UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2001
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission file number
0-22923
INTERNATIONAL ISOTOPES INC
(Exact name of registrant as specified in its charter)
Texas 74-2763837
(State of incorporation) (IRS Employer Identification Number)
4137 Commerce Circle
Idaho Falls, Idaho 83401
(Address of principal executive offices) (zip code)
(208) 524-5300
(Registrant's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
--------------------------------------------------------------
COMMON STOCK, $.01 PAR VALUE
Securities registered under Section 12(g) of the Exchange Act:
--------------------------------------------------------------
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES ( ) NO (X )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the shares of common stock at April 4, 2002 was
$6,655,679.
As of April 4, 2002 the number of shares outstanding of common stock, $.01 par
value was 95,081,135 shares.
2
INTERNATIONAL ISOTOPES INC
FORM 10-K
PRELIMINARY STATEMENT
In late 2000, after it was apparent that we could not raise the
additional equity financing we needed, we indicated that the Company would
pursue strategic alternatives to sell certain assets in order to continue
operations. Effective December 31, 2000 the Company decided to dispose of all
its business segments, with the exception of the I4 operations. As a result, all
results of operations for the discontinued segments have been reclassified as
discontinued operations.
On January 16, 2001, the Company completed the sale of the Woodrow
Spencer office and warehouse facility located in Denton, Texas for proceeds of
$950,000, less closing costs of $63,811.
On April 20, 2001, the Company completed the sale of the
Radiopharmaceutical Manufacturing Facility to NeoRx Corporation ("NeoRx") for
cash proceeds of $12.0 million and warrants to purchase 800,000 shares of NeoRx
common stock.
On April 27, 2001, the Company completed the sale of its brachytherapy
seed assets ("Seed Assets") to Imagyn Medical Technologies, Inc. ("Imagyn") for
cash proceeds of approximately $5.0 million.
On December 14, 2001, the Company completed the sale of the Shady
Oaks/LINAC facility to Advanced Molecular Imaging Systems Inc. (AMISI) for
$8,251,849. The sale was completed through AMISI's assumption of $7,933,000 of
the Company's debt with Texas State Bank.
The Company still has 115 acres of property in Waxahachie, Texas, and
excess LINAC components as assets still held for sale. The property in
Waxahachie, Texas has a net book value of $409,531. Based on an external
appraisal conducted, the Company believes that proceeds from the sale of this
property will be in excess of its net book value. Based on discussions with
potential buyers, the Company expects to sell the excess LINAC components for
more than $800,000. The sale of the Woodrow Spencer facility,
Radiopharmaceutical Manufacturing Facility, the Seed Business, the Shady
Oaks/LINAC, the Waxahachie property, and the excess LINAC components are
referred to as the "Asset Sales".
In March 2001 I4 terminated its commercial use subcontract agreement
that was first established in 1996 at the Idaho National Engineering and
Environmental Laboratory. This contract had permitted access to the Idaho
research reactor for isotope production but also included an obligation to pay
for the operations of a DOE owned processing facility. The cost of supporting
those operations had increased considerably in the past several years to the
point of no longer being a profitable operation under those contractual
arrangements. Subsequent to contract termination the Company provided personnel
as subcontracted labor to the laboratory contractor until that contract was
mutually terminated in September 2001. The Company personnel who previously
supported subcontracted operations labor at the laboratory were added to the
Company staff in Idaho Falls to support the growing labor requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the Company's plans to continue HSA cobalt production as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers facilities' without
any processing in the government laboratory.
In April 2001, the Company also successfully completed a composition of
creditors pursuant to which we were able to reduce our trade debt by
approximately $1,200,000 as almost all of the Company's unsecured creditors
agreed to accept a payment equal to 50% of the amount owed to them.
3
In January 2002 certain persons acting together as a group acquired all
of the Company's outstanding shares of Series A 5% Convertible Redeemable
Preferred Stock and certain common stock from its then current owners, Brown
Simpson's Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of Series A Preferred
Stock and 2,087,837 shares of common stock, which the Brown Simpson entities had
acquired as interest payments on the Preferred Stock. Also in January 2002, the
Company re-acquired 2,817 shares (or 37.7%) of the Company's Series B 7%
Convertible Redeemable Preferred Stock for $86,832.
In February and March 2002 the Company gained approval from 100% of the
holders of Series A and 80% of the holders of Series B Preferred Stock to amend
their respective Certificates of Designation to eliminate the Series A 5%
dividend and the Series B 7% dividend, change the mandatory redemption date for
the all Preferred Stock to May 2022, and remove certain default and penalty
provisions. In addition, the Company's Board of Directors approved a purchase
offer of the Series A and B Preferred Stock (5000 common shares for each one
share of Series A or B Preferred Stock). All of the holders of the Series A
Preferred Stock agreed to sell their 10,000 preferred shares for 50,000,000
shares of common stock at $0.20 per share. Holders of the Series B Preferred
Stock agreed to sell their 3,700 preferred shares for 18,500,000 shares of
common stock at $0.20 per share
In March 2002 the Company made a $20,000 payment to the former chairman
of the board and put a new 10-year note in place for the remaining balance owed.
The new note amount was set at $909,737 with annual income based payments fixed
at 7% interest plus 30% of the Company pretax net profits to be paid toward
principal on the note. The former chairman agreed to declare any previous notes
or agreements as null and void.
The Company emerging subsequent to the Asset Sales now consists solely
of our I4 Idaho operations and the size and nature of the business will be
substantially less in scope than in prior years. The Company projects sufficient
revenue growth during 2002 to meet our cash flow and operational needs. However,
prospective investors are cautioned regarding the speculative nature of any
forward-looking projections. Also see "Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations" for a discussion of
these and other risk factors relating to the Company when considering an
investment in our securities.
Documents Incorporated by Reference
The information called for in Part III is incorporated by reference to
the definitive proxy statement for the annual meeting of shareholders of the
Company, which will be filed with the Securities and Exchange Commission not
later than 120 days after December 31, 2001.
4
INTERNATIONAL ISOTOPES INC
FORM 10-K
TABLE OF CONTENTS
Page No.
Part I.
Item 1. Business .................................................... 6
Item 2. Properties .................................................. 11
Item 3. Legal Proceedings ........................................... 11
Item 4. Submission of Matters to a Vote of Securities-Holders ....... 11
Part II.
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters ............................... 12
Item 6. Selected Financial Data ..................................... 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 16
Item 7a. Quantitative and Qualitative Disclosure about Market Risk.... 22
Item 8. Consolidated Financial Statements............................ 22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ....................... 22
Part III.
Item 10. Directors and Executive Officers of Registrant .............. 23
Item 11. Executive Compensation ...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................ 23
Item 13. Certain Relationships and Related Transactions .............. 23
Part IV.
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K ................................... 23
Power of Attorney ..................................................... 24
Signatures ............................................................ 25
5
PART I
Item 1. BUSINESS
General
International Isotopes Inc, a Texas corporation (together with its
wholly owned subsidiary, International Isotopes Idaho Inc. ("I4") hereafter
referred to as "we" or the "Company" or "I3") was initially formed to produce,
market and distribute a broad range of products used in diagnostic and
therapeutic nuclear medicine, research and industry. The Company's strategy was
to establish a position in the market as the first U.S. based independent
commercial manufacturer of a broad range of radioisotopes, pharmaceutical grade
radioisotopes, and finished radiopharmaceuticals, including medical devices (on
a contract or joint venture basis) for the nuclear medicine industry.
During 1999, the Company concentrated its efforts on making a
transition from a development stage enterprise to an operating manufacturing
company with a focus on finished radiopharmaceuticals. The steps needed to make
this transition proved to be more costly and complex than anticipated, causing
the Company to miss many of our milestones. In addition, we were conducting
testing and final modifications for operation of the Radioisotope Production
Facility and the LINAC in conformity with the Company's redesign and
reconfiguration. The challenges we encountered while bringing the LINAC into
regular operations were also more complicated than originally estimated. As the
year progressed we found it necessary to make strategic changes in our structure
and business plans.
In late 2000, after it was apparent that we could not raise the
additional equity financing we needed, we indicated that the Company would
pursue strategic alternatives to sell certain assets in order to continue
operations. As a result, the Company investigated and pursued several
alternatives in an attempt to salvage its business. First, we pursued several
partnering relationships with customers. These attempts were not successful
primarily due to the Company's weak financial condition. We also considered
seeking relief or liquidation under Chapter 11 and Chapter 7 of the Bankruptcy
Code, respectively. It was concluded that bankruptcy was not the best option for
the Company or creditors since it was likely that the claims of secured and
unsecured creditors and bankruptcy administration costs would exceed the
realizable value of our assets and that unsecured creditors and shareholders
would receive nothing due to radiation license liabilities, the anticipated
difficulty in selling assets containing radioactive materials, and the probable
loss of critical highly skilled employees.
Effective December 31, 2000 the Company decided to dispose of all its
business segments, with the exception of the I4 operations in Idaho. This
strategy was accepted based upon the premise that the remaining Company
operations in Idaho would be sufficient to sustain the company and meet cash
requirements for continued business operations. As a result, all results of
operations for the discontinued segments have been reclassified as "discontinued
operations". From November 2000 until the present, the Company laid off 183
personnel and closed all of its operating facilities in Texas. The following
paragraphs describe some of the more significant events that took place during
the course of the year.
2001 Developments
On January 16, 2001, the Company completed the sale of the Woodrow
Spencer office and warehouse facility located in Denton, Texas for proceeds of
$950,000, less closing costs of $63,811. The facility had a net book value of
$1,095,962 December 31, 2000. Based on the anticipated sales proceeds, the
Company recorded an impairment charge related to this facility in the amount of
$209,773 thereby reducing the net book value to $886,189. The Company used the
proceeds to reduce its revolving line of credit by $863,890 (including accrued
interest of $23,400) and fund operating expenses with the remaining amounts.
6
In March 2001 I4 terminated its commercial use subcontract agreement
that was first established in 1996 at the Idaho National Engineering and
Environmental Laboratory. This contract had permitted access to the Idaho
research reactor for isotope production but also included an obligation to pay
for the operations of a DOE owned processing facility. The cost of supporting
those operations had increased considerably in the past several years to the
point of no longer being a profitable operation under those contractual
arrangements. Subsequent to contract termination the Company provided personnel
as subcontracted labor to the laboratory contractor until that contract was
mutually terminated in September 2001. The Company personnel who previously
supported subcontracted operations labor at the laboratory were added to the
Company staff in Idaho Falls to support the growing labor requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the Company `s plans to continue HSA cobalt production as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers facilities' without
any processing in the government laboratory.
On April 20, 2001, the Company completed the sale of the
Radiopharmaceutical Manufacturing Facility to NeoRx Corporation ("NeoRx") for
$12.0 million in cash and warrants to purchase 800,000 shares of NeoRx common
stock (valued at $0). The assets acquired by NeoRx had a net book value of
$11,304,724 at December 31, 2000. The Company transferred the NeoRx warrants to
the Series A and B preferred stockholders in exchange for certain concessions in
their certificates of designation. The Company used the proceeds from the sale
to repay net advances made by NeoRx in the amount of $861,060, reduce its note
payable to a commercial lender by $1,296,469 (including interest of $36,578),
reduce its revolving line of credit by $2,614,023 (including accrued interest of
$45,857), reduce its capital lease obligations by $3,291,289, repay a portion of
the $1,145,000 note payable to the Chairman of the Board for $348,000 and fund
other operating expenses.
On April 27, 2001, the Company completed the sale of its brachytherapy
seed assets (the "Seed Business") to Imagyn Medical Technologies, Inc.
("Imagyn") for cash proceeds of approximately $5.0 million. The assets acquired
by Imagyn had a net book value of $5,416,294 at December 31, 2000. Based on the
anticipated sales proceeds, the Company recorded an impairment charge of
$416,294 related to these assets thereby reducing the net book value to
$5,000,000. The Company used the proceeds to repay advances and expenses
incurred by Imagyn in the amount of $108,786 and reduce its note payable to a
commercial lender by $4,645,582 (including accrued interest of $25,768), reduce
capital lease obligations by $145,632 and fund other operating expense in the
amount of $100,000.
On December 14, 2001, the Company completed the sale of the Shady
Oaks/LINAC facility to Advanced Molecular Imaging Systems Inc. (AMISI) for
$8,251,849. The sale was completed through AMISI's assumption of $7,933,000 of
the Company's debt with Texas State Bank. The Company will retain an obligation
of $500,000 on that loan for six months or until AMISI renews their note with
Texas State Bank. The Company also retains an obligation (also for six months or
until AMISI renews the note) for decommissioning the Shady Oaks/LINAC facility
should AMISI default on payment or not meet Texas State Bank requirements for
note renewal. Concurrent with the closing of this sale Texas State Bank
initiated a new $1.1 million revolving line of credit with the Company. The net
book value of the Shady Oaks/LINAC assets at December 31, 2000 of $23,053,925
was reduced by an impairment charge of $15,889,765 to a net book value of
$7,164,160.
In April 2001, the Company also successfully completed a composition of
creditors pursuant to which we were able to reduce our trade debt by $1,200,000
as our unsecured creditors agreed to accept a payment equal to 50% of the amount
owed to them.
Recent Developments
In January 2002 certain persons acting together as a group acquired all
of the Company's outstanding shares of Series A 5% Convertible Redeemable
Preferred Stock and certain Common Stock from its then current owners, Brown
Simpson's Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of series A Preferred
Stock and 2,087,837 shares of common Stock, which the Brown Simpson entities had
acquired as interest payments on the Preferred Stock. Also in January 2002 the
Company re-acquired 2,817 shares (or 37.7%) of the Company's Series B 7%
Convertible Redeemable Preferred Stock.
7
In February and March 2002 the Company gained approval from 100% of the
holders of Series A and 80% of the holders of Series B Preferred Stock to amend
their respective Certificates of Designation to eliminate the Series A 5%
dividend and the Series B 7% dividend, change the mandatory redemption date for
the all Preferred Stock to May 2022, and remove certain default and penalty
provisions. In addition, the Company's Board of Directors approved a purchase
offer of the Series A and B Preferred Stock (5000 common shares for each one
share of Series A or B Preferred Stock). All of the holders of the Series A
Preferred Stock agreed to sell their 10,000 preferred shares for 50,000,000
shares of common stock at $0.20 per share. Holders of the Series B Preferred
Stock agreed to sell their 3,700 preferred shares for 18,500,000 shares of
common stock at $0.20 per share reducing the remaining number of outstanding
Preferred Series B shares to 950.
In March 2002 the Company made a $20,000 payment to the former chairman
of the board and put a new 10-year note in place for the remaining balance owed.
The new note amount was set at $909,737 with annual income based payments fixed
at 7% interest plus 30% of the Company pretax net profits to be paid toward
principal on the note. The former chairman agreed to declare any previous notes
or agreements as null and void.
Ongoing Operations
The Company emerging subsequent to the Asset Sales now consists solely
of our I4 Idaho operations, the nature of which is substantially different from
the original Company. In June 2001 we formally announced a transfer of the
Company headquarters to Idaho. Concurrent with the discontinuance of operations
in Texas, the Company focused on generating revenues from the newly completed
contracts for contract manufacturing medical flood sources, processing Topaz
Gemstones, and continuing to produce High Specific Activity (HSA) cobalt-60 from
a DOE test reactor (ATR). As of December 31, 2001, the Company had 11 full time
employees.
