FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2003
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
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(Exact name of registrant as specified in its charter)
Texas 74-2763837
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(State of incorporation) (IRS Employer Identification Number)
4137 Commerce Circle Idaho Falls, Idaho 83401
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(Address of principal executive offices) (zip code)
208-524-5300
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(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 8, 2003 the number of shares of Common Stock, $.01 par value,
outstanding was 95,572,893.
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 2003
(unaudited) and December 31, 2002 3
Unaudited Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 2003 and 2002 4
Unaudited Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2003 and 2002 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 4 - Controls and Procedures 10
PART II - OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
CERTIFICATIONS 12
2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, December 31,
2003 2002
Assets (unaudited)
--------------------------------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 222,865 $ 441,904
Accounts receivable 164,427 218,923
Assets held for sale 262,235 607,531
Inventories 2,270,351 2,279,828
Prepaids and other current assets 251,554 128,830
------------ ------------
Total current assets 3,171,432 3,677,016
Property, plant and equipment, net 232,793 236,053
------------ ------------
Total assets $ 3,404,225 $ 3,913,069
============ ============
Liabilities, Redeemable Convertible Preferred Stock
and Stockholders' Deficit
---------------------------------------------------------------------
Current liabilities
Accounts payable $ 329,700 $ 257,776
Accrued liabilities 228,643 342,091
Deferred revenue 49,000 --
Note payable related to assets held for sale -- 345,295
Current installments of mortgage and notes payable to banks 1,307,113 1,226,520
------------ ------------
Total current liabilites 1,914,456 2,171,682
Mortgage and notes payable to banks, excluding current installments 916,667 909,738
------------ ------------
Total liabilities 2,831,123 3,081,420
Mandatorily redeemable preferred stock, $0.01 par value; 5,000,000 shares
authorized; 850 shares issued and outstanding; liquidation value $850,000 850,000 850,000
Stockholders' deficit
Common stock, $0.01 par value; 250,000,000 shares
authorized; 95,572,893 and 95,581,135 shares
issued and outstanding, respectively 955,730 955,812
Additional paid-in capital 86,416,084 86,416,002
Accumulated deficit (87,648,712) (87,390,165)
------------ ------------
Total stockholders' deficit (276,898) (18,351)
------------ ------------
Total liabilities and stockholders' deficit $ 3,404,225 $ 3,913,069
============ ============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months ended March 31,
2003 2002
------------ ------------
Revenues $ 359,601 $ 526,3111
Cost of revenues 211,083 200,819
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Gross profit 148,518 325,492
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Operating costs and expenses:
Salaries and contract labor 102,770 137,315
General, administrative and consulting 286,012 115,176
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Total operating expenses 388,782 252,491
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Operating profit (loss) (240,264) 73,001
Other (expense):
Other income 12,531 --
Interest income 1,104 1,881
Interest expense (31,918) (43,941)
------------ ------------
Earnings (loss) from continuing operations (258,547) 30,941
------------ ------------
Preferred stock dividend, deemed dividend
and accretion of discount -- (349,242)
------------ ------------
Net loss applicable to common shareholders $ (258,547) $ (318,301)
============ ============
Net loss per common share continuing
operations - basic and diluted $ (0.00) $ (0.01)
============ ============
Weighted average common shares outstanding -
basic and diluted 95,579,761 60,789,468
============ ============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Three Months ended March 31,
2003 2002
------------ ------------
Cash flows from operating activities:
Net earnings (loss) $ (258,547) $ 30,941
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 20,683 18,965
Loss on disposal of property, plant and equipment 99 --
Changes in operating assets and liabilities:
Accounts receivable 54,496 (119,656)
Prepaids and other assets (122,724) 220,083
Inventories 9,477 97,114
Accounts payable and accrued liabilities (41,523) (43,338)
Deferred revenue 49,000 --
Checks written in excess of cash in bank -- (101,714)
------------ ------------
Net cash provided by (used in) operating activities (289,039) 102,395
------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment -- (9,177)
------------ ------------
Net cash provided by (used in) investing activites -- (9,177)
------------ ------------
Cash flows from financing activities:
Repurchase of preferred stock -- (86,832)
Proceeds from issuance of debt 70,000 --
Principal payments on notes payable -- (26,212)
------------ ------------
Net cash provided by (used in) financing activities 70,000 (113,044)
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Net decrease in cash and cash equivalents (219,039) (19,826)
Cash and cash equivalents at beginning of period 441,904 293,969
------------ ------------
Cash and cash equivalents at end of period $ 222,865 $ 274,143
============ ============
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 15,350 $ 43,941
============ ============
Supplemental disclosure of noncash transactions:
Acquisition of equipment for note payable $ 17,523 $ --
============ ============
Sale of assets held for sale through assumption of debt $ 345,296 $ --
============ ============
Common stock issued in preferred stock conversion $ -- $ 16,080,923
============ ============
See accompanying notes to condensed consolidated financial statements.
