014
   
8,885,000
   
$
0.09-0.28
   
3.63 years
   
$
-
   
$
0.14
 
                                         
Exercisable at December 31, 2013
   
8,975,000
   
$
0.08-0.28
   
2.96 years
   
$
-
   
$
0.13
 
                                         
Exercisable at September 30, 2014
   
7,966,250
   
$
0.09-0.28
   
3.88 years
   
$
-
   
$
0.14
 

The following schedule summarizes the changes in the Company’s stock warrants during the nine months ended September 30, 2014:

                 
Weighted
         
Weighted
 
   
Warrants Outstanding
     
Average
         
Average
 
   
Number
   
Exercise
     
Remaining
   
Aggregate
   
Exercise
 
   
Of
   
Price
     
Contractual
   
Intrinsic
   
Price
 
   
Shares
   
Per Share
     
Life
   
Value
   
Per Share
 
                                 
Balance at December 31, 2013
   
40,103,548
   
$
0.06-0.25
     
3.19 years
   
$
50,796
   
$
0.11
 
   Warrants granted
   
129,875,733
   
$
0.01-0.05
     
2.72 years
           
$
0.01
 
   Warrants exercised
   
(25,429,118
)
 
$
0.06
     
-
           
$
0.06
 
   Warrants expired
   
(714,285
)
 
$
0.06-0.07
     
-
           
$
0.06
 
Balance at September 30, 2014
   
143,835,878
   
$
0.01-0.25
     
2.69 years
   
$
19,972,343
   
$
0.05
 
                                         
Exercisable at December 31, 2013
   
40,103,548
   
$
0.06-0.25
     
3.19 years
   
$
50,796
   
$
0.11
 
                                         
Exercisable at September 30, 2014
   
143,835,878
   
$
0.06-0.25
     
2.69 years
   
$
19,972,343
   
$
0.05
 
 
 
17

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 10:                 STOCKHOLDERS’ EQUITY
 
Common Stock Issued for Cash and the Exercise of Warrants

In January 2014, the Company issued 130,435 restricted shares of its common stock shares in exchange for $6,000 in exchange for the cancellation of the warrants attached to the convertible notes received in July 2012.

In May 2014, the Company issued 168,269 cashless warrants.

In August 2014, the Company issued 29,575,285 cashless warrants.
 
Common Stock Issued for Services

In February 2014 the Company issued 71,250 restricted shares of its common stock, representing $5,000, to a consultant for services.

In March 2014 the Company issued 100,000 restricted shares of its common stock representing $5,900, to a consultant for services.

In July 2014 the Company issued 200,000 restricted shares of its common stock representing $5,400, to a consultant for services.

Common Stock Issued for Accounts Payable

In January 2014 the Company issued 100,000 restricted shares of its common stock to a consultant in payment of $7,500 in fees owed.

 Common Stock Issued for Convertible Debt

The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in January 2014 to our major stockholder, who is also a Director. The Note matures in January of 2015. 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 $0.095 per share. The value of the $26,000 debt plus the $0.095 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $24,096 toward the debt and $952 to the shares and $952 to the beneficial conversion feature. The $952 value of the shares and the $952 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $876 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $24,972 as of June 30, 2014. Additionally, $1,190 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the six months ending June 30, 2014.

In February 2014 the Company issued a 12% Convertible Promissory Note in the amount of $55,000 to an unrelated company. The note calls for a 200,000 restricted shares of the Company’s common stock to be issued a loan fee. The note is not convertible by the holder for the first 180 days, in which time the Company can repay the note plus interest. If the Company repays the note within the first 30 days the interest rate is calculated at 25% of the note balance, if paid between 31 days and 179 days the interest rate is calculated at 35% of the note balance, and if repaid after 180 days the interest rate is calculated at 45% of the note balance.

The Company issued 5,200 shares of its common stock and a convertible promissory note in the amount of $13,000 with interest payable at 10% per annum in April 2014 to our major stockholder, who is also a Director. The Note matures in April of 2015. 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 $0.095 per share. The value of the $13,000 debt plus the $0.095 fair market value of the 5,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $13,000 debt and the value of the 5,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $12,809 toward the debt and $191 to the shares and $0 to the beneficial conversion feature. The $191 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $40 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $12,849 as of June 30, 2014. Additionally, $270 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the six months ending June 30, 2014.

In May 2014 the Company issued a 12% Convertible Promissory Note in the amount of $55,000 to an unrelated company. The note calls for a 532,609 restricted shares of the Company’s common stock to be issued a loan fee. The note is not convertible by the holder for the first 180 days, in which time the Company can repay the note plus interest. If the Company repays the note within the first 30 days the interest rate is calculated at 25% of the note balance, if paid between 31 days and 179 days the interest rate is calculated at 35% of the note balance, and if repaid after 180 days the interest rate is calculated at 45% of the note balance.

 
18

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 10:                 STOCKHOLDERS’ EQUITY– continued
 
Common Stock Issued for Convertible Debt – continued

The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in May 2014 to our major stockholder, who is also a Director. The Note matures in May of 2015. 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 $0.06 per share. The value of the $26,000 debt plus the $0.06 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,671 toward the debt and $329 to the shares and $0 to the beneficial conversion feature. The $329 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $40 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,711 as of June 30, 2014. Additionally, $325 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the six months ending June 30, 2014.

In May 2014 the Company issued a 12% Convertible Promissory Note in the amount of $55,000 to an unrelated company. The note calls for a 500,000 restricted shares of the Company’s common stock to be issued a loan fee. The note is not convertible by the holder for the first 180 days, in which time the Company can repay the note plus interest. If the Company repays the note within the first 30 days the interest rate is calculated at 25% of the note balance, if paid between 31 days and 179 days the interest rate is calculated at 35% of the note balance, and if repaid after 180 days the interest rate is calculated at 45% of the note balance.

