VIVOS INC - Quarter Report: 2017 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

COMMISSION FILE NUMBER 000-53497

ADVANCED MEDICAL ISOTOPE CORPORATION

(Exact name of registrant as specified in its charter)

719 Jadwin Avenue,

Richland, WA 99352

(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 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. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

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 August 9, 2017, there were 52,858,467 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Advanced Medical Isotope Corporation

Condensed Balance Sheets

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

Advanced Medical Isotope Corporation

Condensed Statements of Operations

(unaudited)

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

Advanced Medical Isotope Corporation

Condensed Statements of Cash Flow

(Unaudited)

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

Advanced Medical Isotope Corporation

Notes to Condensed Financial Statements

(Unaudited)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed financial statements of Advanced Medical Isotope Corporation (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 six months ended June 30, 2017, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2017 and should be read in conjunction with the Company’s form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 9, 2017.

In April of 2017, the Company filed a Certificate of Merger with the Delaware Division of Corporations in order to merge the Company’s wholly-owned subsidiary, IsoPet Solutions Corporation, with and into the Company. The Company therefore no longer prepares Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that effect 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 June 30, 2017 and December 31, 2016, the balances reported for cash, prepaid expenses, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.

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. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Topic 820, “Fair Value Measurements,” established a three-tier fair value hierarchy to prioritize 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 June 30, 2017 and December 31, 2016:

Recent Accounting Pronouncements

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

NOTE 2: GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and has used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Historically, the Company has relied upon outside investor funds to maintain the Company’s operations and develop the Company’s business. The Company anticipates it will continue to require funding from investors for working capital, as well as business expansion during this fiscal year and it can provide no assurance that additional investor funds will be available on acceptable terms. These factors, among others, indicate that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year of the date these financial statements are issued. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which it operates.

The Company anticipates a requirement of $1.5 million in funds over the next twelve months to maintain current operating activities. The Company may also require up to approximately $4.6 million to retire outstanding debt and past due payables. As of June 30, 2017 the Company had convertible promissory notes in the aggregate principal amount of $3,254,130 outstanding (the “Outstanding Notes”), of which approximately $45,000 are currently past due and payable.

Over the next 12 to 24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the Food and Drug Administration (“FDA”) approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements are 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. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements and/or additional capital raises.

As of June 30, 2017, the Company has $369,449 cash on hand. There are currently commitments to vendors for products and services purchased, accrued compensation expenses and the Company’s current lease commitments that, in the absence of additional capital, would result in a liquidation of the Company. The current level of cash is not sufficient to cover the fixed and variable obligations of the Company.

Assuming the Company is successful in the its sales/development effort, the Company believes that it will be able to raise additional funds through strategic agreements or the sale of the Company’s securities to either current stockholders or new investors. However, there is no guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.

The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3: FIXED ASSETS

Fixed assets consist of the following at June 30, 2017 and December 31, 2016:

Depreciation expense for the above fixed assets for the three months ended June 30, 2017 and 2016, respectively was $733 and $737 and for the six months ended June 30, 2017 and 2016, respectively, was $1,473 and $1,475.

NOTE 4: INTANGIBLE ASSETS

Intangible assets consist of the following at June 30, 2017 and December 31, 2016:

The Company did not incur any amortization expense during the three and six months ended June 30, 2017 and 2016.

NOTE 5: RELATED PARTY TRANSACTIONS

Related Party Convertible Notes Payable

In March 2017, the Company combined Outstanding Notes owed to a director and major stockholder, along with $51,576 of accrued interest payable, into one promissory note (the “Related Party Note”). The Related Party Note accrues interest at a rate of 10% and will become due and payable on December 31, 2017. As of June 30, 2017 and December 31, 2016 the balance of the Related Party Note was $383,771 and $332,195, respectively.

Rent Expenses

The Company was renting office space from a significant shareholder and director of the Company on a month-to-month basis with a monthly payment of $1,500. This rental agreement was terminated as of April 1, 2017.

