UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549











FORM 10-K













x
ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934







For the fiscal year ended December 31, 2009





Commission file number: 0-53497














(Exact name of registrant as specified in charter)





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








8131 W. Grandridge Blvd.  Suite 101, Kennewick WA 99336


(Address of principal executive offices) (Zip Code)





(509) 736-4000


Registrant's telephone Number:





Securities registered under Section 12(b) of the Exchange Act: None





Securities registered under Section 12(g) of the Exchange Act: Common Stock, $0.001 Par Value





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes oNo x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   Yes oNo x





Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 xNo o







i


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference.





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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large Accelerated Filer
o
Accelerated Filer
oNon-Accelerated Filer
o
Smaller Reporting Company
x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes oNo x





The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on June 30, 2009 based on the price at which the common equity was last sold on such date was approximately $5,438,841.   Shares of common stock held by each officer and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.  Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.





As of February 28, 2010, there were 53,249,730 shares of the registrant’s Common Stock outstanding.


























ii


Advanced Medical Isotope Corporation


Report on Form 10-K





TABLE OF CONTENTS





PART I.Item 1.
Business
1Item 1A.
Risk Factors
7Item 1B.
Unresolved Staff Comments
14Item 2.
Properties
14Item 3.
Legal Proceedings
14Item 4.
Submission of Matters to a Vote of Security Holders
14PART II.Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
15Item 6.
Selected Financial Data
18Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
18Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
28Item 8.
Financial Statements and Supplementary Data
28Item 9.
Changes In and Disagreements With Accountants onAccounting and Financial Disclosure
28Item 9A(T)
Controls and Procedures
28Item 9B.
Other Information
30PART III.Item 10.
Directors, Executive Officers and Corporate Governance
30Item 11.
Executive Compensation
33Item 12.
Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters
36Item 13.
Certain Relationships and Related Transactions, and Director Independence
38Item 14.
Principal Accounting Fees and Services
38PART IV.Item 15.
Exhibits, Financial Statement Schedules
38


iii


PART I.





FORWARD LOOKING STATEMENTS





Except for statements of historical fact, certain information described in this document 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 our future expectations, contain projections of our future results of operations or of our financial position, or state other “forward-looking” information.  Advanced Medical Isotope Corporation believes that it is important to communicate our future expectations to our investors.  However, there may be events in the future that we are not able accurately to predict or control.  Further, we urge you to be cautious of the forward-looking statements which are contained in this Form 10-K because they involve risks, uncertainties and other factors affecting our operations, market growth, service, products and licenses.  The factors listed below in the section captioned “Risk Factors” within Item 1A, “Business” within Item 1, as well as other cautionary language in this Form 10-K, describe such risks, uncertainties and events that may cause our actual results and achievements, whether expressed or implied, to differ materially from the expectations we describe in our forward-looking statements.  The occurrence of any of the events described as risk factors could have a material adverse effect on our business, results of operations and financial position.








ITEM 1.
BUSINESS.





General Development of Business





Advanced Medical Isotope Corporation (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.  The Company began planned principal operations in August 2007 and has been considered a Development Stage Company; however, as a result of operations and revenues during 2009, the Company has fully commenced its planned operations, generated significant revenues, and is no longer considered a Development Stage Company.





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 our 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.





The Company has never filed for bankruptcy and has never been subject to receivership or similar proceedings.






1




ITEM 1.
BUSINESS.- continued




Narrative Description of Business





We are engaged in the production and distribution of medical isotopes and medical isotope technologies that are changing the practice of medicine and ushering in a new era of improved patient care.  Isotopes are a form of chemical element with the same atomic number as another element but with a different atomic mass.  Medical isotopes are used in molecular imaging, therapy, and nuclear medicine to diagnose, manage and treat diseases.





The August 9, 2009 issue of the Los Angeles times reported that there are currently more than 15 million nuclear medicine procedures are performed each year in the U.S.  Approximately one-third of all patients admitted to U.S. hospitals undergo at least one medical procedure that employs the use of medical isotopes.





We employ innovative production methods to offer a wide range of reliable, domestically produced medical isotopes as well as in vivo delivery systems to aid medical practitioners and medical researchers in the timely diagnosis and effective treatment of diseases such as cancer, heart disease, neurological disorders, and many other medical conditions.





Our 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.





Products





We currently offer the following products:





Stable Isotopes:





We currently offer worldwide distribution of O-18 enriched water and a wide range of other stable isotopes.  Our product line of stable isotopes includes the following elements: Antimony, Barium, Cadmium, Calcium, Cerium, Chromium, Copper, Dysprosium, Erbium, Europium, Gadolinium, Gallium, Germanium, Hafnium, Indium, Iron, Krypton, Lanthanum, Lead, Lutetium, Magnesium, Mercury, Molybdenum, Neodymium, Nickel, Osmium, Palladium, Platinum, Potassium, Rhenium, Rubidium, Ruthenium, Samarium, Selenium, Silicon, Silver, Strontium, Sulphur, Tellurium, Thallium, Tin, Titanium, Tungsten, Vanadium, Xenon, Ytterbium, Zinc, and Zirconium.





Radio Pharmaceuticals:





Many of our products are used in connection with Positron Emission Tomography (“PET”).  In cancer, changes in biochemistry occur before tumor mass forms.  As a result, PET can often identify the presence of disease earlier than a test which looks for a tumor mass.  Isotopes identified by PET include radiopharmaceutical Fluorodeoxyglucose (“FDG”), a sugar compound that is labeled with radioactive fluoride.





F-18 FDG: We currently offer regional distribution of F-18 FDG from our Kennewick, WA production facility.  Other regional production facilities are planned throughout the U.S. and abroad, including Los Angeles, Oahu, Idaho and Montana.





Radio Chemicals:





F-18:We currently offer regional distribution of F-18 from our Kennewick, WA production facility.   Other regional production facilities are planned throughout the U.S. and abroad.  This is the primary PET imaging isotope. It is used for medical and diagnostic purposes, such as cancer detection, heart imaging, and brain imaging.





Iodine-124:  This is a radiotracer primarily used in PET imaging and to create images of human thyroid. Other treatment uses include apoptosis, cancer biotherapy, glioma, heart disease, mediastinal micrometastases, and thyroid cancer.









2
  ITEM 1.
BUSINESS.- continued
  Products  - continued
  Indium-111:We currently offer In-111 Chloride bulk solution for U.S. distribution.  This radio chemical is used for infection imaging, cancer treatments, and tracer studies.





Strontium-82: Used as a myocardial imaging agent, early detection of coronary artery disease, PET imaging, blood flow tracers.





Germanium-68:It is used for study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic cancer, and attenuation correction.





Actinium-225:Used for advanced research in therapy of leukemia and other cancers. It holds great promise for treating HIV/AIDS.





Generators:





Strontium-82/Rubidium-82 generators: Used as a myocardial imaging agent, early detection of coronary artery disease, PET imaging, blood flow tracers.





Germanium-68/Gallium-68 generators: It is used for study of thrombosis and atherosclerosis, PET imaging, detection of pancreatic cancer, and attenuation correction.





Actinium-225/Bismuth-213 generators:Actinium-225 is the parent of Bismuth-213, an isotope which has been used in animal trials to kill human HIV virus.  Bismuth-213 has been used in human clinical trials for the treatment of Acute Myelogenous Leukemia (AML).





Status of New Products





Indium-111:  We plan to offer Indium Chloride and Indium Oxine during the first six months of 2010.





Within the next three years, we intend to offer the following isotopes:





Carbon-11: Used in cancer diagnosis/staging. Radiotracer in PET scans to study normal/abnormal brain functions related to various drug addictions and is also used to evaluate disease such as Alzheimer’s, epilepsy, Parkinson’s and heart disease.





Cobalt-57:  Used for gamma camera calibration. Also used as radiotracer in research and a source for X-ray fluorescence spectroscopy.





Copper-64: PET scanning, planar imaging, SPECT imaging, dosimetry studies, cerebral and myocardial blood flow. This isotope is used in stem cell research, and cancer treatments.





Iodine-123:  Used in brain, thyroid, kidney, and myocardial imaging, cerebral blood flow (ideal for imaging) and neurological disease (Alzheimer's).





Molybdenum-99 / Technitium 99:  It is the favored choice among medical professionals because its chemical properties allow it to be bonded to many different chemical materials, thus allowing use for a wide variety of diagnoses.





Thallium-201:  Used in clinical cardiology, heart imaging, myocardial perfusion studies and cellular dosimetry.





Competition





The suppliers of radioisotopes for diagnosis, treatment, and research for a wide variety of diseases, in particular cancer, vary in size and product offerings.  Competition is limited because there are many complications and regulatory hurdles, including licensing, government approvals and capital outlays associated with starting an isotope company.  Many current competitors are international companies.






3
  ITEM 1.
BUSINESS.- continued
  Competition  - continued
  Further, competition is limited as some competitors are closing their facilities or limiting their production.  In November 2007, Canadian supplier MDS Nordion was forced to shut down its radioisotope production facility.  At one time, the U.S. government was supposed to be the source of medical isotopes, but over the course of the last two decades, it has either closed or failed to adequately fund its production facilities.
 
 About 90% of all the non PET radioisotopes used in the United States are imported from two companies.  Approximately half of these were imported directly from the now-defunct MDS Nordion plant and the other half supplied by Covidien (formerly Mallinkrodt).  The remaining 10% that are produced in the United States are manufactured in a fragmented, piecemeal manner with companies producing a single isotope instead of a wide variety.





Raw Materials





Some of the materials used in the products we manufacture are currently available only from a limited number of suppliers; many of which are from international suppliers.  We obtain many of our 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 will reduce the risk associated with concentrating isotope production at a single reactor facility.  We obtain supplies, hardware, handling equipment and packaging from several different U.S. suppliers.





Customers





Our customers include a broad range of hospitals, universities, research centers and national laboratories, in addition to academic and government institutions.  These customers are located in essentially all major U.S. and international markets.  Sales for the years ended December 31, 2007 consisted mainly of imported stable isotopes.  Sales to our customers whose sales were greater than 10% of our total sales for the year ended December 31, 2007 totaled 24.9%, 17.5%, and 15.5% of total revenues in 2007.





In July 2008, we began production of F-18 in our production facilities in Kennewick, Washington.  Sales of F-18 for the year ended December 31, 2008 totaled approximately 29% of total revenue.  Sales to our customers whose sales were greater than 10% of our total sales for the year ended December 31, 2008 totaled 17.8%, 14.2%, and 11.7% of total revenues in 2008.





Our sales for 2009 consisted of both F-18 (70.3% of total revenues) and stable isotopes (29.7% of total revenues). Sales to customers whose sales were greater than 10% of our total sales for the year ended December 31, 2009 totaled 70.3%.





The company is also working with United Pharmacy Partners Inc (UPPI). UPPI has a network of approximately 120 nuclear pharmacies within the United States. We have entered into an affiliation agreement with UPPI to provide to the UPPI network preferred prices and special terms and conditions for certain products that we anticipate to manufacture or re-sell during 2010.





Manufacturing





The cornerstone equipment selected for our production center is a proton linear accelerator.  Our proton linear accelerator is designed to replace large and demanding cyclotron systems 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 our experience in the industry, it is our 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.







4
  ITEM 1.
BUSINESS.- continued
  Manufacturing  - continued
  We are also engaged in a number of collaborative efforts with U.S. national laboratories and universities, along with several international teaming partners.  These collaborative effort projects include complementary isotope manufacturing technologies as well as isotope devices.  We have entered into agreements to produce isotopes at Idaho State University, the University of Missouri at Columbia, the State University of New York at Buffalo, and the University of Utah.  These regional university centers will allow us to become a local supplier for the short-lived isotopes like Fluorine 18 as well as being a domestic supplier of several other isotopes in demand by the medical community.





In November 2007, we entered into an agreement with the Idaho Accelerator Center (“IAC”), located on the campus of Idaho State University in Pocatello, ID, to create a regional medical isotope production center.  The IAC will investigate the production of a variety of isotopes at IAC facilities and we will proceed with conceptual planning for production facility development.  We intend to use the IAC to develop and manufacture medical isotopes.





In May 2008, we entered into a research agreement with the University of Utah related to the use of brachytherapy seeds for cancer treatments.  Pursuant to the research agreement, we will pay total project costs that will not exceed $45,150.  We hope to work with the University of Utah to develop and manufacture cancer treatments using brachytherapy seeds.





In June 2008, we entered into a research agreement with the University of Missouri related to the production of radio isotopes.  Pursuant to the research agreement, we will pay total project costs that will not exceed $75,000.  We also entered into an option agreement in June 2008 with the University of Missouri.  The option agreement gives us a one-year option to enter into a licensing agreement to utilize certain intellectual property held by the University of Missouri for the production of medical, research, and industrial radioisotopes.  If the University of Missouri’s intellectual property functions as early analysis have indicated, this production facility could be a manufacturing source of critical health care radio isotopes.





Patents, Trademarks, Licenses





License Agreement:





On September 27, 2006, we acquired the assets of NHTI from UTEK.  Included in the acquired assets was a Non-Exclusive License Agreement with the Regents of the University of California (“University”) for a neutron generator in exchange for preferred stock.  NHTI paid a non-refundable fee in the amount of $25,000 in connection with the license agreement.  The license fee is non-refundable unless our commercialization plan is deemed unacceptable by the University.  If the plan is deemed unacceptable, the license agreement will terminate.  To date, no commercialization plan has been deemed acceptable or unacceptable.  In consideration for the license, we agreed to pay royalties equal to the greater of three percent of the selling price of each licensed product we sell or the maintenance fee according to the following schedule:





2008

$
10,000
*2009

$
15,000
*2010

$
15,0002011

$
45,0002012 and each year thereafter

$
60,000$
145,000


* These items have not been paid to date.





The License Agreement may be cancelled by giving 90 days written notice to the University.  We did not have a relationship with UTEK before the acquisition of Neu Hope Technologies and we do not currently have any business relationship or affiliation with UTEK.  In fact, in 2008, due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.








5
  ITEM 1.
BUSINESS.- continued


Research and Development / Intellectual Property





We spent approximately $67,006 and $90,150 during the years ended December 31, 2009 and December 31, 2008, respectively, on research and development.  This cost was incurred to a University for tests involved in the making of isotopes.





Additionally the Company has made, through acquisitions, the following investments in patent licenses and intellectual property during 2007:





·
$75,000 for a patent license fee, good for the life of the patent, for the production of Actinium 225;





·
$3,040,000 of preferred stock issuance for a patent license, good for the life of the patent, of a Neutron Generator; and





·
$658,750 for the purchase of a company in order to acquire the rights of intellectual property related to the process for the production of isotopes, customer lists, contracts and agreements with third party companies, and certain equipment.





The amortization of these items is computed using the straight-line method over the following estimated useful lives:





·
Intellectual property ........... 3 years


·
Contracts and agreements .... 3 years


·
Customer lists .................. 2 years





In January 2007 AMIC received a license for United States Patent 6,680,993.  The patent concerns methods and processes directed to the preparation of Actinium-225 and daughters having high radiochemical and radionuclidic purity.  These isotopes may be used for the preparation of therapeutic radiopharmaceuticals such as those containing monoclonal antibodies, proteins, peptides, antisense, statin, natural products and hormones.  Additionally, the alpha-emitting radionuclide Actinium-225 and its daughters may be used for both therapeutic and diagnostic purposes.





In 2008, due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.  Since other companies made progress towards the development of the patent license technology and management no longer has the means or interest in pursuing the development of this technology, the Company’s management determined that the patent license for the Neutron Generator no longer had value to the Company and wrote off the net unamortized portion balance of $643,917 in 2008.





Government Regulation





Significant areas of regulation and intervention include the following:





Environmental and Health Compliance.  We are committed to conducting our activities so that there is no or only minimal damage to the environment; there is no assurance, however, that its activities will not at times result in liability under environmental and health regulations.





We spent approximately $950,000 on our facility to meet environmental regulation, including the cost of confinement of the facility, exhaust and air balance systems and waste storage facilities.  As we expand our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business.






6
  ITEM 1.
BUSINESS.- continued
  Government Regulation  - continued
  The current ongoing continuing costs of compliance are immaterial.  Future costs and expenses resulting from such liability may, however, materially negatively impact our operations and financial condition.  Overall, environmental and health laws and regulations will continue to affect our businesses worldwide.





Import/Export Regulation. We are subject to significant regulatory oversight of our import and export operations due to the nature of our product offerings.  Penalties for non-compliance can be significant and violation can result in adverse publicity for the Company.





Financial Accounting Standards. Our financial results can be impacted by new or modified financial accounting standards.





Other Regulations.  Our operations are subject to U.S. Nuclear Regulatory Commission, Food and Drug Administration, Department of Transportation, and Department of Homeland Security regulations.  The extent these regulations are or become burdensome, our business development could be adversely affected.





Employees





As of December 31, 2009, we had five full time employees.  At any given time, we utilize eight to ten contract employees to assist with the company operations.  We do not have a collective bargaining agreement with any of our employees and we believe our relations with our employees are good.





Reports to Security Holders





The Company will prepare and file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and certain other information with the United States Securities and Exchange Commission (the “SEC”).  Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time.  Information may be obtained on the operation of the public reference room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.  Moreover, the Company maintains a website athttp://www.isotopeworld.com that contains important information about the Company, including biographies of key management personnel, as well as information about the Company’s business.  This information is publicly available (i.e., not password protected) and is updated regularly.








ITEM 1A.
RISK FACTORS.





RISKS ASSOCIATED WITH OUR BUSINESS





Our business plan is at an early stage of development and has a limited operating history.





We have a limited operating history upon which you can base an evaluation of our business and prospects.  As a start-up company in the early stage of development, there are substantial risks, uncertainties, expenses and difficulties to which our business is subject.  To address these risks and uncertainties, we must do the following:





·
Successfully execute our business strategy;


·
Respond to competitive developments; and,


·
Attract, integrate, retain and motivate qualified personnel.





