UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-Q

 

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED: September 30, 2017
OR
[  ]	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE TRANSITION PERIOD FROM __________ TO __________

 

COMMISSION FILE NUMBER 000-53497

 

ADVANCED MEDICAL ISOTOPE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware		80-0138937
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

719 Jadwin Avenue,

Richland, WA 99352

(Address of principal executive offices, Zip Code)

 

(509) 736-4000

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer	[  ]		Accelerated filer	[  ]
Non-accelerated filer	[  ]		Smaller reporting company	[X]
(Do not check if a smaller reporting company)
			Emerging growth company	[  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

As of October 31, 2017, there were 53,768,563 shares of the registrant’s common stock, par value $0.001 per share, outstanding.

 

 

 

TABLE OF CONTENTS

 

		Page
	PART I – FINANCIAL INFORMATION	3
Item 1.	Condensed Financial Statements	3
	Condensed Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016	3
	Condensed Statements of Operations for the Three Months and the Nine Months ended September 30, 2017 (unaudited) and the Three Months and the Nine Months ended September 30, 2016 (unaudited)	4
	Condensed Statements of Cash Flow for the Nine Months ended September 30, 2017 (unaudited) and the Nine Months ended September 30, 2016 (unaudited)	5
	Notes to Condensed Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
	PART II – OTHER INFORMATION	22
Item 1.	Legal Proceedings	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 6.	Exhibits	23
SIGNATURES		24

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Advanced Medical Isotope Corporation

Condensed Balance Sheets

 

		September 30, 2017				December 31, 2016
		(unaudited)
ASSETS
Current assets:
Cash		$	22,110			$	27,889
Prepaid expenses			6,767				11,990
Total current assets			28,877				39,879
Fixed assets, net of accumulated depreciation			-				1,473
Other assets:
Deposits			669				644
Total other assets			669				644
Total assets		$	29,546			$	41,996
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses		$	794,627			$	1,137,086
Related party accounts payable			71,297				109,718
Accrued interest payable			319,372				114,755
Payroll liabilities payable			44,441				499,502
Convertible notes payable, net			1,959,276				544,508
Derivative liability			-				324,532
Related party promissory note			383,771				332,195
Total current liabilities			3,572,784				3,062,296
Total liabilities			3,572,784				3,062,296
Commitments and contingencies			-				-
Stockholders’ equity (deficit):
Preferred stock, $.001 par value, 20,000,000 shares authorized; 3,583,860 and 3,773,592 shares issued and outstanding, respectively			3,584				3,774
Paid in capital, preferred stock			12,907,354				14,140,797
Common stock, $.001 par value; 2,000,000,000 shares authorized; 53,468,563 and 31,743,797 shares issued and outstanding, respectively			53,469				31,744
Paid in capital, common stock			45,155,762				40,672,825
Accumulated deficit			(61,663,407	)			(57,869,440	)
Total stockholders’ equity (deficit)			(3,543,238	)			(3,020,300	)
Total liabilities and stockholders’ equity (deficit)		$	29,546			$	41,996

 

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

 

 

Advanced Medical Isotope Corporation

Condensed Statements of Operations

(unaudited)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Revenues		$	-			$	4,054			$	4,054			$	8,108
Operating expenses
Sales and marketing expenses			52,620				65,995				93,870				213,539
Depreciation and amortization			-				738				1,473				2,212
Professional fees			211,954				265,497				642,101				1,968,084
Reserved stock units granted			169,650				-				169,650				-
Stock options granted			24,283				27,427				79,582				612,343
Payroll expenses			436,319				160,500				722,594				492,077
Loan fees			-				8,664				-				603,861
General and administrative expenses			66,973				137,593				240,469				683,788
Total operating expenses			961,799				666,414				1,949,739				4,575,904
Operating loss			(961,799	)			(666,414	)			(1,945,685	)			(4,567,796	)
Non-operating income (expense)
Interest expense			(527,188	)			(85,830	)			(1,836,279	)			(535,563	)
Net gain on sale of assets			-				-				2,800				-
Net gain (loss) on settlement of debt			-				(111,328	)			-				(1,877,959	)
Loss on sale of stock			-				(54,561	)			-				(54,561	)
Net gain (loss) on debt extinguishment			(369,428	)			-				(423,291	)			-
Gain (loss) on derivative liability			9				762,151				408,488				(3,108,889	)
Non-operating income (expense), net			(896,607	)			510,432				(1,848,282	)			(5,576,972	)
Income (Loss) before Income Taxes			(1,858,406	)			(155,982	)			(3,793,967	)			(10,144,768	)
Income Tax Provision			-				-				-				-
Net Income (Loss)		$	(1,858,406	)		$	(155,982	)		$	(3,793,967	)		$	(10,144,168	)
Basic and Diluted Income (Loss) per Common Share		$	(0.04	)		$	(0.01	)		$	(0.08	)		$	(0.51	)
Weighted average common shares outstanding			52,471,896				19,999,985				45,777,689				19,987,347

 

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

 

 

Advanced Medical Isotope Corporation

Condensed Statements of Cash Flow

(Unaudited)

 

