ADVANCED MEDICAL ISOTOPE Corp (Form: 10-Q, Received: 11/21/2016 15:39:10)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	FOR THE QUARTERLY PERIOD ENDED: September 30, 2016

OR

[ ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	FOR THE TRANSITION PERIOD FROM __________ TO __________

COMMISSION FILE NUMBER 000-53497

ADVANCED MEDICAL ISOTOPE CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

80-0138937

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

1021 N Kellogg Street,

Kennewick, WA 99336

(Address of principal executive offices, Zip Code)

(509) 736-4000

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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 Exchange Act). Yes [ ] No [X]

As of November 14, 2016, there were 19,999,985 shares of the registrant’s Common Stock outstanding.

TABLE OF CONTENTS

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements	3
	Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	3
	Condensed Consolidated Statements of Operations for the Three Months and the Nine Months ended September 30, 2016 (unaudited) and the Three Months and the Nine Months ended September 30, 2015 (unaudited)	4
	Condensed Consolidated Statements of Cash Flow for the Nine Months ended September 30, 2016 (unaudited) and the Nine Months ended September 30, 2015 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26

	PART II – OTHER INFORMATION

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28

SIGNATURES		29

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Advanced Medical Isotope Corporation

Condensed Consolidated Balance Sheets

	September 30, 2016			December 31, 2015
	(unaudited)
ASSETS

Current assets:
Cash	$	15		$	179,032
Prepaid expenses		30,451			26,211
Inventory		8,475			8,475
Total current assets		38,941			213,718

Fixed assets, net of accumulated depreciation		2,207			4,420

Other assets:
Patents and intellectual property		35,482			35,482
Deposits		644			644
Total other assets		36,126			36,126

Total assets	$	77,274		$	254,264

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accrued expenses	$	1,309,998		$	1,284,759
Accrued interest payable		158,613			229,246
Payroll liabilities payable		443,403			298,900
Loan from shareholders		135,846			-
Convertible notes payable, net		1,266,768			1,788,384
Derivative liability		518,637			4,235,016
Related party promissory note		332,195			1,280,450
Liability for lack of authorized shares		-			852,091
Total current liabilities		4,165,460			9,968,846

Commitments and contingencies		-			-

Mezzanine Equity:
Preferred stock, $.001 par value, 20,000,000 shares authorized Series A preferred stock, $.001 par value, 5,000,000 shares authorized; 4,342,216 and 1,627,000 shares issued and outstanding, respectively		17,854,427			4,617,052
Total mezzanine equity		17,854,427			4,617,052

Stockholders’ equity (deficit):
Common stock, $.001 par value; 2,000,000,000 shares authorized; 19,999,985 and 19,969,341 shares issued and outstanding, respectively (See Note 10)		20,000			19,969
Paid in capital		36,196,699			33,662,942
Accumulated deficit		(58,159,312	)		(48,014,545	)
Total stockholders’ equity (deficit)		(21,942,613	)		(14,331,634	)

Total liabilities and stockholders’ equity (deficit)	$	77,274		$	254,264

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

Advanced Medical Isotope Corporation

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015

Revenues	$	-		$	12,054		$	8,108		$	24,108

Operating expenses
Cost of materials		-			-			-			475
Sales and marketing expenses		65,995			-			213,539			-
Depreciation and amortization		738			936			2,212			4,934
Professional fees		265,497			73,864			1,968,084			245,164
Stock options granted		27,427			-			612,343			28,500
Payroll expenses		160,500			178,654			492,077			538,466
Loan fees		8,664			216			603,861			13,917
General and administrative expenses		137,593			52,195			683,788			146,337
Total operating expenses		666,414			305,865			4,575,904			977,793

Operating loss		(666,414	)		(293,811	)		(4,567,796	)		(953,685	)

Non-operating income (expense)
Interest expense		(85,830	)		(1,819,017	)		(535,563	)		(2,471,367	)
Net gain (loss) on settlement of debt		(111,328	)		144,290			(1,877,959	)		281,966
Loss on sale of stock		(54,561	)		-			(54,561	)		-
Gain (loss) on derivative liability		762,151			(562,203	)		(3,108,889	)		8,756,184
Non-operating income (expense), net		510,432			(2,236,930	)		(5,576,972	)		6,566,783
Income (Loss) before Income Taxes		(155,982	)		(2,530,741	)		(10,144,768	)		5,613,098
Income Tax Provision		-			-			-			-

Net Income (Loss)	$	(155,982	)	$	(2,530,741	)	$	(10,144,168	)	$	5,613,098

Basic and Diluted Income (Loss) per Common Share	$	(0.01	)	$	(0.13	)	$	(0.51	)	$	0.29

Weighted average common shares outstanding		19,999,985			19,969,341			19,987,347			19,417,447

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

Advanced Medical Isotope Corporation

Condensed Consolidated Statements of Cash Flow

(Unaudited)

	Nine months ended September 30,
	2016			2015
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss)	$	(10,144,768	)		5,613,098

Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation of fixed assets		2,213			3,595
Amortization of licenses and intangible assets		-			1,339
Amortization of convertible debt discount		379,290			563,458
Amortization of debt issuance costs		-			18,917
Common stock issued for interest		-			20,328
Preferred stock issued for loan fees		603,861			-
Preferred stock for services		357,403			-
Preferred stock for wages		64,982			-
Stock options and warrants issued for services		782,226			28,500
Warrants issued for services		1,069,353			-
(Gain) loss on derivative liability		3,108,889			(8,756,184	)
(Gain) loss on settlement of debt		1,877,959			(281,966	)
Penalties on notes payable		-			1,488,410
Changes in operating assets and liabilities:
Prepaid expenses		(4,240	)		(4,568	)
Accounts payable		25,239			48,108
Payroll liabilities		144,503			196,271
Accrued interest		87,265			383,868
Net cash used by operating activities		(1,645,825	)		(676,826	)

CASH FLOWS FROM INVESTING ACTIVITIES		-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease		-			(39,481	)
Debt issuance costs		-			(5,000	)
Proceeds from exercise of warrants		250			-
Proceeds from short term debt		-			168,000
Proceeds from officer related party debt		-			43,000
Payments on convertible debt		(10,000	)		(95,000	)
Proceeds from convertible debt		1,476,558			612,500
Net cash provided by financing activities		1,466,808			684,019

Net increase (decrease) in cash		(179,017	)		7,193
Cash, beginning of period		179,032			203

CASH, END OF PERIOD	$	15			7,396

Supplemental disclosures of cash flow information:
Cash paid for interest	$	-		$	9,920
Cash paid for income taxes	$	-		$	-

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

Advanced Medical Isotope Corporation

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated financial statements of the Company have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine months ended September 30, 2016, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2016.

Use of Estimates

The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

Fair Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2016 and December 31, 2015, 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 September 30, 2016:

	Total		Level 1		Level 2		Level 3
Liabilities
Derivative Liability		518,637						518,637
Total Liabilities Measured at Fair Value	$	518,637	$	-	$	-	$	518,637

Consolidation

Our financial statements consolidate all of our affiliates which consist of IsoPet Solutions, a wholly owned subsidiary which was established in May 2016. 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. As of September 30, 2016 there have been no revenues nor expenses incurred in the IsoPet Solutions subsidiary.

Recent Accounting Pronouncements

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

NOTE 2: GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. 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, As of September 30, 2016 the Company has certain convertible promissory notes totaling approximately $260,000 that are currently due and payable (“ Outstanding Notes ”. These notes were satisfied during November 2016. See Note 10: Subsequent Events.

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.

As of September 30, 2016, the Company has $15 cash on hand. There are currently commitments to vendors for products and services purchased, accrued compensation expenses and the Company’s current lease commitments that in the absence of additional capital would result in a liquidation of the Company. The current level of cash is not 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.

NOTE 3: FIXED ASSETS

Fixed assets consist of the following at September 30, 2016 and December 31, 2015:

	September 30, 2016			December 31, 2015
Production equipment	$	1,390,182		$	1,938,532
Building		-			446,772
Leasehold improvements		-			3,235
Office equipment		14,594			32,769
		1,404,776			2,421,308
Less accumulated depreciation		(1,402,569	)		(2,416,888	)
	$	2,207		$	4,420

Depreciation expense for the above fixed assets for the three months ended September 30, 2016 and 2015, respectively was $738 and $936 and for the nine months ended September 30, 2016 and 2015, respectively, was $2,212 and $3,595.

