As
filed with the Securities and Exchange Commission on
November 12,
2008
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10
GENERAL
FORM FOR REGISTRATION OF SECURITIES
PURSUANT
TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
file number ______
ADVANCED MEDICAL ISOTOPE CORPORATION
(Exact
name of registrant as specified in its charter)
|
Delaware
|
80-0138937
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
Number)
|
|
8131 W. Grandridge
Blvd. Suite B. Kennewick WA
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99336
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|
(Address
of principal executive offices)
|
(Zip
Code)
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Registrant's
telephone number:
(509)736-4000
Copies
to:
James C.
Katzaroff
Advanced
Medical Isotope Corporation
8131 W.
Grandridge Blvd. Suite B
Kennewick
WA, 99336
(509)736-4000
Andrea
Cataneo, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32
nd
Floor
New York,
NY 10006
(212)
930-9700
Securities
to be registered under Section 12(b) of the Act: Not Applicable
Securities
to be registered under Section 12(g) of the Exchange Act:
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Title of each class
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Name of Exchange on which to be so registered each class is to be
registered
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Common Stock, $.001
par value
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N/A
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Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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o |
Accelerated filer
|
o | ||
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Non-accelerated filer
|
o |
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
x |
TABLE OF
CONTENTS
| ITEM 1. | DESCRIPTION OF BUSINESS. |
4
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| ITEM 1A. | RISK FACTORS. |
9
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| ITEM 2. | FINANCIAL INFORMATION. |
16
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| ITEM 3. | DESCRIPTION OF PROPERTY. |
20
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| ITEM 4. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. |
21
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| ITEM 5. | DIRECTORS AND EXECUTIVE OFFICERS. |
21
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| ITEM 6. | EXECUTIVE COMPENSATION. |
23
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| ITEM 7. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. |
27
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| ITEM 8. | LEGAL PROCEEDINGS. |
28
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| ITEM 9. | MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. |
28
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| ITEM 10. | RECENT SALES OF UNREGISTERED SECURITIES. |
29
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| ITEM 11. | DESCRIPTION OF REGISTRANT’S SECURITIES TO BE REGISTERED. |
31
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| ITEM 12. | INDEMNIFICATION OF DIRECTORS AND OFFICERS. |
31
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| ITEM 13. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
32
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| ITEM 14. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
32
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| ITEM 15. | FINANCIAL STATEMENTS AND EXHIBITS. |
33
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| INDEX TO EXHIBITS |
34
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| SIGNATURES |
35
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As used
in this Form 10, unless the context otherwise requires the terms “we,” “us,”
“our,” and the “Company” refer to Advanced Medical Isotope Corporation, a
Delaware corporation, and its subsidiaries.
FORWARD-LOOKING
STATEMENTS
Except
for statements of historical fact, certain information described in this
document contains “forward-looking statements” that involve substantial risks
and uncertainties. You can identify these statements by forward-looking words
such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,”
“should,” “will,” “would” or similar words. The statements that contain these or
similar words should be read carefully because these statements discuss our
future expectations, contain projections of our future results of operations or
of our financial position, or state other “forward-looking” information.
Advanced Medical Isotope Corporation believes that it is important to
communicate our future expectations to our investors. However, there may be
events in the future that we are not able accurately to predict or control.
Further, we urge you to be cautious of the forward-looking statements which are
contained in this Form 10 because they involve risks, uncertainties and
other factors affecting our operations, market growth, service, products and
licenses. The factors listed below in the section captioned “Risk Factors”
within Item 1A, “Description of Business,” as well as other cautionary
language in this Form 10, describe such risks, uncertainties and events
that may cause our actual results and achievements, whether expressed or
implied, to differ materially from the expectations we describe in our
forward-looking statements. The occurrence of any of the events described as
risk factors could have a material adverse effect on our business, results of
operations and financial position.
WHERE
YOU CAN FIND MORE INFORMATION ABOUT US
When our
Registration Statement on Form 10 becomes effective, we will file reports,
proxy statements, information statements and other information with the
Securities and Exchange Commission. You may read and copy this information, for
a copying fee, at the SEC’s public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more
information on its public reference rooms. Our Securities and Exchange
Commission filings are also available to the public from commercial document
retrieval services, and at the web site maintained by the Securities and
Exchange Commission at http://www.sec.gov.
Our
internet address is www.isotopeworld.com. We will make available through a link
to the SEC’s web site, electronic copies of the materials we file with the SEC
(including our annual reports on Form 10-K, our quarterly reports on
Form 10-Q, our current reports on Form 8-K, the Section 16
reports filed by our executive officers, directors and 10% shareholders and
amendments to those reports). To receive paper copies of our SEC materials,
please contact us by mail addressed to James C. Katzaroff, Chief Executive
Officer, Advanced Medical Isotope Corporation, 8131 W. Grandridge
Blvd. Suite B, Kennewick WA, 99336.
ITEM
1. DESCRIPTION OF BUSINESS.
Organizational
History
Advanced
Medical Isotope Corporation (the “Company”) was incorporated under the laws of
Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”) for
the purpose of acquiring or investing in businesses which were developing and
marketing active sports products, equipment, and apparel. In April 2000, Earth
Sports Products, Inc (“ESP”), a corporation registered in Washington, merged
with SMSC. In April 2000, HHH Entertainment, Inc (“HHH”), a Nevada corporation,
merged with SMSC. As of the date of merger, HHH was the only stockholder of
SMSC.
The
Company has had limited activity since inception and was considered dormant from
the period May 1, 2000 through December 31, 2005. On September 6, 2006, the
Company changed its name to Advanced Medical Isotope Corporation. The
Company began planned principal operations in August 2007, but has not
generated significant revenue. The Company plans to wholesale medical isotopes
as well as to develop, produce and market medical isotopes.
On
September 27, 2006, the Company acquired the assets of Neu-Hope Technologies,
Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware
corporation. The Company acquired NHTI’s assets from UTEK in exchange for
100,000 shares of the Company’s Series A preferred stock. At any time after
September 27, 2007, these Series A preferred stock shares can be converted to
unrestricted common stock in the amount of $3,350,000. The number of shares
shall be calculated based on the previous 10 day average closing price on the
day of conversion. The Company conducted the acquisition in order to obtain
NHTI’s cash, rights, and customer relationships.
On June
13, 2007, the Company acquired the assets of the life sciences business segment
of Isonics Corporation (Isonics), a California corporation. Isonics is a
non-related business of the Company and neither company owns stock in the other.
The Company acquired the assets in exchange for $850,000 cash payment for the
purpose of establishing itself in a turnkey distribution business of medical
isotopes. The assets acquired consist of intellectual property, agreements with
third party companies for purchase and marketing of isotopes, customer lists,
and equipment located in Buffalo, New York. None of the acquired assets hold any
ongoing liabilities or contractual obligations that would result in additional
cash transactions required by the Company.
General
Description
We are
engaged in the production and distribution of medical isotopes and medical
isotope technologies that are changing the practice of medicine
and ushering in a new era of improved patient care. Isotopes are
a form of chemical element with the same atomic number as another element
but with a different atomic mass. Medical isotopes are used in
molecular imaging, therapy, and nuclear medicine to diagnose, manage and treat
diseases.
Currently,
more than 15 million nuclear medicine procedures are performed each year in the
U.S. Approximately one-third of all patients admitted to U.S. hospitals
undergo at least one medical procedure that employs the use of medical
isotopes.
We employ
innovative production methods to offer a wide range of reliable, domestically
produced medical isotopes as well as
in vivo
delivery
systems to aid medical practitioners and medical researchers in the
timely diagnosis and effective treatment of diseases such as cancer, heart
disease,
neurological
disorders, and many other medical conditions.
Our
objective is to empower physicians, medical researchers, and ultimately,
patients, by providing them with essential medical isotopes that, until now,
have not been practical or economical to produce, in an effort to
detect, manage, and cure human disease, and improve the lives of
patients.
ITEM 1. DESCRIPTION
OF BUSINESS. -
continued
Products
We
currently offer the following products
Stable
Isotopes:
We
currently offer worldwide distribution of O-18 enriched water and a wide
range of other stable isotopes. Our product line includes stable
isotopes of the following elements: Antimony, Barium, Cadmium, Calcium, Cerium,
Chromium, Copper, Dysprosium, Erbium, Europium, Gadolinium, Gallium, Germanium,
Hafnium, Indium, Iron, Krypton, Lanthanum, Lead, Lutetium, Magnesium, Mercury,
Molybdenum, Neodymium, Nickel, Osmium, Palladium, Platinum, Potassium, Rhenium,
Rubidium, Ruthenium, Samarium, Selenium, Silicon, Silver, Strontium, Sulphur,
Tellurium, Thallium, Tin, Titanium, Tungsten, Vanadium, Xenon, Ytterbium, Zinc,
and Zirconium.
Radio
Pharmaceuticals:
F-18 FDG
: We currently offer
regional distribution of F-18 FDG from our Kennewick, WA production
facility. Other regional production facilities are planned throughout
the U.S. and abroad, including Los Angeles, Oahu, Idaho and
Montana.
Indium-111
:
We will soon offer
Indium Chloride sterile solution and Indium Oxine.
Radio
Chemicals:
F-18:
We currently offer
regional distribution of F-18 from our Kennewick, WA production
facility. Other regional production facilities are planned
throughout the U.S. and abroad. This is the primary PET imaging
isotope. It is used for cancer detection, heart imaging, and brain
imaging.
Iodine-124
:
This
is a radiotracer primarily used in PET imaging and to create images of human
thyroid. Other treatment uses include apoptosis, cancer biotherapy, glioma,
heart disease, mediastinal micrometastases, and thyroid cancer.
Indium-111
:
We
currently offer In-111 Chloride bulk solution for U.S. distribution.
This radio chemical is used for infection imaging, cancer treatments, and tracer
studies.
Strontium-82:
Used as a
myocardial imaging agent, early detection of coronary artery disease, PET
imaging, blood flow tracers
Germanium-68:
It is used for
study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic
cancer, and attenuation correction.
Actinium-225:
Used for
advanced research in therapy of leukemia and other cancers. It holds great
promise for treating HIV/AIDS.
ITEM
1. DESCRIPTION OF BUSINESS. -
continued
Generators:
Strontium-82/Rubidium-82
generators:
Used as a myocardial imaging agent, early detection of
coronary artery disease, PET imaging, blood flow tracers
Germanium-68/Gallium-68
generators:
It is used for study of thrombosis and atherosclerosis,
PET imaging, detection of pancreatic cancer, and attenuation
correction.
Actinium-225/Bismuth-213
generators:
Actinium-225
is the parent of Bismuth-213, an isotope which has been used in animal trials to
kill human HIV virus. Bismuth-213 has been used in human
clinical trials for the treatment of Acute Myelogenous Leukemia
(AML).
Within
the next three years, we intend to offer the following isotopes:
Carbon-11:
Used in cancer diagnosis/staging.
Radiotracer in PET scans to
study
normal/abnormal brain functions related
to various drug
addictions
and is a
lso used to evaluate disease such as
Alzheimer’s,
epilepsy, Parkinson’s and
heart disease.
Cobalt-57:
Used
for gamma camera calibration. Also used as radiotracer in research and a
source for X-ray fluorescence spectroscopy.
Copper-64:
PET scanning,
planar imaging, SPECT imaging, dosimetry studies, cerebral and myocardial
blood flow. This isotope is used in stem cell research, and cancer
treatments.
Iodine-123
: Used
in brain, thyroid, kidney, and myocardial imaging, cerebral blood flow
(ideal for imaging) and neurological disease (Alzheimer's).
Molybdenum-99 / Technitium
99:
It is the favored choice among medical professionals
because its chemical properties allow it to be bonded to many different chemical
materials, thus allowing use for a wide variety of diagnoses.
Thallium-201:
Used in clinical
cardiology, heart imaging, myocardial perfusion
studies and cellular
dosimetry.
Manufacturing
The
cornerstone equipment selected for the our production center is a proton linear
accelerator (PULSAR®) manufactured by AccSys Technology, Inc. of Pleasanton, CA,
a Hitachi Company. We have targeted this compact isotope production system
as our core differentiated technology.
The
compact LINAC PET Isotope Production systems (PULSAR®) are proton accelerators
designed to replace large and demanding cyclotron systems for the production of
positron emitting isotopes. Large amounts of fluorine-18, carbon-11,
nitrogen-13, and oxygen-15 can be produced for synthesis into compounds used in
oncology, cardiology, neurology, and molecular imaging. The radio-labeled
glucose analog, FDG, can be synthesized and distributed for use in Positron
Emission Tomography.
No other
accelerator in North America has sufficient flexibility to produce the
full spectrum of PET imaging radioisotopes, as well as other high-demand
isotopes, both short and long lived, for diagnostic and therapeutic
applications.
ITEM
1. DESCRIPTION OF BUSINESS. -
continued
Manufacturing
- continued
We are
also engaged in a number of collaborative efforts with U.S. national
laboratories and universities, along with several international teaming
partners. These collaborative effort projects include complementary
isotope manufacturing technologies as well as isotope devices. We
have entered into agreements to produce isotopes at
Idaho State University, the University of Missouri at Columbia, the
State University of New York at Buffalo, and the University of Utah. These
regional university centers will allow us to become a local supplier for the
short-lived isotopes like Fluorine 18 as well as being a domestic supplier of
several other isotopes in demand by the medical community.
In
November 2007, we entered into an agreement with the Idaho Accelerator Center
(IAC), located on the campus of Idaho State University in Pocatello, ID, to
create a regional medical isotope production center. The IAC will
investigate the production of a variety of isotopes at IAC facilities and we
will proceed with conceptual planning for production facility
development. We intend to use the IAC to develop and manufacture
medical isotopes.
In
January 2008, we entered into a five-year agreement a five-year
agreement with Central Pharmaceutical Services, Inc. (“CRS”) for the joint
production and marketing of Indium-111, an isotope used in specialized
diagnostic imaging applications. CRS is an advanced biomedical research and
development facility established by the State University of New York at Buffalo.
By labeling In-111 to antibodies and peptides that transport it to specific
parts of the body, physicians can image colorectal cancer, prostate cancer, and
neuro-endocrine tumors. In-111 can also be used to radiolabel white blood cells,
platelets and red blood cells for diagnostic purposes. The
comprehensive agreement with CRS is designed to enable us to complement
production capacity of a variety of high-value medical isotopes with our
Kennewick, Wash. facility. Several other radio-chemicals are also
under consideration for production in the near future at the Buffalo, N.Y.
facility. The agreement with CRS allows for the initial product to be
Indium-111, a radioisotope produced from the stable isotope cadmium-112. CRS
will provide irradiation facilities as well as production expertise and chemical
syntheses.
In May
2008, we entered into a research agreement with the University of Utah related
to the use of brachytherapy seeds for cancer treatments. Pursuant to
the research agreement, we will pay total project costs that will not exceed
$45,150. We hope to work with the University of Utah to develop and
manufacture cancer treatments using brachytherapy seeds.
In June
2008, we entered into a research agreement with the University of Missouri
related to the production of radio isotopes. Pursuant to the research
agreement, we will pay total project costs that will not exceed
$75,000. We also entered into an option agreement in June 2008 with
the University of Missouri. The option agreement gives us a one-year
option to enter into a licensing agreement to utilize certain intellectual
property held by the University of Missouri for the production of medical,
research, and industrial radioisotopes. If the University of
Missouri’s intellectual property functions as early analysis have indicated,
this production facility could be a manufacturing source of critical health care
radio isotopes.
License
Agreement
On
September 27, 2006, we acquired the assets of NHTI from
UTEK. Included in the acquired assets was a Non-Exclusive License
Agreement with the Regents of the University of California (“University”)
entered into by NHTI on August 30, 2006. NHTI paid a non-refundable
fee in the amount of $25,000 in connection with the license
agreement. The license fee is non-refundable unless our commercialization plan
is deemed unacceptable by the University. If the plan is deemed unacceptable,
the license agreement will terminate and may be converted to a non-exclusive
license. To date, no commercialization plan has been deemed acceptable or
unacceptable. In consideration for the license, we agreed to pay royalties equal
to the greater of three percent of the selling price of each licensed product we
sell or the maintenance fee according to the following schedule:
|
2008
|
$ | 10,000 | ||
|
2009
|
$ | 15,000 | ||
|
2010
|
$ | 15,000 | ||
|
2011
|
$ | 45,000 | ||
|
2012
and each year
thereafter
|
$ | 60,000 |
The
License Agreement may be cancelled by giving 90 days written notice to the
University.
Raw
Materials
We obtain
stable isotopes from suppliers in Russia. We obtain supplies, hardware, handling
equipment and packaging from several different U.S. suppliers.
Customers
Our
customers include a broad range of manufacturers of medical products including
pharmaceutical manufacturers, biotechnology companies, and manufacturers of
medical supplies and
devices,
in addition to academic and government institutions. These customers are located
in essentially all major international markets.
The
company is also working with United Pharmacy Partners Inc (UPPI), which helps to
supply approximately 120 nuclear pharmacies.
ITEM
1. DESCRIPTION OF BUSINESS.
-
continued
Competitors
The
suppliers of radioisotopes for diagnosis, treatment, and research for a wide
variety of diseases, in particular cancer, vary in size and product
offerings. Competition is limited because there are many
complications and regulatory hurdles, including licensing, government approvals
and capital outlays associated with starting an isotope company. Many
current competitors are international companies.
Further,
competition is limited as some competitors are closing their facilities or
limiting their production. In November 2007, Canadian supplier MDS Nordion was
forced to shut down its radioisotope production facility. At one time, the U.S.
government was supposed to be the source of medical isotopes, but over the
course of the last two decades, it has either closed or failed to adequately
fund its production facilities.
About 90%
of all the non PET radioisotopes used in the United States are imported from two
companies. Approximately half of these were imported directly from
the now-defunct MDS Nordion plant and the other half supplied by Covidien
(formerly Mallinkrodt). The remaining 10% that are produced in the
United States are manufactured in a fragmented, piecemeal manner with companies
producing a single isotope instead of a wide variety.
Employees
As of
September 30, 2008, we had six full time employees. At any given
time, we utilize eight to ten contract employees to assist with the company
operations. We do not have a collective bargaining agreement with any
of our employees and we believe our relations with our employees are
good.
Research
and Development / Intellectual Property
We spent
approximately $1,200 and $0.00 during the years ended December 31, 2007 and
December 31, 2006, respectively, on research and development. This cost was
incurred to a University for tests involved in the making of
isotopes.
Additionally
the Company has made through acquisitions the following investments in patent
licenses and intellectual property during 2007:
|
|
·
|
$75,000
for a patent license fee for the production of Actinium
225;
|
|
|
·
|
$3,040,000
of preferred stock issuance for a patent license of a Neutron Generator;
and
|
|
|
·
|
$658,750
for the purchase of a company in order to acquire the rights of
intellectual property related to the production of isotopes, customer
lists, contracts and agreements with third party companies, and certain
equipment.
|
In
January 2007 AMIC received a license for United States Patent 6,680,993.
The patent concerns methods and processes directed to the preparation of
Actinium-225 and daughters having high
radiochemical
and radionuclidic purity. These isotopes may be used for the
preparation of therapeutic radiopharmaceuticals such as those containing
monoclonal antibodies, proteins, peptides, antisense, statin, natural products
and hormones. Additionally, the alpha-emitting radionuclide Actinium-225
and its daughters may be used for both therapeutic and diagnostic
purposes.
ITEM
1. DESCRIPTION OF BUSINESS.
-
continued
Government
Regulation
Significant
areas of regulation and intervention include the following:
Environmental and Health
Compliance.
We are committed to conducting our activities so that
there is no or only minimal damage to the environment; there is no assurance,
however, that its activities will not at times result in liability under
environmental and health regulations. Costs and expenses resulting from such
liability may materially negatively impact our operations and financial
condition. Overall, environmental and health laws and regulations will continue
to affect our businesses worldwide.
Import/Export
Regulation.
We are subject to significant regulatory oversight of
our import and export operations due to the nature of our product offerings.
Penalties for non-compliance can be significant and violation can result in
adverse publicity for the Company.
Financial Accounting
Standards.
Our financial results can be impacted by new or modified
financial accounting standards.
Other Regulations.
Our
operations are subject to U.S. Nuclear Regulatory Commission, Food and Drug
Administration, Department of Transportation, and Department of Homeland
Security regulations. The extent these regulations are or become
burdensome, our business development could be adversely affected.
ITEM
1A. RISK FACTORS.
RISKS
ASSOCIATED WITH OUR BUSINESS
Our
business plan is at an early stage of development and has a limited operating
history.
We have a
limited operating history upon which you can base an evaluation of our business
and prospects. As a start-up company in the early stage of development, there
are substantial risks, uncertainties, expenses and difficulties to which our
business is subject. To address these risks and uncertainties, we must do the
following:
|
|
·
|
Successfully
execute our business strategy;
|
|
|
·
|
Respond
to competitive developments; and
|
|
|
·
|
Attract,
integrate, retain and motivate qualified
personnel.
|
There can
be no assurance that at this time we will operate profitably or that it will
have adequate working capital to meet our obligations as they become
due. We cannot be certain that our business strategy will be
successful or that we will successfully address the risks that face our
business. In the event that we do not successfully address these risks, its
business, prospects, financial condition, and results of operations could be
materially and adversely affected.
ITEM 1A. RISK FACTORS. -
continued
RISKS
ASSOCIATED WITH OUR BUSINESS
-
continued
We have increasing cash
requirements
.
We have
generated material operating losses since inception. We expect to continue to
experience net operating losses. Historically, we have relied upon outside
investor funds to maintain our operations and develop our
business. We anticipate raising additional capital within the next 12
months from investors for working capital as well as business expansion and we
can provide no assurance that additional investor funds will be available on
terms acceptable to us. These conditions raise substantial doubt about the
ability of the Company to continue as a going concern. If we are unable to
generate profits and unable to obtain additional financing to meet our working
capital requirements, we may have to curtail our business.
We
will need to increase the size of our organization and may experience
difficulties in managing growth.
We are a
small organization with a minimal number of employees. We expect to experience a
period of significant expansion in headcount, facilities, infrastructure and
overhead and anticipate that further expansion will be required to address
potential growth and market opportunities. Future growth will impose significant
added responsibilities on members of management, including the need to identify,
recruit, maintain and integrate managers. Our future financial performance and
its ability to compete effectively will depend, in part, on the ability to
manage any future growth effectively.
We
are dependent on key personnel and consultants and the loss of these key
personnel And consultants could have a material adverse effect on our business,
results of operations or financial condition.
Our
success is heavily dependent on the continued active participation of our
current executive officers listed under “Management.” We do not have key-man
insurance on any of our officers or consultants. We are highly dependent upon
certain consultants and collaborating scientists. Loss of the services of one or
more of our officers or consultants could have a material adverse effect upon
our business, results of operations or financial condition. Certain key
employees have no employment
contracts.
If
we are unable to hire qualified personnel our business and financial condition
may suffer.
Our
success and achievement of our growth plans depend on our ability to recruit,
hire, train and retain other highly qualified technical and managerial
personnel. Competition for qualified employees among pharmaceutical and
biotechnology companies is intense, and the loss of any of such persons, or an
inability to attract, retain and motivate any additional highly skilled
employees required for the expansion of our activities, could have a materially
adverse effect on us. Our inability to attract and retain the necessary
technical and managerial personnel and consultants and scientific and/or
regulatory consultants and advisors could have a material adverse effect on our
business, results of operations or financial condition.
