FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2004
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
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(Exact name of registrant as specified in its charter)
Texas 74-2763837
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(State of incorporation) (IRS Employer Identification Number)
4137 Commerce Circle, Idaho Falls, Idaho 83401
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(Address of principal executive offices) (zip code)
208-524-5300
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of March 31, 2004 the number of shares of Common Stock, $.01 par value,
outstanding was 141,424,502.
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 2004 (unaudited) and December 31, 2003 3
Unaudited Condensed Consolidated Statements of
Operations for the Three Months Ended March 31, 2004
and 2003 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31, 2004 and 2003 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3 - Controls and Procedures 10
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31,
2004 December 31,
Assets (unaudited) 2003
--------------------------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 606,802 $ 160,216
Accounts receivable 237,661 203,152
Inventories 2,187,897 2,283,752
Prepaids and other current assets 174,379 190,979
------------ ------------
Total current assets 3,206,739 2,838,099
Long-term assets
Restricted certificate of deposit 151,155 150,573
Property, plant and equipment, net 736,940 617,287
Capitalized lease disposal costs, net of accumulated
amortization of $38,571 and $35,604 respectively 110,761 113,728
Patents, net of accumulated amortization 105,000 --
------------ ------------
Total long-term assets 1,103,856 881,588
------------ ------------
Total assets $ 4,310,595 $ 3,719,687
============ ============
Liabilities and Stockholders' Equity
---------------------------------------------------------------
Current liabilities
Accounts payable $ 293,495 $ 320,554
Accrued liabilities 192,120 150,475
Current installments of mortgage and notes payable 754,980 756,725
------------ ------------
Total current liabilites 1,240,595 1,227,754
Long-term liabilities
Obligation for lease disposal costs 149,332 149,332
Mortgage and notes payable, excluding current installments 1,545,529 898,664
Mandatorily redeemable preferred stock, $0.01
par value; 850 shares outstanding 850,000 850,000
------------ ------------
Total long-term liabilities 2,544,861 1,897,996
Stockholders' equity
Common stock, $0.01 par value; 250,000,000 shares
authorized; 141,424,502 and 139,363,046 shares
issued and outstanding, respectively 1,414,245 1,393,630
Additional paid-in capital 87,241,031 87,168,957
Retained deficit (88,130,137) (87,968,650)
------------ ------------
Total stockholders' equity 525,139 593,937
------------ ------------
Total liabilities and stockholders' equity $ 4,310,595 $ 3,719,687
============ ============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months ended March 31,
2004 2003
------------- -------------
Sale of product $ 743,325 $ 359,601
Cost of product 442,955 211,083
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Gross profit 300,370 148,518
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Operating costs and expenses:
Salaries and contract labor 156,734 102,770
General, administrative and consulting 262,743 275,332
Research and development 13,567 10,680
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Total operating expenses 433,044 388,782
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Operating loss (132,674) (240,264)
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Other income (expense)
Other income 8,699 12,531
Interest income 750 1,104
Interest expense (38,262) (31,918)
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Total other expense (28,813) (18,283)
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Net loss $ (161,487) $ (258,547)
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Net loss per common share - basic and diluted $ (0.00) $ (0.00)
============= =============
Weighted average common shares outstanding -
basic and diluted 140,061,587 95,579,761
============= =============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months ended March 31,
2004 2003
--------- ---------
Cash flows from operating activities:
Net loss $(161,487) $(258,547)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities
Depreciation and amortization 39,356 20,683
Loss on disposal of property, plant and equipment 186 99
Changes in operating assets and liabilities:
Restricted certificate of deposit (582) --
Accounts receivable (34,509) 54,496
Prepaids and other assets 16,600 (122,724)
Inventories 95,855 9,477
Accounts payable and accrued liabilities 60,636 (41,523)
Deferred revenue -- 49,000
--------- ---------
Net cash provided by (used in) operating activities 16,055 (289,039)
--------- ---------
Cash flows from investing activities:
Purchase of patents (105,000) --
Purchase of property, plant and equipment (156,228) --
--------- ---------
Net cash used in investing activites (261,228) --
--------- ---------
Cash flows from financing activities:
Proceeds from exercise of warrants 92,689 --
Proceeds from issuance of debt 603,950 70,000
Principal payments on notes payable (4,880) --
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Net cash provided by financing activities 691,759 70,000
--------- ---------
Net increase (decrease) in cash and cash equivalents 446,586 (219,039)
Cash and cash equivalents at beginning of period 160,216 441,904
--------- ---------
Cash and cash equivalents at end of period $ 606,802 $ 222,865
========= =========
Supplemental disclosure of cash flow activities:
Cash paid for interest $ 16,011 $ 15,350
========= =========
Supplemental disclosure of noncash transactions:
Note payable converted from interest payable $ 46,050 $ 17,523
========= =========
Sale of assets held for sale through assumption of debt $ -- $ 345,296
========= =========
See accompanying notes to condensed consolidated financial statements.
