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
June 30, 2004
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 74-2763837
------------------------ ------------------------------------
(State of incorporation) (IRS Employer Identification Number)
4137 Commerce Circle, Idaho Falls, Idaho 83401
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
208-524-5300
----------------------------------------------------
(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 August 5, 2004 the number of shares of Common Stock, $.01 par value,
outstanding was 159,064,660.
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at June 30,
2004 (unaudited) and December 31, 2003 3
Unaudited Condensed Consolidated Statements of
Operations for the Three Months Ended June 30, 2004
and 2003, and for the Six Months Ended June 30, 2004
and 2003 4
Unaudited Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30, 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 11
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
CERTIFICATIONS 13
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30,
2004 December 31,
Assets (unaudited) 2003
------------ ------------
Current assets:
Cash and cash equivalents $ 752,332 $ 160,216
Accounts receivable 420,785 203,152
Inventories 2,274,558 2,283,752
Prepaids and other current assets 166,181 190,979
------------ ------------
Total current assets 3,613,856 2,838,099
Long-term assets
Restricted certificate of deposit 151,745 150,573
Property, plant and equipment, net 765,836 617,287
Capitalized lease disposal costs, net of
accumulated amortization of $41,538 and
$35,604 respectively 107,794 113,728
Patents, net of accumulated amortization 97,125 --
------------ ------------
Total long-term assets 1,122,500 881,588
------------ ------------
Total assets $ 4,736,356 $ 3,719,687
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 302,277 $ 320,554
Accrued liabilities 246,476 150,475
Current installments of notes payable 26,098 756,725
------------ ------------
Total current liabilites 574,850 1,227,754
Long-term liabilities
Obligation for lease disposal costs 149,332 149,332
Notes payable, excluding current installments 2,268,331 898,664
Mandatorily redeemable preferred stock, $0.01
par value; 850 shares outstanding 850,000 850,000
------------ ------------
Total long-term liabilities 3,267,663 1,897,996
Stockholders' equity
Common stock, $0.01 par value; 250,000,000
shares authorized; 159,064,660 and
139,363,046 shares issued and outstanding,
respectively 1,590,647 1,393,630
Additional paid-in capital 87,773,530 87,168,957
Retained deficit (88,470,334) (87,968,650)
------------ ------------
Total stockholders' equity 893,843 593,937
------------ ------------
Total liabilities and stockholders' equity $ 4,736,356 $ 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 June 30, Six Months ended June30,
------------------------------- -------------------------------
2004 2003 2004 2003
------------- ------------- ------------- -------------
Sale of product $ 467,359 $ 785,262 $ 1,210,684 $ 1,144,683
Cost of product 325,780 430,567 768,735 641,650
------------- ------------- ------------- -------------
Gross profit 141,579 354,695 441,949 503,033
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and contract labor 161,956 110,982 318,690 213,752
General, administrative and consulting 266,236 279,872 528,979 553,851
Research and development 13,412 10,680 26,979 22,713
------------- ------------- ------------- -------------
Total operating expenses 441,604 401,534 874,648 790,316
------------- ------------- ------------- -------------
Operating loss (300,025) (46,839) (432,699) (287,283)
Other income (expense):
Other income 30 20,867 8,729 33,398
Interest income 590 1,402 1,340 2,506
Interest expense (40,792) (50,281) (79,055) (82,199)
------------- ------------- ------------- -------------
Total other expense (40,172) (28,012) (68,986) (46,295)
------------- ------------- ------------- -------------
Net loss $ (340,197) $ (74,851) $ (501,684) $ (333,578)
============= ============= ============= =============
Net loss per common share - basic
and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Weighted average common shares
outstanding - basic and diluted 144,684,246 95,572,893 142,372,917 95,576,327
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months ended June 30,
2004 2003
----------- -----------
Cash flows from operating activities:
Net loss $ (501,684) $ (333,578)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 88,576 44,159
Loss on disposal of property, plant and equipment 380 --
Changes in operating assets and liabilities:
Restricted certificate of deposit (1,172) --
Accounts receivable (217,633) 5,111
Prepaids and other assets 24,798 26,845
Inventories 9,194 145,859
Accounts payable and accrued liabilities 123,773 (241,593)
Deferred revenue -- 88,872
----------- -----------
Net cash used in operating activities (473,768) (264,325)
----------- -----------
Cash flows from investing activities:
Purchase of patents (105,000) --
Purchase of property, plant and equipment (223,696) (102,913)