We
may rely on third parties to represent us locally in international markets and
our revenue may depend on their efforts.
In those
countries or regions where we may encounter operational constraints due to
political, religious, economical, or other reasons, we may appoint local
reputable IT firms as distributors or partnerships to represent us
locally. Our future success may depend, in part, on our ability to
enter into and maintain collaborative relationships with one or more third
parties, the collaborator’s strategic interest in the products under development
and such collaborator’s ability to successfully market and sell any such
products. We intend to pursue collaborative arrangements regarding the sales and
marketing of our products, however, we may not be able to establish or maintain
such collaborative arrangements, or if we are able to do so, they may not have
effective sales forces. To the extent that we decide not to, or are unable to,
enter into collaborative arrangements with respect to the sales and marketing of
our proposed products, significant capital expenditures, management resources
and time will be required to establish and develop an in-house marketing and
sales force with technical expertise. To the extent that we depend on third
parties for marketing and distribution, any revenues received by us will depend
upon the efforts of such third parties, which may not be
successful.
ITEM
1A. RISK FACTORS. -
continued
RISKS
ASSOCIATED WITH OUR BUSINESS
-
continued
Our
revenues depend upon suitable markets.
Our
revenues depend upon the successful production, marketing, and sales of the
various isotopes we currently market and expect to market in the future. The
rate and level of market acceptance of these products may vary depending on the
perception by physicians and other members of the healthcare community of its
safety and efficacy as compared to that of competing products, if any; the
clinical outcomes of any patients treated; the effectiveness of our sales and
marketing efforts in the United States, Europe, and Russia; any unfavorable
publicity concerning our products or similar products; price of our products
relative to other products or competing treatments; any decrease in current
reimbursement rates from the Centers for Medicare and Medicaid Services or
third-party payers; regulatory developments related to the manufacture or
continued use of our products; availability of sufficient supplies to either
purchase or manufacture our products; ability to produce sufficient quantities
of our products; and the ability of physicians to properly utilize our products
and avoid excessive levels of radiation to patients. Any material adverse
developments with respect to the commercialization of the products we currently
market or expect to market may cause us to continue to incur losses rather than
profits in the future.
Our
future growth is largely dependent upon our ability to develop new technologies
that achieve market acceptance with acceptable margins.
Our
businesses operate in global markets that are characterized by rapidly changing
technologies and evolving industry standards. Accordingly, our future growth
rate depends upon a number of factors,
including
our ability to (i) identify emerging technological trends in our target
end-markets, (ii) develop and maintain competitive products, (iii) enhance our
products by adding innovative features that differentiate our products from
those of our competitors, and (iv) develop, manufacture and bring products to
market quickly and cost-effectively.
Our
ability to develop new products based on technological innovation can affect our
competitive position and requires the investment of significant resources. These
development efforts divert resources from other potential investments in our
businesses, and they may not lead to the development of new technologies or
products on a timely basis or that meet the needs of our customers as fully as
competitive offerings. In addition, the markets for our products may not develop
or grow as we currently anticipate. The failure of our technologies or products
to gain market acceptance due to more attractive offerings by our competitors
could significantly reduce our revenues and adversely affect our competitive
standing and prospects.
General
economic conditions in markets in which we do business can impact the demand for
our goods and services. Decreased demand for our products and services could
have a negative impact on our financial performance and cash flow.
Demand
for our products and services, in part, depends on the general economic
conditions affecting the countries and industries in which we do business. A
downturn in economic conditions in a country or industry that we serve may
negatively impact demand for our products and services, in turn negatively
impacting our operations and financial results. Further, changes in demand for
our products and services can magnify the impact of economic cycles on our
businesses. Unanticipated contract terminations by current customers can
negatively impact operations, financial results and cash flow.
Volatility
in raw material and energy costs, interruption in ordinary sources of supply and
an inability to recover unanticipated increases in energy and raw material costs
from customers could result in lost sales or significantly increase the cost of
doing business.
Market
and economic conditions affecting the costs of raw materials, utilities, energy
costs, and infrastructure required to provide for the delivery of those goods
and services, are beyond our control and any disruption or halt in supplies, or
rapid escalations in costs could affect our ability to manufacture products or
to competitively price our products in the marketplace. To date to
ultimate impact of these energy costs increases have been mitigated through
price increases or offset through improved process efficiencies, however,
continuing escalation of energy costs could have a negative impact upon business
performance.
ITEM
1A. RISK FACTORS. -
continued
RISKS
ASSOCIATED WITH OUR BUSINESS
-
continued
We
are subject to uncertainties regarding reimbursement for use of our
products.
Hospitals
and freestanding clinics may be less likely to purchase our products if they
cannot be assured of receiving favorable reimbursement for treatments using our
products from third-party payers, such as Medicare and private health insurance
plans. Third-party payers are increasingly challenging the pricing of certain
medical services or devices, and we cannot be sure that they will reimburse our
customers at levels sufficient for us to maintain favorable sales and price
levels for our products. There is no uniform policy on reimbursement among
third-party payers, and we can provide no assurance that our products will
continue to qualify for reimbursement from all third-party payers or that
reimbursement rates will not be reduced. A reduction in or elimination of
third-party reimbursement for treatments using our products would likely have a
material adverse effect on our revenues.
Our
earnings, cash flow and financial position are exposed to financial market risks
worldwide, including interest rate and currency exchange rate fluctuations and
exchange rate controls.
Fluctuations
in domestic and world markets could adversely affect interest rates and impact
our ability to obtain credit or attract investors. In order to reduce this
risk the Company is structuring future agreements in such a manner that they
provide for early termination provisions by the Company and continued
development of the Company core business segments to such an extent that
additional investment would not be required to sustain the Company as a going
concern.
Our
patented technologies may infringe on other patents, which may expose us to
costly litigation.
It is
possible that our patented technologies may infringe on patents or other rights
owned by others. We may have to alter our products or processes, pay licensing
fees, defend an infringement action or challenge the validity of the patents in
court, or cease activities altogether because of patent rights of third parties,
thereby causing additional unexpected costs and delays to us. Patent litigation
is costly and time consuming, and we may not have sufficient resources to pursue
such litigation. If we do not obtain a license under such patents, are found
liable for infringement or are not able to have such patents declared invalid,
we may be liable for significant money damages, may encounter significant delays
in bringing products to market or may be precluded from participating in the
manufacture, use or sale of products or methods of treatment requiring such
licenses.
Protecting
our intellectual property is critical to our innovation efforts.
We own or
have a license to use several U.S. and foreign patents and patent applications,
trademarks and copyrights. Our intellectual property rights may be challenged,
invalidated or infringed upon by third parties or we may be unable to maintain,
renew or enter into new licenses of third party proprietary intellectual
property on commercially reasonable terms. In some non-U.S. countries, laws
affecting intellectual property are uncertain in their application, which can
affect the scope or enforceability of our patents and other intellectual
property rights. Any of these events or factors could diminish or cause us to
lose the competitive advantages associated with our intellectual property,
subject us to judgments, penalties and significant litigation costs, and/or
temporarily or permanently disrupt our sales and marketing of the affected
products or services.
We
may not be able to protect our trade secrets and other unpatented proprietary
technology which could give our competitors an advantage over us.
We rely
upon trade secrets and other unpatented proprietary technology. We may not be
able to adequately protect our rights with regard to such unpatented proprietary
technology or competitors may independently develop substantially equivalent
technology. We seek to protect trade secrets and proprietary knowledge, in part
through confidentiality agreements with our employees, consultants, advisors and
collaborators. Nevertheless, these agreements may not effectively prevent
disclosure of our confidential information and may not provide us with an
adequate remedy in the event of unauthorized disclosure of such information and
as a result our competitors could gain a competitive
advantage. Operational hazards could result in the spread of
contamination within our facility and require additional funding to
correct.
ITEM 1A.
RISK FACTORS.
-
continued
RISKS
ASSOCIATED WITH OUR BUSINESS
-
continued
We
may incur material losses and costs as a result of product liability claims that
may be brought against us.
We face
an inherent business risk of exposure to product liability claims in the event
that products
supplied
by us fail to perform as expected or such failure results, or is alleged to
result, in bodily injury, and possible adverse publicity, which could damage our
reputation by raising questions about our products' safety and efficacy, and
could interfere with our efforts to market our products.
We
are subject to the risk that certain third parties may mishandle our
product.
We rely
on third parties, such as Federal Express, to deliver our products, and on other
third parties to package our products in certain specialized packaging forms
requested by customers. We are subject to the risk that these third parties may
mishandle our product, which could result in adverse effects, particularly given
the radioactive nature of some of our products. A successful product
liability claim against us in excess of our available insurance coverage or
established reserves may have a material adverse effect on our business.
Although we currently maintain liability insurance in amounts we believe
are commercially reasonable, any product liability we incur may exceed our
insurance coverage.
We
are subject to extensive government regulation in jurisdictions around the globe
in which we do business. Regulations address, among other things, environmental
compliance, import/export restrictions, healthcare services, taxes and financial
reporting, and can significantly increase the cost of doing business, which in
turn can negatively impact our operations, financial results and cash flow.
We are
subject to extensive government regulation and intervention both in the United
States and in all foreign jurisdictions in which we conduct business. Compliance
with applicable laws and regulations results in higher capital expenditures and
operating costs and changes to current regulations with which we comply can
necessitate further capital expenditures and increases in operating costs to
enable continued compliance. Additionally, from time to time, we are involved in
proceedings under certain of these laws and regulations. Foreign operations are
subject to political instabilities, restrictions on funds transfers,
import/export restrictions and currency fluctuation.
Our
operations expose us to the risk of material environmental
liabilities.
We are
subject to potentially material liabilities related to the remediation of
environmental hazards and to personal injuries or property damages that may be
caused by hazardous substance releases and exposures. We are subject to various
federal, state, local and foreign government requirements regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment. These laws and regulations can impose substantial
fines and criminal sanctions for violations, and require installation of costly
equipment or operational changes to limit emissions and/or decrease the
likelihood of accidental hazardous substance releases. We incur, and expect to
continue to incur capital and operating costs to comply with these laws and
regulations. In addition, changes in laws, regulations and enforcement of
policies, the discovery of previously unknown contamination or new technology or
information related to individual sites, or the imposition of new clean-up
requirements or remedial techniques could require us to incur costs in the
future that would have a negative effect on our financial condition or results
of operations.
Future
production increases will depend on our ability to acquire larger quantities of
O-18.
We
currently obtain O-18 through international sources. The amount of O-18 that can
be produced from a given reactor source is limited by the power level and volume
available within the reactor for irradiating targets. There is no assurance that
the Company will have a continuing sufficient supply of O-18 and if sufficient
supplies are attained, we will need to increase our manufacturing
staff.
ITEM 1A. RISK FACTORS.
-
continued
RISKS ASSOCIATED WITH OUR BUSINESS
-
continued
We
Rely Heavily On A Limited Number Of Suppliers.
Some of
the products we market and some of the materials used in the products we
manufacture are currently available only from a limited number of suppliers;
many of which are from international suppliers. The Company plans to expand the
availability of its supplies and products utilizing manufacturing capability at
reactors located at National Laboratories as well as production capabilities at
various Universities. This strategy will reduce the risk associated with
concentrating isotope production at a single reactor facility. Failure to obtain
deliveries from these sources could have a material adverse effect on our
production and there may be a delay before we could locate alternative
suppliers. We may not be able to locate alternative suppliers capable of
producing the level of output of at the quality standards we require. Additional
factors that could cause interruptions or delays in our source of materials
include limitations on the availability of raw materials or manufacturing
performance experienced by our suppliers and a breakdown in our commercial
relations with one or more suppliers. Some of these factors may be completely
out of our and our suppliers’ control. We do not have formal written agreements
with any key supplier. Any interruption or delay in the supply of materials
required to produce our products could harm our business if we were unable to
obtain an alternative supplier or substitute equivalent materials in a
cost-effective and timely manner.
RISKS
RELATED TO OUR COMMON STOCK
There
is a limited public market for our common stock. Failure to develop
or maintain a trading market could negatively affect the value of our shares and
make it difficult or impossible for shareholders to sell their
shares
To date
there is a limited trading market in our common stock on the Pink Sheets.
Failure to develop or maintain an active trading market could negatively affect
the value of our shares and make it difficult for our shareholders to sell their
shares or recover any part of their investment in us. The market price of our
common stock may be highly volatile. In addition to the uncertainties relating
to our future operating performance and the profitability of our operations,
factors such as variations in our interim financial results, or various, as yet
unpredictable factors, many of which are beyond our control, may have a negative
effect on the market price of our common stock.
Our
stock price is likely to be volatile.
There is
generally significant volatility in the market prices and limited liquidity of
securities of early stage companies, and particularly of early stage medical
product companies. Contributing to this volatility are various events that can
affect our stock price in a positive or negative manner. These events include,
but are not limited to: governmental approvals, refusals to approve, regulations
or actions; market acceptance and sales growth of our products; litigation
involving the Company or our industry; developments or disputes concerning our
patents or other proprietary rights; changes in the structure of healthcare
payment systems; departure of key personnel; future sales of our securities;
fluctuations in our financial results or those of companies that are perceived
to be similar to us; investors’ general perception of us; and general economic,
industry and market conditions. If any of these events occur, it could cause our
stock price to fall.
Future
sales by shareholders, or the perception that such sales may occur, may depress
the price of our common stock.
The sale
or availability for sale of substantial amounts of our shares in the public
market, including shares issuable upon conversion of outstanding preferred stock
or exercise of warrants and options, or the perception that such sales could
occur, could adversely affect the market price of our common stock and also
could impair our ability to raise capital through future offerings of our
shares. As of June 30, 2008, we had 35,081,222 outstanding shares of common
stock, and the following additional
shares
were reserved for issuance: 2,472,400 shares upon exercise of outstanding
options, 2,375,700 shares upon exercise of outstanding warrants, and 3,050,358
shares upon conversion of preferred stock. Any decline in the price of our
common stock may encourage short sales, which could place further downward
pressure on the price of our common stock and may impair our ability to raise
additional capital through the sale of equity securities.
ITEM 1A.
RISK FACTORS.
-
continued
RISKS RELATED TO OUR
COMMON STOCK -
continued
Our
controlling shareholders may exercise significant control over us.
Currently,
our directors, executive officers and principal shareholders beneficially owned
approximately 52.5 % of the outstanding shares of our common stock. Our
shareholders do not have cumulative voting rights with respect to the election
of directors. If our principal shareholders vote together, they could
effectively elect all of our directors.
The
issuance of shares upon exercise of derivative securities may cause immediate
and substantial dilution to our existing shareholders.
The
issuance of shares upon conversion of the preferred stock and the exercise of
warrants and options may result in substantial dilution to the interests of
other shareholders since these selling shareholders may ultimately convert or
exercise and sell all or a portion of the full amount issuable upon exercise. If
all derivative securities were converted or exercised into shares of common
stock, there would be an approximate additional 7,900,000 shares of common stock
outstanding as a result. The issuance of these shares will have the effect of
further diluting the proportionate equity interest and voting power of holders
of our common stock.
We
do not expect to pay any dividends for the foreseeable future.
We do not
anticipate paying any dividends to our shareholders for the foreseeable future.
The terms of certain of our outstanding indebtedness substantially restrict the
ability of us to pay dividends. Accordingly, shareholders must be prepared to
rely on sales of their common stock after price appreciation to earn an
investment return, which may never occur. Any determination to pay dividends in
the future will be made at the discretion of our Board of Directors and will
depend on our results of operations, financial conditions, contractual
restrictions, restrictions imposed by applicable law and other factors our Board
deems relevant.
Our
common stock is subject to the “Penny Stock” rules of the SEC and the trading
market in our securities is limited, which makes transactions in our common
stock cumbersome and may reduce the value of an investment in our
stock.
The
Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, Rule 15g-9
requires:
|
|
·
|
that
a broker or dealer approve a person's account for transactions in penny
stocks; and the broker or dealer receive from the investor a written
agreement to the transaction, setting forth the identity and quantity of
the penny stock to be purchased.
|
In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
|
|
·
|
obtain
financial information and investment experience objectives of the person;
and
make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny
stocks.
|
ITEM 1A.
RISK FACTORS.
-
continued
RISKS RELATED TO OUR
COMMON STOCK -
continued
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
|
|
·
|
sets
forth the basis on which the broker or dealer made the suitability
determination; and
|
|
|
·
|
that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
|
Generally,
brokers may be less willing to execute transactions in securities subject to the
"penny stock" rules. This may make it more difficult for investors to dispose of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
ITEM
2. FINANCIAL INFORMATION.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
Results
of Operations
We are
considered a development stage company in accordance with Statement of Financial
Accounting Standard No. 7 as we have started operations, but we have not
generated significant revenue.
The
following table sets forth information from our statements of operations for the
six months ended June 30, 2008 and the years ended December 31, 2007 and
2006.
|
Six Months Ended
June 2008
|
Year Ended
December 31, 200
7
|
Year Ende
d
December 31, 2006
|
||||||||||
|
(unaudited)
|
||||||||||||
|
Revenues
|
$ | 83,421 | $ | 130,055 | - | |||||||
|
Cost
of goods sold
|
75,640 | 55,841 | - | |||||||||
|
Gross
profit
|
7,781 | 74,214 | - | |||||||||
|
Operating
expenses
|
2,648,894 | 2,664,621 | $ | 1,221,602 | ||||||||
|
Operating
loss
|
(2,641,113 | ) | (2,590,407 | ) | (1,221,602 | ) | ||||||
|
Non-operating
expenses
|
- | (40,000 | ) | (57,500 | ) | |||||||
|
Interest
expense
|
(55,669 | ) | (238,984 | ) | (93,521 | ) | ||||||
|
Net
income (loss)
|
$ | (2,696,782 | ) | $ | (2,869,391 | ) | $ | (1,372,623 | ) | |||
ITEM 2. FINANCIAL
INFORMATION. -
continued
Revenue
Revenue
was $83,421 for the six months ended June 30, 2008. During the 12
months ended December 31, 2007, the revenues were $130,055 compared to the 12
months ended December 31, 2006 when the revenues were $0. During the
2006 fiscal year, we had not yet commenced our principal planned
operations.
Cost of Goods
Sold
Cost of
Goods Sold for the six months ended June 30, 2008 was $75,640. Cost
of goods sold for our fiscal year ended December 31, 2007 was
$55,841. The costs of goods sold for the fiscal year ended December
31, 2006 was $0. The company had not yet commenced operations during
the 2006 fiscal year.
Operating
Expenses
Operating
expenses for the year ended December 31, 2007 was $2,664,621 and $1,221,602 for
the year ended December 31, 2006. The increase in operating expenses
can be attributed largely to amortization of licenses and intangible assets
($1,135,841 for the year ended December 31, 2007 versus $321,958 for the year
ended December 31, 2006), stock options granted ($592,447 for the year ended
December 31, 2007 versus $140,000 for the year ended December 31, 2006) and
additional payroll expense ($197,557 in payroll expenses for the year ended
December 31, 2007 versus $36,053 for the year ended December 31,
2006).
Net Loss
Our net
loss for the year ended December 31, 2007 was $2,869,391 compared to $1,372,623
for the year ended December 31, 2006. Our net loss for the six months
ended June 30, 2008 was $2,234,955.
Liquidity
and Capital Resources
At June
30, 2008, we had negative working capital of $4,060,030, as compared with
$3,373,417 at December 31, 2007 and $3,244,190 at December 31,
2006. During the six months we experienced negative cash flow from
operations of $737,786, and we expended $1,515,232 for investing activities
while adding $2,221,507 from financing activities. As of June 30,
2008, we had $150,000 commitments for capital expenditures.
Based on
the current cash run rate, approximately $1,000,000 will be needed to fund
operations for an additional year. As disclosed in the risk factors, we are
presently taking steps to raise additional funds to continue operations for the
next 12 months and beyond. We will need to raise an additional
$10,000,000 in the next year to develop three isotope manufacturing centers and
complete our aggressive growth plans. We may, however, choose to
modify our growth and operating plans to the extent of available funding, if
any.
Contractual
Obligations (payments due by period)
|
Contractual
Obligation
|
Total
Payments Due
|
Less
than 1 Year
|
1-3
Years
|
3-5
Years
|
More
than 5 Years
|
||||||||||||
|
Capital
Lease Obligation
|
2,505,125 | 442,025 | 1,441,800 | 621,300 | |||||||||||||
|
Production
center lease
|
207,896 | 45,080 | 158,054 | 4,762 | |||||||||||||
|
Corporate
office lease
|
116,411 | 60,736 | 55,675 | ||||||||||||||
|
License
agreement with Regents of the University of California
|
320,000 | 10,000 | 70,000 | 180,000 |
60,000
each year thereafter
|
||||||||||||
The
capital lease obligations represent two lease agreements for $1,875,000 and
$631,000, secured by equipment and personal guarantee of two of the major
shareholders we obtained during September 2007. The purpose of the lease
agreements is to acquire a Pulsar 10.5 PET Isotope Production System for a
contracted amount of $1,875,000 plus ancillary equipment and facility for
$631,000.
For the
year ended December 31, 2007, we had a long term liability of $581,630 compared
to a long term liability of $0 for the year ended December 31, 2006. The long
term liability is related to two capital lease obligations we obtained in
September 2007 that are secured by equipment and the personal guarantee of the
two major shareholders. The lease allowed the company to acquire a
Pulsar 7 PET Isotope Production System and ancillary equipment.
ITEM 2. FINANCIAL
INFORMATION. -
continued
Off-Balance
Sheet Arrangements
The
Company does not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
Recent
Accounting Pronouncements
In
February 2006, the FASB issued SFAS No. 155 "Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140" ("FAS
155"). FAS 155 addresses the following: a) permits fair value re-measurement for
any hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; b) clarifies which interest-only strips and
principal-only
strips are not subject to the requirements of Statement 133; c) establishes a
requirement to evaluate interests in securitized financial assets to identify
interests that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring bifurcation; d)
clarifies that concentrations of credit risk in the form of subordination are
not embedded derivatives; and e) amends Statement 140 to eliminate the
prohibition on a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest other than another
derivative financial instrument. FAS 155 is effective for all financial
instruments acquired or issued after the beginning of an entity's first fiscal
year that begins after September 15, 2006. We have not yet completed our
evaluation of the impact of adopting SFAS 155 on our results of operations or
financial position, but do not expect the adoption to have a material
impact.
In March
2006, the FASB issued SFAS 156 - "Accounting for Servicing of Financial Assets -
an amendment of FASB Statement No. 140" ("SFAS 156"). SFAS 156 is effective for
the first fiscal year beginning after September 15, 2006. SFAS 156 changes the
way entities account for servicing assets and obligations associated with
financial assets acquired or disposed of. We have not yet completed our
evaluation of the impact of adopting SFAS 156 on our results of operations or
financial position, but do not expect that the adoption of SFAS 156 will have a
material impact.
