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VIVOS INC - Quarter Report: 2015 September (Form 10-Q)

amic10q_sep302015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
 
OR  
 
[  ]
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.)
   
1021 N Kellogg Street, Kennewick, WA
 
92336
(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 [  ]

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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [X]  No [  ]

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.
 
Large accelerated filer
 
[   ]
  
Accelerated filer
 
[   ]
       
Non-accelerated filer
 
[   ]
  
Smaller reporting company
 
[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]    No [X]
 
As of November 19, 2015, there was 1,996,934,122 shares of common stock, par value $0.001 per share, issued and outstanding.
 
 
 



 
 
ADVANCED MEDICAL ISOTOPE CORP. AND SUBSIDIARIES
FORM 10-Q
INDEX
 
     
Page
 
PART I – FINANCIAL INFORMATION
 
         
 
 
   
 
   
 
   
 
   
 
   
 
 
26 
 
 
31 
 
 
31 
 
         
PART II – OTHER INFORMATION
         
 
33 
 
 
33 
 
 
33 
 
         
 
34 
 
 
 
 
 Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements.  The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements."  Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our Annual Report on Form 10-K for the year ended December 31, 2014, previously filed with the Securities and Exchange Commission on March 5, 2015, which Annual Report is incorporated herein by reference.  Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date.  Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. 
 
 
 
ITEM 1.   Financial Statements

ADVANCED MEDICAL ISOTOPE CORPORATION
CONSOLIDATED BALANCE SHEETS
 
             
   
September 30,
   
December 31,
 
   
2015
   
2014
 
Assets
 
(unaudited)
       
             
Current Assets:
           
Cash
 
$
7,396
   
$
203
 
Prepaid expenses
   
26,278
     
21,710
 
Inventory
   
8,475
     
8,475
 
Total current assets
   
42,149
     
30,388
 
                 
Fixed assets, net of accumulated depreciation
   
5,158
     
8,753
 
                 
Other assets:
               
License fees, net of amortization
   
-
     
1,339
 
Patents and intellectual property
   
35,482
     
35,482
 
Debt issuance costs
   
-
     
13,917
 
Deposits
   
644
     
644
 
Total other assets
   
36,126
     
51,382
 
                 
Total assets
 
$
83,433
   
$
90,523
 
                 
Liabilities and Stockholders’ Deficit
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
 
$
1,367,515
   
$
1,461,028
 
Accrued interest payable
   
191,292
     
1,656,763
 
Payroll liabilities payable
   
505,431
     
309,160
 
Short term loans payable
   
-
     
-
 
Convertible notes payable, net
   
2,360,459
     
600,569
 
Derivative liability
   
2,717,152
     
11,502,380
 
Related party notes payable, net
   
1,055,535
     
4,430,204
 
Current portion of capital lease obligations
   
-
     
39,481
 
Liability for lack of authorized shares
   
659,281
     
253,106
 
Total current liabilities
   
8,856,665
     
20,252,691
 
                 
Stockholders’ Equity (Deficit):
               
Preferred stock, $.001 par value, 20,000,000 shares authorized 955,929 issued and outstanding
   
956
     
-
 
Common stock, $.001 par value; 2,000,000,000 shares authorized 1,996,934,122 and 1,705,382,554 shares issued and outstanding, respectively
   
1,996,934
     
1,705,382
 
Paid in capital
   
37,863,011
     
32,379,681
 
Accumulated deficit
   
(48,634,133
)
   
(54,247,231
)
Total stockholders’ equity (deficit)
   
(8,773,232
)
   
(20,162,168
)
                 
Total liabilities and stockholders’ equity (deficit)
 
$
83,433
   
$
90,523
 
 
The accompanying notes are an integral part of these condensed financial statements.
 

ADVANCED MEDICAL ISOTOPE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                         
Revenues
 
$
12,054
   
$
-
   
$
24,108
   
$
24,108
 
                                 
Operating expenses
                               
   Cost of materials
   
-
     
265
     
475
     
817
 
   Sales and marketing expenses
   
-
     
-
     
-
     
1,300
 
   Depreciation and amortization
   
936
     
2,998
     
4,934
     
8,994
 
   Professional fees
   
73,864
     
128,597
     
245,164
     
466,581
 
   Stock options granted
   
-
     
58,187
     
28,500
     
174,561
 
   Payroll expenses
   
178,654
     
190,994
     
538,466
     
576,089
 
   General and administrative expenses
   
52,411
     
112,281
     
160,254
     
366,868
 
      Total operating expenses
   
305,865
     
493,322
     
977,793
     
1,595,210
 
                                 
Operating loss
   
(293,811
)
   
(493,322
)
   
(953,685
)
   
(1,571,102
)
                                 
Non-operating income (expense)
                               
   Interest expense
   
(1,819,017
)
   
(365,566
)
   
(2,471,367
)
   
(1,181,063
)
   Net gain (loss) on settlement of debt
   
144,290
 
   
(44,975
)
   
281,966
     
(120,024
)
   Gain (loss) on derivative liability
   
(562,203
)
   
(37,076
   
8,756,184
     
(313,990
      Non-operating income (expense), net
   
(2,236,930
)
   
(373,465
   
6,566,783
     
(1,615,077
Gain (Loss) before Income Taxes
   
(2,530,741
)
   
(866,787
)
   
5,613,098
     
(3,186,179
)
Income Tax Provision
           
-
             
-
 
                                 
Net Gain (Loss)
 
$
(2,530,741
)
 
$
(866,787
)
 
$
5,613,098
   
$
(3,186,179
)
                                 
Gain (Loss) per common share
 
$
(0.00
)  
$
(0.00
)
 
$
.00
   
$
(0.02
)
                                 
Weighted average common shares outstanding
   
1,999,861,882
     
228,882,530
     
1,832,765,404
     
164,250,895
 
 
The accompanying notes are an integral part of these condensed financial statements.

 
 
ADVANCED MEDICAL ISOTOPE CORPORATION
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFECIT)
(unaudited)
                                         
   
Common Stock
   
Series A Preferred
   
Paid in
   
Accumulated
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Total
 
                                               
Balances at December 31, 2014 (audited)
   
1,705,382,554
   
$
1,705,382
     
-
   
$
-    
$
32,379,681
   
$
(54,247,231
)
 
$
(20,162,168
)
                                                         
Common stock issued for:
                                                       
   Cash and the exercise of warrants
   
199,500,000
     
199,500
        -         -      
(199,500
)
   
-
     
-
 
   Loan fees on convertible debt
   
30,252,554
     
30,253
        -         -      
79,507
     
-
     
109,760
 
Debt converted
   
92,051,568
     
92,052
     
-
     
-
     
171,761
     
-
     
109,813
 
Debt extinguished through issuance of preferred stock     -        -        
955,929
       
956
       
5,932,985
       -       5,933,941  
Classified to liability due to lack of authorized shares
   
(30,252,554
   
(30,253
      -         -      
(375,923
   
-
     
(406,176
Options and warrants issued for services
   
-
     
-
        -         -      
28,500
     
-
     
28,500
 
Net gain (loss)
   
-
     
-
        -         -      
-
     
5,613,098
     
5,613,098
 
Balances at September 30, 2015
   
1,996,934,122
   
$
1,996,934
     
955,929
   
$
956
   
 $
37,863,011
    $
(48,634,133
 
$
(8,773,232
)

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

 
 
ADVANCED MEDICAL ISOTOPE CORPORATION
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
 
   
Nine Months Ended
 
   
September 30,
 
   
2015
   
2014
 
CASH FLOW FROM OPERATING ACTIVITIES:
           
Net Gain (Loss)
 
$
5,613,098
   
$
(3,186,179
)
                 
Adjustments to reconcile net loss to net cash
               
used by operating activities:
               
Depreciation of fixed assets
   
3,595
     
4,620
 
Amortization of licenses and intangible assets
   
1,339
     
4,374
 
Amortization of convertible debt discount
   
563,458
     
1,098,129
 
Amortization of debt issuance costs
   
18,917
     
46,900
 
Amortization of prepaid expenses paid with stock
   
-
     
96,172
 
Common stock issued for services
   
-
     
16,300
 
Common stock issued for interest
   
20,328
     
-
 
Stock options and warrants issued for services
   
28,500
     
174,561
 
(Gain) Loss on derivative liability
   
(8,756,184
)
   
313,990
 
(Gain) Loss on settlement of debt
   
(281,966
)
   
120,024
 
Penalties on notes payable
   
1,488,410
     
-
 
Changes in operating assets and liabilities:
               
Prepaid expenses
   
(4,568
)
   
(24,607
)
Accounts payable
   
48,108
     
141,095
 
Payroll liabilities
   
196,271
     
57,748
 
Accrued interest
   
383,868
     
346,017
 
Net cash used by operating activities
   
(676,826
)
   
(790,856
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Cash used to acquire patents and intellectual property
   
-
     
-
 
Net cash used by investing activities
   
-
     
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Principal payments on capital lease
   
(39,481
)
   
(199,724
)
Debt issuance costs
   
(5,000
)
   
(79,191
)
Proceeds from short term debt
   
168,000
     
(349,913
)
Proceeds from officer related party debt
   
43,000
     
-
 
Proceeds from convertible debt
   
612,500
     
1,424,209
 
Principal payments on convertible debt
   
(95,000
)
   
(10,000
)
Proceeds from exercise of warrants
   
-
     
6,000
 
Net cash provided by financing activities
   
684,019
     
791,381
 
                 
Net increase (decrease) in cash
   
7,193
     
525
 
Cash, beginning of period
   
203
     
-
 
                 
CASH, END OF PERIOD
 
$
7,396
   
$
525
 
                 
                 
Supplemental disclosures of cash flow information:
               
Cash paid for interest
 
$
9,920
   
$
213,415
 
Cash paid for income taxes
 
$
                -
   
$
                -
 
      
The accompanying notes are an integral part of these condensed financial statements.
 
