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
September 30, 2003
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 November 4, 2003 the number of shares of Common Stock, $.01 par value,
outstanding was 139,363,046.
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Unaudited Condensed Consolidated Balance Sheets at
September 30, 2003 and December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended September 30, 2003 and 2002,
and for the Nine Months Ended September 30, 2003 and 2002 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 2003 and 2002 5
Notes to Unaudited Condensed Consolidated Financial
Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3 - Controls and Procedures 11
PART II - OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 13
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
September 30, December 31,
Assets 2003 2002
-------------------------------------------------- ------------- -------------
Current assets:
Cash and cash equivalents $ 423,658 $ 441,904
Accounts receivable 290,390 218,923
Assets held for sale -- 607,531
Inventories 2,210,267 2,279,828
Receivable from Rights Offering 406,868 --
Prepaids and other current assets 205,829 128,830
------------- -------------
Total current assets 3,537,012 3,677,016
Property, plant and equipment, net 428,557 236,053
------------- -------------
Total assets $ 3,965,569 $ 3,913,069
============= =============
Liabilities and Stockholders' Equity (Deficit)
--------------------------------------------------
Current liabilities
Accounts payable $ 490,900 $ 257,776
Note payable related to assets held for sale -- 345,295
Accrued liabilities 152,934 342,091
Current portion of mortgage and notes payable to banks 893,608 1,226,520
------------- -------------
Total current liabilites 1,537,442 2,171,682
------------- -------------
Long-term liabilities
Mortgage and notes payable to banks, excluding current portion 852,251 909,738
Mandatorily redeemable preferred stock, $0.01 par value; 850 shares 850,000 --
------------- -------------
Total long-term liabilities 1,702,251 909,738
------------- -------------
Total liabilities 3,239,693 3,081,420
Mandatorily redeemable preferred stock, $0.01 par value; 850 shares -- 850,000
Stockholders' equity (deficit)
Common stock, $0.01 par value; 250,000,000 shares authorized,
issued and outstanding 139,363,046 shares at September 30, 2003
and 95,581,135 shares at December 31, 2002 1,393,630 955,812
Additional paid-in capital 87,179,253 86,416,002
Accumulated deficit (87,847,007) (87,390,165)
------------- -------------
Total stockholders' equity (deficit) 725,876 (18,351)
------------- -------------
Total liabilities and stockholders' equity (deficit) $ 3,965,569 $ 3,913,069
============= =============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months ended September 30, Nine Months ended September 30,
-------------------------------- --------------------------------
2003 2002 2003 2002
------------- ------------- ------------- -------------
Revenue:
Sales of product $ 552,020 $ 396,819 $ 1,696,703 $ 1,547,215
Cost of revenue:
Cost of products 320,761 182,079 962,412 754,319
------------- ------------- ------------- -------------
Gross profit 231,259 214,740 734,291 792,896
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and contract labor 129,196 107,867 342,948 362,947
General, administrative and consulting 191,377 195,776 767,940 736,603
------------- ------------- ------------- -------------
Total operating expenses 320,573 303,643 1,110,888 1,099,550
------------- ------------- ------------- -------------
Operating loss (89,314) (88,903) (376,597) (306,654)
Other income (expense):
Other income (expense) (1,438) 29,196 34,467 594,906
Interest expense (32,512) (48,590) (114,712) (137,201)
------------- ------------- ------------- -------------
Net income (loss) (123,264) (108,297) (456,842) 151,051
Preferred stock dividend, deemed dividends
and accretion of discount -- -- -- (349,242)
------------- ------------- ------------- -------------
Net loss applicable to common shareholders $ (123,264) $ (108,297) $ (456,842) $ (198,191)
============= ============= ============= =============
Basic and diluted common loss per share $ -- $ -- $ -- $ --
============= ============= ============= =============
Weighted common shares used in per
share calculation 102,871,252 95,164,468 98,007,969 83,678,357
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30,
-------------------------------
2003 2002
------------ ------------
Cash flows from operating activities:
Net income (loss) $ (456,842) $ 151,051
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities
Depreciation and amortization 69,099 59,418
Loss on disposal of property, plant and equipment 394 --
Release of contingent debt -- (500,000)
Changes in operating assets and liabilities:
Accounts receivable (71,467) 3,925
Prepaids and other assets (76,999) 146,584
Inventories 69,561 217,982
Accounts payable 233,124 123,416
Checks written in excess of cash in bank -- (101,714)
Accrued liabilities (141,330) (11,672)
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Net cash provided by (used in) operating activities (374,460) 88,990
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (244,473) (33,676)
Proceeds from sale of assets held for sale 262,235 --
------------ ------------
Net cash provided by (used in) investing activites 17,762 (33,676)
------------ ------------
Cash flows from financing activities:
Repurchase of preferred stock -- (86,832)
Offering costs (112,695) --
Proceeds from issuance of debt 760,000 75,000
Principal payments on notes payable (308,853) (90,476)
------------ ------------