The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in June 2014 to our major stockholder, who is also a Director. The Note matures in June of 2015. 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 $0.046 per share. The value of the $26,000 debt plus the $0.046 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,794 toward the debt and $206 to the shares and $0 to the beneficial conversion feature. The $206 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $10 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,804 as of June 30, 2014. Additionally, $110 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the six months ending June 30, 2014.

The Company issued 8,000 shares of its common stock and a convertible promissory note in the amount of $20,000 with interest payable at 10% per annum in July 2014 to our major stockholder, who is also a Director. The Note matures in July of 2015. 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 $0.046 per share. The value of the $20,000 debt plus the $0.046 fair market value of the 8,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $20,000 debt and the value of the 8,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $19,786 toward the debt and $214 to the shares and $0 to the beneficial conversion feature. The $214 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $50 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $19,836 as of September 30, 2014. Additionally, $400 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2014.

The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in August 2014 to our major stockholder, who is also a Director. The Note matures in August of 2015. 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 $0.046 per share. The value of the $26,000 debt plus the $0.046 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,855 toward the debt and $145 to the shares and $0 to the beneficial conversion feature. The $145 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $18 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,873 as of September 30, 2014. Additionally, $325 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2014.

 
19

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 10:                 STOCKHOLDERS’ EQUITY– continued

Common Stock Issued for Convertible Debt – continued

The Company issued 9,200 shares of its common stock and a convertible promissory note in the amount of $23,000 with interest payable at 10% per annum in September 2014 to our major stockholder, who is also a Director. The Note matures in September of 2015. 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 $0.046 per share. The value of the $23,000 debt plus the $0.046 fair market value of the 9,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $23,000 debt and the value of the 9,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $22,954 toward the debt and $46 to the shares and $0 to the beneficial conversion feature. The $46 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $22,956 as of September 30, 2014. Additionally, $96 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2014.

Common Stock Issued for Debt Converted

On May 15, 2014, Advanced Medical Isotope Corporation (the “Company”) entered into an agreement with Battelle Memorial Institute, an Ohio nonprofit corporation (“Battelle”), pursuant to which the Company issued to Battelle (i) a 10% convertible debenture in the principal amount of $350,000 (the “Debenture”), (ii) a warrant (the “Warrant”) exercisable for shares of common stock of the Company (the “Common Stock”), and (iii) 532,609 shares of Common Stock in satisfaction of a promissory note issued by the Company to Battelle on May 1, 2013 in the principal amount of $349,913.41 as payment for research services performed by Battelle for the Company. The Debenture was scheduled to mature on May 15, 2015 and on June 6, 2014 Battelle converted the Debenture into Common Stock for a total issuance of 16,530,974 shares of Common Stock.
 
During the nine months ending September 30, 2014 the Company issued 169,622,907 shares of unrestricted stock in exchange for convertible debt raised in 2013 and 2014. The Company also issued 7,212,613 shares of unrestricted stock representing of the accrued interest on the convertible debt that was converted.
 
NOTE 11:                 SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ended September 30, 2014 the Company issued 100,000 shares of common stock for an extinguishment of $7,500 worth of debt.

During the nine months ended September 30, 2014 the Company issued 611,700 shares of common stock as a loan fee of $122,311.

During the nine months ended September 30, 2014, the Company issued 176,835,519 shares of stock to settle convertible notes payable with a principal note balance, accrued interest, interest expense, debt discount, and derivative liabilities valued at $2,147,388 and the Company recognized a $120,024 loss on settlement of debt.

During the nine months ended September 30, 2014, the Company increased additional paid in capital and increased debt discount for $119,643 for a beneficial conversion feature on a convertible note.

 
20

 
Advanced Medical Isotope Corporation
Notes to Condensed Financial Statements
For the nine months ended September 30, 2014 (unaudited) and the year ended December 31, 2013

NOTE 12:                 SUBSEQUENT EVENTS

During the period ended September 30, 2014 some note holders who opted for conversion were unable to convert their note balances due to there not being enough authorized shares, however, the Company held a Special Meeting of Stockholders on October 28, 2014 on a proposal to approve an amendment to the Company’s Certificate of Incorporation to increase the authorized shares of Common Stock from 500,000,000 to 2,000,000,000 shares. The stockholders of the Company voted to approve this proposal.

In October 2014 the Company received $31,000 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 $0.046 per share. In addition the Company issued the note holder 12,400 shares of its common stock as a loan origination fee.

During the month of October 2014 the Company issued 55,765,326 shares of unrestricted stock in exchange for convertible debt raised in 2013 and 2014. The Company also issued 1,473,780 shares of unrestricted stock in exchange for the accrued interest on the convertible debt that was converted.

During the month of October 2014 the Company issued 19,585,714 shares of unrestricted stock in exchange for warrants related to convertible debt raised in 2013 and 2014.

During the month of November 2014 the Company issued 66,135,716 shares of unrestricted stock in exchange for convertible debt raised in 2013 and 2014. The Company also issued 1,647,599 shares of unrestricted stock in exchange for the accrued interest on the convertible debt that was converted.

During the month of November 2014 the Company issued 63,523,809 shares of unrestricted stock in exchange for warrants related to convertible debt raised in 2013 and 2014.


The Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events to disclose.


















 
21

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Except for statements of historical fact, certain information described in this Form 10-K report contains “forward-looking statements” that involve substantial risks and uncertainties.  You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words.  The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information.  Advanced Medical Isotope Corporation believes that it is important to communicate its future expectations to its investors.  However, there may be events in the future that the Company is not able to accurately predict or to control.  Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-K report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses.  The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s Form 10-K, as well as other cautionary language in this Form 10-K report, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements.  The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.

