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ADMD > SEC Filings for ADMD > Form 10-K on 23-Mar-2012All Recent SEC Filings

Show all filings for ADVANCED MEDICAL ISOTOPE CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-K for ADVANCED MEDICAL ISOTOPE CORP


23-Mar-2012

Annual Report


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of the risk factors set forth above in Item 1A and other factors discussed in this Form 10-K report.

Results of Operations

Comparison for the Year Ended December 31, 2011 and December 31, 2010

The following table sets forth information from our statements of operations for
the years ended December 31, 2011 and 2010.

                                                 Year Ended        Year Ended
                                                December 31,      December 31,
                                                    2011              2010
      Revenues                                  $     393,603     $     360,613

      Operating expenses                            2,955,472         4,085,952

      Operating loss                               (2,561,869 )      (3,725,339 )

      Non-operating income (expenses)
        Loss on sale of assets                        (25,000 )         (10,000 )
        Net gain (loss) on settlement of debt               -            27,500
        Recognized income from grants                 245,727           512,466
        Interest income                                     -               599
        Interest expense                             (408,474 )        (860,252 )
      Net income (loss)                          $ (2,749,616 )    $ (4,055,026 )

Revenue

Revenue was $393,603 for the year ended December 31, 2011 and $360,613 for the year ended December 31, 2010. The increase was the result of consulting revenues. In July 2008 we established our linear accelerator production center and began the production and marketing of F-18 in August 2008. F-18 sales accounted for $193,720 of the total twelve months ended December 31, 2011 revenues and $221,220 of the total twelve months ended December 31, 2010 revenues. Revenues for F-18 were lower in the twelve months ended December 31, 2011 as a result of a reduction in price to our sole customer effective April 2010 and a decrease in the quantity of F-18 sold during the twelve months ended December 31, 2011 (662 doses) versus the twelve months ended December 31, 2010 (745 doses). Stable isotope sales were $20,700 and $0 for the twelve months ended December 31, 2011 and 2010 respectively. The Company discontinued the sale of stable isotopes in the twelve months ended December 31, 2010 due to the reduction in profitability of that line of product. Consulting revenues consisted of $179,114 and $139,393 of the total twelve months ended December 31, 2011 and 2010 revenues. Consulting revenues consist of providing a company with assistance in strategic targetry services, and research into production of radiophamaceuticals and the operations of radioisotope production facilities.

Revenue for the twelve months ended December 31, 2011 and 2010 consists of the following:

                                Twelve months ended       Twelve months ended
                                 December 31, 2011         December 31, 2010
              F-18             $             193,720     $             221,220
          Stable isotopes                     20,700                         -
          Consulting                         179,114                   139,393
                               $             393,603     $             360,613


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Cost of Goods Sold

Effective with the Statement of Operations for the year ended December 31, 2011, the Company changed its method of reflecting the Cost of Goods Sold. The Company has moved the Cost of Goods Sold into Operating Expenses versus reflecting it as a reduction to Revenues with the resulting Gross Profit. The change has been made to be in accordance with FASB ASC 225-10-S99, SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales. The Statement of Operations for the year ended December 31, 2010 was changed from the way it was originally reflected to correspond with the changes made for the year ended December 31, 2011.

Operating Expenses

Operating expenses for the twelve months ended December 31, 2011 and 2010 were $2,955,472 and $4,085,952 respectively. The decrease in operating expenses from 2010 to 2011 can be attributed largely to professional fees ($1,492,883 for the twelve months ended December 31, 2010 versus $906,417 for the twelve months ended December 31, 2011), impairment expense ($150,000 for the twelve months ended December 31, 2010 versus $0 for the twelve months ended December 31, 2011), and stock options granted ($400,535 for the twelve months ended December 31, 2010 versus $63,602 for the twelve months ended December 31, 2011) partially offset by a increase in sales and marketing expenses ($29,072 for the twelve months ended December 31, 2010 versus $58,880 for the twelve months ended December 31, 2011).