Net cash provided by (used in) financing activities 338,452 (102,308)
------------ ------------
Net decrease in cash and cash equivalents (18,246) (46,994)
Cash and cash equivalents at beginning of period 441,904 293,969
------------ ------------
Cash and cash equivalents at end of period $ 423,658 $ 246,975
============ ============
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 84,684 $ 81,877
============ ============
Supplemental disclosure of noncash transactions:
Acquisition of equipment for note payable $ 17,523 $ --
Sale of assets held for sale through assumption of debt 345,295 --
Common stock issued in preferred stock conversion -- 16,080,923
Conversion of debt and accrued interest to rights offering 906,895 132,737
Common stock issued in rights offering for note receivable 406,868 --
See accompanying notes to condensed consolidated financial statements
5
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(1) The Company and Basis of Presentation
International Isotopes Inc. (the Company) was incorporated in Texas in 1995. The
Company manufactures a wide range of nuclear medicine calibration and reference
standards, processes and distributes radioisotopes for medical, industrial, and
research applications; and processes Gemstones. As of September 30, 2003, the
Company had 12 full time employees.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries, Gazelle Realty, Inc.
and 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 nine-month period ended September
30, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003. 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"). Under APB 25, compensation
expense is recognized if an option's exercise price on the measurement date is
below the fair value of the Company's common stock. For options that provide for
cashless exercise or that have been modified, the measurement date is considered
the date the options are exercised or expire. Those options are accounted for as
variable options with compensation adjusted each period based on the difference
between the market value of the common stock and the exercise price of the
options at the end of the period. 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").
On September 12, 2003, the Company filed an S-8 Registration statement with the
Securities and Exchange Commission in order to register up to 20,000,000 shares
of common stock in relation to the Company's 2002 long term incentive program.
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 and nine months ended September 30, 2003 and 2002:
6
Options issued during the nine months ended September 30, 2003 had a fair value
of $0.03 per share using the following weighted average assumptions: risk free
interest rate 3.4%, volatility 159.0%, expected life 10.0 years and expected
dividend yield of 0%.
Recent Accounting Pronouncements - In May 2003 the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity", which requires that certain financial instruments be
presented as liabilities that were previously presented as equity or as
temporary equity. Such instruments include mandatory redeemable preferred and
common stock, and certain options and warrants. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and is
generally effective at the beginning of the first interim period beginning after
June 15, 2003. The Company adopted SFAS 150 at July 1, 2003, that required the
Company to reclassify its 850 shares of mandatorily redeemable preferred stock
with a redemption value and carrying amount of $850,000 from temporary equity to
long-term liabilities. The adoption of this standard had no effect on net loss.
In November 2002, the FASB issued Financial Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN 45 sets forth the disclosures
required by a guarantor in its financial statements about its obligations under
certain guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The Company adopted
the requirements FIN 45 in the accompanying financial statements.
(2) Current Developments and Liquidity
Business Condition - Since inception, the Company has suffered substantial
losses. During the nine month period ended September 30, 2003 the Company had a
loss of $456,842. During the period ended September 30, 2002 the Company had
earnings of $151,051 before preferred dividends and a loss applicable to common
shareholders of $198,191. During the nine-month period ended September 30, 2003
and 2002, the Company's operations used cash in operating activities of $374,460
and provided cash in operating activities of $88,990 respectively. Management
expects to generate sufficient cash flows to meet operational needs during the
remainder of 2003 through product sales, financing, and operating capital;
however, there is no assurance that these cash flows will occur.
(3) Net Loss Per Common Share - Basic and Diluted
Basic earnings (loss) per share excludes dilution for potentially dilutive
securities and is computed by dividing earnings (loss) applicable to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted earnings (loss) per share, which is computed on the basis of
the weighted average number of common shares and all potentially dilutive
securities outstanding during the period, factors in potentially dilutive
securities and adding back any convertible dividend (except if the effect is
anti-dilutive).
For the three and nine months ended September 30, 2003, 16,000,000 options to
acquire common stock, 850 Series B shares of redeemable convertible preferred
stock and 87,580,306 warrants to acquire common stock were not included in the
computation of diluted net loss per share as their effect would have been
anti-dilutive.