The Company still has 115 acres of property in Waxahachie, Texas, and
excess LINAC components as assets held for sale. The property in Waxahachie,
Texas has a net book value of $409,531 at December 31, 2001. Based on an
external appraisal conducted, the Company believes that proceeds from the sale
of this property will be in excess of its net book value. Based on discussions
with potential buyers, the Company expects to sell the excess LINAC components
for more than $800,000.
In November 2000 the Company signed a 5-year exclusive processing
contract with Quali-Tech. Inc. for handling, storage, and processing of topaz
gemstone. Also in November 2000, the Company signed a five-year manufacturing
contract with RadQual, LLC to manufacture and supply medical flood sources.
Activities in both these new business areas were directed towards initial
start-up for the remainder of 2000, and the first quarter of 2001 although some
limited gemstone processing resulted in a small amount of revenue during this
period. By February 2001 the Company had completed initial start up of the Topaz
gemstone handling and began producing revenues from this processing contract. In
April 2001 the Company received sealed source registration approval from the
State of Texas on the medical flood sources and the Company began commercial
sale of that product as well.
The Company has been able to continue steady growth in the amount of
revenues generated from production of medical flood sources and gemstone
processing and expects continued growth through 2002. Therefore, the Company
projects sufficient cash flow to met our operational needs. However, prospective
investors are cautioned regarding the speculative nature of any forward looking
projections. Also see "Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of these and other risk
factors relating to the Company when considering an investment in our
securities.
8
Industry Overview and Target Markets
The industry and markets which require or involve the use of
radioactive material are diverse. The Company's current operations involve
several of these diverse applications. First, our HSA cobalt production supplies
bulk material, which is used primarily in medical devices. Second, the Company
is a contract manufacturer of medical flood sources which are used for
operational checks on gamma camera systems. Finally, the Company supports the
packaging and measurement of gemstones that have undergone reactor irradiation
for color enhancement.
The Company conducts its operations in Idaho Falls, Idaho. Although the
medical flood source and gemstone products appear diverse they share the common
link as being radioactive materials. Therefore, the Company is required to have
an operating license from the Nuclear Regulatory Commission and specially
trained staff to handle these materials. The Company has an NRC operating
license and has, in fact, continued to amend this license several times during
2001 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.
Products
HSA Cobalt - The Company is one of a very few sources of this material
worldwide. High Specific Activity (HSA) cobalt is used primarily in external
beam radiation medical devices such as the Gamma Knife. This device is used for
non-surgical radiation treatment of vascular deformities and non-malignant
tumors in the brain. The HSA cobalt requires three to five years of irradiation
to reach the necessary level of activity for this medical application. The
Company manages an inventory of approximately 800,000 curies of this material in
various stages of production, thus ensuring a long and continuous supply of
material. After irradiation the material is shipped directly from the DOE
reactor laboratory to the customer's facilities, thus eliminating the need for
any on site processing of the material following irradiation.
Other Reactor Produced Radioisotopes - The Company's facility and NRC
license permits processing of a wide variety of radioisotopes. The Company is
evaluating establishing additional radioisotope transport and processing
capabilities that would permit production and sale of various new radioisotopes
using the DOE laboratory test reactor for production and the Company's Idaho
Falls facility for processing.
Flood Source Contract Manufacture - The Company is an exclusive
contract manufacturer of flood sources for RadQual, LLC. The flood sources are
used for the daily operational quality control checks of SPECT or Planar Imaging
gamma cameras. These gamma cameras are a fundamental imaging modality used in
thousands of nuclear medicine and cardiovascular imaging centers around the
country. The customer replaces the sources approximately once each 12 - 18
months.
Gemstone Processing - The Company has an exclusive contract with
Quali-Tech Inc., who in turn contracts with the Topaz Group Inc., for processing
topaz gemstones. These gemstones are irradiated in a reactor to give them the
characteristic blue color associated with topaz. The Company receives "white"
stones, packages these stones for irradiation, manages the transport of the
stones to and from the reactor facility, and then completes post irradiation
processing of the stones before return shipment to the customer. In 2001 the
production volume of the gemstones was limited by the availability of
irradiation containers due to the difficulty involved with repairing and
constructing these containers. However, in January 2002 the Company has solved
container construction problems and implemented a new technology to repair
containers. As a result the Company has been able to double the number of
containers in service for irradiation of the gemstones.
Competition
HSA cobalt is produced in some other reactors but we do not believe any
in the U.S. are capable of producing the high activity level and volume required
for meaningful commercial production.
9
Reactor produced radioisotopes are supplied by many reactor facilities
around the world including two domestic sources (the University of Missouri
Research Reactor and the High Flux Isotope Reactor located in Oak Ridge
Tennessee). Most radioisotopes from reactors are produced in bulk form, are very
competitively priced, and offer small margins for profit. However, we think the
limited capacity of MURR and the non-commercial operational aspects of the DOE
owned reactor in Oak Ridge make them weak competitors for large-scale production
of industrial isotopes such as HSA cobalt-60.
Medical flood sources - The Company is one of three major producers of
flood sources within the U.S. The Company's customer (RadQual, LLC) has
increased the number of authorized distributors and expanded the production line
to include several specialized source designs. These factors, coupled with the
excellent quality and delivery performance record the Company established during
2001, we hope to have set the stage for increased sales of these products in
2002, although there can be no assurance of increased sales.
Gemstone processing - there is no other commercial company or reactor
in the U.S. processing irradiated gemstones. We believe there are one or two
other reactors in the world who support this business with other companies
overseas.
Manufacturing
Quality assurance and quality control are performed according to
current Good Manufacturing Practices ("GMP") regulations and Nuclear Quality
Assurance standard #1 (NQA-1). The Company maintains quality control, and is
responsible for the quality of all components, containers, in-process materials,
labeling, and final products.
Government Regulation
The Company has obtained a license from the Nuclear Regulatory
Commission, Region IV which permits use and possession of by-product material.
The scope of this license includes radioactive gemstone processing,
environmental sample monitoring, and various research and development activities
and we believe is broad enough in scope not to restrict anticipated business
activities in the coming year.
Regulation of Radioisotope Production and Radioactive Waste. The
manufacture of radioisotopes, medical flood sources, and processing topaz
gemstones are subject to extensive federal regulation. Prior to commencing
operations in our newly leased Idaho facility, the Company obtained approval
from the Nuclear Regulatory Commission. The medical flood sources are licensed
as Sealed Sources through the State of Texas Department of Health. The new
production facility will not handle "special nuclear materials" (i.e. nuclear
fuels and weapons grade uranium, thorium and plutonium) and, therefore, will not
be designated as a "fixed nuclear facility.
Pursuant to the Low Level Radioactive Waste Policy Act of 1980, states
are required to assure the safe disposal of mildly radioactive materials. The
disposal of radioactive waste is regulated in Idaho by the Nuclear Regulatory
Commission, Region IV. Radioactive waste produced falls into the category of
low-level radioactive waste as the production and processing of radioisotopes
generate a certain amount of low-level, solid radioactive waste.
Other Regulations. In the event we enter into agreements with suppliers
to acquire neutron-produced research and therapeutic radioisotopes we could be
subject to additional regulations of the Nuclear Regulatory Commission or Food
and Drug Administration.
Employees
In November 2000, when the Company first determined it would proceed
with asset sales, the Company employed 183 people. As a condition of the Asset
Sales to NeoRx and Imagyn, the Company identified 38 employees who perform
functions in connection with the sold assets and business lines. The purchasers,
Imagyn and NeoRx, offered employment to these employees at their discretion. The
remaining employees associated with discontinued operations were terminated and
as of December 31, 2001 the Company had 11 full-time employees, consisting of
one executive officer, two scientific and engineering professionals, six
production technicians, and two administrative personnel. The Company also has
two additional part time or contract employees working as accounting
consultants.
10
Item 2. PROPERTIES
The Company has three years remaining on a five-year lease with
purchase options on a 7,500 square foot facility located in Idaho Falls. This
facility is currently licensed under the Nuclear Regulatory Commission and is
being used for processing of topaz gemstones and contract manufacturing of
medical flood sources.
The Company still has 115 acres of property in Waxahachie, Texas, and
excess LINAC components as assets still held for sale. The property in
Waxahachie, Texas has a net book value of $409,531. Based on an external
appraisal conducted, the Company believes that proceeds from the sell of this
property will be in excess of its net book value. Based on discussions with
potential buyers, the Company expects to sell the excess LINAC components for
more than $800,000.
Item 3. LEGAL PROCEEDINGS
During 2000-2001 the Company was a defendant in several lawsuits
involving creditor and supplier claims. The Company has settled each of these
claims.
The Company is not a party to any other legal proceedings incidental to
its business which, in the opinion of management, are expected to have any
material adverse effect on the Company's consolidated financial position,
operating results, or liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
An annual meeting of stockholders was conducted on November 2, 2001.
The purpose of the meeting was to review Company performance and present 3
propositions for voting and stockholder approval. The three propositions were 1)
to elect five directors to serve until the next succeeding annual meeting and
until their respective successors are elected and qualified; 2) to ratify the
appointment by the Board of Directors of Grant Thornton LLP as independent
certified public accountants of the Company for the fiscal year ending December
31, 2001; and 3) to approve an increase in the authorized shares of common stock
from 50,000,000 to 250,000,000 shares. A Proxy statement, form of Proxy, and a
copy of the Annual Report on Form 10K as filed with the Securities and Exchange
Commission were distributed to all stockholders on September 2, 2001. A total of
72.2% of the Common shares voted and all three propositions were passed by at
least 70% of the shares then outstanding.
11
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Prior to the completion of our IPO in August 1997, there was no
established public trading market for our Common Stock. At that time the
Company's Common Stock commenced trading on the NASDAQ Small Cap Market under
the symbol of "INIS". The Company was also listed on the Boston Stock Exchange
under the symbol "ITL". High and low sales prices reported by Nasdaq during the
periods indicated are shown below:
Fiscal Year Quarter High Low
1999 1st $ 16.625 $ 8.6250
1999 2nd $ 16.875 $ 7.6250
1999 3rd $ 10.00 $ 4.3125
1999 4th $ 8.50 $ 4.5625
2000 1st $ 10.375 $ 5.250
2000 2nd $ 7.00 $ 4.000
2000 3rd $ 4.50 $ 2.813
2000 4th $ 4.438 $ 0.094
2001 1st $ 0.3475 $ 0.0937
2001(1) 2nd $ 0.0937 $ 0.0625
2001(2) 2nd $ 0.13 $ 0.035
2001 3rd $ 0.09 $ 0.03
2001 4th $ 0.05 $ 0.015
(1) For the Nasdaq listing April 2 - 10, 2001
(2) For the Non- Nasdaq OTC April 11 - June 29, 2001
On January 3, 2001 we were formally notified that the Company's common
stock had failed to maintain a minimum bid price of $1.00 over the previous 30
consecutive trading days as required by the Nasdaq Small Cap Market under
Marketplace Rule 4310(c)(4) (the "Rule"). Therefore, in accordance with
Marketplace Rule 4310(c)(8)(B), we were provided 90 calendar days to regain
compliance with this Rule. On April 3, 2001, we were notified that our
securities had been delisted.
On December 31, 2001, there were over 260 holders of record of the
Common Stock (although we believe that the number of beneficial owners of Common
Stock is approximately 3,500). The closing price on December 31, 2001 , of a
share of common stock was $ 0.019. We have never paid any cash dividends on the
common stock. In the future, and based upon Company profit performance, the
Board of Directors of the Company will evaluate and determine whether to issue
dividends or retain funds for research and development and expansion of our
business.
In January of 2001, the Company elected to issue common stock in
payment for the quarterly dividend on the Series A redeemable convertible
preferred stock. The Company satisfied the $125,000 quarterly dividend payment
by issuing 711,186 shares of common stock at $0.1757 per share, the average
closing price of the common stock for the preceding 10 trading days, discarding
the highest and the lowest for the period.
In March of 2001, the Company elected to issue common stock in payment
for the quarterly dividend on the Series B redeemable convertible preferred
stock. The Company satisfied the $143,798 dividend payment by issuing 885,001
shares of common stock at $0.1625 per share, the average closing price of the
common stock for the preceding 5 trading days.
On April 15, 2001, the Company issued 1,376,651 shares of common stock
in payment of the quarterly dividend requirement of $125,000 on the Series A
Preferred Stock.
12
On April 20, 2001 the Company completed the sale of the
Radiopharmaceutical Manufacturing Facility to NeoRx for cash proceeds of $12.0
million and warrants to purchase 800,000 shares of NeoRx common stock (valued at
$0). The warrants were to be provided to the Company's Series A and Series B
Preferred stockholders in exchange for their agreement to complete certain
amendments and modifications to their Certificates of Designation.
In May of 2001, 500 shares of Series B Preferred stock were converted
into 250,000 shares of common stock.
On June 1, 2001, the Company issued 2,798,172 shares of common stock in
payment of the quarterly dividend requirement of $139,909 on the Series B
Preferred Stock.
In June of 2001, 250 shares of Series B Preferred Stock were converted
into 125,000 shares of common stock.
On September 1, 2001, the Company declared a required quarterly
dividend of $130,673 on the Series B Preferred Stock. This dividend was
satisfied on January 14, 2002 by issuing 3,266,807 shares of common stock.
On December 1, 2001, the Company declared a required quarterly dividend
of $130,673 on the Series B Preferred Stock. This dividend was satisfied on
January 14, 2002 by issuing 6,533,625 shares of common stock.
Recent Sales of Unregistered Securities
The Series B Preferred Stock was mandatorily redeemable on May 31, 2003
in cash or common stock at the then Average Price, at the Company's option. When
originally issued, holders of Series B Preferred Stock could require early
redemption on December 1, 2000 and June 1, 2001. Other mandatory redemption
events included 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. In
March, 2001, the holders of Series B Preferred Stock agreed to a modification in
terms, which removed their early redemption rights and certain adjustments to
their conversion price. The Series B Preferred Stock was then convertible to
common stock at a fixed price of $2 .00 per share subject to adjustment in the
case of stock splits or stock dividends. As consideration for those concessions,
we distributed to the holders of Series B Preferred Stock an aggregate of
360,850 warrants to purchase NeoRx common stock that the Company had received in
connection with the sale of the Radiopharmaceutical Manufacturing Facility to
NeoRx.
The Series A Preferred Stock was mandatorily redeemable on May 20, 2002
in cash or common stock at the then Average Price, at the Company's option. In
March, 2001, the holders of Series A Preferred Stock agreed to a modification in
terms, which removed their early redemption rights and certain adjustments to
their conversion price. The Series A Preferred Stock was then convertible to
common stock at a fixed price of $2 .00 per share, subject to adjustment in the
case of stock splits or stock dividends. As consideration for those concessions,
we distributed to the holders of Series A Preferred Stock an aggregate of
439,150 warrants to purchase NeoRx common stock that the Company had received in
connection with the sale of the Radiopharmaceutical Manufacturing Facility to
NeoRx.
