UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal period ended December 31, 2000
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)
As of August 31, 2001 the number of shares of common stock, $.01 par value,
outstanding was 17,831,696 shares.
2
INTERNATIONAL ISOTOPES INC
FORM 10-K
PRELIMINARY STATEMENT
Since May 15, 2000, International Isotopes Inc, (together with its
wholly owned Idaho subsidiary, International Isotopes Idaho Inc., hereafter
referred to as the "Company" or "I(3)") has stated that our cash, cash
equivalents and cash that may be generated from operations may be insufficient
to meet our anticipated cash needs. 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.
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. 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. 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. The assets acquired by NeoRx had a net book value of
approximately $11,304,724 at December 31, 2000. The Company used the proceeds 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 William Nicholson, the former 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 ("Seed Assets") to
Imagyn Medical Technologies, Inc. ("Imagyn") for cash proceeds of approximately
$5.0 million. The Seed Assets 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. 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.
In order to further reduce the Company's debt obligations, the Company
plans to sell the Shady Oaks/LINAC ("Linear Accelerator") facility, property in
Waxahachie, Texas, and excess LINAC components. The Company has signed a
definitive asset sales agreement dated June 6, 2001 to sell the Shady Oaks/LINAC
radioisotope production facility for net proceeds of approximately $7.7 million.
This sale is expected to close during the fourth quarter of 2001. The net book
value of the Shady Oaks/LINAC assets was $23,053,925 at December 31, 2000. Based
on the anticipated sales prices, the Company recorded an impairment charge as of
December 31, 2000 in the amount of $15,889,765 to write down the assets to
estimated fair value less costs to sell. 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. (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 April 2001, the Company also successfully completed a composition of
creditors pursuant to which we were able to reduce our trade debt by $825,330,
as 90% of our unsecured creditors agreed to accept a payment equal to 50% of the
amount owed to them. In addition, we have reduced our secured bank debt
substantially and anticipate the possibility of reducing it further upon the
closing of the Shady Oaks/LINAC asset sale.
3
The company emerging subsequent to the Asset Sales will consist solely
of our I(4) Idaho operations and the size and nature of the business will be
substantially less in scope. In addition, the Company is not expected to
generate sufficient cash flow to meet our operational needs during the remainder
of 2001. As such, the continuance of our business for the foreseeable future is
dependent on our ability to secure additional financing or generate cash from
operations with respect to the Idaho operations.
Any person considering an investment in any of our securities is urged
to consider both the risk that the Company could cease operations and the risk
that our securities will be worthless subsequent to completion of the Asset
Sales. All of the statements set forth in this report are qualified by reference
to those facts. Please 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 us and an investment in our securities.
4
INTERNATIONAL ISOTOPES INC
FORM 10-K
TABLE OF CONTENTS
<Table>
<Caption>
Page No.
Part I.
Item 1. Business ..................................................... 6
Item 2. Properties ................................................... 9
Item 3. Legal Proceedings ............................................ 10
Item 4. Submission of Matters to a Vote of Securities-Holders ........ 10
Part II.
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters .................................. 10
Item 6. Selected Financial Data ...................................... 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................... 13
Item 7a. Quantitative and Qualitative Disclosure about Market Risk..... 21
Item 8. Consolidated Financial Statements............................. 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .......................... 21
Part III.
Item 10. Directors and Executive Officers of Registrant ............... 21
Item 11. Executive Compensation ....................................... 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management ............................................... 30
Item 13. Certain Relationships and Related Transactions ............... 31
Part IV.
Item 14. Exhibits, Financial Statement Schedule
and Reports on Form 8-K ...................................... 31
Power of Attorney ...................................................... 32
Signatures ............................................................. 33
</Table>
5
PART I
Item 1. BUSINESS
GENERAL
International Isotopes Inc, a Texas corporation (together with its
wholly owned subsidiary, International Isotopes Idaho Inc. ("I(4)") hereafter
referred to as "we" or the "Company" or "I(3)") 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.
In furtherance of that strategy, I(3) acquired the proton linear
accelerator ("LINAC") and related assets, redesigned and reconfigured the LINAC
for production of radioisotopes, acquired land and designed and constructed
facilities for the production and distribution of radioisotopes,
radiopharmaceuticals and brachytherapy products.
The Company's 35,000 square foot building housing the Radioisotope
Production Facility was completed in September 1998. We had also completed a
27,000 square foot building housing the Administration, Manufacturing and
Service Facility for corporate offices and construction of production equipment.
In addition, we constructed a 25,000 square foot finished radiopharmaceutical
production suite in the Radiopharmaceutical Manufacturing Facility and also
remodeled the separate 12,000 square foot building located at this site for
installation of the Cyclotron used in the production of short-lived isotopes and
certain research isotopes.
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 plans.
RECENT DEVELOPMENTS
During late 2000, it became apparent that the Company was not going to be
successful in completing a third round of preferred stock funding. Since the
Company 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, 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. Without these key employees the
assets' value to a potential purchaser would be greatly diminished.
Therefore, the Company decided to pursue a strategy of divestiture
outside of bankruptcy to attempt to maximize value for our creditors and
shareholders. From November 2000 until the present, the Company laid off 183
personnel and closed two of its operating facilities. As of July 31, 2001, the
Company had 16 employees
6
in Denton, Texas and in Idaho. Following the Asset Sales described in more
detail below, the Company will have 13 employees located at our I(4) facility in
Idaho.
Since early December 2000, banking institutions and entities that have
acquired certain of the Company assets have funded continuing operations. The
Company's primary lender increased our borrowing capacity in the amount of $2.4
million and NeoRx Corporation ("NeoRx") advanced the Company $930,000, which was
converted to purchase price upon consummation of the sale of our
Radiopharmaceutical Manufacturing Facility.
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. 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.
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. The assets acquired by NeoRx had a net book value of $11,304,724 at
December 31, 2000. The Company used the proceeds 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 William Nicholson, the former 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. 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 June 6, 2001, the Company signed a definitive asset purchase
agreement with Antich Medical Imaging, Inc. ("AMII") to sell the Shady
Oaks/LINAC facility for net proceeds of approximately $7.7 million. This sale is
expected to close during the fourth quarter of 2001. In anticipation of the
sale, the Company recorded a $15.9 million charge to write down the related
assets to estimated fair value less costs to sell.
ONGOING OPERATIONS
Subsequent to completion of the transactions discussed above, the
Company will consist solely of the I(4) Idaho operations. As such, the
operations will be substantially scaled back in size and scope. In addition, we
do not expect to generate positive cash flow this year and will continue to be
dependent on external financing for the foreseeable future.
Earlier this year I(4) 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 the high cost of
facility operations. This contract was terminated in an effort to curtail costs.
As a substitute, two new agreements have been put in place with the current site
contractor. These new agreements are for i) providing contract labor support
services for operations of the Department of Energy ("DOE") owned hot cells
facility and ii) access to the reactor facility for continued isotope
production. The end result of these contract changes has been a reduction in the
cost of operations and continued reactor access for isotope sales in cobalt,
nickel, and iridium. However, these contracts
7
expire September 30, 2001 and it is likely that the hot cell labor services will
not be continued after that time. Without continued hot cell access the
commercial isotope production in the reactor would have to be suspended until
I(4) can reestablish isotope processing capability in its Idaho Falls facility.
INDUSTRY OVERVIEW AND TARGET MARKETS
The industry and markets which require or involve the use of
radioactive material are diverse. Our current I(4) operations involve several of
these diverse applications. First, our radioisotope production supplies bulk
materials, which are used in a variety of industrial applications and medical
devices. Second, we purchase from third parties machine produced radioisotopes
in order to manufacture medical flood sources, which are used for operational
checks on gamma camera systems. Finally, we support the packaging and
measurement of gemstones that have undergone reactor irradiation for color
enhancement.
PRODUCTS
Reactor Produced Radioisotopes - we produce several radioisotopes in
bulk form for sale as raw ingredients for several products. Iridium-192 is
supplied to various customers who manufacture sealed sources for industrial
radiography. High activity Cobalt-60 is supplied in bulk for customers to
manufacture external radiation therapy devices. Nickel-63 is supplied in bulk
form to customers, which incorporate this radioisotope into a variety of devices
and detection equipment components.
Flood Source Contract Manufacture - I(4) is an exclusive contract
manufacturer of flood sources for RadQual Inc. 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.
Gemstone Processing - We also package gemstone for irradiation in a
reactor, and then process this material (by cleaning and measurement) following
irradiation. The irradiation process is used for color enhancement of the
gemstone. We provide this service on a subcontract basis only.
COMPETITION
Each of our various production and manufacturing areas is subject to
significant competition. 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.
Medical flood sources are being produced by several other manufacturers in the
U.S. and overseas, including Isotope Products Laboratory, North American
Scientific Inc., and Nycomed Amersham. There are several producers of Gemstone
who utilize the irradiation process for color enhancement and engage the
services of other companies to provide pre and post irradiation processing.
MANUFACTURING
Quality assurance and quality control are performed according to
current Good Manufacturing Practices ("GMP") regulations and 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.
8
REGULATION OF RADIOISOTOPE PRODUCTION AND RADIOACTIVE WASTE. The
manufacture of radioisotopes and radiopharmaceuticals is subject to extensive
federal regulation. Prior to commencing operations in our newly leased Idaho
facility, I(4) obtained approval from the Nuclear Regulatory Commission. 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". We are not subject to regulation by
the Department of Energy, except for those remaining isotope production
operations taking place at the Idaho National Engineering Laboratory.
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 will be
subject to additional regulations of the Nuclear Regulatory Commission.
EMPLOYEES
As of July 31, 2001, the Company had 16 full-time employees, consisting
of 3 executive officers, 11 additional production, scientific and professional
personnel and 2 administrative personnel. As a condition of the Asset Sales, the
Company identified 38 employees who perform functions in connection with the
Radiopharmaceutical Manufacturing Facility and the Seed Business. In conjunction
with the Asset Sales, the purchasers, Imagyn and NeoRx, offered employment to
these employees at their discretion. Following completion of the Asset Sales,
the remaining Company employees will be located at the Idaho facilities and
consist of 13 full time employees. The employees remaining following the Asset
Sales will include 1 executive officer, 1 radiation safety officer, 2
administrative personnel, and 9 professionals, supervisors and technicians.
ITEM 2. PROPERTIES
In November 1997, the Company purchased an 80,000 square foot
office/manufacturing facility and a 12,000 square foot warehouse referred to as
our "Radiopharmaceutical Manufacturing Facility". Total cost for this facility,
located on 12 acres at 3100 Jim Christal Road, Denton, Texas, including
improvements for offices, furnishings, HVAC, and a suite of production clean
rooms and equipment, was approximately $9,300,000. The 12,000 square foot
warehouse houses the 42 MeV Cyclotron, donated by MD Anderson Cancer Center to
the University of North Texas ("UNT"), which was remodeled and operated by the
Company under a lease with UNT to produce short-lived and research
radioisotopes. On April 20, 2001 the Company completed the sale of the
Radiopharmaceutical Manufacturing Facility including the Cyclotron lease to
NeoRx.
In early 1998, the Company completed construction of a 27,000 square
foot facility, for administration, manufacturing and services located on 1.6
acres in Denton, Texas at a cost of $ 1,260,000. This facility was sold for
gross proceeds of $950,000 in January, 2001. Also in 1998, the Company completed
construction of the building housing its 35,000 square foot Radioisotope
Production Facility devoted to the LINAC at an approximate cost of $7,524,000.
This building is located on 20 acres of land in an Industrial Research Park in
Denton, Texas acquired by the Company in 1996. In June 2001 the Company entered
into an agreement to sell this facility including the LINAC to AMII for net
proceeds of approximately $7.7 million. This transaction is expected to close in
the fall of 2001.
In March 1998, the Company purchased 115 acres of land in Waxahachie,
Texas from the State of Texas at a cost of $424,000. This site includes a
building with 25,059 square feet that can be used as a secondary accelerator
production and testing site. The Company is actively seeking to sell this
property. There can be no assurance that the proceeds from the sale will be
sufficient to recover the recorded amounts. Accordingly, the Company may realize
a loss on the sale if such sale is consummated.
