Full Press Release Details
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Financial Statements
As of September 30, 2012 and December 31, 2011 and
for the Nine Months Ended September 30, 2012 and 2011 and
for the period from June 13, 2000 (inception) to September 30, 2012
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Balance Sheets
| September 30, 2012 | December 31, 2011 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 2,566,669 | $ | 5,703,798 | ||||
| R&D reimbursement receivable | 187,765 | 237,834 | ||||||
| Prepaid expenses and other current assets | 41,066 | 5,384 | ||||||
| Deferred financing costs | 32,523 | 252,248 | ||||||
| Total current assets | 2,828,023 | 6,199,264 | ||||||
| Property and equipment, net | 2,616 | 1,233 | ||||||
| TOTAL ASSETS | $ | 2,830,639 | $ | 6,200,497 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 576,624 | $ | 403,011 | ||||
| Accounts payable - related party | 243,600 | 241,500 | ||||||
| Convertible notes payable, net | 802,479 | 124,363 | ||||||
| Derivative liabilities | 5,204,348 | 4,439,613 | ||||||
| Total current liabilities | 6,827,051 | 5,208,487 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock-Series A, $0.01 par value; 1,000,000 shares authorized; | ||||||||
| 1,000,000 shares issued and outstanding | 10,000 | 10,000 | ||||||
| Preferred stock-Series B, $0.01 par value; 4,711,247 shares authorized; | ||||||||
| 4,711,247 shares issued and outstanding | 47,112 | 47,112 | ||||||
| Preferred stock-Series C-1, $0.01 par value; 800,000 shares authorized; | ||||||||
| 800,000 shares issued and outstanding | 8,000 | 8,000 | ||||||
| Preferred stock-Series C-2, $0.01 par value; 666,667 shares authorized; | ||||||||
| 666,667 shares issued and outstanding | 6,667 | 6,667 | ||||||
| Preferred stock-Series C-3, $0.01 par value; 502,604 shares authorized; | ||||||||
| 502,604 shares issued and outstanding | 5,026 | 5,026 | ||||||
| Preferred stock-Series C-4, $0.01 par value; 4,250,000 shares authorized; | ||||||||
| 4,250,000 shares issued and outstanding | 42,500 | 42,500 | ||||||
| Preferred stock-Series D, $0.01 par value; 3,000,000 shares authorized; | ||||||||
| 3,000,000 shares issued and outstanding | 30,000 | 30,000 | ||||||
| Preferred stock-Series E, $0.01 par value; 30,000,000 shares authorized; | ||||||||
| 26,606,306 and 23,697,119 shares issued and outstanding, respectively | 266,061 | 236,971 | ||||||
| Common stock, $0.01 par value, 80,000,000 shares authorized; | ||||||||
| 2,407,805 shares issued and outstanding | 24,078 | 24,078 | ||||||
| Additional paid-in capital | 48,430,356 | 47,963,914 | ||||||
| Deficit accumulated during development stage | (52,866,212 | ) | (47,382,258 | ) | ||||
| Total stockholders' equity (deficit) | (3,996,412 | ) | 992,010 | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 2,830,639 | $ | 6,200,497 |
See accompanying summary of accounting policies and notes to consolidated financial statements.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Operations
| For the Period from June 13, 2000 (Inception) to September 30, 2012 | ||||||||||||
| For the Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2012 | 2011 | |||||||||||
| Revenues | $ | - | $ | - | $ | - | ||||||
| Operating expenses: | ||||||||||||
| Research and development, net | 2,723,459 | 231,640 | 25,703,493 | |||||||||
| General and administrative | 1,520,221 | 376,748 | 21,518,964 | |||||||||
| Depreciation and amortization | 429 | 477 | 3,262,310 | |||||||||
| Loss on disposition of equipment | - | - | 550,186 | |||||||||
| Total operating expenses | 4,244,109 | 608,865 | 51,034,953 | |||||||||
| Loss from operations | (4,244,109 | ) | (608,865 | ) | (51,034,953 | ) | ||||||
| Other (income) expense: | ||||||||||||
| Interest expense | 952,241 | - | 1,817,621 | |||||||||
| Gain on extinguishment of liability | - | - | (260,000 | ) | ||||||||
| Change in fair value of derivative liabilities | 287,604 | - | 273,638 | |||||||||
| Total other (income) expense | 1,239,845 | - | 1,831,259 | |||||||||
| Net loss | $ | (5,483,954 | ) | $ | (608,865 | ) | $ | (52,866,212 | ) | |||
| Net loss per common share - basic and diluted | $ | (2.28 | ) | $ | (0.25 | ) | ||||||
| Weighted average number of common shares | ||||||||||||
| outstanding - basic and diluted | 2,407,805 | 2,407,805 |
See accompanying summary of accounting policies and notes to consolidated financial statements.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Consolidated Statements of Cash Flows