Proceeds from sale of assets held for sale -- 262,235
----------- -----------
Net cash provided by (used in) investing activites (328,696) 159,322
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants 801,590 --
Proceeds from issuance of debt 603,950 743,500
Principal payments on notes payable (10,960) (255,883)
----------- -----------
Net cash provided by financing activities 1,394,580 487,617
----------- -----------
Net increase in cash and cash equivalents 592,116 382,614
Cash and cash equivalents at beginning of period 160,216 441,904
----------- -----------
Cash and cash equivalents at end of period $ 752,332 $ 824,518
=========== ===========
Supplemental disclosure of cash flow activities:
Cash paid for interest $ 33,874 $ 118,183
=========== ===========
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
----------- -----------
Note payable converted from interest payable $ 46,050 $ --
----------- -----------
Renewal/renegotiation of note payable $ 733,595 $ --
----------- -----------
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 November
1995. The Company owns 100% of the outstanding common shares of 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) and 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 June 30, 2004, the Company had 13 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 six-month period ended June 30, 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 six months ended June 30, 2004 and 2003:
6
For the Three Months Ended For the Six Months Ended
June 30, 2004 June 30, 2003 June 30, 2004 June 30, 2003
------------- ------------- ------------- -------------
Net loss applicable to common
shareholders, as reported $ (340,197) $ (74,851) $ (501,684) $ (333,578)
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of related tax effects (10,953) (30,471) (28,129) (54,738)
------------- ------------- ------------- -------------
Pro forma net loss $ (351,150) $ (105,322) $ (529,813) $ (388,316)
============= ============= ============= =============
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 three and six-month periods ended June 30, 2004 the Company
had a loss of $340,197 and $501,684 respectively compared to a loss of $74,851
and $333,578 during the same periods ended June 30, 2003. During the six-month
period ended June 30, 2004, the Company's operations used cash of $473,768 in
operating activities. During the period ended June 30, 2003, the Company's
operations used cash of $264,325. Management expects to generate sufficient cash
flows to meet operational needs during the remainder of 2004 through increased
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
As of June 30, 2004 there were 67,878,692 and 16,000,000 warrants and options
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 June 30, 2004 and December 31, 2003
June 30, 2004 December 31, 2003
----------------- -----------------
Raw materials $ 268,265 $ 268,265
Work in progress 2,001,997 2,007,066
Finished goods 4,296 8,421
----------------- -----------------
$ 2,274,558 $ 2,283,752
================= =================
(5) Acquisition of license rights
During the six months ended June 30, 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.
7
(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 July 2004, the Company renegotiated the terms of a note with it's bank. The
new terms extend the due date of the note to February 1, 2006 and set the
interest rate at the bank's prime plus 1% (7.5% at July 1, 2004) at June 30,
2004 the balance outstanding that was renegotiated was $733,595. The Company
also renegotiated with the same bank its $250,000 revolving line of credit
changing the due date to July 1, 2005 and fixing the interest rate at the bank's
prime rate plus 1% (7.5% at July 1, 2004)with a due date of July 1,2005 ($0
outstanding at June 30, 2004). The loans are secured with accounts receivables,
inventory and equipment.
(7) Stockholders' Equity and Warrants
During the quarter ended June 30, 2004, 19,701,614 warrants were exercised and
exchanged for 19,701,614 shares of the Company's common stock. The Company
received $801,590 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 Isotopes Products
Laboratories on the basis that Isotopes 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. On
July 29, 2004 the court granted the Company's motion to dismiss all charges
against the Company President and CEO, Steve T. Laflin and another officer of
Radqual LLC. 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 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 under an operating license from the Nuclear
Regulatory Commission ("NRC"). The details of this license determine the scope
of permitted operations and amendments are required to either increase the
amount of material permitted or change the types of activities conducted within
the facility. The Company is required to maintain a funding reserve adequate to
address future decommissioning of the facility. An irrevocable, automatic
renewable letter of credit against a $151,745 Certificate of Deposit at Texas
State Bank has been used to provide this financial assurance.