General Development of Business
 
Advanced Medical Isotope Corporation (“we” or the “Company”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel.  In April 2000, Earth Sports Products, Inc (“ESP”), a corporation registered in Washington, merged with SMSC.  In April 2000, HHH Entertainment, Inc (“HHH”), a Nevada corporation, merged with SMSC.  As of the date of merger, HHH was the only stockholder of SMSC.
 
SMSC had limited activity from inception and was considered dormant from the period May 1, 2000 through December 31, 2005.  On September 6, 2006, SMSC changed its name to Advanced Medical Isotope Corporation.
 
On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation and a subsidiary of UTEK Corporation (“UTEK”), a Delaware corporation, and $310,000 from UTEK in exchange for 100,000 shares of Series A Preferred Stock (which Series A Preferred Stock was later converted to shares of the Company’s common stock in March 2009).  The Company conducted the acquisition in order to obtain cash and NHTI’s technology.

On June 13, 2007, the Company acquired the assets of the life sciences business segment of Isonics Corporation (Isonics), a California corporation.  The Company acquired the assets in exchange for $850,000 cash payment for the purpose of combining the assets into its 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. The Company oversaw the design, construction and commissioning of the Production Facility and obtained the required licenses.  In August, 2008 the Company began producing F-18 FDG for regional distribution at the Production Facility.
 
On October 28, 2010, the Company received $1,215,000 net proceeds from a 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 reimbursed the Company for expenditures related to the development of its Brachytherapy project from April 1, 2010 through March 31, 2012.
 
On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for this same Brachytherapy Project. The $244,479 grant was received February 4, 2011. This grant reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010.

On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for the Molybdenum Project. On December 3, 2010, the Company received $205,129 and the remaining $39,350 of the grant was received February 4, 2011. The grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009.



 
22

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

In January 2013, the Company’s linear accelerator located at the Company’s Production Facility in Kennewick, Washington was shut down for maintenance and repairs.
 
On October 26, 2013, the Company was notified that a Molybdenum-99 production process with Russia has been postponed.

On November 3, 2013, the Company filed a 510(k) Pre-Market Notification for FDA clearance for its Yttrium-90 RadioGel™ brachytherapy device.  In February 2014, the FDA notified the Company that that it had determined that the Yttriium-90 RadioGel™ brachytherapy device had been classified as a Class III medical device, unless reclassified.

Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has a limited amount of revenue and has accumulated deficits since inception.  If the Company cannot obtain sufficient funding, the Company would have to delay the implementation of its business strategy and might not be able to continue operations.

Narrative Description of Business
 
The Company is a late stage development company engaged primarily in the development of brachytherapy devices and medical isotopes for diagnostic and therapeutic applications.  The Company’s focus is on transitioning to full operations upon receipt of FDA clearance for its patented brachytherapy cancer products.  Brachytherapy uses radiation to destroy cancerous tumors by placing a radioactive isotope inside or next to the treatment area.  Annual sales of brachytherapy products exceed $1 billion, about half of which are in the United States.  The Company intends to outsource material aspects of manufacturing, distribution, sales and marketing for its products in the United States and to enter into licensing arrangements outside of the United States, though the Company will evaluate its alternatives before finalizing its plans.
 
The Company is also engaged in the development of other medical isotopes for therapeutic and diagnostic purposes and engages in limited operations consisting of the operation of a nuclear accelerator (though this accelerator has been shut down for repairs and maintenance since January 2013) and the sales of third party isotopes.
 
The Company’s overall 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.  The Company’s shorter-term objective is to obtain regulatory approval for its brachytherapy products and to then commercialize those products.
 
The Company’s board has approved a three year business strategy focused on transitioning to full operations, following the FDA approval to begin marketing its brachytherapy cancer products.  Should the Company first receive regulatory approval outside of the United States, the Company could commence operations in the applicable territories.
 
The business strategy results from the Company’s development of a family of three brachytherapy devices and the Company’s belief that there is: (1) strong market potential for these products in the United States and internationally, (2) the potential for attractive operating margins from the commercialization of such devices, (3) a considerably smaller capital requirement to complete the regulatory process and deploy these devices, as compared to the capital required for most of the other initiatives the Company is developing and (4) a material potential for the Company to receive advances and minimum guarantees from international licensees of these products when they are ready for such licensing activities.
 
Following receipt of required regulatory approvals and financing, in the United States, the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing.  Outside of the United States, the Company intends generally to enter into licensing arrangements.  The Company will evaluate its alternatives before finalizing its plans.











 
23

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Narrative Description of Business- continued

The Board approved of two secondary priorities for 2014 and 2015:

 
·
Expansion of the Company’s sales agency activities for isotopes and related equipment manufactured by third parties.  This activity requires very little capital, facilitates the Company’s interaction with potential partners, customers and vendors and should be immediately cash positive.  In 2013, the Company derived approximately $101,745 of revenue from such activities.  By expanding this activity, the Company expects to be able to raise less capital through the sale of securities, thereby reducing dilution for shareholders.

 
·
Potential acquisitions.  No definitive agreements or commitments have been entered into by the Company pertaining to potential acquisitions.  Except for stock acquisitions, potential acquisitions would be subject to the Company’s receipt of sufficient financing.

The Company’s business strategy also contemplates that the Company will resume operation of its linear accelerator located in Kennewick, consider building a larger cyclotron production facility in Southern California in partnership with a major medical facility and continue its research and development activities for other isotopes and technologies, though the pace of all activities will be subject to its financial capabilities and the needs and performance of the Company’s strategic priorities, particularly the successful launch and growth of the brachytherapy products.
 
