<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A2
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 1998
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
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)
Securities registered under Section 12(b) of the Exchange Act:
----------------------------------------------------
COMMON STOCK, $.01 PAR VALUE
Securities registered under Section 12(g) of the Exchange Act:
----------------------------------------------------
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( )
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As of March 30, 1999 the aggregate market value of the common stock of the
registrant held by non-affiliates of the registrant as determined by reference
to the closing price of Common Stock as reported on the Nasdaq Small Cap Market
System, was $36,646,778.
As of March 30, 1999 the number of shares of common stock, $.01 par value,
outstanding was 7,511,625 shares.
INTERNATIONAL ISOTOPES INC
FORM 10-K/A2
TABLE OF CONTENTS
The Registrant is amending its consolidated statements of cash flows for certain
mathematical errors. This amendment does not affect the Company's previously
reported financial position or results of operations, or any footnote
disclosure.
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part IV.
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K ................................... 3
</TABLE>
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<PAGE> 3
PART IV
Item 14. Exhibits
The following documents are filed or incorporated by reference as exhibits to
this report:
23.1 Consent of KPMG LLP, as independent certified public accountants
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<PAGE> 4
INTERNATIONAL ISOTOPES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
Independent Auditors' Report........................................................ 5
FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company
as of December 31, 1998 and 1997................................................ 6
Consolidated Statements of Operations for the years ended December 31, 1998 and
1997, for the period from November 1, 1995 (inception) through December 31,
1996, and for the period from
November 1, 1995 (inception) through December 31, 1998........................... 7
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998 and 1997, and for the period from November 1, 1995
(inception) through December 31, 1996............................................ 8
Consolidated Statements of Cash Flows for the years ended December 31, 1998 and
1997, for the period from November 1, 1995 (inception) through December 31,
1996, and for the period from
November 1, 1995 (inception) through December 31, 1998........................... 9
Notes to Consolidated Financial Statements ......................................... 11
</TABLE>
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<PAGE> 5
Independent Auditors' Report
The Board of Directors
International Isotopes Inc.:
We have audited the accompanying consolidated balance sheets of International
Isotopes Inc. and subsidiaries (a development stage enterprise), (the Company)
as of December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1998 and 1997, the period from November 1, 1995 (inception) through December 31,
1996, and the period from November 1, 1995 (inception) through December 31,
1998. These consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International
Isotopes Inc. and subsidiaries (a development stage enterprise), as of December
31, 1998 and 1997, and the results of their operations and their cash flows for
the years ended December 31, 1998 and 1997, the period from November 1, 1995
(inception) through December 31, 1996, and the period from November 1, 1995
(inception) through December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG LLP
Dallas, Texas
March 19, 1999, except as to Note 1(a)
which is as of April 15, 1999
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<PAGE> 6
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
Assets 1998 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,371,704 $ 8,201,417
Securities available for sale, at fair value -- 5,082,777
Interest receivable -- 152,358
Accounts receivable 240,433 --
Assets held for sale 526,533 564,932
Inventories 1,744,467 --
Other 78,578 97,941
------------ ------------
Total current assets 8,961,715 14,099,425
Property, plant and equipment, net 32,350,399 6,280,760
Goodwill, net of accumulated amortization of $195,697 1,687,846 --
Other assets 2,302,743 741,853
------------ ------------
Total assets 45,302,703 21,122,038
============ ============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 1,825,246 $ 906,062
Accrued liabilities 973,752 602,064
Current portion of lease obligation 235,309 --
Current installments of mortgage and notes payable to banks 3,117,177 634,454
------------ ------------
Total current liabilities 6,151,484 2,142,580
Non-current portion of lease obligation 774,758 --
Mortgage and notes payable to banks, excluding current installments 14,483,839 3,053,818
------------ ------------
Total liabilities 21,410,081 5,196,398
Commitments (note 1)
Stockholders' equity
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, $0.01 par value; 20,000,000 shares authorized,
issued and outstanding 7,351,625 shares at December 31, 1998
and 6,370,950 shares at December 31, 1997 73,515 63,709
Additional paid-in capital 35,183,918 21,787,337
Deficit accumulated during the developmental stage (10,724,811) (5,205,406)
Receivable from stockholders (640,000) (720,000)
------------ ------------
Total stockholders' equity 23,892,622 15,925,640
------------ ------------
Total liabilities and stockholders' equity 45,302,703 21,122,038
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 7
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from Period from
November 1, 1995 November 1, 1995
Year Ended December 31, (inception) through (inception) through
1998 1997 December 31, 1996 December 31, 1998
----------- ----------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenue:
Sales of reactor products $ 1,422,711 -- -- 1,422,711
Development contract income 522,000 -- -- 522,000
Sale of accelerator components 64,454 135,765 775,102 975,321