In July
2006, the Financial Accounting Standards Board issued Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement No. 109" (the "Interpretation"). The Interpretation establishes for
all entities a minimum threshold for financial statement recognition of the
benefit of tax positions, and requires certain expanded disclosures. The
Interpretation is effective for fiscal years beginning after December 31, 2006,
and is to be applied to all open tax years as of the date of effectiveness. We
are in the process of evaluating the impact of the adoption of this
Interpretation. We do not expect this Interpretation to have a material impact
on our financial position or results of operations.
In
September 2006, the FASB issued Statement of Financial Accounting Standard No.
157, "Fair Value Measurements" (“SFAS 157”). This statement defines fair value,
establishes a fair value hierarchy to be used in generally accepted accounting
principles and expands disclosures about fair value measurements. Although this
statement does not require any new fair value measurements, the application
could change current practice. The statement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact of
this statement and do not expect the adoption of this pronouncement to have a
material impact on our financial position or results of operations.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Liabilities" ("SFAS No. 159"). SFAS No. 159 provides
companies with an option to report selected financial assets and liabilities at
fair value, and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The new guidance is
effective for fiscal years beginning after November 15, 2007. We are currently
evaluating the potential impact of this statement and do not expect the adoption
of this pronouncement to have a material impact on our financial position or
results of operations.
In
September 2006, the staff of the Securities and Exchange Commission issued SAB
No. 108 which provides interpretive guidance on how the effects of the carryover
or reversal of prior year misstatements should be considered in quantifying a
current year misstatement. SAB 108 becomes effective in fiscal 2007. The
adoption of this pronouncement is not expected to have an impact on our
financial position, results of operation or cash flows.
ITEM
2. FINANCIAL INFORMATION. -
continued
In
December 2006, the FASB approved FASB Staff Position (FSP) No. EITF 00-19-2,
"Accounting for Registration Payment Arrangements" ("FSP EITF 00-19-2"), which
specifies that the contingent
obligation
to make future payments or otherwise transfer consideration under a registration
payment arrangement, whether issued as a separate agreement or included as a
provision of a financial instrument or other agreement, should be separately
recognized and measured in accordance with SFAS No. 5, "Accounting for
Contingencies". FSP EITF 00-19-2 also requires additional disclosure regarding
the nature of any registration payment arrangements, alternative settlement
methods, the maximum potential amount of consideration and the current carrying
amount of the liability, if any. The guidance in FSP EITF 00-19-2 amends FASB
Statements No. 133, "Accounting for Derivative Instruments and Hedging
Activities", and No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", and FASB Interpretation No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others", to include scope exceptions for
registration payment arrangements.
FSP EITF
00-19-2 is effective immediately for registration payment arrangements and the
financial instruments subject to those arrangements that are entered into or
modified subsequent to the issuance date of this FSP, or for financial
statements issued for fiscal years beginning after December 15, 2006, and
interim periods within those fiscal years, for registration payment arrangements
entered into prior to the issuance date of this FSP. The adoption of this
pronouncement is not expected to have a material impact on our financial
position, results of operations or cash flows.
Quantitative
and Qualitative Disclosures about Market Risk
We have
not entered into any derivative contracts.
Principal
Accounting Policies
Use
of estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fixed
Assets
Fixed
assets are carried at the lower of cost or net realizable value. Production
equipment with a cost of $2,500 or greater and other fixed assets with a cost of
$1,500 or greater are capitalized. Major betterments that extend the useful
lives of assets are also capitalized. Normal maintenance and repairs are charged
to expense as incurred. When assets are sold or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations.
Depreciation
is computed using the straight-line method over the following estimated useful
lives. Leasehold improvements and capital lease assets are amortized
over the shorter of the life of the lease or the estimated life of the
asset.
Management
of the Company periodically reviews the net carrying value of all of its
equipment on an asset by asset basis. These reviews consider the net realizable
value of each asset, as measured in accordance with the preceding paragraph, to
determine whether impairment in value has occurred, and the need for any asset
impairment write-down. Although management has made its best estimate
of the factors that affect the carrying value based on current conditions, it is
reasonably possible that changes could occur which could adversely affect
management’s estimate of net cash flows expected to be generated from its
assets, and necessitate asset impairment write-downs.
License
Fees
License
fees are stated at cost, less accumulated amortization. Amortization of license
fees is computed using the straight-line method over the estimated economic
useful life of the assets.
The
Company periodically reviews the carrying values of patents in accordance with
SFAS No. 144 and any impairments are recognized when the expected future
operating cash flows to be derived from such assets are less than their carrying
value.
ITEM 2.
FINANCIAL INFORMATION. -
continued
Intangible
Assets
Intangible
assets resulted from the purchase, for cash, from Isonics Corporation, the
rights to intellectual property related to the production of isotopes, customer
lists, contracts and agreements with third party companies, and certain
equipment. The Company allocated the purchase price to each of the assets based
upon the Companies believe of the long term value of each of those assets and
comparison to replacement cost, where that information was available. Intangible
assets are stated at cost, less accumulated amortization. Amortization of
intangible assets is computed using the straight-line method over the estimated
economic useful life of the assets. The Company periodically reviews the
carrying values of intangible assets in accordance with SFAS No. 144 and any
impairments are recognized when the expected future operating cash flows to be
derived from such assets are less than their carrying value.
Revenue
Recognition
The
Company applies the provision of SEC Staff Accounting Board (“SAB”) No. 104,
Revenue Recognition
.
SAB No. 104, which supersedes SAB No. 101,
Revenue Recognition in Financial
Statements
, provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 104 outlines the basic
criteria that must be met to recognize revenue and provides guidance for the
disclosure of revenue recognition policies. The Company recognized revenue
related to product sales when (i) persuasive evidence of the arrangement exists,
(ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv)
collectability is reasonably assured.
The
Company recognizes revenue once an order has been received and shipped to the
customer. Prepayments, if any, received from customers prior to the time
products are shipped are recorded as deferred revenue. In these cases, when the
related products are shipped, the amount recorded as deferred revenue is
recognized as revenue. The Company does not accrue for sales returns and other
allowances as it has not experienced any returns or other
allowances.
Research
and Development Costs
Research
and developments costs, including salaries, research materials, administrative
expenses and contractor fees, are charged to operations as incurred. The cost of
equipment used in research and development activities which has alternative uses
is capitalized as part of fixed assets and not treated as an expense in the
period acquired. Depreciation of capitalized equipment used to perform research
and development is classified as research and development expense in the year
computed.
Fair
value of financial instruments
The
carrying amounts of cash, receivables and accrued liabilities approximate fair
value due to the short-term maturity of the instruments.
Stock-based
compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004),
Share-Based Payment
, which
requires that compensation related to all stock-based awards, including stock
options, be recognized in the financial statements based on their estimated
grant-date fair value. The Company has estimated expected forfeitures, as
required by SFAS No. 123R, and is recognizing compensation expense only for
those awards expected to vest. All compensation is recognized by the time the
award vests.
ITEM
3. DESCRIPTION OF PROPERTY.
On
July 17, 2008, the Company entered into a lease at 6211 West Okanogan Avenue,
Kennewick Washington, 99336 (“the premises”) to be used as the company’s
production center. The term of the lease was five years and it
commenced on August 1, 2007. Monthly rent for the first year of
tenancy was $3,500. Under the terms of the lease, the monthly rent
would increase 8 percent each year so that monthly rent for the year beginning
August 1, 2008 was $3,780, monthly rent for the year beginning August 1, 2009
was $4,092. The landlord of this space is a shareholder of the
company, though one that holds less than 5 percent of the total outstanding
shares.
Additionally,
in June 2008, the Company entered into a twelve month lease for its corporate
offices with three four month options to renew, but in no event will the lease
extend beyond May 31, 2010. The lease agreement calls for monthly rental
payments of $5,061 per month.
ITEM
4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a)
Security ownership of certain beneficial owners.
The
following table sets forth, as of November 12, 2008, the number of shares
of Common Stock owned of record and beneficially by executive officers,
directors and persons who hold 5% or more of the outstanding Common Stock of the
Company. As of November 12, 2008, there were 35,085,041 shares
outstanding.
|
Name
and Address
|
Amount
and Nature of
Beneficial
Ownership (1)
|
Percentage
of Class
|
||||||
|
James
C. Katzaroff, President and Chairman
|
7,713,335
|
21.8
|
||||||
|
William
J. Stokes, Chief Executive Officer
|
2,500,000
|
7.1
|
||||||
|
L.
Bruce Jolliff, CFO
|
500,000
|
1.4
|
||||||
|
Carlton
Cadwell, Director
|
7,869,670
|
22.4
|
||||||
|
William
E. Root, Director
|
250,000
|
*
|
||||||
|
|
||||||||
|
All
Officers and Directors as a group (5 individuals)
|
18,833,005
|
52.5
|
||||||
| UTEK (2) |
6,049,931
|
14.7
|
||||||
|
*
less than 1 percent
|
||||||||
|
(1)
|
In
determining beneficial ownership of our common stock as of a given date,
the number of shares shown includes shares of common stock which may be
acquired on exercise of warrants or options or conversion of convertible
securities within 60 days of that date. In determining the
percent of common stock owned by a person or entity on November 12, 2008,
(a) the numerator is the number of shares of the class beneficially
owned by such person or entity, including shares which may be acquired
within 60 days on exercise of warrants or options and conversion of
convertible securities, and (b) the denominator is the sum of
(i) the total shares of common stock outstanding on November 12,
2008, and (ii) the total number of shares that the beneficial owner
may acquire upon conversion of the preferred and on exercise of the
warrants and options. Unless otherwise stated, each beneficial owner has
sole power to vote and dispose of its shares. Beneficial
ownership of shares includes 250,000 options currently exercisable by
James C. Katzaroff and 500,000 options currently exercisable by L. Bruce
Jolliff.
|
| (2) |
Common
stock issuable to UTEK in exchange for 100,000 shares of the Company’s
Series A preferred stock. At any time after September 27, 2007, these
Series A preferred stock shares can be converted to unrestricted common
stock in the amount of $3,350,000. The number of shares shall be
calculated based on the previous 10 day average closing price on the day
of conversion As of the end of trading on November 7,
2008, the 10 day average closing price was
$0.554.
|
ITEM
5. DIRECTORS AND EXECUTIVE OFFICERS.
Our
officers and directors and additional information concerning them are as
follows:
|
NAME
|
AGE
|
POSITION
|
||
|
James
C. Katzaroff
|
51
|
President
and Chairman
|
||
|
William
J. Stokes
|
56
|
Chief
Executive Officer
|
||
|
L.
Bruce Jolliff
|
58
|
Chief
Financial Officer
|
||
|
Carlton
Cadwell
|
64
|
Director
|
||
|
William
E. Root
|
64
|
Director
|
ITEM 5. DIRECTORS
AND EXECUTIVE OFFICERS -
continued
James
C. Katzaroff, President and Chairman
James C.
Katzaroff is the founder of Advanced Medical Isotope
Corporation. Initially a financial consultant with Wall Street firms
Bateman Eichler, Smith Barney and EF Hutton, Mr. Katzaroff has been
responsible
for senior-level corporate strategy, fostering investment banking relationships,
and served as a senior financial advisor for numerous start-ups and
development-stage companies. From 1998 to 2001, Mr. Katzaroff held senior
positions including Chief Financial Officer, Senior Vice President of Finance,
Senior Vice President, and Corporate Secretary of Telemac Corporation, an
international communications company active in the wireless telephony market. In
2001 he became Chairman and CEO of Apogee Biometrics, and in 2004 became
President of Manakoa Services Corporation, currently serving as its interim CEO.
He holds a Bachelor’s Degree in Business Economics from the University of
California, Santa Barbara, and has completed advanced management courses at the
University of Washington.
William
J. Stokes, President
Mr.
Stokes has over 30 years experience in management of nuclear industry services
firms and the design and construction of nuclear facilities. Mr. Stokes has been
involved in isotope production methods and facilities since 1995, having led
efforts for reuse of surplus DOE reactors for isotope production. He played an
instrumental role in the founding of a successful brachytherapy seed company
which is used to treat prostate cancer. Mr. Stokes has received numerous awards
and recognition for performance of nuclear projects and companies under his
management.
Leonard
Bruce Jolliff, Chief Financial Officer
Mr.
Jolliff is a CPA and a member of the Washington Society of CPAs. He is also a
CFE and a member of the Association of Certified Fraud Examiners. Mr. Jolliff
has held CFO and Controller positions in an array of industries and has worked
as a CPA in public practice. For nine years prior to joining the Company, Mr.
Jolliff was a sole practitioner in the role of CFO for Hire and as a Forensic
Accountant, working with companies ranging from Fortune 500 to small family
operations.
Carl
Cadwell, Director
Dr.
Cadwell brings over 30 years of experience in business management, strategic
planning, and implementation. He co-founded Cadwell Laboratories, Inc. in 1979
and has served as its president since its inception. Cadwell Laboratories, Inc.
is a major provider of neurodiagnostic medical devices and is the parent company
of QuickMed, Inc., an electronic medical records company. After receiving his
bachelor’s degree from the University of Oregon in 1966 and a doctoral degree
from the University of Washington in 1970, he began his career serving in the
United States Army as a dentist for 3 years. From 1973 to 1980, Dr. Cadwell
practiced dentistry in private practice and started several
businesses.
William
E. Root, Director
He brings
over 30 years experience in the management and leadership of engineering,
technology development/application, construction, and startup projects for:
nuclear research, environmental technology development, nuclear power plants,
coal power plants, nuclear waste treatment, petroleum plants and RCRA/CERCLA
environmental restoration work. Mr. Root has provided key roles in negotiating
and establishing agreements with state and federal regulators including the
Washington Department of Ecology and the U.S. Nuclear Regulatory Commission. He
has been responsible for projects that ranged from a few million dollars up to
$2.8 billion with an ability to establish and deliver to a baseline. Mr. Root
holds a Bachelor’s and Master’s of Science in Chemical Engineering.
ITEM
5. DIRECTORS AND EXECUTIVE OFFICERS -
continued
B.
Significant Employees.
Fu-Min
Su, Chief Radiochemist
Fu Min
Su, Ph.D., is AMIC's Chief Radio-Chemist and Radiation Safety Officer.
With over 20 years experience in medical isotope R&D and manufacture, Dr. Su
is also knowledgeable in the area of coordinating and conducting clinical
trials. He has worked as a senior scientist for a several bio-technology
firms, including NeoRx, Nycomed-Amersham, Bristol-Myers Squibb, and Cellectar,
during which time he developed various radiopharmaceuticals, isotope production
methods and generator systems. Dr. Su has authored a number of
scientific papers, and has written numerous abstracts for the Journal of Nuclear
Medicine. He also holds several patents relating to radionuclide
production and preparation. Dr. Su received his Ph.D. from the University
of Washington.
C. Family
Relationships. None.
D.
Involvement in Certain Legal Proceedings.
There
have been no events under any bankruptcy act, no criminal proceedings and no
judgments, injunctions, orders or decrees material to the evaluation of the
ability and integrity of any director, executive officer, promoter or control
person of Registrant during the past five years.
E.
Committees
The Board
of Directors acts as the Audit Committee and the Board has no separate
committees. The Company has no qualified financial expert sitting on the Board
at this time because it has not been able to hire a qualified candidate.
Further, the Company believes that it has inadequate financial resources at this
time to hire such an expert. The Company intends to continue to search for a
qualified individual for hire.
ITEM
6. EXECUTIVE COMPENSATION.
Equity
Compensation, Pension or Retirement Plans
No
retirement, pension, profit sharing, stock option or insurance programs or other
similar programs have been adopted by the Company for the benefit of its
employees.
Executive
Compensation
The
following table sets forth information concerning the total compensation that we
have paid or that has accrued on behalf of our chief executive officer and other
executive officers with annual compensation exceeding $100,000 during the years
ended December 31, 2006 and December 31, 2007 and the 9 month period ended
September 30, 2008.
Summary
Compensation Table
|
Name
& Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Changes
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
||||||||||||||||||||||||
|
James
C. Katzaroff, President and Chairman
|
2006
|
$ | 36,053 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 36,053 | ||||||||||||||||
|
2007
|
$ | 112,034 | $ | 0 | $ | 0 | $ | 67,215 | $ | 0 | $ | 0 | $ | 0 | $ | 179,249 | |||||||||||||||||
|
2008
|
$ | 128,614 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 128,614 | |||||||||||||||||
|
William
J. Stokes, Chief Executive Officer
|
2006
|
$ | 0 | $ | 0 | $ | 105,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 105,000 | ||||||||||||||||
|
2007
|
$ | 0 | $ | 30,000 | $ | 70,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 100,000 | |||||||||||||||||
|
2008
|
$ | 40,000 | $ | 8,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 48,500 | |||||||||||||||||
|
L.
Bruce Jolliff, CFO
|
2006
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | - | |||||||||||||||||
|
2007
|
$ | 101,124 | $ | 0 | $ | $ | 1,046,837 | $ | 0 | $ | 0 | $ | 0 | $ | 1,147,961 | ||||||||||||||||||
|
2008
|
$ | 77,773 | $ | 25,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 102,773 | |||||||||||||||||
|
Fu-Min
Su, Chief Radiochemist
|
2006
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||||||||
|
2007
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||||
|
2008
|
$ | 52,692 | $ | 5,000 | $ | 37,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 95,192 | |||||||||||||||||
ITEM 6. EXECUTIVE
COMPENSATION -
continued
Outstanding
Equity Awards
The
following table sets forth all outstanding equity awards held by our Named
Executive Officers as of the end of last fiscal year.
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||
|
Name
|
Grant
Date
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options (#)
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested (#)
|
Market
Value of Shares or Units of Stock That Have Not Vested ($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested (#)
|
Equity
Incentive Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested ($)
|
||||||||||||||||
|
James
C. Katzaroff
|
1-23-07
|
250,000
|
-
|
-
|
$ |
0.29
|
1-23-2010
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
William
J. Stokes
|
-
|
- |
-
|
-
|
- | - |
-
|
-
|
-
|
|
-
|
|||||||||||||||
|
|
||||||||||||||||||||||||||
|
L.
Bruce Jolliff
|
5-16-07
|
500,000
|
-
|
1,000,000
|
$ |
0.50
|
5-16-2012
|
-
|
-
|
-
|
-
|
|||||||||||||||
Employment/Consulting
Agreements
Equity
Compensation, Pension or Retirement Plans
No
retirement, pension, profit sharing, stock option or insurance programs or other
similar programs have been adopted by the Company for the benefit of its
employees.
Audit
Committee
Presently,
our Board of Directors is performing the duties that would normally be performed
by an audit committee. We intend to form a separate audit committee, and plan to
seek potential independent directors. In connection with our search, we plan to
appoint an individual qualified as an audit committee financial
expert.
OPTIONS/SARS
GRANTS DURING LAST FISCAL YEAR
During
January 2007, the Company granted three board members options to purchase an
aggregate of 250,000 shares each of the Company’s common stock at an exercise
price of $.29 per share. The options are fully vested and expire
January 23, 2010. The quoted market price of the common stock at the time of
issuance of the options was $.27 per share. The Company valued the
options in accordance with SFAS 123(R). The fair value of the options
totaled $72,500 for each of the board members, for an aggregate of $217,500, and
was recorded as stock-based compensation in the accompanying financial
statements for the year ended December 31, 2007.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.79 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 329.1 | % | ||
| Weighted average expected life |
3
years
|
|||
ITEM 6. EXECUTIVE COMPENSATION -
continued
During
April 2007, the Company granted a consultant options to purchase an aggregate of
100,000 shares of the Company’s common stock at an exercise price of $.50 per
share. The options are fully vested and expire April 2010. The quoted
market price of the common stock at the time of issuance of the options was $.85
per share. The Company valued the options in accordance with SFAS
123(R). The fair value of the options totaled $50,000, and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.60 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 329.1 | % | ||
| Weighted average expected life |
3
years
|
|||
During
May 2007, the Company granted its Chief Financial Officer options to purchase an
aggregate of 1,500,000 shares of the Company’s common stock at an exercise price
of $.50 per share. The options vest at 500,000 shares May 2008,
500,000 shares May 2009, and 500,000 shares May 2010 and expire May 2012. The
quoted market price of the common stock at the time of issuance of the options
was $.70 per share. The Company valued the options in accordance with
SFAS 123(R). The fair value of the options totaled $750,000, and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007 on a pro-rata bases of the months worked
compared to the total of the vesting schedule.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.67 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.3 | % | ||
| Weighted average expected life |
5 years
|
|||
ITEM
6. EXECUTIVE COMPENSATION -
continued
During
December 2007, the Company granted a consultant options to purchase 122,400
shares of the Company’s common stock, at an exercise price of $.17 per
share. The options are fully vested and expire December 31, 2012. The
quoted market price of the common stock at the time of issuance of the options
was $.72 per share. The Company valued the options in accordance with
SFAS 123(R). The fair value of the options totaled $87,975 and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 3.49 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.3 | % | ||
| Weighted average expected life |
5 years
|
|||
DIRECTOR
COMPENSATION
Two of
the three Directors were issued 250,000 options September 1, 2006 @ $0.07 and
all these were exercised in 2007.
Each of
the three Directors were issued 250,000 options January 23, 2007 @ $0.29. Only
one Director has exercised their options.
POTENTIAL
CONFLICTS OF INTEREST
The
President and Chairman of the Board owns majority interest in Mirari Corporation
(“Mirari”). The Company has had business dealing with Mirari and
intends to acquire all the assets of Mirari during the year 2008. See
Item 7 “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS” below.
COMMITTEES
OF THE BOARD OF DIRECTORS
We intend
to appoint such persons to the Board of Directors and committees of the Board of
Directors as are expected to be required to meet the corporate governance
requirements imposed by a
national
securities exchange, although we are not required to comply with such
requirements until we elect to seek listing on a securities exchange. We do not
currently have any independent directors.
ITEM
7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Indebtedness
from related parties
In 2006,
the company purchased a note receivable of $28,500, from a non-related
individual, due from Mirari, a Washington corporation, and an affiliate under
common control. This amount was written off as an investment loss in 2006.
Additionally, during the year 2006, we advanced funds on behalf of Mirari for
rent and administrative costs in the amount of $33,000. This amount was written
off as bad debt in 2006. It is management’s intention to acquire all the assets
and common stock of Mirari during the year 2008.
In
November 2006 the Company received $30,000 from a shareholder and officer in the
form of a loan and in April 2007 received another $50,000 from the same
shareholder. In June 2007 the Company extinguished the $80,000 debt through the
issuance of 160,000 shares of the Company’s common stock. The fair market value
at the time was $.75, resulting in a $40,000 loss from extinguishment of
debt.
Rent
and other administrative expenses
The
Company began renting office space located in Kennewick, Washington from Apogee
Biometrics, Inc. (“ABI”), an affiliate under common control, in January
2006. Commencing January 1, 2006, the parties verbally agreed that
the Company would make monthly rent payments of $3,500 on a month-to-month
basis. In addition, the Company paid 36% of certain administrative
expenses utilized by both parties. During the years ended December
31, 2007 and 2006 the Company incurred rent and administrative expenses to ABI
totaling $15,147 and $59,500 respectively. The Company made payments
to ABI totaling $15,147 and $59,500 during the years ended December 31, 2007 and
2006 respectively.
