<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
March 31, 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 May 13, 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 $52,758,773. As of May 13, 1999 the number of shares of Common
Stock, $.01 par value, outstanding was 7,920,013.
*Registrant became subject to the filing requirements of the Securities
Exchange Act of 1934 on August 14, 1997, when its Registration Statements on
Form SB-2 and Form 8-A were declared effective by the Commission.
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INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
PART I - FINANCIAL INFORMATION:
<S> <C>
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1999 3
(unaudited) and December 31, 1998.
Unaudited Condensed Consolidated Statements of Operations for the 4
Three Months Ended March 31, 1999 and 1998, and for the
period from November 1, 1995 (inception) through
March 31, 1999.
Unaudited Condensed Consolidated Statements of Cash Flows for the 5
Three Months Ended March 31, 1999 and 1998 and for the
period from November 1, 1995 (inception) through
March 31, 1999.
(1) Notes to Unaudited Condensed Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION:
Item 2 - Changes in Securities 14
</TABLE>
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
Assets (unaudited)
- ------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,143,496 $ 6,371,704
Accounts receivable 353,509 240,433
Assets held for sale 526,533 526,533
Inventory 1,887,678 1,744,467
Other 170,203 78,578
--------------- ---------------
Total current assets 7,081,419 8,961,715
Property plant and equipment, net 36,007,964 32,350,399
Goodwill, net 1,614,460 1,687,846
Other assets 2,219,288 2,302,743
--------------- ---------------
Total assets 46,923,131 45,302,703
=============== ===============
Liabilities and Stockholders' Equity
- -------------------------------------------------------
Current liabilities
Accounts payable $ 2,078,635 $ 1,825,246
Accrued liabilities 703,542 973,752
Current portion of lease obligations 754,338 235,309
Current installments of mortgage and notes payable to banks 3,165,636 3,117,177
--------------- ---------------
Total current liabilities 6,702,151 6,151,484
Non-current portion of lease obligations 2,743,884 774,758
Mortgage and notes payable to banks, excluding current installments 14,295,593 14,483,839
--------------- ---------------
Total liabilities 23,741,628 21,410,081
Stockholders' equity
Preferred stock, $1.00 par value; 5,000,000 shares authorized,
No shares issued and outstanding
Common Stock, $.01 par value; 20,000,000 shares authorized, Issued and
outstanding 7,511,625 shares at March 31, 1999
and 7,351,625 shares at December 31, 1998 75,116 73,515
Additional paid-in capital 37,121,161 35,183,918
Deficit accumulated during the developmental stage (13,374,774) (10,724,811)
Receivable from stock sales (640,000) (640,000)
--------------- ---------------
Total stockholders' equity 23,181,503 23,892,622
=============== ===============
Total liabilities and stockholders' equity 46,923,131 45,302,703
=============== ===============
</TABLE>
See accompanying notes to unaudited condensed 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 November 1, 1995
March 31, (inception)
through
1999 1998 March 31, 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Revenue:
Sales of products $ 537,899 $ -- $ 1,960,610
Development Contract Income 8,187 150,000 530,187
Sale of accelerator components 61,000 -- 1,036,321
--------------- --------------- ---------------
607,086 150,000 3,527,118
Cost of revenue:
Cost of products (198,631) -- (1,234,148)
Cost of development contracts -- (62,830) (62,830)
Cost of accelerator components (30,000) -- (404,954)
--------------- --------------- ---------------
Gross Profit 378,455 87,170 1,825,186
Operating costs and expenses:
Salaries and contract labor 407,589 242,321 2,903,684
Employee incentive compensation -- -- 2,397,500
Sales and marketing 311,735 116,488 1,009,381
Product development 1,133,628 -- 1,958,897
General, administrative and consulting 1,222,107 455,268 6,743,016
--------------- --------------- ---------------
Total operating expenses 3,075,059 814,077 15,012,478
--------------- --------------- ---------------
Loss from development stage operations (2,696,604) (726,907) (13,187,292)
Other income (expense):
Gain on sale (donation) of assets held for sale -- (20,332) 327,008
Interest income 46,641 159,206 637,876
Interest expense -- -- (528,616)
Loan financing fees -- -- (750,000)
--------------- --------------- ---------------