In January 2002 certain persons acting together as a group acquired all
of the Company's outstanding shares of Series A 5% Convertible Redeemable
Preferred Stock and certain Common Stock from its then current owners, Brown
Simpson's Strategic Growth Fund, Ltd. and Brown Simpson's Strategic Growth Fund
LP. The securities acquired consisted of all 10,000 shares of Series A Preferred
Stock and 2,087,837 shares of common stock, which the Brown Simpson entities had
acquired as interest payments on the Preferred Stock. Also in January 2002, the
Company re-acquired 2,817 shares (or 37.7%) of the Company's Series B 7%
Convertible Redeemable Preferred Stock for $86,832.
13
In February and March 2002 the Company gained approval from 100% of the
holders of Series A Preferred Stock and 80% of the holders of Series B Preferred
Stock to amend their respective Certificates of Designation to eliminate the
Series A 5% dividend and the Series B 7% dividend, change the mandatory
redemption date for the all Preferred Stock to May 2022, and remove certain
default and penalty provisions. In addition, the Company's Board of Directors
approved a purchase offer for the Series A and B Preferred Stock (5000 common
shares for each one share of Series A or B Preferred Stock). All of the holders
of the Series A Preferred Stock agreed to sell their 10,000 preferred shares for
50,000,000 shares of common stock at $0.20 per share. Holders of the Series B
Preferred Stock agreed to sell their 3,700 preferred shares for 18,500,000
shares of common stock at $0.20 per share reducing the remaining number of
outstanding Preferred Series B shares to 950.
14
Item 6. SELECTED FINANCIAL DATA
The following table sets forth selected historic financial data for the
period from the three years ended December 31, 1999 through December 31, 2001.
The information contained herein should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto of the Company
included on the pages immediately following the index to Consolidated Financial
Statements appearing on pages F-1.
Year ended December 31,
2001 2000 1999
------------ ------------ ------------
Revenues $ 2,177,900 $ 2,076,884 $ 2,553,389
------------ ------------ ------------
Cost of Revenue 1,424,111 930,536 1,100,952
Operating costs and expenses 1,797,385 7,150,192 4,730,659
------------ ------------ ------------
Operating loss (1,043,596) (6,003,844) (3,278,222)
Loss from discontinued operations (1,774,118) (16,891,284) (10,798,850)
Impairment loss - (17,975,043) -
------------ ------------ ------------
Loss from discontinued operations $ (1,774,118) $(34,866,327) $(10,798,850)
------------ ------------ ------------
Net loss $ (2,818,215) $(40,983,720) $(14,097,606)
============ ============ ============
Preferred stock dividends, deemed dividend and
accretion of discount (1,325,085) (14,884,922) (2,356,111)
Net loss applicable to common stockholders $ (4,143,300) $(55,868,642) $(16,453,717)
============ ============ ============
Net loss per common share - basic and diluted $ (0.26) $ (5.77) $ (2.03)
============ ============ ============
Weighted average common shares outstanding
basic and diluted 15,976,551 9,686,303 8,110,521
============ ============ ============
Cash and cash equivalents and investments $ 293,969 $ 642,554 $ 2,990,300
Property and equipment (net) 280,036 455,541 40,734,736
Total assets 4,266,660 29,584,819 51,549,026
Long-term debt, excluding current portion 45,182 2,093,752 17,006,704
Redeemable convertible preferred stock, net
of discounts 17,117,755 17,337,954 8,392,475
Total stockholders' equity (deficit) (16,348,824) (13,750,809) 21,599,200
15
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
This overview contains forward-looking statements that include, but are
not limited to, the Company's expectations regarding its future financial
condition and operating results, product development, business and growth
strategy, market conditions, and competitive environment. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors disclosed in this document.
During 2000, it became apparent that the Company was not going to be
successful in completing a third round of preferred stock funding. Since we had
been a development stage company with virtually no other sources of funds than
additional financing, this funding was essential to continue operations. As a
result, we investigated and pursued several alternatives in an attempt to
salvage the business. First, we pursued several partnering relationships with
customers. These attempts were not successful primarily due to our weak
financial condition. We also considered seeking relief or liquidation under
Chapter 11 and Chapter 7 of the Bankruptcy Code, respectively. We concluded that
bankruptcy was not the best option for the Company or our creditors as the
claims of secured creditors and unsecured creditors and bankruptcy
administration costs would exceed the realizable value of our assets and
unsecured creditors and shareholders would receive nothing due to the radiation
license liabilities, the anticipated difficulty in selling assets containing
radioactive materials, and the probable loss of critical highly skilled
employees. Without these key employees the assets' value to a potential
purchaser would be greatly diminished.
Therefore, we decided to pursue a strategy of divestiture outside of
bankruptcy to attempt to maximize value for our creditors and shareholders. From
early December 2000, banking institutions and entities that have acquired
certain Company assets funded our continuing operations through most of 2001.
Our primary lender increased our borrowing capacity in the amount of $2.4
million and NeoRx advanced the Company $930,000, which was converted to purchase
price upon consummation of the sale of our Radiopharmaceutical Manufacturing
Facility.
In November 2000 the Company signed a five-year exclusive processing
contract with Quali-Tech. Inc. for handling, storage, and processing of topaz
gemstone. Also in November 2000 the Company signed a five-year manufacturing
contract with RadQual, LLC to manufacture and supply medical flood sources.
Activities in both these new business areas were directed towards initial
start-up for the remainder of 2000 and the first quarter of 2001 although some
limited gemstone processing resulted in a small amount of revenue during this
period. By February 2001 the Company had completed initial start up of the Topaz
gemstone handling and began producing revenues from this processing contract. In
April 2001 the Company received sealed source registration approval from the
State of Texas on the medical flood sources and the Company began commercial
sale of that product as well.
On March 20, 2001, we signed an asset purchase agreement with NeoRx to
sell our Radiopharmaceutical Manufacturing Facility for $12.0 million in cash
and warrants to purchase 800,000 shares of NeoRx common stock (valued at $0).
The purchase price was reduced by the $861,000 previously advanced by NeoRx. The
transaction closed on April 20, 2001. The net book value of the tangible
equipment was approximately $11.3 million at December 31, 2000. The net proceeds
from the sale were used to repay the aforementioned advance from NeoRx and,
along with the $6 million note payable assumed by NeoRx, reduced long-term debt
approximately $3.9 million and reduced capital lease obligations by $3.3
million. The remaining funds were used to pay closing costs totaling $383,000
and to satisfy various creditor obligations.
On March 20, 2001, we signed a letter of intent with Imagyn to sell the
brachytherapy seed assets for cash proceeds of approximately $5.0 million. The
transaction closed on April 27, 2001. The net book value of the tangible
equipment related to this transaction was approximately $5.4 million at December
31, 2000. Based on the anticipated sales proceeds, the Company recorded an
impairment charge of $416,294 related to these assets at December 31, 2000. The
proceeds were used to repay advances and expenses incurred by Imagyn in the
amount of $108,786 and reduce the note payable to a commercial lender by
$4,645,582 (including accrued interest of $25,768), reduce capital lease
obligations by $145,632 and fund other operating expense in the amount of
$100,000.
16
In March 2001 I4 terminated its commercial use subcontract agreement
that was first established in 1996 at the Idaho National Engineering and
Environmental Laboratory. This contract had permitted access to the Idaho
research reactor for isotope production but also included an obligation to pay
for the operations of a DOE owned processing facility. The cost of supporting
those operations had increased considerably in the past several years to the
point of no longer being a profitable operation under those contractual
arrangements. Subsequent to contract termination the Company provided personnel
as subcontracted labor to the laboratory contractor until that contract was
mutually terminated in September 2001. The Company personnel who previously
supported subcontracted operations labor at the laboratory were added to the
Company staff in Idaho Falls to support the growing labor requirements of flood
source manufacturing and gemstone processing. The termination of these contracts
will not effect the Company's plans to continue HSA cobalt production as some
material remains in production in the DOE reactor facility and this material can
be shipped directly from the reactor site to the customers facilities' without
any processing in the government laboratory.
In April 2001, the Company also successfully completed a composition of
creditors pursuant to which we were able to reduce our trade debt by
approximately $1,200,000 as most of our unsecured creditors agreed to accept a
payment equal to 50% of the amount owed to them.
Subsequent to the close of the asset sales to NeoRx Corporation and
Imagyn Medical, Inc., in April and May of 2001 International Isotopes and Texas
State Bank cooperated to restructure several of the notes and loans established
for the company. A balance limit on the company's main commercial loan was
reduced from $15,000,000 to $7,750,000 with an interest rate of 9.6% per annum
and all principal and interest payments were suspended until the loan reaches
maturity on January 27, 2002. The company's previous $5 million line of credit
note was reduced to a $1 million line, also with an interest rate of 9.6% per
annum. Principal and interest payments on the line of credit were also deferred
until the maturity date of April 27, 2002. Immediately after closing
approximately $400,000 was drawn against this line of credit to reduce the
commercial loan to the limited amount of $7,750,000 and address miscellaneous
legal expenses and payments made by Texas State Bank on the company's behalf.
The balance of this line of credit is to be used to support the continuing cash
needs of the company. Texas State Bank also opened a new $500,000 commercial
line of credit with an interest rate of 9.6% per annum to support the interim
operations of the Shady Oaks/LINAC facility pending the completion of the sale
of that property and equipment. Principal and interest payments on this line of
credit were also deferred until January 27, 2002.
On December 14, 2001, the Company completed the sale of the Shady
Oaks/LINAC facility to Advanced Molecular Imaging Systems Inc. (AMISI) for
$8,251,849. The sale was completed through AMISI's assumption of $7,933,000 of
the Company's debt with Texas State Bank. The Company will retain an obligation
of $500,000 on that loan for six months or until AMISI renews their note with
Texas State Bank. The Company also retains an obligation (also for six months or
until AMISI renews the note) for decommissioning the Shady Oaks/LINAC facility
should AMISI default on payment or not meet Texas State Bank requirements for
note renewal. Concurrent with the closing of this sale Texas State Bank
initiated a new $1.1 million revolving line of credit with the Company at 7%
interest.
Liquidity and Capital Resources
On December 31, 2001 the Company had cash and cash equivalents of
$293,969 compared to $642,554 at December 31, 2000. For the year ended December
31, 2001, net cash used in operating activities of $7,594,915 and net cash used
in financing activities of $10,298,100 was provided from investing activities of
$17,544,430.
17
The Company has incurred losses applicable to common shareholders of
$4,143,300 for the year ended December 31, 2001 and has an accumulated deficit
of $87,190,470 since inception. The Company has principally funded operations
and plant and equipment expenditures from proceeds from public and private sales
of equity as well as through the Asset Sales, discussed above. The Company has
also borrowed funds under short and long-term borrowing arrangements. As of
December 31, 2001, we had net borrowings of $1,053,020 in the revolving line of
credit, with Texas State Bank, secured by a portion of assets, accounts
receivable, and excess LINAC equipment which is still held by the Company for
sale; a long term note payable of $70,477 to the Eastern Idaho Economic
Development Council, secured by an irrevocable letter of credit, with monthly
principal and interest payments of $2,213; a note payable of $345,295 to Texas
State Bank secured by the Waxahachie real estate with no monthly payment; and a
ten year note payable to William Nicholson, the former chairman of the board, in
the amount of $797,000. The Company has retained a guarantee obligation of
$500,000 on the loan AMISI assumed from the Company in December 2001. This
obligation lasts for six months or until AMISI renews their note with Texas
State Bank, whichever comes first.
Results of Operations
The Company has undergone significant changes in debt structure,
assets, and business strategy in the past year. Since the asset sales, as
described in other sections of this report, the Company has consisted solely of
what had been the subsidiary holding, International Isotopes Idaho Inc., or I4.
Commencing with this annual report the Company financial reporting is based
primarily upon what had previously been the I4 subsidiary. All of the financial
data from the former parent, I3, has been incorporated but has been summed and
reported under "discontinued operations". Costs associated with corporate
administration for all periods have been reported as part of continuing
operations.
Year ended December 31, 2001 compared to year ended December 31, 2000
Revenues
Total revenues were $2,177,900 in 2001 as compared to $2,076,884 in
2000, an increase of $101,016 or 4.9%. The increase was attributable to
increasing sales of medical flood sources and processed topaz gemstone. The
increased revenues from those products totally eclipsed the decrease in sales of
reactor-produced radioisotopes, which fell from $2,059,496 in 2000 to $1,393,181
in 2001, a decrease of 32%. The decrease was primarily the result of stopping
iridium-192 and nickel-63 sales due to the termination of the contract with the
DOE contractor for hot cells operation. In 2001the revenues from the sale of HSA
cobalt were $428,562 compared to $800,158 in 2000. The decrease of $371,596 was
attributable to increased pressure from foreign suppliers. In 2001 the revenue
from sale of gemstone processing was $323,948 as compared to $17,388 in 2000. In
2001 the revenues from sale of medical flood sources was $436,179 compared to $0
in 2000. The increases in gemstone and medical flood sources revenue compared to
the decrease in reactor isotopes is illustrative of the changing business
strategy and product mix the Company has undergone in the past year.
Cost of revenues
Cost of revenues for 2001 was $1,424,111 compared to $930,536 in 2000,
an increase of $493,575 or 53%. Approximately $253,000 of this increase was
attributable to costs incurred in the later part of 2000 related to reactor
isotope production and hot cell operations contract with the DOE contractor.
That contract was terminated in March 2001, but all prior expenses had to be
paid current by April 15, 2001. The increase was also attributable to
approximately $225,000 of costs incurred for the start-up of medical flood
source manufacturing in the beginning of 2001.
18
Operating costs and expenses
Total operating costs and expenses for 2001 were $1,797,385, as
compared to $7,150,192 in 2000, a decrease of $5,352,807 or 75%. The decrease
was attributable to the change in corporate structure, a reduction in contract
labor expense and consulting services as a result of terminating the contract
with the DOE laboratory contractor.
Other income (expense)
Interest income was $2,613 in 2001 as compared to $0 in 2000. The small
increase was attributable to the establishment of a $130,000 certificate of
deposit for use as financial assurance for decommissioning, an NRC licensing
requirement.
Interest Expense was $3,114 in 2001 compared to $113,549 in 2000. The
reduction was attributable to deferrals in interest payments to Texas State
Bank.
Discontinued Operations
The net loss from discontinued operations was ($1,774,118) in 2001
compared to ($34,866,327) in 2000. The $33,092,209 reduction in loss was
attributed to reductions in the impairments in long-lived assets and losses from
the discontinued segment. The impairment of long-lived assets was $0 in 2001
compared to $17,975,043 in 2000 since the impairment was a one time adjustment
made prior to the sale of assets in 2001. The loss from operations of
discontinued segments was ($2,325,282) in 2001 compared to ($16,891,284) in
2000. The reduction in loss was attributable to the discontinuation of
operations of the Radiopharmacy, breachytherapy seed production, and Linac
operations. The Company had a gain of approximately $551,000 on the disposal of
the discontinued operations during 2001.