----------- ----------- ----------- -----------
2,009,165 135,765 775,102 2,920,032
Cost of revenue:
Cost of reactor products 1,035,517 -- -- 1,035,517
Cost of development contract 62,830 -- -- 62,830
Cost of accelerator components 32,227 79,287 263,440 374,954
----------- ----------- ----------- -----------
Gross Profit 878,591 56,478 511,662 1,446,731
----------- ----------- ----------- -----------
Operating costs and expenses:
Salaries and contract labor 1,461,480 924,728 109,887 2,496,095
Employee incentive compensation -- 2,397,500 -- 2,397,500
Sales and marketing 697,530 -- 116 697,646
Product development 825,269 -- -- 825,269
General, administrative and consulting 3,553,669 1,193,606 773,634 5,520,909
----------- ----------- ----------- -----------
Total operating expenses 6,537,948 4,515,834 883,637 11,937,419
----------- ----------- ----------- -----------
Loss from development stage operations (5,659,357) (4,459,356) (371,975) (10,490,688)
Other income (expense):
Gain on sale (donation) of assets held for sale (24,330) 14,974 336,364 327,008
Interest income 288,494 297,835 4,906 591,235
Interest expense (462) (224,413) (303,741) (528,616)
Loan financing fees -- -- (750,000) (750,000)
----------- ----------- ----------- -----------
Loss before extraordinary item (5,395,655) (4,370,960) (1,084,446) (10,851,061)
Extraordinary gain (loss) on debt extinguishment (123,750) -- 250,000 126,250
----------- ----------- ----------- -----------
Net loss $(5,519,405) (4,370,960) (834,446) (10,724,811)
=========== =========== =========== ===========
Loss per common share before extraordinary
item - basic and diluted $ (0.83) $ (0.92) $ (0.57) $ (2.56)
=========== =========== =========== ===========
Loss per common share - basic and diluted $ (0.84) $ (0.92) $ (0.43) $ (2.53)
=========== =========== =========== ===========
Weighted average common shares outstanding -
basic and diluted 6,534,987 4,750,561 1,918,538 4,244,516
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 8
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1998 and 1997, and the period from November 1, 1995
(inception) through December 31, 1996
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional Receivable During the Total
Common Stock Paid-in From Development Stockholders'
Shares Amount Capital Stockholders Stage Equity
--------- ----------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares purchased by founders at par 624,997 $ 2,500 -- -- -- 2,500
Shares purchased by founders at prices
other than par 187,923 751 114 -- -- 865
Shares issued to chairman as payment
on notes payable 1,250,000 5,000 -- -- -- 5,000
Shares issued for service fees to
stockholders who collateralized debt 65,100 260 26 -- -- 286
Shares issued for patents 25,000 100 -- -- -- 100
Shares issued to stockholders for
services rendered 186,142 745 259,855 -- -- 260,600
Shares issued for purchase of subsidiary 827,500 3,310 71,693 -- -- 75,003
Shares issued through private placement 600,001 2,400 957,600 (160,000) -- 800,000
Net loss -- -- -- -- (834,446) (834,446)
Effect of 2.5 for 1 stock split -- 22,600 (22,600) -- -- --
--------- ----------- ---------- ---------- ----------- ----------
Balance, December 31, 1996 3,766,663 37,666 1,266,688 (160,000) (834,446) 309,908
Collection of stock sale receivable -- -- -- 160,000 160,000
Shares returned by owners -- -- 395,994 -- 395,994
Shares issued through private placement 62,500 625 99,375 -- 100,000
Shares issued to employees and --
directors, including shares --
contributed by founders 86,787 868 1,170,991 (472,000) 699,859
Shares issued in initial public offering, --
net 2,300,000 23,000 17,685,839 -- 17,708,839
Shares issued to employees 155,000 1,550 1,168,450 (248,000) 922,000
Net loss -- -- (4,370,960) (4,370,960)
--------- ----------- ---------- ---------- ----------- ----------
Balance, December 31, 1997 6,370,950 63,709 21,787,337 (720,000) (5,205,406) 15,925,640
Shares issued for purchase of subsidiary 159,416 1,594 3,172,379 -- -- 3,173,973
Shares issued for license agreement & patent 37,259 372 724,628 -- -- 725,000
Shares issued through private placement 784,000 7,840 9,499,574 -- -- 9,507,414
Forgiveness of stock sale receivable -- -- -- 80,000 -- 80,000
Net loss -- -- -- -- (5,519,405) (5,519,405)
--------- ----------- ---------- ---------- ----------- ----------
Balance, December 31, 1998 7,351,625 $ 73,515 35,183,918 (640,000) (10,724,811) 23,892,622
========= =========== ========== ========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 9
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Period from
Year November 1, 1995 November 1, 1995
Ended December 31 (inception) through (inception) through
1998 1997 December 31, 1996 December 31, 1998
------------ ---------- ------------------- -------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,519,405) (4,370,960) (834,446) (10,724,811)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 490,180 17,354 1,660 509,194
(Gain) loss on sale or donation of assets 24,330 (14,974) (336,364) (327,008)
Services compensated by stock issuance -- 1,918,000 260,886 2,178,886
Forgiveness of receivable from stockholder 80,000 -- -- 80,000
Extraordinary loss(gain) on extinguishment of debt 123,750 -- (250,000) (126,250)
Changes in operating assets and liabilities
Interest receivable 152,358 (152,358) -- --
Accounts receivable 446,888 -- -- 446,888
Other assets (435,883) (87,086) (10,855) (533,824)
Inventory (485,607) 15,645 (757,498) (1,227,460)
Accounts payable (167,031) 91,990 241,341 166,300
Accrued liabilities 348,447 585,589 16,475 950,511
------------ ---------- ---------- -----------
Net cash used in operating activities (4,941,973) (1,996,800) (1,668,801) (8,607,574)
------------ ---------- ---------- -----------
Cash flows from investing activities:
Proceeds from sale of certificate of deposit -- 400,000 -- 400,000
Purchase of certificate of deposit -- (100,000) (300,000) (400,000)
Purchase of assets for sale and operations (24,290,167) (4,694,947) (1,888,673) (30,873,787)
Purchase of securities available for sale -- (5,082,777) -- (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 14,069 126,887 691,051 832,007
Purchase MAC Isotopes, Inc., net of cash received (495,000) -- -- (495,000)
