UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| [X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2015
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to _________
Commission file number: 0-53497
| 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 No.) |
| 1021 N. Kellogg Street ● Kennewick, WA 99336 |
| (Address of principal executive offices) (Zip Code) |
| (509) 736-4000 |
| Registrant’s telephone number, including area code |
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 Par Value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer | [ ] | Accelerated Filer | [ ] |
| Non-Accelerated Filer | [ ] | Smaller Reporting Company | [X] |
| (Do not check if a smaller reporting company) | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $1,769,000. Shares of common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.
As of May 13, 2016, there were 1,999,998,519 shares of the registrant’s Common Stock and 2,407,545 shares of the registrant’s Series A Preferred Stock outstanding.
Advanced Medical Isotope Corporation
Report on Form 10-K
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS
Except for statements of historical fact, certain information described in this Form 10-K report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information. Advanced Medical Isotope Corporation believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-K report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s Form 10-K, as well as other cautionary language in this Form 10-K report, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.
General Statement of Business
Advanced Medical Isotope Corporation (the “Company,” “AMI” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMI has authorized capital of 2,000,000,000 shares of Common Stock, $0.001 par value per share and 20,000,000 shares of Preferred Stock, $0.001 par value per share (ADMD: OTCQB).
AMI is a late stage radiation oncology focused medical device company engaged in the development of yttrium-90 based brachytherapy devices for the treatment of non-resectable tumors. Brachytherapy uses radiation to destroy cancerous tumors by placing a radioactive isotope inside or next to the treatment area. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. AMI has been recognized as a leader in the development of new isotope technologies by local, state and federal agencies. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.
Since late 2013, AMI has focused its resources on developing a proposed line of yttrium-90 based brachytherapy products for the treatment of non-resectable tumors and on endeavoring to secure FDA clearance with respect to the initial proposed brachytherapy product. AMI’s proposed brachytherapy products incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted AMI an exclusive license to patents covering these developments for manufacturing, processing and applications for medical isotopes (the “Battelle License”).
The Company’s lead product is the Y-90 RadioGel™ device. The Company is currently conducting additional bench and animal tests requested by the FDA to support a new de novo filing with the FDA that would request marketing clearance for the device as a Class II medical device in the United States. The Company is also exploring the pathway to regulatory clearance in other international markets.
In March of 2016, the Company established a wholly-owned subsidiary, IsoPet Solutions Corporation, to focus on the vibrant and expanding veterinary oncology market. IsoPet Solutions will focus on bringing AMI's yttrium-90 brachytherapy products to veterinary oncologists to treat animals such as dogs and cats suffering from tumor cancers. IsoPet Solutions is currently establishing the infrastructure necessary to provide product to veterinary clinics including regulatory clearances and compliance.
Research and development of the Company’s brachytherapy product line has been funded with proceeds from the sale of equity and debt securities as well as a series of grants. On October 28, 2010, the Company received $1,215,000 net proceeds from a Department of Energy grant for the Proposed Congressionally Directed Project entitled “Research to Develop and Test an Advanced Resorbable Brachytherapy Seed Research for Controlled Delivery of Yttrium-90 Microspheres in Cancer Treatment.” On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for this same Brachytherapy Project. Additionally, on September 1, 2015, the Company received notification it had been awarded from Washington State University, $42,019 grant funds from the sub-award project entitled “Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors”.
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The Company requires funding of approximately $1.5 million annually to maintain current operating activities. Over the next 12-24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Following receipt of required regulatory approvals and financing, in the United States, the Company intends to outsource material aspects of manufacturing, distribution, sales and marketing. Outside of the United States, the Company intends to pursue licensing arrangements and/or partnerships to facilitate its global commercialization strategy.
In the longer-term, subject to the Company receiving adequate funding, regulatory approval for brachytherapy products and thereafter being successful in commercializing brachytherapy products, the Company intends to consider resuming research efforts with respect to other products and technologies. The Company’s core goal is to develop and commercialize isotopes, businesses and technologies intended to help improve the diagnosis and treatment of cancer and other illnesses. Among those longer-term projects being considered by the Company are potential solutions for the impending severe shortages of Molybendum-99 and its derivative product Technetium-99m, the most widely used isotopes for diagnostic purposes.
Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and not be able to continue operations.
In April 2015 the Company announced the beginning of its capital restructuring plan. This included reaching an agreement with its primary lender, Carlton Cadwell, and his affiliated entities to convert $5 million of long term debt into a newly designated series of equity based convertible preferred stock as well as having, several other lenders agree to these debt conversion terms. The Company also successfully eliminated approximately $500,000 of seasoned trade payables.
The Company also provided an update on additional matters to significantly simplify the Company's capital structure and improve its balance sheet. The Company reported that in November and December of 2014, in connection with the conversion of certain convertible debt and exercise of warrants, there was an error in the calculation of common shares that should have properly been issued, resulting in significant excess issuances of common stock. The miscalculations were the result of conversions and exercises being executed below the Company's stated par value of $0.001. The transfer agent erroneously issued excess freely tradable common shares based on defective legal opinions provided by the respective note and warrant holders. In order to remedy the situation, the Company notified all applicable convertible note and warrant holders of the excess issuance and has proposed specific solutions to facilitate compliance with the State of Delaware and federal securities laws. Specifically, the investors may either deliver to the transfer agent the excess shares they were issued, or they may offset any remaining convertible debt or warrants to satisfy proper consideration for the excess common shares issued. The Company reported it believed that these actions will have a positive impact on the Company’s balance sheet, potentially eliminating up to $800,000 of convertible debt, potentially eliminating a substantial portion of the warrants outstanding and potentially eliminating a substantial amount of the nearly $11 million of derivative liabilities then outstanding. The obligations that were resolved as of December 31, 2015 are reflected in the year-end financial statements. The obligations resolved subsequent to the end of 2015 are detailed in the subsequent events section of the year-end financial statement.
On June 24, 2015 the Company provided an update on financial matters and stated that it intends to pursue an uplisting transaction as part of its financial recapitalization plan to raise the capital necessary to complete the direct de novo FDA filing for the Y-90 RadioGel™ device and to pursue commercialization and partnering efforts.
On June 30, 2015, the Company filed the Certificate of Designations, Preferences, and Rights of the Series A Convertible Preferred Stock (“ Certificate of Designations ”) with the Delaware Secretary of State, designating 2.5 million shares of the Company’s preferred stock, par value $0.001 per share, as Series A Convertible Preferred Stock (“ Series A Preferred ”). A Certificate of Amendment was filed on March 31, 2016 authorizing 5 million shares.
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On August 28, 2015 the Company announced a collaboration with IsoTherapeutics Group, LLC of Angleton, TX on the preclinical development of Y-90 based brachytherapy products including AMICs Y-90 RadioGel™ device.
In the third quarter, the Company reported it completed a variety of initiatives that significantly reduced the Company’s debt. Dr. Carlton Cadwell and his related entities exchanged an aggregate of $5,338,940 of debt into 355,929 shares of Series A Convertible Preferred. The 305,929 shares of Series A Convertible Preferred converts into 355,929,000 Common shares, at an effective conversion price of $0.015 per share. In addition to the debt conversion, Dr. Cadwell exchanged $1,055,532 of short term debt for a new long term 8% non-convertible note payable upon demand on March 31, 2017. Such note was converted into 73,546 Series A preferred shares on May 19, 2016. Substantially all of the holders of the short term bridge loans have converted their debt into Series A preferred shares. Separately, substantially all of the toxic debt has either been satisfied and removed from the company’s balance sheet or is in the process of finalizing settlement documentation. The Company noted it commenced studies with IsoTherapeutics Group pursuant to the FDA request for further studies and specific manufacturing plans for the Y-90 RadioGel™ device.
In the fourth quarter, the Company announced its progress in seeking FDA clearance for marketing of its lead product, the Y-90 RadioGel™ device. CEO Jim Katzaroff and the lead scientific and medical advisory team from the Company met at the FDA offices to discuss next steps, expectations and required testing to progress towards obtaining marketing clearance for the Y-90 RadioGel™ device. The Company reported it is working closely with the FDA in order to obtain all appropriate data and benchmarks the FDA requires in order to proceed with providing final clearance for marketing the device in the United States. The Company reported it intends to seek classification and clearance as a class II medical device through a de novo application. The Company also announced that its product development partner IsoTherapeutics had completed the first stage of the project, comprised of tech transfer, manufacturing and in vitro testing.
2016 Significant Events
In the first quarter of 2016 the Company’s Founder, Chairman and CEO co-authored an article published in the January, 2016 issue of the World Council on Isotopes (WCI) Newsletter. The WCI was founded in 2008 and has a global membership from over 50 countries consisting of 103 member organizations and 40 individual members. WCI provides a strong voice, as an internationally recognized non-governmental organization, at important regional and international forums.
In the first quarter of 2016, the Company added two members to its Medical Advisory board, Dr. Ludwig E. Feinendegen, M.D. and Dr. Albert S. DeNittis, MD, MS, FCPP. Dr. Ludwig E. Feinendegen is a medical doctor known for his pioneering work and leadership in the fields of both diagnostic and therapeutic applications of radionuclides through various roles and research in nuclear medicine, internal medicine, cell biology and radiobiology. Dr. Feinendegen has numerous honors from national and international institutions and has authored over 700 publications in molecular nuclear medicine, cell biology and low-dose radiobiology. Dr. Albert S. DeNittis is currently is the Chief of Radiation Oncology at Lankenau Medical Center and Clinical Professor at Lankenau Insitute for Medical Research in Wynnewood, Pennsylvania and the Director of Radiation Oncology at Brodesseur Cancer Center in New Jersey. Dr. DeNittis has served on numerous regional, national and government committees related to key issues in the field of oncology including the NRG Oncology group which focuses on protocol development for cancer patients on the national level. He has received regional and national awards for his research and his clinical work and authored over 100 publications and presentations as well as 6 book chapters.
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In the first quarter of 2016, the Company announced the formation of a new, wholly-owned subsidiary, IsoPet Solutions Corporation, to focus on the vibrant and expanding veterinary oncology market. The IsoPet Solutions division will focus on bringing the Company’s yttrium-90 brachytherapy products to veterinary oncologists to treat dogs and cats suffering from tumor cancers. The division will also provide product awareness and education to veterinary oncologists. Dr. Alice Villalobos, DVM, FNAP, a specialist and advocate on the topic of cancer in pets, was appointed Chair of the Company's Veterinary Medicine Advisory Board.
Subsequent to the reporting period, in support of the Company’s efforts to focus resources on the development and commercialization of its yttrium-90 brachytherapy products, the Company permanently closed its Production Facility located in Kennewick Washington. The key piece of equipment, the Company’s linear accelerator is currently being marketed for sale.
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Collaborations
The Company is engaged in collaborative efforts with U.S. national laboratories and universities and with international teaming partners. The Company has active research collaborations for its brachytherapy products with Washington State University and the University of Utah as well as the Pacific Northwest National Laboratory, operated by Battelle.
On August 28, 2015 the Company announced a collaboration with IsoTherapeutics Group, LLC of Angleton, TX on the preclinical development of Y-90 based brachytherapy products including AMICs Y-90 RadioGel™ device.
Products
Brachytherapy
Pursuant to the Battelle License, the Company has licensed certain exclusive rights to yttrium-90 (Y-90) polymer composite technology developed at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. The license agreement grants the Company the exclusive right to manufacture and market products using the yttrium-90 isotope carried by an injectable water-based biodegradable polymer. The use of yttrium 90 (Y-90) for the treatment of cancers is well established.
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Subject to receipt of all required regulatory approvals from the FDA in the United States and analogous regulators outside of the United States, the Company plans to introduce a new Y-90-based brachytherapy product line for a range of applications for the delivery of a prescribed dose of radiation to a target site. If the Company receives FDA clearance for the Y-90 RadioGel™ device, subject to receipt of adequate financing, the Company will commence production, sales, and distribution of that product. Also, subject to receipt of adequate financing, the Company intends then to seek FDA clearance for the two additional products described below, each of which also incorporates the patented technologies licensed from Battelle. Even if the FDA grants clearance for the Y-90 RadioGel™ device there can be no assurance the FDA would also grant clearance for either or both of the foregoing products.
Y-90 RadioGel™ device - combines Y-90 particles with a polymer carrier that may be injected directly into the tumor.
Y-90 Fast-Resorbable Polymer Seeds - Y-90 contained within a polymer seed, as opposed to metal or glass. This product would be used in place of treating cancers with currently marketed titanium or glass seeds.
Y-90 Polymer Topical Paste – designed to be applied directly to tissue surfaces after surgical tumor removals (also referred to as “resections”) to treat residual tumor cells.
Based upon its studies and analyses, or general application of experience with current brachytherapy devices and yttrium-90, the Company believes that if it is able to obtain regulatory approval and adequate financing to commercialize our products, our brachytherapy products are likely to offer the following benefits, among others, for patients and medical professionals:
| ● | Maximizing Therapeutic Index: The short-range beta particles emitted by Y-90 deliver radiation energy within a tight range. This enables radiation to be selectively delivered to target tissues while minimizing radiation dose to nearby normal tissues. High therapeutic indices imply that more radiation energy may be imparted to cancer tissues, with less radiation reaching adjacent normal tissues. |
| ● | Half Life: The industry-standard products have a half-life of 17 days, meaning the patient is radioactive for over two months. The Company’s brachytherapy products use the yttrium-90 isotope, which has a half-life of just 2.7 days. A patient treated with Y-90 would be close to radiation free in 10 days. |
| ● | Optimized Delivery Method: Current brachytherapy devices place permanent metal particles seeds in the prostate by using up to 30 large gauge needles. By contrast, the Company’s biodegradable polymer carrying Y-90 particles may be administered with small-gauge needles. |
| ● | No Permanent Seeds Remaining: Other brachytherapy devices place permanent metal seeds in the tumor. The Company’s Y-90 RadioGel™ device utilizes a biodegradable, non-toxic polymer that is ultimately absorbed by the body. This eliminates the possibility of a long-term seed migration or other problems that may sometimes arise when seeds remain in the body. |
| ● | Good Safety Profile: Many current brachytherapy devices utilize isotopes that emit x-rays (akin to gamma radiation). X-rays or gamma radiation travels within and outside of the body and the isotopes used in current brachytherapy products can remain radioactive for more than two months. The Company’s brachytherapy products use the yttrium-90 isotope, which is a beta-emitter. The yttrium-90 beta-emissions travel only a short distance and have a short half life of 2.7 days. |
In June 2015, the FDA notified the Company that the de novo submitted on December 23, 2014 for its Y-90 RadioGel™ device pursuant to Section 513(f)(2) of the U.S. Food, Drug and Cosmetic Act (the “Act”)was not accepted. The Company had several formal and informal interactions with the FDA during the second half of 2015 to clarify the agency’s expectations for data and testing to be provided in a future filing. The Company has incorporated the feedback from the FDA into its continued and active product development and commercialization efforts, utilizing its partnership with IsoTherapeutics Group.
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Competitors and Markets
There are established competitors in all of the markets in which the Company has products or currently plans to have products.
Brachytherapy
Brachytherapy is the use of radiation to destroy cancerous tumors by placing a radiation source inside or next to the treatment area. According to the 2014 MEDraysintell report, the global market for brachytherapy reached US$ 680 million in 2013 and is projected to reach $2.4 billion by 2030. It is estimated that the U.S. market represents approximately half of the global market. The Company believes there are significant opportunities in prostate, breast, liver, pancreatic, head and neck cancers. The 2014 U.S. estimated new cases of cancer according to the American Cancer Society are 233,000 prostate, 235,030 breast, 31,190 liver, and 46,420 pancreas.
There are a wide variety of cancer treatments approved and marketed in the U.S. and globally. General categories of treatment include surgery, chemotherapy, radiation therapy and immunotherapy. These products have a diverse set of success rates and side effects. The Company’s products fall into a particular type of radiation therapy called brachytherapy. There are a number of brachytherapy devices currently marketed in the U.S. and globally. The traditional iodine-125 (I-125) and palladium-103 (Pd-103) technologies for brachytherapy are well entrenched with powerful market players controlling the market. The industry-standard I-125-based therapy was developed by Oncura, which is a unit of General Electric Company (NYSE:GE) Additionally, C.R. Bard, a major industry player competes in the I-125 brachytherapy marketplace. These market competitors are also involved in the distribution of Pd-103 based products. Cs-131 brachytherapy products are sold by IsoRay (AMEX:ISR). Several Y-90 therapies have been FDA approved including SIR-Spheres by Sirtex (OTC:SXMDF), TheraSphere by Biocompatibles UK (OTC:BCTBF) and Zevalin by Spectrum Pharmaceuticals (NASDAQ:SPPI).
Veterinary Brachytherapy
There are about 150 million pet dogs and cats in the United States. Nearly half of dogs and one third of cats are diagnosed with cancer at some point in their lifetime. The Veterinary Oncology & Hermatology Center in Norwalk, CT reports that cancer is the number one natural cause of death in older cats and dogs, accounting for nearly 50 percent of pet deaths each year. The American Veterinary Medical Association reports that half of the dogs ten years or older will die because of cancer. The National Cancer Institute reports that about six million dogs are diagnosed with cancer each year, translating to more than 16,000 a day. The average cost of treating tumors in dogs using radiation is $5,000-7,000 according to petcarerx.com.
There are oncology treatments available currently in the U.S. and globally for the veterinary market represent a similar, but smaller set of products than is available for the human market.
Employees
As of December 31, 2015, the Company had six employees, including three full-time employees. The Company utilizes eight to ten independent contractors to assist with its operations. The Company does not have a collective bargaining agreement with any of its employees, and believes its relations with its employees are good. The Company is not current on payroll and requires additional funding to make past and current payroll payments.
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Raw Materials
The Company manufactures research quantities of brachytherapy products or components of these products. The Company obtains supplies, hardware, handling equipment and packaging from several different U.S. and foreign suppliers. Some of the products the Company manufactures or intend to manufacture require purchasing raw materials from a limited number of suppliers, many of which are international suppliers.
Customers
The Company’s sale for 2015 consisted of only Consulting Income.
The Company anticipates that potential customers for our potential brachytherapy products likely would include those institutions and individuals that currently purchase brachytherapy products or other oncology treatment products.
Patents, Trademarks, Licenses
License Agreement:
The Company has made the following investments in patent licenses and intellectual property during 2015:
No patent filing costs were capitalized during the twelve months ended December 31, 2015 and 2014. During the year ended December 31, 2013 the Company impaired $332,709 worth of patent and intellectual property. This left a total $35,482 of capitalized patents and intellectual property costs at December 31, 2015 and 2014. The patents are pending and are being developed, and as such, the patents and filing costs associated with them are not being amortized.
In February 2011, the Company paid $5,000 for a one year option to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radioactive polymer gel technology. Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of a patented brachytherapy gel technology. This license agreement requires a $17,500 nonrefundable license fee and a payment of a royalty based on a percent of gross sales for licensed products sold. The agreement also requires payment of a minimum royalty amount to be paid each year starting with 2013.
Research and Development
The costs incurred in the twelve months ended December 31, 2014 were $414,906 towards the Brachytherapy Project and $19,113 towards the Molybdenum Project, for a total cost of $434,019. The costs incurred in the twelve months ended December 31, 2015 were $431,564 towards the Brachytherapy Project and $0 towards the Molybdenum Project, for a total cost of $431,564.
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Government Regulation
Significant areas of regulation and intervention include the following:
Environmental and Health Compliance.
The Company is committed to conducting its activities so that there is no or only minimal impact to the environment; there is no assurance, however, that the Company’s activities will not at times result in liability under environmental and health regulations.
The current ongoing continuing costs of compliance are immaterial. Future costs and expenses resulting from such liability may, however, materially negatively impact the Company’s operations and financial condition. Overall, environmental and health laws and regulations will continue to affect the Company’s businesses worldwide.
Medical Device Regulation
In the United States, radioactive medical devices are regulated by the U.S. Food and Drug Administration (FDA) Center for Devices and Radiological Health (CDRH) under the Food and Drugs Act (CFR Title 21). Three categories of medical devices, Class I, Class II and Class III each of specific regulations that apply to the testing, approvals and marketing of such devices. In other countries there are also regulatory bodies that oversee the testing, approval and marketing of radiological devices.
Import/Export Regulation.
The Company is subject to significant regulatory oversight of the Company’s import and export operations due to the nature of its product offerings. Penalties for non-compliance can be significant, and violation can result in adverse publicity and financial risk for the Company.
Financial Accounting Standards.
The Company’s financial results can be impacted by new or modified financial accounting standards.
Other Regulations.
The Company’s operations are subject to rules and regulations administered by the U.S. Nuclear Regulatory Commission, Department of Energy, Food and Drug Administration, Department of Transportation, Department of Homeland Security, the Washington State Department of Health and other regulatory bodies. To the extent that these regulations are or become burdensome, business development could be adversely affected.
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Available Information
The Company prepares and files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”). Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. Moreover, the Company maintains a website at http://www.isotopeworld.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business. This information is publicly available (i.e., not password protected) and is updated regularly. The content on any website referred to in this Form 10-K report is not incorporated by reference into this Form 10-K report, unless (and only to the extent) expressly so stated herein.
Any of the risk factors described below could cause the Company’s business or financial performance to differ from any expectations or other forward-looking statements set forth in this Form 10-K report. Any of the risks described below, as well as other risks or uncertainties set forth elsewhere in this report could materially and adversely affect the Company’s business, operations, prospects, results of operation, financial condition, or the value of its stock or other securities.
RISKS ASSOCIATED WITH THE COMPANY’S BUSINESS
Our independent registered public accounting firm’s report on its financial statements questions the Company’s ability to continue as a going concern.
The Company’s independent registered public accounting firm’s report on the Company’s financial statements for the years ended December 31, 2015 and 2014 expresses doubt about the Company’s ability to continue as a going concern. The report includes an explanatory paragraph stating that the Company has suffered recurring losses, used significant cash in support of its operating activities and, based on its current operating levels, require additional capital or significant restructuring to sustain its operation for the foreseeable future. There is no assurance that the Company will be able to obtain sufficient additional capital to continue its operations and to alleviate doubt about its ability to continue as a going concern. If the Company obtains additional financing, such funds may not be available on favorable terms and likely would entail considerable dilution to existing shareholders. Any debt financing, if available, may involve restrictive covenants that restrict its ability to conduct its business. It is extremely remote that the Company could obtain any financing on any basis that did not result in considerable dilution for shareholders. Inclusion of a “going concern qualification” in the report of its independent accountants or in any future report may have a negative impact on its ability to obtain debt or equity financing and may adversely impact its stock price.
A combination of our current financial condition and the FDA’s determinations to date regarding our brachytherapy products raise material concerns about ability to continue as a going concern.
The Company will not be able to continue as a going concern unless the Company obtains financing. Depending upon the amount of financing, if any, that the Company is able to obtain, the Company may not receive adequate funds to continue the approval process with the FDA.
The Company has generated operating losses since inception, which are expected to continue, and has increasing cash requirements, which it may be unable to satisfy .
The Company has generated material operating losses since inception. The Company has had recurring net losses since inception which has resulted in a total Retained Earnings Accumulated Deficit of $54,247,231, including a net loss of $18,108,706 for the year ended December 31, 2014 and a net gain of $6,232,686 for the year ended December 31, 2015. Historically, the Company has relied upon investor funds to maintain its operations and develop its business. The Company needs to raise additional capital within the next quarter from investors for working capital as well as business expansion, and there is no assurance that additional investor funds will be available on terms acceptable to the Company, or at all. If the Company is unable to unable to obtain additional financing to meet its working capital requirements, the Company likely would cease operations.
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The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12-24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
Recent economic events, including the inherent instability in global capital markets, as well as the lack of liquidity in the capital markets, could adversely impact the Company’s ability to obtain financing and its ability to execute its business plan.
The Company has a limited operating history, which may make it difficult to evaluate its business and prospects.
The Company has a limited operating history upon which one can base an evaluation of its business and prospects. As a company in the development stage, there are substantial risks, uncertainties, expenses and difficulties to which its business is subject. To address these risks and uncertainties, the Company must do the following:
| ● | Successfully develop and execute the business strategy; | |
| ● | Respond to competitive developments; and | |
| ● | Attract, integrate, retain and motivate qualified personnel. |
There is no assurance that the Company will achieve or maintain profitable operations or that the Company will obtain or maintain adequate working capital to meet its obligations as they become due. The Company cannot be certain that its business strategy will be successfully developed and implemented or that the Company will successfully address the risks that face its business. In the event that the Company does not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected.
The Company’s new products are regulated and require appropriate clearances and approvals to be marketed in the U.S. and globally.
There is no assurance that the FDA or other global regulatory authorities will grant the Company permission to market the Company’s products, including the Company’s brachytherapy Y-90 RadioGel™ device, Y-90 Fast-Resorbable Polymer Seeds and Y-90 Polymer Topical Paste.
The Company has been working with the FDA to obtain clearance for its brachytherapy Y-90 RadioGel™ device, but no promises or assurances have been received. It is important to note that the FDA has determined that the Y-90 RadioGel™ device is a medical device. On December 23, 2014 the Company announced that it submitted a de novo to the FDA for marketing clearance for its patented Y-90 RadioGel™ device pursuant to Section 513(f)(2) of the U.S. Food, Drug and Cosmetic Act (the “Act”). In June 2015 the FDA notified the Company the de novo was not granted. The Company intends to generated additional data and file a new de novo . In February 2014, the FDA found the same device under Section 510(k) of the Act not substantially equivalent, and concluded that the device is classified by statute as a Class III medical device, unless the device is reclassified. By filing the de novo , the Company is seeking reclassification of the product to Class II. If the de novo is granted, as a regulatory matter, the device could be immediately marketed in the United States, though, as a practical matter, the Company would have to secure funding and commercial arrangements before marketing could commence. If the de novo is declined and if the Company obtains funding to permit it to continue operations, the Company will explore steps toward seeking approval for the device as a Class III medical device. Generally, the time period and cost of seeking approval as a Class III medical device is materially greater than the time period and cost of seeking approval as a Class II medical device. If the Company seeks approval as a Class III device, human clinical trials will be necessary. Generally, human trials for Class III products are larger, of longer duration and more costly than those for Class II devices. If human clinical trials are necessary, there will be additional cost and time to reach marketing clearance or approval. Unless the Company obtains sufficient funding it will be unable to do the foregoing activities. There can be no assurance that the product will be approved as either a Class II or Class III device by the FDA even if additional data is provided. There can be no assurance that the Company will receive FDA approval, or the timing thereof.
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If the Company is successful in increasing the size of its organization, the Company may experience difficulties in managing growth.
The Company is a small organization with a minimal number of employees. If the Company is successful, it may experience a period of significant expansion in headcount, facilities, infrastructure and overhead and further expansion may be required to address potential growth and market opportunities. Any such future growth will impose significant added responsibilities on members of management, including the need to improve the Company’s operational and financial systems and to identify, recruit, maintain and integrate additional managers. The Company’s future financial performance and its ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.
The Company is heavily dependent on its key personnel and consultants. The loss of any of these key personnel or consultants could have a material adverse effect on the Company’s business, results of operations and financial condition.
The Company’s success is heavily dependent on the continued active participation of its current executive officers and certain consultants and collaborating scientists. Certain key employees have no written employment contracts. The Company does not have key-man insurance on any of its executive officers or consultants. Loss of the services of any one or more of its executive officers or consultants could have a material adverse effect upon the Company’s business, results of operations and financial condition.
If the Company is unable to hire and retain additional qualified personnel, the business and financial condition may suffer.
The Company’s success and achievement of its growth plans depend on its ability to recruit, hire, train and retain highly qualified technical, scientific, regulatory and managerial employees, consultants and advisors. Competition for qualified personnel among pharmaceutical and biotechnology companies is intense, and an inability to attract and motivate additional highly skilled personnel required for the expansion of the Company’s activities, or the loss of any such persons, could have a material adverse effect on its business, results of operations and financial condition.
The Company’s revenues have been derived from sales made to a small number of customers. The Company has discontinued prior operations and to succeed would need a materially larger number of customers.
During 2014, the Company ceased all previous manufacturing and sales activities. Our sales for the year ended December 31, 2015 and 2014 consisted of only Consulting Income. The Company’s consulting revenues for the years ended December 31, 2014 and 2015 were made to one customer, and those sales constituted 100.0% and 100.0%, respectively, of total revenues for those years. There is no assurance that the Company will be successful in achieving an expansion of the customers purchasing its products and services.
Many of the Company’s competitors have greater resources and experience than the Company has.
Many of the Company’s competitors have greater financial resources, longer history, broader experience, greater name recognition, and more substantial operations than the Company has, and they represent substantial long-term competition for us. The Company’s competitors may be able to devote more financial and human resources than the Company can to research, new product development, regulatory approvals, and marketing and sales. The Company’s competitors may develop or market products that are viewed by customers as more effective or more economical than the Company’s products. There is no assurance that the Company will be able to compete effectively against current and future competitors, and such competitive pressures may adversely affect the Company’s business and results of operations.
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The Company’s future revenues depend upon acceptance of its current and future products in the markets in which they compete.
The Company’s future revenues depend upon receipt of financing, regulatory approval and the successful production, marketing, and sales of the various isotopes the Company might market in the future. The rate and level of market acceptance of each of these products, if any, 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 any competing products; the clinical outcomes of any patients treated; the effectiveness of its sales and marketing efforts in the United States, Europe, Far East, Middle East, and Russia; any unfavorable publicity concerning its products or similar products; the price of the Company’s 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 its products; availability of sufficient supplies to either purchase or manufacture its products; its ability to produce sufficient quantities of its products; and the ability of physicians to properly utilize its products and avoid excessive levels of radiation to patients. Any material adverse developments with respect to the commercialization of any such products may adversely affect revenues and may cause the Company to continue to incur losses in the future.
The Company will in the future rely heavily on a limited number of suppliers.
Some of the products the Company might market and components thereof are currently available only from a limited number of suppliers, several of which are international suppliers. Failure to obtain deliveries from these sources could have a material adverse effect on the Company’s ability to operate.
The Company may incur material losses and costs as a result of product liability claims that may be brought against it.
The Company faces an inherent business risk of exposure to product liability claims in the event that products supplied by the Company fail to perform as expected or such products result, or is alleged to result, in bodily injury. Any such claims may also result in adverse publicity, which could damage the Company’s reputation by raising questions about the safety and efficacy of its products, and could interfere with its efforts to market its products. A successful product liability claim against the Company in excess of its available insurance coverage or established reserves may have a material adverse effect on its business. Although the Company currently maintains liability insurance in amounts it believes are commercially reasonable, any product liability the Company may incur may exceed its insurance coverage.
The Company is subject to the risk that certain third parties may mishandle the Company’s products.
If the Company markets products, the Company likely will rely on third parties, such as commercial air courier companies, to deliver the products, and on other third parties to package the products in certain specialized packaging forms requested by customers. The Company thus would be subject to the risk that these third parties may mishandle its product, which could result in material adverse effects, particularly given the radioactive nature of some of the products.
The Company’s operations expose it to the risk of material environmental liabilities.
The Company is 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. The Company is 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 can require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases. The Company expects 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 may require the Company to incur costs in the future that would have a negative effect on its financial condition or results of operations. Operational hazards could result in the spread of contamination within the Company’s facility and require additional funding to correct.
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The Company is subject to uncertainties regarding reimbursement for use of its products.
Hospitals and freestanding clinics may be less likely to purchase the Company’s products if they cannot be assured of receiving favorable reimbursement for treatments using its 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 there is no assurance that they will reimburse the Company’s customers at levels sufficient for it to maintain favorable sales and price levels for the Company’s products. There is no uniform policy on reimbursement among third-party payers, and there is no assurance that the Company’s 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 the Company’s products would likely have a material adverse effect on the Company’s revenues.
The Company’s future growth is largely dependent upon its ability to develop new technologies that achieve market acceptance with appropriate margins.
The Company’s business operates in global markets that are characterized by rapidly changing technologies and evolving industry standards. Accordingly, future growth rates depends upon a number of factors, including the Company’s ability to (i) identify emerging technological trends in the Company’s target end-markets, (ii) develop and maintain competitive products, (iii) enhance the Company’s products by adding innovative features that differentiate the Company’s products from those of its competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively. The Company’s ability to develop new products based on technological innovation can affect the Company’s competitive position and requires the investment of significant resources. These development efforts divert resources from other potential investments in the Company’s business, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of the Company’s customers as fully as competitive offerings. In addition, the markets for the Company’s products may not develop or grow as it currently anticipates. The failure of the Company’s technologies or products to gain market acceptance due to more attractive offerings by the Company’s competitors could significantly reduce the Company’s revenues and adversely affect the Company’s competitive standing and prospects.
The Company may rely on third parties to represent it locally in the marketing and sales of its products in international markets and its revenue may depend on the efforts and results of those third parties.
The Company’s future success may depend, in part, on its ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in the Company’s products and the Company’s products under development, and the collaborator’s ability to successfully market and sell any such products. The Company intends to pursue collaborative arrangements regarding the marketing and sales of its products; however, it may not be able to establish or maintain such collaborative arrangements, or if it is able to do so, the Company’s collaborators may not be effective in marketing and selling its products. To the extent that the Company decides not to, or is unable to, enter into collaborative arrangements with respect to the sales and marketing of its 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 the Company depends on third parties for marketing and distribution, any revenues received by the Company will depend upon the efforts and results of such third parties, which may or may not be successful.
The Company may pursue strategic acquisitions that may have an adverse impact on its business.