 
NOTES TO CONDENSED FINANCIAL STATEMENTS
 
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, 2015, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2015.
 
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, 2015 and December 31, 2014, 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, 2015:
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets 
                       
Total Assets Measured at Fair Value
 
$
-
   
$
-
   
$
-
   
$
-
 
                                 
Liabilities
                               
Liability for lack of authorized shares
 
 
659,281
   
 
-
   
 
-
   
 
659,281
 
Derivative Liability
 
 
2,717,152
   
 
-
   
 
-
   
 
2,717,152
 
Total Liabilities Measured at Fair Value
 
$
3,376,433
   
$
-
   
$
-
   
$
3,376,433
 
 
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.
 
2. Going Concern and Management’s Plan
 
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 and described below in this Note 2, 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.
 
The Company has generated material operating losses since inception.  The Company has incurred a net loss of $48,634,133 from January 1, 2006 through September 30, 2015, including a net gain of $5,613,098 for the nine months ended September 30, 2015, and a net loss of $3,186,179 for the nine months ended September 30, 2014.   Although the Company experienced a net gain during the nine months ended September 30, 2015, due principally to a gain on derivative liability, the Company had an operating loss of $293,811 and $953,685 for the three and nine months ended September 30, 2015, respectively, and expects to experience net operating losses in future periods.  
 
Historically, the Company has relied upon sales of its securities, including promissory notes, to finance its operations and develop the Company’s products.  The Company will require additional financing within the next twelve months for working capital purposes, estimated to be approximately $1.5 million.  We may also require up to approximately $1.5 million to retire outstanding debt and past due payables, including certain convertible promissory notes totaling approximately $700,000 that are currently due and payable (“Outstanding Notes”), in the event these amounts are not converted or otherwise exchanged for equity securities.   Although no assurances can be given, management is currently negotiating with the holders of certain of the Outstanding Notes to restructure the principal and accrued interest currently due thereon.  In addition, as more particularly set forth in Note 8 below, certain of the principal amount due under the Outstanding Notes may be reduced do to the offset of certain amounts resulting from the previous issuance of shares of common stock upon conversions of the Outstanding Notes, which issuances are voidable under the laws of the Company’s state of incorporation.
 
During the next 12-24 months the Company anticipates that approximately $5.0 to $10.0 million of capital will be required to complete brachytherapy product development and begin initial commercialization. The principal variables in the timing and amount of spending for the brachytherapy products during the next 12-24 months will be FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies that may include 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. In addition to selling equity or debt securities to fund product development, the Company may pursue potential licensing or strategic partnership arrangements for certain rights to its products or technologies.
 


As of September 30, 2015, the Company had $7,396 cash on hand, and had negative working capital of $8,814,516, as compared to negative working capital of $9,543,943 at September 30, 2014. Management is currently seeking additional debt and/or equity capital and, although no assurances can be given, management believes that it will be able to raise additional capital through the sale of securities to either current or new stockholders for general working capital purposes. No assurances can be given that additional capital will be available on terms acceptable to the Company, if at all. We anticipate that if we are able to obtain the financing required to retire or restructure outstanding debt, pay past due payables and maintain our current operating activities that the terms thereof will be materially dilutive to existing shareholders. If the Company is unable to obtain additional financing to meet its working capital requirements, it will have to substantially reduce its operations and product development efforts, and may not be able to continue as a going concern.

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 obtain additional financing and generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability.
 
3. Fixed Assets
 
Fixed assets consist of the following at September 30, 2015 and December 31, 2014:
 
   
September 30,
2015
   
December 31,
2014
 
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
   
(2,608,995
)
   
(2,605,400
)
   
$
5,158
   
$
8,753
 
 
Accumulated depreciation related to fixed assets is as follows:
 
   
September 30,
2015
   
December 31,
2014
 
Production equipment
 
$
2,126,214
   
$
2,123,462
 
Building
   
446,772
     
446,772
 
Leasehold improvements
   
3,235
     
3,235
 
Office equipment
   
32,774
     
31,931
 
   
$
2,608,995
   
$
2,605,400
 

Depreciation expense for the above fixed assets for the nine months ended September 30, 2015 and 2014, respectively, was $3,595 and $4,620.
  
4.  Intangible Assets
 
Intangible assets consist of the following at September 30, 2015 and December 31, 2014:
 
   
September 30,
2015
   
December 31,
2014
 
License Fee
 
$
112,500
   
$
112,500
 
Less accumulated amortization
   
(112,500
)
   
(111,161
)
     
-
     
1,339
 
Patents and intellectual property
   
35,482
     
35,482
 
Intangible assets net of accumulated amortization
 
$
35,482
   
$
36,821
 

Amortization expense for the above intangible assets for the nine months ended September 30, 2015 and 2014, respectively, was $1,339 and $4,374.
 

5. Related Party Transactions
 
Related Party Convertible Notes Payable

During the three months ended September 30, 2015 the Company issued convertible promissory notes in the aggregate principal amount of $15,500 to its Chief Executive Officer and Chief Financial Officer.
 
The Company issued various shares of common stock and convertible promissory notes during the nine months ended September 30, 2015 to a director and major stockholder. The details of these transactions are outlined below 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 facility was 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 five percent of the total outstanding shares of our common stock.  The Company moved out of this facility as of December 31, 2014. There is an ongoing dispute with the landlord regarding the production facility rent due the landlord.
 
In January 2014, the Company entered into a new 12-month lease for its corporate offices with a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a director of the Company. There are no future minimum rental payments required under this rental agreement because it expired on December 31, 2014 and, subsequent to that date, the Company began renting this space on a month-to-month basis.
 
Rental expense for the nine months ended September 30, 2015 and 2014 consisted of the following:
 
   
Nine months ended
September 30, 2015
   
Nine months ended
September 30, 2014
 
Office and warehouse lease effective August 1, 2007
           
Monthly rental payments
 
$
-
   
$
107,139
 
Corporate office
   
13,500
     
13,500
 
Total Rental Expense
 
$
13,500
   
$
120,639
 
 
 
 
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 $52,000 expired in 2014 was expensed and recorded as stock issued for services. 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 $63,754 expired in 2014 and was expensed and recorded as stock issued for services. 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 2014 and was expensed and recorded as stock issued for services. Prepaid expenses completely expired through December 2014.
 
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 year ended December 31, 2014.
 
During the three months ending September 30, 2015 the Company borrowed short term debt totaling $182,500, of which $172,500 was converted into Series A Preferred Stock as of September 30, 2015. The remaining $10,000 is a six month, 10% note that is expected to be repaid. Interest on the $182,500 was computed at the rate of 10% per year and was not included in the amount being converted to Series A Preferred Stock but is to be repaid in cash. Interest on the $182,500 in the amount of $2,481 has been accrued for the nine month period ending September 30, 2015 towards these loans.
 
During the three months ending September 30, 2015 the Company borrowed short term debt totaling $15,500 from two officers of the Company, and these loans were converted into Series A Preferred Stock as of September 30, 2015. Interest on the $15,500 was computed at the rate of 10% per year and was not included in the amount being converted to Series A Preferred Stock but is to be repaid in cash. Interest on the $15,500 in the amount of $111 has been accrued for the nine month period ending September 30, 2015 towards these loans.
 