Year ended December 31, 2000 compared to year ended December 31, 1999
Revenues
Total revenues were $2,076,884 in 2000 as compared to $2,553,389 in
1999, a decrease of $476,505 or 19%. The majority of the decrease was
attributable reductions in sales of several radioisotopes. Strontium-89 sales
decreased from $102,197 in 1999 to $4,500 in 2000, a decrease of $97,697, or
96%. The decrease was attributable to a termination of the sales agreement with
the single customer who purchased this radioisotope. Nickel-63 sales decreased
from $376,690 in 1999 to $151,855 in 2000, a decrease of $224,835 or 60%. The
decrease was attributable to a large one-time sale that had been completed in
1999. Cobalt-60 sales decreased from $936,506 in 1999 to $800,158 in 2000, a
decrease of $136,348 or 15%. This decrease was attributable to the effect of
foreign sales competition.
Cost of revenues
Cost of revenues decreased to $930,536 in 2000 from $1,100,952 in 1999,
a decrease of $170,416 or 15%. Most of the decrease was attributable to a
corresponding decrease in radioisotope production.
Operating costs and expenses
Operating expense for 2000 was $7,150,192 as compared to $4,730,659 in
1999, an increase of $2,419,533 or 51%. The majority of this increase was
attributable to increased charges from the DOE contractor on the support of the
hot cells and reactor isotope production and an increase in corporate
administration.
19
Other income (expense)
Interest expense increased to $113,549 in 2000 from $20,534 in 1999, an
increase of $93,015 or 453%. The increase was attributable to the increased debt
incurred by the Company.
Discontinued Operations
The net loss from discontinued operations (including impairment of
long-lived assets) was ($34,866,327) in 2000 compared to ($10,798,850) in 1999,
an increase of $24,067,477 or 223%. The increased loss in 2000 was attributable
to a $17,975,043 impairment made on long -lived assets and an increase of
$6,092,434 in losses attributed to operations of the discontinued segment. The
majority of costs associated with the discontinued segment related to start-up
activities of the radiopharmacy, Linac, and breachytherapy seed production
operations.
Forward Looking Information and Risk Factors
The Company or its representatives may make forward looking statements,
oral or written, including statements in this Report's Management's Discussion
and Analysis of Financial Condition and Results of Operations, press releases
and filings with the Commission, regarding estimated future operating results,
planned capital expenditures (including the amount and nature thereof) and the
Company's financing plans, if any, related thereto, and other plans and
objectives for future operations. There can be no assurance that the actual
results or developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected effects on its business
or operations. Among the factors that could cause actual results to differ
materially from the Company's expectations are general economic conditions,
competition, government regulations and other factors set forth among the risk
factors noted below or in the description of the Company's business in Item 1 of
this Report, as well as factors contained in the Company's other securities
filings.
Generally, forward looking statements include words or phrases such as
"management believes," the "Company anticipates," the "Company expects" and
words and phrases of similar import. Forward looking statements are made
pursuant to the Private Securities Litigation Reform Act of 1995.
All subsequent oral and written forward looking statements attributable
to the Company or persons acting on its behalf are expressly qualified in their
entirety by these factors. The Company assumes no obligation to update any of
these statements.
International Isotopes has incurred and may continue to incur losses. The
Company has incurred net losses for most fiscal periods since its inception.
From inception (November 1995) through December 31, 2001 the Company generated
$15,064,521 in revenues and had an accumulated deficit (including preferred
stock dividends and returns) in the amount of $87,190,470. However, although we
cannot provide any assurance we believe the Company's asset sales and start of
new manufacturing operations will produce sufficient revenue to meet our 2002
cash flow and operational needs.
We may need additional financing to continue operations. Following the asset
sales completed as of December 31, 2001 the Company has a $345,295 note with
Texas State Bank which matures in April 2002. The note is secured by the
Company's Waxahachie property, valued at approximately $400,000. The Company
also has an outstanding debt of $1,053,020 on a $1.1 million revolving line of
credit account, also with Texas State Bank. That note matures in June 2002 and
is secured with 80% of accounts receivable and 50% of fixed assets of the
Company. The sale of remaining Company assets (Linac equipment and Waxahachie
property) will be applied to pay down these notes and renew the term on the
revolving line of credit. If our asset sale(s) are not completed before the
maturity dates of these respective notes we will have to negotiate an extension
to their terms. The Company also has a ten-year note for $797,000 at 7% interest
to a former Company Chairman of the Board. Principal and interest payments on
this note are to be paid annually based upon net profits of the Company (annual
principal payment to equal 30% of net pre-tax profits). The Company also has a
long-term note payable of $70,477 to the Eastern Idaho Economic Development
Council secured by an irrevocable letter of credit.
20
Remaining Company Obligations on the loan to AMISI and potential decommissioning
responsibility for the Linac facility. The Company has retained a guarantee
obligation of $500,000 on the loan AMISI assumed from the Company in December
2001. This obligation lasts for six months or until AMISI renews their note with
Texas State Bank., whichever comes first. The Company also retains an
obligation, under the same terms of time or renewal, for decommissioning the
Shady Oaks/LINAC facility should AMISI default on payment or not meet Texas
State Bank requirements for note renewal. The Company has estimated the cost of
this decommissioning to be no more than $500,000 but would be partially
supported by AMISI's forfeiture of their $183,000 surety bond for
decommissioning. Renewal of the note to AMISI is subject to the approval of
terms by Texas State Bank and is required to be completed before July 27, 2002.
We will continue to be dependent upon our remaining facilities and equipment to
function properly in order to provide consistent, timely shipments of products
that meet our customers' specifications. If we experience equipment failures or
breakdowns we may be unable to satisfy our customers, which could result in the
cancellation of contracts and the loss of revenues.
There is no long term contract in place with the DOE Contractor for continued
HSA Cobalt production. The Company's contract for exclusive use of the DOE
reactor for isotope production and the Company's responsibility for operation of
the hot cells facility has been terminated. Instead the company is putting short
term specific "work for non-government sponsor agreements" in place with the DOE
contractor to continue sales of HSA cobalt irradiated at the reactor facility.
We expect that long-term agreement will be negotiated in 2002, however, there is
no assurance these contracts will be equitable or continuing.
Operational hazards (i.e., spills, faults, ventilation failure, etc.) could
result in the spread of contamination within our facility and require additional
funding to correct. An irrevocable, automatic renewable letter of credit against
a $130,000 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. If a contamination event resulted in greater liability
to us we would have to borrow money or fund the liability from our future
revenue.
Government regulation could adversely affect our business. Operations within the
Company's facility are subject to the U.S. Nuclear Regulatory Commission
regulations and Food and drug Administration. Medical flood sources are
regulated by the Texas Department of Health as a sealed source. To the extent
these regulations are or become burdensome, our business development could be
adversely affected.
We are dependent upon key personnel. Our ongoing operations are dependent on
Steve T. Laflin, President and Chief Executive Officer. The Company is highly
dependent upon this person and the loss of this individual could have a material
adverse effect on us. There is a $2 million dollar key man life insurance policy
on Mr. Laflin and 5 year employment agreement extending through February 2007.
The Company has revised and reissued the stock incentive program to assist with
offering incentives and retaining key personnel. The revised stock incentives
program will, however, have to be ratified by a vote of the stockholders during
the next annual meeting. In addition, there is no assurance the Company will be
able to retain our existing personnel or attract additional qualified employees.
Loss of any of these relationships would result in a significant decline in
revenue.
We are dependent on various third parties in connection with our business
operations. The production of HSA Cobalt is dependent upon the Department of
Energy, and its prime operating contractor, who controls the reactor and
laboratory operations. The gemstone production is tied to an exclusive agreement
with Quali Tech Inc. who in turn has a contract with The Topaz Group, Inc.
Medical flood source manufacturing is conducted under and exclusive contract
with RadQual, LLC. who in turn has agreement in place with several companies for
marketing and sales. Each of our competitors has significantly greater financial
resources than us and that could create a competitive advantage for them over
us.
21
We are subject to competition from other companies. Each of the business areas
of the Company have direct competition from other businesses. HSA cobalt is
supplied by other reactor facilities around the world. Medical flood sources are
being produced by several other manufacturers in the U.S. and overseas. There is
at least one other processor of Gemstone in Europe.
New Accounting Standards
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No.
141 requires that the purchase method of accounting be used and establishes new
standards on the recognition of certain identifiable intangible assets separate
from goodwill for all business combinations initiated after June 30, 2001. SFAS
No. 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually. SFAS No. 142 will also require that intangible assets with definite
useful lives be amortized over their respective estimated useful lives to their
estimated residual values.
We are required to adopt the provisions of SFAS No. 141 immediately and
SFAS No. 142 effective January 1, 2002, except that goodwill and intangible
assets determined to have an indefinite useful life that are acquired in a
purchase business combination completed after June 30, 2001 will not be
amortized, but will continue to be evaluated for impairment in accordance with
the accounting literature in effect prior to the issuance of SFAS No. 142.
Goodwill and intangible assets acquired in business combinations completed
before July 1, 2001 will continue to be amortized through December 31, 2001. At
December 31, 2001, our unamortized goodwill and intangibles was zero as a result
of the impairment charge recorded.
In July 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This Standard is effective for fiscal years beginning
after June 15, 2002, and provides accounting requirements for asset retirement
obligations associated with tangible long-lived assets. We have not yet
determined the effects of this Standard on our financial statements.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
its long-term debt. However, the Company has two variable interest rate loans
and the Company does not use derivative financial instruments to manage overall
borrowing costs or reduce exposure to adverse fluctuations in interest rates.
The impact on the Company's borrowing costs and cash flows of a one-point
interest rate change on the outstanding balance of the variable rate debt as of
December 31, 2001 would be approximately $14,000.
Item 8. FINANCIAL STATEMENTS
The following financial statements are included herewith:
Report of Independent Certified Public Accountants (Hansen, Barnett & Maxwell)
Independent Auditors' Report (KPMG LLP)
Consolidated Balance Sheets of the Company as of December 31, 2001 and 2000
Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1999, 2000 and 2001
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999
Notes to Consolidated Financial Statements
22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 12, 2001, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Company filed a Form 8-K identifying a change in the
Company's Certifying Accountants. KPMG LLP previously served as the principal
accountants for the Company. On September 6, 2001, the Company elected to
terminate that firm's appointment effective after the audit of the Company's
consolidated financial statements as of the year ended December 31, 2000 and the
issuance of the report thereon. The Company announced it had decided to retain
Grant Thornton LLP as principal accountants. The decision to change accountants
was approved by the Company Audit committee of the Board of Directors, the Board
of Directors, and was ratified by a vote of the shareholders at the annual
meeting on November 2, 2001. In connection with the audits of the two fiscal
years ended December 31, 2000 there were no disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedures which disagreements if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement.
On March 29, 2002 Grant Thornton informed the Company it was declining
to accept the engagement as the Company's principal accountants. There were no
disagreements with Grant Thornton LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures. On
April 1, 2002, after approval by the Company's Audit committee of the Board of
Directors and the Board of Directors, the Company retained Hansen, Barnett, and
Maxwell as the Company's Principal Accountants. On April 5, 2002 pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company filed a
Form 8-K identifying the change in the Company's Certifying Accountants. The
Company's selection of Hansen, Barnett, and Maxwell will be posed for
ratification by a vote of the shareholders at the 2002 annual meeting.
PART III.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information set forth under the captions "Election of Directors"
and "Executive Officers of the Company" of the Company's definitive Proxy
Statement for the Company's 2002 Annual Meeting of Shareholders (the "Proxy
Statement") is incorporated herein by reference. The Company's Proxy Statement
will be filed by the Company with the SEC not later than 120 days after December
31, 2001, the close of our fiscal year.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Compensation
and Other Matters" of the Company's Proxy Statement is incorporated herein by
reference. The Company's Proxy Statement will be filed by the Company with the
SEC not later than 120 days after December 31, 2001, the close of our fiscal
year.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Outstanding Capital Stock
and Stock Ownership of Directors, Certain Executive Officers and Principal
Shareholders" of the Company's Proxy Statement is incorporated herein by
reference. The Company's Proxy Statement will be filed by the Company with the
SEC not later than 120 days after December 31, 2001, the close of our fiscal
year.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Certain Transactions" of
the Company's Proxy Statement is incorporated herein by reference. The Company's
Proxy Statement will be filed by the Company with the SEC not later than 120
days after December 31, 2001, the close of our fiscal year.
23
PART IV
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
The following documents are filed or incorporated by reference as
exhibits to this Report:
3.1 Restated Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form SB-2 (Registration No. 333-26269)).
3.2 Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 (Registration No.
333-26269)).
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-26269)).
10.1 Copy of the Company's 2002 Long Term Incentive Plan, including forms of
nonqualified Stock Option Agreement, Incentive Stock Option Agreement
and Restrictive Stock Option Agreement (incorporated by reference to
Exhibit 10.1 to the Company's Registration Statement on Form SB-2
(Registration No. 333-26269)).
21. List of subsidiaries of the Company (incorporated by reference to
Exhibit 21 to the Company's Registration Statement on Form SB-2
(Registration No. 333-26269)).
23. Power of Attorney (included as part of signature page).
Reports on Form 8-K
The Company filed a Form 8-K January 29, 2001 with respect to a notice
of noncompliance of NASDAQ Rule 4310(c)(4) and the appointment of David M. Camp
as chairman of the board of directors; on April 2, 2001 with respect to
definitive agreements to sell the Radiophamaceutical Manufacturing Facility and
brachytherapy seed assets; on May 8, 2001 with respect to the sale of the
Radiopharmaceutical Manufacturing Facility to NeoRx Corporation and the sale of
the brachytherapy seed assets to Imagyn Medical, Inc.; on October 12, 2001 with
respect to the Company's selection of Grant Thornton as the Company's auditing
firm in place of KPMG LLP; and on January 16, 2002 with respect the purchase of
the Series A Preferred stock by a group of investors and the Company's
repurchase of 2817 shares of Preferred Series B stock.
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of International Isotopes Inc,
a Texas corporation, and the undersigned directors and officer of International
Isotopes Inc, hereby constitutes and appoints Steve Laflin its, or his, true and
lawful attorney-in-fact and agent, for it or him and in its or his name, place
and stead, in any and all capacities, with full power to act alone, to sign any
and all amendments to this report, and to file each such amendment to the
Report, with all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby granting unto
said attorney in-fact and agent full power and authority to do and perform any
and all acts and things requisite and necessary to be done in and about the
premises as fully to all intents and purposes as it or he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
may lawfully do or cause to be done by virtue hereof.
24
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.
International Isotopes Inc.
By: /S/ Steve Laflin
-------------------------------
Steve Laflin
President and Chief Executive Officer
25
SIGNATURES
In accordance with the requirements of the Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
May 17, 2002 By: /s/ Dr. Ralph Richart
----------------------------
Dr. Ralph Richart
Chairman of the Board of Directors
May 17, 2002 By: /s/ Steve L. Laflin
----------------------------
Steve L. Laflin
President, Chief Executive Officer and Director
May 17, 2002 By: /s/ Christopher Grosso
----------------------------
Christopher Grosso
Director
May 17, 2002 By: /s/ Randall O'Kane
----------------------------
Randall O'Kane
Director
May 17, 2002 By: /s/ Keith Allberg
----------------------------
Keith Allberg
Director
26
INTERNATIONAL ISOTOPES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
Page No.
