<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
June 30, 1999
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
(Exact name of registrant as specified in its charter)
Texas 74-2763837
(State of incorporation) (IRS Employer Identification Number)
3100 Jim Christal Rd.
Denton, Texas 76207
(Address of principal executive offices) (zip code)
940-484-9492
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
As of August 12, 1999 the number of shares of Common Stock, $.01 par value,
outstanding was 8,436,035.
*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.
<S> <C>
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at June 30, 1999 3
and December 31, 1998
Condensed Consolidated Statements of Operations for the 4
Three Months Ended June 30, 1999 and 1998, and for the
Six Months Ended June 30, 1999 and 1998, and for the
period from November 1, 1995 (inception) through
June 30, 1999.
Condensed Consolidated Statements of Cash Flows for the 5
Six Months Ended June 30, 1999 and 1998 and for the
period from November 1, 1995 (inception) through
June 30, 1999.
(1) Notes to Condensed Consolidated Financial Statements. 7
Item 2 - Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II - OTHER INFORMATION:
Item 2. Changes in Securities 13
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
</TABLE>
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
Assets (unaudited)
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,344,050 6,371,704
Accounts receivable 1,300,602 240,433
Assets held for sale 205,974 526,533
Inventory 1,944,214 1,744,467
Other 204,548 78,578
------------ ------------
Total current assets 11,999,388 8,961,715
Property, plant and equipment, net 38,786,249 32,350,399
Goodwill 1,541,074 1,687,846
Other Assets 2,144,743 2,302,743
------------ ------------
Total assets 54,471,454 45,302,703
============ ============
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity
---------------------------------------------
Current liabilities
Accounts payable $ 2,524,781 1,825,246
Accrued liabilities 641,717 973,752
Current portion of lease obligations 1,095,195 235,309
Current installments of mortgage and notes payable to banks 1,108,285 3,117,177
------------ ------------
Total current liabilites 5,369,978 6,151,484
Non-current portion of lease obligations 3,212,394 774,758
Mortgage and notes payable to banks, excluding current installments 14,111,231 14,483,839
------------ ------------
Total liabilities 22,693,603 21,410,081
Redeemable convertible preferred stock, net of discount of $1,303,190.
(liquidation value of $5,000,000) (note 7) 3,696,810 --
Stockholders' equity
Preferred stock, $1.00 par value; 5,000,000 shares authorized,
no shares (only redeemable convertible preferred stock issued
and outstanding) -- --
Common stock, $.01 par value; 20,000,000 shares authorized,
issued and outstanding 8,436,035 shares at June 30, 1999
and 7,351,625 shares at December 31, 1998 84,360 73,515
Additional paid-in capital 46,839,054 35,183,918
Deficit accumulated during the developmental stage (17,745,456) (10,724,811)
Receivable from stock sales (1,096,917) (640,000)
------------ ------------
Total stockholders' equity 28,081,041 23,892,622
Total liabilities, redeemable convertible preferred
stock and stockholders' equity 54,471,454 45,302,703
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Period from
Three Months ended Six Months ended November 1, 1995
June 30, June 30, (inception) through
1999 1998 1999 1998 June 30, 1999
----------- ----------- ----------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Revenue:
Sales of products $ 696,115 620,937 1,234,014 620,937 2,656,725
Development contract income 50,632 100,000 58,819 250,000 580,819
Sale of accelerator components 640,000 77 701,000 77 1,676,321
----------- ----------- ----------- ----------- -----------
1,386,747 721,014 1,993,833 871,014 4,913,865
Cost of revenue:
Cost of products (874,522) (419,221) (1,073,153) (419,221) (2,108,670)
Cost of development contract -- -- -- (62,830) (62,830)
Cost of accelerator components (328,467) -- (358,467) -- (733,421)
----------- ----------- ----------- ----------- -----------
Gross Profit 183,758 301,793 562,213 388,963 2,008,944
----------- ----------- ----------- ----------- -----------
Operating costs and expenses:
Salaries and contract labor 432,261 207,025 839,850 449,346 3,335,945
Employee incentive compensation -- -- -- -- 2,397,500
Sales and Marketing 191,391 234,268 503,126 350,756 1,200,772
Product and manufacturing
process development 1,825,252 -- 2,958,880 -- 3,784,149
General and administrative 739,501 923,446 1,961,608 1,378,715 7,482,517
----------- ----------- ----------- ----------- -----------
Total operating expenses 3,188,405 1,364,739 6,263,464 2,178,817 18,200,883
----------- ----------- ----------- ----------- -----------
Loss from development stage operations (3,004,647) (1,062,946) (5,701,251) (1,789,854) (16,191,939)
Other income (expense):
Gain on sale (donation) of assets held for sale -- (4,000) -- (24,332) 327,008
Interest income 52,973 80,137 99,614 239,343 690,849
Interest expense (2,498) -- (2,498) -- (531,114)