9
I(4) also holds a 5-year lease with purchase options on a new 6,500
square foot facility located in Idaho Falls. This facility is currently licensed
under the Nuclear Regulatory Commission and is being used for processing of
irradiated gemstone and contract manufacturing of flood sources for RadQual
LLC.
ITEM 3. LEGAL PROCEEDINGS
On January 4, 2000, a petition was filed in the 393rd Judicial District
Court, Denton County, Texas, Cause No. 2000-60001-393, Carl Seidel vs.
International Isotopes, Inc. Carl Seidel ("Seidel"), the former CEO and
President of the Company, alleging a breach of contract with regard to the
payment of severance in connection with his departure from the Company and with
regard to reimbursement for tax liability incurred by Seidel in connection with
the exercise of Seidel's incentive stock options. Seidel sought $270,375.00 in
severance and $373,523.00 as reimbursement for tax liability. On April 10, 2001,
the Company settled the case with Mr. Seidel for $35,000.
During 2000-2001 the Company was a defendant in several law suits
involving creditor and supplier claims. The Company has settled each of these
claims.
The Company is a party to legal proceedings incidental to its business
which, in the opinion of management, are not expected to have a 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
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.
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 SmallCap 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:
<Table>
<Caption>
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
</Table>
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 SmallCap 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.
10
On July 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 July 31, 2001 of a share of common
stock was $0.05. We have never paid any cash dividends on the common stock, and
the Board of Directors does not anticipate paying cash dividends on common stock
in the near future. We intend to retain any future earnings, if any, to provide
funds for the operation and expansion of our business.
RECENT SALES OF UNREGISTERED SECURITIES
On June 15, 2000, we 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. This issuance was exempt from federal securities
registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506
of Regulation D adopted thereunder. 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. 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").
The Series B Preferred Stock is 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. 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 is now convertible to common
stock at a fixed price of $2.00 per share and the warrants are exercisable at
any time up to June 1, 2003 at $4.00 per share, subject to adjustment in the
case of stock splits or stock dividends. As consideration for these 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.
Also in March, 2001 the Company and the holders of Series A Preferred
Stock modified the terms of the Series A Preferred Stock to reset the conversion
price at $2.00, subject to modification only in certain cases, such as stock
splits or dividends. In consideration for their agreement to modify the terms of
their preferred stock, the Series A holders were distributed an aggregate of
439,150 Warrants to purchase NeoRx common stock, which the Company had received
from NeoRx in connection with the sale of the Radiopharmaceutical Manufacturing
Facility.
On October 4, 2000, we issued 100,000 shares to Stonegate Securities
for services provided in connection with a private placement of common stock and
warrants that closed in February 2000. The stock was issued at $3.88 per share
for a total consideration of $387,500. This issuance was exempt from federal
securities registration pursuant to Section 4(2) of the Securities Act of 1933
and Rule 506 of Regulation D adopted thereunder.
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.
On October 26, 2000, we issued 25,000 shares of common stock valued at
$43,750, to an employee as compensation for services provided. This issuance was
exempt from federal securities registration pursuant to Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D adopted thereunder.
11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historic financial data for the period
from November 1, 1995 (inception) through December 31, 1996 and each of the four
years ended December 31, 1997 to 2000. 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.
<Table>
<Caption>
Year ended December 31,
2000 1999 1998 1997
------------ ------------ ------------ ------------
Revenues $ 6,277,065 $ 3,689,524 $ 2,009,165 $ 135,765
------------ ------------ ------------ ------------
Cost of Revenue 13,463,009 2,850,950 1,130,574 79,287
Operating costs and expenses 13,433,278 14,610,731 6,537,948 4,515,834
Impairment of long-lived assets 17,975,043 -- -- --
------------ ------------ ------------ ------------
Operating loss $(38,594,265) $(13,772,157) $ (5,659,357) $ (4,459,356)
------------ ------------ ------------ ------------
Net loss $(40,983,720) $(14,097,606) $ (5,519,405) $ (4,370,960)
Preferred stock dividends, deemed dividend and
accretion of discount (14,884,922) (2,356,111) -- --
Net loss applicable to common stockholders $(55,868,642) $(16,453,717) $ (5,519,405) $ (4,370,960)
============ ============ ============ ============
Net loss per common share - basic and diluted (5.77) (2.03) (0.84) (0.92)
============ ============ ============ ============
Weighted average common shares outstanding
basic and diluted 9,686,303 8,110,521 6,534,987 4,750,561
============ ============ ============ ============
Cash and cash equivalents and investments $ 642,554 $ 2,990,300 $ 6,371,704 $ 13,284,194
Property and equipment (net) 455,541 40,734,736 32,350,399 6,280,760
Total assets 29,584,819 51,549,026 45,302,703 21,122,038
Long-term debt, excluding current portion 2,093,752 17,006,704 15,258,597 3,053,818
Redeemable convertible preferred stock, net of discounts 17,337,954 8,392,475 -- --
Total stockholders' equity (deficit) (13,750,809) 21,599,200 23,892,622 15,925,640
<Caption>
Period of
November 1, 1995
(inception) through
December 31, 1996
-------------------
Revenues $ 775,102
------------
Cost of Revenue 263,440
Operating costs and expenses 883,637
Impairment loss --
------------
Operating loss $ (371,975)
------------
Net loss $ (834,446)
Preferred stock dividends, deemed dividend and
accretion of discount --
Net loss applicable to common stockholders $ (834,446)
============
Net loss per common share - basic and diluted (0.43)
============
Weighted average common shares outstanding
basic and diluted 1,918,538
============
Cash and cash equivalents and investments $ 331,397
Property and equipment (net) 1,060,816
Total assets 3,007,179
Long-term debt, excluding current portion --
Redeemable convertible preferred stock, net of discounts --
Total stockholders' equity (deficit) 309,908
</Table>
12
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.
Since its incorporation in November 1995, the Company's operations have
been concentrated in acquiring its proton linear accelerator ("LINAC") and
related assets, redesigning and reconfiguring the LINAC for production of
radioisotopes, developing production methods, acquiring land, designing and
constructing facilities for the production and distribution of radioisotopes,
radiopharmaceuticals and brachytherapy products, raising capital, selling
certain accelerator components and excess equipment and entering into strategic
alliances with medical and pharmaceutical companies, universities and other
institutions.
During 1999, we concentrated our efforts on making a successful
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 we had anticipated,
causing us to miss many of our milestones.
During 2000, it became apparent that we were 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.
Since early December 2000, banking institutions and entities that have acquired
certain Company assets have funded our continuing operations. 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.
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. The purchase
price was reduced by the $930,000 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 $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
13
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.
In April 2001, the Company also successfully completed a composition of
creditors pursuant to which we were able to reduce our trade debt by $825,330,
as 90% of our unsecured creditors agreed to accept a payment equal to 50% of the
amount owed to them. In addition, we have reduced our secured bank debt
substantially and anticipate the possibility of reducing it further upon the
closing of the Shady Oaks/LINAC asset sale.
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 9.6% per
annum. Principal and interest payments on the line of credit have also been
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. Funds from the closing were
also used to pay $348,000 of the $1,145,000 note payable to William Nicholson,
the former Chairman of the Board. The balance due Mr. Nicholson is $797,000 plus
accrued interest.
On June 6, 2001, the Company signed a definitive asset purchase
agreement with AMII to sell the Shady Oaks/LINAC facility for net proceeds of
$7.7 million. This sale is expected to close during the fourth quarter of 2001.
In anticipation of the sale, we recorded a $15.9 million charge to write down
the related assets to estimated fair value less costs to sell.
Long-lived assets and certain identifiable intangibles are periodically
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 a 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 by which the carrying amount of the assets exceeds 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. The Company periodically
reviews long-lived assets whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. When such
circumstances occur, the Company evaluates the possible effects on the carrying
amount of such assets. The Company's estimates of future gross revenues and
operating cash flows, the remaining estimated lives of long-lived assets, or
both could be reduced in the future due to changes in, among other things,
technology, government regulation and available financing or competition. The
Company's estimate of future gross revenues and operating cash flows assumes
that the Company will successfully develop its products. As a result of the
pending Asset Sales discussed above and the valuations completed for the year
ended December 31, 2000, the Company reduced the net carrying value of goodwill
and other intangibles by $1,897,249 and net property and equipment by
$16,077,794.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 2000 we had cash and cash equivalents of $642,554
compared to $2,990,300 at December 31, 1999. For the year ended December 31,
2000, net cash used in operating activities of $14,353,839 and net cash used in
investing activities, for capital expenditures, of $2,389,851 were provided by
financing activities of $14,395,944.
14
The Company has incurred a net loss of $40,983,720 for the year ended
December 31, 2000 and has an accumulated deficit of $83,047,170 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, 2000, we
had net borrowings of $951,005 in the revolving line of credit, with Texas State
Bank, secured by accounts receivable; a long term note payable of $94,095 to
Eastern Idaho Economic, secured by an irrevocable letter of credit, with monthly
principal and interest payments of $2,213; a note payable of 13,929,874 to Texas
State Bank secured by substantially all of the assets of the company, with
monthly installments of approximately $154,379, exclusive of capital lease
transactions for equipment; a promissory note of $900,000 to NeoRx Corporation
due in full by April 20, 2001; and a note payable to William Nicholson, the
former chairman of the board, in the amount of $1,145,000.
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 9.6% per
annum. Principal and interest payments on the line of credit have also been
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. Funds from the closing were
also used to pay $348,000 of the $1,145,000 note payable to William Nicholson,
the former Chairman of the Board. The balance due Mr. Nicholson is $797,000 plus
accrued interest.
In February 2000 we completed a private placement of common stock for
proceeds of $5,378,177, net of fees. In June 2000 we completed a private
placement of non-voting, 7% cumulative, redeemable, convertible, preferred stock
with proceeds of approximately $9,400,000, net of fees.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Total revenues were $6,277,065 in 2000 as compared to $3,689,524 in 1999, an
increase of $2,587,541 or 70.01%. The majority of the increase was related to
product sales totaling $5,407,065 in 2000 as compared to $2,775,696 for 1999, an
increase of $2,631,369 or 94.8%. The increase in product revenue is primarily
attributable to the sale of brachytherapy seeds initiated in 2000. Product
developmental income, related to ongoing product development contracts, was
$870,000 in 2000 as compared to $206,038 for 1999, an increase of $663,962 or
322.3%. The increase in product development income is attributed to the increase
in development contract revenues from a $1.3 million contract with NeoRx. The
increases in sales, as discussed above, were offset by a one-time sale of our
accelerator components in 1999 totaling $707,790 with no comparable revenue in
2000. The decrease in gross profit from $838,574 in 1999 to a negative
$7,185,944 in 2000 is attributed to the Company increasing its production
capacity in anticipation of increased future production levels and manufacturing
activities as well as increased costs associated with the product development
contract which was suspended in December 2000.
15
COST OF REVENUES
Cost of revenues included $11,530,234 for radioisotope sales for 2000
as compared to $2,274,029 for 1999. The increase of $9,256,205 is primarily
attributable to the start-up and initial automation of brachytherapy seed
manufacturing during 2000. Cost of development income was $1,932,775 for 2000 as
compared to $2,631 for 1999. This increase is attributable to the of costs
associated with the NeoRx contract. Cost of accelerator components sold was $0
for 2000 as compared to $574,290 for 1999. The decrease in the cost of
accelerator components sold was due to the one time sale of the accelerator
components in 1999.