There can be no assurance that at this time we will operate profitably or that it will have adequate working capital to meet our obligations as they become due.  We cannot be certain that our business strategy will be successful or that we will successfully address the risks that face our business.  In the event that we do not successfully address these risks, its business, prospects, financial condition, and results of operations could be materially and adversely affected.







7




ITEM 1A.
RISK FACTORS. - continued
 
 RISKS ASSOCIATED WITH OUR BUSINESS - continued
  We have increasing cash requirements.





We have generated material operating losses since inception.  We have incurred a net loss of $14,392,763 from January 1, 2006 through December 31, 2009, including a net loss of $3,991,995 for the year ended December 31, 2009 and $6,158,755 for the year ended December 31, 2008.  We expect to continue to experience net operating losses.  Historically, we have relied upon outside investor funds to maintain our operations and develop our business.  We anticipate raising additional capital within the next 12 months from investors for working capital as well as business expansion and we can provide no assurance that additional investor funds will be available on terms acceptable to us.  These conditions raise substantial doubt about the ability of the Company to continue as a going concern.  If we are unable to generate profits and unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.





We are in default on our capital lease obligations.





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





We were in default on the capital lease obligations as of December 31, 2008 due to failure to maintain the minimum debt service coverage ratio identified in the leases by an amount of $35,000 as per notice from the debtor.  We were in default on the capital lease obligations as of December 31, 2009 due to failure to maintain the minimum debt service coverage ratio identified in the leases.  Accordingly we recorded the entire value of the leases as a current obligation.  If the lessors repossess the equipment, it would have an adverse effect on our revenues, results of operations and financial condition and our ability to implement our future growth plans.





We will need to increase the size of our organization and may experience difficulties in managing growth.





We are a small organization with a minimal number of employees.  We expect to experience a period of significant expansion in headcount, facilities, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities.  Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate managers.  Our future financial performance and its ability to compete effectively will depend, in part, on the ability to manage any future growth effectively.





We are dependent on key personnel and consultants and the loss of these key personnel and consultants could have a material adverse effect on our business, results of operations or financial condition.





Our success is heavily dependent on the continued active participation of our current executive officers listed under Item 8, below.  We do not have key-man insurance on any of our officers or consultants.  We are highly dependent upon certain consultants and collaborating scientists.  Loss of the services of one or more of our officers or consultants could have a material adverse effect upon our business, results of operations or financial condition.  Certain key employees have no employment contracts.





If we are unable to hire qualified personnel our business and financial condition may suffer.





Our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel.  Competition for qualified employees among pharmaceutical and biotechnology companies is intense, and the loss of any of such persons, or an inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on us.  Our inability to attract and retain the necessary technical and managerial personnel and consultants and scientific and/or regulatory consultants and advisors could have a material adverse effect on our business, results of operations or financial condition.




8
  ITEM 1A.
RISK FACTORS. - continued
 
 RISKS ASSOCIATED WITH OUR BUSINESS - continued
  We may rely on third parties to represent us locally in international markets and our revenue may depend on their efforts.





Our future success may depend, in part, on our ability to enter into and maintain collaborative relationships with one or more third parties, the collaborator’s strategic interest in the products under development and such collaborator’s ability to successfully market and sell any such products.  We intend to pursue collaborative arrangements regarding the sales and marketing of our products, however, we may not be able to establish or maintain such collaborative arrangements, or if we are able to do so, they may not have effective sales forces.  To the extent that we decide not to, or are unable to, enter into collaborative arrangements with respect to the sales and marketing of our proposed products, significant capital expenditures, management resources and time will be required to establish and develop an in-house marketing and sales force with technical expertise.  To the extent that we depend on third parties for marketing and distribution, any revenues received by us will depend upon the efforts of such third parties, which may not be successful.





Our revenues depend upon suitable markets.





Our revenues depend upon the successful production, marketing, and sales of the various isotopes we currently market and expect to market in the future.  The rate and level of market acceptance of these products may vary depending on the perception by physicians and other members of the healthcare community of its safety and efficacy as compared to that of competing products, if any; the clinical outcomes of any patients treated; the effectiveness of our sales and marketing efforts in the United States, Europe, and Russia; any unfavorable publicity concerning our products or similar products; price of our products relative to other products or competing treatments; any decrease in current reimbursement rates from the Centers for Medicare and Medicaid Services or third-party payers; regulatory developments related to the manufacture or continued use of our products; availability of sufficient supplies to either purchase or manufacture our products; ability to produce sufficient quantities of our products; and the ability of physicians to properly utilize our products and avoid excessive levels of radiation to patients.  Any material adverse developments with respect to the commercialization of the products we currently market or expect to market may cause us to continue to incur losses rather than profits in the future.





Our future growth is largely dependent upon our ability to develop new technologies that achieve market acceptance with acceptable margins.





Our businesses operate in global markets that are characterized by rapidly changing technologies and evolving industry standards.  Accordingly, our future growth rate depends upon a number of factors, including our ability to (i) identify emerging technological trends in our target end-markets, (ii) develop and maintain competitive products, (iii) enhance our products by adding innovative features that differentiate our products from those of our competitors, and (iv) develop, manufacture and bring products to market quickly and cost-effectively.





Our ability to develop new products based on technological innovation can affect our competitive position and requires the investment of significant resources.  These development efforts divert resources from other potential investments in our businesses, and they may not lead to the development of new technologies or products on a timely basis or that meet the needs of our customers as fully as competitive offerings.  In addition, the markets for our products may not develop or grow as we currently anticipate.  The failure of our technologies or products to gain market acceptance due to more attractive offerings by our competitors could significantly reduce our revenues and adversely affect our competitive standing and prospects.





General economic conditions in markets in which we do business can impact the demand for our goods and services.  Decreased demand for our products and services could have a negative impact on our financial performance and cash flow.





Demand for our products and services, in part, depends on the general economic conditions affecting the countries and industries in which we do business.  A downturn in economic conditions in a country or industry that we serve may negatively impact demand for our products and services, in turn negatively impacting our operations and financial results.  Further, changes in demand for our products and services can magnify the impact of economic cycles on our businesses.  Unanticipated contract terminations by current customers can negatively impact operations, financial results and cash flow.






9
  ITEM 1A.
RISK FACTORS. - continued
 
 RISKS ASSOCIATED WITH OUR BUSINESS - continued
  Our earnings, cash flow and financial position are exposed to financial market risks worldwide, including interest rate and currency exchange rate fluctuations and exchange rate controls.   Fluctuations in domestic and world markets could adversely affect interest rates and impact our ability to obtain credit or attract investors.  In order to reduce this risk the Company is structuring future agreements in such a manner that they provide for early termination provisions by the Company and continued development of the Company core business segments to such an extent that additional investment would not be required to sustain the Company as a going concern.





Volatility in raw material and energy costs, interruption in ordinary sources of supply and an inability to recover unanticipated increases in energy and raw material costs from customers could result in lost sales or significantly increase the cost of doing business.





Market and economic conditions affecting the costs of raw materials, utilities, energy costs, and infrastructure required to provide for the delivery of those goods and services, are beyond our control and any disruption or halt in supplies, or rapid escalations in costs could affect our ability to manufacture products or to competitively price our products in the marketplace.  To date to ultimate impact of these energy costs increases have been mitigated through price increases or offset through improved process efficiencies, however, continuing escalation of energy costs could have a negative impact upon business performance.





We are subject to uncertainties regarding reimbursement for use of our products.





Hospitals and freestanding clinics may be less likely to purchase our products if they cannot be assured of receiving favorable reimbursement for treatments using our products from third-party payers, such as Medicare and private health insurance plans.  Third-party payers are increasingly challenging the pricing of certain medical services or devices, and we cannot be sure that they will reimburse our customers at levels sufficient for us to maintain favorable sales and price levels for our products.  There is no uniform policy on reimbursement among third-party payers, and we can provide no assurance that our products will continue to qualify for reimbursement from all third-party payers or that reimbursement rates will not be reduced.  A reduction in or elimination of third-party reimbursement for treatments using our products would likely have a material adverse effect on our revenues.





Our patented technologies may infringe on other patents, which may expose us to costly litigation.





It is possible that our patented technologies may infringe on patents or other rights owned by others.  We may have to alter our products or processes, pay licensing fees, defend an infringement action or challenge the validity of the patents in court, or cease activities altogether because of patent rights of third parties, thereby causing additional unexpected costs and delays to us.  Patent litigation is costly and time consuming, and we may not have sufficient resources to pursue such litigation.  If we do not obtain a license under such patents, are found liable for infringement or are not able to have such patents declared invalid, we may be liable for significant money damages, may encounter significant delays in bringing products to market or may be precluded from participating in the manufacture, use or sale of products or methods of treatment requiring such licenses.





Protecting our intellectual property is critical to our innovation efforts.





We own or have a license to use several U.S. and foreign patents and patent applications, trademarks and copyrights.  Our intellectual property rights may be challenged, invalidated or infringed upon by third parties or we may be unable to maintain, renew or enter into new licenses of third party proprietary intellectual property on commercially reasonable terms.  In some non-U.S. countries, laws affecting intellectual property are uncertain in their application, which can affect the scope or enforceability of our patents and other intellectual property rights.  Any of these events or factors could diminish or cause us to lose the competitive advantages associated with our intellectual property, subject us to judgments, penalties and significant litigation costs, and/or temporarily or permanently disrupt our sales and marketing of the affected products or services.






10
  ITEM 1A.
RISK FACTORS. - continued
 
 RISKS ASSOCIATED WITH OUR BUSINESS - continued
  We may not be able to protect our trade secrets and other unpatented proprietary technology which could give our competitors an advantage over us.





We rely upon trade secrets and other unpatented proprietary technology.  We may not be able to adequately protect our rights with regard to such unpatented proprietary technology or competitors may independently develop substantially equivalent technology.  We seek to protect trade secrets and proprietary knowledge, in part through confidentiality agreements with our employees, consultants, advisors and collaborators.  Nevertheless, these agreements may not effectively prevent disclosure of our confidential information and may not provide us with an adequate remedy in the event of unauthorized disclosure of such information and as a result our competitors could gain a competitive advantage.





We may incur material losses and costs as a result of product liability claims that may be brought against us.





We face an inherent business risk of exposure to product liability claims in the event that products supplied by us fail to perform as expected or such failure results, or is alleged to result, in bodily injury, and possible adverse publicity, which could damage our reputation by raising questions about our products' safety and efficacy, and could interfere with our efforts to market our products.





We are subject to the risk that certain third parties may mishandle our product.





We rely on third parties, such as Federal Express, to deliver our products, and on other third parties to package our products in certain specialized packaging forms requested by customers.  We are subject to the risk that these third parties may mishandle our product, which could result in adverse effects, particularly given the radioactive nature of some of our products.  A successful product liability claim against us in excess of our available insurance coverage or established reserves may have a material adverse effect on our business.  Although we currently maintain liability insurance in amounts we believe are commercially reasonable, any product liability we incur may exceed our insurance coverage.





We are subject to extensive government regulation in jurisdictions around the globe in which we do business. Regulations address, among other things, environmental compliance, import/export restrictions, healthcare services, taxes and financial reporting, and can significantly increase the cost of doing business, which in turn can negatively impact our operations, financial results and cash flow.





As we expand our manufacturing capability, we will be subject to extensive government regulation and intervention both in the United States and in all foreign jurisdictions in which we conduct business.  Compliance with applicable laws and regulations will result in higher capital expenditures and operating costs and changes to current regulations with which we comply can necessitate further capital expenditures and increases in operating costs to enable continued compliance.  Additionally, from time to time, we may be involved in proceedings under certain of these laws and regulations.  Foreign operations are subject to political instabilities, restrictions on funds transfers, import/export restrictions and currency fluctuation.





Our operations expose us to the risk of material environmental liabilities.





We are subject to potentially material liabilities related to the remediation of environmental hazards and to personal injuries or property damages that may be caused by hazardous substance releases and exposures.  We are subject to various federal, state, local and foreign government requirements regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.  These laws and regulations can impose substantial fines and criminal sanctions for violations, and require installation of costly equipment or operational changes to limit emissions and/or decrease the likelihood of accidental hazardous substance releases.  We expect to incur capital and operating costs to comply with these laws and regulations.  In addition, changes in laws, regulations and enforcement of policies, the discovery of previously unknown contamination or new technology or information related to individual sites, or the imposition of new clean-up requirements or remedial techniques could require us to incur costs in the future that would have a negative effect on our financial condition or results of operations.  Operational hazards could result in the spread of contamination within our facility and require additional funding to correct.








11
  ITEM 1A.
RISK FACTORS. - continued
 
 RISKS ASSOCIATED WITH OUR BUSINESS - continued
  Future production increases will depend on our ability to acquire larger quantities of O-18.





We currently obtain O-18 through international sources.  The amount of O-18 that can be produced from a given reactor source is limited by the power level and volume available within the reactor for irradiating targets.  There is no assurance that the Company will have a continuing sufficient supply of O-18 and if sufficient supplies are attained, we will need to increase our manufacturing staff.





We Rely Heavily On A Limited Number Of Suppliers.





Some of the products we market and some of the materials used in the products we manufacture are currently available only from a limited number of suppliers; many of which are from international suppliers.  The Company plans to expand the availability of its supplies and products utilizing manufacturing capability at reactors located at National Laboratories as well as production capabilities at various universities and foreign countries other than Russia.  This strategy will reduce the risk associated with concentrating isotope production at a single reactor facility.  Failure to obtain deliveries from these sources could have a material adverse effect on our production and there may be a delay before we could locate alternative suppliers.  We may not be able to locate alternative suppliers capable of producing the level of output of at the quality standards we require.  Additional factors that could cause interruptions or delays in our source of materials include limitations on the availability of raw materials or manufacturing performance experienced by our suppliers and a breakdown in our commercial relations with one or more suppliers.  Some of these factors may be completely out of our and our suppliers’ control.  We do not have formal written agreements with any key supplier.  Any interruption or delay in the supply of materials required to produce our products could harm our business if we were unable to obtain an alternative supplier or substitute equivalent materials in a cost-effective and timely manner.





RISKS RELATED TO OUR COMMON STOCK





There is a limited public market for our common stock.  Failure to develop or maintain a trading market could negatively affect the value of our shares and make it difficult or impossible for shareholders to sell their shares





To date there is a limited trading market in our common stock on the Pink Sheets.  Failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult for our shareholders to sell their shares or recover any part of their investment in us.  The market price of our common stock may be highly volatile.  In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our common stock.





Our stock price is likely to be volatile.





There is generally significant volatility in the market prices and limited liquidity of securities of early stage companies, and particularly of early stage medical product companies.  Contributing to this volatility are various events that can affect our stock price in a positive or negative manner.  These events include, but are not limited to: governmental approvals, refusals to approve, regulations or actions; market acceptance and sales growth of our products; litigation involving the Company or our industry; developments or disputes concerning our patents or other proprietary rights; changes in the structure of healthcare payment systems; departure of key personnel; future sales of our securities; fluctuations in our financial results or those of companies that are perceived to be similar to us; investors’ general perception of us; and general economic, industry and market conditions.  If any of these events occur, it could cause our stock price to fall.





Future sales by shareholders, or the perception that such sales may occur, may depress the price of our common stock.





The sale or availability for sale of substantial amounts of our shares in the public market, including shares issuable upon exercise of warrants and options, or the perception that such sales could occur, could adversely affect the market price of our common stock and also could impair our ability to raise capital through future offerings of our shares.








12
  ITEM 1A.
RISK FACTORS. - continued
 
 RISKS RELATED TO OUR COMMON STOCK - continued
  Our controlling shareholders may exercise significant control over us.





Our directors, executive officers and principal shareholders beneficially own approximately 62.2% of the outstanding shares of our common stock.  Our shareholders do not have cumulative voting rights with respect to the election of directors.  If our principal shareholders vote together, they could effectively elect all of our directors.





The issuance of shares upon exercise of derivative securities may cause immediate and substantial dilution to our existing shareholders.





We have outstanding options and warrants for the issuance of 5,049,327 shares as of the year ended December 31, 2009.  Any decline in the price of our common stock may encourage short sales, which could place further downward pressure on the price of our common stock and may impair our ability to raise additional capital through the sale of equity securities.  The issuance of shares upon the exercise of warrants and options may result in substantial dilution to the interests of other shareholders since these selling shareholders may ultimately convert or exercise and sell all or a portion of the full amount issuable upon exercise.  The issuance of these shares will have the effect of further diluting the proportionate equity interest and voting power of holders of our common stock.





We do not expect to pay any dividends for the foreseeable future.





We do not anticipate paying any dividends to our shareholders for the foreseeable future.  The terms of certain of our outstanding indebtedness substantially restrict the ability of us to pay dividends.  Accordingly, shareholders must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur.  Any determination to pay dividends in the future will be made at the discretion of our Board of Directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our Board deems relevant.





Our common stock is subject to the “Penny Stock” rules of the SEC and the trading market in our securities is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in our stock.





The Securities and Exchange Commission has adopted Rule 3a51-1 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions.  For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker or dealer approve a person's account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.





In order to approve a person's account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.





The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, sets forth the basis on which the broker or dealer made the suitability determination, and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.





Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules.  This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.





Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.






13




ITEM 1B.
UNRESOLVED STAFF COMMENTS.





We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.








ITEM 2.
PROPERTIES.





Our headquarters has office and production space which makes it adequate for the Company to conduct its ongoing business operations.





On July 17, 2007, the Company entered into a lease at 6211 West Okanogan Avenue, Kennewick Washington, 99336 to be used as the company’s production center.  The term of the lease was five years and it commenced on August 1, 2007.  Monthly rent for the first year of tenancy was $3,500.  Under the terms of the lease, the monthly rent would increase 8% each year so that monthly rent for the year beginning August 1, 2008 was $3,780, monthly rent for the year beginning August 1, 2009 was $4,092.  The landlord of this space is non-affiliated shareholder of the company, though one that holds less than 5 percent of the total outstanding shares.





