<PAGE> 1
FORM 10-Q
UNITED STATES
SECURITIES 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, 1999
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)
3100 Jim Christal Rd.
Denton, Texas 76207
(Address of principal executive offices) (zip code)
940-484-9492
(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 10, 1999 the number of shares of Common Stock, $.01 par value,
outstanding was 8,534,074
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INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at September 30, 1999 and 3
December 31, 1998
Condensed Consolidated Statements of Operations for the 4
Three Months Ended September 30, 1999 and 1998, and for the
Nine Months Ended September 30, 1999 and 1998, and for the
period from November 1, 1995 (inception) through
September 30, 1999.
Condensed Consolidated Statements of Cash Flows for the Nine 5
Months Ended September 30, 1999 and 1998 and for the
period from November 1, 1995 (inception) through
September 30, 1999.
(1) Notes to Condensed Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II - OTHER INFORMATION:
Item 2. Changes in Securities 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
Assets (unaudited)
- --------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,582,038 6,371,704
Accounts receivable 593,451 240,433
Assets held for sale 205,920 526,533
Inventory 2,006,129 1,744,467
Prepaid royalties and other current assets 1,353,929 78,578
------------ ------------
Total current assets 7,741,467 8,961,715
Property, plant and equipment, net 40,168,059 32,350,399
Goodwill 1,467,688 1,687,846
Other assets 2,147,506 2,302,743
------------ ------------
Total assets 51,524,720 45,302,703
============ ============
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity
- ---------------------------------------------------------------------------
Current liabilities
Accounts payable $ 1,964,766 1,825,246
Accrued liabilities 808,795 973,752
Current portion of lease obligations 1,245,579 235,309
Current installments of mortgage and notes payable to banks 524,843 3,117,177
------------ ------------
Total current liabilities 4,543,983 6,151,484
Non-current portion of lease obligations 3,100,310 774,758
Mortgage and notes payable to banks, excluding current installments 13,890,208 14,483,839
------------ ------------
Total liabilities 21,534,501 21,410,081
Redeemable convertible preferred stock, net of discount of $1,189,870
(liquidation value of $5,000,000) (note 7) 3,810,130 --
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares
(only redeemable convertible preferred stock issued
and outstanding) -- --
Common stock, $.01 par value; 20,000,000 shares authorized,
issued and outstanding 8,534,074 shares at September 30, 1999
and 7,351,625 shares at December 31, 1998 85,341 73,515
Additional paid-in capital 47,775,923 35,183,918
Deficit accumulated during the developmental stage (21,041,175) (10,724,811)
Receivable from stock sales (640,000) (640,000)
------------ ------------
Total stockholders' equity 26,180,089 23,892,622
Total liabilities, redeemable convertible preferred
stock and stockholders' equity 51,524,720 45,302,703
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months ended Nine Months ended November 1, 1995
September 30, September 30, (inception) through
1999 1998 1999 1998 September 30, 1999
------------ ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales of products 692,749 672,326 1,926,763 1,293,263 3,349,474
Development contract income 68,532 290,500 127,351 540,500 649,351
Sale of accelerator components 6,790 -- 707,790 77 1,683,111
------------ ------------ ------------ ------------ ------------
768,071 962,826 2,761,904 1,833,840 5,681,936
Cost of revenue:
Cost of products (674,369) (511,701) (1,747,522) (930,922) (2,783,039)
Cost of development contract -- -- -- (62,830) (62,830)
Cost of accelerator components -- -- (358,467) -- (733,421)
------------ ------------ ------------ ------------ ------------
Gross profit 93,702 451,125 655,915 840,088 2,102,646
Operating costs and expenses:
Salaries and contract labor 476,507 393,425 1,316,357 842,771 3,812,452
Employee incentive compensation -- -- -- -- 2,397,500
Sales and marketing 173,432 217,121 676,558 567,877 1,374,204
Product and manufacturing
process development 1,646,509 -- 4,605,389 -- 5,430,658
General and administrative 987,109 917,137 2,948,717 2,295,852 8,469,626
------------ ------------ ------------ ------------ ------------
Total operating expenses 3,283,557 1,527,683 9,547,021 3,706,500 21,484,440
Loss from development stage operations (3,189,855) (1,076,558) (8,891,106) (2,866,412) (19,381,794)
Other income (expense):
Gain on sale (donation) of assets held for sale (42,967) -- (42,967) (24,332) 284,041
Interest income 58,589 19,925 158,203 259,268 749,438
Interest expense (8,168) (47) (10,666) (47) (539,282)
Loan financing fees -- (750,000)
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (3,182,401) (1,056,680) (8,786,536) (2,631,523) (19,637,597)