OPERATING COSTS AND EXPENSES
Operating expense for 2000 was $31,408,321 as compared to $14,610,731
in 1999, an increase of $16,797,590 or 115%. Impairment losses recorded during
2000 accounted for $17,975,043 of the total increase. General and administrative
expenses for 2000 were $7,808,770 as compared to $4,347,395 for 1999, an
increase of $3,461,375 or 79.6%. The increase in general, administrative and
consulting expense was attributable to increases in personnel for production,
marketing, quality control, environmental health and safety, and administrative
personnel as the Company expanded its organizational structure and began limited
production 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. The increases as discussed above
were partially off-set by a decrease in salaries, contract labor and product
development expense which was $5,135,477 in 2000 as compared to $9,471,761 in
1999, a decrease of $4,336,284. Product development expenses are costs
associated with the development and manufacturing of test products prior to
commercial production. The decrease in Salaries, contract labor and product
development expense is attributed to the Company's curtailment of new product
development. Sales and marketing expense for 2000 was $489,031 as compared to
$791,575 for 1999, a decrease of $302,544 or 38.2%. The decrease in sales and
marketing expenses in 2000 was due to a reduction in the scope of our marketing
effort.
OTHER INCOME (EXPENSE)
Other income (expense) for 2000 consisted of interest income and
interest expense. Interest expense was $2,525,376 in 2000 as compared to
$567,986 in 1999, an increase of $1,957,390. The increase is due to interest
during 2000 being expensed during the entire year rather than partially
capitalized since the construction of the manufacturing facilities and related
equipment had been completed. The Company capitalized interest costs of $-0- in
2000 and $1,114,616 in 1999.
Interest income was $135,921 in 2000 as compared to $242,537 in 1999, a
decrease of $106,616. The decrease in interest income is attributable to a
reduction in the invested funds available from various private placements which
were used to fund the Company's facilities construction, equipment purchases and
operations.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES
Revenues for 1999 were $3,689,524 as compared to $2,009,165 in 1998, an
increase of $1,680,359. Product sales were $2,775,696 for 1999 as compared to
$1,422,711 for 1998, an increase of $1,352,985. I(4), a wholly owned subsidiary,
provided $950,229 of this increase while initial sales of brachytherapy seeds
provided an additional $402,738 during 1999. Product developmental income,
related to our ongoing product development contracts, was $206,038 for 1999 as
compared to $522,000 for 1998, a decrease of $315,962. The decrease was related
to our emphasis on brachytherapy seed manufacturing as opposed to outside
product development. Sales of our accelerator components were $707,790 for 1999
as compared to $64,454 for 1998, an increase of $643,336. Sales of accelerator
components acquired from the State of Texas increased due to increased efforts
to market the components.
16
COST OF REVENUES
Cost of revenues included $2,274,029 for radioisotope sales for 1999 as
compared to $1,035,517 for 1998. The increase of $1,238,512 is attributable to
increased sales from I(4), and initial sales of brachytherapy seeds during 1999.
Cost of development income was $2,631 for 1999 as compared to $62,830 for 1998.
This decrease is attributable to our emphasis on brachytherapy seed
manufacturing as opposed to outside product development. Cost of accelerator
components sold was $574,290 for 1999 as compared to $32,227 for 1998. The
increase in the cost of accelerator components sold was due to the increase in
accelerator components sold and the write off of costs associated with
non-marketable components.
OPERATING COSTS AND EXPENSES
Operating expense for 1999 was $14,610,731 as compared to $6,537,948 in
1998, an increase of $8,072,783 or 123%. Product development costs accounted for
$6,151,320 of the total increase. General and administrative expenses for 1999
were $4,347,395 as compared to $3,553,669 for 1998, a 22.3% increase, and
salaries and wages increased by $1,033,692, both as a result of increased
facilities expenses and personnel additions as required for production
activities. Research and development expenses, included in operating expenses
above, were $406,651 in 1999 as compared to $281,706 in 1998 as a result of
developing processes related to medical devices. Product development expense was
$6,976,589 in 1999 as compared to $825,269 in 1998. Product development expenses
are costs associated with the development and manufacturing of test products
prior to commercial production. Sales and marketing expense for 1999 was
$791,575 as compared to $697,530 for 1998.
OTHER INCOME (EXPENSE)
Other income (expense) during 1999 consisted of interest income and
interest expense. Interest expense increased during 1999 due to interest for the
fourth quarter of 1999 being expensed rather than capitalized since the
construction of the manufacturing facilities and related equipment had been
completed. The Company capitalized interest costs of $1,114,616 in 1999 and
$607,395 in 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES
Revenues for 1998 were $2,009,165 as compared to $135,765 in 1997, an
increase of $1,873,400, a thirteen fold increase. Product sales were $1,422,711
for 1998 as compared to $-0- for 1997. The purchase of I(4) during 1998 provided
the increase in radioisotope sales as our Denton, Texas facilities were still in
the development stage. Product developmental income, related to our ongoing
product development contracts, was $522,000 for 1998 as compared to $-0- for
1997. Sales of our accelerator components were $64,454 for 1998 as compared to
$135,765 for 1997. Sales of accelerator components acquired from the State of
Texas decreased due to the long lead-time required to market this type of
equipment.
COST OF REVENUES
Cost of revenues included $1,035,517 for radioisotope sales for 1998 as
compared to $-0- for 1997. The increase was attributable primarily to the
acquisition of I(4), which provided us with our first product sales. Cost of
development income was $62,830 for 1998 as compared to $-0- for 1997. This
increase was attributable to our ongoing product development contracts that were
signed in 1998. Cost of accelerator components sold was $32,227 for 1998 as
compared to $79,287 for 1997. The decrease in the cost of accelerator components
sold was due to the decrease in accelerator components sold.
OPERATING COSTS AND EXPENSES
Operating expense for 1998 was $6,537,948 as compared to $2,118,334 in
1997, exclusive of $2,397,500 in employee incentive compensation, an increase of
$4,419,614 or 209%. The acquisition of I(4) provided $826,629 of the total
increase. General and administrative expenses for 1998 were $3,553,669 as
17
compared to $1,125,752 for 1997, a 216% increase, and salaries and wages
increased by $536,752, both as a result of increased activities and personnel
additions in preparation of going into production. Research and development
expenses included in operating expenses above, were $281,706 in 1998 as compared
to $0 in 1997 as a result of developing processes related to medical devices.
Product development expense was $825,269 in 1998 as compared to $0 in 1997.
Product development expenses are costs associated with the development and
manufacturing of test products prior to commercial production. Sales and
marketing expense for 1998 was $697,530 as compared to $-0- for 1997. Employee
incentive compensation, which was incurred in 1997 due to stock options issued
prior to the initial public offering, was not incurred in 1998.
OTHER INCOME (EXPENSE)
Other income (expense) during 1998 consisted primarily of interest
income, interest expense and donation of assets held for sale. Interest expense
decreased during 1998 due primarily to an increase in the amounts capitalized.
The Company capitalized interest costs of $607,395 in 1998 and $24,934 in 1997.
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 net losses for each fiscal period since its inception. From
inception (in November 1995) through December 31, 2000 we had generated
$12,886,621 in revenues and had accumulated a deficit (including preferred stock
dividends and returns) in the amount of $83,047,170. The Company's history of
operating losses has resulted in continued dependence upon additional external
financing. Management's plans regarding its liquidity involved the successful
execution of its 2000 business plan, including the successful commercialization
of our products. We were unable to obtain the additional funds necessary to fund
operations, complete the commissioning of the LINAC, and meet debt service
requirements. Subsequent to the sale of the Radiopharmaceutical Manufacturing
Facility, the Seed Business and the LINAC, we anticipate that the ongoing
operations, consisting solely of I(4), will continue to incur net operating
losses and negative cash flows for the foreseeable future and may never be
profitable.
WE WILL NEED ADDITIONAL FINANCING TO CONTINUE OPERATIONS. In December
1998 and January 1999 we raised approximately $11.4 million through a private
placement of our equity, net of issuance costs. In April 1999 we initiated a
private placement of securities resulting in additional equity of $8,115,852. In
May 1999, we
18
completed a private placement of $10,000,000 in non-voting, 5% cumulative,
redeemable, convertible preferred stock, which was funded $5,000,000 in May and
$5,000,000 in October 1999. We raised an additional $5,400,000 in February 2000
through a private placement of our common stock. On June 15, 2000 we completed a
private placement of $10,000,000 in non-voting, 7% cumulative, redeemable,
convertible preferred stock. However, substantial additional funds were
necessary to enter into manufacturing contracts, expand finished pharmaceutical
manufacturing, increase radioisotope production, continue research and
development relating to the application of our technology, and complete the FDA
approval process for our manufacturing and processing facilities. We had
intended to seek additional capital through public or private sales of our
securities, including equity or debt securities, in order to fund our
activities. However, we were unsuccessful in these efforts. As a result, we
agreed to sell certain assets in an effort to repay creditors to the extent
possible and maximize shareholder value.
We anticipate that our remaining operations, I(4), will continue to
incur losses throughout the remainder of 2001. As such, the ability of the
Company to continue is dependant on our ability to achieve additional funding
from third parties. If we are unable to secure sufficient funds, it may
adversely affect our ability to continue as a viable entity. There can be no
assurance that we will be able to obtain additional financing or obtain
financing on terms acceptable to the Company.
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.
OUR DOE CONTRACT IS SHORT TERM AND SUBJECT TO RENEGOTIATION. The
Company has a contract with the DOE to provide contract labor services for
operations of the DOE hot cells and access to the DOE reactors for continued
radioisotope production. However, these contracts expire September 30, 2001 and
it is likely that the hot cell labor services will not be continued after that
time. Without continued hot cell access the commercial isotope production in the
reactor would have to be suspended until I(4) can reestablish isotope processing
capability in its Idaho Falls facility.
OPERATIONAL HAZARDS (I.E., SPILLS, FAULTS, VENTILATION FAILURE, ETC.)
COULD RESULT IN THE SPREAD OF CONTAMINATION WITHIN OUR IDAHO 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.
TECHNOLOGY PROBABILITY AND EARLY STAGE PRODUCTION. Radioisotope
production is a well-established process but relies upon operation of a
Department of Energy reactor. Continued access to the reactor is not guaranteed.
Additionally, reactor operation issues could adversely effect radioisotope
production. The gemstone processing and medical flood source contract
manufacturing operations are new processes and are likely to encounter some
early stage process difficulties.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS. Certain
radioisotopes manufactured by I(4) are subject to the U.S. Nuclear Regulatory
Commission regulations. To the extent these regulations are or become
burdensome, our business development could be adversely affected. Medical flood
sources are regulated by the Texas Department of Health as a sealed source and
the I(4) manufacturing facility is registered with the Food and Drug
Administration as a medical device manufacturing facility.
WE ARE DEPENDENT UPON KEY PERSONNEL AND CONSULTANTS. Our ongoing
operations will be dependent on Steve T. Laflin, president and general manager
of I(4), and as of August 2001, president and CEO of the ongoing operations of
I(3). We are highly dependent upon this person and the loss of this individual
would have a material adverse effect on us. There is no assurance we will be
able to retain our existing personnel or attract additional qualified employees.
19
WE ARE DEPENDENT ON VARIOUS THIRD PARTIES IN CONNECTION WITH OUR
BUSINESS OPERATIONS. The production of isotopes by I(4) is dependent upon the
Department of Energy, who controls the reactor and laboratory operations, and
its key operating contractor, who performs the day to day operations of those
associated facilities. The gemstone production is tied to an exclusive agreement
with Topaz Group, Inc and medical flood source manufacturing is tied to an
exclusive contract with RadQual LLC.
WE ARE SUBJECT TO COMPETITION FROM STRONGER COMPETITORS IN EACH OF OUR
BUSINESS OPERATIONS. Each of the various production and manufacturing areas of
I(4) has distinct features to competition. 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). Most radioisotopes from reactors are produced in bulk form, are very
competitively priced, and offer small margins for profit. Medical flood sources
are being produced by several other manufacturers in the U.S. and overseas.
There are several producers of Gemstone who utilize the irradiation process for
color enhancement and engage the services of other companies to provide pre and
post irradiation processing. Most of these entities have substantially greater
financial, technical, manufacturing, marketing, distribution and/or other
resources than the Company. Accordingly, other companies may succeed in
developing products earlier, or that are safer or more effective than those we
propose to develop, and in obtaining FDA clearances for such products before our
customers obtain approval.