NOTE 4: INTANGIBLE ASSETS

Intangible assets consist of the following at September 30, 2016 and December 31, 2015:

	September 30, 2016		December 31, 2015
License Fee	$	-	$	112,500
Less accumulated amortization		-		(112,500	)

Patents and intellectual property		35,482		35,482
Intangible assets net of accumulated amortization	$	35,482	$	35,482

Amortization expense for the above intangible assets for the three months ended September 30, 2016 and 2015, respectively was $0 and $0 and for the nine months ended September 30, 2016 and 2015, respectively, was $0 and $1,339.

NOTE 5: RELATED PARTY TRANSACTIONS

Preferred Shares Issued to Officers

The Company received $35,000 from the CEO during the nine months ended September 30, 2016 in exchange for 8% Convertible Promissory Notes that were converted to 35,000 shares of Series A Preferred stock during the period ended September 30, 2016. Additionally, the Company issued a total of 2,800 shares of Series A Preferred stock as loan fees.

The Company issued 10,000 Series A Preferred shares to the CFO as a bonus during the nine months ended September 30, 2016.

Rent Expenses

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.

During the nine months ended September 30, 2016 the Company reached a Settlement Agreement regarding a dispute related to a previous rental agreement where,starting after July 31, 2012, the Company was renting production space for $11,904 per month on a month to month basis. This settlement resulted in a payment of $438,830 for rent, interest, and costs. The Company allocated $40,000 of this settlement towards rent expense for previous years.

Rental expense for the three months and nine months ended September 30, 2016 and 2015 consisted of the following and is recorded in general and administrative expense:

	Three months ended				Nine months ended
	September 30, 2016		September 30, 2015		September 30, 2016		September 30, 2015
Office and warehouse space	$	-	$	-	$	40,000	$	-

Corporate office		4,500		4,500		13,500		13,500
Total Rental Expense	$	4,500		4,500	$	53,500	$	13,500

NOTE 6: CONVERTIBLE NOTES PAYABLE

As of September 30, 2016 and December 31, 2015 the Company had the following convertible notes outstanding:

	September 30, 2016				December 31, 2015
	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), $110,813 and $165,000 outstanding, net of debt discount of $0 and $0, respectively	$	95,000		47,500	$	165,000		69,712	(1)
January 2014 $0 Convertible Note, 8% interest, due January 2015, $0 and $50,000 outstanding, net of debt discount of $0 and $0, respectively		-		-		50,000		7,682	(2)
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		6,280		10,990		5,457	(3)
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	(4)
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		-	(5)
March 2014 $50,000 Convertible Note, 10% interest, due March 2015, $36,961 and $36,961 outstanding, net of debt discount of $0 and $0, respectively		36,961		9,339		36,961		6,572	(6)
March 2014 $165,000 Convertible Note, 10% interest, due April 2015, with a $16,450 original issue discount, $0 and $61,301 outstanding, net of debt discount of $0 and $0, respectively		-		-		61,301		24,109	(7)
April 2014 $32,000 Convertible Note, 10% interest, due April 2015, $22,042 and $22,042 outstanding, net of debt discount of $0 and $0, respectively		22,042		4,684		22,042		3,034	(8)
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	(9)
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 paid May, 2016		-		-		25,000		1,836	(10)
June 2014 $28,800 Convertible Note, 10% interest due June 2015, $28,800 and $28,800 outstanding, net of debt discount of $0 and $0, respectively		28,800		2,880		28,800		2,880	(11)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $40,000 outstanding, net of debt discount of $0 and $0, respectively		40,000		9,045		40,000		6,049	(12)
June 2014 $40,000 Convertible Note, 10% interest, due June 2015, $38,689 and $38,689 outstanding, net of debt discount of $0 and $0, respectively		38,689		8,747		38,689		5,851	(13)
June 2014 $56,092 Convertible Note, 16% interest, due July 2015, with a $5,000 original issue discount, $0 and $56,092 outstanding, net of debt discount of $0 and $0, respectively		-		-		56,092		13,462	(14)
July 2014 $37,500 Convertible Note, 12% interest, due July 2015, $37,015 and $37,015 outstanding, net of debt discount of $0 and $0, respectively, settled August 26, 2016 for $13,750 payments due September 19, 2016, October 19, 2016, November 19, 2016, and December 19, 2016.		41,250		-		37,015		6,377	(15)
August 2014 $36,750 Convertible Note, 10% interest, due April 2015, $36,750 and $36,750 outstanding, net of debt discount of $0 and $0, respectively		36,750		8,289		36,750		5,538	(16)
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 $0, respectively, settled April 28, 2016 for 10,000 shares Series A preferred stock and two $10,000 payments paid on April 30, 2016 and July 1, 2016.		-		-		33,500		-	(17)
September 2014 $37,500 Convertible Note, 12% interest, due September 2015, with a $5,000 original issue discount, $0 and $36,263 outstanding, net of debt discount of $0 and $0, respectively		-		-		36,263		5,576	(18)
January through December, 2015 $615,000 Convertible Notes, 8% interest, due September 30, 2015 and October 6, 2015, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively		-		18,266		-		18,264	(19)
October through December 2015 $613,000 Convertible Notes, 8% interest, due June 30, 2016, $0 and $613,000 outstanding, net of debt discount of $0 and $560,913, respectively		-		16,502		52,087		2,519	(20)
January through March 2016 $345,000 Convertible Notes, 8% interest, due June 30, 2016, $0 and $0 outstanding, net of debt discount of $0 and $0, respectively		-		1,541		-		-	(21)
Penalties on notes past due		910,867				1,032,475		-
Total Convertible Notes Payable, Net	$	1,266,768	$	140,039	$	1,788,384	$	191,884

(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, 2015 the holders of the Convertible Debt instruments received a repayment of $5,000 and $0 of the outstanding principal and accrued interest balances. During the nine months ending September 30, 2016 the Company reached a settlement agreement with two holders of the Convertible Debt instruments. One was for the $50,000 debt plus the $22,055 interest, plus the 500,000 warrants, and with another for the $20,000 debt plus the $11,652 interest, plus the 250,000 warrants.

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. During the nine months ending September 30, 2016, total amortization was recorded in the amount of $0 and principal of $70,000 and accrued interest of $33,708 was repaid to the note holder. After repayments, conversions and amortization, principal totaled $95,000 and debt discount totaled $0 at September 30, 2016 and $165,000 and debt discount totaled $0 at December 31, 2015. During the nine months ending September 30, 2016 and the twelve months ending December 31, 2015 interest expense of $11,495 and $20,398, respectively, was recorded for the Convertible Debt Instruments. The $95,000 balance of the notes reached maturity during the year ended December 31, 2014 and are currently past due.

(2) 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, 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 $372 and $3,989 interest for the nine months ending September 30, 2016 and the twelve months ended December 31, 2015, respectively. During the nine months ending September 30, 2016 the Company reached a settlement agreement with the note holder for the $50,000 debt plus the $8,054 of accrued interest.

(3) 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. The Company accrued an additional $823 and $1,096 interest for the nine months ending September 30, 2016 and twelve months ended December 31, 2015, respectively. The balance of the note reached maturity during the year ended December 31, 2014 and is currently past due.

(4) 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 ending December 31, 2015, total principal of $46,080 and accrued interest of $3,358 was converted into shares of common stock (see Note 9: 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 $2,358 at September 30, 2016 and December 31, 2015.

(5) 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, 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. During the nine months ended September 30, 2016, the Company reached a settlement agreement for the remaining $20,000 cash payment.

(6) 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. After conversions and amortization, principal totaled $36,961 and debt discount totaled $0 for the periods ending September 30, 2016 and December 31, 2015. The Company accrued an additional $2,767 and $3,686 interest for the nine months ending September 30, 2016 and twelve months ended December 31, 2015, respectively. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(7) 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 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 Company accrued an additional $348 for the nine months ending September 30, 2016. During the nine months ending September 30, 2016 the Company reached a settlement agreement with the note holder for the $61,301 debt plus the $24,457 of accrued interest.