Report of Independent Certified Public Accountants
(Hansen, Barnett & Maxwell).................................. 28
Independent Auditors' Report (KPMG LLP)........................... 29
FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company
as of December 31, 2001 and 2000............................. 30
Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999............................. 31
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1999, 2000 and 2001....................... 32
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999............................. 33
Notes to Consolidated Financial Statements ....................... 35
27
HANSEN, BARNETT & MAXWELL (801) 532-2200
A Professional Corporation Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS 5 Triad Center, Suite 750
Salt Lake City, Utah 84180-1128
www.hbmcpas.com
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and the Stockholders
International Isotopes Inc.
We have audited the accompanying consolidated balance sheet of International
Isotopes Inc. and subsidiaries as of December 31, 2001 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International
Isotopes Inc. and subsidiaries as of December 31, 2001 and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 in the
financial statements, the Company has suffered substantial and recurring losses
from operations and negative cash flows from operating activities. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plan in regard to these matters is also described in Note
2. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
HANSEN, BARNETT & MAXWELL
Salt Lake City, Utah
April 11, 2002
28
Independent Auditors' Report
The Board of Directors
International Isotopes Inc.:
We have audited the accompanying consolidated balance sheet of International
Isotopes Inc. and subsidiaries as of December 31, 2000, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years ended December 31, 2000 and 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International
Isotopes Inc. and subsidiaries as of December 31, 2000, and the results of their
operations and their cash flows for the years ended December 31, 2000 and 1999,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
April 27, 2001
Dallas, Texas
29
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
----------------------------
Assets 2001 2000
---------------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 293,969 $ 642,554
Accounts receivable 138,531 373,513
Assets held for sale (Note 2) 729,531 25,085,806
Inventories (Note 4) 2,537,519 2,587,992
Prepaids and other current assets 287,074 304,636
------------ ------------
Total current assets 3,986,624 28,994,501
Property, plant and equipment, net (Note 6) 280,036 455,541
Intangibles and other assets - 134,777
------------ ------------
Total assets $ 4,266,660 $ 29,584,819
============ ============
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Deficit
-----------------------------------------------------
Current liabilities
Accounts payable $ 181,694 $ 4,459,814
Checks written in excess of cash in bank 101,714 -
Accrued liabilities 448,529 939,254
Current portion of lease obligations - 1,531,883
Current installments of mortgage and notes payable (Note 5) 2,720,610 16,972,971
------------ ------------
Total current liabilities 3,452,547 23,903,922
Non-current portion of lease obligations - 2,025,763
Mortgage and notes payable, excluding current installments (Note 5) 45,182 67,989
------------ ------------
Total liabilities 3,497,729 25,997,674
------------ ------------
Redeemable convertible preferred stock, net
(liquidation value of $17,467,000) (Note 8) 17,117,755 17,337,954
------------ ------------
Stockholders' deficit (Note 8)
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
17,467 shares issued and outstanding - -
Common stock, $0.01 par value; 250,000,000 shares authorized;
issued and outstanding 26,581,135 at December 31, 2001
and 10,611,411 shares at December 31, 2000 265,812 106,115
Additional paid-in capital 70,575,834 69,190,246
Accumulated deficit (87,190,470) (83,047,170)
------------ ------------
Total stockholders' deficit (16,348,824) (13,750,809)
------------ ------------
Total liabilities, redeemable convertible preferred stock
and stockholders' deficit $ 4,266,660 $ 29,584,819
============ ============
See accompanying notes to consolidated financial statements.
30
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31,
----------------------------------------------
2001 2000 1999
----------- ----------- -----------
Revenue:
Sales of product $ 2,177,900 $ 2,076,884 $ 2,553,389
Cost of revenue:
Cost of products 1,424,111 930,536 1,100,952
----------- ----------- -----------
Gross profit 753,789 1,146,348 1,452,437
----------- ----------- -----------
Operating costs and expenses:
Salaries, contract labor and product development 521,753 1,579,317 1,297,682
General, administrative and consulting 1,275,632 5,570,875 3,432,977
----------- ----------- -----------
Total operating expenses 1,797,385 7,150,192 4,730,659
----------- ----------- -----------
Operating loss (1,043,596) (6,003,844) (3,278,222)
Other income (expense):
Interest income 2,613 - -
Interest expense (3,114) (113,549) (20,534)
----------- ----------- -----------
Loss from continuing operations (1,044,097) (6,117,393) (3,298,756)
----------- ----------- -----------
Discontinued operations
Impairment of long-lived assets (note 2) - (17,975,043) -
Loss on disposal of discontinued operations
including provision of $2,325,282 for operating
losses during the phase-out period (less
applicable taxes of $0) (1,774,118) - -
Loss from discontinued operations - (16,891,284) (10,798,850)
----------- ----------- -----------
Loss from discontinued operations (1,774,118) (34,866,327) (10,798,850)
----------- ----------- -----------
Net loss (2,818,215) (40,983,720) (14,097,606)
Preferred stock dividend, deemed dividend
and accretion of discount (1,325,085) (14,884,922) (2,356,111)
----------- ----------- -----------
Net loss applicable to common shareholders $(4,143,300) $(55,868,642) $(16,453,717)
=========== =========== ===========
Net loss per common share continuing
operations - basic and diluted $ (0.15) $ (2.17) $ (0.70)
Net loss per common share discontinued
operations - basic and diluted (0.11) (3.60) (1.33)
----------- ----------- -----------
Net loss per common share - basic and diluted $ (0.26) $ (5.77) $ (2.03)
=========== =========== ===========
Weighted average common shares outstanding -
basic and diluted 15,976,551 9,686,303 8,110,521
=========== =========== ===========
See accompanying notes to consolidated financial statements.
31
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1999, 2000 and 2001
Total
Additional Receivable Stockholders'
Common Stock Paid-in From Accumulated Equity
Shares Amount Capital Stockholders Deficit (Deficit)
---------- -------- ----------- ------------ ------------ ------------
Balance, January 1, 1999 7,351,625 $ 73,515 $35,687,396 $ (640,000) $(10,724,811) $ 24,396,100
Net effect of repurchase agreement with MAC Tech (869,559) (869,559)
Issuance of warrants 1,330,450 1,330,450
Issuance of warrants for services 37,967 37,967
Beneficial conversion effect of Series A redeemable
convertible preferred stock 1,930,450 (1,930,450) -
Common stock issued in private placement 1,084,410 10,844 10,043,853 10,054,697
Issuance of common stock for services 98,039 980 999,020 1,000,000
Accretion of issuance costs on
redeemable convertible preferred stock (322,925) (322,925)
Issuance of common stock to officer 35,000 350 172,462 172,812
Redeemable convertible preferred stock dividend (102,736) (102,736)
Net loss (14,097,606) (14,097,606)
---------- -------- ----------- ---------- ------------ ------------
Balance December 31, 1999 8,569,074 85,689 49,332,039 (640,000) (27,178,528) 21,599,200
Common stock issued in private placement 1,054,652 10,547 5,367,630 5,378,177
Net effect of repurchase agreement with MAC Tech (1,266,442) (1,266,442)
Issuance of warrants related to Series B Preferred
Stock 3,283,582 3,283,582
Issuance of warrants for services 6,033 6,033
Issuance of common stock for services 144,000 1,440 506,060 507,500
Beneficial conversion effect of Series B redeemable
convertible preferred stock 5,213,582 (5,213,582) -
Increase of the number of warrants and adjustment
of the conversion price associated with the
Series A redeemable convertible preferred stock 4,228,331 (4,228,331) -
Accretion of issuance costs on
redeemable convertible preferred stock (4,607,065) (4,607,065)
Redeemable convertible preferred stock dividend 384,631 3,847 707,097 (835,944) (125,000)
Purchase of shares in conjunction with Employee Stock
Purchase Plan 13,304 134 33,792 33,926
Conversion of Series B redeemable convertible
preferred stock 445,750 4,458 1,778,542 1,783,000
Foregiveness of notes receivable from stockholders 640,000 640,000
Net loss (40,983,720) (40,983,720)
---------- -------- ----------- ---------- ------------ ------------
Balance December 31, 2000 10,611,411 106,115 69,190,246 - (83,047,170) (13,750,809)
Redeemable convertible preferred stock dividend 15,594,724 155,947 639,338 (795,285) -
Accretion of issuance costs on
redeemable convertible preferred stock (529,800) (529,800)
Conversion of Series B redeemable convertible
preferred stock 375,000 3,750 746,250 750,000
Net loss (2,818,215) (2,818,215)
---------- -------- ----------- ---------- ------------ ------------
Balance December 31, 2001 26,581,135 $265,812 $70,575,834 $ - $(87,190,470) $(16,348,824)
========== ======== =========== ========== ============ ============
See accompanying notes to consolidated financial statements.
32
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years ended December 31,
----------------------------------------------
2001 2000 1999
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (2,818,215) $(40,983,720) $(14,097,606)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 72,306 4,260,900 1,945,355
Gain on disposal of discontinued operations (551,164) - -
Gain on foregiveness of debt (1,197,330) - -
Loss on disposed property, plant and equipment 167,986 - 205,380
Issuance of common stock for services - 507,500 172,462
Warrants issued for services received - 6,033 38,317
Forgiveness of receivable from stockholder - 640,000 -
Impairment of investment - 49,100 -
Impairment of long-lived assets - 17,975,043 -
Changes in operating assets and liabilities:
Accounts receivable 234,982 391,854 (524,934)
Prepaids and other current assets 17,562 348,147 (34,456)
Assets held for sale - - 321,153
Inventories 50,473 (166,558) (676,967)
Accounts payable and accrued liabilities (3,571,515) 2,617,862 1,081,345
------------ ------------ ------------
Net cash used in operating activities (7,594,915) (14,353,839) (11,569,951)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (64,788) (2,389,851) (6,597,992)
Proceeds from assets held for sale 17,609,218 - -
------------ ------------ ------------
Net cash provided by (used in) investing activites 17,544,430 (2,389,851) (6,597,992)
------------ ------------ ------------
Cash flows from financing activities:
Settlement of contingent consideration - MAC Isotopes, Inc. - (1,266,442) (869,559)
Proceeds from issuance of redeemable
convertible preferred stock and warrants - 9,404,996 9,400,000
Proceeds from issuance of common stock
and common stock subscriptions - 5,412,103 10,054,697
Checks written in excess of cash in bank 101,714 - -
Payments on capital leases (3,557,646) (1,592,151) (573,369)
Proceeds from issuance of debt 1,053,020 3,670,593 -
Principal payments on notes payable (7,895,188) (1,108,155) (3,122,494)
Payments of preferred stock dividends - (125,000) (102,736)
------------ ------------ ------------
Net cash (used in) provided by financing activities (10,298,100) 14,395,944 14,786,539
------------ ------------ ------------
Net decrease in cash and cash equivalents (348,585) (2,347,746) (3,381,404)
Cash and cash equivalents at beginning of year 642,554 2,990,300 6,371,704
------------ ------------ ------------
Cash and cash equivalents at end of year $ 293,969 $ 642,554 $ 2,990,300
============ ============ ============
(Continued)
33
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Continued
Years ended December 31,
-----------------------------------------------
2001 2000 1999
------------ ------------ -------------
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 1,036,143 $ 2,029,476 $ 567,986
============ ============ =============
Supplemental disclosure of noncash financing and
investing transactions:
Debt assumed by purchaser of Shady Oaks facility $ 7,433,000 $ - $ -
============ ============ =============
Common stock issued on conversion of preferred stock $ 750,000 $ - $ -
============ ============ =============
Common stock issued for payment of preferred dividends $ 795,285 $ - $ -
============ ============ =============
Accretion of issuance costs on preferred stock $ 529,800 $ 4,607,065 $ 322,925
============ ============ =============
Common stock issued for prepayment of royalties $ - $ - $ 1,000,000
============ ============ =============
Capital expenditures included in accounts payable $ - $ 102,360 $ 103,235
============ ============ =============
Acquistion of equipment through capital leases $ - $ 749,814 $ 3,963,285
============ ============ =============
See accompanying notes to consolidated financial statements
34
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
NOTE 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
International Isotopes Inc (the Company) was incorporated in Texas in
November 1995. The Company acquired the technology, proprietary designs
and intellectual property for the design and assembly of a proton
linear accelerator (LINAC) to produce radioisotopes used in nuclear
medicine for the detection and treatment of various forms of cancer and
other diseases. The Company also owns 100% of the outstanding common
shares of Gazelle Realty, Inc. and International Isotopes Idaho, Inc.
(I4). Gazelle Realty, Inc. owned 20 acres of land on which the facility
for the LINAC has been constructed and 1.6 acres of land on which the
administration, manufacturing, and research and development building
was constructed. During 1997, all the property owned by Gazelle Realty,
Inc. was transferred to the Company.
Prior to initial production in late 1999, the Company had devoted
substantially all of its efforts, since inception, to the acquisition
and construction of the LINAC project and related assets,
pharmaceutical production and to raising capital and other
organizational activities. The operating revenues to date have been
limited to the sales of accelerator components purchased from the State
of Texas, product development income, initial sales of I-125
brachytherapy seeds and sales of reactor produced products from I4.
Additionally, the Company has derived operating capital from the sales
of assets. The Company has financed its operations in part through
private placements of its equity securities and its initial public
offering (the "Offering") which occurred on August 19, 1997.
Discontinued Operations - In late 2000, the Company determined that it
would be required to pursue strategic alternatives to sell certain
assets in order to continue operations. It was determined that it would
be necessary to dispose of: the Woodrow Spencer office and warehouse
located in Denton, Texas; the Radiopharmaceutical Manufacturing
Facility in Denton, Texas; the brachytherapy seed business in Denton,
Texas; real estate located in Waxahachie, Texas; and the Radioisotope
Production Facility in Denton, Texas. Each of these facilities/assets
was evaluated for impairment and all were written down to net
realizable value and an adjustment of $17,975,043 was recorded at
December 31, 2000 and was reported in the December 31, 2000 financial
statements.
As discussed in Note 2, during January 2001 the sale of the Woodrow
Spencer facility was completed. In April 2001 the Company completed the
sale of the Radiopharmaceutical Manufacturing Facility and the
Brachytherapy seed business. The sale of the Radioisotope Production
Facility ("LINAC") closed in December 2001. At December 31, 2001, 2000
and 1999, the operations associated with these facilities and
activities have been reclassified as discontinued operations. Costs
associated with corporate functions for each of these years have been
categorized as part of general and administrative and are included in
continuing operations. Interest expense associated directly with the
discontinued operations has been categorized as discontinued
operations. Interest expense associated with continuing operations is
reported separately. Included in the loss from discontinued operations,
for the year ended December 31, 2001, is a gain on the forgiveness of
debt of approximately $1,200,000 that resulted from a settlement with
vendors accepting a discounted amount as payment. Total revenues from
discontinued operations were approximately $1,167,000, $4,200,000 and
$1,136,000 in 2001, 2000 and 1999 respectively. The loss on disposal of
discontinued operations of $1,774,118 for the year ended December 31,
2001 includes a provision of $2,325,282 for operating losses incurred
during the phase-out period. See Note 2 for proceeds from disposal of
assets during 2001.