AS WE SUCCESSFULLY DEVELOP OUR PRODUCTS, WE MAY BE EXPOSED TO PRODUCT
LIABILITY CLAIMS. We might also be required to indemnify affiliates against any
product liability claims incurred by them as a result of products developed by
the Company under licenses granted by these affiliates. We believe we currently
carry adequate product liability insurance; however, we cannot assure you that
we will in the future be able to obtain sufficient amounts of insurance to
protect us against such liability at a reasonable cost. If we experience an
uninsured or inadequately insured product liability claim, our business and
financial condition could be materially adversely affected.
HOLDERS OF OUR SERIES A AND SERIES B PREFERRED STOCK HAVE THE RIGHT TO
CONVERT THEIR PREFERRED STOCK INTO COMMON STOCK AND TO RECEIVE DIVIDENDS PAYABLE
IN COMMON STOCK CAUSING SUBSTANTIAL DILUTION TO COMMON SHAREHOLDERS AND
ULTIMATELY RESULTING IN CONTROL OF THE COMPANY BY THE CURRENT PREFERRED HOLDERS.
The holders of our Series A and Series B preferred stock have the right to
convert the principle amount of their shares into common stock at a conversion
price of $2.00 per share, subject to adjustment in the case of stock splits or
dividends. These holders also will continue to receive shares of common stock in
payment of their preferred dividends (5% for the Series A and 7% for the Series
B) because the Company does not have funds to pay the dividends in cash. Since
these stock dividends are payable based on the market price of the Company's
common stock, which is currently only pennies per share, the preferred holders
will most likely accumulate enough common shares through their dividend,
conversion and redemption rights to control the Company's board of directors and
management. Moreover, the Series A shares are redeemable in May and October 2002
and the Series B shares are redeemable in May 2003 in cash or stock at the then
current market price. If the Company had to redeem the preferred stock using
common stock issuable at the current market price, this would result in the
preferred shareholders owning more that 90% of the outstanding common stock.
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.
20
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,
2000, the carrying amount of 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. The Company's exposure to interest rate risk relates to
variable rate loans that are benchmarked to US bank prime lending rates. 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, 2000 would be approximately $157,809.
ITEM 8. FINANCIAL STATEMENTS
The following financial statements are included herewith:
Independent Auditors' Report
Consolidated Balance Sheets of the Company as of December 31, 2000 and 1999
Consolidated Statements of Operations for the years ended December 31, 2000,
1999 and 1998
Consolidated Statements of Stockholders' Equity (deficit) for the years ended
December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The following table sets forth certain information as of the date of this report
with respect to the persons who are currently serving as directors and executive
officers of the Company and those persons nominated to be elected as directors
at the 2001 annual meeting.
21
<Table>
<Caption>
NAME AGE POSITIONS
- ---- --- ---------
David M. Camp 51 Chairman of the Board
Steve T. Laflin 44 Chief Executive officer and Director
Paul E. Landers 54 Chief Financial Officer and Director
John M. McCormack 55 Director
Robert J. Gary 74 Director
Frederick J. Bonte, M.D. 73 Director
Charles A. LeMaistre, M.D. 77 Director
Randall O'Kane 42 Director
Keith Allberg 49 Director
</Table>
DAVID M. CAMP, PH.D., age 51, joined the Company in November 1999 as
President and Chief Executive Officer. He was appointed by his fellow Board
members to serve as Chairman of the Board in March 2001. He resigned as
President and Chief Executive Officer in August 2001, but continues to serve as
Chairman of the Board. From 1998 to 1999, Dr. Camp served as Vice President and
General Manager of the Gas Systems Division of Millipore Corporation in Allen,
Texas, where he had P&L responsibility for the global semiconductor component
business. From 1996 to 1998, he served as President of Kayex Corporation, a
division of General Signal, a manufacturer of major capital equipment for the
semiconductor industry. From 1992 to 1995, he served as President and Chief
Executive Officer for Evergreen Holding Corporation, a refiner of lubricating
oils for the petroleum industry. Dr. Camp received an M.B.A. from Rensselaer
Polytechnic Institute in 1984. He also received a Ph.D. and M.S. in chemical
engineering form Massachusetts Institute on Technology in 1979 and 1974,
respectively. He also received a B.S. in chemical engineering from the
University of South Carolina in 1972.
STEVE T. LAFLIN, age 44 has served as President and General Manager of
the Company's wholly owned subsidiary, I(4), since April 1998. He was elected to
the Board of Directors by the other directors to fill a vacant seat in June
2001. From October 1996 until April 1998 Mr. Laflin served as General Manager of
MAC Isotopes, which was purchased by I(3) and reconstituted as I(4). Mr. Laflin
was elected by the Board to serve as President and Chief Executive Officer in
August 2001 following Mr. Camp's resignation.
PAUL E. LANDERS, age 54 joined the Company in June 2000 as Chief
Financial Officer. He was elected to the Board of Directors by the other
directors to fill a vacant seat in June 2001. Prior to joining the Company, Mr.
Landers served as the Chief Financial Officer of Aavid Thermalloy, LLC ("Aavid")
in Concord, New Hampshire. Mr. Landers joined Aavid in 1994 as Corporate
Controller and was promoted to Chief Financial Officer in 1996. Mr. Landers has
a B.A. in Economics from the University of Massachusetts and an M.B.A. in
Finance and Organizational Studies from Boston College. Mr. Landers has
announced his decision to resign as Chief Financial Officer effective upon the
filing with the SEC of this form 10-K. He will remain on the Board of Directors.
JOHN M. MCCORMACK, age 55, has been a director since December 1996. Mr.
McCormack is a principal in several real estate companies in the Houston, Texas
area. From 1977 to 1987, Mr. McCormack served as President of Visible Changes, a
chain of 17 Texas beauty salons, and continues to serve as its Chairman. Mr.
McCormack currently serves on the Board of Advisors of M.D. Anderson Hospital
and co-chairs the Studies of Entrepreneurship at the University of Houston.
ROBERT J. GARY, age 74, has been a director since March 1997. Since
1992, Mr. Gary has been President of Gary Investment & Services, an investment
and consulting firm. From 1993 to 1996, Mr. Gary was Chairman of the Board of
Integrated Diagnostic Measurement Corp., and from 1960 to 1992 he held a series
of positions in the Texas Utilities System, including Executive Vice President.
Mr. Gray has a B.S. in Mechanical Engineering from Texas A&M University.
22
FREDERICK J. BONTE, M.D., age 73, has been a director since April 1997.
Dr. Bonte has served as Director of the Nuclear Medicine Center of Southwestern
Medical School in Dallas, Texas since 1980 and as the Dr. Jack Krohmer Professor
of Radiation Physics at University of Texas Southwestern Medical Center since
1994. From 1990 to 1994, he served as the Effie and Wofford Cain Distinguished
Chair in Diagnostic Imaging at University of Texas Southwestern Medical Center
and from 1973 to 1980, as Dean of Southwestern Medical School. Dr. Bonte has
served as Chairman of the Medical Committee of the Texas Radiation Advisory
Board since 1986, as a member of the Commission on Radiologic Units, Standards
and Protection of the American College of Radiology since 1991 and as a member
of the Radiation Advisory Committee and Environmental Hazards Committee of the
American Medical Association since 1986 and 1988, respectively. Dr. Bonte
received an M.D. from Western Reserve University School of Medicine in 1945 and
a B.S. from Western Reserve University in 1942.
CHARLES A. LEMAISTRE, M.D., age 77, was elected to the Board of
Directors at the annual shareholder's meeting in May 1998. He is President
Emeritus The University of Texas M.D. Anderson Cancer Center and former
Chancellor, The University of Texas System. He received his B.A. degree from the
University of Alabama and his M.D. from Cornell University Medical College. He
has been awarded four honorary degrees and was a member of the faculty of three
medical schools, Cornell, Emory and the University of Texas Southwestern in
Dallas. He served as President of The American Cancer Society in 1986. Among
numerous awards are two distinguished alumni awards from Alabama and Cornell and
the 1995 American Medical Association Distinguished Service Award. He served on
the original U.S. Surgeon General's Advisory Committee on Smoking and Health,
1963-64. Dr. LeMaistre is the author of numerous scientific publications.
RANDALL O'KANE, age 42, has been nominated to be elected as a director
at the 2001 Annual Meeting. He is a founding member of RadQual, LLC, which was
founded to develop a wide range of radioactive sources for the nuclear medicine
and PET markets. From 1991 to the present he has been President and CEO of
Technology Imaging Services, which sells accessories and sources to the nuclear
medicine market. Mr. O'Kane is a 1980 graduate of Darmouth College with a degree
in biology.
KEITH ALLBERG, age 49, has been nominated to be elected as a director
at the 2001 Annual Meeting. From December 2000 to the present he has been a
principal and partner in RadQual, LLC, which was founded to develop a wide range
of radioactive sources for the nuclear medicine and PET markets. From January 1,
1990 to December 2000 he was director of the radioactive source business for
DuPont Merk/DuPont Corporations. Mr. Allberg received his B.S. in chemistry in
1976 from Lowell Technical Institute. He also has a B.S. in business
administration from the University of New Hampshire.
All executive officers are elected annually by the Board of Directors
to serve until the next annual meeting of the Board of Directors and until their
respective successors are chosen and qualified.
The Board of Directors met six times during 2000. No director attended fewer
than 75 percent of the aggregate of (1) the total number of meetings of the
Board of Directors and (2) the total number of meetings held by all committees
of the Board on which he served.
Executive Committee. The Executive Committee, originally established in
January 1997, during 2000 consisted of Robert J. Gary, David M. Camp and William
Nicholson. The Executive Committee is responsible for the Company's general
operations, as provided in directives from the Board of Directors. The Executive
Committee met 3 times in fiscal 2000.
Audit Committee. The Audit Committee, established in January 1997,
currently consists of John M. McCormack, Fred Bonte, and Robert J. Gary, each of
which is an "independent director" under NASD rules. The Board of Directors has
not adopted a written charter for the Audit Committee. The Audit Committee meets
with the Company's independent auditors to review the scope and timing of their
audit services, any other services they are asked to perform, the report of
independent auditors on the Company's consolidated financial statements
following completion of their audit and the Company's policies and procedures
with respect to
23
internal accounting and financial controls. In addition, the Audit Committee
makes an annual recommendation to the Board of Directors concerning the
appointment of independent auditors for the ensuing year. The Audit Committee
met once during fiscal 2000.
Compensation Committee. The Compensation Committee, established in
January 1997, currently consists of John M. McCormack, Charles LeMaistre and
David Camp. The Compensation Committee reviews the compensation and benefits of
all officers of the Company, makes recommendations to the Board of Directors and
reviews general policy matters relating to compensation and benefits of
employees of the Company, including administration of the Company's 2000 Amended
and Restated Long Term Incentive Plan. The Compensation Committee met once
during fiscal 2000.
24
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes annual and long-term
compensation for services in all capacities to the Company for each of the three
years ended December 31, 2000 of the Chief Executive Officer and the other four
most highly compensated executive officers of the Company with annual income of
$100,000 or more (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------- SECURITIES
UNDERLYING ALL OTHER
NAME AND BONUS OPTIONS STOCK COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($) (#) GRANTS($)(1) ($)(2)
------------------ ---- --------- ---- ------------ ------------ -------------
David M. Camp (4)
President, Chief Executive 1999 $ 20,731(3) -0- 35,000 $172,601 --
Officer and Director 2000 $137,321 -0- -0- -0- --
Tommy L. Thompson (4) 1998 $172,383 -0- -0- -0- --
(Former) Executive Vice 1999 $169,950 -0- -0- -0- --
President and Chief 2000 $157,402 -0- -0- $ 43,750 --
Operating Officer
George Butterworth (4) 2000 $111,316 -0- -0- -0- --
(Former) Vice President of
Radioisotope Production
Bryce Drake (4) 2000 $106,327 -0- -0- -0- --
(Former) Vice President of
Medical Device Manufacturing
Steve L. Laflin (5) 1998 $ 95,000 -0- -0- -0- --
President of I 4 1999 $ 95,000 -0- -0- -0- --
2000 $ 95,000 -0- -0- -0- --
</Table>
- ---------------
(1) Represents the difference between the price paid by the named executive
officer and the fair market value of such security on the date of
purchase.