Rental expense was $0 and $4,500 for each of the three months ended June 30, 2017 and 2016 and is recorded in general and administrative expense. Rental expense was $4,500 and $9,000 for the six months ending June 30, 2017 and 2016, respectively, and is recorded in general and administrative expense.

NOTE 6: CONVERTIBLE NOTES PAYABLE

As of June 30, 2017 and December 31, 2016, the Company had the following convertible notes outstanding:

During the six months ending June 30, 2017, the Company received proceeds from the issuance of 7.5% Original Issue Discount Senior Secured Convertible Debentures (“Debentures”) of $1,080,334 and obtained advances from shareholders of $137,000 that were reclassified into Debentures. The Company also assigned or exchanged $1,358,750 worth of Outstanding Notes into Debentures, while also reclassifying $120,403 worth of accrued interest to note principal. Each Debenture is convertible at the option of the holder into that number of shares of common stock equal to the outstanding principal balance, plus all accrued by unpaid interest, divided by $0.20. The Debentures accrue interest at a rate of 7.5% per annum and will become due and payable on or about May 9, 2018. The Company recorded original issue discounts and loan fees on Debentures of $757,696 and $386,758, respectively, which also increased the debt discounts recorded on the Debentures.

The Company recorded $255,881 of conversions on certain Outstanding Notes and a total gain on settlement of $5,831 representing the write-off of Outstanding Note principal. Each of the Company’s Outstanding Notes have a conversion rate that is variable or has adjustment provisions. As a result of recording derivative liabilities at note inception, the Company increased the debt discount recorded on Outstanding Notes by $99,661 during the six months ending June 30, 2017. The Company also recorded amortization of $957,501 on Outstanding Note debt discounts. Lastly, the Company paid $101,631 in cash for loan fees and issued 743,699 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”) as loan fees in connection with the issuance of the Debentures. The Company therefore increased its debt discount by $1,116,110, which represented the portion of the proceeds from the Debentures that were allocated to preferred stock.

NOTE 7: COMMON STOCK OPTIONS AND WARRANTS

Common Stock Options

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

The following schedule summarizes the changes in the Company’s stock options:

Common Stock Warrants

The following schedule summarizes the changes in the Company’s stock warrants:

NOTE 8: STOCKHOLDERS’ EQUITY

Common Stock

During the six months ending June 30, 2017, the Company issued 2,469,830 shares of its common stock valued at $281,657 for the settlement of debt, 1,596,483 shares of its common stock valued at $168,600 for accounts payable, 1,312,500 shares of its common stock valued at $171,089 for services, and 12,997,100 shares of its common stock valued at $3,282,531 for conversions of 1,239,710 shares of Series A Preferred.

Preferred Stock

During the six months ending June 30, 2017 the Company issued 743,699 shares of Series A Preferred valued at $1,116,110 as loan fees in connection with the issuance of the Debentures, and 10,000 shares of Series A Preferred valued at $28,908 for accrued payroll.

NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION

During the six months ending June 30, 2017, the Company had the following non-cash investing and financing activities:

NOTE 10: COMMITMENTS AND CONTINGENCIES

Effective June 21, 2017, the Company entered into a separation agreement with an individual previously associated with the Company, at times as a consultant and as an employee at other times. Pursuant to the agreement, the Company agreed to pay regular bi-weekly checks beginning July 7, 2017 and ending September 15, 2017, for a total of six checks in the aggregate amount of $28,846. The Company has accrued $28,846 for the payments to be made under this agreement and has recorded them in accounts payable as of June 30, 2017.

NOTE 11: SUBSEQUENT EVENTS

In July of 2017, the Company issued 370,000 shares of common stock upon conversion of 37,000 shares of Series A Preferred.

In July of 2017, the Company issued 416,563 common stock shares in exchange for $46,500 of convertible debt principal and $3,488 of accrued interest.

In July of 2017, the Company, in exchange for $206,072 of unpaid compensation, issued 1,500,000 common stock shares and 150,000 Series A Preferred and $10,000 cash plus $165,000 to be paid at the rate of 5% of the net proceeds retained by the Company in connection with all capital raises or net proceeds from revenue generated from licensing or similar transactions. The agreement also included the cancellation of 1,000.000 stock options issued June 21, 2016.