Investment in trademarks and license fee (275,000) -- -- (275,000)
------------ ---------- ---------- -----------
Net cash used in investing activities (19,963,321) (9,350,837) (1,497,622) (30,811,780)
------------ ---------- ---------- -----------
Cash flows from financing activities:
Collections of stock sale receivable -- 160,000 -- 160,000
Proceeds from issuance of notes payable to chairman -- -- 120,000 120,000
Proceeds from issuance of common stock 9,507,412 17,808,839 803,366 28,119,617
Payments on capital leases (220,825) -- -- (220,825)
Proceeds from issuance of debt 17,601,016 7,201,607 4,750,000 29,552,623
Principal payments on notes payable (3,812,022) (5,932,789) (2,080,546) (11,825,357)
Payments on notes payable to chairman -- (20,000) (95,000) (115,000)
------------ ---------- ---------- -----------
Net cash provided by financing activities 23,075,581 19,217,657 3,497,820 45,791,058
------------ ---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents (1,829,713) 7,870,020 331,397 6,371,704
Cash and cash equivalents at beginning of period 8,201,417 331,397 -- --
------------ ---------- ---------- -----------
Cash and cash equivalents at end of period $ 6,371,704 8,201,417 331,397 6,371,704
============ ========== ========== ===========
</TABLE>
(Continued)
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Period from
Year November 1, 1995 November 1, 1995
Ended December 31 (inception) through (inception) through
1998 1997 December 31, 1996 December 31, 1998
------------ ---------- ------------------- -------------------
<S> <C> <C> <C> <C>
Supplemental disclosure of cash flow activities:
Cash paid for interest (net of capitalized interest) $ 84,455 238,011 295,425 617,891
============ ========== ========== ===========
Cash paid for financing fees $ 86,350 10,261 500,000 596,611
============ ========== ========== ===========
Supplemental disclosure of noncash transactions:
Common stock issued for stock receivables $ -- 720,000 160,000 880,000
============ ========== ========== ===========
Common stock issued for account payable to $ -- 62,852 -- 62,852
director
============ ========== ========== ===========
Conversion of notes payable to Common Stock $ -- -- 5,000 5,000
============ ========== ========== ===========
Acquisition of subsidiary through issuance of
Common Stock $ 3,173,973 -- 75,003 3,248,976
============ ========== ========== ===========
Capital expenditures included in accounts payable $ 801,254 509,879 -- 801,254
============ ========== ========== ===========
Acquisition of license fee and patents rights
through issuance of Common Stock $ 725,000 -- 100 725,100
============ ========== ========== ===========
Acquisition of equipment through capital leases $ 1,147,796 -- -- 1,147,796
============ ========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 11
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
(a development stage enterprise)
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business and Liquidity
International Isotopes Inc (the Company) was incorporated in Texas in
November 1995 as Applied Isotopes Products Corporation. The Company changed
its name to International Isotopes Inc. in January 1997. The Company is a
development stage enterprise which has 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. In addition, the Company intends to manufacture and develop
accelerators, diagnostic scanners, and proton/ neutron therapy equipment.
Some of these assets were purchased in May 1996 from the State of Texas
through a competitive bidding process arising from the termination of the
government funded Superconducting Super Collider (SSC) project. 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. International
Isotopes Idaho, Inc. has an exclusive five year contract, with an option to
renew for three additional years, for the utilization of the Department of
Energy Advanced Test Reactor facility located near Idaho Falls, Idaho.
The Company has 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 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 (note 7). The Company
utilized funds obtained from the Offering to increase its capital assets
primarily through the assembly and upgrade of the LINAC for efficient
production of radioisotopes and radiopharmaceuticals, as well as
construction and acquisition of manufacturing facilities, and other
production equipment. The Company is actively pursuing strategic alliances
with pharmaceutical companies and universities. The Company has employed
additional key personnel in the area of LINAC manufacturing, operations,
radioisotope and radiopharmaceutical production, quality assurance and
regulatory compliance. The Company will continue to sell the remaining
assets held for sale and utilize the inventory of accelerator components in
the manufacturing of products for sale to generate operating capital.
To date, the Company's product sales have consisted of accelerator
components acquired from the State of Texas and reactor produced product
from I4. The Company has not manufactured any accelerator produced
radioisotope products and there can be no assurance that the Company will
be able to manufacture or market its products in the future, that future
revenues will be significant, that any sales will be profitable, or that
the Company will have sufficient funds available to manufacture or market
its products. The Company's proposed radioisotope production facility is
also subject to extensive government regulations. Further, the Company's
future operations are dependent on the success of the Company's
commercialization efforts, market acceptance of its products and ability to
obtain adequate financing until sufficient cash flows can be generated from
operations.
The Company has limited history of operations and has experienced operating
losses and significant costs in the acquisition of key personnel, land and
facilities. The Company expects operating losses to continue as it
initiates radioisotope and radiopharmaceutical production, obtains
validation and customer approval, and increases marketing and product
development.
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<PAGE> 12
The Company initiated a private placement of its common stock in late 1998.