Over the next year to two years, the Company anticipates a requirement of about $1.5 million per year to maintain current operating activities and from approximately $2 million to $5 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products, (2) initial regulatory approval processes outside of the United States and (3) a sales capability for third party isotopes and equipment.  The continued deployment of the brachytherapy products and a worldwide regulatory approval effort would require additional resources and personnel.  The principal variables in the timing and amount of spending for the brachytherapy products in 2014 will be FDA’s classification of the Company’s brachytherapy products as Class II or Class II devices (or otherwise) and any requirements for clinical studies.  Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere.
 
There can be no assurance regarding the outcome of the Company’s regulatory, financing or commercial efforts.  If some of the anticipated results are delayed or do not occur, the Company’s anticipated spending and capability to fund that spending would decline.  Conversely, if the Company has the financial capacity to do so, the Company could spend additional sums to grow its businesses more rapidly and to maintain or accelerate research and development activities for future products and technologies.
 
In the longer-term, subject to the success of the Company’s brachytherapy products and the Company’s financial constraints, the Company intends to take steps toward the commercialization of other isotopes, businesses and technologies intended to help improve the diagnosis and treatment of cancer and other illnesses.  Among those longer-term projects being considered by the Company are potential solutions for the impending severe shortages of Molybendum-99 and its derivative product Technetium-99m, the most widely used isotopes for diagnostic purposes.

Collaborations
 
The Company is engaged in collaborative efforts with U.S. national laboratories and universities and with international teaming partners.  These collaborative effort projects include complementary isotope manufacturing technologies as well as isotope devices.  The Company has active research collaborations for its brachytherapy products with Washington State University and the University of Utah.  The Company also has 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.










 
24

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Narrative Description of Business- continued

Products

The cornerstone equipment selected for the Company’s Production Facility is a proton linear accelerator.  The Company’s proton linear accelerator is designed to replace large and cyclotron systems with significant infrastructure and utility requirements, such as electrical and air-handling, 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 its experience in the industry, it is the Company’s 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.
 
From August 2008 through January 2013, the Company manufactured and sold F-18 FDG from its Production Facility in its local region around Kennewick, WA.  F-18 is an important isotope in the radiopharmaceutical industry, and is primarily synthesized into fluorodeoxyglucose (FDG) for use in positron emission tomography (PET) scans.  FDG is the primary PET imaging isotope.  It is used for medical and diagnostic purposes, such as cancer detection, heart imaging, and brain imaging.  When operating, the Company’s linear accelerator is capable of producing a variety of isotopes and future manufacturing and sales could expand beyond F-18 FDG.  The Company intends to resume operation of its linear accelerator in 2014, subject to the receipt of sufficient financing.
 
Other regional production facilities are being considered throughout the U.S. and abroad, including a larger cyclotron production facility in Southern California in partnership with a major medical facility.   

New Products in Development

Brachytherapy Products

The Company has exclusively licensed Yttrium-90 (Y-90) polymer composite technology from Battelle Memorial Institute, developed at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers.  The license agreement grants the Company the exclusive right to manufacture and market products using the Yttrium-90 isotope carried by an injectable water-based biodegradable polymer.  The use of Yttrium 90 (Y-90) for treatment of cancers is well established.
 
Subject to receipt of all required regulatory approvals from the FDA in the United States and analogous regulators outside of the United States, the Company plans to introduce a new Y-90-based brachytherapy product line for a range of applications for the delivery of a prescribed dose of radiation to a target site.
 
After receipt of the requisite regulatory clearances, the Company plans initially to introduce three products based on the patented technologies licensed from Battelle:
 
 
·
Y-90 RadioGel™ device combines Y-90 particles with a polymer carrier that may be injected directly into the tumor.  The Y-90 RadioGel™ device enables delivery of higher radiation doses to tumors than can be achieved with traditional seeds and with greater sparing of nearby normal tissues.
 
 
·
Y-90 Fast-Resorbable Polymer Seeds - Y-90 contained within a polymer seed, as opposed to metal or glass.  This product would be used in place of treating cancers with currently marketed titanium or glass seeds.
 
 
·
Y-90 Polymer Topical Paste - This product may be applied directly to tissue surfaces after surgical tumor removals (also referred to as “resections”) to treat residual tumor cells.
 








 
25

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

New Products in Development - continued

Based upon its studies and analyses, or general application of experience with current brachytherapy devices and Yttrium-90, the Company believes that its brachytherapy products are likely to offer the following benefits, among others, for patients and medical professionals:
 
 
·
Maximizing Therapeutic Index:  The short-range beta particles emitted by Y-90 deliver radiation energy within a tight range.  This enables radiation to be selectively delivered to target tissues while minimizing radiation dose to nearby normal tissues.  High therapeutic indices imply that more radiation energy may be imparted to cancer tissues, with less radiation reaching adjacent normal tissues.
 
 
·
Half Life:  The industry-standard products have a half-life of 17 days, meaning the patient is radioactive for over two months.  The Company’s brachytherapy products use the yttrium-90 isotope, which has a half-life of just 2.7 days.  A patient treated with Y-90 would be close to radiation free in 10 days.
 
 
·
Optimized Delivery Method:  Current brachytherapy devices place permanent metal particles seeds in the prostate by using up to 30 large needles.  By contrast, the Company’s biodegradable polymer carrying Y-90 particles may be administered with small-gauge needles.
 
 
·
No Permanent Seeds Remaining:  Current brachytherapy devices place permanent metal seeds in the tumor.  The Company’s Y-90 RadioGel™ device utilizes a biodegradable, non-toxic polymer that is ultimately absorbed by the body.  This eliminates the possibility of a long-term seed migration or other problems that may sometimes arise when seeds remain in the body.
 