Additionally, in June 2008, the Company entered into two 12-month leases for its corporate offices with three 4-month options to renew, but in no event will the leases extend beyond May 31, 2010.  These lease agreements call for monthly rental payments of $2,733 and $2,328 per month respectively.  During the period covered by this report, effective November 1, 2009, the Company terminated that portion of the lease agreements consisting of the $2,328 per month payment.








ITEM 3.
LEGAL PROCEEDINGS.





Presently, there are not any material pending legal proceedings to which the Registrant is a party or as to which any of its property is subject, and the Registrant does not know nor is it aware of any legal proceedings threatened or contemplated against it.








ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS.





During the fourth quarter of 2009, there were no matters submitted to a vote of the shareholders.















14





PART II








ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market Information





Our common stock is traded on the Pinksheets under the symbol “ADMD.PK.”  The following table sets forth, in U.S. dollars the high and low bid prices for each of the calendar quarters indicated, as reported by the Pinksheets for the past two fiscal years.  The prices in the table may not represent actual transactions and do not include retail markups, markdowns or commissions.





Company Common Stock

Bid PricesHigh


Low2009Quarter ended December 31

$
0.65


$
0.29Quarter ended September 30


0.39



0.18Quarter ended June 30


0.35



0.21Quarter ended March 31


0.50



0.272008Quarter ended December 31

$
0.72


$
0.26Quarter ended September 30


0.78



0.35Quarter ended June 30


0.89



0.44Quarter ended March 31


0.84



0.56





Holders





As of February 28, 2010 there were 53,249,730 shares of common stock outstanding and approximately 180 stockholders of record.





Dividend Policy





We have not paid any cash dividends on our common stock to date and do not anticipate we will pay dividends in the foreseeable future.  The payment of dividends in the future will be contingent upon revenues and earnings, if any, capital requirements, and our general financial condition.  The payment of any dividends will be within the discretion of the then Board of Directors.  It is the present intention of the Board of Directors to retain all earnings, if any, for use in the business operations.  Accordingly, the Board does not anticipate declaring any dividends in the foreseeable future.


















15


ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. - continued
 
 Securities Authorized for Issuance Under Equity Compensation Plans





We currently do not have any compensation plan under which equity securities are authorized for issuance.  We have however granted and issued options and warrants to purchase and acquire shares of our common stock.  The following table sets forth information as of December 31, 2009 and 2008, with respect to our equity compensation plans previously approved by shareholders and equity compensation plans not previously approved by shareholders.





Equity Compensation Plan InformationPlan Category

Number of securities to

be issued upon exercise

of outstanding options,

warrants and rights

Weighted-average

exercise price of

outstanding options,

warrants and rights

Number of securities

remaining available for

future issuance under

equity compensation

plans (excluding

securities reflected in

column (a))(a)

(b)

(c)Equity compensation plans approved by stockholders

0

$
0

0Equity compensation plans not approved by stockholders

3,655,000

$
0.45

0Total

3,655,000
(1)
$
0.45
(1)
0





(1)This information is provided in conjunction with the instructions to Paragraph (d) as required for Item 201 of  Regulation S-K.  While there are no equity compensation plans in general, the Company does have individual compensation arrangements under which equity securities are authorized for issuance in exchange for consideration in the form of goods or services of certain individuals.





Recent Sales of Unregistered Securities





In October 2009 the Company issued 13,889 restricted shares of its common stock in exchange for a cash contribution of $5,000 from an accredited investor.  No underwriters were used.  The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In October 2009 the Company received $155,000 from an accredited investor in exchange for a one year convertible note at ten percent interest.  The note and the interest can be converted into stock at $.51 at election of note holder.  The note holder also received 66,000 restricted shares of common stock for entering into this transaction.  No underwriters were used.  The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.





In November 2009 the Company received $200,000 from an accredited investor in exchange for a one year convertible note at ten percent interest.  The note and the interest can be converted into stock at $.59 at election of note holder.  The note holder also received 80,000 restricted shares of common stock for entering into this transaction.  No underwriters were used.  The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.





In December 2009 the Company received $100,000 from an accredited investor in exchange for a one year convertible note at ten percent interest.  The note and the interest can be converted into stock at $.59 at election of note holder.  The note holder also received 40,000 restricted shares of common stock for entering into this transaction.  No underwriters were used.  The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.












16
 ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDERMATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. - continued




Recent Sales of Unregistered Securities  - continued





In December 2009 the Company issued 56,818 restricted shares of its common stock in exchange for a cash contribution of $25,000 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In December 2009 the Company issued 40,000 restricted shares of its common stock in exchange for a cash contribution of $23,200 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In December 2009 the Company issued 50,000 restricted shares of common stock in consideration of the capital contribution of $31,143 through the conversion of the unpaid fees due and owing for consultation regarding the possible expansion of the linear accelerator facilities.  No underwriters were used.  The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In December 2009 the Company issued 8,620 restricted shares of its common stock in exchange for a cash contribution of $5,000 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





Subsequent to the Period Covered by this Report





In January 2010, James C. Katzaroff, the Company’s Chief Executive Officer and Chairman of the Board exercised an option to purchase 250,000 shares of the Company’s restricted common stock at an exercise price of $.29 per share.  The Company issued 250,000 restricted shares of its common stock in exchange for a cash contribution of $72,500.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In January 2010 the Company received $100,000 from an accredited investor in exchange for a one year convertible note at ten percent interest.  The note and the interest can be converted into stock at $.50 at election of note holder.  The note holder also received 40,000 shares of common stock for entering into this transaction.  The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.





In January 2010 the Company issued 25,000 restricted shares of its common stock in exchange for a cash contribution of $14,500 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In January 2010 the Company issued 41,667 restricted shares of its common stock in exchange for a cash contribution of $20,000 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In January 2010 the Company issued 15,625 restricted shares of its common stock in exchange for a cash contribution of $7,500 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In January 2010 the Company issued 8,620 restricted shares of its common stock in exchange for a cash contribution of $5,000 from an accredited investor.  No underwriters were used. The securities were issued pursuant to an exemption from registration provided under Section 4(2) of the Securities Act of 1933.





In February 2010 the Company issued 700,000 shares to two consultants for consulting services valued at $.50 per share or $350,000.  The securities were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.





In February 2010 the Company received $100,000 from an accredited investor in exchange for a one year convertible note at ten percent interest. The note and the interest can be converted into stock at $.50 at election of note holder. The note holder also received 40,000 shares of common stock for entering into this transaction.  The securities and convertible note were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act and Regulation D promulgated pursuant thereto.








17





ITEM 6.
SELECTED FINANCIAL DATA.





We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.








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





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





Comparison for the Year Ended December 31, 2009 and December 31, 2008





The following table sets forth information from our statements of operations for the years ended December 31, 2009 and 2008.





Year Ended

December 31, 2009


Year Ended

December 31, 2008Revenues

$
320,363


$
268,242Cost of goods sold


125,685



155,457Gross profit


194,678



112,785Operating expenses


2,744,327



6,052,087Operating loss


(2,549,649
)


(5,939,302
)Non-operating expenses


(602,718
)


-Interest expense


(839,628
)


(219,453
)Net income (loss)

$
(3,991,995
)

$
(6,158,755
)





Revenue





Revenue was $320,363 for the year ended December 31, 2009 and $268,242 for the year ended December 31, 2008.  The increase was the result of F-18 sales.  In July 2008 we established our linear accelerator production center and began the production and marketing of F-18 in August 2008.  F-18 sales accounted for $225,300 of the total twelve months ended December 31, 2009 revenues and $76,500 of the twelve months ended December 31, 2008 revenues.  Stable isotope sales were $95,063 and $191,742 for the twelve months ended December 31, 2009 and 2008 respectively.  Revenue for stable isotopes were lower in the twelve months ended December 31, 2009 as a result of lower volume partially offset by higher pricing.





Cost of Goods Sold





Cost of Goods Sold for the twelve months ended December 31, 2009 was $125,685.  Cost of goods sold for the twelve months ended December 31, 2008 was $155,457.  The cost of goods sold of $155,457 for the twelve months ended December 31, 2008, equal to 58.0% of total revenues, consists of $39,198 for F-18 costs, 51.2% of F-18 revenues, and $116,259 for stable isotopes, 60.6% of stable isotope revenues.  The $125,685 cost of goods sold for the twelve months ended December 31, 2009, equal to 39.2% of total revenues, consists of $69,178, 72.8% of associated revenues for stable isotopes and $56,507, 25.1% of associated revenues for F-18 production (consisting mostly of supplies).  The reason for the overall decrease in the cost of goods sold percentage from the twelve months ended December 31, 2008 (58.0%) to the twelve months ended December 31, 2009 (39.2%) was due to an increase in production and distribution of F-18 which has a lower cost of goods sold associated with it.






18


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
  Cost of Goods Sold  - continued




Twelve months ended December 31, 2009


Twelve months ended December 31, 2008F-18



Stable Isotopes



F-18



Stable IsotopesRevenues
$
225,300



100
%

$
95,063



100
%

$
76,500



100
%

$
191,742



100
%Cost of goods sold
$
56,507



25.1
%

$
69,178



72.8
%

$
39,198



51.2
%

$
116,259



60.6
%





Operating Expenses





Operating expenses for the twelve months ended December 31, 2009 and 2008 were $2,744,327 and $6,052,087 respectively.  The decrease in operating expenses from 2008 to 2009 can be attributed largely to amortization of licenses and intangible assets ($25,000 for the twelve months ended December 31, 2009 versus $1,242,958 for the twelve months ended December 31, 2008), professional fees ($766,861 for the twelve months ended December 31, 2009 versus $1,281,557 for the twelve months ended December 31, 2008), stock options granted ($480,024 for the twelve months ended December 31, 2009 versus $1,211,392 for the twelve months ended December 31, 2008) and payroll expense ($433,175 for the twelve months ended December 31, 2009 versus $574,228 for the twelve months ended December 31, 2008) partially offset by an increase in depreciation ($537,671 for the twelve months ended December 31, 2009 versus $288,256 for the twelve months ended December 31, 2008).





In 2008, due to the Company’s lack of funds to act upon the patent license for the neutron generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.   Since other companies made progress towards the development of the patent license technology and management no longer has the means or interest in pursuing the development of this technology, the Company’s management determined that the patent license for the Neutron Generator no longer had value to the Company and wrote off the net unamortized portion balance of $643,917 in 2008.





Further, in 2008, due to the lack of forward progress on developing products with the intangible assets acquired from Isonics and competitors working to improve similar technology and secure customers coupled with the Company’s lack of funds, it is the Company’s management’s opinion that the Company has fallen behind the competition and the intangible assets acquired from Isonics no longer have value to the Company, the Company wrote off the total net unamortized portion balance of $259,618 in 2008.





Twelve months Ended

December 31, 2009


Twelve months Ended

December 31, 2008Depreciation and amortization expense

$
562,671


$
1,531,214Impairment expense


-



903,535Professional fees


766,861



1,281,557Stock options granted


480,024



1,211,392Payroll expenses


433,175



574,228General and administrative expenses


494,969



510,813Sales and marketing expense


6,627



39,348$
2,744,327


$
6,052,087





Non-Operating Expense





Non operating expense for the twelve months ended December 31, 2009 and 2008 was $1,442,346 and $219,453, respectively.  The increase in non-operating loss is due to an increase in interest expense ($839,628 for the twelve months ended December 31, 2009 versus $219,453 for the twelve months ended December 31, 2008), and loss on settlement of debt ($602,718 for the twelve months ended December 31, 2009 versus $0 for the twelve months ended December 31, 2008).








19


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Net Loss





Our net loss for the twelve months ended December 31, 2009 and 2008 was $3,991,995, and $6,158,755, respectively, as a result of the items described above.





Liquidity and Capital Resources





Twelve Months Ended December 31, 2009





At December 31, 2009, we had negative working capital of $4,145,881, as compared to $6,278,593 at December 31, 2008.  During the twelve months ended December 31, 2009 we experienced negative cash flow from operations of $1,013,028, and we expended $316,882 for investing activities while adding $1,280,841 of cash flows from financing activities.  As of December 31, 2009, we had $0 commitments for capital expenditures.





Cash used in operating activities decreased from $1,543,998 for the twelve month period ending December 31, 2008 to $1,013,028 for the twelve month period ending December 31, 2009.  Cash used in operating activities was primarily a result of our net loss, partially offset by non-cash items, such as amortization and depreciation, included in that net loss and common stock and stock options issued for services and other expenses.  Cash used in investing activities decreased from $1,710,590 for the twelve month period ended December 31, 2008 to $316,882 for the twelve month period ended December 31, 2009.  Cash was used to acquire equipment during the 2008 twelve month period.  We generated less cash from investing activities in the twelve months ended December 31, 2009 as we had lower proceeds of cash from sales of common stock and we had proceeds from a capital lease in the twelve month period ended December 31, 2008.





We have generated material operating losses since inception.  We have incurred a net loss of $14,392,764 from January 1, 2006 through December 31, 2009, including a net loss of $3,991,995 for the twelve months ended December 31, 2009.  We expect to continue to experience net operating losses.  Historically, we have relied upon outside investor funds to maintain our operations and develop our business.  We anticipate raising additional capital within the next twelve months from investors for working capital as well as business expansion and we can provide no assurance that additional investor funds will be available on terms acceptable to us.  If we are unable to obtain additional financing to meet our working capital requirements, we may have to curtail our business.





We have modified our growth and operating plans as a result of our continuing losses.  The going concern disclosure in Note 1 to our audited financial statements for the years ended December 31, 2009 and 2008 anticipated that we would need $1 million in funds over the next twelve months to maintain current operation activities.  Our financial statements were issued on February 26, 2010.  As a result of changes to our business plans since that date, our current cash run rate is approximately $1 million.





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





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





Year Ended December 31, 2008





At December 31, 2008, we had negative working capital of $4,491,859, as compared to $3,373,417 at December 31, 2007, and $3,244,190 at December 31, 2006.  During the twelve months ended December 31, 2008 we experienced negative cash flow from operations of $1,543,998, and we expended $1,710,590 for investing activities while adding $3,286,711 from financing activities.  As of December 31, 2008, we had $150,000 commitments for capital expenditures.





20
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Liquidity and Capital Resources  - continued




Net cash used for operating activities in 2008 was $1,543,998 compared to $312,978 in 2007.  The $1,231,020 increase in cash used was a result of a net loss that was $3,298,364 higher in 2009 partially offset by higher non-cash expenses included in the 2008 net loss, primarily $1,211,392 for common stock issued for services in 2008, an increase of $1,093,072 compared against $118,320 in 2007 and $903,535 for the impairment of intangible assets in 2008.  In 2008, Due to the Company’s lack of funds to act upon the patent license for the Neutron Generator and develop the technology, the Company lost considerable ground towards the advantages of utilization of the patent license.  Since other companies made progress towards the development of the patent license technology and management no longer has the means or interest in pursuing the development of this technology, the Company’s management determined that the patent license for the Neutron Generator no longer had value to the Company and wrote off the net unamortized portion balance of $643,917 in 2008.  Further, in 2008, due to the lack of forward progress on developing products with the intangible assets acquired from Isonics and competitors working to improve similar technology and secure customers coupled with the Company’s lack of funds, it is the Company’s management’s opinion that the Company has fallen behind the competition and the intangible assets acquired from Isonics no longer have value to the Company, the Company wrote off the total net unamortized portion balance of $259,618 in 2008.  The issues affecting the value and related writeoff of our intangible assets did not affect any of our fixed assets.





Net cash used in investing activities in 2008 increased $154,483 to $1,710,590 from $1,556,107 in 2007 as a result of an additional $788,639 used to purchase equipment in 2008, partially offset by cash used to buy intangible assets in 2007.  In 2008, we used $829,800 to purchase an accelerator.





Net cash provided by financing activities in 2008 increased $1,377,474 to $3,286,711 from $1,909,237 in 2007.  The increase was primarily a result of a $1,051,128 increase in proceeds from capital leases and a $477,281 increase in proceeds from the cash sales of our common shares, partially offset by an increase of $249,501 in principal payments on our capital leases.





Contractual Obligations (payments due by period as of December 31, 2009)





Contractual Obligation

Total Payments Due


Less

than

1 Year


1-3 Years


3-5 Years


More than

5 YearsCapital Lease Obligation

$
1,839,418


$
374,345


$
1,151,074


$
313,999


$Production center lease


105,293



50,622



54,671Corporate office lease


13,665



13,665License agreement with Regents of the University of California


385,000



25,000



120,000



180,000



60,000 per year





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





We were in default on the capital lease obligation as of December 31, 2008 due to failure to maintain the minimum debt service coverage ratio identified in the Lease by an amount of $35,000 as per notice from the debtor.  We believed at the time of the issuance of the December 31, 2008 financial statements that we had remedied the default which existed at year end.  Accordingly we recorded a current and long term portion of the capital leases.  Subsequent to the issuance of the December 31, 2008 financial statements, we determined that more likely than not that it is in default of the terms of the capital leases.  Accordingly we recorded the entire value of the leases as a current obligation.  The Company was in default on the capital lease obligation as of December 31, 2009 due to failure to maintain the minimum debt service ratio identified in the lease.





We began renting office and warehouse space effective August 1, 2007, located in Kennewick, Washington from a non-affiliated shareholder.  The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011.  During the year ended December 31, 2009 and 2008 the Company incurred rent expenses for this facility totaling $46,872 and $43,400, respectively.  In addition, the lease agreement calls for the issuance of $187,500 in common stock valued at $.40 per share for a total of 416,667 shares.  The company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease.  For the twelve months ended December 31, 2009 and 2008 the Company amortized $37,500 and $37,500, respectively, of this stock issuance and recognized it as rent expense.