Extraordinary gain on debt extinguishment -- 126,250
------------ ------------ ------------ ------------ ------------
Net loss (3,182,401) (1,056,680) (8,786,536) (2,631,523) (19,511,347)
============ ============ ============ ============ ============
Preferred stock deemed dividend
and accretion of discount (113,320) -- (1,529,830) -- (1,529,830)
------------ ------------ ------------ ------------ ------------
Net loss applicable to common
shareholders (3,295,721) (1,056,680) (10,316,366) (2,631,523) (21,041,177)
Net loss per common share - basic and diluted (0.39) (0.16) (1.30) (0.41) (4.09)
============ ============ ============ ============ ============
Weighted average common shares outstanding -
basic and diluted 8,485,055 6,562,789 7,963,503 6,480,552 5,141,929
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months November 1, 1995
Ended September 30 (inception) through
1999 1998 September 30, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (8,786,536) (2,631,523) (19,511,347)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 1,209,513 162,025 1,718,707
(Gain) loss on sale or donation of assets 42,967 24,332 (284,041)
Services compensated by stock issuance -- -- 2,178,886
Forgiveness of receivable from stockholder -- -- 80,000
Extraordinary gain on extinguishment of debt -- -- (126,250)
Changes in operating assets and liabilities, exclusive of effects of
acquisition:
Interest receivable -- 152,358 --
Accounts receivable (353,018) 136,449 93,870
Other assets (120,114) (9,577) (653,938)
Inventory (261,662) (331,472) (1,489,122)
Accounts payable 139,520 2,341,570 305,820
Accrued liabilities (164,957) (7,373) 785,554
------------ ------------ ------------------
Net cash used in operating activities (8,294,287) (163,211) (16,901,861)
------------ ------------ ------------------
Cash flows from investing activities:
Proceeds from sale of certificate of deposit -- -- 400,000
Purchase of certificate of deposit -- -- (400,000)
Purchase of assets for sale and operations (4,868,016) (20,316,665) (35,741,803)
Purchase of securities available for sale -- -- (5,082,777)
Proceeds from sale of securities available for sale -- 5,082,777 5,082,777
Proceeds from sale of assets held for sale 320,613 14,067 1,152,620
Purchase MAC Isotopes, Inc., net of cash acquired -- (495,000) (495,000)
Investment in trademarks and license fee -- (275,000) (275,000)
------------ ------------ ------------------
Net cash used in investing activities (4,547,403) (15,989,821) (35,359,183)
------------ ------------ ------------------
Cash flows from financing activities:
Collections of stock sale receivable -- -- 160,000
Settlement of contingent consideration - MAC Isotopes, Inc. (869,559) -- (869,559)
Proceeds from issuance of common stock,
common stock subscriptions, and redeemable
convertible preferred stock 14,753,692 -- 42,873,309
Proceeds from issuance of notes payable to chairman -- -- 120,000
Payments on capital leases (646,144) -- (866,969)
Proceeds from issuance of debt -- 9,951,003 29,552,623
Principal payments on notes payable (3,185,965) (92,673) (15,011,322)
Payments on notes payable to chairman -- -- (115,000)
------------ ------------ ------------------
Net cash provided by financing activities 10,052,024 9,858,330 55,843,082
------------ ------------ ------------------
Net increase (decrease) in cash and cash equivalents (2,789,666) (6,294,702) 3,582,038
Cash and cash equivalents at beginning of period 6,371,704 8,201,417 --
------------ ------------ ------------------
Cash and cash equivalents at end of period 3,582,038 1,906,715 3,582,038
============ ============ ==================
</TABLE>
(Continued)
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Nine Months November 1, 1995
Ended September 30 (inception) through
1999 1998 September 30, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 10,666 47 628,557
============ ============ ==================
Cash paid for financing fees $ -- 86,350 596,611
============ ============ ==================
Supplemental disclosure of noncash transactions:
Common stock issued for stock receivables $ -- -- 640,000
============ ============ ==================
Common stock issued for account payable to director $ -- -- 62,852
============ ============ ==================
Conversion of notes payable to common stock $ -- -- 5,000
============ ============ ==================
Acquisition of subsidiary through issuance of common stock $ -- 3,173,973 3,248,976
============ ============ ==================
Capital expenditures included in accounts payable $ 215,342 1,829,600 215,342
============ ============ ==================
Acquisition of license fee and patent rights through
issuance of common stock $ -- 725,000 725,100
============ ============ ==================
Common stock issued for prepayment of royalties $ 1,000,000 $ -- $ 1,000,000
============ ============ ==================