		Nine months ended September 30,
		2017				2016
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income (Loss)		$	(3,793,967	)		$	(10,144,768	)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation of fixed assets			1,473				2,213
Amortization of licenses and intangible assets			-				-
Amortization of convertible debt discount			1,473,205				379,290
Gain on sale of assets			(2,800	)			-
Preferred stock issued for loan fees			-				603,861
Common stock issued for services			250,393				-
Common stock issued for wages			365,989				-
Preferred stock for services			-				357,403
Preferred stock for wages			-				64,982
Restricted stock units granted			169,650				-
Stock options for services			79,582				782,226
Warrants issued for services			-				1,069,353
(Gain) loss on derivative liability			(408,488	)			3,108,889
(Gain) loss on settlement of debt			423,291				1,877,959
Changes in operating assets and liabilities:
Prepaid expenses			5,198				(4,240	)
Accounts payable			22,226				36,964
Related party accounts payable			(4,675	)			(11,725	)
Payroll liabilities			(67,310	)			144,503
Accrued interest			361,951				87,265
Net cash used by operating activities			(1,124,282	)			1,645,825	)
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of fixed assets			2,800				-
Net cash from vesting activities			2,800				-
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments made for loan fees			(101,631	)			-
Proceeds from shareholder advances			137,000				-
Proceeds from exercise of warrants			-				250
Payments on convertible debt			-				(10,000	)
Proceeds from convertible debt			1,080,334				1,476,558
Net cash provided by financing activities			1,115,703				1,466,808
Net increase (decrease) in cash			(5,779	)			(179,017	)
Cash, beginning of period			27,889				179,032
CASH, END OF PERIOD		$	22,110			$	15
Supplemental disclosures of cash flow information:
Cash paid for interest		$	-			$	-
Cash paid for income taxes		$	-			$	-

 

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

 

 

Advanced Medical Isotope Corporation

Notes to Condensed Financial Statements

(Unaudited)

 

NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

 

The accompanying condensed financial statements of Advanced Medical Isotope Corporation (the “Company”) have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly the results of operations of the Company for the period presented. The results of operations for the nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December 31, 2017 and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 9, 2017.

 

In April of 2017, the Company filed a Certificate of Merger with the Delaware Division of Corporations in order to merge the Company’s wholly-owned subsidiary, IsoPet Solutions Corporation, with and into the Company. The Company therefore no longer prepares Consolidated Financial Statements.

 

Use of Estimates

 

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

 

Fair Value of Financial Instruments

 

Fair value of financial instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it is practicable to estimate that value. As of September 30, 2017 and December 31, 2016, the balances reported for cash, prepaid expenses, accounts payable, and accrued expenses, approximate the fair value because of their short maturities.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Topic 820, “Fair Value Measurements,” established a three-tier fair value hierarchy to prioritize the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). These tiers include:

 

Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

 

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

 

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

 

The Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2017 and December 31, 2016:

 

September 30, 2017

Total

Level 1

Level 2

Level 3

Liabilities:

Derivative Liability

$

$

$

$

Total Liabilities Measured at Fair Value

$

-

$

-

$

-

$

-

 

December 31, 2016
		Total				Level 1				Level 2				Level 3
Liabilities:
Derivative Liability		$	324,532			$				$				$	324,532
Total Liabilities Measured at Fair Value		$	324,532			$	-			$	-			$	324,532

 

Reclassifications

 

Certain account balances from prior periods have been reclassified in the current period financial statements so as to conform to current period classifications.

 

Recent Accounting Pronouncements

 

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

 

 

NOTE 2: GOING CONCERN

 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has suffered recurring losses and has used significant cash in support of its operating activities and the Company’s cash position is not sufficient to support the Company’s operations. Historically, the Company has relied upon outside investor funds to maintain the Company’s operations and develop the Company’s business. The Company anticipates it will continue to require funding from investors for working capital, as well as business expansion during this fiscal year and it can provide no assurance that additional investor funds will be available on acceptable terms. These factors, among others, indicate that there is substantial doubt regarding the Company’s ability to continue as a going concern within one year of the date these financial statements are issued. In addition, the Company’s ability to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered by entrance into established markets and the competitive environment in which it operates.

 

The Company anticipates a requirement of $1.5 million over the next twelve months to maintain current operating activities. The Company may also require up to approximately $4.6 million to retire outstanding debt and past due payables. As of September 30, 2017 the Company had convertible promissory notes in the aggregate principal amount of $3,188,081 outstanding (the “Outstanding Notes”), of which approximately $45,000 are currently due and payable.

 

Over the next 12 to 24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the Food and Drug Administration (“FDA”) approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12 to 24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies, which may include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements are timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements and/or additional capital raises.

 

As of September 30, 2017, the Company has $22,110 cash on hand. There are currently commitments to vendors for products and services purchased, accrued compensation expenses and the Company’s current lease commitments that, in the absence of additional capital, would result in a liquidation of the Company. The current level of cash is not sufficient to cover the fixed and variable obligations of the Company.

 

Assuming the Company is successful in its development efforts, the Company believes that it will be able to raise additional funds through strategic agreements or the sale of the Company’s securities to either current stockholders or new investors. However, there is no guarantee that the Company will be able to raise additional funds or to do so on favorable terms.

 

The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

NOTE 3: FIXED ASSETS

 

Fixed assets consist of the following at September 30, 2017 and December 31, 2016:

 

		September 30, 2017					December 31, 2016
Production equipment		$	15,182			$	1,938,532
Office equipment			-				32,769
			15,182				1,971,301
Less accumulated depreciation			(15,182	)			(1,969,828	)
		$	-			$	1,473

 

Depreciation expense for the above fixed assets for the three months ended September 30, 2017 and 2016, respectively was $0 and $738 and for the nine months ended September 30, 2017 and 2016, respectively, was $1,473 and $2,212.

 

NOTE 4: INTANGIBLE ASSETS

 

Intangible assets consist of the following at September 30, 2017 and December 31, 2016:

 

		September 30, 2017				December 31, 2016
License Fee		$	-			$	112,500
Less accumulated amortization			-				(112,500	)
Patents and intellectual property			-				-
Intangible assets net of accumulated amortization		$	-			$	-

 

The Company did not incur any amortization expense during the three and nine months ended September 30, 2017 and 2016.

