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ADMD > SEC Filings for ADMD > Form 10-Q on 14-Aug-2014All Recent SEC Filings




Quarterly Report

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-K report contains "forward-looking statements" that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will," "would" or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company's future expectations, including its expectations of its future results of operations or financial position, or state other "forward-looking" information. Advanced Medical Isotope Corporation believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-K report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned "Risk Factors" in Item 1A of the Company's Form 10-K, as well as other cautionary language in this Form 10-K report, describe such risks, uncertainties and events that may cause the Company's actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company's business, results of operations and financial position.

General Development of Business

Advanced Medical Isotope Corporation ("we" or the "Company") was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation ("SMSC") for the purpose of acquiring or investing in businesses which were developing and marketing active sports products, equipment, and apparel. In April 2000, Earth Sports Products, Inc ("ESP"), a corporation registered in Washington, merged with SMSC. In April 2000, HHH Entertainment, Inc ("HHH"), a Nevada corporation, merged with SMSC. As of the date of merger, HHH was the only stockholder of SMSC.

SMSC had limited activity from inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, SMSC changed its name to Advanced Medical Isotope Corporation.

On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc ("NHTI"), a Florida corporation and a subsidiary of UTEK Corporation ("UTEK"), a Delaware corporation, and $310,000 from UTEK in exchange for 100,000 shares of Series A Preferred Stock (which Series A Preferred Stock was later converted to shares of the Company's common stock in March 2009). The Company conducted the acquisition in order to obtain cash and NHTI's technology.

On June 13, 2007, the Company acquired the assets of the life sciences business segment of Isonics Corporation (Isonics), a California corporation. The Company acquired the assets in exchange for $850,000 cash payment for the purpose of combining the assets into its business of marketing medical isotopes. The assets acquired consist of intellectual property, agreements with third party companies for purchase and marketing of isotopes, customer lists, and equipment located in Buffalo, New York.

On August 1, 2007, the Company began renting office and warehouse space, known as the Production Facility located in Kennewick, Washington. The Company oversaw the design, construction and commissioning of the Production Facility and obtained the required licenses. In August, 2008 the Company began producing F-18 FDG for regional distribution at the Production Facility.

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." This grant reimbursed the Company for expenditures related to the development of its Brachytherapy project from April 1, 2010 through March 31, 2012.

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.

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 grant funds received in 2010 reimburses the Company for eligible expenditures made during the twelve months ended December 31, 2009.

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

In January 2013, the Company's linear accelerator located at the Company's Production Facility in Kennewick, Washington was shut down for maintenance and repairs.

On October 26, 2013, the Company was notified that a Molybdenum-99 production process with Russia has been postponed.

On November 3, 2013, the Company filed a 510(k) Pre-Market Notification for FDA clearance for its Yttrium-90 RadioGel™ brachytherapy device. In February 2014, the FDA notified the Company that that it had determined that the Yttriium-90 RadioGel™ brachytherapy device had been classified as a Class III medical device, unless reclassified.

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 a limited amount of revenue and has accumulated deficits since inception. If the Company cannot obtain sufficient funding, the Company would have to delay the implementation of its business strategy and might not be able to continue operations.

Narrative Description of Business

The Company is a late stage development company engaged primarily in the development of brachytherapy devices and medical isotopes for diagnostic and therapeutic applications. The Company's focus is on transitioning to full operations upon receipt of FDA clearance for its patented brachytherapy cancer products. Brachytherapy uses radiation to destroy cancerous tumors by placing a radioactive isotope inside or next to the treatment area. Annual sales of brachytherapy products exceed $1 billion, about half of which are in the United States. The Company intends to outsource material aspects of manufacturing, distribution, sales and marketing for its products in the United States and to enter into licensing arrangements outside of the United States, though the Company will evaluate its alternatives before finalizing its plans.

The Company is also engaged in the development of other medical isotopes for therapeutic and diagnostic purposes and engages in limited operations consisting of the operation of a nuclear accelerator (though this accelerator has been shut down for repairs and maintenance since January 2013) and the sales of third party isotopes.

The Company's overall objective is to empower physicians, medical researchers, and ultimately, patients, by providing them with essential medical isotopes that, until now, have not been practical or economical to produce, in an effort to detect, manage, and cure human disease, and improve the lives of patients. The Company's shorter-term objective is to obtain regulatory approval for its brachytherapy products and to then commercialize those products.

The Company's board has approved a three year business strategy focused on transitioning to full operations, following the FDA approval to begin marketing its brachytherapy cancer products. Should the Company first receive regulatory approval outside of the United States, the Company could commence operations in the applicable territories.

The business strategy results from the Company's development of a family of three brachytherapy devices and the Company's belief that there is: (1) strong market potential for these products in the United States and internationally,
(2) the potential for attractive operating margins from the commercialization of such devices, (3) a considerably smaller capital requirement to complete the regulatory process and deploy these devices, as compared to the capital required for most of the other initiatives the Company is developing and (4) a material potential for the Company to receive advances and minimum guarantees from international licensees of these products when they are ready for such licensing activities.

