FORM 10-Q
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, 2001
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 NO x
As of May 21, 2002 the number of shares of Common Stock, $.01 par value,
outstanding was 95,081,135
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 2001
(unaudited) and December 31, 2000. 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended September 30, 2001 and 2000, and for the Nine Months
Ended September 30, 2001 and 2000 4
Unaudited Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2001 and 2000. 5
Notes to Unaudited Condensed Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II - OTHER INFORMATION:
Item 2 - Changes in Securities and Use of Proceeds 14
Item 6 - Exhibits and Reports on Form 8-K 14
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30,
2001 December 31,
Assets (unaudited) 2000
-------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 361,406 $ 642,554
Accounts receivable 580,486 373,513
Assets held for sale 7,894,416 25,085,806
Inventories 2,433,419 2,587,992
Prepaids and other current assets (950) 304,636
------------ ------------
Total current assets 11,268,777 28,994,501
Property, plant and equipment, net 453,434 455,541
Intangibles and other assets - 134,777
------------ ------------
Total assets $ 11,722,211 $ 29,584,819
============ ============
Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit
---------------------------------------------------
Current liabilities
Accounts payable $ 87,029 $ 4,459,814
Accrued liabilities 235,606 939,254
Current portion of lease obligations - 1,531,883
Current portion of mortgage and notes payable to banks 9,570,538 16,972,971
------------ ------------
Total current liabilites 9,893,173 23,903,922
Non-current portion of lease obligations - 2,025,763
Mortgage and notes payable to banks, excluding current portion 51,467 67,989
------------ ------------
Total liabilities 9,944,640 25,997,674
Redeemable convertible preferred stock, net 16,985,304 17,337,954
(liquidation value of $17,467,000)
Stockholders' deficit
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
16,717 shares issued and outstanding at September 30, 2001
and 17,467 shares issued and outstanding at December 31, 2000 - -
Common stock, $0.01 par value; 250,000,000 shares authorized,
issued and outstanding 20,047,510 shares at September 30, 2001
and 10,611,411 shares at December 31, 2000 200,476 106,115
Additional paid-in capital 70,510,497 69,190,246
Accumulated deficit (85,918,706) (83,047,170)
------------ ------------
Total stockholders' deficit (15,207,733) (13,750,809)
------------ ------------
Total liabilities and stockholders' deficit $ 11,722,211 $ 29,584,819
============ ============
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,
-------------------------------- -------------------------------
2001 2000 2001 2000
----------- ------------ ------------ ------------
Revenue:
Sales of product $ 803,801 449,847 $ 1,846,395 $ 1,398,054
Cost of revenue:
Cost of products 489,252 195,402 1,095,261 628,481
----------- ------------ ------------ ------------
Gross profit 314,549 254,445 751,134 769,573
----------- ------------ ------------ ------------
Operating costs and expenses:
Salaries and contract labor 103,533 612,168 295,540 1,175,120
General, administrative and consulting 198,695 1,421,417 524,784 2,922,967
----------- ------------ ------------ ------------
Total operating expenses 302,228 2,033,585 820,324 4,098,087
----------- ------------ ------------ ------------
Operating profit (loss) 12,321 (1,779,140) (69,190) (3,328,514)
Other income (expense):
Interest income 1,307 - 1,307 -
Interest expense (601) (36,515) (2,314) (83,883)
----------- ------------ ------------ ------------
Profit (loss) from continuing operations 13,027 (1,815,655) (70,197) (3,412,397)
Discontinued operations:
Loss on disposal of discontinued operations
including provision of $678,511 for operating
losses during the phase-out period
(less applicable taxes of $0) (362,847) - (1,739,377) -
Profit (loss) from operations of discontinued
segment - (2,974,026) - (11,074,340)
----------- ------------ ------------ ------------
Loss from discontinued operations (362,847) (2,974,026) (1,739,377) (11,074,340)
----------- ------------ ------------ ------------
Net loss (349,820) (4,789,681) (1,809,574) (14,486,737)
Preferred stock dividend, deemed dividends
and accretion of discount (132,450) (4,563,761) (397,350) (12,960,557)
----------- ------------ ------------ ------------
Net loss applicable to common shareholders $ (482,270) $ (9,353,442) $ (2,206,924) $(27,447,294)
=========== ============ ============ ============
Net loss per common share continuing
operations - basic and diluted $ (0.01) $ (0.66) $ (0.03) $ (1.73)
Net loss per common share discontinued
operations - basic and diluted (0.02) (0.31) (0.12) (1.17)
----------- ------------ ------------ ------------