In August 2017, the Company, in exchange for $27,198 of accounts payable, issued 302,194 common stock shares.

In August 2017, the Company issued 150,000 common stock shares to consultants in exchange for services.

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

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

Except for statements of historical fact, certain information described in this Form 10-Q report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information. Advanced Medical Isotope Corporation believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-Q report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s previously filed Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 9, 2017, as well as other cautionary language in this report on Form 10-Q, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.

General Statement of Business

Advanced Medical Isotope Corporation (the “Company,” “AMI” 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. AMI 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. Our common stock is quoted on the OTC PINK Marketplace under the symbol, “ADMD”.

Recent Developments

On or about May 10, 2017, the Company entered into Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors to purchase 7.5% Original issue Discount Senior Secured Convertible Debentures (“Debentures”) in the aggregate principal amount of $1,179,581, including an original issue discount of $235,916 and loan fees of $30,000. The principal, original issue discount, and loan fees accrue interest at a rate of 7.5% per annum, and will become due and payable one year from the issuance date. Holders of the Debentures may elect to convert the principal and original issue discount, as well as any accrued by unpaid interest (the “Outstanding Balance”), into that number of shares of the Company’s common stock equal to the Outstanding Balance, divided by $0.20 (the “Conversion Price”).

On the same date, the Company also entered into Securities Exchange Agreements (the “Exchange Agreement”) with certain holders of outstanding convertible promissory notes to exchange such notes and their accrued interest for Debentures, resulting in the issuance of Debentures in the aggregate principal amount of $2,229,306 including an original issue discount of $445,961 and loan fees of $356,758. The Debentures issued pursuant to the Exchange Agreement have terms substantially similar to those issued pursuant to the Purchase Agreement, expect that certain of the Debentures issued pursuant to Exchange Agreements have a Conversion Price of $0.13 and $0.12 per share.

The Company paid loan fees in connection with the issuance of the Debentures, both pursuant to the Purchase Agreements and Exchange Agreements, of 20% of the principal and original issue discount of the Debentures in shares of its Series A Preferred Stock (“Series A Preferred”). In addition, the Company granted to each of the holders of the Debentures a continuing security interest in substantially all of the Company’s assets, pursuant to the terms and conditions of a Security Agreement. Forms of the Purchase Agreement, Debenture, Exchange Agreement and Security Agreement are attached to this report on Form 10-Q.

Overview

The Company is a late stage radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device, RadioGel™, for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.

The Company’s current focus is on the development of its RadioGel™ device. RadioGel™ is an injectable particle-gel for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactively drops to 5% of its original value after ten days.

The Company’s lead brachytherapy product, RadioGel™, incorporates 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 the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.

The Company is currently focusing on obtaining approval from the Food and Drug Administration (“FDA”) to market and sell RadioGel™ as a Class II medical device. The Company first requested FDA approval of RadioGel™ in June 2013, at which time the FDA classified RadioGel™ as a medical device. The Company then followed with a 510(k) submission which the FDA responded, in turn, with a request for a physician letter of substantial equivalence and a reformatted 510(k) summary, which the Company provided January 2014. In February 2014 the FDA ruled the device as not substantially equivalent due to a lack of predicate device and it was classified to Class III. The Company is currently developing test plans to address issues raised by the FDA in connection with the Company’s previous submissions regarding RadioGel™, including developing specific test plans and specific indication of use. The Company intends to request FDA approval to apply for de novo classification of RadioGel™, which would reclassify the device from a Class III device to a Class II device, further simplifying the path to FDA approval.

In previous FDA submittals, the Company proposed applying RadioGel™ for a very broad range of cancer therapies, referred to as Indication for Use. The FDA has requested that the Company reduce its Indications for Use. To comply with that request, the Company has expanded its Medical Advisory Board (“MAB”) and engaged doctors from respected hospitals who have evaluated the candidate cancer therapies based on three criteria: (1) potential for FDA approval and successful therapy; (2) notable advantage over current therapies; and (3) probability of wide spread acceptance by the medical community.