The offering, which consists of units, each consisting of 16,000 shares of
stock per unit at $12.50 per share and 16,000 three-year warrants with an
exercise price of $13.75, was partially completed at December 31, 1998.
Through February 28, 1999, $11,163,750, net of commissions and placement
costs of $636,250, had been raised ($1,614,750, net of commissions and
placement costs of $385,250 subsequent to December 31, 1998).
The Company is continuing efforts to raise additional funding through the
private placement of its securities. As of April 15, 1999 the Company has
received commitments of $7,000,000 from certain officers, directors and
other individuals for equity or bridge financing. The Company is continuing
to negotiate potential financing options including long term mortgage
financing for its facilities.
The Company has incurred losses from operations since inception and has an
accumulated deficit of $10,724,811 as of December 31, 1998. The Company's
history of operating losses has resulted in continued dependence upon
additional external financing. Management's plans regarding its liquidity
involve the successful execution of its 1999 business plan, including the
successful commercialization of the Company's products. The Company intends
to obtain additional capital necessary to fund operations, complete the
installation of the LINAC, and meet debt service requirements, from public
and private sales of equity or debt securities. The Company anticipates,
based on the execution of its business plan and its continued capital
raising activities, that it will have sufficient funds to finance its
operating activities for at least the next twelve months. In the event the
Company is unable to secure sufficient funds, the Company's operations and
business expansion would be significantly curtailed. There can be no
assurance that the Company will be able to obtain additional financing or
obtain financing on terms acceptable to the Company.
(b) Basis of Presentation
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. Certain reclassifications were made
to prior years' presentation to conform to the current year presentation.
During the period from November 1, 1995 (inception) through December 31,
1995, the activity of the Company was limited to the Chairman's funding
expenses totaling $15,240 for the Company. No shares were issued for cash
until 1996. Accordingly, consolidated financial statements for the two
months ended December 31, 1995 have not been separately presented. All
references to the period from November 1, 1995 (inception) through December
31, 1996 are referred to in the footnotes as the year ended 1996.
(c) Financial Instruments and Cash Equivalents
The Company's financial instruments consist of cash equivalents, short-term
bonds, daily repurchase account, term repurchase account, money market
accounts, accounts payable and accrued liabilities and notes payable. The
carrying value of these financial instruments approximates fair value
because of their short-term nature or because they bear interest at rates
which approximate market rates.
Cash equivalents of $6,058,095 and $8,063,151 at December 31, 1998 and
1997, respectively, consist of money market accounts. For purposes of the
consolidated statements of cash flows, the Company considers all highly
liquid financial instruments with original maturities of three months or
less at date of purchase to be cash equivalents.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated
depreciation. All plant assets were classified as construction in progress
for the periods ended December 31, 1997 and November 1, 1995 (inception)
through December 31, 1996. During 1998, construction on the Company's
buildings were completed and depreciation began. The Company capitalizes
interest
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<PAGE> 13
cost during construction periods, however, amounts were immaterial for the
years ended December 31, 1997 and 1996. For 1998, interest costs
capitalized were $607,395
Plant and equipment are stated at cost less accumulated depreciation. The
majority of these assets owned by the Company, concurrent with its
formation, represented assets acquired from the terminated Superconducting
Super Collider project. A portion of these assets is being retained for the
construction of the LINAC. The remainder of such assets were acquired with
the intention of being sold for operating capital and are classified on
balance sheets as assets held for sale (see note 1(e) below).
Depreciation on plant assets is computed using the straight-line method.
Buildings in service are being depreciated over 39 years.
Depreciation on equipment held for operations is computed using the
straight-line method. Office furniture and equipment in service are being
depreciated over 3 to 5 years.
The Company has construction purchase commitments totaling $2,843,678 at
December 31, 1998.
(e) Assets Held for Sale
Assets held for sale consist primarily of excess accelerator, mechanical
and test equipment acquired from the terminated Superconducting Super
Collider project and are carried at the lower of cost or fair value less
cost to sell. These assets are being disposed of through private sales and
auctions. For the years ended December 31, 1998,1997 and 1996, the Company
sold for cash assets held for sale with a book value of $64,454, $111,913
and $354,687 resulting in a gain/(loss) on sale of ($24,330), $14,974 and
$336,364, respectively. The remaining assets held for sale are expected to
be disposed of during 1999. At December 31, 1998, the Company has a
carrying value of $526,533 in such assets and has assessed the
recoverability of such assets. However, based on the nature of the assets
and the potential markets for sale, it is reasonably possible that the
Company's estimate that it will recover the carrying amount of these assets
will change in the near term.
Certain finished goods inventory of accelerator components acquired from
the terminated Superconducting Super Collider project, amounting to
$750,760 and $741,853 at December 31, 1998 and 1997, respectively, are
classified as other assets carried at the lower of cost or fair value less
costs to sell.
(f) Inventories
Inventories, which relate to the operations of I4, are carried at the lower
of cost or market. Cost is determined using the first-in first out method.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rate is recognized in income in the
period that includes the enactment date.
(h) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
-13-
<PAGE> 14
(i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to
sell.
(j) Revenue Recognition
Revenue is recognized when product development milestones are accomplished,
reactor products are shipped and accelerator components are shipped. No
warranty coverage or right of return provisions are given to customers.
(k) Research, Development and Advertising Costs
Research, development and advertising costs are expensed when incurred.
Research and development expenses were $281,706 in 1998, and were
immaterial during 1997 and 1996.