Net loss per common share - basic and diluted $ (0.03) $ (0.97) $ (0.15) $ (2.90)
=========== ============ ============ ============
Weighted average common shares outstanding -
basic and diluted 17,325,171 9,686,222 14,256,586 9,480,620
=========== ============ ============ ============
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,
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss $ (1,809,574) $(14,486,736)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 57,886 2,508,022
Services compensated by stock issuance - 469,783
Changes in operating assets and liabilities:
Accounts receivable (206,973) (1,168,770)
Prepaids and other assets 440,363 316,709
Inventories 154,573 (1,318,345)
Accounts payable (4,372,785) 1,495,563
Accrued liabilities (703,648) 130,143
------------ ------------
Net cash used in operating activities (6,440,158) (12,053,631)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (68,022) (2,290,646)
Proceeds from sale of assets held for sale 17,203,633 -
------------ ------------
Net cash provided by (used in) investing activites 17,135,611 (2,290,646)
------------ ------------
Cash flows from financing activities:
Settlement of contingent consideration - MAC Isotopes, Inc. - (1,266,441)
Proceeds from issuances of redeemable convertible
preferred stock and warrants - 9,320,000
Proceeds from issuance of common stock,
net of issuance costs - 5,450,264
Payments on capital leases (3,557,646) (1,152,295)
Proceeds from issuance of debt - 4,641,579
Principal payments on notes payable (7,418,955) (2,894,352)
Payments of preferred stock dividends - (125,000)
------------ ------------
Net cash provided by (used in) financing activities (10,976,601) 13,973,755
------------ ------------
Net increase (decrease) in cash and cash equivalents (281,148) (370,522)
Cash and cash equivalents at beginning of period 642,554 2,990,300
------------ ------------
Cash and cash equivalents at end of period $ 361,406 $ 2,619,778
============ ============
See accompanying notes to condensed consolidated financial statements
(Continued)
5
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows - continued
Nine Months ended September 30,
2001 2000
------------ ------------
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 471,218 $ 1,473,722
============ ============
Supplemental disclosure of noncash transactions:
Common stock issued for preferred stock dividend $ 668,755 $ 425,000
============ ============
Capital expenditures included in accounts payable $ - $ 462,849
============ ============
See accompanying notes to condensed consolidated financial statements
6
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 acquired the technology, proprietary designs and intellectual
property for the design and assembly of a proton linear accelerator (LINAC) to
produce radioisotopes used in nuclear medicine for the detection and treatment
of various forms of cancer and other diseases. The Company also owns 100% of the
outstanding common shares of Gazelle Realty, Inc. and International Isotopes
Idaho, Inc. (I4). Gazelle Realty, Inc. owned 20 acres of land on which the
facility for the LINAC has been constructed and 1.6 acres of land on which the
administration, manufacturing, and research and development building was
constructed. During 1997, all the property owned by Gazelle Realty, Inc. was
transferred to the Company.
Prior to initial production in late 1999, the Company had devoted substantially
all of its efforts, since inception, to the acquisition and construction of the
LINAC project and related assets, pharmaceutical production and to raising
capital and other organizational activities. The operating revenues to date have
been limited to the sales of accelerator components purchased from the State of
Texas, product development income, initial sales of I-125 brachytherapy seeds
and sales of reactor produced products from I4. Additionally, the Company has
derived operating capital from the sales of assets. The Company has financed its
operations in part through private placements of its equity securities and its
initial public offering (the "Offering") which occurred on August 19, 1997.
Discontinued Operations - In late 2000, the Company determined that it would be
required to pursue strategic alternatives to sell certain assets in order to
continue operations. It was determined that it would be necessary to dispose of:
the Woodrow Spencer office and warehouse located in Denton, Texas; the
Radiopharmaceutical Manufacturing Facility in Denton, Texas; the brachytherapy
seed business in Denton, Texas; real estate located in Waxahachie, Texas; and
the Radioisotope Production Facility in Denton, Texas. Each of these
facilities/assets was evaluated for impairment and all were written down to net
realizable value and an adjustment of $17,975,043 was recorded at December 31,
2000 and was reported in the December 31, 2000 financial statements.
