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ADMD > SEC Filings for ADMD > Form 10-K on 31-Mar-2014All Recent SEC Filings

Show all filings for ADVANCED MEDICAL ISOTOPE CORP

Form 10-K for ADVANCED MEDICAL ISOTOPE CORP


31-Mar-2014

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

Results of Operations

Comparison for the Year Ended December 31, 2013 and December 31, 2012

The following table sets forth information from the Company's statements of
operations for the years ended December 31, 2013 and 2012.

                                             Year Ended        Year Ended
                                            December 31,      December 31,
                                                2013              2012
          Revenues                          $     140,603     $     247,968

          Operating expenses                    3,720,221         6,118,661

          Operating loss                       (3,579,618 )      (5,870,693 )

          Non-operating income (expenses)         108,805        (2,715,571 )

          Net income (loss)                 $  (3,470,813 )   $  (8,586,264 )

Revenue

Revenue was $140,603 for the year ended December 31, 2013 and $247,968 for the year ended December 31, 2012. The decrease was the result of the decrease in F-18 revenues. In July 2008 the Company established its linear accelerator production center and began the production and marketing of F-18 in August 2008. F-18 sales accounted for $21,750 of the total twelve months ended December 31, 2013 revenues and $241,860 of the total twelve months ended December 31, 2012 revenues. Revenues for F-18 were lower in the twelve months ended December 31, 2013 as a result of the Company's linear accelerator being down and having no production for several months; thereby decreasing the number of doses sold for the twelve months ended December 31, 2013 (72 doses) versus the twelve months ended December 31, 2012 (851 doses). Stable isotope sales were $101,745 and $0 for the twelve months ended December 31, 2013 and 2012 respectively. The Company had 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 $17,108 and $6,108 of the total twelve months ended December 31, 2013 and 2012 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, 2013 and 2012 consists of the following:

                               Twelve months ended       Twelve months ended
                                December 31, 2013         December 31, 2012
          F-18                $              21,750     $             241,860
          Stable isotopes                   101,745                         -
          Consulting                         17,108                     6,108
                              $             140,603     $             247,968


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

Operating Expenses

Operating expenses for the twelve months ended December 31, 2013 and 2012 were $3,720,221 and $6,118,661 respectively. The decrease in operating expenses from 2012 to 2013 can be attributed largely to professional fees ($2,058,273 for the twelve months ended December 31, 2012 versus $730,824 for the twelve months ended December 31, 2013), stock options granted ($1,638,523 for the twelve months ended December 31, 2012 versus $634,255 for the twelve months ended December 31, 2013) and depreciation and amortization expense ($483,200 for the twelve months ended December 31, 2012 versus $208,632 for the twelve months ended December 31, 2013) and sales and marketing expenses ($18,309 for the twelve months ended December 31, 2012 versus $9,912 for the twelve months ended December 31, 2013), partially offset by a increase in general and administrative expenses ($1,118,927 for the twelve months ended December 31, 2012 versus $1,218,760 for the twelve months ended December 31, 2013), and in payroll expenses ($728,609 for the twelve months ended December 31, 2012 versus $812,507 for the twelve months ended December 31, 2013).

Operating expenses for the twelve months ended December 31, 2013 and 2012 consists of the following:

                                           Twelve months
                                               ended
                                            December 31,       Twelve months ended
                                                2013            December 31, 2012
   Cost of materials                       $      105,331     $              72,820
   Depreciation and amortization expense          208,632                   483,200
   Professional fees                              730,824                 2,058,273
   Stock options granted                          634,255                 1,638,523
   Payroll expenses                               812,507                   728,609
   General and administrative expenses          1,218,760                 1,118,927
   Sales and marketing expense                      9,912                    18,309
                                           $    3,720,221     $           6,118,661

Non-Operating Income (Expense)

Non-operating income (expense) for the twelve months ended December 31, 2013 varied from the twelve months ended December 31, 2012 primarily due to an increase of interest expense from $1,102,137 in 2012 versus $1,600,761 in 2013, an increase in loss on impairment of assets from $16,661 in 2012 versus $332,709 in 2013, an increase in loss on settlement of debt from $48,469 in 2012 versus $97,816 in 2013, and a decrease of recognized income from grants $265,531 in 2013 versus $680,234 in 2012 and a $1,874,560 of gain on derivative liability in 2013 versus a $2,228,538 loss on derivative liability in 2012.

Non-Operating income (expense) for the twelve months ended December 31, 2013 and 2012 consists of the following:

                                             Twelve months       Twelve months
                                                 ended               ended
                                              December 31,        December 31,
                                                  2013                2012
     Interest expense                        $   (1,600,761 )    $   (1,102,137 )
     Loss on impairment of assets                  (332,709 )           (16,661 )
     Net gain (loss) on settlement of debt          (97,816 )           (48,469 )
     Recognized income from grants                  265,531             680,234
     Loss on derivative liability                 1,874,560          (2,228,538 )
                                             $      108,805      $   (2,715,571 )


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. For the twelve months ended December 31, 2013 the Company recognized $265,531 of the $1,215,000 Department of Energy grant as income leaving a remaining $0 recorded as deferred income as of December 31, 2013. The $265,531 recognized as of December 31, 2013 was for costs incurred for the twelve months ended December 31, 2013.