| For the Period from June 13, 2000 (Inception) to September 30, 2012 | ||||||||||||
| For the Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2012 | 2011 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (5,483,954 | ) | $ | (608,865 | ) | $ | (52,866,212 | ) | |||
| Adjustments to reconcile net loss to net cash | ||||||||||||
| provided by (used in) operating activities: | ||||||||||||
| Stock-based compensation expense | 312,500 | 14,951 | 4,140,610 | |||||||||
| Depreciation and amortization | 429 | 477 | 3,262,310 | |||||||||
| Loss on disposition of equipment | - | - | 550,186 | |||||||||
| Amortization of debt discount | 678,116 | - | 802,479 | |||||||||
| Amortization of deferred financing costs | 219,725 | - | 260,169 | |||||||||
| Gain on extinguishment of liability | - | - | (260,000 | ) | ||||||||
| Change in fair value of derivatives liabilities | 287,604 | - | 273,638 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| R&D reimbursement receivable | 50,068 | 401,161 | (187,766 | ) | ||||||||
| Prepaid expenses and other current assets | (35,682 | ) | 4,517 | (41,066 | ) | |||||||
| Accounts payable and accrued expenses | 173,614 | (22,526 | ) | 836,624 | ||||||||
| Accounts payable - related party | 2,100 | 241,500 | 243,600 | |||||||||
| Net cash provided by (used in) operating activities | (3,795,480 | ) | 31,215 | (42,985,428 | ) | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Payment made for patent rights | - | - | (3,000,000 | ) | ||||||||
| Purchases of property and equipment | (1,812 | ) | - | (815,112 | ) | |||||||
| Net cash used in investing activities | (1,812 | ) | - | (3,815,112 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Borrowings on convertible debt, net | - | - | 645,888 | |||||||||
| Sales of common stock, net of offering costs | - | - | 18,548,050 | |||||||||
| Sales of preferred stock, net of offering costs | 660,163 | - | 30,173,271 | |||||||||
| Net cash provided by financing activities | 660,163 | - | 49,367,209 | |||||||||
| Net increase (decrease) in cash | (3,137,129 | ) | 31,215 | 2,566,669 | ||||||||
| Cash at beginning of period | 5,703,798 | 196,135 | - | |||||||||
| Cash at end of period | $ | 2,566,669 | $ | 227,350 | $ | 2,566,669 | ||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION: | ||||||||||||
| Cash paid for: | ||||||||||||
| Income tax | $ | - | $ | - | $ | - | ||||||
| Interest | - | - | 682 | |||||||||
| NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||||||||
| Beneficial conversion feature discount | $ | - | $ | - | $ | 372,850 | ||||||
| Conversion of common stock to preferred stock | - | - | 62,193 | |||||||||
| Fair value of warrants issued with debt | - | - | 377,150 | |||||||||
| Fair value of warrants issued with Series E preferred | 318,117 | - | 4,205,967 | |||||||||
| Fair value of warrants issued to the placement agent | 159,044 | - | 347,593 |
See accompanying summary of accounting policies and notes to consolidated financial statements.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Nature of Business - Actinium Pharmaceuticals, Inc. (API), incorporated on June 13, 2000, is a biotechnology company committed to developing breakthrough therapies for life threatening diseases using its alpha particle immunotherapy (APIT) platform and other related and similar technologies. API, together with its wholly owned subsidiary, MedActinium, Inc. (MAI), (hereinafter referred to collectively as "API" or the "Company") has initiated collaborative efforts with large institutions to establish the proof of concept of alpha particle immunotherapy and has supported one Phase I/Il clinical trial and one Phase I clinical trial at Memorial Sloan-Kettering Cancer Center (MSKCC) under an MSKCC Physician Investigational New Drug Application. In 2012, the Company launched a multi-center corporate sponsored trial in acute myeloid leukemia (AML) patients. The Company's objective, through research and development, is to produce reliable cancer fighting products which utilize monoclonal antibodies linked with alpha particle emitters or other appropriate payloads to provide very potent targeted therapies. The initial clinical trials of the Company's compounds have been with patients having acute myeloid leukemia and it is believed that the Company's APIT platform will have wider applicability for different types of cancer where suitable monoclonal antibodies can be found.
