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| INIS.OB > SEC Filings for INIS.OB > Form 10-K on 26-Mar-2009 | All Recent SEC Filings |
26-Mar-2009
Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION AND RESULTS OF OPERATIONS
The following discussion of the results of the company's operations and financial condition should be read in conjunction with the accompanying financial statements and the notes thereto included within this report.
Overview
International Isotopes Inc. manufactures a full range of nuclear medicine
calibration and reference standards, high purity fluoride gases, and a wide
range of products such as cobalt teletherapy sources, and a wide selection of
radioisotopes and radiochemicals for medical, research, and clinical devices.
We also provide a host of transportation, recycling, and processing services on
a contract basis for clients. An overall discussion comparing the year over
year performance of our various business segments, as well as a summary of our
accomplishments for the year and objectives for 2008, are contained in the
following sections.
In 2008, we continued to build our various business segments, make investments into facilities and infrastructure, launch new products, and enter into new agreements that we believe will increase our future revenues. The following is a list of some of the more significant accomplishments in 2008:
·
Our 2008 revenues were up more than 19% over 2007, and revenue increased in every business segment except transportation.
·
We completed a private placement with several investors which provides us with a stronger financial platform from which we will continue to develop our product lines as well as pursue future business potential with FEP including initial costs of a planned de-conversion facility.
·
We acquired additional shares in RadQual L.L.C. increasing our total ownership position of that company to 24.5%.
·
We have continued to add new cobalt products, including several models of sealed source capsules, and expanded sales agreements with new international customers.
·
We successfully produced germanium tetrafluoride in our pilot scale facility and provided qualification samples to a prospective commercial customer.
·
We initiated efforts to design and license a depleted uranium de-conversion and fluorine extraction process facility.
Based upon the investments we have made in our facilities and products developed in 2008, we have the following goals and objectives for 2009:
·
To continue the design and licensing activities for a new depleted uranium de-conversion and processing facility, including site selection, license application submittal to NRC, and progression towards de-conversion service agreements with one or more commercial uranium enrichment companies.
To pursue additional opportunities for various source recovery and recycle programs expected to be funded through the federal government and to which we are uniquely suited to provide services.
·
To continue advertising and promoting the use of International Isotopes Transportation Services (IITS) and increase our revenues from Transportation Services to commercial customers.
·
To continue to expand our customer base, increase revenues in every business segment, continue to reduce production and operating costs, and attempt to achieve profitability in our core business segment operations.
Results of Operations
Year ended December 31, 2008 compared to year ended December 31, 2007
For the past two years we have continued to significantly increase annual sales revenues. These increases have been equally attributable to the growth in markets as well as our penetration of those markets. Most of the products we manufacture have not been directly impacted by worsening economic condition in 2008. However, should the current economic conditions continue to decline in the U.S., and in other countries, we expect direct and indirect affect on our revenue in subsequent years. For example, while nuclear patient imaging, and the need for our nuclear medicine standards, is expected to continue at its current rate, sales of new imaging units are expected to decline because of economic conditions. The decline in purchasing of new imaging devices will slow the growth in the market and will, in turn, have a longer term negative impact the growth of sales in these and related products.
Revenues
Total revenues in 2008 were $5,602,443 compared to $4,690,588 in 2007, which
represents an increase of $911,885 or 19.4%. The overall increase in revenue
was the result of a significant increase in the revenue of several business
segments. In past periods we have discounted the impact of revenue performance
attributable to normal cyclical fluctuations in bulk cobalt sales because those
fluctuations have created large variations in the revenue for period to period
comparisons. However, for 2008, bulk cobalt sales were approximately the same
as in 2007, and did not account for a significant variation in revenue.
Therefore, a period comparison in which bulk cobalt sales have been excluded
has not been provided. The following paragraphs provide a brief summary of the
revenue performance in each of our business segments.
Radiochemical Products
Sales of radiochemical products accounted for approximately 25% of our total sales revenue in 2008. Sales of radiochemical products increased by approximately 30% to $1,379,906 in 2008, as compared to $1,062,477 in 2007 Increased sales performance in this segment was driven largely by increases in our sales of iodine-131.
Cobalt Products
Sales of cobalt products accounted for approximately 29% of our total sales revenue in 2008. Sales of cobalt products increased by 52% to $1,616,020 in 2008, as compared to $1,064,727 in 2007. The increase in sales was attributable to increased sales of sealed source products to numerous customers.
Nuclear Medicine Standards
Sales of nuclear medicine standards accounted for approximately 33% of our total sales revenue in 2008. Sales of nuclear medicine standards increased by approximately 2% to $1,864,099 in 2008, as compared to $1,819,049 in 2007. The small increase in sales in this segment is attributable to the slow, but steady, growth in the nuclear imaging industry.