Executing the Company’s business strategy may involve pursuing and consummating strategic transactions to acquire complementary businesses or technologies. In pursuing these strategic transactions, even if the Company does not consummate them, or in consummating such transactions and integrating the acquired business or technology, the Company may expend significant financial and management resources and incur other significant costs and expenses. There is no assurance that any strategic transactions will result in additional revenues or other strategic benefits for the Company’s business. The Company may issue the Company’s stock as consideration for acquisitions, joint ventures or other strategic transactions, and the use of stock as purchase consideration could dilute the interests of its current stockholders. In addition, the Company may obtain debt financing in connection with an acquisition. Any such debt financing may involve restrictive covenants relating to capital-raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and pursue business opportunities, including potential acquisitions. In addition, such debt financing may impair the Company’s ability to obtain future additional financing for working capital, capital expenditures, acquisitions, general corporate or other purposes, and a substantial portion of cash flows, if any, from the Company’s operations may be dedicated to interest payments and debt repayment, thereby reducing the funds available to the Company for other purposes.
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The Company will need to hire additional qualified accounting personnel in order to remediate a material weakness in its internal control over financial accounting, and the company will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of its internal control over financial reporting and its disclosure controls and procedures.
As a public company, the Company is subject to the reporting requirements of the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002. The Company’s management is required to evaluate and disclose its assessment of the effectiveness of the Company’s internal control over financial reporting as of each year-end, including disclosing any “material weakness” in the Company’s internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of its assessment, management has determined that there is a material weakness due to the lack of segregation of duties and, due to this material weakness, management concluded that, as of December 31, 2014 and 2015, the Company’s internal control over financial reporting was ineffective. This material weakness was first identified in the Company’s Form 10-K/A amended annual report for the year ended December 31, 2008. This material weakness has the potential of adversely impacting the Company’s financial reporting process and the Company’s financial reports. Because of this material weakness, management also concluded that the Company’s disclosure controls and procedures were ineffective as of December 31, 2014 and 2015. See Item 9A of this Form 10-K report. The Company needs to hire additional qualified accounting personnel in order to resolve this material weakness. The Company also will need to expend any additional resources and efforts that may be necessary to establish and to maintain the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures.
The Company may be unable to make timely license and patent payments
Patent costs associated with existing and new technology are significant. Existing patent and license fees must be paid for the Company to maintain rights to the technology. The Company would forfeit its exclusive rights to licensed technologies without paying patent and rights fees in a timely fashion. There is no assurance of sufficient capital to meet ongoing legal costs associated with the patent costs for the Company’s technology.
The Company’s patented or other technologies may infringe on other patents, which may expose it to costly litigation.
It is possible that the Company’s patented or other technologies may infringe on patents or other rights owned by others. The Company may have to alter its products or processes, pay licensing fees, defend infringement actions 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 the Company. Patent litigation is costly and time consuming, and the Company may not have sufficient resources to pursue such litigation. If the Company does not obtain a license under such patents, if it is found liable for infringement, or if it are not able to have such patents declared invalid, the Company 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 the Company’s intellectual property is critical to its innovation efforts.
The Company owns or has a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights. The Company’s intellectual property rights may be challenged, invalidated or infringed upon by third parties, or it 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 adversely affect the scope or enforceability of the Company’s patents and other intellectual property rights. Any of these events or factors could diminish or cause the Company to lose the competitive advantages associated with the Company’s intellectual property, subject the Company to judgments, penalties and significant litigation costs, or temporarily or permanently disrupt its sales and marketing of the affected products or services.
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The Company may not be able to protect its trade secrets and other unpatented proprietary technology, which could give competitors an advantage.
The Company relies upon trade secrets and other unpatented proprietary technology. The Company may not be able to adequately protect its rights with regard to such unpatented proprietary technology, or competitors may independently develop substantially equivalent technology. The Company seeks to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with its employees, consultants, advisors and collaborators. Nevertheless, these agreements may not effectively prevent disclosure of the Company’s confidential information and may not provide the Company with an adequate remedy in the event of unauthorized disclosure of such information, and as a result the Company’s competitors could gain a competitive advantage.
General economic conditions in markets in which the Company does business can impact the demand for the Companies goods and services. Decreased demand for the Companies products and services could have a negative impact on its financial performance and cash flow.
Demand for the Company’s products and services, in part, depends on the general economic conditions affecting the countries and industries in which the Company does business. A downturn in economic conditions in a country or industry that the Company serves may adversely affect the demand for the Company’s products and services, in turn negatively impacting the Company’s operations and financial results. Further, changes in demand for the Company’s products and services can magnify the impact of economic cycles on the Company’s businesses. Unanticipated contract terminations by current customers can negatively impact operations, financial results and cash flow. The Company’s 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 financial markets could adversely affect interest rates and impact the Company’s ability to obtain credit or attract investors.
The Company is subject to extensive government regulation in jurisdictions around the world in which it does business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and those regulations can significantly increase the cost of doing business, which in turn can negatively impact operations, financial results and cash flow.
If the Company is successful in expanding its manufacturing capability, the Company will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which it conducts business. Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs, and changes to current regulations with which the Company complies can necessitate further capital expenditures and increases in operating costs to enable continued compliance. Additionally, from time to time, the Company may be 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.
Volatility in raw material and energy costs, interruption in ordinary sources of supply, and an inability to recover from unanticipated increases in energy and raw material costs could result in lost sales or could increase significantly 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 the Company’s products and services are beyond the Company’s control. Any disruption or halt in supplies, or rapid escalations in costs, could adversely affect the Company’s ability to manufacture products or to competitively price the Company’s products in the marketplace. To date, the ultimate impact of 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 the Company’s business and financial performance.
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The Company’s common stock is listed on the OTC Bulletin Board. Failure to develop or maintain a more active trading market may negatively affect the value of the Company’s common stock, may deter some potential investors from purchasing the Company’s common stock or other equity securities, and may make it difficult or impossible for stockholders to sell their shares of common stock.
The Company’s average daily volume of shares traded for the years ended December 31, 2015 and 2014 was 40,392,679 and 20,161,465, respectively . Failure to develop or maintain an active trading market may negatively affect the value of the Company’s common stock, may make some potential investors unwilling to purchase the Company’s common stock or equity securities that are convertible into or exercisable for the Company’s common stock, and may make it difficult or impossible for the Company’s stockholders to sell their shares of common stock and recover any part of their investment.
RISKS RELATED TO THE COMPANY’S COMMON STOCK
The Company’s outstanding securities, the stock or securities that it may become obligated to issue under existing agreements, and certain provisions of those securities, may cause immediate and substantial dilution to existing stockholders and may make it more difficult to raise additional equity capital.
The Company had 1,999,998,519 shares of common stock outstanding on May 13, 2016. The Company also had outstanding on that date derivative securities consisting of options, warrants, and convertible notes that if they had been exercised and converted in full on May 13, 2016, would have resulted in the issuance of up to 1,470,077,392 additional shares of common stock. However the Company has been in negotiations with some of the holders of convertible notes and has successfully reached agreements, subsequent to December 31, 2015, with some of the note holders that would reduce the 1,470,077,392 additional shares of common stock by 680,233,376 shares of common stock. The issuance of shares upon the exercise of options or the conversion of convertible notes may result in substantial dilution to each stockholder by reducing that stockholder’s percentage ownership of the Company’s total outstanding common stock. See Item 13 of this Form 10-K report regarding its convertible notes. Additionally, the Company has outstanding notes that if not prepaid by specific dates entitle the holder to convert the principal and accrued interest into common stock at 61% of an average trading price of the Company’s common stock prior to conversion as provided in the notes. See Note 11 of the Notes to its Financial Statements included in this Form 10-K report. The issuance of some or all of those warrants and any exercise of those warrants will have the effect of further diluting the percentage ownership of the Company’s other stockholders. That agreement also provides for stock compensation for consulting services. The existence and terms of these derivative securities and other obligations may make it more difficult for the Company to raise additional capital through the sale of stock or other equity securities.
Future sales of the Company’s stock, including sales following exercise or conversion of derivative securities, or the perception that such sales may occur, may depress the price of common stock and could encourage short sales.
The sale or availability for sale of substantial amounts of the Company’s shares in the public market, including shares issuable upon exercise of options or warrants or upon the conversion of convertible securities, or the perception that such sales may occur, may adversely affect the market price of the Company’s common stock. Any decline in the price of the Company’s common stock may encourage short sales, which could place further downward pressure on the price of the Company’s common stock.
The Company’s authorized common stock is insufficient to meet its obligations
As of December 31, 2015 there was an insufficient amount of the Company’s authorized common stock to satisfy the potential number of shares that would be required to satisfy the outstanding options, warrants and convertible debt into common stock. As a result, the Company recorded a liability in the amount of $852,091, offset by $852,091 of equity. There are ongoing discussions with some of the Company’s lenders regarding alternatives to rectify the situation. There can be no assurance that a reasonable outcome will be reached.
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The Company’s outstanding securities, the stock or securities that it may become obligated to issue under existing agreements, and certain provisions of those securities, may cause immediate and substantial dilution to existing stockholders and may make it more difficult to raise additional equity capital.
The Company had 1,999,998,519 shares of common stock outstanding on May 13, 2016. The Company also had outstanding on that date derivative securities consisting of options, warrants, and convertible notes that if they had been exercised and converted in full on May 13, 2016, would have resulted in the issuance of up to 1,1470,077,392 additional shares of common stock without factoring in the par value limitation as required under Delaware law. The issuance of shares upon the exercise of options or the conversion of convertible notes may result in substantial dilution to each stockholder by reducing that stockholder’s percentage ownership of the Company’s total outstanding common stock. See Item 13 of this Form 10-K report regarding its convertible notes. Additionally, the Company has outstanding notes that if not prepaid by specific dates entitle the holder to convert the principal and accrued interest into common stock at 61% of an average trading price of the Company’s common stock prior to conversion as provided in the notes. See Note 11 of the Notes to its Financial Statements included in this Form 10-K report. The existence and terms of these derivative securities and other obligations may make it more difficult for the Company to raise additional capital through the sale of stock or other equity securities.
The Company, as a Delaware Corporation, is subject to the laws of that state. Under Delaware law, the Company may not issue shares for a value less than par value. Certain issuances that occurred in the fourth quarter of 2014 were issued in error below par value in violation of Delaware Law. The Company intends to enforce the Delaware par value limitation, and to remedy any transactions that occurred below par in 2014. Under this limitation, the conversion and exercise floor would then consist of 1,313,292,440 shares and the Company anticipates that the convertible note holders will either deliver to the Company the excess shares, or deliver cash, or have any remaining principal and interest lowered by the equivalent dollar amount that is owed to the Company as a result of the excess shares issued to these holders. The outcome and timing related to Company’s enforcement of the par value limitation on its convertible securities cannot be determined at this time.
The Company’s stock price is likely to be volatile.
For the year ended December 31, 2015, the reported low closing price for the Company’s common stock was $0.00014 per share, and the reported high closing price was $0.049 per share. For the year ended December 31, 2014, the reported low closing price for the Company’s common stock was $0.0009 per share, and the reported high closing price was $0.12 per share. There is generally significant volatility in the market prices, as well as limited liquidity, of securities of early stage companies, particularly early stage medical product companies. Contributing to this volatility are various events that can affect the Company’s stock price in a positive or negative manner. These events include, but are not limited to: governmental approvals, refusals to approve, regulations or other actions; market acceptance and sales growth of the Company’s products; litigation involving the Company or the Company’s industry; developments or disputes concerning the Company’s patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of its securities; fluctuations in its 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 the Company’s stock price to fall, and any of these events may cause the Company’s stock price to be volatile.
The Company’s common stock is subject to the “Penny Stock” rules of the SEC and the trading market in its securities is limited, which makes transactions in its common stock cumbersome and may reduce the value of an investment in the Company’s 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 that 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.
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In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the person and must make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
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 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 the Company’s common stock and may cause a decline in the market value of its 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.
The Companies controlling stockholders may exercise significant control over the Company.
The Company’s directors, executive officers and principal stockholders beneficially own approximately 3.3% of the Company’s common stock and 41.5% of the Company’s preferred shares, effectively owning 20.5% should all of the preferred be converted into common.
As a result of the Company issuing preferred stock, the rights of holders of the Company’s common stock and the value of the Company’s common stock may be adversely affected.
The Company’s board of directors is authorized to issue classes or series of preferred stock, without any action on the part of the stockholders. The Company’s board of directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of its business, and other terms. The Company has issued preferred stock that has a preference over the common stock with respect to the payment of dividends or upon liquidation, dissolution or winding-up, and with respect to voting rights. In accordance with that and with the issuance of preferred stock the voting rights the common stockholders voting rights have been diluted and it is possible that the rights of holders of the common stock or the value of the common stock has been adversely affected.
The Company does not expect to pay any dividends on common stock for the foreseeable future.
The Company has not paid any cash dividends on its common stock to date and does not anticipate it will pay cash dividends on its common stock in the foreseeable future. Accordingly, stockholders 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 the Company’s board of directors and will depend on the Company’s results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, and other factors that the Company’s board deems relevant.
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ITEM 1B. UNRESOLVED STAFF COMMENTS.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
The Company’s headquarters has office space which makes it adequate for the Company to conduct its ongoing business operations.
In January 2014, the Company entered into a 12-month lease for its corporate offices for a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a Director of the Company. The lease expired in December of 2014 however the Company continues to rent the space on a month-to-month basis.
There has been an ongoing dispute with the landlord, Rob and Maribeth Myers, regarding the Production Center rent. During 2016 the Company reached a Settlement Agreement with regards to this dispute resulting in a payment of $438,830 for rent, interest, and costs.
There is an ongoing dispute with BancLease and Washington Trust Bank regarding application of lease payments to the principal loan amount for the linear accelerator, and the Company believes it has overpaid by approximately $300,000. At this time, the Company believes it will prevail in this matter however there can be no assurance as to the outcome of this event.
As of December 31, 2015 there was an insufficient amount of the Company’s authorized common stock to satisfy the number of shares that would have been required for the outstanding options, warrants and conversion of debts. As a result, the Company recorded a liability in the amount of $852,091, offset by $11,593 and $840,499 to Common Stock and Paid in Capital, respectively. There are ongoing discussions with some of the Company’s lenders regarding alternatives to rectify the situation. There can be no assurance that a reasonable outcome can be reached.
In addition there are disputes related to approximately $180,000 principle worth of toxic notes. The Company believes it has affirmative defenses and is actively working to address these disputes.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
The Company’s common stock is traded on the OTC Bulletin Board under the symbol “ADMD.OB.” The following table sets forth, in U.S. dollars the high and low closing prices for each of the calendar quarters indicated, as reported by the Bulletin Board for the past two fiscal years. The prices in the table may not represent actual transactions and do not include retail markups, markdowns or commissions.
| High | Low | |||||||
| 2015 | ||||||||
| Quarter ended December 31 | $ | 0.0048 | $ | 0.0011 | ||||
| Quarter ended September 30 | $ | 0.0049 | $ | 0.0005 | ||||
| Quarter ended June 30 | $ | 0.0019 | $ | 0.0003 | ||||
| Quarter ended March 31 | $ | 0.0027 | $ | 0.0003 | ||||
| 2014 | ||||||||
| Quarter ended December 31 | $ | 0.0034 | $ | 0.0002 | ||||
| Quarter ended September 30 | $ | 0.0300 | $ | 0.0026 | ||||
| Quarter ended June 30 | $ | 0.0500 | $ | 0.0200 | ||||
| Quarter ended March 31 | $ | 0.1200 | $ | 0.0500 | ||||
Holders
As of May 13, 2016 there were 1,999,998,519 shares of common stock outstanding and approximately 200 stockholders of record.
Dividend Policy
The Company has not paid any cash dividends on its common stock to date and do not anticipate it will pay cash dividends on its common stock in the foreseeable future. The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and its general financial condition. The payment of any dividends will be within the discretion of the 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 on its common stock in the foreseeable future.
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Securities Authorized for Issuance Under Equity Compensation Plans
The Company currently does not have any compensation plan under which equity securities are authorized for issuance. The Company has however granted and issued options and warrants to purchase and acquire shares of its common stock. The following table sets forth information as of December 31, 2015 with respect to the Company’s equity compensation plans previously approved by stockholders and equity compensation plans not previously approved by stockholders.
| (1) | While there are no equity compensation plans in general, the Company does have individual compensation arrangements under which equity securities are authorized for issuance in exchange for consideration in the form of goods or services of certain individuals. |
Recent Sales of Unregistered Securities
During the months of October, November, and December 2015, the Company issued 10,000 Series A preferred shares for $10,000.
During the months of October, November, and December 2015, the Company issued 207,833 Series A preferred shares in exchange for $47,700 of convertible debt, $9,812 of accrued interest, and loan fees on $1,360,413 of convertible debt.
During the months of October, November, and December 2015, the Company issued 521,797 Series A preferred shares in exchange for $262,500 of accrued payroll to the Company's CEO and CFO, $370,197 of accounts payable, and $334,880 of consulting services.
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Subsequent to the Period Covered by this Report
In the months of January through May 2016 the Company settled $1,742,082 in convertible notes plus $110,880 of accrued interest in exchange for a combination of $120,000 cash, 504,852 Series A Preferred shares, and $500,000 common stock warrants.
In the months of January through May 2016 the Company received $528,000 cash in exchange for 8% convertible notes due June 30, 20116.
In the months of January through May 2016 the Company received $159,695 cash in exchange for 10%, one year, promissory notes.
In the months of January through May 2016 the Company issued 53,840 Series A Preferred shares as loan fees on $673,000 of convertible notes.
In the months of January through May 2016 the Company issued 3,064,397 shares of unrestricted common stock in exchange for warrants related to debt raised in 2015.
In the months of January through May 2016 the Company received $221,853 in exchange for 221,853 Series A Preferred shares.
ITEM 6. SELECTED FINANCIAL DATA.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with the Company’s financial statements and the notes presented herein. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Form 10-K report.
Results of Operations
Comparison for the Year Ended December 31, 2015 and December 31, 2014
The following table sets forth information from the Company’s statements of operations for the years ended December 31, 2015 and 2014.
|
Year
Ended
December 31, 2015 |
Year
Ended
December 31, 2014 |
|||||||
| Revenues | $ | 24,108 | $ | 24,108 | ||||
| Operating expenses | 2,601,718 | 1,979,129 | ||||||
| Operating loss | (2,557,610 | ) | (1,955,021 | ) | ||||
| Non-operating income (expenses) | 8,810,296 | (16,153,685 | ) | |||||
| Net income (loss) | $ | 6,232,686 | $ | (18,108,706 | ) | |||
Revenue
Consulting revenue was $24,108 for the year ended December 31, 2015 and 2014. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.
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Operating Expenses
Operating expenses for the twelve months ended December 31, 2015 and 2014 were $2,601,718 and $1,979,129, respectively. The increase in operating expenses from 2014 to 2015 can be attributed largely to professional fees ($741,375 for the twelve months ended December 31, 2015 versus $530,797 for the twelve months ended December 31, 2014), research and development ($149,650 for the twelve months ended December 31, 2015 versus $44,268 for the twelve months ended December 31, 2014), and general and administrative expenses ($944,653 for the twelve months ended December 31, 2015 versus $401,295 for the twelve months ended December 31, 2014). These increases were partially offset by decreases to stock options and warrants granted ($80,635 for the twelve months ended December 31, 2015 versus $232,748 for the twelve months ended December 31, 2014), depreciation and amortization expense ($5,672 for the twelve months ended December 31, 2015 versus $11,992 for the twelve months ended December 31, 2014), sales and marketing expenses ($0 for the twelve months ended December 31, 2015 versus $1,300 for the twelve months ended December 31, 2014), and in payroll expenses ($679,259 for the twelve months ended December 31, 2015 versus $755,625 for the twelve months ended December 31, 2014).
Operating expenses for the twelve months ended December 31, 2015 and 2014 consists of the following:
|
Twelve
months
ended December 31, 2015 |
Twelve
months
ended December 31, 2014 |
|||||||
| Cost of materials | $ | 474 | $ | 1,104 | ||||
| Depreciation and amortization expense | 5,672 | 11,992 | ||||||
| Professional fees | 741,375 | 530,797 | ||||||
| Stock options and warrants granted | 80,635 | 232,748 | ||||||
| Payroll expenses | 679,259 | 755,625 | ||||||
| Research and development | 149,650 | 44,268 | ||||||
| General and administrative expenses | 944,653 | 401,295 | ||||||
| Sales and marketing expense | - | 1,300 | ||||||
| $ | 2,601,718 | $ | 1,979,129 | |||||
Non-Operating Income (Expense)
Non-operating income (expense) for the twelve months ended December 31, 2015 varied from the twelve months ended December 31, 2014 primarily due to an decrease in loss on settlement of debt from $(638,491) in 2014 versus $3,562,067 gain on settlement of debt in 2015, a $(10,566,120) loss on derivative liability in 2014 versus a $7,887,025 gain on derivative liability in 2015, and an increase in income from grants from $0 in 2014 versus $21,010 in 2015. These were partially offset by an increase of interest expense from $2,458,322 in 2014 versus $2,659,806 in 2015.
Non-Operating income (expense) for the twelve months ended December 31, 2015 and 2014 consists of the following:
|
Twelve
months
ended December 31, 2015 |
Twelve
months
ended December 31, 2014 |
|||||||
| Interest expense | $ | (2,659,806 | ) | $ | (2,458,322 | ) | ||
| Net gain (loss) on settlement of debt | 3,562,067 | (638,491 | ) | |||||
| Recognized income from grants | 21,010 | - | ||||||
| Loss on derivative liability | 7,887,025 | (10,566,120 | ) | |||||
| $ |
8,8810,296 |
$ | (16,153,685 | ) | ||||
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Income from Grants
On September 1, 2015, the Company received notification it had been awarded from Washington State University, $42,019 grant funds from the sub-award project entitled “Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors”. The Company received $21,010 of the total grand award in December 2015.
Net Loss
The Company’s net income (loss) for the twelve months ended December 31, 2015 and 2014 was $6,232,686 and $(18,108,706), respectively, as a result of the items described above.
Liquidity and Capital Resources
At December 31, 2015, the Company had negative working capital of $9,755,129, as compared to $20,222,303 at December 31, 2014. During the twelve months ended December 31, 2015 the Company experienced negative cash flow from operations of $1,193,105 and it expended $0 for investing activities while adding $1,371,934 of cash flows from financing activities. As of December 31, 2015, the Company had $0 commitments for capital expenditures.
Cash used in operating activities increased from $1,135,926 for the twelve month period ending December 31, 2014 to $1,193,105 for the twelve month period ending December 31, 2015. Cash used in operating activities was primarily a result of the Company’s non-cash items, such as loss on preferred and common stock and stock options and warrants issued for services and other expenses and the penalties resulting from short term debt, offset by the net gain and the gain realized from derivative liabilities and settlement of debt. Cash provided from financing activities increased from $1,136,129 for the twelve month period ending December 31, 2014 to $1,371,934 for the twelve month period ending December 31, 2015. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt along with payments on convertible debt, and a decrease in proceeds from the exercise of options and warrants.
The Company has generated material operating losses since inception. The Company has incurred a net gain of $6,232,686 for the twelve months ended December 31, 2015, and a net loss of $18,108,706 for the twelve months ended December 31, 2014. The Company expects to continue to experience net operating losses. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business.
The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to cease operations.
The Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12-24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.
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Although the Company is seeking the foregoing funding and have engaged in numerous discussions with potential finders, investment bankers and investors with respect to the initial portion thereof, the Company has not received firm commitments for the required funding. Based upon its discussions, the Company anticipates that if the Company is able to obtain the funding required to retire outstanding debt, pay past due payables and maintain its current operating activities that the terms thereof will be materially dilutive to existing shareholders.
The recent economic events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact its ability to obtain financing and its ability to execute its business plan. The Company believes healthcare institutions will continue to purchase the medical solutions that it distributes.
Contractual Obligations (payments due by period as of December 31, 2015)
| Contractual Obligation | Total Payments Due |
Less than 1 Year |
1-3 Years | 3-5 Years |
More than 5 Years |
|||||||||||||||||
| License Agreement with Battelle Memorial Institute | $ | 75,000 | $ | 22,500 | $ | 25,000 | $ | 25,000 | $ | 25,000 per year | ||||||||||||
| Corporate Office Lease – begins January 1, 2014 | $ | 18,000 | $ | 18,000 | $ | - | $ | - | $ | - | ||||||||||||
According to the debt service coverage ratio computation, at December 31, 2014 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants of a capital lease, accordingly the Company recorded the entire value of the leases as a current value at December 31, 2014. This obligation was paid in full as of December 31, 2015.
In January 2014, the Company entered into a new 12-month lease for its corporate offices for a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a Director of the Company. During the year ended December 31, 2014 the Company incurred rent expenses for this facility totaling $18,000. The Company continued to rent this facility in 2015 on a month-to-month basis. The Company incurred $18,000 rent expenses for this facility for the twelve months ended December 31, 2015.
Off-Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on the Company’s financial condition, revenues, results of operations, liquidity or capital expenditures.
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.
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Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment | 3 to 7 years |
| Office equipment | 2 to 5 years |
| Furniture and fixtures | 2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 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.
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 asset.
The Company periodically reviews the carrying values of capitalized license fees and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value.
Patents and Intellectual Property
The Company has a total $35,482 and $35,482 of capitalized patents and intellectual property costs at December 31, 2015 and 2014, respectively.
While patents are being developed or pending they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues.
The Company evaluates the recoverability of intangible assets, including patents and intellectual property on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal years ended December 31, 2015 and 2014 consisted of Consulting Revenue. The Company recognizes revenue as Consulting services have been performed. Prepayments, if any, received from customers prior to the services being performed are recorded as deferred revenue. In these cases, when the services are performed, 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.
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Income from Grants and Deferred Income
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
Net Loss Per Share
The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common stockholders (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.
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.
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company files income tax returns in the U.S. federal jurisdiction, and Delaware.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company’s financial statements. For the years ended December 31, 2015 and 2014, 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.
Fair Value of Financial Instruments
The Company adopted ASC Topic 820 (originally issued as SFAS 157, “Fair Value Measurements”) as of January 1, 2008 for financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States and expands disclosures about fair value measurements.
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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable to the Company because the Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
All financial information required by this Item is included on the pages immediately following the Index to Financial Statements appearing on page F-1, and is hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
On January 19, 2016 (the “Resignation Date”) HJ & Associates, LLC (“HJ”) resigned as the independent registered public accounting firm for Advanced Medical Isotope (the “Company”). January 19, 2016, the Company engaged Haynie & Company, Salt Lake City, Utah, as its new independent registered public accounting firm. The change of the Company’s independent registered public accounting firm from HJ to Haynie & Company was approved unanimously by our Board of Directors.
The reports of HJ on the Company’s financial statements for the two most recent fiscal years did not contain an adverse or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
During the two most recent fiscal years and through the Resignation Date, there were (i) no disagreements between the Company and HJ on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreement, if not resolved to the satisfaction of HJ, would have caused HJ to make reference thereto in their reports on the consolidated financial statements for such years, and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K.
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ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f). Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2015, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As a result of management’s assessment, management has determined that there are material weaknesses due to the lack of segregation of duties and, due to the limited resources based on the size of the Company. Due to the material weaknesses management concluded that as of December 31, 2015, the Company’s internal control over financial reporting was ineffective. In order to address and resolve the weaknesses, the Company will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as the Company’s financial means allow. To date, the Company’s limited financial resources have not allowed the Company to hire the additional personnel necessary to address the material weaknesses.
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Management’s Annual Report on Internal Control Over Financial Reporting
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| (a) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant; |
| (b) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and |
| (c) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements. |
None.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Identification of directors and executive officers
The Company’s current directors and executive officers are as follows:
| NAME | AGE | POSITION | ||
| James C. Katzaroff | 59 | CEO and Chairman | ||
| L. Bruce Jolliff | 66 | Chief Financial Officer | ||
| Carlton M. Cadwell | 71 | Director | ||
| Thomas J. Clement | 59 | Director |
Term of Office
All of the Company’s directors hold office until the next annual meeting of the stockholders or until their successors is elected and qualified. The Company’s executive officers are appointed by the Company’s board of directors and hold office until their resignation, removal, death or retirement.
Background and Business Experience
The business experience during the past five years of each of the Company’s directors and executive officers is as follows:
James C. Katzaroff , the Chief Executive Officer and Chairman of the Board, 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, 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.
Leonard Bruce Jolliff , the Chief Financial Officer, joined Advanced Medical Isotope Corporation as chief financial officer in 2006. 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. 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.
Carlton M. Cadwell , a Director, joined Advanced Medical Isotope Corporation as a director in 2006. 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 international provider of neurodiagnostic medical devices. 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 since has started several businesses.
Thomas J. Clement , a Director, joined Advanced Medical Isotope Corporation as a Director in 2013. Mr. Clement has over 30 years experience in product development engineering, engineering management, and senior management. He has participated in two Company startups through full production. He was responsible for development of seven novel medical devices through commercial launch; one device was the leading royalty generator for the University of Washington for nearly ten years, and in another, generated revenues of more than $140 million for a leading medical device company.
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Identification of Significant Employees and Consultants
Fu-Min Su, Ph.D . , Chief RadioChemist, was appointed as Advanced Medical Isotope Corporation’s Chief RadioChemist and Radiation Safety Officer in 2007. 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 Corporation from 1987 through 1998, Nycomed-Amersham Imaging in 1999, Bristol-Myers Squibb from 2000 to 2006, and Cellectar, LLC in 2007, 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.
Alan E. Waltar, Ph.D., Chairman of Scientific Advisory Board . Dr. Waltar served as director of Nuclear Energy for the Pacific Northwest National Laboratory (PNNL) in Richland, Wash. Since 2004, he has continued his affiliation with PNNL as a Senior Advisor. Waltar’s other professional appointments include director of International Programs at Advanced Nuclear Medical Systems; manager of various Fast Reactor Safety and Fuels Organizations of Westinghouse Hanford Company; and as professor and department head of Nuclear Engineering at Texas A&M University.
His other teaching experience includes stints at the Joint Center for Graduate Study in Richland Wash., the University of Virginia, and Los Alamos National Laboratory. Formerly the president of the American Nuclear Society, Waltar has served on a number of international nuclear science and radiation panels, societies, and committees. He is the author of three books: Fast Breeder Reactors, America the Powerless: Facing Our Nuclear Energy Dilemma, and Radiation and Modern Life: Fulfilling Marie Curie’s Dream, and has penned over 70 open literature papers.
Dr. Waltar earned his M.S. in Nuclear Engineering from M.I.T. and his PhD in Engineering Science from the University of California, Berkeley.
Nigel R. Stevenson, Ph.D., Scientific Advisory Committee . Dr. Nigel Stevenson is a world renowned expert in the production of medical isotopes. He holds a Ph.D. in Nuclear Physics from the University of London and has directed many corporate innovations for imaging and therapeutic nuclide agents. For the past five years he has served as Chief Operating Officer for Clear Vascular Inc. and was previously Chief Operating Officer of Trace Life Sciences, which produced a range of medical radiochemicals and radiopharmaceuticals. Prior to this, he had been VP Production and Research for Theragenics Corp. and directed operations in Atlanta for the world’s largest cyclotron facility (14 cyclotrons) that produced brachytherapy seeds. Dr. Stevenson was also Head of Isotope Production and Research at TRIUMF (Canadian National Accelerator Laboratory) where he managed the production of medical radioisotopes for MDS Nordion.
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Donald A. Ludwig, Ph.D. , Scientific Advisory Committee. Dr. Ludwig is an expert in particle accelerator applications in radiation therapy, nuclear medicine and radioisotope production. Since 1988 he has served as an advisor to numerous entities in the field, both domestic and foreign. Among these are the Atomic Energy of Canada, the U. S. Department of Energy Labs at Los Alamos, Berkeley, Fermi, Hanford and Oak Ridge, the Israel Atomic Energy Agency, the Australian Nuclear Science and Technology Organization, the Kurchatov Russian Research Institute in Moscow and the Bhabha Atomic Research Center in Mumbai, India. He holds a Ph.D. from UCLA in Medical Physics as well as an MS in Nuclear Physics from Cal Tech, a BS in Physics from the U. S. Military Academy at West Point and an MBA in Theoretical Marketing from the University of Southern California.
Family Relationships
The Company currently does not have any executive officers or directors who are related to each other.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s executive officers, directors and persons who own more than 10% of the Company’s common stock to file with the SEC initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4, and an annual statement of beneficial ownership on Form 5. Such executive officers, directors and greater than 10% stockholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.
Based solely on its review of such forms filed with the SEC and received by the Company and representations from certain reporting persons, the Company believes that for the fiscal year ended December 31, 2015, all the executive officers, directors and more than 10% beneficial owners complied with the above described filing requirements.
Code of Ethics
The Company’s board of directors has not adopted a code of ethics that applies to the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, because of the Company’s limited number of executive officers and employees that would be covered by such a code and the Company’s limited financial resources. The Company anticipates that it will adopt a code of ethics after it increases the number of executive officers and employees and obtain additional financial resources.
Audit Committee and Audit Committee Financial Expert
As of the date of this report, the Company has not established an audit committee, and therefore, the Company’s board of directors performs the functions that customarily would be undertaken by an audit committee. The Company’s board of directors during 2015 was comprised of three directors, two of whom the Company has determined satisfied the general independence standards of the Nasdaq listing requirements. See Item 13 of this Form 10-K report. However, under Nasdaq listing and SEC requirements, a member of an audit committee of a listed issuer, in addition to satisfying those independence standards, cannot be an “affiliated person” of the issuer, which depends in part upon the amount of beneficial ownership such member has of the issuer’s stock. The Company has determined that the Company’s independent directors during 2015 did not satisfy this additional requirement.
The Company’s board of directors has determined that none of its current members qualifies as an “audit committee financial expert,” as defined by the rules of the SEC. In the future, the Company intends to establish board committees and to appoint such persons to those committees as are necessary to meet the corporate governance requirements imposed by a national securities exchange, although it is not required to comply with such requirements until the Company elects to seek listing on a national securities exchange.