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 generally to enter into licensing arrangements. The Company will evaluate its alternatives before finalizing its plans.

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

Narrative Description of Business- continued

The Board approved of two secondary priorities for 2014 and 2015:

· Expansion of the Company's sales agency activities for isotopes and related equipment manufactured by third parties. This activity requires very little capital, facilitates the Company's interaction with potential partners, customers and vendors and should be immediately cash positive. In 2013, the Company derived approximately $101,745 of revenue from such activities. By expanding this activity, the Company expects to be able to raise less capital through the sale of securities, thereby reducing dilution for shareholders.

· Potential acquisitions. No definitive agreements or commitments have been entered into by the Company pertaining to potential acquisitions. Except for stock acquisitions, potential acquisitions would be subject to the Company's receipt of sufficient financing.

The Company's business strategy also contemplates that the Company will resume operation of its linear accelerator located in Kennewick, consider building a larger cyclotron production facility in Southern California in partnership with a major medical facility and continue its research and development activities for other isotopes and technologies, though the pace of all activities will be subject to its financial capabilities and the needs and performance of the Company's strategic priorities, particularly the successful launch and growth of the brachytherapy products.

Over the next year to two years, the Company anticipates a requirement of about $1.5 million per year to maintain current operating activities and from approximately $2 million to $5 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products, (2) initial regulatory approval processes outside of the United States and (3) a sales capability for third party isotopes and equipment. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort would require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in 2014 will be FDA's classification of the Company's brachytherapy products as Class II or Class II devices (or otherwise) and any requirements for 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.

There can be no assurance regarding the outcome of the Company's regulatory, financing or commercial efforts. If some of the anticipated results are delayed or do not occur, the Company's anticipated spending and capability to fund that spending would decline. Conversely, if the Company has the financial capacity to do so, the Company could spend additional sums to grow its businesses more rapidly and to maintain or accelerate research and development activities for future products and technologies.

In the longer-term, subject to the success of the Company's brachytherapy products and the Company's financial constraints, the Company intends to take steps toward the commercialization of other 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.


The Company is engaged in collaborative efforts with U.S. national laboratories and universities and with international teaming partners. These collaborative effort projects include complementary isotope manufacturing technologies as well as isotope devices. The Company has active research collaborations for its brachytherapy products with Washington State University and the University of Utah. The Company also has agreements to produce isotopes in conjunction with the University of Missouri at Columbia, Pacific Northwest National Laboratory, operated by Battelle, and the University of Utah.

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

Narrative Description of Business- continued


The cornerstone equipment selected for the Company's Production Facility is a proton linear accelerator. The Company's proton linear accelerator is designed to replace large and cyclotron systems with significant infrastructure and utility requirements, such as electrical and air-handling, for the production of positron emitting isotopes. Large amounts of fluorine-18, carbon-11, nitrogen-13, and oxygen-15 can be produced for synthesis into compounds used in oncology, cardiology, neurology, and molecular imaging. The radio-labeled glucose analog, FDG, can be synthesized and distributed for use in Positron Emission Tomography. Based on its experience in the industry, it is the Company's belief that no other accelerator in North America has sufficient flexibility to produce the full spectrum of PET imaging radioisotopes, as well as other high-demand isotopes, both short and long lived, for diagnostic and therapeutic applications.

From August 2008 through January 2013, the Company manufactured and sold F-18 FDG from its Production Facility in its local region around Kennewick, WA. F-18 is an important isotope in the radiopharmaceutical industry, and is primarily synthesized into fluorodeoxyglucose (FDG) for use in positron emission tomography (PET) scans. FDG is the primary PET imaging isotope. It is used for medical and diagnostic purposes, such as cancer detection, heart imaging, and brain imaging. When operating, the Company's linear accelerator is capable of producing a variety of isotopes and future manufacturing and sales could expand beyond F-18 FDG. The Company intends to resume operation of its linear accelerator in 2014, subject to the receipt of sufficient financing.

Other regional production facilities are being considered throughout the U.S. and abroad, including a larger cyclotron production facility in Southern California in partnership with a major medical facility.

New Products in Development

Brachytherapy Products

The Company has exclusively licensed Yttrium-90 (Y-90) polymer composite technology from Battelle Memorial Institute, 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 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.

After receipt of the requisite regulatory clearances, the Company plans initially to introduce three products based on the patented technologies licensed from Battelle:

· Y-90 RadioGel™ device combines Y-90 particles with a polymer carrier that may be injected directly into the tumor. The Y-90 RadioGel™ device enables delivery of higher radiation doses to tumors than can be achieved with traditional seeds and with greater sparing of nearby normal tissues.

· 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 - This product may be applied directly to tissue surfaces after surgical tumor removals (also referred to as "resections") to treat residual tumor cells.

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

New Products in Development - continued

Based upon its studies and analyses, or general application of experience with current brachytherapy devices and Yttrium-90, the Company believes that its 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 needles. By contrast, the Company's biodegradable polymer carrying Y-90 particles may be administered with small-gauge needles.

