FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Texas
______________________________________________________________
(State or other jurisdiction of incorporation or organization)
74-2763837
____________________________________
(IRS Employer Identification Number)
4137 Commerce Circle
Idaho Falls, ID. 83401
________________________________________
(Address of principal executive offices)
208-524-5300
___________________________
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES [X] NO
As of July 26, 2005 the number of shares of Common Stock, $.01 par value,
outstanding was 183,633,693.
INTERNATIONAL ISOTOPES INC.
TABLE OF CONTENTS
Page No.
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Unaudited Condensed Consolidated Balance Sheets
at June 30, 2005 and December 31, 2004 3
Unaudited Condensed Consolidated Statements of
Operations for the Three and Six Months Ended
June 30, 2005 and 2004. 4
Unaudited Condensed Consolidated Statements of
Cash Flows for the Six Months Ended June 30, 2005
and 2004 5
Notes to Unaudited Condensed Consolidated
Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 - Controls and Procedures 13
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 15
SIGNATURES 16
CERTIFICATIONS 17
2
Part I. Financial Statements
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
June 30,
2005 December 31,
Assets (unaudited) 2004
----------------------------------------------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 255,607 $ 150,051
Accounts receivable 315,044 432,750
Inventories 2,290,122 2,237,421
Prepaids and other current assets 267,556 91,520
------------ ------------
Total current assets 3,128,329 2,911,742
Long-term assets
Restricted certificate of deposit 176,471 152,728
Property, plant and equipment, net 1,238,077 1,123,226
Capitalized lease disposal costs, net of accumulated
amortization 120,351 101,860
Patents, net of accumulated amortization 103,061 98,433
------------ ------------
Total long-term assets 1,637,960 1,476,247
------------ ------------
Total assets $ 4,766,289 $ 4,387,989
============ ============
Liabilities and Stockholders' Equity
-----------------------------------------------------
Current liabilities
Accounts payable $ 253,388 $ 328,589
Accrued liabilities 299,134 226,338
Current installments of notes payable 2,223,745 1,520,570
------------ ------------
Total current liabilites 2,776,267 2,075,497
Long-term liabilities
Obligation for lease disposal costs 174,745 149,332
Mortgage and notes payable, excluding current installments 37,416 761,775
Mandatorily redeemable preferred stock, $0.01
par value; 850 shares outstanding 850,000 850,000
------------ ------------
Total long-term liabilities 1,062,161 1,761,107
------------ ------------
Total liabilities 3,838,428 3,836,604
Stockholders' equity
Common stock, $0.01 par value; 500,000,000 shares
authorized; 183,583,785 and 159,077,940 shares
issued and outstanding, respectively 1,835,837 1,590,779
Additional paid-in capital 88,509,032 87,773,992
Retained deficit (89,417,008) (88,813,386)
------------ ------------
Total stockholders' equity 927,861 551,385
------------ ------------
Total liabilities and stockholders' equity $ 4,766,289 $ 4,387,989
============ ============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
Three Months ended June 30, Six Months ended June30,
------------------------------ ------------------------------
2005 2004 2005 2004
------------- ------------- ------------- -------------
Sale of product $ 663,264 $ 467,359 $ 1,348,831 $ 1,210,684
Cost of product 381,253 325,780 734,000 768,735
------------- ------------- ------------- -------------
Gross profit 282,011 141,579 614,831 441,949
------------- ------------- ------------- -------------
Operating costs and expenses:
Salaries and contract labor 238,210 161,956 457,821 318,690
General, administrative and consulting 352,505 266,236 645,245 528,979
Research and development 26,678 13,412 38,872 26,979
------------- ------------- ------------- -------------
Total operating expenses 617,393 441,604 1,141,938 874,648
------------- ------------- ------------- -------------
Operating loss (335,382) (300,025) (527,107) (432,699)
Other income (expense):
Other income -- 30 574 8,730
Interest income 985 590 1,471 1,340
Interest expense (40,054) (40,792) (78,560) (79,055)
------------- ------------- ------------- -------------
Total other expense (39,069) (40,172) (76,515) (68,985)
------------- ------------- ------------- -------------
Net loss $ (374,451) $ (340,197) $ (603,622) $ (501,684)
============= ============= ============= =============
Net loss per common share - basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============= ============= =============
Weighted average common shares outstanding -
basic and diluted 183,575,567 144,684,246 179,323,436 142,372,917
============= ============= ============= =============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months ended June 30,
2005 2004
----------- -----------
Cash flows from operating activities:
Net loss $ (603,622) $ (501,684)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 110,053 88,576
Loss on disposal of property, plant and equipment -- 380
Changes in operating assets and liabilities:
Restricted certificate of deposit (23,743) (1,172)
Accounts receivable 117,705 (217,633)
Prepaids and other assets (176,036) 24,798
Inventories (52,701) 9,194
Accounts payable and accrued liabilities (2,405) 123,773