(8) 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. After conversions and amortization, principal totaled $22,042, debt discount totaled $0, and accumulated interest totaled $3,034 at December 31, 2015. The Company accrued an additional $1,650 and $2,198 interest for the nine months ending September 30, 2016 and twelve months ended December 31, 2015, respectively. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(9) 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. After conversions and amortization, principal totaled $5,419, debt discount totaled $0, and accumulated interest totaled $4,608 at September 30, 2016 and December 31, 2015. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(10) 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 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. The Company accrued an additional $1,205 and $1,836 interest for the nine months ending September 30, 2016 and twelve months ended December 31, 2015, respectively. During the nine months ended September 30, 2016, the Company reached a settlement agreement with the note holder for the remaining $25,000 convertible debenture plus $3,041 of accrued interest.

(11) 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. After conversions and amortization, principal totaled $28,800, debt discount totaled $0, and accumulated interest totaled $2,880 at September 30, 2016 and December 31, 2015. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(12) 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 ending December 31, 2015, total amortization was recorded in the amount of $19,398 and an additional $3,989 of interest was accrued. The Company accrued an additional $2,995 interest for the nine months ending September 30, 2016. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(13) 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 ending December 31, 2015, total amortization was recorded in the amount of $18,554 and an additional $3,858 of interest was accrued. The Company accrued an additional $2,896 interest for the nine months ending September 30, 2016. The balance of the note reached full maturity during the quarter ended June 30, 2015 and is currently past due.

(14) 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 ending December 31, 2015, total amortization was recorded in the amount of $27,816 and an additional $8,950 of interest was accrued. The Company accrued an additional $319 interest for the nine months ending September 30, 2016 and reached a settlement agreement with the note holder for the $56,092 note balance plus $13,781 of accrued interest.

(15) 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 ending December 31, 2015, total amortization was recorded in the amount of $20,737 and an additional $4,430 of interest was accrued. The Company accrued an additional $2,901 interest for the nine months ending September 30. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently past due.

(16) 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 ending December 31, 2015, total amortization was recorded in the amount of $22,755 and an additional $3,665 of interest was accrued. The Company accrued an additional $2,751 interest for the nine months ending September 30, 2016. The balance of the note reached full maturity during the quarter ended September 30, 2015 and is currently past due.

(17) 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 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 past due. During the nine months ending September 30, 2016 the Company reached a settlement agreement with the note holder for the $33,500 debt.

(18) 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 ending December 31, 2015, total amortization was recorded in the amount of $25,927 and an additional $4,341 of interest was accrued. The Company accrued an additional $333 interest for the nine months ending September 30, 2016 and reached a settlement agreement with the note holder for the $36,263 note balance plus $5,908 of accrued interest.

(19) The Company borrowed $615,000 during the twelve months ending December 31, 2015, due September and October 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 holders 48,200 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $615,000 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 $615,000 and accrued interest in the amount of $18,264 was recorded towards these notes. As of December 31, 2015 these notes were converted into 615,000 Series A Convertible Preferred Shares.

(20) 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 nine months ending September 30, 2016 and the twelve months ending December 31, 2015, total amortization was recorded in the amount of $613,000 and $52,087 and an additional $13,676 and $2,350 of interest was accrued, respectively. As of September 30, 2016 these notes were converted into 613,000 Series A Convertible Preferred Shares.

(21) The Company borrowed $345,000 January through March 2016, 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 29,200 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $345,000 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 nine months ending September 30, 2016 and the twelve months ending December 31, 2015, total amortization was recorded in the amount of $345,000 and $0 and an additional $1,541 and $0 of interest was accrued, respectively. As of September 30, 2016 these notes were converted into 345,000 Series A Convertible Preferred Shares.

As of September 30, 2016, certain convertible promissory notes described in this Note 6 not otherwise converted into common stock of the Company, totaling approximately $260,000, 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 $910,867 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 7: COMMON STOCK OPTIONS AND WARRANTS

Common Stock Options

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

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

						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, 2015		51,350		$	12.00-15.00		7.12 years	$	-	$	15.00

Options granted		2,370,000		$	0.50-1.00		-		-	$	.60

Options expired		(18,850	)	$	15.00		-		-	$	15.00

Balance at September 30, 2016		2,402,500		$	0.50-15.00		4.31 years		-	$	0.80

Exercisable at September 30, 2016		1,859,664		$	0.50-15.00		4.18 years	$	-	$	0.90

Common Stock Warrants

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, 2015		6,801,003		$	0.10-10.00		1.9 years	$	2,052,699	$	0.81

Warrants granted		200,000		$	$0.40-0.10		-		-	$	0.40
Warrants expired/cancelled		(3,454,831	)	$	0.011-6.00		-		-	$	.13

Balance at September 30, 2016		3,546,171		$	0.10-10.00		0.77 years	$	2,700	$	4.49

Exercisable at September 30, 2016		3,546,171		$	0.10-10.00		0.77 years	$	2,700	$	4.49

NOTE 8: STOCKHOLDERS’ EQUITY

Common Stock Issued for Cash and the Exercise of Options and Warrants

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 for the period ending December 31, 2015. During the nine months ended September 30, 2016, although the effective date was October 2015, the Company filed a Certificate of Amendment to perform a 1:100 reverse stock split which eliminated the shortage of sufficient authorized common shares.

In April 2016, the Company issued 30,644 shares of common stock for cashless warrants exercise.

Preferred Stock Issued for Cash and the Exercise of Warrants

In March 2016, the Company issued 50,000 restricted shares of its Series A preferred stock in exchange for the cancellation of the warrants attached to the convertible notes received in July 2012.

In June 2016, the Company issued 250,000 restricted shares of its Series A preferred stock, pursuant to a warrant exercise.

In August 2016, the Company issued 12,854 restricted shares of its Series A preferred stock in exchange for the cancellation of the warrants attached to the convertible notes received in July 2015.

In August and September 2016, the Company issued 46,666 shares of Series A preferred stock in exchange for $70,000 cash.

Preferred Stock Issued for Loan Fees on Convertible Debt

During the nine months ending September 30, 2016 the Company issued 47,840 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $623,000.

During the nine months ending September 30, 2016 the Company issued 35,106 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $438,828 to a major shareholder and Director of the Company.

During the nine months ending September 30, 2016 the Company issued 2,800 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $35,000 to the CEO of the Company.

During the nine months ending September 30, 2016 the Company issued 30,000 shares of its Series A preferred stock as finder’s fees.

Preferred Stock Issued for Debt Converted

During the nine months ending September 30, 2016 the Company issued 654,791 Series A preferred stock in exchange for $1,636,779 of convertible debt received from a major shareholder and Director of the Company.

During the nine months ending September 30, 2016 the Company issued 1,223,000 Series A preferred stock in exchange for $1,296,000 of convertible debt.

During the nine months ending September 30, 2016 the Company issued 35,000 Series A preferred stock in exchange for $35,000 of convertible debt, to the CEO of the Company.

Preferred Stock Issued for Debt Settled

During the nine months ending September 30, 2016 the Company issued 185,600 Series A preferred stock in exchange for $184,762 of convertible debt, plus $50,711 of accrued interest.

Preferred Stock Issued for Services and Wages

During the nine months ending September 30, 2016 the Company issued 68,000 Series A preferred stock in exchange for $357,403 of services and $64,982 of wages.

During the nine months ending September 30, 2016 the Company issued 10,000 Series A preferred stock to the CFO of the Company.

NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION

During the nine months ending September 30, 2016 the Company issued 250,000 shares of its Series A preferred stock in exchange for $250 as a warrant exercise.

During the nine months ending September 30, 2016 the Company issued 30,000 shares of its Series A preferred stock as a finders fee at a value of $162,456.

During the nine months ending September 30, 2016 the Company issued 47,840 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $623,000.

During the nine months ending September 30, 2016 the Company issued 35,106 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $438,827 from a major shareholder and Director of the Company.

During the nine months ending September 30, 2016 the Company issued 2,800 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $35,000 from the CEO of the Company.