5
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(1) The Company and Basis of Presentation
International Isotopes Inc. (the Company) was incorporated in Texas in 1995. The
Company is focused primarily on generating revenues from manufacturing nuclear
medicine calibration and reference standards, processing Topaz Gemstones, and
the production of High Specific Activity (HSA) cobalt from a Department of
Energy test reactor (ATR). As of March 31, 2003, the Company had 10 full time
employees.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries Gazelle Realty, Inc.
and International Isotopes Idaho, Inc. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Interim Financial Information - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature. Operating results for the three-month period ended March 31,
2003 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2003. The accompanying financial statements should be
read in conjunction with the Company's most recent audited financial statements.
Recent Accounting Pronouncements - In November 2002, the FASB issued Financial
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45
sets forth the disclosures required to be made by a guarantor in its financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The Company adopted the requirements FIN 45 in the
accompanying financial statements.
(2) Current Developments and Liquidity
Business Condition - Since inception, the Company has suffered substantial
losses. During the period ended March 31, 2003 the Company had a loss of
$258,547. During the period ended March 31, 2002, the Company had earnings
before preferred dividends of $30,941. During the period ended March 31, 2003,
the Company's operations used cash in operating activities of $289,039. During
the period ended March 31, 2002, the Company's operations provided cash in
operating activities of $102,395. Management expects to generate sufficient cash
flows to meet operational needs during 2003 through financing and operating
capital; however, there is no assurance that these cash flows will occur.
(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 issuable common shares outstanding during the period is the same as
basic loss per share. As of March 31, 2003 and 2002 there were 16,500,000 and
19,390,376 options and warrants outstanding respectively. And as of March 31,
2003 and 2002 there were a total of 850 and 950 shares of Series A and B
redeemable convertible preferred stock that were not included in the computation
of diluted net loss per share as their effect would have been anti-dilutive,
reducing the loss per share.
6
(4) Inventories
Inventories consist of the following at March 31, 2003 and December 31, 2002
March 31, 2003 December 31, 2002
-------------- -----------------
Raw materials $ 294,039 $ 294,662
Work in progress 1,963,995 1,971,551
Finished goods 12,317 13,615
-------------- -----------------
$ 2,270,351 $ 2,279,828
============== =================
(5) Notes Payable
In January 2003, the Company entered into an agreement to sell the Waxahachie
real estate for the assumption of the $345,295 debt associated with the
property. As a result of the debt assumption, the Company remains liable on the
note with Texas State Bank for the remainder of the term should the purchaser
default on this note.
In accordance with Financial Accounting Standards Board Interpretation No. 45,
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, the Company has recognized a
$10,000 obligation under the guarantee that consists of the obligation to stand
ready to reassume the note held at Texas State Bank in the event the purchaser
defaults on the note. The obligation is based on the cost necessary for the
purchaser to refinance the note which would release Company from the guarantor
position. Should the purchaser default on the note and the Company reassume the
liability, they would also regain the real estate.
(6) Stockholders' Equity and Warrants
As part of a licensing and manufacturing settlement agreement, Bracco
Diagnostics returned 8,242 shares of the Company's common stock. The shares were
immediately canceled.
527,326 warrants to acquire common stock expired unexercised during the quarter
ended March 31, 2003.
(7) Commitments and Contingencies
Employment Contract
The Company has a five-year employment contract with the Company's president.
The employment agreement extends through February 2007.
7
Dependence on Third Parties
The production of HSA Cobalt is dependent upon the Department of Energy, and its
prime-operating contractor, who controls the reactor and laboratory operations.
Actions by the DOE or their prime operating contractor could cause a halt to HSA
cobalt production, which would result in a loss of revenues to the Company and a
loss of the value of all Work in Process cobalt material. The gemstone
production is tied to an exclusive agreement with Quali Tech Inc. who in turn
has contracts with other clients for gemstone processing. A loss of the contract
with Quali Tech Inc. would require the Company to seek other clients for
gemstone processing. Nuclear medicine calibration and reference standards
manufacturing is conducted under an exclusive contract with RadQual, LLC, which
in turn has agreements in place with several companies for marketing and sales.
A loss of the contract with RadQual LLC would cause a complete loss of the
revenues from nuclear medicine calibration and reference standards.
Contingencies
The Company conducts its operations in Idaho Falls, Idaho. Although the nuclear
medicine calibration and reference standards and gemstone products appear
diverse they share the common link of being radioactive materials. Therefore,
the Company is required to have an operating license from the Nuclear Regulatory
Commission ("NRC") and specially trained staff to handle these materials. The
Company has an NRC operating license and continued to amend this license several
times during 2002 to increase the amount of material permitted within the
facility. Additional processing capabilities and license amendments could be
implemented that would permit processing of other reactor produced radioisotopes
by the Company but at the present time this license does not restrict the volume
of business operation performed or projected to be performed in the coming year.