21
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Contractual Obligations (payments due by period as of December 31, 2009)  - continued
  Future minimum rental payments required under the Company’s current rental agreement in excess of one year as of December 31, 2009, are as follows:





Twelve months ended December 31, 2010

$
50,622Twelve months ended December 31, 2011


54,671Twelve months ended December 31, 2012


33,332Twelve months ended December 31, 2013


-Total

$
138,625





Additionally, in June 2008, the Company entered into two twelve month leases for its corporate offices with three four month options to renew, but in no event will the lease extend beyond May 31, 2010.  The lease agreement calls for monthly rental payments of $2,733 and $2,328 per month.  During the twelve months ended December 31, 2009 and 2008 the Company incurred rent expenses for this facility totaling $56,076 $31,708, respectively.  Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month.





Future minimum rental payments required under the Company’s current rental agreement in excess of one year as of December 31, 2009, are as follows:





Twelve months ended December 31, 2010

$
13,665Twelve months ended December 31, 2011


-Twelve months ended December 31, 2012


-Twelve months ended December 31, 2013


-Total

$
13,665





Off-Balance Sheet Arrangements





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





Quantitative and Qualitative Disclosures about Market Risk





We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.





Critical Accounting Policies





Use of Estimates





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







22
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued





Cash Equivalents





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





Accounts Receivable





Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2009, the Company has experienced no bad debt write offs from operations.





Inventory





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





Fixed Assets





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





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





Production equipment
3 to 7 years


Office equipment
2 to 5 years


Furniture and fixtures
2 to 5 years





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





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





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





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


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


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


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


·
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.


23
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued




·
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.





The fair value of assets is first determined by quoted market prices, if available. Otherwise, the estimate of fair value is based on the best information available in the circumstances, including prices for similar assets and the results of using other valuation techniques. If quoted market prices are not available a present value technique is often the best available valuation technique with which to estimate fair value. It is believed that an expected present value technique is superior to a traditional present value technique, especially in situations in which the timing or amount of estimated future cash flows is certain.





The traditional approach is useful for many measurements, especially those in which comparable assets and liabilities can be observed in the marketplace. However the traditional approach does not provide the tools needed to address some complex measurement problems, including the measurement of nonfinancial assets and liabilities for which no market for the item or a comparable item exists. The traditional approach places most of the emphasis on selection of an interest rate. A proper search for “the rate commensurate with the risk” requires analysis of at least two items – one asset or liability that exists in the marketplace and has an observed interest rate and the asset or liability being measured. The appropriate rate of interest for the cash flows being measured must be inferred from the observable rate of interest in some other asset or liability and, to draw that inference, the characteristics of the cash flows must be similar to those of the asset being measured.





Although management has made its best estimate of the factors that affect the carrying value based on current conditions, it is reasonably possible that changes could occur which could adversely affect management’s estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.





License Fees





License fees resulted from the acquisition of a patent license, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000, and from the result of the acquisition of a patent license, for a Nutron Generator, from Neu-Hope Technologies for preferred stock valued, at the time of acquisition, at $3,040,000, discounted for 4.25% incremental borrowing rate to $2,897,625. License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets.





The Company periodically reviews the carrying values of patents and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value. In accordance with this policy, management concluded the patent license for the Nutron Generator was no longer of value to the Company. This decision resulted in the Company writing off the net unamortized portion balance of $643,917 in 2008.





Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $25,000 and $990,875 for the years ended December 31, 2009 and 2008, respectively. Based on the license fees recorded at December 31, 2009, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $2,083, will be fully amortized during the year ending December 31, 2010.





Intangible Assets





Intangible assets resulted from the purchase, for cash, from Isonics Corporation, the rights to intellectual property related to the production of isotopes, customer lists, contracts and agreements with third party companies, and certain equipment. The Company allocated the purchase price to each of the assets based upon the Companies believe of the long term value of each of those assets and comparison to replacement cost, where that information was available. Intangible assets are stated at cost, less accumulated amortization. Amortization of intangible assets is computed using the straight-line method over the estimated economic useful life of the assets.








24
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued





An impairment loss must be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the estimated fair value of the asset if the asset is expected to be held and used.





The Company periodically reviews the net carrying values of intangible assets and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value. In accordance with this policy, management concluded the intangible assets acquired from Isonics were no longer of value to the Company. This decision resulted in the Company writing off the total net unamortized portion balance of $259,618 in 2008.





Amortization was computed using the straight-line method over the following estimated useful lives:





Intellectual property
3 years


Contracts and agreements
3 years


Customer lists
2 years





Amortization of intangible assets was $0 and $252,083 for the years ended December 31, 2009 and 2008, respectively. All intangible assets were fully written off as of December 31, 2008 and so no further amortization of intangible assets will be recognized from these assets in ensuing years.





Patents





Patent filing costs totaling $24,594 were capitalized at December 31, 2008 and another $81,882 were capitalized during the twelve months ended 2009; resulting in a total $106,476 of capitalized patents at December 31, 2009.  The patents are pending and are being developed, as such, they are not being amortized.  Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued.  The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.





Revenue Recognition





The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.





Revenue for the first half of fiscal year ended December 31, 2008 was derived solely from the sales of Oxygen 18, which is used in the production of medical isotopes. In July 2008 the Company also began recognizing revenue from the production of Floride 18 produced with the Linear Accelerator. Revenue for the fiscal year ended December 31, 2009 consisted of both the sales of Oxygen 18 and Floride 18. The Company recognizes revenue once an order has been received and shipped to the customer. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.





Net Loss Per Share





The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.






25
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued
  Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2009 and 2008 are as follows:




2009


2008Convertible debt

$
5,150,333


$
1,269,541Preferred stock


-



7,577,381Common stock options


5,049,327



5,609,021Total potential dilutive securities

$
10,199,660


$
14,455,943





Research and Development Costs





Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.





The Company incurred $67,006 and $90,150 research and development costs for the years ended December 31, 2009 and 2008 respectively.





Advertising and Marketing Costs





Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were no tradeshow expenses incurred and not expensed as of the years ended December 31, 2009 and 2008.





Shipping and Handling Costs





Shipping and handling costs are expensed as incurred and included in cost of product sales.





Legal Contingencies





In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.





Income Taxes





To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.




The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and Delaware.  The Company did not have any tax expense for the years ended December 31, 2009 and 2008.  The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2009 and 2008.








26
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued
  Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's consolidated financial statements. For the years ended December 31, 2009 and 2008, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.





Fair Value of Financial Instruments





The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.





Stock-Based Compensation





The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, 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.





We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete.  The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.





Recent Accounting Pronouncements





In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification TM (ASC) and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). For the Company, the ASC was effective July 1, 2009. This standard did not have an impact on the Company’s consolidated results of operations or financial condition. However, throughout the notes to the consolidated financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.





In April 2009, the FASB issued an accounting standard which provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying transactions that are not orderly. The standard also amended certain disclosure provisions for fair value measurements and disclosures in ASC 820 to require, among other things, disclosures in interim periods of the inputs and valuation techniques used to measure fair value as well as disclosure of the hierarchy of the source of underlying fair value information on a disaggregated basis by specific major category of investment. For the Company, this standard was effective prospectively beginning April 1, 2009. The adoption of this standard did not have a material impact on the Company‘s consolidated results of operations or financial condition.





In May 2009, the FASB issued a new accounting standard regarding subsequent events. This standard incorporates into authoritative accounting literature certain guidance that already existed within generally accepted auditing standards, with the requirements concerning recognition and disclosure of subsequent events remaining essentially unchanged. This guidance addresses events which occur after the balance sheet date but before the issuance of financial statements. Under the new standard, as under previous practice, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that did not exist at the balance sheet date. This standard added no additional required disclosure relative to the date through which subsequent events have been evaluated. For the Company, this standard was effective beginning April 1, 2009.






27
 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. - continued
 
 Critical Accounting Policies  - continued
  In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value , which provides additional guidance on how companies should measure liabilities at fair value under ASC 820. The ASU clarifies that the quoted price for an identical liability should be used. However, if such information is not available, a entity may use the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered level 1 fair value measurements For the Company this ASU was effective October 1, 2009. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations or financial condition.








ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.








ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.





All financial information required by this Item is attached hereto at the end of this report beginning on page F-1 of Exhibit FS and is hereby incorporated by reference.








ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTINGAND FINANCIAL DISCLOSURE.





Previously disclosed in our Form 10 filed November 12, 2008.








ITEM 9A(T).
CONTROLS AND PROCEDURES.





Disclosure Controls and Procedures





Based on an evaluation as of the date of the end of the period covered by report, our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as required by Exchange Act Rule 13a-15.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in the reports that we file or submit 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 our 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 our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.








28




ITEM 9A(T).
CONTROLS AND PROCEDURES. - continued
 
 Management’s Annual Report on Internal Control Over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rule 13a-15(f).  Management conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 2009, using the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.





A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  As a result of management’s assessment, management has determined that there is a material weakness due to the lack of segregation of duties.  In order to address and resolve this weakness we will endeavor to locate and appoint additional qualified personnel to the board of directors and pertinent officer positions as our financial means allow.  To date, our limited financial resources have not allowed us to hire the additional personnel necessary to address this material weakness.




Additionally, as a result of management’s assessment, management has determined that there is a significant deficiency with regard to the lack of a backup process for electronic financial information.  There is no stored backup offsite or in a media safe, and as such, there are no regularly run test restorations of said financial information.  In order to address and resolve this deficiency we are currently researching the options available given our financial means to have a regularly scheduled and dependable offsite backup of our Company records.




This Annual Report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.





Changes in Internal Control Over Financial Reporting





There has been no change in our internal control over financial reporting that occurred during our last fiscal quarter (our fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, our 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.





29


ITEM 9B.
OTHER INFORMATION.





None.








PART III








ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





Identification of directors and executive officers





Our current directors and executive officers are as follows:





NAME

AGE

POSITIONJames C. Katzaroff

52

CEO and ChairmanL. Bruce Jolliff

60

Chief Financial OfficerCarlton Cadwell

65

DirectorMichael Korenko

64

Director





Term of Office





All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified.  Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.





Background and Business Experience





The business experience during the past five years of each of the persons presently listed above as an Officer or Director of the Company is as follows:





James C. Katzaroff,the Chief Executive Officer and Chairman of the Board is the founder of Advanced Medical Isotope Corporation.  Initially a financial consultant with Wall Street firms Bateman Eichler, Smith Barney and EF Hutton, Mr. Katzaroff has been responsible for senior-level corporate strategy, fostering investment banking relationships, and served as a senior financial advisor for numerous start-ups and development-stage companies.  From 1998 to 2001, Mr. Katzaroff held senior positions including Chief Financial Officer, Senior Vice President of Finance, Senior Vice President, and Corporate Secretary of Telemac Corporation, an international communications company active in the wireless telephony market.  In 2001 he became Chairman and CEO of Apogee Biometrics, and in 2004 became President of Manakoa Services Corporation, currently serving as its interim CEO.  He holds a Bachelor’s Degree in Business Economics from the University of California, Santa Barbara, and has completed advanced management courses at the University of Washington.





Leonard Bruce Jolliff, the Chief Financial Office, joined Advanced Medical Isotope Corporation as chief financial officer in 2006.  For nine years prior to joining the Company, Mr. Jolliff was a sole practitioner in the role of CFO for Hire and as a Forensic Accountant, working with companies ranging from Fortune 500 to small family operations.  Mr. Jolliff is a CPA and a member of the Washington Society of CPAs.  He is also a CFE and a member of the Association of Certified Fraud Examiners.  Mr. Jolliff has held CFO and Controller positions in an array of industries and has worked as a CPA in public practice.





Carl Cadwell,a Director, joined Advanced Medical Isotope Corporation as a director in 2006.  Dr. Cadwell brings over 30 years of experience in business management, strategic planning, and implementation.  He co-founded Cadwell Laboratories, Inc. in 1979 and has served as its President since its inception.  Cadwell Laboratories, Inc. is a major provider of neurodiagnostic medical devices and is the parent company of QuickMed, Inc., an electronic medical records company.  After receiving his bachelor’s degree from the University of Oregon in 1966 and a doctoral degree from the University of Washington in 1970, he began his career serving in the United States Army as a dentist for 3 years.  From 1973 to 1980, Dr. Cadwell practiced dentistry in private practice and started several businesses.









30


ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. - continued
 
 Identification of directors and executive officers  - continued




Dr. Michael Korenko,a Director,has for the past three years performed as the Business Development Manager for the Curtiss-Wright Electro-Mechanical Corporation.  His responsibilities have been for the business development, technology transfer, joint ventures, teaming agreements and acquisitions in the Western United States and Canada. Previously Dr. Korenko, for five years, was the Chief Operating Officer for Curtiss-Wright Electro-Mechanical Corporation.  His responsibilities were for internal operations of a $190 million engineering/manufacturing business in the utility and defense business sectors.  Dr. Korenko was the Westinghouse Vice President in charge of the 300 and 400 areas, including the Fast Flux Testing Facility (FFTF) and all the engineering, safety analysis, and projects for the Hanford site.  He was also the Executive Vice President of Closure for Safe Sites of Colorado at Rocky Flats.  Dr. Korenko has a Doctor of Science from MIT, was a NATO Postdoctoral Fellow at Oxford University, and was selected as a White House Fellow for the Department of Defense, reporting to Secretary Cap Weinberger. Mike Korenko currently is the author of 28 patents and has received many awards, including the National Energy Resources Organization Research and Development Award, the U.S. Steelworkers Award for Excellence in Promoting Safety, and the Westinghouse Total Quality Award for Performance Manager of the Year.  Most relevant to Advanced Medical Isotope Corporation, Dr. Korenko is the co-inventor with Advanced Medical Isotope Corporation Chief Science Officer Dr. Robert Schenter, of a patent-pending process converting nuclear waste into medical isotopes.





Identification of Significant Employees





Fu-Min Su, Ph.D., Chief Radiochemist, was appointed as Advanced Medical Isotope Corporation’s Chief Radio-Chemist and Radiation Safety Officer in 2007.  With over 20 years experience in medical isotope R&D and manufacture, Dr. Su is also knowledgeable in the area of coordinating and conducting clinical trials.  He has worked as a senior scientist for a several bio-technology firms, including NeoRx Corporation from 1987 through 1998, Nycomed-Amersham Imaging in 1999, Bristol-Myers Squibb from 2000 to 2006, and Cellectar, LLC in 2007, during which time he developed various radiopharmaceuticals, isotope production methods and generator systems.  Dr. Su has authored a number of scientific papers, and has written numerous abstracts for the Journal of Nuclear Medicine.  He also holds several patents relating to radionuclide production and preparation.  Dr. Su received his Ph.D. from the University of Washington.





Family Relationships





We currently do not have any officers or directors of our company who are related to each other.





Involvement in Certain Legal Proceedings





During the last five years no director, executive officer, promoter or control person of the Company has had or has been subject to:





(1)           any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;





(2)           any conviction in a criminal proceeding or being subject to a pending criminal proceeding;





(3)           any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or





(4)           being found by a court of competent jurisdiction, the Commission or the Commodity Futures Trading  Commission to have violated any federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.







31
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. - continued
 
 Section 16(a) Beneficial Ownership Reporting Compliance





Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC.  Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed.





Based solely on its review of the copies of such forms filed with the SEC electronically, received by the Company and representations from certain reporting persons, the Company believes that for the fiscal year ended December 31, 2009, all the officers, directors and more than 10% beneficial owners complied with the above described filing requirements.





Code of Ethics





Our board of directors has not adopted a code of ethics due to the fact that we presently only have three directors.  We anticipate that we will adopt a code of ethics when we increase either the number of our directors and officers or the number of our employees.





Audit Committee and Audit Committee Financial Expert





Our board of directors is comprised of three directors, two of which are outside independent directors, and as of the date hereof we have not established an audit committee.  Accordingly, our board of directors presently performs the functions that would customarily be undertaken by an audit committee.





Our board of directors has determined that none of them qualify as an “audit committee financial expert”, as defined by the rules of the SEC.  We intend to appoint such persons to the Board of Directors and committees of the Board of Directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a securities exchange. We do not currently have any independent directors.





















32




ITEM 11.
EXECUTIVE COMPENSATION





Summary Compensation Table





The following table sets forth the compensation paid to our Chief Executive Officer and those executive officers that earned in excess of $100,000 during the twelve month periods ended December 31, 2009 and 2008 (collectively, the “Named Executive Officers”):





Summary Compensation Table





Name & Principal Position
Year

Salary

($)


Bonus

($)


Stock Awards ($)


Option Awards

($)


Total

($)James C. Katzaroff,
2009

$
113,150


$
0


$
0


$
0


$
113,150CEO and Chairman
2008

$
192,109


$
0


$
0


$
50,819


$
242,928William J. Stokes,
2008

$
40,000


$
8,500


$
0


$
0


$
48,500President (1)L. Bruce Jolliff,
2009

$
130,000


$
0


$
0


$
0



130,000CFO (2)
2008

$
139,267


$
25,000


$



$
25,409


$
189,676Fu-Min Su,
2009

$
90,000


$
5,000


$
19,500


$
0


$
114,500Chief Radiochemist
2008(3)

$
74,615


$
5,000


$
76,750


$
25,409


$
181,774





(1)
Mr. Stokes did not receive the compensation required by his employment agreement.  The Board of Directors issued stock awards to Mr. Stokes in place of his salary.  Mr. Stokes resigned, effective May 21, 2009, as our President citing constraints upon his availability to continue to serve as an officer.  Pursuant to his employment agreement, we are not liable for any severance payments to Mr. Stokes.(2)
Mr. Jolliff received an additional $1,124 and $39,267 and $30,000 to compensate him for additional duties he performed that were not contemplated in his employment contract.(3)
Dr. Fu Min-Su’s began his employment with the Company in March 2008.  As a result, he did not collect a full-year’s salary in 2008.  He earned ten months of his annual salary of $90,000.