 

 

NOTE 5: RELATED PARTY TRANSACTIONS

 

Related Party Convertible Notes Payable

 

In March 2017, the Company combined Outstanding Notes owed to a director and major stockholder, along with $51,576 of accrued interest payable, into one promissory note (the “Related Party Note”). The Related Party Note accrues interest at a rate of 10% and will become due and payable on December 31, 2017. As of September 30, 2017 and December 31, 2016 the balance of the Related Party Note was $383,771 and $332,195, respectively.

 

Rent Expenses

 

The Company was renting office space from a significant shareholder and director of the Company on a month-to-month basis with a monthly payment of $1,500. This rental agreement was terminated as of April 1, 2017.

 

Rental expense was $0 and $4,500 for each of the three months ended September 30, 2017 and 2016 and is recorded in general and administrative expense. Rental expense was $4,500 and $13,500 for the nine months ending September 30, 2017 and 2016, respectively, and is recorded in general and administrative expense.

 

 

NOTE 6: CONVERTIBLE NOTES PAYABLE

 

As of September 30, 2017 and December 31, 2016, the Company had the following convertible notes outstanding:

 

		September 30, 2017								December 31, 2016
		Principal (net)				Accrued Interest				Principal (net)				Accrued Interest
July and August 2012 $1,060,000 Notes convertible into common stock at $4.60 per share, 12% interest, due December 2013 and January 2014, respectively		$	45,000			$	27,861			$	95,000				50,365
May through October 2015 $605,000 Notes convertible into preferred stock at $1 per share, 8-10% interest, due September 30, 2015			-				17,341				-				17,341
October through December 2015 $613,000 Notes convertible into preferred stock at $1 per share, 8% interest, due June 30, 2016, net of debt discount of $0 and $560,913, respectively			-				5,953				-				5,953
January through March 2016 $345,000 Notes convertible into preferred stock at $1 per share, 8% interest, due June 30, 2016			-				696				-				696
November 2016 $979,162 Notes convertible into common stock at a variable conversion price, 10% interest, due May 2017, net of debt discounts of $0 and $540,720, respectively			-				-				438,442				12,397
January and March 2017 $335,838 Notes convertible into common stock at a variable conversion price, 10% interest, due May 2017, net of debt discounts of $0 and $0, respectively			-				-				-				-
May 2017 $2,378,155 Notes convertible into common stock after December 15, 2017 at a $0.20 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $933,417 and $0, respectively			1,444,738				178,304				-				-
May 2017 $648,039 Notes convertible into common stock after December 15, 2017 at a $0.12 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $252,412 and $0, respectively			395,627				52,831				-				-
May 2017 $110,312 Notes convertible after December 31, 2017 into common stock at a $0.13 conversion price (subject to adjustment), 7.5% interest, due May 2018, net of debt discounts of $42,976 and $0, respectively			67,336				15,773				-				-
Penalties on notes in default			6,575				-				11,066				-
Total Convertible Notes Payable, Net		$	1,959,276			$	298,759			$	544,508			$	86,752

 

 

During the nine months ending September 30, 2017, the Company received proceeds from the issuance of 10% Convertible Notes (“Convertible Notes”) and 7.5% Original Issue Discount Senior Secured Convertible Debentures (“Debentures”) of $1,080,334 and obtained advances from shareholders of $137,000 that were reclassified into Convertible Notes. The Company also assigned or exchanged $1,358,750 worth of Convertible Notes and Notes that were outstanding as of December 31, 2016 into Debentures, while also reclassifying $69,279 worth of accrued interest to convertible note principal. Each of the Company’s Convertible Notes had a conversion rate that was variable or had adjustment provisions. As a result of recording derivative liabilities at note inception, the Company increased the debt discount recorded on Convertible Notes by $99,661 during the nine months ending September 30, 2017.The Company also recorded original issue discounts and loan fees on Convertible Notes and Debentures of $757,696 and $386,758, respectively, which also increased the debt discounts recorded on the Convertible Notes and Debentures.

 

The Company recorded $322,381 of conversions on certain outstanding notes, $272,381 of which was voluntarily allowed by the Company despite the conversion feature of the notes not yet being in effect, and a total gain on settlement of $135,432 representing the write-off of outstanding note principal and debt discount. The Company also recorded amortization of $1,473,208 on outstanding note debt discounts. Lastly, the Company paid $101,631 in cash for loan fees and issued 743,699 shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred”) as loan fees in connection with the issuance of the Convertible Notes and Debentures. The Company therefore increased its debt discount by $1,116,110, which represented the portion of the proceeds from the Convertible Notes and Debentures that were allocated to preferred stock.

 

NOTE 7: COMMON STOCK OPTIONS, WARRANTS, AND RESTRICTED STOCK UNITS

 

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

 

 

Common Stock Options

 

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

 

										Weighted								Weighted
		Options Outstanding								Average								Average
		Number				Exercise				Remaining				Aggregate				Exercise
		Of				Price				Contractual				Intrinsic				Price
		Shares				Per Share				Life				Value				Per Share
Balance at December 31, 2016			2,402,500			$	0.50-15				4.05 years			$	-			$	0.81
Options granted			-			$	-				-							$	-
Options exercised			-			$	-				-							$	-
Options expired			(1,180,000	)		$	0.50-1.00				-							$	0.53
Balance at September 30, 2017			1,222,500			$	0.50-15				3.16 years			$	-			$	1.08
Exercisable at September 30, 2017			1,030,829			$	0.50-15				3.06 years			$	-			$	1.18

 

During the nine months ended September 30, 2017 the Company recognized $79,582 worth of expense related to the vesting of its previously issued stock options. As of September 30, 2017, the Company had $69,681 worth of expense yet to be recognized for options not yet vested.