----------- -----------
Net cash used in operating activities (630,749) (473,768)
----------- -----------
Cash flows from investing activities:
Purchase of patents (10,287) (105,000)
Purchase of property, plant and equipment (212,322) (223,696)
----------- -----------
Net cash used in investing activites (222,609) (328,696)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of warrants 979,894 801,590
Proceeds from sale of stock 1,397
Proceeds from issuance of debt (redemption of debt) (1,193) 603,950
Principal payments on notes payable (21,184) (10,960)
----------- -----------
Net cash provided by financing activities 958,914 1,394,580
----------- -----------
Net increase in cash and cash equivalents 105,556 592,116
Cash and cash equivalents at beginning of period 150,051 160,216
----------- -----------
Cash and cash equivalents at end of period $ 255,607 $ 752,332
=========== ===========
Supplemental disclosure of cash flow activities:
Cash paid for interest $ 74,084 $ 33,874
=========== ===========
Supplemental disclosure of noncash transactions:
Capitalization of lease disposal costs $ 25,413 $ --
----------- -----------
Note payable converted from interest payable $ -- $ 46,050
----------- -----------
Renewal/renegotiation of note payable $ -- $ 733,595
----------- -----------
See accompanying notes to condensed consolidated financial statements.
5
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
(1) The Company and Basis of Presentation
International Isotopes Inc. (the Company) was incorporated in Texas in November
1995. The Company owns 100% of the outstanding common shares of International
Isotopes Idaho, Inc.
Nature of Operations - The Company's business consists of five major business
segments which include: Nuclear Medicine Reference and Calibration Standards,
Cobalt Products, Radiochemical Products, Fluorine Extraction Products, and
Radiological Processing Services. With the exception of certain unique products,
the Company's normal operating cycle is considered to be one year. Due to the
time required to produce some cobalt products, the Company's operating cycle for
those products is considered to be three years. All assets expected to be
realized in cash or sold during the normal operating cycle of business are
classified as current assets. As of June 30, 2005, the Company had seventeen
full time employees.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly owned subsidiary International Isotopes
Idaho, Inc. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Interim Financial Information - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and notes required by accounting principles generally accepted in
the United States of America for complete financial statements. In the opinion
of management, all adjustments and reclassifications considered necessary for a
fair and comparable presentation have been included and are of a normal
recurring nature. Operating results for the six-month period ended June 30, 2005
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2005. The accompanying financial statements should be read
in conjunction with the Company's most recent audited financial statements.
Stock-based Compensation Plans - The Company accounts for stock options issued
to directors, officers and employees under Accounting Principles Board Opinion
No. 25 and related interpretations ("APB 25"). 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").
No compensation cost has been recognized for 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 issued to
employees under SFAS No. 123, the Company's net loss would have been increased
to the pro forma amounts indicated below for the three and six months ended June
30, 2005 and 2004:
6
For the Three Months Ended For the Six Months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------
Net loss applicable to common shareholders, as reported $ (374,451) $ (340,197) $ (603,622) $ (501,684)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (39,342) (10,953) (84,694) (28,129)
------------- ------------- ------------- -------------
Pro forma net loss $ (413,793) $ (351,150) $ (688,316) $ (529,813)
============= ============= ============= =============
Loss per share, basic and diluted:
As reported $ -- $ -- $ -- $ --
============= ============= ============= =============
Pro forma $ -- $ -- $ -- $ --
============= ============= ============= =============
(2) Current Developments and Liquidity
Business Condition - Since inception, the Company has suffered substantial
losses. During the three and six-month periods ended June 30, 2005 the Company
had a loss of $374,451 and $603,622 respectively compared to a loss of $340,197
and $501,684 during the same periods ended June 30, 2004. During the six-month
period ended June 30, 2005, the Company's operations used cash of $630,749 in
operating activities. During the period ended June 30, 2004, the Company's
operations used cash of $473,768. The Company has taken steps to improve
financial performance and diversify its customer base. The Company believes that
the additional hot cells and new production contracts for isotope sales, source
recycling, and cobalt source fabrication will lead to increased revenue and
improved cash flow. Based upon these improvements to business condition
management expects to generate sufficient cash flows to meet operational needs
during 2005; however, there is no assurance that these cash flows will occur.