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ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth the compensation paid to the Company’s Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve month periods ended December 31, 2015 and 2014 (collectively, the “Named Executive Officers”):
| Name and Principal Position | Year | Salary ($) | Bonus ($) |
Stock
Awards ($) |
Option
Awards ($) |
Total ($) | ||||||||||||||||
| James C. Katzaroff | 2015 | $ | 250,000 | (1) | $ | - | $ | - | $ | - | $ | 250,000 | ||||||||||
| CEO and Chairman | 2014 | $ | 250,000 | (2) | $ | - | $ | - | $ | - | $ | 250,000 | ||||||||||
| L. Bruce Jolliff | 2015 | $ | 180,000 | (3) | $ | 11,357 | (5) | $ | - | $ | - | $ | 190,357 | |||||||||
| CFO | 2014 | $ | 180,000 | (4) | $ | 20,400 | (5) | $ | - | $ | - | (a) | $ | 200,400 | ||||||||
(1) Of this amount $150,000 was exchanged for 100,000 Series A Preferred Shares and $75,144 was not paid in 2015, but was accrued as of December 31, 2015.
(2) Of this amount $138,502 was not paid in 2014, but was accrued as of December 31, 2014.
(3) Of this amount $112,500 was exchanged for 75,000 Series A Preferred shares.
(4) Of this amount, $62,896 was not paid in 2014, but was accrued as of December 31, 2014.
(5) Mr. Jolliff received the additional $11,357 2015 and $20,400 2014 to compensate for additional duties performed that were not originally contemplated.
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Narrative Disclosure to Summary Compensation Table
The Company has an employment agreement with the Company’s CFO, L. Bruce Jolliff that determines the compensation paid to him. The Company’s Chief Executive Officer, James C. Katzaroff, does not have a written employment agreement and therefore no structured amount or schedule of pay, however his projected rate of pay is $250,000 and so accruals were made for his compensation in 2015 and 2014 to bring his recorded salary to $250,000. In 2015 Mr. Katzaroff received $24,856, exchanged $150,000 for 100,000 Series A Preferred shares, and an additional $75,144 was accrued as of December 31, 2015. In 2014 Mr. Katzaroff received $111,498 and an additional $138,502 was accrued as of December 31, 2014.
The Company paid bonuses to certain employees based on their performance, the Company’s need to retain such employees, and funds available. All bonus payments were approved by the Company’s board of directors.
Employment Agreement with L. Bruce Jolliff
Mr. Jolliff has a May 2007 employment agreement with the Company which provides for a salary of $100,000 per year which was increased January 1, 2012 to $156,000, and was again adjusted beginning January 1, 2013 to $180,000. In 2015 Mr. Jolliff received $67,500, and exchanged $112,500 for 75,000 Series A Preferred shares. In 2014 Mr. Jolliff received $117,104 and an additional $62,896 was accrued as of December 31, 2014. The Company may terminate the agreement without cause at any time upon 30 days’ written notice. Upon termination, the Company will pay Mr. Jolliff a severance allowance of two month’s salary.
Outstanding Equity Awards at Fiscal Year-End Table
The following table sets forth all outstanding equity awards held by the Company’s Named Executive Officers as of the end of last fiscal year.
| Option Awards | ||||||||||||||
| Name |
Number
of Securities
Underlying Unexercised Options (#) Exercisable |
Number
of Securities
Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
Option
Expiration Date |
||||||||||
| James C. Katzaroff | 250,000 | - | $ | 0.15 | 2/11/2016 | |||||||||
| James C. Katzaroff | 3,250,000 | - | $ | 0.15 | 2/11/23 | |||||||||
| L. Bruce Jolliff | 200,000 | - | $ | 0.15 | 2/11/2016 | |||||||||
Additional Narrative Disclosure
During February 2013, the Company granted James C. Katzaroff and L. Bruce Jolliff, each, an option to purchase 250,000 shares of the Company’s common stock and 200,000 shares of the Company’s common stock, respectively. All options issued in February 2013 had an exercise price of $0.20 per share and were fully vested and expire on February 11, 2016. The quoted market price of the common stock at the time of issuance of the options was $0.19 per share. During November 2013, due to the decrease in market price for the Company stock, and in order to provide proper incentive to retain Executive Officers, the Company reduced the exercise price for these options to $0.15, with all other terms of the options remaining the same.
During February 2013, the Company granted James C. Katzaroff an option to purchase 3,250,000 shares of the Company’s common stock. All options issued in February 2013 had an exercise price of $0.20 per share and 800,000 of the options were fully vested and expired on February 11, 2023. The remaining 2,450,000 of the options are to vest ratably over the next twenty-four months and expire on February 11, 2023. The quoted market price of the common stock at the time of issuance of the options was $0.19 per share. During November 2013, due to the decrease in market price for the Company stock, and in order to provide proper incentive to retain Executive Officers, the Company reduced the exercise price for these options to $0.15, with all other terms of the options remaining the same. These options are to be reset.
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Retirement, Pension, Profit Sharing or Insurance Plans
No retirement, pension, profit sharing, or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees.
Employment Agreement with Significant Employee
Employment Agreement with Dr. Fu Min-Su
In January 2008, the Company entered into a five-year employment agreement with Dr. Fu Min-Su pursuant to which the Company agreed to pay Dr. Fu Min-Su an annual salary equal to $90,000, which was increased to $95,000 on January 1, 2010, to$110,000 on January 1, 2011, and to $125,000 effective June 1, 2016.
In the event the employment is terminated by the Company without cause, by Dr. Fu Min-Su for good reason or a change in control, the Company will have to provide Dr. Fu Min-Su with one month of his base salary and any portion of an annual bonus allocated by the board of directors, disability and other welfare plan benefits for a period of one year from the date of termination and pro-rated vesting of all outstanding options, stock grants, shares of restricted stock and any other equity incentive compensation; provided, that the stock options shall be exercisable only until the earlier to occur of (i) two years from the date of the termination, or (ii) the date the option would have otherwise expired if Dr. Fu Min-Su had not terminated employment.
During the term of the employment agreement, including any extension thereof, and for a period of one year thereafter, Dr. Fu Min-Su shall not provide services that he provides for the Company for a business in the production, import for resale, and distribution of radioisotopes for use in the medical industries.
Compensation of Directors
The following table sets forth information regarding compensation earned by the Company’s non-employee directors for the year ended December 31, 2015. Mr. Clement became a director effective September 6, 2012. Mr. Katzaroff is not included in this table because his compensation is included in the Summary Executive Compensation table and he received no compensation for his service as a director.
| Name |
Fees
Earned or
Paid in Cash ($) |
Stock
Awards ($) |
Option
Awards ($) |
Total ($) | ||||||||||||
| Carlton M. Cadwell | $ | - | $ | - | $ | - | $ | - | ||||||||
| Thomas J. Clement | $ | - | $ | - | $ | - | $ | - | ||||||||
The following table sets forth, for each of the Company’s non-employee directors who served during 2015, the aggregate number of stock awards and the aggregate number of stock option awards that were outstanding as of December 31, 2015:
| Outstanding | Outstanding | |||||||
| Stock | Stock | |||||||
| Name | Awards (#) | Options (#) | ||||||
| Carlton M. Cadwell | - | 250,000 | ||||||
| Thomas J. Clement | - | 125,000 | ||||||
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During November 2013, the Company granted Mr. Cadwell and Mr. Clement options to purchase 250,000 shares of common stock and 125,000 shares of common stock, respectively, at an exercise price of $0.15 per share. The options are fully vested and expire February 11, 2016.
In 2015 the shareholders approved the Company’s 2015 OMNIBUS SECURITIES AND INCENTIVE PLAN, a copy of which is included in the Exhibits. This plan has been adopted in order to provide an incentive to attract and retain officers, directors, key employees, consultants, and independent contractors, and to further align the interests of the Eligible Recipients with the interests of the Company and its shareholders.
There are no employment contracts or compensatory plans or arrangements with respect to any director that would result in payments by the Company to such person because of his or her resignation as a director or any change in control of the Company.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Beneficial Ownership of The Company’s Common Stock
The following table sets forth, as of May 13, 2016, the number of shares of Common Stock beneficially owned by the following persons: (i) all persons the Company knows to be beneficial owners of at least 5% of the Company’s Common Stock, (ii) the Company’s directors, (iii) the Company’s executive officers, both of whom are named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group. As of May 13, 2016, there were 1,999,997,740 shares outstanding and up to 10,510,314 shares issuable upon exercise of outstanding options and conversion of outstanding convertible securities, assuming exercise and conversion occurred as of that date, for a total of 2,010,508,054 shares.
|
Name and Address of Beneficial Owner (1) |
Amount
and
Nature of Beneficial Ownership (2) |
Percent
of
|
||||||
| Cadwell Family Irrevocable Trust | 21,529,907 | 1.1 | % | |||||
| Carlton M. Cadwell(3) | 54,783,093 | 2.7 | % | |||||
| James C. Katzaroff(4) | 6,915,834 | 0.3 | % | |||||
| Thomas J. Clement | - | - | % | |||||
| L. Bruce Jolliff | 4,233,333 | 0.2 | % | |||||
| All Current Directors and Executive Officers as a group (5 individuals) | 65,932,260 | 3.3 | % | |||||
| (1) | The address of each of the beneficial owners above is c/o Advanced Medical Isotope Corporation, 1021 N. Kellogg Street, Kennewick, WA 99336, except that the address of the Cadwell Family Irrevocable Trust (the “Cadwell Trust”) is 909 North Kellogg Street, Kennewick, WA 99336. |
| (2) | In determining beneficial ownership of the Company’s common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired upon exercise of 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 May 13, 2016, (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 options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on May 13, 2016, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and upon exercise of the options. Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that Mr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the shares beneficially owned by the Cadwell Trust. |
| (3) | The beneficial ownership of Carlton M. Cadwell includes the shares beneficially owned by the Cadwell Trust, as such shares may also be deemed to be beneficially owned by Mr. Cadwell. The beneficial ownership of Mr. Cadwell also includes 7,260,314 shares deemed un-issuable due to the lack of available shares but will be issued once sufficient shares are available. |
| (4) | Includes 3,500,000 shares issuable under options held by Mr. Katzaroff. |
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Beneficial Ownership of The Company’s Preferred Stock
The following table sets forth, as of May 13, 2016, the number of shares of Preferred Stock beneficially owned by the following persons: (i) all persons the Company knows to be beneficial owners of at least 5% of the Company’s Common Stock, (ii) the Company’s directors, (iii) the Company’s executive officers, both of whom are named in the Summary Compensation Table above, and (iv) all current directors and executive officers as a group. As of May 13, 2016, there were 2,397,840 shares outstanding and up to 326,728 shares issuable upon exercise of outstanding options and conversion of outstanding convertible securities, assuming exercise and conversion occurred as of that date, for a total of 2,724,568 shares.
|
Name
and Address of
|
Amount
and
Nature of Beneficial Ownership (2) |
Percent
of
|
||||||
| Cadwell Family Irrevocable Trust | 148,309 | 9.1 | % | |||||
| Carlton M. Cadwell(3) | 899,634 | 55.3 | % | |||||
| James C. Katzaroff | 126,740 | 7.9 | % | |||||
| Thomas J. Clement | - | - | % | |||||
| L. Bruce Jolliff | 104,700 | 6.4 | % | |||||
| All Current Directors and Executive Officers as a group (5 individuals) | 1,131,074 | 69.5 | % | |||||
| (1) | The address of each of the beneficial owners above is c/o Advanced Medical Isotope Corporation, 1021 N. Kellogg Street, Kennewick, WA 99336, except that the address of the Cadwell Family Irrevocable Trust (the “Cadwell Trust”) is 909 North Kellogg Street, Kennewick, WA 99336. |
| (2) | In determining beneficial ownership of the Company’s common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired upon exercise of 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 May 13, 2016, (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 options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on May 13, 2016, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and upon exercise of the options. Subject to community property laws where applicable, the Company believes that each beneficial owner has sole power to vote and dispose of its shares, except that Mr. Cadwell under the terms of the Cadwell Trust does not have or share voting or investment power over the shares beneficially owned by the Cadwell Trust. |
| (3) | The beneficial ownership of Carlton M. Cadwell includes the shares beneficially owned by the Cadwell Trust, as such shares may also be deemed to be beneficially owned by Mr. Cadwell. |
Changes in Control
The Company does not know of any arrangements, including any pledges of the Company’s securities that may result in a change in control of the Company.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Indebtedness from related parties
Beginning in December, 2008, the Company has obtained financing from Carlton M. Cadwell, one of our directors and a beneficial owner of more than 10% of the Company’s common stock, in transactions which involved the Company’s issuance of convertible notes and common stock. On September 4, 2015 the Company exchanged $1,414,100 of convertible notes plus $810,538 of accrued interest into 148,311 of Series A Preferred shares and another $2,224,466 of convertible notes plus $889,838 of accrued interest into 207,620 of Series A Preferred shares. Additionally the Company exchanged the remaining $906,572 of convertible notes plus $148,960 accrued interest into a $1,055,532 demand note, 8% interest rate, due on demand at any time after March 31, 2017. Such note was converted into 73,546 Series A Preferred shares on May 19, 2016.
Independent Directors
The Company’s common stock is traded on the OTC Bulletin Board, which does not impose any independence requirements on the board of directors or the board committees of the companies whose stock is traded on that market. The Company has decided to adopt the independence standards of the Nasdaq listing rules in determining whether the Company’s directors are independent. Generally, under those rules a director does not qualify as an independent director if the director or a member of the director’s immediate family has had in the past three years certain relationships or affiliations with the company, the company’s auditors, or other companies that do business with the company. The Company’s board of directors has determined that Mr. Cadwell and Mr. Clement each qualified as an independent director under those Nasdaq rules, and accordingly, each would have been qualified under those rules to serve on a compensation committee or a nominating committee, if the Company had established such committees of the Company’s board of directors. Mr. Katzaroff is not an independent director due to his employment by the Company as an executive officer.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Audit Fees
The aggregate fees incurred by the Company’s principal accountant for the audit of the Company’s annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2015 and 2014 were $156,000 ($71,000 was to HJ & Associates, LLC and $85,000 was to Haynie & Company) and $132,000 (all was to HJ & Associates, LLC), respectively.
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Tax Fees
The aggregate fees billed for professional services rendered by principal accountant for tax compliance, tax advice and tax planning during the fiscal years ended December 31, 2015 and 2014 were $3,000 and $2,000, respectively, all of which was paid to HJ & Associates, LLC. These fees related to the preparation of federal income tax returns.
All Other Fees
There were no other fees billed for products or services provided by the Company’s principal accountant during the fiscal years ended December 31, 2015 and 2014.
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Report.
1. Financial Statements . The Advanced Medical Isotope Corporation Balance Sheets as of December 31, 2015 and 2014, the Statements of Operations for the years ended December 31, 2015 and 2014, the Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2015 and December 31, 2014, and the Statements of Cash Flows for the years ended December 31, 2015 and 2014, together with the notes thereto and the report of HJ & Associates, LLC as required by Item 8 are included in this 2015 Annual Report on Form 10-K as set forth in Item 8 above.
2. Financial Statement Schedules . All financial statement schedules have been omitted since they are either not required or not applicable, or because the information required is included in the financial statements or the notes thereto.
3. Exhibits . The following exhibits are either filed as a part hereof or are incorporated by reference. Exhibit numbers correspond to the numbering system in Item 601 of Regulation S-K. Exhibits 10.3, 10.5, 10.7 and 10.10 relate to compensatory plans included or incorporated by reference as exhibits hereto.
| Exhibit | ||
| Number | Description | |
| 3.1 | Certificate of Incorporation of Savage Mountain Sports Corporation, dated January 11, 2000 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.2 | By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.3 | Articles and Certificate of Merger of HHH Entertainment Inc. and Savage Mountain Sports Corporation, dated April 3, 2000 (incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.4 | Articles and Certificate of Merger of Earth Sports Products Inc. and Savage Mountain Sports Corporation, dated May 11, 2000 (incorporated by reference to Exhibit 3.4 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.5 | Certificate of Amendment of Certificate of Incorporation changing the name of the Company to Advanced Medical Isotope Corporation, dated May 23, 2006 (incorporated by reference to Exhibit 3.5 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.6 | Certificate of Amendment of Certificate of Incorporation increasing authorized capital dated September 26, 2006 (incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 3.7 | Certificate of Amendment to the Certificate of Incorporation increasing authorized common stock and authorizing preferred stock, dated May 18, 2011 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 18, 2011). | |
| 3.8 | Certificate of Amendment to the Certificate of Incorporation authorizing a series of Preferred Stock to be named “Series A Convertible Preferred Stock”, consisting of 2,500,000 shares, which series shall have specific designations, powers, preferences and relative and other special rights, qualifications, limitations and restrictions as outlined in the Certificate of Designations, filed June 30, 2015 (incorporated by reference to Exhibit 3.4). | |
| 3.9 | Certificate of Amendment to the Certificate of Incorporation increasing the authorized series of “Series A Convertible Preferred Stock” to 5,000,000 shares, filed June 31, 2016 (incorporated by reference to Exhibit 3.5). | |
| 10.1 | Agreement and Plan of Reorganization, dated as of December 15, 1998, by and among HHH Entertainment, Inc. and Earth Sports Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497) filed on November 12, 2008). | |
| 10.2 | Agreement and Plan of Merger of HHH Entertainment, Inc. and Savage Mountain Sports Corporation, dated as of January 6, 2000 (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008). | |
| 10.3 | Agreement and Plan of Acquisition by and between Neu-Hope Technologies, Inc., UTEK Corporation and Advanced Medical Isotope Corporation, dated September 22, 2006 (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008). | |
| 10.4 | Employment Agreement dated May 16, 2007 with Leonard Bruce Jolliff (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008). | |
| 10.5 | Agreement and Plan of Acquisition by and between Isonics Corporation and Advanced Medical Isotope Corporation dated June 13, 2007 (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008). | |
| 10.6 | Employment Agreement dated January 15, 2008 with Dr. Fu-Min Su (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form 10-12G (File No. 000-53497), filed on November 12, 2008). | |
| 10.7 | Master Lease Agreement dated September 20, 2007 between BancLeasing, Inc. and Advanced Medical Isotope Corporation, and related documents (incorporated by reference to Exhibit 10.8 to the Company’s Annual Report on Form 10-K/A filed on December 2, 2011). | |
| 46 |
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. - continued
| 10.8 | Lease Agreement dated July 17, 2007 between Robert L. and Maribeth F. Myers and Advanced Medical Isotope Corporation (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K/A filed on December 2, 2011). | |
| 10.9 | Form of Non-Statutory Stock Option Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 15, 2012). | |
| 10.10 | Promissory Note dated December 16, 2008 between Advanced Medical Isotope Corporation and Carlton M. Cadwell (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed on March 3, 2012). | |
| 10.11 | Memorandum of Agreement for Strategic Relationship dated August 19, 2011 between Advanced Medical Isotope Corporation and Spivak Management Inc. (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K filed on March 3, 2012). | |
| 10.12 | * | 2015 Omnibus Securities and Incentive Plan |
| 31.1 | * | Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002 (4) |
| 31.2 | * | Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002 (4) |
| 32.1 | * | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350 (4) |
| 101.INS | * | XBRL Instance Document |
| 101.SCH | * | XBRL Taxonomy Extension Schema |
| 101.CAL | * | XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | * | XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | * | XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | * | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
| 47 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ADVANCED MEDICAL ISOTOPE CORPORATION | ||
| Date: May 25, 2016 | By: | /s/ James C. Katzaroff |
| Name: | James C. Katzaroff | |
| Title: | Chief Executive Officer and Chairman | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| Date: May 25, 2016 | By: | /s/ James C. Katzaroff |
| Name: | James C. Katzaroff | |
| Title: |
Chief Executive Officer, Director and Chairman (Principal Executive Officer) |
|
| Date: May 25, 2016 | By: | /s/ L. Bruce Jolliff |
| Name: | L. Bruce Jolliff | |
| Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
|
| Date: May 25, 2016 | By: | /s/ Carlton M. Cadwell |
| Name: | Carlton M. Cadwell | |
| Title: | Director |
| 48 |
Advanced Medical Isotope Corporation
Index to Financial Statements
| 49 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Advanced Medical Isotope Corporation
We have audited the accompanying balance sheet of Advanced Medical Isotope Corporation as of December 31, 2015, and the related statements of operations, stockholders’ equity (deficit), and cash flow for the year then ended. 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 audits.
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, 2015 , and the results of its operations and its cash flows for the year then ended, 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 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. These issues 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.
Haynie & Company
Salt Lake City, Utah
May 25, 2016
| F- 1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Advanced Medical Isotope Corporation
We have audited the accompanying balance sheet of Advanced Medical Isotope Corporation as of December 31, 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. 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, 2014, and the results of its operations and its cash flows for the year then ended, 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 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 operation for the foreseeable future. These issues 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.
HJ & Associates, LLC
Salt Lake City, Utah
April 15, 2015
| F- 2 |
Advanced Medical Isotope Corporation
Balance Sheets
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 179,032 | $ | 203 | ||||
| Prepaid expenses | 26,211 | 21,710 | ||||||
| Inventory | 8,475 | 8,475 | ||||||
| Total current assets | 213,718 | 30,388 | ||||||
| Fixed assets, net of accumulated depreciation | 4,420 | 8,753 | ||||||
| Other assets: | ||||||||
| License fees, net of amortization | - | 1,339 | ||||||
| Patents and intellectual property | 35,482 | 35,482 | ||||||
| Debt issuance costs | - | 13,917 | ||||||
| Deposits | 644 | 644 | ||||||
| Total other assets | 36,126 | 51,382 | ||||||
| Total assets | $ | 254,264 | $ | 90,523 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,284,759 | $ | 1,461,028 | ||||
| Accrued interest payable | 229,246 | 1,656,763 | ||||||
| Payroll liabilities payable | 298,900 | 309,160 | ||||||
| Convertible notes payable, net | 1,788,384 | 600,569 | ||||||
| Derivative liability | 4,235,016 | 11,502,380 | ||||||
| Related party convertible notes payable, net | - | 4,430,204 | ||||||
| Related party promissory note | 1,280,450 | - | ||||||
| Current portion of capital lease obligations | - | 39,481 | ||||||
| Liability for lack of authorized shares | 852,091 | 253,106 | ||||||
| Total current liabilities | 9,968,847 | 20,252,691 | ||||||
| Total liabilities | 9,968,846 | 20,252,691 | ||||||
| Commitments and contingencies | ||||||||
| MEZZANINE EQUITY | ||||||||
| Preferred stock, $.001 par value, 20,000,000 shares authorized Series A preferred stock, $.001 par value, 2,500,000 shares authorized; 1,627,000 and - shares issued and outstanding, respectively | 4,617,052 | - | ||||||
| Total mezzanine equity | 4,617,052 | - | ||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 1,996,934,122 and 1,705,382,554 shares issued and outstanding, respectively | 1,996,934 | 1,705,382 | ||||||
| Paid in capital | 31,685,977 | 32,379,681 | ||||||
| Accumulated deficit | (48,014,545 | ) | (54,247,231 | ) | ||||
| Total stockholders’ equity (deficit) | (14,331,634 | ) | (20,162,168 | ) | ||||
| Total liabilities and stockholders’ equity (deficit) | $ | 254,264 | $ | 90,523 | ||||
The accompanying notes are an integral part of these financial statements.
| F- 3 |
Advanced Medical Isotope Corporation
Statements of Operations
| Year ended | ||||||||
| December 31, | ||||||||
| 2015 | 2014 | |||||||
| Consulting Revenues | $ | 24,108 | $ | 24,108 | ||||
| Operating expenses | ||||||||
| Cost of materials | 474 | 1,104 | ||||||
| Sales and marketing expenses | - | 1,300 | ||||||
| Depreciation and amortization expense | 5,672 | 11,992 | ||||||
| Professional fees | 741,375 | 530,797 | ||||||
| Stock options granted and warrant expense | 80,635 | 232,748 | ||||||
| Payroll expenses | 679,259 | 755,625 | ||||||
| Research and development | 149,650 | 44,268 | ||||||
| General and administrative expenses | 944,653 | 401,295 | ||||||
| Total operating expenses | 2,601,718 | 1,979,129 | ||||||
| Operating loss | (2,577,610 | ) | (1,955,021 | ) | ||||
| Non-operating income (expense): | ||||||||
| Interest expense | (2,659,806 | ) | (2,458,322 | ) | ||||
| Gain/(loss) on settlement of debt | 3,562,067 | (638,491 | ) | |||||
| Grant income | 21,010 | - | ||||||
| Gain (loss) on derivative liability | 7,887,025 | (10,566,120 | ) | |||||
| Loss on warrant modification | - | (2,490,752 | ||||||
| Non-operating income (expense), net | 8,810,296 | (16,153,685 | ||||||
| Income (loss) before Income Taxes | 6,232,686 | (18,108,706 | ) | |||||
| Income tax provision | - | - | ||||||
| Net income (loss) | $ | 6,232,686 | $ | (18,108,706 | ) | |||
| Earnings (loss) per common share | $ | 0.003 | $ | (0.057 | ) | |||
| Weighted average number of common shares outstanding | 1,850,546,690 | 319,269,230 | ||||||
The accompanying notes are an integral part of these financial statements.
| F- 4 |
Advanced Medical Isotope Corporation
Statements of Changes in Stockholders’ Equity (Deficit)
| Common Stock | Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balances at December 31, 2013 | 120,807,808 | $ | 120,807 | $ | 27,052,282 | $ | (36,138,525 | ) | $ | (8,965,436 | ) | |||||||||
| Common stock issued for: | ||||||||||||||||||||
| Cash and exercise of options and warrants | 362,170,813 | 362,171 | (356,171 | ) | - | 6,000 | ||||||||||||||
| Loan fees on convertible debt | 4,136,769 | 4,137 | 540,760 | - | 544,897 | |||||||||||||||
| Services | 471,250 | 471 | 23,329 | - | 23,800 | |||||||||||||||
| Debt conversion | 1,219,736,775 | 1,219,737 | 2,381,183 | - | 3,600,920 | |||||||||||||||
| Shares issued for services | 989,899 | 987 | 31,976 | - | 32,963 | |||||||||||||||
| Loss on warrant modification | - | - | 2,490,752 | - | 2,490,752 | |||||||||||||||
| Classified to liability due to lack of authorized shares | (2,927,760 | ) | (2,928 | ) | (250,178 | ) | - | (253,106 | ) | |||||||||||
| Stock based compensation | - | - | 232,748 | - | 232,748 | |||||||||||||||
| Beneficial conversion feature | - | - | 233,000 | - | 233,000 | |||||||||||||||
| Net loss | - | - | - | (18,108,706 | ) | (18,108,706 | ) | |||||||||||||
| Balances at December 31, 2014 | 1,705,382,554 | 1,705,382 | 32,379,681 | (54,247,231 | ) | (20,162,168 | ) | |||||||||||||
| Common stock issued for: | ||||||||||||||||||||
| Cash and exercise of options and warrants | 199,500,000 | 199,500 | (199,500 | ) | - | - | ||||||||||||||
| Loan fees on convertible debt | 4,332,554 | 4,333 | 2,054 | - | 6,387 | |||||||||||||||
| Debt conversion | 92,051,568 | 92,052 | 17,760 | - | 109,812 | |||||||||||||||
| Classified to liability due to lack of authorized shares | (4,332,554 | ) | (4,333 | ) | (594,653 | ) | - | (598,986 | ) | |||||||||||
| Stock based compensation | - | - | 80,635 | - | 80,635 | |||||||||||||||
| Net income | - | - | - | 6,232,686 | 6,232,686 | |||||||||||||||
| Balances at December 31, 2015 | 1,996,934,122 | $ | 1,996,934 | $ | 31,685,977 | $ | (48,014,545 | ) | $ | (14,331,634 | ) | |||||||||
The accompanying notes are an integral part of these financial statements.
| F- 5 |
Advanced Medical Isotope Corporation
Statements of Cash Flow
|
Year
ended
December 31, |
||||||||
| 2015 | 2014 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 6,232,686 | $ | (18,108,706 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used by operating activities: | ||||||||
| Depreciation of fixed assets | 4,333 | 6,160 | ||||||
| Amortization of licenses and intangible assets | 1,339 | 5,832 | ||||||
| Amortization of convertible debt discount | 1,080,771 | 1,859,461 | ||||||
| Amortization of prepaid expenses paid with stock | - | 87,963 | ||||||
| Amortization of debt issuance costs | 13,917 | 62,419 | ||||||
| (Gain) Loss on derivative liability | (7,887,025 | ) | 10,566,120 | |||||
| (Gain) Loss on settlement of debt | (3,562,067 | ) | 638,491 | |||||
| Preferred and common stock issued for services | 334,880 | 23,800 | ||||||
| Preferred and Common stock issued for loan fees | 527,325 | - | ||||||
| Loss on warrant modification | - | 2,490,752 | ||||||
| Stock based compensation | 80,635 | 232,748 | ||||||
| Penalties on notes payable | 1,148,997 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | (4,501 | ) | 6,133 | |||||
| Accounts payable | 151,607 | 239,964 | ||||||
| Payroll liabilities | 252,240 | 227,646 | ||||||
| Accrued interest | 431,758 | 524,991 | ||||||
| Net cash used by operating activities | (1,193,105 | ) | (1,135,926 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | - | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Principal payments on capital lease | (39,481 | ) | (269,664 | ) | ||||
| Proceeds from convertible note | 1,666,415 | 1,466,343 | ||||||
| Debt issuance costs | - | (56,550 | ) | |||||
| Payments on convertible debt | - | (10,000 | ) | |||||
| Payments on short term debt | (255,000 | ) | - | |||||
| Proceeds from exercise of options and warrants | - | 6,000 | ||||||
| Net cash provided by financing activities | 1,371,934 | 1,136,129 | ||||||
| Net increase in cash | 178,829 | 203 | ||||||
| Cash, beginning of period | 203 | - | ||||||
| CASH, END OF PERIOD | $ | 179,032 | $ | 203 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 9,920 | $ | 614 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
The accompanying notes are an integral part of these financial statements.
| F- 6 |
Advanced Medical Isotope Corporation
Notes to Financial Statements
For the years ended December 31, 2015 and 2014
NOTE 1: BASIS OF PRESENTATION
Nature of Organization
Advanced Medical Isotope Corporation (the “Company,” “AMI” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMI has authorized capital of 2,000,000,000 shares of Common Stock, $0.001 par value per share and 20,000,000 shares of Preferred Stock, $0.001 par value per share (ADMD: OTCQB).
AMI is a late stage radiation oncology focused medical device company engaged in the development of yttrium-90 based brachytherapy devices for the treatment of non-resectable tumors. Brachytherapy uses radiation to destroy cancerous tumors by placing a radioactive isotope inside or next to the treatment area. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. AMI has been recognized as a leader in the development of new isotope technologies by local, state and federal agencies. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.
Since late 2013, AMI has focused its resources on developing a proposed line of yttrium-90 based brachytherapy products for the treatment of non-resectable tumors and on endeavoring to secure FDA clearance with respect to the initial proposed brachytherapy product. AMI’s proposed brachytherapy products incorporate patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted AMI an exclusive license to patents covering these developments for manufacturing, processing and applications for medical isotopes (the “Battelle License”).
Going Concern
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Historically, the Company has relied upon outside investor funds to maintain the Company’s operations and develop the Company’s business. The Company anticipates it will continue to require funding from investors for working capital as well as business expansion during this fiscal year and it can provide no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable time. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which it operates.
The Company anticipates a requirement of $1.5 million in funds over the next twelve months to maintain current operation activities. The Company may also require up to approximately $1.5 million to retire outstanding debt and past due payables, including certain convertible promissory notes totaling approximately $500,000 that are currently due and payable (“ Outstanding Notes ”), in the event these amounts are not converted or otherwise exchanged for equity securities. Although no assurances can be given, management is currently negotiating with the holders of certain of the Outstanding Notes to restructure the principal and accrued interest currently due thereon. In addition certain of the principal amount due under the Outstanding Notes may be reduced do to the offset of certain amounts resulting from the previous issuance of shares of common stock upon conversions of the Outstanding Notes, which issuances are voidable under the laws of the Company’s state of incorporation.
During the next 12-24 months the Company would like to spend approximately $5 million to $10 million of capital, if it can be raised, to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. In addition to selling equity or debt securities to fund product development, the Company may pursue potential licensing or strategic partnership arrangements for certain rights to its products or technologies.
| F- 7 |
As of December 31, 2015 the Company has $179,032 cash on hand. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CFO and other employees of the Company and the Company’s current lease commitments that will necessitate liquidation of the Company if it is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.
Assuming the Company is successful in the Company’s sales/development effort it believes that it will be able to raise additional funds through strategic agreements or the sale of the Company’s stock to either current or new stockholders. There is no guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.
The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Fair Value of Financial Instruments
Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of December 31, 2015 and December 31, 2014, the balances reported for cash, prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at December 31, 2015:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Total Assets Measured at Fair Value | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities: | ||||||||||||||||
| Liability for lack of authorized shares | 852,091 | - | - | 852,091 | ||||||||||||
| Derivative Liability | 4,235,016 | - | - | 4,235,016 | ||||||||||||
| Total Liabilities Measured at Fair Value | $ | 5,087,107 | $ | - | $ | - | $ | 5,087,107 | ||||||||
| F- 8 |
Assets and liabilities measured at fair value on a recurring basis are as follows at December 31, 2014:
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets | ||||||||||||||||
| Total Assets Measured at Fair Value | $ | - | $ | - | $ | - | $ | - | ||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability | 11,502,380 | - | - | 11,502,380 | ||||||||||||
| Total Liabilities Measured at Fair Value | $ | 11,502,380 | $ | - | $ | - | $ | 11,502,380 | ||||||||
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.