 

Common Stock Warrants

 

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

 

										Weighted								Weighted
		Warrants Outstanding								Average								Average
		Number				Exercise				Remaining				Aggregate				Exercise
		Of				Price				Contractual				Intrinsic				Price
		Shares				Per Share				Life				Value				Per Share
Balance at December 31, 2016			3,579,505			$	0.10-10				0.52 years			$	749			$	4.45
Warrants granted			-			$	-				-							$	-
Warrants exercised			-			$	-				-							$	-
Warrants expired/cancelled			(3,274,055	)		$	0.10-4.60				-							$	4.62
Balance at September 30, 2017			305,450			$	0.40-10				1.44 years			$	-			$	2.64
Exercisable at September 30, 2017			305,450			$	0.40-10				1.44 years			$	-			$	2.64

 

Restricted Stock Units

 

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

 

 

						Weighted
		Number				Average
		Of				Grant Date
		Shares				Fair Value
Balance at December 31, 2016			-			$	-
RSU’s granted			12,560,000			$	0.07
RSU’s vested			-			$	-
RSU’s forfeited			-			$	-
Balance at September 30, 2017			12,560,000			$	0.07

 

During the nine months ended September 30, 2017 the Company recognized $169,650 worth of expense related to the vesting of its RSU’s. As of September 30, 2017, the Company had $759,790 worth of expense yet to be recognized for RSU’s not yet vested.

 

NOTE 8: STOCKHOLDERS’ EQUITY

 

Common Stock

 

The Company has 2,000,000,000 shares of common stock authorized, with a par value of $0.001, and as of September 30, 2017, the Company has 53,468,563 shares issued and outstanding.

 

During the nine months ending September 30, 2017, the Company issued 3,040,239 shares of its common stock valued at $334,048 for the settlement of debt, 2,220,944 shares of its common stock valued at $250,392 for services, and 13,367,100 shares of its common stock valued at $3,361,540 for conversions of 1,276,710 shares of Series A Preferred. Additionally, during the nine months ending September 30, 2017 the Company issued 3,096,483 shares of common stock valued at $309,450 and 343,279 shares of Series A Preferred valued at $1,011,797 for the reduction of $272,976 of accounts payable, the reduction of $387,751 of accrued payroll, while recording $294,530 as a gain on extinguishment of debt and $365,990 worth of services.

 

Preferred Stock

 

As of September 31, 2017 the Company has 20,000,000 shares of Series A Preferred authorized with a par value of $0.001. The Company’s Board of Directors is authorized to provide for the issuance of shares of preferred stock in one or more series, to establish the number of shares in each series, and to determine the designations, preferences and rights through a resolution of the Board of Directors.

 

Effective June of 2015, the Board of Directors designated the Series A Preferred as a new series of preferred stock. As of September 30, 2017, the Company has 5,000,000 shares of Series A Preferred authorized, with a par value of $0.001, and has 3,583,860 shares issued and outstanding. Each Series A Preferred share is convertible into shares of the Company’s common stock. Each holder of Series A Preferred is entitled to the equivalent of five votes for every conversion share, where the conversion shares are the number of common stock the Series A Preferred would be convertible into. The holders of the Series A Preferred have a liquidation preference equal to $5.00 per share.

 

During the nine months ending September 30, 2017 the Company issued 743,699 shares of Series A Preferred valued at $1,116,110 as loan fees in connection with the issuance of the Debentures, and 343,279 shares of Series A Preferred valued at $1,011,797 for accrued payroll and accounts payable.

 

 

NOTE 9: SUPPLEMENTAL CASH FLOW INFORMATION

 

During the nine months ending September 30, 2017, the Company had the following non-cash investing and financing activities:

 

●		Increased convertible notes payable by $69,279, increased related party notes payable by $51,576, and decreased accrued interest by $120,855 for the reclassification of accrued interest to principal.
●		Increased derivative liabilities for $99,661 to record a debt discount on convertible notes payable.
●		Increased convertible notes payable and decreased loan from shareholder by $137,000 to roll proceeds from shareholder advances to a formal convertible note payable.
●		Issued 743,699 shares of Series A Preferred for loan fees that increased the convertible note debt discount by $1,116,110.
●		Issued 13,367,100 shares of common stock in exchange for 1,276,710 shares of Series A Preferred decreasing preferred stock by $3,361,540, increasing common stock by $13,367, and increasing paid in capital by $3,348,173.
●		Issued 3,096,483 shares of common stock valued at $309,450 and 343,279 shares of Series A Preferred valued at $1,011,797 for the reduction of $272,976 of accounts payable, the reduction of $387,751 of accrued payroll, while recording $294,530 as a gain on extinguishment of debt and $365,990 worth of services.
●		Issued 3,040,239 shares of common stock valued at $334,048 for the reduction of $322,381 of convertible notes payable and $36,479 of accrued interest, reducing debt discount by $159,299, and recording $134,487 as a gain on extinguishment of debt.

 

NOTE 10: COMMITMENTS AND CONTINGENCIES

 

Effective June 21, 2017, the Company entered into a separation agreement with an individual previously associated with the Company, at times as a consultant and as an employee at other times. Pursuant to the agreement, the Company agreed to pay regular bi-weekly checks beginning July 7, 2017 and ending September 15, 2017, for a total of six checks in the aggregate amount of $28,846. This obligation was fully paid as of September 30, 2017.

 

NOTE 11: SUBSEQUENT EVENTS

 

In October 2017 the Company exchanged 300,000 common stock shares for 30,000 Series A Preferred shares.

 

In November 2017 the Company received $150,000 in exchange for a 10% convertible promissory note due April 15, 2018. The Company issued 100,000 Series A Preferred shares as an origination fee on this note. 