 
·
Good Safety Profile:  Current brachytherapy devices utilize isotopes that emit x-rays (akin to gamma radiation).  X-rays or gamma radiation travels within and outside of the body and the isotopes used in current brachytherapy products can remain radioactive for more than two months.  The Company’s brachytherapy products use the Yttrium-90 isotope, which is a beta-emitter.  The Yttrium-90 beta-emissions travel only a short distance and has a short half life of 2.7 days.
 
 
·
Potential Lower Cost:  Yttrium-90 supplies are readily accessible and are relatively inexpensive.  The elimination of the metal or glass enclosures greatly reduces manufacturing costs.
 
On November 3, 2013, the Company filed a 510(k) Pre-Market Notification for FDA clearance for its Yttrium-90 RadioGel™ brachytherapy device.  The FDA, which previously advised the Company that it would review the product as a medical device, has further advised the Company that it has determined that the product is classified by statute as a Class III medical device, unless the device is reclassified.  The Company intends to seek such reclassification, unless the additional steps required for approval of this product as a Class III medical device are more efficient.  The Company has obtained input from the FDA regarding its alternatives and will seek further input to expedite the process.  In addition, the Company is discussing with the FDA if additional trials will be necessary prior to marketing the device.  If additional trials are necessary, there will be additional cost and time to reach marketing clearance or approval.
 
Subject to receipt of regulatory approval and sufficient financing, the Company is contemplating the commercialization of the brachytherapy products in the United Sates by partnering with established manufacturers and distributors of medical devices.  Outside of the United States, the Company is considering seeking licensing arrangements with established medical device and drug companies.
 
There can be no assurance as to the timing or receipt of regulatory approvals, the receipt of adequate financing for commercialization of the products, or the market’s acceptance for these products.










 
26

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

New Products in Development - continued

Brachytherapy Market
 
Brachytherapy is the use of radiation to destroy cancerous tumors by placing a radiation source inside or next to the treatment area.  According to Global Industry Analysts, by 2016 the U.S. brachytherapy market will reach $2 billion.  It is estimated that the U.S. market represents approximately half of the global market.  The Company believes there are significant opportunities in prostate, breast, liver, pancreatic, head and neck cancers.  The 2013 U.S. estimated new cases according to the American Cancer Society are 240,000 prostate cancer, 235,000 breast cancer, and 31,000 liver cancer.
 
In 2010, the Company paid a $10,000 non-refundable advance for an exclusive license from Battelle Memorial Institute regarding certain technology for the production of a brachytherapy seed.  The license agreement also requires the payment of a royalty based on a percent of net sales for licensed products sold.
 
In February 2011, the Company paid $5,000 for a one year option to negotiate an exclusive license from Battelle Memorial Institute for certain patents for the production of a brachytheraphy gel technology.  Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented brachytheraphy gel technology. This license agreement included a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold.  The license agreement also includes a minimum royalty amount to be paid each year, starting with $5,000 payable in January 2013.  The Company made such payment.
 
Molybdenum-99 and Technetium-99
 
Because of the Company’s financial constraints and focus on the brachytherapy products, the Company has delayed the potential implementation of production activities pertaining to Molybdenum-99 and Technetium-99.
 
Sales Agency Activities:
 
The Company is engaged in sales agency activities for worldwide distribution of O-18 enriched water.  In addition, the Company has the ability to act as a sales agency for other stable isotopes as well as radioactive isotopes. 
 
Competitors
 
There are established competitors in all of the markets in which the Company has products or currently plans to have products.  According to the World Nuclear Association, the main world isotope suppliers are Covidien (Ireland), MDS Nordion (Canada), IRE (Europe), NTP (South Africa), Isotop-NIIAR (Russia) and ANSTO (Australia).  Most medical radioisotopes made in nuclear reactors are sourced from relatively few research reactors.  Most of the world's supply of Mo-99 for this comes from only five reactors, all of them 43 to 52 years old (in mid 2010).  A number of incidents in 2008 pointed up shortcomings and unreliability in the supply of medical isotopes, particular technetium.
 
The current brachytherapy market in the U.S. is estimated at $300 million per year. There are many brachytherapy devices currently marketed in the U.S. and globally.  The traditional iodine-125 (I-125) and palladium-103 (Pd-103) technologies for brachytherapy are well entrenched with powerful market players controlling the market. The industry-standard I-125-based therapy was developed by Oncura, which is a unit of General Electric Company (NYSE:GE), but the product is currently marketed by Theragenics Corporations (TGX). Additionally, C.R. Bard, a major industry player competes in the I-125 brachytherapy marketplace. These market competitors are also involved in the distribution of Pd-103 based products, which are clearly the market share leader.  Cs-131 therapies are beginning to take some market share.












 
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Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Employees
 
As of December 31, 2013, the Company had seven employees, of whom three were full-time employees.  The Company utilizes eight to ten independent contractors to assist with its operations.  The Company does not have a collective bargaining agreement with any of its employees, and believes its relations with its employees are good.
 
Raw Materials

The Company obtains supplies, hardware, handling equipment and packaging from several different U.S. and foreign suppliers.  Some of the materials used in the products the Company manufactures are currently available only from a limited number of suppliers, many of which are international suppliers.  The Company obtains many of its stable isotopes from suppliers in Russia.  The Company plans to expand the availability of its supplies and products utilizing manufacturing capability at reactors located at the U.S. Department of Energy's National Laboratories (“National Laboratories”) as well as production capabilities at various universities and foreign countries other than Russia.  This strategy is intended to reduce the risk associated with concentrating isotope production at a single facility.  
 
Customers
 
The Company’s customers for sales of stable isotopes have included a broad range of hospitals, universities, research centers and national laboratories, in addition to academic and government institutions.  These customers are located in major U.S. and international markets.
 