(l) Stock Option Plan
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("SFAS No. 123"), which permits entities to recognize as expense over the
vesting period the fair value of all stock-based awards on the date of
grant. SFAS No. 123 superseded certain provisions of Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earning per share disclosures for employee stock option grants made
in 1995 and future years as if the fair- value based method defined in SFAS
No. 123 had been applied. The Company has elected to apply the provisions
of APB Opinion No. 25 and provide the pro forma disclosure provision of
SFAS No. 123 for its granted employee stock options.
(m) Goodwill
Goodwill represents the excess of the aggregate purchase price over the
fair value of net assets acquired and is amortized on a straight-line basis
over 77 months. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future operating
cash flows of the acquired operation. The amount of goodwill impairment, if
any, is measured based on projected discounted future operating cash flows
compared to the carrying value of goodwill.
(n) Net Loss Per Common Share-Basic and Diluted
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year. 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 year, is the same as basic loss per share for the years ended December
31, 1998, 1997 and 1996, and for the period from November 1, 1995
(inception) through December 31, 1998, as all common stock options and
warrants were anti-dilutive.
At December 31, 1998, the Company has 394,500 common stock options and
1,004,000 common stock warrants outstanding (note 7). Options and warrants
excluded from the computation of diluted loss per share would have resulted
in additional weighted average securities, under the treasury stock method,
totaling 225,406, 94,921, -0-, and 116,987 for the years ended December 31,
1998, 1997 and 1996, and the period from November 1, 1995 (inception)
through December 31, 1998, respectively. The potentially dilutive effect of
these securities has not been considered in the computation of diluted net
loss per common share since their inclusion would be anti-dilutive.
-14-
<PAGE> 15
(o) Comprehensive Income
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.
(p) Operating Segments
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.
(2) SECURITIES
The Company invests only in high quality, short-term investments which are
classified as available-for-sale and recorded at fair value. The Company
records gains and losses on securities using the specific identification
method. At December 31, 1997, the carrying value at amortized cost
approximated fair value and these securities were sold or matured during
1998.
(3) INVENTORIES
Inventories consist of the following at December 31, 1998:
<TABLE>
<S> <C>
Raw materials $ 388,930
Work in progress 1,355,537
----------
$1,744,467
==========
</TABLE>
(4) ACQUISITIONS
On April 24, 1998, Company completed the acquisition of MAC Isotopes, Inc.
from its parent corporation, MACTEC, Inc., of Golden Colorado, and then
merged MAC Isotopes into International Isotopes Idaho Inc, a newly formed
subsidiary of the Company. The Company exchanged $500,000 in cash and
159,416 shares of its Common Stock, valued at $3,173,973 for 100% of the
stock in MAC Isotopes. MACTEC has the option to sell 50% of the shares back
to the Company on each of April 23, 1999 and April 24, 2000 for a purchase
price of $19.91 per share. If the Company does not repurchase the shares,
Auric Partners, of which William Nicholson, a director of the Company, is a
partner, is required to purchase the shares. If Auric purchases the shares,
the Company is obligated to issue to Auric warrants to purchase common
stock of the Company in sufficient quantity and at an exercise price that
will compensate it for the difference between $19.91 and the current market
price of the Company's stock.
-15-
<PAGE> 16
A summary of the assets acquired and liabilities assumed in connection with
the MAC Isotopes acquisition follows:
<TABLE>
<S> <C>
Current assets, net of cash acquired $ 2,051,822
Property, plant and equipment 41,810
Intangible assets 1,883,542
Current liabilities (308,201)
-----------
Total 3,668,973
Issuance of 159,416 shares of common stock,
at $19.91 per share 3,173,973
-----------
Cash paid, net of cash acquired $ 495,000
===========
</TABLE>
The results of operations of MAC Isotopes, for the period prior to the
acquisition in 1998 and 1997 were insignificant, therefore pro forma
results of operations for those periods have not been provided.
On December 13, 1996, the Company acquired all of the outstanding stock of
Gazelle in exchange for 827,500 shares of the Company's common stock.
Gazelle's sole asset is land and Gazelle had no additional tangible or
intangible assets or liabilities and no operating activity.
Accounting standards under rules and regulations issued by the Securities
and Exchange Commission (SEC) require that transfers of nonmonetary assets
to a company by its promoters or shareholders in exchange for stock prior
to or at the time of the company's initial public offering be recorded at
the transferor's historical cost basis determined under generally accepted
accounting principles. Accordingly, the acquisition of Gazelle by the
Company has been accounted for based upon the historical cost of the land
purchased by the transferors. The resulting carrying value totaling $87,894
is inclusive of the $12,891 costs incurred by the Company for the
acquisition.
The Company also acquired a three-year option to purchase approximately 60
additional acres of land adjacent to the property held by Gazelle for
approximately $3.7 million. No consideration was charged for this option,
and the grant of the option was not contingent upon the Company's
acquisition of Gazelle.
(5) PROPERTY, PLANT AND EQUIPMENT
In November 1997, the Company purchased an office/manufacturing facility
and a warehouse facility located on 12 acres at 3100 Jim Christal Road,
Denton, Texas at a cost of $2,100,000. The Company has incurred $375,000
since acquisition in costs related to improvements for offices,
furnishings, HVAC and general refurbishing. The office/manufacturing
facility houses the Company's administrative offices but is devoted
primarily to finished radiopharmaceutical and brachytherapy production
through the addition of $6,853,000 in a suite of production clean rooms and
equipment. The warehouse facility houses the 42 MeV Cyclotron, donated by
MD Anderson Cancer Center to the University of North Texas which has been
remodeled and rebuilt at a cost of $1,731,000 and will be operated by the
Company under a ten year lease with the University of North Texas to
produce short-lived and research radioisotopes.