 

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

 

 

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

 

Except for statements of historical fact, certain information described in this Form 10-Q report contains “forward-looking statements” that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “should,” “will,” “would” or similar words. The statements that contain these or similar words should be read carefully because these statements discuss the Company’s future expectations, including its expectations of its future results of operations or financial position, or state other “forward-looking” information. Advanced Medical Isotope Corporation believes that it is important to communicate its future expectations to its investors. However, there may be events in the future that the Company is not able to accurately predict or to control. Further, the Company urges you to be cautious of the forward-looking statements which are contained in this Form 10-Q report because they involve risks, uncertainties and other factors affecting its operations, market growth, service, products and licenses. The risk factors in the section captioned “Risk Factors” in Item 1A of the Company’s previously filed Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 9, 2017, as well as other cautionary language in this report on Form 10-Q, describe such risks, uncertainties and events that may cause the Company’s actual results and achievements, whether expressed or implied, to differ materially from the expectations the Company describes in its forward-looking statements. The occurrence of any of the events described as risk factors could have a material adverse effect on the Company’s business, results of operations and financial position.

 

General Statement of Business

 

Advanced Medical Isotope Corporation (the “Company,” “AMI” or “we”) was incorporated under the laws of Delaware on December 23, 1994 as Savage Mountain Sports Corporation (“SMSC”). On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMI has authorized capital of 2,000,000,000 shares of common stock, $0.001 par value per share and 20,000,000 shares of preferred stock, $0.001 par value per share. Our common stock is quoted on the OTC PINK Marketplace under the symbol, “ADMD”.

 

Recent Developments

 

On or about May 10, 2017, the Company entered into Securities Purchase Agreements (the “Purchase Agreement”) with certain accredited investors to purchase 7.5% Original issue Discount Senior Secured Convertible Debentures (“Debentures”) in the aggregate principal amount of $1,179,581, including an original issue discount of $235,916 and loan fees of $30,000. The principal, original issue discount, and loan fees accrue interest at a rate of 7.5% per annum, and will become due and payable one year from the issuance date. Holders of the Debentures may elect to convert the principal and original issue discount, as well as any accrued by unpaid interest (the “Outstanding Balance”), into that number of shares of the Company’s common stock equal to the Outstanding Balance, divided by $0.20 (the “Conversion Price”).

 

On the same date, the Company also entered into Securities Exchange Agreements (the “Exchange Agreement”) with certain holders of outstanding convertible promissory notes to exchange such notes and their accrued interest for Debentures, resulting in the issuance of Debentures in the aggregate principal amount of $2,229,306 including an original issue discount of $445,961 and loan fees of $356,758. The Debentures issued pursuant to the Exchange Agreement have terms substantially similar to those issued pursuant to the Purchase Agreement, expect that certain of the Debentures issued pursuant to Exchange Agreements have a Conversion Price of $0.13 and $0.12 per share.

 

The Company paid loan fees in connection with the issuance of the Debentures, both pursuant to the Purchase Agreements and Exchange Agreements, of 20% of the principal and original issue discount of the Debentures in shares of its Series A Preferred Stock (“Series A Preferred”). In addition, the Company granted to each of the holders of the Debentures a continuing security interest in substantially all of the Company’s assets, pursuant to the terms and conditions of a Security Agreement.

 

Overview

 

The Company is a late stage radiation oncology medical device company engaged in the development of its yttrium-90 based brachytherapy device, RadioGel™, for the treatment of non-resectable tumors. A prominent team of radiochemists, scientists and engineers, collaborating with strategic partners, including national laboratories, universities and private corporations, lead the Company’s development efforts. The Company’s overall vision is to globally empower physicians, medical researchers and patients by providing them with new isotope technologies that offer safe and effective treatments for cancer.

 

The Company’s current focus is on the development of its RadioGel™ device. RadioGel™ is an injectable particle-gel for brachytherapy radiation treatment of cancerous tumors in people and animals. RadioGel™ is comprised of a hydrogel, or a substance that is liquid at room temperature and then gels when reaching body temperature after injection into a tumor. In the gel are small, one micron, yttrium-90 phosphate particles (“Y-90”). Once injected, these inert particles are locked in place inside the tumor by the gel, delivering a very high local radiation dose. The radiation is beta, consisting of high-speed electrons. These electrons only travel a short distance so the device can deliver high radiation to the tumor with minimal dose to the surrounding tissue. Optimally, patients can go home immediately following treatment without the risk of radiation exposure to family members. Since Y-90 has a half-life of 2.7 days, the radioactively drops to 5% of its original value after ten days.

 

 

The Company’s lead brachytherapy product, RadioGel™, incorporates patented technology developed for Battelle Memorial Institute (“Battelle”) at Pacific Northwest National Laboratory, a leading research institute for government and commercial customers. Battelle has granted the Company an exclusive license to patents covering the manufacturing, processing and applications of RadioGel™ (the “Battelle License”). Other intellectual property protection includes proprietary production processes and trademark protection in 17 countries. The Company plans to continue efforts to develop new refinements on the production process, and the product and application hardware, as a basis for future patents.

 

The Company is currently focusing on obtaining approval from the Food and Drug Administration (“FDA”) to market and sell RadioGel™ as a Class II medical device. The Company first requested FDA approval of RadioGel™ in June 2013, at which time the FDA classified RadioGel™ as a medical device. The Company then followed with a 510(k) submission which the FDA responded, in turn, with a request for a physician letter of substantial equivalence and a reformatted 510(k) summary, which the Company provided January 2014. In February 2014 the FDA ruled the device as not substantially equivalent due to a lack of predicate device and it was classified to Class III. The Company is currently developing test plans to address issues raised by the FDA in connection with the Company’s previous submissions regarding RadioGel™, including developing specific test plans and specific indication of use. The Company intends to request FDA approval to apply for de novo classification of RadioGel™, which would reclassify the device from a Class III device to a Class II device, further simplifying the path to FDA approval.