Acquisition of equipment through capital leases $ 3,981,965 834,335 5,114,776
============ ============ ==================
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 7
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The Company and Basis of Presentation
International Isotopes Inc. (the "Company" or "I(3)") was incorporated on
November 15, 1995 and is a development stage enterprise. The Company's primary
activities have been to obtain assets to be used in the production of
radioisotopes, to obtain funding to complete the reconfiguration and reassembly
of the linear accelerator, and prepare for production and marketing of a full
range of radioisotopes, pharmaceutical grade radioisotopes and finished
radiopharmaceuticals. Since the Company's acquisition of MAC Isotopes, Inc. was
consummated to further establish a supply of certain radioisotopes, the Company
remains a development stage enterprise.
The accompanying unaudited consolidated financial statements include the results
of operations of the Company and its wholly owned subsidiaries, Gazelle Realty
and International Isotopes Idaho Inc. ("I(4)"). All significant intercompany
accounts and transactions have been eliminated in consolidation. The unaudited
financial statements included herein by the Company have been prepared without
audit and in accordance with generally accepted accounting principles, for
interim periods, and have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). These statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the Company's financial position as of September 30, 1999, and
the results of its operations for the nine and three-month periods ended
September 30, 1999 and 1998, and its cash flows for the nine-month periods ended
September 30, 1999 and 1998. This information should be read in conjunction with
the Company's audited consolidated financial statements as set out in the
Company's amended Form 10-K filed July 8, 1999.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" which establishes standards
for reporting and display of comprehensive income in a full set of
general-purpose financial statements. Comprehensive income includes net income
and other comprehensive income which is generally comprised of changes in the
fair value of available-for-sale marketable securities, foreign currency
translation adjustments and adjustments to recognize additional minimum pension
liabilities. For each period presented in the accompanying consolidated
statements of operations, comprehensive loss and net loss are the same amount.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for public business enterprises to report
information about operating segments in financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company is in
development stage and has not begun significant operations. The Company's
management anticipates operating through various segments in future periods as
operations for those segments begin.
Certain information in footnote disclosures, normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the SEC.
The financial data disclosed in the notes to the condensed consolidated
financial statements are unaudited for these periods.
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<PAGE> 8
(2) Liquidity
The Company has been developing facilities, is initiating operations, and has
experienced start-up losses of $19,511,347 since inception, and invested
significant funds in the acquisition of land, facilities, manufacturing
equipment, regulatory approval and personnel. The Company expects losses to
continue for the near term as it initiates production, marketing and
distribution of products, obtains validation and customer approval of products,
and increases marketing and product development.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including contract manufacturing and marketing relationships;
costs relating to commencing production of radioisotopes, radiochemicals,
finished radiopharmaceuticals and medical therapy devices; continued delays in
the federal and state regulatory approval process for permitting production from
the LINAC; expenses in developing the proposed medical imaging camera; costs
involved in filing, prosecuting, enforcing and defending patent claims and other
intellectual property rights; and technological and market developments.
The Company is continuing to negotiate potential debt and equity financing.
Although there can be no assurance, management anticipates that the cash flows
from future operations of the Company as well as the adequacy of the appraised
value of Company assets will allow the Company to obtain additional debt
financing on acceptable terms. Management is also negotiating with various
investment bankers regarding equity and debt financing for funding the joint
venture development of complementary businesses, technologies and products. The
Company cannot guarantee that it will be able to obtain any such financing on
acceptable terms.