During January 2001 the sale of the Woodrow Spencer facility was completed. In
April 2001 the Company completed the sale of the Radiopharmaceutical
Manufacturing Facility and the Brachytherapy seed business. The sale of the
Radioisotope Production Facility ("LINAC") closed in December 2001. At March 31,
2001 and 2000, the operations associated with these facilities and activities
have been reclassified as discontinued operations. Costs associated with
corporate functions for each of these years have been categorized as part of
general and administrative and are included in continuing operations. Interest
expense associated directly with the discontinued operations has been
categorized as discontinued operations. Interest expense associated with
continuing operations is reported separately
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
7
(2) Current Developments and Liquidity
On January 16, 2001, the Company completed the sale of the Woodrow Spencer
office and warehouse facility located in Denton, Texas for proceeds of $950,000,
less closing costs of $63,811. Through an impairment charge of $209,773, the
facility had been written down to a net book value of $886,189 at December 31,
2000. The Company used the proceeds to reduce its revolving line of credit by
$863,890 (including interest of $23,400) and fund operating expenses with the
remaining amounts.
On April 20, 2001, the Company completed the sale of the Radiopharmaceutical
Manufacturing Facility to NeoRx Corporation ("NeoRx") for proceeds of $12.0
million, less settlement costs of $225,000, and warrants to purchase 800,000
shares of NeoRx common stock. (The warrants were given no value due to the
exercise price of the warrants being less than the market value on the date the
agreement was entered into.) This facility had a net book value of $11,304,724
at December 31, 2000. The Company used the proceeds to repay advances made by
NeoRx in the amount of $861,060, reduce its note payable to a commercial lender
by $1,296,469 (including interest of $36,578), reduce its revolving line of
credit by $2,614,023 (including interest of $45,857), reduce its capital lease
obligations by $3,291,289, repay a portion of the note payable to William
Nicholson, the former Chairman of the Board, in the amount of $348,000 and fund
other operating expenses. The Company transferred the NeoRx warrants to the
Series A and B preferred shareholders in exchange for certain concessions in
their certificates of designation. See Note 8 for a discussion of the
concessions made by the Series A and B preferred shareholders.
On April 27, 2001, the Company completed the sale of its brachytherapy seed
assets to Imagyn Medical Technologies, Inc. ("Imagyn") for net cash proceeds of
$5.0 million, less settlement costs of $100,000. The seed business through an
impairment charge of $416,294 had been written down to a net book value of
$5,000,000 at December 31, 2000. The Company used the proceeds to repay advances
and expenses incurred by Imagyn in the amount of $108,786 and reduce its note
payable to a commercial lender by $4,645,582 (including interest of $25,768),
reduce its capital lease obligations by $145,632 and fund other operating
expenses.
On December 14, 2001, the Company completed the sale of the Linear Accelerator
Facility for $8,251,849. In this transaction, the buyers assumed Company debt of
$7,433,000 and paid interest of $318,848 on behalf of the Company. The Company
incurred additional closing costs of $272,025. The Linear Accelerator Facility
through an impairment charge of $15,889,765 had been written down to a net book
value of $7,164,160 at December 31, 2000. Associated with the sale and the
assumption of debt by the purchaser, the Company will retain an obligation of
$500,000 on that loan for six months or until purchaser renews their note with
Texas State Bank. The Company also retains an obligation (also for six months or
until purchaser renews the note) for decommissioning the Shady Oaks/LINAC
facility should AMISI default on payment or not meet Texas State Bank
requirements for note renewal.
Business Condition - Since inception, the Company has suffered recurring losses.
During the periods ended September 30, 2001 and 2000, the Company had losses
before preferred dividends of $1,809,574 and $14,486,737, respectively. During
the periods ended September 30, 2001 and 2000, the Company's operations used
cash in operating activities of $6,440,158 and $12,053,631, respectively. The
net loss before preferred dividends includes discontinued operations for the
periods ended September 30, 2001 and 2000 of $1,739,377 and $11,074,340,
respectively. As of September 30, 2001, the remaining operating assets of the
Company are those of I4. These matters raise substantial doubt about the
Company's ability to continue as a going concern. With the continuation of I4
operations, management expects to generate sufficient cash flows to meet
operational needs during 2002 through financing and operating capital; however,
there is no assurance that these cash flows will occur. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
8
(3) Net Loss Per Common Share - Basic and Diluted
Basic loss per share excludes dilution for potentially dilutive securities and
is computed by dividing loss applicable to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted 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, is
the same as basic loss per share as all potentially dilutive securities were
anti-dilutive. Net loss per common share is calculated for both continuing and
discontinued operations.