 

In previous FDA submittals, the Company proposed applying RadioGel™ for a very broad range of cancer therapies, referred to as Indication for Use. The FDA has requested that the Company reduce its Indications for Use. To comply with that request, the Company has expanded its Medical Advisory Board (“MAB”) and engaged doctors from respected hospitals who have evaluated the candidate cancer therapies based on three criteria: (1) potential for FDA approval and successful therapy; (2) notable advantage over current therapies; and (3) probability of wide spread acceptance by the medical community.

 

The MAB selected eighteen applications for RadioGel™, each of which meet the criteria described above. This large number confirms the wide applicability of the device and defines the path for future business growth. The Company intends to apply to the FDA for a single Indication for Use, treatment of basal cell and squamous cell skin cancers, followed by subsequent applications for additional Indications for Use. We anticipate that this initial application will facilitate each subsequent application, and the testing for many of the subsequent applications could be conducted in parallel, depending on available resources.

 

The Company’s IsoPet Solutions division was established in May 2016 to focus on the veterinary oncology market, namely engagement of university veterinarian hospital to develop the detailed therapy procedures to treat animal tumors and ultimately use of the technology in private clinics. The Company has engaged four different university veterinarian hospitals to begin using RadioGel™ for treatment of four different cancer types in dogs and cats. Washington State University Veterinary Hospital has tested one cat to demonstrate the procedures and the absence of any significant toxicity effect. The other three centers are expected to begin therapy during the fourth quarter of 2017 after their internal administrative review process is completed.

 

These animal therapies will focus on creating labels that describe the procedures in detail as a guide to future veterinarians. The labels will be voluntarily submitted to the FDA for review. They will then be used as data for future FDA applications in the medical sector and as key intellectual property for licensing to private veterinary clinics. Dr. Alice Villalobos, the Chair of our Veterinarian Advisory Board, has expressed an interest in being the first to utilize RadioGel™ in her private clinic, but is also introducing the Company to other clinics with an interest in utilizing RadioGel™ and to demonstrate the business model.

 

The Company anticipates that future profit will be derived from direct sales of RadioGel™ and related services, and from licensing to private medical and veterinary clinics in the U.S. and internationally.

 

 

Based on the Company’s financial history since inception, its auditor has expressed substantial doubt as to the Company’s ability to continue as a going concern. The Company has limited revenue, nominal cash, and has accumulated deficits since inception. If the Company cannot obtain sufficient additional capital, the Company will be required to delay the implementation of its business strategy and not be able to continue operations.

 

Results of Operations

 

Comparison of the Three Months Ended September 30, 2017 and 2016

 

The following table sets forth information from our statements of operations for the three months ended September 30, 2017 and 2016.

 

		Three Months Ended September 30, 2017				Three Months Ended September 30, 2016
Revenues		$	-			$	-
Operating expenses			961,799				666,414
Operating loss			(961,799	)			(666,414	)
Non-operating income (expense):
Gain (loss) on derivative liability			9				762,151
Gain (loss) on debt extinguishment			(369,428	)			-
Net gain (loss) on settlement of debt			-				(111,328	)
Loss on sale of stock			-				(54,561	)
Interest expense			(527,188	)			(85,830	)
Net income (loss)		$	(1,858,406	)		$	(155,982	)

 

Revenue

 

Revenue was $0 for the three months ended September 30, 2017 and September 30, 2016.

 

Management does not anticipate that the Company will generate revenue sufficient to sustain operations until such time as the Company secures revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.

 

Operating Expenses

 

Operating expenses for the three months ended September 30, 2017 and 2016 consists of the following:

 

		Three months ended September 30, 2017				Three months ended September 30, 2016
Depreciation and amortization expense		$	-			$	738
Professional fees			211,954				265,497
Restricted stock units granted			169,650				-
Stock options granted			24,283				27,427
Payroll expenses			436,319				160,500
General and administrative expenses			66,973				146,257
Sales and marketing expense			52,620				65,995
		$	912,799			$	666,414

 

Operating expenses for the three months ended September 30, 2017 and 2016 was $961,799 and $666,414, respectively. The increase in operating expenses from 2016 to 2017 can be attributed to the increase in payroll expenses from 2016 to 2017 ($160,500 for the three months ended September 30, 2016 versus $436,319 for the three months ended September 30, 2017), attributable to the settlement of prior payroll obligations with the issuance of stock; and the increase in restricted stock units granted from 2016 to 2017 ($169,650 for the three months ended September 30, 2017 versus $0 for the three months ended September 30, 2016). The increase in operating expenses was partially offset by a decrease in sales and marketing expense from 2016 to 2017 ($65,995 for the three months ended September 30, 2016 versus $52,620 for the three months ended September 30, 2017); a decrease in stock options granted from 2016 to 2017 ($27,427 for the three months ended September 30, 2016 versus $24,283 for the three months ended September 30, 2017); a decrease in professional fees from 2016 to 2017 ($265,497 for the three months ended September 30, 2016 versus $212,878 for the three months ended September 30, 2017); and the decrease in general and administrative expense ($146,257 for the three months ended September 30, 2016 versus $66,973 for the three months ended September 30, 2017). The main contributors to the decrease in general and administrative expense was a decrease in loan fees ($0 for the three months ended September 30, 2017 versus $8,663 for the three months ended September 30, 2016); rent ($0 for the three months ended September 30, 2017 versus $4,500 for the three months ended September 30, 2016); and a decrease in research expense ($43,758 for the three months ended September 30, 2017 versus $102,691 for the three months ended September 30, 2016).