35
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
The only operating assets of the Company are those of International
Isotopes Idaho Inc. (I4) located in Idaho Falls, Idaho (the Company is
still holding for resale certain real estate valued at $409,531 located
in Waxahachie, Texas; and miscellaneous equipment located in Denton,
Texas with a carrying value of approximately $320,000.) All operating
activities associated with I4 are reported as continuing operations.
Corporate administrative costs are also categorized as continuing
operations.
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
NOTE 2 - SALE OF ASSETS AND LIQUIDITY
The Company has an accumulated deficit of approximately $87.2 million
since inception and has principally funded operations and plant and
equipment expenditures from proceeds of public and private placements
of equity and through short and long-term borrowing arrangements. In
late 2000, the Company determined that it would be required to pursue
strategic alternatives to sell certain assets in order to continue
operations.
On January 16, 2001, the Company completed the sale of the Woodrow
Spencer office and warehouse facility located in Denton, Texas for
proceeds of $950,000, less closing costs of $63,811. Through an
impairment charge of $209,773, the facility had been written down to a
net book value of $886,189 at December 31, 2000. The Company used the
proceeds to reduce its revolving line of credit by $863,890 (including
interest of $23,400) and fund operating expenses with the remaining
amounts.
On April 20, 2001, the Company completed the sale of the
Radiopharmaceutical Manufacturing Facility to NeoRx Corporation
("NeoRx") for proceeds of $12.0 million, less settlement costs of
$225,000, and warrants to purchase 800,000 shares of NeoRx common
stock. (The warrants were given no value due to the exercise price of
the warrants being less than the market value on the date the agreement
was entered into.) This facility had a net book value of $11,304,724 at
December 31, 2000. The Company used the proceeds to repay advances made
by NeoRx in the amount of $861,060, reduce its note payable to a
commercial lender by $1,296,469 (including interest of $36,578), reduce
its revolving line of credit by $2,614,023 (including interest of
$45,857), reduce its capital lease obligations by $3,291,289, repay a
portion of the note payable to William Nicholson, the former Chairman
of the Board, in the amount of $348,000 and fund other operating
expenses. The Company transferred the NeoRx warrants to the Series A
and B preferred shareholders in exchange for certain concessions in
their certificates of designation. See Note 8 for a discussion of the
concessions made by the Series A and B preferred shareholders.
On April 27, 2001, the Company completed the sale of its brachytherapy
seed assets to Imagyn Medical Technologies, Inc. ("Imagyn") for net
cash proceeds of $5.0 million, less settlement costs of $100,000. The
seed business through an impairment charge of $416,294 had been written
down to a net book value of $5,000,000 at December 31, 2000. The
Company used the proceeds to repay advances and expenses incurred by
Imagyn in the amount of $108,786 and reduce its note payable to a
commercial lender by $4,645,582 (including interest of $25,768), reduce
its capital lease obligations by $145,632 and fund other operating
expenses.
On December 14, 2001, the Company completed the sale of the Linear
Accelerator Facility for $8,251,849. In this transaction, the buyers
assumed Company debt of $7,433,000 and paid interest of $318,848 on
behalf of the Company. The Company incurred additional closing costs of
$272,025. The Linear Accelerator Facility through an impairment charge
of $15,889,765 had been written down to a net book value of $7,164,160
at December 31, 2000. Associated with the sale and the assumption of
debt by the purchaser, the Company will retain an obligation of
$500,000 on that loan for six months or until purchaser renews their
note with Texas State Bank. The Company also retains an obligation
(also for six months or until purchaser renews the note) for
decommissioning the Shady Oaks/LINAC facility should AMISI default on
payment or not meet Texas State Bank requirements for note renewal.
36
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
At December 31, 2001 and 2000, excess components and equipment through
an impairment charge of $358,453 have been written down to a net
realizable value of $320,000.
At December 31, 2001 and 2000, the Company continues to carry its
Waxahachie real estate at $409,531. The Company believes the proceeds
from the sale of this property will be in excess of its net book value.
Subsequent to the sales of assets described above, the Company consists
solely of the I4 Idaho operations and the size and nature of the
business is substantially less in scope than in prior years. Concurrent
with the discontinuance of operations in Texas, the Company focused on
generating revenues from the newly completed contracts for contract
manufacturing medical flood sources, processing Topaz Gemstones, and
continuing to produce High Specific Activity (HSA) cobalt-60 from a
Department of Energy (DOE) test reactor (ATR).
Business Condition - Since inception, the Company has suffered
recurring losses. During the years ended December 31, 2001, 2000 and
1999, the Company had losses before preferred dividends of $2,818,215,
$40,983,720, and $14,097,606, respectively. During the years ended
December 31, 2001, 2000 and 1999, the Company's operations used cash in
operating activities of $7,594,915, $14,353,839 and $11,569,951,
respectively. The net loss before preferred dividends includes
discontinued operations for the years ended December 31, 2001, 2000 and
1999 of $1,774,118, $34,866,327, and $10,798,850, respectively. As of
December 31, 2001, the remaining operating assets of the Company are
those of I4, which incurred significant operating losses during the
years ended December 31, 2001, 2000 and 1999. These matters raise
substantial doubt about the Company's ability to continue as a going
concern. With the continuation of I4 operations, management expects to
generate sufficient cash flows to meet operational needs during 2002
through financing and operating capital; however, there is no assurance
that these cash flows will occur. The accompanying financial statements
do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be
unable to continue as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
(a) Financial Instruments and Cash Equivalents
The Company's financial instruments consist of cash equivalents,
accounts receivable and payable and notes payable. The carrying value
of these financial instruments approximates fair value because of their
short-term nature or because they bear interest at rates which
approximate market rates.
Cash and cash equivalents of $293,969 and $642,554 at December 31, 2001
and 2000, respectively, consist of operating accounts, money market
accounts and certificates of deposit. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid
financial instruments with original maturities of three months or less
at date of purchase to be cash equivalents.
37
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
At December 31, 2001 the Company has pledged cash of $217,614. The
pledged cash is comprised of two certificates of deposit. Both
certificates are pledged as security on letters of credit. The first
certificate of deposit for $85,000 is collateral on a letter of credit
required as part of the Eastern Idaho Economic Development Council note
payable. The second certificate of deposit for $132,614 is collateral
for a letter of credit required as part of the licensing agreement with
the NRC. Among other things, the licensing agreement calls for a letter
of credit to provide a level of financial assurance to maintain
licensing with the NRC.
(b) Property, Plant and Equipment
Depreciation on property, plant and equipment is computed using the
straight-line method over the estimated useful life of the asset. The
ranges of estimated useful lives are as follows:
Years
-----
Furniture & fixtures 3 - 5
Plant and improvements 5
Production equipment 5
Depreciation expense was $72,306, $37,121 and $11,754 for the years
ended December 31, 2001, 2000 and 1999, respectively.
(c) Inventories
Inventories are carried at the lower of cost or market. Cost is
determined using the first in, first out method.
(d) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rate
is recognized in income in the period that includes the enactment date.
(e) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenues and
expenses during the reporting period to prepare these consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(f) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. Recoverability
of assets to be held and used is measured by comparison of the carrying
amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount that the carrying amount of
the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less
costs to sell.
38
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
A summary of the impairment charge recorded at December 31, 2000, is as
follows:
Linear Accelerator Facility $15,889,765
Woodrow Spencer Facility 209,773
Brachytherapy Seed Business 416,294
Excess equipment held for sale 358,453
Goodwill 1,100,758
-----------
$17,975,043
-----------
(g) Revenue Recognition
Revenue is recognized when products are shipped. No warranty coverage
or right of return provisions are provided to customers.
The Company has three significant customers and relies heavily on a
limited number of suppliers. Although management believes other
suppliers and other marketing/customer opportunities could be pursued,
it believes a change in its limited vendor or customer base could
adversely affect operating results by causing a delay in production and
a possible loss of sales. Two of the Company's board members are also
principals in one of the significant customers.
(h) Stock Option Plan
The Company accounts for stock-based compensation using the
intrinsic-value based method and provides pro forma net loss and pro
forma loss per share disclosures for employee stock option grants as if
the fair-value based method defined in SFAS No. 123 had been applied.
Under the intrinsic-value based method, if the exercise price of
employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is
recorded.
(i) Goodwill
Goodwill represents the excess of the aggregate purchase price over the
fair value of net assets acquired and is amortized on a straight-line
basis. The Company assesses the recoverability of this intangible asset
by determining whether the amortization of the goodwill balance over
its remaining life can be recovered through undiscounted future
operating cash flows of the acquired operation. The amount of goodwill
impairment, if any, is measured based on projected discounted future
operating cash flows compared to the carrying value of goodwill.
Goodwill impairment during 2000 resulted in a charge to operations of
$1,100,758. All goodwill was written off through the impairment in
2000.
39
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
(j) Net Loss Per Common Share-Basic and Diluted
Basic loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year. Diluted loss per
share, which is computed on the basis of the weighted average number of
common shares and all potentially dilutive common shares outstanding
during the year, is the same as basic loss per share for the years
ended December 31, 2001, 2000 and 1999, as all common stock options and
warrants and convertible preferred shares were anti-dilutive. Net loss
per common share is calculated for both continuing and discontinued
operations.
As of December 31, 2001, 2000 and 1999, there were 6,390,376, 8,181,876
and 957,400 options and warrants outstanding respectively, and as of
December 31, 2001, 2000 and 1999, there were a total of 17,467, 18,217
and 10,000 shares of Series A and B redeemable convertible preferred
stock that were not included in the computation of diluted net loss per
common share as their effect would have been anti-dilutive, thereby
decreasing the net loss per common share.
(k) Recent Accounting Pronouncements
In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the current accounting model that
requires amortization of goodwill, supplemented by impairment tests, to
an accounting model that is based solely upon impairment tests. SFAS
No. 142 also provides guidance on accounting for identifiable
intangible assets that may or may not require amortization. The
provisions of SFAS No. 142 related to accounting for goodwill and
intangible assets will be generally effective for the Company at the
beginning of 2002, except that certain provisions related to goodwill
and other intangible assets are effective for business combinations
completed after July 1, 2001. The Company does not believe this
statement will have any impact to the Company.
In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No.143 addresses financial accounting and
reporting for obligations associated with the retirement of intangible
long-lived assets and associated asset retirement costs. SFAS No. 143
requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred. The
asset retirement obligations will be capitalized as a part of the
carrying amount of the long-lived asset. SFAS No. 143 applies to legal
obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and normal
operation of long- lived assets. SFAS No. 143 is effective for years
beginning after June 15, 2002, with earlier adoption permitted. The
Company does not believe this statement will have any impact to the
Company.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 establishes
a single accounting model for long-lived assets to be disposed of by
sale and the recognition of impairment of long-lived assets to be held
and used. SFAS No. 144 is effective for fiscal years beginning after
December 15, 2001, with an earlier adoption encouraged. The Company is
evaluating the impact of adopting SFAS No. 144 but believes it will not
have a material effect on the Company's results of operations or
financial position.
(l) Reclassifications
Certain 2000 and 1999 amounts have been reclassified to conform with
the 2001 presentation. These reclassifications had no effect on the
previously reported loss.
40
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
NOTE 4 - INVENTORIES
Inventories consist of the following at December 31, 2001 and 2000:
2001 2000
---------- ----------
Raw materials $ 290,019 $ 288,344
Finished goods 20,571 83,742
Work in progress 2,226,929 2,215,906
---------- ----------
$2,537,519 $2,587,992
========== ==========
NOTE 5 - ACQUISITIONS
On April 24, 1998, the Company completed the acquisition of MAC
Isotopes, Inc. from its parent corporation, MACTEC, Inc., of Golden
Colorado, and then merged MAC Isotopes into International Isotopes
Idaho Inc, a newly formed subsidiary of the Company. The Company
exchanged $500,000 in cash and 159,416 shares of its Common Stock,
valued at $3,173,973 for 100% of the stock in MAC Isotopes. MACTEC had
the option to sell 50% of the shares back to the Company on each of
April 23, 1999 and April 24, 2000 for a purchase price of $19.91 per
share. If the Company did not repurchase the shares, Auric Partners, of
which William Nicholson, a director of the Company, was a partner, is
required to purchase the shares. If Auric purchased the shares, the
Company was obligated to issue to Auric warrants to purchase common
stock of the Company in sufficient quantity and at an exercise price
that would compensate it for the difference between $19.91 and the then
current market price of the Company's stock.
In April 1999, MACTEC exercised the right to sell 50% of the shares of
common stock at a price of $19.91 per share. The Company facilitated
the sale of the MACTEC common stock at the market price of $9.00 per
share and paid MACTEC the difference of $10.91 per share or $896,559 in
cash. In April 2000, the Company advanced to MACTEC $1,586,908, for
final reimbursement for decreases in the market value of the common
stock. The payments were recorded as a reduction to additional paid-in
capital. In August 2000, MACTEC sold on the open market the 79,708
shares of common stock and paid the excess proceeds of $320,466 to the
Company.
As part of the Company's process of determining whether to continue
operations, a detailed cash flow projection was performed for I4. Based
on these projections, the Company determined that the future net cash
flows expected to be generated from these operations would not be
sufficient to recover the goodwill related to the MACTEC, Inc.
acquisition. Accordingly in 2000, the Company recorded an impairment
charge of $1,100,758 to write off the recorded goodwill balance that
was not expected to be recovered from future operations.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31,
2001 and 2000:
2001 2000
--------- ---------
Furniture and fixtures $ 33,240 $ 35,261
Plant and improvements 10,574 6,379
Production equipment 331,498 449,149
--------- ---------
375,312 490,789
Less accumulated depreciation and amortization (95,276) (35,248)
--------- ---------
Property, plant & equipment, net $ 280,036 $455,541
41
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
NOTE 7 - MORTGAGE AND NOTES PAYABLE
Mortgage and notes payable as of December 31, 2001 and 2000, consist of
the following:
2001 2000
---------- -----------
Promissory notes due to NeoRx Corporation totaling
$900,000. Notes bear interest at Prime plus 2.00%
(11.5% at December 31, 2000). The notes were settled
as part of the NeoRx sale. $ - $ 900,000
Variable rate (9.25% at December 31, 2000) note
payable to a bank. As discussed in Note 2, this note
was settled with the asset sales and the Company
remains contingently liable on the $500,000. The
Company will retain an obligation of $500,000
(non-interest bearing) on that loan for six months or
until purchaser renews their note with Texas State Bank 500,000 13,929,874
Fixed rate note payable to Eastern Idaho Economic
Development Council bearing interest at 3% per annum
and is secured by an irrevocable letter of credit,
adjusted annually to match the remaining principal
balance (included in cash is a certificate of deposit
for $85,000 as collateral). The face amount of the
note is $100,000. Principal and interest are payable
in monthly installments of approximately $2,213 per
month with the final payment due on September 15, 2004. 70,477 94,095
Fixed rate 7% promissory note with revolving line to
a bank, secured by equipment, accounts receivable and
inventory. Maximum amount available on the line is
$1,100,000, interest is due monthly, note is due June
14, 2002. 1,053,020 -
Note payable to a bank, secured by Waxahachie real
estate, interest at prime plus 1% (5.75% at December
31, 2001), principal and interest due April 2002. 345,295 951,005
Note payable due to fomer chairman of the board for
the amount of $1,145,000 bearing interest at 9.6%.