Inventory
Inventory is reported at the lower of cost or market, determined using the first-in, first-out basis, or net realizable value. All inventories consist of Finished Goods. The Company had no Raw Materials or Work in Process.
Fixed Assets
Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.
Depreciation is computed using the straight-line method over the following estimated useful lives:
| Production equipment | 3 to 7 years |
| Office equipment | 2 to 5 years |
| Furniture and fixtures | 2 to 5 years |
Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.
Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. 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.
| F- 9 |
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 made a $10,000 investment in 2010 for an exclusive license with Battelle Memorial Institute regarding its technology for the production of a Brachytherapy seed. In August 2010 the Company entered into a License Agreement for the Patent Rights in the area of a Brachytherapy seed with a Fast-dissolving Matrix for Optimized Delivery of Radionuclides. This Agreement calls for a $10,000 nonrefundable fee upon execution, a royalty agreement on sales and on funds received from any sublicenses. The $10,000 nonrefundable fee paid upon execution was capitalized as License Fees and is amortized on the straight line basis over a three year life. Additionally the Agreement calls for a minimum annual fee as follows:
| Calendar Year |
Minimum
Royalties per Calendar Year |
|||
| 2010 | $ | - | ||
| 2011 | $ | - | ||
| 2012 | $ | 2,500 | ||
| 2013 | $ | 5,000 | (1) | |
| 2014 | $ | 7,500 | (2) | |
| 2015 | $ | 10,000 | (3) | |
|
2016 and each calendar year thereafter |
$ | 25,000 | ||
| (1) Paid February, 2014 | ||||
| (2) Paid February, 2015 | ||||
| (3) Paid February, 2016 | ||||
The Company made a $5,000 investment in February 2011 for a one year option agreement to negotiate an exclusive license agreement with Battelle Memorial Institute regarding its patents for the production of a radiogel technology. This option agreement calls for a $5,000 upfront fee for the option, which expired February 2012 and was fully expensed in the twelve months ended December 31, 2011. Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented radiogel technology. This license agreement calls for a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold; the license agreement also contains a minimum royalty amount to be paid each year starting with 2013.
| Calendar Year |
Minimum
Royalties per Calendar Year |
|||
| 2012 | $ | - | ||
| 2013 | $ | 5,000 | (1) | |
| 2014 | $ | 7,500 | (2) | |
| 2015 | $ | 10,000 | (3) | |
|
2016 and each calendar year thereafter |
$ | 25,000 | ||
| (1) Paid February, 2014 | ||||
| (2) Paid February, 2015 | ||||
| (3) Paid February, 2016 | ||||
The Company periodically reviews the carrying values of capitalized license fees 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 $1,339, and $5,832 for the years ended December 31, 2015, and 2014, respectively.
| F- 10 |
Patents and Intellectual Property
No patent filing costs and intellectual property costs were capitalized during the twelve months ended December 31, 2015, and 2014. The Company evaluates the recoverability of intangible assets, including patents and intellectual property, on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.
While patents are being developed or pending they are not being amortized. Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis will begin once the patents have been issued and the Company begins utilization of the patents through production and sales, resulting in revenues. As of December 31, 2015, no amortization has begun.
Revenue Recognition
The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
Revenue for the fiscal year ended December 31, 2015 and December 31, 2014 consisted of Consulting Revenue. The Company recognizes revenue once an order has been received and shipped to the customer or services have been performed. 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.
Income from Grants and Deferred Income
Government grants are recognized when all conditions of such grants are fulfilled or there is reasonable assurance that they will be fulfilled. The Company has chosen to recognize income from grants as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet.
On September 1, 2015, the Company received notification it had been awarded from Washington State University, $42,019 grant funds from the sub-award project entitled “Optimized Injectable Radiogels for High-dose Therapy of Non-Resectable Solid Tumors”. The Company received $21,010 of the total grand award in December 2015. For the twelve months ended December 31, 2014 no other grant money was received or recognized as revenues.
Earnings (Loss) Per Share
The Company accounts for its earnings (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders (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 since the impact would be anti-dilutive. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.
Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2015 and 2014 are as follows:
| December 31, 2015 | December 31, 2014 | |||||||
| Convertible debt | 784,842,090 | 11,490,531,385 | ||||||
| Preferred stock |
1,627,000,000 |
- | ||||||
| Common stock options | 5,135,000 | 8,785,000 | ||||||
| Common stock warrants | 679,100,306 | 2,310,770,115 | ||||||
| Total potential dilutive securities |
3,096,077,396 |
13,870,086,500 | ||||||
| F- 11 |
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.
The Company incurred $149,650 and $44,268 research and development costs for the years ended December 31, 2015, and 2014, respectively, all of which were recorded in the Company’s operating expenses noted on the income statements for the years then ended.
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. Tradeshow expenses incurred and not expensed as of the years ended December 31, 2015 and 2014 were $14,800 and $14,800, respectively. During the twelve months ended December 31, 2015 and 2014, the Company incurred $0 and $600 respectively, in advertising costs.
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred and included in cost of materials.
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.
There had been an ongoing dispute with the landlord, Rob and Maribeth Myers, regarding the Production Center rent. During 2016 the Company reached a Settlement Agreement with regards to this dispute resulting in a payment of $438,830 for rent, interest, and costs.
There is an ongoing dispute with BancLease and Washington Trust Bank regarding application of lease payments to the principal loan amount for the linear accelerator, and the Company believes it has overpaid by approximately $300,000. At this time, the Company believes it will prevail in this matter however there can be no assurance as to the outcome of this event.
In addition there are disputes related to approximately $180,000 principle worth of toxic notes. The Company believes it has affirmative defenses and is actively working to address these disputes.
| F- 12 |
Income Taxes
To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.
The Company 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, 2015 and 2014. The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2015 and 2014.
Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company’s financial statements. For the years ended December 31, 2015 and 2014, 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.
Stock-Based Compensation
The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the Company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
Recent Accounting Pronouncements
There are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the financial statements of the Company.
NOTE 3: FIXED ASSETS
Fixed assets consist of the following at December 31, 2015 and 2014:
| December 31, 2015 | December 31, 2014 | |||||||
| Production equipment | $ | 1,938,532 | $ | 2,131,377 | ||||
| Building | 446,772 | 446,772 | ||||||
| Leasehold improvements | 3,235 | 3,235 | ||||||
| Office equipment | 32,769 | 32,769 | ||||||
| 2,421,308 | 2,614,153 | |||||||
| Less accumulated depreciation | (2,416,888 | ) | (2,605,400 | ) | ||||
| $ | 4,420 | $ | 8,753 | |||||
Depreciation expense for the above fixed assets for the years ended December 31, 2015 and 2014, respectively, was $4,332 and $6,160.
| F- 13 |
NOTE 4: INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 2015 and December 31, 2014:
| December 31, 2015 | December 31, 2014 | |||||||
| License Fee | $ | 112,500 | $ | 112,500 | ||||
| Less accumulated amortization | (112,500 | ) | (111,161 | ) | ||||
| - | 1,339 | |||||||
| Patents and intellectual property | 35,482 | 35,482 | ||||||
| $ | 35,482 | $ | 36,821 | |||||
Amortization expense for the above intangible assets for the years ended December 31, 2015 and 2014, respectively, was $1,339 and $5,832.
NOTE 5: RELATED PARTY TRANSACTIONS
Related Party Convertible Notes Payable
The Company issued various shares of common stock and convertible promissory notes during the twelve months ended December 31, 2015 and 2014 to a director and major stockholder. The details of these transactions are outlined in Note 11: Stockholders’ Equity - Common Stock Issued for Convertible Debt .
Preferred Shares Issued to Officers
The Company received $43,000 combined from the CEO and CFO during the year 2015 in exchange for 8% Convertible Promissory Notes that were converted to 43,000 shares of Series A Preferred stock. Additionally the Company issued a total of 3,440 shares of Series A Preferred stock as loan fees.
The Company issued the CEO and CFO a combined total of 175,000 shares of Series A Preferred stock in exchange for a combined total of $262,500 of accrued and unpaid wages.
Rent Expenses
On July 17, 2007, the Company entered into a five year lease for its production center from a less than 5 percent shareholder. Subsequent to July 31, 2012 the Company was renting this space on a month to month basis at $11,904 per month. Effective January 1, 2015 the Company’s lease was terminated. There has been an ongoing dispute with the landlord, Rob and Maribeth Myers, regarding the Production Center rent. During 2016 the Company reached a Settlement Agreement with regards to this dispute resulting in a payment of $438,830 for rent, interest, and costs.
The Company rents office space from a significant shareholder and director of the Company on a month to month basis with a monthly payment of $1,500.
Rental expense for the years ended December 31, 2015 and 2014 consisted of the following:
|
Year
ended
December 31, 2015 |
Year
ended
December 31, 2014 |
|||||||
| Office and warehouse space | $ | 155,306 | $ | 147,613 | ||||
| Corporate office | 18,000 | 18,000 | ||||||
| Total Rental Expense | $ | 173,306 | $ | 165,613 | ||||
| F- 14 |
NOTE 6: CAPITAL LEASE OBLIGATIONS
During September 2007, the Company obtained two master lease agreements for $1,875,000 and $631,000, with interest on both leases accruing at 8.6% annually, secured by equipment and personal guarantee of two of the major stockholders. These long-term agreements 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 plus ancillary equipment and facility.
This capital lease and its resulting obligation is recorded at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding any portion of the payments representing taxes to be paid by the Company. This amount does not exceed the fair value of the leased property at the lease inception, so the recorded amount is the fair value.
The lease requires the Company to maintain a minimum debt service coverage ratio of 1:1 measured at fiscal year-end; non-compliance with this provision shall constitute a default and guarantors must contribute capital sufficient to fund any deficit in the debt service coverage ratio.
According to the debt service coverage ratio computation, at December 31, 2014 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants, accordingly the Company recorded the entire value of the leases as a current value at December 31, 2014.
The Company fully paid this capital lease obligations during the twelve months ending December 31, 2015 however there is an ongoing dispute with the lessor as the Company believes it has overpaid on its lease obligations.
NOTE 7: SHORT TERM LOAN PAYABLE
The Company had research costs of $349,913 that were converted to an unsecured promissory note May 1, 2013. The note calls for 10% interest and was due May 1, 2014. On May 15, 2014 the Company renewed the unsecured promissory note as a 10% convertible debenture, due May 15, 2015, in the principal amount of $350,000 along with a warrant exercisable for shares of common stock of the Company and 532,609 shares of common stock. On June 6, 2014 the convertible debenture was converted into common stock of the Company for a total issuance of 16,530,974 shares of common stock.
The warrant is exercisable for three years from issuance to purchase up to the number of shares of common stock equal to the quotient obtained by dividing the original principal amount of the debenture ($350,000) by the warrant exercise price (subject to adjustment to maintain the original value proposition and to support the ability of Battelle to convert the full value of the indebtedness to shares of common stock) at a price per share equal to the warrant exercise price in cash. The warrant exercise price is equal to the lesser of the market value (defined as the mean market closing price per share over the 10 trading days immediately prior to the notice date of exercise) and $0.046 per share.
Interest in the amount of $2,031 was paid on this note for the year ended December 31, 2014.
Beginning in December, 2008, the Company has obtained financing from Carlton M. Cadwell, one of our directors and a beneficial owner of more than 10% of the Company’s common stock, in transactions which involved the Company’s issuance of convertible notes and common stock. On September 4, 2015 the Company exchanged $1,414,100 of convertible notes plus $810,538 of accrued interest into 148,311 of Series A Preferred shares and another $2,224,466 of convertible notes plus $889,838 of accrued interest into 207,620 of Series A Preferred shares. Additionally the Company exchanged the remaining $906,572 of convertible notes plus $148,960 accrued interest into a $1,055,532 demand note, 8% interest rate, due on demand at any time after March 31, 2017.
| F- 15 |
NOTE 8: CONVERTIBLE NOTES PAYABLE
As of December 31, 2015 and 2014 the Company had the following convertible notes outstanding:
| December 31, 2015 | December 31, 2014 | ||||||||||||||||
|
Principal
(net) |
Accrued
Interest |
Principal
(net) |
Accrued
Interest |
||||||||||||||
| July and August 2012 $1,060,000 Convertible Notes, 12% interest, due December 2013 and January 2014 (18 month notes), $165,000 and $170,000 outstanding, net of debt discount of $0 and $0, respectively | $ | 165,000 | $ | 69,712 | $ | 170,000 | 49,313(1 | ) | |||||||||
| October 2013 $97,700 Convertible Note, 8% interest, due April 2014, with a 12% original issue discount, $0 and $2,700 outstanding, net of debt discount of $0 and $0, respectively | - | - | 2,700 | 6,713(2 | ) | ||||||||||||
| January 2014 $50,000 Convertible Note, 8% interest, due January 2015, $50,000 and $50,000 outstanding, net of debt discount of $0 and $0, respectively | 50,000 | 7,682 | 46,291 | 3,693(3 | ) | ||||||||||||
| January 2014 $55,500 Convertible Note, 10% interest, due October 2014, with a $5,500 original issue discount, $10,990 and $10,990 outstanding, net of debt discount of $0 and $0, respectively | 10,990 | 5,457 | 10,990 | 4,361(4 | ) | ||||||||||||
| February 2014 $46,080 Convertible Note, 10% interest, due February 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively | - | 2,358 | - | 2,358(5 | ) | ||||||||||||
| February 2014 $27,800 Convertible Note, 10% one-time interest, due February 2015, with a 10% original issue discount, $0 and $51,159 outstanding, net of debt discount of $0 and $49,626, respectively, settled remaining balance on September 30, 2015 for 5,000 shares of preferred and $20,000 cash payment due upon obtaining new financing | 20,000 | - | 1,533 | 294(6 | ) | ||||||||||||
| March 2014 $50,000 Convertible Note, 10% interest, due March 2015, $36,961 and $36,961 outstanding, net of debt discount of $0 and $5,504, respectively | 36,961 | 6,572 | 31,457 | 2,886(7 | ) | ||||||||||||
| March 2014 $165,000 Convertible Note, 10% interest, due April 2015, with a $16,450 original issue discount, $61,301 and $84,512 outstanding, net of debt discount of $0 and $15,236, respectively | 61,301 | 24,109 | 77,521 | 14,328(8 | ) | ||||||||||||
| April 2014 $32,000 Convertible Note, 10% interest, due April 2015, $22,042 and $22,042 outstanding, net of debt discount of $0 and $7,710, respectively | 22,042 | 3,034 | 14,332 | 835(9 | ) | ||||||||||||
| April 2014 $46,080 Convertible Note, 10% interest due April 2015, $5,419 and $5,419 outstanding, net of debt discount of $0 and $0, respectively | 5,419 | 4,608 | 5,419 | 4,608(10 | ) | ||||||||||||
| May 2014 $42,500 Convertible Note, 8% interest, due February 2015, $0 and $21,215 outstanding, net of debt discount of $0 and $15,116, respectively | - | - | 6,099 | 1,051(11 | ) | ||||||||||||
| May 2014 $55,000 Convertible Note, 12% interest, due May 2015, with a $5,000 original issue discount, $0 and $46,090 outstanding, net of debt discount of $0 and $24,315, respectively, settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining $25,000 as a 10% convertible debenture due May 31, 2016 | 25,000 | 1,836 | 21,775 | 3,385(12 | ) | ||||||||||||
| June 2014 $37,500 Convertible Note, 8% interest, due March 2015, $0 and $37,500 outstanding, net of debt discount of $0 and $13,340, respectively | - | - | 27,211 | 1,652(13 | ) | ||||||||||||
| June 2014 $28,800 Convertible Note, 10% interest due June 2015, $28,800 and $28,800 outstanding, net of debt discount of $0 and $13,730, respectively | 28,800 | 2,880 | 15,070 | 2,880(14 | ) | ||||||||||||
| June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $40,000 outstanding, net of debt discount of $0 and $19,398, respectively | 40,000 | 6,049 | 20,602 | 2,060(15 | ) | ||||||||||||
| June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $38,689 and $38,689 outstanding, net of debt discount of $0 and $18,554, respectively | 38,689 | 5,851 | 20,135 | 1,993(16 | ) | ||||||||||||
| June 2014 $56,092 Convertible Note, 16% interest, due July 2015, with a $5,000 original issue discount, $56,092 and $56,092 outstanding, net of debt discount of $0 and $27,815, respectively | 56,092 | 13,462 | 28,277 | 4,512(17 | ) | ||||||||||||
| July 2014 $37,500 Convertible Note, 12% interest, due July 2015, $37,015 and $37,015 outstanding, net of debt discount of $0 and $20,737, respectively | 37,015 | 6,377 | 16,278 | 1,947(18 | ) | ||||||||||||
| July 2014 $37,500 Convertible Note, 8% interest, due April 2015, $0 and $37,500 outstanding, net of debt discount of $0 and $13,587, respectively | - | - | 23,913 | 1,447(19 | ) | ||||||||||||
| August 2014 $22,500 Convertible Note, 8% interest, due May 2015, $0 and $22,500 outstanding, net of debt discount of $0 and $9,488, respectively, on August 27, 2015 the Company settled all of its outstanding debt with this lender for the sum of $80,000 to be paid $20,000 at each of September 1, 2015, October 1, 2015, November 1, 2015, and December 1, 2015 | - | - | 13,012 | 725(20 | ) | ||||||||||||
| August 2014 $36,750 Convertible Note, 10% interest, due April 2015, $36,750 and $36,750 outstanding, net of debt discount of $0 and $20,588, respectively | 36,750 | 5,538 | 13,995 | 1,873(21 | ) | ||||||||||||
| August 2014 $33,500 Convertible Note, 4% interest, due February 2015, with a $8,500 original issue discount, $33,500 and $33,500 outstanding, net of debt discount of $0 and $10,367, respectively | 33,500 | - | 23,133 | -(22 | ) | ||||||||||||
| September 2014 $37,500 Convertible Note, 12% interest, due September 2015, with a $5,000 original issue discount, $36,263 and $36,263 outstanding, net of debt discount of $0 and $25,927, respectively | 36,263 | 5,576 | 10,336 | 1,236(23 | ) | ||||||||||||
| January 2015 $19,000 Convertible Note, 8% interest, due September 30, 2015, $19,000 and $0 outstanding, net of debt discount of $19,000 and $0, respectively | - | 1,099 | - | -(24 | ) | ||||||||||||
| January 2015 $12,500 Convertible Note, 8% interest, due September 30, 2015, $12,500 and $0 outstanding, net of debt discount of $12,500 and $0, respectively | - | 723 | - | -(25 | ) | ||||||||||||
| February 2015 $100,000 Convertible Note, 8% interest, due September 30, 2015, $100,000 and $0 outstanding, net of debt discount of $100,000 and $0, respectively | - | 5,085 | - | -(26 | ) | ||||||||||||
| February 2015 $25,000 Convertible Note, 8% interest, due September 30, 2015, $25,000 and $0 outstanding, net of debt discount of $25,000 and $0, respectively | - | 1,619 | - | -(27 | ) | ||||||||||||
| March 2015 $50,000 Convertible Note, 10% interest, due October 6, 2015, $0 and $0 outstanding, net of debt discount of $50,000 and $0, respectively | - | - | - | -(28 | ) | ||||||||||||
| March 2015 $20,000 Convertible Note, 8% interest, due September 30, 2015, $20,000 and $0 outstanding, net of debt discount of $20,000 and $0, respectively | - | 820 | - | -(29 | ) | ||||||||||||
| April 2015 $10,000 Convertible Note, 8% interest, due September 30, 2015, $10,000 and $0 outstanding, net of debt discount of $10,000 and $0 respectively | - | 364 | - | -(30 | ) | ||||||||||||
| April 2015 $25,000 Convertible Note, 8% interest, due September 30, 2015, $25,000 and $0 outstanding, net of debt discount of $25,000 and $0, respectively | - | 910 | - | -(31 | ) | ||||||||||||
| April 2015 $55,000 Convertible Note, 10% interest, due September 30, 2015, $55,000 and $0 outstanding, net of debt discount of $55,000 and $0, respectively | - | - | - | -(32 | ) | ||||||||||||
| July 2015 $15,000 Convertible Note, 8% interest, due September 30, 2015, $15,000 and $0 outstanding, net of debt discount of $15,000 and $0, respectively | - | 291 | - | -(33 | ) | ||||||||||||
| July 2015 $75,000 Convertible Note, 8% interest, due September 30, 2015, $75,000 and $0 outstanding, net of debt discount of $75,000 and $0, respectively | - | 1,282 | - | -(34 | ) | ||||||||||||
| August 2015 $7,500 Convertible Note, 8% interest, due September 30, 2015, $7,500 and $0 outstanding, net of debt discount of $7,500 and $0, respectively | - | 49 | - | -(35 | ) | ||||||||||||
| September 2015 $10,000 Convertible Note, 10% interest, due October 6, 2015, $10,000 and $0 outstanding, net of debt discount of $10,000 and $0, respectively | - | - | - | -(36 | ) | ||||||||||||
| September 2015 $25,000 Convertible Note, 10% interest, due September 30, 2015, $25,000 and $0 outstanding, net of debt discount of $25,000 and $0, respectively | - | 178 | - | -(37 | ) | ||||||||||||
| September 2015 $25,000 Convertible Note, 10% interest, due September 30, 2015, $25,000 and $0 outstanding, net of debt discount of $25,000 and $0, respectively | - | 178 | - | -(38 | ) | ||||||||||||
| September 2015 $25,000 Convertible Note, 8% interest, due September 30, 2015, $25,000 and $0 outstanding, net of debt discount of $25,000 and $0, respectively | - | 33 | - | -(39 | ) | ||||||||||||
| May through October 2015 $221,000 Convertible Notes, 8% interest, due September 30, 2015, $221,000 and $0 outstanding, net of debt discount of $221,000 and $0, respectively | - | 5,633 | - | -(40 | ) | ||||||||||||
| October through December 2015 $613,000 Convertible Notes, 8% interest, due June 30, 2016, $613,000 and $0 outstanding, net of debt discount of $560,913 and $0, respectively | 52,087 | 2,519 | - | -(41 | ) | ||||||||||||
| Penalties on notes in default | 1,032,475 | - | - | - | |||||||||||||
| Total Convertible Notes Payable, Net | $ | 1,788,384 | $ | 191,884 | $ | 600,079 | $ | 114,150 | |||||||||
(1) Convertible Debt instruments accrue interest at an annual rate of 12% and a conversion price of $0.06. The Convertible Debt instruments also include Additional Investment Rights to enter into an additional convertible note with a corresponding amount of warrants equal to forty percent of the convertible note principal.
During the twelve months ending December 31, 2014 the holders of the Convertible Debt instruments exercised their conversion rights and converted $10,000 and $2,160 of the outstanding principal and accrued interest balances.
During the twelve months ending December 31, 2015 the holders of the Convertible Debt instruments received a repayment of $5,000 and $0 of the outstanding principal and accrued interest balances.
| F- 16 |
NOTE 8: CONVERTIBLE NOTES PAYABLE - continued
During the twelve months ending December 31, 2014, total amortization was recorded in the amount of $8,576 and principal of $10,000 and accrued interest of 2,160 was converted into shares of common stock (see Note 11: Stockholders’ Equity. After conversions and amortization, principal totaled $170,000 and debt discount totaled $0 at December 31, 2014. During the twelve months ending December 31, 2014 interest expense of $20,864 was recorded for the Convertible Debt Instruments. The $170,000 balance of the notes reached maturity during the year ended December 31, 2014 and are currently in default. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $0 and principal of $5,000 and accrued interest of $0 was repaid to the note holder. After repayments, conversions and amortization, principal totaled $165,000 and debt discount totaled $0 at December 31, 2015. During the twelve months ending December 31, 2015 interest expense of $20,398 was recorded for the Convertible Debt Instruments. The $165,000 balance of the notes reached maturity during the year ended December 31, 2014 and are currently in default.
(2) During the twelve months ending December 31, 2014, total principal of $95,000 was converted into shares of common stock resulting in a decrease to the debt discount of $0. After conversions and amortization, principal totaled $2,700, debt discount totaled $0, and accumulated interest totaled $6,713.12 at December 31, 2014. The balance of the note reached maturity during the year ended December 31, 2014. During the twelve months ending December 31, 2015, interest expense of $215 was recorded for the note and the Company settled the $2,700 balance of the note and the $6,929 of accrued interest in exchange for 10,000 shares of Series A Preferred Stock.
(3) The Company borrowed $50,000 January 2014, due January 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (July 27, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.09 or 58% of the lowest trade price in the 10 trading days previous to the conversion. The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative liability at inception (see Note 11: Derivative Liability). Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $46,291. After amortization, principal totaled $50,000, debt discount totaled $3,709, and accumulated interest totaled $3,693 at December 31, 2014. During the twelve months ended December 31, 2015, total amortization was recorded in the amount of $0. After amortization, principal totaled $50,000, debt discount totaled $0. The Company accrued an additional $3,989 interest for the twelve months ended December 31, 2015. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(4) The Company borrowed $55,500 January 2014, due October 2014, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (July 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.28 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $5,500 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $55,000 related to the conversion feature and original issue discount, along with a derivative liability at inception (see Note 11: Derivative Liability). Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $52,065. Also during the twelve months ending December 31, 2014, total principal of $44,510 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $7,565. After conversions and amortization, principal totaled $10,990, debt discount totaled $0, and accumulated interest totaled $4,361 at December 31, 2014. The Company accrued an additional $1,096 interest for the twelve months ended December 31, 2015. The balance of the note reached maturity during the year ended December 31, 2014 and is currently in default.
(5) The Company borrowed $50,000 February 2014, due February 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (August 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.07 or 58% of the lowest trade price in the 10 trading days previous to the conversion. The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $26,503. Also during the twelve months ending December 31, 2015, total principal of $46,080 and accrued interest of $3,358 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $19,577. After conversions and amortization, principal totaled $0, debt discount totaled $0, and accumulated interest totaled $0 at December 31, 2015.
| F- 17 |
(6) The Company borrowed $27,800 February 2014, due February 2015, with a one-time interest charge of 10%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $2,800 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. Additionally, the holder of the note added a market price adjustment of $53,192 on the note due to delay in issuance of conversion shares. The Company increased the amount of the note by $53,192 and recorded a debt discount of $53,192. Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the nine month life of the note. During the twelve months ending December 31, 2014, total amortization was recorded in the amount of $22,056. Also during the twelve months ending December 31, 2014, total principal of $29,833 and accrued interest of $2,780 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $506. After conversions and amortization, principal totaled $51,159, debt discount totaled $49,626, and accumulated interest totaled $294 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $25,877 and an additional $0 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and was settled September 30, 2015 for 5,000 shares of Series A Preferred Stock having a stated value of $5.00 per share and $20,000 cash payment due upon the consummation of a debt or equity financing resulting in gross proceeds to the Company of at least $500,000.
(7) The Company borrowed $50,000 March 2014, due March 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (September 18, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $39,042. Also during the twelve months ending December 31, 2014, total principal of $13,039 and accrued interest of $727 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $5,454. After conversions and amortization, principal totaled $36,961, debt discount totaled $5,504, and accumulated interest totaled $2,886 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $0 and an additional $3,686 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(8) The Company borrowed $165,000 March 2014, due April 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the three lowest trading prices in the 20 trading days previous to the conversion. The note has an original issue discount of $15,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $165,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $120,417. Also during the twelve months ending December 31, 2014, total principal of $80,488 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $37,592. After conversions and amortization, principal totaled $84,512, debt discount totaled $6,991, and accumulated interest totaled $14,328 at December 31, 2014. During the twelve months ending December 31, 2015, total principal of $23,211 was converted into shares of common stock, resulting in a decrease to the debt discount of $6,991. After conversions and amortization, principal totaled $61,301, debt discount totaled $0, and accumulated interest totaled $24,109 at December 31, 2015. The balance of the note reached maturity during the year ended December 31, 2014 and is currently in default.
| F- 18 |
(9) The Company borrowed $32,000 April 2014, due April 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (October 1, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company recorded a debt discount of $32,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $21,216. Also during the twelve months ending December 31, 2014, total principal of $9,958 and accrued interest of $681 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $3,074. After conversions and amortization, principal totaled $22,042, debt discount totaled $7,710, and accumulated interest totaled $835 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $0 and an additional $2,198 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(10) The Company borrowed $46,080 April 2014, due April 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (October 11, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt discount of $46,080 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $30,094. Also during the twelve months ending December 31, 2014, total principal of $40,661 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $15,986. After conversions and amortization, principal totaled $5,419, debt discount totaled $0, and accumulated interest totaled $4,608 at December 31, 2015 and December 31, 2014. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(11) The Company borrowed $42,500 May 2014, due February 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (November 16, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $42,500 related to the conversion feature of the note, along with a derivative liability at inception. Additionally, the note holder assed a $14,890 penalty due to the inability of the Company to provide conversion shares timely. The Company increased the amount of the note by $14,890 and recorded a debt discount of $14,890. Interest expense for the amortization of the debt discounts is calculated on a straight-line basis over the nine month life of the note. During the twelve months ending December 31, 2014, total amortization was recorded in the amount of $32,535. Also during the twelve months ending December 31, 2014, total principal of $36,175 was converted into shares of common stock resulting in a decrease to the debt discount of $9,739. After conversions and amortization, principal totaled $21,215, debt discount totaled $15,116, and accumulated interest totaled $1,051 at December 31, 2014. During the twelve months ending December 31, 2015, total principal of $8,510 was converted into shares of common stock resulting in a decrease to the debt discount of $15,116. This note, along with notes numbered 13, 19, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,523. All payments on the $80,000 remaining note were paid in full as of December 31, 2015.
| F- 19 |
(12) The Company borrowed $55,000 May 2014, due May 2015, with interest at 12%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.03 or 55% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $55,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $30,685. Also during the twelve months ending December 31, 2014, total principal of $8,910 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $0. After conversions and amortization, principal totaled $46,090, debt discount totaled $24,315, and accumulated interest totaled $3,385 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $24,315 and an additional $2,131 of interest was accrued. This note was settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining $25,000 as a 10% convertible debenture due May 31, 2016. The $25,000 convertible debenture is convertible at 55% of the lowest close for the last 270 days prior to the conversion notice or $0.03, but not less than $0.001. This settlement resulted in a reduction to notes payable of $46,090 and accrued interest payable of $5,516, an increase to note payable of $100,000 and a resulting $48,394 loss on settlement of debt.
(13) The Company borrowed $37,500 June 2014, due March 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (December 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $37,500 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $27,211. After amortization, principal totaled $37,500, debt discount totaled $10,289, and accumulated interest totaled $1,652 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $10,289 and an additional $1,959 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015. This note, along with notes numbered 11, 19, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note were paid in full as of December 31, 2015.
(14) The Company borrowed $28,800 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (December 20, 2014), to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt discount of $28,800 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $15,070. After amortization, principal totaled $28,800, debt discount totaled $13,730, and accumulated interest totaled $2,880 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $13,730 and an additional $0 of interest was accrued.
(15) The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of the prepayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $20,602. After amortization, principal totaled $40,000, debt discount totaled $19,398, and accumulated interest totaled $2,060 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $19,398 and an additional $3,989 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
| F- 20 |
(16) The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any repayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $20,814. Also during the twelve months ending December 31, 2014, total principal of $1,311 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $632. After conversions and amortization, principal totaled $38,689, debt discount totaled $18,554, and accumulated interest totaled $1,993 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $18,554 and an additional $3,858 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(17) The Company borrowed $56,092 July 2014, due July 2015, with interest at 16%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the three lowest trading prices in the 20 trading days previous to the conversion. The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $51,092 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $28,276. After amortization, principal totaled $56,092, debt discount totaled $27,815, and accumulated interest totaled $4,512 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $27,816 and an additional $8,950 of interest was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently in default.
(18) The Company borrowed $37,500 July 2014, due July 2015, with interest at 12%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 50% of the lowest of the lowest trading price in the 15 trading days previous to the conversion. The Company recorded a debt discount of $37,500 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $16,483. Also during the twelve months ending December 31, 2014, total principal of $485 was converted into shares of common stock (see Note 11: Stockholders’ Equity), resulting in a decrease to the debt discount of $280. After conversions and amortization, principal totaled $37,015, debt discount totaled $20,737, and accumulated interest totaled $1,947 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $20,737 and an additional $4,430 of interest was accrued. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently in default.
(19) The Company borrowed $37,500 July 2014, due April 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (January 5, 2015), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $37,500 related to the conversion feature, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $23,913. After amortization, principal totaled $37,500, debt discount totaled $13,587, and accumulated interest totaled $1,447 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $13,587 and an additional $1,959 of interest was accrued. This note, along with notes numbered 11, 13, and 20, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note are current as of November 20, 2015. All payments on the $80,000 remaining note were paid in full as of December 31, 2015.
| F- 21 |
(20) The Company borrowed $22,500 August 2014, due August 2015, with interest at 8%. The holder of the note has the right, after the first one hundred eighty days of the note (February 2, 2014), to convert the note and accrued interest into common stock at a price per share equal to 61% (representing a discount rate of 39%) of the average of the lowest five trading prices for the Common Stock during the ten trading day period ending one trading day prior to the date of Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment during the first sixty days is 130% of the outstanding amounts owed while the amount of the prepayment increases every subsequent thirty days to 135%, 140%, 145%, and 150% of the outstanding amounts owed. The Company recorded a debt discount of $20,384 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $10,896. After amortization, principal totaled $22,500, debt discount totaled $9,488, and accumulated interest totaled $725 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $9,488 and an additional $890 of interest was accrued. This note, along with notes numbered 11, 13, and 19, was settled August 27, 2015 for $80,000 to be paid at $20,000 each September 1, 2015, October 1, 2015, November 1, 2015 and December 1, 2015. This settlement for these notes resulted in a reduction of notes payable of $110,205 and accrued interest payable of $10,319 offset by a new $80,000 note payable and a gain on debt restructuring of $40,524. All payments on the $80,000 remaining note were paid in full as of December 31, 2015.