Loan financing fees -- -- -- -- (750,000)
----------- ----------- ----------- ----------- -----------
Loss before extraordinary item (2,954,172) (986,809) (5,604,135) (1,574,843) (16,455,196)
Extraordinary gain on debt extinguishment -- -- -- -- 126,250
----------- ----------- ----------- ----------- -----------
Net loss $(2,954,172) (986,809) (5,604,135) (1,574,843) (16,328,946)
Preferred stock deemed dividend
and accretion (1,416,510) (1,416,510) (1,416,510)
----------- ----------- ----------- ----------- -----------
Net loss applicable to common
shareholders $(4,370,682) (986,809) (7,020,645) (1,574,843) (17,745,456)
Net loss per common share - basic and diluted $ (0.57) (0.15) $ (0.88) (0.24) $ (3.62)
=========== =========== =========== =========== ===========
Weighted average common shares outstanding -
basic and diluted 7,702,728 6,507,918 7,973,830 6,439,434 4,905,944
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
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INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Six Months November 1, 1995
Ended June 30 (inception) through
1999 1998 June 30, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (5,604,135) (1,574,843) (16,328,946)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 822,693 74,091 1,331,887
(Gain) loss on sale or donation of assets -- 24,332 (327,008)
Services compensated by stock issuance -- -- 2,178,886
Forgiveness of receivable from stockholder -- -- 80,000
Extraordinary loss/gain on extinguishment of debt -- -- (126,250)
Changes in operating assets and liabilities,
exclusive of effects of acquisition:
Interest receivable -- 135,382 --
Accounts receivable (1,060,169) 158,554 (613,281)
Other assets 32,030 (5,837) (501,794)
Inventory (199,747) (27,727) (1,427,207)
Accounts payable 76,053 482,587 242,353
Accrued liabilities (352,029) 94,754 598,482
------------ ------------ ------------
Net cash used in operating activities (6,285,304) (638,707) (14,892,878)
------------ ------------ ------------
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 (2,807,585) (9,874,262) (33,681,372)
Purchase of securities available for sale -- -- (5,082,777)
Proceeds from sale of securities available for sale -- 5,082,777 5,082,777
Proceeds from sale of assets held for sale 320,559 7,667 1,152,566
Purchase MAC Isotopes, Inc., net of cash acquired -- (495,000) (495,000)
Investment in trademarks and license fee -- (275,000) (275,000)
------------ ------------ ------------
Net cash used in investing activities (2,487,026) (5,553,818) (33,298,806)
------------ ------------ ------------
Cash flows from financing activities:
Collections of stock sale receivable -- -- 160,000
Settlement of contingent consideration - MAC Isotopes, Inc. (869,559) -- (869,559)
Proceeds from issuance of common stock,
common stock subscriptions, and redeemable
convertible preferred stock 14,378,917 -- 42,498,534
Proceeds from issuance of notes payable to chairman -- -- 120,000
Payments on capital leases (383,182) -- (604,007)
Proceeds from issuance of debt -- 607,098 29,552,623
Principal payments on notes payable (2,381,500) (86,298) (14,206,857)
Payments on notes payable to chairman -- -- (115,000)
------------ ------------ ------------
Net cash provided by financing activities 10,744,676 520,800 56,535,734
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,972,346 (5,671,725) 8,344,050
Cash and cash equivalents at beginning of period 6,371,704 8,201,417 --
------------ ------------ ------------
Cash and cash equivalents at end of period 8,344,050 2,529,692 8,344,050
============ ============ ============
</TABLE>
(Continued)
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<PAGE> 6
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Period from
Six Months November 1, 1995
Ended June 30 (inception) through
1999 1998 June 30, 1999
------------ ------------ ------------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 2,498 168,294 620,389
============ ============ ============
Cash paid for financing fees $ -- 36,350 596,611
============ ============ ============
Supplemental disclosure of noncash transactions:
Common stock issued for stock receivables $ 456,917 -- 1,096,917
============ ============ ============
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 common stock $ -- 3,173,973 3,248,976
============ ============ ============
Capital expenditures included in accounts payable $ 623,482 1,317,762 623,482
============ ============ ============
Acquisition of license fee and patent rights through $ -- 225,000 725,100
============ ============ ============
issuance of common stock
Acquisition of equipment through capital leases $ 3,680,704 -- 4,911,596
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 7
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
(a development stage enterprise)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The Company and Basis of Presentation
International Isotopes Inc. (the "Company" or "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 June 30, 1999, and the
results of its operations for the six and three-month periods ended June 30,