During the nine months ending September 30, 2016 the Company issued 185,600 Series A preferred stock in settlement for $184,762 of convertible debt, plus $50,711 of accrued interest.

During the nine months ending September 30, 2016 the Company issued 35,000 Series A preferred stock in exchange for $35,000 of convertible debt, to the CEO of the Company.

During the nine months ending September 30, 2016 the Company issued 1,203,000 Series A preferred stock in exchange for $1,256,000 of convertible debt, plus $13,962 of accrued interest, plus surrender of outstanding warrants.

NOTE 10: SUBSEQUENT EVENTS

The Company filed in September 2016 a Certificate of Amendment to perform a 1:100 reverse stock split with an effective date in October 2016. The Company has reflected to results of this reverse split in these financial statements for both the nine months ended September 30, 2016 and December 31, 2015.

During October 2016, the Company issued 150,000 restricted Series A Preferred Shares pursuant to a nine month advisory agreement for advise on an appropriate investor outreach program and introduction to potential investors and/or business partners and corporate advisory to facilitate a potential uplisting of the Company’s common stock to a qualified exchange.

During October 2016, the Company received $29,500 in shareholder loans.

During November 2016, the Company issued $812,500 in 10% convertible notes with $162,500 in original issue discounts and $6,000 in closing fees for net proceeds of $644,000. $377,332 was received at the initial closing with two tranches from four of the investors for an aggregate of $133,334 per tranche to be received over the next two months. In a subsequent closing in November 2016, the Company issued $310,000 in 10% convertible notes with $60,000 in original issue discounts for net proceeds of $250,000. The proceeds consisted of $161,203 of net cash, $77,533 previously funded shareholder advances, and accrued interest of $11,264 applied towards the purchase. In connection with the issuance of the 10% Convertible Notes, the Company issued 341,280 of Series A preferred stock as loan fees. A portion of these proceeds totaling $361,500 were used to pay off past due notes of $260,901, plus $48,398 accrued interest and eliminate $910,866 of penalties that had been accrued as of September 30, 2016. In addition to the cash payments paid to satisfy these past due notes, the Company issued 563,523 shares of common stock and 52,000 of Series A preferred stock as additional consideration to satisfy a portion of these obligations.

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

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

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

Funded by a $250,000 Life Sciences grant, AMI is the commercial partner with Washington State University for treating cats with feline sarcoma. In October 2016 the first companion animal (a person’s pet) was injected with IsoPet. At last report, there no adverse effects, and the center of the tumor is successfully showing necrosis. A second cat is scheduled to be injected in December 2016.

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”.

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.

2016 Significant Events

On July 11, 2016, the Company announced that it has partnered with Versant Medical Physics and Radiation Safety company to provide dosimetry expertise to support development of the Company’s brachytherapy devices. Versant, a provider of comprehensive medical physics consulting services, will provide AMI with expert scientific and technical support on dosimetry, which is the calculation and assessment of the radiation dose received by the human body, for AMI’s medical devices. This formal relationship between AMI and Versant provides AMI access to experts in medical physics and dosimetry, including Versant physicist Dr. Darrell Fisher. The relationship with Versant provides a formal manner for Dr. Fisher to engage with AMI in a more meaningful and impactful way. Dr. Fisher has previously provided AMI with key input on product development including regulatory and commercialization issues and holds seven patents, including patents licensed by AMI for its brachytherapy products. Dr. Fisher is known internationally for his expertise in the dosimetry and effects of radioactive materials, including medically administered radiopharmaceuticals for diagnostic and therapeutic benefit. Dr. Fisher is a recent president of the Health Physics Society, an international organization of professionals engaged in the science and practice of radiation safety. He also serves on the Medical Internal Radiation Dose Committee of the Society of Nuclear Medicine and Molecular Imaging, which develops standard methods for radiopharmaceutical dosimetry. Dr. Fisher previously served on the U.S. Nuclear Regulatory Commission’s Advisory Committee on the Medical Uses of Isotopes. He recently completed a 35-year career at the Pacific Northwest National Laboratory (PNNL).

On July 19, 2016 the Company provided an update on its intellectual property including trademark expansion in international markets. AMI has a robust patent portfolio that includes exclusive rights under patents that cover medical isotope applications, processing and manufacturing. AMI is currently in negotiations with two organizations to enhance its patent portfolio related to its brachytherapy products. AMI continues to aggressively pursue trademark and patent protection for its brachytherapy products in anticipation of international product introduction. The Company has trademarked its leading cancer treatment under the RadioGel(TM) device trademark across the globe. The mark recently received registration in Hong Kong and Singapore. The mark has been allowed in the United States, and is registered under WIPO (World International Property Organization) in Australia, Japan, New Zealand, the Republic of Korea and the European Community (28 countries). It is also registered in the non-WIPO countries of Malaysia, Taiwan and Thailand and is pending in China and Indonesia. The RadioGel(TM) device trademark registration includes multiple product classes in many of these countries.

On October 6, 2016 the Company announced that the first household pet, a cat, has been treated for feline sarcoma with the Company’s pet version of the Y-90 RadioGel(TM) device. Following the initial treatment, the cat is scheduled to undergo seven follow-up appointments over a two year period. The study outcome data will be reported to AMI periodically. Funding for this study was provided by a grant from the Washington State Life Sciences Discovery Fund where AMI is the commercialization partner.

On November 10, 2016 the Company announced the repayment of matured Convertible Notes and the resolution of all disputes and lawsuits related to these notes.

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.

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.

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 September 30, 2016, the Company had four 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.

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 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.

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.

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-Q report is not incorporated by reference into this Form 10-Q report, unless (and only to the extent) expressly so stated herein.

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

Results of Operations

Comparison of the Three Months Ended September 30, 2016 and 2015

The following table sets forth information from our statements of operations for the three months ended September 30, 2016 and 2015.

	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015
Revenues	$	-		$	12,054
Operating expenses		666,414			305,865
Operating loss		(666,414	)		(293,811	)
Non-operating income (expense):
Gain (loss) on derivative liability		762,151			(562,203	)
Net gain (loss) on settlement of debt		(111,328	)		144,290
Loss on sale of stock		(54,561	)		-
Interest expense		(85,830	)		(1,819,017	)
Net income (loss)	$	(155,982	)	$	(2,530,741	)

Revenue

Revenue was $0 for the three months ended September 30, 2016 and $12,054 for the three months ended September 30, 2015. The decrease was a result of a decrease in consulting revenues due to a reduction in consulting services provided. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting.

Operating Expenses

Operating expenses for the three months ended September 30, 2016 and 2015 was $666,414 and $305,865, respectively. The increase in operating expenses from 2015 to 2016 can be attributed to the increase in Professional Fees expenses ($73,864 for the three months ended September 30, 2015 versus $265,497 for the three months ended September 30, 2016); an increase in Sales and Marketing expenses from 2015 to 2016 ($0 for the three months ended September 30, 2015 versus $65,995 for the three months ended September 30, 2016); an increase in stock options granted from 2015 to 2016 ($0 for the three months ended September 30, 2015 versus $27,427 for the three months ended September 30, 2016); and the increase in General and Administrative Expenses ($52,411 for the three months ended September 30, 2015 versus $146,257 for the three months ended September 30, 2016).

The increase in Professional Fees was due to the Company executing an agreement for $200,000 with an entity to provide advisory services. The increase in Marketing Expense was due to the Company executing an agreement for $20,000 per month with an entity to provide investor relation services. The increase in General and Administrative Expense was due to an increase in research expense ($102,691 for the three months ended September 30, 2016 versus $25,820 for the three months ended September 30, 2015). The increase in research expense was due to the additional research efforts brought on with the Company’s partnership with IsoTherapeutics Group plus the agreement with Versant Medical Physics and Radiation Safety to provide scientific and technical support to assist with new product development.