Narrative Disclosure to Summary Compensation Table





We have employment agreements with L. Bruce Jolliff and Fu-Min Su that determine the compensation paid to each of them.  We had an employment agreement with William J. Stokes during his employment with us.  Our Chief Executive Officer, James C. Katzaroff, does not have a written employment agreement and therefore no structured amount or schedule of pay so no accruals are made for his compensation.  In 2008 and 2009, he received $192,109 and $113,150, respectively, in salary.  During this period of limited liquidity for the Company the CEO has taken limited compensation.





We paid bonuses to certain employees based on their performance, our need to retain such employees and funds available.  All bonus payments were approved by our board of directors.






33
  ITEM 11.
EXECUTIVE COMPENSATION - continued




Narrative Disclosure to Summary Compensation Table - continued





Employment Agreement with L. Bruce Jolliff





In August 2007, Mr. Jolliff signed an employment agreement with the Company and will receive a salary of $100,000 per year.  He will also receive 1,500,000 options (500,000 options per year beginning in August 2008) to purchase the Company’s common stock at $0.50.  The Company may terminate the agreement without cause at any time upon 30 days' written notice.  Upon termination, the Company will pay Mr. Jolliff a severance allowance of two months salary.





Employment Agreement with Dr. Fu Min-Su





In January 2008, the Company entered into a five-year employment agreement with Dr. Fu Min-Su pursuant to which the Company agreed to pay Dr. Fu Min-Su an annual salary equal to $90,000.





In theevent the employment is terminated by the Company without cause, by Dr. Fu Min-Su for good reason or a change in control, the Company will have to provide Dr. Fu Min-Su with one month of his base salary and any portion of an annual bonus allocated by the Board of Directors, disability and other welfare plan benefits  for a period of one year from the date of termination and pro-rated vesting of alloutstanding options, stock grants, shares of restricted stock and any other equity incentive compensation; provided, that the stock options shall be exercisable only until the earlier to occur of (A) two years from the date of the termination, or (B) the date the option would have otherwise expired if Dr. Fu Min-Su had not terminatedemployment.





During the term of the employment agreement, including any extension thereof, and for a period of one year thereafter, Dr. Fu Min-Su shall not, provide services that he provides for the Company for a business in the production, import for resale, and distribution of radioisotopes for use in the medical industries.





Outstanding Equity Awards





The following table sets forth all outstanding equity awards held by our Named Executive Officers as of the end of last fiscal year.





Name

Option AwardsNumber of Securities Underlying Unexercised Options (#) Exercisable

Number of Securities Underlying Unexercised Unearned Options (#)

Unexercisable

Option Exercise Price

($)

Option Expiration DateJames C. Katzaroff

250,000

-

$
0.29

1-23-2010100,000

-

$
0.55

11-26-2011William J. Stokes

-

-

$
-

-L. Bruce Jolliff

500,000

1,000,000

$
0.50

5-16-201250,000

-

$
0.55

11-26-2011Fu-Min Su

50,000

-

$
0.55

11-26-2011





Narrative Disclosure to Outstanding Equity Awards





During January 2007, the Company granted James C. Katzaroff an option to purchase an aggregate of 250,000 shares of the Company’s common stock at an exercise price of $.29 per share.  The options are fully vested and expire January 23, 2010. The quoted market price of the common stock at the time of issuance of the options was $.27 per share.






34
  ITEM 11.
EXECUTIVE COMPENSATION - continued
  Narrative Disclosure to Outstanding Equity Awards  - continued





During May 2007, the Company granted L. Bruce Jolliff an option to purchase an aggregate of 1,500,000 shares of the Company’s common stock at an exercise price of $.50 per share.  The options vest at 500,000 shares May 2008, 500,000 shares May 2009, and 500,000 shares May 2010 and expire May 2012. The quoted market price of the common stock at the time of issuance of the options was $.70 per share.





During November 2008, the Company granted James C. Katzaroff an option to purchase 100,000 shares and L. Bruce Jolliff and option to purchase 50,000 shares of the Company’s common stock.  All options issued in November 2008 have an exercise price of $.55 per share and are fully vested and expire on November 26, 2011.  The quoted market price of the common stock at the time of issuance of the options was $.51 per share.





Equity Compensation, Pension or Retirement Plans





No retirement, pension, profit sharing, stock option or insurance programs or other similar programs have been adopted by the Company for the benefit of its employees.





Compensation of Directors




The following table sets forth information relating to compensation paid to our directors in 2009 and 2008:




Fees Earnedor Paid


Stock


OptionName

in Cash ($)


Awards ($)


Awards ($)


Total ($)Carlton Cadwell

$
-


$
-


$
50,819


$
50,819William Root

$
-


$
-


$
12,705


$
12,705Michael Korenko

$
-


$
-


$
133,233


$
133,233





William E. Root resigned, effective May 12, 2009.





During November 2008, the Company granted two board members options to purchase an aggregate of 100,000 shares each and one board member options to purchase an aggregate of $25,000 shares of the Company’s common stock at an exercise price of $.55 per share.  The options are fully vested and expire November 26, 2011.





During May 2009, the Company granted a board member options to purchase 200,000 shares of the Company’s common stock, at an exercise price of $.26 per share. The options are fully vested and expire May 8, 2012.





During August 2009, the Company granted a board member options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $.27 per share. The options are fully vested and expire August 6, 2012.





There are no employment contracts, compensatory plans or arrangements, including payments to be received from the Company with respect to any Director that would result in payments to such person because of his or her resignation with the Company, or its subsidiaries, any change in control of the Company. There are no agreements or understandings for any Director to resign at the request of another person. None of our Directors or executive officers acts or will act on behalf of or at the direction of any other person.








35




ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





Security ownership of certain beneficial owners





The following table sets forth the amount and nature of beneficial ownership of any class of the Company’s voting securities of any person known to the Company to be the beneficial owner of more than five percent, as of the close of business on February 28, 2010.




Title of

Class
Name and

Address of

Beneficial

Owner
Amount and

Nature of

Beneficial

Owner(1)
Percent of

ClassCommon Stock
James C. Katzaroff

6208 W Okanogan Avenue

Kennewick, WA 99336
6,969,002
13.1%Common Stock
Carlton Cadwell

6208 W Okanogan Avenue

Kennewick, WA 99336
23,886,873
44.9%  (1)
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date.  In determining the percent of common stock owned by a person or entity on February 28, 2010, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on February 28, 2010, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the preferred and on exercise of the warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.  Beneficial ownership of shares includes 100,000 options currently exercisable by James C. Katzaroff, and 5,060,168 options and convertible debt currently exercisable by Carlton Caldwell.











36
 
 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. - continued
 
 Security ownership of Managements





The following table sets forth, as of February 28, 2010, the number of shares of Common Stock owned of record and beneficially by executive officers, directors and persons who hold 5% or more of the outstanding Common Stock of the Company.  As of February 28, 2010, there were 53,249,730 shares outstanding.





Title of

Class
Name and

Address of

Beneficial

Owner
Amount and

Nature of

Beneficial

Owner(1)
Percent of

ClassCommon Stock
James C. Katzaroff

6208 W Okanogan Avenue

Kennewick, WA 99336
6,969,002
13.1%Common Stock
L. Bruce Jolliff

6208 W Okanogan Avenue

Kennewick, WA 99336
1,550,000
2.9%Common Stock
Carlton Cadwell

6208 W Okanogan Avenue

Kennewick, WA 99336
23,886,873
44.9%Common Stock
Michael Korenko

6208 W Okanogan Avenue

Kennewick, WA 99336
700,000
1.3%All Officers and Directors as a group

(4 individuals)
33,105,875
62.2%  (1)
In determining beneficial ownership of our common stock as of a given date, the number of shares shown includes shares of common stock which may be acquired on exercise of warrants or options or conversion of convertible securities within 60 days of that date.  In determining the percent of common stock owned by a person or entity on February 28, 2010, (a) the numerator is the number of shares of the class beneficially owned by such person or entity, including shares which may be acquired within 60 days on exercise of warrants or options and conversion of convertible securities, and (b) the denominator is the sum of (i) the total shares of common stock outstanding on February 28, 2010, and (ii) the total number of shares that the beneficial owner may acquire upon conversion of the convertible securities and on exercise of the warrants and options. Unless otherwise stated, each beneficial owner has sole power to vote and dispose of its shares.  Beneficial ownership of shares includes 100,000 options currently exercisable by James C. Katzaroff, 1,550,000 options currently exercisable by L. Bruce Jolliff, 5,060,168 options and convertible debt currently exercisable by Carlton Caldwell and 700,000 options currently exercisable by Michael Korenko.





Changes in Control





There are no present arrangements or pledges of the Company’s securities which may result in a change in control of the Company.




37


ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE





Potential Conflicts Of Interest





James C. Katzaroff, Chief Executive Officer and Chairman of the Board owns a substantial interest in Mirari Corporation (“Mirari”).  The Company has had business dealings with Mirari (See below).





Indebtedness from related parties





In February and March of 2009, we received $40,800 from James C. Katzaroff for funds needed to meet operating expenses.  The Company repaid the loan during 2009.  There was no interest being charged on the loan.





We had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009.  We had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time the line of credit was paid off and replaced with a loan from James C. Katzaroff and Carlton Cadwell.  The loan calls for $4,066 monthly payments, including 8% interest, beginning November 30, 2008, with a balloon payment for the balance at October 31, 2009, at which time the note was extended for another year to October 31, 2010.  There is no security held as collateral for this loan.  As of December 31, 2009, all payments were current on this shareholder loan.








ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.





Audit Fees





The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended December 31, 2009 and 2008 were $55,000 and $60,000, respectively.





Tax Fees





The aggregate fees billed for professional services rendered by our principal accountant for tax compliance, tax advice and tax planning for the fiscal years ended December 31, 2009 and 2008 were $1,500 and $3,000, respectively. These fees related to the preparation of federal income returns.





All Other Fees





There were $7,500 and $11,000 in other fees billed for products or services provided by our principal accountant for the fiscal years ended December 31, 2009 and 2008, respectively.








ITEM 15.
EXHIBITS.





(a)           Documents filed as part of this Report.





1.           Financial Statements.  The Consolidated Balance Sheet of Advanced Medical Isotope Corporation as of December 31, 2009 and 2008, the Consolidated Statements of Operations for the years ended December 31, 2009 and 2008, the Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2009 and December 31, 2008, and Statements of Cash Flows for the years ended December 31, 2009 and 2008, and together with the notes thereto and the report of HJ & Associates, LLC as required by Item 8 are included in this 2009 Annual Report on Form 10-K as Exhibit FS and is hereby incorporated by reference.








38




ITEM 15.
EXHIBITS. - continued
 
 3.           Exhibits. The following exhibits are either filed as a part hereof or are incorporated by reference.  Exhibit numbers correspond to the numbering system in Item 601of Regulation S-K.  Exhibits 10.1 through 10.20 relate to compensatory plans incorporated by reference as exhibits hereto pursuant to Item 15(b) of Form 10-K.





ExhibitNumber
Description3.1

Certificate of Incorporation of Savage Mountain Sports Corporation dated January 11, 2000. (1)3.2

By-Laws (1)3.3

Articles and Certificate of Merger of HHH Entertainment Inc. and Savage Mountain Sports Corporation dated April 3, 2000. (1)3.4

Articles and Certificate of Merger of Earth Sports Products Inc. and Savage Mountain Sports Corporation dated May 11, 2000. (1)3.5

Certificate of Amendment of Certificate of Incorporation changing the name of the Company to Advanced Medical Isotope Corporation dated May 23, 2006. (1)3.6

Certificate of Amendment of Certificate of Incorporation increasing authorized capital dated September 26, 2006. (1)10.1

Agreement and Plan of Reorganization, dated as of December 15, 1998, by and among HHH Entertainment, Inc. and Earth Sports Products, Inc. (1)10.2

Agreement and Plan of Merger of HHH Entertainment, Inc. and Savage Mountain Sports Corporation, dated as of January 6, 2000. (1)10.3

Employment Agreement dated August 15, 2006 with William J. Stokes. (1)10.4

Agreement and Plan of Acquisition by and between Neu-Hope Technologies, Inc., UTEK Corporation and Advanced Medical Isotope Corporation dated September 22, 2006. (1)10.5

Employment Agreement dated May 16, 2007 with Leonard Bruce Jolliff. (1)10.6

Agreement and Plan of Acquisition by and between Isonics Corporation and Advanced Medical Isotope Corporation dated June 13, 2007. (1)10.7

Employment Agreement dated January 15, 2008 with Dr. Fu-Min Su. (1)23.1

Consent of HJ & Associates, LLC(3)31.1

Certification of Chief Executive Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002 (4)31.2

Certification of Chief Financial Officer pursuant to Sec. 302 of the Sarbanes-Oxley Act of 2002(4)32

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. SECTION 1350 (4)FS

Advanced Medical Isotope Corporation Financial Statements for year ended December 31, 2009(4)





(1) Incorporated by reference to the Company's Registration Statement on Form 10 as filed with the SEC on November 12, 2008.


(2) Incorporated by reference to the Company's Registration Statement on Form 10/A as filed with the SEC on February 17, 2009.


(3) Incorporated by reference to the Company's Annual Report of Form 10-K as filed with the SEC on April 15, 2009.


(4) Filed herewith.












39







SIGNATURES





Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





ADVANCED MEDICAL ISOTOPE CORPORATIONDate: March 16, 2010
By:
/s/ James C. KatzaroffName: James C. KatzaroffTitle: Chief Executive Officer, Director and ChairmanDate: March 16, 2010
By:
/s/ L. Bruce JolliffName: L. Bruce JolliffTitle: Chief Financial OfficerDate: March 16, 2010
By:
/s/ Carlton CadwellName: Carlton CadwellTitle: DirectorDate: March 16, 2010
By:
/s/ Mike KorenkoName: Mike KorenkoTitle: Director








40


Exhibit FS

















Advanced Medical Isotope Corporation


Index to Financial Statements





PagesReport of Independent Registered Public Accounting Firm for 2009 and 2008
F-2Financial Statements:Balance Sheets as of December 31, 2009 and 2008
F-3Statements of Operations for the years ended December 31, 2009 and 2008
F-4Statement of Shareholders’ Equity (Deficit) for the years ended December 31, 2009 and 2008
F-5Statements of Changes in Cash Flow for the years ended December 31, 2009 and 2008
F-6 - 7Notes to Financial Statements
F-8








F-1











Report of Independent Registered Public Accounting Firm





To the Board of Directors and Stockholders of


Advanced Medical Isotope Corporation


Kennewick, Washington





We have audited the accompanying consolidated balance sheets of Advanced Medical Isotope Corporation as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Advanced Medical Isotope Corporation as of December 31, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses, used significant cash in support of its operating activities and, based upon current operating levels, requires additional capital or significant restructuring to sustain its operation for the foreseeable future.  Management’s plans in regard to these matters are also described in Note 1.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.





We were not engaged to examine management's assessment of the effectiveness of Advanced Medical Isotope Corporation's internal control over financial reporting as of December 31, 2009 and, accordingly, we do not express an opinion thereon.











HJ & Associates, LLC


Salt Lake City, Utah


March 16, 2010


























F-2


Advanced Medical Isotope Corporation


Balance Sheets







ASSETSDecember 31,


December 31,2009


2008Current Assets:Cash and cash equivalents

$
37,562


$
86,631Accounts receivable


19,030



35,747Prepaid expenses


-



3,000Prepaid expenses paid with stock, current portion


151,432



140,579Inventory


1,550



7,100Total current assets


209,574



273,057Fixed assets, net of accumulated depreciation


1,970,113



2,272,784Other assets:License fees, net of amortization


2,083



27,083Patents


106,476



24,594Prepaid expenses paid with stock, long-term portion


103,125



96,875Deposits


158,171



155,406Total other assets


369,855



303,958Total assets

$
2,549,542


$
2,849,799LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)Current liabilities:Accounts payable

$
622,713


$
580,258Accrued interest payable


131,264



188,956Payroll liabilities payable


20,047



9,098Preferred stock redeemable as common


-



3,182,405Loans from shareholder


163,275



194,599Convertible notes payable


1,581,504



257,481Current portion of capital lease obligations


1,839,418



352,119Total current liabilities


4,358,221



4,764,916Long term liabilities:Capital lease obligations, net of current portion


-



1,786,734Total liabilities


4,358,221



6,551,650Shareholders’ Equity (Deficit):Preferred stock, $.001 par value; 100,000 authorized;0 and 95,000 shares issued and outstanding, respectively


-



95Common stock, $.001 par value; 100,000,000 shares authorized;52,128,817 and 36,778,612 shares issued and outstanding,respectively


52,129



36,779Paid in capital


15,415,998



9,546,087Accumulated deficit


(17,276,806
)


(13,284,812
)Total shareholders’ equity (deficit)


(1,808,679
)


(3,701,851
)Total liabilities and shareholders’ equity (deficit)

$
2,549,542


$
2,849,799








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






F-3





Advanced Medical Isotope Corporation


Statements of Operations




Years endedDecember 31,2009


2008Revenues

$
320,363


$
268,242Cost of goods sold (exclusive of depreciation, shown separately below)


125,685



155,457Gross profit


194,678



112,785Operating expensesSales and marketing expenses


6,627



39,348Depreciation and amortization expense


562,671



1,531,214Impairment expense


-



903,535Professional fees


766,861



1,281,557Stock options granted


480,024



1,211,392Payroll expenses


433,175



574,228General and administrative expenses


494,969



510,813Total operating expenses


2,744,327



6,052,087Operating loss


(2,549,649
)


(5,939,302
)Non-operating income (expense):Interest expense


(839,627
)


(219,453
)Net loss on settlement of debt


(602,718
)


-Non-operating income (expense), net


(1,442,345
)