1999 and 1998, and its cash flows for the six-month periods ended June 30, 1999
and 1998. This information should be read in conjunction with the Company's
audited consolidated financial statements as set out in the Company's Amended
Form 10-K filed July 8, 1999.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and display of comprehensive income in a
full set of general-purpose financial statements. Comprehensive income includes
net income and other comprehensive income which is generally comprised of
changes in the fair value of available-for-sale marketable securities, foreign
currency translation adjustments and adjustments to recognize additional
minimum pension liabilities. For each period presented in the accompanying
consolidated statements of operations, comprehensive loss and net loss are the
same amount.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for public business enterprises to report
information about operating segments in financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company is in
development stage and has not begun significant operations. The Company's
management anticipates operating through various segments in future periods as
operations for those segments begin.
Certain information in footnote disclosures, normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
SEC. The financial data disclosed in the notes to the condensed consolidated
financial statements are unaudited for these periods.
(2) Liquidity
The Company has been developing facilities, is initiating operations, and has
experienced start-up losses of $16,328,946 since inception, and invested
significant funds in the acquisition of land, facilities, manufacturing
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<PAGE> 8
equipment, regulatory approval and personnel. The Company expects losses to
continue for the near term as it initiates production, marketing and
distribution of products, obtains validation and customer approval of products,
and increases marketing and product development.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including costs relating to commencing production of
radioisotopes, radiochemicals, finished radiopharmacueticals and medical
therapy devices; continued delays in the federal and state regulatory approval
process for permitting production from the Radiopharmacuetical Manufacturing
Facility, the Cyclotron 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. Although there can be no
assurance, management anticipates that the cash flow from future operations of
the Company as well as the adequacy of the appraised value of Company assets
will allow the Company to obtain additional debt financing on acceptable terms.
Management is also negotiating with various investment bankers regarding equity
and debt financing for funding the joint venture development of complementary
businesses, technologies and products. The Company cannot guarantee that it
will be able to obtain any such financing on acceptable terms.
Although there can be no assurance, the Company anticipates, based on its
currently proposed plans and assumptions relating to its operations and
funding, that current cash, cash from future operations, credit facilities and
the private placement of its securities will be sufficient to meet its
currently anticipated working capital and capital expenditure requirements. In
the event additional financing becomes necessary, management may choose to
raise those funds through other means of financing as appropriate. The Company
cannot guarantee that it will be able to obtain any such financing on
acceptable terms. Also, if necessary, the Company can delay certain operations
and capital expenditures until adequate financing is obtained. If such delays
occur, the Company's future operations and business expansion could be
significantly curtailed.
(3) Net Loss Per Common Share - Basic and Diluted
Net loss per share of common stock is presented in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". Under SFAS No. 128, basic loss per share excludes
dilution for potentially dilutive securities and is computed by dividing loss
applicable to common stockholders by the weighted average number of common
shares outstanding during the period. Diluted loss per share, which is computed
on the basis of the weighted average number of common shares and all
potentially dilutive common shares outstanding during the period, is the same
as basic loss per share as all potential common shares were anti-dilutive.
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<PAGE> 9
At June 30, 1999, the Company had 386,900 common stock options and 3,139,741
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 99,640,
77,328, and 58,862 for the six month periods ended June 30, 1999 and 1998, and
the period from November 1, 1995 (inception) through June 30, 1999,
respectively. The potentially dilutive effect of these securities and the
redeemable convertible preferred stock issued in May 1999 (see note 7) has not
been considered in the computation of diluted net loss per common share since
their inclusion would be anti-dilutive.