 
8. Convertible Notes Payable
 
As of September 30, 2015 and December 31, 2014 the Company had the following convertible notes outstanding:
 
     
September 30, 2015
     
December 31, 2014
 
   
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 $170,000 outstanding, net of debt discount of $0 and $0, respectively
 
$
170,000
   
$
64,558
   
$
170,000
   
$
49,313
(1)
October 2013 $97,700 Convertible Note, 8% interest, due April 2014, with a 12% original issue discount, $2,700 and $2,700 outstanding, net of debt discount of $0 and $0, respectively
   
2,700
     
6,874 
     
2,700
     
6,713
(2)
January 2014 $50,000 Convertible Note, 8% interest, due January 2015, $50,000 and $50,000 outstanding, net of debt discount of $0 and $3,709, respectively
   
50,000
     
6,677
     
46,291
     
3,693
(3)
January 2014 $55,500 Convertible Note, 10% interest, due October 2014, with a $5,500 original issue discount, $10,990 and $10,990 outstanding, net of debt discount of $0 and $0, respectively
   
10,990
     
5,181
     
10,990
     
4,361
(4)
February 2014 $46,080 Convertible Note, 10% interest, due February 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
2,358
     
-
     
2,358
(5)
February 2014 $27,800 Convertible Note, 10% one-time interest, due February 2015, with a 10% original issue discount, $51,159 and $51,559 outstanding, net of debt discount of $0 and $46,566, respectively, settled remaining balance on September 30, 2015 for 5,000 shares of preferred and $20,000 cash payment due upon obtaining new financing
   
20,000
     
-
     
1,533
     
294
(6)
March 2014 $50,000 Convertible Note, 10% interest, due March 2015, $36,961 and $36,961 outstanding, net of debt discount of $0 and $5,504, respectively
   
36,961
     
5,643
     
31,457
     
2,886
(7)
March 2014 $165,000 Convertible Note, 10% interest, due April 2015, with a $16,450 original issue discount, $61,301 and $84,512 outstanding, net of debt discount of $0 and $15,236, respectively
   
61,301
     
21,644
     
77,521
     
14,328
(8)
April 2014 $32,000 Convertible Note, 10% interest, due April 2015, $22,042 and $22,042 outstanding, net of debt discount of $0 and $7,710, respectively
   
22,042
     
2,479
     
14,332
     
835
(9)
April 2014 $46,080 Convertible Note, 10% interest due April 2015, $5,419 and $5,4190 outstanding, net of debt discount of $0 and $0, respectively
   
5,419
     
4,608
     
5,419
     
4,608
(10)
May 2014 $42,500 Convertible Note, 8% interest, due February 2015, $12,705 and $21,215 outstanding, net of debt discount of $0 and $15,116, respectively
   
-
     
-
     
6,099
     
1,051
(11)
May 2014 $55,000 Convertible Note, 12% interest, due May 2015, with a $5,000 original issue discount, $46,090 and $46,090 outstanding, net of debt discount of $0 and $24,315, respectively, settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining $25,000 as a 10% convertible debenture due May 31, 2016
   
25,000
     
1,082
     
21,775
     
3,385
(12)
 
 
 
   
September 30, 2015
   
December 31, 2014
 
   
Principal
(net)
   
Accrued Interest
   
Principal
(net)
   
Accrued Interest
 
June 2014 $37,500 Convertible Note, 8% interest, due March 2015, $37,500 and $37,500 outstanding, net of debt discount of $0 and $13,340, respectively
   
-
     
-
     
27,211
     
1,652
(13)
June 2014 $28,800 Convertible Note, 10% interest due June 2015, $28,800 and $28,800 outstanding, net of debt discount of $0 and $13,730, respectively
   
28,800
     
2,880
     
15,070
     
2,880
(14)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $40,000 outstanding, net of debt discount of $0 and $19,398, respectively
   
40,000
     
5,043
     
20,602
     
2,060
(15)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $38,689 and $38,689 outstanding, net of debt discount of $0 and $18,554, respectively
   
38,689
     
4,879
     
20,135
     
1,993
(16)
June 2014 $56,092 Convertible Note, 16% interest, due July 2015, with a $5,000 original issue discount, $56,092 and $56,092 outstanding, net of debt discount of $0 and $27,815, respectively
   
56,092
     
11,206
     
28,277
     
4,512
(17)
July 2014 $37,500 Convertible Note, 12% interest, due July 2015, $37,015 and $37,015 outstanding, net of debt discount of $0 and $20,737, respectively
   
37,015
     
5,261
     
16,278
     
1,947
(18)
July 2014 $37,500 Convertible Note, 8% interest, due April 2015, $37,500 and $37,500 outstanding, net of debt discount of $0 and $13,587, respectively
   
-
     
-
     
23,913
     
1,447
(19)
August 2014 $22,500 Convertible Note, 8% interest, due May 2015, $22,500 and $22,500 outstanding, net of debt discount of $0 and $9,488, respectively, on August 27, 2015 the Company settled all of its outstanding debt with this lender for the sum of $80,000 to be paid $20,000 at each of September 1, 2015, October 1, 2015, November 1, 2015, and December 1, 2015
   
60,000
     
-
     
13,012
     
725
(20)
August 2014 $36,750 Convertible Note, 10% interest, due April 2015, $36,750 and $36,750 outstanding, net of debt discount of $0 and $20,588, respectively
   
36,750
     
4,614
     
13,995
     
1,873
(21)
August 2014 $33,500 Convertible Note, 4% interest, due February 2015, with a $8,500 original issue discount, $33,500 and $33,500 outstanding, net of debt discount of $0 and $10,367, respectively
   
33,500
     
-
     
23,133
     
-
(22)
September 2014 $37,500 Convertible Note, 12% interest, due September 2015, with a $5,000 original issue discount, $36,263 and $36,263 outstanding, net of debt discount of $0 and $25,401, respectively
   
36,263
     
4,482
     
10,862
     
1,236
(23)
January 2015 $19,000 Convertible Note, 10% interest, due July 8, 2015, $19,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
1,370
     
-
     
-
(24)
January 2015 $12,500 Convertible Note, 10% interest, due July 8, 2015, $12,500 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
902
     
-
     
-
(25)
February 2015 $100,000 Convertible Note, 10% interest, due August 9, 2015, $100,000 and $0 outstanding,  net of debt discount of $0 and $0, respectively
   
-
     
6,339
     
-
     
-
(26)
February 2015 $25,000 Convertible Note, 10% interest, due August 4, 2015, $25,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
1,619
     
-
     
-
(27)
 
 
 
    September 30, 2015     December 31, 2014  
   
Principal
(net)
    Accrued Interest    
Principal
(net)
    Accrued Interest  
March 2015 $50,000 Convertible Note, 10% interest, due September 19, 2015, $50,000 and $0 outstanding,  net of debt discount of $0 and $0, respectively
   
50,000
     
2,650
     
-
     
-
(28)
March 2015 $20,000 Convertible Note, 10% interest, due September 25, 2015, $20,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
1,027
     
-
     
-
(29)
April 2015$10,000 Convertible Note, 10% interest, due October 16, 2015, $10,000 and $0 outstanding, net of debt discount of $0 and $0 respectively
   
-
     
454
     
-
     
-
(30)
April 2015 $25,000 Convertible Note, 10% interest, due October 16, 2015, $25,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
1,134
     
-
     
-
(31)
April 2015 $55,000 Convertible Note, 10% interest, due October 16, 2015, $55,000 and $0 outstanding, net of debt discount of $6,011 and $0, respectively
   
48,989
     
2,227
     
-
     
-
(32)
July 2015 $15,000 Convertible Note, 10% interest, due January 7, 2016, $15,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
348
     
-
     
-
(33)
July 2015 $75,000 Convertible Note, 10% interest, due January 13, 2016, $75,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
1,598
     
-
     
-
(34)
September 2015 $7,500 Convertible Note, 10% interest, due March 1, 2016, $7,500 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
61
     
-
     
-
(35)
September 2015 $10,000 Convertible Note, 10% interest, due March 2, 2016, $10,000 and $0 outstanding, net of debt discount of $8,462 and $0, respectively
   
1,538
     
77
     
-
     
-
(36)
September 2015 $25,000 Convertible Note, 10% interest, due February 1, 2016, $25,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
178
     
-
     
-
(37)
September 2015 $25,000 Convertible Note, 10% interest, due March 4, 2016, $25,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
178
     
-
     
-
(38)
September 2015 $25,000 Convertible Note, 10% interest, due March 24, 2016, $25,000 and $0 outstanding, net of debt discount of $0 and $0, respectively
   
-
     
41
     
-
     
-
(39)
                                 
                                 
Total Convertible Notes Payable, Net
 
$
872,049
   
$
179,672
   
$
600,569
   
$
114,150
 
 
(1)
The Company had received $1,060,000 in cash as of December 31, 2012 in exchange for convertible debt instruments. These convertible debt instruments have an eighteen-month term, accrued interest at an annual rate of 12% and a conversion price of $0.10. In addition, the convertible debt instruments have an equal amount of $0.15, five-year common stock warrants.  During the year ending December 31, 2013, the Company entered into new notes with attached warrants with an exercise price of $0.06 per share, which triggered a reset provision of the exercise price of this note’s conversion price and the price of the warrants to $0.06.  The convertible debt instruments also include Additional Investment Rights to enter into an additional convertible note with a corresponding amount of warrants equal to forty percent of the convertible note principal. The Company recorded a debt discount of $1,060,000 related to the conversion feature of the notes and the attached warrants, along with a derivative liability at inception.
 
 
 
 
During December of 2012 the holders of the convertible debt instruments exercised their conversion rights and converted $171,500 and $37,044 of the outstanding principal and accrued interest balances, respectively, into 2,085,440 shares of the Company’s common stock.
 
During the twelve months ending December 31, 2013 the holders of the convertible debt instruments exercised their conversion rights and converted $708,500 and $153,036 of the outstanding principal and accrued interest balances.
 
During the twelve months ending December 31, 2014 the holders of the convertible debt instruments exercised their conversion rights and converted $10,000 and $2,160 of the outstanding principal and accrued interest balances.
  
Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the eighteen-month life of the convertible debt instruments.  During 2012 total amortization was recorded in the amount of $431,154 resulting in a debt discount of $628,846 at December 31, 2012.  During 2012 interest expense of $84,243 was recorded for the convertible debt Instruments. During the twelve months ending December 31, 2013, total amortization was recorded in the amount of $213,838 and principal of $708,500 was converted into shares of common stock resulting in a decrease to the debt discount of $404,627.  After conversions and amortization, principal totaled $180,000 and debt discount totaled $8,576 at December 31, 2013.  During the twelve months ending December 31, 2013 interest expense of $136,447 was recorded for the convertible debt instruments. During the twelve months ending December 31, 2014, total amortization was recorded in the amount of $8,576 and principal of $10,000 and accrued interest of $2,160 was converted into shares of common stock.  After conversions and amortization, principal totaled $170,000 and debt discount totaled $0 at December 31, 2014.  During the nine-month ending September 30, 2015 and the twelve months ending December 31, 2014 interest expense of $15,244 and $20,864 was recorded for the convertible debt instruments. The $170,000 balance of the notes reached maturity during the year ended December 31, 2014 and are currently in default.
 
(2)
The Company borrowed $97,700 October 2013, due April 2014, with interest at 8%. The holder of the note has the right, after the first ninety days of the note (January 29, 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 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 one hundred eighty 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 $97,700 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 twelve months ending December 31, 2013 total amortization was recorded in the amount of $32,927 resulting in a debt discount of $64,773.  Also during the twelve months ending December 31, 2013, interest expense of $1,954 was recorded for the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $64,773. Also during the twelve months ending December 31, 2014, total principal of $95,000 was converted into shares of common stock resulting in a decrease to the debt discount of $0. After conversions and amortization, principal totaled $2,700, debt discount totaled $0, and accumulated interest totaled $6,713 at December 31, 2014. During the nine months ended September 30, 2015 the Company accrued $161 additional interest on the note. The balance of the note reached maturity during the year ended December 31, 2014 and is currently in default.
 
(3)
The Company borrowed $50,000 January 2014, due January 2015, with interest at 8%. 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 $50,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $46,291. After amortization, principal totaled $50,000, debt discount totaled $3,709, and accumulated interest totaled $3,693 at December 31, 2014. During the nine months ended September 30, 2015, total amortization was recorded in the amount of $0. After amortization, principal totaled $50,000, debt discount totaled $0. The Company accrued an additional $2,984 interest for the nine months ended September 30, 2015. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.

 
 
(4)
The Company borrowed $55,500 January 2014, due October 2014, with interest at 10%. 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 note has an original issue discount of $5,500 that 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 $55,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $52,065. Also during the twelve months ending December 31, 2014, total principal of $44,510 was converted into shares of common stock, resulting in a decrease to the debt discount of $7,565. After conversions and amortization, principal totaled $10,990, debt discount totaled $0, and accumulated interest totaled $4,361 at December 31, 2014. The Company accrued an additional $820 interest for the nine months ended September 30, 2015. The balance of the note reached maturity during the year ended December 31, 2014, and is currently in default.
 
(5)
The Company borrowed $46,080 February 2014, due February 2015, with a one-time interest charge of 10%. 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 $46,080 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 twelve months ended December 31, 2014, Total amortization was recorded in the amount of $26,503. Also during the twelve months ending December 31, 2014, total principal of $46,080 and accrued interest of $2,250 was converted into shares of common stock, resulting in a decrease to the debt discount of $19,577. After conversions and amortization, principal totaled $0, debt discount totaled $0, and accumulated interest totaled $2,358 at September 30, 2015 and December 31, 2014. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
 
(6)
The Company borrowed $27,800 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 that has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.   Additionally, the holder of the note added a market price adjustment of $53,192 on the note due to delay in issuance of conversion shares. The Company increased the amount of the note by $53,192 and recorded a debt discount of $53,192.  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 twelve months ending December 31, 2014, total amortization was recorded in the amount of $22,056.  Also during the twelve months ending December 31, 2014, total principal of $29,833 and accrued interest of $2,780 was converted into shares of common stock, resulting in a decrease to the debt discount of $506. After conversions and amortization, principal totaled $51,159, debt discount totaled $49,626, and accumulated interest totaled $294 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $25,877 and an additional $0 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and was settled September 30, 2015 for 5,000 shares of Series A Preferred Stock having a stated value of $5.00 per share and $20,000 cash payment due upon the consummation of a debt or equity financing resulting in gross proceeds to the Company of at least $500,000.
 
(7)
The Company borrowed $50,000 March 2014, due March 2015, with interest at 10%. 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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $39,042. Also during the twelve months ending December 31, 2014, total principal of $13,039 and accrued interest of $727 was converted into shares of common stock, resulting in a decrease to the debt discount of $5,454. After conversions and amortization, principal totaled $36,961, debt discount totaled $5,504, and accumulated interest totaled $2,886 at December 31, 2014.  During the nine months ending September 30, 2015, total amortization was recorded in the amount of $5,504 and an additional $2,757 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
 
 
 
(8)
The Company borrowed $165,000 March 2014, due April 2015, with interest at 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 $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 $15,000 that 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 $165,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $120,417. Also during the twelve months ending December 31, 2014, total principal of $80,488 was converted into shares of common stock, resulting in a decrease to the debt discount of $37,592. After conversions and amortization, principal totaled $84,512, debt discount totaled $6,991, and accumulated interest totaled $14,328 at December 31, 2014. During the nine months ending September 30, 2015, total principal of $23,211 was converted into shares of common stock, resulting in a decrease to the debt discount of $6,991. After conversions and amortization, principal totaled $61,301, debt discount totaled $0, and accumulated interest totaled $21,644 at September 30, 2015.
 
(9)
The Company borrowed $32,000 April 2014, due April 2015, with interest at 10%. 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 $32,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $21,216. Also during the twelve months ending December 31, 2014, total principal of $9,958 and accrued interest of $681 was converted into shares of common stock, resulting in a decrease to the debt discount of $3,074. After conversions and amortization, principal totaled $22,042, debt discount totaled $7,710, and accumulated interest totaled $835 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $7,710 and an additional $1,644 of interest was accrued. 
(10)
The Company borrowed $46,080 April 2014, due April 2015, with interest at 10%. 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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $30,094. Also during the twelve months ending December 31, 2014, total principal of $40,661 was converted into shares of common stock, resulting in a decrease to the debt discount of $15,986. After conversions and amortization, principal totaled $5,419, debt discount totaled $0, and accumulated interest totaled $4,608 at December 31, 2014. During the nine months ending September 30, 2015, an additional $0 of interest was accrued. 
 
(11)
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.  Additionally, the note holder assed a $14,890 penalty due to the inability of the Company to provide conversion shares timely. The Company increased the amount of the note by $14,890 and recorded a debt discount of $14,890.  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 twelve months ending December 31, 2014, total amortization was recorded in the amount of $32,535. Also during the twelve months ending December 31, 2014, total principal of $36,175 was converted into shares of common stock resulting in a decrease to the debt discount of $9,739. After conversions and amortization, principal totaled $21,215, debt discount totaled $15,116, and accumulated interest totaled $1,051 at December 31, 2014.  During the nine months ending September 30, 2015, total principal of $8,510 was converted into shares of common stock resulting in a decrease to the debt discount of $15,116. This note, along with notes numbered 13, 19, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,523. All payments on the $80,000 remaining note are current as of November 20, 2015.
  
 
 
(12)
The Company borrowed $55,000 May 2014, due May 2015, with interest at 12%. 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 25 trading days previous to the conversion.  The note has an original issue discount of $5,000 that 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 $55,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $30,685. Also during the twelve months ending December 31, 2014, total principal of $8,910 was converted into shares of common stock, resulting in a decrease to the debt discount of $0. After conversions and amortization, principal totaled $46,090, debt discount totaled $24,315, and accumulated interest totaled $3,385 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $24,315 and an additional $2,131 of interest was accrued. This note was settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining $25,000 as a 10% convertible debenture due May 31, 2016. The $25,000 convertible debenture is convertible at 55% of the lowest close for the last 270 days prior to the conversion notice or $0.03, but not less than $0.001. This settlement resulted in a reduction to notes payable of $46,090 and accrued interest payable of $5,516, an increase to note payable of $100,000 and a resulting $48,394 loss on settlement of debt.
 
(13)
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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $27,211. After amortization, principal totaled $37,500, debt discount totaled $10,289, and accumulated interest totaled $1,652 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $10,289 and an additional $1,959 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015. This note, along with notes numbered 11, 19, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note are current as of November 20, 2015.
 
(14)
The Company borrowed $28,800 June 2014, due June 2015, with interest at 10%. 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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $15,070. After amortization, principal totaled $28,800, debt discount totaled $13,730, and accumulated interest totaled $2,880 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $13,730 and an additional $0 of interest was accrued. 
 
(15)
The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. 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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $20,602. After amortization, principal totaled $40,000, debt discount totaled $19,398, and accumulated interest totaled $2,060 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $19,398 and an additional $2,983 of interest was accrued. 
 