(2) None of the named executive officers received any perquisites or other
personal benefits in 1998, 1999 or 2000 that in the aggregate exceeded
$50,000 or 10% of such named executive officer's salary and bonus for
such year. See Note (1) above.
(3) Represents salary for 2 months.
(4) Resigned as President and Chief Executive Officer in August 2001. Mr.
Camp continues to serve as Chairman of the Board. Mr. Thompson resigned
as Executive Vice-President, Chief Operating Officer and Director in
November 2000. Mr. Butterworth resigned as Vice President in January
2001. Mr. Drake resigned as Vice President in January 2001.
(5) Mr. Laflin was elected by the Board of Directors to serve as President
and Chief Executive Officer of I(3) in August 2001.
25
COMPENSATION OF DIRECTORS
Employee directors of the Company do not receive additional
compensation for their services as directors. Prior to its initial public
offering, the Company did not pay director's fees but did reimburse directors
for their expenses. Following the Company's initial public offering, the Company
paid each non-employee director $500 per meeting for their services as
directors. During 2000, the Company suspended payment of the $500 fee. The
Company continues to reimburse directors for all expenses incurred in connection
with their activities as directors. Non-employee directors and employee
directors of the Company are entitled to receive certain stock option awards
under the Company's 2000 Amended and Restated Long Term Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The Company did not grant any stock options to the Named Executive Officers
during the year ended December 31, 2000.
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
None of the Named Executive Officers exercised options to purchase Common Stock
in 2000. The following table sets forth certain information with regard to the
outstanding options to purchase Common Stock as of the end of the year ended
December 31, 2000 for the persons named in the Summary Compensation Table above.
<Table>
<Caption>
SHARES
NAME ACQUIRED ON VALUE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- EXERCISE (#) REALIZED($) ----------- ------------- ----------- -------------
------------ ----------- NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END AT FISCAL YEAR-END($)(1)
--------------------------- ---------------------------
David M. Camp -0- -0- -0- 200,000 -0- $31,240
Tommy L. Thompson -0- -0- -0- -0- -0- -0-
George Butterworth -0- -0- 33,333 46,667 5,207 7,289
Bryce Drake -0- -0- 20,000 40,000 3,124 6,248
Steve L. Laflin -0- -0- -0- -0- -0- -0-
</Table>
(1) Based on the last sale price of $ 0.1562 of the Company's Common Stock on
the Nasdaq Small Cap Market on December 31, 2000. The exercise price of the
options in this table is $4.94, $5.88 and $6.00 per share.
DIRECTOR COMPENSATION
Employee directors of the Company do not receive additional
compensation for their services as directors. Prior to its initial public
offering, the Company did not pay director's fees but did reimburse directors
for their expenses.
EMPLOYMENT AGREEMENTS
In November 1999, the Company entered into an Employment Agreement with
David M. Camp to serve as President and Chief Executive Officer of the Company.
The Agreement was for a term of five years and provided for a base salary of
$140,000 with bonuses payable at the discretion of the Board of Directors and
the Compensation Committee. Pursuant to his agreement, Mr. Camp also received
stock options to purchase 200,000 shares of the Company's Common Stock. Mr. Camp
resigned his position as President and Chief Executive Office in August 2001,
but continues to serve as the Company's Chairman of the Board. In accordance
with his
26
Employment Agreement, Mr. Camp received a lump sum payment equal to twelve
months of his base compensation.
In June 2000, the Company entered into an Employment Agreement with
Paul E. Landers to serve as the Company's Chief Financial Officer. The Agreement
provided for a term of two years with base compensation equal to $135,000
annually. Bonuses were payable at the discretion of the Board of Directors and
the Compensation Committee. Mr. Landers received 60,000 stock options to
purchase shares of the Company's Common Stock and if certain Company performance
goals were met he was entitled to a stock grant of an additional 40,000 shares.
The Company did not achieve the performance objectives and no shares were
granted. Mr. Landers has informed the Board of Directors that he intends to
resign as Chief Financial Office effective upon the filing with the SEC of this
form 10-K. Mr. Landers will continue to serve as a member of the Board of
Directors of the Company. In accordance with his Employment Agreement, Mr.
Landers was paid a severance benefit equal to six months of his base salary.
In April 2001, the Company entered into an Employment Agreement with
Steve Laflin to serve as the Company's new President and Chief Executive Officer
upon Mr. Camp's resignation and Mr. Laflin's election to the President and CEO
position by the Board of Directors. Mr. Laflin was elected President and Chief
Executive Officer by the Board of Directors in August 2001. Mr. Laflin's
agreement provides for a four-year term at a base salary of $120,000. Mr. Laflin
is entitled to bonus compensation at the discretion of the Board of Directors
and the Compensation Committee. In connection with his Employment Agreement, Mr.
Laflin was granted stock options to purchase 1,000,000 shares of the Company's
Common Stock at an exercise price of $.076 per share, the fair market value of
the Company's Common Stock on the date of grant. Of this amount, 500,000 options
vested immediately with the remainder vesting in two equal installments of
250,000 in April 2002 and April 2003, respectively.
REPORT ON EXECUTIVE COMPENSATION
GENERAL
The Compensation Committee currently consists of three members, one of
which serves or served as an executive officer of the Company. No executive
officer of the Company serves or served on the compensation committee of another
entity and no executive officer of the Company serves or served as a director of
another entity which has or had an executive officer serving on the board of
directors of the Company.
Decisions on compensation of the Company's executive officers generally
are made by the Compensation Committee of the Board, subject to review and
approval by the full Board of Directors. Decisions with respect to awards under
the Company's Long Term Incentive Plan are also made by the Compensation
Committee, subject to review and approval by the Board of Directors. Set forth
below is a report prepared by Messrs. McCormack, LeMaistre and Camp in their
capacity as the Compensation Committee addressing the Company's compensation
policies for the fiscal year 2000 as they affected the Company's executive
officers, including the Company's Chief Executive Officer, David M. Camp.
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that integrate pay with
the Company's annual and long term performance goals, review above average
corporate performance, recognize initiative and achievements, and assist the
Company in attracting and retaining qualified executives. Targeted levels of
total executive compensation are generally set at levels that the Compensation
Committee believes to be consistent with others in the Company's industry,
although actual compensation levels in any particular year may be above or below
those of the Company's competitors, depending upon the Company's performance.
The Compensation Committee is mindful of grants or awards made to the
Company's executive officers under the Company's Long Term Incentive Plan. The
Compensation Committee endorses the position that stock ownership by management
and stock based performance compensation arrangements are beneficial in aligning
27
management's and shareholders' interest in the enhancement of shareholder value.
Thus, the Compensation Committee takes into account the stock based elements in
designing the compensation packages of the Company's executive officers.
The principal components of the Company's non-stock based compensation
program are base salary and bonus. Bonuses are at the discretion of the
Compensation Committee and the board, based on performance criteria and
production. No bonus or other incentive based compensation was paid in fiscal
year 2000.
FISCAL 2000 CHIEF EXECUTIVE OFFICER COMPENSATION
Dr. Camp's compensation for fiscal year 2000 as President and Chief
Executive Officer of the Company consisted solely of his base salary. No bonus
or other non-stock incentive based compensation was provided. the Compensation
Committee believes that Dr. Camp's compensation package is set at a level that
is consistent with others in the Company's industry. Dr. Camp is a member of the
Compensation Committee but does not participate in the Compensation Committee's
decision regarding his compensation.
Submitted by the Compensation Committee of
the Board of Directors
John M. McCormack
David M. Camp
Charles LeMaistre
28
PERFORMANCE GRAPH
The following graph compares the annual cumulative total shareholder
return on an investment of $100 on December 31, 1997 in the Company's common
stock, based on the market price of the common stock, with the cumulative total
of a similar investment in the Nasdaq composite stock market index (U.S.
companies) and Nasdaq's index for pharmaceutical industry stocks.
<Table>
<Caption>
1997 1998 1999 2000
------ ------ ------ ------
International Isotopes Inc. 100 183 63 2
NASDAQ Stock Market (US Companies) 100 141 255 158
NASDAQ Pharmaceutical industry 100 127 238 298
</Table>
29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of July 31, 2001,
regarding the beneficial ownership of the Company's Common Stock by each person
or group known by management of the Company to own more than five percent of the
outstanding shares of Common Stock of the Company, by each of the Company's
executive officers named in the Summary Compensation Table above, by each of the
Company's directors (and those nominated for election as directors at the
Company's 2001 annual meeting) and by all of its directors and executive
officers as a group.
<Table>
<Caption>
SHARES OF COMMON STOCK BENEFICIALLY
OWNED AND PERCENTAGE OF OUTSTANDING
SHARES AS OF
JULY 31, 2001
NAME NUMBER(1) PERCENT
---- --------- -------
Brown Simpson Partners I Ltd (2)........................................ 10,056,476 41.4%
AIG Soundshore Holdings Ltd (3)......................................... 1,445,432 7.7%
Basso Securities Ltd. (4) .............................................. 2,519,289 12.8%
John M. McCormack (5)................................................... 1,104,000 6.0%
William W. Nicholson (6)................................................ 1,500,000 7.7%
David M.Camp (7)(8)..................................................... 35,000 *
Tommy L. Thompson....................................................... 25,000 *
Robert J. Gary (7)...................................................... 136,667 *
Frederick J. Bonte ..................................................... *
Charles LeMaistre....................................................... *
Paul E. Landers (7)..................................................... 20,000 *
George Butterworth...................................................... *
Bryce Drake............................................................. *
Steve T. Laflin (7)(8) ................................................. 500,000 2.7%
Randall O'Kane (8) ..................................................... *
Keith Allberg (8) ...................................................... *
--------- -----
Directors and executive officers as a
group (11 persons)(7).................................................. 3,261,124 16.4%
</Table>
* Less than 1%
(1) Unless otherwise indicated, to the knowledge of the Company, all shares
are owned directly and the owner has sole voting and investment power.
(2) Includes 5,000,000 shares convertible from redeemable convertible
preferred stock.
(3) Includes 498,500 shares convertible from redeemable convertible
preferred stock.
(4) Includes 858,500 shares convertible from redeemable convertible
preferred stock, also includes an aggregate of 1,445,432 shares
beneficially owned by AIG Soundshore Holdings Ltd.
(5) Includes an aggregate of 954,000 shares beneficially owned by Mr.
McCormack's children. Mr. McCormack disclaims beneficial ownership of
the shares owned by his children.
(6) Includes 1,000,000 shares convertible from redeemable convertible
preferred stock.
(7) Includes options to purchase 11,667, 20,000, 500,000 and 531,667 shares
of Common Stock granted to Messrs. Gary, Landers, Laflin and all
directors and executive officers as a group, respectively, that are
exercisable within 60 days of July 31, 2001. Does not include options
to purchase 200,000, 23,333, 40,000, 500,000, and 763,333 shares of
Common Stock granted to Messrs. Camp, Gary, Landers, Laflin and all
directors and executive officers as a group, respectively, that are not
exercisable within 60 days of July 31, 2001.
(8) Nominated to be elected director at the Company's 2001 Annual Meeting.
30
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports relating to their
ownership and change in ownership of the Company's Common Stock with the
Securities and Exchange Commission and the NASD. The Company is unaware of any
officers or directors who failed to timely file a form 4 or form 5 during 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Randall O'Kane and Mr. Keith Alberg, nominees for election as
directors at the Company's 2001 annual meeting, are each founding members of
RadQual, LLC. The Company entered into a contract with RadQual pursuant to which
I(4) will manufacture flood sources for RadQual. The contract has an estimated
yearly value of $1,000,000 to RadQual.
The Company believes that all prior transactions and loans between the
Company and its officers, directors and 5% or greater stockholders have been on
terms no less favorable than could be obtained by the Company from unaffiliated
third parties. All future transactions and loans between the Company and its
officers, directors and 5% or greater stockholders will be on terms no less
favorable than can be obtained by the Company from unaffiliated third parties
and will be approved by a majority of the independent, disinterested directors
of the Company.