(21) The Company borrowed $36,750 August 2014, due August 2015, with interest at 10%. The holder of the note has the right, after the first one hundred eighty days of the note (February 10, 2014), to convert the note and accrued interest into common stock at a price per share equal to 60% (representing a discount rate of 40%) of the lowest trading price for the Common Stock during the twenty five trading day period including the date of the Conversion Notice. The Company has the right to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $36,750 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $13,995. After amortization, principal totaled $36,750, debt discount totaled $22,755, and accumulated interest totaled $1,873 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $22,755 and an additional $3,665 of interest was accrued. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently in default.
(22) The Company borrowed $33,500 August 2014, due February 2015, with interest at 4%. The Company may prepay the note for a net payment of $33,500 at any time prior to November 27, 2014. After November 27, 2014, the holder has the right to refuse any further payments and to convert this note when it matures, February 27, 2015. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 60% (represents a 40% discount) of the average three lowest trade prices in the 20 trading days previous to the conversion. The note has an original issue discount of $6,500 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $32,807 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $22,520. After amortization, principal totaled $33,500, debt discount totaled $10,367, and accumulated interest totaled $0 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $10,367. The balance of the note reached full maturity during the quarter ended March 31, 2015 and is currently in default.
(23) The Company borrowed $37,500 September 2014, due September 2015, with interest at 12%. The holder of the note has the right to convert the note and accrued interest into common stock at a price per share equal to 55% (represents a 45% discount) of the lowest trade prices in the 15 trading days previous to the conversion. The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $37,500 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2014, total amortization was recorded in the amount of $10,685. Also during the twelve months ending December 31, 2014, total principal of $1,238 was converted into shares of common stock resulting in a decrease to the debt discount of $888. After conversions and amortization, principal totaled $36,262, debt discount totaled $25,927, and accumulated interest totaled $1,236 at December 31, 2014. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $25,927 and an additional $4,341 of interest was accrued. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is past due.
| F- 22 |
(24) The Company borrowed $19,000 January 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 1,520 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $19,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $19,000 and accrued interest in the amount of $1,099 was recorded towards this note. As of December 31, 2015 this note was extinguished for 19,000 Series A Convertible Preferred Shares.
(25) The Company borrowed $12,500 January 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 1,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $12,500 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $12,500 and accrued interest in the amount of $723 was recorded towards this note. As of December 31, 2015 this note was extinguished for 12,500 Series A Convertible Preferred Shares.
(26) The Company borrowed $100,000 February 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 8,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $100,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $100,000 and accrued interest on the amount of $5,085 was accrued towards this note. As of December 31, 2015 this note was extinguished for 100,000 Series A Convertible Preferred Shares.
(27) The Company borrowed $25,000 February 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 2,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $1,619 was recorded towards this note. As of December 31, 2015 this note was extinguished for 25,000 Series A Convertible Preferred Shares.
(28) The Company borrowed $50,000 March 2015, due September 2015, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of the six months (September 19, 2015) at a price per share of $1. The Company issued the note holder 10,000,000, $0.0015, one year warrants as a loan origination fee. The Company recorded a debt discount of $13,213 related to the warrants issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $13,213 and accrued interest in the amount of $3,060 was recorded towards this note. The balance of the note reached full maturity during the quarter ended September 30, 2015 however the note holder and the Company reached a settlement agreement November 13, 2015 and this note was paid in full as of December 31, 2015.
(29) The Company borrowed $20,000 March 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 1,600 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $20,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $20,000 and accrued interest in the amount of $820 was recorded towards this note. As of December 31, 2015 this note was extinguished for 20,000 Series A Convertible Preferred Shares.
| F- 23 |
(30) The Company borrowed $10,000 April 2015, due September 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 800 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $10,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $10,000 and accrued interest in the amount of $364 was recorded towards this note. As of December 31, 2015 this note was converted into 10,000 Series A Convertible Preferred Shares.
(31) The Company borrowed $25,000 September 2015, due October 2015, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 2,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $910 was recorded towards this note. As of December 31, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
(32) The Company borrowed $55,000 April 2015, due October 2015, with interest at 10%. The Company may prepay the note for a net payment of $55,000 at any time. The holder of the note has the right at the end of the note (October 20, 2015), to convert the note and accrued interest into common stock at a price per share equal to the lesser of (i) forty percent (40%) (represents a 60% discount) of the lowest closing bid price of the Common Stock during the thirty (30) Trading Days prior to a conversion date, or (ii) the number of shares equal to the Conversion Price described in (i) above multiplied by a numerator equal to the highest closing price during the thirty (30) Trading Days prior to a conversion date and a denominator equal to the lowest closing bid price during the thirty (30) Trading Days prior to a conversion date. However according to the Company’s Certificate of Incorporation and Delaware statute, the floor is at par value $0.001. The note has an original issue discount of $5,000 which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt discount of $55,000 related to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the six month life of the note. During the twelve months ended December 31, 2015, total amortization was recorded in the amount of $55,000. The Company accrued an additional $3,484 interest for the twelve months ended December 31, 2015. The balance was paid in full as of December 31, 2015.
(33) The Company borrowed $15,000 July 2015, due September 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at the end of September at a price per share of $1. The Company issued the note holder 1,200 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $15,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $15,000 and accrued interest in the amount of $291 was recorded towards this note. As of December 31, 2015 this note was converted into 15,000 Series A Convertible Preferred Shares.
(34) The Company borrowed $75,000 July 2015, due January 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 6,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $75,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $75,000 and accrued interest in the amount of $1,282 was recorded towards this note. As of December 31, 2015 this note was converted into 75,000 Series A Convertible Preferred Shares.
| F- 24 |
(35) The Company borrowed $7,500 September 2015, due March 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 600 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $7,500 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $7,500 and accrued interest in the amount of $49 was recorded towards this note. As of December 31, 2015 this note was converted into 7,500 Series A Convertible Preferred Shares.
(36) The Company borrowed $10,000 September 2015, due September 2016, with interest at 10%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. This note was paid in full as of December 31, 2015.
(37) The Company borrowed $25,000 September 2015, due September 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 2,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $178 was recorded towards this note. As of December 31, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
(38) The Company borrowed $25,000 September 2015, due September 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 2,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $178 was recorded towards this note. As of December 31, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
(39) The Company borrowed $25,000 September 2015, due September 2016, with interest at 8%. The holder of the note has the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 2,000 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $25,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $25,000 and accrued interest in the amount of $33 was recorded towards this note. As of December 31, 2015 this note was converted into 25,000 Series A Convertible Preferred Shares.
(40) The Company borrowed $221,000 May through October 2015, due June 2016, with interest at 8%. The holders of the notes have the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 17,680 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $221,000 related to the preferred shares issued as a loan origination fee, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $221,000 and accrued interest in the amount of $5,802 was recorded towards these notes. As of December 31, 2015 these notes were converted into 221,000 Series A Convertible Preferred Shares.
(41) The Company borrowed $613,000 October through December 2015, due June 2016, with interest at 8%. The holders of the notes have the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued the note holder 49,040 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $613,000 related to the conversion feature, along with a derivative liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the life of the notes. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $52,087 and an additional $2,350 of interest was accrued.
| F- 25 |
As of December 31, 2015, certain convertible promissory notes described in this Note 10 not otherwise converted into common stock of the Company, totaling approximately $540,000, were due and payable (“Outstanding Notes”). Although no assurances can be given, management is currently negotiating with the holders of certain of the Outstanding Notes to restructure the principal and accrued interest currently due and payable. The principal amount due under certain of the Outstanding Notes may be reduced do to the offset of certain amounts resulting from the previous issuance of shares of common stock by the Company upon conversions of the Outstanding Notes, which were issued based on a conversion price below $0.001 per share. The issuances are voidable under the laws of the State of Delaware, the Company’s state of incorporation. The Company has issued a demand letter requiring the return to the Company of that number of shares of common stock issued upon conversion of Outstanding Notes equal to the value of the shares issued upon such conversion at a value below $0.001 per share (the “ Excess Amount ”). In the event the holder of such shares fails to return the shares, the Company intends to unilaterally and without further action by the parties reduce the principal amount of the Outstanding Notes by the Excess Amount. However the Company recorded an additional $1,032,476 in penalties and interest accrued on these notes to reflect the potential that the Company would be unable to prevail in reducing the amount of the notes for the shares of common stock delivered below $0.001 per share and the Company was unable to negotiate a settlement with these note holders .
NOTE 9: DERIVATIVE LIABILITY
During the years ending December 31, 2015 and 2014 the Company had the following activity in their derivative liability account:
| Warrants |
Conversion
Feature |
Total | ||||||||||
| Derivative Liability at December 31, 2013 | 803,823 | 672,792 | 1.476.615 | |||||||||
| Derivative Liability Recorded on New Instruments | - | 1,178,595 | 1,178,595 | |||||||||
| Elimination of Liability on Conversion | - | (1,718,950 | ) | (1,718.950 | ) | |||||||
| Change in Fair Value at Year End | 460,106 | 10,106,014 | 10,566,120 | |||||||||
| Derivative Liability at December 31, 2014 | 1,263,929 | 10,238,451 | 11,502,380 | |||||||||
| Derivative Liability Recorded on New Instruments | - | 698,705 | 698,705 | |||||||||
| Elimination of Liability on Conversion | - | (79,044 | ) | (79,044 | ) | |||||||
| Change in Fair Value at Year End | (549,528 | ) | (7,337,497 | ) | (7,887,025 | ) | ||||||
| Derivative Liability at December 31, 2015 | 714,401 | 3,520,615 | 4,235,016 | |||||||||
The Company uses the Black-Scholes pricing model to estimate fair value at inception and at each reporting date. As of December 31, 2015 and 2014 the Company used the following assumptions in their Black-Scholes model:
| December 31, 2015 | December 31, 2014 | |||||||||||||||
| Warrants | Conversion Feature | Warrants | Conversion Feature | |||||||||||||
| Risk-free interest rate | 0.65% - 1.31% | 0.02% - 0.25% | 0.67% - 1.65% | 0.02% - 0.25% | ||||||||||||
| Expected life in years | 0.70 - 4.00 | 0.07 - 0.94 | 1.70 - 5.00 | 0.07 - 0.94 | ||||||||||||
| Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | ||||||||
| Expected volatility | 197.83% - 263.33% | 279.01% - 555.60% | 151.87% - 207.37% | 279.01% - 555.60% | ||||||||||||
| F- 26 |
NOTE 10: INCOME TAXES
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 assets consist of the following components as of December 31, 2015 and 2014:
| December 31, 2015 | December 31, 2014 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryover | $ | 8,007,900 | $ | 6,843,700 | ||||
| Depreciation | 247,900 | 289,500 | ||||||
| Related party accrual | 113,400 | 627600 | ||||||
| Capital Loss Carryover | 5,500 | 5,500 | ||||||
| Deferred tax liabilities | - | - | ||||||
| Valuation allowance | (8,374,700 | ) | (7,768,300 | ) | ||||
| Net deferred tax asset | $ | - | $ | - | ||||
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, 2015 and 2014 due to the following:
| December 31, 2015 | December 31, 2014 | |||||||
| Book income (loss) | $ | 2,119,100 | $ | (6,010,700 | ) | |||
| Grant income | (7,100 | ) | - | |||||
| Depreciation | (41,500 | ) | (54,300 | |||||
| Intangible asset impairment | - | - | ||||||
| Related party accrual | (516,100 | ) | 249,800 | |||||
| Meals and entertainment | 1,600 | 1,200 | ||||||
| Stock for services | 113,900 | 8,100 | ||||||
| Options expense | 9,700 | 926,000 | ||||||
| Non-cash interest expense | 581,500 | 21,600 | ||||||
| Other non-deductable expenses | (3,112,100 | ) | 4,400,400 | ) | ||||
| Valuation allowance | 851,000 | 457,900 | ||||||
| Income tax expense | $ | - | $ | - | ||||
At December 31, 2015, the Company had net operating loss carryforwards of approximately $23,553,000 that may be offset against future taxable income from the year 2016 through 2035.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.
Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
| F- 27 |
At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of December 31, 2015, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction and in the state of Washington. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.
NOTE 11: STOCKHOLDERS’ EQUITY
Common Stock Issued for Cash and the Exercise of Options and Warrants
As of December 31, 2015 and 2014 there was an insufficient amount of the Company’s authorized common stock to satisfy the potential number of shares that would be required to satisfy the outstanding options, warrants and convertible debt into common stock. As a result the Company recorded a liability in the amount of $852,091, offset by $852,091 of equity for the period ending December 31, 2015 and $253,106, offset by $253,106 of equity for the period ending December 31, 2014. There are ongoing discussions with some of the Company’s lenders regarding alternatives to rectify the situation. There can be no assurance that a reasonable outcome will be reached.
In April 2014, the Company issued 130,435 restricted shares of its common stock shares in exchange for the cancellation of the warrants attached to the convertible notes received in July 2012.
During 2014, the Company issued 362,040,378 shares of common stock for cashless warrants exercise.
During 2015, the Company issued 199,500,000 shares of common stock for cashless warrants exercise.
Common Stock Issued for Services and Prepaid Services
During 2014 the Company issued 471,250 restricted shares of its common stock, representing $23,800, to a consultant for services.
Common Stock Issued for Loan Fees on Convertible Debt
During the year ending December 31, 2015 the Company exchanged a $375,000 convertible note issued to a major shareholder and $251,918 of accrued interest for 41,795 Series A Preferred Shares. The Company recognized interest expense of $25,274 and $37,500 in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 28 |
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in March 2009 to the Company’s major stockholder, who is also a Director. The Note matured in March of 2010, was extended by the note holder for another year until March, 2011, and another year until March, 2012, and another year until March, 2013, and another year until March, 2014, and another year until March, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $100,000 debt plus the $0.31 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $74,603 toward the debt and $11,032 to the shares and $14,365 to the beneficial conversion feature. The $11,032 value of the shares and the $14,365 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $25,397 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2010. During the year ending December 31, 2015 the Company exchanged this note and $64,712 of accrued interest for 10,981 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in April 2009 to the Company’s major stockholder, who is also a Director. The Note matured in April of 2010, was extended by the note holder for another year until April, 2011, and extended again until April, 2012, and extended again until April, 2013, and extended again until April, 2014, and another year until April, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $50,000 debt plus the $0.31 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $31,268 toward the debt and $6,140 to the shares and $12,592 to the beneficial conversion feature. The $6,140 value of the shares and the $12,592 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $18,732 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 as of December 31, 2010. During the year ending December 31, 2015 the Company exchanged this note and $31,973 of accrued interest for 5,465 Series A Preferred Shares. Additionally, $3,369 and $5,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 90,560 shares of its common stock and a convertible promissory note in the amount of $226,400 with interest payable at 10% per annum in September 2009 to the Company’s major stockholder, who is also a Director. The Note matured in September of 2010, was extended by the note holder for another year until September, 2011, and extended again until September 2012, and extended again until September 2013, and extended again until September 2014, and extended again until September 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $226,400 debt plus the $0.39 fair market value of the 90,560 shares at the date of the agreement was prorated to arrive at the allocation of the original $226,400 debt and the value of the 90,560 shares and the beneficial conversion feature. The computation resulted in an allocation of $106,870 toward the debt and $30,552 to the shares and $88,978 to the beneficial conversion feature. The $30,552 value of the shares and the $88,978 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $119,530 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $226,400 as of December 31, 2010. During the year ending December 31, 2015 the Company exchanged this note and $135,902 of accrued interest for 24,153 Series A Preferred Shares. Additionally, $15,260 and $22,640 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 29 |
The Company issued 66,000 shares of its common stock and a convertible promissory note in the amount of $155,000 with interest payable at 10% per annum in October 2009 to the Company’s major stockholder, who is also a Director. The Note matured in October of 2010, was extended by the note holder for another year until October, 2011, and extended another year to October 2012, and extended another year to October 2013, and extended another year to October 2014, and extended another year to October 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.51 per share. The value of the $155,000 debt plus the $0.51 fair market value of the 66,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $155,000 debt and the value of the 66,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $99,690 toward the debt and $27,655 to the shares and $27,655 to the beneficial conversion feature. The $27,655 value of the shares and the $27,655 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $55,310 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $155,000 as of December 31, 2010. During the year ending December 31, 2015 the Company exchanged this note and $91,089 of accrued interest for 16,406 Series A Preferred Shares. Additionally, $10,447 and $15,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 80,000 shares of its common stock and a convertible promissory note in the amount of $200,000 with interest payable at 10% per annum in November 2009 to the Company’s major stockholder, who is also a Director. The Note matured in November of 2010, was extended by the note holder for another year until November, 2011, and extended another year until November 2012, and extended another year until November 2013, and extended another year until November 2014, and extended another year until November 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $200,000 debt plus the $0.59 fair market value of the 80,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $200,000 debt and the value of the 80,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $123,624 toward the debt and $38,188 to the shares and $38,188 to the beneficial conversion feature. The $38,188 value of the shares and the $38,188 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $76,376 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $200,000 as of December 31, 2010, respectively. During the year ending December 31, 2015 the Company exchanged this note and $116,219 of accrued interest for 21,081 Series A Preferred Shares. Additionally, $13,479 and $20,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in December 2009 to the Company’s major stockholder, who is also a Director. The Note matured in December of 2010, was extended by the note holder for another year until December, 2011, and another year to December, 2012, and another year to December, 2013, and another year to December, 2014, and another year to December, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $100,000 debt plus the $0.59 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $61,812 toward the debt and $19,094 to the shares and $19,094 to the beneficial conversion feature. The $19,094 value of the shares and the $19,094 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $38,188 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2010. During the year ending December 31, 2015 the Company exchanged this note and $57,370 of accrued interest for 10,491 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 30 |
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in January 2010 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2011, was extended by the note holder for another year until January, 2012, and extended another year to January, 2013, , and another year to December, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.45 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $79,492 toward the debt and $15,254 to the shares and $5,254 to the beneficial conversion feature. The $15,254 value of the shares and the $5,254 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $20,508 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2011. During the year ending December 31, 2015 the Company exchanged this note and $56,219 of accrued interest for 10,415 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in February 2010 to the Company’s major stockholder, who is also a Director. The Note matures in February of 2011, was extended by the note holder for another year until February, 2012, and extended another year to February, 2013, and extended another year to February, 2014 and extended another year to February, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.50 per share. The value of the $100,000 debt plus the $0.49 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $69,224 toward the debt and $16,388 to the shares and $14,388 to the beneficial conversion feature. The $16,388 value of the shares and the $14,388 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $30,776 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2011. During the year ending December 31, 2015 the Company exchanged this note and $55,479 of accrued interest for 10,365 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 90,000 shares of its common stock and a convertible promissory note in the amount of $225,000 with interest payable at 10% per annum in March 2010 to the Company’s major shareholder, who is also a Director. The Note matures in March of 2011, was extended by the note holder for another year until March, 2012, and was extended by the note holder for another year until March, 2013, and was extended by the note holder for another year until March, 2014, and was extended by the note holder for another year until March, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity Date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $225,000 debt plus the $0.40 fair market value of the 90,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $225,000 debt and the value of the 90,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $162,932 toward the debt and $31,034 to the shares and $31,034 to the beneficial conversion feature. The $31,034 value of the shares and the $31,034 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $62,068 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $225,000 as of December 31, 2011. During the year ending December 31, 2015 the Company exchanged this note and $123,041 of accrued interest for 23,203 Series A Preferred Shares. Additionally, $15,164 and $22,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 31 |
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in April 2010 to the Company’s major stockholder, who is also a Director. The Note matures in April of 2011, was extended by the note holder for another year until April, 2012, and was extended by the note holder for another year until April, 2013, and was extended by the note holder for another year until April, 2014, and was extended by the note holder for another year until April, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.40 per share. The value of the $50,500 debt plus the $0.40 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $36,568 toward the debt and $6,966 to the shares and $6,966 to the beneficial conversion feature. The $6,966 value of the shares and the $6,966 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $13,932 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,500 December 31, 2011. During the year ending December 31, 2015 the Company exchanged this note and $27,049 of accrued interest for 5,170 Series A Preferred Shares. Additionally, $3,404 and $5,050 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 22,880 shares of its common stock and a convertible promissory note in the amount of $57,200 with interest payable at 10% per annum in May 2010 to the Company’s major stockholder, who is also a Director. The Note matures in May of 2011, was extended by the note holder for another year until May, 2012, and extended by the note holder for another year until May, 2013, and extended by the note holder for another year until May, 2014, and extended by the note holder for another year until May, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share. The value of the $57,200 debt plus the $0.30 fair market value of the 22,880 shares at the date of the agreement was prorated to arrive at the allocation of the original $57,200 debt and the value of the 22,880 shares and the beneficial conversion feature. The computation resulted in an allocation of $44,942 toward the debt and $6,129 to the shares and $6,129 to the beneficial conversion feature. The $6,129 value of the shares and the $6,129 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $12,258 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $57,200 as of December 31, 2011. During the year ending December 31, 2015 the Company exchanged this note and $30,292 of accrued interest for 5,833 Series A Preferred Shares. Additionally, $3,855 and $5,720 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in June 2011 to the Company’s major stockholder, who is also a Director. The Note matures in June of 2012 and was extended by the note holder for another year until June, 2013, and was extended by the note holder for another year until June, 2014, and was extended by the note holder for another year until June, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.22 per share. The value of the $50,000 debt plus the $0.22 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $41,912 toward the debt and $4,044 to the shares and $4,044 to the beneficial conversion feature. The $4,044 value of the shares and the $4,044 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $8,088 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $21,192 of accrued interest for 4,746 Series A Preferred Shares. Additionally, $3,370 and $5,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 32 |
The Company issued 10,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in September 2011 to the Company’s major stockholder, who is also a Director. The Note matures in September of 2012, and was extended by the note holder for another year until September 2013, and was extended by the note holder for another year until September 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $25,000 debt plus the $0.28 fair market value of the 10,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 10,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $19,964 toward the debt and $2,518 to the shares and $2,518 to the beneficial conversion feature. The $2,518 value of the shares and the $2,518 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $5,036 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $9,877 of accrued interest for 2,325 Series A Preferred Shares. Additionally, $1,685 and $2,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 40,346 shares of its common stock and a convertible promissory note in the amount of $100,866 with interest payable at 10% per annum in June 2011 to the Company’s major stockholder, who is also a Director. The Note matures in June of 2012, and was extended by the note holder for another year until June, 2013, and was extended by the note holder for another year until June, 2014, and was extended by the note holder for another year until June, 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.20 per share. The value of the $100,866 debt plus the $0.20 fair market value of the 40,346 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,866 debt and the value of the 40,346 shares and the beneficial conversion feature. The computation resulted in an allocation of $85,922 toward the debt and $7,472 to the shares and $7,472 to the beneficial conversion feature. The $7,472 value of the shares and the $7,472 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $14,944 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,866 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $42,170 of accrued interest for 9,536 Series A Preferred Shares. Additionally, $6,798 and $10,087 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 40,280 shares of its common stock and a convertible promissory note in the amount of $100,700 with interest payable at 10% per annum in August 2011 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2012, and was extended by the note holder for another year until August 2013, and was extended by the note holder for another year until August 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.25 per share. The value of the $100,700 debt plus the $0.25 fair market value of the 40,280 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,700 debt and the value of the 40,280 shares and the beneficial conversion feature. The computation resulted in an allocation of $82,390 toward the debt and $9,155 to the shares and $9,155 to the beneficial conversion feature. The $9,155 value of the shares and the $9,155 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $18,310 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,700 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $40,390 of accrued interest for 9,406 Series A Preferred Shares. Additionally, $6,787 and $10,072 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 33 |
The Company issued 10,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in September 2011 to the Company’s major stockholder, who is also a Director. The Note matures in September of 2012, and was extended by the note holder for another year until September 2013, , and was extended by the note holder for another year until September 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $25,000 debt plus the $0.28 fair market value of the 10,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 10,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $19,964 toward the debt and $2,518 to the shares and $2,518 to the beneficial conversion feature. The $2,518 value of the shares and the $2,518 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $5,036 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $25,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $9,877 of accrued interest for 2,325 Series A Preferred Shares. Additionally, $1,685 and $2,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in September 2011 to the Company’s major stockholder, who is also a Director. The Note matures in September of 2012, and was extended by the note holder for another year until September 2013, and was extended by the note holder for another year until September 2014, and was extended by the note holder for another year until September 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share. The value of the $50,000 debt plus the $0.28 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $39,928 toward the debt and $5,036 to the shares and $5,036 to the beneficial conversion feature. The $5,036 value of the shares and the $5,036 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $10,072 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $50,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $19,644 of accrued interest for 4,643 Series A Preferred Shares. Additionally, $3,370 and $5,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 6,000 shares of its common stock and a convertible promissory note in the amount of $15,000 with interest payable at 10% per annum in October 2011 to the Company’s major stockholder, who is also a Director. The Note matures in October of 2012, and was extended by the note holder for another year until October 2013, and was extended by the note holder for another year until October 2014, and was extended by the note holder for another year until October 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.22 per share. The value of the $15,000 debt plus the $0.22 fair market value of the 6,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $15,000 debt and the value of the 6,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $12,574 toward the debt and $1,213 to the shares and $1,213 to the beneficial conversion feature. The $1,213 value of the shares and the $1,213 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,426 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $15,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $5,807 of accrued interest for 1,387 Series A Preferred Shares. Additionally, $1,011 and $1,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 34 |
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in October 2011 to the Company’s major stockholder, who is also a Director. The Note matures in October of 2012, and was extended by the note holder for another year until October 2013, and was extended by the note holder for another year until October 2014, and was extended by the note holder for another year until October 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.24 per share. The value of the $100,000 debt plus the $0.24 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $82,482 toward the debt and $8,759 to the shares and $8,759 to the beneficial conversion feature. The $8,759 value of the shares and the $8,759 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $17,518 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $38,438 of accrued interest for 9,229 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 42,200 shares of its common stock and a convertible promissory note in the amount of $105,500 with interest payable at 10% per annum in November 2011 to the Company’s major stockholder, who is also a Director. The Note matures in November of 2012, and was extended by the note holder for another year until November 2013, was extended by the note holder for another year until November 2014, was extended by the note holder for another year until November 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.23 per share. The value of the $105,500 debt plus the $0.23 fair market value of the 42,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $105,500 debt and the value of the 42,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $87,724 toward the debt and $8,888 to the shares and $8,888 to the beneficial conversion feature. The $8,888 value of the shares and the $8,888 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $17,777 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $105,500 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $39,830 of accrued interest for 9,689 Series A Preferred Shares. Additionally, $7,110 and $10,552 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
The Company issued 45,440 shares of its common stock and a convertible promissory note in the amount of $113,600 with interest payable at 10% per annum in December 2011 to the Company’s major stockholder, who is also a Director. The Note matures in December of 2012, and was extended by the note holder for another year until December 2013, and was extended by the note holder for another year until December 2014, and was extended by the note holder for another year until December 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $113,600 debt plus the $0.10 fair market value of the 45,440 shares at the date of the agreement was prorated to arrive at the allocation of the original $113,600 debt and the value of the 45,440 shares and the beneficial conversion feature. The computation resulted in an allocation of $104,862 toward the debt and $4,369 to the shares and $4,369 to the beneficial conversion feature. The $4,369 value of the shares and the $4,369 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $8,738 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $113,600 as of December 31, 2012. During the year ending December 31, 2015 the Company exchanged this note and $41,799 of accrued interest for 10,360 Series A Preferred Shares. Additionally, $7,656 and $11,360 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014.
| F- 35 |
The Company issued 51,400 shares of its common stock and a convertible promissory note in the amount of $128,500 with interest payable at 10% per annum in January 2012 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2013, and was extended by the note holder for another year until December 2014, and was extended by the note holder for another year until December 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.15 per share. The value of the $128,500 debt plus the $0.15 fair market value of the 51,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $128,500 debt and the value of the 51,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $113,952 toward the debt and $7,274 to the shares and $7,274 to the beneficial conversion feature. The $7,274 value of the shares and the $7,274 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,212 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $128,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $46,154 of accrued interest for 11,644 Series A Preferred Shares. Additionally, $8,661 and $12,850 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015, and 2014, respectively.
The Company issued 48,600 shares of its common stock and a convertible promissory note in the amount of $121,500 with interest payable at 10% per annum in February 2012 to the Company’s major stockholder, who is also a Director. The Note matures in February of 2013, and was extended by the note holder for another year until February 2014, and was extended by the note holder for another year until February 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.16 per share. The value of the $121,500 debt plus the $0.16 fair market value of the 48,600 shares at the date of the agreement was prorated to arrive at the allocation of the original $121,500 debt and the value of the 48,600 shares and the beneficial conversion feature. The computation resulted in an allocation of $106,884 toward the debt and $7,308 to the shares and $7,308 to the beneficial conversion feature. The $7,308 value of the shares and the $7,308 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,133 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $121,500 December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $42,941 of accrued interest for 10,963 Series A Preferred Shares. Additionally, $8,189 and $12,150 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 46,000 shares of its common stock and a convertible promissory note in the amount of $115,000 with interest payable at 10% per annum in March 2012 to the Company’s major stockholder, who is also a Director. The Note matures in March of 2013, and was extended by the note holder for another year until March 2014, and was extended by the note holder for another year until March 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.14 per share. The value of the $115,000 debt plus the $0.14 fair market value of the 46,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $115,000 debt and the value of the 46,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $102,804 toward the debt and $6,098 to the shares and $6,098 to the beneficial conversion feature. The $6,098 value of the shares and the $6,098 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,796 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $115,000 December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $39,699 of accrued interest for 10,313 Series A Preferred Shares. Additionally, $7,751 and $11,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 36 |
The Company issued 53,120 shares of its common stock and a convertible promissory note in the amount of $132,800 with interest payable at 10% per annum in April 2012 to the Company’s major stockholder, who is also a Director. The Note matures in April of 2013, and was extended by the note holder for another year until April 2014, and was extended by the note holder for another year until April 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.09 per share. The value of the $132,800 debt plus the $0.09 fair market value of the 53,120 shares at the date of the agreement was prorated to arrive at the allocation of the original $132,800 debt and the value of the 53,120 shares and the beneficial conversion feature. The computation resulted in an allocation of $123,570 toward the debt and $4,615 to the shares and $4,615 to the beneficial conversion feature. The $4,615 value of the shares and the $4,615 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,715 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $132,800 December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $45,079 of accrued interest for 11,859 Series A Preferred Shares. Additionally, $8,950 and $13,280 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in April 2012 to the Company’s major stockholder, who is also a Director. The Note matures in April of 2013, and was extended by the note holder for another year until April 2014, and was extended by the note holder for another year until April 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $100,000 debt plus the $0.10 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $92,308 toward the debt and $3,846 to the shares and $3,846 to the beneficial conversion feature. The $3,846 value of the shares and the $3,846 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,566 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $33,452 of accrued interest for 8,897 Series A Preferred Shares. Additionally, $6,740 and $10,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 22,000 shares of its common stock and a convertible promissory note in the amount of $55,000 with interest payable at 10% per annum in May 2012 to the Company’s major stockholder, who is also a Director. The Note matures in May of 2013, and was extended by the note holder for another year until May 2014, and was extended by the note holder for another year until May 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.09 per share. The value of the $55,000 debt plus the $0.09 fair market value of the 22,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $55,000 debt and the value of the 22,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $51,178 toward the debt and $1,911 to the shares and $1,911 to the beneficial conversion feature. The $1,911 value of the shares and the $1,911 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,432 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $55,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $18,142 of accrued interest for 4,876 Series A Preferred Shares. Additionally, $3,707 and $5,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 37 |
The Company issued 28,000 shares of its common stock and a convertible promissory note in the amount of $70,000 with interest payable at 10% per annum in May 2012 to the Company’s major stockholder, who is also a Director. The Note matures in May of 2013, and was extended by the note holder for another year until May 2014, and was extended by the note holder for another year until May 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $70,000 debt plus the $0.10 fair market value of the 28,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $70,000 debt and the value of the 28,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $64,616 toward the debt and $2,692 to the shares and $2,692 to the beneficial conversion feature. The $2,692 value of the shares and the $2,692 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,243 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $70,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $22,822 of accrued interest for 6,188 Series A Preferred Shares. Additionally, $4,718 and $7,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 24,000 shares of its common stock and a convertible promissory note in the amount of $60,000 with interest payable at 10% per annum in August 2012 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2013, and was extended by the note holder for another year until August 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.245 per share. The value of the $60,000 debt plus the $0.245 fair market value of the 24,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $60,000 debt and the value of the 24,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $49,290 toward the debt and $5,355 to the shares and $5,355 to the beneficial conversion feature. The $5,355 value of the shares and the $5,355 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $7,172 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $60,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $18,066 of accrued interest for 5,204 Series A Preferred Shares. Additionally, $4,044 and $6,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 58,000 shares of its common stock and a convertible promissory note in the amount of $145,000 with interest payable at 10% per annum in October 2012 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2013, and was extended by the note holder for another year until August 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.15 per share. The value of the $145,000 debt plus the $0.15 fair market value of the 58,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $145,000 debt and the value of the 58,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $128,585 toward the debt and $8,208 to the shares and $8,208 to the beneficial conversion feature. The $8,208 value of the shares and the $8,208 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $12,995 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $145,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $41,832 of accrued interest for 12,455 Series A Preferred Shares. Additionally, $9,773 and $14,500 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 38 |
The Company issued 44,000 shares of its common stock and a convertible promissory note in the amount of $110,000 with interest payable at 10% per annum in October 2012 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2013, and was extended by the note holder for another year until August 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.14 per share. The value of the $110,000 debt plus the $0.14 fair market value of the 44,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $110,000 debt and the value of the 44,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $98,334 toward the debt and $5,833 to the shares and $5,833 to the beneficial conversion feature. The $5,833 value of the shares and the $5,833 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $9,717 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $110,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $31,312 of accrued interest for 9,421 Series A Preferred Shares. Additionally, $7,414 and $11,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2014 and 2013, respectively.