As of September 30, 2001 and 2000 there were 8,312,376 and 8,181,876 options and
warrants outstanding, respectively. As of September 30, 2001 and 2000 there were
a total of 17,467 and 18,217 shares of Series A and 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 September 30, 2001 and December 31, 2000
September 30, 2001 December 31, 2000
------------------ -----------------
Raw materials $ 147,333 $ 288,344
Work in progress 2,260,959 2,215,906
Finished goods 25,127 83,742
------------- -------------
$ 2,433,419 $ 2,587,992
============= =============
(5) Stockholders' Equity and Redeemable Convertible Preferred Stock
Redeemable Convertible Preferred Stock
--------------------------------------
The Series A Preferred Stock was mandatorily redeemable on May 20, 2002 in cash
or common stock at the then Average Price, at the Company's option. In March
2001, the holders of the Series A Preferred Stock agreed to a modification in
terms, which removed their early redemption rights and certain adjustments to
their conversion price. The Series A Preferred Stock was then convertible to
common stock at a fixed price of $2.00 per share, subject to adjustment in the
case of stock splits or stock dividends. In connection with this modification,
the exercise price of the Series A Preferred Stock warrants were also reduced to
$2.00 per warrant. Because the underlying stock value of the common stock at the
date of adjustment was less than the new exercise price, the repricing of the
warrants resulted in no additional value to the Series A Preferred Stockholders.
As consideration for those concessions, the Company distributed to the holders
of the Series A Preferred Stock an aggregate of 439,150 warrants to purchase
NeoRx common stock that the Company had received in connection with the sale of
the Radiopharmaceutical Manufacturing Facility to NeoRx. The NeoRx warrants were
valued using the intrinsic method of accounting resulting in no value being
assigned to the warrants
9
The Series B Preferred Stock was mandatorily redeemable on May 31, 2003 in cash
or common stock at the then Average Price, at the Company's option. When
originally issued, holders of Series B Preferred Stock could require early
redemption on December 1, 2000 and June 1, 2001. Other mandatory redemption
events included change in control, suspension or delisting from NASDAQ, the BSE
or any subsequent market on which the common stock is listed for five
consecutive days, breach by the Company of any representations, warranties or
other conditions in the preferred stock purchase agreement, and other events. In
March, 2001, the holders of Series B Preferred Stock agreed to a modification in
terms, which removed their early redemption rights and certain adjustments to
their conversion price. The Series B Preferred Stock was then convertible to
common stock at a fixed price of $2.00 per share subject to adjustment in the
case of stock splits or stock dividends. As consideration for those concessions,
the Company distributed to the holders of Series B Preferred Stock an aggregate
of 360,850 warrants to purchase NeoRx common stock that the Company had received
in connection with the sale of the Radiopharmaceutical Manufacturing Facility to
NeoRx. The NeoRx warrants were valued using the intrinsic method of accounting
resulting in no value being assigned to the warrants.
During 2001, with the exception of the July 15 and the October 15 Series A
Preferred dividends which were waived by the preferred shareholders, the Company
for all other Series A and Series B redeemable convertible preferred stock
dividends in 2001, elected to issue common stock as payment for the quarterly
dividends. The Company satisfied these dividend payments by issuing a total of
15,594,724 shares of common stock ( of which 1,596,187 were issued in the first
quarter). The preferred shareholders have waived all future dividends for both
the Series A and Series B redeemable convertible preferred stock.
During April and June of 2001, certain holders of Series B redeemable preferred
stock converted 750 shares of preferred stock into 375,000 shares of common
stock valued at $750,000 or $2.00 per common share.
Common Stock
------------
On November 2, 2001, at the annual meeting of stockholders, the stockholders
ratified an amendment authorizing 250,000,000 shares of common stock.
Stock Option Plan
-----------------
On April 23, 2001, the Company granted 1,000,000 stock options to a key
employee.