 
(16)
The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. 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 any repayment is 145% of the outstanding amounts owed. .  The Company recorded a debt discount of $40,000 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $20,814. Also during the twelve months ending December 31, 2014, total principal of $1,311 was converted into shares of common stock, resulting in a decrease to the debt discount of $632. After conversions and amortization, principal totaled $38,689, debt discount totaled $18,554, and accumulated interest totaled $1,993 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $18,554 and an additional $2,886 of interest was accrued.  
 
(17)
The Company borrowed $56,092 July 2014, due July 2015, with interest at 16%. 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 $5,000 that 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 $51,092 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $28,276. After amortization, principal totaled $56,092, debt discount totaled $27,815, and accumulated interest totaled $4,512 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $27,816 and an additional $6,694 of interest was accrued. 
 
(18)
The Company borrowed $37,500 July 2014, due July 2015, with interest at 12%. 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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $16,483. Also during the twelve months ending December 31, 2014, total principal of $485 was converted into shares of common stock (see Note 13: Stockholders’ Equity), resulting in a decrease to the debt discount of $280. After conversions and amortization, principal totaled $37,015, debt discount totaled $20,737, and accumulated interest totaled $1,947 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $20,737 and an additional $3,314 of interest was accrued. 
 
(19)
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, 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $23,913. After amortization, principal totaled $37,500, debt discount totaled $13,587, and accumulated interest totaled $1,447 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $13,587 and an additional $1,959 of interest was accrued. This note, along with notes numbered 11, 13, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note are current as of November 20, 2015.

 
 
(20)
The Company borrowed $22,500 August 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 $20,384 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $10,896. After amortization, principal totaled $22,500, debt discount totaled $9,488, and accumulated interest totaled $725 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $9,488 and an additional $890 of interest was accrued. This note, along with notes numbered 11, 13, and 19, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note are current as of November 23, 2015.
 
(21)
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 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $13,995. After amortization, principal totaled $36,750, debt discount totaled $22,755, and accumulated interest totaled $1,873 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $22,755 and an additional $2,741 of interest was accrued. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently in default.
 
(22)
The Company borrowed $33,500 August 2014, due February 2015, with interest at 4%. 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 60% (represents a 40% discount) of the average three lowest trade prices in the 20 trading days previous to the conversion.  The note has an original issue discount of $6,500 that 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 $32,807 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $22,520. After amortization, principal totaled $33,500, debt discount totaled $10,367, and accumulated interest totaled $0 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $10,367. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
 
(23)
The Company borrowed $37,500 September 2014, due September 2015, with interest at 12%. 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 55% (represents a 45% discount) of the lowest trade prices in the 15 trading days previous to the conversion.  The note has an original issue discount of $5,000 that 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, 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 twelve months ended December 31, 2014, total amortization was recorded in the amount of $11,211. Also during the twelve months ending December 31, 2014, total principal of $1,238 was converted into shares of common stock resulting in a decrease to the debt discount of $888. After conversions and amortization, principal totaled $36,262, debt discount totaled $25,437, and accumulated interest totaled $1,236 at December 31, 2014. During the nine months ending September 30, 2015, total amortization was recorded in the amount of $25,401 and an additional $3,246 of interest was accrued. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently in default.
 
 
-18-

(24)
The Company borrowed $19,000 January 2015, due July 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (July 8, 2015) at a price per share of $0.001.  The Company issued the note holder 3,800,000, $0.001, one year warrants as a loan origination fee. The Company recorded a debt discount of $1,628 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $1,628 and accrued interest in the amount of $1,370 was recorded towards this note. As of September 30, 2015 this note was extinguished for 19,000 Series A Convertible Preferred Shares.
 
(25)
The Company borrowed $12,500 January 2015, due July 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (July 8, 2015) at a price per share of $0.001.  The Company issued the note holder 2,500,000, $0.001, one year warrants as a loan origination fee. The Company recorded a debt discount of $1,071 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $1,628 and accrued interest in the amount of $902 was recorded towards this note. As of September 30, 2015 this note was extinguished for 12,500 Series A Convertible Preferred Shares.
 
(26)
The Company borrowed $100,000 February 2015, due August 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (August 9, 2015) at a price per share of $0.001.  The Company issued the note holder 20,000,000, $0.001, one year warrants as a loan origination fee. The Company recorded a debt discount of $11,635 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $11,635 and accrued interest on the amount of $6,339 was accrued towards this note. As of September 30, 2015 this note was extinguished for 100,000 Series A Convertible Preferred Shares.
 
(27)
The Company borrowed $25,000 February 2015, due August 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (August 4, 2015) at a price per share of $0.001.  The Company issued the note holder 5,000,000, $0.001, one year warrants as a loan origination fee. The Company recorded a debt discount of $1,991 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $2,912 and accrued interest in the amount of $1,619 was recorded towards this note. As of September 30, 2015 this note was extinguished for 25,000 Series A Convertible Preferred Shares.
 
(28)
The Company borrowed $50,000 March 2015, due September 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (September 19, 2015) at a price per share of $0.001.  The Company issued the note holder 10,000,000, $0.0015, one year warrants as a loan origination fee. The Company recorded a debt discount of $13,213 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $13,213 and accrued interest in the amount of $2,650 was recorded towards this note. The balance of the note reached full maturity during the quarter ended September 30, 2015 however the note holder and the Company reached a settlement agreement November 13, 2015.
 
(29)
The Company borrowed $20,000 March 2015, due September 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at the end of the six months (September 25, 2015) at a price per share of $0.0022.  The Company issued the note holder 4,000,000, $0.0022, one year warrants as a loan origination fee. The Company recorded a debt discount of $7,586 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $7,586 and accrued interest in the amount of $1,027 was recorded towards this note. As of September 30, 2015 this note was extinguished for 20,000 Series A Convertible Preferred Shares.

 
 
(30)
The Company borrowed $10,000 April 2015, due October 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company issued the note holder 400,000 common stock shares as a loan origination fee. The Company recorded a debt discount of $10,000 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $10,000 and accrued interest in the amount of $454 was recorded towards this note. As of September 30, 2015 this note was converted into 10,000 Series A Convertible Preferred Shares.
 
(31)
The Company borrowed $25,000 April 2015, due October 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company issued the note holder 1,000,000 common stock shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the warrants issued as a loan origination fee, 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 ending September 30, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $1,134 was recorded towards this note. As of September 30, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
 
(32)
The Company borrowed $55,000 April 2015, due October 2015, with interest at 10%. The Company may prepay the note for a net payment of $55,000 at any time. The holder of the note has the right at the end of the note (October 20, 2015), to convert the note and accrued interest into common stock at a price per share equal to the lesser of (i) forty percent (40%) (represents a 60% discount) of the lowest closing bid price of the Common Stock during the thirty (30) Trading Days prior to a conversion date, or (ii) the number of shares equal to the Conversion Price described in (i) above multiplied by a numerator equal to the highest closing price during the thirty (30) Trading Days prior to a conversion date and a denominator equal to the lowest closing bid price during the thirty (30) Trading Days prior to a conversion date.  However according to the Company’s Certificate of Incorporation and Delaware statute, the floor is at par value $0.001. 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 $55,000 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 six month life of the note.  During the nine months ended September 30, 2015, total amortization was recorded in the amount of $48,949. The Company accrued an additional $2,227 interest for the nine months ended September 30, 2015.
 
(33)
The Company borrowed $15,000 July 2015, due January 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.   During the nine months ending September 30, 2015 accrued interest in the amount of $348 was recorded towards this note. As of September 30, 2015 this note was converted into 15,000 Series A Convertible Preferred Shares.
 
(34)
The Company borrowed $75,000 July 2015, due January 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company will issue to the note holder 3,000,000 common stock shares as a loan origination fee when sufficient authorized shares are available. During the nine months ending September 30, 2015 accrued interest in the amount of $1,598 was recorded towards this note. As of September 30, 2015 this note was converted into 75,000 Series A Convertible Preferred Shares.
 
(35)
The Company borrowed $7,500 September 2015, due March 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company will issue to the note holder 300,000 common stock shares as a loan origination fee when sufficient authorized shares are available. During the nine months ending September 30, 2015 accrued interest in the amount of $61 was recorded towards this note. As of September 30, 2015 this note was converted into 10,000 Series A Convertible Preferred Shares.
 
 
(36)
The Company borrowed $10,000 September 2015, due March 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company issued the note holder 10,000,000 common stock shares as a loan origination fee. The Company recorded a debt discount of $10,000 related to the shares issued as a loan origination fee.  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 ending September 30, 2015 total amortization in the amount of $1,538 and accrued interest in the amount of $77 was recorded towards this note.
 
(37)
The Company borrowed $25,000 September 2015, due March 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.   During the nine months ending September 30, 2015 accrued interest in the amount of $178 was recorded towards this note. As of September 30, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
 
(38)
The Company borrowed $25,000 September 2015, due March 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.   During the nine months ending September 30, 2015 accrued interest in the amount of $178 was recorded towards this note. As of September 30, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
 
(39)
The Company borrowed $25,000 September 2015, due March 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at any time at a price per share of $0.001.  The Company will issue to the note holder 1,000,000 common stock shares as a loan origination fee when sufficient authorized shares are available. During the nine months ending September 30, 2015 accrued interest in the amount of $41 was recorded towards this note. As of September 30, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.