The Company issued 5,000 shares of its common stock and a convertible promissory note in the amount of $12,500 with interest payable at 10% per annum in November 2012 to the Company’s major stockholder, who is also a Director. The Note matures in November of 2013, and was extended by the note holder for another year until November 2014, and was extended by the note holder for another year until November 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.16 per share. The value of the $12,500 debt plus the $0.16 fair market value of the 5,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $12,500 debt and the value of the 5,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $10,996 toward the debt and $752 to the shares and $752 to the beneficial conversion feature. The $752 value of the shares and the $752 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,254 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $12,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $3,548 of accrued interest for 1,070 Series A Preferred Shares. Additionally, $842 and $1,250 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 60,000 shares of its common stock and a convertible promissory note in the amount of $150,000 with interest payable at 10% per annum in December 2012 to the Company’s major stockholder, who is also a Director. The Note matures in December of 2013, and was extended by the note holder for another year until December 2014, and was extended by the note holder for another year until December 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.18 per share. The value of the $150,000 debt plus the $0.18 fair market value of the 60,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $150,000 debt and the value of the 60,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $129,850 toward the debt and $10,075 to the shares and $10,075 to the beneficial conversion feature. The $10,075 value of the shares and the $10,075 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $18,470 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $150,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $40,685 of accrued interest for 12,712 Series A Preferred Shares. Additionally, $10,110 and $15,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 39 |
The Company issued 40,509 shares of its common stock and a convertible promissory note in the amount of $101,272 with interest payable at 10% per annum in January 2013 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2014, and was extended by the note holder for another year until January 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.17 per share. The value of the $101,272 debt plus the $0.17 fair market value of the 40,509 shares at the date of the agreement was prorated to arrive at the allocation of the original $101,272 debt and the value of the 40,509 shares and the beneficial conversion feature. The computation resulted in an allocation of $88,376 toward the debt and $6,448 to the shares and $6,448 to the beneficial conversion feature. The $6,448 value of the shares and the $6,448 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $534 and $12,362 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $101,272 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $26,580 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $6,825 and $10,129 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 16,400 shares of its common stock and a convertible promissory note in the amount of $41,000 with interest payable at 10% per annum in January 2013 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2014, and was extended by the note holder for another year until January 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.17 per share. The value of the $41,000 debt plus the $0.17 fair market value of the 16,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $41,000 debt and the value of the 16,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $35,780 toward the debt and $2,610 to the shares and $2,610 to the beneficial conversion feature. The $2,610 value of the shares and the $2,610 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $215 and $5,006 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $41,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $10,716 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $2,763 and $4,100 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in June 2013 to the Company’s major stockholder, who is also a Director. The Note matures in June of 2014, and was extended by the note holder for another year until June 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.069 per share. The value of the $50,500 debt plus the $0.069 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $47,788 toward the debt and $1,356 to the shares and $1,356 to the beneficial conversion feature. The $1,356 value of the shares and the $1,356 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,243 and $1,469 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $50,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $11,179 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $3,404 and $5,052 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 40 |
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in July 2013 to the Company’s major stockholder, who is also a Director. The Note matures in July of 2014, and was extended by the note holder for another year until July 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.068 per share. The value of the $50,500 debt plus the $0.068 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $47,826 toward the debt and $1,337 to the shares and $1,337 to the beneficial conversion feature. The $1,337 value of the shares and the $1,337 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,447 and $1,227 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $50,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $10,861 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $3,404 and $5,053 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in August 2013 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $50,000 debt plus the $0.10 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $49,020 toward the debt and $980 to the shares and $0 to the beneficial conversion feature. The $980 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $575 and $405 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $50,000 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $10,452 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $3,370 and $5,001 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 20,200 shares of its common stock and a convertible promissory note in the amount of $50,500 with interest payable at 10% per annum in August 2013 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2014, and was extended by the note holder for another year until August 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $50,500 debt plus the $0.10 fair market value of the 20,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,500 debt and the value of the 20,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $49,510 toward the debt and $990 to the shares and $0 to the beneficial conversion feature. The $990 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $617 and $373 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $50,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $10,363 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $3,404 and $5,052 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 41 |
The Company issued 40,200 shares of its common stock and a convertible promissory note in the amount of $100,500 with interest payable at 10% per annum in September 2013 to the Company’s major stockholder, who is also a Director. The Note matures in September of 2014, and was extended by the note holder for another year until September 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $100,500 debt plus the $0.10 fair market value of the 40,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,500 debt and the value of the 40,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $98,529 toward the debt and $1,971 to the shares and $0 to the beneficial conversion feature. The $1,971 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,353 and $618 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $100,500 as of December 31, 2013. During the year ending December 31, 2015 the Company exchanged this note and $19,852 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $6,773 and $10,052 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 12,000 shares of its common stock and a convertible promissory note in the amount of $30,000 with interest payable at 10% per annum in October 2013 to the Company’s major stockholder, who is also a Director. The Note matures in October of 2014, and was extended by the note holder for another year until October 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $30,000 debt plus the $0.10 fair market value of the 12,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $30,000 debt and the value of the 12,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $29,551 toward the debt and $449 to the shares and $0 to the beneficial conversion feature. The $449 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $90 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $29,641 as of December 31, 2013. Interest expense of $359 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $30,000 as of December 31, 2014. During the year ending December 31, 2015 the Company exchanged this note and $5,654 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $2,022 and $3,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 12,000 shares of its common stock and a convertible promissory note in the amount of $30,000 with interest payable at 10% per annum in November 2013 to the Company’s major stockholder, who is also a Director. The Note matures in November of 2014, and was extended by the note holder for another year until November 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.12 per share. The value of the $30,000 debt plus the $0.12 fair market value of the 12,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $30,000 debt and the value of the 12,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $27,252 toward the debt and $1,374 to the shares and $1,374 to the beneficial conversion feature. The $1,374 value of the shares and the $1,374 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $340 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $27,592 as of December 31, 2013. Interest expense of $2,408 has been accrued and added to the note payable bringing the total debt balance related to this convertible promissory note to $30,000 as of December 31, 2014. During the year ending December 31, 2015 the Company exchanged this note and $5,408 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $2,022 and $3,000 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2014 and 2013, respectively.
| F- 42 |
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in December 2013 to the Company’s major stockholder, who is also a Director. The Note matures in December of 2014, and was extended by the note holder for another year until December 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.065 per share. The value of the $26,000 debt plus the $0.065 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $24,682 toward the debt and $659 to the shares and $659 to the beneficial conversion feature. The $659 value of the shares and the $659 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,268 and $50 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of December 31, 2014. During the year ending December 31, 2015 the Company exchanged this note and $4,459 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $2,600 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2014 and 2013, respectively.
The Company issued 4,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in October 2013 from a stockholder holding less than 5% of the total shares outstanding. The Note matures in October of 2014, and was extended by the note holder for another year until October 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.10 per share. The value of the $10,000 debt plus the $0.10 fair market value of the 4,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $10,004 toward the debt and $196 to the shares and $0 to the beneficial conversion feature. The $196 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $180 and $16 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $10,000 as of December 31, 2014. Additionally, $614 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2014. This note was paid in full in April 2014.
The Company issued 200,000 shares of its common stock and a convertible promissory note in the amount of $51,700 with interest payable at 12% per annum in December 2013 from a stockholder holding less than 5% of the total shares outstanding. The Note matures in December of 2014, and was extended by the note holder for another year until December 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. The value of the $51,700 debt plus the fair market value of the 200,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $51,700 debt and the value of the 200,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $0 toward the debt and $10,388 to the shares and $41,312 to the beneficial conversion feature. The $10,388 value of the shares and the $41,312 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. The Company settled this obligation, along with another obligation for an additional $51,700, with the note holder in July 2015 for a lump sum payment of $75,000 plus a balance of $25,000 which shall remain as a Convertible Debenture with a May 31, 2016 maturity date convertible at the lessor of 55% of the lowest previous 270 day bid price, or $0.03, but in no event less than the $0.001 par value.
| F- 43 |
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in January 2014 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.095 per share. The value of the $26,000 debt plus the $0.095 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,048 toward the debt and $952 to the shares and $952 to the beneficial conversion feature. The $952 value of the shares and the $952 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,828 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,924 as of December 31, 2014. Interest expense of $76 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $4,238 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $2,490 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 200,000 shares of its common stock and a convertible promissory note in the amount of $51,700 with interest payable at 12% per annum in February 2014 from an unrelated party. The Note matures in February of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. The value of the $51,700 debt plus the fair market value of the 200,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $51,700 debt and the value of the 200,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $0 toward the debt and $13,018 to the shares and $37,682 to the beneficial conversion feature. The $13,018 value of the shares and the $37,682 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. The Company settled this obligation, along with another obligation for an additional $51,700, with the note holder in July 2015 for a lump sum payment of $75,000 plus a balance of $25,000 which shall remain as a Convertible Debenture with a May 31, 2016 maturity date convertible at the lessor of 55% of the lowest previous 270 bid price, or $0.03, but in no event less than the $0.001 par value.
The Company issued 5,200 shares of its common stock and a convertible promissory note in the amount of $13,000 with interest payable at 10% per annum in April 2014 to the Company’s major stockholder, who is also a Director. The Note matures in April of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.095 per share. The value of the $13,000 debt plus the $0.0372 fair market value of the 5,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $13,000 debt and the value of the 5,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $12,809 toward the debt and $191 to the shares and $0 to the beneficial conversion feature. The $191 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $135 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $12,945 as of December 31, 2014. Interest expense of $55 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $1,795 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $876 and $920 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 44 |
The Company issued 500,000 shares of its common stock and a convertible promissory note in the amount of $55,000 with interest payable at 12% per annum in May 2014 from an unrelated party. The Note matures in February of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. The value of the fair value of the debt plus the fair market value of the shares at the date of the agreement was prorated to arrive at the allocation between the debt and equity and the beneficial conversion feature. The computation resulted in an allocation of $0 toward the debt and $9,016 to the shares and $40,984 to the beneficial conversion feature. The $9,016 value of the shares and the $40,984 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt.
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in May 2014 to the Company’s major stockholder, who is also a Director. The Note matures in May of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.06 per share. The value of the $26,000 debt plus the $0.032 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,671 toward the debt and $329 to the shares and $0 to the beneficial conversion feature. The $329 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $204 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,875 as of December 31, 2014. Interest expense of $125 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $3,384 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $1,625 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in June 2014 to the Company’s major stockholder, who is also a Director. The Note matures in June of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $26,000 debt plus the $0.02 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,794 toward the debt and $206 to the shares and $0 to the beneficial conversion feature. The $206 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $114 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,908 as of December 31, 2014. Interest expense of $92 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $3,163 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $1,410 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 8,000 shares of its common stock and a convertible promissory note in the amount of $20,000 with interest payable at 10% per annum in July 2014 to the Company’s major stockholder, who is also a Director. The Note matures in July of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $20,000 debt plus the $0.027 fair market value of the 8,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $20,000 debt and the value of the 8,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $19,786 toward the debt and $214 to the shares and $0 to the beneficial conversion feature. The $214 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $100 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $19,886 as of December 31, 2014. Interest expense of $14 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $20,000 as of September 3, 2015 at which time the Company exchanged this note and $2,274 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,348 and $900 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2014.5 and 2014, respectively
| F- 45 |
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in August 2014 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $26,000 debt plus the $0.014 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,855 toward the debt and $145 to the shares and $0 to the beneficial conversion feature. The $145 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $36 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,891 as of December 31, 2014. Interest expense of $109 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $2,735 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $975 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 9,200 shares of its common stock and a convertible promissory note in the amount of $23,000 with interest payable at 10% per annum in September 2014 to the Company’s major stockholder, who is also a Director. The Note matures in September of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $23,000 debt plus the $0.0046 fair market value of the 9,200 shares at the date of the agreement was prorated to arrive at the allocation of the original $23,000 debt and the value of the 9,200 shares and the beneficial conversion feature. The computation resulted in an allocation of $22,954 toward the debt and $46 to the shares and $0 to the beneficial conversion feature. The $46 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $4 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $22,958 as of December 31, 2014. Interest expense of $42 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $23,000 as of September 3, 2015 at which time the Company exchanged this note and $2,274 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,550 and $671 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 12,400 shares of its common stock and a convertible promissory note in the amount of $31,000 with interest payable at 10% per annum in October 2014 to the Company’s major stockholder, who is also a Director. The Note matures in October of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $31,000 debt plus the $0.0018 fair market value of the 12,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $31,000 debt and the value of the 12,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $30,978 toward the debt and $22 to the shares and $0 to the beneficial conversion feature. The $22 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $30,980 as of December 31, 2014. Interest expense of $20 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $31,000 as of September 3, 2015 at which time the Company exchanged this note and $2,752 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $2,089 and $96 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
| F- 46 |
The Company issued 10,400 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in November 2014 to the Company’s major stockholder, who is also a Director. The Note matures in November of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $26,000 debt plus the $0.0007 fair market value of the 10,400 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 10,400 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,993 toward the debt and $7 to the shares and $0 to the beneficial conversion feature. The $7 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,994 as of December 31, 2014. Interest expense of $6 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $2,087 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $1,752 and $325 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014 respectively.
The Company issued 4,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in November 2014 to the Company’s major stockholder, who is also a Director. The Note matures in November of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.046 per share. The value of the $10,000 debt plus the $0.0004 fair market value of the 4,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 4,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,998 toward the debt and $2 to the shares and $0 to the beneficial conversion feature. The $2 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $10,000 as of December 31, 2014. During the year ending December 31, 2015 the Company exchanged this note and $775 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $674 and $167 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014, respectively.
The Company issued 2,813,360 shares of its common stock and a convertible promissory note in the amount of $35,800 with interest payable at 10% per annum in December 2014 to the Company’s major stockholder, who is also a Director. The Note matures in December of 2015. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.0005 per share. The value of the $35,800 debt plus the $0.0003 fair market value of the 2,813,360 shares at the date of the agreement was prorated to arrive at the allocation of the original $35,800 debt and the value of the 2,813,360 shares and the beneficial conversion feature. The computation resulted in an allocation of $34,975 toward the debt and $825 to the shares and $0 to the beneficial conversion feature. The $825 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $30 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $35,005 as of December 31, 2014. Interest expense of $795 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $35,800 as of September 3, 2015 at which time the Company exchanged this note and $2,550 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017. Additionally, $2,413 and $149 worth of interest expense on the notes principal balance has been recognized in the accompanying financial statements for the twelve months ending December 31, 2015 and 2014 respectively.
| F- 47 |
The Company issued 1,539,221 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in January 2015 to the Company’s major stockholder, who is also a Director. The Note matures in January of 2016. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.001 per share. The value of the $26,000 debt plus the $0.0004 fair market value of the 1,539,221 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 1,539,221 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,399 toward the debt and $601 to the shares and $0 to the beneficial conversion feature. The $601 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $601 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $1,645 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017.
The Company issued 1,000,000 shares of its common stock and a convertible promissory note in the amount of $25,000 with interest payable at 10% per annum in February 2015 to the Company’s major stockholder, who is also a Director. The Note matures in February of 2016. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.001 per share. The value of the $25,000 debt plus the $0.0007 fair market value of the 1,000,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $25,000 debt and the value of the 1,000,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $24,319 toward the debt and $681 to the shares and $0 to the beneficial conversion feature. The $681 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $681 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $25,000 as of September 3, 2015 at which time the Company exchanged this note and $1,342 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017.
The Company issued 1,040,000 shares of its common stock and a convertible promissory note in the amount of $26,000 with interest payable at 10% per annum in February 2015 to the Company’s major stockholder, who is also a Director. The Note matures in February of 2016. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.001 per share. The value of the $26,000 debt plus the $0.0008 fair market value of the 1,040,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,000 debt and the value of the 1,040,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,194 toward the debt and $806 to the shares and $0 to the beneficial conversion feature. The $806 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $806 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,000 as of September 3, 2015 at which time the Company exchanged this note and $1,353 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017.
The Company issued 353,333 shares of its common stock and a convertible promissory note in the amount of $26,500 with interest payable at 10% per annum in April 2015 to the Company’s major stockholder, who is also a Director. The Note matures in April of 2016. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.003 per share. The value of the $26,500 debt plus the $0.003 fair market value of the 353,333 shares at the date of the agreement was prorated to arrive at the allocation of the original $26,500 debt and the value of the 353,333 shares and the beneficial conversion feature. The computation resulted in an allocation of $25,481 toward the debt and $1,019 to the shares and $0 to the beneficial conversion feature. The $1,019 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $1,019 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $26,500 as of September 3, 2015 at which time the Company exchanged this note and $1,060 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017.
| F- 48 |
The Company issued 400,000 shares of its common stock and a convertible promissory note in the amount of $10,000 with interest payable at 10% per annum in August 2015 to the Company’s major stockholder, who is also a Director. The Note matures in August of 2016. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the maturity date. At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.001 per share. The value of the $10,000 debt plus the $0.001 fair market value of the 400,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $10,000 debt and the value of the 400,000 shares and the beneficial conversion feature. The computation resulted in an allocation of $9,615 toward the debt and $385 to the shares and $0 to the beneficial conversion feature. The $385 value of the shares and the $0 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $385 has been accrued and added to the total note balance bringing the total debt balance related to this convertible promissory note to $10,000 as of September 3, 2015 at which time the Company exchanged this note and $55 of accrued interest for a new promissory note that was rolled in together with multiple other notes and accrued interest for a total new note of $1,055,532, with interest of 8%, due on demand at any time after March 31, 2017.
Common Stock Issued for Debt Converted
On May 15, 2014, Advanced Medical Isotope Corporation (the “Company”) entered into an agreement with Battelle Memorial Institute, an Ohio nonprofit corporation (“Battelle”), pursuant to which the Company issued to Battelle (i) a 10% convertible debenture in the principal amount of $350,000 (the “Debenture”), (ii) a warrant (the “Warrant”) exercisable for shares of common stock of the Company (the “Common Stock”), and (iii) 532,609 shares of Common Stock in satisfaction of a promissory note issued by the Company to Battelle on May 1, 2013 in the principal amount of $349,913.41 as payment for research services performed by Battelle for the Company. The Debenture was scheduled to mature on May 15, 2015 and on June 6, 2014 Battelle converted the Debenture into Common Stock for a total issuance of 16,530,974 shares of Common Stock.
During 2014 the holders of the Convertible Debt instruments exercised their conversion rights and converted the outstanding principal and accrued interest balances, respectively, into 1,204,092,687 shares of the Company’s common stock. The fair market value of the shares issued was determined based on the market value of the shares on the date of conversion. The total fair market value of the shares issued was $3,043,368 and a debt discount of $418,896 was written off to equity for the unamortized balance of the debt converted. Additionally, the derivative liability for the debt converted of $1,702,018 was written off, resulting in a loss on extinguishment of debt of $126,123.
During 2015 the Company issued 92,051,568 shares of unrestricted common stock in exchange for convertible debt raised in 2014 resulting in a reduction in debt of $31,721, a reduction in derivative liability of $79,044 with an offset of $3,035 to debt discount and a $2,083 gain on extinguishment of debt.
| F- 49 |
Common Stock Options
The following schedule summarizes the changes in the Company’s stock options:
| Weighted | Weighted | |||||||||||||||||||
| Options Outstanding | Average | Average | ||||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||||
| Balance at December 31, 2013 | 10,350,000 | $ | 0.08-0.28 | 3.78 years | $ | - | $ | 0.14 | ||||||||||||
| Options granted | - | $ | - | - | $ | - | ||||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||||
| Options expired | (1,565,000 | ) | $ | 0.08-0.28 | - | $ | 0.13 | |||||||||||||
| Balance at December 31, 2014 | 8,785,000 | $ | 0.09-0.15 | 3.42 years | $ | - | $ | 0.14 | ||||||||||||
| Options granted | - | $ | - | - | $ | - | ||||||||||||||
| Options exercised | - | $ | - | - | $ | - | ||||||||||||||
| Options expired | (3,650,000 | ) | $ | 0.09-0.21 | - | $ | 0.12 | |||||||||||||
| Balance at December 31, 2015 | 5,135,000 | $ | 0.12-0.15 | 7.12 years | - | $ | 0.15 | |||||||||||||
| Exercisable at December 31, 2015 | 5,135,000 | $ | 0.12-0.15 | 7.12 years | $ | - | $ | 0.15 | ||||||||||||
Common Stock Warrants
During the year ended December 31, 2014, the company granted 50,000,000 warrants to a convertible note holder due to the note holders’ inability to exercise its conversion option on an outstanding note due to the lack of authorized shares. The warrants have an exercise price of $0.001. 10,000,000 of the warrants expire September 11, 2016 and 40,000,000 of the warrants expire December 29, 2019.
During the year end December 31, 2014, the Company issued 375,000 warrants to purchase the Company’s common stock in conjunction with convertible debt (see Note 10: convertible Notes Payable), which resulted in a debt discount derivative liability (see Note 11: Derivative Liability) and loss on derivative being recorded upon issuance. The warrants have an exercise price of $0.046 and expire July 24, 2019. In February 2016 the Company reached a Settlement Agreement with the debtor to release the balance of the debt and all outstanding warrants in exchange for 71,000 restricted Series A preferred shares.
During the year ended December 31, 2014, the Company granted warrants to purchase the Company’s common stock in conjunction with a $350,000 convertible note. In addition to the warrants 532,009 shares of common stock were also issued with this convertible note. The number of exercise shares that the holder may purchase by exercising this warrant is equal to the quotient obtained by dividing the related convertible debenture original principal of $350,000 by the warrant exercise price. The exercise price is the lesser of the market value of these shares, which is defined as the mean market closing price over 10 trading days immediately prior to the notice date of exercise and $0.046. The value of the $350,000 debt plus the fair value of the warrants and the fair value of the common stock at the date of agreement was prorated to arrive at the allocation of the original $350,000 debt and the value of the warrants plus common stock. The computation resulted in allocation of $127,925 to the warrants and $10,619 to the common stock shares of the total value of the warrants and common stock of $128,543 was recorded as a debt discount and amortized to interest over the life of the note at December 31, 2014. The note was converted in full into shares of common stock and there was no exercise of the warrants. Following the terms of the agreement for exercise number of shares, the Company calculated 318,181,518 warrants outstanding. This number will fluctuate at each reporting period due to the fluctuating exercise of shares. These warrants expire May 15, 2017.
| F- 50 |
During the year ended December 31, 2014, the Company granted warrants to purchase the Company’s common stock in conjunction with two convertible notes with the same note holder. With the first convertible note, the number of warrant shares is equal to $85,000 divided by the market price, which is defined as the higher of the closing price of the common stock on the issuance date and the VWAP (volume weighted average price) of common stock for the two trading days prior to the exercise. Following these terms a total of 68,000,000 warrants were outstanding at December 31, 2014. These warrants expire March 31, 2019 and have an exercise price of $0.011. For the second note, the number of shares is calculated the same as the first except for the number of warrant shares is found by dividing $27,500 by the previously defined market price. Following the terms, a total of 22,000,000 warrants were outstanding at December 31, 2014. These warrants expire June 30, 2019 and have an exercise price of $0.011. In January 2016 the Company reached a Settlement Agreement with the debtor to release the balance of the debt and all outstanding warrants for $100,000 cash.
During April 2014, in accordance with the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013, the courts ordered that 4,000,000 warrants and 1,183,333 warrants to purchase the Company’s common stock that were originally issued with an exercise price of $0.06 be modified to be 18,260,469 warrants with an exercise price of $0.046 The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants. Additionally, the April 2014 court order required the exercise of a total of 426,019 warrants to purchase common related to prior year warrant exercises.
During August, 2014 1,401,570 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 11,111,111 warrants with an exercise price of $0.0058. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During August, 2014 1,011,522 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 18,000,000 warrants with an exercise price of $0.00475. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During September, 2014 1,576,087 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 25,000,000 warrants with an exercise price of $0.0035. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During October, 2014 920,652 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 35,000,000 warrants with an exercise price of $0.00121. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During November, 2014, in accordance with the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013, the courts ordered that all prior warrants issued to the warrant holder be modified to be a total of 501,059,809 warrants with an exercise price of $0.03317 During December 2014, the warrant holder exercised a total of 215,455,718 for cashless exercise.
During April 2014, in accordance with the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013, the court ordered that a separate warrant holder’s 550,000 warrants to purchase the Company’s common stock that were originally issued with an exercise price of $0.06 be modified to be 1,793,478 warrants with an exercise price of $0.046 The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
| F- 51 |
During August, 2014, 1,793,478 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 14,218,007 warrants with an exercise price of $0.0058. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During April 2014, in accordance with the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013, a third warrant holder’s 1,500,000 warrants and 600,000 warrants to purchase the Company’s common stock that were originally issued with an exercise price of $0.15 be modified to be 3,750,000 warrants and 1,500,000 respectively, both with an exercise price of $0.06. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During August, 2014, 742,500 warrants to purchase the Company’s common stock with an exercise price of $0.06 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 18,000,000 warrants with an exercise price of $0.002475. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During September, 2014, 12,000,000 warrants to purchase the Company’s common stock with an exercise price of $0.002475 which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013 were exercised in a cashless exercise. In accordance with the agreement, those warrants were modified to be 18,000,000 warrants with an exercise price of $0.00165. The Company reports this change as a cancellation of the original warrants and an issuance of the new warrants.
During November and December of 2014, warrants, which were issued as part the December 31, 2012 convertible debt instrument, which included Additional Investment Rights that were exercised May 15, 2013, were exercised in a cashless exercise at prices below par. Additionally, those warrants were further modified with an exercise price further below par. The Company reported this change as a cancellation of the original warrants and an issuance of the new warrants. However based on Delaware law and the terms set forth in the applicable Warrant Agreement, any adjustments to the warrants were limited to a floor price of $0.001. During 2015 the Company adjusted the number of outstanding warrants to this warrant holder to reflect the value using the floor price of $0.001. The Company reached a Settlement Agreement in 2016 with this warrant holder to cancel all of its remaining warrants in exchange for Series A preferred stock. See the following schedule of the Company’s stock warrants.
| F- 52 |
The following schedule summarizes the changes in the Company’s stock warrants:
| Weighted | Weighted | |||||||||||||||||||
| Warrants Outstanding | Average | Average | ||||||||||||||||||
| Number | Exercise | Remaining | Aggregate | Exercise | ||||||||||||||||
| Of | Price | Contractual | Intrinsic | Price | ||||||||||||||||
| Shares | Per Share | Life | Value | Per Share | ||||||||||||||||
| Balance at December 31, 2013 | 40,103,548 | $ | 0.06-0.25 | 3.19 years | 50,796 | $ | 0.11 | |||||||||||||
| Warrants granted | 2,870,494 | $ | 0.0001-0.046 | 2.5 years | $ | $ | 0.01 | |||||||||||||
| Warrants exercised | (566,902,103 | ) | $ | 0.00011-0.46 | - | $ | - | |||||||||||||
| Warrants expired/cancelled | (32,925,546 | ) | $ | 0.0033-0.10 | - | $ | - | |||||||||||||
| Balance at December 31, 2014 | 2,310,770,115 | $ | 0.0001-0.25 | 2.86 years | $ | - | $ | 0.01 | ||||||||||||
| Warrants granted | 30,000,000 | $ | 0.001-.0015 | 2.94 years | $ | 0.00133 | ||||||||||||||
| Warrants exercised | (285,604,091 | ) | $ | 0.003 | - | $ | 0.003 | |||||||||||||
| Warrants adjusted | (1,360,195,089 | ) | (1) | 0.0001-0.001 | - | $ | 0.0001 | |||||||||||||
| Warrants expired/cancelled | (15,870,633 | ) | $ | 0.06-0.25 | - | $ | 0.0876 | |||||||||||||
| Balance at December 31, 2015 | 679,100,302 | $ | 0.001-0.10 | 1.90 years | $ | 2,052,699 | $ | 0.0081 | ||||||||||||
| Exercisable at December 31, 2014 | 1,978,455,471 | $ | 0.0001-0.25 | 2.86 years | $ | - | $ | 0.01 | ||||||||||||
| Exercisable at December 31, 2015 | 679,100,302 | $ | 0.001-0.10 | 1.90 years | $ | 2,052,699 | $ | 0.0081 | ||||||||||||
| (1) | Based upon Delaware law and on the terms and conditions set forth in the applicable Warrant Agreement, any adjustments to the warrants were limited to a floor price of $.001. Pursuant to the defective warrant exercise notice using an exercise price below $0.001, the Company issued at total of 147,377,777 shares of common stock to the warrant holders, which the Company believes are voidable, and also recorded 1,600,945,089 warrants outstanding to the holder on the Company’s financial statements for the year ended December 31, 2014, and for the periods ending March 31 and June 30, 2015. Management believes that the warrants were recorded in error during the periods presented, and has recorded the revised number of warrants outstanding at September 30, 2015 at 240,750,000, which reflects the number of shares of common stock purchase warrants outstanding and exercisable under the terms of the warrants at an exercise price of $0.001 per share. This net adjustment of 1,360,195,089 warrants has been reflected in the schedule for the twelve months ending December 31, 2015. The Company reached a Settlement Agreement in 2016 with this warrant holder to cancel all the remaining 240,750,000 warrants in exchange for 50,000 shares of Series A preferred stock. |
| F- 53 |
The following summarizes the exercise price per share and expiration date of the Company’s outstanding and exercisable warrants to purchase common stock at December 31, 2015:
| Number | Exercise Price | Expiration Date | ||||||
| 10,000,000 | $ | 0.015 | March 20, 2016 | |||||
| 10,000,000 | $ | 0.001 | September 11, 2016 | |||||
| 318,181,818 | $ | 0.046 | May 15, 2017 | |||||
| 150,750,000 | $ | 0.001 | July 13, 2017 | |||||
| 3,190,297 | $ | 0.06 | July 13, 2017 | |||||
| 1,000,000 | $ | 0.06 | July 30, 2017 | |||||
| 2,200,000 | $ | 0.06 | August 1, 2017 | |||||
| 1,750,000 | $ | 0.06 | August 2, 2017 | |||||
| 833,334 | $ | 0.06 | September 26, 2017 | |||||
| 125,000 | $ | 0.06 | October 5, 2017 | |||||
| 40,000 | $ | 0.06 | April 1, 2018 | |||||
| 90,000,000 | $ | 0.001 | May 15, 2018 | |||||
| 1,608,187 | $ | 0.011 | March 31, 2019 | |||||
| 22,000,000 | $ | 0.011 | June 30, 2019 | |||||
| 375,000 | $ | 0.0466 | July 24, 2019 | |||||
| 40,000,000 | $ | 0.001 | December 29, 2019 | |||||
| 20,000,000 | $ | .001 | April 20, 2020 | |||||
| 7,046,666 | $ | 0.10 | December 31, 2020 | |||||
| 679,100,302 | ||||||||
Preferred Stock Issued for Services and Prepaid Services
During 2015 the Company issued 100,000 restricted shares of its Series A preferred stock representing $334,880, to a consultant for services.
Preferred Stock Issued for Loan Fees on Convertible Debt
During 2015 the Company issued 133,833 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $527,325.
Preferred Stock Issued for Debt Converted
In September 2015 the Company issued 148,310 Series A preferred stock in exchange for $1,414,100 of convertible debt plus $810,537.67,of accrued interest and 207,620 Series A preferred stock in exchange for $2,224,466 of convertible debt plus $889,838 of accrued interest, to the major shareholder and Director of the Company.
In September 2015 the Company issued 595,000 Series A Preferred stock in exchange for $595,000 of convertible debt raised during 2015.
In October 2015 the Company issued 10,000 Series A Preferred stock in exchange for $10,000 of convertible debt raised during 2015.
| F- 54 |
Preferred Stock Issued for Debt Settled
In November and December 2015 the Company issued 99,000 Series A preferred stock in exchange for $22,700 of convertible debt, $9,812 of accrued interest, and extension of a due date for a payment on a debt settled.
Preferred Stock Issued for Services
In December 2015 the Company issued 100,000 and 75,000 shares of Series A preferred stock to the CEO and CFO, in exchange for $150,000 and $112,500, respectively, of accrued payroll.
In December 2015 the Company issued 246,797 shares of Series A preferred stock in exchange for $370,197 of accounts payable.
Preferred Stock Warrants
During October 2015, 250,000 warrants to purchase the Company’s Series A preferred stock with an exercise price of $0.001 were issued as part of a consulting services agreement.
NOTE 12: CONCENTRATIONS OF CREDIT AND OTHER RISKS
Accounts Receivable
The Company had one customer that represented 100% and 100% of the Company’s total revenues for the years ended December 31, 2015 and 2014, respectively. The customer that represented 100% of the Company’s total revenues for the years ended December 31, 2015 and 2014 accounted for 100% of the Consulting revenues for that year. The Company had no net accounts receivable balance at December 31, 2015 and 2014.
The loss of a significant customer representing the percentage of total revenues as represented for the years ended December 31, 2015 and 2014 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. As of December 31, 2015 and 2014 the Company had no allowance or bad debt expense recorded.
| F- 55 |
NOTE 13: DEBT ISSUANCE COSTS
During the year ending December 31, 2014 the Company paid $152,514 in cash for debt arrangements. During the year ending December 31, 2015 the Company paid $5,000 in cash for debt arrangements.
The Company amortizes debt issuance costs on a straight-line basis over the life of the debt arrangements and recognized $18,917, and $82,866, during the years ending December 31, 2015, and 2014, respectively.