Although there can be no assurance, the Company anticipates, based on its
currently proposed plans and assumptions relating to its operations and funding,
that current cash, cash from future operations, credit facilities and the
private placement of its securities will be sufficient to meet its currently
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, management may choose to raise those
funds through other means of financing as appropriate. The Company cannot
guarantee that it will be able to obtain any such financing on acceptable terms.
Also, if necessary, the Company can delay certain operations and capital
expenditures until adequate financing is obtained. If such delays occur, the
Company's future operations and business expansion could be significantly
curtailed.
(3) Net Loss Per Common Share - Basic and Diluted
Net loss per share of common stock is presented in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". Under SFAS No. 128, 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 common shares outstanding during the period, is the same as basic loss
per share as all potential common shares were anti-dilutive.
At September 30, 1999, the Company had 386,200 common stock options and
3,139,741 common stock warrants outstanding. The potentially dilutive effect of
the additional weighted average securities, under the treasury stock method, and
the redeemable convertible preferred stock issued in May 1999 have not been
considered in the computation of diluted net loss per common share since their
inclusion would be anti-dilutive.
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(4) Inventories
Inventories consist of the following at September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ ------------------
<S> <C> <C>
Raw materials $ 281,675 $ 388,930
Work in progress 1,645,610 1,355,537
Finished goods 78,844 --
------------------ ------------------
$ 2,006,129 $ 1,744,467
================== ==================
</TABLE>
(5) Variable Line of Credit
On April 30, 1999, a variable line of credit, secured by stock owned by the
Chairman of the Board, with a balance of $2,216,332, was paid off with proceeds
received from the private placement (see note 6). The Company no longer has any
liability under this arrangement.
(6) Common Stock
On June 25, 1999, the Company amended its license agreement, dated May 26, 1998,
with Roger R. Good, M.D., P.S. (doing business as Inland Cancer Care), a
Washington professional services corporation and EndoTech, Inc., a Delaware
corporation (collectively, the "Good Group"). As part of the amended agreement
the Company agreed to prepay the Good Group $1,000,000 for estimated running
royalties in common stock. In July of 1999, the Company issued the Good Group
98,039 shares of common stock at the then market value of $10.20 per share to
satisfy its obligation under this agreement.
In April of 1999, the Company initiated a private placement of units of its
securities exclusively to accredited investors including certain officers and
directors of the Company. Each Unit consisted of 1 share of common stock at
$9.10 per share and a warrant to purchase an additional share at $10.00 per
share. From April 1999 through June 1999, the Company sold units representing
924,410 shares of common stock and warrants to purchase an additional 924,410
shares to accredited investors for aggregate consideration of $8,412,150. The
sale of the Units was exempt pursuant to Section 4(2) of the Securities Act of
1933 and Regulation D promulgated thereunder. The shares of common stock sold
and the shares of common stock issuable upon exercise of the warrants were
subsequently registered with the Securities and Exchange Commission for resale
by the purchasing accredited investors pursuant to a Registration Statement on
Form S-3 which became effective on July 29, 1999.
(7) Redeemable Convertible Preferred Stock
On May 18, 1999, the Company completed a private placement of 5,000 shares of 5%
cumulative redeemable convertible $0.01 par value $1,000 face value preferred
stock ("Preferred Stock") together with 205,000 warrants to purchase common
stock at $11.86 per share, for aggregate proceeds of $5 million, before issuance
costs of $300,000. Dividends are 5% per annum payable in cash or common stock
(at the Company's option) beginning October 15, 1999 and continuing quarterly
thereafter through May 20, 2002. If paid in common stock, the number of shares
is based on the average market price for the 10 trading days immediately
preceding the dividend payment date (the "Average Price").
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<PAGE> 10
The Preferred Stock is convertible to common stock at $11.86 per share at
issuance and the conversion price is reset at each dividend payment date to the
then Average Price (with a floor of $7.00 per share and a ceiling of $11.86 per
share).
The Preferred Stock is mandatorily redeemable on May 20, 2002 in cash or common
stock at the then Average Price, at the Company's option. Early redemption may
be required at the option of the holder under certain circumstances and may be
exercised at the option of the Company under other circumstances. Mandatory
redemption events include 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.