Loss before extraordinary item (2,649,963) (588,033) (13,501,024)
Extraordinary gain on debt extinguishment -- -- 126,250
--------------- --------------- ---------------
Net loss $ (2,649,963) $ (588,033) $ (13,374,774)
=============== =============== ===============
Net loss per common share - basic and diluted $ (0.36) $ (0.09) $ (2.86)
=============== =============== ===============
Weighted average common shares outstanding -
basic and diluted 7,431,625 6,592,424 4,672,932
=============== =============== ===============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months November 1, 1995
Ended March 31, (inception) through
1999 1998 March 31, 1999
------------ ------------ --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss (2,649,963) (588,033) (13,374,774)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 343,803 10,622 852,997
(Gain) loss on sale or donation of assets -- 20,332 (327,008)
Services compensated by stock issuance -- -- 2,178,886
Forgiveness of receivable from stockholder -- -- 80,000
Extraordinary loss/gain on extinguishment of -- (126,250)
debt
Changes in operating assets and liabilities,
exclusive of effects of acquisition:
Interest receivable -- 91,215 --
Accounts receivable (113,076) (50,000) 333,812
Other assets (8,170) 36,216 (541,994)
Inventory (143,211) (7,000) (1,370,671)
Accounts payable 94,494 (292,006) 260,794
Accrued liabilities (270,210) (4,003) 680,301
------------ ------------ ------------
Net cash used in operating activities (2,746,333) (782,657) (11,353,907)
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 (1,144,600) (4,300,278) (32,018,389)
Purchase of securities available for sale -- -- (5,082,777)
Proceeds from sale of securities available for sale -- 4,804,974 5,082,777
Proceeds from sale of assets held for sale -- -- 832,007
Purchase MAC Isotopes, Inc., net of cash acquired -- -- (495,000)
Investment in License Fee -- -- (275,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities (1,144,600) 504,696 (31,956,382)
Cash flows from financing activities:
Collections of stock sale receivable -- -- 160,000
Proceeds from issuance of notes payable to chairman -- -- 120,000
Proceeds from issuance of Common Stock 1,938,844 -- 30,058,463
Payments on capital leases (136,332) -- (357,157)
Proceeds from issuance of debt -- 608,228 29,552,623
Principal payments on notes payable (139,787) (1,130) (11,965,144)
Payments on notes payable to chairman -- -- (115,000)
------------ ------------ ------------
Net cash provided by financing activities 1,662,725 607,098 47,453,785
Net increase (decrease) in cash and cash equivalents (2,228,208) 329,137 4,143,496
Cash and cash equivalents at beginning of period 6,371,704 8,201,417 --
============ ============ ============
Cash and cash equivalents at end of period 4,143,496 8,530,554 4,143,496
============ ============ ============
</TABLE>
(Continued)
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Condensed Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months November 1, 1995
Ended March 31, (inception) through
1999 1998 March 31, 1999
--------- ------ --------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized 8,385 79,499 825,201
========= ====== =========
Cash paid for financing fees
-- 1,600 596,611
========= ====== =========
Supplemental disclosure of noncash transactions:
Common stock issued for stock receivables -- -- 880,000
========= ====== =========
Capital expenditures included in accounts payable 158,895 -- 642,359
========= =========
Common stock issued for account payable to -- -- 62,852
========= ====== =========
director
Conversion of notes payable to common stock -- -- 5,000
========= ====== =========
Acquisition of subsidiary through issuance of -- -- 3,248,976
========= ====== =========
common stock
Acquisition of license fee and patent rights through -- -- 725,100
========= ====== =========
issuance of common stock
Acquisition of equipment through capital leases 2,624,487 -- 3,772,283
========= ====== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
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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 "I3") 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. ("I4"). 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, 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 March 31, 1999, and the
results of its operations for the three-month periods ended March 31, 1999 and
1998, and its cash flows for the three-month periods ended March 31, 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 April 16, 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.