· No Permanent Seeds Remaining: Current 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: 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 has a short half life of 2.7 days.

· Potential Lower Cost: Yttrium-90 supplies are readily accessible and are relatively inexpensive. The elimination of the metal or glass enclosures greatly reduces manufacturing costs.

On November 3, 2013, the Company filed a 510(k) Pre-Market Notification for FDA clearance for its Yttrium-90 RadioGel™ brachytherapy device. The FDA, which previously advised the Company that it would review the product as a medical device, has further advised the Company that it has determined that the product is classified by statute as a Class III medical device, unless the device is reclassified. The Company intends to seek such reclassification, unless the additional steps required for approval of this product as a Class III medical device are more efficient. The Company has obtained input from the FDA regarding its alternatives and will seek further input to expedite the process. In addition, the Company is discussing with the FDA if additional trials will be necessary prior to marketing the device. If additional trials are necessary, there will be additional cost and time to reach marketing clearance or approval.

Subject to receipt of regulatory approval and sufficient financing, the Company is contemplating the commercialization of the brachytherapy products in the United Sates by partnering with established manufacturers and distributors of medical devices. Outside of the United States, the Company is considering seeking licensing arrangements with established medical device and drug companies.

There can be no assurance as to the timing or receipt of regulatory approvals, the receipt of adequate financing for commercialization of the products, or the market's acceptance for these products.

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

New Products in Development - continued

Brachytherapy Market

Brachytherapy is the use of radiation to destroy cancerous tumors by placing a radiation source inside or next to the treatment area. According to Global Industry Analysts, by 2016 the U.S. brachytherapy market will reach $2 billion. 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 2013 U.S. estimated new cases according to the American Cancer Society are 240,000 prostate cancer, 235,000 breast cancer, and 31,000 liver cancer.

In 2010, the Company paid a $10,000 non-refundable advance for an exclusive license from Battelle Memorial Institute regarding certain technology for the production of a brachytherapy seed. The license agreement also requires the payment of a royalty based on a percent of net sales for licensed products sold.

In February 2011, the Company paid $5,000 for a one year option to negotiate an exclusive license from Battelle Memorial Institute for certain patents for the production of a brachytheraphy gel technology. Effective March 2012, the Company entered into an exclusive license agreement with Battelle Memorial Institute regarding the use of its patented brachytheraphy gel technology. This license agreement included a $17,500 nonrefundable license fee and a royalty based on a percent of gross sales for licensed products sold. The license agreement also includes a minimum royalty amount to be paid each year, starting with $5,000 payable in January 2013. The Company made such payment.

Molybdenum-99 and Technetium-99

Because of the Company's financial constraints and focus on the brachytherapy products, the Company has delayed the potential implementation of production activities pertaining to Molybdenum-99 and Technetium-99.

Sales Agency Activities:

The Company is engaged in sales agency activities for worldwide distribution of O-18 enriched water. In addition, the Company has the ability to act as a sales agency for other stable isotopes as well as radioactive isotopes.


There are established competitors in all of the markets in which the Company has products or currently plans to have products. According to the World Nuclear Association, the main world isotope suppliers are Covidien (Ireland), MDS Nordion (Canada), IRE (Europe), NTP (South Africa), Isotop-NIIAR (Russia) and ANSTO (Australia). Most medical radioisotopes made in nuclear reactors are sourced from relatively few research reactors. Most of the world's supply of Mo-99 for this comes from only five reactors, all of them 43 to 52 years old (in mid 2010). A number of incidents in 2008 pointed up shortcomings and unreliability in the supply of medical isotopes, particular technetium.

The current brachytherapy market in the U.S. is estimated at $300 million per year. There are many 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), but the product is currently marketed by Theragenics Corporations (TGX). 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, which are clearly the market share leader. Cs-131 therapies are beginning to take some market share.

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


As of December 31, 2013, the Company had seven employees, of whom three were 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.

Raw Materials

The Company obtains supplies, hardware, handling equipment and packaging from several different U.S. and foreign suppliers. Some of the materials used in the products the Company manufactures are currently available only from a limited number of suppliers, many of which are international suppliers. The Company obtains many of its stable isotopes from suppliers in Russia. The Company plans to expand the availability of its supplies and products utilizing manufacturing capability at reactors located at the U.S. Department of Energy's National Laboratories ("National Laboratories") as well as production capabilities at various universities and foreign countries other than Russia. This strategy is intended to reduce the risk associated with concentrating isotope production at a single facility.


The Company's customers for sales of stable isotopes have included a broad range of hospitals, universities, research centers and national laboratories, in addition to academic and government institutions. These customers are located in major U.S. and international markets.

The Company's sales for 2013 consisted of F-18 (15.5% of total revenues) and Consulting Income (12.2% of total revenues) and Stable Isotopes (72.4%). Sales of F-18 for 2013 were to two regional hospitals, Kadlec Hospital in Richland, Washington and Kennewick General Hospital in Kennewick, WA. 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. Stable Isotopes consist of longer lived isotopes purchased from Russia and sold in England.

The Company anticipates that customers for its brachytherapy products will . . .

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