Warrants are exercisable at any time up to May 20, 2002 at $11.86 per share.
The Company assigned an aggregate value of $1,059,850 to the warrants ($5.17 per
share) using an option pricing model with the following assumptions: exercise
price of $11.86 per share, volatility of 60%, risk-free interest rate of 5.60%,
and contractual term of three years. The warrant value was recorded to
additional paid-in capital and is being accreted to the Preferred Stock over the
term of the warrant.
After consideration of the warrant value, the Preferred Stock has a "beneficial
conversion feature" of $1,359,850 that has been recognized as an additional
return to the holders through a charge to deficit accumulated during the
development stage and an increase to additional paid-in capital.
(8) Subsequent Events
On October 15, 1999, under the terms of the private placement of redeemable
convertible preferred stock initiated May 18, 1999 (see note 7), the Company
issued an additional 5,000 shares of 5% cumulative redeemable convertible $0.01
par value $1,000 face value preferred stock ("Preferred Stock") together with
205,000 warrants to purchase common stock at $11.86 per share, for aggregate
proceeds of $5 million, before issuance costs of $300,000. Dividends are 5% per
annum payable in cash or common stock (at the Company's option) beginning
January 15, 2000 and continuing quarterly thereafter through October 15, 2002.
If paid in common stock, the number of shares is based on the Average Price, as
defined above.
The Preferred Stock is convertible to common stock at $7.00 per share and the
conversion price is reset at each dividend payment date to the then Average
Price (with a floor of $7.00 per share and a ceiling of $11.86 per share).
The Preferred Stock is mandatorily redeemable on October 15, 2002 in cash or
common stock at the then Average Price, at the Company's option. Early
redemption may be required at the option of the holder under certain
circumstances and may be exercised at the option of the Company under other
circumstances. Mandatory redemption events include 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. Warrants are exercisable at any time up to October
15, 2002 at $11.86 per share.
The Company assigned an aggregate value of $270,600 to the warrants ($1.32 per
share) using an option pricing model with the following assumptions: exercise
price of $11.86 per share, volatility of 60%, risk-free interest rate of 5.60%,
and contractual term of three years. The warrant value will be recorded to
additional paid-in capital and will be accreted to the Preferred Stock over the
term of the warrant.
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<PAGE> 11
After consideration of the warrant value, the Preferred Stock will have a
"beneficial conversion feature" of $570,600 that will be recognized as an
additional return to the holders through a charge to deficit accumulated during
the development stage and an increase to additional paid-in capital in the
fourth quarter.
On October 15, 1999 the Company paid, in cash, the initial dividend on the
Preferred Stock issued in May of 1999 of $102,740 (for 5 months).
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,
filed with the Securities Exchange Commission (SEC) on April 15, 1999, as
amended on April 16, 1999 and July 8, 1999 (collectively, the "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 DEVELOPMENT STAGE ACTIVITIES
Three and nine month periods ended September 30, 1999 and 1998
The Company's net losses for the three and nine month periods ended September
30, 1999 were $3,182,401 and $8,786,536 respectively, as compared to net losses
of $1,056,680 and $2,631,523 for the comparable periods of 1998. Net loss per
common share for the three and nine month periods ended September 30, 1999 were
$0.39 and $1.30 respectively, as compared to net loss per common share of $0.16
and $0.41 for the same periods of 1998.
The increase in the losses for the three and nine month periods was largely due
to expenses relating to materials, manufacturing supplies and other production
related goods, hiring additional manufacturing personnel, increased activities,
expensing pre-production costs of products, completion of the validation of
facilities, equipment and procedures, regulatory costs and licensing
requirements. In addition, 1999 personnel costs were substantially higher as
personnel who were previously engaged in construction and development
activities, whose respective costs had been capitalized, shifted their efforts
to validation and manufacturing activities and the related costs were expensed.