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 1997 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).
23.1 Consent of KPMG LLP, as independent certified public accountants
Reports on Form 8-K
The Company filed a Form 8-K on February 9,2000 with respect to a private
placement of common stock and warrants; on June 27, 2000 with respect to a
private placement of convertible redeemable preferred stock and
31
warrants and an adjustment to Series A 5% convertible redeemable preferred stock
conversion pice and warrant exercise price; on 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 Radiopharmaceutical Manufacturing Facility and
brachytherapy seed assets; and 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.
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 David M. Camp and Paul E. Landers,
or any one of them, 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.
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/ David M. Camp
-------------------------------
David M. Camp
Chairman of the Board of Directors
32
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.
November 8, 2001 By: /s/ David M. Camp
----------------------------
David M. Camp
Chairman of the Board of Directors
November 8, 2001 By: /s/ Steve L. Laflin
----------------------------
Steve L. Laflin
President, Chief Executive Officer and
Director
November 8, 2001 By: /s/ Paul Landers
----------------------------
Paul Landers
Chief Financial Officer, Chief Accounting
Office and Director
November 8, 2001 By: /s/ John M. McCormack
----------------------------
John M. McCormack
Director
November 8, 2001 By: /s/ Charles A. LeMaistre, M.D.
----------------------------
Charles A. LeMaistre, M.D.
Director
November 8, 2001 By: /s/ Robert J. Gary
----------------------------
Robert J. Gary
Director
November 8, 2001 By: /s/ Frederick J. Bonte, M.D.
----------------------------
Frederick J. Bonte, M.D.
Director
33
INTERNATIONAL ISOTOPES, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
<Table>
<Caption>
Page No.
Independent Auditors' Report........................................................ 35
FINANCIAL STATEMENTS
Consolidated Balance Sheets of the Company
as of December 31, 2000 and 1999................................................ 36
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999 and 1998................................................. 37
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 2000, 1999 and 1998................................................. 38
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998................................................. 39
Notes to Consolidated Financial Statements ......................................... 41
</Table>
34
INDEPENDENT AUDITORS' REPORT
The Board of Directors
International Isotopes Inc.:
We have audited the accompanying consolidated balance sheets of International
Isotopes Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the years in the three-year period ended December 31, 2000.
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 1999, and the results
of its operations and its cash flows for each of the years in the three-year
period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying consolidated 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 plan 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
Dallas, Texas
April 27, 2001, except for Note 11
as to which the date is June 6, 2001
35
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<Table>
<Caption>
December 31,
Assets 2000 1999
---------------- ------------ ------------
Current assets:
Cash and cash equivalents $ 642,554 $ 2,990,300
Accounts receivable 373,513 765,367
Assets held for sale (note 2) 25,085,806 --
Inventories (note 4) 2,587,992 2,421,434
Prepaids and other 304,636 1,179,040
------------ ------------
Total current assets 28,994,501 7,356,141
Property, plant and equipment, net (notes 2, 6 and 10) 455,541 40,734,736
Goodwill, net (notes 2 and 5) -- 1,394,302
Intangibles and other (note 2) 134,777 2,063,847
------------ ------------
Total assets $ 29,584,819 $ 51,549,026
============ ============
Liabilities, Redeemable Convertible Preferred
Stock and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities
Accounts payable $ 4,459,814 $ 2,077,051
Accrued liabilities 939,254 601,795
Current portion of lease obligations (notes 2 and 10) 1,531,883 1,346,958
Current installments of mortgage and notes payable (notes 2 and 7) 16,972,971 524,843
------------ ------------
Total current liabilities 23,903,922 4,550,647
Lease obligations, excluding current portion (notes 2 and 10) 2,025,763 3,053,025
Mortgage and notes payable, excluding current installments (note 2 and 7) 67,989 13,953,679
------------ ------------
Total liabilities 25,997,674 21,557,351
Redeemable convertible preferred stock, net
(liquidation value of $8,217,000) (note 8) 17,337,954 8,392,475
Stockholders' equity (deficit) (note 8)
Preferred stock, $0.01 par value; 5,000,000 shares authorized,
18,217 shares issued and outstanding -- --
Common stock, $0.01 par value; 50,000,000 shares authorized,
issued and outstanding 10,611,411 at December 31, 2000
and 8,569,074 shares at December 31, 1999 106,115 85,689
Additional paid-in capital 69,190,246 49,332,039
Accumulated deficit (83,047,170) (27,178,528)
Receivable from stockholders -- (640,000)
------------ ------------
Total stockholders' equity (deficit) (13,750,809) 21,599,200
Total liabilities, redeemable convertible preferred stock
------------ ------------
and stockholders' equity $ 29,584,819 $ 51,549,026
============ ============
</Table>
See accompanying notes to consolidated financial statements.
36
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<Table>
<Caption>
Years ended December 31,
2000 1999 1998
------------ ------------ ------------
Revenue:
Sales of product $ 5,407,065 $ 2,775,696 $ 1,422,711
Development contract income 870,000 206,038 522,000
Sale of accelerator components -- 707,790 64,454
------------ ------------ ------------
Total revenue 6,277,065 3,689,524 2,009,165
Cost of revenue:
Cost of products 11,530,234 2,274,029 1,035,517
Cost of development contract 1,932,775 2,631 62,830
Cost of accelerator components -- 574,290 32,227
------------ ------------ ------------
Gross profit (loss) (7,185,944) 838,574 878,591
------------ ------------ ------------
Operating costs and expenses:
Salaries, contract labor and product development 5,135,477 9,471,761 2,286,749
Sales and marketing 489,031 791,575 697,530
General, administrative and consulting 7,808,770 4,347,395 3,553,669
Impairment of long-lived assets (note 2) 17,975,043 -- --
------------ ------------ ------------
Total operating expenses 31,408,321 14,610,731 6,537,948
------------ ------------ ------------
Operating loss (38,594,265) (13,772,157) (5,659,357)
Other income (expense):
Donation of assets held for sale -- -- (24,330)
Interest income 135,921 242,537 288,494
Interest expense (2,525,376) (567,986) (462)
------------ ------------ ------------
Loss before extraordinary item (40,983,720) (14,097,606) (5,395,655)
Extraordinary loss on debt extinguishment -- -- (123,750)
------------ ------------ ------------
Net loss (40,983,720) (14,097,606) (5,519,405)
Preferred stock dividend, deemed dividend
and accretion of discount (14,884,922) (2,356,111) --
Net loss applicable to common shareholders $(55,868,642) $(16,453,717) $ (5,519,405)
============ ============ ============
Net loss per common share - basic and diluted $ (5.77) $ (2.03) $ (0.84)
============ ============ ============
Weighted average common shares outstanding -
basic and diluted 9,686,303 8,110,521 6,534,987
============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
37
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Years ended December 31, 2000, 1999 and 1998
- --------------------------------------------------------------------------------
<Table>
<Caption>
Additional
Common Stock Paid-in
Shares Amount Capital
---------- ---------- ------------
Balance, December 31, 1997 6,370,950 $ 63,709 22,290,815
Shares issued for purchase of subsidiary 159,416 1,594 3,172,379
Shares issued for license agreement & patent 37,259 372 724,628
Common stock issued in private placement 784,000 7,840 9,499,574
Forgiveness of stock sale receivable
Net loss
---------- ---------- ------------
Balance, December 31, 1998 7,351,625 $ 73,515 $ 35,687,396
Net effect of repurchase agreement with MAC Tech (note 5) (869,559)
Issuance of warrants (note 8) 1,330,450
Issuance of warrants for services 37,967
Beneficial conversion effect of Series A redeemable
convertible preferred stock (note 8) 1,930,450
Common stock issued in private placement 1,084,410 10,844 10,043,853
Issuance of common stock for services 98,039 980 999,020
Accretion of issuance costs on
redeemable convertible preferred stock
Issuance of common stock to officer (note 8) 35,000 350 172,462
Redeemable convertible preferred stock dividend
Net loss
---------- ---------- ------------
Balance December 31, 1999 8,569,074 $ 85,689 49,332,039
Common stock issued in private placement 1,054,652 10,547 5,367,630
Net effect of repurchase agreement with MAC Tech (note 5) (1,266,442)
Issuance of warrants related to Series B Preferred Stock 3,283,582
Issuance of warrants for services 6,033
Issuance of common stock for services 144,000 1,440 506,060
Beneficial conversion effect of Series B redeemable
convertible preferred stock (note 8) 5,213,582
Increase of the number of warrants and adjustment
of the conversion price associated with the
Series A redeemable convertible preferred stock (note 8) 4,228,331
Accretion of issuance costs on
redeemable convertible preferred stock
Redeemable convertible preferred stock dividend 384,631 3,847 707,097
Purchase of shares in conjunction with Employee Stock
Purchase Plan 13,304 134 33,792
Conversion of Series B redeemable convertible
preferred stock 445,750 4,458 1,778,542
Forgiveness of notes receivable from stockholders
Net loss
---------- ---------- ------------
Balance December 31, 2000 10,611,411 $ 106,115 69,190,246
========== ========== ============
<Caption>
Receivable Total
From Accumulated Stockholders'
Stockholders Deficit Equity (Deficit)
------------- ------------ ----------------
Balance, December 31, 1997 (720,000) (5,205,406) 16,429,118
Shares issued for purchase of subsidiary 3,173,973
Shares issued for license agreement & patent 725,000
Common stock issued in private placement 9,507,414
Forgiveness of stock sale receivable 80,000 80,000
Net loss (5,519,405) (5,519,405)
---------- ----------- ------------
Balance, December 31, 1998 (640,000) (10,724,811) 24,396,100
Net effect of repurchase agreement with MAC Tech (note 5) (869,559)
Issuance of warrants (note 8) 1,330,450
Issuance of warrants for services 37,967
Beneficial conversion effect of Series A redeemable
convertible preferred stock (note 8) (1,930,450)
Common stock issued in private placement 10,054,697
Issuance of common stock for services 1,000,000
Accretion of issuance costs on
redeemable convertible preferred stock (322,925) (322,925)
Issuance of common stock to officer (note 8) 172,812
Redeemable convertible preferred stock dividend (102,736) (102,736)
Net loss (14,097,606) (14,097,606)
---------- ----------- ------------
Balance December 31, 1999 (640,000) (27,178,528) 21,599,200
Common stock issued in private placement 5,378,177
Net effect of repurchase agreement with MAC Tech (note 5) (1,266,442)
Issuance of warrants related to Series B Preferred Stock 3,283,582
Issuance of warrants for services 6,033
Issuance of common stock for services 507,500
Beneficial conversion effect of Series B redeemable
convertible preferred stock (note 8) (5,213,582) --
Increase of the number of warrants and adjustment
of the conversion price associated with the
Series A redeemable convertible preferred stock (note 8) (4,228,331) --
Accretion of issuance costs on
redeemable convertible preferred stock (4,607,065) (4,607,065)
Redeemable convertible preferred stock dividend (835,944) (125,000)
Purchase of shares in conjunction with Employee Stock
Purchase Plan 33,926
Conversion of Series B redeemable convertible
preferred stock 1,783,000
Forgiveness of notes receivable from stockholders 640,000 640,000
Net loss (40,983,720) (40,983,720)
---------- ----------- ------------
Balance December 31, 2000 -- (83,047,170) (13,750,809)
========== =========== ============
</Table>
See accompanying notes to consolidated financial statements.