For the three and nine months ended September 30, 2002, 17,746,646 options to
acquire common stock and 850 Series B shares of redeemable convertible preferred
stock were not included in the computation of diluted net loss per share as
their effect would have been anti-dilutive.
7
(4) Inventories
Inventories consist of the following at September 30, 2003 and December 31, 2002
September 30, 2003 December 31, 2002
------------------ -----------------
Raw materials $ 268,265 $ 294,662
Work in progress 1,932,283 1,971,551
Finished goods 9,719 13,615
------------------ -----------------
$ 2,210,267 $ 2,279,828
================== =================
(5) Notes Payable
In January 2003, the Company entered into an agreement to sell the Waxahachie
real estate for the assumption of the $345,295 debt associated with the
property. As a result of the debt assumption, the Company remains contingently
liable on the note with Texas State Bank for the remainder of the term should
the purchaser default on this note.
In accordance with Financial Accounting Standards Board Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, the Company has recognized a
$10,000 obligation under the guarantee that consists of the obligation to stand
ready to reassume the note held at Texas State Bank in the event the purchaser
defaults on the note. The obligation is based on the cost necessary for the
purchaser to refinance the note, which would release Company from the guarantor
position. Should the purchaser default on the note and the Company reassumes the
liability, they would also regain the real estate.
During the quarter ended June 30, 2003, as part of an agreement with certain
shareholders, the Company increased its short-term borrowing from these
shareholders to $790,000. During the quarter ended September 30, 2003, these
notes were converted to common stock as part of the rights offering mentioned
below.
(6) Stockholders' Equity, Options and Warrants
During the quarter ended March 31, 2003, as part of a licensing and
manufacturing settlement agreement, Bracco Diagnostics returned 8,242 shares of
the Company's common stock. The shares were immediately canceled.
During the nine months ended September 30, 2003, 3,027,326 warrants to acquire
common stock with exercise prices ranging from $4.00 to $5.50 expired
unexercised.
Stock Options
During the quarter ended June 30, 2003, the Company granted 2,000,000 options to
certain directors to purchase shares of common stock with an exercise price of
$0.03 per share, which was equal to the closing market price of the common stock
on the date of grant. These options vest through 2006.
At September 30, 2003 there were 16,000,000 options with a weighted average
exercise price of $0.03 per share. Also at September 30, 2003 there were
8,000,000 options exercisable with a weighted average exercise price of $0.03
per share.
8
Stock Rights Offering
During the quarter ended September 30, 2003, the Company completed a rights
offering to shareholders. The Securities and Exchange Commission declared the
registration statement for the rights offering effective on July 28, 2003. The
Company commenced the offering on August 12, 2003 and concluded it on September
12, 2003. Under the offering the Company offered 38,229,157 units. Shareholders
received one Right for each share owned and could purchase one unit for every
2.5 rights received, at the subscription price of $0.03 per unit. Shareholders
who fully subscribed were provided the additional privilege of over subscribing
for up to an additional 14,500,000 units. Each unit included (i) one share of
common stock, (ii) one warrant to purchase another share of common stock for
$0.04, and (iii) one warrant to purchase an additional share of common stock for
$0.05.
The total amount raised from the rights offering was $1,313,763. Of the total
amount received by the Company, $906,806 was subscribed through shareholder
tendering debt to equity and an additional $390,183 ($406,868 net of transfer
agent costs of $16,685) was provided as a receivable which was settled in cash
in October. The Company incurred an additional $96,010 in offering costs paid
directly by the Company. The total offering costs were $112,695. Under the terms
of the rights offering the Company issued 43,790,153 shares of common stock to
participants bringing the total number outstanding to 139,363,046. In addition,
the participants of the rights offer will receive an aggregate of 43,790,153
Series A warrants and 43,790,153 Series B warrants, which can be used to
purchase additional shares of common stock for $0.04 and $0.05 respectively.
Warrants
At September 30, 2003, the Company has 87,580,306 warrants outstanding.
(7) Commitments and Contingencies
Employment Contract
The Company has a five-year employment contract with the Company's president.
This is a standard employment agreement without special terms or provisions and
extends through February 2007.
Lease Agreement
Effective May 2, 2003, the Company entered into a new five year lease agreement
for the Company's operating facility. This new lease offers the same terms and
first rights to purchase considerations that existed in the previous lease
agreement but increases the monthly lease rate and the purchase option price by
an amount proportional to the square footage of the new facility expansion.