Revenues for the three and nine month periods ended September 30, 1999 were
$768,071 and $2,761,904, respectively, as compared to $962,826 and $1,833,840
for the same periods in 1998. Gross profit for the three and nine month periods
ended September 30, 1999 was $93,702 and $655,915, as compared to $451,125 and
$840,088 for the same periods in 1998. The decrease in revenues for the 3 month
period was attributable to the timing of sales for reactor produced isotopes
from International Isotopes Idaho, Inc., a wholly owned subsidiary. The increase
in revenues for the nine month period was attributable to the revenues of
International Isotopes Idaho, Inc., as well as sales of accelerator components
and initial sales of finished brachytherapy seeds. The Company continues to show
decreases in gross profit due to license and regulatory delays as well as the
increased costs necessary for the commencement of manufacturing activities.
Operating expenses increased to $3,283,557 and $9,547,021 for the three and nine
month periods ended September 30, 1999, compared to $1,527,683 and $3,706,500
for the same periods of 1998. Salaries and contract labor expenses for the three
and nine month periods ended September 30, 1999 were $476,507 and $1,316,357,
respectively, as compared to $393,425 and $842,771 for the same periods of 1998,
an increase of $83,082 and
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<PAGE> 12
$473,586, respectively. General and administrative expenses totaled $987,109 and
$2,948,717 for the three and nine month periods ended September 30, 1999, as
compared to $917,137 and $2,295,852 for the same periods of 1998, an increase of
$69,972 and $652,865 respectively. Sales and marketing expenses decreased to
$173,432 for the three month period ended September 30, 1999 and increased to
$676,558 for the nine month period ended September 30, 1999 as compared to
$217,121 and $567,877 for the corresponding periods of 1998. The increase in
operating expenses was attributable to increases in personnel for production,
marketing, quality control, environmental health and safety, and administrative
personnel as the Company expanded its organizational structure and began limited
operations. Other increases in operating expenses included increased insurance
for property, general and product liability, license fees, supplies, materials
related to manufacturing and increased depreciation expense as more equipment
and facilities commenced operations. Product development costs of $1,646,509 and
$4,605,389 were incurred during the three and nine month periods ended September
30, 1999. These costs are attributable to manufacturing costs incurred without
corresponding product sales.
Interest income during the three and nine month periods ended September 30, 1999
was $58,589 and $158,203, as compared to $19,925 and $259,268 for the comparable
periods of 1998, an increase of $38,664 and decrease of $101,065 respectively.
The increase in interest income for the three month period ended September 30,
1999 over the comparable period of 1998 was attributable to the increased funds
available for investment due to the private placements of common stock and
redeemable convertible preferred stock. The decrease in interest income for the
nine month period ended September 30, 1999 over the comparable period of 1998
was attributable to a reduction in the invested funds available from the
Company's initial public offering completed in August 1997, which were used to
fund the Company's facilities construction, equipment purchases and operations.
For the periods presented, the Company has capitalized nearly all of its
interest costs as construction of the Company's facilities were in progress. As
facilities and construction in progress are completed, interest costs will no
longer qualify for capitalization and will be expensed as incurred. See
"Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1999 the Company had cash and cash equivalents of $3,582,038
compared to $6,371,704 at December 31, 1998. For the nine months ended September
30, 1999, net cash used in operating activities of $8,294,287 and net cash used
in investing activities, primarily for capital expenditures, of $4,547,403 were
provided by financing activities of $10,052,024. Capital expenditures are
expected to decrease significantly during the balance of 1999 as we complete the
facilities, LINAC and equipment purchases necessary for the production of our
initial product lines.
The Company has financed its operations since inception primarily by loans from
stockholders and directors, bank loans, sales of accelerator components and
excess equipment, its initial public offering and sales of shares of common and
preferred stock in private placements to investors.
On May 18, 1999, the Company completed a private placement of 5,000 shares of 5%
cumulative redeemable convertible $0.01 par value $1,000 face value preferred
stock together with 205,000 warrants to purchase common stock at $11.86 per
share, for aggregate proceeds of $5 million, before issuance costs of $300,000.