(2) Liquidity
The Company has a limited history of operations and has experienced operating
losses of $13,374,774 since inception, and incurred significant costs in the
acquisition of land, facilities and personnel. The Company expects operating
losses to continue for the near term as it initiates production, obtains
validation and customer approval and increases marketing and product
development
The Company is continuing efforts to raise approximately $7,500,000 in a
private placement of its common stock for $9.10 per share and an equivalent
number of three-year warrants for $10.00. As of May 14, 1999, the Company has
received payments of $2,400,000 of the $7,000,000 subscription commitments. We
anticipate closing the balance of the offering over the next few months, but we
also are considering alternative public and private sources of capital.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including commencing production of radioisotopes; possible
delays in the final regulatory approval process for it's Radiopharmaceutical
Manufacturing Facility and 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; technological
and market developments; and the ability of the Company to maintain
collaborative academic and commercial research, development and marketing
relationships.
The Company is continuing to negotiate potential financing options including
long term mortgage financing for its facilities. 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
expansion of future operations; however, there can be no assurance that the
Company will be able to obtain additional financing or obtain financing on
terms acceptable to the Company.
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations and funding that the proceeds of the past and
future private placement of its securities and income from operations will be
sufficient to finance its activities for at least the next 12 months. Also, if
necessary, the Company can delay certain operations and capital expenditures
until adequate financing is obtained. If such delays occur, the Company's
operations and business expansion could be significantly curtailed.
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(2) Liquidity
The Company has a limited history of operations and has experienced operating
losses of $13,374,774 since inception, and incurred significant costs in the
acquisition of land, facilities and personnel. The Company expects operating
losses to continue for the near term as it initiates production, obtains
validation and customer approval and increases marketing and product
development
The Company is continuing efforts to raise approximately $7,500,000 in a
private placement of its common stock for $9.10 per share and an equivalent
number of three-year warrants for $10.00. As of May 14, 1999, the Company has
received payments of $2,400,000 of the $7,000,000 subscription commitments. We
anticipate closing the balance of the offering over the next few months, but we
also are considering alternative public and private sources of capital.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including commencing production of radioisotopes; possible
delays in the final regulatory approval process for it's Radiopharmaceutical
Manufacturing Facility and 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; technological
and market developments; and the ability of the Company to maintain
collaborative academic and commercial research, development and marketing
relationships.
The Company is continuing to negotiate potential financing options including
long term mortgage financing for its facilities. 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
expansion of future operations; however, there can be no assurance that the
Company will be able to obtain additional financing or obtain financing on
terms acceptable to the Company.
The Company anticipates, based on it's currently proposed plans and assumptions
relating to it's operations and funding that the proceeds of the past and
future private placement of it's securities and income from operations will be
sufficient to finance it's activities for at least the next 12 months. Also, if
necessary, the Company can delay certain operations and capital expenditures
until adequate financing is obtained. If such delays occur, the Company's
operations and business expansion could be significantly curtailed.
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(3) 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 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 March 31, 1999, the Company has 396,500 common stock options and 1,164,000
common stock warrants outstanding. 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 116,097,
234,594, and 98,552 for the three month periods ended March 31, 1999 and 1998,
and the period from November 1, 1995 (inception) through March 31, 1999,
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.
(4) Inventories
Inventories consist of the following at March 31, 1999 and December 31, 1998
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
<S> <C> <C>
Raw materials $ 475,192 $ 388,930
Work in progress 1,382,486 1,355,537
Finished goods 30,000
---------- ----------
$1,887,678 $1,744,467
========== ==========
</TABLE>
(5) Variable Line of Credit
Subsequent to March 31, 1999, a variable line of credit, secured by stock owned
by the Chairman of the Board, with a maximum amount of the line of credit of
$2,500,000 and a balance of $2,450,060, was assumed by the Chairman of the
Board as personal debt in return for the issuance by the Company of 243,553
shares of common stock at $9.10 per share and warrants to purchase an
additional 243,553 shares at $10.00 per share. The Company no longer has any
liability under this financing arrangement.