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<PAGE> 10
(4) Inventories
Inventories consist of the following at June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
Raw materials $ 255,555 $ 388,930
Work in progress 1,529,051 1,355,537
Finished goods 159,608 --
---------- ----------
$1,944,214 $1,744,467
========== ==========
</TABLE>
(5) Variable Line of Credit
On April 30, 1999, a variable line of credit, secured by stock owned by the
Chairman of the Board, with a balance of $2,216,332, was paid off with proceeds
received from the private placement (See Note 6). The Company no longer has any
liability under this financing arrangement.
(6) Common Stock & Stock Subscriptions
In April of 1999, the Company initiated a private placement of units of its
securities exclusively to accredited investors including certain officers and
directors of the Company. Each Unit consisted of 1 share of common stock at
$9.10 per share and a warrant to purchase an additional share at $10.00 per
share. From April 1999 through June 1999, the Company sold units representing
924,410 shares of common stock and warrants to purchase an additional 924,410
shares to accredited investors for aggregate consideration of $8,412,150. The
sale of the Units was exempt pursuant to Section 4(2) of the Securities Act of
1933 and Regulation D promulgated thereunder. The shares of common stock sold
and the shares of common stock issuable upon exercise of the warrants were
subsequently registered with the Securities and Exchange Commission for resale
by the purchasing accredited investors pursuant to a Registration Statement on
Form S-3 which became effective on July 29,1999. At June 30, 1999, 408,388
shares of stock had been issued; the remaining shares were subsequently issued
in August 1999.
(7) Redeemable Convertible Preferred Stock
On May 18, 1999, the Company completed a private placement of 5,000 shares of
5% cumulative redeemable convertible $0.01 par value $1,000 face value
preferred stock ("Preferred Stock") together with 205,000 warrants to purchase
common stock at $11.86 per share, for aggregate proceeds of $5 million, before
issuance costs of $300,000. Dividends are 5% per annum payable in cash or
common stock (at the Company's option) beginning October 15, 1999 and
continuing quarterly thereafter through May 20, 2002. If paid in common stock,
the number of shares is based on the average market price for the 10 trading
days immediately preceding the dividend payment date (the "Average Price").
Under the terms of the private placement, in November 1999, the Company will
issue an additional 5,000 shares of 5% cumulative redeemable convertible $0.01
par value $1,000 face value preferred stock and warrants to acquire 205,000
shares of common stock for aggregate proceeds of $5 million.
The Preferred Stock is convertible to common stock at $11.86 per share at
issuance and the conversion price is reset at each dividend payment date to the
then Average Price, (with a floor of $7.00 per share and a ceiling of $11.86 per
share) .
The Preferred Stock is mandatorily redeemable on May 20, 2002 in cash or common
stock at the then Average Price, at the Company's option. Early redemption may
be required at the option of the holder under certain
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<PAGE> 11
circumstances and may be exercised at the option of the Company under other
circumstances. Mandatory redemption events include change in control,
suspension or delisting from NASDAQ, the BSE or any subsequent market on which
the common stock is listed for five consecutive days, breach by the Company of
any representations, warranties or other conditions in the preferred stock
purchase agreement, and other events. Warrants are exercisable at any time up
to May 20, 2002 at $11.86 per share.
The Company assigned an aggregate value of $1,059,850 to the warrants ($5.17
per share) using an option pricing model with the following assumptions:
exercise price of $11.86 per share, volatility of 60%, risk-free interest rate
of 5.60%, and contractual term of three years. The warrant value was recorded
to additional paid-in capital and is being accreted to the Preferred Stock over
the term of the warrant.
After consideration of the warrant value, the Preferred Stock has a "beneficial
conversion feature" of $1,359,850 that has been recognized as an additional
return to the holders through a charge to deficit accumulated during the
development stage and an increase to additional paid-in capital.
(8) Joint Venture
In March of 1999, the Company and GammaPlus, LLC, a Lucas Medical Associates
Company which operates short-lived radiopharmaceutical manufacturing
facilities, announced the formation of the joint venture, GammaPlus DFW, LLC,
which will manufacture and distribute radiopharmaceuticals for use in Positron
Emission Tomography. The Company purchased a 49% interest in the joint venture
for $4,900 in cash and an additional commitment of $44,100. The initial payment
of $4,900 was made on June 18, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Except for historical information contained herein, the following contains
forward-looking information that is subject to certain risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors including those
set forth in the "Risk Factors" section included in the Company's Form 10-K,
filed with the Securities Exchange Commission (SEC) on April 15, 1999, as
amended on April 16, 1999 and July 8, 1999 (collectively, the "Form 10-K"). The
following discussion should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Form 10-K.