(219,453
)Loss before Income Taxes


(3,991,994
)


(6,158,755
)Income Tax Provision


-



-Net loss


(3,991,994
)

$
(6,158,755
)Loss per common share

$
(0.08
)

$
(0.18
)Weighted average common shares outstanding


48,168,743



34,745,710













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








F-4





Advanced Medical Isotope Corporation


Statements of Changes in Shareholders’ Equity (Deficit)


Series A PreferredStock


Common Stock


Paid in Capital


Subscriptions


AccumulatedShares


Amount


Shares


Amount




Receivable


Deficit


TotalBalances at December 31, 2007


95,000


$
95



31,664,631


$
31,665


$
6,152,861


$
202,500


$
(7,126,057
)

$
(738,936
)Common stock issued for:Cash


-



-



2,371,533



2,371



912,909



-



-



915,280Stock option exercised


-



-



250,000



250



72,250



-



-



72,500Services & other


-



-



1,303,698



1,304



772,368



-



-



773,672Loan fees on convertible debt


-



-



270,000



270



109,217



-



-



109,487Issuance of shares in 2008for cash received 2007


-



-



918,750



919



201,581



(202,500
)


-



-Stock offering costs


-



-



-



-



(233,721
)


-



-



(233,721
)Vesting of stock options


-



-



-



-



1,211,392



-



-



1,211,392Intrinsic value of convertibledebt issued


-



-



-



-



347,230



-



-



347,230Net Loss


-



-



-



-



-



-



(6,158,755
)


(6,158,755
)Balances at December 31, 2008


95,000



95



36,778,612



36,779



9,546,087



-



(13,284,812
)


(3,701,851
)Common stock issued for:Cash


-



-



2,396,920



2,397



452,803



-



-



455,200Services & other


-



-



1,629,583



1,629



541,738



-



-



543,367Loan fees on convertible debt


-



-



466,560



467



157,379



-



-



157,846Convert 95,000 convertiblepreferred shares ($.351per share)


(95,000
)


(95
)


10,857,142



10,857



3,800,095



-



-



3,810,857Stock options granted forpayables


-



-



-



-



237,000



-



-



237,000Intrinsic value of convertibledebt issued


-



-



-



-



200,872



-



-



200,872Vesting of stock options


-



-



-



-



480,024



-



-



480,024Net loss


-



-



-



-



-



-



(3,991,994
)


(3,991,994
)Balances at December 31, 2009


-


$
-



52,128,817


$
52,129


$
15,415,998


$
-


$
(17,276,806
)

$
(1,808,679
)














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








F-5







Advanced Medical Isotope Corporation


Statements of Cash Flow




Year ended


Year endedDecember 31, 2009


December 31, 2008CASH FLOW FROM OPERATING ACTIVITIES:Net Loss

$
(3,991,994
)

$
(6,158,755
)Adjustments to reconcile net loss to net cashused by operating activities:Depreciation of fixed assets


537,671



288,256Amortization of licenses and intangible assets


25,000



1,242,958Amortization of convertible debt discount


526,341



39,198Amortization of prepaid expenses paid with stock


148,397



208,609Impairment of intangible assets


-



903,535Common stock issued for services


182,150



347,422Stock options issued for services


480,024



1,211,392Stock issued for repairs and maintenance


-



7,875Net loss on settlement of debt


602,718



-Changes in operating assets and liabilities:Accounts receivable


16,717



(23,747
)Inventory


5,549



21,300Prepaid expenses


3,000



(3,000
)Deposits


-



(149,478
)Accounts payable


316,114



326,530Payroll liabilities


10,949



(36,065
)Stock based consulting fees payable


10,400



212,644Accrued interest


113,936



17,328Net cash used by operating activities


(1,013,028
)


(1,543,998
)CASH FLOWS FROM INVESTING ACTIVITIES:Cash used to acquire equipment


(235,000
)


(1,685,996
)Cash used to acquire patents


(81,882
)


(24,594
)Net cash used in investing activities


(316,882
)


(1,710,590
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds received from bank line of credit


-



179,000Payments on line of credit


-



(219,908
)Proceeds from Washington Trust debt


-



199,908Payments on Washington Trust debt


(31,324
)


(5,309
)Proceeds from capital lease


-



1,748,142Principal payments on capital lease


(299,435
)


(277,902
)Proceeds from convertible note


1,156,400



675,000Proceeds from officers related party debt


40,800



48,000Payments on officers related party debt


(40,800
)


(48,000
)Proceeds from cash sales of common shares


455,200



915,280Proceeds from exercise of options and warrants


-



72,500Proceeds from subscription shares payable


-



-Net cash provided by financing activities

$
1,280,841


$
3,286,711





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








F-6





Advanced Medical Isotope Corporation


Statements of Cash Flow (continued)





Statements of Cash Flow –continued




Net increase (decrease) in cash and cash equivalents

$
(49,069
)

$
32,123Cash and cash equivalents, beginning of period


86,631



54,508CASH AND CASH EQUIVALENTS, END OF PERIOD

$
37,562


$
86,631Supplemental disclosures of cash flow information:Cash paid for interest

$
211,167


$
25,772Cash paid for income taxes

$
-


$
-






























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










F-7
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 1:                      BASIS OF PRESENTATION





Nature of Organization





Advanced Medical Isotope Corporation (the “Company” or “AMIC”) 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. The Company has had limited activity since inception and was considered dormant from the period May 1, 2000 through December 31, 2005. On September 6, 2006, the Company changed its name to Advanced Medical Isotope Corporation. AMIC has an authorized capital of 100,000,000 shares of Common Stock, $.001 par value per share and 100,000 of Series A Preferred Stock, $.001 par value per share.





Savage Mountain Sports Corporation Mergers





In April 2000, Earth Sports Products, Inc (“ESP”), a corporation registered in Washington, merged with SMSC. ESP had an authorized capital of 100,000,000 shares of Common Stock, $.001 par value per share. As of the date of the merger, ESP had 3,377,206 shares of Common Stock issued and outstanding. As of the date of the merger, SMSC had 1,000 shares of Common Stock issued and outstanding, all of which were held by HHH Entertainment, Inc (“HHH”), a Nevada corporation.





In April 2000, HHH merged with SMSC. On the date of the merger, HHH had authorized capital stock of 100,000,000 shares of Common Stock, $.001 par value per share. As of the date of the merger, HHH had 23,237,045 shares of Common Stock issued and outstanding.





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 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, we have relied upon outside investor funds to maintain our operations and develop our business. We anticipate we will continue to require funding from investors for working capital as well as business expansion during this fiscal year and we can provide no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable time. In addition, our 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 we operate.





We anticipate a requirement of $1 million in funds over the next twelve months to maintain current operation activities. In addition we anticipate a requirement of approximately $15 million in funds over the next twelve months due to the anticipation of adding additional staff in the future assuming we are successful in selling our medical isotopes and/or the start of development by us on future manufacturing sites or other projects. Currently we have $37,562 cash on hand which means there will be an anticipated shortfall of nearly the full $15 million requirement in additional funds over the next twelve months. There are currently commitments to vendors for products and services purchased, plus, the employment agreements of the CFO and other employees of the company and our current lease commitments that will necessitate liquidation of the Company if we are unable to raise additional capital. The current level of cash is not enough to cover the fixed and variable obligations of the Company.







F-8
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008




NOTE 1:                      NATURE OF ORGANIZATION -continued




Going Concern - continued





Assuming we are successful in our sales/development effort we believe that we will be able to raise additional funds through the sale of our stock to either current or new shareholders. There is no guarantee that we will be able to raise additional funds or to do so at an advantageous price.




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.





Development Stage Company





The Company has been considered a Development Stage Company. As a result of operations and revenues during 2009, the Company has fully commenced its planned operations, generated significant revenues, and is no longer considered a Development Stage Company.








NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Use of Estimates





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





Cash Equivalents





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














F-9
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued





Accounts Receivable





Accounts receivables are stated at the amount that management of the Company expects to collect from outstanding balances. Management provides for probable uncollectible amounts through an allowance for doubtful accounts. Additions to the allowance for doubtful accounts are based on management’s judgment, considering historical write-offs, collections and current credit conditions. Balances which remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to the applicable accounts receivable. Payments received subsequent to the time that an account is written off are considered bad debt recoveries. As of December 31, 2009, the Company has experienced no bad debt write offs from operations.





Inventory





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





Fixed Assets





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





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





Production equipment
3 to 7 years


Office equipment
2 to 5 years


Furniture and fixtures
2 to 5 years





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





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




























F-10
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  Fixed Assets - continued
  The types of events and circumstances that management believes could indicate impairment are as follows:




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


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


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


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


·
A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset.


·
A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.





The fair value of assets is first determined by quoted market prices, if available. Otherwise, the estimate of fair value is based on the best information available in the circumstances, including prices for similar assets and the results of using other valuation techniques. If quoted market prices are not available a present value technique is often the best available valuation technique with which to estimate fair value. It is believed that an expected present value technique is superior to a traditional present value technique, especially in situations in which the timing or amount of estimated future cash flows is certain.





The traditional approach is useful for many measurements, especially those in which comparable assets and liabilities can be observed in the marketplace. However the traditional approach does not provide the tools needed to address some complex measurement problems, including the measurement of nonfinancial assets and liabilities for which no market for the item or a comparable item exists. The traditional approach places most of the emphasis on selection of an interest rate. A proper search for “the rate commensurate with the risk” requires analysis of at least two items – one asset or liability that exists in the marketplace and has an observed interest rate and the asset or liability being measured. The appropriate rate of interest for the cash flows being measured must be inferred from the observable rate of interest in some other asset or liability and, to draw that inference, the characteristics of the cash flows must be similar to those of the asset being measured.





Although management has made its best estimate of the factors that affect the carrying value based on current conditions, it is reasonably possible that changes could occur which could adversely affect management’s estimate of net cash flows expected to be generated from its assets, and necessitate asset impairment write-downs.





License Fees





License fees resulted from the acquisition of a patent license, for the production of Actinium 225, from a related individual for common stock valued, at the time of acquisition, at $75,000, and from the result of the acquisition of a patent license, for a Nutron Generator, from Neu-Hope Technologies for preferred stock valued, at the time of acquisition, at $3,040,000, discounted for 4.25% incremental borrowing rate to $2,897,625. License fees are stated at cost, less accumulated amortization. Amortization of license fees is computed using the straight-line method over the estimated economic useful life of the assets.










F-11
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  License Fees - continued
  The Company periodically reviews the carrying values of patents and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value. In accordance with this policy, management concluded the patent license for the Nutron Generator was no longer of value to the Company. This decision resulted in the Company writing off the net unamortized portion balance of $643,917 in 2008.





Amortization is computed using the straight-line method over the estimated useful live of three years. Amortization of license fees was $25,000 and $990,875 for the years ended December 31, 2009 and 2008, respectively. Based on the license fees recorded at December 31, 2009, and assuming no subsequent impairment of the underlying assets, the remaining unamortized portion of $2,083, will be fully amortized during the year ending December 31, 2010.





Intangible Assets





Intangible assets resulted from the purchase, for cash, from Isonics Corporation, the rights to intellectual property related to the production of isotopes, customer lists, contracts and agreements with third party companies, and certain equipment. The Company allocated the purchase price to each of the assets based upon the Companies believe of the long term value of each of those assets and comparison to replacement cost, where that information was available. Intangible assets are stated at cost, less accumulated amortization. Amortization of intangible assets is computed using the straight-line method over the estimated economic useful life of the assets.





An impairment loss must be recognized when the estimated future cash flows (undiscounted and without interest) expected to result from the use of an asset are less than the carrying amount of the asset. Measurement of an impairment loss is based on the estimated fair value of the asset if the asset is expected to be held and used.





The Company periodically reviews the net carrying values of intangible assets and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value. In accordance with this policy, management concluded the intangible assets acquired from Isonics were no longer of value to the Company. This decision resulted in the Company writing off the total net unamortized portion balance of $259,618 in 2008.





Amortization was computed using the straight-line method over the following estimated useful lives:





Intellectual property
3 years


Contracts and agreements
3 years


Customer lists
2 years





Amortization of intangible assets was $0 and $252,083 for the years ended December 31, 2009 and 2008, respectively. All intangible assets were fully written off as of December 31, 2008 and so no further amortization of intangible assets will be recognized from these assets in ensuing years.




















F-12
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  Patents





Patent filing costs totaling $24,594 were capitalized at December 31, 2008 and another $81,882 were capitalized during the twelve months ended 2009; resulting in a total $106,476 of capitalized patents at December 31, 2009.  The patents are pending and are being developed, as such, they are not being amortized.  Management has determined that the economic life of the patents to be 10 years and amortization, over such 10-year period and on a straight-line basis, will begin once the patents have been issued.  The Company evaluates the recoverability of intangible assets, including patents on a continual basis. Several factors are used to evaluate intangibles, including, but not limited to, management’s plans for future operations, recent operating results and projected and expected undiscounted future cash flows.





Revenue Recognition





The Company recognized revenue related to product sales when (i) persuasive evidence of the arrangement exists, (ii) shipment has occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.





Revenue for the first half of fiscal year ended December 31, 2008 was derived solely from the sales of Oxygen 18, which is used in the production of medical isotopes. In July 2008 the Company also began recognizing revenue from the production of Floride 18 produced with the Linear Accelerator. Revenue for the fiscal year ended December 31, 2009 consisted of both the sales of Oxygen 18 and Floride 18. The Company recognizes revenue once an order has been received and shipped to the customer. Prepayments, if any, received from customers prior to the time products are shipped are recorded as deferred revenue. In these cases, when the related products are shipped, the amount recorded as deferred revenue is recognized as revenue. The Company does not accrue for sales returns and other allowances as it has not experienced any returns or other allowances.





Net Loss Per Share





The Company accounts for its income (loss) per common share by replacing primary and fully diluted earnings per share with basic and diluted earnings per share. Basic earnings/loss per share is computed by dividing income (loss) available to common shareholders (the numerator) by the weighted-average number of common shares outstanding (the denominator) for the period, and does not include the impact of any potentially dilutive common stock equivalents. The computation of diluted earnings per share is similar to basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued.





Securities, all of which represent common stock equivalents, that could be dilutive in the future as of December 31, 2009 and 2008 are as follows:




2009


2008Convertible debt

5,150,333


1,269,541Preferred stock

-


7,577,381Common stock options

5,049,327


5,609,021Total potential dilutive securities

10,199,660


14,455,943




F-13
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  Research and Development Costs





Research and developments costs, including salaries, research materials, administrative expenses and contractor fees, are charged to operations as incurred. The cost of equipment used in research and development activities which has alternative uses is capitalized as part of fixed assets and not treated as an expense in the period acquired. Depreciation of capitalized equipment used to perform research and development is classified as research and development expense in the year computed.





The Company incurred $67,006 and $90,150 research and development costs for the years ended December 31, 2009 and 2008 respectively.





Advertising and Marketing Costs





Advertising and marketing costs are expensed as incurred except for the cost of tradeshows which are deferred until the tradeshow occurs. There were no tradeshow expenses incurred and not expensed as of the years ended December 31, 2009 and 2008.





Shipping and Handling Costs





Shipping and handling costs are expensed as incurred and included in cost of product sales.





Legal Contingencies





In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, patent rights, and a variety of other matters. The Company records contingent liabilities resulting from asserted and unasserted claims against it, when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. The Company discloses contingent liabilities when there is a reasonable possibility that the ultimate loss will exceed the recorded liability. Estimated probable losses require analysis of multiple factors, in some cases including judgments about the potential actions of third-party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. Currently, the Company does not believe any probable legal proceedings or claims will have a material impact on its financial position or results of operations. However, if actual or estimated probable future losses exceed the Company’s recorded liability for such claims, it would record additional charges as other expense during the period in which the actual loss or change in estimate occurred.























F-14
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  Income Taxes





To address accounting for uncertainty in tax positions, the Company clarifies the accounting for income taxes by prescribing a minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. The Company also provides guidance on de-recognition, measurement, classification, interest, and penalties, accounting in interim periods, disclosure and transition.




The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and Delaware.  The Company did not have any tax expense for the years ended December 31, 2009 and 2008.  The Company did not have any deferred tax liability or asset on its balance sheet on December 31, 2009 and 2008.




Interest costs and penalties related to income taxes, if any, will be classified as interest expense and general and administrative costs, respectively, in the Company's consolidated financial statements. For the years ended December 31, 2009 and 2008, the Company did not recognize any interest or penalty expense related to income taxes. The Company believes that it is not reasonably possible for the amounts of unrecognized tax benefits to significantly increase or decrease within the next 12 months.





Fair Value of Financial Instruments





The carrying amounts of cash, receivables and accrued liabilities approximate fair value due to the short-term maturity of the instruments.





Stock-Based Compensation





The Company recognizes in the financial statements compensation related to all stock-based awards, including stock options, 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.





We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete.  The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.























F-15
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 2:                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
  Recent Accounting Pronouncements
  In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification TM (ASC) and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental U.S. GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). For the Company, the ASC was effective July 1, 2009. This standard did not have an impact on the Company’s consolidated results of operations or financial condition. However, throughout the notes to the consolidated financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.





In April 2009, the FASB issued an accounting standard which provides guidance on (1) estimating the fair value of an asset or liability when the volume and level of activity for the asset or liability have significantly declined and (2) identifying transactions that are not orderly. The standard also amended certain disclosure provisions for fair value measurements and disclosures in ASC 820 to require, among other things, disclosures in interim periods of the inputs and valuation techniques used to measure fair value as well as disclosure of the hierarchy of the source of underlying fair value information on a disaggregated basis by specific major category of investment. For the Company, this standard was effective prospectively beginning April 1, 2009. The adoption of this standard did not have a material impact on the Company‘s consolidated results of operations or financial condition.