The
Company terminated the rental agreement with ABI and began renting office and
warehouse space effective August 1, 2007, located in Kennewick, Washington from
a shareholder holding less that 5% of the total shares outstanding. The lease
agreement calls for monthly rental payments starting at $3,500, increasing every
August 1
st
until
they become $4,762 as of August 1, 2011. During the year ended December 31, 2007
the Company incurred rent expenses for this facility totaling $17,500. In
addition, the lease agreement calls for the issuance of $187,500 in common stock
valued at $.40 per share for a total of 416,667 shares. The company recognized
the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value
of that stock over the sixty month term of the lease. For the six months ended
June 30, 2008 and the year ended December 31, 2007 the Company amortized $18,750
and $15,625, respectively, of this stock issuance and recognized it as rent
expense.
Future
minimum rental payments required under the Company’s current rental agreement in
excess of one year as of June 30, 2008, are as follows:
|
Twelve months ended
June 30, 2009
|
$ | 45,080 | ||
|
Twelve months ended
June 30, 2010
|
48,686 | |||
|
Twelve months ended
June 30, 2011
|
52,581 | |||
|
Twelve months ended
June 30, 2012
|
56,788 | |||
|
Twelve months ended
June 30, 2013
|
4,762 | |||
|
Total
|
$ | 207,897 |
ITEM 7. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS -
continued
Additionally,
in June 2008, the Company entered into a twelve month lease for its corporate
offices with three four month options to renew, but in no event will the lease
extend beyond May 31, 2010. The lease agreement calls for monthly rental
payments of $5,061 per month. During the six months ended June 30, 2008 the
Company incurred rent expenses for this facility totaling $1,340.
Future
minimum rental payments required under the Company’s current rental agreement in
excess of one year as of June 30, 2008, are as follows:
|
Twelve months ended
June 30, 2009
|
$ | 60,736 | ||
|
Twelve months ended
June 30, 2010
|
55,675 | |||
|
Twelve months ended
June 30, 2011
|
- | |||
|
Twelve months ended
June 30, 2012
|
- | |||
|
Twelve months ended
June 30, 2013
|
- | |||
|
Total
|
$ | 116,411 |
ITEM
8. LEGAL PROCEEDINGS.
Presently,
there are not any material pending legal proceedings to which the Registrant is
a party or as to which any of its property is subject, and the Registrant does
not know nor is it aware of any legal proceedings threatened or contemplated
against it.
ITEM
9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
(a)
Market Information.
Our
common stock has traded over-the-counter on the OTC Pink Sheets under the symbol
“ADMD.PK” since May 2006. The following table sets forth the
quarterly high and low bid information for our common stock for the period
January 1, 2006 through September 30, 2008:
|
High
Bid
|
Low
Bid
|
|||||||
|
Fiscal
Year Ended December 31, 2006
|
||||||||
|
First
Fiscal Quarter
|
$ | .01 | $ | .0001 | ||||
|
Second
Fiscal Quarter
|
.35 | .0030 | ||||||
|
Third
Fiscal Quarter
|
.26 | .0500 | ||||||
|
Fourth
Fiscal Quarter
|
.24 | .1100 | ||||||
|
Fiscal
Year Ended December 31, 2007
|
||||||||
|
First
Fiscal Quarter
|
$ | 1.04 | $ | 0.10 | ||||
|
Second
Fiscal Quarter
|
0.98 | 0.64 | ||||||
|
Third
Fiscal Quarter
|
0.87 | 0.39 | ||||||
|
Fourth
Fiscal Quarter
|
0.50 | 0.40 | ||||||
|
Fiscal
Year Ended December 31, 2008
|
||||||||
|
First
Fiscal Quarter
|
$ | 0.84 | $ | 0.56 | ||||
|
Second
Fiscal Quarter
|
0.89 | 0.44 | ||||||
|
Third
Fiscal Quarter
|
0.78 | 0.35 | ||||||
ITEM 9. MARKET
PRICE OF AND DIVIDENDS ON THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS -
continued
Holders
As of
October 3, 2008 there were 35,085,041 shares of common stock outstanding and
approximately 98 stockholders of record.
Transfer
Agent and Registrar
Our
transfer agent is American Registrar & Transfer Co., 342 East 900 South,
Salt Lake City, UT 84111; telephone (801) 363-9065.
Dividend
Policy
We have
not paid any cash dividends on our common stock to date and do not anticipate we
will pay dividends in the foreseeable future. The payment of dividends in the
future will be contingent upon revenues and earnings, if any, capital
requirements, and our general financial condition. The payment of any dividends
will be within the discretion of the then Board of Directors. It is the present
intention of the Board of Directors to retain all earnings, if any, for use in
the business operations. Accordingly, the Board does not anticipate declaring
any dividends in the foreseeable future.
Warrants,
Options and Convertible Debt
There are no outstanding options or
warrants that would entitle any person to purchase our preferred
stock. Currently, there are outstanding options and warrants to
purchase shares of our common stock. Information about outstanding options and
warrants is as follows:
|
Holder
|
Shares
Underlying Option/Warrant (1)
|
Exercise
Price (1)
|
Expiration
Date
|
|||||
|
James
C. Katzaroff
|
250,000 |
$
0.29
|
1/23/2010
|
|||||
|
L.
Bruce Jolliff
|
1,500,000 |
$
0.50
|
5/16/2012
|
|||||
|
William
E. Root
|
250,000 |
$
0.29
|
1/23/2010
|
|||||
|
Others
|
3,712,386 |
$
0.17
to $1.05
|
11/14/08
to 12/31/13
|
|||||
ITEM
10. RECENT SALES OF UNREGISTERED SECURITIES.
On
September 26, 2006, we issued 95,000 shares of Series A preferred stock to UTEK
Corporation in connection with our acquisition of Neu-Hope Technologies,
Inc.
On
September 26, 2006, we issued 5,000 shares of Series A preferred stock to Aware
Capital Corporation in connection with our acquisition of Neu-Hope Technologies,
Inc.
In
September 2006, we issued 500,000 shares of our common stock to Dr. Robert
Schenter in consideration for his service as Chair of the Scientific Advisory
Committee.
In
September 2006, we issued 300,000 shares of our common stock to Monahan &
Biagi (Lost Nations LLC) in exchange for debt.
In
September 2006, we issued 100,000 shares of our common stock to Judge John Shock
for cash received in 1997.
In
September 2006, we issued 30,000 shares of our common stock to Neil Smiley for
cash
received
in 1997.
ITEM 10. RECENT
SALES OF UNREGISTERED SECURITIES -
continued
In
September 2006, we issued 20,000 shares of our common stock to Brad Toner for
cash received in 1997.
In
January 2007, we issued 250,000 shares of our common stock to James C. Katzaroff
in consideration for his services as a director of the corporation.
In
January 2007, we issued 250,000 shares of our common stock to Carlton M. Cadwell
in consideration for his services as a director of the corporation.
In
January 2007, we issued 250,000 shares of our common stock to William E. Root in
consideration for his services as a director of the corporation.
In April
2007, we issued 19,150 shares of our common stock to Walter J. Kilpatrick in
consideration for cash received in 2007.
In April
2007, we issued 21,127 shares of our common stock to Eastside Commercial
Properties in consideration for cash received in 2007.
In April
2007, we issued 70,000 shares of our common stock to Neil and Joyce Smiley in
consideration for cash received in 2007.
In April
2007, we issued 2000 shares of our common stock to Kevin and Jeannette
Kirkpatrick in consideration for cash received in 2007.
In
February 2008, the Company issued 825,893 shares of its $.001 par value common
stock to shareholders for common stock subscriptions of $185,688 received in
2007.
In April
2008, the Company issued 240,178 shares of its $.001 par value common stock to
shareholders for common stock subscriptions of $16,812 received in
2007.
In
January 2008 the Company issued 137,500 shares for cash of $55,000 at $.40 per
share.
In
January 2008 the Company issued 250,000 shares for cash of $72,500 at $.29 for
exercised options.
In
February 2008 the Company issued 950,000 shares for cash of $380,000 at $.40 per
share.
In March
2008 the Company issued 550,700 shares for cash of $220,280 at $.40 per
share.
During
March 2008, the Company issued 299,642 shares of its common stock in exchange
for stock offering costs associated with the acquisition of the assets of
Neu-Hope Technologies, Inc. The value of the transaction totaled $233,720 based
on the quoted market price of stock on the transaction date, or $.78 per
share.
During
April 2008, the Company issued 42,678 shares of its common stock as bonus
compensation to the Chief Science Officer.
During
April 2008, the Company issued 50,000 shares of its common stock as bonus
compensation to employees.
During
April 2008, the Company issued 70,000 shares of its common stock in exchange for
business consulting services.
ITEM
11. DESCRIPTION OF REGISTRANT’S SECURITIES TO BE
REGISTERED.
The
Company is authorized by its Certificate of Incorporation to issue an aggregate
of 100,000,000 shares of common stock, par value $0.001 per share (the "Common
Stock") and 100,000 shares of Series A preferred stock, par value $0.001 per
share (the “Preferred Stock”). As of October 3, 2008, 35,085,041 shares of
Common Stock were issued and outstanding.
All
outstanding shares of Common Stock are of the same class and have equal rights
and attributes. The holders of Common Stock are entitled to one vote per share
on all matters submitted to a vote of stockholders of the Company. All
stockholders are entitled to share equally in dividends, if any, as may be
declared from time to time by the Board of Directors out of funds legally
available. In the event of liquidation, the holders of Common Stock are entitled
to share ratably in all assets remaining after payment of all liabilities. The
stockholders do not have cumulative or preemptive rights.
The
description of certain matters relating to the securities of the Company is a
summary and is qualified in its entirety by the provisions of the Company's
Certificate of Incorporation and By-Laws, copies of which have been filed as
exhibits to this Form 10.
ITEM
12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145
of the Delaware General Corporation Law provides that a corporation may
indemnify directors and officers as well as other employees and individuals
against expenses including attorneys' fees, judgments, fines and amounts paid in
settlement in connection with various actions, suits or proceedings, whether
civil, criminal, administrative or investigative other than an action by or in
the right of the corporation, a derivative action, if they acted in good faith
and in a manner they reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. A similar standard is applicable in the case of derivative actions,
except that indemnification only extends to expenses including attorneys' fees
incurred in connection with the defense or settlement of such actions, and the
statute requires court approval before there can be any indemnification where
the person seeking indemnification has been found liable to the corporation. The
statute provides that it is not exclusive of other indemnification that may be
granted by a corporation's certificate of incorporation, bylaws, agreement, a
vote of stockholders or disinterested directors or otherwise.
The
Company’s Certificate of Incorporation provides that it will indemnify and hold
harmless, to
the
fullest extent permitted by Section 145 of the Delaware General Corporation Law,
as amended from time to time, each person that such section grants us the power
to indemnify.
ITEM 12.
INDEMNIFICATION OF DIRECTORS AND OFFICERS -
continued
The
Delaware General Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability
for:
|
•
|
any
breach of the director's duty of loyalty to the corporation or its
stockholders;
|
|
•
|
acts
or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law;
|
|
•
|
payments
of unlawful dividends or unlawful stock repurchases or redemptions;
or
|
|
•
|
any
transaction from which the director derived an improper personal
benefit.
|
The
Company’s Certificate of Incorporation provides that, to the fullest extent
permitted by applicable law, none of our directors will be personally liable to
us or our stockholders for monetary damages for breach of fiduciary duty as a
director. Any repeal or modification of this provision will be prospective only
and will not adversely affect any limitation, right or protection of a director
of our company existing at the time of such repeal or modification.
ITEM
13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our
financial statements together with the related notes and the report of HJ &
Associates, L.L.C. and Cordovano and Honeck LLP, independent registered public
accounting firms, are set forth in Item 15 of this Form 10.
ITEM
14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There are
not and have not been any disagreements between the Registrant and its
accountants on any matter of accounting principles, practices or financial
statement disclosure.
We
dismissed Cordovano and Honeck LLP (“C&H LLP”)as our independent auditors
and engaged HJ & Associates, LLC as ourindependent auditors to audit its
financial statements for its year ending December 31, 2007. This decision was
approved by our Board of Directors. Prior to such engagement, we did not consult
with HJ & Associates, LLC regarding the application of accounting principles
to a specific, completed or contemplated transaction, or the type of audit
opinion that might be rendered on our financial statements. There
have been no disagreements with C&H LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of C&H
LLP, would have caused it to make reference to the subject matter of the
disagreements in connection with its reports. C&H LLP audited our
financial statements for the year ended December 31, 2006 and C&H LLP’s
report for these periods did not contain an adverse opinion or a disclaimer of
opinion, nor was it modified as to uncertainty, audit scope, or accounting
principles.
ITEM
15. FINANCIAL STATEMENTS AND EXHIBITS.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Index
to Financial Statements
|
Page
|
|
| Report of Independent Registered Public Accounting Firm for 2007 |
F-1
|
| Report of Independent Registered Public Accounting Firm for 2006 |
F-2
|
|
Financial
Statements:
|
|
|
Balance
Sheets as of December 31, 2007 and 2006
|
F-3
|
|
Statements
of Operations for the years ended December 31, 2007 and
2006
|
F-4
|
|
Statements
of Shareholders’ Equity (Deficit) for the years ended December 31, 2007
and
2006
|
F-5
|
|
Statements
of Cash Flow for the years ended December 31, 2007 and
2006
|
F-7
|
|
Notes
to Financial Statements
|
F-8
|
| Financial Statements: | |
|
Balance
Sheets as of June 30, 2008 (unaudited) and December 31,
2007
|
F-29
|
|
Statements
of Operations for the three months and the six months ended June 30, 2008
and
2007,
respectively (unaudited)
|
F-30
|
|
Statement
of Shareholders’ Equity (Deficit) for the six months ended June 30, 2008
(unaudited)
|
F-31
|
|
Statements
of Cash Flow for the six months ended June 30, 2008 and 2007
(unaudited)
|
F-32
|
|
Notes
to Financial Statements
|
F-33
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
Advanced
Medical Isotope Corporation
Kennewick,
Washington
We have
audited the balance sheet of Advanced Medical Isotope Corporation (a development
stage enterprise) as of December 31, 2007, and the related statements of
operations, shareholders’ equity (deficit) and cash flows for the year then
ended and for the period from January 1, 2006 (inception of the development
stage) through December 31, 2007. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements for the period from January 1, 2006 (inception of the
development stage) through December 31, 2006 were audited by other auditors
whose report expressed an unqualified opinion on those statements. Our
opinion on the statements of operations, stockholders' equity (deficit), and
cash flows for the period from January 1, 2006 (inception of the development
stage) through December 31, 2007, insofar as it relates to amounts for prior
periods through December 31, 2006, is based on the report of other
auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. We were
not engaged to perform an audit of the Company’s internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Medical Isotope
Corporation as of December 31, 2007, and the results of its operations and its
cash flows for the year then ended and for the period from January 1, 2006
(inception of the development stage) through December 31, 2007 in
conformity with U.S. generally accepted accounting principles.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company’s operating losses and lack of working capital
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ HJ & Associates,
LLC
HJ &
Associates, LLC
Salt Lake
City, Utah
July 15,
2008
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Shareholders
Advanced
Medical Isotope Corporation:
We have
audited the balance sheet of Advanced Medical Isotope Corporation (a development
stage enterprise) as of December 31, 2006, and the related statements of
operations, changes in shareholder’s deficit, and cash flows, for the year ended
December 31, 2006. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Medical Isotope
Corporation as of December 31, 2006, and the results of its operations and its
cash flows for the year ended December 31, 2006 in conformity with accounting
principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial
statements, the Company has suffered recurring losses, used significant cash in
support of its operating activities and, based upon current operating levels,
requires additional capital or significant restructuring to sustain its
operations for the foreseeable future. Management’s plans in regard
to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Cordovano and Honeck
LLP
Cordovano
and Honeck LLP
Englewood,
Colorado
February
28, 2008
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Balance
Sheets
|
ASSETS
|
||||||||
|
December
31,
2007
|
December
31,
2006
|
|||||||
| Current Assets: | ||||||||
|
Cash
and cash equivalents
|
$ | 54,508 | $ | 14,356 | ||||
|
Accounts
receivable
|
12,000 | - | ||||||
|
Prepaid expenses
paid with stock, current portion
|
239,250 | 72,500 | ||||||
|
Inventory
|
28,400 | - | ||||||
|
Total current
assets
|
334,158 | 86,856 | ||||||
|
Fixed assets, net of
accumulated depreciation
|
875,044 | - | ||||||
| Other assets: | ||||||||
|
License fees, net of
amortization
|
1,661,875 | 2,575,667 | ||||||
|
Intangible assets,
net of amortization
|
511,701 | - | ||||||
|
Prepaid expenses
paid with stock, long-term portion
|
161,563 | 15,000 | ||||||
|
Deposits
|
5,928 | - | ||||||
|
Total other
assets
|
2,341 067 | 2,590,667 | ||||||
|
Total
assets
|
$ | 3,550,269 | $ | 2,677,523 | ||||
|
LIABILITIES AND SHAREHOLDERS’
EQUITY (DEFICIT)
|
||||||||
| Current liabilities: | ||||||||
|
Accounts
payable
|
$ | 180,488 | $ | - | ||||
|
Accrued interest
payable
|
171,628 | 46,063 | ||||||
|
Payroll liabilities
payable
|
45,163 | - | ||||||
|
Loan from
shareholder
|
- | 30,000 | ||||||
|
Preferred stock
redeemable as common
|
3,182,405 | 3,254,983 | ||||||
|
Line of
credit
|
40,908 | - | ||||||
|
Current portion of
capital lease obligations
|
86,983 | - | ||||||
|
Total current
liabilities
|
3,707,575 | 3,331,046 | ||||||
| Long term liabilities: | ||||||||
|
Capital lease
obligations, net of current
portion
|
581,630 | - | ||||||
|
Total
liabilities
|
4,289,205 | 3,331,046 | ||||||
| Shareholders’ Equity (Deficit): | ||||||||
|
Preferred stock,
$.001 par value; 100,000 authorized;
|
||||||||
|
95 and 100 shares
issued and outstanding,
respectively
|
95 | 100 | ||||||
|
Common stock, $.001
par value; 100,000,000 shares authorized;
|
||||||||
|
31,664,631 and
26,537,045 shares issued and outstanding,
|
||||||||
|
respectively
|
31,665 | 26,537 | ||||||
|
Common stock
subscriptions
|
202,500 | - | ||||||
|
Paid in
capital
|
6,152,861 | 3,576,506 | ||||||
|
Accumulated
deficit
|
(2,884,043 | ) | (2,884,043 | ) | ||||
|
Deficit accumulated
during the development stage
|
(4,242,014 | ) | (1,372,623 | ) | ||||
|
Total shareholders’
equity (deficit)
|
(738,936 | ) | (653,523 | ) | ||||
|
Total liabilities
and shareholders’ equity (deficit)
|
$ | 3,550,269 | $ | 2,677,523 | ||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statements
of Operations
|
From
inception of
|
||||||||||||
|
|
development
stage
|
|||||||||||
|
Years
ended
|
on
January 1, 2006
|
|||||||||||
|
December 31,
|
through
December
|
|||||||||||
|
2007
|
2006
|
31, 2007
|
||||||||||
|
Revenues
|
$ | 130,055 | $ | - | $ | 130,055 | ||||||
|
Cost
of goods sold
|
55,841 | - | 55,841 | |||||||||
|
Gross
profit
|
74,214 | - | 74,214 | |||||||||
|
Operating
expenses
|
||||||||||||
|
Sales
and marketing expenses
|
2,385 | 10,000 | 12,385 | |||||||||
|
Start
up costs
|
- | 62,510 | 62,510 | |||||||||
|
Amortization
expense
|
1,135,841 | 321,958 | 1,457,799 | |||||||||
|
Professional
fees
|
607,379 | 579,208 | 1,186,587 | |||||||||
|
Stock
options granted
|
592,447 | 140,000 | 732,447 | |||||||||
|
Payroll
expenses
|
197,557 | - | 197,557 | |||||||||
|
General
and administrative expenses
|
129,012 | 107,926 | 236,938 | |||||||||
|
Total
operating expenses
|
2,664,621 | 1,221,602 | 3,886,223 | |||||||||
|
Operating
loss
|
(2,590,407 | ) | (1,221,602 | ) | (3,812,009 | ) | ||||||
|
Non-operating
income (expense):
|
||||||||||||
|
Interest
expense
|
(238,984 | ) | (93,521 | ) | (332,505 | ) | ||||||
|
Investment
loss
|
- | (28,500 | ) | (28,500 | ) | |||||||
|
Loss
on conversion of shareholder loan
|
(40,000 | ) | (29,000 | ) | (69,000 | ) | ||||||
|
Non-operating
income
|
||||||||||||
|
(expense),
net
|
(278,984 | ) | (151,021 | ) | (430,005 | ) | ||||||
|
Income
(Loss) before Income Taxes
|
(2,869,391 | ) | (1,372,623 | ) | (4,242,014 | ) | ||||||
|
Income
Tax Provision
|
- | - | - | |||||||||
|
Net
loss
|
$ | (2,869,391 | ) | $ | (1,372,623 | ) | $ | (4,242,014 | ) | |||
|
Loss
per common share
|
$ | (0.100 | ) | $ | (0.056 | ) | ||||||
|
Weighted
average common shares
|
||||||||||||
|
outstanding
|
28,744,391 | 24,490,881 | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statements
of Changes in Shareholders’ Equity (Deficit)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Series
A Preferred
|
during
|
|||||||||||||||||||||||||||||||||||
|
Stock
|
Common
Stock
|
Subscriptions
|
Paid
in
|
Accumulated
|
development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Receivable
|
Capital
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balances
at December 31,
|
||||||||||||||||||||||||||||||||||||
|
2005,
prior to inception of
|
||||||||||||||||||||||||||||||||||||
|
development
stage
|
||||||||||||||||||||||||||||||||||||
|
company
|
- | $ | - | 23,237,045 | $ | 23,237 | $ | 30,000 | $ | 2,830,806 | $ | (2,884,043 | ) | $ | - | $ | - | |||||||||||||||||||
|
Common
stock issued for:
|
||||||||||||||||||||||||||||||||||||
|
Services
as of May 15, 2006
|
||||||||||||||||||||||||||||||||||||
|
($.20
per share)
|
- | - | 600,000 | 600 | - | 119,400 | - | - | 120,000 | |||||||||||||||||||||||||||
|
Compensation
as of August 15,
|
||||||||||||||||||||||||||||||||||||
|
2006
($.18 per share)
|
- | - | 1,500,000 | 1,500 | - | 268,500 | - | - | 270,000 | |||||||||||||||||||||||||||
|
Services
September 1, 2006
|
||||||||||||||||||||||||||||||||||||
|
($.18
per share)
|
- | - | 250,000 | 250 | - | 44,750 | - | - | 45,000 | |||||||||||||||||||||||||||
|
Debt
settlement October 10,
|
||||||||||||||||||||||||||||||||||||
|
2006
($.18 per share)
|
- | - | 300,000 | 300 | - | 53,700 | - | - | 54,000 | |||||||||||||||||||||||||||
|
Compensation
as of
|
||||||||||||||||||||||||||||||||||||
|
September
1, 2006
|
||||||||||||||||||||||||||||||||||||
|
($.18
per share)
|
- | - | 500,000 | 500 | - | 89,500 | - | - | 90,000 | |||||||||||||||||||||||||||
|
Issuance
of common stock
|
||||||||||||||||||||||||||||||||||||
|
options
August and
|
||||||||||||||||||||||||||||||||||||
|
September
2006 pursuant
|
||||||||||||||||||||||||||||||||||||
|
to
exercise of options
|
- | - | - | - | - | 140,000 | - | - | 140,000 | |||||||||||||||||||||||||||
|
Issuance
of shares
|
||||||||||||||||||||||||||||||||||||
|
December
6, 2006 for cash
|
||||||||||||||||||||||||||||||||||||
|
received
in 1999
|
- | - | 150,000 | 150 | (30,000 | ) | 29,850 | - | - | - | ||||||||||||||||||||||||||
|
Issuance
of preferred shares
|
||||||||||||||||||||||||||||||||||||
|
September
22, 2006 for
|
||||||||||||||||||||||||||||||||||||
|
acquisition
of license
|
||||||||||||||||||||||||||||||||||||
|
fees
|