Operating expenses for the twelve months ended December 31, 2011 and 2010 consists of the following:

                                                    Twelve months ended       Twelve months ended
                                                     December 31, 2011         December 31, 2010
Cost of goods sold                                 $              64,042     $              70,130
Depreciation and amortization expense                            546,388                   545,192
Impairment expense                                                     -                   150,000
Professional fees                                                906,417                 1,492,883
Stock options granted                                             63,602                   400,535
Payroll expenses                                                 751,488                   853,641
General and administrative expenses                              564,656                   544,499
Sales and marketing expense                                       58,880                    29,072
                                                   $           2,955,472     $           4,085,952

Non-Operating Income (Expense)

Non-operating income (expense) for the twelve months ended December 31, 2011
varied from the twelve months ended December 31, 2010 primarily due to a
reduction of interest expense from $860,252 in 2010 versus a $408,474 in 2011
and $512,466 of recognized income from grants in 2010 versus $245,727 in 2011.

Non-Operating income (expense) for the twelve months ended December 31, 2011 and
2010 consists of the following:

                                            Twelve months ended        Twelve months ended
                                             December 31, 2011          December 31, 2010
Interest expense                           $            (408,474 )    $            (860,252 )
Loss on sale of assets                                   (25,000 )                  (10,000 )
Net gain (loss) on settlement of debt                          -                     27,500
Recognized income from grants                            245,727                    512,466
Interest income                                                -                        599
                                           $            (187,747 )    $            (329,687 )


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Income from Grants

On October 28, 2010, the Company received $1,215,000 net proceeds from the 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." This grant reimburses the Company for anticipated expenditures related to the development of its Brachytherapy project over the period April 1, 2010 through March 31, 2012. The Company projects this project could cost approximately $5,500,000; however, the Company recognizes the costs could be as high as $8,000,000 before it gets to production.

Additionally, 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. The $244,479 grant was received February 4, 2011. This grant reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 allowable expenditures available for this grant, and so the $244,479 has been recorded as a receivable as of December 31, 2010.

On October 29, 2010, the Company received notification it had been awarded $244,479 grant funds from the Qualified Therapeutic Discovery Project Program for the Molybdenum Project. On December 3, 2010, the Company received $205,129 and the remaining $39,350 of the grant was received February 4, 2011. The $205,129 grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009. And the $39,350 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2010, up to the maximum $488,958 for the years 2009 and 2010 allowable expenditures available for this grant. The $39,350 has been recorded as a receivable as of December 31, 2010.

The Company has chosen to recognize the grant money received as income as it incurs costs associated with those grants, and until such time as it recognizes the grant as income those funds received will be classified as Deferred Income on the balance sheet. For the twelve months ended December 31, 2010 the Company recognized $23,508 of the $1,215,000 Department of Energy grant as income with the remaining $1,191,492 recorded as deferred income as of December 31, 2010. The $23,508 recognized as of December 31, 2010 was for costs incurred for the twelve months ended December 31, 2010. For the twelve months ended December 31, 2011 the Company recognized $245,727 of the $1,215,000 Department of Energy grant as income with the remaining $945,765 recorded as deferred income as of December 31, 2011. The $245,727 recognized as of December 31, 2011 was for costs incurred for the twelve months ended December 31, 2011.

The Company fully recognized the $244,479 grant money received on both the Molybdenum tax grant and the Brachytherapy tax grant as income in the twelve months ended December 31, 2010.

As of December 31, 2011 and 2010 the grant money received and grant money recognized as income and deferred income is:

                                      $1,215,000           $244,479            $244,479
                                    Brachytherapy         Molybdenum         Brachytherapy
                                        Grant               Grant                Grant              Total
Grant money received during 2010   $      1,215,000     $      205,129     $               -     $ 1,420,129
Grant money recorded as account
receivable                                        -             39,350               244,479         283,829
Total grant money                         1,215,000            244,479               244,479       1,703,958
Recognized income from grants in
2010                                         23,508            244,479               244,479         512,466
Deferred income at December 31,
2010                                      1,191,492                  -                     -       1,191,492
Recognized income from grants in
2011                                        245,727                  -                     -         245,727
Deferred income at December 31,
2011                               $        945,765     $            -     $               -     $   945,765

Net Loss

Our net loss for the twelve months ended December 31, 2011 and 2010 was $2,749,616, and $4,055,026, respectively, as a result of the items described above.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Liquidity and Capital Resources

At December 31, 2011, we had negative working capital of $5,840,107, as compared to $4,439,799 at December 31, 2010. During the twelve months ended December 31, 2011 we experienced negative cash flow from operations of $858,844 and we expended $97,421 for investing activities while adding $419,432 of cash flows from financing activities. As of December 31, 2011, we had $0 commitments for capital expenditures.