(6) Common Stock
In the fall of 1998 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 16,000 shares of common stock
at $12.50 per share and warrants to purchase an additional 16,000 shares at
$13.75 per share. From December 1998 through February 1999, the Company sold 59
units representing 944,000 shares of common stock and warrants to purchase an
additional 944,000 shares to 38 accredited investors for aggregate
consideration of $11,800,000. 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 February 10, 1999. Common Stock shares outstanding at March 31,
1999 totaled 7,511,625. See Note 2.
(7) Subsequent Event
In May 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. Imagyn's management has
indicated that appropriate measures are underway to convert the bankruptcy
proceeding to a
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reorganization and to reorganize the company, restructure existing debt and
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.
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 as
amended, filed with the Securities Exchange Commission (SEC) on April 16, 1999.
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/A.
Overview
International Isotopes Inc., a Texas corporation, is a development stage
enterprise that is executing plans to be the first commercial domestic producer
of a full range of radioisotopes, pharmaceutical grade radioisotopes and
finished radiopharmaceuticals (on a contract or joint venture basis) for
commercial sale to the nuclear medicine industry for the diagnosis and
treatment of cancer and other diseases. The Company is also developing
instrumentation for radiation therapy and medical imaging.
Radioisotopes, indispensable components of nuclear medicine, are radiation
emitting atoms that are used for both medical diagnostics and in-the-body ("in
vivo") therapeutics. When a specifically selected radioisotope is attached or
"tagged" to one of a variety of pharmaceuticals, the resulting product is known
as a radiopharmaceutical. The pharmaceutical component acts as a carrier to
seek out targeted internal organs, tumor sites and/or cells for which it has a
predetermined natural affinity. In diagnostics, the radioisotope component
provides a signal as to the location of the attached pharmaceutical as it
targets the specific organ or site. This process, in turn, is captured by
external imaging equipment such as positron emission tomography ("PET") and
single photon emission computed tomography ("SPECT") cameras. In therapeutics,
the radioisotope component provides in vivo treatment of the targeted organ,
cancerous tumor and/or cancerous cell site through the emission of either
photons or beta radiation. In addition to radiopharmaceutical applications,
radioisotopes may also be injected into the body at the site of a tumor as part
of a medical device. This process is known as brachytherapy. Radioisotopes are
produced commercially either by an accelerator (a cyclotron or a linear
accelerator) or a nuclear reactor. Accelerators are machines, which accelerate
charged particles, generally protons, to bombard a stable (non-radioactive)
isotope target, causing a reaction such that the target is transformed into a
radioactive isotope. A nuclear reactor produces radioisotopes by bombarding a
stable isotope target with neutrons.
Presently, the most commonly used radioisotopes in the United States, such as
Thallium-201, Gallium-67, Indium-111 and Palladium-103, which the Company
intends to commercially produce, are produced by four domestic
radiopharmaceutical companies, primarily for their own use, and by two foreign
manufacturers, and are used either independently or in various combinations or
"cocktails" to assist in the diagnosis of a myriad of medical conditions,
including coronary heart disease, pulmonary embolism, thyroid carcinoma, bone
cancer, brain disorders, acute cholecystitis (inflammation of the gall
bladder), gastrointestinal bleeding, renal artery stenosis and other diseases.
The Company also produces, through its subsidiary, International Isotopes Idaho
Inc, the radioisotopes iridium 192- used in remote brachytherapy for cancer of
the cervix, strontium-89 used in bone pain palliation due to bone cancer and
cobalt-60 used in the gamma knife for inoperable brain tumors.