Operating expenses for the three months ended September 30, 2016 and 2015 consists of the following:

	Three months ended September 30, 2016		Three months ended September 30, 2015
Cost of materials	$	-	$	-
Depreciation and amortization expense		738		936
Professional fees		265,497		73,864
Stock options granted		27,427		-
Payroll expenses		160,500		178,654
General and administrative expenses		146,257		52,411
Sales and marketing expense		65,995		-
	$	666,414	$	305,865

Non-Operating Income (Expense)

Non-operating income (expense) for the three months ended September 30, 2016 varied from the three months ended September 30, 2015 due to decrease in interest expense from $1,818,017 to $85,830 for the three months ended September 30, 2015 and 2016, respectively. This decrease was due to the Company’s reduction in overall debt as well as debt discounts. Loss on settlement of debt increased from a $144,290 gain to a $111,328 loss for the three months ended September 30, 2015 and 2016, respectively. Gain on derivative liability increased from $562,203 loss to $762,151 gain for the three months ended September 30, 2015 and 2016, respectively. This gain was as a result of the decrease in convertible debt.

Non-Operating income (expense) for the three months ended September 30, 2016 and 2015 consists of the following:

	Three months ended September 30, 2016			Three months ended September 30, 2015
Interest expense	$	(85,830	)	$	(1,818,017	)
Net gain (loss) on settlement of debt		(111,328	)		144,290
Loss on sale of stock		(54,561	)		-
Gain (loss) on derivative liability		762,151			(562,203	)
	$	510,432		$	(2,236,930	)

Net Loss

Our net loss for the three months ended September 30, 2016 and 2015 was $155,982 and $2,530,741 respectively.

Comparison of the Nine Months Ended September 30, 2016 and 2015

The following table sets forth information from our statements of operations for the nine months ended September 30, 2016 and 2015.

	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Revenues	$	8,108		$	24,108

Operating expenses		4,575,904			977,763

Operating loss		(4,567,796	)		(953,685	)
Non-operating income (expense)
Interest expense		(535,563	)		(2,471,367	)
Net gain (loss) on settlement of debt		(1,877,959	)		281,966
Loss on sale of stock		(54,561	)		-
Gain (loss) on derivative liability		(3,108,889	)		8,756,184
Net Income (Loss)	$	(10,144,768	)	$	5,613,098

Revenue

Revenue was $8,108 for the nine months ended September 30, 2016, compared to $24,108 for the nine months ended September 30, 2015, a period over period decrease of $16,000. The decrease was a result of a loss of consulting revenue, currently our only source of revenue, during the first nine months of the fiscal year. Consulting revenue consists of providing clients with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting. Consulting services are currently our only source of revenue and is expected to generate less than $50,000 per year.

Operating Expense

Operating expenses for the nine months ended September 30, 2016 and 2015 was $4,575,904 and $977,763, respectively. The increase in operating expenses from 2015 to 2016 can be attributed to the increase in Professional Fees expenses ($245,164 for the nine months ended September 30, 2015 versus $1,968,084 for the nine months ended September 30, 2016); an increase in Sales and Marketing expenses from 2015 to 2016 ($0 for the nine months ended September 30, 2015 versus $213,539 for the nine months ended September 30, 2016); an increase in stock options granted from 2015 to 2016 ($28,500 for the nine months ended September 30, 2015 versus $612,343 for the nine months ended September 30, 2016); and the increase in General and Administrative Expenses ($160,254 for the nine months ended September 30, 2015 versus $1,287,649 for the nine months ended September 30, 2016).

Professional fees increased due to the exercise of previously issued warrants to purchase 250,000 shares of Series A Convertible Preferred Stock that were exercised in the quarter ended September 30, 2016. These warrants were issued pursuant to an advisory agreement related to the negotiation and implementation of comprehensive restructuring plan. The Company incurred a $1,069,353 non-cash expense related to the warrant exercise. In addition, the Company entered into an advisory agreement with a retainer of $200,000 and, which payment has been deferred and the future issuance of RSU’s to assist the Company in formulating and implementing its operating plan. In addition the Company incurred $216,608 expense from the issuance of stock and options to Directors, Officers, Employees, and Consultants. In addition, the Company’s legal fees increased from $63,007 to $235,285 for the nine months ended September 30, 2015 and 2016, respectively. This increase was due to the Company defending itself from lawsuits brought on by convertible notes in default and the dispute with BancLease and Washington Trust Bank regarding application of lease payments to the principal loan amount for the linear accelerator.

The increase in Marketing Expense was due to the Company executing an agreement for $20,000 per month with an entity to provide investor relation services as well as an overall increase in marketing and sales efforts.

The main contributors to the increase in General and Administrative Expenses was an increase in Loan Fees ($603,861 for the nine months ended September 30, 2016 versus $13,917 for the nine months ended September 30, 2015); Repairs and Maintenance ($226,655 for the nine months ended September 30, 2016 versus $5,979 for the nine months ended September 30, 2015); and an increase in Research Expense ($309,539 for the nine months ended September 30, 2016 versus $40,029 for the nine months ended September 30, 2015).

The increase in loan fees were due to the agreement to provide a percentage of loan proceeds as Series A Preferred shares. The increase in repairs and maintenance was due to the cost of moving the liner accelerator. The increase in research expense was due to the additional research efforts brought on with the Company’s partnership with IsoTherapeutics Group plus the agreement with Versant Medical Physics and Radiation Safety to provide scientific and technical support to assist with new product development.

Operating expenses for the nine months ended September 30, 2016 and 2015 consists of the following:

	Nine months ended September 30, 2016		Nine months ended September 30, 2015
Cost of materials	$	-	$	475
Depreciation and amortization expense		2,212		4,934
Professional fees		1,968,084		245,164
Stock options granted		612,343		28,500
Payroll expenses		492,077		538,466
General and administrative expenses		1,287,649		160,254
Sales and marketing expense		213,539		-
	$	4,575,904	$	977,793

Non-Operating Income (Expense)

The Company had non-operating income of $6,566,783 during the nine months ended September 30, 2015, as compared to non-operating expense of $(5,576,972) during the nine months ended September 30, 2016. As shown below, this decrease in non-operating income is primarily due to a loss on derivative liability of $3,108,889 for the nine months ended September 30, 2016, as compared to a gain of $8,756,184 during the same period in 2015. The $3,108,889 loss on derivative liability is due to an increase in the Company’s stock price from January 2, 2015 ($0.0008) to September 30, 2016 ($0.0017) and an increase in preferred shares value which is also used to value derivatives. The Company’s stock price is used in the Black Scholes calculations to compute the derivative liability at the end of the quarter. Additionally, the Company experienced a decrease in non-operating income due to a loss on settlement of debt of $1,877,959 for the nine months ended September 30, 2016, as compared to a gain on settlement of debt of $281,966 for the nine months ended September 30, 2015. This increase in debt settlement costs was due to the successful negotiations in settling many of the debt that had been in default. The Company experienced a $54,561 loss on sale of stock for the nine months ended September 30, 2016. This loss on sale of stock derived from the sale of 46,666 Series A Preferred shares for $70,000. The value of the Company’s Series A Preferred stock, because it is not openly traded, was derived at utilizing Financial Accounting Standards Board Accounting Standards Codification topic 718 which determined a value of $5.4152 and $3.8294 we used each for 10,000 shares and 36,666 shares, respectively. The decrease in non-operating income was partially offset by a decrease in interest expense ($535,563 and $2,471,367 for the nine months ended September 30, 2016 and 2015, respectively). The decrease in interest expense was due to the Company’s reduction in overall debt as well as debt discounts.

Non-Operating income (expense) for the nine months ended September 30, 2016 and 2015 consists of the following:

	Nine months ended September 30, 2016			Nine months ended September 30, 2015
Interest expense	$	(535,563	)	$	(2,471,367	)
Net gain (loss) on settlement of debt		(1,877,959	)		281,966
Loss on sale of stock		(54,561	)		-
Gain (loss) on derivative liability		(3,108,889	)		8,756,184
	$	(5,476,972	)	$	6,566,783

Net Income (Loss)

Our net income (loss) for the nine months ended September 30, 2016 and 2015 was $(10,144,168) and $5,613,098, respectively, due primarily to the increase of operating expenses of $4,575,904 and $977,763 for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015, respectively; plus an increase of $12,143,755 in non-operating loss of $(5,576,972 for the nine months ended September 30, 2016, compared to a non-operating gain of $6,566,783 for the nine months ended September 30, 2015.

