-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HvyMvQpJDHmKD4s6XQzB6FYx195MzMXAqzOg0jSGq06pJW4xSDSmf2XJxOOjImVj iJStC+Ep3ZH9ozRrPQYseQ== 0000950134-99-007588.txt : 19990817 0000950134-99-007588.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007588 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL ISOTOPES INC CENTRAL INDEX KEY: 0001038277 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 742763837 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22923 FILM NUMBER: 99693976 BUSINESS ADDRESS: STREET 1: 3100 JIM CHRISTAL ROAD CITY: DENTON STATE: TX ZIP: 76207 BUSINESS PHONE: 9404849492 MAIL ADDRESS: STREET 1: 3100 JIM CHRISTAL ROAD CITY: DENTON STATE: TX ZIP: 76207 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 1 FORM 10-Q UNITED STATES SECURITIES EXCHANGE COMMISSION Washington, D. C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 Commission file number: 0-22923 INTERNATIONAL ISOTOPES INC. (Exact name of registrant as specified in its charter) Texas 74-2763837 (State of incorporation) (IRS Employer Identification Number) 3100 Jim Christal Rd. Denton, Texas 76207 (Address of principal executive offices) (zip code) 940-484-9492 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- As of August 12, 1999 the number of shares of Common Stock, $.01 par value, outstanding was 8,436,035. *Registrant became subject to the filing requirements of the Securities Exchange Act of 1934 on August 14, 1997, when its Registration Statements on Form SB-2 and Form 8-A were declared effective by the Commission. 2 INTERNATIONAL ISOTOPES INC. TABLE OF CONTENTS
Page No. PART I - FINANCIAL INFORMATION: Item 1 - Financial Statements: Condensed Consolidated Balance Sheets at June 30, 1999 3 and December 31, 1998 Condensed Consolidated Statements of Operations for the 4 Three Months Ended June 30, 1999 and 1998, and for the Six Months Ended June 30, 1999 and 1998, and for the period from November 1, 1995 (inception) through June 30, 1999. Condensed Consolidated Statements of Cash Flows for the 5 Six Months Ended June 30, 1999 and 1998 and for the period from November 1, 1995 (inception) through June 30, 1999. (1) Notes to Condensed Consolidated Financial Statements. 7 Item 2 - Management's Discussion and Analysis of Financial 10 Condition and Results of Operations PART II - OTHER INFORMATION: Item 2. Changes in Securities 13 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 15
- 2 - 3 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES (a development stage enterprise) Condensed Consolidated Balance Sheets
June 30, December 31, 1999 1998 Assets (unaudited) ------ ------------ ------------ Current assets: Cash and cash equivalents $ 8,344,050 6,371,704 Accounts receivable 1,300,602 240,433 Assets held for sale 205,974 526,533 Inventory 1,944,214 1,744,467 Other 204,548 78,578 ------------ ------------ Total current assets 11,999,388 8,961,715 Property, plant and equipment, net 38,786,249 32,350,399 Goodwill 1,541,074 1,687,846 Other Assets 2,144,743 2,302,743 ------------ ------------ Total assets 54,471,454 45,302,703 ============ ============ Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Equity --------------------------------------------- Current liabilities Accounts payable $ 2,524,781 1,825,246 Accrued liabilities 641,717 973,752 Current portion of lease obligations 1,095,195 235,309 Current installments of mortgage and notes payable to banks 1,108,285 3,117,177 ------------ ------------ Total current liabilites 5,369,978 6,151,484 Non-current portion of lease obligations 3,212,394 774,758 Mortgage and notes payable to banks, excluding current installments 14,111,231 14,483,839 ------------ ------------ Total liabilities 22,693,603 21,410,081 Redeemable convertible preferred stock, net of discount of $1,303,190. (liquidation value of $5,000,000) (note 7) 3,696,810 -- Stockholders' equity Preferred stock, $1.00 par value; 5,000,000 shares authorized, no shares (only redeemable convertible preferred stock issued and outstanding) -- -- Common stock, $.01 par value; 20,000,000 shares authorized, issued and outstanding 8,436,035 shares at June 30, 1999 and 7,351,625 shares at December 31, 1998 84,360 73,515 Additional paid-in capital 46,839,054 35,183,918 Deficit accumulated during the developmental stage (17,745,456) (10,724,811) Receivable from stock sales (1,096,917) (640,000) ------------ ------------ Total stockholders' equity 28,081,041 23,892,622 Total liabilities, redeemable convertible preferred stock and stockholders' equity 54,471,454 45,302,703 ============ ============
See accompanying notes to consolidated financial statements. - 3 - 4 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Operations (unaudited)