5
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY
Notes to Unaudited Condensed Consolidated Financial Statements
(1) The Company and Basis of Presentation
International Isotopes Inc (the Company) was incorporated in Texas in November
1995. The Company owns 100% of the outstanding common shares of its only
subsidiary, International Isotopes Idaho, Inc. (I4).
Nature of Operations -The Company is a manufacturer of calibration and reference
standards for nuclear medicine, offers a selection of radioisotopes
(lutetium-177 and iodine-131) radiochemicals for various applications such as
clinical research, supplies cobalt-60 isotope for use in the Leksell Gamma
Knife, and provides general radiological measurement capability for processed
gemstones. With the exception of cobalt-60, the Company's normal operating cycle
is considered to be one year. Due to the time required to produce high specific
activity (HSA) cobalt-60, the Company's operating cycle for the cobalt-60 is
considered to be three years. All assets expected to be realized in cash or sold
during the normal operating cycle of business are classified as current assets.
As of March 31, 2004, the Company had 12 full time employees.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary International Isotopes
Idaho, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Interim Financial Information - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they 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. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature. Operating results for the three-month period ended March 31,
2004 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2004. The accompanying financial statements should be
read in conjunction with the Company's most recent audited financial statements.
Stock-based Compensation Plans - The Company accounts for stock options issued
to directors, officers and employees under Accounting Principles Board Opinion
No. 25 and related interpretations ("APB 25"). The Company accounts for options
and warrants issued to non-employees at their fair value in accordance with SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
No compensation cost has been recognized for its stock options in the
accompanying consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss applicable to common
shareholders would have been increased to the pro forma amounts indicated below
for the three months ended March 31, 2004 and 2003:
6
2004 2003
---------- ----------
Net loss applicable to common shareholders,
as reported $ (161,487) $ (258,547)
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (17,176) (24,267)
---------- ----------
Pro forma net loss per common share $ (178,663) $ (282,814)
========== ==========
Loss per share, basic and diluted:
As reported $ -- $ --
========== ==========
Pro forma $ -- $ --
========== ==========
(2) Current Developments and Liquidity
Business Condition - Since inception, the Company has suffered substantial
losses. During the period ended March 31, 2004 the Company had a loss of
$161,487. During the period ended March 31, 2003, the Company had a loss of
$258,547. During the period ended March 31, 2004, the Company's operations
provided cash in operating activities of $16,055. During the period ended March
31, 2003, the Company's operations used cash in operating activities of
$289,039. Management expects to generate sufficient cash flows to meet
operational needs during 2004 through financing and operating capital; however,
there is no assurance that these cash flows will occur.
(3) Net Loss Per Common Share - Basic and Diluted
As of March 31, 2004 and 2003 there were 101,518,850 and 16,500,000 options and
warrants outstanding respectively and 850 shares of Series B redeemable
convertible preferred stock that were not included in the computation of diluted
net loss per common share as their effect would have been anti-dilutive, thereby
decreasing the net loss per common share.
(4) Inventories
Inventories consist of the following at March 31, 2004 and December 31, 2003
March 31, 2004 December 31, 2003
----------------- -----------------
Raw materials $ 268,265 $ 268,265
Work in progress 1,913,274 2,007,066
Finished goods 6,358 8,421
----------------- -----------------
$ 2,187,897 $ 2,283,752
================= =================
(5) Acquisition of license rights
During the three months ended March 31, 2004, the Company completed the purchase
of certain assets, patents and intellectual property related to the fluorine
extraction process. The patents were acquired for $105,000 and the equipment for
$10,000. The patents and equipment will be amortized/depreciated over their
estimated useful lives, which are 10 years for the patents and 5 years for the
equipment.