38
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<Table>
<Caption>
Years ended December 31,
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net loss $(40,983,720) $(14,097,606) (5,519,405)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 4,260,900 1,945,355 490,180
Loss on disposed assets -- 205,380 24,330
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 -- 80,000
Impairment of investment 49,100 -- --
Impairment of long-lived assets 17,975,043
Extraordinary loss on extinguishment of debt -- -- 123,750
Changes in operating assets and liabilities,
exclusive of effects of acquisition:
Interest receivable -- -- 152,358
Accounts receivable 391,854 (524,934) 446,888
Prepaids and other assets 348,147 (34,456) (435,883)
Assets held for sale -- 321,153 --
Inventory (166,558) (676,967) (485,607)
Accounts payable and accrued liabilities 2,617,862 1,081,345 181,416
------------ ------------ ------------
Net cash used in operating activities (14,353,839) (11,569,951) (4,941,973)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of assets for operations (2,389,851) (6,597,992) (24,290,167)
Proceeds from sale of investments -- -- 5,082,777
Proceeds from sale of assets held for sale -- -- 14,069
Purchase MAC Isotopes, Inc., net of cash acquired -- -- (495,000)
Investment in trademarks and license fee -- -- (275,000)
------------ ------------ ------------
Net cash used in investing activities (2,389,851) (6,597,992) (19,963,321)
------------ ------------ ------------
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 9,507,414
Payments on capital leases (1,592,151) (573,369) (220,825)
Proceeds from issuance of debt 3,670,593 -- 17,601,014
Principal payments on notes payable (1,108,155) (3,122,494) (3,812,022)
Payments of preferred stock dividends (125,000) (102,736) --
------------ ------------ ------------
Net cash provided by financing activities 14,395,944 14,786,539 23,075,581
------------ ------------ ------------
Net decrease in cash and cash equivalents (2,347,746) (3,381,404) (1,829,713)
Cash and cash equivalents at beginning of year 2,990,300 6,371,704 8,201,417
------------ ------------ ------------
Cash and cash equivalents at end of year 642,554 2,990,300 6,371,704
============ ============ ============
</Table>
39
(Continued)
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<Table>
<Caption>
Years ended December 31,
2000 1999 1998
----------- ----------- ----------
Supplemental disclosure of cash flow activities:
Cash paid for interest, net of amounts capitalized $ 2,029,746 $ 567,986 $ 84,455
=========== =========== ==========
Cash paid for financing fees $ -- $ -- $ 86,350
=========== =========== ==========
Supplemental disclosure of noncash transactions:
Common stock issued for prepayment of royalties $ -- $ 1,000,000 $ --
=========== =========== ==========
Acquisition of subsidiary through issuance of common stock $ -- $ -- $3,173,973
=========== =========== ==========
Capital expenditures included in accounts payable $ 102,360 $ 103,235 $ 801,254
=========== =========== ==========
Acquisition of license fee and patent rights through
issuance of common stock $ -- $ -- $ 725,000
=========== =========== ==========
Acquisition of equipment through capital leases $ 749,814 $ 3,963,285 $1,147,796
=========== =========== ==========
</Table>
See accompanying notes to consolidated financial statements
40
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(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.
(I(4)). 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 I(4).
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.
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.
Certain reclassifications were made to prior years' presentation to
conform to the current year presentation.
(2) SALE OF ASSETS, LIQUIDITY AND GOING CONCERN
The Company has an accumulated deficit of approximately $83.0 million
since inception and has principally funded operations and plant and
equipment expenditures from proceeds from public and private placements
of equity and through the increase of 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. The facility had a
net book value of $1,095,962 at 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. 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.
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. The assets acquired by NeoRx had
a net book value of $11,304,724 at December 31, 2000. The Company used
the proceeds 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
41
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
note payable to William Nicholson, the former Chairman of the Board in
the amount of approximately $348,000 and fund other operating expenses.
On April 27, 2001, the Company completed the sale of its brachytherapy
seed assets 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. 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.
In order to further reduce the Company's debt obligations, the Company
plans to sell both the Shady Oaks/LINAC facility and property in
Waxahachie, Texas.
The Company is negotiating sell the Shady Oaks/LINAC radioisotope
production facility. The Company estimates net proceeds of $7.7 million
based on the most recent price offered by the potential buyer. The net
book value of the Shady Oaks/LINAC were $23,053,925 at December 31,
2000. Based on the anticipated sales price, the Company recorded an
impairment charge as of December 31, 2000 in the amount of $15,889,765
to write down the assets to estimated fair value less costs to sell.
The property in Waxahachie, Texas has a net book value of $409,531.
Based on a recent external appraisal, the Company believes that
proceeds from the sale of this property will be in excess of its net
book value.
As part of acquiring the LINAC from the State of Texas in 1996, certain
components were received which were not used in the construction of the
currently assembled LINAC. The Company had planned to either use these
components in the construction of a second LINAC or sale the assets. As
part of the Company's plan to divest of the assets discussed above, the
Company determined that it would attempt to also sell its excess
components. The Company completed an analysis of the components and
determined that certain assets had no market value. As such, the
Company recorded an impairment charge of $358,453 related to these
assets. The remaining components have a net book value of approximately
$320,000 and based on discussions with potential buyers, these assets
do not appear to be impaired. The Company reclassified these assets
from other assets to assets held for sale in the accompanying
consolidated financial statements at December 31, 2000.
A summary of the impairment charge recorded as of December 31, 2000, is
as follows:
<Table>
Shady Oaks/LINAC Radioisotopes facility $15,889,765
Woodrow Spencer facility 209,773
Brachytherapy Line 416,294
Equipment held for sale 358,453
Goodwill recorded on acquisition of I(4) from
MAC Tech (note 5) 1,100,758
-----------
$17,975,043
===========
</Table>
Subsequent to the sales of assets described above, the Company will
consist solely of the I(4) Idaho operations and the size and nature of
the business is substantially less in scope. While the Company
anticipates being able to further reduce remaining debt obligations by
approximately $8 million with additional asset sales, the Company does
not expect to generate sufficient cash flows to meet
42
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
operational needs during 2001 and the viability of the Company is
dependent on its ability to secure additional financing or generate
sufficient cash flows from operations. There can be no assurance that
the Company will be able to raise additional capital, complete the
remaining asset sales for the proceeds currently estimated or generate
sufficient cash flows from operations to sustain the Company. If the
Company is unable to obtain additional financing, complete the
remaining asset sales for sufficient proceeds or generate sufficient
cash flows from operations, the Company's operations would be
significantly curtailed. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
(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 equivalents of $162,525 and $2,652,241 at December 31,
2000 and 1999, respectively, consist of money market accounts.
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.
(b) Property, Plant and Equipment
The Company capitalized interest cost during construction
periods of both its buildings and equipment. There were no
interest costs capitalized in 2000. Interest costs capitalized
in 1999 amounted to $1,114,616.
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:
<Table>
<Caption>
Years
Buildings 39
Plant assets 5 - 30
Computer equipment 5
Furniture & fixtures 3 - 7
</Table>
(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
43
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
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 by which
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. (See
note 2)
(g) Revenue Recognition
Revenue is recognized when product development milestones are
accomplished, products are shipped and accelerator components
are shipped. No warranty coverage or right of return
provisions are provided to customers. For certain fixed-price
contracts, revenue is recognized on the
percentage-of-completion method, based on the percentage that
contract costs incurred to date bear to total estimated
contract costs after giving effect to the most recent
estimates of total cost. The effect of changes to total
estimated contract costs is recognized in the period such
changes are determined. Provisions for estimated losses are
made in the period in which the loss is determined. Unbilled
receivables represent costs and related profits in excess of
billings. Unbilled receivables were not billable at the
balance sheet date but are recoverable over the remaining life
of the contract through billings that will be made in
accordance with contractual agreements.
(h) Stock Option Plan
The Company accounts for stock-based compensation using the
intrinsic-value based method and provides pro forma net income
and pro forma earnings 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. Under the provisions of the Company's
equity compensation plan, stock options cannot be granted
below market.
44
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(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 over 77 months. 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 (See note 5).
(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,
2000, 1999 and 1998, as all common stock options and warrants
were anti-dilutive.
(k) Comprehensive Income
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.
(l) Reclassifications
Certain 1999 and 1998 amounts have been reclassified to
conform with the 2000 presentation.
(4) INVENTORIES
Inventories consist of the following at December 31, 2000 and 1999:
<Table>
<Caption>
2000 1999
---- ----
Raw materials $ 288,344 $ 564,354
Finished goods 83,742 58,362
Work in progress 2,215,906 1,798,718
---------- ----------
$2,587,992 $2,421,434
========== ==========
</Table>
The Company recorded inventory write-offs of $569,858 and $368,298 for
the years ended December 31, 2000 and 1999, respectively. These amounts
have been included in cost of products in the accompanying consolidated
financial statements.
45
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(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 does not repurchase the shares, Auric Partners,
of which William Nicholson, a director of the Company, is a partner, is
required to purchase the shares. If Auric purchases the shares, the
Company is obligated to issue to Auric warrants to purchase common
stock of the Company in sufficient quantity and at an exercise price
that will 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 common stock at the market price of $9.00 per share and
paid MACTEC the difference of $10.91 per share or $869,559 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 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 I(4).
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, 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.
(6) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31,
2000 and 1999:
<Table>
<Caption>
2000 1999
------------ ------------
-- 663,674
Furniture and fixtures 35,261 999,579
Plant and improvements 6,379 14,716,131
Production equipment 449,149 26,147,482
------------ ------------
490,789 42,526,866
Less accumulated depreciation and amortization (35,248) (1,792,130)
------------ ------------
Property, plant & equipment, net $ 455,541 $ 40,734,736
============ ============
</Table>
At December 31, 1999, gross property, plant and equipment of
$14,967,585, consisting primarily of the LINAC and related equipment
were not yet operational and not subject to depreciation. In the
accompanying financial statements as of December 31, 2000, the
property, plant and equipment balance consists solely of assets located
at I(4) facilities (See note 2).
46
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(7) MORTGAGE AND NOTES PAYABLE TO BANKS
Mortgage and notes payable to banks as of December 31, 2000 and 1999,
consist of the following:
<Table>
<Caption>
2000 1999
------------ ------------
Promissory notes due to NeoRx Corporation totaling $900,000. Notes bear interest
at Prime plus 2.00% (11.5% at December 31, 2000) and are due in full by April
30, 2001 $ 900,000 $ --
Variable rate (9.25% at December 31, 2000) note payable to bank secured by
substantially all of the Company's assets. Face amount of the note is
$15,000,000. Principal and current interest are payable in monthly installments
of approximately $154,379 with a final balloon payment of $12,057,765 due
November 1, 2003 13,929,874 14,478,522
Fixed rate note payable to Eastern Idaho Economic bearing interest at 3% per
annum and is secured by an irrevocable letter of credit, adjusted annually to
match the remaining principal balance. 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 94,095 --
Variable rate revolving line of credit secured by accounts receivable. Maximum
amount of the line of credit is $5,000,000 with interest payments due monthly
and the principal balance due on December 31, 2000. The interest rate was 10.5%
at December 31, 2000 951,005 --
Note payable due to chairman of the board for the amount of $1,145,000 bearing
interest at 9.6%. Principal and interest together were past due at December 31,
2000 1,165,986 --
------------ ------------
Total mortgage and notes payable 17,040,960 14,478,522
Less current installments (16,972,971) (524,843)
------------ ------------
Mortgage and notes payable, excluding current installments $ 67,989 $ 13,953,679
============ ============
</Table>
The aggregate maturities of mortgage and notes payable to banks are as follows:
<Table>
<Caption>
Years Ending December 31:
-------------
2001 16,972,971
2002 24,861
2003 25,618
2004 17,510
-------------
$ 17,040,960
-------------
</Table>
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 will be due. In 2001, proceeds received from the sale of assets
(note 2) were used to reduce the principal amount of this loan to
$7,750,000. The financial institution agreed to suspend required
principal and interest payments through January 27, 2002 at which time
all
47
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
amounts would be due in full. Additionally, the Company has a revolving
line of credit with a maximum availability of $5,000,000. The interest
rate, currently 9.25%, is one percent over the prime rate as listed by
the Wall Street Journal and resets every six months. The loan is
secured by substantially all of the Company's assets and contains a
$4,000,000 guarantee by I.L. Morgan, then Chairman of the Board. Terms
of this loan contain various restrictive covenants, including
prohibition of additional liens existing on security interest,
limitation on additional indebtedness, limitations on dividends and
similar payments and prohibition of any mergers or acquisitions. The
Company restructured this line of credit in 2001 reducing the amount
available to $900,000. Additionally in 2001, the Company executed a
second revolving line of credit with the same financial institution
with a maximum availability of $500,000. The funds available under this
line of credit are solely available to fund amounts required to operate
the Shady Oaks/LINAC facility.