Period from Three Months ended Six Months ended November 1, 1995 June 30, June 30, (inception) through 1999 1998 1999 1998 June 30, 1999 ----------- ----------- ----------- ----------- ------------------ Revenue: Sales of products $ 696,115 620,937 1,234,014 620,937 2,656,725 Development contract income 50,632 100,000 58,819 250,000 580,819 Sale of accelerator components 640,000 77 701,000 77 1,676,321 ----------- ----------- ----------- ----------- ----------- 1,386,747 721,014 1,993,833 871,014 4,913,865 Cost of revenue: Cost of products (874,522) (419,221) (1,073,153) (419,221) (2,108,670) Cost of development contract -- -- -- (62,830) (62,830) Cost of accelerator components (328,467) -- (358,467) -- (733,421) ----------- ----------- ----------- ----------- ----------- Gross Profit 183,758 301,793 562,213 388,963 2,008,944 ----------- ----------- ----------- ----------- ----------- Operating costs and expenses: Salaries and contract labor 432,261 207,025 839,850 449,346 3,335,945 Employee incentive compensation -- -- -- -- 2,397,500 Sales and Marketing 191,391 234,268 503,126 350,756 1,200,772 Product and manufacturing process development 1,825,252 -- 2,958,880 -- 3,784,149 General and administrative 739,501 923,446 1,961,608 1,378,715 7,482,517 ----------- ----------- ----------- ----------- ----------- Total operating expenses 3,188,405 1,364,739 6,263,464 2,178,817 18,200,883 ----------- ----------- ----------- ----------- ----------- Loss from development stage operations (3,004,647) (1,062,946) (5,701,251) (1,789,854) (16,191,939) Other income (expense): Gain on sale (donation) of assets held for sale -- (4,000) -- (24,332) 327,008 Interest income 52,973 80,137 99,614 239,343 690,849 Interest expense (2,498) -- (2,498) -- (531,114) Loan financing fees -- -- -- -- (750,000) ----------- ----------- ----------- ----------- ----------- Loss before extraordinary item (2,954,172) (986,809) (5,604,135) (1,574,843) (16,455,196) Extraordinary gain on debt extinguishment -- -- -- -- 126,250 ----------- ----------- ----------- ----------- ----------- Net loss $(2,954,172) (986,809) (5,604,135) (1,574,843) (16,328,946) Preferred stock deemed dividend and accretion (1,416,510) (1,416,510) (1,416,510) ----------- ----------- ----------- ----------- ----------- Net loss applicable to common shareholders $(4,370,682) (986,809) (7,020,645) (1,574,843) (17,745,456) Net loss per common share - basic and diluted $ (0.57) (0.15) $ (0.88) (0.24) $ (3.62) =========== =========== =========== =========== =========== Weighted average common shares outstanding - basic and diluted 7,702,728 6,507,918 7,973,830 6,439,434 4,905,944 =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements - 4 - 5 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Cash Flows (unaudited)
Period from Six Months November 1, 1995 Ended June 30 (inception) through 1999 1998 June 30, 1999 ------------ ------------ ------------------ Cash flows from operating activities: Net loss $ (5,604,135) (1,574,843) (16,328,946) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 822,693 74,091 1,331,887 (Gain) loss on sale or donation of assets -- 24,332 (327,008) Services compensated by stock issuance -- -- 2,178,886 Forgiveness of receivable from stockholder -- -- 80,000 Extraordinary loss/gain on extinguishment of debt -- -- (126,250) Changes in operating assets and liabilities, exclusive of effects of acquisition: Interest receivable -- 135,382 -- Accounts receivable (1,060,169) 158,554 (613,281) Other assets 32,030 (5,837) (501,794) Inventory (199,747) (27,727) (1,427,207) Accounts payable 76,053 482,587 242,353 Accrued liabilities (352,029) 94,754 598,482 ------------ ------------ ------------ Net cash used in operating activities (6,285,304) (638,707) (14,892,878) ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sale of certificate of deposit -- -- 400,000 Purchase of certificate of deposit -- -- (400,000) Purchase of assets for sale and operations (2,807,585) (9,874,262) (33,681,372) Purchase of securities available for sale -- -- (5,082,777) Proceeds from sale of securities available for sale -- 5,082,777 5,082,777 Proceeds from sale of assets held for sale 320,559 7,667 1,152,566 Purchase MAC Isotopes, Inc., net of cash acquired -- (495,000) (495,000) Investment in trademarks and license fee -- (275,000) (275,000) ------------ ------------ ------------ Net cash used in investing activities (2,487,026) (5,553,818) (33,298,806) ------------ ------------ ------------ Cash flows from financing activities: Collections of stock sale receivable -- -- 160,000 Settlement of contingent consideration - MAC Isotopes, Inc. (869,559) -- (869,559) Proceeds from issuance of common stock, common stock subscriptions, and redeemable convertible preferred stock 14,378,917 -- 42,498,534 Proceeds from issuance of notes payable to chairman -- -- 120,000 Payments on capital leases (383,182) -- (604,007) Proceeds from issuance of debt -- 607,098 29,552,623 Principal payments on notes payable (2,381,500) (86,298) (14,206,857) Payments on notes payable to chairman -- -- (115,000) ------------ ------------ ------------ Net cash provided by financing activities 10,744,676 520,800 56,535,734 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,972,346 (5,671,725) 8,344,050 Cash and cash equivalents at beginning of period 6,371,704 8,201,417 -- ------------ ------------ ------------ Cash and cash equivalents at end of period 8,344,050 2,529,692 8,344,050 ============ ============ ============