(3) Net Loss Per Common Share - Basic and Diluted
As of June 30, 2005 there were 42,403,548 warrants and 18,150,000 options
outstanding and 850 shares of Series 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.
(4) Inventories
Inventories consist of the following at June 30, 2005 and December 31, 2004
June 30, 2005 December 31, 2004
----------------- -----------------
Raw materials $ 267,173 $ 267,850
Work in progress 2,022,949 1,968,177
Finished goods - 1,394
----------------- -----------------
$ 2,290,122 $ 2,237,421
================= =================
7
(5) Acquisition of license rights
During the six months ended June 30, 2005, the Company filed a patent
application for a radioactive materials transportation container design. The
cost of this patent application preparation and filing was $10,287. The cost of
this patent application will be amortized over the next year or until the patent
is granted at which time the cost would be amortized over its estimated useful
life, which is 10 years for patents.
(6) Stockholders' Equity and Warrants
Warrants
In January 2005, the Company announced that the Series A warrants would be
redeemed at a redemption price of $0.001 per warrant. Prior to the redemption
date, 24,461,672 of Series A warrants were exercised for cash proceeds of
$978,467. The Company redeemed the remaining 972,457 Series A warrants for
$1,193.
During the six months ended June 30, 2005, 27,735 Series B warrants were
exercised for cash proceeds of $1,387. At June 30, 2005, the Company had
42,403,548 Series B warrants outstanding.
Stock Option Plan
In January 2005, the Company granted 150,000 options to an employee to purchase
shares of common stock with an exercise price of $0.07 per share, which was
equal to the closing market price of the common stock on the date of grant.
Employee Stock Purchase Plan
In accordance with the employee stock purchase plan authorized by the Board of
Directors in September 2004 and approved by the shareholders in July 2005,
Company employees began making payroll deductions in January 2005 and on May 9,
2005, the Company issued 16,437, shares of common stock for proceeds of $1,397.
(7) Commitments and Contingencies
Litigation
During April 2005, the Company was named as a defendant in a lawsuit filed in
the District Court of Texas for Denton County, by a former employee. The former
employee alleges breach of employment contract, stating that the Company failed
to provide him six months continuation pay upon termination, and seeks damages
of approximately $57,500, plus attorneys' fees and court costs. This suit is
still in the discovery stage and the Company intends to vigorously defend this
action.
The Company is party to a lawsuit filed by Iso-Science Laboratories, Inc.
against the Company, one of its customers and certain officers of this customer.
The lawsuit alleges the defendants are using information and equipment related
to nuclear medicine calibration and reference standards that the plaintiff
acquired from a previous employer of one of the defendants. The plaintiff seeks
(i) an injunction to restrain the Company from manufacturing, marketing, or
selling any of the products in question; (ii) a 55% royalty on the price of all
related products the Company sells; (iii) the return of all equipment and
information in question; (iv) disgorgement of profits received from the
manufacture and sale of the products in question; and (v) general and punitive
damages in an amount to be shown at the time of trial. The Company denied all
allegations and filed a counterclaim against the plaintiff on the basis that the
lawsuit was calculated to interfere with contractual arrangements and
prospective business or the Company.
8
The court established an anticipated trial start date of December 5, 2005. The
likelihood of an outcome favorable to the Company is not determinable at this
time. The Company could lose its major line of revenues and be required to make
substantial payments to the plaintiff if this lawsuit is settled unfavorably to
the Company. The Company has an agreement in place with its customer
indemnifying the Company from any loss arising from this lawsuit. The Company
does not expect the ultimate costs to resolve this matter will have a material
adverse effect on the consolidated financial position, results of operations, or
cash flow in the future. However, there is no guarantee that the customer can
bear the financial burden arising from defending and possible settlement of this
lawsuit.