As of September 30, 2015, certain convertible promissory notes described in this Note 8 not otherwise converted into common stock of the Company, totaling approximately $740,000, were due and payable (“Outstanding Notes”).   Although no assurances can be given, management is currently negotiating with the holders of certain of the Outstanding Notes to restructure the principal and accrued interest currently due and payable, or scheduled to become due and payable prior to December 31, 2015.  The principal amount due under certain of the Outstanding Notes may be reduced do to the offset of certain amounts resulting from the previous issuance of shares of common stock by the Company upon conversions of the Outstanding Notes, which were issued based on a conversion price below $0.001 per share.  The issuances are voidable under the laws of the State of Delaware, the Company’s state of incorporation.   The Company has issued a demand letter requiring the return to the Company of that number of shares of common stock issued upon conversion of Outstanding Notes equal to the value of the shares issued upon such conversion at a value below $0.001 per share (the “Excess Amount”).  In the event the holder of such shares fails to return the shares, the Company intends to unilaterally and without further action by the parties reduce the principal amount of the Outstanding Notes by the Excess Amount. However the Company recorded an additional $1,488,410 in penalties and interest accrued on these notes to reflect the potential the Company would be unable prevail in reducing the amount of the notes for the shares of common stock delivered below $0.001 per share and the Company was unable to negotiate a settlement with these note holders.


9. Common Stock Options and Warrants
 
The Company recognizes in its 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, 2015:
 
   
 
Options Outstanding
   
Weighted
Average
Remaining
Contractual
Life
   
Aggregate
Intrinsic
Value
   
Weighted
Average
Exercise
Price
Per Share
 
   
Number Of
Shares
   
Exercise
Price
Per
Share
             
                               
Balance at December 31, 2014
   
8,785,000
   
$
0.09-0.15
   
3.42 years
   
$
-
   
$
0.14
 
   Options granted
   
-
   
$
-
   
-
           
$
-
 
   Options exercised
   
-
   
$
-
     
-
           
$
-
 
   Options expired
   
(2,950,000
)
 
$
0.09-0.15
     
-
           
$
0.11
 
Balance at September 30, 2015
   
5,835,000
   
$
0.12-0.15
   
4.24 years
   
$
-
   
$
0.15
 
                                         
Exercisable at December 31, 2014
   
7,713,125
   
$
0.09-0.15
   
3.42 years
   
$
-
   
$
0.14
 
                                         
Exercisable at September 30, 2015
   
5,835,000
   
$
0.12-0.15
   
4.24 years
   
$
-
   
$
0.15
 

The following schedule summarizes the changes in the Company’s stock warrants during the nine months ended September 30, 2015:
 
   
 
Warrants Outstanding
 
Weighted
Average
Remaining
Contractual
Life
 
 
Aggregate
Intrinsic
Value
 
Weighted Average Exercise Price
Per Share
 
   
 
Number
Of
Shares
     
 
Exercise
Price Per Share
       
Balance at December 31, 2014
   
2,310,770,115
     
$
0.0001-0.25
 
2.86 years
 
$
-
 
$
0.01
 
   Warrants granted
   
65,300,000
     
$
0.001-0.0022
 
1.47 years
       
$
0.0012
 
   Warrants exercised
   
(285,604,091
)
   
$
0.003
 
-
       
$
0.003
 
   Warrants adjusted      (1,360,195,089 ) (1)   $ 0.0001-0.001             $  0.0001  
   Warrants expired/cancelled
   
(44,027,778
)
   
$
0.001-0.25
           
$
0.0228
 
Balance at September 30, 2015
   
686,243,157
     
$
0.001-0.10
 
2.14 years
 
$
2,052,699
 
$
0.0082
 
                                   
Exercisable at December 31, 2014
   
1,978,455,471
     
$
0.0001-0.25
 
2.86 years
 
$
-
 
$
0.01
 
                                   
Exercisable at September 30, 2015
   
686,243,157
     
$
0.001-0.10
 
2.14 years
 
$
2,052,699
 
$
0.0082
 
 
(1)
Based upon Delaware law and on the terms and conditions set forth in the applicable Warrant Agreement, any adjustments to the warrants were limited to a floor price of $.001. Pursuant to the defective warrant exercise notice using an exercise price below $.001, the Company issued at total of 147,377,777 shares of common stock to the warrant holders, which the Company believes are voidable, and also recorded 1,600,945,089 warrants outstanding to the holder on the Company’s financial statements for the year ended December 31, 2014, and for the periods ending March 31 and June 30, 2015.  Management believes that the warrants were recorded in error during the periods presented, and has recorded the revised number of warrants outstanding at September 30, 2015 at 240,750,000, which reflects the number of shares of common stock purchase warrants outstanding and exercisable under the terms of the warrants at an exercise price of $0.001 per share. This net adjustment of 1,360,195,089 warrants has been reflected in the schedule for the nine month period ending September 30, 2015. However, the warrants have not yet been voided.While management believes that its position is reasonable, no assurances can be given that this position will not be challenged by the warrant holder.
 
10. Stockholders’ Equity
 
Common Stock Issued for Cash and the Exercise of Warrants
 
In February 2015, the Company issued 66,000,000 shares of common stock for cashless warrants exercise.
 
In March 2015, the Company issued 25,000,000 shares of common stock for cashless warrants exercise.
 
In May 2015, the Company issued 97,500,000 shares of common stock for cashless warrants exercise.
 
In June 2015, the Company issued 11,000,000 shares of common stock for cashless warrants exercise.
 
 
Common Stock Issued for Convertible Debt

The Company authorized, but has yet to issue due to a lack of authorized shares of common stock, 1,539,221 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 2015 to our major stockholder, who is also a member of the Company’s board of directors. This promissory note matures in January of 2016. 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 $0.001 per share. The value of the $26,000 debt plus the $0.0004 fair market value of the 1,539,221 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 1,539,221 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,399 toward the debt and $601 to the shares and $0 to the beneficial conversion feature. The $601 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 $601 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $26,000 as of September 30, 2015. Additionally, $1,645 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2015. This note was rolled into a new 8% non convertible note payable due March 31, 2017.
 
The Company authorized, but has yet to issue due to a lack of authorized shares of common stock, 1,000,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in February 2015 to our major stockholder, who is also a director of the Company. The note matures in February of 2016. 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 $0.001 per share. The value of the $25,000 debt plus the $0.0007 fair market value of the 1,000,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 1,000,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $24,319 toward the debt and $681 to the shares and $0 to the beneficial conversion feature. The $681 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 $681 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,000 as of September 30, 2015. Additionally, $1,342 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2015. This note was rolled into a new 8% non convertible note payable due March 31, 2017.

The Company authorized, but has yet to issue due to a lack of authorized shares of common stock, 1,040,000 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in February 2015 to our major stockholder, who is also a director of the Company. The note matures in February of 2016. 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 $0.001 per share. The value of the $26,000 debt plus the $0.0008 fair market value of the 1,040,000 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 1,400,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,194 toward the debt and $806 to the shares and $0 to the beneficial conversion feature. The $806 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 $806 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $26,000 as of September 30, 2015. Additionally, $1,353 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2015. This note was rolled into a new 8% non convertible note payable due March 31, 2017.

The Company authorized, but has yet to issue due to a lack of authorized shares of common stock, 353,333 shares of its common stock and a convertible promissory note in the amount of $26,500 with interest payable at 10% per annum in April 2015 to our major stockholder, who is also a director of the Company. The note matures in April of 2016. 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 $0.003 per share. The value of the $26,500 debt plus the $0.003 fair market value of the 353,333 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,500 debt and the value of the 353,333 shares and the beneficial conversion feature. The computation resulted in an allocation of $24,462 toward the debt and $1,019 to the shares and $1,019 to the beneficial conversion feature. The $1,019 value of the shares and the $1,019 value of the beneficial conversion feature are then amortized to interest over the twelve-month life of the debt. Interest expense of $2,038 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $26,500 as of September 30, 2015. Additionally, $1,060 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2015. This note was rolled into a new 8% non convertible note payable due March 31, 2017.

 
The Company authorized, but has yet to issue due to a lack of authorized shares of common stock, 400,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in August 2015 to our major shareholder, who is also a director of the Company. The note matures in August of 2016. 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 $0.001 per share. The value of the $10,000 debt plus the $0.001 fair market value of the 400,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 400,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,225 toward the debt and $775 to the shares and $9,225 to the beneficial conversion feature. The $775 value of the shares and the $9,225 value of the beneficial conversion feature are then amortized to interest over the twelve-month life of the debt. Interest expense of $10,000 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $10,000 as of September 30, 2015. Additionally, $55 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the nine months ending September 30, 2015. This note was rolled into a new 8% non convertible note payable due March 31, 2017.

Common Stock Issued for Debt Converted

During the nine months ending September 30, 2015 the Company issued 92,051,568 shares of unrestricted common stock in exchange for convertible debt raised in 2014 resulting in a reduction in debt of $31,721, a reduction in derivative liability of $80,052 with an offset of $3,035 to debt discount and a $3,574 gain on extinguishment of debt.
 
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 1,269,009 shares of common stock as a loan fee of $121,906.
 