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(6) Notes Payable
The Company completed an unsecured note purchase agreement on January 21, 2004
with certain of the Company's principal shareholders and Directors totaling
$650,000. This is an unsecured note accruing interest at 6% per year with a
maturity date of December 31, 2005. Interest is to be paid on this note on a
semi-annual basis and the Company has the option to prepay the principal balance
at any time prior to maturity. The principal of the note and any accrued
interest is convertible into shares of the Company's common stock at any time at
the option of the holder prior to maturity. The conversion price for this
conversion option was $0.18 per share, which was the market value of the common
stock.
In January 2004, the Company renegotiated the terms of a line of credit with
it's bank and fixed the terms of the line of credit into a note. The new terms,
other than fixing the line into a note, extended the due date of the note to
July 1, 2004 and fixed the interest rate at 7.5% ($733,595 outstanding at March
31, 2004). The Company also negotiated with the same bank an additional $250,000
revolving line of credit with a due date of July 1,2004 ($0 outstanding at March
31, 2004). The Company anticipates renegotiating the revolving line of credit to
extend the due date to December 31, 2004. Both lines are secured by inventory,
accounts receivable and equipment.
(7) Stockholders' Equity and Warrants
During the quarter ended March 31, 2004, 2,061,456 warrants were exercised and
exchanged for 2,061,456 shares of the Company's common stock. The Company
received $92,689 for the exercise of these warrants.
(8) Commitments and Contingencies
Litigation
During February 2004, a lawsuit was filed by Iso-Science Laboratories, Inc. dba
Isotope Products Laboratories in the Superior Court of the State of California
for the County of Los Angeles against the Company, the Company's President and
CEO, a significant customer of the Company and certain officers of this
significant customer. In March 2004, the Company filed a response to the lawsuit
in which the Company denied all of the allegations made in the suit. In
addition, the Company has filed a counterclaim against Isotope Products
Laboratories on the basis that Isotope Products Laboratories filed the suit
against the Company with the knowledge that it has no basis in law or fact and
the lawsuit was calculated to interfere with the Company's contractual
arrangements and prospective business between the Company and its customers. The
Company will continue to vigorously defend itself in the lawsuit; however, an
outcome favorable to the Company is not determinable at this time. Should this
lawsuit be settled in a manner unfavorable to the Company, the Company could
lose its major line of revenues and could be required to make substantial
payments to the plaintiff. The Company has a manufacturing agreement in place
with this significant customer, which indemnifies the Company and its officers
from any loss arising from this suit. However, there is no guarantee that this
significant customer can bear the financial burden arising from defending and
possible settlement of this lawsuit.
8
Dependence on Third Parties
The production of HSA Cobalt is dependent upon the Department of Energy, and its
prime-operating contractor, who controls the reactor and laboratory operations.
The revenue associated with the sale of HSA Cobalt is largely dependent on
General Electric, the Company's sole customer of this product. The gemstone
production is tied to an exclusive agreement with Quali Tech Inc. who in turn
has a contracts with several Gemstone companies, Medical flood source
manufacturing is conducted under an exclusive contract with RadQual, LLC. who in
turn has agreement in place with several companies for marketing and sales. A
loss of any of these customers or vendors could adversely affect operating
results by causing a delay in production or a possible loss of sales.
Contingencies
The Company conducts its operations in Idaho Falls, Idaho. Although the medical
flood source and gemstone products appear diverse they share the common link as
being radioactive materials. Therefore, the Company is required to have an
operating license from the Nuclear Regulatory Commission ("NRC") and specially
trained staff to handle these materials. The Company has an NRC operating
license and has, in fact, continued to amend this license several times to
increase the amount of material permitted within the facility. Additional
processing capabilities and license amendments could be implemented that would
permit processing of other products by the Company but at the present time this
license does not restrict the volume of business operation performed or
projected to be performed in the coming year. An irrevocable, automatic
renewable letter of credit against a $151,155 Certificate of Deposit at Texas
State Bank has been used to provide the financial assurance required by the
Nuclear Regulatory Commission for the Idaho facility license.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the following contains
forward-looking information that is subject to certain risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors including those
set forth in the "Risk Factors" section included in the Company's Form 10-KSB,
filed with the Securities Exchange Commission (SEC) on March 24, 2004 ("Form
10-KSB"). The following discussion should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Form 10-KSB.