Basis of Presentation - The accompanying unaudited interim consolidated financial statements as of September 30, 2012, for the nine months ended September 30, 2012 and 2011 and for the period from June 13, 2000 (inception) to September 30, 2012 have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim consolidated financial information on the same basis as the annual audited consolidated financial statements. The consolidated financial statements as of and for the nine months ended September 30, 2012 and 2011 are unaudited. In the opinion of the management, these consolidated financial statements included all adjustments, which, unless otherwise disclosed, are of a normal recurring nature, necessary for a fair presentation of the financial position, results of operations, and cash flows for the period presented.
The results for interim periods are not necessary indicative of results for the entire year. The consolidated balance sheet at December 31, 2011 has been derived from audited consolidated financial statements; however, the notes to the consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements and noted thereto included in the audited consolidated financial statements presented elsewhere herein.
Development Stage Company - API is considered a development stage company and has had no commercial revenue to date.
Principles of Consolidation - The consolidated financial statements include the Company's accounts and those of the Company's wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates in Financial Statement Presentation - The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all highly liquid accounts with original maturities of three months or less to be cash equivalents. Such balances are usually in excess of FDIC insured limits.
Property and Equipment - Machinery and equipment are recorded at cost and depreciated on a straight-line basis over estimated useful lives of five years. Furniture and fixtures are recorded at cost and depreciated on a straight-line basis over estimated useful lives of seven years. When assets are retired or sold, the cost and related accumulated depreciation are removed from the accounts, and any related gain or loss is reflected in operations. Repairs and maintenance expenditures are charged to operations.
Intangible Assets - The Company entered into a Product Development and Patent License Agreement with Abbott Biotherapeutics Corp. (formerly Facet Biotech, formerly known as Protein Design Labs) to secure exclusive rights to a specific antibody when conjugated with alpha emitting radioisotopes. Terms included a license fee payment, milestone payments, and royalty payments on future sales. The agreement ends at the later of (1) 12.5 years after the first sale or (2) when the patent expires. The patent rights are being amortized on the straight-line method over seven years. As of September 30, 2012 and December 31, 2011, the patent rights have been fully amortized. There were no amortization expenses for the nine months ended September 30, 2012 and 2011.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets - Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be realizable or at a minimum annually during the fourth quarter of the year. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset's carrying value to determine if an impairment of such asset is necessary. The effect of any impairment would be to expense the difference between the fair value of such asset and its carrying value.
Derivatives - All derivatives are recorded at fair value and recorded on the balance sheet. Fair values for securities traded in the open market and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
The following tables set forth assets and liabilities measured at fair value on a recurring and non-recurring basis by level within the fair value hierarchy as of September 30, 2012 and December 31, 2011. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Derivative liabilities | ||||||||||||||||
| At September 30, 2012 | $ | - | $ | - | $ | 5,204,348 | $ | 5,204,348 | ||||||||
| At December 31, 2011 | - | - | 4,439,613 | 4,439,613 |
Financial instruments consist of cash and cash equivalents, accounts payable and secured borrowings.
Income Taxes - The Company uses the asset and liability method in accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and income tax carrying amounts of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company reviews deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon management's assessment as to their realization.