Dependence on Third Parties
Many of the isotopes used in the Company products are dependent upon other
entities and organizations that directly control the production of those
isotopes and the operation of those facilities. Action, or inaction, by those
operators could cause an interruption or delay in the Company's production that
could result in a loss of revenues to the Company and a loss of the value of
Work in Process material. The gemstone production is tied to an exclusive
agreement with Quali Tech Inc. who in turn has contracts with other clients for
gemstone processing. A loss of the contract with Quali Tech Inc. would require
the Company to seek other clients for gemstone processing. The Company has an
obligation to purchase certain isotope production material through October 2004
from a materials supplier for $180,000.
9
Contingencies
All of the Company products share the common link of requiring stringent
controls both from a quality and radiological control viewpoint. The Company has
an operating license from the Nuclear Regulatory Commission ("NRC") and
specially trained staff to handle these products. An irrevocable, automatic
renewable letter of credit against a Certificate of Deposit has been used to
provide decommissioning financial assurance as required by the Nuclear
Regulatory Commission.
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, 2003 ("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 and nine-month periods ended September 30, 2003 and 2002. The Company's
losses from operations for the three and nine-month periods ended September 30,
2003 were $123,264 and $456,842 respectively, as compared to earnings (loss)
from operations of $(108,297) and $151,051 for the comparable periods of 2002.
The change in earnings for the nine-month period was principally attributable to
the one time removal of a $500,000 contingent liability the Company had in
connection with the sale of the Linac facility in Denton Texas. During the
second quarter of 2002 the Company was released from this contingent liability
and recognized this transaction in other income. Without this one time event,
the Company would have experienced losses from operations of $108,297 and
$348,949 for the three and nine-month periods respectively ended September 30,
2003. The change in earnings for the three-month period was largely attributable
to costs associated with the launch of new products. Net earnings (loss) per
common share for the three and nine month periods ended September 30, 2003 were
$0.00 and $0.00 respectively, as compared to $0.00 and $0.00 for the same
periods of 2002. The reason there is no change in this figure is related to
rounding. Both the 2002 income and 2003 loss are relatively small in comparison
to the number of outstanding shares of Company stock.
Revenue for the three and nine-month periods ended September 30, 2003 were
$552,020 and $1,696,703 respectively, as compared to $396,819 and $1,547,215 for
the same periods in 2002 an increase of $155,801 and $149,488 respectively.
Gross profit for the three and nine-month periods ended September 30, 2003 was
$231,259 and $734,291 respectively, as compared to $214,740 and $792,896 for the
same periods in 2002.
Operating expenses were $320,573 and $1,110,888 respectively for the three and
nine-month periods ended September 30, 2003 compared to $303,643 and $1,099,550
for the same periods of 2002, an increase of $16,930 and 11,338 respectively.
Salaries and contract labor expenses for the three and nine-month periods ended
September 30, 2003 were $129,196 and $342,948 respectively, as compared to
$107,867 and $362,947for the same periods of 2002, an increase of $21,329 and a
decrease of $19,999 respectively. General, administrative and consulting
expenses totaled $191,377 and $767,940 respectively for the three and nine-month
periods ended September 30, 2003 as compared to $195,776 and $736,603 for the
same periods of 2002 a decrease of $4,399 and an increase of $31,337
respectively.
10
Interest expense for the three and nine-month period ended September 30, 2003
was $32,512 and $114,712 as compared to $48,590 and $137,201 for the comparable
periods in 2002 a decrease of $16,078 and $22,849 respectively. The decrease was
attributable to reductions in current and long-term debt.
Liquidity and Capital Resources
On September 30, 2003 the Company had cash and cash equivalents of $423,658
compared to $441,904 at December 31, 2002. For the nine months ended September
30, 2003, operating activities used cash of $374,460, investing activities
provided cash of $17,762 and financing activities provided cash of $338,452.
The Company has financed its operations 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 and the recent
rights offering. Of the $1,312,514 of capital raised through the rights offer
$406,568 was provided as new cash and $906,836 was conversion of debt to equity.
Most of this cash is being invested into equipment, hardware, and facilities in
order to further expand production capability as evidenced by the Company's
August 2003 announcement of the start of Lutetium-177 sales.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including, but not limited to: continued improvement in sales
of existing products and sale of several new products in 2004.Although there can
be no assurance, the Company expects that revenues from existing products will
continue to increase and new products will be launched to provide more funds for
operations and capital expenditures.
ITEM 3. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")), the Company's principal executive officer and
principal financial officer have concluded that as of the end of the
period covered by this Quarterly Report of Form 10-QSB such disclosure
controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange
Commission rules and forms.
(b) Changes in internal control over financial reporting. During the quarter
under report, there was no change in the Company's internal control over
financial reporting that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
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:
On September 17, 2003 the Company submitted a form 8-K in order
to report the conclusion and results of the Company rights
offering.
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: November 4, 2003
12