RESULTS OF OPERATIONS
Three-month periods ended March 31, 2004 and 2003. The Company's loss from
continuing operations for the three-month period ended March 31, 2004 was
$161,487 compared to a loss of $258,547 from continuing operations for the
comparable period of 2003. The reduction in loss was attributable to increasing
operational revenues, maintaining a consistent gross profit margin, and only
having a 12% increase in operating expenses.
Revenues for the three-month period ended March 31, 2004 were $743,325 as
compared to $359,601 for the same period in 2003, an increase of $383,724 or
approximately 106%. Increased revenues were primarily attributable to a single
large cobalt sale that occurred during the period, but the Company also saw
increases in sales of its nuclear medicine reference and calibration sources and
of its new Iodine -131 product. Gross profit for the three-month period ended
March 31, 2004 was $300,370 as compared to $148,518 for the same period in 2003,
roughly unchanged at 41% of revenues.
9
Operating expenses increased to $433,044 for the three-month period ended March
31, 2004 compared to $388,782 for the same period of 2003, an increase of
$44,262 or 11%. Salaries and contract labor expenses for the three-month period
ended March 31, 2004 was $156,734 as compared to $102,770 for the same period of
2003, an increase of $53,964 or 52%. The increase was attributed to increased
full time staff for operations and contract labor expense related to marketing
new products such as Lutetium-177 and Iodine-131. General and administrative
expenses totaled $262,743 for the three-month period ended March 31, 2004 as
compared to $275,332 for the same period of 2003, a decrease of $12,589 or 5%.
The reduction in G&A expense was related primarily to reduced corporate
expenditures during the period.
Interest expense for the three-month period ended March 31, 2004 was $38,262 as
compared to $31,918 for the comparable period in 2003. The increase was
attributable to increased long-term debt in the form of a convertible unsecured
note, and an increase in the interest rate of the Company's bank loan from 7% to
7.5%.
Liquidity and Capital Resources
On March 31, 2004 the Company had cash and cash equivalents of $606,802 compared
to $160,216 at December 31, 2003. For the three months ended March 31, 2004, net
cash provided by operating activities was $16,055, investing activities used
$261,042, and financing activities provided $691,759.
The Company has financed its operations since inception primarily by bank loans,
product sales, sales of excess equipment, its initial public offering, sales of
shares of common and preferred stock in private placements to investors, a
rights offering to shareholders, and loans from stockholders and directors.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including, but not limited to: sales of Company products such
as nuclear medicine reference and calibration standards and radiochemicals such
as Iodine-131, contract manufacturing and marketing relationships; and
technological and market developments.
Although there can be no assurance, the Company expects that revenues will
continue to increase there can be no assurance, the Company expects that
revenues will continue to increase based upon trends in sales performance.
Although there can be no assurance, we believe these increased revenues will
provide sufficient funds for operations and capital expenditures.
ITEM 3. CONTROLS AND PROCEDURES
(a) The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
(b) Changes in internal controls. The Company made no significant changes
in its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls by the
chief executive officer and principal financial officer.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During February 2004, a lawsuit was filed by Iso-Science Laboratories, Inc. dba
Isotope Products Laboratories in the Superior Court of the State of California
for the County of Los Angeles against the Company, the Company's President and
CEO, a significant customer of the Company and certain officers of this
significant customer. In March 2004, the Company filed a response to the lawsuit
in which the Company denied all of the allegations made in the suit. In
addition, the Company has filed a counterclaim against Isotope Products
Laboratories on the basis that Isotope Products Laboratories filed the suit
against the Company with the knowledge that it has no basis in law or fact and
the lawsuit was calculated to interfere with the Company's contractual
arrangements and prospective business between the Company and its customers. The
Company will continue to vigorously defend itself in the lawsuit; however, an
outcome favorable to the Company is not determinable at this time.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
31 Certification by the Chief Executive and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification by the Chief Executive and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
Reports on Form 8-K:
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
International Isotopes Inc.
(Registrant)
By: /s/ Steve T. Laflin
-------------------------------------
Steve T. Laflin
President and Chief Executive Officer
Date: May 5, 2004
12