Liquidity and Capital Resources

At September 30, 2016, the Company had negative working capital of $4,126,519, as compared to $9,755,129 at September 30, 2015. During the nine months ended September 30, 2016 the Company experienced negative cash flow from operations of $1,645,825 and it expended $0 for investing activities while adding $1,466,808 of cash flows from financing activities. As of September 30, 2016, the Company had $0 commitments for capital expenditures.

Cash used in operating activities increased from $676,826 for the nine month period ending September 30, 2015 to $1,645,825 for the nine month period ending September 30, 2016. Cash used in operating activities was primarily a result of the Company’s net loss, partially offset by non-cash items, such as loss on derivative liability and amortization and depreciation, included in that net loss and preferred and common stock issued for services and other expenses. The Company had no cash used in investing activities for the nine month periods ended September 30, 2016 and 2015. Cash provided from financing activities increased from $684,019 for the nine month period ending September 30, 2015 to $1,466,808 for the nine month period ending September 30, 2016. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt.

The Company has generated material operating losses since inception. The Company had a net loss of $10,144,168 for the nine months ended September 30, 2016, and net income of $5,613,098 for the nine months ended September 30, 2015. 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.

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

The recent economic events, including the inherent instability and volatility in global capital markets, as well as the lack of liquidity in the capital markets, could impact 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.

Legal Contingencies

There Company has 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. On November 18, 2016 the Company is scheduled to appear in court on a motion for summary judgement to award the Company approximately $540,000, including attorney fees of approximately $40,000. 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 were disputes related to approximately $260,901 principle value of past due notes as of September 30, 2016. On November 10, 2016 the Company announced that it has successfully repaid these notes. The repayment of these notes resolved all disputes and lawsuits related to these notes.

Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. During the period ended September 30, 2016, we believe there have been no significant changes to the items disclosed as significant accounting policies in management’s notes to the consolidated financial statements in our annual report on Form 10-K for the year ended December 31, 2015, filed on May 25, 2016 (Amendment was filed on May 26, 2016).

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

Based on an evaluation as of the date of the end of the period covered by this report, the Company’s Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as required by Exchange Act Rule 13a-15. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, because of the disclosed material weaknesses in the Company’s internal control over financial reporting, the Company’s disclosure controls and procedures were ineffective as of the end of the period covered by this report to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter (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.

PART II

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

During the nine months ending September 30, 2016 the Company issued 46,666 shares of its Series A preferred stock in exchange for $70,000 cash.

During the nine months ending September 30, 2016 the Company issued 30,000 shares of its Series A preferred stock as a finder’s fee.

During the nine months ending September 30, 2016 the Company issued 250,000 shares of its Series A preferred stock in exchange for $250 as a warrant exercise.

During the nine months ending September 30, 2016 the Company issued 47,840 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $633,000.

During the nine months ending September 30, 2016 the Company issued 35,496 shares of its Series A preferred stock as loan fees on convertible promissory notes totaling $438,827 from a major shareholder and Director of the Company.

During the nine months ending September 30, 2016 the Company issued 1,408,600 Series A preferred stock in settlement for $1,467,262 of convertible debt, plus $25,614 of accrued interest plus surrender of outstanding warrants.

During the nine months ending September 30, 2016 the Company issued 35,000 Series A preferred stock in exchange for $35,000 of convertible debt, to the CEO of the Company.

During the nine months ending September 30, 2016 the Company issued 654,791 Series A preferred stock in exchange for $1,636,780 of convertible debt to a major shareholder and Director of the Company.

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

Item 6. Exhibits.

Exhibit
Number		Description
10.1		Form of Convertible Promissory Note November 2, 2016
10.2		Form of Securities Purchase Agreement November 2, 2016
31.1	*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2	*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1	*	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

SIGNATURES

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

	ADVANCED MEDICAL ISOTOPE CORPORATION

Date: November 21, 2016	By:	/s/ James C. Katzaroff
	Name:	James C. Katzaroff
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)

Date: November 21, 2016	By:	/s/ L. Bruce Jolliff
	Name:	L. Bruce Jolliff
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)

Exhibit 10.1

NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Principal Amount: $__________	Issue Date: November _, 2016
Purchase Price: $_________
Original Issue Discount: $__________

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED , ADVANCED MEDICAL ISOTOPE CORP. , a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ______________ , a _________________, or registered assigns (the “Holder”) the principal sum of up to $_________ (the “Principal Amount”), together with interest at the rate of ten percent (10%) per annum (with the initial 6 months of interest being guaranteed upon the Issue Date), at maturity or upon acceleration or otherwise, as set forth herein (the “Note”). The consideration to the Borrower for this Note is $________ (the “Consideration”). The maturity date shall be six (6) months from the Issue Date (the “Maturity Date”), and is the date upon which the principal sum, as well as any accrued and unpaid interest and other fees, shall be due and payable. The Maturity Date shall be extended to seven (7) months from the Issue Date in the event that the Borrower pays a penalty equal to 5% of the total outstanding principal and accrued interest under the Note (as calculated on the date that Borrower pays such penalty) (the “First Extension Payment”) to Holder, provided that such payment shall be made prior to the six month anniversary of the Issue Date. The Maturity Date shall be extended to eight (8) months from the Issue Date in the event that the Borrower pays the First Extension Payment within the allocated timeframe and an additional penalty equal to 5% of the total outstanding principal and accrued interest under the Note (as calculated on the date that Borrower pays such penalty) to Holder, provided that such payment shall be made prior to the seven month anniversary of the Issue Date. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid by the Maturity Date, shall bear interest at the rate of eighteen percent (18%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Notwithstanding anything herein to the contrary, in the event the Company has not filed a registration statement on Form S-1 for the primary sale of the Company’s common stock by the four (4) month anniversary of the closing of the Note, the Company shall not have the ability to extend the maturity date of the Note as provided herein and the Note will automatically be deemed in default on the six (6) month anniversary of the closing of the Note.

This Note carries a prorated original issue discount of $________ (the “OID”), to cover Holder’s accounting fees, due diligence fees, monitoring, and/or other non-legal transactional costs incurred in connection with the purchase and sale of the Note, which is included in the principal balance of this Note. Thus, the purchase price of this Note shall be $________, computed as follows: the Principal Amount less the OID.

This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

The following additional terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.1 Conversion Right . The Holder shall have the right at any time to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

1.2 Conversion Price .

(a) Calculation of Conversion Price . The Conversion Price shall equal$ 0.20 per share, provided, however, that immediately upon the occurrence of an Event of Default under the Note, the Conversion Price shall automatically equal the Variable Conversion Price (as defined herein) (subject, in each case, to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events)(also subject to adjustment as further described herein). The “Variable Conversion Price” shall mean the lesser of (i) $0.20 or (ii) 60% multiplied by the Market Price (as defined herein). “Market Price” means the lowest one (1) Trading Prices (as defined below) for the Common Stock during the thirty (30) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. “Trading Prices” means, for any security as of any date, the lowest VWAP of the Common Stock on the Over-the-Counter Pink Marketplace, or applicable trading market (the “OTC PINK”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTC PINK is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that are quoted on the OTC Markets. If the Trading Prices cannot be calculated for such security on such date in the manner provided above, the Trading Prices shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Prices are required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC PINK, or on the principal securities exchange or other securities market on which the Common Stock is then being traded. Upon the first occurrence of an Event of Default under this Note, the 60% multipliers contained in the Variable Conversion Price calculation shall be automatically adjusted to 45% (resulting in a discount of 55%).

Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3rd party has the right to convert monies owed to that 3rd party (or receive shares pursuant to a settlement or otherwise) at a discount to market greater than the Variable Conversion Price in effect at that time (prior to all other applicable adjustments in the Note), then the Variable Conversion Price shall be automatically adjusted to such greater discount percentage (prior to all applicable adjustments in this Note) until this Note is no longer outstanding. Each time, while this Note is outstanding, the Borrower enters into a Section 3(a)(9) transaction (including but not limited to the issuance of new promissory notes or of a replacement promissory note), or Section 3(a)(10) transaction, in which any 3rd party has a look back period greater than the look back period in effect under the Note at that time (currently a thirty (30) Trading Day look back period as described in this Section 1.2(a) applies), then the Holder’s look back period shall automatically be adjusted to such greater number of days until this Note is no longer outstanding. The Borrower shall give written notice to the Holder, with the adjusted Variable Conversion Price and/or adjusted look back period (each adjustment that is applicable due to the triggering event), within one (1) business day of an event that requires any adjustment described in the two immediately preceding sentences.