Since its incorporation in November 1995, the Company's operations have been
concentrated in acquiring its proton linear accelerator ("LINAC") and related
assets, redesigning and reconfiguring the LINAC for production of
radioisotopes, acquiring land, designing and constructing facilities for the
production and distribution of
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radioisotopes, radiopharmaceuticals and brachytherapy products, raising
capital, selling certain accelerator components and excess equipment and
entering into strategic alliances with medical and pharmaceutical companies,
universities and other institutions.
During 1998 the Company completed the acquisition, modification and
construction of 150,000 square feet of facilities located in Denton, Texas,
including the Radioisotope Production Facility, Radiopharmaceutical
Manufacturing Facility and Administrative, Manufacturing and Service Facility.
In addition, we completed, equipped and placed into operation a 25,000 square
foot finished radiopharmaceutical manufacturing suite under cGMP and FDA
guidelines. This suite is located inside the Radiopharmaceutical Manufacturing
Facility.
We refurbished, equipped and began to test the 42 MeV cyclotron accelerator for
the production of radioisotopes, and constructed and equipped facilities for
the production of short-lived radiochemicals and pharmaceutical grade
radiochemicals in 1998. During the first quarter of 1999, we completed testing
of the cyclotron and commenced installation and testing of and are currently
using the cyclotron target system. In April 1999 the Texas Department of
Health, Bureau of Radiation Control issued an amendment to the Radioactive
Material License that increased the level of radioactive material authorized
for the receipt, manufacture and distribution of radioisotopes. Processing
equipment has been installed and is being tested. Once this process is
completed, product samples will be produced and sent to customers for
validation.
Also during 1998, we constructed and installed the initial stages of a 70 MeV
linear accelerator, ("LINAC"), for more efficient production of radioisotopes
and radiochemicals. During the first quarter of 1999, installation proceeded as
both the ion source and the radio-frequency quadropole accelerator were
installed and successfully tested. In May 1999, the drift tube accelerators
were installed. Initial beam at 33 MeV was successfully achieved on May 14,
1999. The next immediate step will be to commission the full beam line and the
target transfer system. The Company intends to use production strategies that
yield high quantities of desired radioisotopes with minimal impurities. The
production of radioisotopes cannot be commenced until regulatory approval has
been obtained for the Radioisotope Production Facility, which includes a review
of the intended manufacturing process and inspection for compliance with cGMP
regulations. Authorization has been received from the Texas Department of
Health, Bureau of Radiation Control ("TDH-BRC") that allows for limited
operations of the LINAC. Further amendments to the license will be required for
full operations.
Product samples of I-125 brachytherapy seeds for the treatment of prostrate
cancer were shipped to beta test sites in late 1998 and during the first
quarter of 1999. We are currently building an inventory of the product for
shipment to customers.
The Company continues to develop production plans for Tl-201 for diagnosis of
heart disease, Sr-89 for pain palliation in bone cancer, In-111, F-18, Ga-67,
I-123 and several other radioisotopes.
RESULTS OF OPERATIONS
Three month periods ended March 31, 1999 and 1998
The Company's net loss for the three month period ended March 31, 1999 was
$2,649,963, as compared to net loss of $588,033 for the comparable period of
1998. Net loss per common share for the three month period ended March 31, 1999
was $.36, as compared to net loss per common share of $.09 for the same period
of 1998.
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Revenue for the three month period ended March 31, 1999 was $607,086, as
compared to $150,000 for the same period in 1998. Gross profit for the three
month period ended March 31, 1999 was $378,455, as compared to $87,170 for the
same period in 1998. The increase in revenues was attributable to the
acquisition of International Isotopes Idaho, Inc., a wholly owned subsidiary, as
well as sales of accelerator components, product development contracts and
initial sales of finished isotopes. The difference in gross profit is
attributable to increased costs necessary for the commencement of initial
production activities.