(Continued) - 5 - 6 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES (a development stage enterprise) Consolidated Statements of Cash Flows (unaudited)
Period from Six Months November 1, 1995 Ended June 30 (inception) through 1999 1998 June 30, 1999 ------------ ------------ ------------------ Supplemental disclosure of cash flow activities: Cash paid for interest, net of amounts capitalized $ 2,498 168,294 620,389 ============ ============ ============ Cash paid for financing fees $ -- 36,350 596,611 ============ ============ ============ Supplemental disclosure of noncash transactions: Common stock issued for stock receivables $ 456,917 -- 1,096,917 ============ ============ ============ Common stock issued for account payable to $ -- -- 62,852 ============ ============ ============ director Conversion of notes payable to common stock $ -- -- 5,000 ============ ============ ============ Acquisition of subsidiary through issuance of common stock $ -- 3,173,973 3,248,976 ============ ============ ============ Capital expenditures included in accounts payable $ 623,482 1,317,762 623,482 ============ ============ ============ Acquisition of license fee and patent rights through $ -- 225,000 725,100 ============ ============ ============ issuance of common stock Acquisition of equipment through capital leases $ 3,680,704 -- 4,911,596 ============ ============ ============
See accompanying notes to consolidated financial statements - 6 - 7 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES (a development stage enterprise) Notes to Condensed Consolidated Financial Statements (Unaudited) (1) The Company and Basis of Presentation International Isotopes Inc. (the "Company" or "I3") was incorporated on November 15, 1995 and is a development stage enterprise. The Company's primary activities have been to obtain assets to be used in the production of radioisotopes, to obtain funding to complete the reconfiguration and reassembly of the linear accelerator, and prepare for production and marketing of a full range of radioisotopes, pharmaceutical grade radioisotopes and finished radiopharmaceuticals. Since the Company's acquisition of MAC Isotopes, Inc. was consummated to further establish a supply of certain radioisotopes, the Company remains a development stage enterprise. The accompanying unaudited consolidated financial statements include the results of operations of the Company and its wholly owned subsidiaries, Gazelle Realty and International Isotopes Idaho Inc. ("I4"). All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited financial statements included herein by the Company have been prepared without audit and in accordance with generally accepted accounting principles, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). These statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the Company's financial position as of June 30, 1999, and the results of its operations for the six and three-month periods ended June 30, 1999 and 1998, and its cash flows for the six-month periods ended June 30, 1999 and 1998. This information should be read in conjunction with the Company's audited consolidated financial statements as set out in the Company's Amended Form 10-K filed July 8, 1999. Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" which establishes standards for reporting and display of comprehensive income in a full set of general-purpose financial statements. Comprehensive income includes net income and other comprehensive income which is generally comprised of changes in the fair value of available-for-sale marketable securities, foreign currency translation adjustments and adjustments to recognize additional minimum pension liabilities. For each period presented in the accompanying consolidated statements of operations, comprehensive loss and net loss are the same amount. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" establishes standards for public business enterprises to report information about operating segments in financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Company is in development stage and has not begun significant operations. The Company's management anticipates operating through various segments in future periods as operations for those segments begin. Certain information in footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the SEC. The financial data disclosed in the notes to the condensed consolidated financial statements are unaudited for these periods. (2) Liquidity The Company has been developing facilities, is initiating operations, and has experienced start-up losses of $16,328,946 since inception, and invested significant funds in the acquisition of land, facilities, manufacturing - 7 - 8 equipment, regulatory approval and personnel. The Company expects losses to continue for the near term as it initiates production, marketing and distribution of products, obtains validation and customer approval of products, and increases marketing and product development. The Company's future liquidity and capital funding requirements will depend on numerous factors, including costs relating to commencing production of radioisotopes, radiochemicals, finished