In May 2009, the FASB issued a new accounting standard regarding subsequent events. This standard incorporates into authoritative accounting literature certain guidance that already existed within generally accepted auditing standards, with the requirements concerning recognition and disclosure of subsequent events remaining essentially unchanged. This guidance addresses events which occur after the balance sheet date but before the issuance of financial statements. Under the new standard, as under previous practice, an entity must record the effects of subsequent events that provide evidence about conditions that existed at the balance sheet date and must disclose but not record the effects of subsequent events which provide evidence about conditions that did not exist at the balance sheet date. This standard added no additional required disclosure relative to the date through which subsequent events have been evaluated. For the Company, this standard was effective beginning April 1, 2009.





In August 2009, the FASB issued ASU No. 2009-05, Measuring Liabilities at Fair Value , which provides additional guidance on how companies should measure liabilities at fair value under ASC 820. The ASU clarifies that the quoted price for an identical liability should be used. However, if such information is not available, a entity may use the quoted price of an identical liability when traded as an asset, quoted prices for similar liabilities or similar liabilities traded as assets, or another valuation technique (such as the market or income approach). The ASU also indicates that the fair value of a liability is not adjusted to reflect the impact of contractual restrictions that prevent its transfer and indicates circumstances in which quoted prices for an identical liability or quoted price for an identical liability traded as an asset may be considered level 1 fair value measurements For the Company this ASU was effective October 1, 2009. The adoption of this ASU did not have a material impact on the Company’s consolidated results of operations or financial condition.





F-16
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 3:                      FIXED ASSETS  Fixed assets consist of the following at December 31, 2009 and 2008:  December 31, 2009


December 31, 2008Production equipment

$
2,113,218


$
2,113,218Production equipment, not in use


235,000



-Building


446,772



446,772Leasehold improvements


3,235



3,235Office equipment


20,128



20,1282,818,353



2,583,353Less accumulated depreciation


(848,240
)


(310,569
)$
1,970,113


$
2,272,784
  Accumulated depreciation related to fixed assets is as follows:
  December 31, 2009


December 31, 2008Production equipment

$
675,403


$
252,759Production equipment, not in use


-



-Building


164,119



54,707Leasehold improvements


7,411



2,543Office equipment


1,307



560$
848,240


$
310,569





Depreciation expense for the above fixed assets for the years ended December 31, 2009 and 2008, respectively, was $537,671 and $288,256.



















F-17
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008




NOTE 4:          INTANGIBLE ASSETSIntangible assets consist of the following at December 31, 2009 and December 31, 2008:  December 31, 2009


December 31, 2008Intellectual property

$
-


$
250,750Contracts and agreements


-



213,000Customer lists


-



195,000License Fee


75,000



2,972,625Patents


106,476



24,594181,476



3,655,969Less accumulated amortization


(72,917
)


(2,700,757
)Less Impairment Expense


-



(903,535
)Intangible assets net of accumulated amortization

$
108,559


$
51,677





Amortization expense for the above intangible assets for the years ended December 31, 2009 and 2008, respectively, was $25,000 and $1,242,958.








NOTE 5:                      RELATED PARTY TRANSACTIONS





Indebtedness from Related Parties





The Company had a $200,000 revolving line of credit with Washington Trust Bank that was to expire in September 2009. The Company had $199,908 in borrowings under the line of credit as of October 28, 2008 at which time it was paid off and replaced with a loan from two of the major shareholders. The loan calls for $4,066 monthly payments, including 8% interest, beginning November 30, 2008, with a balloon payment for the balance at October 31, 2009 at which time the loan was extended for one year with a balloon payment for the balance due at October 31, 2010. There is no security held as collateral for this loan. As of December 31, 2009, the balance was $163,275 and all payments were current on this shareholder loan.





During the first three months of 2009 the Company received a total of $22,800 from a shareholder and officer in the form of a loan and the Company repaid $4,700 of this loan, leaving a balance of $18,100 as of March 31, 2009. All of the $18,100 balance was repaid in April 2009. There was no interest obligation on this loan to the Company.


























F-18
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 5:                      RELATED PARTY TRANSACTIONS -continued





Rent Expenses





On August 1, 2007 the Company began renting office and warehouse space, known as the Production Facility located in Kennewick, Washington from a shareholder holding less that 5% of the total shares outstanding. The lease agreement calls for monthly rental payments starting at $3,500, increasing every August 1st until they become $4,762 as of August 1, 2011. During the years ended December 31, 2009 and 2008 the Company incurred rent expenses for this facility totaling $46,872 and $43,400, respectively. In addition, the lease agreement called for the issuance of $187,500 in common stock valued at $.40 per share for a total of 416,667 shares. The company recognized the issuance of all 416,667 shares in 2007 and will amortize the $187,500 value of that stock over the sixty month term of the lease. For the years ended December 31, 2009 and 2008 the Company amortized $37,500 and $37,500 of this stock issuance and recognized it as rent expense.





Additionally, in June 2008, the Company entered into two twelve month leases for its corporate offices with three four month options to renew, but in no event will the lease extend beyond May 31, 2010. The lease agreement calls for monthly rental payments of $2,733 and $2,328 per month. During the years ended December 31, 2009 and 2008 the Company incurred rent expenses for this facility totaling $56,076 and $31,708, respectively. Effective November 1, 2009 the Company terminated the portion of the lease consisting of the $2,328 rental payment per month.





Future minimum rental payments required under the Company’s current rental agreements in excess of one year as of December 31, 2009, are as follows:




Production


CorporateFacility


Offices


TotalTwelve months ended December 31, 2010

$
50,622


$
13,665


$
64,287Twelve months ended December 31, 2011


54,671



-



54,671Twelve months ended December 31, 2012


33,332



-



33,332Twelve months ended December 31, 2013


-



-



-Total

$
138,625


$
13,665


$
152,290
 
 Rental expense for the years ended December 31, 2009 and 2008 consisted of the following:




Year ended

December 31, 2009


Year ended

December 31, 2008Office and warehouse lease effective August 1, 2007Monthly rental payments

$
46,872


$
43,400Rental expense in the form of stock issuance


49,125



37,500Corporate office


56,076



31,708Cyclotron storage


27,900



-Total Rental Expense

$
179,973


$
112,608

















F-19
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 6:                      ASSET ACQUISITION





On June 13, 2007, the Company acquired some of the assets of Isonics Corporation (Isonics); a California corporation. Isonics is a non-related business of the Company and neither company owns stock in the other. The Company acquired the assets in exchange for $850,000 cash payment for the purpose of establishing itself in a turnkey distribution business of 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. None of the acquired assets hold any ongoing liabilities or contractual obligations that would result in additional cash transactions required by the Company.





Intellectual property, agreements with third parties and customer lists are stated at the Companies estimation of fair market value at the time of acquisition, less accumulated amortization. Amortization of these items is computed using the straight-line method over the estimated economic useful life of the assets ranging from 2-3 years.





The Company periodically reviews the net carrying values of intangible assets and any impairments are recognized when the expected future operating cash flows to be derived from such assets are less than their carrying value. In accordance with this policy, management concluded the intangible assets acquired from Isonics were no longer of value to the Company. This decision resulted in the Company writing off the total net unamortized portion balance of $259,618 in 2008.





Amortization of these items was $0 and $252,083 for the years ended December 31, 2009 and 2008, respectively. All intangible assets were fully written off as of December 31, 2008 and so no further amortization of intangible assets will be recognized from these assets in ensuing years.





Depreciation of the equipment was $38,250 and $38,250 for the years ended December 31, 2009 and 2008, respectively. Based on the value of these items recorded at December 31, 2009, and assuming no subsequent impairment of the underlying assets, the annual amortization expense for each year ending December 31 is expected to be as follows: $38,250 for 2010, $38,250 for 2011, and $15,938 for 2012.








NOTE 7:                      COMMITMENTS AND CONTINGENCIES





On August 30, 2006, NHTI entered into a Non-Exclusive License Agreement with the Regents of the University of California. NHTI paid a non-refundable License Issue Fee in the amount of $25,000. The license fee is non-refundable unless the Company’s commercialization plan is deemed unacceptable by the University. If the plan is deemed unacceptable, the license agreement will terminate and may be converted to a non-exclusive license. To date, no commercialization plan has been deemed acceptable or unacceptable.
































F-20
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 7:                      COMMITMENTS AND CONTINGENCIES- continued





In consideration for the license, the Company agreed to the following payments:





·
$25,000 License Issue Fee, described above;


·
$25,000 upon submission by University of California to U.S. Federal Drug Administration (or comparable agency) of either notification of or request for approval of (as applicable), a Licensed Product;


·
$100,000 upon satisfaction of necessary requirements (e.g., notification or receipt of approval, as applicable) by Federal Drug Administration (or comparable agency) for commercial sale of a Licensed Product;


·
Royalties equal to the greater of three percent of the Selling Price of each Licensed Product Licensee sells or the maintenance fee according to the following schedule:




2008


$
10,000
(not yet paid)2009



15,000
(not yet paid)2010



15,0002011



45,0002012 and each year thereafter



60,000$
145,000
 
 The Company entered into an agreement effective January 22, 2009 for a two year project to develop and bring to market an innovative compact-systems technology for producing critically needed medical isotopes. The Company is to contribute $760,000 in the form of services to this project. To date, no services have been performed.








NOTE 8:                      PREPAID EXPENSES PAID WITH STOCK





The Company has issued stock to companies for various service agreements extending beyond December 31, 2009. Additionally, the Company issued stock for prepaid rent which will expire annually through July 2012 at the rate of $37,500 per year. Prepaid Expenses are expected to mature as follows:




For the twelve month period ending December 31, 2010

$
151,432For the twelve month period ending December 31, 2011


81,250For the twelve month period ending December 31, 2012


21,875For the twelve month period ending December 31, 2013


-$
254,557




























F-21
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 9:                      CAPITAL LEASE OBLIGATIONS





During September 2007, the Company obtained two Master Lease Agreements for $1,875,000 and $631,000, with interest on both leases accruing at 8.6% annually, secured by equipment and personal guarantee of two of the major shareholders. These long-term agreements shall be deemed Capital Lease Obligations for purposes of financial statement reporting. The purpose of the lease is to acquire a Pulsar 10.5 PET Isotope Production System for a contracted amount of $1,875,000 plus ancillary equipment and facility for $933,888. Advances made by the Lessor for the benefit of the Company, less payments, total $1,839,418 as of December 31, 2009.





This capital lease and its resulting obligation is recorded at an amount equal to the present value at the beginning of the lease term of minimum lease payments during the lease term, excluding any portion of the payments representing taxes to be paid by the Company. This amount does not exceed the fair value of the leased property at the lease inception, so the recorded amount is the fair value.





Capital Lease ObligationPET Isotope Production System


Ancillary Equipment


TotalTotal lease commitment

$
1,875,000


$
933,888


$
2,808,888Advances made for purchases

$
1,511,268


$
933,888


$
2,445,156Principal portion of payments


332,462



273,276



605,738Net balance of advances payable

$
1,178,806


$
660,612


$
1,839,418Add factor to arrive at total futureminimum lease payments


261,929



89,281



351,210Total future minimum lease payments


1,440,735



749,893



2,190,628Less amount representing interest


261,929



89,281



351,210Present value of net minimum leasepayments


1,178,806



660,612



1,839,418Amounts due within one year


1,178,806



660,612



1,836,418Amounts due after one year

$
-


$
-


$
-





The lease requires the Company to maintain a minimum debt service coverage ratio of 1:1 measured at fiscal year- end; non compliance with this provision shall constitute a default and guarantors must contribute capital sufficient to fund any deficit in the debt service coverage ratio.





The definition of debt service coverage ratio is EBITDA (earnings before interest, taxes, depreciation and amortization), minus cash taxes, minus unfunded capital expenditures, plus capital injections, divided by (interest plus current portion of long-term debt). According to the debt service coverage ratio computation, at December 31, 2009 and 2008 the Company was not in compliance with the minimum debt service coverage ratio stipulated in the loan covenants.




















F-22
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 
 NOTE 9:                      CAPITAL LEASE OBLIGATIONS -continued





The Company’s actual results of the minimum debt service ratio calculation for the years December 31, 2009 and 2008 are as follows:





December 31,2009


2008Net loss

$
(3,991,994
)

$
(6,158,755
)Add (subtract)Interest


839,628



219,453Depreciation and amortization


562,671



1,531,214Unfunded capital expenditures


-



(72,485
)Capital injections


1,664,100



(1,838,188
)$
(925,595
)

$
(6,318,761
)Interest plus current portion of long-term debt


1,222,988



571,572Debt service coverage ratio

$
(.76
)

$
(11.06
)





Principal maturities on the amount of the capital lease obligations advanced through December 31, 2009 are due as follows:





Year ended December 31,

Production

Facility


Ancillary

Equipment2010

$
1,178,806


$
660,6122011


-



-2012


-



-2013


-



-2014


-



-Thereafter


-



-$
1,178,806


$
660,612
 
 The capital lease obligation is the only Company debt that contains covenants.





The Company was in default on the capital lease obligation as of December 31, 2008 due to failure to maintain the minimum debt service coverage ratio identified in the Lease by an amount of $35,000 as per notice from the debtor. The Company was in default on the capital lease obligation as of December 31, 2009 due to failure to maintain the minimum debt service coverage ratio identified in the Lease.






































F-23
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 10:                    INCOME TAXES





Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.





Net deferred tax assets consist of the following components as of December 31, 2009 and 2008:




2009


2008Deferred tax assets:Net operating loss carryover

$
4,363,957


$
4,133,788Related party accrued interest


32,533



-Deferred tax liabilities:Depreciation


(362,550
)


(683,007
)Valuation allowance


(4,033,940
)


(3,450,781
)Net deferred tax asset

$
-


$
-
 
 The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income from continuing operations for the years ended December 31, 2009 and 2008 due to the following:





December 31,2009


2008Book income

$
(1,556,878
)

$
(2,401,914
)Depreciation


98,113



(498,618
)Meals and entertainment


1,224



3,595Stock for services


132,969



285,158Options expense


187,209



472,443Related party interest


31,924



-Loss on settlement of debt


242,314



-Non-cash interest expense


245,100



-Officers life insurance


-



2,094Gain/loss on disposal


-



(693,666
)Valuation allowance


618,025



2,830,908$
-


$
-





At Dec. 31, 2009, the Company had net operating loss carryforwards of approximately $11,189,633 that may be offset against future taxable income from the year 2010 through 2030.





Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax reporting purposes are subject to annual limitations.  Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.





Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.






F-24
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 10:                    INCOME TAXES- continued





At the adoption date of January 1, 2007, the Company had no unrecognized tax benefit which would affect the effective tax rate if recognized.





The Company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in the provision for income taxes. As of December 31, 2009, the Company had no accrued interest or penalties related to uncertain tax positions.





The Company files income tax returns in the U.S. federal jurisdiction and in the state of Washington. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2006.








NOTE 11:                    STOCKHOLDERS’ EQUITY





Common Stock Sale





The Company, in 2008, issued 918,750 shares of its $.001 par value common stock to shareholders for common stock subscriptions of $202,500 received in 2007.





The Company issued 2,371,533 shares of common stock for cash during 2008. The price per share ranged from $.30 to $.40 per share. The Company also granted 2,075,700 warrants in conjunction with these stock for cash issuances, with an exercise price of $1.05 and an exercise period of one year.





The Company issued 250,000 shares of common stock for cash during 2008 for options exercised at $.29 per share.





The Company issued 2,396,920 shares of common stock for cash during 2009. The price per share ranged from $.15 to $.58 per share. The Company also granted 2,669,327 warrants in conjunction with these stock for cash issuances, with an exercise price ranging from $.15 to $.87 and an exercise period ranging from one to two years.





Preferred Stock





On September 27, 2006, the Company acquired the assets of Neu-Hope Technologies, Inc (“NHTI”), a Florida corporation from UTEK Corporation (“UTEK”), a Delaware corporation. UTEK is a shareholder of less than 5% of the Company’s issued and outstanding common stock. The Company acquired NHTI’s assets from UTEK in exchange for 100,000 shares of the Company’s Series A preferred stock. At any time after September 27, 2007, these Series A preferred stock shares can be converted to unrestricted common stock in the amount of $3,350,000. The number of shares shall be calculated based on the previous 10 day average closing price on the day of conversion.  Additionally, during the initial twelve months period in which UTEK is holding said preferred stock, interest shall accrue at the annual rate of five percent, compounded quarterly, payable in cash or in common shares of the Company. The Company conducted the acquisition in order to obtain NHTI’s cash, rights, and customer relationships.





In December 2007, 5,000 shares of the Company’s Series A preferred stock were converted to 299,642 shares of common stock at $.559 per share.












F-25
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 11:                    STOCKHOLDERS’ EQUITY -continued




Preferred Stock - continued





The Company issued 95,000 shares of preferred stock in September, 2006 to Utek Corporation for the Company’s purchase of technology from Utek. A board member of the Company acquired the 95,000 shares of the Company’s Series A Preferred Stock from Utek in February 2009.  In March 2009 the board member converted the 95,000 shares of the Company’s Series A Preferred Stock and the related accrued interest into 10,857,142 shares of the Company’s common stock. The value of the transaction totaled $3,810,857 based on common stock’s average closing price for the ten trading days before the date of conversion of $0.351 per share.  The Company’s Preferred Stock Redeemable as Common liability was reduced by $3,182,405, accrued interest was reduced by $171,628, preferred stock was reduced by $95, and a loss on settlement of debt of $456,823 has been recognized in the accompanying financial statements for the twelve months ended December 31, 2009.





Common Stock Issued for Services and Other





In 2008, the company issued 1,303,698 shares of common stock with a total fair market value of $773,672. The fair market value of the shares issued ranged from $0.17 to $0.78. The shares were issued for $347,422 in services. $233,721 in stock offering costs, $45,250 in prepaid expenses, $117,344 in stock based consulting fees, $22,060 in accounts payable, and $7,875 in repairs and maintenance.