During the twelve months ending December 31, 2015, 2014, 2013 and 2012 the Company had the following activity in their debt issuance cost account:
| Debt issuance costs at December 31, 2013 | $ | 19,786 | ||
| Cash paid as fees for debt arrangements | 56,550 | |||
| Amortization of debt issuance costs | (62,419 | ) | ||
| Debt issuance costs at December 31, 2014 | 13,917 | |||
| Cash paid as fees for debt arrangements | 5,000 | |||
| Amortization of debt issuance costs | (18,917 | ) | ||
| Debt issuance costs at December 31, 2015 | $ | - |
NOTE 14: SUPPLEMENTAL CASH FLOW INFORMATION
During the year ended December 31, 2015, the Company had the following non-cash investing and financing activities:
| - | Issued 199,500,000 shares of common stock valued at $0 for the issuance of cashless warrants. |
| - | Issued 4,332,554 shares of common stock as loan fees on convertible debt. |
| - | Issued 108,833 shares of preferred stock as loan fees on convertible debt. |
| - | Issued 92,051,568 shares of common stock for an extinguishment of $31,721 worth of principal on convertible notes payable $0 worth of accrued interest, $79,044 worth of derivative liabilities and $3,035 worth of debt discount. |
| - | Issued 74,000 shares of preferred stock for an extinguishment of $22,700 worth of principal on convertible notes payable $0 worth of accrued interest, $0 worth of derivative liabilities and $0 worth of debt discount. |
| - | Issued 960,929 shares of preferred stock valued at $2,201,963 in exchange for $4,243,566 of notes. |
| - | Issued 421,797 shares of preferred stock valued at $1,358,726 in exchange for $370,197 of accounts payable and $262,500 of accrued payroll. |
| - | Issued 25,000 shares of preferred stock as loan extension fees. |
During the year ended December 31, 2014, the Company had the following non-cash investing and financing activities:
| - | Issued 362,040,378 shares of common stock valued at $0 for the issuance of cashless warrants. |
| - | Issued 130,435 shares of common stock valued at $6,000 in exchange for $6,000 cash |
| - | Issued 471,250 shares of common stock valued at $23,800, of which $23,800 was recorded as stock for services. |
| - | Decreased related party convertible notes by $3,891 and decreased convertible notes payable by $539,012 and increased additional paid in capital by $538,767 and increased common stock by $4,137 due to 4,136,769 shares and warrants issued in conjunction with convertible notes for the debt discount. |
| - | Issued 1,219,736,775 shares of common stock for an extinguishment of $1,572,338 worth of principal on convertible notes payable $63,613 worth of accrued interest, $1,718,950 worth of derivative liabilities and $357,517 worth of debt discount. |
| - | Increased additional paid in capital and increased debt discount for $233,000 for a beneficial conversion feature on a convertible note. |
| F- 56 |
NOTE 15: SUBSEQUENT EVENTS
In the months of January through May 2016 the Company settled $1,742,082 in convertible notes plus $110,880 of accrued interest in exchange for a combination of $120,000 cash, 504,852 Series A Preferred shares, and $500,000 common stock warrants.
In the months of January through May 2016 the Company received $528,000 cash in exchange for 8% convertible notes due June 30, 2016.
In the months of January through May 2016 the Company received $159,695 cash in exchange for 10%, one year, promissory notes.
In the months of January through May 2016 the Company issued 53,840 Series A Preferred shares as loan fees on $673,000 of convertible notes.
In the months of January through May 2016 the Company issued 3,064,397 shares of unrestricted common stock in exchange for warrants related to debt raised in 2015.
In the months of January through May 2016 the Company received $221,853 in exchange for 221,853 Series A Preferred shares.
| F- 57 |
ADVANCED MEDICAL ISOTOPE CORPORATION
2015 OMNIBUS SECURITIES AND INCENTIVE PLAN
ADVANCED MEDICAL ISOTOPE CORPORATION
2015
OMNIBUS SECURITIES AND INCENTIVE PLAN
Table of Contents
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| ARTICLE I | PURPOSE | 1 |
| ARTICLE II | DEFINITIONS | 1 |
| ARTICLE III | EFFECTIVE DATE OF PLAN | 7 |
| ARTICLE IV | ADMINISTRATION | 7 |
| Section 4.1 Composition of Committee | 7 | |
| Section 4.2 Powers | 7 | |
| Section 4.3 Additional Powers | 7 | |
| Section 4.4 Committee Action | 7 | |
| ARTICLE V | STOCK SUBJECT TO PLAN AND LIMITATIONS THEREON | 8 |
| Section 5.1 Stock Grant and Award Limits | 8 | |
| Section 5.2 Stock Offered | 8 | |
| Section 5.3 Lock-Up Agreement | 8 | |
| ARTICLE VI | ELIGIBILITY FOR AWARDS; TERMINATION OF EMPLOYMENT, DIRECTOR STATUS OR CONSULTANT STATUS | 9 |
| Section 6.1 Eligibility | 9 | |
| Section 6.2 Termination of Employment or Director Status | 9 | |
| Section 6.3 Termination of Consultant Status | 10 | |
| Section 6.4 Special Termination Rule | 11 | |
| Section 6.5 Termination for Cause | 11 | |
| ARTICLE VII | OPTIONS | 12 |
| Section 7.1 Option Period | 12 | |
| Section 7.2 Limitations on Exercise of Option | 12 | |
| Section 7.3 Special Limitations on Incentive Stock Options | 12 | |
| Section 7.4 Option Agreement | 12 | |
| Section 7.5 Option Price and Payment | 13 | |
| Section 7.6 Stockholder Rights and Privileges | 13 | |
| Section 7.7 Options and Rights in Substitution for Stock Options Granted by Other Corporations | 13 | |
| Section 7.8 Prohibition Against Repricing | 13 | |
| ARTICLE VIII | RESTRICTED STOCK AWARDS | 14 |
| Section 8.1 Restriction Period to be Established by Committee | 14 | |
| Section 8.2 Other Terms and Conditions | 14 | |
| Section 8.3 Payment for Restricted Stock | 14 | |
| Section 8.4 Restricted Stock Award Agreements | 14 |
ADVANCED MEDICAL ISOTOPE CORPORATION
2015
OMNIBUS SECURITIES AND INCENTIVE PLAN
Table of Contents (continued)
| Page | ||
| ARTICLE IX | UNRESTRICTED STOCK AWARDS | 15 |
| ARTICLE X | RESTRICTED STOCK UNIT AWARDS | 15 |
| Section 10.1 Terms and Conditions | 15 | |
| Section 10.2 Payments | 15 | |
| ARTICLE XI | PERFORMANCE UNIT AWARDS | 16 |
| Section 11.1 Terms and Conditions | 16 | |
| Section 11.2 Payments | 16 | |
| ARTICLE XII | PERFORMANCE SHARE AWARDS | 16 |
| Section 12.1 Terms and Conditions | 16 | |
| Section 12.2 Stockholder Rights and Privileges | 16 | |
| ARTICLE XIII | DISTRIBUTION EQUIVALENT RIGHTS | 17 |
| Section 13.1 Terms and Conditions | 17 | |
| Section 13.2 Interest Equivalents | 17 | |
| ARTICLE XIV | STOCK APPRECIATION RIGHTS | 17 |
| Section 14.1 Terms and Conditions | 17 | |
| Section 14.2 Tandem Stock Appreciation Rights | 18 | |
| ARTICLE XV | RECAPITALIZATION OR REORGANIZATION | 18 |
| Section 15.1 Adjustments to Common Stock | 18 | |
| Section 15.2 Recapitalization | 19 | |
| Section 15.3 Other Events | 19 | |
| Section 15.4 Powers Not Affected | 19 | |
| Section 15.5 No Adjustment for Certain Awards | 19 | |
| ARTICLE XVI | AMENDMENT AND TERMINATION OF PLAN | 20 |
| ARTICLE XVII | SPECIAL RULES | 20 |
| Section 17.1 Right of First Refusal | 20 | |
| Section 17.2 Call Option | 20 | |
| ARTICLE XVIII | MISCELLANEOUS | 21 |
| Section 18.1 No Right to Award | 21 | |
| Section 18.2 No Rights Conferred | 21 | |
| Section 18.3 Other Laws; No Fractional Shares; Withholding | 21 | |
| Section 18.4 No Restriction on Corporate Action | 22 | |
| Section 18.5 Restrictions on Transfer | 22 | |
| Section 18.6 Beneficiary Designations | 22 | |
| Section 18.7 Rule 16b-3 | 22 | |
| Section 18.8 Section 162(m) | 23 | |
| Section 18.9 Section 409A | 24 | |
| Section 18.10 Indemnification | 24 | |
| Section 18.11 Other Plans | 24 | |
| Section 18.12 Limits of Liability | 24 | |
| Section 18.13 Governing Law | 24 | |
| Section 18.14 Severability of Provisions | 24 | |
| Section 18.15 No Funding | 24 | |
| Section 18.16 Headings | 24 | |
| Section 18.17 Terms of Award Agreements | 24 |
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ADVANCED MEDICAL ISOTOPE CORPORATION
2015 OMNIBUS SECURITIES AND INCENTIVE PLAN
ARTICLE I
PURPOSE
The purpose of this Advanced Medical Isotope Corporation 2015 Omnibus Securities and Incentive Plan (the “ Plan ”) is to benefit the stockholders of Advanced Medical Isotope Corporation, a Delaware corporation (the “ Company ”), by assisting the Company to attract, retain and provide incentives to key management employees and nonemployee directors of, and nonemployee consultants to, the Company and its Affiliates, and to align the interests of such employees, nonemployee directors and nonemployee consultants with those of the Company’s stockholders. Accordingly, the Plan provides for the granting of Distribution Equivalent Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Share Awards, Performance Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Tandem Stock Appreciation Rights, Unrestricted Stock Awards or any combination of the foregoing, as may be best suited to the circumstances of the particular Employee, Director or Consultant as provided herein.
ARTICLE
II
DEFINITIONS
The following definitions shall be applicable throughout the Plan unless the context otherwise requires:
“ Affiliate ” shall mean any corporation which, with respect to the Company, is a “subsidiary corporation” within the meaning of Section 424(f) of the Code.
“ Award ” shall mean, individually or collectively, any Distribution Equivalent Right, Option, Performance Share Award, Performance Unit Award, Restricted Stock Award, Restricted Stock Unit Award, Stock Appreciation Right or Unrestricted Stock Award.
“ Award Agreement ” shall mean a written agreement between the Company and the Holder with respect to an Award, setting forth the terms and conditions of the Award, and each of which shall constitute a part of the Plan.
“ Board ” shall mean the Board of Directors of the Company.
“ Cause ” shall mean (i) if the Holder is a party to an employment or similar agreement with the Company or an Affiliate which agreement defines “Cause” (or a similar term) therein, “ Cause ” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “ Cause ” shall mean termination by the Company or an Affiliate of the employment (or other service relationship) of the Holder by reason of the Holder’s (A) intentional failure to perform reasonably assigned duties, (B) dishonesty or willful misconduct in the performance of the Holder’s duties, (C) involvement in a transaction which is materially adverse to the Company or an Affiliate, (D) breach of fiduciary duty involving personal profit, (E) willful violation of any law, rule, regulation or court order (other than misdemeanor traffic violations and misdemeanors not involving misuse or misappropriation of money or property), (F) commission of an act of fraud or intentional misappropriation or conversion of any asset or opportunity of the Company or an Affiliate, or (G) material breach of any provision of the Plan or the Holder’s Award Agreement or any other written agreement between the Holder and the Company or an Affiliate, in each case as determined in good faith by the Board, the determination of which shall be final, conclusive and binding on all parties.
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“ Change of Control ” shall mean (i) for a Holder who is a party to an employment or consulting agreement with the Company or an Affiliate which agreement defines “Change of Control” (or a similar term) therein, “ Change of Control ” shall have the same meaning as provided for in such agreement, or (ii) for a Holder who is not a party to such an agreement, “ Change of Control ” shall mean the satisfaction of any one or more of the following conditions (and the “Change of Control” shall be deemed to have occurred as of the first day that any one or more of the following conditions shall have been satisfied):
(a) Any person (as such term is used in paragraphs 13(d) and 14(d)(2) of the Exchange Act, hereinafter in this definition, “ Person ”), other than the Company or an Affiliate or an employee benefit plan of the Company or an Affiliate, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities;
(b) The closing of a merger, consolidation or other business combination (a “ Business Combination ”) other than a Business Combination in which holders of the Common Stock immediately prior to the Business Combination have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the Business Combination as immediately before;
(c) The closing of an agreement for the sale or disposition of all or substantially all of the Company’s assets to any entity that is not an Affiliate;
(d) The approval by the holders of shares of Common Stock of a plan of complete liquidation of the Company other than a liquidation of the Company into any subsidiary or a liquidation a result of which persons who were stockholders of the Company immediately prior to such liquidation have substantially the same proportionate ownership of shares of common stock of the surviving corporation immediately after such liquidation as immediately before;
(e) Within any twenty-four (24) month period, the Incumbent Directors shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company; provided , however , that any director elected to the Board, or nominated for election, by a majority of the Incumbent Directors then still in office, shall be deemed to be an Incumbent Director for purposes of this paragraph (e), but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, entity or “group” other than the Board (including, but not limited to, any such assumption that results from paragraphs (a), (b), (c), (d) or (f) of this definition); or
(f) Any other event which shall be deemed by a majority of the members of the Board to constitute a “Change of Control.”
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Notwithstanding the foregoing, a “Change of Control” shall not be deemed to occur if the Company files for bankruptcy, liquidation or reorganization under the United States Bankruptcy Code.
“ Code ” shall mean the Internal Revenue Code of 1986, as amended. Reference in the Plan to any section of the Code shall be deemed to include any amendments or successor provisions to any section and any regulation under such section.
“ Committee ” shall mean a committee comprised of (i) at any time that the Common Stock is not registered under Section 12 of the Exchange Act, the full Board, and (ii) at any time that the Common Stock is registered under Section 12 of the Exchange Act, not less than three (3) members of the Board who are selected by the Board as provided in Section 4.1.
“ Common Stock ” shall mean the common stock, par value $.001 per share, of the Company.
“ Company ” shall mean Advanced Medical Isotope Corporation, a Delaware corporation, and any successor thereto.
“ Consultant ” shall mean any non-Employee (individual or entity) advisor to the Company or an Affiliate who or which has contracted directly with the Company or an Affiliate to render bona fide consulting or advisory services thereto.
“ Director ” shall mean a member of the Board or a member of the board of directors of an Affiliate.
“ Distribution Equivalent Right ” shall mean an Award granted under Article XIII of the Plan which entitles the Holder to receive bookkeeping credits, cash payments and/or Common Stock distributions equal in amount to the distributions that would have been made to the Holder had the Holder held a specified number of shares of Common Stock during the period the Holder held the Distribution Equivalent Right.
“ Distribution Equivalent Right Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Distribution Equivalent Right Award.
“ Effective Date ” of the Advanced Medical Isotope Corporation 2015 Omnibus Securities and Incentive Plan was October 31, 2015.
“ Employee ” shall mean any employee, including officers, of the Company or an Affiliate.
“ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended.
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“ Fair Market Value ” shall mean, as determined consistent with the applicable requirements of Sections 409A and 422 of the Code, as of any specified date, the closing sales price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date) on the Nasdaq Stock Market or a domestic or foreign national securities exchange (including London’s Alternative Investment Market) on which the Common Stock may be listed, as reported in The Wall Street Journal or The Financial Times. If the Common Stock is not listed on the Nasdaq Stock Market or on a national securities exchange, but is quoted on the OTC Bulletin Board or by the National Quotation Bureau, the Fair Market Value of the Common Stock shall be the mean of the bid and asked prices per share of the Common Stock for such date. If the Common Stock is not quoted or listed as set forth above, Fair Market Value shall be determined by the Board in good faith by any fair and reasonable means (which means, with respect to a particular Award grant, may be set forth with greater specificity in the applicable Award Agreement). The Fair Market Value of property other than Common Stock shall be determined by the Board in good faith by any fair and reasonable means, and consistent with the applicable requirements of Sections 409A and 422 of the Code.
“ Family Member ” shall mean any child, stepchild, grandchild, parent, stepparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, any person sharing the Holder’s household (other than a tenant or employee of the Holder), a trust in which such persons have more than fifty percent (50%) of the beneficial interest, a foundation in which such persons (or the Holder) control the management of assets, and any other entity in which such persons (or the Holder) own more than fifty percent (50%) of the voting interests.
“ Holder ” shall mean an Employee, Director or Consultant who has been granted an Award or any such individual’s beneficiary, estate or representative, to the extent applicable.
“ Incentive Stock Option ” shall mean an Option which is intended by the Committee to constitute an “incentive stock option” under Section 422 of the Code.
“ Incumbent Director ” shall mean, with respect to any period of time specified under the Plan for purposes of determining whether or not a Change of Control has occurred, the individuals who were members of the Board at the beginning of such period.
“ Non-Qualified Stock Option ” shall mean an Option which is not an Incentive Stock Option.
“ Option ” shall mean an Award granted under Article VII of the Plan of an option to purchase shares of Common Stock and includes both Incentive Stock Options and Non-Qualified Stock Options.
“ Option Agreement ” shall mean a written agreement between the Company and a Holder with respect to an Option.
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“ Performance Criteria ” shall mean the criteria that the Committee selects for purposes of establishing the Performance Goal(s) for a Holder for a Performance Period.
“ Performance Goals ” shall mean, for a Performance Period, the written goal or goals established by the Committee for the Performance Period based upon the Performance Criteria.
“ Performance Period ” shall mean one or more periods of time, which may be of varying and overlapping durations, selected by the Committee, over which the attainment of one or more Performance Goals or other business objectives shall be measured for purposes of determining a Holder’s right to, and the payment of, a Qualified Performance-Based Award.
“ Performance Share Award ” shall mean an Award granted under Article XII of the Plan under which, upon the satisfaction of predetermined individual and/or Company (and/or Affiliate) performance goals and/or objectives, shares of Common Stock are paid to the Holder.
“ Performance Share Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Performance Share Award.
“ Performance Unit ” shall mean a Unit awarded to a Holder pursuant to a Performance Unit Award.
“ Performance Unit Award ” shall mean an Award granted under Article XI of the Plan under which, upon the satisfaction of predetermined individual and/or Company (and/or Affiliate) performance goals and/or objectives, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
“ Performance Unit Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Performance Unit Award.
“ Plan ” shall mean this Advanced Medical Isotope Corporation 2015 Omnibus Securities and Incentive Plan, as it may be further amended from time to time, together with each of the Award Agreements utilized hereunder.
“ Qualified Performance-Based Award ” shall mean an Award intended to qualify as “performance-based” compensation under Section 162(m) of the Code.
“ Restricted Stock Award ” shall mean an Award granted under Article VIII of the Plan of shares of Common Stock, the transferability of which by the Holder shall be subject to Restrictions.
“ Restricted Stock Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Award.
“ Restricted Stock Unit Award ” shall mean an Award granted under Article X of the Plan under which, upon the satisfaction of predetermined individual service-related vesting requirements, a cash payment shall be made to the Holder, based on the number of Units awarded to the Holder.
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“ Restricted Stock Unit Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Restricted Stock Unit Award.
“ Restriction Period ” shall mean the period of time for which shares of Common Stock subject to a Restricted Stock Award shall be subject to Restrictions, as set forth in the applicable Restricted Stock Award Agreement.
“ Restrictions ” shall mean forfeiture, transfer and/or other restrictions applicable to shares of Common Stock awarded to an Employee, Director or Consultant under the Plan pursuant to a Restricted Stock Award and set forth in a Restricted Stock Award Agreement.
“ Rule 16b-3 ” shall mean Rule 16b-3 promulgated by the Securities and Exchange Commission under the Exchange Act, as such may be amended from time to time, and any successor rule, regulation or statute fulfilling the same or a substantially similar function.
“ Stock Appreciation Right ” shall mean an Award granted under Article XIV of the Plan of a right, granted alone or in connection with a related Option, to receive a payment on the date of exercise.
“ Stock Appreciation Right Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to a Stock Appreciation Right.
“ Tandem Stock Appreciation Right ” shall mean a Stock Appreciation Right granted in connection with a related Option, the exercise of which shall result in termination of the otherwise entitlement to purchase some or all of the shares of Common Stock under the related Option, all as set forth in Section 14.2.
“ Ten Percent Stockholder ” shall mean an Employee who, at the time an Incentive Stock Option is granted to him or her, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code), within the meaning of Section 422(b)(6) of the Code.
“ Total and Permanent Disability ” shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than twelve (12) months, all as described in Section 22(e)(3) of the Code.
“ Units ” shall mean bookkeeping units, each of which represents such monetary amount as shall be designated by the Committee in each Performance Unit Award Agreement, or represents one (1) share of Common Stock for purposes of each Restricted Stock Unit Award.
“ Unrestricted Stock Award ” shall mean an Award granted under Article IX of the Plan of shares of Common Stock which are not subject to Restrictions.
“ Unrestricted Stock Award Agreement ” shall mean a written agreement between the Company and a Holder with respect to an Unrestricted Stock Award.
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ARTICLE
III
EFFECTIVE DATE OF PLAN
The Plan shall be effective as of the Effective Date, provided that the Plan is approved by the stockholders of the Company within twelve (12) months of such date.
ARTICLE
IV
ADMINISTRATION
Section 4.1 Composition of Committee . The Plan shall be administered by the Committee, which shall be appointed by the Board. Notwithstanding the foregoing, however, at any time that the Common Stock is registered under Section 12 of the Exchange Act, the Committee shall consist solely of two (2) or more Directors who are each (i) “outside directors” within the meaning of Section 162(m) of the Code (“ Outside Directors ”), (ii) “non-employee directors” within the meaning of Rule 16b-3 and (iii) “independent” for purposes of any applicable listing requirements (“ Non-Employee Directors ”); provided , however , that the Board or the Committee may delegate to a committee of one or more members of the Board who are not (x) Outside Directors, the authority to grant Awards to eligible persons who are not (A) then “covered employees” within the meaning of Section 162(m) of the Code and are not expected to be “covered employees” at the time of recognition of income resulting from such Award, or (B) persons with respect to whom the Company wishes to comply with the requirements of Section 162(m) of the Code, and/or (y) Non-Employee Directors, the authority to grant Awards to eligible persons who are not then subject to the requirements of Section 16 of the Exchange Act. If a member of the Committee shall be eligible to receive an Award under the Plan, such Committee member shall have no authority hereunder with respect to his or her own Award.
Section 4.2 Powers . Subject to the provisions of the Plan, the Committee shall have the sole authority, in its discretion, to make all determinations under the Plan, including but not limited to determining which Employees, Directors or Consultants shall receive an Award, the time or times when an Award shall be made (the date of grant of an Award shall be the date on which the Award is awarded by the Committee), what type of Award shall be granted, the term of an Award, the date or dates on which an Award vests (including acceleration of vesting), the form of any payment to be made pursuant to an Award, the terms and conditions of an Award (including the forfeiture of the Award (and/or any financial gain) if the Holder of the Award violates any applicable restrictive covenant thereof), the Restrictions under a Restricted Stock Award and the number of shares of Common Stock which may be issued under an Award, all as applicable. In making such determinations the Committee may take into account the nature of the services rendered by the respective Employees, Directors and Consultants, their present and potential contribution to the Company’s (or the Affiliate’s) success and such other factors as the Committee in its discretion shall deem relevant.
Section 4.3 Additional Powers The Committee shall have such additional powers as are delegated to it under the other provisions of the Plan. Subject to the express provisions of the Plan, the Committee is authorized to construe the Plan and the respective Award Agreements executed hereunder, to prescribe such rules and regulations relating to the Plan as it may deem advisable to carry out the intent of the Plan, and to determine the terms, restrictions and provisions of each Award, including such terms, restrictions and provisions as shall be requisite in the judgment of the Committee to cause designated Options to qualify as Incentive Stock Options, and to make all other determinations necessary or advisable for administering the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in any Award Agreement in the manner and to the extent it shall deem expedient to carry it into effect. The determinations of the Committee on the matters referred to in this Article IV shall be conclusive and binding on the Company and all Holders.
Section 4.4 Committee Action In the absence of specific rules to the contrary, action by the Committee shall require the consent of a majority of the members of the Committee, expressed either orally at a meeting of the Committee or in writing in the absence of a meeting. No member of the Committee shall have any liability for any good faith action, inaction or determination in connection with the Plan.
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ARTICLE
V
STOCK SUBJECT TO PLAN AND LIMITATIONS THEREON
Section 5.1 Stock Grant and Award Limits . The Committee may from time to time grant Awards to one or more Employees, Directors and/or Consultants determined by it to be eligible for participation in the Plan in accordance with the provisions of Article VI. Subject to Article XV, the aggregate number of shares of Common Stock that may be issued under the Plan shall not exceed twenty percent (20%) of the issued and outstanding shares of Common Stock on an as converted primary basis (the “ As Converted Primary Shares ”) on a rolling basis. For calculation purposes, the As Converted Primary Shares shall include all shares of Common Stock and all shares of Common Stock issuable upon the conversion of outstanding preferred stock and other convertible securities, but shall not include any shares of Common Stock issuable upon the exercise of options, warrants and other convertible securities issued pursuant to the Plan. The number of authorized shares of Common Stock reserved for issuance under the Plan shall automatically be increased concurrently with the Company’s issuance of fully paid and non- assessable shares of As Converted Primary Shares. Shares shall be deemed to have been issued under the Plan solely to the extent actually issued and delivered pursuant to an Award. To the extent that an Award lapses, expires, is canceled, is terminated unexercised or ceases to be exercisable for any reason, or the rights of its Holder terminate, any shares of Common Stock subject to such Award shall again be available for the grant of a new Award. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Common Stock that may be subject to Awards of Options under Article VII and/or Stock Appreciation Rights under Article XIV, in either or both cases granted to any one Employee during any calendar year, shall be twenty five percent (25%) of the available shares under the plan (subject to adjustment in the same manner as provided in Article XV with respect to shares of Common Stock subject to Awards then outstanding). The limitation set forth in the preceding sentence shall be applied in a manner which shall permit compensation generated in connection with the exercise of Options or Stock Appreciation Rights to constitute “performance-based” compensation for purposes of Section 162(m) of the Code, including, but not limited to, counting against such maximum number of shares, to the extent required under Section 162(m) of the Code, any shares subject to Options or Stock Appreciation Rights that are canceled or repriced.
Section 5.2 Stock Offered . The stock to be offered pursuant to the grant of an Award may be authorized but unissued Common Stock, Common Stock purchased on the open market or Common Stock previously issued and outstanding and reacquired by the Company.
Section 5.3 Lock-Up Agreement Each Award Agreement which provides for the issuance of Common Stock, including but not limited to the issuance of Common Stock upon the exercise of an Option, shall provide for a lock-up covenant by the Holder, to be effective for a period not to exceed one year, upon the request of the Company or the Company’s principal underwriter in connection with an underwritten public offering of the Common Stock.
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ARTICLE
VI
ELIGIBILITY FOR AWARDS; TERMINATION OF
EMPLOYMENT, DIRECTOR STATUS OR CONSULTANT STATUS
Section 6.1 Eligibility Awards made under the Plan may be granted solely to persons or entities who, at the time of grant, are Employees, Directors or Consultants. An Award may be granted on more than one occasion to the same Employee, Director or Consultant, and, subject to the limitations set forth in the Plan, such Award may include, a Non-Qualified Stock Option, a Restricted Stock Award, an Unrestricted Stock Award, a Distribution Equivalent Right Award, a Performance Stock Award, a Performance Unit Award, a Stock Appreciation Right, a Tandem Stock Appreciation Right, any combination thereof or, solely for Employees, an Incentive Stock Option.
Section 6.2 Termination of Employment or Director Status . Except to the extent inconsistent with the terms of the applicable Award Agreement and/or the provisions of Section 6.4, the following terms and conditions shall apply with respect to the termination of a Holder’s employment with, or status as a Director of, the Company or an Affiliate, as applicable, for any reason, including, without limitation, Total and Permanent Disability or death:
(a) The Holder’s rights, if any, to exercise any then exercisable Non-Qualified Stock Options and/or Stock Appreciation Rights shall terminate:
(1) If such termination is for a reason other than the Holder’s Total and Permanent Disability or death, ninety (90) days after the date of such termination of employment or after the date of such termination of Director status;
(2) If such termination is on account of the Holder’s Total and Permanent Disability, one (1) year after the date of such termination of employment or Director status; or
(3) If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
Upon such applicable date the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in or with respect to any such Non-Qualified Stock Options and Stock Appreciation Rights.
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(b) The Holder’s rights, if any, to exercise any then exercisable Incentive Stock Option shall terminate:
(1) If such termination is for a reason other than the Holder’s Total and Permanent Disability or death, three (3) months after the date of such termination of employment;
(2) If such termination is on account of the Holder’s Total and Permanent Disability, one (1) year after the date of such termination of employment; or
(3) If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
Upon such applicable date the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in or with respect to any such Incentive Stock Options.
(c) If a Holder’s employment with, or status as a Director of, the Company or an Affiliate, as applicable, terminates for any reason prior to the actual or deemed satisfaction and/or lapse of the restrictions, vesting requirements, terms and conditions applicable to a Restricted Stock Award and/or Restricted Stock Unit Award, such Restricted Stock and/or Restricted Stock Units shall immediately be canceled, and the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in and with respect to any such Restricted Stock and/or Restricted Stock Units. The immediately preceding sentence to the contrary notwithstanding, the Committee, in its sole discretion, may determine, prior to or within thirty (30) days after the date of such termination of employment or Director status, that all or a portion of any such Holder’s Restricted Stock and/or Restricted Stock Units shall not be so canceled and forfeited.
Section 6.3 Termination of Consultant Status . Except to the extent inconsistent with the terms of the applicable Award Agreement and/or the provisions of Section 6.4, the following terms and conditions shall apply with respect to the termination of a Holder’s status as a Consultant, for any reason:
(a) The Holder’s rights, if any, to exercise any then exercisable Non-Qualified Stock Options and Stock Appreciation Rights shall terminate:
(1) If such termination is for a reason other than the Holder’s death, thirty (30) days after the date of such termination; or
(2) If such termination is on account of the Holder’s death, one (1) year after the date of the Holder’s death.
(b) If the status of a Holder as a Consultant terminates for any reason prior to the actual or deemed satisfaction and/or lapse of the Restrictions, vesting requirements, terms and conditions applicable to a Restricted Stock Award, and/or Restricted Stock Units Award, such Restricted Stock and/or Restricted Stock Units shall immediately be canceled, and the Holder (and such Holder’s estate, designated beneficiary or other legal representative) shall forfeit any rights or interests in and with respect to any such Restricted Stock and/or Restricted Stock Units. The immediately preceding sentence to the contrary notwithstanding, the Committee, in its sole discretion, may determine, prior to or within thirty (30) days after the date of such termination of such a Holder’s status as a Consultant, that all or a portion of any such Holder’s Restricted Stock and/or Restricted Stock Units shall not be so canceled and forfeited.
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Section 6.4 Special Termination Rule . Except to the extent inconsistent with the terms of the applicable Award Agreement, and notwithstanding anything to the contrary contained in this Article VI, if a Holder’s employment with, or status as a Director of, the Company or an Affiliate shall terminate, and if, within ninety (90) days of such termination, such Holder shall become a Consultant, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been a Consultant for the entire period during which such Award or portion thereof had been outstanding. Should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her employment or Director status had terminated until such time as his or her Consultant status shall terminate, in which case his or her Award, as it may have been reduced in connection with the Holder’s becoming a Consultant, shall be treated pursuant to the provisions of Section 6.3; provided , however , that any such Award which is intended to be an Incentive Stock Option shall, upon the Holder’s no longer being an Employee, automatically convert to a Non-Qualified Stock Option. Should a Holder’s status as a Consultant terminate, and if, within ninety (90) days of such termination, such Holder shall become an Employee or a Director, such Holder’s rights with respect to any Award or portion thereof granted thereto prior to the date of such termination may be preserved, if and to the extent determined by the Committee in its sole discretion, as if such Holder had been an Employee or a Director, as applicable, for the entire period during which such Award or portion thereof had been outstanding, and, should the Committee effect such determination with respect to such Holder, for all purposes of the Plan, such Holder shall not be treated as if his or her Consultant status had terminated until such time as his or her employment with the Company or an Affiliate, or his or her Director status, as applicable, shall terminate, in which case his or her Award shall be treated pursuant to the provisions of Section 6.2.
Section 6.5 Termination for Cause . Notwithstanding anything in this Article VI or elsewhere in the Plan to the contrary, and unless a Holder’s Award Agreement specifically provides otherwise, should a Holder’s employment, Director status or engagement as a Consultant with or for the Company or an Affiliate be terminated by the Company or Affiliate for Cause, all of such Holder’s then outstanding Awards shall expire within thirty (30) days if an employee or ninety (90) days if a Director and be forfeited in their entirety upon such termination.
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ARTICLE
VII
OPTIONS
Section 7.1 Option Period . The term of each Option shall be as specified in the Option Agreement; provided , however , that except as set forth in Section 7.3, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant.
Section 7.2 Limitations on Exercise of Option . An Option shall be exercisable in whole or in such installments and at such times as specified in the Option Agreement.
