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ADMD > SEC Filings for ADMD > Form 10-K on 29-Mar-2013All 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


29-Mar-2013

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, 2012 and December 31, 2011

The following table sets forth information from our statements of operations for
the years ended December 31, 2012 and 2011.

                                             Year Ended        Year Ended
                                            December 31,      December 31,
                                                2012              2011
          Revenues                          $     247,968     $     393,603

          Operating expenses                    6,118,661         2,955,472

          Operating loss                       (5,870,693 )      (2,561,869 )

          Non-operating income (expenses)      (2,715,571 )        (187,747 )

          Net income (loss)                 $  (8,586,264 )   $  (2,749,616 )

Revenue

Revenue was $247,968 for the year ended December 31, 2012 and $393,603 for the year ended December 31, 2011. The decrease was the result of the decrease in 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 $241,860 of the total twelve months ended December 31, 2012 revenues and $193,720 of the total twelve months ended December 31, 2011 revenues. Revenues for F-18 were higher in the twelve months ended December 31, 2012 as a result of adding a second hospital in April 2012 for F-18 and the increase in F-18 sold during the twelve months ended December 31, 2012 (851 doses) versus the twelve months ended December 31, 2011 (662 doses). Stable isotope sales were $0 and $20,700 for the twelve months ended December 31, 2012 and 2011 respectively. The Company discontinued the sale of stable isotopes in the twelve months ended December 31, 2012 due to the reduction in profitability of that line of product. Consulting revenues consisted of $6,108 and $179,114 of the total twelve months ended December 31, 2012 and 2011 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, 2012 and 2011 consists of the following:

                                Twelve months ended       Twelve months ended
                                 December 31, 2012         December 31, 2011
         F-18                  $             241,860     $             193,720
         Stable isotopes                           -                    20,700
         Consulting                            6,108                   179,114
                               $             247,968     $             393,603


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.

Operating Expenses

Operating expenses for the twelve months ended December 31, 2012 and 2011 were $6,118,661 and $2,955,472 respectively. The increase in operating expenses from 2011 to 2012 can be attributed largely to professional fees ($2,058,273 for the twelve months ended December 31, 2012 versus $906,417 for the twelve months ended December 31, 2011), general and administrative expenses ($1,118,927 for the twelve months ended December 31, 2012 versus $564,655 for the twelve months ended December 31, 2011), and stock options granted ($1,638,523 for the twelve months ended December 31, 2012 versus $63,602 for the twelve months ended December 31, 2011) partially offset by a decrease in sales and marketing expenses ($18,309 for the twelve months ended December 31, 2012 versus $58,880 for the twelve months ended December 31, 2011) and depreciation and amortization expense ($483,200 for the twelve months ended December 31, 2012 versus $546,388 for the twelve months ended December 31, 2011.).

Operating expenses for the twelve months ended December 31, 2012 and 2011 consists of the following:

                                                      Twelve months
                                                          ended
                                                      December 31,        Twelve months ended
                                                          2012             December 31, 2011
Cost of materials                                    $        72,820     $              64,042
Depreciation and amortization expense                        483,200                   546,388
Impairment expense                                                 -                         -
Professional fees                                          2,058,273                   906,417
Stock options granted                                      1,638,523                    63,602
Payroll expenses                                             728,609                   751,488
General and administrative expenses                        1,118,927                   564,656
Sales and marketing expense                                   18,309                    58,880
                                                     $     6,118,661     $           2,955,472

Non-Operating Income (Expense)

Non-operating income (expense) for the twelve months ended December 31, 2012 varied from the twelve months ended December 31, 2011 primarily due to an increase of interest expense from $408,474 in 2011 versus $1,102,137 in 2012 and $680,234 of recognized income from grants in 2012 versus $245,727 in 2011 and $2,228,538 of loss on derivative liability in 2012 versus $0 in 2011.