radiopharmacueticals and medical therapy devices; continued delays in the federal and state regulatory approval process for permitting production from the Radiopharmacuetical Manufacturing Facility, the Cyclotron and the LINAC; expenses in developing the proposed medical imaging camera; costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; technological and market developments; and the ability of the Company to maintain collaborative academic and commercial research, development and marketing relationships. The Company is continuing to negotiate potential financing options including long term mortgage financing for its facilities. Although there can be no assurance, management anticipates that the cash flow from future operations of the Company as well as the adequacy of the appraised value of Company assets will allow the Company to obtain additional debt financing on acceptable terms. Management is also negotiating with various investment bankers regarding equity and debt financing for funding the joint venture development of complementary businesses, technologies and products. The Company cannot guarantee that it will be able to obtain any such financing on acceptable terms. Although there can be no assurance, the Company anticipates, based on its currently proposed plans and assumptions relating to its operations and funding, that current cash, cash from future operations, credit facilities and the private placement of its securities will be sufficient to meet its currently anticipated working capital and capital expenditure requirements. In the event additional financing becomes necessary, management may choose to raise those funds through other means of financing as appropriate. The Company cannot guarantee that it will be able to obtain any such financing on acceptable terms. Also, if necessary, the Company can delay certain operations and capital expenditures until adequate financing is obtained. If such delays occur, the Company's future operations and business expansion could be significantly curtailed. (3) Net Loss Per Common Share - Basic and Diluted Net loss per share of common stock is presented in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Under SFAS No. 128, basic loss per share excludes dilution for potentially dilutive securities and is computed by dividing loss applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share, which is computed on the basis of the weighted average number of common shares and all potentially dilutive common shares outstanding during the period, is the same as basic loss per share as all potential common shares were anti-dilutive. - 8 - 9 At June 30, 1999, the Company had 386,900 common stock options and 3,139,741 common stock warrants outstanding. Options and warrants excluded from the computation of diluted loss per share would have resulted in additional weighted average securities, under the treasury stock method, totaling 99,640, 77,328, and 58,862 for the six month periods ended June 30, 1999 and 1998, and the period from November 1, 1995 (inception) through June 30, 1999, respectively. The potentially dilutive effect of these securities and the redeemable convertible preferred stock issued in May 1999 (see note 7) has not been considered in the computation of diluted net loss per common share since their inclusion would be anti-dilutive. - 9 - 10 (4) Inventories Inventories consist of the following at June 30, 1999 and December 31, 1998
June 30, 1999 December 31, 1998 ------------- ----------------- Raw materials $ 255,555 $ 388,930 Work in progress 1,529,051 1,355,537 Finished goods 159,608 -- ---------- ---------- $1,944,214 $1,744,467 ========== ==========
(5) Variable Line of Credit On April 30, 1999, a variable line of credit, secured by stock owned by the Chairman of the Board, with a balance of $2,216,332, was paid off with proceeds received from the private placement (See Note 6). The Company no longer has any liability under this financing arrangement. (6) Common Stock & Stock Subscriptions In April of 1999, the Company initiated a private placement of units of its securities exclusively to accredited investors including certain officers and directors of the Company. Each Unit consisted of 1 share of common stock at $9.10 per share and a warrant to purchase an additional share at $10.00 per share. From April 1999 through June 1999, the Company sold units representing 924,410 shares of common stock and warrants to purchase an additional 924,410 shares to accredited investors for aggregate consideration of $8,412,150. The sale of the Units was exempt pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. The shares of common stock sold and the shares of common stock issuable upon exercise of the warrants were subsequently registered with the Securities and Exchange Commission for resale by the purchasing accredited investors pursuant to a Registration Statement on Form S-3 which became effective on July 29,1999. At June 30, 1999, 408,388 shares of stock had been issued; the remaining shares were subsequently issued in August 1999. (7) Redeemable Convertible Preferred Stock On May 18, 1999, the