Dependence on Third Parties
The Company is dependent upon the U.S. Department of Energy, and its prime
operating contractor, who controls the reactor and laboratory operations for
production of HSA Cobalt. The revenue associated with the sale of HSA Cobalt is
largely dependent on the Company's sole customer for this product. Nuclear
Medicine Reference and Calibration Standard manufacturing is conducted under an
exclusive contract with a single company, that in turn has agreements in place
with several product distributors. A loss of either of these customers could
adversely affect operating results by causing a delay in production or a
possible loss of sales.
Contingencies
Because all of the Company's business segments involve radioactive materials,
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 amended this license several times
each year 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 this license does not currently restrict the volume of business
performed or projected to be performed in the coming year. An irrevocable,
automatic renewable letter of credit against a Certificate of Deposit at Texas
State Bank has been used to provide the financial assurance required by the NRC
for the Idaho facility license.
(8) Segment Information
Segment information has been prepared in accordance with SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information."
The Company has five reportable segments which include: Nuclear Medicine
Reference and Calibration Standards, Cobalt Products, Radiochemical Products,
Fluorine Extraction Products and Radiological Processing Services. Information
regarding the operations and assets of these reportable business segments
follows:
9
Radio- Fluorine
Reference Cobalt chemical Extraction Radiological Total
Six months ended June 30, 2005 Standards Products Products Process Services Segments
---------- ---------- ---------- ---------- ------------ ----------
Revenues $ 719,078 $ 131,625 $ 338,064 $ -- $ 160,064 $1,348,831
Depreciation and amortization 18,262 21,617 25,904 9,017 14,548 89,348
Segment profit (loss) 315,014 49,586 (19,598) (266,188) 65,385 144,199
Segment assets 582,912 2,526,064 562,290 469,788 184,008 4,325,062
Expenditures for segment assets -- 10,287 1,800 209,787 -- 221,874
Radio- Fluorine
Reference Cobalt chemical Extraction Radiological Total
Six months ended June 30, 2004 Standards Products Products Process Services Segments
---------- ---------- ---------- ---------- ------------ ----------
Revenues $ 667,555 $ 363,509 $ 117,568 $ -- $ 61,688 $1,210,320
Depreciation and amortization 20,019 6,725 23,853 -- 16,371 66,968
Segment profit (loss) 291,922 148,619 (162,172) (62,284) (2,374) 213,711
Expenditures for segment assets -- 3,060 184,965 115,000 -- 303,025
Segment Corporate Total
Six months ended June 30, 2005 Totals Amounts Consolidated
---------- ---------- ------------
Revenues $1,348,831 $ -- $ 1,348,831
Depreciation and amortization 89,348 20,705 110,053
Net profit (loss) 144,199 (747,821) (603,622)
Total assets 4,325,062 441,227 4,766,289
Expenditures for assets 221,874 735 222,609
Segment Corporate Total
Six months ended June 30, 2004 Totals Amounts Consolidated
---------- ---------- ------------
Revenues $1,210,320 $ 364 $ 1,210,684
Depreciation and amortization 66,968 21,608 88,576
Net profit (loss) 213,711 (715,395) (501,684)
Expenditures for assets 303,025 25,671 328,696
Radio- Fluorine
Reference Cobalt chemical Extraction Radiological Total
Three months ended June 30, 2005 Standards Products Products Process Services Segments
---------- ---------- ---------- ---------- ------------ ----------
Revenues $ 355,650 $ 56,625 $ 177,604 $ -- $ 73,385 $ 663,264
Depreciation and amortization 9,124 10,994 13,001 5,333 7,274 45,726
Segment profit (loss) 162,811 14,916 (24,348) (139,276) 23,620 37,723
Segment assets 582,912 2,526,064 562,290 469,788 184,008 4,325,062
Expenditures for segment assets -- -- -- 79,105 -- 79,105
Radio- Fluorine
Reference Cobalt chemical Extraction Radiological Total
Three months ended June 30, 2004 Standards Products Products Process Services Segments
---------- ---------- ---------- ---------- ------------ ----------
Revenues $ 322,850 $ -- $ 103,979 $ -- $ 40,530 $ 467,359
Depreciation and amortization 11,124 3,737 13,255 -- 9,097 37,213
Segment profit (loss) 135,284 (14,838) (64,795) (38,787) 3,784 20,648
Expenditures for segment assets -- 2,005 823 -- -- 2,828
10
Segment Corporate Total
Three months ended June 30, 2005 Totals Amounts Consolidated
---------- ---------- ------------
Revenues $ 663,264 $ -- $ 663,264
Depreciation and amortization 45,726 10,535 56,261
Net profit (loss) 37,723 (412,174) (374,451)
Total assets 4,325,062 441,227 4,766,289
Expenditures for assets 79,105 735 79,840
Segment Corporate Total
Three months ended June 30, 2004 Totals Amounts Consolidated
---------- ---------- ------------
Revenues $ 467,359 $ -- $ 467,359
Depreciation and amortization 37,213 12,007 49,220
Net loss 20,648 (360,845) (340,197)
Expenditures for assets 2,828 4,636 7,464
(9) Subsequent events
Common Stock
During July 2005, the Company shareholders approved an increase in the
authorized common stock to 500,000,000 shares.