Operating expenses increased to $3,075,059 for the three month period ended
March 31, 1999, compared to $814,077 for the same period of 1998. Salaries and
contract labor expenses for the three month period ended March 31, 1999 were
$407,589, as compared to $242,321 for the same period of 1998, an increase of
$165,268. General and administrative and sales and marketing expenses totaled
$1,533,842 for the three month period ended March 31, 1999, as compared to
$571,756 for the same period of 1998, an increase of $962,086. The increase in
operating expenses were attributable to increases in personnel for production,
marketing, quality assistance, 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, initial prototype testing
and increased depreciation expense as more equipment and facilities were brought
online. Product development costs of $1,133,628 were incurred during the first
quarter of 1999. These costs are attributable to initial prototype testing and
manufacturing activities without corresponding product sales.
Interest income during the three month period ended March 31, 1999 was $46,641,
as compared to $159,206 for the comparable period of 1998, a decrease of
$112,565. This decrease was attributable to the funds received from the
Company's initial public offering completed in August 1997, which were used to
fund the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily by bank
loans, sales of accelerator components and excess equipment, sales of shares of
common stock in private placements to investors, its initial public offering
and loans from stockholders and directors.
During the third quarter of 1997, the Company completed its initial public
offering of 2,300,000 shares of common stock at $9.00 per share, resulting in
net proceeds of approximately $17,709,000.
In July 1998, the Company borrowed $2,500,000 in a term loan from First
Southwest Company, secured by Company stock owned by to Ira Lon Morgan, the
Company's Chairman. The loan matured on October 31, 1998 and was renewed until
April 15, 1999. At maturity the loan was personally assumed by Dr. Morgan in
exchange for common stock and warrants. The Company issued to Dr. Morgan 243,553
shares of common stock at $9.10 and an equal number of three-year warrants with
an exercise price per warrant of $10.00. The Company no longer has any liability
under this financing agreement.
In October 1998, Texas State Bank in McAllen, Texas provided financing which
allowed the Company to pay off all existing loans with both Texas Bank and
Hartland Bank, and to consolidate its remaining financing into a $15,000,000
loan. The Texas State Bank loan includes (i) a five year term loan with a
fifteen year amortization and a floating interest rate which adjusts every six
months on May 1 and November 1 of each year and (ii) a $5,000,000 one year term
loan collateralized by accounts receivable of less than 75 days. In March 1999,
Texas Bank committed to an additional $5,000, 000 in lease financing for the
purchase of equipment. Company no longer has any liability under this
financing arrangement.
-11-
<PAGE> 13
The Company initiated a private placement of its common stock in late 1998. The
offering consisted of units, each unit consisting of 16,000 shares of stock at
$12.50 per share and 16,000 three-year warrants with an exercise price of
$13.75. As of March 31, 1999, units representing 944,000 shares of common stock
had been sold for an aggregate amount of $11,800,000.
The Company is continuing efforts to raise approximately $7,500,000 in a private
placement of its common stock for $9.10 per share and an equivalent number of
three-year warrants for $10.00. As of May 14, 1999, the Company has received
payments of $2,400,000 of the $7,000,000 subscription commitments. We anticipate
closing the balance of the offering over the next few months, but we also are
considering alternative public and private sources of capital.
The Company has incurred losses from operations since inception and has an
accumulated deficit of $13,374,774 at March 31, 1999. The Company's history of
operating losses has resulted in continued dependence upon additional external
financing.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including commencing production of radioisotopes; possible
delays in the final regulatory approval process for its Radiopharmaceutical
Manufacturing Facility and 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; technological
and market developments; and the ability of the Company to maintain
collaborative academic and commercial research, development and marketing
relationships.
The Company is continuing to negotiate potential financing options including
long term mortgage financing for its facilities. 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 expansion of future
operations. However there can be no assurance that the Company will be able to
obtain additional financing or obtain financing on terms acceptable to the
Company.
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations and funding that the proceeds of the past and future
private placement of its securities and income from operations will be
sufficient to finance its activities for at least the next 12 months. Also, if
necessary, the Company can delay certain operations and capital expenditures
until adequate financing is obtained. If such delays occur, the Company's
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 Company has identified
critical equipment and software for the following operational areas:
o LINAC
Identified critical equipment and software in the LINAC includes
the oscilloscopes, modulators, Lab/View (time/date system), DAQ
Hardware, GPIB Hardware and AutoCAD 14 Software. Vendor assurance
letters of Year 2000 compliance have been obtained on these
components and internal validation is being done.