Company completed a private placement of 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock ("Preferred Stock") together with 205,000 warrants to purchase common stock at $11.86 per share, for aggregate proceeds of $5 million, before issuance costs of $300,000. Dividends are 5% per annum payable in cash or common stock (at the Company's option) beginning October 15, 1999 and continuing quarterly thereafter through May 20, 2002. If paid in common stock, the number of shares is based on the average market price for the 10 trading days immediately preceding the dividend payment date (the "Average Price"). Under the terms of the private placement, in November 1999, the Company will issue an additional 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock and warrants to acquire 205,000 shares of common stock for aggregate proceeds of $5 million. The Preferred Stock is convertible to common stock at $11.86 per share at issuance and the conversion price is reset at each dividend payment date to the then Average Price, (with a floor of $7.00 per share and a ceiling of $11.86 per share) . The Preferred Stock is mandatorily redeemable on May 20, 2002 in cash or common stock at the then Average Price, at the Company's option. Early redemption may be required at the option of the holder under certain - 10 - 11 circumstances and may be exercised at the option of the Company under other circumstances. Mandatory redemption events include change in control, suspension or delisting from NASDAQ, the BSE or any subsequent market on which the common stock is listed for five consecutive days, breach by the Company of any representations, warranties or other conditions in the preferred stock purchase agreement, and other events. Warrants are exercisable at any time up to May 20, 2002 at $11.86 per share. The Company assigned an aggregate value of $1,059,850 to the warrants ($5.17 per share) using an option pricing model with the following assumptions: exercise price of $11.86 per share, volatility of 60%, risk-free interest rate of 5.60%, and contractual term of three years. The warrant value was recorded to additional paid-in capital and is being accreted to the Preferred Stock over the term of the warrant. After consideration of the warrant value, the Preferred Stock has a "beneficial conversion feature" of $1,359,850 that has been recognized as an additional return to the holders through a charge to deficit accumulated during the development stage and an increase to additional paid-in capital. (8) Joint Venture In March of 1999, the Company and GammaPlus, LLC, a Lucas Medical Associates Company which operates short-lived radiopharmaceutical manufacturing facilities, announced the formation of the joint venture, GammaPlus DFW, LLC, which will manufacture and distribute radiopharmaceuticals for use in Positron Emission Tomography. The Company purchased a 49% interest in the joint venture for $4,900 in cash and an additional commitment of $44,100. The initial payment of $4,900 was made on June 18, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information contained herein, the following contains forward-looking information that is subject to certain risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including those set forth in the "Risk Factors" section included in the Company's Form 10-K, filed with the Securities Exchange Commission (SEC) on April 15, 1999, as amended on April 16, 1999 and July 8, 1999 (collectively, the "Form 10-K"). The following discussion should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Form 10-K. RESULTS OF DEVELOPMENT STAGE ACTIVITIES Six and three month period ended June 30, 1999 and 1998 The Company's net losses for the three and six month periods ended June 30, 1999 were $2,954,172 and $5,604,135 respectively, as compared to net losses of $986,809 and $1,574,843 for the comparable period of 1998. Net loss per common share for the three and six month periods ended June 30, 1999 were $0.57 and $0.88 respectively, as compared to net loss per common share of $0.15 and $0.24 for the same periods of 1998. The increase in the losses for the three and six month periods was largely due to increased activities, including expensing pre-production costs of products, validation of facilities, equipment and procedures, purchases of expendable materials, manufacturing supplies and other production related goods and hiring of additional manufacturing and regulatory personnel. In addition, 1999 personnel costs were substantially higher as personnel - 12 - 12 who were previously engaged in construction and development activities, whose respective costs had been capitalized, shifted their efforts to validation and manufacturing activities and the related costs were expensed. Revenues for the three and six month periods ended June 30, 1999 were $1,386,747 and $1,993,833 respectively, as compared to $721,014 and $871,014 for the same periods in 1998. Gross profit for the three and six month periods ended June 30, 1999 was $183,758 and $562,213, as compared to $301,793 and $388,963 for the same periods in 1998. The increase in revenues was