In 2009, the company issued 1,629,583 shares of common stock with a total fair market value of $543,367. The fair market value of the shares issued ranged from $0.27 to $0.43. The shares were issued for $182,150 in services, $165,500 in prepaid expenses, $58,750 in stock based consulting fees, $129,973 in accounts payable and $6,994 in loss on settlement of debt.





Common Stock Issued for Convertible Debt





The Company issued 100,000 shares of its common stock in exchange for $250,000 convertible note in 2008. The value of the $250,000 debt plus the $.70 fair market value of the 100,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $250,000 debt and the value of the 100,000 shares. This computation resulted in an allocation of $195,313 toward the debt and $54,688 to the shares. The $54,688 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $36,459 and $18,229 has been recognized in the accompanying financial statements for the year ended December 31, 2009 and 2008. The note expired September 4, 2009, is currently in default, and the Company recognized $8,333 interest expense for the period from September 4 through December 31, 2009 in the accompanying financial statements for the year ended December 31, 2009.





The Company issued 20,000 shares of its common stock in exchange for $50,000 convertible note in 2008. The value of the $50,000 debt plus the $.53 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature. This computation resulted in an allocation of $16,258 toward the debt and $8,746 to the shares and $24,996 to the beneficial conversion feature. The $8,746 value of the shares and the $24,996 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $28,118 and $5,624 has been recognized in the accompanying financial statements for the years ended December 31, 2009 and 2008. The note expired October 27, 2009, is currently in default, and the Company recognized $833 interest expense for the period from October 27 through December 31, 2009 in the accompanying financial statements for the year ended December 31, 2009.










F-26
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Issued for Convertible Debt - continued
  The Company issued a convertible promissory note in the amount of $375,000 with interest payable at 10% per annum in 2008. The Note matures on December 16, 2009 (the "Maturity Date"). The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date. Interest on the Note is payable every six months until the Note is paid in full. Additionally, in connection with the convertible note, 150,000 shares of the Company’s common stock were issued to the note holder.  At the option of the holder, the note is convertible, in whole or in part, into the Company’s common stock by taking the principal to be converted and dividing it by fifty percent of the volume-weighted average trading price of the Company’s common stock for the 10 consecutive trading days immediately preceding the date of conversion. The note is convertible at any time.





The embedded conversion feature within the convertible promissory note was assessed to determine whether the embedded conversion feature should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings.





The company believes that the embedded derivative instrument shall not be separated from the host contract and accounted for as a derivative instrument because the criteria for that treatment has not been met as the Company’s stock is not considered to be readily convertible to cash. Per the agreement the Company is required to deliver shares of its common stock and there is no mechanism outside the contract that facilitates that. Therefore the company concluded that conversion feature should not be bifurcated from the host instrument.





The Company allocated the proceeds to the shares issued and the debt and then calculated a beneficial conversion feature.  The company performed these calculations which resulted in a beneficial conversion feature with an intrinsic value of $322,234.  The 150,000 shares of common stock were valued at $46,053 and the debt was recorded at $6,713. Because the debt is immediately convertible, the value of the beneficial conversion feature is calculated as if converted on the commitment date.  The $322,234 allocated to the beneficial conversion feature along with the $46,053 allocated to the 150,000 shares of common stock is being accreted to interest expense over the twelve month life of the debt. Interest expense of $352,942 and $15,345 has been accreted and added to the note payable bringing the total debt balance related to this convertible promissory note to $375,000 and $22,058 in the accompanying financial statements as of December 31, 2009 and 2008. The note expired December 16, 2009, was extended by the note holder for another year until December 16, 2010, and the Company recognized $1,562 interest expense for the period from December 16 through December 31, 2009 in the accompanying financial statements for the year ended December 31, 2009.





The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in 2009. The Note matures in March of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.30 per share.  The value of the $100,000 debt plus the $0.31 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $74,603 toward the debt and $11,032 to the shares and $14,365 to the beneficial conversion feature.  The $11,032 value of the shares and the $14,365 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt.  Interest expense of $20,105 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.










F-27
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Issued for Convertible Debt - continued
  The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in 2009. The Note matures in April of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share.  The value of the $50,000 debt plus the $0.31 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $31,268 toward the debt and $6,140 to the shares and $12,592 to the beneficial conversion feature.  The $6,140 value of the shares and the $12,592 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt.  Interest expense of $12,488 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





The Company issued 20,000 shares of its common stock and a convertible promissory note in the amount of $50,000 with interest payable at 10% per annum in 2009. The Note matures in May of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.28 per share.  The value of the $50,000 debt plus the $0.21 fair market value of the 20,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $50,000 debt and the value of the 20,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $46,125 toward the debt and $3,875 to the shares and resulted in no beneficial conversion feature.  The $3,875 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $2,342 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





The Company issued 110,000 shares of its common stock and a convertible promissory note in the amount of $275,000 with interest payable at 10% per annum in 2009. The Note matures in June of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.27 per share. The value of the $275,000 debt plus the $0.21 fair market value of the 110,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $275,000 debt and the value of the 110,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $253,690 toward the debt and $21,310 to the shares and resulted in no beneficial conversion feature.  The $21,310 value of the shares is then amortized to interest over the twelve month life of the debt. Interest expense of $11,986 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





The Company issued 90,560 shares of its common stock and a convertible promissory note in the amount of $226,400 with interest payable at 10% per annum in 2009. The Note matures in September of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.31 per share. The value of the $226,400 debt plus the $0.39 fair market value of the 90,560 shares at the date of the agreement was prorated to arrive at the allocation of the original $226,400 debt and the value of the 90,560 shares and the beneficial conversion feature.  The computation resulted in an allocation of $106,870 toward the debt and $30,552 to the shares and $88,978 to the beneficial conversion feature.  The $30,552 value of the shares and the $88,978 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $39,844 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.












F-28
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Issued for Convertible Debt - continued
  The Company issued 66,000 shares of its common stock and a convertible promissory note in the amount of $155,000 with interest payable at 10% per annum in 2009. The Note matures in October of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.51 per share. The value of the $155,000 debt plus the $0.51 fair market value of the 66,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $155,000 debt and the value of the 66,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $99,690 toward the debt and $27,655 to the shares and $27,655 to the beneficial conversion feature.  The $27,655 value of the shares and the $27,655 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $11,520 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





The Company issued 80,000 shares of its common stock and a convertible promissory note in the amount of $200,000 with interest payable at 10% per annum in 2009. The Note matures in November of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $200,000 debt plus the $0.59 fair market value of the 80,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $200,000 debt and the value of the 80,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $123,624 toward the debt and $38,188 to the shares and $38,188 to the beneficial conversion feature.  The $38,188 value of the shares and the $38,188 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $8,150 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





The Company issued 40,000 shares of its common stock and a convertible promissory note in the amount of $100,000 with interest payable at 10% per annum in 2009. The Note matures in December of 2010. The entire outstanding principal balance and any outstanding fees or interest is due and payable in full on the Maturity Date.  At the option of the holder, the note and interest is convertible into the Company’s common stock at $0.59 per share. The value of the $100,000 debt plus the $0.59 fair market value of the 40,000 shares at the date of the agreement was prorated to arrive at the allocation of the original $100,000 debt and the value of the 40,000 shares and the beneficial conversion feature.  The computation resulted in an allocation of $61,812 toward the debt and $19,094 to the shares and $19,094 to the beneficial conversion feature.  The $19,094 value of the shares and the $19,094 value of the beneficial conversion feature are then amortized to interest over the twelve month life of the debt. Interest expense of $2,387 has been recognized in the accompanying financial statements for the twelve months ending December 31, 2009.





Common Stock Options





Options granted to non-employees, accounted for under the fair value method





During February 2008, the Company granted a consultant options to purchase 714,286 shares of the Company’s common stock, at an exercise price of $1.05 per share. The options are fully vested and expire February 12, 2009. The quoted market price of the common stock at the time of issuance of the options was $.65 per share. The fair value of the options totaled $461,827 and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.












F-29
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Options - continued
  The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


2.05
%Dividend yield


0
%Volatility factor


312.5
%Weighted average expected life

1 year





During March 2008, the Company granted a consultant options to purchase 106,800 shares of the Company’s common stock, at an exercise price of $.17 per share. The options are fully vested and expire March 31, 2013. The quoted market price of the common stock at the time of issuance of the options was $.84 per share. The fair value of the options totaled $89,565 and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:





Risk-free interest rate


2.48
%Dividend yield


0
%Volatility factor


257.3
%Weighted average expected life

5 years
 
 During June 2008, the Company granted a consultant options to purchase 39,600 shares of the Company’s common stock, at an exercise price of $.17 per share. The options are fully vested and expire June 30, 2013. The quoted market price of the common stock at the time of issuance of the options was $.69 per share. The fair value of the options totaled $27,276 and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:


Risk-free interest rate


3.49
%Dividend yield


0
%Volatility factor


257.5
%Weighted average expected life

5 years
 
 During July 2008, the Company granted a consultant options to purchase 100,000 shares of the Company’s common stock, at an exercise price of $.50 per share. The options are fully vested and expire January 29, 2011. The quoted market price of the common stock at the time of issuance of the options was $.40 per share. The fair value of the options totaled $39,850 and was recorded as stock-based compensation in the accompanying financial statements for the nine months ended September 30, 2008.

















F-30
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Options - continued
  The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


2.87
%Dividend yield


0
%Volatility factor


337.6
%Weighted average expected life

3 year





During November 2008, the Company granted two board members options to purchase an aggregate of 100,000 shares each and one board member options to purchase an aggregate of 25,000 shares of the Company’s common stock at an exercise price of $.55 per share.  The options are fully vested and expire November 26, 2011. The quoted market price of the common stock at the time of issuance of the options was $.51 per share.  The fair value of the options totaled $50,819 for each of the two board members and $12,705 for the other board member, for an aggregate of $114,343, and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:


Risk-free interest rate


1.51
%Dividend yield


0
%Volatility factor


337.20
%Weighted average expected life

3 year
 
 During November 2008, the Company granted four employees options to purchase an aggregate of 115,000 shares of the Company’s common stock at an exercise price of $.55 per share.  The options are fully vested and expire November 26, 2011. The quoted market price of the common stock at the time of issuance of the options was $.51 per share.  The fair value of the options totaled $58,441, and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


1.51
%Dividend yield


0
%Volatility factor


337.2
%Weighted average expected life

3 years
 
 During November 2008, the Company granted five consultants options to purchase 140,000 shares of the Company’s common stock, at an exercise price of $.55 per share. The options are fully vested and expire November 26, 2011. The quoted market price of the common stock at the time of issuance of the options was $.51 per share. The fair value of the options totaled $71,147 and was recorded as stock-based compensation in the accompanying financial statements for the year ended December 31, 2008.





F-31
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Options - continued
  The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


1.51
%Dividend yield


0
%Volatility factor


337.2
%Weighted average expected life

3 years
 
 During February 2009, the Company granted three consultants options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $.50 per share. The options are fully vested and expire February 5, 2012. The quoted market price of the common stock at the time of issuance of the options was $.49 per share. The fair value of the options totaled $230,000 using the Black-Scholes option pricing model.  The Company’s accounts payable was reduced by $79,500 and a loss on settlement of debt of $150,500 has been recognized in the accompanying financial statements for the nine months ended September 30, 2009.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


1.37
%Dividend yield


0
%Volatility factor


211.2
%Weighted average expected life

3 years
 
 During May 2009, the Company granted a board member options to purchase 200,000 shares of the Company’s common stock, at an exercise price of $.26 per share. The options are fully vested and expire May 8, 2012. The quoted market price of the common stock at the time of issuance of the options was $.26 per share. The fair value of the options totaled $36,000 using the Black-Scholes option pricing model.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


1.39
%Dividend yield


0
%Volatility factor


120.2
%Weighted average expected life

3 years





During August 2009, the Company granted a board member options to purchase 500,000 shares of the Company’s common stock, at an exercise price of $.27 per share. The options are fully vested and expire August 6, 2012. The quoted market price of the common stock at the time of issuance of the options was $.27 per share. The fair value of the options totaled $95,000 using the Black-Scholes option pricing model.

















F-32
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008
 NOTE 11:                    STOCKHOLDERS’ EQUITY -continued
  Common Stock Options - continued
  The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


1.65
%Dividend yield


0
%Volatility factor


98.3
%Weighted average expected life

3 years
 
 During December 2009, the Company granted a consultant options to purchase 50,000 shares of the Company’s common stock, at an exercise price of $.43 per share. The options are fully vested and expire December 30, 2010. The quoted market price of the common stock at the time of issuance of the options was $.43 per share. The fair value of the options totaled $7,000 using the Black-Scholes option pricing model.





The fair value of the options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:




Risk-free interest rate


0.37
%Dividend yield


0
%Volatility factor


81.9
%Weighted average expected life

1 year
 
 The following schedule summarizes the changes in the Company’s stock option plan:





Weighted





WeightedOptions Outstanding


Average





AverageNumber


Exercise


Remaining


Aggregate


ExerciseOf


Price


Contractual


Intrinsic


PriceShares


Per Share


Life


Value


Per ShareBalance at December 31, 2007


5,197,400


$
0.15-1.05


2.03 years


$
402,320


$
0.56Options granted


3,516,386



0.17-1.05


1.50 years



91,953



0.93Options exercised


(379,765
)


0.17-0.29


3.0 years



(72,244
)


0.25Options expired


(2,725,000
)


0.15-1.05


1.09 years



0.00



0.69Balance at December 31, 2008


5,609,021


$
0.15-1.05


1.52 years


$
422,029


$
0.75Options granted


2,644,327



0.15-0.87


1.54 years



165,000



0.33Options exercised


-



-



-



-



-Options expired


(3,204,021
)


0.17-1.05



-



(87,029
)


0.95Balance at December 31, 2009


5,049,327


$
0.15-0.87


1.72 years


$
500,000


$
0.4Exercisable at December 31, 2008


5,609,021


$
0.15-1.05


1.52 years


$
422,029


$
0.75Exercisable at December 31, 2009


5,049,327


$
0.15-0.87


1.72 years


$
500,000


$
0.40











F-33
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 12:                    CONCENTRATIONS OF CREDIT AND OTHER RISKS





Accounts Receivable





The Company’s accounts receivable result from credit sales to customers. The Company had one and four customers whose sales were greater than 10% for the years ended December 31, 2009 and December 31, 2008, respectively. These customers represented 70.0% and 72.2% of the Company’s total revenues for the years ended December 31, 2009 and December 31, 2008, respectively. Those same customers accounted for 73% and 100% of the Company’s net accounts receivable balance at December 31, 2009 and December 31, 2008, respectively.





Sales to the Company’s one customer whose sales were greater than 10% for the year ended December 31, 2009 totaled 70% of total revenues in 2009. Sales to the Company’s four customers whose sales were greater than 10% for the year ended December 31, 2008 totaled 28.5%, 17.9%, 14.2%, and 11.6% of total revenues in 2008.





The loss of any of these significant customers would have a temporary adverse effect on the Company’s revenues, which would continue until the Company located new customers to replace them





The Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary.





Inventories





The Company has two products, one of which is produced in the Company’s production facility and the other product sold by the Company is purchased from one supplier. The failure of this supplier to meet its commitment on schedule could have a material adverse effect on the Company’s business, operating results and financial condition. If the sole-source supplier were to go out of business or otherwise become unable to meet its supply commitments, the process of locating and qualifying alternate sources could require up to several months, during which time the Company’s sales could be delayed. Such delays could have a material adverse effect on the Company’s business, operating results and financial condition.








NOTE 13:                    SUPPLEMENTAL CASH FLOW INFORMATION





During the year ended December 31, 2009, the Company had the following non-cash investing and financing activities:.




·
Increased prepaid expenses by $165,500 and increased paid in capital by $164,950 and increased common stock by $550.





·
Decreased Accrued Interest Payable by $171,628 and decreased Preferred Stock Redeemable by $3,182,405 and decreased Preferred Stock by $95 and increased Paid In Capital by $3,800,095 and increased Common Stock by $10,857 and increased loss on settlement of debt by $456,824.




















F-34
 Advanced Medical Isotope Corporation
 Notes to Consolidated Financial Statements
 For the years ended December 31, 2009 and 2008


NOTE 13:                    SUPPLEMENTAL CASH FLOW INFORMATION -continued





During the year ended December 31, 2008, the Company had the following non-cash investing and financing activities:




·
Increased prepaid expense paid with stock by $45,250, increased common stock by $87, and increased paid in capital by $45,163.





·
Increased stock based consulting fee payable by $117,344, increased common stock by $241, and increased paid in capital by $117,103.





·
Decreased accounts payable $22,060, and increased common stock $130, and increased paid in capital $21,930.





·
Decreased common stock subscriptions by $202,500, increased common stock by $919, increased paid in capital by $201,581.








NOTE 14:                    SUBSEQUENT EVENTS





In January 2010 the Company sold 25,000 common stock shares at $.58 per share.





In January 2010 the Company received $100,000 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $.50 per share. In addition the Company issued the note holder 40,000 shares of its common stock as a loan origination fee.





In January 2010 the Company sold 41,667 common stock shares at $.48 per share.





In January 2010 the Company sold 250,000 common stock shares at $.29 per share to the Company’s CEO as an exercise of options issued January 2007, expiring January 2010.





In January 2010 the Company sold 15,625 common stock shares at $.48 per share.





In February 2010 the Company sold 8,620 common stock shares at $.58 per share.





In February 2010 the Company issued 700,000 shares of its common stock valued at $.50 per share on the date of issuance, in exchange for business consulting services.





In February 2010 the Company received $100,000 in exchange for a convertible 10%, one year note. The note plus interest is convertible at the option of the note holder into common stock share at $.50 per share. In addition the Company issued the note holder 40,000 shares of its common stock as a loan origination fee.





















F-35