During the nine months ended September 30, 2014, the Company issued 41,596,673 shares of common stock to settle convertible notes payable with a principal note balance, accrued interest, interest expense, debt discount, and derivative liabilities valued at $1,154,465 and the Company recognized a $75,049 loss on extinguishment 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.
 
During the nine months ended September 30, 2014, the Company decreased convertible notes payable by $31,721 and increased additional paid in capital by $17,761 and increased common stock by $92,052 due to authorization of 92,051,568 shares and warrants issued in conjunction with convertible notes for the debt discount.
 
During the nine months ended September 30, 2015 the Company authorized 15,732,554 shares of common stock and granted 65,300,000 warrants in conjunction with convertible debt, which reduced related party payables by $4,895, and increased convertible notes by $83,045 and increased additional paid in capital by $87,940.
 
During the nine months ended September 30, 2015, the Company issued 92,051,568 shares of common stock to settle convertible notes payable with a principal note balance, accrued interest, interest expense, debt discount, and derivative liabilities valued at $107,730 and the Company recognized a $2,083 gain on extinguishment of debt.
 
During the nine months ended September 30, 2015 the Company issued 955,929 shares of Series A Preferred Stock in exchange for $5,933,941 debt, and accrued interest.
 
During the nine months ended September 30, 2015, the Company authorized 30,051,568 shares of common stock but did not issue them due to a lack of sufficient authorized shares, which resulted in a decrease to additional paid in capital and an increase to a liability for lack of authorized shares for a total of $406,175.
 
 
12.  Contingencies
 
During the period ended September 30, 2015, the Company wrote off the certain accounts payable totaling approximating $141,250, which amounts accrued between October 17, 2007 and June 1, 2011.  In the view of management, in consultation with counsel, such accounts payable represented either contested liabilities of the Company, represented amounts due to creditors that could not be located after reasonable efforts were made to contact them, or were, in the view of management, unenforceable.  While management believes that such amounts no longer represent recognized liabilities of the Company, such creditors may subsequently assert a claim against the Company.

Pursuant to the defective warrant exercise notice using an exercise price below $.001, the Company issued at total of 147,377,777 shares of common stock to the warrant holders, which the Company believes are voidable, and also recorded 1,600,945,089 warrants outstanding to the holder on the Company’s financial statements for the year ended December 31, 2014, and for the periods ending March 31 and June 30, 2015.  Management believes that the warrants were recorded in error during the periods presented, and has recorded the revised number of warrants outstanding at September 30, 2015 at 240,750,000, which reflects the number of shares of common stock purchase warrants outstanding and exercisable under the terms of the warrants at an exercise price of $0.001 per share. This net adjustment of 1,360,195,089 warrants has been reflected in the schedule for the nine month period ending September 30, 2015. While management believes that its position is reasonable, no assurances can be given that this position will not be challenged by the warrant holder. The Company is unable to estimate the amount of any liability related to this potential challenge.
 
 13. Subsequent Events

Additional Financing.  In October and November 2015 the Company received $95,000 in the form of notes, the terms of which have not yet been defined.
  
Voidable Issuances of Common Stock.  As of September 30, 2015, certain promissory notes described in this Note 8 not otherwise converted into common stock of the Company, totaling approximately $413,000, were due and payable (“Outstanding Notes”).   Although no assurances can be given, management is currently negotiating with the holders of these Outstanding Notes to restructure the principal and accrued interest currently due and payable, or scheduled to become due and payable prior to December 31, 2015.  The principal amount due under these Outstanding Notes may be reduced due to the offset of certain amounts resulting from the previous issuance of shares of common stock by the Company upon conversions of the Outstanding Notes, which were issued based on a conversion price below $0.001 per share.  The issuances are voidable under the laws of the State of Delaware, the Company’s state of incorporation.   The Company has issued a demand letter requiring the return to the Company of that number of shares of common stock issued upon conversion of Outstanding Notes equal to the value of the shares issued upon such conversion at a value below $0.001 per share (the “Excess Amount”).  In the event the holder of such shares fails to return the shares, the Company intends to unilaterally and without further action by the parties reduce the principal amount of the Outstanding Notes by the Excess Amount.  No assurances can be given that the holders of the affected Outstanding Notes will not challenge the Company’s treatment of the Excess Amount.
 
We have evaluated subsequent events through the date of this filing in accordance with the Subsequent Events Topic of the FASB ASC 855, and have determined that, other than the events described above, no additional subsequent events are reasonably likely to impact the financial statements.

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

Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements.  The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements."  Actual results could differ materially from those projected in the forward looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our Annual Report on Form 10-K for the year ended December 31, 2014, previously filed with the Securities and Exchange Commission on March 5, 2015, which Annual Report is incorporated herein by reference.  Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date.  Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

General Statement of Business
 
Advanced Medical Isotope Corporation (the “Company,” “AMIC” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMIC has authorized capital of 2,000,000,000 shares of common stock, $0.001 par value per share, and 20,000,000 shares of preferred stock, $0.001 par value per share (ADMD: OTC Pink Sheets).
 
AMIC is a Kennewick, Washington-based late stage development company engaged primarily in the development of brachytherapy devices for therapeutic applications. AMIC's focus is on transitioning to full operations upon receipt, if any, 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.
 
Since 2006, AMIC has been focused on development of a range of medical isotope technologies, certain of which AMIC has abandoned and others of which remain in development. AMIC’s financial constraints have generally caused AMIC to reduce or defer continued development of the technologies it has considered.
 
From August 2008 through January 2013, the Company manufactured and sold F-18 FDG from its production facility in Kennewick, WA. 
 
Since late 2013, AMIC has focused its resources on developing a proposed line of brachytherapy products and on endeavoring to secure FDA clearance with respect to the initial proposed brachytherapy product. AMIC’s proposed brachytherapy products incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted AMIC an exclusive license to patents covering these developments for manufacturing, processing and applications for medical isotopes (the Battelle License”).

A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead AMIC’s development efforts. AMIC has been recognized as a leader in the development of new isotope technologies by local, state and federal agencies.
 
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 limited revenue, nominal cash, and has accumulated deficits since inception.  If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and not be able to continue operations.
 
 
 
Recent Developments

On June 30, 2015, the Company filed the Certificate of Designations, Preferences, and Rights of the Series A Convertible Preferred Stock (“Certificate of Designations”) with the Delaware Secretary of State, designating 2.5 million shares of the Company’s preferred stock, par value $0.001 per share, as Series A Convertible Preferred Stock (“Series A Preferred”). Each share of Series A Preferred has a liquidation preference of $5.00 per share (“Liquidation Preference”), and, subject to certain limitations set forth in the Certificate of Designations, is convertible either (i) at the option of the holder, into that number of shares of the Company’s common stock, par value $0.001 per share, equal to the Liquidation Preference, divided by $0.005 (the “Conversion Shares”), or (ii) in the event the Company completes an equity or equity-based public offering, registered with the Securities Exchange Commission, resulting in gross proceeds to the Company totaling at least $5.0 million, all issued and outstanding shares of Series A Preferred will automatically convert into Conversion Shares.

Results of Operations

Comparison of the Three Months Ended September 30, 2015 and 2014
 
The following table sets forth information from our statements of operations for the three months ended September 30, 2015 and 2014.
 
   
Three Months Ended
September 30, 2015
 
Three Months Ended
September 30, 2014
Revenues
 
$
12,054
   
$
-
 
                 
Operating expenses
   
305,865
     
493,322
 
                 
Operating loss
   
(293,811
)
   
(493,322
)
Non-operating income (expense)
               
Interest expense
   
(1,819,017
)
   
(365,566
)
Net gain (loss) on settlement of debt
   
144,290
 
   
(44,975
)
Gain (Loss) on derivative liability
   
(562,203
)
   
37,076
 
Net Gain (Loss)
 
$
(2,530,741
)
 
$
(866,787
)

Revenue
 
Revenue, consisting of consulting services, was $12,054 for the three months ended September 30, 2015 compared to $0 for the three months ended September 30, 2014.   Consulting revenue consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.  Consulting services are currently our only source of revenue and is expected to generate less than $50,000 per year.
 
 
 
Operating Expense
 
Operating expense for the three months ended September 30, 2015 and 2014 was $305,865 and $493,322, respectively, a $187,457 decrease.  The period over period operating expense decrease is attributable to a general decrease to each of our operating expenses, as further detailed below:
 
   
Three Months Ended
September 30, 2015
   
Three Months Ended
September 30, 2014
 
Cost of materials
 
$
-
   
$
265
 
Depreciation and amortization expense
   
936
     
2,998
 
Professional fees
   
73,864
     
128,597
 
Stock options granted
   
-
     
58,187
 
Payroll expense
   
178,654
     
190,994
 
General and administrative expense
   
52,411
     
112,281
 
Sales and marketing expense
   
-
     
-
 
   
$
305,865
   
$
493,322
 

Non-Operating Income (Expense)
 
Non-operating income (expense) for the three months ended September 30, 2015 and 2014 was $(2,236,930) and $(373,465), respectively. As shown below, this $1,863,465 increase is due primarily to interest expense of $1,819,017 and a loss on derivative liability of $562,203 for the three months ended September 30, 2015, offset by a loss on settlement of debt of $144,290 for the three months ended September 30, 2015. The $562,203 loss on derivative liability is due to the fluctuation in the Company’s stock price from June 30, 2015 ($0.0009) to September 30, 2015 ($0.0014) and the addition of new derivative debt. The Company’s stock price is used in the Black Scholes calculations to compute the derivative liability at the end of the quarter.
 