attributable to the acquisition of International Isotopes Idaho, Inc., a wholly owned subsidiary, as well as sales of accelerator components and initial sales of finished brachytherapy seeds. The difference in gross profit is attributable to increased costs necessary for the commencement of manufacturing activities. Operating expenses increased to $3,188,405 and $6,263,464 for the three and six month periods ended June 30, 1999, compared to $1,364,739 and $2,178,817 for the same periods of 1998. Salaries and contract labor expenses for the three and six month periods ended June 30, 1999 were $432,261 and $839,850 respectively, as compared to $207,025 and $449,346 for the same periods of 1998, an increase of $225,236 and $390,504 respectively. General and administrative expenses totaled $739,501 and $1,961,608 for the three and six month periods ended June 30, 1999, as compared to $923,446 and $1,378,715 for the same periods of 1998, a decrease of $183,945 and an increase of $582,893 respectively. Sales and marketing expenses decreased to $191,391 for the three month period ended June 30, 1999 and increased to $503,126 for the six month period ended June 30, 1999 as compared to $234,268 and $350,756 for the corresponding periods of 1998. The increase in operating expenses was attributable to increases in personnel for production, marketing, quality assurance, quality control, regulatory compliance, environmental health and safety, and administrative personnel as the Company expanded its organizational structure and began limited operations. Other increases in operating expenses included increased insurance for property, general and product liability, license fees, supplies, materials related to manufacturing and increased depreciation expense as more equipment and facilities commenced operations. Product development costs of $1,825,252 and $2,958,880 were incurred during the three and six month periods ended June 30, 1999. These costs are attributable to manufacturing setup costs incurred without corresponding product sales. Interest income during the three and six month periods ended June 30, 1999 was $52,973 and $99,614, as compared to $80,137 and $239,343 for the comparable periods of 1998, a decrease of $27,164 and $139,729 respectively. This decrease was attributable to a reduction in the invested funds available from the Company's initial public offering completed in August 1997, which were used to fund the Company's facilities construction, equipment purchases and operations. For the periods presented, the Company has capitalized nearly all of its interest costs as construction of the Company's facilities were in progress. As facilities and construction in progress are completed, interest costs will no longer qualify for capitalization and will be expensed as incurred. See "Liquidity and Capital Resources." Liquidity and Capital Resources On June 30, 1999 the Company had cash and cash equivalents of $8,344,050 compared to $6,371,704 at December 31, 1998. For the six months ended June 30, 1999, net cash used in operating activities of approximately $6,285,304 and net cash used in investing activities, primarily for capital expenditures, of $2,487,026 were provided by financing activities of $10,744,676. Capital expenditures are expected to decrease significantly during the balance of 1999 as we complete the facilities, LINAC and equipment purchases necessary for the production of our initial product lines. The Company has financed its operations since inception primarily by loans from stockholders and directors, bank loans, sales of accelerator components and excess equipment, its initial public offering and sales of shares of common and preferred stock in private placements to investors. - 12 - 13 The Company initiated a private placement of its common stock in late 1998. In May 1999, the Company revised the warrant structure, increasing the number of warrants to 28,000 per unit (originally 16,000) and changing the exercise price to $10.00 per share (originally $13.75), resulting in issuance of warrants to purchase an additional 708,000 shares. During the period April 1999 through June 1999, we completed current financing plans by closing a private placement consisting of 924,410 units of common stock and warrants, raising $8,412,150. The units consisted of one share of common stock at $9.10 per share and one three-year warrant to acquire an additional share, exercisable at $10.00 per share. On April 30, 1999, a variable line of credit, secured by stock owned by the Chairman of the Board, with a balance of $2,216,332, was paid off with private placement proceeds. On May 18, 1999, the Company completed a private placement of 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock together with 205,000 warrants to purchase common stock at $11.86 per share, for aggregate proceeds of $5 million, before issuance costs of $300,000. Dividends are 5% per annum payable in cash or common stock (at the Company's option) beginning October 15, 1999 and continuing quarterly thereafter through May 20, 2002. If paid in common stock, the number of shares is based on the average