The Company’s sales for 2013 consisted of F-18 (15.5% of total revenues) and Consulting Income (12.2% of total revenues) and Stable Isotopes (72.4%). Sales of F-18 for 2013 were to two regional hospitals, Kadlec Hospital in Richland, Washington and Kennewick General Hospital in Kennewick, WA. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities. Stable Isotopes consist of longer lived isotopes purchased from Russia and sold in England.
 
The Company anticipates that customers for its brachytherapy products will include those institutions and individuals that currently purchase brachytherapy products or other oncology treatment products.
 
Patents, Trademarks, Licenses

License Agreement:

The Company has made the following investments in patent licenses and intellectual property during 2013:
 
Patent filing costs totaling $7,716 and $77,412, were capitalized during the twelve months ended December 31, 2013 and 2012. During the years ended December 31, 2013 and 2012 the Company impaired $332,709 and $0, respectively, worth of patent and intellectual property. This left a total $35,482 and $360,475 of capitalized patents and intellectual property costs at December 31, 2013 and 2012, respectively. The patents are pending and are being developed, and as such, the patents and filing costs associated with them are not being amortized.  Management has determined the economic life of the patents to be 10 years, and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.  The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.

In February 2011, the Company paid $5,000 for a one year option to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology.  This fee was fully expensed in the twelve months ended December 31, 2011.  Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of a patented brachytherapy gel technology.  This license agreement requires a $17,500 nonrefundable license fee and a payment of a royalty based on a percent of gross sales for licensed products sold.  The agreement also requires payment of a minimum royalty amount to be paid each year starting with 2013.  The $5,000 minimum royalty amount for the year 2013 was paid in February, 2014.





 
28

 


Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Government Regulation

Significant areas of regulation and intervention include the following:

Environmental and Health Compliance.  The Company is committed to conducting its activities so that there is no or only minimal impact to the environment; there is no assurance, however, that the Company’s activities will not at times result in liability under environmental and health regulations.
 
The Company has spent approximately $950,000 on its facility to meet environmental regulation, including the cost of confinement of the facility, exhaust and air balance systems and waste storage facilities.  As the Company expands its manufacturing capability, it will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which it conducts business.
 
The current ongoing continuing costs of compliance are immaterial.  Future costs and expenses resulting from such liability may, however, materially negatively impact the Company’s operations and financial condition.  Overall, environmental and health laws and regulations will continue to affect the Company’s businesses worldwide.
 
Import/Export Regulation.  The Company is subject to significant regulatory oversight of the Company’s import and export operations due to the nature of its product offerings.  Penalties for non-compliance can be significant, and violation can result in adverse publicity and financial risk for the Company.
 
Financial Accounting Standards.  The Company’s financial results can be impacted by new or modified financial accounting standards.
 
Other Regulations.  The Company’s operations are subject to rules and regulations administered by the U.S. Nuclear Regulatory Commission, Department of Energy, Food and Drug Administration, Department of Transportation, Department of Homeland Security, the Washington State Department of Health and other regulatory bodies.  To the extent that these regulations are or become burdensome, business development could be adversely affected.
 
Available Information

The Company prepares and files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”).  Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time.  Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.  Moreover, the Company maintains a website at http://www.isotopeworld.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business.  This information is publicly available (i.e., not password protected) and is updated regularly. The content on any website referred to in this Form 10-K report is not incorporated by reference into this Form 10-K report, unless (and only to the extent) expressly so stated herein.
















 
29

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Results of Operations

Comparison of the Nine Months Ended September 30, 2014 and 2013
 
The following table sets forth information from our statements of operations for the nine months ended September 30, 2014 and 2013.
 
   
Nine Months Ended
September 30, 2014
 
Nine Months
Ended
September 30,
 2013
Revenues
 
$
24,108
   
$
140,603
 
                 
Operating expenses
   
1,595,210
     
3,308,560
 
                 
Operating loss
   
(1,571,102
)
   
(3,167,957
)
Non-operating income (expense)
               
Recognized income from grants
   
-
     
265,531
 
Gain (loss) on derivative liability
   
(313,990
)
   
2,085,767
 
Net loss on settlement
   
(120,024
)
   
(198,546
)
Interest expense
   
(1,181,063
)
   
(1,208,825
)
Net income (loss)
 
$
(3,186,179
)
 
$
(2,224,030
)
 
Revenue
 
Revenue was $24,108 for the nine months ended September 30, 2014 and $140,603 for the nine months ended September 30, 2013.  The decrease was the result of a decrease in F-18 sales and the sale 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.  F-18 sales accounted for $21,750 of the total nine months ended September 30, 2013 revenues and $0 of the total nine months ended September 30, 2014 revenues.  Revenues for F-18 were lower in the nine months ended September 30, 2014 as a result of our linear accelerator being down and having no production for several months; thereby decreasing the number of doses sold for the nine months ended September 30, 2014 (0) from the nine months ended September 30, 2013 (72). Revenues from Stable Isotopes consisted of $0 and $101,745 for the nine months ended September 30, 2014 and 2013, respectively. The Company ceased the sale of Stable Isotopes due to the low profit margins and may continue the sale of Stable Isotopes in the future should it deem the profitability for Stable Isotopes increases. Consulting revenues consisted of $24,108 and $17,108 for the nine months ended September 30, 2014 and 2013, respectively. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting.