In early 1998, the Company completed construction of a facility for
administration, manufacturing and services located on 1.6 acres in Denton,
Texas at a cost of $1,260,000. The Company is using the building for
instrumentation manufacturing and other services.
The Company owns 20 acres of land in an Industrial Research Park in Denton,
Texas. The Company completed construction of the building housing its
Radioisotope Production Facility devoted to the LINAC on this land in
September 1998 at an approximate cost of $7,524,000. The City of Denton has
agreed to grant a temporary certificate of occupancy subject to completion
of the primary road for the Research Park, which is anticipated to be
completed in the summer of 1999.
In March 1998, the Company purchased 115 acres of land in Waxahachie, Texas
from the State of Texas at a cost of $424,000. This site includes a
building that can be used as a secondary accelerator production and testing
site.
-16-
<PAGE> 17
Property, plant and equipment is summarized as follows at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Land $ 663,674 563,674
Furniture and fixtures 958,663 466,214
Plant & improvements 14,211,707 2,871,266
Production equipment 16,829,565 2,398,333
----------- ---------
32,663,609 6,299,487
Less accumulated depreciation and amortization (313,210) (18,727)
----------- ---------
Property, plant & equipment, net $32,350,399 6,280,760
=========== =========
</TABLE>
At December 31, 1998, gross property, plant and equipment of $15,914,268,
consisting primarily of the LINAC, Cyclotron and Pharmacy equipment, were
not yet operational and not subject to depreciation.
(6) MORTGAGE AND NOTES PAYABLE TO BANKS
Mortgage and notes payable to banks as of December 31, 1998 and 1997,
consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Variable rate (10.00% at December 31, 1998) line of credit payable to
financial institution secured by stock owned by the Chairman of the Board $ 2,450,060 --
Variable rate (9.25% at December 31, 1998) note payable to bank secured by
substantially all of the Company's assets. Face amount of the note is
$15,000,000. Principal and current interest are payable in monthly
installments of approximately $154,379 with a final balloon payment of
$12,057,765 due November 1, 2003 14,918,638 --
Variable rate (9.25% at December 31, 1998) revolving line of credit secured
by accounts receivable. Maximum amount of the line of credit is $5,000,000
with interest payments due monthly and the principal balance due on October 1,
1999 232,318 --
Variable rate established by Chase Manhattan Bank (8.5% at December 31,
1997) mortgage and note payable, repaid in full in 1998 -- 2,337,778
Variable rate established by Chase Manhattan Bank (8.5% at December 31,
1997) line of credit payable to bank secured by 20 acres of land. Maximum
amount of the line of credit was $500,000 with interest payments due
monthly and the principal balance paid in 1998 -- 500,000
Variable rate established by Chase Manhattan Bank (8.5% at December 31,
1997) note payable to bank (interim construction loan) secured by building
repaid in full in 1998 -- 769,298
Variable rate established by Chase Manhattan Bank (8.5% at December 31,
1997) line of credit payable to bank secured by 20 acres of land. Maximum
amount of the line of credit was $250,000 with interest payments due
monthly and the principal balance paid in full in 1998 -- 81,196
------------ -----------
Total mortgage and notes payable to banks 17,601,016 3,688,272
Less current installments (3,117,177) (634,454)
------------ -----------
Mortgage and notes payable to banks, excluding current installments $ 14,483,839 3,053,818
============ ===========
The aggregate maturities of mortgage and notes payable to banks are as follows:
Years Ending December 31:
1999 $ 3,117,177
2000 540,730
2001 592,924
2002 650,155
2003 12,700,030
-----------
$17,601,016
===========
</TABLE>
-17-
<PAGE> 18
On October 9, 1998 the Company executed two promissory notes with a
commercial lender for the purpose of refinancing existing short-term debt
and to provide a line of credit based on eligible accounts receivable. The
financing included a $15,000,000 note to be repaid in monthly installments
of principal and interest in the amount of $154,379 through November 2003
at which time the remaining principal balance will be due and a revolving
line of credit with a maximum availability of $5,000,000 and a maturity
date of October 1, 1999. At December 31, 1998, the Company had no unused
availability on the revolving line of credit. The interest rates for both
notes, currently 9.25%, is one percent over the prime rate as listed by the
Wall Street Journal and resets every six months. The loan is secured by
substantially all of the Company's assets and contains a $4,000,000
guarantee by I.L. Morgan, Chairman of the Board. Funds of $15,000,000
received from execution of the note financing were used in part to repay
two interim construction loans ($5,874,064 outstanding at time of
repayment) and $9,125,936 of other indebtedness. Terms of this loan
contains various restrictive covenants, including prohibition of additional
liens existing on security interest, limitation on additional indebtedness,
limitations on dividends and similar payments and prohibition of any
mergers or acquisitions. In connection with the repayment of indebtedness,
the Company paid a prepayment penalty of $123,750 which has been presented
as an extraordinary loss in the accompanying statement of operations for
the year ended December 31, 1998.