market price for the 10 trading days immediately preceding the dividend payment date. Under the terms of the private placement, in November 1999, the Company will issue an additional 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock and warrants to acquire 205,000 shares of common stock for aggregate proceeds of $5 million. See Note 7 of Notes to Condensed Consolidated Financial Statements. The Company's future liquidity and capital funding requirements will depend on numerous factors, including commencing production of radioisotopes; continued delays in the regulatory approval process for the Radiopharmacuetical Manufacturing Facility, the cyclotron and the LINAC; expenses in developing the proposed medical imaging camera; costs involved in filing, prosecuting, enforcing and defending patent claims and other intellectual property rights; technological and market developments; and the ability of the Company to maintain collaborative academic and commercial research, development and marketing relationships. The Company is continuing to negotiate potential financing options including long term mortgage financing for its facilities. Although there can be no assurance, management anticipates that the cash flow from future operations of the Company as well as the adequacy of the appraised value of Company assets will allow the Company to obtain additional debt financing on acceptable terms. Management is also negotiating with various investment bankers regarding equity and debt financing for funding the development of complementary businesses, technologies and products. The Company cannot guarantee that it will be able to obtain any such financing on acceptable terms. Although there can be no assurance, the Company anticipates, based on its currently proposed plans and assumptions relating to its operations and funding, that current cash, cash from future operations, credit facilities and the private placement of its securities will be sufficient to meet its currently anticipated working capital and capital expenditure requirements. In the event additional financing becomes necessary, management may choose to raise those funds through other means of financing as appropriate. The Company cannot guarantee that it will be able to obtain any such financing on acceptable terms. Also, if necessary, the Company can delay certain operations, capital expenditures and joint ventures until adequate financing is obtained. If such delays occur, the Company's future operations and business expansion could be significantly curtailed. In July 1999, the Company updated its investors on the Company's progress, and adjusted expectations for financial performance for fiscal year 1999. The Company issued a press release dated July 15, 1999 and filed Form 8-K on July 19, 1999 in which the Company revised its financial projections for the fiscal year 1999 as well as outlined a six-part action plan, which was immediately implemented. - 13 - 14 YEAR 2000 ISSUE The Year 2000 will have a broad impact on the business environment in which the Company operates due to the possibility that many computerized systems across all industries will be unable to process information containing dates beginning in the year 2000. The Company has established an enterprise-wide program to assess the extent of the Company's exposure to Year 2000 issues and to formulate and execute a plan to effectively mitigate the effects of the Year 2000 problem on the Company's operations. The Company has established an Executive Steering Committee to provide oversight to the implementation of the Year 2000 program and is responsible for reviewing and approving the plans, activities, and decisions associated with identifying and mitigating the risk associated with the Year 2000 problem. The committee also reviews budgetary information, provides guidelines and acts as a liaison to the Board of Directors, which has the ultimate responsibility for the budget and mitigation of the Year 2000 problem. Responsibilities for implementing the plan have been assigned and the Year 2000 program is at an advanced stage. The Company has identified all critical potentially subject to the Year 2000 phenomenon and has contacted all vendors regarding Year 2000 compliance. Similarly, the Company has contacted all key vendors regarding the status of their respective Year 2000 compliance procedures. In both cases, some certifications regarding Year 2000 compliance have already been obtained and we are continuing to follow-up on those outstanding. This phase of the program is scheduled for completion during the third quarter 1999. By the end of the third quarter 1999, the Company intends to have developed contingency plans in the event key vendors have not provided the Company with satisfactory evidence of their readiness to handle Year 2000 issues. The Company intends to make every reasonable effort to assess the readiness of its key vendors and to create action plans to address any identified risks. As of June 30, 1999 the Company has incurred costs of approximately $35,000 for the Year 2000 issue and has estimated the total cost of the