1.3 Authorized Shares . The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

1.4 Method of Conversion .

(a) Mechanics of Conversion . Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

(b) Surrender of Note Upon Conversion . Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(c) Payment of Taxes . The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.

(d) Delivery of Common Stock Upon Conversion . Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within two (2) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof.

(e) Obligation of Borrower to Deliver Common Stock . Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

(f) Delivery of Common Stock by Electronic Transfer . In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

(g) Failure to Deliver Common Stock Prior to Deadline . Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

1.5 Concerning the Shares . The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6 Trading Market Limitations . Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares currently outstanding, subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

1.7 Status as Shareholder . Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.

ARTICLE II. CERTAIN COVENANTS

2.1 Distributions on Capital Stock . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent

(a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.

2.2 Restriction on Stock Repurchases . So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.

ARTICLE III. EVENTS OF DEFAULT

If any of the following events of default (each, an “Event of Default”) shall occur:

3.1 Failure to Pay Principal or Interest . The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, and such breach continues for a period of five (5) days.

3.2 Conversion and the Shares . The Borrower fails to reserve a sufficient amount of shares of common stock as required under the terms of this Note (including Section 1.3 of this Note)(and such breach continues for a period of five (5) days), fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within five (5) business days of a demand from the Holder, either in cash or as an addition to the balance of the Note, and such choice of payment method is at the discretion of the Borrower.

3.3 Breach of Covenants . The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

3.4 Breach of Representations and Warranties . Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith, shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note.

3.5 Receiver or Trustee . The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.

3.6 Judgments . Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $150,000, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

3.7 Bankruptcy . Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

3.8 Delisting of Common Stock . The Borrower shall fail to maintain the listing or quotation of the Common Stock on the OTC PINK or an equivalent replacement exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the New York Stock Exchange, or the NYSE MKT.

3.9 Failure to Comply with the Exchange Act . The Borrower shall fail to comply with the reporting requirements of the Exchange Act, and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

3.10 Liquidation . Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.

3.11 Cessation of Operations . Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.

3.12 Financial Statement Restatement . The Borrower replaces its auditor, or any restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note.

3.13 Reverse Splits . The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

3.14 Replacement of Transfer Agent . In the event that the Borrower replaces its transfer agent, and the Borrower fails to provide prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.

3.15 Cross-Default . Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the other equity or debt securities of the Borrower, including but not limited to all convertible promissory notes, currently issued, or hereafter issued, by the Borrower, to the Holder or any other 3rd party (the “Other Agreements”), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled to apply all rights and remedies of the Holder under the terms of this Note by reason of a default under said Other Agreement or hereunder.

3.16 Inside Information . Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.

3.17 No bid . At any time while this Note is outstanding, the lowest Trading Prices on the OTC PINK or other applicable principal trading market for the Common Stock is equal to or less than $0.0001.

3.18 Failure to prepay upon Qualified Financing . If the Borrower fails to immediately prepay this Note in its entirety within three (3) business days of the Borrower’s closing of any financing of $1,500,000 or more.

3.19 Failure to timely file an S-1 registration statement for the primary sale of Company common stock . If the Borrower fails to file a S-1 registration statement for the primary sale of the Company’s common stock by the four (4) month anniversary of the closing of the Note.

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note or upon acceleration), 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3,10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, and/or 3.18 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% multiplied by the then outstanding entire balance of the Note (including principal and accrued and unpaid interest) plus Default Interest, if any, plus any amounts owed to the Holder pursuant to Sections 1.4(g) hereof (collectively, in the aggregate of all of the above, the “Default Sum”), and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect, subject to issuance in tranches due to the beneficial ownership limitations contained in this Note.

ARTICLE IV. MISCELLANEOUS

4.1 Failure or Indulgence Not Waiver . No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

4.2 Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, facsimile, or electronic mail addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery, upon electronic mail delivery, or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Borrower, to:

ADVANCED MEDICAL ISOTOPE CORP.

1021 N. Kellogg Street Kennewick, WA 99336

e-mail: AMICinvestor@isotopeworld.com

If to the Holder:

INSERT NAME

4.3 Amendments . This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

4.4 Assignability . This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

4.5 Cost of Collection . If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.

4.6 Governing Law . This Note shall be governed by and construed in accordance with the laws of the State of California without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state and/or federal courts of New York, NY. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

4.7 Certain Amounts . Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.

4.8 Remedies . The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

4.9 Prepayment . Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay any amount outstanding under this Note, on or before the Maturity Date of this Note, by making a payment to the Holder of an amount in cash equal to 125% multiplied the amount that the Borrower is prepaying. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay any amount outstanding under this Note, after the Maturity Date of this Note, by making a payment to the Holder of an amount in cash equal to 140% multiplied the amount that the Borrower is prepaying. In order to prepay this Note, the Borrower shall provide notice to the Holder five (5) business days prior to such respective prepayment date, and the Holder must receive such prepayment on or before the 10th business day after the Holder’s receipt of the respective prepayment notice (the “Prepayment Period”). The Holder may convert the Note in whole or in part at any time during the Prepayment Period. If the Borrower fails to pay the applicable prepayment amount within any applicable Prepayment Period, then it shall automatically be deemed an Event of Default under Sections 3.3 and 3.4 of this Note.

4.10 Section 3(a)(10) Transactions . If at any time while this Note is outstanding, the Borrower enters into a transaction structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”), then a liquidated damages charge of 25% of the outstanding principal balance of this Note at that time, will be assessed and will become immediately due and payable to the Holder, either in the form of cash payment or as an addition to the balance of the Note, as determined by mutual agreement of the Borrower and Holder.

4.11 Intentionally Omitted .

4.12 Right of First Refusal . If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3rd party, that the Borrower intends to act upon, then the Borrower must first offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3rd party’s terms. Should the Holder be unwilling or unable to provide such capital or financing to the Borrower within 10 trading days from Holder’s receipt of written notice of the offer (the “Offer Notice”) from the Borrower, then the Borrower may obtain such capital or financing from that respective 3rd party upon the exact same terms and conditions offered by the Borrower to the Holder, which transaction must be completed within 30 days after the date of the Offer Notice. If the Borrower does not receive the capital or financing from the respective 3rd party within 30 days after the date of the respective Offer Notice, then the Borrower must again offer the capital or financing opportunity to the Holder as described above, and the process detailed above shall be repeated. The Offer Notice must be sent via electronic email to:

4.13 Trading Limitation . Unless an Event of Default occurs under the Note, from the Issue Date and until the one year anniversary after the Issue Date, the Holder shall only be permitted to sell, per Trading Day, up to the greater of (i) $1,000 or (ii) 6% multiplied by the Aggregate Amount (as defined below) of the Common Stock. The Aggregate Amount shall mean the total number shares of common stock of the Borrower traded during the respective Trading Day multiplied by the highest traded price for the Common Stock during the respective Trading Day.

4.14 Purchase Price Consideration upon Public Offering or Private Placement . The Holder may, in its sole discretion, elect to apply all, or any portion, of the outstanding principal and accrued interest due under this Note, as purchase consideration in any future public offering or private placement of equity securities of the Borrower (each a “Future Transaction”). The dollar amount of purchasing power in such private placement or public offering shall be equal to the portion of the outstanding principal and accrued interest that Holder elects to apply multiplied by 1.25. The Borrower shall give written notice to Holder as soon as practicable, but in no event less than fifteen (15) days before the anticipated closing date of such Future Transaction.

[Signature page to follow]

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this November __, 2016.

ADVANCED MEDICAL ISOTOPE CORP.