In May 1996, the Company obtained $2,900,000 from a lending institution to
fund the acquisition of assets of the terminated Superconducting Super
Collider project from the State of Texas and related acquisition costs. The
loan was secured by all of the assets of the Company as well as certain
collateral personally owned by certain stockholders. An additional minimum
profit sharing fee of $750,000 was to be paid from proceeds obtained from
asset sales by November 3, 1996.
On December 16, 1996, the Company obtained alternate financing from a note
payable to a bank to pay off the remaining outstanding principal balance of
$1,471,213 under the original $2,900,000 note payable to the lending
institution plus interest, minimum additional profit sharing and legal
fees. A compromise, settlement, and release agreement was obtained from the
lending institution effective December 31, 1996. In negotiating the
settlement, the initial minimum profit sharing fee of $750,000 was reduced
by $250,000 to $500,000. This reduction has been recorded as an
extraordinary item.
(7) STOCKHOLDERS' EQUITY
Common stock - During December 1998, the Company issued in a private
placement, 49 units consisting each of 16,000 shares of common stock and
16,000 warrants. The warrants are exercisable at any time during a three
year period ending November 2001 at a sales price equaling 110% of the
private placement offering price of the shares ($13.75 per share). The
private placement resulted in net proceeds to the Company of $9,507,414
after deducting placement fees and issuance costs of $292,586.
On July 1, 1998 the Company issued 29,017 shares of common stock for patent
rights. The shares were issued at a price of $17.23 per share or $500,000
in the aggregate.
On May 14, 1998 the Company issued 8,242 shares of common stock for a
license agreement. The shares were issued at a price of $27.30 per share or
$225,000 in the aggregate.
On April 24, 1998 the Company issued 159,416 shares of common stock for the
purchase of subsidiary. The shares were issued at a price of $19.91 per
share or $3,173,973 in the aggregate.
On August 19, 1997 and September 30, 1997, the Company completed the
Offering of 2,300,000 shares of its Common Stock at $9.00 per share. The
Company received proceeds of $17,708,839 after deducting underwriters'
discounts and commissions and issuance cost of $4,872,294 of which
$1,980,000 related to the issuance of common stock warrants.
Between March and July 1997, in order to establish a pool of shares for
issuances to new employees, seven of the Company's founding stockholders
contributed 247,496 shares of common stock, valued at $1.60 per share, to
the Company. These shares, plus an additional 47,504 shares (total of
295,000 shares) were sold to certain key employees and directors at a
purchase price of $1.60 per share, for notes aggregating $472,000. On
December 31, 1997, the Company issued
-18-
<PAGE> 19
155,000 additional shares of common stock at a purchase price of $1.60 per
share to four employees in exchange for stock notes receivable of $248,000.
These transactions resulted in the issuance of 450,000 total shares of
common stock, of which 125,000 shares were issued as compensation for loan
guarantees in January 1997, at a purchase price of the then estimated fair
value of $1.60 per share. The remaining 325,000 shares were issued at
quoted market values ranging from $7.00 to $9.00 per share, resulting in
charges to operations for employee incentive compensation totaling
$1,918,000 plus related employee taxes of $479,500 (total charges of
$2,397,500). All stock notes receivable are recourse notes and are due
December 31, 2000 and bear interest at 6.14% compounded semi-annually.
In January 1997, the Company issued 39,283 shares of common stock to settle
an outstanding account payable to a director of $62,852 included in
accounts payable at December 31, 1996.
In January 1997, the Company issued 62,500 shares of common stock through
private placement for proceeds of $100,000. This transaction completed the
private placement which aggregated issuance of 662,501 shares of common
stock and proceeds of $1,060,000.
Stock Option Plan - In January 1997, the Company adopted a Stock Incentive
Plan (the Plan) pursuant to which the Company's Board of Directors may
grant stock options to officers, key employees, and consultants. The Plan
authorizes grants of options to purchase up to 600,000 shares of authorized
but unissued common stock. Stock options are granted with an exercise price
equal to 85% of the quoted market value of the common stock at the date of
grant. The Company's options generally have a three-year vesting period and
a maximum term of three years.
The Company granted 82,400 stock options during 1998 at an average exercise
price of $15.65 per share. During 1998 there were forfeitures of 34,800
stock options that were granted during 1997. The Company granted 346,900
stock option shares during 1997, primarily at an exercise price of $7.65
per share, resulting in a weighted-average exercise price of $7.66.