Cash used in operating activities decreased from $634,319 for the twelve month period ending December 31, 2010 to $858,844 for the twelve month period ending December 31, 2011. Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses. Cash used in investing activities increased from $24,377 for the twelve month period ended December 31, 2010 to $97,421 for the twelve month period ended December 31, 2011. Cash was used to acquire equipment and patents during the 2011 and 2010 twelve month periods. This purchase of equipment and patents in 2010 was largely offset by the $125,000 received from the sale of a cyclotron. Cash provided from financing activities decreased from $1,210,524 for the twelve month period ending December 31, 2010 to $419,432 for the twelve month period ending December 31, 2011. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt along with payments on convertible debt, and a decrease in cash sales of common stock. The decrease in cash provided from financing activities was partially offset by an increase in proceeds from the exercise of options and warrants.

We have generated material operating losses since inception. We have incurred a net loss of $21,194,406 from January 1, 2006 through December 31, 2011, including a net loss of $4,055,026 for the twelve months ended December 31, 2010, and a net loss of $2,749,616 for the twelve months ended December 31, 2011. We expect to continue to experience net operating losses. Historically, we have relied upon investor funds to maintain our operations and develop our business. We anticipate raising additional capital within the next twelve months from investors for working capital as well as business expansion, although we can provide no assurance that additional investor funds will be available on terms acceptable to us. If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.

We have modified our growth and operating plans as a result of our continuing losses. The going concern disclosure in Note 1 to our audited financial statements for the years ended December 31, 2010 anticipated that we would need $1 million in funds over the next twelve months to maintain current operation activities, and for the years ended December 31, 2011 anticipated that we would need $1.5 million in funds over the next twelve months to maintain current operation activities. As a result of changes and additions to our business plans, our current cash run rate is approximately $1.5 million.

Based on the current cash run rate, approximately $1,500,000 will be needed to fund operations for an additional year. As disclosed in the risk factors, we are presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. We will need to raise an additional $15,000,000 in the next year to develop an infrastructure for Brachytherapy production and distribution as well as to initiate a Molybdenum 99 production facility. However, we may choose to further modify our growth and operating plans to the extent of available funding, if any.

The recent economic events, including the substantial decline in global capital markets, as well as the lack of liquidity in the capital markets, could impact our ability to obtain financing and our ability to execute our business plan. Although market conditions have deteriorated, we believe healthcare institutions will continue to purchase the medical solutions that we distribute. Having only modest sales since our inception, we are unable to determine the effect of the recent economic crises on our sales.


ITEM 7.              MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Contractual Obligations (payments due by period as of December 31, 2011)

                                             Less
     Contractual            Total            than                                        More than
     Obligation          Payments Due       1 Year        1-3 Years      3-5 Years        5 Years
Capital Lease
Obligation               $  1,031,813     $ 1,031,813     $        -     $        -     $        -
Production Center
Lease                    $     33,332     $    33,332     $        -     $        -     $        -
License Agreement
with Regents of the
University of                                                                                60,000
California               $    505,000     $    85,000     $  180,000     $  180,000     $ per year
License Agreement
with Battelle                                                                                25,000
Memorial Institute       $     75,000     $     2,500     $   22,500     $  25,000      $ per year

The capital lease obligations represent two lease agreements for $1,875,000 and $631,000, secured by equipment and personal guarantee of two of our major stockholders, which we obtained during September 2007. The purpose of the lease agreements was to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $631,000.