The MAB selected eighteen applications for RadioGel™, each of which meet the criteria described above. This large number confirms the wide applicability of the device and defines the path for future business growth. The Company intends to apply to the FDA for a single Indication for Use, treatment of basal cell and squamous cell skin cancers, followed by subsequent applications for additional Indications for Use. We anticipate that this initial application will facilitate each subsequent application, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.

The Company’s IsoPet Solutions division was established in May 2016 to focus on the veterinary oncology market, namely engagement of university veterinarian hospital to develop the detailed therapy procedures to treat animal tumors and ultimately use of the technology in private clinics. The Company has engaged four different university veterinarian hospitals to begin using RadioGel™ for treatment of four different cancer types in dogs and cats. Washington State University Veterinary Hospital has tested one cat to demonstrate the procedures and the absence of any significant toxicity effect. The other three centers are expected to begin therapy during the second quarter of 2017 after their internal administrative review process is completed.

These animal therapies will focus on creating labels that describe the procedures in detail as a guide to future veterinarians. The labels will be voluntarily submitted to the FDA for review. They will then be used as data for future FDA applications in the medical sector and as key intellectual property for licensing to private veterinary clinics. Dr. Alice Villalobos, the Chair of our Veterinarian Advisory Board, has expressed an interest in being the first to utilize RadioGel™ in her private clinic, but is also introducing the Company to other clinics with an interest in utilizing RadioGel™ and to demonstrate the business model.

The Company anticipates that future profit will be derived from direct sales of RadioGel™ and related services, and from licensing to private medical and veterinary clinics in the U.S. and internationally.

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.

Results of Operations

Comparison of the Three Months Ended June 30, 2017 and 2016

The following table sets forth information from our statements of operations for the three months ended June 30, 2017 and 2016.

Revenue

Revenue was $0 and $4,054 for the three months ended June 30, 2017 and June 30, 2016. The decrease was a result of a loss of consulting revenue, currently our only source of revenue, during the first half of the fiscal year. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting.

Management does not anticipate that the Company will generate revenue sufficient to sustain operations until such time as the Company secures revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.

Operating Expenses

Operating expenses for the three months ended June 30, 2017 and 2016 consists of the following:

Operating expenses for the three months ended June 30, 2017 and 2016 was $619,171 and $3,222,904, respectively. The decrease in operating expenses from 2016 to 2017 can be attributed to the decrease in professional fees expense ($1,631,616 for the three months ended June 30, 2016 versus $295,544 or the three months ended June 30, 2017); a decrease in sales and marketing expense from 2016 to 2017 ($135,708 for the three months ended June 30, 2016 versus $15,251 for the three months ended June 30, 2017); a decrease in stock options granted from 2016 to 2017 ($584,916 for the three months ended June 30, 2016 versus $27,059 for the three months ended June 30, 2017); and the decrease in general and administrative expense ($703,350 for the three months ended June 30, 2016 versus $99,090 for the three months ended June 30, 2017). The main contributors to the decrease in general and administrative expense was a decrease in loan fees ($0 for the three months ended June 30, 2017 versus $294,703 for the three months ended June 30, 2016); repairs and maintenance ($14 for the three months ended June 30, 2017 versus $222,281 for the three months ended June 30, 2016); and a decrease in research expense ($80,523 for the three months ended June 30, 2017 versus $111,304 for the three months ended June 30, 2016).

Non-Operating Income (Expense)

Non-operating income (expense) for the three months ended June 30, 2017 and 2016 consists of the following:

Non-operating income (expense) for the three months ended June 30, 2017 varied from the three months ended June 30, 2016 primarily due to a decrease in the gain on derivative liability of $1,268,958 for the three months ended June 30, 2016 versus a gain of $83,089 for the three months ended June 30, 2017; and a decrease in loss on settlement of debt for the three months ended June 30, 2017 of $0 versus a loss of $1,832,468 for the three months ended June 30, 2016. This was partially offset by an increase in interest expense from $400,524 for the three months ended June 30, 2016 to $781,139 for the three months ended June 30, 2017; and an increase in loss on debt extinguishment for the three months ended June 30, 2017 of $201,574 versus $0 for the three months ended June 30, 2016.