Dividends are 5% per annum payable in cash or common stock (at the Company's
option) beginning October 15, 1999 and continuing quarterly thereafter through
May 20, 2002. If paid in common stock, the number of shares is based on the
average market price for the 10 trading days immediately preceding the dividend
payment date. Under the terms of the private placement, in October 1999, the
Company issued an additional 5,000 shares of 5% cumulative redeemable
convertible $0.01 par value $1,000 face value preferred stock and warrants to
acquire 205,000 shares of common stock at $11.86 per share, for aggregate
proceeds of $5 million, before issuance costs of $300,000.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including contract manufacturing and marketing relationships;
costs relating to commencing production of radioisotopes,
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<PAGE> 13
radiochemicals, finished radiopharmaceuticals and medical therapy devices;
continued delays in the federal and state regulatory approval process for
permitting production from the LINAC; expenses in developing the proposed
medical imaging camera; costs involved in filing, prosecuting, enforcing and
defending patent claims and other intellectual property rights; and
technological and market developments.
The Company is continuing to negotiate potential debt and equity financing.
Although there can be no assurance, management anticipates that the cash flow
from future operations of the Company as well as the adequacy of the appraised
value of Company assets will allow the Company to obtain additional debt
financing on acceptable terms. Management is also negotiating with various
investment bankers regarding equity and debt financing for funding the joint
venture development of complementary businesses, technologies and products. The
Company cannot guarantee that it will be able to obtain any such financing on
acceptable terms.
Although there can be no assurance, the Company anticipates, based on its
currently proposed plans and assumptions relating to its operations and funding,
that current cash, cash from future operations, credit facilities and the
private placement of its securities will be sufficient to meet its currently
anticipated working capital and capital expenditure requirements. In the event
additional financing becomes necessary, management may choose to raise those
funds through other means of financing as appropriate. The Company cannot
guarantee that it will be able to obtain any such financing on acceptable terms.
Also, if necessary, the Company can delay certain operations, capital
expenditures and joint ventures until adequate financing is obtained. If such
delays occur, the Company's future operations and business expansion could be
significantly curtailed.
YEAR 2000 ISSUE
The Year 2000 will have a broad impact on the business environment in which the
Company operates due to the possibility that many computerized systems across
all industries will be unable to process information containing dates beginning
in the year 2000. The Company has established an enterprise-wide program to
assess the extent of the Company's exposure to Year 2000 issues and to formulate
and execute a plan to effectively mitigate the effects of the Year 2000 problem
on the Company's operations.
The Company has established an Executive Steering Committee to provide oversight
to the implementation of the Year 2000 program and is responsible for reviewing
and approving the plans, activities, and decisions associated with identifying
and mitigating the risk associated with the Year 2000 problem. The committee
also reviews budgetary information, provides guidelines and acts as a liaison to
the Board of Directors, which has the ultimate responsibility for the budget and
mitigation of the Year 2000 problem.
Responsibilities for implementing the plan have been assigned and the Year 2000
program is at an advanced stage.
The Company has identified all critical components potentially subject to the
Year 2000 phenomenon and has contacted all vendors regarding Year 2000
compliance. Similarly, the Company has contacted all key vendors regarding the
status of their respective Year 2000 compliance procedures. In both cases, some
certifications regarding Year 2000 compliance have already been obtained and we
are continuing to follow-up on those outstanding.
The Company has developed contingency plans in the event key vendors have not
provided the Company with satisfactory evidence of their readiness to handle
Year 2000 issues. The Company intends to make every reasonable effort to assess
the readiness of its key vendors and modify plans to address any identified
risks.
As of September 30, 1999 the Company has incurred costs of approximately $45,000
for the Year 2000 issue and has estimated the total cost of the Year 2000
remediation including modification, upgrade, or replacement of
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<PAGE> 14
systems and equipment to be approximately $50,000. The Company expects to
resolve all Year 2000 issues that could materially and adversely affect its
business operations well in advance of the end of the year. At this stage, we
have not identified any problem requiring replacements of systems and equipment.
Although the Company has estimated the total cost of the remediation efforts to
be about $50,000, any unanticipated failures by key vendors, as well as failures
by the Company to execute its own remediation efforts, could have a material
adverse effect on the cost of the project and its completion date. As a result,
there can be no assurance that the Year 2000 problem will not have a material
adverse effect on the Company's financial position or results of operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
On May 18, 1999, the Company completed a private placement of 5,000 shares of 5%
cumulative redeemable convertible $0.01 par value $1,000 face value preferred
stock together with 205,000 warrants to purchase common stock at $11.86 per
share, for aggregate proceeds of $5 million, before issuance costs of $300,000.