Warrants
During July 2005, 19,920 Series B warrants were exercised for cash proceeds of
$996.
Employee Stock Purchase Plan
During July 2005, the Company issued 29,988 shares of common stock to employees
under the employee stock purchase plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements, other than
statements of historical fact, including statements regarding industry prospects
and future results of operations or financial position, made in this Quarterly
Report are forward looking. Forward-looking statements reflect management's
current expectations, plans or projections. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date of this report. Certain risks and uncertainties that could cause our actual
results to differ significantly from management's expectations are described in
the risk factors set forth in our annual report on Form 10-KSB for the fiscal
year ended December 31, 2004 filed with the securities and Exchange Commission
on March 31, 2005. These factors describe some but not all of the factors that
could cause actual results to differ significantly from management's
expectations. The Company does not intend to publicly release any revisions to
these forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events. Readers are
urged, however, to review the factors set forth in reports that we file from
time to time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three- and six-month periods ended June 30, 2005 and 2004.
11
The Company's net loss for the three-and six- month periods ended June 30, 2005
were $374,451 and $603,622 respectively, as compared to a net loss of $340,197
and $501,684 respectively for the comparable periods of 2004. This represents an
increase in net loss of 10% and 20% respectively. The increase in net loss is
attributable to increased operational expense attributed to staffing and
development of the Fluorine Extraction Process (FEP).
Revenues for the three-and six-month periods ended June 30, 2005 were $663,264
and $1,348,831 respectively, as compared to $467,359 and $1,210,684 respectively
for the same periods in 2004; an increase of $195,905, or 42%, and an increase
of $138,147 , or 11%, respectively. The increase in six-month period revenues
more accurately reflects the general growth in Company revenues realized through
increased sales of new and existing products. Gross profit for the three- and
six-month periods ended June 30, 2005 was $282,011 and $614,831 respectively, as
compared to $141,579 and $441,949 respectively for the same periods in 2004; an
increase of $140,432 and $172,882 respectively. Gross profit for the second
quarter as a percentage of revenue rose from 30% in 2004 to 43% in 2005. Gross
profit for the six-month period rose from 37% in 2004 to 46% in 2005. The
increase in gross profit was attributable to improved cost performance and
reduction of manufacturing expense.
Operating expenses increased by 40% to $617,393 and by 31% to $1,141,938
respectively for the three and six-month periods ended June 30, 2005 compared to
$441,604 and $874,648 respectively for the same periods of 2004. Salaries and
contract labor expenses for the three- and six-month periods ended June 30, 2005
were $238,210 and $457,821 respectively, as compared to $161,956 and $318,690
respectively for the same periods of 2004. General, administrative and
consulting expenses totaled $352,505 and $645,245 respectively for the three-
and six-month periods ended June 30, 2005 as compared to $266,236 and $528,979
respectively for the same periods of 2004. All of the increases in operating
expense and G&A are attributable to the new FEP product division of the Company.
Interest expense for the three and six month period ended June 30, 2005 was
$40,054 and $78,560 as compared to $40,792 and $79,055 for the comparable
periods in 2004. The differences were attributable to minor changes in interest
rates and principal balances of notes.
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2005 the Company had cash and cash equivalents of $255,607 compared
to $150,051 at December 31, 2004. For the six months ended June 30, 2005,
operating activities used cash of $630,749, investing activities used cash of
$222,609 and financing activities provided cash of $958,914. Cash from financing
activities consisted of the exercise of Series A or B warrants purchase to
common stock.