(9) Subsequent Events
During July 2004 the Company announced the execution of new contracts for
production and recycling of various cobalt-60 sources. This announcement
coincided with the Nuclear Regulatory Commission (NRC) approval of the Company's
licensing for cobalt production and processing operations.
During August 2004, the Company granted 1,500,000 options to a new employee to
purchase shares of common stock with an exercise price of $0.17 per share, which
was equal to the closing market price of the common stock on the date of grant.
These options vest through August 2007 in increments of 25% per year.
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 and six month periods ended June 30, 2004 and 2003.
The Company's net loss for the three and six month periods ended June 30, 2004
were $340,197 and $501,684 respectively, as compared to a net loss of $74,851
and $333,578 for the comparable periods of 2003. The increase in net loss is
attributable to increased cost of goods sold and operational expense for new
products, such as the Fluorine Extraction Process (FEP), launched and being
developed during the period.
9
Revenues for the three and six month periods ended June 30, 2004 were $467,359
and $1,210,684 respectively, as compared to $785,262 and $1,144,683 for the same
periods in 2003; a decrease of $317,903 and an increase of $66,001 or 5.7%
respectively. The decrease in revenues for the quarter was attributable to the
cyclic nature of cobalt sales that happened to occur in different quarters in
2004 compared to the previous year. The increase in six-month period revenues
more accurately reflect the general growth in Company revenues realized through
increased sales of some existing products and through the addition of new
radiochemcial product. Gross profit for the three and six month periods ended
June 30, 2004 was $141,579 and $441,949 respectively, as compared to $354,695
and $503,033 for the same periods in 2003, a decrease of $213,116 and $61,084
respectively. The decrease in gross profit for the three-month period was again
attributable to difference in the timing of cobalt sales in the respective
periods and production costs for new products. The decrease in gross profit for
the six-month period was attributable to increased production cost associated
with the start-up of new product sales during the quarter.
Operating expenses were $441,604 and $874,648 respectively for the three and
six-month periods ended June 30, 2004 compared to $401,534 and $790,316 for the
same periods of 2003. Salaries and contract labor expenses for the three and six
month periods ended June 30, 2004 were $161,956 and $318,690 respectively, as
compared to $110,982 and $213,752 for the same periods of 2003, an increase of
$50,974 and $104,938 respectively. General, administrative and consulting
expenses totaled $266,236 and $528,979 respectively for the three and six month
periods ended June 30, 2004 as compared to $279,872 and $553,851 for the same
periods of 2003, a decrease of $13,636 and $24,872 respectively. The overall
increase in operating expense was largely attributable to increased
expenditures, such as wages and marketing consultants, associated with
development of new products and start-up of the new FEP product division of the
Company.
Interest expense for the three and six month period ended June 30, 2004 was
$40,792 and $79,055 as compared to $50,281 and $82,199 for the comparable
periods in 2003.
Liquidity and Capital Resources
On June 30, 2004 the Company had cash and cash equivalents of $752,332 compared
to $160,216 at December 31, 2003. For the six months ended June 30, 2004,
operating activities used cash of $473,768, investing activities used cash of
$328,696 and financing activities provided cash of $1,394,580. Cash from
financing activities consisted primarily of notes provided by several principals
and directors and the conversion of warrants to common stock.
The Company has financed its operations since inception primarily by bank loans,
sales of accelerator components and excess equipment, its initial public
offering, sales of shares of common and preferred stock in private placements to
investors, 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 contract manufacturing
agreements, commercial relationships, technological developments, and certain
market factors. The Company still has a significant amount of Series A and B
warrants that remain outstanding from the Company's Rights Offering conducted in
2003. Funds from the additional conversion of those warrants should be adequate
to pay down certain of the Company's long-term liabilities and to generate
additional cash for the acquisition of assets and continued development of the
Fluorine Extraction Process (FEP). This should continue to improve the Company's
financial strength, debt ratio, and attractiveness to investors or lending
institutions.
Although there can be no assurance, the Company expects that revenues will
continue to increase. These increased revenues will provide sufficient funds for
operations and capital expenditures.
10
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.
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 Isotopes Products
Laboratories on the basis that Isotopes 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. On
July 29, 2004 the court granted the Company's motion to dismiss all charges
against the Company President and CEO, Steve T. Laflin and another officer of
Radqual LLC. 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: August 13, 2004
12