The following table summarized information about fixed stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exerciseable
Options Weighted- Weighted Number Weighted-
Outstanding at Average Average Exercisable at Average
Range of Exercise December 31, Remaining Exercise December 31, Exercise
Prices 1998 Contractual Life Price 1998 Price
<S> <C> <C> <C> <C> <C>
$7.65 to $16.45 369,400 1.63 years $ 8.66 90,697 $7.67
$16.46 to $26.00 25,100 2.29 years $ 19.29 0 0
</TABLE>
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 for
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Expected dividend yield -- --
Risk-free interest rate 5.6% 5.6%
Expected volatility 45% - 96% 24%
Expected life 3 years 3 years
Weighted average fair value $9.12 $2.26
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan and, accordingly, except for stock options issued
at less than quoted market value at date of issue, no compensation cost has
been recognized for its stock options in the accompanying consolidated
financial statements. Had the Company determined compensation cost based on
the fair value at
-19-
<PAGE> 20
the grant date for its stock options under SFAS No. 123, the Company's net
loss would have been increased to the pro forma amounts indicated below for
the years ended December 31, 1998 and 1997 and the period from November 1,
1995 (inception) through December 31, 1998:
<TABLE>
<CAPTION>
Period from
November 1, 1995
(inception) through
1998 1997 December 31, 1998
---------- ---------- -------------------
<S> <C> <C> <C>
Net loss: As reported (5,519,405) (4,370,960) (10,724,811)
Pro forma (5,806,478) (4,610,828) (11,251,752)
Net loss per basic As reported (0.84) (0.92) (2.53)
and diluted share:
Pro forma (0.89) (0.97) (2.65)
</TABLE>
Preferred Stock - Under the terms of the original Articles of Incorporation
and By-Laws in effect at December 31, 1996, the Company was authorized to
issue 5,000,000 shares of Preferred Stock, par value $1.00 per share. No
shares of $1.00 par Preferred Stock were issued. Restated Articles of
Incorporation and By-Laws adopted by the Company effective March 20, 1997,
changed the par value of Preferred Stock to $.01 and revised certain voting
rights. Under the Restated Articles of Incorporation and By-Laws, Preferred
Stock may be issued in series from time to time at the discretion of the
Board of Directors. The Board of Directors is authorized to set the
distinguishing characteristics of each series prior to issuance, including
the granting of limited or full voting rights, rights to payment of
dividends and amounts payable in event of liquidation, dissolution or
winding up of the Company. No shares of serial preferred stock have been
issued.
Warrants - In connection with the aforementioned Offering, on August 19,
1997 the Company issued, to Keane Securities Co., Inc., warrants to
purchase 220,000 shares of the Company's common stock. The warrants are
exercisable at any time during a four-year period beginning August 19, 1998
with an exercise price equal to 120% of the initial public offering price
of the shares ($10.80 per share). As of December 31, 1998 none of the
warrants have been exercised.
(8) INCOME TAXES
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to pretax losses as a result of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- --------
<S> <C> <C> <C>
Computed "expected" tax benefit $(1,876,598) (1,486,126) (283,712)
Losses for which no tax benefit was realized 1,860,525 1,495,939 283,712
Other 16,073 (9,813) --
----------- ---------- --------
$ -- -- --
=========== ========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets as of December 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Costs expensed for financial reporting
purposes not yet deducted for tax $ 3,634,051 $ 1,654,575
Property and Equipment 19,206 141,495
Other (13,081) (16,419)
----------- -----------
Net deferred tax asset 3,640,176 1,779,651
Less valuation allowance (3,640,176) (1,779,651)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
</TABLE>
-20-
<PAGE> 21
The valuation allowances for 1998 and 1997 have been applied to offset the
deferred tax assets in recognition of the uncertainty that such tax
benefits will be realized. The net change in valuation allowance for the
years ended December 31, 1998, 1997, and 1996 was an increase of
$1,860,525, $1,495,939 and $283,712, respectively.
(9) LEASE COMMITMENTS
The Company is obligated under various capital leases for certain equipment
that expire at various dates during the next five years. At December 31,
1998, the gross amount of equipment and related accumulated amortization
recorded under capital leases were as follows:
<TABLE>
<CAPTION>
1998
-----------
<S> <C>
Production equipment $ 1,045,958
Furniture & fixtures 338,500
Less accumulated amortization (154,995)
-----------
$ 1,229,463
===========
</TABLE>
Amortization of assets held under capital leases is included with
depreciation expense.
The Company leases office space and certain office equipment under
operating leases expiring at various dates through 2003. Rental expense
under such leases for the years ended December 31, 1998, 1997 and 1996 was
$352,703, $189,000 and $53,800, respectively.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1998 are:
<TABLE>
<CAPTION>
Capital Operating
Years ending December 31 Leases Leases
---------- ----------
<S> <C> <C>
1999 $ 356,665 $ 573,781
2000 427,251 526,420
2001 248,151 374,660
2002 166,611 311,243
2003 48,051 178,328
---------- ----------
Total minimum lease payments 1,246,729 $1,964,432
==========
Less amount representing interest (at rates ranging
from 8.5% to 25%) 236,662
----------
Present value of net minimum capital
lease payments 1,010,067
Less current portion of obligations under
capital leases 235,309
----------
Obligations under capital leases,
excluding current portions 774,758
==========
</TABLE>
(10) RELATED PARTY TRANSACTIONS
During 1996, the Company issued 186,143 shares of common stock valued at
$260,600 to various stockholders and affiliates for consulting purposes. In
addition, during 1996 the Company issued 21,700 shares to two board members
and a stockholder as compensation for providing collateral on notes
payable.
-21-
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of KPMG LLP, as independent certified public accountants
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
International Isotopes Inc.:
We consent to incorporation by reference in the registration statement (No.
333-71655) on Form S-3 and the registration statement (No. 333-71657) on Form
S-8 of International Isotopes Inc. (a development stage enterprise) of our
report dated March 19, 1999, except as to note 1(a) which is as of April 15,
1999, relating to the consolidated balance sheets of International Isotopes Inc.
and subsidiaries as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years ended December 31, 1998 and 1997, the period from November 1, 1995
(inception) through December 31, 1996 and the period from November 1, 1995
(inception) through December 31, 1998, which report appears in the December 31,
1998 annual report on Form 10-K/A2 of International Isotopes Inc.
KPMG LLP
Dallas, Texas
July 6, 1999