Year 2000 remediation including modification, upgrade, or replacement of systems and equipment to be approximately $50,000. The Company expects to resolve all Year 2000 issues that could materially and adversely affect its business operations well in advance of the end of the year. At this stage, we have not identified any problem requiring replacements of systems and equipment. Although the Company has estimated the total cost of the remediation efforts to be about $50,000, any unanticipated failures by key vendors, as well as failures by the Company to execute its own remediation efforts, could have a material adverse effect on the cost of the project and its completion date. As a result, there can be no assurance that the Year 2000 problem will not have a material adverse effect on the Company's financial position or results of operations. PART II. OTHER INFORMATION Item 2. Changes in Securities In the fall of 1998 the Company initiated a private placement of units of its securities exclusively to accredited investors including certain officers and directors of the Company. Each Unit consisted of 16,000 shares of common stock at $12.50 per share and warrants to purchase an additional 16,000 shares at $13.75 per share. During the period December 1998 through February 1999, the Company sold 59 units representing 944,000 shares of common stock and warrants to purchase an additional 944,000 shares to 38 accredited investors for aggregate consideration - 14 - 15 of $11,800,000. The sale of the Units was exempt pursuant to Section 4(2) of the Securities Act of 1933 and Regulation D promulgated thereunder. The shares of common stock sold and the shares of common stock issuable upon exercise of the warrants were subsequently registered with the Securities and Exchange Commission for resale by the purchasing accredited investors pursuant to a Registration Statement on Form S-3 which became effective on February 10, 1999. In May 1999, the Company revised the warrant structure, increasing the number of warrants to 28,000 per unit and changing the exercise price to $10.00 per share, resulting in issuance of warrants to purchase an additional 708,000 shares. In April of 1999 the Company initiated a private placement of its securities exclusively to accredited investors including certain officers and directors of the Company. The common stock was sold for $9.10 per share and included a warrant to purchase an additional share of common stock at $10.00 per share. During the period from April 1999 through June 1999, the Company received cash for 924,410 shares of common stock and warrants to purchase an additional 924,410 shares for an aggregate consideration of $8,412,150. On May 18, 1999, the Company completed a private placement of 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock together with 205,000 warrants to purchase common stock at $11.86 per share, for aggregate proceeds of $5 million, before issuance costs of $300,000. Dividends are 5% per annum payable in cash or common stock (at the Company's option) beginning October 15, 1999 and continuing quarterly thereafter through May 20, 2002. If paid in common stock, the number of shares is based on the average market price for the 10 trading days immediately preceding the dividend payment date. Under the terms of the private placement, in November 1999, the Company will issue an additional 5,000 shares of 5% cumulative redeemable convertible $0.01 par value $1,000 face value preferred stock and warrants to acquire 205,000 shares of common stock for aggregate proceeds of $5 million. Common Stock shares outstanding at August 12, 1999 totaled 8,436,035. Item 5. Other Information On May 3, 1999, the Company's marketing partner for the distribution of seeds for the treatment of prostate cancer, Imagyn Medical Technologies, was forced into involuntary bankruptcy by minority bondholders. On May 18, 1999, Imagyn filed a request to convert the involuntary bankruptcy into a voluntary Chapter 11. On June 25, 1999, Imagyn filed a Plan of Reorganization in the U.S. Bankruptcy Court for the District of Delaware. Imagyn's management has indicated that appropriate measures are underway to continue with normal marketing operations. If Imagyn ever becomes unable to meet its contractual obligations, the Company believes it could contract with other distributors to market the seeds. - 15 - 16 Item 6. Exhibits and Reports on Form 8-K Exhibits: 27.1 Financial Data Schedule Reports on Form 8-K: The Company filed a Form 8-K on May 28, 1999 with respect to amended and restated registration and warrant agreement and private placement of common stock and warrants. The Company filed a Form 8-K on July 19, 1999 with respect to updating investors on 1999 financial expectations and corporate strategy. - 16 - 17 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 8,344,050 0 1,300,602 0 1,944,214 204,548 39,800,127 1,013,881 54,471,454 5,369,978 0 3,696,810 0 84,360 27,996,681 54,471,454 1,993,833 1,933,833 562,213 6,263,464 0 0 2,498 (5,604,135) 0 (5,604,135) 0 0 0 (5,604,135) (0.88) (0.88)
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