 

 

Non-Operating Income (Expense)

 

Non-operating income (expense) for the three months ended September 30, 2017 and 2016 consists of the following:

 

		Three months ended September 30, 2017				Three months ended September 30, 2016
Interest expense		$	(527,188	)		$	(85,830	)
Net gain on sale of assets			-				-
Net gain (loss) on settlement of debt			-				(111,328	)
Net gain (loss) on debt extinguishment			(369,428	)			-
Loss on sale of stock			-				(54,561	)
Gain (loss) on derivative liability			9				762,151
		$	(896,607	)		$	(510,432	)

 

Non-operating income (expense) increased during the three months ended September 30, 2017, when compared to the three months ended September 30, 2016. This increase is primarily due to an increase in interest expense from $85,830 for the three months ended September 30, 2016 to $527,188 for the three months ended September 30, 2017; and an increase in loss on debt extinguishment for the three months ended September 30, 2017 of $369,428 versus $0 for the three months ended September 30, 2016. These increases were offset by a decrease in the gain on derivative liability of $762,151 for the three months ended September 30, 2016 versus a gain of $9 for the three months ended September 30, 2017; and a decrease in loss on settlement of debt for the three months ended September 30, 2017 of $0 versus a loss of $111,328 for the three months ended September 30, 2016.

 

Net Loss

 

Our net income (loss) for the three months ended September 30, 2017 and 2016 was $1,858,406 and $155,982 respectively.

 

Comparison of the Nine Months Ended September 30, 2017 and 2016

 

The following table sets forth information from our statements of operations for the nine months ended September 30, 2017 and 2016.

 

		Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
Revenues		$	4,054			$	8,108
Operating expenses			1,949,739				4,575,904
Operating loss			(1,945,685	)			(4,567,796	)
Non-operating income (expense)
Interest expense			(1,836,279	)			(535,563	)
Net gain on sale of assets			2,800				-
Net gain (loss) on settlement of debt			-				(1,877,959	)
Net gain (loss) on debt extinguishment			(423,291	)			-
Loss on sale of stock			-				(54,561	)
Gain (loss) on derivative liability			408,488				(3,108,889	)
Net Gain (Loss)		$	(3,793,967	)		$	(10,144,768	)

 

 

Revenue

 

Revenue was $4,054 for the nine months ended September 30, 2017, compared to $8,108 for the nine months ended September 30, 2016, a period over period decrease of $4,054. The decrease was a result of a loss of consulting revenue, which was our only source of revenue during the nine months ended September 30, 2016 and 2017. Consulting revenue consists of providing clients with assistance in strategic targetry services, and research into production of radiopharmaceuticals and the operations of radioisotope production facilities. No proprietary information belonging to our Company is shared during the process of this consulting. Consulting services had been our only source of revenue. The Company does not have any current contracts or arrangements for consulting services, and, until such time as the Company secures contracts or arrangements to provide consulting services, the Company does not expect to generate any additional revenue during the fourth quarter of 2017 and beyond.

 

Management does not anticipate that the Company will generate revenue sufficient to sustain operations until such time as the Company secures revenue-generating arrangements with respect to RadioGel™ and/or any of our other brachytherapy technologies.

 

Operating Expense

 

Operating expenses for the nine months ended September 30, 2017 and 2016 consists of the following:

 

		Nine months ended September 30, 2017				Nine months ended September 30, 2016
Depreciation and amortization expense		$	-			$	2,212
Professional fees			642,101				1,968,084
Restricted stock units granted			169,650				-
Stock options granted			79,582				612,343
Payroll expenses			722,594				492,077
General and administrative expenses			240,469				1,287,649
Sales and marketing expense			93,870				213,539
		$	1,949,739			$	4,575,904

 

Operating expenses for the nine months ended September 30, 2017 and 2016 was $1,949,739 and $4,575,904, respectively. The decrease in operating expenses from 2016 to 2017 can be attributed to the decrease in professional fees expense ($1,968,084 for the nine months ended September 30, 2016 versus $642,101 for the nine months ended September 30, 2017); a decrease in sales and marketing expense from 2016 to 2017 ($213,539 for the nine months ended September 30, 2016 versus $93,870 for the nine months ended September 30, 2017); a decrease in stock options granted from 2016 to 2017 ($612,343 for the nine months ended September 30, 2016 versus $79,582 for the nine months ended September 30, 2017); and the decrease in general and administrative expense ($1,287,649 for the nine months ended September 30, 2016 versus $240,469 for the nine months ended September 30, 2017). The main contributors to the decrease in general and administrative expense was a decrease in loan fees ($603,861 for the nine months ended September 30, 2016 versus $0 for the nine months ended September 30, 2017); rent ($53,500 for the nine months ended September 30, 2016 versus $4,500 for the nine months ended September 30, 2017); repairs and maintenance ($226,655 for the nine months ended September 30, 2016 versus $5,050 for the nine months ended September 30, 2017); and research expense ($309,539 for the nine months ended June 30, 2016 versus $157,168 for the nine months ended September 30, 2017). The decrease in operating expenses was partially offset by an increase in restricted stock units granted (($169,650 for the nine months ended September 30, 2017 versus $0 for the nine months ended September 30, 2016).

 

Non-Operating Income (Expense)

 

Non-Operating income (expense) for the nine months ended September 30, 2017 and 2016 consists of the following:

 

		Nine months ended September 30, 2017				Nine months ended September 30, 2016
Interest expense		$	(1,836,279	)		$	(535,563	)
Net gain on sale of assets			2,800				-
Net gain (loss) on settlement of debt			-				(1,877,959	)
Net gain (loss) on debt extinguishment			(423,291	)			-
Loss on sale of stock			-				(54,561	)
Gain (loss) on derivative liability			408,488				(3,108,889	)
		$	(1,848,282	)		$	(5,576,972	)

 

 

The Company had non-operating expense of $5,576,972 during the nine months ended September 30, 2016, as compared to non-operating expense of $1,848,282 during the nine months ended September 30, 2017. As shown above, this decrease in non-operating expense is primarily due to a loss on derivative liability of $3,108,889 for the nine months ended September 30, 2016, as compared to a gain of $408,488 during the same period in 2017. The $3,108,889 loss on derivative liability was due to an increase in the Company’s stock price from September 30, 2016 ($0.02) to September 30, 2017 ($0.07) and an increase in preferred shares value which is also used to value derivatives. The Company’s stock price is used in the Black Scholes calculations to compute the derivative liability at the end of the quarter. Additionally, the Company experienced a decrease in non-operating expense due to a loss on settlement of debt of $1,877,959 for the nine months ended September 30, 2016, as compared to a loss on settlement of debt of $0 for the nine months ended September 30, 2017.