Non-Operating income (expense) for the three months ended September 30, 2015 and 2014 consists of the following:
 
   
Three months ended
September 30, 2015
   
Three months ended
September 30, 2014
 
Interest expense
 
$
(1,819,017
)
 
$
(365,566
)
Net gain (loss) on settlement of debt
   
144,290
 
   
(44,975
)
Gain (Loss) on derivative liability
   
(562,203
)
   
37,076
 
   
$
(2,236,930
)
 
$
(373,465
)

Net Gain (Loss)
 
Our net income (loss) for the three months ended September 30, 2015 and 2014 was $(2,530,741) and $(866,787), respectively, due primarily to interest expense of $1,819,017 and the loss on derivative liability of $562,203, offset by an in consulting revenues, and a decrease in operating expenses incurred during the three months ended September 30, 2015.
 
Comparison of the Nine Months Ended September 30, 2015 and 2014
 
The following table sets forth information from our statements of operations for the nine months ended September 30, 2015 and 2014.

   
Nine Months Ended
September 30, 2015
   
Nine Months Ended
September 30, 2014
 
Revenues
 
$
24,108
   
$
24,108
 
                 
Operating expenses
   
977,793
     
1,595,210
 
                 
Operating loss
   
(953,685
)
   
(1,571,102
)
Non-operating income (expense)
               
Interest expense
   
(2,471,367
)
   
(1,181,063
)
Gain (loss) on derivative liability
   
8,756,184
     
(313,990
Net loss on settlement of debt
   
281,966
     
(120,024
)
Net income (loss)
 
$
5,613,098
   
$
(3,186,179
)
 
 
Revenue
 
    Revenue was $24,108 for the nine months ended September 30, 2015 and 2014. Consulting revenue consists of providing clients with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting. Consulting services are currently our only source of revenue and is expected to generate less than $50,000 per year. 

Operating Expense
 
Operating expense for the nine months ended September 30, 2015 and 2014 was $977,792 and $1,595,210, respectively, a $617,418 decrease.  The period over period operating expense decrease is attributable to a general decrease to each of our operating expenses, as further detailed below:
 
   
Nine months ended
September 30, 2015
   
Nine months ended
September 30, 2014
 
Cost of materials
 
$
475
   
$
817
 
Depreciation and amortization expense
   
4,934
     
8,994
 
Professional fees
   
245,164
     
466,581
 
Stock options granted
   
28,500
     
174,561
 
Payroll expenses
   
538,466
     
576,089
 
General and administrative expenses
   
160,254
     
366,868
 
Sales and marketing expense
   
-
     
1,300
 
   
$
977,793
   
$
1,595,210
 
 
Non-Operating Income (Expense)
 
The Company had non-operating income of $6,566,783 during the nine months ended September 30, 2015, as compared to non-operating expense of $(1,615,077) during the nine months ended September 30, 2014. As shown below, this increase is primarily due to a gain on derivative liability of $8,756,184 for the nine months ended September 30, 2015, as compared to a loss of $313,990 during the same period in 2014. The $8,756,184 gain on derivative liability is due to an increase in the Company’s stock price from June 30, 2015 ($0.0009) to September 30, 2015 ($0.0014) as well as a reduction in the number of derivative liabilities remaining. The Company’s stock price is used in the Black Scholes calculations to compute the derivative liability at the end of the quarter.
 
Non-Operating income (expense) for the nine months ended September 30, 2015 and 2014 consists of the following:
 
   
Nine months ended
September 30, 2015
   
Nine months ended
September 30, 2014
 
Interest expense
 
$
(2,471,367
)
 
$
(1,181,063
)
Net gain (loss) on settlement of debt
   
281,966
     
(120,024
)
Gain (loss) on derivative liability
   
8,756,184
     
(313,990
   
$
6,566,783
   
$
(1,615,077
)
 
 
 
Net Gain (Loss)
 
Our net gain (loss) for the nine months ended September 30, 2015 and 2014 was $5,613,098 and $(3,186,179), respectively, due primarily to the gain on derivative liability of $8,756,184 incurred during the nine months ended September 30, 2015, and the reduction in operating expenses, offset by an increase in interest expense.
 
Liquidity, Capital Resources and Management’s Plan
 
At September 30, 2015, the Company had negative working capital of $8,814,516, as compared to $9,543,943 at September 30, 2014. During the nine months ended September 30, 2015 the Company experienced negative cash flow from operations of $676,826 and it expended $0 for investing activities while adding $684,019 of cash flows from financing activities.  As of September 30, 2015, the Company had $0 commitments for capital expenditures.
 
Cash used in operating activities decreased from $790,856 for the nine month period ending September 30, 2014 compared to $676,826 for the nine month period ending September 30, 2015.  Cash used in operating activities was primarily a result of the Company’s net loss, partially offset by non-cash items, as well as common stock issued for services and other expenses.  The Company had no cash used in investing activities for the nine month periods ended September 30, 2015 and 2014.  Cash provided from financing activities decreased from $791,381 for the nine month period ending September 30, 2014 to $684,019 for the nine month period ending September 30, 2015. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt, partially offset with a decrease in payments on capital lease.
 
The Company has generated material operating losses since inception.  The Company has incurred a net loss of $48,634,133 from January 1, 2006 through September 30, 2015, including a net gain of $5,613,098 for the nine months ended September 30, 2015, and a net loss of $3,186,179 for the nine months ended September 30, 2014.  Although the Company experienced a net gain during the nine months ended September 30, 2015, due principally to a gain on derivative liability, the Company had an operating loss of $293,811 and $953,685 for the three and nine months ended September 30, 2015, respectively, and expects to experience net operating losses in future periods.  Historically, the Company has relied upon sales of its securities, including promissory notes, to finance its operations and develop the Company’s products.  The Company will require additional financing within the next twelve months for working capital purposes, estimated to be approximately $1.5 million.  We may also require up to approximately $1.5 million to retire outstanding debt and past due payables, if these amounts are not otherwise converted or exchanged for equity securities.  During the next 12-24 months the Company anticipates that approximately $5.0 to $10.0 million of capital will be required to complete brachytherapy product development, and begin initial commercialization. The principal variables in the timing and amount of spending for the brachytherapy products during the next 12-24 months will be FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies that may include 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. In addition to selling equity or debt securities to fund product development, the Company may pursue potential licensing or strategic partnership arrangements for certain rights to its products or technologies.
 
As of September 30, 2015, the Company had $7,396 cash on hand, and had negative working capital of $8,815,516, as compared to $9,543,943 at September 30, 2014.   Management is currently seeking additional debt and/or equity capital and, although no assurances can be given, management believes that it will be able to raise additional capital through the sale of securities to either current or new stockholders for general working capital purposes. No assurances can be given that additional capital will be available on terms acceptable to the Company, if at all. We anticipate that if we are able to obtain the financing required to retire or restructure outstanding debt, pay past due payables and maintain our current operating activities that the terms thereof will be materially dilutive to existing shareholders.  If the Company is unable to obtain additional financing to meet its working capital requirements, it will have to substantially reduce its operations and product development efforts, and may not be able to continue as a going concern.
 
As of September 30, 2015 and December 31, 2014 there was an insufficient number of authorized shares of the Company’s common stock available for issuance upon exercise or conversion of outstanding options, warrants and convertible debts. As a result, the Company recorded a liability in the amount of $659,281 and $253,106, offset by $659,281 and $253,106 of equity for the period ended September 30, 2015 and December 31, 2014, respectively.  There are ongoing discussions with some of the Company’s lenders regarding alternatives to address the deficiency, and the Company currently anticipates seeking shareholder approval to increase the number of authorized shares of common stock necessary to provide for conversions and exercises of derivative securities, and to provide to future issuances, although no assurances can be given.

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, 2015, 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, 2014, filed on April 15, 2015.

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, as amended (“Exchange Act”).

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 have been no changes in the Company’s internal control over financial reporting that occurred during quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: 
 
(a)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
 
(b)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
 
(c)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

 
 
PART II

Item 1A. Risk Factors.  

There have been no material changes to the risk factors set forth in Item 1A in our Form 10-K report for the year ended December 31, 2014.

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

Item 6.    Exhibits
 
Exhibit Number
 
Description
31.1
*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2
*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1
*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
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.

 
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, thereunto duly authorized.
 
 
ADVANCED MEDICAL ISOTOPE CORPORATION
     
Date: November 23, 2015
By:
/s/   James C. Katzaroff
   
James C. Katzaroff 
   
Chairman and Chief Executive Officer
   
(Principal Executive Officer)
 
 
     
Date: November 23, 2015
By:
/s/   L. Bruce Jolliff
   
L. Bruce Jolliff 
   
Chief Financial Officer
   
(Principal Financial and Accounting Officer)
 
 
 
 
 
 
 
 

 
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