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
March 31, 2002
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 March 31, 2002
(unaudited) and December 31, 2001 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2002 and 2001 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2002 and 2001 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION:
Item 2 - Changes in Securities and Use of Proceeds 9
Item 6 - Exhibits and Reports on Form 8-K 10
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31,
2002 December 31,
Assets (unaudited) 2001
-------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 274,143 $ 293,969
Accounts receivable 258,187 138,531
Assets held for sale 729,531 729,531
Inventories 2,440,405 2,537,519
Prepaids and other current assets 66,991 287,074
------------ ------------
Total current assets 3,769,257 3,986,624
Property, plant and equipment, net 270,248 280,036
------------ ------------
Total assets $ 4,039,505 $ 4,266,660
============ ============
Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit
---------------------------------------------------
Current liabilities
Accounts payable $ 178,893 $ 181,694
Checks written in excess of cash in bank - 101,714
Accrued liabilities 407,991 448,529
Current portion of mortgage and notes payable to banks 2,700,313 2,720,610
------------ ------------
Total current liabilites 3,287,197 3,452,547
Mortgage and notes payable to banks, excluding current portion 39,268 45,182
------------ ------------
Total liabilities 3,326,465 3,497,729
Redeemable convertible preferred stock, net 950,000 17,117,755
(liquidation value of $950,000)
Stockholders' deficit
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
950 shares issued and outstanding at March 31, 2002
and 17,467 shares issued and outstanding at December 31, 2001 - -
Common stock, $0.01 par value; 250,000,000 shares authorized,
issued and outstanding 95,081,135 shares at March 31, 2002
and 26,581,135 shares at December 31, 2001 950,812 265,812
Additional paid-in capital 86,320,999 70,575,834
Accumulated deficit (87,508,771) (87,190,470)
------------ ------------
Total stockholders' deficit (236,960) (16,348,824)
------------ ------------
Total liabilities and stockholders' deficit $ 4,039,505 $ 4,266,660
============ ============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months ended March 31,
2002 2001
----------- -----------
Revenue:
Sales of product $ 526,311 $ 537,267
Cost of revenue:
Cost of products 200,819 276,125
----------- -----------
Gross profit 325,492 261,142
----------- -----------
Operating costs and expenses:
Salaries and contract labor 137,315 106,680
General, administrative and consulting 115,176 198,286
----------- -----------
Total operating expenses 252,491 304,966
----------- -----------
Operating profit (loss) 73,001 (43,824)
Other (expense):
Interest income 1,881 -
Interest expense (43,941) (802)
----------- -----------
Earnings (loss) from continuing operations 30,941 (44,626)
----------- -----------
Discontinued operations:
Loss on disposal of discontinued operations - (3,553,025)
----------- -----------
Net earnings (loss) 30,941 (3,597,651)
Preferred stock dividend, deemed dividend
and accretion of discount (349,242) (132,450)
----------- -----------
Net earnings (loss) applicable to common shareholders $ (318,301) $(3,730,101)
=========== ===========
Net loss per common share continuing
operations - basic and diluted $ (0.01) $ (0.01)
Net loss per common share discontinued
operations - basic and diluted - (0.32)
----------- -----------
Net loss per common share - basic and diluted $ (0.01) $ (0.33)
=========== ===========
Weighted average common shares outstanding -
basic and diluted 60,789,468 11,370,968
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months ended March 31,
2002 2001
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ 30,941 $ (3,597,651)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 18,965 19,234
Changes in operating assets and liabilities:
Accounts receivable (119,656) (39,292)
Prepaids and other assets 220,083 279,477
Inventories 97,114 82,500
Accounts payable (2,800) 309,039
Checks written in excess of cash in bank (101,714) -
Accrued liabilities (40,538) (290,868)
------------ ------------
Net cash provided by (used in) operating activities 102,395 (3,237,561)
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (9,177) (43,707)
Proceeds from sale of assets held for sale - 888,091
------------ ------------
Net cash provided by (used in) investing activites (9,177) 844,384
------------ ------------
Cash flows from financing activities:
Repurchase of preferred stock (86,832) -
Payments on capital leases - (191,009)
Proceeds from issuance of debt - 3,142,999
Principal payments on notes payable (26,212) (882,052)
------------ ------------
Net cash provided by financing activities (113,044) 2,069,938
------------ ------------
Net decrease in cash and cash equivalents (19,826) (323,239)
Cash and cash equivalents at beginning of period 293,969 642,554
------------ ------------
Cash and cash equivalents at end of period $ 274,143 $ 319,315
============ ============
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 43,941 $ 299,687
============ ============
Supplemental disclosure of noncash transactions:
Common stock issued for preferred stock dividend $ - $ 268,798
============ ============
Common stock issued in preferred stock conversion $ 16,080,923 $ -
============ ============
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 is focused primarily on generating revenues for contract
manufacturing medical flood sources, processing Topaz Gemstones, and the
production of High Specific Activity (HSA) cobalt-60 from a DOE test reactor
(ATR). As of March 31, 2002, the Company had 10 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
(2) Current Developments and Liquidity
Business Condition - Since inception, the Company has suffered substantial
losses. During the period ended March 31, 2002 the Company had earnings of
$30,941, during the period ended March 31, 2001, the Company had losses before
preferred dividends of $3,597,651. During the period ended March 31, 2002, the
Company's operations provided cash in operating activities of $102,395, during
the period ended March 31, 2001, the Company's operations used cash in operating
activities of $3,237,561. The net loss for the period ended March 31, 2001
before preferred dividends includes discontinued operations of $3,553,025.