Research and Development Costs - Research and development costs are expensed as incurred.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Share-Based Payments - The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last common stock valuation done by third party valuation expert of the Company's common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
Earnings (Loss) Per Common Share - The Company provides basic and diluted earnings per common share information for each period presented. Basic earnings (loss) per common share is computed by dividing the net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed by dividing the net income available to common stockholders, adjusted on an "if converted" basis, by the weighted average number of common shares outstanding plus dilutive securities. Since the Company has only incurred losses, basic and diluted net loss per common share are the same. The potentially dilutive securities (options, warrants and convertible instruments) were excluded from the diluted loss per common share calculation. For the nine months ended September 30, 2012, potentially issuable shares for stock options in the amount of 5,912,400 shares; warrants in the amount of 17,600,733 shares; convertible notes payable in the amount of 3,461,538 shares; and convertible preferred stock in the amount of 41,536,824 shares of common stock have been excluded from the calculation. For the nine months ended September 30, 2011, potentially issuable shares for stock options in the amount of 822,400 shares; and convertible preferred stock in the amount of 14,930,518 shares of common stock have been excluded from the calculation.
Recent Accounting Pronouncements - The Company does not expect that any recently issued accounting pronouncements will have a significant impact on the results of operations, financial position, or cash flows of the Company.
Subsequent Events - The Company's management reviewed all material events from September 30, 2012 through December 31, 2012 and there are no other material subsequent events to report.
Note 2 - Going Concern
As reflected in the accompanying financial statements, the Company has suffered recurring losses from operations since its inception. The Company has a net loss of $5,483,954 and net cash used in operations of $3,780,980 for the nine months ended September 30, 2012; and an accumulated deficit of $52,866,212 at September 30, 2012. In addition, the Company has not completed its efforts to establish a stable recurring source of revenues sufficient to cover its operating costs for the next twelve months. These factors raise substantial doubt regarding the Company's ability to continue as a going concern.
The ability of the Company to continue its operations is dependent on the successful execution of management's plans, which include the expectation of raising debt or equity based capital, with some additional funding from other traditional financing sources, including term notes, until such time that funds provided by operations are sufficient to fund working capital requirements. The Company raised $5,151,450 through sales of its securities on December 19, 2012 and is planning to issue additional equity and incur additional liabilities with related parties to sustain the Company's existence although no commitments for funding have been made and no assurance can be made that such commitments will be available.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of assets or the classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 3 - Related Party Transactions
Agreement with MSKCC: In 2010, General Atlantic Group Limited donated all of the equity shares of its wholly owned subsidiary, Actinium Holdings Ltd. (formerly named General Atlantic Investments Limited) to Memorial Sloan Kettering Cancer Center (MSKCC), a principal owner of the Company. On April 9, 2010, MSKCC agreed that certain of its related parties would forbear from collecting or otherwise enforcing certain obligations of the Company under the license and clinical trials agreements with those related parties, including outstanding obligations in the approximate amount of $260,000 and certain obligations arising during the forbearance period. Certain criteria that result in termination of the forbearance period include, but are not limited to, the earliest occurrence of the following events: (a) January 1, 2012; (b) the date on which the Company has raised a minimum of $3,000,000 in new equity financing in one or more equity financing transactions; (c) the dissolution, liquidation, winding-up, bankruptcy or insolvency of the Company: and (d) certain acquisition events with respect to the Company. The forbearance agreement ended on October 30, 2011, when the Company raised new equity financing of $4,125,025.
MSKCC agreed, subject to certain conditions, to utilize the donated funds for certain clinical and preclinical programs and activities related to the Company's drug development and clinical study programs, including the payment of certain costs and expenses that would otherwise have been borne by the Company. The following is a summary of activities related to the MSKCC arrangements for the nine month ended September 30, 2012 and 2011:
| September 30, 2012 | September 30, 2011 | |||||||
| Qualified R&D costs incurred by API | $ | - | $ | 761,086 | ||||
| Cash received from MSKCC | - | 966,341 |
In 2011, the Company received total R&D prepayments of $299,200 from MSKCC.
As of September 30, 2012, the Company had net payable of $55,835 to MSKCC. As of December 31, 2011, the Company had a net receivable of $237,834 from MSKCC.
Note 4 - Property and Equipment
Property and equipment consisted of the following at September 30, 2012 and December 31, 2011:
| Lives | September 30, 2012 | December 31, 2011 | |||||||
| Office equipment | 5 years | $ | 154,324 | $ | 153,804 | ||||
| Furniture and fixture | 7 years | 1,292 | 1,292 | ||||||
| Total property and equipment | 155,616 | 155,096 | |||||||
| Less: accumulated depreciation | (153,000 | ) | (153,863 | ) | |||||
| Property and equipment | $ | 2,616 | $ | 1,233 |
Depreciation expense for the nine months ended September 30, 2012 and 2011 was $429 and $477, respectively.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 5 - Convertible Notes
On December 27, 2011, the Company completed on a private offering of 8% Senior Subordinated Unsecured Convertible Promissory Notes ("Convertible Notes") in the amount of $900,000 and received net proceeds of $750,000. The convertible notes were issued at 83.33% of the principal amount resulting in an original issue discount of $150,000.The Convertible Notes mature one year from the date of issuance. Interest accrues at the rate of 8% per year on the outstanding principal amount, accrued semi-annually and to be paid at maturity.