An irrevocable, automatic renewable letter of credit against a $148,108
Certificate of Deposit at Texas State Bank has been used to provide the
financial assurance required by the Nuclear Regulatory Commission for the Idaho
facility license.
(8) Subsequent Events
In April 2003 several of the Company principals and Directors have elected to
make short term loans to the Company totaling $690,000 for the purpose of 1)
acquiring assets necessary to support development of new product lines for the
Company, 2) paying down some outstanding accounts payable, and 3) provide a
management cash reserve for continued operations.
Also in April, 2003 the Company principals and Directors who had previously made
a short term loan to the Company of $100,000 on an unsecured note agreed to
extend the maturity date of that note to the fall of 2003. The deferral was
intended to improve short term cash flow for the Company in the first half of
the fiscal year and to allow the company to repay the note with the proceeds
from sales in the third or fourth quarter of 2003.
8
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-KSB,
filed with the Securities Exchange Commission (SEC) on March 24, 2003 ("Form
10-KSB"). 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-KSB.
RESULTS OF OPERATIONS
Three-month periods ended March 31, 2003 and 2002. The Company's loss from
continuing operations for the three-month period ended March 31, 2003 was
$258,547 compared to earnings from continuing operations of $30,941 for the
comparable period of 2002. The change was attributable to a cyclical decrease in
gemstone processing and nuclear medicine calibration and reference standard
production during the period. The net loss per common share for the three-month
period ended March 31, 2003 was $0.00, as compared to net loss per common share
of $0.01 for the same period of 2002.
Revenues for the three-month period ended March 31, 2003 were $359,601 as
compared to $526,311 for the same period in 2002. Gross profit for the
three-month period ended March 31, 2003 was $148,518 as compared to $325,492 for
the same period in 2002. The decrease in gross profit was primarily attributable
to the decrease in revenue with a relatively fixed base of manufacturing cost.
Operating expenses increased to $388,782 for the three-month period ended March
31, 2003 compared to $252,491 for the same period of 2002. Salaries and contract
labor expenses for the three-month period ended March 31, 2003 was $102,770 as
compared to $137,315 for the same period of 2002, a decrease of $34,545. General
and administrative expenses totaled $286,012 for the three-month period ended
March 31, 2003 as compared to $115,176 for the same period of 2002, an increase
of $170,836. The increase in total operating expense was attributable to
increased legal, auditing, investor relations, and research and development
expenditures during the period.
Interest expense for the three-month period ended March 31, 2003 was $31,918 as
compared to $43,941 for the comparable period in 2002. The decrease resulted
from reductions in outstanding loans for the period.
Liquidity and Capital Resources
On March 31, 2003 the Company had cash and cash equivalents of $222,865 compared
to $441,904 at December 31, 2002. For the three months ended March 31, 2003, net
cash used by operating activities was $289,039, investing activities used $0,
and financing activities provided $70,000.
The Company has financed its operations since inception primarily by bank loans,
sales of accelerator components and excess equipment, its initial public
offering, sales of shares of common and preferred stock in private placements to
investors, loans from stockholders and directors, and product sales.
The Company's future liquidity and capital funding requirements will depend on
numerous factors, including, but not limited to: sale of assets from
discontinued product lines; contract manufacturing and marketing relationships;
and technological and market developments.
9
Although there can be no assurance, the Company expects that revenues will
continue to increase based upon trends in sales performance. These increased
revenues will provide sufficient funds for operations and capital expenditures.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission. Based upon their evaluation of those
controls and procedures performed within 90 days of the filing date of this
report, the chief executive officer and the principal financial officer of the
Company concluded that the Company's disclosure controls and procedures were
adequate.
(b) Changes in internal controls. The Company made no significant changes
in its internal controls or in other factors that could significantly affect
these controls subsequent to the date of the evaluation of those controls by the
chief executive officer and principal financial officer.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
NONE
Reports on Form 8-K:
NONE
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
International Isotopes Inc.
(Registrant)
By: /s/ Steve T. Laflin
-------------------------------------
Steve T. Laflin
President and Chief Executive Officer
Date: May 14, 2003
11
Form of Certification for Form 10-QSB
CERTIFICATIONS
I, Steve T. Laflin, certify that:
1. I have reviewed this quarterly report on Form 10-QSB;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact necessary to make the
statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of
directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions
with regard to significant deficiencies and material weaknesses.
Date: May 14, 2003
/S/ Steve T. Laflin
-------------------------------------
Steve T. Laflin
President and Chief Executive Officer
12
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C.SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of International Isotopes, Inc. on Form
10-QSB for the period ending March 31, 2003 as filed with the Securities and
Exchange Commission on the date hereof (the "Report"), I, Steve T. Laflin,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operation of the Company.
/S/ Steve T. Laflin
-------------------------------------
Steve T. Laflin
President and Chief Executive Officer
May 14, 2003
13