-12-
<PAGE> 14
o Cyclotron
List of critical equipment in the Cyclotron is still being
prepared. Vendor assurance letters have been obtained on the
critical equipment identified and will be obtained on future
identified critical equipment. Internal validation should be
completed by June 30, 1999.
o Radiopharmaceutical Manufacturing
Identified critical equipment within the Radiopharmaceutical
manufacturing area includes thermal transfer printer, gamma
spectroscopy system, sodium iodine scintillator detector system,
2350 instrument software, ionization chamber and dose calibrators.
Vendor assurance letters have been received on all but the 2350
instrumentation software, which is pending as of May 13, 1999.
Internal validation is planned for the second quarter of 1999.
o Computer equipment and software
All computer equipment and software is identified as critical
equipment. Inventories of all systems hardware and software have
been completed. Software inventory reporting software has been
installed on each computer, which monitors installed software on
each computer. Vendor assurance letters of Year 2000 compliance
have been obtained for all software owned by the Company. We will
be installing ClickNet Y2K software on all computers during the
second quarter to maintain Year 2000 compliance.
o Utility Equipment & Systems
Identified critical equipment for the utilities systems include
series controllers, pumps and controllers, HVAC, and WFI
chillers. Vendor assurance letters of Year 2000 compliance has
been received for each of these components and internal
validation has been performed.
The Company is performing Year 2000 compliance testing on new equipment and
components as they are being put into place. As of May 15, 1999, Year 2000
testing has resulted in no significant remediations required.
In addition to the assessment of in-house systems, the Company is currently
assessing the readiness of its vendors for the Year 2000 issue. The Company has
commenced inquiries of key vendors regarding the status or the respective Year
2000 compliance procedures, and in certain cases, certifications regarding Year
2000 compliance have been obtained. By the end of the second quarter 1999, the
Company intends to have 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 to create action plans to address
any identified risks.
The Company has estimated of the total cost of the Year 2000 remediation
including modification, upgrade, or replacement of systems and equipment to be
approximately $50,000. The Company expects to identify and resolve all Year
2000 issues that could materially and adversely affect its business operations
by June 30, 1999. 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
-13-
<PAGE> 15
In the fall of 1998 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 16,000 shares of common stock
at $12.50 per share and warrants to purchase an additional 16,000 shares at
$13.75 per share. During the period December 1998 through February 1999, the
Company sold 59 units representing 944,000 shares of common stock and warrants
to purchase an additional 944,000 shares to 38 accredited investors for
aggregate consideration of $11,800,000. 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 February 10, 1999.
Common Stock shares outstanding at March 31, 1999 totaled 7,511,625.
Exhibits:
27.1 Financial Data Schedule
Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
INTERNATIONAL ISOTOPES INC. has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INTERNATIONAL ISOTOPES INC.
By: /s/ IRA LON MORGAN
----------------------------------
Ira Lon Morgan
Chairman of the Board
Date: May 17, 1999
-14-
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,143,496
<SECURITIES> 0
<RECEIVABLES> 353,509
<ALLOWANCES> 0
<INVENTORY> 2,414,211
<CURRENT-ASSETS> 170,203
<PP&E> 35,787,414
<DEPRECIATION> 194,373
<TOTAL-ASSETS> 46,508,208
<CURRENT-LIABILITIES> 6,702,151
<BONDS> 0
0
0
<COMMON> 75,116
<OTHER-SE> 37,114,761
<TOTAL-LIABILITY-AND-EQUITY> 46,508,208
<SALES> 607,086
<TOTAL-REVENUES> 607,086
<CGS> 378,455
<TOTAL-COSTS> 3,075,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,649,963)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,649,963)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,649,963)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