Non-Operating income (expense) for the twelve months ended December 31, 2012 and 2011 consists of the following:

                                                      Twelve months
                                                          ended
                                                      December 31,         Twelve months ended
                                                          2012              December 31, 2011
Interest expense                                     $    (1,102,137 )    $            (408,474 )
Loss on sale of assets                                             -                    (25,000 )
Loss on impairment of assets                                 (16,661 )                        -
Net gain (loss) on settlement of debt                        (48,469 )                        -
Recognized income from grants                                680,234                    245,727
Loss on derivative liability                              (2,228,538 )                        -
                                                     $    (2,715,571 )    $            (187,747 )


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 since April 1, 2010. 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. For the twelve months ended December 31, 2012 the Company recognized $680,234 of the $1,215,000 Department of Energy grant as income with the remaining $265,531 recorded as deferred income as of December 31, 2012. The $680,234 recognized as of December 31, 2012 was for costs incurred for the twelve months ended December 31, 2012.

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, 2012 and 2011 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                  -                     -         946,765
Recognized income from grants in
2012                                        680,234                  -                     -         680,234
Deferred income at December 31,
2012                               $        265,531     $            -     $               -     $   265,531

Net Loss

Our net loss for the twelve months ended December 31, 2012 and 2011 was $8,586,264 and $2,749,616, 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, 2012, we had negative working capital of $10,704,593, as compared to $5,236,107 at December 31, 2011. During the twelve months ended December 31, 2012 we experienced negative cash flow from operations of $1,799,243 and we expended $92,162 for investing activities while adding $1,845,259 of cash flows from financing activities. As of December 31, 2012, we had $0 commitments for capital expenditures.

Cash used in operating activities increased from $858,844 for the twelve month period ending December 31, 2011 to $1,799,243 for the twelve month period ending December 31, 2012. Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as loss on derivative liability and 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 decreased from $97,421 for the twelve month period ended December 31, 2011 to $92,162 for the twelve month period ended December 31, 2012. Cash was used to acquire equipment and patents during the 2012 and 2011 twelve month periods. Cash provided from financing activities increased from $419,432 for the twelve month period ending December 31, 2011 to $1,845,259 for the twelve month period ending December 31, 2012. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt along with payments on convertible debt, and a decrease in proceeds from the exercise of options and warrants.

We have generated material operating losses since inception. We have incurred a net loss of $29,780,670 from January 1, 2006 through December 31, 2012, including a net loss of $8,586,264 for the twelve months ended December 31, 2012, 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, 2012)

                                  Total           Less
                                Payments          than                                      More than
   Contractual Obligation          Due           1 Year        1-3 Years       3-5 Years     5 Years
Capital Lease Obligation       $   631,270     $  346,270     $   285,000     $         -   $       -
Production Center Lease        $         -     $        -     $         -     $         -   $       -
License Agreement with
Regents                                                                                         60,000
of the University of                                                                               per
California                     $   505,000     $   85,000     $   180,000     $   180,000   $    year
                                                                                                25,000
License Agreement with                                                                             per
Battelle Memorial Institute    $    75,000     $    2,500     $    22,500     $   25,000    $    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 were 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 in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date. The reason the Company was able to come into compliance with the minimum debt service coverage ratio stipulated in the loan covenants was due to the additional convertible debt raised during the year ended December 31, 2012.

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 and continue through the month ended July 31, 2012. Subsequent to July 31, 2012, the Company is renting this space on a month to month basis at $11,904 per month. During the year ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $88,087 and $54,869, 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, 2012 and 2011 the Company amortized $21,875 and $37,500, respectively, of this stock issuance and recognized it as rent expense.

There are no future minimum rental payments required under this rental agreement because it expired as of July 31, 2012 and subsequent to that date the Company is renting this space on a month to month basis.

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. Subsequent to December 31, 2010 the Company is renting this space on a month to month basis. These lease agreements 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 years ended December 31, 2012 and 2011 the Company incurred rent expenses for this facility totaling $33,217 and $32,700, 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.

We were 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 in our audited December 31, 2011 financial statements. However, the Company was in compliance with the minimum debt service coverage ratio stipulated in the loan covenants at December 31, 2012 and accordingly recognized current and long term portions of the lease on its balance sheet at December 31, 2012 and reclassified the December 31, 2011 capital lease obligations to current and long term portions as of that date.

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, 2012, 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 . . .

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