The following table summarizes information about fixed stock options under the
Plan outstanding at December 31, 2001:
Options Outstanding Options Exerciseable
Options Weighted Weighted Number Weighted
Range of Outstanding at Average Average Exercisable at Average
Exercise December 31, Remaining Exercise December 31, Exercise
Price 2001 Contractual Life Price 2001 Price
-------- -------------- ---------------- -------- ------------ --------
$ 0.076 1,000,000 9.32 years $ 0.076 500,000 $ 0.076
10
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions (all options
from previous year expired prior to being exercised):
2001
------
Expected dividend yield -
Risk-free interest rate 4.4%
Expected volatility 153%
Expected life 3 years
Weighted average fair value $0.03
Warrants
--------
At March 31, 2001, the Company had 7,312,376 warrants outstanding with exercise
prices ranging from $3.38 to $10.00 per warrant.
(6) Commitments and Contingencies
Employment Contract
-------------------
The Company has a five-year employment contract with the Company's president.
The employment agreement extends through February 2007.
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 gemstone production is tied to an exclusive agreement with Quali Tech Inc.
who in turn has a contract with The Topaz Group, Inc. 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.
Contingencies
-------------
In March 2001, I4 terminated its commercial use subcontract agreement that was
first established in 1996 at the Idaho National Engineering and Environmental
Laboratory. This contract had permitted access to the Idaho research reactor for
isotope production but also included an obligation to pay for the operations of
a DOE owned processing facility. The cost of supporting those operations had
increased considerably in the past several years to the point of no longer being
a profitable operation under those contractual arrangements. The termination of
this contract will not effect the Company's plans to continue HSA cobalt
production as some material remains in production in the DOE reactor facility
and this material can be shipped directly from the reactor site to the customers
facilities' without any processing in the government laboratory.
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 during
2001 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 reactor produced radioisotopes 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 $132,614 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.
11
Associated with the sale of the Shady Oaks Linac Facility and the assumption of
debt by the purchaser, the Company retains an obligation of $500,000 on that
loan for six months or until purchaser renews their note with Texas State Bank.
The Company also retains an obligation (also for six months or until purchaser
renews the note) for decommissioning the Shady Oaks/LINAC facility should the
purchaser default on payment or not meet Texas State Bank requirements for note
renewal. Because an amount is not probable nor estimable, no reserve has been
established for the decommissioning of the Shady Oaks/Linac facility.
(7) Subsequent Events
In January 2002 certain persons acting together as a group acquired all of the
Company's outstanding shares of Series A 5% Convertible Redeemable Preferred
Stock and certain common stock from its then current owners. The securities
acquired consisted of all 10,000 shares of Series A Preferred Stock and
2,087,837 shares of common stock. Also in January 2002, the Company reacquired
2,817 shares (or 37.7%) of the Company's Series B 7% Convertible Redeemable
Preferred Stock for $86,832.
In February and March 2002 the Company gained approval from 100% of the holders
of Series A and 80% of the holders of Series B Preferred Stock to amend their
respective Certificates of Designation to eliminate the Series A 5% dividend and
the Series B 7% dividend, change the mandatory redemption date for the all
Preferred Stock to May 2022, and remove certain default and penalty provisions.
In addition, the Company's Board of Directors approved a purchase offer of the
Series A and B Preferred Stock (5000 common shares for each one share of Series
A or B Preferred Stock). The same percentages of Series A and B holders have
agreed to sell their preferred shares for common stock.
All of the holders of the Series A Preferred Stock agreed to sell their 10,000
preferred shares for 50,000,000 shares of common stock at $0.20 per share.
Holders of the Series B Preferred Stock agreed to sell their 3,700 preferred
shares for 18,500,000 shares of common stock at $0.20 per share.
Effective March 2002, the Company amended and restated the 2000 Stock Incentive
Plan. The 2002 Long-Term Incentive Plan (the Plan) authorizes grants of options
to purchase up to 20,000,000 shares of authorized and unissued shares or issued
and outstanding shares of common stock. The maximum number of options granted to
each employee in one year is 10,000,000.
In February 2002, the Company granted an additional 13,000,000 options to
purchase shares of common stock with an exercise price of $0.02 per share, which
was equal to the closing market price of the common stock on the date of grant.
These options vest through February 2005.