We were in default on the capital lease obligation as of December 31, 2008 due to failure to maintain the minimum debt service coverage ratio identified in the Lease by an amount of $35,000 as per notice from the debtor. We believed at the time of the issuance of the December 31, 2008 financial statements that we had remedied the default which existed at year end. Accordingly we recorded a current and long term portion of the capital leases. Subsequent to the issuance of the December 31, 2008 financial statements, we determined that more likely than not that the Company is in default of the terms of the capital leases. Accordingly we recorded the entire value of the leases as a current obligation. The Company was in default on the capital lease obligation as of December 31, 2009 due to failure to maintain the minimum debt service ratio identified in the lease. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2010 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2010. We are in default on a covenant in the capital lease obligations as of December 31, 2011 due to failure to maintain the minimum debt service ratio required by the leases. Accordingly we recorded the entire value of the leases as a current obligation for the year ended December 31, 2011.

We began renting office and warehouse space effective August 1, 2007, located in Kennewick, Washington from a non-affiliated stockholder. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011. During the year ended December 31, 2011 and 2010 the Company incurred rent expenses for this facility totaling $54,869 and $50,622, respectively. In addition, the lease agreement calls for the issuance of $187,500 in common stock valued at $0.40 per share for a total of 416,667 shares. The Company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease. For the twelve months ended December 31, 2011 and 2010, the Company amortized $37,500 and $37,500, respectively, of this stock issuance and recognized it as rent expense.

Future minimum rental payments required under the Company's current rental agreement in excess of one year as of December 31, 2011, are as follows:

                Twelve months ended December 31, 2012     $ 33,332
                Twelve months ended December 31, 2013            -
                Twelve months ended December 31, 2014            -
                Twelve months ended December 31, 2015            -
                Total                                     $ 33,332

Additionally, in June 2008, the Company entered into two twelve month leases for its corporate offices with three four month options to renew, but in no event will the lease extend beyond December 31, 2010. The lease agreement calls for monthly rental payments of $2,733 and $2,328 per month for two separate office areas. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month. During the twelve months ended December 31, 2011 and 2010 the Company incurred rent expenses for this facility totaling $32,700 and $32,800, respectively.

There are no future minimum rental payments required under this rental agreement because it expired as of December 31, 2010 and subsequent to that date the Company is renting this space on a month to month basis.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

Use of Estimates

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

Changes in Accounting and Financial Disclosures

Effective with the Statement of Operations for the year ended December 31, 2011, the Company changed its method of reflecting the Cost of Goods Sold. The Company has moved the Cost of Goods Sold into Operating Expenses versus reflecting it as a reduction to Revenues with the resulting Gross Profit. The change has been made to be in accordance with FASB ASC 225-10-S99, SAB Topic 11.B, Depreciation and Depletion Excluded from Cost of Sales. The Statement of Operations for the year ended December 31, 2010 was changed from the way it was originally reflected to correspond with the changes made for the year ended December 31, 2011.

Cash Equivalents

For the purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management's judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2011, the Company has experienced no bad debt write offs from operations.

Inventory

Inventory is reported at the lower of cost or market, determined using the first-in, first-out basis, or net realizable value. All inventories consist of Finished Goods. The company had no Raw Materials or Work in Process.


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. - continued

Fixed Assets

Fixed assets are carried at the lower of cost or net realizable value. Production equipment with a cost of $2,500 or greater and other fixed assets with a cost of $1,500 or greater are capitalized. Major betterments that extend the useful lives of assets are also capitalized. Normal maintenance and repairs are charged to expense as incurred. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in operations.

Depreciation is computed using the straight-line method over the following estimated useful lives:

Production equipment 3 to 7 years

Office equipment 2 to 5 years

Furniture and fixtures 2 to 5 years

Leasehold improvements and capital lease assets are amortized over the shorter of the life of the lease or the estimated life of the asset.

Management of the Company reviews the net carrying value of all of its equipment on an asset by asset basis whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. These reviews consider the net realizable value of each asset, as measured in accordance with the preceding paragraph, to determine whether impairment in value has occurred, and the need for any asset impairment write-down.

The types of events and circumstances that management believes could indicate impairment are as follows:

A significant decrease in the market price of a live-lived asset.

A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator.

An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset.

A current period operating or cash flow loss combined with a history of . . .

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