RESULTS OF DEVELOPMENT STAGE ACTIVITIES
Six and three month period ended June 30, 1999 and 1998
The Company's net losses for the three and six month periods ended June 30,
1999 were $2,954,172 and $5,604,135 respectively, as compared to net losses of
$986,809 and $1,574,843 for the comparable period of 1998. Net loss per common
share for the three and six month periods ended June 30, 1999 were $0.57 and
$0.88 respectively, as compared to net loss per common share of $0.15 and $0.24
for the same periods of 1998.
The increase in the losses for the three and six month periods was largely due
to increased activities, including expensing pre-production costs of products,
validation of facilities, equipment and procedures, purchases of expendable
materials, manufacturing supplies and other production related goods and hiring
of additional manufacturing and regulatory personnel. In addition, 1999
personnel costs were substantially higher as personnel
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<PAGE> 12
who were previously engaged in construction and development activities, whose
respective costs had been capitalized, shifted their efforts to validation and
manufacturing activities and the related costs were expensed.
Revenues for the three and six month periods ended June 30, 1999 were
$1,386,747 and $1,993,833 respectively, as compared to $721,014 and $871,014
for the same periods in 1998. Gross profit for the three and six month periods
ended June 30, 1999 was $183,758 and $562,213, as compared to $301,793 and
$388,963 for the same periods 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 and initial sales
of finished brachytherapy seeds. The difference in gross profit is attributable
to increased costs necessary for the commencement of manufacturing activities.
Operating expenses increased to $3,188,405 and $6,263,464 for the three and six
month periods ended June 30, 1999, compared to $1,364,739 and $2,178,817 for
the same periods of 1998. Salaries and contract labor expenses for the three
and six month periods ended June 30, 1999 were $432,261 and $839,850
respectively, as compared to $207,025 and $449,346 for the same periods of
1998, an increase of $225,236 and $390,504 respectively. General and
administrative expenses totaled $739,501 and $1,961,608 for the three and six
month periods ended June 30, 1999, as compared to $923,446 and $1,378,715 for
the same periods of 1998, a decrease of $183,945 and an increase of $582,893
respectively. Sales and marketing expenses decreased to $191,391 for the three
month period ended June 30, 1999 and increased to $503,126 for the six month
period ended June 30, 1999 as compared to $234,268 and $350,756 for the
corresponding periods of 1998. The increase in operating expenses was
attributable to increases in personnel for production, marketing, quality
assurance, quality control, regulatory compliance, environmental health and
safety, and administrative personnel as the Company expanded its organizational
structure and began limited operations. Other increases in operating expenses
included increased insurance for property, general and product liability,
license fees, supplies, materials related to manufacturing and increased
depreciation expense as more equipment and facilities commenced operations.
Product development costs of $1,825,252 and $2,958,880 were incurred during the
three and six month periods ended June 30, 1999. These costs are attributable
to manufacturing setup costs incurred without corresponding product sales.
Interest income during the three and six month periods ended June 30, 1999 was
$52,973 and $99,614, as compared to $80,137 and $239,343 for the comparable
periods of 1998, a decrease of $27,164 and $139,729 respectively. This decrease
was attributable to a reduction in the invested funds available from the
Company's initial public offering completed in August 1997, which were used to
fund the Company's facilities construction, equipment purchases and operations.
For the periods presented, the Company has capitalized nearly all of its
interest costs as construction of the Company's facilities were in progress. As
facilities and construction in progress are completed, interest costs will no
longer qualify for capitalization and will be expensed as incurred. See
"Liquidity and Capital Resources."
Liquidity and Capital Resources
On June 30, 1999 the Company had cash and cash equivalents of $8,344,050
compared to $6,371,704 at December 31, 1998. For the six months ended June 30,
1999, net cash used in operating activities of approximately $6,285,304 and net
cash used in investing activities, primarily for capital expenditures, of
$2,487,026 were provided by financing activities of $10,744,676. Capital
expenditures are expected to decrease significantly during the balance of 1999
as we complete the facilities, LINAC and equipment purchases necessary for the
production of our initial product lines.
The Company has financed its operations since inception primarily by loans from
stockholders and directors, bank loans, sales of accelerator components and
excess equipment, its initial public offering and sales of shares of common and
preferred stock in private placements to investors.