Our future liquidity and capital funding requirements will depend on numerous
factors, including, contract manufacturing agreements, commercial relationships,
technological developments, market factors, available credit, and voluntary
exercise of Series B Warrants. We have an open line of credit for $250,000 with
Texas State Bank that currently has a zero balance. We also have most of the
Series B Warrants still outstanding from the Company's Rights Offering conducted
in 2003. Exercise of those Series B Warrants would generate approximately $2
million in cash that could be used to pay down certain of our long-term
liabilities and continue development of the Fluorine Extraction Process (FEP).
This should continue to improve our financial strength, debt ratio, and
attractiveness to investors or lending institutions.
We have made significant investments into assets necessary to carry out new
revenue-producing operations and to manufacture new products. These include
radiochemical sales and the installation of a large cobalt-60 processing hot
cell that will support a wide range of cobalt products such as cobalt source
recycling services and teletherapy source manufacturing. We expect these areas
to contribute significantly to further growth in revenue and our customer base.
In addition, we continue to make significant investments in and advancement
towards, the start of fluorine producing operations utilizing the patented FEP
process. The first of our FEP products is expected to be launched by the end of
2005.
12
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of our principal
executive officer and principal financial officer, of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the "Exchange Act")). Based on this evaluation, the
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective.
There was no change in our internal controls over financial reporting during our
most recently completed fiscal quarter that has materially affected, or is
reasonably likely to affect our internal control over financial reporting.
Our CEO and CFO do not expect that our disclosure controls or our internal
controls will prevent all error and all fraud. Although our disclosure controls
and internal controls were designed to provide reasonable assurance of achieving
their objectives, a control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
system are met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based partly on certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
During April 2005, the Company was named as a defendant in a lawsuit filed in
the District Court of Texas for Denton County, by a former employee. The former
employee alleges breach of employment contract, stating that the Company failed
to provide him six months continuation pay upon termination, and seeks damages
of approximately $57,500, plus attorneys' fees and court costs. This suit is
still in the discovery stage and the Company intends to vigorously defend this
action.
Item 5. Other Information
On September 30, 2004, the Company adopted the International Isotopes Inc.
Employee Stock Purchase Plan (the "Employee Stock Purchase Plan"), which allows
employees to purchase shares of our common stock at a discount. On July 14,
2005, the date of the Company's annual shareholders meeting, the Company's
shareholders approved the Employee Stock Purchase Plan.
The Employee Stock Purchase Plan provides for the issuance of up to two million
shares of our common stock to provide employees of the Company and designated
subsidiaries with an opportunity to purchase shares of our common stock. If any
purchase right terminates for any reason without having been exercised, the
shares of common stock not purchased under such purchase right shall again
become available for the Employee Stock Purchase Plan. Shareholder approval of
the Employee Stock Purchase Plan enables employees to receive special tax
treatment provided by the Internal Revenue Code (the "Code"). The Employee Stock
Purchase Plan is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code, and the provisions of the Employee Stock Purchase Plan
will be construed so as to extend and limit participation in a manner consistent
with the requirements of that section of the Code.
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The Company's Compensation Committee administers the Employee Stock Purchase
Plan under authority delegated by the Company's Board of Directors, and the
Committee's authority includes the power to amend the Employee Stock Purchase
Plan to reduce or eliminate any unfavorable accounting consequences to the
extent it deems appropriate.
Generally, all employees of International Isotopes and its designated
subsidiaries whose customary employment is for more than 20 hours per week and
more than 5 months per year are eligible to participate in the Employee Stock
Purchase Plan. Any employee who would own or have options to acquire five
percent or more of the total combined voting power or value of all classes of
stock of International Isotopes or any subsidiary is excluded from participating
in the Employee Stock Purchase
Pursuant to procedures established by the Committee, eligible employees may
purchase shares of common stock under the Employee Stock Purchase Plan. Purchase
periods are established (currently contemplated to be successive three-month
periods) and purchases of shares of common stock are made on the last trading
day of the purchase period with contributions made by or compensation amounts
withheld from employees during the purchase period. Pursuant to procedures
established by the Committee, employees may suspend the amount of contributions
or compensation being withheld during a purchase period or may withdraw prior to
the end of the purchase period any amounts previously contributed or withheld
during the purchase period, without interest.