100,000 | 100 | - | - | - | - | - | - | 100 | |||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | (1,372,623 | ) | (1,372,623 | ) | |||||||||||||||||||||||||
|
Balances
at December 31,
|
||||||||||||||||||||||||||||||||||||
|
2006
|
100,000 | 100 | 26,537,045 | 26,537 | - | 3,576,506 | (2,884,043 | ) | (1,372,623 | ) | (653,523 | ) | ||||||||||||||||||||||||
|
Common
stock issued for:
|
||||||||||||||||||||||||||||||||||||
|
Patent
license as of
|
||||||||||||||||||||||||||||||||||||
|
February
2007 ($.30
|
||||||||||||||||||||||||||||||||||||
|
per
share)
|
- | - | 250,000 | 250 | - | 74,750 | - | - | $ | 75,000 | ||||||||||||||||||||||||||
|
Services
March 2007
|
||||||||||||||||||||||||||||||||||||
|
($.87
per share)
|
- | - | 250,000 | 250 | - | 217,250 | - | - | $ | 217,500 | ||||||||||||||||||||||||||
|
Cash
April 2007
|
||||||||||||||||||||||||||||||||||||
|
($.71
per share)
|
- | - | 112,277 | 112 | - | 79,605 | - | - | $ | 79,717 | ||||||||||||||||||||||||||
|
Options
exercised May
|
||||||||||||||||||||||||||||||||||||
|
2007
($.07 per share)
|
- | - | 250,000 | 250 | - | 17,250 | - | - | $ | 17,500 | ||||||||||||||||||||||||||
|
Debt
April 2007 ($.75
|
||||||||||||||||||||||||||||||||||||
|
per
share
|
- | - | 160,000 | 160 | - | 119,840 | - | - | $ | 120,000 | ||||||||||||||||||||||||||
Statements of Changes in Shareholders’ Equity (Deficit) - continued
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||||||||||||||||||
|
Series
A Preferred
|
during
|
|||||||||||||||||||||||||||||||||||
|
Stock
|
Common
Stock
|
Subscriptions
|
Paid
in
|
Accumulated
|
development
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Receivable
|
Capital
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Cash
June 2007 ($.40
|
||||||||||||||||||||||||||||||||||||
|
per
share)
|
- | - | 2,125,000 | 2,125 | - | 847,875 | - | - | 850,000 | |||||||||||||||||||||||||||
|
Prepaid
rent August 2007
|
||||||||||||||||||||||||||||||||||||
|
($.45
per share)
|
- | - | 416,667 | 417 | - | 187,083 | - | - | 187,500 | |||||||||||||||||||||||||||
|
Services
September 2007
|
||||||||||||||||||||||||||||||||||||
|
($.82
per share)
|
- | - | 100,000 | 100 | - | 81,900 | - | - | 82,000 | |||||||||||||||||||||||||||
|
Services
November 2007
|
||||||||||||||||||||||||||||||||||||
|
($.74
per share)
|
- | - | 117,000 | 117 | - | 86,463 | - | - | 86,580 | |||||||||||||||||||||||||||
|
Services
November 2007
|
||||||||||||||||||||||||||||||||||||
|
($.75
per share)
|
- | - | 15,000 | 15 | - | 11,235 | - | - | 11,250 | |||||||||||||||||||||||||||
|
Services
December 2007
|
||||||||||||||||||||||||||||||||||||
|
($.75
per share)
|
- | - | 25,000 | 25 | - | 18,725 | - | - | 18,750 | |||||||||||||||||||||||||||
|
Options
exercised December
|
||||||||||||||||||||||||||||||||||||
|
2007
($.07 per share)
|
- | - | 1,000,000 | 1,000 | - | 69,000 | - | - | 70,000 | |||||||||||||||||||||||||||
|
Services
December 2007
|
||||||||||||||||||||||||||||||||||||
|
($.82
per share)
|
- | - | 7,000 | 7 | - | 5,733 | - | - | 5,740 | |||||||||||||||||||||||||||
|
Convert
5,000 convertible
|
||||||||||||||||||||||||||||||||||||
|
preferred
shares ($.559
|
||||||||||||||||||||||||||||||||||||
|
per
share)
|
(5,000 | ) | (5 | ) | 299,642 | 300 | - | 167,200 | - | - | 167,495 | |||||||||||||||||||||||||
|
Cash
received July 2007 for
|
||||||||||||||||||||||||||||||||||||
|
shares
issued in 2008
|
- | - | - | - | 10,000 | - | - | - | 10,000 | |||||||||||||||||||||||||||
|
Cash
received August 2007
|
||||||||||||||||||||||||||||||||||||
|
for
shares issued in 2008
|
- | - | - | - | 20,000 | - | - | - | 20,000 | |||||||||||||||||||||||||||
|
Cash
received September
|
||||||||||||||||||||||||||||||||||||
|
2007
for shares issued in
|
||||||||||||||||||||||||||||||||||||
|
2008
|
- | - | - | - | 17,500 | - | - | - | 17,500 | |||||||||||||||||||||||||||
|
Cash
received November
|
||||||||||||||||||||||||||||||||||||
|
2007
for shares issued in
|
||||||||||||||||||||||||||||||||||||
|
2008
|
- | - | - | - | 150,000 | - | - | - | 150,000 | |||||||||||||||||||||||||||
|
Cash
received December
|
||||||||||||||||||||||||||||||||||||
|
2007
for shares issued in
|
||||||||||||||||||||||||||||||||||||
|
2008
|
- | - | - | - | 5,000 | - | - | - | 5,000 | |||||||||||||||||||||||||||
|
Granting
of common stock
|
||||||||||||||||||||||||||||||||||||
|
options
December 2007
|
- | - | - | - | 592,446 | - | - | 592,446 | - | |||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | (2,869,391 | ) | (2,869,391 | ) | |||||||||||||||||||||||||
|
Balances
at December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
95,000 | $ | 95 | $ | 31,664,631 | $ | 31,665 | $ | 202,500 | $ | 6,152,861 | $ | (2,884,043 | ) | $ | (4,242,014 | ) | $ | (738,936 | ) | ||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statements
of Cash Flow
|
From
inception of
|
||||||||||||
|
development
stage on
|
||||||||||||
|
Year
ended
|
Year
ended
|
January
1, 2006 through
|
||||||||||
|
December 31, 2007
|
December 31, 2006
|
December 31, 2007
|
||||||||||
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
||||||||||||
|
Net
Loss
|
$ | (2,869,391 | ) | $ | (1,372,623 | ) | $ | (4,242,014 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
by operating activities:
|
||||||||||||
|
Depreciation
of fixed assets
|
22,313 | - | 22,313 | |||||||||
|
Amortization
of licenses and intangible assets
|
1,135,841 | 321,958 | 1,457,799 | |||||||||
|
Common
stock issued for services
|
118,320 | 414,000 | 532,320 | |||||||||
|
Stock
options issued for services
|
592,447 | 140,000 | 732,447 | |||||||||
|
Loss
on conversion of shareholder loan
|
40,000 | - | 40,000 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Accounts
receivable
|
(12,000 | ) | - | (12,000 | ) | |||||||
|
Prepaid
expense paid with stock
|
247,688 | 77,500 | 325,188 | |||||||||
|
Inventory
|
(28,400 | ) | - | (28,400 | ) | |||||||
|
Deposits
|
(5,930 | ) | - | (5,930 | ) | |||||||
|
Accounts
payable
|
180,489 | - | 180,489 | |||||||||
|
Payroll
liabilities
|
45,163 | - | 45,163 | |||||||||
|
Accrued
interest
|
125,565 | 46,063 | 171,628 | |||||||||
|
Accrued
interest (rolled into notes payable)
|
94,917 | 47,458 | 142,375 | |||||||||
|
Net
cash used by operating activities
|
(312,978 | ) | (325,644 | ) | (638,622 | ) | ||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
|
Cash
acquired from investment
|
- | 310,000 | 310,000 | |||||||||
|
Cash
used to acquire equipment
|
(897,357 | ) | - | (897,357 | ) | |||||||
|
Cash
used to acquire intangible assets
|
(658,750 | ) | - | (658,750 | ) | |||||||
|
Net
cash provided by investing activities
|
(1,556,107 | ) | 310,000 | (1,246,107 | ) | |||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
|
Proceeds
received from bank line of credit
|
40,908 | - | 40,908 | |||||||||
|
Proceeds
from capital lease
|
697,014 | - | 697,014 | |||||||||
|
Principal
payments on capital lease
|
(28,401 | ) | - | (28,401 | ) | |||||||
|
Proceeds
received from shareholder loan
|
50,000 | 30,000 | 80,000 | |||||||||
|
Proceeds
from cash sales of common shares
|
894,716 | - | 894,716 | |||||||||
|
Proceeds
from exercise of options and warrants
|
52,500 | - | 52,500 | |||||||||
|
Proceeds
from subscription shares payable
|
202,500 | - | 202,500 | |||||||||
|
Net
cash provided by financing activities
|
1,909,237 | 30,000 | 1,939,237 | |||||||||
|
Net
increase in cash and cash equivalents
|
40,152 | 14,356 | 54,508 | |||||||||
|
Cash
and cash equivalents, beginning of period
|
14,356 | - | - | |||||||||
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$ | 54,508 | $ | 14,356 | $ | 54,508 | ||||||
|
Supplemental
disclosures of cash flow information:
|
||||||||||||
|
Cash
paid for interest
|
$ | 18,502 | $ | - | $ | 18,502 | ||||||
|
Cash
paid for income taxes
|
$ | - | $ | - | $ | - | ||||||
The
accompanying notes are an integral part of these financial
statements.
F-7
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
1: NATURE
OF ORGANIZATION
Nature
of Organization
Advanced
Medical Isotope Corporation (the “Company” or “AMIC”) was incorporated under the
laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation
(“SMSC”) for the purpose of acquiring or investing in businesses which were
developing and marketing active sports products, equipment, and apparel. The
Company has had limited activity since inception and was considered dormant from
the period May 1, 2000 through December 31, 2005. On September 6, 2006, the
Company changed its name to Advanced Medical Isotope Corporation. AMIC has an
authorized capital of 100,000,000 shares of Common Stock, $.001 par value per
share and 100,000 of Series A Preferred Stock, $.001 par value per share. The
Company is considered a development stage company in accordance with Statement
of Financial Accounting Standard (“SFAS”) No. 7 for its operations beginning
January 1, 2006. The company has had no significant revenues and planned
principal operations have not yet commenced. The Company plans to wholesale
medical isotopes as well as to develop, produce, and market medical
isotopes.
Savage
Mountain Sports Corporation mergers
In April
2000, Earth Sports Products, Inc (“ESP”), a corporation registered in
Washington, merged with SMSC. ESP had an authorized capital of 100,000,000
shares of Common Stock, $.001 par value per share. As of the date of the merger,
ESP had 3,377,206 shares of Common Stock issued and outstanding. As of the date
of the merger, SMSC had 1,000 shares of Common Stock issued and outstanding, all
of which were held by HHH Entertainment, Inc (“HHH”), a Nevada
corporation.
In April
2000, HHH merged with SMSC. On the date of the merger, HHH had authorized
capital stock of 100,000,000 shares of Common Stock, $.001 par value per share.
As of the date of the merger, HHH had 23,237,045 shares of Common Stock issued
and outstanding.
Going
Concern
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial
statements, the Company has suffered recurring losses and used significant cash
in support of its operating activities. Historically, we have relied upon
outside investor funds to maintain our operations and develop our business. We
anticipate we will continue to require funding from investors for working
capital as well as business expansion during this fiscal year and we can provide
no assurance that additional investor funds will be available on terms
acceptable to us. These factors, among others, may indicate that the
Company will be unable to continue as a going concern for a reasonable
time.
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.
F-8
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Use
of estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Cash
equivalents
For the
purposes of the statement of cash flows, the Company considers all highly liquid
debt instruments purchased with an original maturity of three months or less to
be cash equivalents.
Accounts
Receivable
Accounts
receivables are stated at the amount that management of the Company expects to
collect from outstanding balances. Management provides for probable
uncollectible amounts through an allowance for doubtful accounts. Additions to
the allowance for doubtful accounts are based on management’s judgment,
considering historical write-off’s, collections and current credit conditions.
Balances which remain outstanding after management has used reasonable
collection efforts are written off through a charge to the allowance for
doubtful accounts and a credit to the applicable accounts receivable. Payments
received subsequent to the time that an account is written off are considered
bad debt recoveries. As of December 31, 2007, the Company has experienced no bad
debt write offs from operations.
Related
Party Note Receivable
The
Company, in 2006, advanced funds on behalf of Mirari (a Washington corporation,
and an affiliate under common control) for rent and administrative costs in the
amount of $33,000. This balance was written off as bad debt in 2006. It is
management’s intention to acquire all the assets and common stock of Mirari
during the year 2008.
Inventory
Inventory
is reported at the lower of cost or market, determined using the first-in,
first-out basis, or net realizable value. All inventories consist of Finished
Goods. The company had no Raw Materials or Work in Process.
F-9
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
Fixed
Assets
Fixed
assets are carried at the lower of cost or net realizable value. Production
equipment with a cost of $2,500 or greater and other fixed assets with a cost of
$1,500 or greater are capitalized. Major betterments that extend the useful
lives of assets are also capitalized. Normal maintenance and repairs are charged
to expense as incurred. When assets are sold or otherwise disposed of, the cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations.
Depreciation
is computed using the straight-line method over the following estimated useful
lives:
|
Production
equipment
Office equipment
Furniture and fixtures
|
3
to 7 years
2 to 5
years
2 to 5
years
|
Leasehold
improvements and capital lease assets are amortized over the shorter of the life
of the lease or the estimated life of the asset.
The
Company has adopted the provisions of Statement of Accounting Standards (SFAS)
No. 144,
Accounting for the
Impairment or Disposal of Long-Lived Assets
. The provisions of SFAS No.
144 require that an impairment loss be recognized when the estimated future cash
flows (undiscounted and without interest) expected to result from the use of an
asset are less than the carrying amount of the asset. Measurement of an
impairment loss is based on the estimated fair value of the asset if the asset
is expected to be held and used.
Management
of the Company periodically reviews the net carrying value of all of its
equipment on an asset by asset basis. These reviews consider the net realizable
value of each asset, as measured in accordance with the preceding paragraph, to
determine whether impairment in value has occurred, and the need for any asset
impairment write-down.
Although
management has made its best estimate of the factors that affect the carrying
value based on current conditions, it is reasonably possible that changes could
occur which could adversely affect management’s estimate of net cash flows
expected to be generated from its assets, and necessitate asset impairment
write-downs.
Investments
The
Company purchased from a nonrelated individual the interest in a related
company, Mirari, for $28,500. This investment was written off in 2006. The
Company intends to acquire all the assets and common stock of Mirari during the
year 2008.
F-10
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
License
Fees
License
fees resulted from the acquisition of a patent license, for the production of
Actinium 225, from a related individual for common stock valued, at the time of
acquisition, at $75,000, and from the result of the acquisition of a patent
license, for a Neutron Generator, from Neu-Hope Technologies for preferred stock
valued, at the time of acquisition, at $3,040,000, discounted for 4.25%
incremental borrowing rate to $2,897,625. License fees are stated at cost, less
accumulated amortization. Amortization of license fees is computed using the
straight-line method over the estimated economic useful life of the assets. The
Company periodically reviews the carrying values of patents in accordance with
SFAS No. 144 and any impairments are recognized when the expected future
operating cash flows to be derived from such assets are less than their carrying
value.
Amortization
is computed using the straight-line method over the estimated useful live of
three years. Amortization of license fees was $988,792 and $321,958 for the
years ended December 31, 2007 and 2006, respectively. Based on the license fees
recorded at December 31, 2007, and assuming no subsequent impairment of the
underlying assets, the annual amortization expense for each year ending December
31 is expected to be as follows: $990,875 for 2008, $668,917 for 2009, and
$2,083 for 2010.
Intangible
Assets
Intangible
assets resulted from the purchase, for cash, from Isonics Corporation, the
rights to intellectual property related to the production of isotopes, customer
lists, contracts and agreements with third party companies, and certain
equipment. The Company allocated the purchase price to each of the assets based
upon the Companies believe of the long term value of each of those assets and
comparison to replacement cost, where that information was available. Intangible
assets are stated at cost, less accumulated amortization. Amortization of
intangible assets is computed using the straight-line method over the estimated
economic useful life of the assets. The Company periodically reviews the
carrying values of intangible assets in accordance with SFAS No. 144 and any
impairments are recognized when the expected future operating cash flows to be
derived from such assets are less than their carrying value.
Amortization
is computed using the straight-line method over the following estimated useful
lives:
|
Intellectual property
Contracts and agreements
Customer lists
|
3
years
3
years
2
years
|
Amortization
of intangible assets was $147,049 and $.00 for the years ended December 31, 2007
and 2006, respectively. Based on the license fees recorded at December 31, 2007,
and assuming no subsequent impairment of the underlying assets, the annual
amortization expense for each year ending December 31 is expected to be as
follows: $252,083 for 2008, $195,208 for 2009, and $64,410 for
2010.
F-11
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
Revenue
Recognition
The
Company applies the provision of SEC Staff Accounting Board (“SAB”) No. 104,
Revenue Recognition
.
SAB No. 104, which supersedes SAB No. 101,
Revenue Recognition in Financial
Statements
, provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 104 outlines the basic
criteria that must be met to recognize revenue and provides guidance for the
disclosure of revenue recognition policies. The Company recognized revenue
related to product sales when (i) persuasive evidence of the arrangement exists,
(ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv)
collectability is reasonably assured.
Revenue
for the fiscal years ended December 31, 2007 and 2006 was derived solely from
the sales of Oxygen 18, which is used in the production of medical isotopes. The
Company recognizes revenue once an order has been received and shipped to the
customer. Prepayments, if any, received from customers prior to the time
products are shipped are recorded as deferred revenue. In these cases, when the
related products are shipped, the amount recorded as deferred revenue is
recognized as revenue. The Company does not accrue for sales returns and other
allowances as it has not experienced any returns or other
allowances.
Net
Loss Per Share
The
Company accounts for its income (loss) per common share according to SFAS No.
128,
Earnings Per
Share
. Under the provisions of SFAS No. 128, primary and fully diluted
earnings per share are replaced with basic and diluted earnings per share. Basic
earnings/loss per share is computed by dividing income (loss) available to
common shareholders (the numerator) by the weighted-average number of common
shares outstanding (the denominator) for the period, and does not include the
impact of any potentially dilutive common stock equivalents. The computation of
diluted earnings per share is similar to basic earnings per share, except that
the denominator is increased to include the number of additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued.
Securities
that could be dilutive in the future as of December 31, 2007 and 2006 are as
follows:
|
2007
|
2006
|
|||||||
| Preferred stock | $ | 4,700,358 | $ | 15,227,273 | ||||
| Common stock options | 5,447,400 | 2,000,000 | ||||||
| Total potential dilutive securities | $ | 10,147,758 | $ | 17,227,273 | ||||
Research
and Development Costs
Research
and developments costs, including salaries, research materials, administrative
expenses and contractor fees, are charged to operations as incurred. The cost of
equipment used in research and development activities which has alternative uses
is capitalized as part of fixed assets and not treated as an expense in the
period acquired. Depreciation of capitalized equipment used to perform research
and development is classified as research and development expense in the year
computed.
F-12
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
Advertising
and Marketing Costs
Advertising
and marketing costs are expensed as incurred except for the cost of tradeshows
which are deferred until the tradeshow occurs. There were no tradeshow expenses
incurred and not expensed as of the years ended December 31, 2007 and
2006.
Shipping
and Handling Costs
Shipping
and handling costs are expensed as incurred and included in cost of product
sales.
Legal
Contingencies
In the
ordinary course of business, the Company is involved in legal proceedings
involving contractual and employment relationships, product liability claims,
patent rights, and a variety of other matters. The Company records contingent
liabilities resulting from asserted and unasserted claims against it, when it is
probable that a liability has been incurred and the amount of the loss is
reasonably estimable. The Company discloses contingent liabilities when there is
a reasonable possibility that the ultimate loss will exceed the recorded
liability. Estimated probable losses require analysis of multiple factors, in
some cases including judgments about the potential actions of third-party
claimants and courts. Therefore, actual losses in any future period are
inherently uncertain. Currently, the Company does not believe any probable legal
proceedings or claims will have a material impact on its financial position or
results of operations. However, if actual or estimated probable future losses
exceed the Company’s recorded liability for such claims, it would record
additional charges as other expense during the period in which the actual loss
or change in estimate occurred.
Income
Taxes
In June
2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement No. 109, Accounting for Income Taxes
(FIN 48), to create a single model to address accounting for uncertainty
in tax positions. FIN 48 clarifies the accounting for income taxes by
prescribing a minimum recognition threshold that a tax position is required to
meet before being recognized in the financial statements. FIN 48 also provides
guidance on de-recognition, measurement, classification, interest, and
penalties, accounting in interim periods, disclosure and
transition.
The
Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and Delaware. The Company did not have any tax expense for
the years ended December 31, 2007 and 2006. The Company did not have any
deferred tax liability or asset on its balance sheet on December 31, 2007 and
2006.
The
Company adopted FIN 48 as of January 1, 2007, and the adoption did not have a
material impact to the Company's consolidated financial statements and did not
result in any unrecognized tax benefits. Interest costs and penalties related to
income taxes, if any, will be classified as interest expense and general and
administrative costs, respectively, in the Company's consolidated financial
statements. For the years ended December 31, 2007 and 2006, the Company did not
recognize any interest or penalty expense related to income taxes. The Company
believes that it is not reasonably possible for the amounts of unrecognized tax
benefits to significantly increase or decrease within the next 12
months.
F-13
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
2: SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES -
continued
Fair
Value of Financial Instruments
The
carrying amounts of cash, receivables and accrued liabilities approximate fair
value due to the short-term maturity of the instruments.
Stock-Based
Compensation
Effective
January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004),
Share-Based Payment
, which
requires that compensation related to all stock-based awards, including stock
options, be recognized in the financial statements based on their estimated
grant-date fair value. The Company has estimated expected forfeitures, as
required by SFAS No. 123R, and is recognizing compensation expense only for
those awards expected to vest. All compensation is recognized by the time the
award vests.
Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 addresses how companies should measure fair value
when they are required to use a fair value measure for recognition or disclosure
purposes under GAAP. SFAS No. 157 defines fair value, establishes a framework
for measuring fair value and expands the required disclosures about fair value
measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, with earlier adoption permitted. Management believes adoption
of SFAS No. 157 will not have a material impact on the Company’s financial
statements.
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in Current Year
Financial Statements
, or SAB No. 108. SAB No. 108
addresses how the effects of prior year uncorrected misstatements should be
considered when quantifying misstatements in current year financial statements.
SAB No. 108 requires companies to quantify misstatements using a balance sheet
and income statement approach and to evaluate whether either approach results in
quantifying an error that is material in light of relevant quantitative and
qualitative factors. When the effect of initial adoption is material, companies
will record the effect as a cumulative effect adjustment to beginning of year
retained earnings and disclose the nature and amount of each individual error
being corrected in the cumulative adjustment. The adoption of SAB No. 108 did
not have a material impact on the Company’s financial statements.
In
February 2007, the FASB issued Statement No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS No. 159”), an amendment of
FASB Statement No. 115. SFAS No. 159 addresses how companies should measure many
financial instruments and certain other items at fair value. The objective is to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. SFAS No. 159 is effective for fiscal years beginning after November
15, 2007, with earlier adoption permitted. Management is assessing the impact of
the adoption of SFAS No. 159.
F-14
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
3: FIXED
ASSETS
Fixed
assets consist of the following at December 31, 2007 and 2006:
|
2007
|
2006
|
|||||||
| Production equipment | $ | 191,250 | $ | - | ||||
| Construction in progress | 706,107 | - | ||||||
| 897,357 | - | |||||||
| Less accumulated depreciation | (22,313 | ) | - | |||||
| $ | 875,044 | $ | - | |||||
Construction
in progress consists of progress payments made for equipment and facilities that
was completed in May 2008. These payments were funded through the Capital Lease
Obligations. All assets are pledged as collateral against the Capital Lease
obligation.
Depreciation
expense related to production equipment totaled $22,313 and $0 for 2007 and
2006, respectively. No depreciation has been computed on construction in
progress as the equipment has not yet been placed in service as of December 31,
2007.
NOTE
4: INTANGIBLE
ASSETS
Intangible
assets consist of the following at December 31, 2007 and 2006:
|
2007
|
2006
|
|||||||
| Intellectual property | $ | 250,750 | $ | - | ||||
| Contracts and agreements | 213,000 | |||||||
| Customer lists | 195,000 | - | ||||||
| 658,750 | - | |||||||
| (147,049 | ) | - | ||||||
| $ | 511,701 | $ | - | |||||
NOTE
5: RELATED
PARTY TRANSACTIONS
Indebtedness
from related parties
In 2006,
the company purchased a note receivable of $28,500, from a non-related
individual, due from Mirari, Inc (“Mirari”), a Washington corporation, and an
affiliate under common control. This amount was written off as an investment
loss in 2006. Additionally, during the year 2006, AMIC advanced funds on behalf
of Mirari for rent and administrative costs in the amount of $33,000. This
amount was written off as bad debt in 2006. It is management’s intention to
acquire all the assets and common stock of Mirari during the year
2008.
In
November 2006 the Company received $30,000 from a shareholder and officer in the
form of a loan and in April 2007 received another $50,000 from the same
shareholder. In June 2007 the Company extinguished the $80,000 debt through the
issuance of 160,000 shares of the Company’s common stock. The fair market value
at the time was $.75, resulting in a $40,000 loss from extinguishment of
debt.
F-15
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
5: RELATED
PARTY TRANSACTIONS -
continued
Rent
and other administrative expenses
The
Company began renting office space located in Kennewick, Washington from Apogee
Biometrics, Inc. (“ABI”), an affiliate under common control, in January
2006. Commencing January 1, 2006, the parties verbally agreed that
the Company would make monthly rent payments of $3,500 on a month-to-month
basis. In addition, the Company pays 36% of certain administrative
expenses utilized by both parties. During the years ended December
31, 2007 and 2006 the Company incurred rent and administrative expenses to ABI
totaling $15,147 and $59,500 respectively. The Company made payments
to ABI totaling $15,147 and $59,500 during the years ended December 31, 2007 and
2006 respectively.
The
Company terminated the rental agreement with ABI and began renting office and
warehouse space effective August 1, 2007, located in Kennewick, Washington from
a shareholder holding less that 5% of the total shares outstanding. The lease
agreement calls for monthly rental payments starting at $3,500, increasing every
August 1
st
until
they become $4,761.71 as of August 1, 2011. During the year ended December 31,
2007 the Company incurred rent expenses for this facility totaling $17,500. In
addition, the lease agreement calls for the issuance of $187,500 in common stock
valued at $.40 per share for a total of 416,667 shares. The company recognized
the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value
of that stock over the sixty month term of the lease. For the year ended
December 31, 2007 the Company amortized $15,625 of this stock issuance and
recognized it as rent expense.
Future
minimum rental payments required under the Company’s current rental agreement in
excess of one year as of December 31, 2007, are as follows:
| Year ended December 31, 2008 | $ | 43,400 | ||
| Year ended December 31, 2009 | 46,872 | |||
| Year ended December 31, 2010 | 50,622 | |||
| Year ended December 31, 2011 | 54,671 | |||
| Year ended December 31, 2012 | 33,332 | |||
| Total | $ | 228,897 |
NOTE
6: BUSINESS
COMBINATION
On June
13, 2007, the Company acquired the assets of the life sciences business segment
of Isonics Corporation (Isonics); a California corporation. Isonics is a
non-related business of the Company and neither company owns stock in the other.
The Company acquired the assets in exchange for $850,000 cash payment for the
purpose of establishing itself in a turnkey distribution business of medical
isotopes. The assets acquired consist of intellectual property, agreements with
third party companies for purchase and marketing of isotopes, customer lists,
and equipment located in Buffalo, New York. None of the acquired assets hold any
ongoing liabilities or contractual obligations that would result in additional
cash transactions required by the Company.
Intellectual
property, agreements with third parties and customer lists are stated at the
Companies estimation of fair market value at the time of acquisition, less
accumulated amortization. Amortization of these items is computed using the
straight-line method over the estimated economic useful life of the assets
ranging from 2-3 years. The Company periodically reviews the carrying values of
patents in accordance with SFAS No. 144 and any impairment’s are recognized when
the expected future operating cash flows to be derived from such assets are less
than their carrying value.
F-16
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
6: BUSINESS
COMBINATION -
continued
Amortization
of these items was $147,049 and $.00 for the years ended December 31, 2007 and
2006, respectively. Based on the value of these items recorded at December 31,
2007, and assuming no subsequent impairment of the underlying assets, the annual
amortization expense for each year ending December 31 is expected to be as
follows: $252,083 for 2008, $195,208 for 2009, and $64,410 for
2010.
Depreciation
of the equipment was $22,313 and $.00 for the years ended December 31, 2007 and
2006, respectively. Based on the value of these items recorded at December 31,
2007, and assuming no subsequent impairment of the underlying assets, the annual
amortization expense for each year ending December 31 is expected to be as
follows: $38,250 for 2008, $38,250 for 2009, $38,250 for 2010, $38,250 for 2011,
and $15,938 for 2012.
The
assets acquired by the Company were recorded at the estimated fair market value
as of the date of acquisition, or $850,000, as follows:
|
Intellectual
property related to the production of Indium-111 as
focused
|
||||||||
|
on
the chemical separation of Indium from a Cadmium-112
target
|
$ | 70,750 | ||||||
|
Consulting
expense incurred by Isonics for training of Indium-111
production
|
150,000 | |||||||
|
License
fees paid by Isonics for Indium-111 production
|
30,000 | |||||||
|
Customer
list associated with the Indium-111 production
|
65,000 | |||||||
|
Total
purchase price allocated to Indium-111 production
|
315,750 | |||||||
|
Contract
with Kurchatov Institute dated July 14, 2004 for the
purchase
|
||||||||
|
Of
Actinium-225
|
71,000 | |||||||
|
Contract
with Institute for Physics and Power Engineering for the
|
||||||||
|
Purchase
of Actinium-225
|
71,000 | |||||||
|
Customer
list associated with the purchases of Actinium-225
|
65,000 | |||||||
|
Total
purchase price allocated to Actinium-225 purchases
|
207,000 | |||||||
|
Service
Agreement with Global Scientific Technologies and Center
of
|
||||||||
|
Molecular
Research in connection with the production, marketing,
|
||||||||
|
and
sale of Oxygen-18
|
71,000 | |||||||
|
Customer
list associated with the sale of Oxygen-18
|
65,000 | |||||||
|
Total
purchase price allocated to Oxygen-18 production
|
||||||||
|
and
marketing
|
136,000 | |||||||
|
Equipment
located at Central Radiopharmaceutical Services, Buffalo, New
York
|
191,250 | |||||||
| $ | 850,000 | |||||||
The results of operations from this Business Combination are as follows:
| December 31, | ||||||||
|
2007
|
2006
|
|||||||
| Revenues | $ | 130,055 | $ | - | ||||
| Cost of goods sold | 55,841 | - | ||||||
| Gross profit | 74,214 | - | ||||||
| Operating expenses | - | - | ||||||
| General and administrative expenses | 169,361 | - | ||||||
| Net loss | $ | (95,147 | ) | $ | - | |||
F-17
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
7: LICENSE
FEE ACQUISITION
On
September 27, 2006, the Company acquired the assets of Neu-Hope Technologies,
Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware
corporation. UTEK is a shareholder of less than 5% of the Company’s issued and
outstanding common stock. The Company acquired NHTI’s assets from UTEK in
exchange for 100,000 shares of the Company’s Series A preferred stock. At any
time after September 27, 2007, these Series A preferred stock shares can be
converted to unrestricted common stock in the amount of $3,350,000. The number
of shares shall be calculated based on the previous 10 day average closing price
on the day of conversion. The Company conducted the acquisition in order to
obtain NHTI’s cash, rights, and customer relationships. The assets acquired by
the Company were recorded at the value which the preferred stock can be
converted into common stock, $3,350,000, as follows:
|
As
of
|
||||
|
September 27,
2006
|
||||
| Cash | $ | 310,000 | ||
| License fee | 3,040,000 | |||
| Net assets acquired | $ | 3,350,000 | ||
In
December 2007, 5,000 shares of the Company’s Series A preferred stock were
converted to 299,642 shares of common stock at $.559 per share
On August
30, 2006, NHTI entered into a Non-Exclusive License Agreement with the Regents
of the University of California. NHTI paid a non-refundable License Issue Fee in
the amount of $25,000. The license fee is non-refundable unless the Company’s
commercialization plan is deemed unacceptable by the University. If the plan is
deemed unacceptable, the license agreement will terminate and may be converted
to a non-exclusive license. To date, no commercialization plan has been deemed
acceptable or unacceptable.
In
consideration for the license, the Company agreed to the following
payments:
|
|
·
|
$25,000
License Issue Fee, described above;
|
|
|
·
|
$25,000
upon submission by University of California to U.S. Federal Drug
Administration (or comparable agency) of either notification of or request
for approval of (as applicable), a Licensed
Product;
|
|
|
·
|
$100,000
upon satisfaction of necessary requirements (e.g., notification or receipt
of approval, as applicable) by Federal Drug Administration (or comparable
agency) for commercial sale of a Licensed
Product;
|
|
|
·
|
Royalties
equal to the greater of three percent of the Selling Price of each
Licensed Product Licensee sells or the maintenance fee according to the
following schedule:
|
|
2006
|
$ | 0 | ||
|
2007
|
|
$ | 0 | |
|
2008
|
$ | 10,000 | ||
|
2009
|
$ | 15,000 | ||
|
2010
|
$ | 15,000 | ||
|
2011
|
$ | 45,000 | ||
|
2012 and each
year thereafter
|
$ | 60,000 |
F-18
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
8: PREPAID
EXPENSES PAID WITH STOCK
The
Company has issued stock with companies for various service agreements extending
beyond December 31, 2007; however all of which are expected to expire sometime
within the next twelve months. Additionally, the Company issued stock for
prepaid rent which will expire annually through July 2013 at the rate of $37,500
per year. Prepaid Expenses are expected to mature as follows:
| 2008 | $ | 266,348 | ||
| 2009 | 37,500 | |||
| 2010 | 37,500 | |||
| 2011 | 37,500 | |||
| 2012 | 21,875 | |||
| $ | 400,813 |
NOTE
9: BANK
LINE OF CREDIT
The
Company has a $200,000 revolving line of credit with Washington Trust Bank that
expires in September 2008. The Company had $40,908 in borrowings under the line
of credit as of December 31, 2007.
All
equipment and accounts receivables are collateral for the line of credit.
Additionally, the line of credit was personally guaranteed by two of the major
shareholders.
NOTE
10: CAPITAL
LEASE OBLIGATIONS
During
September 2007, the Company obtained two Master Lease Agreements for $1,875,000
and $631,000, secured by equipment and personal guarantee of two of the major
shareholders. These long-term agreement shall be deemed Capital Lease
Obligations for purposes of financial statement reporting. The purpose of the
lease is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted
amount of $1,875,000 plus ancillary equipment and facility for $631,000.
Advances made by the Lessor for the benefit of the Company, less payments, total
$668,613 as of December 31, 2007:
|
2007
|
||||
| Capital lease obligation (a) | $ | 707,562 | ||
| Capital lease obligation (b) | 153,661 | |||
| Total future minimum lease payments | 861,223 | |||
| Less amounts representing interest | (192,610 | ) | ||
| Present value of net minimum | ||||
| lease payments | 668,613 | |||
| Less amounts due within one year | 86,983 | |||
| Amounts due after one year | $ | 581,630 | ||
|
(a)
|
This
represents the amount of advances, less payments made, received from the
$1,875,000 lease agreement for the purchase of equipment. The lease
agreement requires, when the total $1,875,000 funds are drawn, monthly
payments of $29,481.88 through September 2014. Interest on the lease
agreement accrues at 8.3% annually.
|
|
(b)
|
This
represents the amount of advances, less payments made, received from the
$631,000 lease agreement for the purchase of equipment. The lease
agreement requires, when the total $631,000 funds are drawn, monthly
payments of $12,871.90 through September 2012. Interest on the lease
agreement accrues at 8.3%
annually.
|
F-19
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
10: CAPITAL
LEASE OBLIGATIONS -
continued
Principal
maturities on the amount of the notes payable advanced through December 31, 2007
are due as follows:
| Year ended December 31, | ||||
| 2008 | $ | 86,984 | ||
| 2009 | 94,461 | |||
| 2010 | 102,581 | |||
| 2011 | 111,399 | |||
| 2012 | 111,212 | |||
| Thereafter | 161,976 | |||
| $ | 668,613 | |||
The
amount of advances in 2007 made from the capital lease consists of progress
payments made for equipment and facilities that was completed in May 2008,
totaling $706,010. No depreciation was computed on construction in progress as
the equipment had not been placed in service as of December 31,
2008.
NOTE
11: INCOME
TAXES
Income
taxes are provided based upon the liability method of accounting pursuant to
SFAS No. 109, “Accounting for Income Taxes.” Under this approach, deferred
income taxes are recorded to reflect the tax consequences in future years of
differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against
deferred tax assets if management does not believe the Company has met the “more
likely than not’ standard imposed by SFAS No. 109 to allow recognition of such
an asset.
The
amount of deferred income tax benefit is impacted by the difference between the
estimated Federal and State statutory income tax rates used to estimate deferred
tax assets and liabilities and actual rates utilized when determining income
taxes due or the application of net operating losses which are impacted by lower
rates for taxable income less than $100,000 along with differences in state tax
rates. In addition, other estimates utilized in determining deferred income tax
benefit resulting from anticipated timing differences may differ from amounts
initially determined when the timing differences are realized.
Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carry-forwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Net
deferred tax liabilities consist of the following components as of December 31,
2007 and 2006:
|
2007
|
2006
|
|||||||
| Deferred tax assets: | ||||||||
|
NOL
carryover
|
$ | 1,395,015 | $ | 822,575 | ||||
| Deferred tax liabilities: | ||||||||
|
Depreciation
|
(383,664 | ) | (69,060 | ) | ||||
| Valuation allowance | (1,011,350 | ) | (753,515 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
F-20
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
11: INCOME
TAXES -
continued
The
income tax provision differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income from continuing
operations for the years ended December 31, 2007 and 2006 due to the
following:
|
2007
|
2006
|
|||||||
| Book income | $ | (1,119,062 | ) | $ | (535,323 | ) | ||
| Depreciation | 314,604 | 69,060 | ||||||
| Meals and entertainment | 964 | 587 | ||||||
| Stock for services | 231,054 | 75,660 | ||||||
| Valuation allowance | 572,440 | 390,016 | ||||||
| $ | - | $ | - | |||||
At
December 31, 2007, The Company had net operating loss carryovers of
approximately $3,500,000 that may be offset against future taxable income from
the year 2007 through 2027. No tax benefit has been reported in the year
December 31, 2007 consolidated financial statements since the potential tax
benefit is offset by a valuation allowance of the same amount.
Due to
the change in ownership provisions of the Tax Reform Act of 1986, net operating
loss carryovers for Federal income tax reporting purposes are subject to annual
limitations. Should a change in ownership occur, net operating loss carryovers
mat be limited as to use in future years.
In July
2006, the FASB issued Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY IN
INCOME TAXES – AN INTERPRETATION OF FASB STATEMENT NO. 109” (“FIN 48”), which
clarifies the accounting and disclosure for uncertainty in tax positions, as
defined. FIN 48 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes. The Company is subject to the provisions of FIN 48 as of January
1, 2007, and has analyzed filing positions in all of the Federal and state
jurisdictions where it is required to file income tax returns. The Company has
not filed its Federal income tax return since 1998, however the Company believes
that its income tax filing positions and deductions will be sustained on audit
and does not anticipate any adjustments that will result in a material impact on
the Company’s financial condition, results of operations, cash flows or net
operating loss carry-forwards. Therefore, no reserves for uncertain income tax
positions have been recorded pursuant to FIN 48. In addition, the Company did
not record a cumulative effect adjustment related to the adoption of FIN 48. The
Company is subject to audit by the IRS and various states for the prior 3
years.
The
Company’s policy for recording interest and penalties associated with taxes is
to recognize at as a component of income tax expense.
NOTE
12: STOCKHOLDERS’
EQUITY
Common
stock sale
On
October 13, 2006, the Company issued 150,000 shares of its $.001 par value
common stock to shareholders for common stock subscriptions received in
1999.
In April
2007 the Company issued 112,277 shares for cash of $79,717 at $.71 per
share.
In
June 2007 the Company issued 2,125,000 shares for cash of $850,000 at $.40 per
share.
F-21
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
12: STOCKHOLDERS’
EQUITY -
continued
Preferred
stock
On
September 27, 2006, the Company acquired the assets of Neu-Hope Technologies,
Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware
corporation. UTEK is a shareholder of less than 5% of the Company’s issued and
outstanding common stock. The Company acquired NHTI’s assets from UTEK in
exchange for 100,000 shares of the Company’s Series A preferred stock. At any
time after September 27, 2007, these Series A preferred stock shares can be
converted to unrestricted common stock in the amount of $3,350,000. The number
of shares shall be calculated based on the previous 10 day average closing price
on the day of conversion. Additionally, during the initial twelve
months period in which UTEK is holding said preferred stock, interest shall
accrue at the annual rate of five percent, compounded quarterly, payable in cash
or in common shares of the Company. The Company conducted the acquisition in
order to obtain NHTI’s cash, rights, and customer relationships. The details of
this transaction can be found in Footnote 7.
In
December 2007, 5,000 shares of the Company’s Series A preferred stock were
converted to 299,642 shares of common stock at $.559 per share
Common
stock
During
May 2006, the Company issued 600,000 shares of its common stock in exchange for
business consulting services. The value of the transaction totaled
$120,000 based on the quoted market price of stock on the transaction date, or
$.20 per share. Stock-based compensation expense of $50,000 and
$70,000 has been recognized in the accompanying financial statements for the
years ended December 31, 2007 and 2006. The remaining $0 and $50,000
is reported as a reduction of equity in the accompanying financial statements
for the years ended December 31, 2007 and 2006.
During
October 2006, the Company issued 250,000 shares of its common stock in exchange
for business consulting services. The value of the transaction
totaled $45,000 based on the quoted market price of stock on the transaction
date, or $.18 per share. Stock-based compensation expense of $22,500
and $7,500 has been recognized in the accompanying financial statements for the
years ended December 31, 2007 and 2006. The remaining $15,000 and
$37,500 is reported as a reduction of equity in the accompanying financial
statements as of December 31, 2007, and 2006.
During
September 2006, the Company issued 1,500,000 shares of its common stock as bonus
compensation to the CEO. The transaction was recorded based on the quoted market
price of stock on the transaction date, or $.18 per
share. Stock-based compensation expense of $270,000 has been
recognized in the accompanying financial statements for the year ended December
31, 2006.
During
September 2006, the Company issued 500,000 shares of its common stock as bonus
compensation to the Chief Science Officer. The transaction was recorded based on
the quoted market price of stock on the transaction date, or $.18 per
share. Stock-based compensation expense of $90,000 has been
recognized in the accompanying financial statements for the year ended December
31, 2006.
During
September 2006, the Company issued 300,000 shares of its common stock in
exchange for legal services performed for HHHE, a predecessor to AMIC. The
transaction was recorded based on the quoted market price of stock on the
transaction date, or $.18 per share. Stock-based compensation expense
of $54,000 has been recognized in the accompanying financial statements for the
year ended December 31, 2006.
F-22
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
12: STOCKHOLDERS’
EQUITY -
continued
During
February 2007, the Company issued 250,000 shares of its common stock in exchange
for a patent license. The transaction was recorded based on the quoted market
price of stock on the transaction date, or $.30 per share. A long term asset
valued at $75,000 has been recognized in the accompanying financial statements
for the year ended December 31, 2007.
During
March 2007, the Company issued 250,000 shares of its common stock in exchange
for business consulting services. The value of the transaction totaled $217,500
based on the quoted market price of stock on the transaction date, or $.87 per
share. Stock-based compensation expense of $81,562.50 has been
recognized in the accompanying financial statements for the year ended December
31, 2007. The remaining $135,937.50 is reported as a reduction of equity in the
accompanying financial statements.
During
June 2007, the Company issued 160,000 shares of its common stock in exchange for
debt. The value if the transaction totaled $120,000 based on the quoted market
price of stock on the transaction date, or $.75 per share. Loss on
extinguishment of debt of $40,000 has been recognized in the accompanying
financial statements for the year ended December 31, 2007.
During
August 2007, the Company issued 416,667 shares of its common stock in exchange
for rent. The value of the transaction totaled $187,500 based on the quoted
market price of stock on the transaction date, or $.45 per
share. Stock-based rent expense of $15,625 has been recognized in the
accompanying financial statements for the year ended December 31, 2007. The
remaining $171,875 is reported as a reduction of equity in the accompanying
financial statements.