Principal and interest of $118,346 were past due
December 31, 2001. 797,000 1,165,986
---------- -----------
Total mortgage and notes payable to banks 2,765,792 17,040,960
Less current maturities (2,720,610) (16,972,971)
---------- -----------
Mortgage and notes payable to banks, excluding current
installments $ 45,182 $ 67,989
========== ===========
The aggregate annual maturities of mortgage and notes payable as of December 31,
2001 are as follows:
Years Ending December 31:
2002 $ 2,720,610
2003 25,554
2004 19,628
-----------
Total $ 2,765,792
===========
42
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
On December 4, 2000 and December 26, 2000, the Company executed two
promissory notes with NeoRx for $500,000 and $400,000, respectively. A
portion of the $500,000 paid to the company was to be applied as
payment in full of all outstanding amounts owed by NeoRx to the
Company. Any excess amounts due under the promissory note were due in
full by April 30, 2001 and bear interest at Prime plus 2.00% per annum.
The $400,000 was due in full by April 30, 2001 and bears interest at
Prime plus 2.00% per annum. The notes were issued in conjunction with
and subject to the terms of the letter of intent to acquire certain
assets of the Company. On April 20, 2001, the transaction to acquire
certain of the Company's assets closed and the cash proceeds remitted
to the Company were net of amounts outstanding under these promissory
notes.
On October 9, 1998, the Company executed two promissory notes with a
commercial lender for the purpose of refinancing existing short-term
debt and to provide a line of credit based on eligible accounts
receivable. The financing included a $15,000,000 note to be repaid in
monthly installments of principal and interest in the amount of
$154,379 through November 2003 at which time the remaining principal
balance would be due. In 2001 proceeds from the sale of assets and an
assumption of debt (Note 2) were used to pay off this note.
On August 3, 2000, the Company executed a loan agreement with the
Eastern Idaho Economic Development Council for $100,000. Under the
terms of this agreement, the loan bears interest at 3% and payments in
the amount of $2,091are due monthly beginning October 15, 2000 and
continuing through September 15, 2004. Additionally, the Company must
maintain minimum levels of employment in Eastern Idaho throughout the
term of the note. As collateral for this loan, the Company has an
irrevocable letter of credit with a bank for $85,000. The letter of
credit is secured by a certificate of deposit in the same amount and is
recorded as part of restricted cash.
At December 31, 2000, the Company had a revolving line of credit with a
maximum availability of $5,000,000. The interest rate, currently 6.0%,
is one percent over the prime rate as listed by the Wall Street Journal
and resets every six months. During 2001, as part of the asset sales,
this loan was restructured and was paid down to $345,295. As
restructured, security on this loan consists of the Waxahachie real
estate. This note comes due in April of 2002.
In May 2000, the Company executed a promissory note with the chairman
of the Board in the amount of $1,000,000. The note bears interest at a
rate of 9.6% and is due May 2001. In September 2000, the note was
increased by $145,000 to $1,145,000. During 2001, $348,000 was repaid
on this loan reducing the principal to $797,000.
NOTE 8 - STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Redeemable Convertible Preferred Stock
Under the terms of the original Articles of Incorporation and By-Laws
in effect at December 31, 1996, the Company was authorized to issue
5,000,000 shares of Preferred Stock, par value $1.00 per share. No
shares of $1.00 par Preferred Stock were issued. Restated Articles of
Incorporation and By-Laws adopted by the Company effective March 20,
1997, changed the par value of Preferred Stock to $0.01 and revised
certain voting rights. Under the Restated Articles of Incorporation and
By-Laws, Preferred Stock may be issued in series from time to time at
the discretion of the Board of Directors. The Board of Directors is
authorized to set the distinguishing characteristics of each series
prior to issuance, including the granting of limited or full voting
rights, rights to payment of dividends and amounts payable in event of
liquidation, dissolution or winding up of the Company.
In May 1999 and October 1999, the Company issued a total of 10,000
shares (5,000 in May 1999 and 5,000 in October 1999) of 5% cumulative
redeemable convertible $0.01 par value $1,000 face value preferred
stock ("Series A Preferred Stock") together with 410,000 warrants to
purchase common stock at $11.86 per share, for aggregate proceeds of
$10,000,000, before issuance costs of $600,000. The warrants are
exercisable at any time for a three-year period from the date of grant.
Dividends are 5% per annum payable in cash or common stock (at the
Company's option) beginning October 15, 1999 for the May issuance and
January 15, 2000 for the October issuance and continuing quarterly
thereafter through May 20, 2002 for the May 1999 issuance and October
15, 2002 for the October 1999 issuance. 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"). As of December 31, 1999, the Company had paid cash
dividends on the Preferred Stock of $102,736.
44
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
The warrants associated with the Series A Preferred Stock were valued
as of the dates issued. On May 20, 1999, 205,000 warrants were issued.
The resulting value, using Black-Scholes model with the value of the
underlying stock being $11.67, exercise price of $11.86, volatility
rate of 60%, risk free rate of 5.6% and contractual life of three
years, was $5.17 per warrant or $1,059,850. On October 15, 1999,
another 205,000 warrants were issued. The resulting value, using
Black-Scholes model with the value of the underlying stock being $5.63,
exercise price of $11.86, volatility rate of 60%, risk free rate of
5.6% and contractual life of three years, was $1.32 per warrant or
$270,600. The total warrant value, $1,330,450, was recorded to
additional paid-in capital and to discount on redeemable convertible
preferred stock, which discount is being accreted to Series A Preferred
Stock from the date of issuance to the date of mandatory redemption of
the Series A Preferred Stock.
After consideration of the warrant value, the Preferred Stock has a
"beneficial conversion feature" of $1,930,450 that has been recognized
as an additional return to the holders through a charge to accumulated
deficit and an increase to additional paid-in capital.
The Series A Preferred Stock was mandatorily redeemable on May 20, 2002
in cash or common stock at the then Average Price, at the Company's
option. In March, 2001, the holders of Series A Preferred Stock agreed
to a modification in terms, which removed their early redemption rights
and certain adjustments to their conversion price. The Series A
Preferred Stock was then convertible to common stock at a fixed price
of $2.00 per share, subject to adjustment in the case of stock splits
or stock dividends. As consideration for those concessions, the Company
distributed to the holders of Series A Preferred Stock an aggregate of
439,150 warrants to purchase NeoRx common stock that the Company had
received in connection with the sale of the Radiopharmaceutical
Manufacturing Facility to NeoRx.
On June 15, 2000, the Company completed a private placement of 10,000
shares of 7% cumulative redeemable convertible $0.01 par value $1,000
face value preferred stock ("Series B Preferred Stock") together with
2,500,000 warrants to purchase common stock at $4.00 per share, for
aggregate proceeds of $10 million, before issuance costs of $595,000.
Dividends are 7% per annum payable in cash or common stock (at the
Company's option) beginning September 1, 2000 and continuing quarterly
thereafter through June 1, 2003.
The Company assigned an aggregate value of $3,283,582 to the warrants
($1.31 per share) using an option pricing model with the following
assumptions: market value of underlying stock of $4.50 on the issuance
date, exercise price of $4.00 per share, volatility of 60%, risk-free
interest rate of 6.50%, and contractual term of three years. The
warrant value was recorded to additional paid-in capital and to
discount on redeemable convertible preferred stock, which discount is
being accreted to the Series B Preferred Stock over 5 1/2 months, the
earliest redemption period.
After consideration of the warrant value and the in-the-money
conversion price at the commitment date, the Series B Preferred Stock
has a "beneficial conversion feature" of $5,213,582 that has been
recognized as an additional return to the holders through a charge to
accumulated deficit and an increase to additional paid-in capital. The
beneficial conversion feature is considered an additional return to the
preferred stockholders in the determination of net loss applicable to
the common shareholders.
45
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
The Series B Preferred Stock was mandatorily redeemable on May 31, 2003
in cash or common stock at the then Average Price, at the Company's
option. When originally issued, holders of Series B Preferred Stock
could require early redemption on December 1, 2000 and June 1, 2001.
Other mandatory redemption events included 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. In March,
2001, the holders of Series B Preferred Stock agreed to a modification
in terms, which removed their early redemption rights and certain
adjustments to their conversion price. The Series B Preferred Stock was
then convertible to common stock at a fixed price of $2.00 per share
subject to adjustment in the case of stock splits or stock dividends.
As consideration for those concessions, the Company distributed to the
holders of Series B Preferred Stock an aggregate of 360,850 warrants to
purchase NeoRx common stock that the Company had received in connection
with the sale of the Radiopharmaceutical Manufacturing Facility to
NeoRx. The NeoRx warrants were valued using the intrinsic method of
accounting resulting in no value being assigned to the warrants.
The conversion price applicable to the Company's Series A Preferred
Stock issued in May and October 1999 was altered, in accordance with
its terms, upon the issuance of the Series B Preferred Stock on June
15, 2000. Under it terms, the Company was required to alter the price
used to calculate the number of common shares issuable upon the
conversion of the Series A Preferred Stock to Common Stock. The
conversion price was reduced to $4.00 from a floor of $7.00 and a
ceiling of $11.86. This change caused an increase in the value of the
beneficial conversion feature in the amount of $1,250,000 that has been
recognized as an additional return to the holders through a charge to
accumulated deficit and an increase to additional paid-in capital. The
beneficial conversion feature provided to the Series A preferred
stockholders has also been included in the determination of net loss
applicable to common shareholders. Additionally, with respect to the
holders of the Series A Preferred Stock, the Company was required to
increase the number of warrants to purchase common stock granted to
them from 410,000 to 1,215,650 and decrease the warrant exercise price
to $4.00 from $11.86. These changes caused an increase in the value of
the warrants from $1,330,450, calculated at the original issuance of
the warrants, to $2,340,127. The revised value was calculated using an
option pricing model with the market value of the underlying stock of
$4.50, exercise price of $4.00, volatility rate of 60%, a risk free
interest rate of 6.5% and the contractual term of the warrants which is
three years. This increase in warrant value of $1,009,677 has been
recognized as an additional return to the Series A preferred
stockholders through a charge to accumulated deficit and an increase to
additional paid-in capital. The incremental warrant value provided to
the Series A preferred stockholders has also been included in the
determination of net loss applicable to common shareholders.
The conversion price applicable to the Company's Series A Preferred
Stock issued in May and October 1999 was again altered, in accordance
with its terms, on August 22, 2000 upon the 180 day reset of the
exercise price of warrants issued with common stock during the
February, 2000 private placement. Under its terms, the Company was
required to alter the price used to calculate the number of common
shares issuable upon the conversion of the Series A Preferred Stock to
Common Stock. The conversion price was reduced to $3.38 from $4.00.
This change caused an increase in the value of the beneficial
conversion feature in the amount of $1,834,320 that has been recognized
as an additional return to the holders through a charge to accumulated
deficit and an increase to additional paid-in capital. The beneficial
conversion feature provided to the Series A preferred stockholders has
also been included in the determination of net loss applicable to
common shareholders. Additionally, with respect to the holders of the
Series A Preferred Stock, the Company was required to increase the
number of warrants to purchase common stock granted to them from
1,215,650 to 1,438,640 and decrease the warrant exercise price to $3.38
from $4.00. These changes caused an increase in the value of the
warrants from $2,340,127, calculated at the original issuance of the
warrants and previously adjusted by the Series B issuance, to
$2,474,461. The revised value was calculated using an option pricing
model with the value of the underlying stock of $4.00, exercise price
of $3.38, volatility rate of 60%, a risk free interest rate of 6.5% and
the contractual term of the warrants. This increase in warrant value of
$134,334 has been recognized as an additional return to the Series A
preferred stockholders through a charge to accumulated deficit and an
increase to additional paid-in capital. The incremental warrant value
provided to the Series A preferred stockholders has also been included
in the determination of net loss applicable to common shareholders.
46
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
In March 2001, the holders of the Series A Preferred Stock agreed to a
modification in terms, which removed their early redemption rights and
certain adjustments to their conversion price. The Series A Preferred
Stock was then convertible to common stock at a fixed price of $2.00
per share, subject to adjustment in the case of stock splits or stock
dividends. In connection with this modification, the exercise price of
the Series A Preferred Stock warrants were also reduced to $2.00 per
warrant. Because the underlying stock value of the common stock at the
date of adjustment was less than the new exercise price, the repricing
of the warrants resulted in no additional value to the Series A
Preferred Stockholders.
As consideration for those concessions, the Company distributed to the
holders of the Series A Preferred Stock an aggregate of 439,150
warrants to purchase NeoRx common stock that the Company had received
in connection with the sale of the Radiopharmaceutical Manufacturing
Facility to NeoRx. The NeoRx warrants were valued using the intrinsic
method of accounting resulting in no value being assigned to the
warrants.
During April 2000, the Company disbursed $125,000 to satisfy it Series
A redeemable preferred stock dividend. For all other Series A and
Series B redeemable convertible preferred stock dividends in 2000, the
Company elected to issue common stock in payment for the quarterly
dividends. The Company satisfied these dividend payments by issuing a
total of 384,631 shares of common stock with an average price of
approximately $1.85 per share.
During 2001, with the exception of the July 15 and the October 15
Series A Preferred dividends which were waived by the preferred
shareholders, the Company for all other Series A and Series B
redeemable convertible preferred stock dividends in 2001, elected to
issue common stock as payment for the quarterly dividends. The Company
satisfied these dividend payments by issuing a total of 15,594,724
shares of common stock. The preferred shareholders have waived all
future dividends for both the Series A and Series B redeemable
convertible preferred stock.
On October 20, 2000, holders of 1,783 shares of Series B redeemable
convertible preferred stock, with a face value of $1,783,000, converted
their preferred stock to 445,750 shares of common stock at the
conversion price of $4.00 per share. In addition, on October 20, 2000,
the Company elected to pay prorated dividends on the converted shares
of $17,097, by issuing 6,104 shares of common stock at $2.80 per share.
47
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
During April and June of 2001, certain holders of Series B redeemable
preferred stock converted 750 shares of preferred stock into 375,000
shares of common stock valued at $750,000 or $2.00 per common share.
Common stock
During 1997, the Company issued common stock in exchange for notes
receivable. The full recourse notes were due December 31, 2000. As of
December 31, 2000, the Company forgave all notes receivable from
stockholders. As a result, during 2000 the Company recorded a charge in
the amount of $640,000 to general and administrative expenses (which
has since been reclassified as discontinued operations).
During January 1999, the Company issued in a private placement, 10
units consisting each of 16,000 shares of common stock and 16,000
warrants. The warrants expired November 2001. The private placement
resulted in net proceeds to the Company of $1,938,845 after deducting
placement fees and issuance costs of $61,155. During April 1999, the
Company issued in a private placement, 924,410 shares of common stock
and 924,410 warrants. The warrants are exercisable at any time during a
three-year period ending April 2002 at an exercise price of $10.00 per
share. The private placement resulted in net proceeds to the Company of
$8,115,852 after deducting placement fees and issuance costs of
$296,279. The total proceeds of these common stock issuances was
$10,054,697.