- 12 -
<PAGE> 13
The Company initiated a private placement of its common stock in late 1998. In
May 1999, the Company revised the warrant structure, increasing the number of
warrants to 28,000 per unit (originally 16,000) and changing the exercise price
to $10.00 per share (originally $13.75), resulting in issuance of warrants to
purchase an additional 708,000 shares.
During the period April 1999 through June 1999, we completed current financing
plans by closing a private placement consisting of 924,410 units of common
stock and warrants, raising $8,412,150. The units consisted of one share of
common stock at $9.10 per share and one three-year warrant to acquire an
additional share, exercisable at $10.00 per share. On April 30, 1999, a
variable line of credit, secured by stock owned by the Chairman of the Board,
with a balance of $2,216,332, was paid off with private placement proceeds.
On May 18, 1999, the Company completed a private placement of 5,000 shares of
5% cumulative redeemable convertible $0.01 par value $1,000 face value
preferred stock together with 205,000 warrants to purchase common stock at
$11.86 per share, for aggregate proceeds of $5 million, before issuance costs
of $300,000. Dividends are 5% per annum payable in cash or common stock (at the
Company's option) beginning October 15, 1999 and continuing quarterly
thereafter through May 20, 2002. If paid in common stock, the number of shares
is based on the average market price for the 10 trading days immediately
preceding the dividend payment date. Under the terms of the private placement,
in November 1999, the Company will issue an additional 5,000 shares of 5%
cumulative redeemable convertible $0.01 par value $1,000 face value preferred
stock and warrants to acquire 205,000 shares of common stock for aggregate
proceeds of $5 million. See Note 7 of Notes to Condensed Consolidated Financial
Statements.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including commencing production of radioisotopes; continued
delays in the regulatory approval process for the Radiopharmacuetical
Manufacturing Facility, the cyclotron 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. Although there can be no
assurance, management anticipates that the cash flow from future operations of
the Company as well as the adequacy of the appraised value of Company assets
will allow the Company to obtain additional debt financing on acceptable terms.
Management is also negotiating with various investment bankers regarding equity
and debt financing for funding the development of complementary businesses,
technologies and products. The Company cannot guarantee that it will be able to
obtain any such financing on acceptable terms.
Although there can be no assurance, the Company anticipates, based on its
currently proposed plans and assumptions relating to its operations and
funding, that current cash, cash from future operations, credit facilities and
the private placement of its securities will be sufficient to meet its
currently anticipated working capital and capital expenditure requirements. In
the event additional financing becomes necessary, management may choose to
raise those funds through other means of financing as appropriate. The Company
cannot guarantee that it will be able to obtain any such financing on
acceptable terms. Also, if necessary, the Company can delay certain operations,
capital expenditures and joint ventures until adequate financing is obtained.
If such delays occur, the Company's future operations and business expansion
could be significantly curtailed.
In July 1999, the Company updated its investors on the Company's progress, and
adjusted expectations for financial performance for fiscal year 1999. The
Company issued a press release dated July 15, 1999 and filed Form 8-K on July
19, 1999 in which the Company revised its financial projections for the fiscal
year 1999 as well as outlined a six-part action plan, which was immediately
implemented.
- 13 -
<PAGE> 14
YEAR 2000 ISSUE
The Year 2000 will have a broad impact on the business environment in which the
Company operates due to the possibility that many computerized systems across
all industries will be unable to process information containing dates beginning
in the year 2000. The Company has established an enterprise-wide program to
assess the extent of the Company's exposure to Year 2000 issues and to
formulate and execute a plan to effectively mitigate the effects of the Year
2000 problem on the Company's operations.
The Company has established an Executive Steering Committee to provide
oversight to the implementation of the Year 2000 program and is responsible for
reviewing and approving the plans, activities, and decisions associated with
identifying and mitigating the risk associated with the Year 2000 problem. The
committee also reviews budgetary information, provides guidelines and acts as a
liaison to the Board of Directors, which has the ultimate responsibility for
the budget and mitigation of the Year 2000 problem.
Responsibilities for implementing the plan have been assigned and the Year 2000
program is at an advanced stage.
The Company has identified all critical potentially subject to the Year 2000
phenomenon and has contacted all vendors regarding Year 2000 compliance.