During
September 2007, the Company issued 100,000 shares of its common stock in
exchange for business consulting services. The value of the transaction totaled
$82,000 based on the quoted market price of stock on the transaction date, or
$.82 per share. Stock-based compensation expense of $41,000 has been
recognized in the accompanying financial statements for the year ended December
31, 2007. The remaining $41,000 is reported as a reduction of equity in the
accompanying financial statements.
During
November 2007, the Company issued 100,000 shares of its common stock in exchange
for business consulting services. The value of the transaction totaled $74,000
based on the quoted market price of stock on the transaction date, or $.74 per
share. Stock-based compensation expense of $26,000 has been
recognized in the accompanying financial statements for the year ended December
31, 2007. The remaining $48,000 is reported as a reduction of equity in the
accompanying financial statements.
During
November 2007, the Company issued 17,000 shares of its common stock in exchange
for business consulting services. The value of the transaction totaled $12,563
based on the quoted market price of stock on the transaction date, or $.74 per
share. Stock-based compensation expense of $12,563 has been
recognized in the accompanying financial statements for the year ended December
31, 2007.
During
November 2007, the Company issued 15,000 shares of its common stock in exchange
for business consulting services. The value of the transaction totaled $11,250
based on the quoted market price of stock on the transaction date, or $.75 per
share. Stock-based compensation expense of $11,250 has been
recognized in the accompanying financial statements for the year ended December
31, 2007.
F-23
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
12: STOCKHOLDERS’
EQUITY -
continued
During
December 2007, the Company issued 25,000 shares of its common stock in exchange
for business consulting services. The value of the transaction totaled $18,725
based on the quoted market price of stock on the transaction date, or $.75 per
share. Stock-based compensation expense of $18,725 has been
recognized in the accompanying financial statements for the year ended December
31, 2007.
During
December 2007, the Company issued 7,000 shares of its common stock to two
employees as a bonus. The value of the transaction totaled $5,733 based on the
quoted market price of stock on the transaction date, or $.82 per
share. Stock-based compensation expense of $5,733 has been recognized
in the accompanying financial statements for the year ended December 31,
2007.
During
December 2007, the Company issued 1,000,000 shares of its common stock to its
CEO for consideration of past services based upon a previously determined value
of $.07 per share. The value of the transaction totaled $70,000 based on the
quoted market price of stock on the transaction date, or $.07 per
share. Stock-based compensation expense of $70,000 has been
recognized in the accompanying financial statements for the year ended December
31, 2007.
Common
stock options
Options
granted to non-employees, accounted for under the fair value method
During
September 2006, the Company granted a consultant options to purchase an
aggregate of 250,000 shares of the Company’s common stock at an exercise price
of $.15 per share. The options are fully vested and expire September
1, 2008. The quoted market price of the common stock at the time of issuance of
the options was $.07 per share. The Company valued the options in
accordance with SFAS 123(R). The fair value of the options totaled
$17,500, and was recorded as stock-based compensation in the accompanying
financial statements for the year ended December 31, 2006.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.77 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 404.0 | % | ||
| Weighted average expected life |
2
years
|
|||
During
September 2006, the Company granted three board members options to purchase an
aggregate of 250,000 shares each of the Company’s common stock and granted the
CEO options to purchase 1,000,000 shares of the Company’s common stock, all at
an exercise price of $.07 per share. The options are fully vested and
expire September 1, 2009. The quoted market price of the common stock at the
time of issuance of the options was $.07 per share. The Company
valued the options in accordance with SFAS 123(R). The fair value of
the options totaled $17,500 for each of the board members and $70,000 for the
CEO, for an aggregate of $122,500, and was recorded as stock-based compensation
in the accompanying financial statements for the year ended December 31,
2006.
F-24
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
12: STOCKHOLDERS’
EQUITY -
continued
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.69 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 325.0 | % | ||
| Weighted average expected life |
3 years
|
|||
During
January 2007, the Company granted three board members options to purchase an
aggregate of 250,000 shares each of the Company’s common stock at an exercise
price of $.29 per share. The options are fully vested and expire
January 23, 2010. The quoted market price of the common stock at the time of
issuance of the options was $.27 per share. The Company valued the
options in accordance with SFAS 123(R). The fair value of the options
totaled $72,500 for each of the board members, for an aggregate of $217,500, and
was recorded as stock-based compensation in the accompanying financial
statements for the year ended December 31, 2007.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.79 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 329.1 | % | ||
| Weighted average expected life |
3 years
|
|||
During
April 2007, the Company granted a consultant options to purchase an aggregate of
100,000 shares of the Company’s common stock at an exercise price of $.50 per
share. The options are fully vested and expire April 2010. The quoted
market price of the common stock at the time of issuance of the options was $.85
per share. The Company valued the options in accordance with SFAS
123(R). The fair value of the options totaled $50,000, and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.60 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 329.1 | % | ||
| Weighted average expected life |
3 years
|
|||
During
May 2007, the Company granted its Chief Financial Officer options to purchase an
aggregate of 1,500,000 shares of the Company’s common stock at an exercise price
of $.50 per share. The options vest at 500,000 shares May 2008,
500,000 shares May 2009, and 500,000 shares May 2010 and expire May 2012. The
quoted market price of the common stock at the time of issuance of the options
was $.70 per share. The Company valued the options in accordance with
SFAS 123(R). The fair value of the options totaled $750,000, and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007 on a pro-rata bases of the months worked
compared to the total of the vesting schedule.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 4.67 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.3 | % | ||
| Weighted average expected life |
5 years
|
|||
During
December 2007, the Company granted a consultant options to purchase 122,400
shares of the Company’s common stock, at an exercise price of $.17 per
share. The options are fully vested and expire December 31, 2012. The
quoted market price of the common stock at the time of issuance of the options
was $.72 per share. The Company valued the options in accordance with
SFAS 123(R). The fair value of the options totaled $87,975 and was
recorded as stock-based compensation in the accompanying financial statements
for the year ended December 31, 2007.
F-25
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
12: STOCKHOLDERS’
EQUITY -
continued
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 3.49 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.3 | % | ||
| Weighted average expected life |
5 years
|
|||
The
following schedule summarizes the changes in the Company’s stock option
plan:
|
Weighted
|
Weighted
|
|||||||||||||||||||
|
Options Outstanding
|
Average
|
Average
|
||||||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
||||||||||||||||
|
Of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
||||||||||||||||
|
Shares
|
Per Share
|
Life
|
Value
|
Per Share
|
||||||||||||||||
|
Balance
at December 31, 2005
|
- | $ | - | - | $ | - | $ | - | ||||||||||||
|
Options
granted
|
2,000,000 | 0.07-0.15 |
2.52 years
|
0 | 0.08 | |||||||||||||||
|
Balance
at December 31, 2006
|
2,000,000 | 0.07-0.15 |
2.52
years
|
0 | 0.08 | |||||||||||||||
|
Options
granted
|
4,947,400 | 0.17-1.05 |
1.99
years
|
402,320 | 0.56 | |||||||||||||||
|
Options
exercised
|
(1,750,000 | ) | 0.07 |
2.6
years
|
0 | 0.07 | ||||||||||||||
|
Options
expired
|
- | - | - | - | - | |||||||||||||||
|
Balance
at December 31, 2007
|
5,197,400 | $ | 0.15-1.05 |
2.03 years
|
$ | 402,300 | $ | 0.56 | ||||||||||||
|
Exercisable
at December 31, 2006
|
2,000,000 | $ | 0.07-0.15 |
2.52
years
|
$ | 0 | $ | 0.08 | ||||||||||||
|
Exercisable
at December 31, 2007
|
5,197,400 | $ | 0.15-1.05 |
2.03
years
|
$ | 402,300 | $ | 0.56 | ||||||||||||
NOTE
13: CONCENTRATIONS
OF CREDIT AND OTHER RISKS
Accounts
Receivable
The
Company’s accounts receivable result from credit sales to customers. The Company
had three customers whose sales were greater than 10% for the year ended
December 31, 2007. These customers represented 57.9% of the Company’s total
revenues for the year ended December 31, 2007. Those same customers accounted
for 71.6% of the Company’s net accounts receivable balance at December 31,
2007.
Sales to
the Company’s largest customer totaled 24.9% of total revenues in
2007.
The loss
of any of these significant customers would have a temporary adverse effect on
the Company’s revenues, which would continue until the Company located new
customers to replace them
The
Company routinely assesses the financial strength of its customers and provides
an allowance for doubtful accounts as necessary.
F-26
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
13: CONCENTRATIONS
OF CREDIT AND OTHER RISKS -
continued
Inventories
The sole
product sold by the Company is purchased from one supplier. The failure of this
supplier to meet its commitment on schedule could have a material adverse effect
on the Company’s business, operating results and financial condition. If the
sole-source supplier were to go out of business or otherwise become unable to
meet its supply commitments, the process of locating and qualifying alternate
sources could require up to several months, during which time the Company’s
sales could be delayed. Such delays could have a material adverse effect on the
Company’s business, operating results and financial condition.
NOTE
14: SUPPLEMENTAL
CASH FLOW INFORMATION
During
the year ended December 31, 2007, the Company had the following non-cash
investing and financing activities:
|
|
·
|
Increased
prepaid expense paid with stock by $561,000, increased common stock by
$867, and increased paid in capital by
$560,133.
|
|
|
·
|
Increased
patent license fee by $75,000, increased common stock by $250, and
increased paid in capital by
$74,750.
|
|
|
·
|
Increased
common stock by $160, increased paid in capital by $119,840, decreased
note payable – related party by $80,000, and increased loss on debt
extinguishment by $40,000.
|
|
|
·
|
Increased
common stock by $300, increased paid in capital by $167,200, decreased
preferred stock redeemable as common by $167,495, and decreased
convertible preferred stock by $5.
|
During
the year ended December 31, 2006, the Company had the following non-cash
investing and financing activities:
|
|
·
|
Increased
prepaid consulting by $165,000, increased common stock by $850, and
increased paid in capital by
$164,150.
|
|
|
·
|
Increased
preferred stock redeemable as common by $3,207,525, increased convertible
preferred stock by $100, and increased license fees by
$2,897,625.
|
|
|
·
|
Increased
common stock subscription payable and paid in capital by
$30,000.
|
F-27
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2007 and 2006
NOTE
15: SUBSEQUENT
EVENTS
During
January 2008, the Company entered into a $10,000 per month, one year consulting
agreement, terminating December 31, 2008, with option to renew for two
additional years. In addition the Company provided 100,000 options at the option
price of $.71 each. These options have a ten year life. This agreement provides
the Company expertise on a broad range of corporate finance, capital structure
and related financing issues.
During
February 2008, the Company entered into a five year agreement with a
radiopharmaceutical laboratory for use of their Cyclotron for Irradiation
Services and Joint Product Development. The Company is to compensate the
laboratory a minimum monthly fee of $4,800 for a minimum block of beam time for
the Cyclotron plus certain consulting or technical services in the design or
performance enhancement of irradiation processes, and target design and
loading.
During
March 2008, the Company entered into a $13,500 per month, one year consulting
agreement, terminating February 28, 2009. In addition the Company provided
300,000 shares of the Company’s common stock. This agreement provides the
Company overall management of the corporate communications program and
introductions to open-market and private placement buyers.
During
April 2008, the Company entered into a 90 day agreement to provide financial
public relations in exchange for 20,000 shares of the Company’s common
stock.
During
May 2008, the Company entered into an eight month Research Agreement with a
University whereas the University will provide certain research for a fee of
$45,150.
Between
February and May 2008, the Company entered into four consulting agreements,
whereas the consultant would be paid an hourly rate that would be broken down
into cash and stock. The cash portion of the agreements range from $15 to $42.50
per hour; and the stock portion of the agreements range from $35 to $50 per
hour. All of these agreements are for assistance in writing policies and
procedures regarding compliance with regulatory agencies. These four agreements
expire on December 31, 2008.
During
June 2008, the Company entered into a twelve month option agreement with a
University to evaluate a patent owned by the University for commercialization of
that patent. The option agreement calls for a $1,000 non-refundable
fee to be paid with-in thirty days of the signing of the agreement. In
conjunction with this option agreement, the Company also entered into a contract
with the University to perform research for a system to generate radioisotopes
via proprietary processes. The cost for this research contract is not to exceed
$75,000.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Balance
Sheets
|
ASSETS
|
||||||||
|
June
30,
|
||||||||
|
2008
|
December
31,
|
|||||||
|
(unaudited)
|
2007
|
|||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 22,997 | $ | 54,508 | ||||
|
Accounts
receivable
|
17,940 | 12,000 | ||||||
|
Prepaid
expenses
|
8,471 | - | ||||||
|
Prepaid
expenses paid with stock, current portion
|
155,925 | 239,250 | ||||||
|
Inventory
|
8,388 | 28,400 | ||||||
|
Total
current assets
|
213,721 | 334,158 | ||||||
|
Fixed
assets, net of accumulated depreciation
|
2,370,856 | 875,044 | ||||||
|
Other
assets:
|
||||||||
|
License
fees, net of amortization
|
1,166,437 | 1,661,875 | ||||||
|
Intangible
assets, net of amortization
|
385,660 | 511,701 | ||||||
|
Prepaid
expenses paid with stock, long-term portion
|
115,625 | 161,563 | ||||||
|
Deposits
|
6,574 | 5,928 | ||||||
|
Total
other assets
|
1,674,296 | 2,341,067 | ||||||
|
Total
assets
|
$ | 4,258,873 | $ | 3,550,269 | ||||
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY (DEFICIT)
|
||||||||
|
Current
liabilities:
|
||||||||
|
Accounts
payable
|
$ | 423,517 | $ | 180,488 | ||||
|
Accrued
interest payable
|
171,628 | 171,628 | ||||||
|
Payroll
liabilities payable
|
373 | 45,163 | ||||||
|
Preferred
stock redeemable as common
|
3,182,405 | 3,182,405 | ||||||
|
Line
of credit
|
199,908 | 40,908 | ||||||
|
Current
portion of capital lease obligations
|
295,920 | 86,983 | ||||||
|
Total
current liabilities
|
4,273,751 | 3,707,575 | ||||||
|
Long
term liabilities:
|
||||||||
|
Capital
lease obligations, net of current portion
|
1,707,420 | 581,630 | ||||||
|
Total
liabilities
|
5,981,171 | 4,289,205 | ||||||
|
Shareholders’
Equity (Deficit):
|
||||||||
|
Preferred
stock, $.001 par value; 100,000 authorized;
|
||||||||
|
95,000
and 95,000 shares issued and outstanding, respectively
|
95 | 95 | ||||||
|
Common
stock, $.001 par value; 100,000,000 shares authorized;
|
||||||||
|
35,081,222
and 31,664,631 shares issued and outstanding,
|
||||||||
|
respectively
|
35,081 | 31,665 | ||||||
|
Common
stock subscriptions receivable
|
- | 202,500 | ||||||
|
Paid
in capital
|
8,065,365 | 6,152,861 | ||||||
|
Accumulated
deficit prior to the development stage
|
(2,884,043 | ) | (2,884,043 | ) | ||||
|
Deficit
accumulated during the development stage
|
(6,938,796 | ) | (4,242,014 | ) | ||||
|
Total
shareholders’ equity (deficit)
|
(1,722,298 | ) | (738,936 | ) | ||||
|
Total
liabilities and shareholders’ equity (deficit)
|
$ | 4,258,873 | $ | 3,550,269 | ||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statements
of Operations
(unaudited)
|
From
inception of
|
||||||||||||||||||||
|
development
stage
|
||||||||||||||||||||
|
Three
months ended
|
Six
months ended
|
on
January 1, 2006
|
||||||||||||||||||
|
June 30,
|
June 30,
|
through
June 30,
|
||||||||||||||||||
|
2008
|
2007
|
2008
|
2007
|
2008
|
||||||||||||||||
|
|
||||||||||||||||||||
|
Revenues
|
$ | 51,086 | $ | - | $ | 83,421 | $ | - | $ | 213,476 | ||||||||||
|
Cost
of goods sold
|
58,103 | - | 75,640 | - | 131,481 | |||||||||||||||
|
Gross
profit (deficit)
|
(7,017 | ) | - | 7,781 | - | 81,995 | ||||||||||||||
|
Operating
expenses
|
||||||||||||||||||||
|
Sales
and marketing expenses
|
23,828 | - | 31,526 | - | 43,911 | |||||||||||||||
|
Start
up costs
|
- | - | - | - | 62,510 | |||||||||||||||
|
Depreciation
and amortization
|
320,596 | 271,915 | 640,898 | 517,551 | 2,098,697 | |||||||||||||||
|
Professional
fees
|
516,936 | 117,412 | 739,150 | 154,211 | 1,944,487 | |||||||||||||||
|
Stock
options granted
|
576,339 | 128,353 | 753,140 | 329,999 | 1,485,587 | |||||||||||||||
|
Payroll
expenses
|
127,660 | 69,984 | 268,584 | 69,984 | 466,141 | |||||||||||||||
|
General
and administrative
|
||||||||||||||||||||
|
expenses
|
108,843 | 25,196 | 215,596 | 32,415 | 433,784 | |||||||||||||||
|
Total
operating expenses
|
1,674,202 | 612,860 | 2,648,894 | 1,104,160 | 6,535,117 | |||||||||||||||
|
Operating
loss
|
(1,681,219 | ) | (612,860 | ) | (2,641,113 | ) | (1,104,160 | ) | (6,453,122 | ) | ||||||||||
|
Non-operating
income (expense):
|
||||||||||||||||||||
|
Interest
expense
|
(39,593 | ) | (79,000 | ) | (55,669 | ) | (152,799 | ) | (388,174 | ) | ||||||||||
|
Investment
loss
|
- | - | - | - | (28,500 | ) | ||||||||||||||
|
Loss
on conversion of shareholder
|
||||||||||||||||||||
|
Loan
|
- | (40,000 | ) | - | (40,000 | ) | (69,000 | ) | ||||||||||||
|
Non-operating
income
|
||||||||||||||||||||
|
(expense),
net
|
(39,593 | ) | (119,000 | ) | (55,669 | ) | (192,799 | ) | (485,674 | ) | ||||||||||
|
Loss
before Income Taxes
|
(1,720,812 | ) | (731,860 | ) | (2,696,782 | ) | (1,296,959 | ) | (6,938,796 | ) | ||||||||||
|
Income
Tax Provision
|
- | - | - | - | - | |||||||||||||||
|
Net
loss
|
$ | (1,720,812 | ) | $ | (731,860 | ) | $ | (2,696,782 | ) | $ | (1,296,959 | ) | $ | (6,938,796 | ) | |||||
|
Loss
per common share
|
$ | (0.05 | ) | $ | (0.03 | ) | $ | (0.08 | ) | $ | (0.05 | ) | ||||||||
|
Weighted
average common shares
|
||||||||||||||||||||
|
Outstanding
|
34,970,548 | 27,872,359 | 33,875,632 | 27,303,694 | ||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statement
of Changes in Shareholders’ Equity (Deficit) (unaudited)
|
Deficit
|
||||||||||||||||||||||||||||||||||||
|
Series
A Preferred
|
Accumulated
|
|||||||||||||||||||||||||||||||||||
|
Stock
|
Common
Stock
|
Paid
in
|
Subscriptions
|
Accumulated
|
during
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Stage
|
Total
|
||||||||||||||||||||||||||||
|
Balances
at December 31,
|
||||||||||||||||||||||||||||||||||||
|
2007
|
95,000 | $ | 95 | 31,664,631 | $ | 31,665 | $ | 6,152,861 | $ | 202,500 | $ | (2,884,043 | ) | $ | (4,242,014 | ) | $ | (738,936 | ) | |||||||||||||||||
|
Common
stock issued for:
|
||||||||||||||||||||||||||||||||||||
|
Cash
January 2008 ($.40
|
||||||||||||||||||||||||||||||||||||
|
per
share)
|
- | - | 137,500 | 137 | 54,863 | - | - | - | 55,000 | |||||||||||||||||||||||||||
|
Options
exercised 2008
|
||||||||||||||||||||||||||||||||||||
|
($.29
per share)
|
- | - | 250,000 | 250 | 72,250 | - | - | - | 72,500 | |||||||||||||||||||||||||||
|
Cash
February 2008
|
||||||||||||||||||||||||||||||||||||
|
($.40
per share)
|
- | - | 950,000 | 950 | 379,050 | - | - | - | 380,000 | |||||||||||||||||||||||||||
|
Services
March 2008
|
||||||||||||||||||||||||||||||||||||
|
($.78
per share)
|
- | - | 299,642 | 299 | 233,421 | - | - | - | 233,720 | |||||||||||||||||||||||||||
|
Cash
March 2008
|
||||||||||||||||||||||||||||||||||||
|
($.40
per share)
|
- | - | 550,700 | 551 | 219,729 | - | - | - | 220,280 | |||||||||||||||||||||||||||
|
Services
April 2008
|
||||||||||||||||||||||||||||||||||||
|
($.75
per share)
|
- | - | 162,678 | 163 | 232,337 | - | - | - | 232,500 | |||||||||||||||||||||||||||
|
Issuance
of shares February,
|
||||||||||||||||||||||||||||||||||||
|
2008
for cash received
|
||||||||||||||||||||||||||||||||||||
|
in
2007
|
- | - | 825,893 | 826 | 184,862 | (185,688 | ) | - | - | - | ||||||||||||||||||||||||||
|
Stock
offering costs March,
|
||||||||||||||||||||||||||||||||||||
|
2008
|
- | - | - | - | (233,720 | ) | - | - | - | (233,720 | ) | |||||||||||||||||||||||||
|
Issuance
of shares April,
|
||||||||||||||||||||||||||||||||||||
|
2008
for cash received
|
||||||||||||||||||||||||||||||||||||
|
in
2007
|
- | - | 240,178 | 240 | 16,572 | (16,812 | ) | - | - | - | ||||||||||||||||||||||||||
|
Granting
of stock options
|
||||||||||||||||||||||||||||||||||||
|
June
2008
|
- | - | - | - | 753,140 | - | - | - | 753,140 | |||||||||||||||||||||||||||
|
Net
loss
|
- | - | - | - | - | - | - | (2,696,782 | ) | (2,696,782 | ) | |||||||||||||||||||||||||
|
Balances
at June 30, 2008
|
95,000 | $ | 95 | 35,081,222 | $ | 35,081 | $ | 8,065,365 | $ | - | $ | (2,884,043 | ) | $ | (6,938,796 | ) | $ | (1,722,298 | ) | |||||||||||||||||
The
accompanying notes are an integral part of these financial
statements.
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Statements
of Cash Flow
(unaudited)
The
accompanying notes are an integral part of these financial
statements.
F-32
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
1: BASIS
OF PRESENTATION
The
accompanying condensed consolidated 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 consolidated 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 three
and six months ended June 30, 2008, are not necessarily indicative of the
results that may be expected for any future period or the fiscal year ending
December 31, 2008.