Net Loss

Our net income (loss) for the three months ended June 30, 2017 and 2016 was $(1,518,795) and $(4,182,884) respectively.

Comparison of the Six Months Ended June 30, 2017 and 2016

The following table sets forth information from our statements of operations for the six months ended June 30, 2017 and 2016.

Revenue

Revenue was $4,054 for the six months ended June 30, 2017, compared to $8,108 for the six months ended June 30, 2016, a period over period decrease of $4,054. The decrease was a result of a loss of consulting revenue, currently our only source of revenue, during the first half of the fiscal year. 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. The Company does not have any current contracts or arrangements for consulting services, and, until such time as the Company secures contracts or arrangements to provide consulting services, the Company does not expect to generate any additional revenue during the third or fourth quarter of 2017 and beyond.

Management does not anticipate that the Company will generate revenue sufficient to sustain operations until such time as the Company secures revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.

Operating Expense

Operating expenses for the six months ended June 30, 2017 and 2016 consists of the following:

Operating expenses for the six months ended June 30, 2017 and 2016 was $987,940 and $3,909,489, respectively. The decrease in operating expenses from 2016 to 2017 can be attributed to the decrease in professional fees expense ($1,702,585 for the six months ended June 30, 2016 versus $430,148 for the six months ended June 30, 2017); a decrease in sales and marketing expense from 2016 to 2017 ($147,544 for the six months ended June 30, 2016 versus $41,249 for the six months ended June 30, 2017); a decrease in stock options granted from 2016 to 2017 ($584,916 for the six months ended June 30, 2016 versus $55,299 for the six months ended June 30, 2017); and the decrease in general and administrative expense ($1,141,392 for the six months ended June 30, 2016 versus $173,496 for the six months ended June 30, 2017). The main contributors to the decrease in general and administrative expense was a decrease in loan fees ($595,197 for the six months ended June 30, 2016 versus $0 for the six months ended June 30, 2017); rent ($9,000 for the six months ended June 30, 2016 versus $4,500 for the six months ended June 30, 2017); repairs and maintenance ($224,365 for the six months ended June 30, 2016 versus $3,648 for the six months ended June 30, 2017); and research expense ($206,848 for the six months ended June 30, 2017 versus $113,410 for the six months ended June 30, 2017).

Non-Operating Income (Expense)

Non-Operating income (expense) for the six months ended June 30, 2017 and 2016 consists of the following:

The Company had non-operating expense of $6,087,404 during the six months ended June 30, 2016, as compared to non-operating expense of $951,674 during the six months ended June 30, 2017. As shown above, this decrease in non-operating expense is primarily due to a loss on derivative liability of $3,871,040 for the six months ended June 30, 2016, as compared to a gain of $408,479 during the same period in 2017. The $3,871,040 loss on derivative liability was due to an increase in the Company’s stock price from June 30, 2015 ($0.09) to June 30, 2016 ($0. 37) and an increase in preferred shares value which is also used to value derivatives. The Company’s stock price is used in the Black Scholes calculations to compute the derivative liability at the end of the quarter. Additionally, the Company experienced a decrease in non-operating expense due to a loss on settlement of debt of $1,766,631 for the six months ended June 30, 2016, as compared to a loss on settlement of debt of $0 for the six months ended June 30, 2017.

Net Gain (Loss)

Our net income (loss) for the six months ended June 30, 2017 and 2016 was $(1,935,560) and $(9,988,785) respectively.

Liquidity and Capital Resources

At June 30, 2017, the Company had negative working capital of $3,134,196, as compared to $4,914,618 at June 30, 2016. During the six months ended June 30, 2017 the Company experienced negative cash flow from operations of $776,944 and it received $2,800 for investing activities and added $1,115,703 of cash flows from financing activities. As of June 30, 2017, the Company had $0 commitments for capital expenditures.