Revenue for the nine months ended September 30, 2014 and 2013 consists of the following:

     
Nine months ended
September 30, 2014
   
Nine months ended
September 30, 2013
 
F-18    
$
-
   
$
21,750
 
Stable Isotopes
     
-
     
101,745
 
Consulting
     
24,108
     
17,108
 
     
$
24,108
   
$
140,603
 








 
30

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Results of Operations – Comparison of the Nine Months Ended September 30, 2014 and 2013 - continued

Operating Expenses
 
Operating expenses for the nine months ended September 30, 2014 and 2013 was $1,595,210 and $3,308,560, respectively.  The decrease in operating expenses from 2013 to 2014 can be attributed to the decrease in Cost of Materials ($104,836 for the nine months September June 30, 2013 versus $817 for the nine months ended September 30, 2014); and Depreciation and Amortization expenses ($205,634 for the nine months September June 30, 2013 versus $8,994 for the nine months ended September 30, 2014); and the decrease in Professional Fees expenses ($597,377 for the nine months ended September 30, 2013 versus $466,581 for the nine months ended September 30, 2014); and the decrease in Stock Options Granted expense ($576,068 for the nine months ended September 30, 2013 versus $174,561 for the nine months ended September 30, 2014); and the decrease in Payroll Expenses ($633,159 for the nine months ended September 30, 2013 versus $576,089 for the nine months ended September 30, 2014); and the decrease in General and Administrative Expenses ($1,181,574 for the nine months ended September 30, 2013 versus $366,868 for the nine months ended September 30, 2014.

Operating expenses for the nine months ended September 30, 2014 and 2013 consists of the following:
 
   
Nine months ended
September 30, 2014
   
Nine months ended
September 30, 2013
 
Cost of materials
 
$
817
   
$
104,836
 
Depreciation and amortization expense
   
8,994
     
205,634
 
Professional fees
   
466,581
     
597,377
 
Stock options granted
   
174,561
     
576,068
 
Payroll expenses
   
576,089
     
633,159
 
General and administrative expenses
   
366,868
     
1,181,574
 
Sales and marketing expense
   
1,300
     
9,912
 
   
$
1,595,210
   
$
3,308,560
 

Non-Operating Income (Expense)
 
Non-operating income (expense) for the nine months ended September 30, 2014 varied from the nine months ended September 30, 2013 primarily due to an increase of loss on derivative liability to $(313,990) for the nine months ended September 30, 2014 from a gain of $2,085,767 for the nine months ended September 30, 2013; and an decrease in recognized income from grants from $265,531 for the nine months ended September 30, 2013 to $0 for the nine months ended September 30, 2014. Part of this increase in non-operating expense was offset by a decrease in net loss on settlement of debt from $(198,546) for the nine months ended September 30, 2013 versus $(120,024) for the nine months ended September 30, 2014.

Non-Operating income (expense) for the nine months ended September 30, 2014 and 2013 consists of the following:

   
Nine months ended
September 30, 2014
   
Nine months ended
September 30, 2013
 
Interest expense
 
$
(1,181,063
)
 
$
(1,208,825
)
Net loss on settlement of debt
   
(120,024
)
   
(198,546
)
Recognized income from grants
   
-
     
265,531
 
Gain (loss) on derivative liability
   
(313,990
)
   
2,085,767
 
   
$
(1,615,077
)
 
$
943,927
 
 
Net Loss
 
Our net loss for the nine months ended September 30, 2014 and 2013 was $3,186,179 and $2,224,030, respectively.







 
31

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Results of Operations

Comparison of the three Months Ended June 30, 2014 and 2013
 
The following table sets forth information from our statements of operations for the three months ended September 30, 2014 and 2013.
 
   
Three Months Ended
September 30,
 2014
 
Three Months Ended
September 30,
 2013
Revenues
 
$
-
   
$
115,799
 
                 
Operating expenses
   
493,322
     
605,187
 
                 
Operating loss
   
(493,322
)
   
(489,388
)
Non-operating income (expense)
               
Interest expense
   
(365,566
)
   
(389,456
)
Net gain (loss) on settlement of debt
   
(44,975
)
   
(27,013
)
Recognized income from grants
   
-
     
24,241
 
Gain (Loss) on derivative liability
   
37,076
     
(73,254
)
Net income (loss)
 
$
(866,787
)
 
$
(954,870
)

Revenue
 
Revenue was $0 for the three months ended September 30, 2013 and $115,799 for the three months ended September 30, 2014.  The decrease was the result of Consulting revenues and the sale of Stable Isotopes. Revenues from the sale of Stable Isotopes consisted of $0 and $101,745 of the total revenue for the three months ended September 30, 2014 and 2013, respectively. The Company ceased the sale of Stable Isotopes due to the low profit margins and may continue the sale of Stable Isotopes in the future should it deem the profitability for Stable Isotopes increases. Consulting revenues consisted of $0 and $14,054 of the total revenue for the three months ended September 30, 2014 and 2013, respectively. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.
 
Revenue for the three months ended September 30, 2014 and 2013 consists of the following:

   
Three months ended
September 30, 2014
   
Three months ended
September 30, 2013
 
Stable Isotopes
 
$
-
   
$
101,745
 
Consulting
   
-
     
14,054
 
   
$
-
   
$
115,799
 
















 
32

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Results of Operations – Comparison of the Three Months Ended June 30, 2014 and 2013 - continued

Operating Expenses
 
Operating expenses for the three months ended September 30, 2014 and 2013 were $493,322 and $605,187, respectively.  The decrease in operating expenses from 2013 to 2014 can be attributed to the decrease in Cost of Materials ($265 for the three months ended September 30, 2014 versus $100,278 for the three months ended September 30, 2013), and General and Administrative Expenses ($112,281 for the three months ended September 30, 2014 versus $155,096 for the three months ended September 30, 2013. The decrease in operating expenses from 2013 to 2014 was partially offset by an increase in Payroll Expenses ($190,994 for the three months ended September 30, 2014 versus $174,271 for the three months ended September 30, 2013),

   
Three Months Ended
September 30, 2014
   
Three Months Ended
September 30, 2013
 
Cost of materials
 
$
265
   
$
100,278
 
Depreciation and amortization expense
   
2,998
     
3,817
 
Professional fees
   
128,597
     
110,688
 
Stock options granted
   
58,187
     
58,187
 
Payroll expenses
   
190,994
     
174,271
 
General and administrative expenses
   
112,281
     
155,096
 
Sales and marketing expense
   
-
     
2,850
 
   
$
493,322
   
$
605,187
 

Non-Operating Income (Expense)
 
Non-operating income (expense) for the three months ended September 30, 2014 and 2013 was $(373,465) and $(465,482), respectively. The increase in non-operating expense was due to a decrease in Gain on Derivative Liability ($73,254) for the three months ended September 30, 2013 to a Gain on Derivative Liability for the three months ended September 30, 2014 ($37,076).
 