On October 1, 1999, the Company issued, as a prepayment of royalties
for I-125 brachytherapy seed sales, 98,039 shares of common stock. The
fair market value of the common stock on the date of issuance was
$10.20 per share or $1,000,000 in aggregate.
On November 8, 1999, the Company issued, as an inducement for
employment, 35,000 shares of common stock. The fair market value of the
common stock on the date of issuance was $4.94 per share or $172,812 in
aggregate. This stock issuance was recorded as compensation expense
when issued.
In February 2000, the Company issued in a private placement units of
its securities to accredited investors. Each unit consisted of 1 share
of common stock at $5.50 per share and a warrant to purchase one half
of an additional share at $5.50 per share. The Company sold units
representing 1,054,652 shares of common stock and warrants to purchase
an additional 527,326 shares to accredited investors for aggregate
consideration of approximately $5,801,000, before issuance costs of
approximately $423,000. Net proceeds to the Company were $5,378,177.
In August 2000, the Company issued stock, in two transactions, to
certain employees as compensation for services provided. On August 18,
2000 the Company issued 14,000 shares of common stock at $4.06 per
share for a total value of $56,875. On August 23, 2000 the Company
issued 5,000 shares of common stock at $3.88 per share for a total
value of $19,375. On October 4, 2000, the Company issued 100,000 shares
to Stonegate Securities for services provided in connection with the
private placement of common stock and warrant that closed in February
2000. The stock was issued at $3.88 per share for total consideration
of $387,500. On October 26, 2000, the Company issued 25,000 shares of
common stock at a value of $1.75 per share for a total value of $43,750
to an employee as compensation for services provided. Common stock
issued for services in 2000 was valued at $507,500.
On November 2, 2001, at the annual meeting of stockholders, the
stockholders ratified an amendment authorizing 250,000,000 shares of
common stock.
48
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Stock Option Plan
In January 1997, the Company adopted a Stock Incentive Plan (the Plan)
pursuant to which the Company's Board of Directors may grant stock
options to officers, key employees, and consultants. The Plan was
amended in 2000 to authorize grants of options to purchase up to
1,000,000 shares of authorized but unissued common stock. Stock options
are granted with an exercise price of not less than 85% of the quoted
market value of the common stock at the date of grant. The Company's
options generally have a three-year vesting period and a maximum term
of three years.
The Company accounts for stock options issued to directors, officers
and employees under Accounting Principles Board Opinion No. 25 and
related interpretations ("APB 25"). Under APB 25, compensation expense
is recognized if an option's exercise price on the measurement date is
below the fair value of the Company's common stock. For options that
provide for cashless exercise or that have been modified, the
measurement date is considered the date the options are exercised or
expire. Those options are accounted for as variable options with
compensation adjusted each period based on the difference between the
market value of the common stock and the exercise price of the options
at the end of the period. The Company accounts for options and warrants
issued to non-employees at their fair value in accordance with SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").
A summary of the stock options issued under the Company's Plan is as
follows:
Year Ended December 31, 1999
Weighted-Average
Fixed Options Shares Exercise Price
-------------------------------- -------- --------------
Outstanding at beginning of year 394,400 $ 9.33
Granted 429,700 5.38
Forfeited (136,700) 9.52
-------- ---------
Outstanding at end of year 687,400 $ 6.86
======== =========
Year Ended December 31, 2000
Weighted-Average
Fixed Options Shares Exercise Price
-------------------------------- -------- --------------
Outstanding at beginning of year 687,400 $ 6.86
Granted 376,600 4.75
Forfeited (194,500) 7.71
-------- ---------
Outstanding at end of year 869,500 $ 5.57
======== =========
49
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Year Ended December 31, 2001
Weighted-Average
Fixed Options Shares Exercise Price
-------------------------------- --------- --------------
Outstanding at beginning of year 869,500 $ 5.57
Granted 1,000,000 0.08
Forfeited (869,500) 5.57
--------- ---------
Outstanding at end of year 1,000,000 $ 0.08
========= =========
The following table summarizes information about fixed stock options
under the Plan outstanding at December 31, 2001:
Options Outstanding Options Exerciseable
Options Weighted- Weighted Number Weighted-
Outstanding at Average Average Exercisable at Average
Range of Exercise December 31, Remaining Exercise December 31, Exercise
Prices 2001 Contractual Life Price 2001 Price
--------------------------------------------------------------------------------------------------
$ 0.076 1,000,000 9.32 years $ 0.076 $500,000 0.076
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
assumptions:
2001 2000 1999
-------- -------- --------
Expected dividend yield - - -
Risk-free interest rate 4.4% 6.0% 5.8%
Expected volatility 153% 75% 77% - 103%
Expected life 3 years 3 years 3 years
Weighted average fair value $0.03 $2.59 $2.32
50
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan. No compensation cost has been recognized for
its stock options in the accompanying consolidated financial
statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123,
the Company's net loss applicable to common shareholders would have
been increased to the pro forma amounts indicated below for the years
ended December 31, 2001, 2000 and 1999:
2001 2000 1999
-------------------------------------------------
Net loss applicable As reported $(4,143,300) $(55,868,642) $(16,453,717)
to common shareholders =========== ============ ============
Pro forma $(4,166,484) $(56,747,027) $(16,752,465)
=========== ============ ============
Net loss per basic As reported $ (0.26) $ (5.77) $ (2.03)
and diluted share: =========== ============ ============
Pro forma $ (0.26) $ (5.86) $ (2.07)
=========== ============ ============
Warrants
On September 20, 1999, the Company engaged Stonegate Securities, Inc.
("Stonegate") to serve as its non-exclusive financial advisor and to
furnish investment-banking services to the Company. The Company paid an
initial fee of $5,000 on October 1, 1999, and a second fee of $25,000
on October 26, 1999. Beginning November 15, 1999, a fee of $5,000 per
month began, which amount shall be payable at the Company's sole
discretion, subject to Stonegate's satisfactory performance. In
addition, the Company delivered to Stonegate warrants to purchase
50,000 shares of common stock at $11.86 per share, vesting as follows.
Warrants to purchase 15,000 shares vested immediately upon ratification
of the agreement by the Company's board of directors. Warrants to
purchase 10,000 shares vested on January 15, 2000. Warrants to purchase
25,000 shares were to vest at the Company's sole discretion, subject to
Stonegate's satisfactory performance. The Company recorded expenses of
$6,033 and $37,967 during 2000 and 1999 respectively, related to the
vesting of these warrants. As of December 31, 2001 none of the warrants
had been exercised. The original term of the engagement was a
twenty-four month period from the date of the agreement. The agreement
was terminated October 4, 2000 and the Company issued 100,000 shares of
common stock in full settlement of the services provided to the
Company.
The following summarizes outstanding warrants at December 31, 2001:
Outstanding at December 31, 2001 Exercisable at December 31, 2001
-------------------------------- --------------------------------
Weighted Average Weighted Average
Remaining Remaining
Exercise Prices Warrants Contractual Life Warrants Contractual Life
--------------------------------------------------------------------------------------------------
$3.38 - $5.50 4,465,966 0.90 years $ 4,465,966 0.90 years
$10.00 924,410 0.05 years 924,410 0.05 years
51
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
NOTE 9 - INCOME TAXES
Income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34% to pretax losses as a
result of the following:
2001 2000 1999
---------- ------------ -----------
Computed "expected tax benefit $ (958,194) $(13,934,465) $(4,793,186)
Nondecuctible expenses and other 2,000 15,200 14,524
Prior year adjustment - - (13,081)
Change in valuation allowance 956,194 13,919,265 $ 4,791,743
---------- ------------ -----------
Total income tax expense $ - $ - $ -
========== ============ ===========
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets (liabilities) as of
December 31, 2001 and 2000 are presented below:
2001 2000
----------- ------------
Deferred tax assets:
Goodwill $ - $ 531,174
Startup costs - 2,182,476
Property, plant and equipment (50,000) (95,038)
Net operating loss carryforward 23,235,504 13,988,233
Impairment charge 121,874 5,737,597
Inventory reserve - 6,742
----------- ------------
Deferred Tax Asset 23,307,378 22,351,184
Less valuation allowance (23,307,378) (22,351,184)
----------- ------------
Net deferred taxes $ - $ -
=========== ============
The valuation allowances for 2001 and 2000 have been applied to offset
the deferred tax assets in recognition of the uncertainty that such tax
benefits will be realized. The net change in valuation allowance for
the years ended December 31, 2001, 2000, and 1999 was an increase of
$956,194, $13,919,265 and $4,791,743 respectively. At December 31,
2000, the Company has a net operating loss carryforward for tax
purposes of approximately $68,000,000 that will begin expiring in 2018.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases office space, certain office equipment and
production equipment under operating leases expiring at various dates
through 2005. Rental expense under such leases for the years ended
December 31, 2001, 2000 and1999 was $69,006, $64,805, and $161,823,
respectively, excluding discontinued operations.
52
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) as of
December 31, 2001 are:
Operating
Years ending December 31 Leases
------------------------ ---------
2002 $ 68,080
2003 65,941
2004 64,972
2005 16,215
Thereafter -
---------
Total minimum lease payments $ 215,208
=========
Capital Leases
At December 31, 2000, the Company had $3,557,646 outstanding in capital
leases. As part of the asset sales described in Note 2, these capital
lease obligations were settled at the time of closing on these asset
sales.
Employment Contract
The Company has a five-year employment contract with the Company's
president. The employment agreement extends through February 2007.
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. The gemstone production is tied to an
exclusive agreement with Quali Tech Inc. who in turn has a contract
with The Topaz Group, Inc. Medical flood source manufacturing is
conducted under an exclusive contract with RadQual, LLC. who in turn
has agreement in place with several companies for marketing and sales.
Contingencies
In March 2001, I4 terminated its commercial use subcontract agreement
that was first established in 1996 at the Idaho National Engineering
and Environmental Laboratory. This contract had permitted access to the
Idaho research reactor for isotope production but also included an
obligation to pay for the operations of a DOE owned processing
facility. The cost of supporting those operations had increased
considerably in the past several years to the point of no longer being
a profitable operation under those contractual arrangements. The
termination of this contract will not effect the Company's plans to
continue HSA cobalt production as some material remains in production
in the DOE reactor facility and this material can be shipped directly
from the reactor site to the customers facilities' without any
processing in the government laboratory.
The Company conducts its operations in Idaho Falls, Idaho. Although the
medical flood source and gemstone products appear diverse they share
the common link as 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 has, in fact,
continued to amend this license several times during 2001 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 $132,614 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.
53
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
Associated with the sale of the Shady Oaks Linac Facility and the
assumption of debt by the purchaser, the Company retains an obligation
of $500,000 on that loan for six months or until purchaser renews their
note with Texas State Bank. The Company also retains an obligation
(also for six months or until purchaser renews the note) for
decommissioning the Shady Oaks/LINAC facility should the purchaser
default on payment or not meet Texas State Bank requirements for note
renewal. Because an amount is not probable nor estimable, no reserve
has been established for the decommissioning of the Shady Oaks/Linac
facility.
NOTE 11 - SUBSEQUENT EVENTS
In January 2002 certain persons acting together as a group acquired all
of the Company's outstanding shares of Series A 5% Convertible
Redeemable Preferred Stock and certain common stock from its then
current owners. The securities acquired consisted of all 10,000 shares
of Series A Preferred Stock and 2,087,837 shares of common stock. Also
in January 2002, the Company reacquired 2,817 shares (or 37.7%) of the
Company's Series B 7% Convertible Redeemable Preferred Stock for
$86,832.
In February and March 2002 the Company gained approval from 100% of the
holders of Series A and 80% of the holders of Series B Preferred Stock
to amend their respective Certificates of Designation to eliminate the
Series A 5% dividend and the Series B 7% dividend, change the mandatory
redemption date for the all Preferred Stock to May 2022, and remove
certain default and penalty provisions. In addition, the Company's
Board of Directors approved a purchase offer of the Series A and B
Preferred Stock (5000 common shares for each one share of Series A or B
Preferred Stock). The same percentages of Series A and B holders have
agreed to sell their preferred shares for common stock.
All of the holders of the Series A Preferred Stock agreed to sell their
10,000 preferred shares for 50,000,000 shares of common stock at $0.20
per share. Holders of the Series B Preferred Stock agreed to sell their
3,700 preferred shares for 18,500,000 shares of common stock at $0.20
per share.
Effective March 2002, the Company amended and restated the 2000 Stock
Incentive Plan. The 2002 Long-Term Incentive Plan (the Plan) authorizes
grants of options to purchase up to 20,000,000 shares of authorized and
unissued shares or issued and outstanding shares of common stock. The
maximum number of options granted to each employee in one year is
10,000,000.
In February 2002, the Company granted an additional 13,000,000 options
to purchase shares of common stock with an exercise price of $0.02 per
share, which was equal to the closing market price of the common stock
on the date of grant. These options vest through February 2005.
In March 2002 the Company made a $20,000 payment to the former chairman
of the board and put a new 10-year note in place for the remaining
balance owed. The new note amount was set at $909,737 with annual
income based payments fixed at 7% interest plus 30% of the Company's
pretax net profits to be paid toward principal on the note. The former
chairman agreed to declare any previous notes or agreements as null and
void.
54
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2001 and 2000
NOTE 12 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The quarterly information from 2000 has been adjusted from the prior year 10-K
to reflect the impact of discontinued operations.
Year Ended December 31, 2001
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ------------ ----------- ------------ ------------
Revenues $ 537,267 $ 505,327 $ 803,801 $ 331,505 $ 2,177,900
Profit (loss) from operations (44,626) (48,598) 13,027 (963,900) (1,044,097)
Profit (loss) from
discontinued operations (3,553,025) 2,186,495 (362,847) (44,741) (1,774,118)
----------- ------------ ----------- ------------ ------------
Net profit (loss) $(3,597,651) $ 2,137,897 $ (349,820) $ (1,008,641) $ (2,818,215)
=========== ============ =========== ============ ============
Net profit (loss) applicable
to common shareholders $(3,730,101) $ 2,005,447 $ (482,270) $ (1,141,091) $ (4,143,300)
=========== ============ =========== ============ ============
Basic and diluted profit
(loss) per common share $ (0.33) $ 0.14 $ (0.03) $ (0.05) $ (0.26)
=========== ============ =========== ============ ============
Year Ended December 31, 2000
------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
----------- ------------ ----------- ------------ ------------
Revenues $ 472,492 $ 475,715 $ 449,847 $ 678,830 $ 2,076,884
Loss from operations (729,035) (538,624) (1,779,140) (2,957,045) (6,003,844)
Loss from discontinued
operations (3,520,150) (4,861,879) (2,974,026) (23,510,272) (34,866,327)
----------- ------------ ----------- ------------ ------------
Net loss $(4,267,840) $ (5,429,216) $(4,789,681) $(26,496,983) $(40,983,720)
=========== ============ =========== ============ ============
Net loss applicable to common
shareholders $(4,506,160) $(13,587,692) $(9,353,442) $(28,421,348) $(55,868,642)
=========== ============ =========== ============ ============
Basic and diluted loss per
common share $ (0.48) $ (1.41) $ (0.97) $ (2.91) $ (5.77)
=========== ============ =========== ============ ============