Cash used in operating activities decreased from $1,485,624 for the six month period ending June 30, 2016 to $776,944 for the six month period ending June 30, 2017. Cash used in operating activities was primarily a result of the Company’s net loss and the non-cash gain (loss) on derivative liability, partially offset by non-cash item amortization of convertible debt discount, and depreciation, included in that net loss and preferred and common stock issued for services and other expenses. The Company had no cash used in investing activities for the six month period ended June 30, 2016 and received $2,800 in investing activities for the six month period ending June 30, 2017. Cash provided from financing activities decreased from $1,306,775 for the six month period ending June 30, 2016 to $1,115,703 for the six month period ending June 30, 2017. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt.

The Company has generated material operating losses since inception. The Company had a net loss of $1,935,560 for the six months ended June 30, 2017, and $9,988,785 for the six months ended June 30, 2016. The Company expects to continue to experience net operating losses. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business.

The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to cease operations.

The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12-24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly 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. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.

Although the Company is seeking the foregoing funding and has engaged in numerous discussions with potential finders, investment bankers and investors with respect to the initial portion thereof, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities that the terms thereof will be materially dilutive to existing shareholders.

The recent economic events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact the Company’s ability to obtain financing and its ability to execute its business plan. The Company believes healthcare institutions will continue to purchase the medical solutions that it distributes.

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 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 June 30, 2017, we believe there have been no significant changes to the items disclosed as significant accounting policies in management’s notes to the condensed financial statements in our annual report on Form 10-K for the year ended December 31, 2016, filed on March 9, 2017.

Off-Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, revenues, results of operations, liquidity or capital expenditures.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

This item is not applicable to us because we are a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the previously 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 the Company’s last fiscal quarter 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:

PART II

Item 1. Legal Proceedings

On March 6, 2015, Robert and Maribeth Myers filed a lawsuit against the Company and BancLeasing, Inc., owner of a linear accelerator and other equipment leased by the Company, in the Superior Court of the State of Washington, in and for Benton County (Case No. 15-2-0054101), asserting various claims related to the Company’s five-year lease of production center space owned by Mr. and Mrs. Myers. The Company subsequently filed counterclaims against Mr. and Mrs. Myers, BancLeasing and Washington Trust Bank, alleging misapplication of lease payments to the principal loan amount for a linear accelerator and other equipment stored on the production center property, as well as certain building improvements made by the Company. During 2016, the Company entered into a Settlement Agreement with Robert and Maribeth Myers, pursuant to which the Company agreed to pay a settlement amount of $438,830 in exchange for the release of all claims related to the matter, which amount was paid by the Company during the year ended December 31, 2016.

In 2016, the Company was awarded in the Superior Court of the State of Washington a total sum of $527,876 against BancLeasing. The Company is pursuing its options for collection of the awarded amount, however there can be no assurance as to any eventual collection.

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

During the six months ending June 30, 2017 the Company issued 743,699 shares of its Series A Preferred as loan fees on Debentures totaling $3,019,256 of Debentures.

During the six months ending June 30, 2017 the Company issued 996,483 common shares in satisfaction of $205,283 of accounts payable.

During the six months ending June 30, 2017 the Company issued 600,000 common shares and 10,000 Series A Preferred shares in satisfaction of $66,093 accrued payroll.

During the six months ending June 30, 2017 the Company issued 2,469,830 common shares in satisfaction of $288,872 of convertible note payable including $32,991 of accrued interest, resulting in a $197,062 net loss on debt extinguishment.

During the six months ending June 30, 2017 the Company issued 1,312,500 common shares for services valued at $171,089.

In connection with the above stock sales, we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). We had or one of our affiliates had a prior business relationship with each of the purchasers, and no general solicitation was used in connection with the sales. In making the sales without registration under the Securities Act, we relied upon the exemption from registration contained in Section 4(a)(2) of the Securities Act.

Item 6. Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.