Non-Operating income (expense) for the three months ended September 30, 2014 and 2013 consists of the following:

   
Three months ended
September 30, 2014
   
Three months ended
September 30, 2013
 
Interest expense
 
$
(365,566
)
 
$
(389,456
)
Net gain (loss) on settlement of debt
   
(44,975
)
   
(27,013
)
Recognized income from grants
   
-
     
24,241
 
Gain (Loss) on derivative liability
   
37,076
     
(73,254
)
   
$
(373,465
)
 
$
(465,482
)

Net Loss
 
Our net loss for the three months ended September 30, 2014 and 2013 was $866,787 and $954,870, respectively.











 
33

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Liquidity and Capital Resources
 
At September 30, 2014, the Company had negative working capital of $9,543,943, as compared to $8,785,934 at September 30, 2013. During the nine months ended September 30, 2014 the Company experienced negative cash flow from operations of $790,856 and it expended $0 for investing activities while adding $791,381 of cash flows from financing activities.  As of September 30, 2014, the Company had $0 commitments for capital expenditures.

Cash used in operating activities decreased from $1,864,567 for the nine month period ending September 30, 2013 to $790,856 for the nine month period ending September 30, 2014.  Cash used in operating activities was primarily a result of the Company’s net loss, partially offset by non-cash items, such as loss on derivative liability and amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses.  Cash used in investing activities decreased from $7,715 for the nine month period ended September 30, 2013 to $0 for the nine month period ended September 30, 2014.  Cash was used to acquire equipment and patents during the 2013 six month period. Cash provided from financing activities decreased from $1,892,092 for the nine month period ending September 30, 2013 to $791,381 for the nine month period ending September 30, 2014. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from stock for cash and a decrease in proceeds from short term debt and an increase in payments on convertible debt, partially offset with an increase in proceeds on convertible debt.

The Company has generated material operating losses since inception.  The Company has incurred a net loss of $39,324,704 from January 1, 2006 through September 30, 2014, including a net loss of $3,186,179 for the nine months ended September 30, 2014, and a net loss of $2,224,030 for the nine months ended September 30, 2013.  The Company expects to continue to experience net operating losses.  Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business.  The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company.  If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business.
 
Based on the current cash run rate, approximately $1,500,000 will be needed to fund operations for an additional year.  As disclosed in the risk factors, the Company is presently taking steps to raise additional funds to continue operations for the next 12 months and beyond.  In addition the Company anticipates spending from approximately $2 million to $7 million over that period to fund the initial deployment of its brachytherapy products should FDA clearance be obtained, a modest distribution capability for third party isotopes and equipment and the potential acquisition of a controlling interest in a European company with which the Company is having discussions.  The Company anticipates initially funding a portion of the foregoing requirements with private placements of Company securities.  Thereafter, the Company anticipates that funding also would be provided by revenues derived from the business activities, including, potentially, advances from foreign licensees for the brachytherapy products.  If some of the foregoing business activities do not occur or are delayed, the Company anticipated spending would decline.  If the Company has the financial capacity to do so, the Company might spend additional sums to grow the foregoing businesses more rapidly. 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 its current lease commitments that will necessitate liquidation of the Company if the Company is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.
 
The recent economic events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact its ability to obtain financing and its ability to execute its business plan. The Company believes healthcare institutions will continue to purchase the medical solutions that it distributes.  

Critical Accounting Policies and Estimates
 
            The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.  Actual results could differ from these estimates under different assumptions or conditions.  During the period ended September 30, 2014, we believe there have been no significant changes to the items disclosed as significant accounting policies in management's notes to the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2013, filed on March 31, 2014.

 
34

 

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations - continued

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.

Item 4.  Controls and Procedures.

Disclosure Controls and Procedures

Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15.  Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s 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 the Company in the reports that the Company files or submits 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 the Company’s 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 the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s 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 first fiscal quarter of 2014) 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.
 




 
35

 

PART II

Item 1A. Risk Factors.  

There have been no material changes to the risk factors set forth in Item 1A in our Form 10-K report for the year ended December 31, 2013.

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

Item 6.    Exhibits.
         
   
Exhibit
   
   
Number
 
Description
   
10.1
 
Form of Non-Statutory Stock Option Agreement (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 15, 2012).
   
   
   
   
99.1
**
Temporary Hardship Exemption
   
101.INS
*
XBRL Instance Document
   
101.SCH
*
XBRL Taxonomy Extension Schema
   
101.CAL
*
XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF
*
XBRL Taxonomy Extension Definition Linkbase
   
101.LAB
*
XBRL Taxonomy Extension Label Linkbase
   
101.PRE
*
XBRL Taxonomy Extension Presentation Linkbase
 
*    Filed herewith.
** Previously filed.
 
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 13, 2014
By:
/s/   James C. Katzaroff
 
Name:
James C. Katzaroff 
 
Title:
Chairman and Chief Executive Officer
   
(Principal Executive Officer)
 
 
     
Date: November 13, 2014
By:
/s/   L. Bruce Jolliff
 
Name:
L. Bruce Jolliff 
 
Title:
Chief Financial Officer
   
(Principal Financial and Accounting Officer)

 
36