The principal amount of the Convertible Notes and accrued interest are automatically converted to common stock at the earlier of: (1) the effective date of a Qualified Public Offering,(2) a Public Company Transaction, defined as (i) a reverse merger or similar transaction between the Company and a corporation whose securities are publicly traded in the United States or other jurisdiction mutually agreed between API and Placement Agent, or (ii) the quotation of the Company's securities for purchase and sale on a U.S. quotation service, or (iii) the filing with an applicable regulatory body which will result in the Company becoming an entity whose securities are traded on a public exchange in the U.S. or other mutually agreed upon jurisdiction, or (3) the acquisition or receipt by the Company of no less than $4,000,000 of gross proceeds in subsequent offerings of its common stock or equivalents following the issuance of Series E Preferred Stock(See Note 9) and the Convertible Notes. On October 23, 2012, the Company issued a modification to the note holders whereby the Company is seeking approval to extend the note maturity date for 90 days. As of December 31, 2012, the Company was able to obtain approvals from 22 of the 24 note holders and the maturity date of the notes has been extended to January 31, 2013, February 18, 2013 or March 27, 2013 for the 22 notes. Currently, the Company is still negotiating with 2 note holders to extend the maturity date of the notes to March 27, 2013.
In connection with the issuance of the Convertible Notes, Warrants to purchase a total of 862,050 shares of common stock were issued to investors. The Placement Agent and the Management Firm (See Note 9) were issued warrants to purchase 363,646 shares and 400,013 shares of common stock, respectively. The warrants issued to the Placement Agent are exercisable at $0.26 per share and expire on January 31, 2019. The warrants issued to the Management Firm are exercisable at $0.01 per share and expire on January 31, 2019.
The Company analyzed the Convertible Notes and the Warrants for derivative accounting consideration under FASB ASC 470 and determined that the investor warrants and the placement agent warrants, with a grant date fair value of $565,729 (See Note 6), qualified for accounting treatment as a financial derivative (See Note 6) and the Convertible Notes were determined to also have a beneficial conversion feature discount of $372,850 resulting from the conversion price of $0.26 per share which is below the fair value of $0.37 per share on the date of the Convertible Notes.
The total fees, including cash payments and the fair value of the warrants issued to the Placement Agent, incurred in connection with the financing were $292,691. These fees will be amortized over the life (one year) of the Convertible Notes using the straight-line method as it approximates the effective interest method. The $150,000 original issue discount on the Convertible Notes will also be amortized over the life of the Notes on a straight line basis. During the nine months ended September 30, 2012, the Company recorded amortization expense related to the deferred financing costs and the debt discount of $219,725 and $678,116, respectively.
A summary of the 8% Senior Subordinated Unsecured Convertible Promissory Notes as of September 30, 2012 December 31, 2011 are as follows:
| September 30, 2012 | December 31, 2011 | |||||||
| Principal amount | $ | 900,000 | $ | 900,000 | ||||
| Less: original issuance discount | (150,000 | ) | (150,000 | ) | ||||
| Less: discount related to fair value of derivative warrants | (377,150 | ) | (377,150 | ) | ||||
| Less: discount related to the beneficial conversion feature | (372,850 | ) | (372,850 | ) | ||||
| Add: amortization of discount | 802,479 | 124,363 | ||||||
| Carrying value | $ | 802,479 | $ | 124,363 |
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 6 - Derivatives
The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company's common stock at prices below such warrants' respective exercise prices and these provisions could result in modification of the warrants exercise price based on a variable that is not an input to the fair value of a "fixed-for-fixed" option as defined under FASB ASC Topic No. 815 - 40.