 

Net Gain (Loss)

 

Our net income (loss) for the nine months ended September 30, 2017 and 2016 was $(3,793,967) and $(10,144,168) respectively.

 

Liquidity and Capital Resources

 

At September 30, 2017, the Company had negative working capital of $3,543,907, as compared to $4,126,519 at September 30, 2016. During the nine months ended September 30, 2017 the Company experienced negative cash flow from operations of $1,124,282, received $2,800 for investing activities and added $1,115,703 of cash flows from financing activities. As of September 30, 2017, the Company had $0 commitments for capital expenditures.

 

Cash used in operating activities decreased from $1,645,825 for the nine month period ending September 30, 2016 to $1,124,282 for the nine month period ending September 30, 2017. Cash used in operating activities was primarily a result of the Company’s net loss and the non-cash gain (loss) on derivative liability, partially offset by non-cash item amortization of convertible debt discount, and depreciation, included in that net loss and preferred and common stock issued for services and other expenses. The Company had no cash used in investing activities for the nine month period ended September 30, 2017 and received $2,800 in investing activities for the nine month period ending September 30, 2017. Cash provided from financing activities decreased from $1,466,808 for the nine month period ending September 30, 2016 to $1,124,282 for the nine month period ending September 30, 2017. The decrease in cash provided from financing activities was primarily a result of decrease in proceeds from convertible debt.

 

The Company has generated material operating losses since inception. The Company had a net loss of $3,793,967 for the nine months ended September 30, 2017, and $10,144,168 for the nine months ended September 30, 2016. The Company expects to continue to experience net operating losses. Historically, the Company has relied upon investor funds to maintain its operations and develop the Company’s business. The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to curtail its business.

 

The Company anticipates raising additional capital within the next twelve months from investors for working capital as well as business expansion, although the Company can provide no assurance that additional investor funds will be available on terms acceptable to the Company. If the Company is unable to obtain additional financing to meet its working capital requirements, it may have to cease operations.

 

 

The Company requires at least $1.5 million per year to maintain current operating activities. Over the next 12-24 months, the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership agreements or additional capital raises.

 

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

 

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

 

Accounting Policies and Estimates

 

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed financial statements and accompanying notes. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. During the period ended September 30, 2017, we believe there have been no significant changes to the items disclosed as significant accounting policies in management’s notes to the condensed financial statements in our Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 9, 2017.

 

Off-Balance Sheet Arrangements

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

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

 

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

 

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

(a)	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
(b)	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
(c)	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

 

PART II

 

Item 1. Legal Proceedings

 

On March 6, 2015, Robert and Maribeth Myers filed a lawsuit against the Company and BancLeasing, Inc., owner of a linear accelerator and other equipment leased by the Company, in the Superior Court of the State of Washington, in and for Benton County (Case No. 15-2-0054101), asserting various claims related to the Company’s five-year lease of production center space owned by Mr. and Mrs. Myers. The Company subsequently filed counterclaims against Mr. and Mrs. Myers, BancLeasing and Washington Trust Bank, alleging misapplication of lease payments to the principal loan amount for a linear accelerator and other equipment stored on the production center property, as well as certain building improvements made by the Company. During 2016, the Company entered into a Settlement Agreement with Robert and Maribeth Myers, pursuant to which the Company agreed to pay a settlement amount of $438,830 in exchange for the release of all claims related to the matter, which amount was paid by the Company during the year ended December 31, 2016.

 

In 2016, the Company was awarded in the Superior Court of the State of Washington a total sum of $527,876 against BancLeasing. The Company is pursuing its options for collection of the awarded amount, however there can be no assurance as to any eventual collection.

 

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

 

During the nine months ending September 30, 2017 the Company issued 743,699 shares of its Series A Preferred as loan fees on Debentures totaling $3,019,256 of Debentures.

 

During the nine months ending September 30, 2017 the Company issued 1,298,677 common shares in satisfaction of $232,481 of accounts payable.

 

During the nine months ending September 30, 2017 the Company issued 2,100,000 common shares and 160,000 Series A Preferred shares in satisfaction of $272,164 of accrued payroll.

 

During the nine months ending September 30, 2017 the Company issued 183,279 Series A Preferred shares in satisfaction of $115,587 of accrued payroll and $67,692 of accounts payable owed to officers of the Company.

 

 

During the nine months ending September 30, 2017 the Company issued 3,040,239 common shares in satisfaction of $358,860 of convertible note payable including $36,479 of accrued interest, resulting in a $134,487 net loss on debt extinguishment.

 

During the nine months ending September 30, 2017 the Company issued 1,918,750 common shares for services valued at $226,160.

 

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

 

Item 6. Exhibits.

 

Exhibit
Number		Description
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema
101.CAL		XBRL Taxonomy Extension Calculation Linkbase
101.DEF		XBRL Taxonomy Extension Definition Linkbase
101.LAB		XBRL Taxonomy Extension Label Linkbase
101.PRE		XBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

 

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

 

	ADVANCED MEDICAL ISOTOPE CORPORATION
Date: November 13, 2017	By:	/s/ Michael Korenko
	Name:	Michael Korenko
	Title:	Chairman and Chief Executive Officer
		(Principal Executive Officer)

 

Date: November 13, 2017	By:	/s/ L. Bruce Jolliff
	Name:	L. Bruce Jolliff
	Title:	Chief Financial Officer
		(Principal Financial and Accounting Officer)