Section 7.3 Special Limitations on Incentive Stock Options . To the extent that the aggregate Fair Market Value (determined at the time the respective Incentive Stock Option is granted) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by an individual during any calendar year under all plans of the Company and any parent corporation or subsidiary corporation thereof (both as defined in Section 424 of the Code) which provide for the grant of Incentive Stock Options exceeds One Hundred Thousand Dollars ($100,000) (or such other individual limit as may be in effect under the Code on the date of grant), the portion of such Incentive Stock Options that exceeds such threshold shall be treated as Non-Qualified Stock Options. The Committee shall determine, in accordance with applicable provisions of the Code, Treasury Regulations and other administrative pronouncements, which of a Holder’s Options, which were intended by the Committee to be Incentive Stock Options when granted to the Holder, will not constitute Incentive Stock Options because of such limitation, and shall notify the Holder of such determination as soon as practicable after such determination. No Incentive Stock Option shall be granted to an Employee if, at the time the Incentive Stock Option is granted, such Employee is a Ten Percent Stockholder, unless (i) at the time such Incentive Stock Option is granted the Option price is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock subject to the Incentive Stock Option, and (ii) such Incentive Stock Option by its terms is not exercisable after the expiration of five (5) years from the date of grant. No Incentive Stock Option shall be granted more than ten (10) years from the date on which the Plan is approved by the Company’s stockholders. The designation by the Committee of an Option as an Incentive Stock Option shall not guarantee the Holder that the Option will satisfy the applicable requirements for “incentive stock option” status under Section 422 of the Code.
Section 7.4 Option Agreement . Each Option shall be evidenced by an Option Agreement in such form and containing such provisions not inconsistent with the provisions of the Plan as the Committee from time to time shall approve, including, but not limited to, provisions intended to qualify an Option as an Incentive Stock Option. An Option Agreement may provide for the payment of the Option price, in whole or in part, in cash or cash equivalents, by the delivery of a number of shares of Common Stock (plus cash if necessary) that have been owned by the Holder for at least six (6) months and having a Fair Market Value equal to such Option price, or such other forms or methods as the Committee may determine from time to time, in each case, subject to such rules and regulations as may be adopted by the Committee. Each Option Agreement shall, solely to the extent inconsistent with the provisions of Sections 6.2, 6.3, 6.4 and 6.5, as applicable, specify the effect of termination of the Holder’s employment, Director status or Consultant status on the exercisability of the Option. Moreover, without limiting the generality of the foregoing, an Option Agreement may provide for a “cashless exercise” of the Option, in whole or in part, by (a) establishing procedures whereby the Holder, by a properly-executed written notice, directs (i) an immediate market sale or margin loan as to all or a part of the shares of Common Stock to which he is entitled to receive upon exercise of the Option, pursuant to an extension of credit by the Company to the Holder of the Option price, (ii) the delivery of the shares of Common Stock from the Company directly to a brokerage firm and (iii) the delivery of the Option price from sale or margin loan proceeds from the brokerage firm directly to the Company, or (b) reducing the number of shares of Common Stock to be issued upon exercise of the Option by the number of such shares having an aggregate Fair Market Value equal to the Option price (or portion thereof to be so paid) as of the date of the Option’s exercise. Each Option Agreement shall, solely to the extent inconsistent with the provisions of Sections 6.2, 6.3, 6.4 and 6.5, as applicable, specify the effect of the termination of the Holder’s employment, Director status or Consultant status on the exercisability of the Option. An Option Agreement may also include provisions relating to (i) subject to the provisions hereof, accelerated vesting of Options, including but not limited to upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and requiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made upon a Change of Control resulting from the operation of the Plan or of such Option Agreement) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Option Agreements need not be identical.
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Section 7.5 Option Price and Payment . The price at which a share of Common Stock may be purchased upon exercise of an Option shall be determined by the Committee; provided , however , that such Option price (i) shall not be less than the Fair Market Value of a share of Common Stock on the date such Option is granted, and (ii) shall be subject to adjustment as provided in Article XV. The Option or portion thereof may be exercised by delivery of an irrevocable notice of exercise to the Company. The Option price for the Option or portion thereof shall be paid in full in the manner prescribed by the Committee as set forth in the Plan and the applicable Option Agreement, which manner, with the consent of the Committee, may include the withholding of shares of Common Stock otherwise issuable in connection with the exercise of the Option, for purposes of Section 7.4 (b). Separate stock certificates shall be issued by the Company for those shares of Common Stock acquired pursuant to the exercise of an Incentive Stock Option and for those shares of Common Stock acquired pursuant to the exercise of a Non-Qualified Stock Option.
Section 7.6 Stockholder Rights and Privileges . The Holder of an Option shall be entitled to all the privileges and rights of a stockholder of the Company solely with respect to such shares of Common Stock as have been purchased under the Option and for which certificates of stock have been registered in the Holder’s name.
Section 7.7 Options and Rights in Substitution for Stock Options Granted by Other Corporations . Options may be granted under the Plan from time to time in substitution for stock options held by individuals employed by entities who become Employees as a result of a merger or consolidation of the employing entity with the Company or any Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing entity, or the acquisition by the Company or an Affiliate of stock of the employing entity with the result that such employing entity becomes an Affiliate.
Section 7.8 Prohibition Against Repricing . Except to the extent (i) approved in advance by holders of a majority of the shares of the Company entitled to vote generally in the election of directors, or (ii) as a result of any Change of Control or any adjustment as provided in Article XV, the Committee shall not have the power or authority to reduce, whether through amendment or otherwise, the exercise price under any outstanding Option or Stock Appreciation Right, or to grant any new Award or make any payment of cash in substitution for or upon the cancellation of Options and/or Stock Appreciation Rights previously granted.
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ARTICLE
VIII
RESTRICTED STOCK AWARDS
Section 8.1 Restriction Period to be Established by Committee . At the time a Restricted Stock Award is made, the Committee shall establish the Restriction Period applicable to such Award. Each Restricted Stock Award may have a different Restriction Period, in the discretion of the Committee. The Restriction Period applicable to a particular Restricted Stock Award shall not be changed except as permitted by Section 8.2.
Section 8.2 Other Terms and Conditions . Common Stock awarded pursuant to a Restricted Stock Award shall be represented by a stock certificate registered in the name of the Holder of such Restricted Stock Award. If provided for under the Restricted Stock Award Agreement, the Holder shall have the right to vote Common Stock subject thereto and to enjoy all other stockholder rights, including the entitlement to receive dividends on the Common Stock during the Restriction Period, except that (i) the Holder shall not be entitled to delivery of the stock certificate until the Restriction Period shall have expired, (ii) the Company shall retain custody of the stock certificate during the Restriction Period (with a stock power endorsed by the Holder in blank), (iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or otherwise dispose of the Common Stock during the Restriction Period and (iv) a breach of the terms and conditions established by the Committee pursuant to the Restricted Stock Award Agreement shall cause a forfeiture of the Restricted Stock Award. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Awards, including, but not limited to, rules pertaining to the effect of termination of employment, Director status or Consultant status prior to expiration of the Restriction Period. Such additional terms, conditions or restrictions shall, to the extent inconsistent with the provisions of Sections 6.2, 6.3 and 6.4, as applicable, be set forth in a Restricted Stock Award Agreement made in conjunction with the Award. Such Restricted Stock Award Agreement may also include provisions relating to (i) subject to the provisions hereof, accelerated vesting of Awards, including but not limited to accelerated vesting upon the occurrence of a Change of Control, (ii) tax matters (including provisions covering any applicable Employee wage withholding requirements and requiring additional “gross-up” payments to Holders to meet any excise taxes or other additional income tax liability imposed as a result of a payment made in connection with a “Change of Control” resulting from the operation of the Plan or of such Restricted Stock Award Agreement) and (iii) any other matters not inconsistent with the terms and provisions of the Plan that the Committee shall in its sole discretion determine. The terms and conditions of the respective Restricted Stock Agreements need not be identical. All shares of Common Stock delivered to a Holder as part of a Restricted Stock Award shall be delivered and reported by the Company or the Affiliate, as applicable, to the Holder by no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which the Holder’s entitlement to such shares becomes vested.
Section 8.3 Payment for Restricted Stock . The Committee shall determine the amount and form of any payment from a Holder for Common Stock received pursuant to a Restricted Stock Award, if any, provided that in the absence of such a determination, a Holder shall not be required to make any payment for Common Stock received pursuant to a Restricted Stock Award, except to the extent otherwise required by law.
Section 8.4 Restricted Stock Award Agreements . At the time any Award is made under this Article VIII, the Company and the Holder shall enter into a Restricted Stock Award Agreement setting forth each of the matters contemplated hereby and such other matters as the Committee may determine to be appropriate.
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ARTICLE
IX
UNRESTRICTED STOCK AWARDS
Pursuant to the terms of the applicable Unrestricted Stock Award Agreement, a Holder may be awarded (or sold) shares of Common Stock which are not subject to Restrictions, in consideration for past services rendered thereby to the Company or an Affiliate or for other valid consideration.
ARTICLE
X
RESTRICTED STOCK UNIT AWARDS
Section 10.1 Terms and Conditions The Committee shall set forth in the applicable Restricted Stock Unit Award Agreement the individual service-based vesting requirement which the Holder would be required to satisfy before the Holder would become entitled to payment pursuant to Section 10.2 and the number of Units awarded to the Holder. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Restricted Stock Unit Awards, including, but not limited to, rules pertaining to the effect of termination of employment, Director status or Consultant status prior to expiration of the applicable vesting period. The terms and conditions of the respective Restricted Stock Unit Award Agreements need not be identical.
Section 10.2 Payments . The Holder of a Restricted Stock Unit shall be entitled to receive a cash payment equal to the Fair Market Value of a share of Common Stock, or one (1) share of Common Stock, as determined in the sole discretion of the Committee and as set forth in the Restricted Stock Unit Award Agreement, for each Restricted Stock Unit subject to such Restricted Stock Unit Award, if the Holder satisfies the applicable vesting requirement. Such payment shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the calendar year in which the Restricted Stock Unit first becomes vested.
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ARTICLE
XI
PERFORMANCE UNIT AWARDS
Section 11.1 Terms and Conditions The Committee shall set forth in the applicable Performance Unit Award Agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to payment pursuant to Section 10.2, the number of Units awarded to the Holder and the dollar value assigned to each such Unit. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Unit Awards, including, but not limited to, rules pertaining to the effect of termination of employment, Director status or Consultant status prior to expiration of the applicable performance period. The terms and conditions of the respective Performance Unit Award Agreements need not be identical.
Section 11.2 Payments . The Holder of a Performance Unit shall be entitled to receive a cash payment equal to the dollar value assigned to such Unit under the applicable Performance Unit Award Agreement if the Holder and/or the Company satisfy (or partially satisfy, if applicable under the applicable Performance Unit Award Agreement) the performance goals and objectives set forth in such Performance Unit Award Agreement. If achieved, such payment shall be made not later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such performance goals and objectives relate.
ARTICLE
XII
PERFORMANCE SHARE AWARDS
Section 12.1 Terms and Conditions The Committee shall set forth in the applicable Performance Share Award Agreement the performance goals and objectives (and the period of time to which such goals and objectives shall apply) which the Holder and/or the Company would be required to satisfy before the Holder would become entitled to the receipt of shares of Common Stock pursuant to such Holder’s Performance Share Award and the number of shares of Common Stock subject to such Performance Share Award. Such payment shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such goals and objectives are achieved, the distribution of such Common Shares shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year to which such goals and objectives relate. At the time of such Award, the Committee may, in its sole discretion, prescribe additional terms and conditions or restrictions relating to Performance Share Awards, including, but not limited to, rules pertaining to the effect of termination of the Holder’s employment, Director status or Consultant status prior to the expiration of the applicable performance period. The terms and conditions of the respective Performance Share Award Agreements need not be identical.
Section 12.2 Stockholder Rights and Privileges The Holder of a Performance Share Award shall have no rights as a stockholder of the Company until such time, if any, as the Holder actually receives shares of Common Stock pursuant to the Performance Share Award.
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ARTICLE
XIII
DISTRIBUTION EQUIVALENT RIGHTS
Section 13.1 Terms and Conditions The Committee shall set forth in the applicable Distribution Equivalent Rights Award Agreement the terms and conditions, if any, including whether the Holder is to receive credits currently in cash, is to have such credits reinvested (at Fair Market Value determined as of the date of reinvestment) in additional shares of Common Stock or is to be entitled to choose among such alternatives. Such receipt shall be subject to a “substantial risk of forfeiture” under Section 409A of the Code and, if such Award becomes vested, the distribution of such cash or shares of Common Stock shall be made no later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which the Holder’s interest in the Award vests. Distribution Equivalent Rights Awards may be settled in cash or in shares of Common Stock, as set forth in the applicable Distribution Equivalent Rights Award Agreement. A Distribution Equivalent Rights Award may, but need not be, awarded in tandem with another Award, whereby, if so awarded, such Distribution Equivalent Rights Award shall expire, terminate or be forfeited by the Holder, as applicable, under the same conditions as under such other Award.
Section 13.2 Interest Equivalents . The Distribution Equivalent Rights Award Agreement for a Distribution Equivalent Rights Award may provide for the crediting of interest on a Distribution Rights Award to be settled in cash at a future date (but in no event later than by the fifteenth (15th) day of the third (3rd) calendar month next following the end of the Company’s fiscal year in which such interest was credited), at a rate set forth in the applicable Distribution Equivalent Rights Award Agreement, on the amount of cash payable thereunder.
ARTICLE
XIV
STOCK APPRECIATION RIGHTS
Section 14.1 Terms and Conditions The Committee shall set forth in the applicable Stock Appreciation Right Award Agreement the terms and conditions of the Stock Appreciation Right, including (i) the base value (the “ Base Value ”) for the Stock Appreciation Right, which for purposes of a Stock Appreciation Right which is not a Tandem Stock Appreciation Right, shall be not less than the Fair Market Value of a share of the Common Stock on the date of grant of the Stock Appreciation Right, (ii) the number of shares of Common Stock subject to the Stock Appreciation Right, (iii) the period during which the Stock Appreciation Right may be exercised; provided , however , that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant, and (iv) any other special rules and/or requirements which the Committee imposes upon the Stock Appreciation Right. Upon the exercise of some or all of a Stock Appreciation Right, the Holder shall receive a payment from the Company, in cash or in the form of shares of Common Stock having an equivalent Fair Market Value or in a combination of both, as determined in the sole discretion of the Committee, equal to the product of:
(a) The excess of (i) the Fair Market Value of a share of the Common Stock on the date of exercise, over (ii) the Base Value, multiplied by;
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(b) The number of shares of Common Stock with respect to which the Stock Appreciation Right is exercised.
Section 14.2 Tandem Stock Appreciation Rights . If the Committee grants a Stock Appreciation Right which is intended to be a Tandem Stock Appreciation Right, the Tandem Stock Appreciation Right shall be granted at the same time as the related Option, and the following special rules shall apply:
(a) The Base Value shall be equal to or greater than the per share exercise price under the related Option;
(b) The Tandem Stock Appreciation Right may be exercised for all or part of the shares of Common Stock which are subject to the related Option, but solely upon the surrender by the Holder of the Holder’s right to exercise the equivalent portion of the related Option (and when a share of Common Stock is purchased under the related Option, an equivalent portion of the related Tandem Stock Appreciation Right shall be cancelled);
(c) The Tandem Stock Appreciation Right shall expire no later than the date of the expiration of the related Option;
(d) The value of the payment with respect to the Tandem Stock Appreciation Right may be no more than one hundred percent (100%) of the difference between the per share exercise price under the related Option and the Fair Market Value of the shares of Common Stock subject to the related Option at the time the Tandem Stock Appreciation Right is exercised, multiplied by the number of shares of Common Stock with respect to which the Tandem Stock Appreciation Right is exercised; and
(e) The Tandem Stock Appreciation Right may be exercised solely when the Fair Market Value of a share of Common Stock subject to the related Option exceeds the per share exercise price under the related Option.
ARTICLE
XV
RECAPITALIZATION OR REORGANIZATION
Section 15.1 Adjustments to Common Stock The shares with respect to which Awards may be granted under the Plan are shares of Common Stock as presently constituted; provided , however , that if, and whenever, prior to the expiration or distribution to the Holder of shares of Common Stock underlying an Award theretofore granted, the Company shall effect a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend on Common Stock without receipt of consideration by the Company, the number of shares of Common Stock with respect to which such Award may thereafter be exercised or satisfied, as applicable, (i) in the event of an increase in the number of outstanding shares, shall be proportionately increased, and the purchase price per share of the Common Stock shall be proportionately reduced, and (ii) in the event of a reduction in the number of outstanding shares, shall be proportionately reduced, and the purchase price per share of the Common Stock shall be proportionately increased. Notwithstanding the foregoing or any other provision of this Article XV, any adjustment made with respect to an Award (x) which is an Incentive Stock Option, shall comply with the requirements of Section 424(a) of the Code, and in no event shall any adjustment be made which would render any Incentive Stock Option granted under the Plan to be other than an “incentive stock option” for purposes of Section 422 of the Code, and (y) which is a Non-Qualified Stock Option, shall comply with the requirements of Section 409A of the Code, and in no event shall any adjustment be made which would render any Non-Qualified Stock Option granted under the Plan to become subject to Section 409A of the Code.
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Section 15.2 Recapitalization . If the Company recapitalizes or otherwise changes its capital structure, thereafter upon any exercise or satisfaction, as applicable, of a previously granted Award, the Holder shall be entitled to receive (or entitled to purchase, if applicable) under such Award, in lieu of the number of shares of Common Stock then covered by such Award, the number and class of shares of stock and securities to which the Holder would have been entitled pursuant to the terms of the recapitalization if, immediately prior to such recapitalization, the Holder had been the holder of record of the number of shares of Common Stock then covered by such Award.
Section 15.3 Other Events In the event of changes to the outstanding Common Stock by reason of extraordinary cash dividend, reorganization, mergers, consolidations, combinations, split-ups, spin-offs, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Award and not otherwise provided for under this Article XV, any outstanding Awards and any Award Agreements evidencing such Awards shall be adjusted by the Board in its discretion in such manner as the Board shall deem equitable or appropriate taking into consideration the applicable accounting and tax consequences, as to the number and price of shares of Common Stock or other consideration subject to such Awards. In the event of any adjustment pursuant to Sections 15.1, 15.2 or this Section 15.3, the aggregate number of shares available under the Plan pursuant to Section 5.1 (and the Code Section 162(m) limit set forth therein) may be appropriately adjusted by the Board, the determination of which shall be conclusive. In addition, the Committee may make provision for a cash payment to a Participant or a person who has an outstanding Award. The number of shares of Common Stock subject to any Award shall be rounded to the nearest whole number.
Section 15.4 Powers Not Affected The existence of the Plan and the Awards granted hereunder shall not affect in any way the right or power of the Board or of the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change of the Company’s capital structure or business, any merger or consolidation of the Company, any issue of debt or equity securities ahead of or affecting Common Stock or the rights thereof, the dissolution or liquidation of the Company or any sale, lease, exchange or other disposition of all or any part of its assets or business or any other corporate act or proceeding.
Section 15.5 No Adjustment for Certain Awards . Except as hereinabove expressly provided, the issuance by the Company of shares of stock of any class or securities convertible into shares of stock of any class, for cash, property, labor or services, upon direct sale, upon the exercise of rights or warrants to subscribe therefor or upon conversion of shares or obligations of the Company convertible into such shares or other securities, and in any case whether or not for fair value, shall not affect previously granted Awards, and no adjustment by reason thereof shall be made with respect to the number of shares of Common Stock subject to Awards theretofore granted or the purchase price per share, if applicable.
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ARTICLE
XVI
AMENDMENT AND TERMINATION OF PLAN
The Plan shall continue in effect, unless sooner terminated pursuant to this Article XVI, until the tenth (10th) anniversary of the date on which it is adopted by the Board (except as to Awards outstanding on that date). The Board in its discretion may terminate the Plan at any time with respect to any shares for which Awards have not theretofore been granted; provided , however , that the Plan’s termination shall not materially and adversely impair the rights of a Holder with respect to any Award theretofore granted without the consent of the Holder. The Board shall have the right to alter or amend the Plan or any part hereof from time to time; provided , however , that without the approval by a majority of the votes cast at a meeting of shareholders at which a quorum representing a majority of the shares of the Company entitled to vote generally in the election of directors is present in person or by proxy, no amendment or modification of the Plan may (i) materially increase the benefits accruing to Holders, (ii) except as otherwise expressly provided in Article XV, materially increase the number of shares of Common Stock subject to the Plan or the individual Award limitations specified in Article V, (iii) materially modify the requirements for participation in the Plan, or (iv) amend, modify, terminate or suspend Section 7.8 (repricing prohibition) or this Article XVI. In addition, no change in any Award theretofore granted may be made which would materially and adversely impair the rights of a Holder with respect to such Award without the consent of the Holder (unless such change is required in order to cause the benefits under the Plan to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code or to exempt the Plan or any Award from Section 409A of the Code).
ARTICLE
XVII
SPECIAL RULES
Section 17.1 Right of First Refusal . Solely during such time that the Common Stock is not publicly traded and solely to the extent that the applicable Award Agreement so provides, no Holder (or beneficiary of a Holder including but not limited to the Holder’s estate) may sell or otherwise transfer (except for inter vivos transfers to Family Members) any Common Stock obtained thereby pursuant to an Award without first (i) providing the Company with a written offer to sell the Common Stock to the Company on the same terms as were offered to the Holder (or the Holder’s beneficiary) by a bona fide third party (a copy of which third party offer shall be attached to the Holder’s or beneficiary’s offer to sell such Common Stock to the Company) for a sales price and with other terms and conditions, in each case equal to those stated in the third party’s purchase offer, and (ii) waiting thirty (30) days from the date of the Company’s receipt of such offer. If the Company shall accept the Holder’s or beneficiary’s offer in writing within said thirty (30) day period, the Holder or beneficiary and the Company shall promptly effect such transaction. If the Company does not provide a written acceptance of the Holder’s or beneficiary’s offer within said thirty (30) day period, the Holder or beneficiary shall be entitled to accept such third party’s offer and effect such transaction.
Section 17.2 Call Option . Solely during such time that the Common Stock is not publicly traded and solely to the extent that the applicable Award Agreement so provides, upon the termination of (i) an Employee’s employment with the Company or an Affiliate, (ii) a Director’s membership on the Board or on the board of directors of an Affiliate or (iii) a Consultant’s consulting or advisory engagement by the Company or Affiliate, the Company shall have the right to purchase from such individual or from such individual’s estate, for a period of ninety (90) days following the date of such termination, any Common Stock obtained thereby pursuant to the exercise of a Stock Option hereunder for a purchase price equal to the Fair Market Value of such Stock as of the date on which the Company provides written notice of its intent to exercise its call option hereunder to such individual or to such individual’s estate; provided , however , that notwithstanding the foregoing, should the individual’s employment, Board membership or consulting or advisory engagement be terminated by the Company for Cause, in lieu of Fair Market Value, the purchase price shall equal the amount paid, if any, by such individual, to obtain such Stock.
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ARTICLE
XVIII
MISCELLANEOUS
Section 18.1 No Right to Award . Neither the adoption of the Plan by the Company nor any action of the Board or the Committee shall be deemed to give an Employee, Director or Consultant any right to an Award except as may be evidenced by an Award Agreement duly executed on behalf of the Company, and then solely to the extent and on the terms and conditions expressly set forth therein.
Section 18.2 No Rights Conferred . Nothing contained in the Plan shall (i) confer upon any Employee any right with respect to continuation of employment with the Company or any Affiliate, (ii) interfere in any way with any right of the Company or any Affiliate to terminate the employment of an Employee at any time, (iii) confer upon any Director any right with respect to continuation of such Director’s membership on the Board, (iv) interfere in any way with any right of the Company or an Affiliate to terminate a Director’s membership on the Board at any time, (v) confer upon any Consultant any right with respect to continuation of his or her consulting engagement with the Company or any Affiliate, or (vi) interfere in any way with any right of the Company or an Affiliate to terminate a Consultant’s consulting engagement with the Company or an Affiliate at any time.
Section 18.3 Other Laws; No Fractional Shares; Withholding . The Company shall not be obligated to issue any Common Stock pursuant to any Award granted under the Plan at any time when the shares covered by such Award have not been registered under the Securities Act of 1933 and under such other state and federal laws, rules or regulations as the Company or the Committee deems applicable and, in the opinion of legal counsel of the Company, if there is no exemption from the registration requirements of such laws, rules or regulations available for the issuance and sale of such shares of Common Stock. The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue shares of Common Stock in violation of any such laws, rules or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Award. Neither the Company nor its directors or officers shall have any obligation or liability to a Holder with respect to any Award (or shares of Common Stock issuable thereunder) (i) that shall lapse because of such postponement, or (ii) for any failure to comply with the requirements of any applicable law, rules or regulations, including but not limited to any failure to comply with the requirements of Section 409A of the Code. No fractional shares of Common Stock shall be delivered, nor shall any cash in lieu of fractional shares be paid. The Company shall have the right to deduct in cash (whether under this Plan or otherwise) in connection with all Awards any taxes required by law to be withheld and to require any payments required to enable it to satisfy its withholding obligations. In the case of any Award satisfied in the form of shares of Common Stock, no shares shall be issued unless and until arrangements satisfactory to the Company shall have been made to satisfy any tax withholding obligations applicable with respect to such Award. Subject to such terms and conditions as the Committee may impose, the Company shall have the right to retain, or the Committee may, subject to such terms and conditions as it may establish from time to time, permit Holders to elect to tender, Common Stock (including Common Stock issuable in respect of an Award) to satisfy, in whole or in part, the amount required to be withheld.
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Section 18.4 No Restriction on Corporate Action . Nothing contained in the Plan shall be construed to prevent the Company or any Affiliate from taking any corporate action which is deemed by the Company or such Affiliate to be appropriate or in its best interest, whether or not such action would have an adverse effect on the Plan or any Award made under the Plan. No Employee, Director, Consultant, beneficiary or other person shall have any claim against the Company or any Affiliate as a result of any such action.
Section 18.5 Restrictions on Transfer No Award under the Plan or any Award Agreement and no rights or interests herein or therein, shall or may be assigned, transferred, sold, exchanged, encumbered, pledged or otherwise hypothecated or disposed of by a Holder except (i) by will or by the laws of descent and distribution, or (ii) except for an Incentive Stock Option, by gift to any Family Member of the Holder. An Award may be exercisable during the lifetime of the Holder only by such Holder or by the Holder’s guardian or legal representative unless it has been transferred by gift to a Family Member of the Holder, in which case it shall be exercisable solely by such transferee. Notwithstanding any such transfer, the Holder shall continue to be subject to the withholding requirements provided for under Section 18.3 hereof.
Section 18.6 Beneficiary Designations . Each Holder may, from time to time, name a beneficiary or beneficiaries (who may be contingent or successive beneficiaries) for purposes of receiving any amount which is payable in connection with an Award under the Plan upon or subsequent to the Holder’s death. Each such beneficiary designation shall serve to revoke all prior beneficiary designations, be in a form prescribed by the Company and be effective solely when filed by the Holder in writing with the Company during the Holder’s lifetime. In the absence of any such written beneficiary designation, for purposes of the Plan, a Holder’s beneficiary shall be the Holder’s estate.
Section 18.7 Rule 16b-3 . It is intended that, at any time when the Common Stock is registered under Section 12 of the Exchange Act, the Plan and any Award made to a person subject to Section 16 of the Exchange Act shall meet all of the requirements of Rule 16b-3. If any provision of the Plan or of any such Award would disqualify the Plan or such Award under, or would otherwise not comply with the requirements of, Rule 16b-3, such provision or Award shall be construed or deemed to have been amended as necessary to conform to the requirements of Rule 16b-3.
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Section 18.8 Section 162(m) . It is intended that, at any time when the Common Stock is registered under Section 12 of the Exchange Act, the Plan shall comply fully with and meet all the requirements of Section 162(m) of the Code so that Awards hereunder which are made to Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall constitute “performance-based” compensation within the meaning of Section 162(m) of the Code. Any Performance Goal(s) applicable to Qualified Performance-Based Awards shall be objective, shall be established not later than ninety (90) days after the beginning of any applicable Performance Period (or at such other date as may be required or permitted for “performance-based” compensation under Section 162(m) of the Code) and shall otherwise meet the requirements of Section 162(m) of the Code, including the requirement that the outcome of the Performance Goal or Goals be substantially uncertain (as defined in the regulations under Section 162(m) of the Code) at the time established. The Performance Criteria to be utilized under the Plan to establish Performance Goals shall consist of objective tests based on one or more of the following: earnings or earnings per share, cash flow or cash flow per share, operating cash flow or operating cash flow per share revenue growth, product revenue growth, financial return ratios (such as return on equity, return on investment and/or return on assets), share price performance, stockholder return, equity and/or value, operating income, operating margins, earnings before interest, taxes, depreciation and amortization, net income, pre- or post-tax income, economic value added (or an equivalent metric), profit returns and margins, credit quality, sales growth, market share, working capital levels, comparisons with various stock market indices, year-end cash, debt reduction, assets under management, operating efficiencies, strategic partnerships or transactions (including co-development, co-marketing, profit-sharing, joint venture or other similar arrangements), and/or financing and other capital raising transactions. Performance criteria may be established on a Company-wide basis or with respect to one or more Company business units or divisions or subsidiaries; and either in absolute terms, relative to the performance of one or more similarly situated companies, or relative to the performance of an index covering a peer group of companies. When establishing Performance Goals for the applicable Performance Period, the Committee may exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting principles including, without limitation, the charges or costs associated with restructurings of the Company, discontinued operations, other unusual or non-recurring items, and the cumulative effects of accounting changes and as identified in the Company’s financial statements, notes to the Company’s financial statements or management’s discussion and analysis of financial condition and results of operations contained in the Company’s most recent annual report filed with the U.S. Securities and Exchange Commission pursuant to the Exchange Act. Holders who are “covered employees” (as defined in Section 162(m) of the Code) shall be eligible to receive payment under a Qualified Performance-Based Award which is subject to achievement of a Performance Goal or Goals only if the applicable Performance Goal or Goals are achieved within the applicable Performance Period, as determined by the Committee. If any provision of the Plan would disqualify the Plan or would not otherwise permit the Plan to comply with Section 162(m) as so intended, such provision shall be construed or deemed amended to conform to the requirements or provisions of Section 162(m). The Committee may postpone the exercising of Awards, the issuance or delivery of Common Stock under any Award or any action permitted under the Plan to prevent the Company or any subsidiary from being denied a federal income tax deduction with respect to any Award other than an Incentive Stock Option, provided that such deferral satisfies the requirements of Section 409A of the Code. For purposes of the requirements of Treasury Regulation Section 1.162-27(e)(4)(i), the maximum amount of compensation that may be paid to any Employee under the Plan for a calendar year shall be Five Hundred Thousand Dollars ($500,000).
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Section 18.9 Section 409A . Notwithstanding any other provision of the Plan, the Committee shall have no authority to issue an Award under the Plan with terms and/or conditions which would cause such Award to constitute non-qualified “deferred compensation” under Section 409A of the Code. Accordingly, by way of example but not limitation, no Option shall be granted under the Plan with a per share exercise price which is less than the Fair Market Value of a share of Common Stock on the date of grant of the Option. Notwithstanding anything herein to the contrary, no Award Agreement shall provide for any deferral feature with respect to an Award which constitutes a deferral of compensation under Section 409A of the Code. The Plan and all Award Agreements are intended to comply with the requirements of Section 409A of the Code (so as to be exempt therefrom), and shall be so interpreted and construed.
Section 18.10 Indemnification . Each person who is or shall have been a member of the Committee or of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred thereby in connection with or resulting from any claim, action, suit, or proceeding to which such person may be made a party or may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid thereby in settlement thereof, with the Company’s approval, or paid thereby in satisfaction of any judgment in any such action, suit, or proceeding against such person; provided , however , that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive and shall be independent of any other rights of indemnification to which such persons may be entitled under the Company’s Articles of Incorporation or By-laws, by contract, as a matter of law, or otherwise.
Section 18.11 Other Plans . No Award, payment or amount received hereunder shall be taken into account in computing an Employee’s salary or compensation for the purposes of determining any benefits under any pension, retirement, life insurance or other benefit plan of the Company or any Affiliate, unless such other plan specifically provides for the inclusion of such Award, payment or amount received. Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation to its employees, in cash or property, in a manner which is not expressly authorized under the Plan.
Section 18.12 Limits of Liability . Any liability of the Company with respect to an Award shall be based solely upon the contractual obligations created under the Plan and the Award Agreement. None of the Company, any member of the Board nor any member of the Committee shall have any liability to any party for any action taken or not taken, in good faith, in connection with or under the Plan.
Section 18.13 Governing Law . Except as otherwise provided herein, the Plan shall be construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of law.
Section 18.14 Severability of Provisions . If any provision of the Plan is held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of the Plan, and the Plan shall be construed and enforced as if such invalid or unenforceable provision had not been included in the Plan.
Section 18.15 No Funding . The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of funds or assets to ensure the payment of any Award.
Section 18.16 Headings . Headings used throughout the Plan are for convenience only and shall not be given legal significance.
Section 18.17 Terms of Award Agreements . Each Award shall be evidenced by an Award Agreement, which Award Agreement, if it provides for the issuance of Common Stock, shall require the Holder to enter into and be bound by the terms of the Company’s Stockholders’ Agreement, if any. The terms of the Award Agreements utilized under the Plan need not be the same.
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EXHIBIT 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James C. Katzaroff, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Advanced Medical Isotope Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 25, 2016
| /s/ James C. Katzaroff | |
| James C. Katzaroff | |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, L. Bruce Jolliff, certify that:
| 1. | I have reviewed this annual report on Form 10-K of Advanced Medical Isotope Corporation; | |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 25, 2016
| /s/ L. Bruce Jolliff | |
| L. Bruce Jolliff | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying annual report of Advanced Medical Isotope Corporation (the “Company”) on Form 10-K for the year ended December 31, 2015 (the “Report”), the undersigned, James C. Katzaroff, Chief Executive Officer of the Company, and L. Bruce Jolliff, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: May 25, 2016 | ||
| /s/ James C. Katzaroff | ||
| Name: | James C. Katzaroff | |
| Title: | Chief Executive Officer |
| /s/ L. Bruce Jolliff | ||
| Name: | L. Bruce Jolliff | |
| Title: | Chief Financial Officer |