The warrants issued in connection with the Series E Preferred Stock Offerings ("Series E"), the Convertible Notes and the placement agent warrants contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a "Lower Price") that is less than the exercise price of such warrant at the relevant time. The amount of any such adjustment is determined in accordance with the provisions of the relevant warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the relevant time.
The fair values of the warrants issued in the Series E Offerings, the Convertible Notes Offering and the placement agent warrants were recognized as derivative warrant instruments at issuance and are measured at fair value at each reporting period. The Company determined the fair values of these warrants using a modified binomial valuation model.
Activities for derivative warrant instruments during the nine months ended September 30, 2012 were as follows:
| Series E Preferred Stock | Convertible Notes | Placement Agent | ||||||||||||||||||||||||||||||
| Offering warrants | Offering Warrants | Warrants | Total Derivative Warrants | |||||||||||||||||||||||||||||
| Units | Fair value | Units | Fair value | Units | Fair value | Units | Fair value | |||||||||||||||||||||||||
| At December 31, 2011 | 5,924,285 | $ | 2,583,604 | 862,050 | $ | 375,946 | 3,393,175 | $ | 1,480,063 | 10,179,510 | $ | 4,439,613 | ||||||||||||||||||||
| Additional issuances | 727,292 | 318,088 | - | - | 363,646 | 159,043 | 1,090,938 | 477,131 | ||||||||||||||||||||||||
| Value change | - | 169,917 | - | 22,009 | - | 95,678 | - | 287,604 | ||||||||||||||||||||||||
| At September 30, 2012 | 6,651,577 | $ | 3,071,609 | 862,050 | $ | 397,955 | 3,756,821 | $ | 1,724,784 | 11,270,448 | $ | 5,204,348 |
The fair values of the derivative warrants were calculated using a modified binomial valuation model with the following assumptions at each balance sheet date and the date for the new grants in January 2012:
| December 31, | January 31, | September 30 | ||||||||||
| 2011 | 2012 | 2012 | ||||||||||
| Market value of common stock on measurement date | $ | 0.37 | (1) | $ | 0.37 | $ | 0.39 | |||||
| Adjusted exercise price | $ | 0.24 - $0.26 | $ | 0.23 - $0.26 | $ | 0.23 - $0.26 | ||||||
| Risk free interest rate (2) | 1.35 | % | 1.24 | % | 0.83 | % | ||||||
| Warrant lives in years | 7 years | 7 years | 6.1 - 6.3 years | |||||||||
| Expected volatility (3) | 156 | % | 157 | % | 161 | % | ||||||
| Expected dividend yield (4) | - | - | - | |||||||||
| Probability of stock offering in any period over five years (5) | 25 | % | 25 | % | 25 | % | ||||||
| Range of percentage of existing shares offered (6) | 35 | % | 35 | % | 35 | % | ||||||
| Offering price range (7) | $ | 0.18 - $0.55 | $ | 0.13 - $0.56 | $ | 0.12 - $0.55 |
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)
Notes to Consolidated Financial Statements
Note 7 - Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at September 30, 2012 and December 31, 2011 are as follows:
| September 30, 2012 | December 31, 2011 | |||||||
| Deferred tax assets: | ||||||||
| Net operating losses | $ | 14,477,844 | $ | 13,089,314 | ||||
| Share-based compensation | 847,670 | 741,420 | ||||||
| Other differences in tax basis | 60,783 | 4,749 | ||||||
| Total deferred tax assets | 15,386,297 | 13,835,483 | ||||||
| Less: valuation allowance | (15,386,297 | ) | (13,835,483 | ) | ||||
| Deferred tax assets, net | $ | - | $ | - |
As of September 30, 2012, for U.S. federal income tax reporting purposes, the Company has approximately $45 million of unused net operating losses ("NOLs") available for carry forward to future years. The benefit from the carry forward of such NOLs will begin expiring during the year ended December 31, 2018. Because United States tax laws limit the time during which NOL carry forwards may be applied against future taxable income, the Company may be unable to take full advantage of its NOL for federal income tax purposes should the Company generate taxable income. Further, the benefit from utilization of NOLs carry forwards could be subject to limitations due to material ownership changes that could occur in the Company as it continues to raise additional capital. Based on such limitations, the Company has significant NOLs for which realization of tax benefits is uncertain.
Actinium Pharmaceuticals, Inc.
(A Development Stage Company)