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 is to be applied as payment
in full of all outstanding amounts owed by NeoRx to the Company. These
amounts were fully repaid in 2001 using proceeds from the Company's
sale of assets (note 2).
On August 3, 2000, the Company executed a loan agreement with the
Eastern Idaho Economic Council for $100,000. Under the terms of this
agreement, the loan bears interest at 3% and payments in the amount of
$2,091 due monthly beginning October 15, 2000 and continuing through
September 15, 2004. Additionally, the Company must maintain a minimum
levels of employment in Eastern Idaho throughout the term of the note.
As collateral for this loan, the Company executed an irrevocable letter
of credit with a bank.
In May 2000, the Company executed a promissory note with the former
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. In 2001, the Company paid
the former Chairman of the Board approximately $348,000, to reduce the
amount owed to $797,000 plus accrued interest.
The Company was not in compliance with several of the restrictive
covenants of the above note payable to bank or the line of credit at
December 31, 2000. As such, all debt other than that owed to Eastern
Idaho Economic, has been classified as current as of December 31, 2000.
(8) STOCKHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
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, the Company recorded a charge in the
amount of $640,000 to general and administrative expenses in the
accompanying consolidated financial statements.
On April 24, 1998 the Company issued 159,416 shares of common stock for
the purchase of subsidiary. The shares were issued at a price of $19.91
per share or $3,173,973 in the aggregate.
On May 14, 1998 the Company issued 8,242 shares of common stock for a
license agreement. The shares were issued at a price of $27.30 per
share or $225,000 in the aggregate.
On July 1, 1998 the Company issued 29,017 shares of common stock for
patent rights. The shares were issued at a price of $17.23 per share or
$500,000 in the aggregate.
48
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
During December 1998, the Company issued in a private placement, 49
units consisting each of 16,000 shares of common stock and 16,000
warrants. The warrants are exercisable at any time during a three year
period ending November 2001 at an exercise price equaling 110% of the
private placement offering price of the shares ($13.75 per share). The
private placement resulted in net proceeds to the Company of $9,507,414
after deducting placement fees and issuance costs of $292,586.
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 are exercisable at any time during a three year
period ending November 2001 at an exercise price equaling 110% of the
private placement offering price of the shares ($13.75 per share). 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 equaling 110% of the private placement offering price
of the shares ($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.
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.
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 warrants closed in February 2000. The
stock was issued at $3.88 per share for a 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.
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
49
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
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. A summary of the stock options issued under the Company's Plan
is as follows:
Year Ended December 31, 1998
<Table>
<Caption>
Weighted-Average
Fixed Options Shares Exercise Price
- ------------- ------------ ----------------
Outstanding at beginning of year 346,800 $ 7.66
Granted 82,400 15.65
Exercised -- --
Forfeited (34,800) 7.66
------------ ------------
Outstanding at end of year 394,400 $ 9.33
============ ============
</Table>
Year Ended December 31, 1999
<Table>
<Caption>
Weighted-Average
Fixed Options Shares Exercise Price
- ------------- ------------- ----------------
Outstanding at beginning of year 394,400 $ 9.33
Granted 429,700 5.38
Exercised -- --
Forfeited (136,700) 9.52
------------- -------------
Outstanding at end of year 687,400 $ 6.86
============= =============
</Table>
Year Ended December 31, 2000
<Table>
<Caption>
Weighted-Average
Fixed Options Shares Exercise Price
- ------------- ------------- ----------------
Outstanding at beginning of year 687,400 $ 6.86
Granted 376,600 4.75
Exercised -- --
Forfeited (194,500) 7.71
------------- -------------
Outstanding at end of year 869,500 $ 5.57
============= =============
</Table>
50
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The following table summarizes information about fixed stock options
outstanding at December 31, 2000:
<Table>
<Caption>
Options Outstanding Options Exercisable
Options Weighted- Weighted Number Weighted-
Outstanding at Average Average Exercisable at Average
Range of Exercise December 31, Remaining Exercise December 31, Exercise
Prices 2000 Contractual Life Price 2000 Price
- -------------------- -------------- ---------------- -------------- -------------- --------------
$2.88 to $4.93 529,100 9.23 years $ 4.62 76,347 $ 4.94
$4.94 to $9.99 314,000 8.70 years $ 6.39 123,550 $ 6.55
$10.00 to $14.99 700 7.28 years $ 11.88 508 $ 11.82
$15.00 to $19.99 24,400 7.26 years $ 15.84 22,296 $ 15.86
$20.00 to $26.00 1,300 7.36 years $ 22.92 1,145 $ 22.90
-------------- --------------
869,500 223,846
============== ==============
</Table>
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:
<Table>
<Caption>
2000 1999 1998
------------ ------------ ------------
Expected dividend yield -- -- --
Risk-free interest rate 6.0% 5.8% 5.6%
Expected volatility 75% 77% - 103% 45% - 96%
Expected life 3 years 3 years 3 years
Weighted average fair value $ 2.59 $ 2.32 $ 9.12
</Table>
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the Plan and, accordingly, except for stock options
issued at less than quoted market value at date of issue, 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, 2000,
1999 and 1998:
<Table>
<Caption>
2000 1999 1998
------------- -------------- -------------
As reported $ (55,868,642) (16,453,717) (5,519,405)
============= ============== =============
Pro forma (56,747,027) (16,752,465) (5,806,478)
============= ============== =============
As reported $ (5.77) (2.03) (0.84)
============= ============== =============
Pro forma (5.86) (2.07) (0.89)
============= ============== =============
</Table>
51
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
Preferred Stock and 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 $.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 ("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. 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.
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 for the
May 1999 issuance and October 15, 2002 for the October 1999 issuance 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 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 for the May 1999 issuance and October 15, 2002 for the
October 1999 issuance.
The warrants associated with the 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 is being accreted to Preferred Stock
from the date of issuance to the date of mandatory redemption of the
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.
52
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
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
approximately $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. 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").
The Series B Preferred Stock is mandatorily redeemable on May 31, 2003
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 on
December 1, 2000, and June 1, 2001, and under certain 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. The Series
B Preferred Stock is convertible to common stock at $4.00 per share and
the warrants are exercisable at any time up to June 1, 2003 at $4.00
per share.
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 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.
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. 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 3 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.
53
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
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. 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.
During April 2000, the Company disbursed $125,000 to satisfy its 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.
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.
In the first quarter of 2001, the holders of Series A and Series B
redeemable convertible preferred stock agreed to waive the right to
early redeem their stock and reduce the conversion price of the stock
to $2.00 in exchange for 46 warrants (per Preferred Share) to purchase
NeoRx common stock.
Warrants - In connection with the aforementioned Offering, on August
19, 1997 the Company issued, to Keane Securities Co., Inc., warrants to
purchase 220,000 shares of the Company's common stock. The warrants are
exercisable at any time during a four-year period beginning August 19,
1998 with an exercise price equal to 120% of the initial public
offering price of the shares ($10.80 per share). As of December 31,
2000 none of the warrants have been exercised.
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
54
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
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, 2000 none of the warrants had been exercised. The
original term of the engagement was for a twenty-four month period from
the date of the agreement. The agreement was terminated on 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, 2000:
<Table>
<Caption>
Outstanding at December 31, 2000 Exercisable at December 31, 2000
-------------------------------- --------------------------------
Weighted Average Weighted Average
Remaining Remaining
Exercise Prices Warrants Contractual Life Warrants Contractual Life
- --------------- --------- ---------------- --------- ----------------
$3.38 - $5.50 4,465,966 9.31 years 4,465,966 9.31 years
$10.00 - $13.50 2,846,410 7.95 years 2,846,410 7.95 years
</Table>
(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:
<Table>
<Caption>
2000 1999
------------ ------------
Computed "expected" tax benefit $(13,934,465) $ (4,793,186)
Nondeductible expenses and other 15,200 14,524
Prior year adjustment -- (13,081)
Change in valuation allowance 13,919,265 4,791,743
------------ ------------
Total income tax expense $ -- $ --
============ ============
</Table>
55
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets (liabilities) as of
December 31, 2000 and 1999 are presented below:
<Table>
<Caption>
2000 1999
------------ ------------
Deferred tax assets:
Goodwill $ 531,174 $ 57,111
Startup costs 2,182,476 2,908,602
Property, plant and equipment (95,038) (37,916)
Net operating loss carryforward 13,988,233 5,480,223
Impairment charge 5,737,597
Inventory reserve 6,742 23,899
Other -- --
------------ ------------
22,351,184 8,431,919
Less valuation allowance (22,351,184) (8,431,919)
------------ ------------
Net deferred taxes $ -- $ --
============ ============
</Table>
The valuation allowances for 2000 and 1999 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, 2000, 1999, and 1998 was an increase of
$13,919,265, $4,791,743 and $1,860,525, respectively. At December 31,
2000, the Company has a net operating loss carryforward for tax
purposes of approximately $41,141,861 that will begin to expire in
2018.
(10) LEASE COMMITMENTS
As of December 31, 2000, the Company had fixed assets under capital
lease with a book value of $4,489,085, net of accumulated depreciation
of $1,068,472. At December 31, 1999, the Company had fixed assets under
capital leases with a book value of $4,529,263, net of accumulated
depreciation of $818,480. Amortization of assets held under capital
leases is included with depreciation expense. In April 2001, the
Company fully paid the remaining lease obligations for all of its
capital leases in conjunction with the asset sales described in note 2.
The Company leases office space and certain office equipment under
operating leases expiring at various dates through 2005. Rental expense
under such leases for the years ended December 31, 2000, 1999 and 1998
was $64,805, $161,823 and $352,703, respectively.
Future minimum lease payments under noncancelable operating leases
(with initial or remaining lease terms in excess of one year) as of
December 31, 2000 are:
<Table>
Years ending December 31,
2001 $ 79,961
2002 79,961
2003 77,555
2004 72,793
2005 16,096
------------
Total minimum lease payments 326,366
============
</Table>
56
INTERNATIONAL ISOTOPES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2000 and 1999
(11) SUBSEQUENT EVENTS
On June 6, 2001, the Company signed a definitive asset purchase
agreement with AMII to sell the Shady Oaks/LINAC facility for net
proceeds of approximately $7.7 million. This sale is expected to close
during the fourth quarter of 2001.
(12) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2000
-----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ---------- ----------- -----------
Revenues $ 1,631,020 1,222,985 2,070,874 1,352,186 6,277,065
Gross loss from operations (a) (388,500) (1,628,869) (1,625,714) (3,542,861) (7,185,944)
Impairment of long-lived assets (b) -- -- -- (17,975,043) (17,975,043)
----------- ----------- ---------- ----------- -----------
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)
----------- ----------- ---------- ----------- -----------
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
----------- ----------- ---------- ----------- -----------
Revenues $ 607,086 1,386,747 768,071 927,620 3,689,524
Gross profit from operations 378,455 183,758 93,702 182,659 838,574
----------- ----------- ---------- ----------- -----------
Net Loss $(2,649,963) (2,954,172) (3,182,401) (5,311,070) (14,097,606)
----------- ----------- ---------- ----------- -----------
Net loss applicable to common
shareholders $(2,649,963) (4,697,821) (3,295,721) (5,810,212) (16,453,717)
----------- ----------- ---------- ----------- -----------
Basic and diluted loss per common
share $ (0.36) (0.62) (0.39) (0.66) (2.03)
----------- ----------- ---------- ----------- -----------
</Table>
(a) Gross loss from operations include depreciation of the LINAC which commenced
in January 2000.
(b) See discussion at Note 2 regarding the impairment of long-lived assets.
57
INDEX TO EXHIBIT
<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
23.1 Consent of KPMG LLP, as independent certified accountants
</Table>