On each purchase date (the last trading day of each purchase period), any
amounts contributed or withheld from compensation during the applicable purchase
period for purposes of the Employee Stock Purchase Plan will be used to purchase
the greatest number of whole shares of common stock that can be purchased with
such amounts. The purchase price for a share of common stock will be set by the
Committee but will not be less than eighty-five percent of the lesser of the
fair market value of a share of common stock on the purchase date and the first
day of the applicable purchase period. For purposes of the Employee Stock
Purchase Plan, "fair market value" generally means the average of the high asked
and low bid price of a share of common stock for the day as reported on the
Over-the-Counter Bulletin Board (OTCBB).
The Code limits the aggregate fair market value of the shares of common stock
(determined as of the beginning of the purchase period) that any employee may
purchase under the Employee Stock Purchase Plan during any calendar year to
$25,000. Subject to the overall Employee Stock Purchase Plan limit, the
Committee determines the number of shares of common stock employees may purchase
under the Employee Stock Purchase Plan. The Committee may impose restrictions or
limitations on the resale of shares of common stock purchased under the Employee
Stock Purchase Plan.
The Employee Stock Purchase Plan provides for adjustment of the number of shares
of common stock which may be granted under the Employee Stock Purchase Plan as
well as the purchase price per share of common stock and the number of shares of
common stock covered by each purchase right for any increase or decrease in the
number of shares of common stock resulting from a stock split, reverse stock
split, stock dividend, extraordinary cash dividend, combination or
reclassification of the common stock or recapitalization, reorganization,
consolidation, split-up, spin-off or any other increase or decrease in the
number of shares of common stock effected without receipt of consideration by
International Isotopes.
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In the event of a proposed sale of all or substantially all of the assets of
International Isotopes or the merger of International Isotopes with or into
another corporation, outstanding rights to purchase shares will be assumed or an
equivalent right to purchase shares substituted by the successor corporation or
a parent or affiliate of the successor corporation. If the successor corporation
refuses to assume or substitute the right to purchase shares, any purchase
period then in progress will be shortened by setting a new purchase date and any
purchase period then in progress will end on the new purchase date.
In the event of any corporate transaction, the Committee may make such
adjustment it deems appropriate to prevent dilution or enlargement of rights in
the Employee Stock Purchase Plan, in the number, class of or price of shares of
common stock available for purchase under the Employee Stock Purchase Plan and
in the number of shares of common stock which an employee is entitled to
purchase and any other adjustments it deems appropriate. In the event of any
transaction, the Committee may elect to have the purchase rights under the
Employee Stock Purchase Plan assumed or such purchase rights substituted by a
successor entity, to terminate all outstanding purchase rights either prior to
their expiration or upon completion of the purchase of shares of common stock on
the next purchase date, or to take such other action deemed appropriate by the
Committee.
The Board may amend the Employee Stock Purchase Plan at any time, provided such
amendment does not cause rights issued under the portion of the Employee Stock
Purchase Plan to fail to meet the requirements of Section 423 of the Code.
Moreover, any amendment for which shareholder approval is required under Section
423 of the Code or any other applicable rule or regulation must be submitted to
the shareholders for approval. The Board may terminate the Employee Stock
Purchase Plan any time.
Item 6. Exhibits
3.2 Second Amended and Restated Articles of Incorporation
(incorporated by reference to Appendix C to the Company's
definitive proxy statement on Schedule 14A filed on April 28,
2005).
3.3 Bylaws (incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form SB-2 filed on May 1,
1997 (Registration No. 333-26269)).
31.1 Certification under Section 302 of the Sarbanes-Oxley Act of
2002 for Chief Executive Officer.
31.2 Certification under Section 302 of the Sarbanes-Oxley Act of
2002 for Chief Financial Officer.
32 Certification by the Chief Executive and Chief Financial Officer
Pursuant to 18 U.S.C. Section 1350 Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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SIGNATURES
In accordance with the requirements of the Exchange Act , the registrant caused
this report to be signed on its behalf by the undersigned hereunto duly
authorized.
International Isotopes Inc.
(Registrant)
By: /s/ Steve T. Laflin
_____________________________________
Steve T. Laflin
President and Chief Executive Officer
Date: August 11, 2005
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