By:
Name:	James C. Katzaroff
Title:	Chief Executive Officer

EXHIBIT A — NOTICE OF CONVERSION

The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of ADVANCED MEDICAL ISOTOPE CORP., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of November 2, 2016 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

	[ ]	The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

		Name of DTC Prime Broker: Account Number:

	[ ]	The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto

		INSERT INVESTOR NAME

	Date of Conversion:
	Applicable Conversion Price:	$
	Number of Shares of Common Stock to be Issued
	Pursuant to Conversion of the Notes:
	Amount of Principal Balance Due remaining
	Under the Note after this conversion:

By:
Name:
Title:
Date:

Exhibit 10.2

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of November __, 2016, by and between ADVANCED MEDICAL ISOTOPE CORP. , a Delaware corporation, with headquarters located at 1021 N. Kellogg Street, Kennewick, WA 99336 (the “Company”), and ___________ , a _______________, with its address ___________________________ (the “Buyer”).

WHEREAS :

A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);

B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement a 10% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of US$_______ (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.

C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and

NOW THEREFORE , the Company and the Buyer severally (and not jointly) hereby agree as follows:

1. PURCHASE AND SALE OF NOTE.

a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto, subject to the express terms of the Note.

b. Form of Payment. On the Closing Date, the Buyer shall pay the purchase price for the Note, which is equal to $_________ (the “Purchase Price”) by wire transfer of immediately available funds, or in accordance with the Company’s written instructions, against delivery of the Note, and (i) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer. The Company shall issue to the Buyer on the Closing Date, as a commitment fee, __________ (__) shares of Series A convertible preferred shares of the Company (the “Commitment Shares”) (convertible into __________ shares of the Company’s common stock).

c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 5:00 P.M., Eastern Standard Time on or about November __, 2016, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.

2. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants to the Company that:

a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note or (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.

b. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.

c. Information . The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company’s representations and warranties made herein.

d. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

e. Transfer or Re-sale. The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

f. Legends . The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

g. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.

h. Residency . The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company represents and warrants to the Buyer that:

a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.

b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.

c. Capitalization . Except as disclosed in the SEC Documents, no shares are reserved for issuance pursuant to the Company’s stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note) exercisable for, or convertible into or exchangeable for shares of Common Stock and sufficient shares are reserved for issuance upon conversion of the Note (as required by the Note and transfer agent share reserve letter). All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in the SEC Documents, as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares. The Company has filed in its SEC Documents true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.

d. Issuance of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.

e. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.

f. No Conflicts. The execution, delivery and performance of this Agreement, the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Over-the- Counter Bulletin Board (the “OTCBB”), the OTCQB or any similar quotation system, and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB, the OTCQB or any similar quotation system, in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

g. SEC Documents; Financial Statements. The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The Company has delivered to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. For the avoidance of doubt, filing of the documents required in this Section 3(g) via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) shall satisfy all delivery requirements of this Section 3(g).

h. Absence of Certain Changes. There have been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.

i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.

j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); Except as disclosed in the SEC Documents, there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.

k. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.

l. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.

m. Certain Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.

n. Disclosure . All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).

o. Acknowledgment Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.

p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.

q. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.

r. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.

s. Environmental Matters.

(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.

(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.

(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.

t. Title to Property. Except as disclosed in the SEC Documents the Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.

u. Internal Accounting Controls. Except as disclosed in the SEC Documents the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

v. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

w. Solvency . The Company (after giving effect to the transactions contemplated by this Agreement) is solvent ( i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year. For the avoidance of doubt any disclosure of the Borrower’s ability to continue as a “going concern” shall not, by itself, be a violation of this Section 3(w).

x. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.

y. Insurance . Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage, if any.

z. Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.

4. COVENANTS .

a. Best Efforts . The parties shall use their commercially reasonable best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.

b. Use of Proceeds. The Company shall use the proceeds from the sale of the Note for working capital and other general corporate purposes and shall not, directly or indirectly, use such proceeds for any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with its currently existing direct or indirect Subsidiaries).

c. Financial Information. The Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities:

(i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders. For the avoidance of doubt, filing the documents required in (i) above via EDGAR or releasing any documents set forth in (ii) above via a recognized wire service shall satisfy the delivery requirements of this Section 4(f).

d. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB, OTCQB, OTC Pink or any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the NYSE MKT and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any material notices it receives from the OTCBB, OTCQB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.

e. Corporate Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTCBB, OTCQB, OTC Pink, Nasdaq, NasdaqSmallCap, NYSE or AMEX.

f. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.

g. Failure to Comply with the 1934 Act. So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.

h. Trading Activities. Neither the Buyer nor its affiliates has an open short position (or other hedging or similar transactions) in the common stock of the Company and the Buyer agree that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

i. Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an event of default under Section 3.3 of the Note.

5. Transfer Agent Instructions. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Buyer, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.

6. CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS TO SELL. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:

a. The Buyer shall have executed this Agreement and delivered the same to the Company.

b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.

c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.

d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.

7. CONDITIONS PRECEDENT TO THE BUYER’S OBLIGATION TO PURCHASE . The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:

a. The Company shall have executed this Agreement and delivered the

same to the Buyer.

b. The Company shall have delivered to the Buyer duly executed Note (in such denominations as the Buyer shall request) in accordance with Section 1(b) above.

c. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.

e. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.

f. The Conversion Shares shall have been authorized for quotation on the OTCBB, OTCQB or any similar quotation system and trading in the Common Stock on the OTCBB, OTCQB or any similar quotation system shall not have been suspended by the SEC or the OTCBB, OTCQB or any similar quotation system.

g. The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.

8. GOVERNING LAW; MISCELLANEOUS.

a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state or federal courts of San Diego County, California. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens . The Company and Buyer waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

c. Headings . The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.

d. Severability . In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.

e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.

f. Notices . All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:

If to the Company, to:

ADVANCED MEDICAL ISOTOPE CORP.

1021 N. Kellogg Street Kennewick, WA 99336

E-mail: AMICinvestor@isotopeworld.com

If to the Holder, to:

INSERT INVESTOR NAME

Each party shall provide notice to the other party of any change in address.

g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.

h. Third Party Beneficiaries . This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.

j. Further Assurances . Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

k. No Strict Construction . The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

l. Remedies .

(i) The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.

(ii) In addition to any other remedy provided herein or in any document executed in connection herewith, Borrower shall pay Holder for all costs, fees and expenses in connection with any litigation, contest, dispute, suit or any other action to enforce any rights of Holder against Borrower in connection herewith, including, but not limited to, costs and expenses and attorneys’ fees, and costs and time charges of counsel to Holder. In furtherance of the foregoing, Borrower shall pay an amount equal to $55,000 to the Holder immediately upon the Holder’s filing of any litigation, contest, dispute, suit or any other action to enforce any rights of Holder against Borrower in connection herewith, which such amount shall be used to pay Holder’s attorneys’ fees, cost and expenses. Additional amounts shall be paid by Borrower to Holder immediately upon Borrower’s receipt of invoices from Holder’s attorney evidencing the charges and fees assessed in connection with any such litigation, contest, dispute, suit or any other action to enforce any rights of Holder and, upon receiving such invoices which indicate outstanding fees in excess of $20,000 at any time, Borrower shall promptly pay an additional $55,000 to Holder to be used in satisfaction of additional attorneys’ fees, and costs and time charges of counsel to Holder. Such payments shall continue indefinitely until said litigation, contest, dispute, suit or any other action to enforce any rights of Holder against Borrower is settled to the satisfaction of the Holder. Further, Borrower agrees to save and hold Holder harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such costs and expenses.

m. Publicity . The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCQB (or other applicable trading market), or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided , however , that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, OTCQB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof).

[ - signature page follows - ]

IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

ADVANCED MEDICAL ISOTOPE CORP.

By:
Name:	James C. Katzaroff
Title:	Chief Executive Officer

By:
Name:
Title:

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Principal Amount of Note:	US$________

Aggregate Purchase Price:	US$________

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 quarterly report on Form 10-Q 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

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: November 21, 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 quarterly report on Form 10-Q 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

	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: November 21, 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 quarterly report of Advanced Medical Isotope Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2016 (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: November 21, 2016

By:	/s/ James C. Katzaroff
Name:	James C. Katzaroff
Title:	Chief Executive Officer

By:	/s/ L. Bruce Jolliff
Name:	L. Bruce Jolliff
Title:	Chief Financial Officer