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.
(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 March 31, 2002 and 2001 there were 19,390,376 and 8,312,376 options and
warrants outstanding respectively. And as of March 31, 2002 and 2001 there were
a total of 950 and 17,467 shares of Series A and B redeemable convertible
preferred stock that were not included in the computation of diluted net loss
per share as their effect would have been anti-dilutive, reducing the loss per
share.
6
(4) Inventories
Inventories consist of the following at March 31, 2002 and December 31, 2001:
March 31, 2002 December 31, 2000
-------------- -----------------
Raw materials $ 304,984 $ 290,019
Work in progress 2,116,912 2,226,929
Finished goods 18,509 20,571
-------------- --------------
$ 2,440,405 $ 2,537,519
============== ==============
(5) Stockholders' Equity and Redeemable Convertible Preferred Stock
Redeemable Convertible Preferred Stock
--------------------------------------
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 all the
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.
In February 2002, all of the holders of the Series A Preferred Stock agreed to
exchange their 10,000 preferred shares for 50,000,000 new shares of common stock
of the Company at $0.20 per share, which was above market value. Holders of the
Series B Preferred Stock agreed to exchange their 3,700 preferred shares for
18,500,000 new shares of common stock of the Company at $0.20 per share, which
was above market value.
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.
Stock Option Plan
-----------------
In February 2002, the Company granted an additional 13,000,000 options to key
employees 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.
(6) Commitments and Contingencies
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.
7
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
-------------
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.
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/A,
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
---------------------
Three-month periods ended March 31, 2002 and 2001. The Company's earnings from
continuing operations for the three month period ended March 31, 2002 was
$30,941 compared to loss from continuing operations of $44,626 the comparable
period of 2001. The change was attributable to the focus on gemstone processing,
contract manufacturing of medical flood sources and high specific activity
cobalt-60. The change also reflects that the Company had operations in Texas for
the same quarter of 2001 that were discontinued in 2001. The net loss per common
share for the three-month period ended March 31, 2002 was $0.01, as compared to
net loss per common share of $0.33 for the same period of 2001.
8
Revenues for the three-month period ended March 31, 2002 were $526,311 as
compared to $537,267 for the same period in 2001. Gross profit for the
three-month period ended March 31, 2002 was $325,492 as compared to $261,142 for
the same period in 2001. The increase in gross profit was primarily attributable
to the termination of the commercial use subcontract agreement with Bechtel BWXT
Idaho LLC during the first quarter of 2001.
Operating expenses decreased to $252,491 for the three-month period ended March
31, 2002 compared to $304,966 for the same period of 2001. Salaries and contract
labor expenses for the three-month period ended March 31, 2002 was $137,315 as
compared to $106,680 for the same period of 2001, an increase of $30,635.
General and administrative expenses totaled $115,176 for the three-month period
ended March 31, 2002 as compared to $198,286 for the same period of 2001, a
decrease of $83,110. The decrease in total operating expense was primarily
attributable to cost control of both costs of products and operating costs.
Interest expense for the three-month period ended March 31, 2002 was $43,941 as
compared to $802 for the comparable period in 2001. The increase was
attributable to the fact that in the prior year interest payments to Texas State
Bank were suspended.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
On March 31, 2002 the Company had cash and cash equivalents of $274,143 compared
to $293,969 at December 31, 2001. For the three months ended March 31, 2002, net
cash provided by operating activities was $102,395, investing activities used
$9,177 and financing activities used $113,044.
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, loans from stockholders and directors and product sales.
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 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 2002, 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.
9
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
NONE
Reports on Form 8-K:
The Company filed an 8-K 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
filed an 8-K on April 5, 2002 with respect to a change in accountants.
10
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
11