In March 2002 the Company made a $20,000 payment to the former chairman of the
board and put a new 10-year note in place for the remaining balance owed. The
new note amount was set at $909,737 with annual income based payments fixed at
7% interest plus 30% of the Company's pretax net profits to be paid toward
principal on the note. The former chairman agreed to declare any previous notes
or agreements as null and void.
12
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-K
amended, filed with the Securities Exchange Commission (SEC) on November 8, 2001
("Form 10-K"). 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-K.
RESULTS OF OPERATIONS
---------------------
Effective December 31, 2000, the Company decided to dispose of all its business
segments with the exception of the I4 operations. As a result, all results of
operations for the discontinued segments have been reclassified as discontinued
operations.
Three and nine month periods ended September 30, 2001 and 2000. The Company's
profit (loss) from continuing operations for the three and nine month periods
ended September 30, 2001 was $13,027 and ($70,197) respectively, as compared to
($1,815,655) and ($3,130,682) for the comparable periods of 2000. Net loss per
common share for the three and nine month periods ended September 30, 2001 was
$0.03 and $0.15 respectively, as compared to a net loss per common share of
$0.97 and $2.90 for the same periods of 2000. The changes were attributable to
discontinued operations and the increase in revenues from the remaining Idaho
operations.
Revenues for the three and nine month periods ended September 30, 2001 were
$803,801 and $1,846,395 respectively, as compared to $449,847 and $1,398,054 for
the same periods in 2000. Gross profit for the three and nine-month periods
ended September 30, 2001 was $314,549 and $751,134 respectively, as compared to
$254,445 and $769,573 for the same periods in 2000. Increased revenues were
attributable to increases in sales of medical flood sources and gemstone
processing. The reduction in gross profit for the six-month period was
attributable to residual costs associated with discontinued operations.
Operating expenses decreased to $302,228 and $820,324 respectively for the three
and nine-month periods ended September 30, 2001 compared to $2,033,585 and
$4,098,087 for the same periods of 2000. Salaries and contract labor expenses
for the three and nine month periods ended September 30, 2001 was $103,533 and
$295,540 respectively, as compared to $612,168 and $1,175,120 for the same
periods of 2000, a decrease of $508,635 and $879,580 respectively. General,
administrative and consulting expenses totaled $198,6951 and $524,784
respectively for the three and nine month periods ended September 30, 2001 as
compared to $1,421,417 and $2,922,967 for the same periods of 2000, a decrease
of $1,222,722 and $2,398,183 respectively. The decreases in all expense
categories were primarily attributable to discontinued operations in the
radiopharmaceutical manufacturing and Linac facilities in Denton, Texas.
Interest expense for the three and nine month period ended September 30, 2001
was $601 and $2,314 as compared to $36,515 and $83,883 for the comparable
periods in 2000. The decrease was attributable to a suspension of interest
payment requirements from Texas State Bank.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
On September 30, 2001 the Company had cash and cash equivalents of $361,406
compared to $642,554 at December 31, 2000. For the nine months ended September
30, 2001, net cash used in operating activities of $6,440,158 and net cash used
in financing activities of $10,976,601 was provided by net cash from investing
activities and from proceeds from sales of assets, of $17,135,611.
13
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: sale of remaining assets of I3;
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, providing sufficient funds for operations and capital
expenditures.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In September of 2001, the Company elected to issue common stock in payment for
the quarterly dividend on the Series B redeemable convertible preferred stock.
The Company satisfied the $130,673 dividend payment by issuing 3,266,807 shares
of common stock at $0.04 per share, the average closing price of the common
stock for the preceding 5 trading days.
In December of 2001, the Company elected to issue common stock in payment for
the quarterly dividend on the Series B redeemable convertible preferred stock.
The Company satisfied the $130,673 dividend payment by issuing 6,533,625 shares
of common stock at $0.02 per share, the average closing price of the common
stock for the preceding 5 trading days.
In January of 2002, the Company repurchased 2,817 shares of Series B Preferred
Stock for $86,832.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
NONE
Reports on Form 8-K:
The Company filed an 8-K on October 16, 2001 with respect to a change in
accountants, on January 16, 2002 with respect to a change in ownership of the
Company's Series A Preferred Stock, partial acquisition of Series B Preferred
Stock, and issuance of common stock as required dividend payment and on April 5,
2002 with respect to a change in accountants.
14
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 29, 2002
15