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, 2013 and 2012 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
Recognized income from
grants in 2013                         265,531                -                   -         265,531
                               $             -     $          -     $             -     $         -


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

Net Loss

The Company's net loss for the twelve months ended December 31, 2013 and 2012 was $3,470,813 and $8,586,264, respectively, as a result of the items described above.

Liquidity and Capital Resources

At December 31, 2013, the Company had negative working capital of $9,048,194, as compared to $10,704,593 at December 31, 2012. During the twelve months ended December 31, 2013 the Company experienced negative cash flow from operations of $2,036,470 and it expended $7,716 for investing activities while adding $2,037,775 of cash flows from financing activities. As of December 31, 2013, the Company had $0 commitments for capital expenditures.

Cash used in operating activities increased from $1,799,243 for the twelve month period ending December 31, 2012 to $2,036,470 for the twelve month period ending December 31, 2013. 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 common stock and stock options issued for services and other expenses. Cash used in investing activities decreased from $92,162 for the twelve month period ended December 31, 2012 to $7,716 for the twelve month period ended December 31, 2013. Cash was used to acquire equipment and patents during the 2013 and 2012 twelve month periods. Cash provided from financing activities increased from $1,845,259 for the twelve month period ending December 31, 2012 to $2,037,775 for the twelve month period ending December 31, 2013. The increase in cash provided from financing activities was primarily a result of increase in proceeds from convertible debt along with payments on convertible debt, and a decrease in proceeds from the exercise of options and warrants.

The Company has generated material operating losses since inception. The Company has incurred a net loss of $3,470,813 for the twelve months ended December 31, 2013, and a net loss of $8,586,264 for the twelve months ended December 31, 2012. 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.

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, the Company is presently taking steps to raise additional funds to continue operations for the next 12 months and beyond. In addition the Company anticipates spending from approximately $2 million to $7 million over that period to fund the initial deployment of its brachytherapy products should FDA clearance be obtained, a modest distribution capability for third party isotopes and equipment and the potential acquisition of a controlling interest in a European company with which the Company is having discussions. The Company anticipates initially funding a portion of the foregoing requirements with private placements of Company securities. Thereafter, the Company anticipates that funding also would be provided by revenues derived from the business activities, including, potentially, advances from foreign licensees for the brachytherapy products. If some of the foregoing business activities do not occur or are delayed, the Company anticipated spending would decline. If the Company has the financial capacity to do so, the Company might spend additional sums to grow the foregoing businesses more rapidly. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CFO and other employees of the Company and its current lease commitments that will necessitate liquidation of the Company if the Company is unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.

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.


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, 2013)

                              Total          Less
                            Payments         than                                      More than
 Contractual Obligation        Due          1 Year        1-3 Years     3-5 Years       5 Years
Capital Lease Obligation   $   309,145     $ 309,145     $         -   $         -   $          -
License Agreement with
Battelle Memorial                                                                           25,000
Institute                  $    75,000     $   2,500     $    22,500   $    25,000   $   per year
Corporate Office Lease -
begins January 1, 2014     $    18,000     $  18,000     $         -   $         -   $          -

The capital lease obligations represent two lease agreements for $1,875,000 and $631,000, secured by equipment and personal guarantee of two of the Company's major stockholders, which it 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.

The Company was 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. The Company believed at the time of the issuance of the December 31, 2008 financial statements that it had remedied the default which existed at year end. Accordingly the Company recorded a current and long term portion of the capital leases. Subsequent to the issuance of the December 31, 2008 financial statements, the Company determined that more likely than not that the Company is in default of the terms of the capital leases. Accordingly the Company 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. The Company was 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 the Company recorded the entire value of the leases as a current obligation in its 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. 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. According to the debt service coverage ratio computation, at December 31, 2013 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants, accordingly the Company recorded the entire value of the leases as a current value at December 31, 2013.

The Company 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, 2013 and 2012 the Company incurred rent expenses for this facility totaling $142,851 and $88,087, 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, 2013 and 2012 the Company amortized $0 and $21,875, respectively, of this stock issuance and recognized it as rent expense.


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

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, 2013 and 2012 the Company incurred rent expenses for this facility totaling $29,100 and $33,217, respectively. The Company terminated that lease effective December 31, 2013.

In January 2014, the Company relocated and entered into a new 12-month lease for its corporate offices for a monthly rent of $1,500 from an entity controlled by Carlton M. Cadwell, a significant shareholder and a Director of the Company.

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.

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.

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, 2013, 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:

. . .

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