Dividends are 5% per annum payable in cash or common stock (at the Company's
option) beginning October 15, 1999 and continuing quarterly thereafter through
May 20, 2002. If paid in common stock, the number of shares is based on the
average market price for the 10 trading days immediately preceding the dividend
payment date. Under the terms of the private placement, in October 1999, the
Company issued an additional 5,000 shares of 5% cumulative redeemable
convertible $0.01 par value $1,000 face value preferred stock and warrants to
acquire 205,000 shares of common stock at $11.86 per share, for aggregate
proceeds of $5 million, before issuance costs of $300,000.
On June 25, 1999, the Company amended its license agreement, dated May 26, 1998,
with Roger R. Good, M.D., P.S. (doing business as Inland Cancer Care), a
Washington professional services corporation and EndoTech, Inc., a Delaware
corporation (collectively, the "Good Group"). As part of the amended agreement
the Company agreed to prepay the Good Group $1,000,000 for estimated running
royalties in common stock. In July of 1999, the Company issued the Good Group
98,039 shares of common stock at the then market value of $10.20 per share to
satisfy its obligation under this agreement.
Common Stock shares outstanding at November 10, 1999 totaled 8,534,074.
Item 5. Other Information
On May 3, 1999, the Company's marketing partner for the distribution of seeds
for the treatment of prostate cancer, Imagyn Medical Technologies, was forced
into involuntary bankruptcy by minority bondholders. On May 18, 1999, Imagyn
filed a request to convert the involuntary bankruptcy into a voluntary Chapter
11. On June 25, 1999, Imagyn filed a Plan of Reorganization in the U.S.
Bankruptcy Court for the District of Delaware. On October 18, 1999 Imagyn
successfully emerged from Chapter 11 reorganization. Imagyn's management has
indicated that appropriate measures are underway to continue with normal
marketing operations. If Imagyn ever becomes unable to meet its contractual
obligations, the Company believes it could contract with other distributors to
market the seeds.
On September 20, 1999, the Company engaged Stonegate Securities, Inc.
("Stonegate") to serve as its non-exclusive financial advisor and to furnish
Investment Banking services to the Company. The Company paid an initial fee of
$5,000 on October 1, 1999, and a second fee of $25,000 on October 26, 1999.
Beginning November 15, 1999, a fee of $5,000 per month shall begin, which amount
shall be payable at the Company's sole discretion, subject to Stonegate's
satisfactory performance. In addition, the Company delivered to Stonegate
warrants to purchase 50,000
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<PAGE> 15
shares of common stock at $11.86 per share, vesting as follows. Warrants to
purchase 15,000 shares shall vest immediately upon ratification of the agreement
by the Company's board of directors. Warrants to purchase 10,000 shares shall
vest on January 15, 2000. Warrants to purchase 25,000 shares shall vest at the
Company's sole discretion, subject to Stonegate's satisfactory performance. The
term of the engagement shall be for a twenty-four month period from the date of
the agreement.
On November 9, 1999 the Company announced the appointment of David M. Camp Ph.D.
as Chief Executive Officer of the Company effective November 8, 1999.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
27.1 Financial Data Schedule
Reports on Form 8-K:
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<PAGE> 16
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/ Joan Gillett
--------------------------------
Joan Gillett, CPA
Chief Financial Officer
By: /s/ Ira Lon Morgan, Ph.D.
--------------------------------
Ira Lon Morgan, Ph.D.
Chairman of the Board
Date: November 12, 1999
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<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,582,038
<SECURITIES> 0
<RECEIVABLES> 593,451
<ALLOWANCES> 0
<INVENTORY> 2,006,129
<CURRENT-ASSETS> 1,330,012
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,524,720
<CURRENT-LIABILITIES> 4,543,983
<BONDS> 0
3,810,130
0
<COMMON> 85,341
<OTHER-SE> 26,094,748
<TOTAL-LIABILITY-AND-EQUITY> 51,524,720
<SALES> 2,761,904
<TOTAL-REVENUES> 2,761,904
<CGS> 2,105,989
<TOTAL-COSTS> 9,547,021
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,666
<INCOME-PRETAX> (8,786,536)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,786,536)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,786,536)
<EPS-BASIC> (1.30)
<EPS-DILUTED> (1.30)
</TABLE>