Similarly, the Company has contacted all key vendors regarding the status of
their respective Year 2000 compliance procedures. In both cases, some
certifications regarding Year 2000 compliance have already been obtained and we
are continuing to follow-up on those outstanding. This phase of the program is
scheduled for completion during the third quarter 1999.
By the end of the third 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.
As of June 30, 1999 the Company has incurred costs of approximately $35,000 for
the Year 2000 issue and has estimated 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 resolve all Year
2000 issues that could materially and adversely affect its business operations
well in advance of the end of the year. At this stage, we have not identified
any problem requiring replacements of systems and equipment.
Although the Company has estimated the total cost of the remediation efforts to
be about $50,000, any unanticipated failures by key vendors, as well as
failures by the Company to execute its own remediation efforts, could have a
material adverse effect on the cost of the project and its completion date. As
a result, there can be no assurance that the Year 2000 problem will not have a
material adverse effect on the Company's financial position or results of
operations.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
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
- 14 -
<PAGE> 15
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.
In May 1999, the Company revised the warrant structure, increasing the number
of warrants to 28,000 per unit and changing the exercise price to $10.00 per
share, resulting in issuance of warrants to purchase an additional 708,000
shares.
In April of 1999 the Company initiated a private placement of its securities
exclusively to accredited investors including certain officers and directors of
the Company. The common stock was sold for $9.10 per share and included a
warrant to purchase an additional share of common stock at $10.00 per share.
During the period from April 1999 through June 1999, the Company received cash
for 924,410 shares of common stock and warrants to purchase an additional
924,410 shares for an aggregate consideration of $8,412,150.
On May 18, 1999, the Company completed a private placement of 5,000 shares of
5% cumulative redeemable convertible $0.01 par value $1,000 face value
preferred stock together with 205,000 warrants to purchase common stock at
$11.86 per share, for aggregate proceeds of $5 million, before issuance costs
of $300,000. Dividends are 5% per annum payable in cash or common stock (at the
Company's option) beginning October 15, 1999 and continuing quarterly
thereafter through May 20, 2002. If paid in common stock, the number of shares
is based on the average market price for the 10 trading days immediately
preceding the dividend payment date. Under the terms of the private placement,
in November 1999, the Company will issue an additional 5,000 shares of 5%
cumulative redeemable convertible $0.01 par value $1,000 face value preferred
stock and warrants to acquire 205,000 shares of common stock for aggregate
proceeds of $5 million.
Common Stock shares outstanding at August 12, 1999 totaled 8,436,035.
Item 5. Other Information
On May 3, 1999, the Company's marketing partner for the distribution of seeds
for the treatment of prostate cancer, Imagyn Medical Technologies, was forced
into involuntary bankruptcy by minority bondholders. On May 18, 1999, Imagyn
filed a request to convert the involuntary bankruptcy into a voluntary Chapter
11. On June 25, 1999, Imagyn filed a Plan of Reorganization in the U.S.
Bankruptcy Court for the District of Delaware. Imagyn's management has
indicated that appropriate measures are underway to continue with normal
marketing operations. If Imagyn ever becomes unable to meet its contractual
obligations, the Company believes it could contract with other distributors to
market the seeds.
- 15 -
<PAGE> 16
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
27.1 Financial Data Schedule
Reports on Form 8-K:
The Company filed a Form 8-K on May 28, 1999 with respect to amended and
restated registration and warrant agreement and private placement of common
stock and warrants.
The Company filed a Form 8-K on July 19, 1999 with respect to updating
investors on 1999 financial expectations and corporate strategy.
- 16 -
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,344,050
<SECURITIES> 0
<RECEIVABLES> 1,300,602
<ALLOWANCES> 0
<INVENTORY> 1,944,214
<CURRENT-ASSETS> 204,548
<PP&E> 39,800,127
<DEPRECIATION> 1,013,881
<TOTAL-ASSETS> 54,471,454
<CURRENT-LIABILITIES> 5,369,978
<BONDS> 0
3,696,810
0
<COMMON> 84,360
<OTHER-SE> 27,996,681
<TOTAL-LIABILITY-AND-EQUITY> 54,471,454
<SALES> 1,993,833
<TOTAL-REVENUES> 1,933,833
<CGS> 562,213
<TOTAL-COSTS> 6,263,464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,498
<INCOME-PRETAX> (5,604,135)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,604,135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,604,135)
<EPS-BASIC> (0.88)
<EPS-DILUTED> (0.88)
</TABLE>