Radiological Services
Sales of our radiological services accounted for approximately 11% of our total sales revenue in 2008. Sales of radiological services increased by about 7% to $634,201 in 2008, as compared to $590,160 in 2007. The increase in this segment was largely attributable to an increase in gemstone undergoing processing.
We made no sales of fluorine products during 2008. We had previously estimated
that the FEP plant would start commercial production by the end of 2008. The
plant started regular production of germanium tetrafluoride during 2008 and we
operated the facility as required to be satisfied of its commercial reliability.
However, unforeseen difficulties with product analysis caused a delay in the
start of commercial production. By the end of 2008, most of these difficulties
had been resolved and qualification samples of our product were supplied to a
prospective customer. We will continue to evaluate this opportunity in 2009 and
begin commercial sales after qualification acceptance of the material by our
customer.
Transportation
Sales of transportation services accounted for approximately 2% of our total sales revenue in 2008. Sales of transportation services decreased by 30% to $108,217 in 2008, as compared to $154,175 in 2007. The decline in Transportation services was attributable to a small reduction in the transportation services provided in conjunction with orphan source recovery government contracts. Although revenue for the transportation segment declined, the transportation segment did positively contribute to the bottom line of our other segments in that it provided significant cost savings over the procurement of third party transportation services.
Cost of Revenues and Gross Profit
Cost of revenue for 2008, was $2,879,839 compared to $2,660,781 in 2007, an increase of $219,058 or 8%. Gross profit for 2008, was $2,722,604 or 49% as compared to $2,029,807 or 43% in 2007. The increase in gross profit was attributable to successful control of production costs and implementation of manufacturing process improvements over the course of the year. The impact of these increases in efficiency and process improvements are more significant than the increase in gross profit would reflect as a result of significant increases in manufacturing expenses due to increased cost of raw materials and higher fuel prices. Nonetheless, we were able to compensate for these cost increases and cause an overall improvement in our gross profit percentage for 2008.
Operating Costs and Expenses
Total operating costs and expenses for 2008, were $4,827,985 as compared to $3,645,549 in 2007, an increase of $1,182,436 or 32.4%. Approximately half of this increase was attributable to an increase in costs associated with the fluorine products division and the start of activities to raise capital and begin licensing and design work on the new depleted uranium de-conversion and fluorine extraction processing facility. Operational costs for the fluorine products segment totaled $1,536,000 in 2008 as compared to $940,128 in 2007, an increase of $595,872 or about 63%.
Other Income (Expense)
Other (expense) in 2008 was ($61,586) compared to other expense of ($103,313) in 2007. The difference of $41,727 was principally attributable to an increase in interest income and a decrease in interest expense.
Net Loss
Our Net Loss was $2,166,967 in 2008 compared to a net loss of $1,719,055 in 2007. The $447,912 increase in net loss was almost fully attributable to the increased operational costs of the fluorine products division and more specifically the design and development work associated with the new depleted uranium de-conversion and fluorine extraction processing facility.
Liquidity and Capital Resources
On December 31, 2008, we had cash and cash equivalents of $2,149,340 compared to $121,887 at December 31, 2007. This significant increase is due primarily to the November 7, 2008 private placement offering discussed below. For the year ended December 31, 2008, our cash flows included net cash used in operating activities of $1,476,502, net cash provided by financing activities of $4,775,279 and cash used in investing activities of $1,271,324.
As of December 31, 2008, we had net term borrowings of $647,262 from two loans with Compass Bank. One of these loans, with an outstanding balance of $538,263 as of December 31, 2008 matures in March 2009. The other, with a balance of $108,999 as of December 31, 2008, matures in September 2011.
We also owe $840,753 to our former Chairman of the Board pursuant to a note that matures in April 2012. Principal and interest payments on this note are paid annually based upon net profits (annual principal payment to equal 30% of net pre-tax profits).
During January 2008, 13,333,331 Series D warrants were exercised for cash totaling $1,466,666. In April 2008, the holders of all Class C warrants agreed to amend the terms of the Class C warrant to allow for the Company's call of those warrants. Subsequent to completing this modification, all 13,333,331 Class C warrants were exercised for cash totaling $1,333,333 and the Company issued 13,333,331 exchange (Class E) warrants in accordance with the terms of the Class C warrant. Class E warrants entitle the holder to purchase shares of common stock, $0.01 par value per share, at an exercise price equal to $0.869 per share. Class E warrants expire March 20, 2011.
On November 7, 2008, the Company completed a private placement offering of 8,200,000 units consisting of (i) one (1) share of the Company's common stock and (ii) one (1) Class F Warrants exercisable for a share of the Company's common stock at an exercise price of $0.30, for an aggregate sale price of approximately $2,050,000.
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