NOTE
2: GOING
CONCERN
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial
statements, the Company has suffered recurring losses and used significant cash
in support of its operating activities. Historically, we have relied upon
outside investor funds to maintain our operations and develop our business. We
anticipate we will continue to require funding from investors for working
capital as well as business expansion during this fiscal year and we can provide
no assurance that additional investor funds will be available on terms
acceptable to us. These conditions, raise substantial doubt about the
ability of the Company 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 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, 2008 and December 31,
2007:
|
June
30, 2008
|
December 31,
2007
|
|||||||
| Production equipment | $ | 191,250 | $ | 191,250 | ||||
| Leasehold improvements | 3,235 | - | ||||||
| Office equipment | 1,957 | - | ||||||
| Construction in progress | 2,216,146 | 706,107 | ||||||
| 2,412,588 | 897,357 | |||||||
| Less accumulated depreciation | (41,732 | ) | (22,313 | ) | ||||
| $ | 2,370,856 | $ | 875,044 | |||||
Construction
in progress consists of progress payments made for equipment and facilities that
was completed in May 2008. These assets were not placed into service as of June
30, 2008. These payments were funded through the Capital Lease Obligations. All
assets are pledged as collateral against the Capital Lease
obligation.
F-33
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
3: FIXED
ASSETS -
continued
Depreciation
expense related to fixed assets is as follows:
|
June 30,
2008
|
December 31,
2007
|
|||||||
| Production equipment | $ | 41,438 | $ | 22,313 | ||||
| Leasehold improvements | 186 | - | ||||||
| Office equipment | 108 | - | ||||||
| Construction in progress | - | - | ||||||
| $ | 41,732 | $ | 22,313 | |||||
No
depreciation has been computed on construction in progress as the equipment has
not yet been placed in service as of June 30, 2008.
NOTE
4: INTANGIBLE
ASSETS
Intangible
assets consist of the following at June 30, 2008 and December 31,
2007:
|
June 30,
2008
|
December 31,
2007
|
|||||||
| Intellectual property | $ | 250,750 | $ | 250,750 | ||||
| Contracts and agreements | 213,000 | 213,000 | ||||||
| Customer lists | 195,000 | 195,000 | ||||||
| 658,750 | 658,750 | |||||||
| Less accumulated amortization | (279,090 | ) | (147,049 | ) | ||||
| $ | 385,660 | $ | 511,701 | |||||
Amortization
expense for the above intangible assets for the six months ended June 30, 2008
and 2007, respectively, is $126,141 and $21,008.
NOTE
5: RELATED
PARTY TRANSACTIONS
Indebtedness
from related parties
In 2006,
the company purchased a note receivable of $28,500, from a non-related
individual, due from Mirari, Inc (“Mirari”), a Washington corporation, and an
affiliate under common control. This amount was written off as an investment
loss in 2006. Additionally, during the year 2006, AMIC advanced funds on behalf
of Mirari for rent and administrative costs in the amount of $33,000. This
amount was written off as bad debt in 2006. It is management’s intention to
acquire all the assets and common stock of Mirari during the year
2008.
In
November 2006 the Company received $30,000 from a shareholder and officer in the
form of a loan and in April 2007 received another $50,000 from the same
shareholder. In June 2007 the Company extinguished the $80,000 debt through the
issuance of 160,000 shares of the Company’s common stock. The fair market value
at the time was $.75, resulting in a $40,000 loss from extinguishment of
debt.
Rent
and other administrative expenses
The
Company began renting office space located in Kennewick, Washington from Apogee
Biometrics, Inc. (“ABI”), an affiliate under common control, in January
2006. Commencing January 1, 2006, the parties verbally agreed that
the Company would make monthly rent payments of $3,500 on a month-to-month
basis. In addition, the Company pays 36% of certain administrative
expenses utilized by both parties. During the years ended December
31, 2007 and 2006 the
Company
incurred rent and administrative expenses to ABI totaling $15,147 and $59,500
respectively. The Company
made
payments to ABI totaling $15,147 and $59,500 during the years ended December 31,
2007 and 2006 respectively.
F-34
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
5: RELATED
PARTY TRANSACTIONS -
continued
The
Company terminated the rental agreement with ABI and began renting office and
warehouse space effective August 1, 2007, located in Kennewick, Washington from
a shareholder holding less that 5% of the total shares outstanding. The lease
agreement calls for monthly rental payments starting at $3,500, increasing every
August 1
st
until
they become $4,762 as of August 1, 2011. During the year ended December 31, 2007
the Company incurred rent expenses for this facility totaling $17,500. In
addition, the lease agreement calls for the issuance of $187,500 in common stock
valued at $.40 per share for a total of 416,667 shares. The company recognized
the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value
of that stock over the sixty month term of the lease. For the six months ended
June 30, 2008 and the year ended December 31, 2007 the Company amortized $18,750
and $15,625, respectively, of this stock issuance and recognized it as rent
expense.
Future
minimum rental payments required under the Company’s current rental agreement in
excess of one year as of June 30, 2008, are as follows:
| Twelve months ended June 30, 2009 | $ | 45,080 | ||
| Twelve months ended June 30, 2010 | 48,686 | |||
| Twelve months ended June 30, 2011 | 52,581 | |||
| Twelve months ended June 30, 2012 | 56,788 | |||
| Twelve months ended June 30, 2013 | 4,762 | |||
| Total | $ | 207,897 |
Additionally,
in June 2008, the Company entered into a twelve month lease for its corporate
offices with three four month options to renew, but in no event will the lease
extend beyond May 31, 2010. The lease agreement calls for monthly rental
payments of $5,061 per month. During the six months ended June 30, 2008 the
Company incurred rent expenses for this facility totaling $1,340.
Future
minimum rental payments required under the Company’s current rental agreement in
excess of one year as of June 30, 2008, are as follows:
| Twelve months ended June 30, 2009 | $ | 60,736 | ||
| Twelve months ended June 30, 2010 | 55,675 | |||
| Twelve months ended June 30, 2011 | - | |||
| Twelve months ended June 30, 2012 | - | |||
| Twelve months ended June 30, 2013 | - | |||
| Total | $ | 116,411 |
NOTE
6: BUSINESS
COMBINATION
On June
13, 2007, the Company acquired the assets of the life sciences business segment
of Isonics Corporation (Isonics); a California corporation. Isonics is a
non-related business of the Company and neither company owns stock in the other.
The Company acquired the assets in exchange for $850,000 cash payment for the
purpose of establishing itself in a turnkey distribution business of medical
isotopes. The assets acquired consist of intellectual property, agreements with
third party companies for purchase and marketing of isotopes, customer lists,
and equipment located in Buffalo, New York. None of the acquired assets hold any
ongoing liabilities or contractual obligations that would result in additional
cash transactions required by the Company.
F-35
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
6: BUSINESS
COMBINATION -
continued
Intellectual
property, agreements with third parties and customer lists are stated at the
Companies estimation of fair market value at the time of acquisition, less
accumulated amortization. Amortization of these items is computed using the
straight-line method over the estimated economic useful life of the assets
ranging from 2-3 years. The Company periodically reviews the carrying values of
patents in accordance with SFAS No. 144 and any impairment’s are recognized when
the expected future operating cash flows to be derived from such assets are less
than their carrying value.
Amortization
of these items was $126,041 and $21,008 for the six months ended June 30, 2008
and 2007, respectively. Based on the value of these items recorded at June 30,
2008, and assuming no subsequent impairment of the underlying assets, the annual
amortization expense for each twelve month period ending June 30 is expected to
be as follows: $223,645 for 2009, $162,014 for 2010.
Depreciation
of the equipment was $19,125 and $3,188 for the six months ended June 30, 2008
and 2007, respectively. Based on the value of these items recorded at June 30,
2008, and assuming no subsequent impairment of the underlying assets, the annual
amortization expense for each twelve month period ending June 30 is expected to
be as follows: $38,250 for 2009, $38,250 for 2010, $38,250 for 2011, and $35,063
for 2012
.
The
assets acquired by the Company were recorded at the estimated fair market value
as of the date of acquisition, or $850,000, as follows:
F-36
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
6: BUSINESS
COMBINATION -
continued
The
results of operations from this Business Combination, as if the combination had
taken place on January 1, 2007, are as follows:
|
December 31,
2007
|
||||
| Revenues | $ | 130,055 | ||
| Cost of goods sold | 55,841 | |||
| Gross profit | 74,214 | |||
| General and administrative expenses | 169,361 | |||
| Net loss | $ | (95,147 | ) | |
NOTE
7: LICENSE
FEE ACQUISITION
On
September 27, 2006, the Company acquired the assets of Neu-Hope Technologies,
Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware
corporation. UTEK is a non-related business of the Company, however is a
shareholder of less than 5% of the Company’s issued and outstanding common
stock, as a result of this transaction. The Company acquired NHTI’s assets from
UTEK in exchange for 100,000 shares of the Company’s Series A preferred stock.
At any time after September 27, 2007, these Series A preferred stock shares can
be converted to unrestricted common stock in the amount of $3,350,000. The
number of shares shall be calculated based on the previous 10 day average
closing price on the day of conversion. The Company conducted the acquisition in
order to obtain NHTI’s cash, rights, and customer relationships. The assets
acquired by the Company were recorded at the value which the preferred stock can
be converted into common stock, $3,350,000, as follows:
|
As
of
September 27,
2006
|
||||
| Cash | $ | 310,000 | ||
| License fee | 3,040,000 | |||
| Net assets acquired | $ | 3,350,000 | ||
In
December 2007, 5,000 shares of the Company’s Series A preferred stock were
converted to 299,642 shares of common stock at $.559 per share.
The Company periodically reviews the
carrying values of its License Fees in accordance with SFAS No. 144 and any
impairment’s are recognized when the expected future operating cash flows to be
derived from such assets are less than their carrying value. The useful life of
this license fee has been estimated to be three years and the cost of the asset
is to be written off over the three year period in the form of amortization.
Amortization expense for the six months ended June 30, 2008 and 2007,
respectively, is $482,938 and $482,938.
On August
30, 2006, NHTI entered into a Non-Exclusive License Agreement with the Regents
of the University of California. NHTI paid a non-refundable License Issue Fee in
the amount of $25,000. The license fee is non-refundable unless the Company’s
commercialization plan is deemed unacceptable by the University. If the plan is
deemed unacceptable, the license agreement will terminate and may be converted
to a non-exclusive license. To date, no commercialization plan has been deemed
acceptable or unacceptable.
The
license consists of two patents related to a compact neutron generator and an
external RF antenna technology. The Company believes the utilization of these
two patents will be significant in the production of medical radioisotopes as
well as a significant amount of other commercial applications.
F-37
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
7: LICENSE
FEE ACQUISITION -
continued
In
consideration for the license, the Company agreed to the following
payments:
|
|
·
|
$25,000
License Issue Fee, described above;
|
|
|
·
|
$25,000
upon submission by University of California to U.S. Federal Drug
Administration (or comparable agency) of either notification of or request
for approval of (as applicable), a Licensed
Product;
|
|
|
·
|
$100,000
upon satisfaction of necessary requirements (e.g., notification or receipt
of approval, as applicable) by Federal Drug Administration (or comparable
agency) for commercial sale of a Licensed
Product;
|
|
|
·
|
Royalties
equal to the greater of three percent of the Selling Price of each
Licensed Product Licensee sells or the maintenance fee according to the
following schedule:
|
|
2006
|
$ | 0 | ||
|
2007
|
|
$ | 0 | |
|
2008
|
$ | 10,000 | ||
|
2009
|
$ | 15,000 | ||
|
2010
|
$ | 15,000 | ||
|
2011
|
$ | 45,000 | ||
|
2012 and each
year thereafter
|
$ | 60,000 |
NOTE
8: PREPAID
EXPENSES PAID WITH STOCK
The
Company has issued stock to companies for various service agreements extending
beyond December 31, 2007; however all of which are expected to expire sometime
within the next twelve months. Additionally, the Company issued stock for
prepaid rent which will expire annually through July 2013 at the rate of $37,500
per year. Prepaid Expenses are expected to mature as follows:
| For the twelve month period ending June 30, 2009 | $ | 155,925 | ||
| For the twelve month period ending June 30, 2010 | 37,500 | |||
| For the twelve month period ending June 30, 2011 | 37,500 | |||
| For the twelve month period ending June 30, 2012 | 21,875 | |||
| $ | 252,800 |
NOTE
9: INCOME
TAXES
At June
30, 2008, the Company has net operating loss carry forwards available to offset
future taxable income if any of approximately $3,500,000, which will begin to
expire in 2027. The utilization of the net operating loss carry forwards is
dependent upon the tax laws in effect at the time the net operating loss carry
forwards can be utilized. The Tax Reform Act of 1986 significantly limits the
annual amount that can be utilized for certain of these carry forwards as a
result of the changes in ownership.
In July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – and interpretation of FASB Statement No. 109” (“FIN 48”), which
clarifies the accounting and disclosure for uncertainty in tax positions, as
defined. FIN 48 seeks to reduce the diversity in practice associated with
certain aspects of the recognition and measurement related to accounting for
income taxes. The Company is subject to provisions of FIN 48 as of January 1,
2007, and has analyzed filing positions in all of the Federal and state
jurisdictions where it is required to file income tax returns. Upon review of
the Company’s historical tax filings and consultation with its tax advisors, the
Company believes that it has taken tax positions in preceding years that could
potentially result in reductions to its cumulative net operating
loss
carry-forwards of approximately $1,395,015. The Company is subject to audit by
the IRS and the State of Delaware for the prior three years.
The
Company, as a matter of policy, would record any interest and penalties
associated with taxes as a component of income tax
expenses.
F-38
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
10: STOCKHOLDERS’
EQUITY
Common
stock sale
In
February 2008, the Company issued 825,893 shares of its $.001 par value common
stock to shareholders for common stock subscriptions of $185,688 received in
2007.
In April
2008, the Company issued 240,178 shares of its $.001 par value common stock to
shareholders for common stock subscriptions of $16,812 received in
2007.
In
January 2008 the Company issued 137,500 shares for cash of $55,000 at $.40 per
share.
In
January 2008 the Company issued 250,000 shares for cash of $72,500 at $.29 for
exercised options.
In
February 2008 the Company issued 950,000 shares for cash of $380,000 at $.40 per
share.
In March
2008 the Company issued 550,700 shares for cash of $220,280 at $.40 per
share.
Common
stock issued for services
During
March 2008, the Company issued 299,642 shares of its common stock in exchange
for stock offering costs associated with the acquisition of the assets of
Neu-Hope Technologies, Inc. The value of the transaction totaled $233,720 based
on the quoted market price of stock on the transaction date, or $.78 per
share.
During
April 2008, the Company issued 42,678 shares of its common stock as bonus
compensation to the Chief Science Officer. The value of the transaction totaled
$142,500 based on the quoted market price of stock on the transaction date, or
$.75 per share. Stock-based compensation expense of $142,500 has been recognized
in the accompanying financial statements for the six months ended June 30,
2008.
During
April 2008, the Company issued 50,000 shares of its common stock as bonus
compensation to employees. The value of the transaction totaled $37,500 based on
the quoted market price of stock on the transaction date, or $.75 per share.
Stock-based compensation expense of $37,500 has been recognized in the
accompanying financial statements for the six months ended June 30,
2008.
During
April 2008, the Company issued 70,000 shares of its common stock in exchange for
business consulting services. The value of the transaction totaled $52,500 based
on the quoted market price of stock on the transaction date, or $.75 per share.
Stock-based compensation expense of $52,500 has been recognized in the
accompanying financial statements for the six months ended June 30,
2008.
F-39
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
10: STOCKHOLDERS’
EQUITY -
continued
Common
stock options
During
February 2008, the Company granted a consultant options to purchase 714,286
shares of the Company’s common stock, at an exercise price of $1.05 per share.
The options are fully vested and expire February 12, 2009. The quoted market
price of the common stock at the time of issuance of the options was $.65 per
share. The Company valued the options in accordance with SFAS 123(R). The fair
value of the options totaled $461,827 and was recorded as stock-based
compensation in the accompanying financial statements for the six months ended
June 30, 2008.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 2.05 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 312.5 | % | ||
| Weighted average expected life |
1
year
|
|||
During
March 2008, the Company granted a consultant options to purchase 106,800 shares
of the Company’s common stock, at an exercise price of $.17 per share. The
options are fully vested and expire March 31, 2013. The quoted market price of
the common stock at the time of issuance of the options was $.84 per share. The
Company valued the options in accordance with SFAS 123(R). The fair value of the
options totaled $89,565 and was recorded as stock-based compensation in the
accompanying financial statements for the six months ended June 30,
2008.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 2.48 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.3 | % | ||
| Weighted average expected life |
5 years
|
|||
During
June 2008, the Company granted a consultant options to purchase 39,600 shares of
the Company’s common stock, at an exercise price of $.17 per share. The options
are fully vested and expire June 30, 2013. The quoted market price of the common
stock at the time of issuance of the options was $.69 per share. The Company
valued the options in accordance with SFAS 123(R). The fair value of the options
totaled $27,276 and was recorded as stock-based compensation in the accompanying
financial statements for the six months ended June 30, 2008.
The fair
value of the options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following assumptions:
| Risk-free interest rate | 3.49 | % | ||
| Dividend yield | 0.00 | % | ||
| Volatility factor | 257.5 | % | ||
| Weighted average expected life |
5 years
|
|||
F-40
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
The
following schedule summarizes the changes in the Company’s stock option
plan:
|
Weighted
|
Weighted
|
|||||||||||||||||||
|
Options Outstanding
|
Average
|
Average
|
||||||||||||||||||
|
Number
|
Exercise
|
Remaining
|
Aggregate
|
Exercise
|
||||||||||||||||
|
Of
|
Price
|
Contractual
|
Intrinsic
|
Price
|
||||||||||||||||
|
Shares
|
Per Share
|
Life
|
Value
|
Per Share
|
||||||||||||||||
|
Balance
at December 31, 2007
|
5,197,400 | $ | 0.15-1.05 |
2.03
years
|
$ | 402,300 | $ | 0.56 | ||||||||||||
|
Options
granted
|
2,536,386 | 0.17-1.05 |
.95
years
|
|
91,953 | 1.00 | ||||||||||||||
|
Options
exercised
|
(250,000 | ) | 0.29 | - | - | 0.29 | ||||||||||||||
|
Options
expired
|
(2,125,000 | ) | 0.70 | - | - | 0.70 | ||||||||||||||
|
Balance
at June 30, 2008
|
5,358,786 | $ | 0.15-1.05 |
2.03 years
|
$ | 494,273 | $ | 0.68 | ||||||||||||
|
Exercisable
at December 31, 2007
|
5,197,400 | $ | 0.15-1.05 |
2.03
years
|
$ | 402,300 | $ | 0.56 | ||||||||||||
|
Exercisable
at June 30, 2008
|
5,358,786 | $ | 0.15-1.05 |
1.87
years
|
$ | 494,273 | $ | 0.73 | ||||||||||||
NOTE
11: SUPPLEMENTAL
CASH FLOW INFORMATION
During
the six months ended June 30, 2007, the Company had the following non-cash
investing and financing activities:
|
|
·
|
Increased
prepaid expense paid with stock by $217,500, increased common stock by
$250, and increased paid in capital by
$217,250.
|
|
|
·
|
Increased
patent license fee by $75,000, increased common stock by $250, and
increased paid in capital by
$74,750.
|
|
|
·
|
Increased
common stock by $160, increased paid in capital by $119,840, decreased
note payable – related party by $80,000, and increased loss on debt
extinguishment by $40,000.
|
During
the six months ended June 30, 2008, the Company had the following non-cash
investing and financing activities:
|
|
·
|
Decreased
common stock subscriptions payable and increased paid in capital by
$202,500.
|
|
|
·
|
Decreased
Stock Based Consulting Fees Payable and increased Stock Based Consulting
Fees expense by $10,800.
|
NOTE
12:
SUBSEQUENT EVENTS
The
Company began delivery of short-lived radioisotopes to be used in Positive
Emission Tomography during late July 2008 to a local hospital.
In July
and August 2008 the Company sold 250,000 and 150,000 shares, respectively, of
its common stock at $0.40 per share plus an equal amount of $1.05 one year
warrants.
F-41
Advanced
Medical Isotope Corporation
(A
Development Stage Company)
Notes
to Consolidated Financial Statements
For
the six months ended June 30, 2008 and the year ended December 31,
2007
NOTE
12:
SUBSEQUENT
EVENTS -
continued
In July
2008 the Company issued 100,000 three year options at $0.50 per share for
consulting services.
In July
2008 the Company issued 3,818 shares of its common stock in exchange for
services at a fair market value at the time of issuance of $0.63, resulting in
$2,405 expense to the Company.
In
September 2008 the Company received $250,000 from a shareholder in exchange for
a one year convertible note with interest at 10% per year to be paid at
maturity. The Company provided 100,000 shares at $0.53 fair market value as a
loan origination fee; this fee resulted in an expense to the Company of $53,000.
The principle and interest can be converted to common stock at $1.05 per share,
at the election of the lender.
In
October 2008 the Company issued 107,900 shares of its common stock at its then
fair market value of $0.53 for services to outsiders and bonuses to employees.
These transactions resulted in $57,187 of expense to the Company.
INDEX
TO EXHIBITS.
|
Exhibit
|
||
|
Number
|
Description
|
|
|
3.1
|
Certificate
of Incorporation of Savage Mountain Sports Corporation dated January 11,
2000.
|
|
|
3.2
|
By-Laws
|
|
|
3.3
|
Articles
and Certificate of Merger of HHH Entertainment Inc. and Savage Mountain
Sports Corporation dated April 3, 2000.
|
|
|
3.4
|
Articles
and Certificate of Merger of Earth Sports Products Inc. and Savage
Mountain Sports Corporation dated May 11, 2000.
|
|
|
3.5
|
Certificate
of Amendment of Certificate of Incorporation changing the name of the
Company to Advanced Medical Isotope Corporation dated May 23,
2006.
|
|
|
3.6
|
Certificate of Amendment of Certificate of Incorporation increasing authorized capital dated September 26, 2006. | |
|
10.1
|
Agreement
and Plan of Reorganization, dated as of December 15, 1998, by and among
HHH Entertainment, Inc. and Earth Sports Products, Inc.
|
|
|
10.2
|
Agreement
and Plan of Merger of HHH Entertainment, Inc. and Savage Mountain Sports
Corporation, dated as of January 6, 2000.
|
|
|
10.3
|
Employment
Agreement dated August 15, 2006 with William J. Stokes.
|
|
|
10.4
|
Agreement
and Plan of Acquisition by and between Neu-Hope Technologies, Inc., UTEK
Corporation and Advanced Medical Isotope Corporation dated September 22,
2006
|
|
|
10.5
|
Employment
Agreement dated May 16, 2007 with Leonard Bruce
Jolliff.
|
|
|
10.6
|
Agreement
and Plan of Acquisition by and between Isonics Corporation and Advanced
Medical Isotope Corporation dated June 13, 2007.
|
|
|
10.7
|
Employment Agreement dated January 15, 2008 with Dr. Fu-Min Su. | |
|
23.1
|
Independent Registered Public Accounting Firm's Consent for 2007 | |
|
23.2
|
Independent Registered Public Accounting Firm's Consent for 2006 | |
SIGNATURES
In
accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
| ADVANCED MEDICAL ISOTOPE CORPORATION | |||
|
Date:
November
12, 2008
|
By:
|
/s/ James C. Katzaroff | |
| Name: James C. Katzaroff | |||
| Title: President | |||
35
