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INTERNATIONAL ISOTOPES INC - Quarter Report: 2008 March (Form 10-Q)

International Isotopes, Inc.




UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549


FORM 10-Q


(Mark One)


x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended March 31, 2008


OR


p  TRANSITION REPORT PURSUANT TO 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 small business issuer 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)


208-524-5300

(Issuer’s telephone number)


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.  


ý Yes  ¨ No


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer," "accelerated filer” and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨

                

Accelerated Filer  ¨    

             Non-accelerated filer   ¨ (Do not check if smaller reporting company)

Smaller Reporting Company ý


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


¨ Yes  ý No


As of May 9, 2008 the number of shares of Common Stock, $.01 par value, outstanding was 278,888,188.





1







INTERNATIONAL ISOTOPES INC.



TABLE OF CONTENTS


 

PAGE

PART 1 – FINANCIAL INFORMATION

 

Item 1 – Financial Statements

 

Unaudited Condensed Consolidated Balance Sheets at March 31, 2008 and December 31, 2007

3

Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2008 and 2007

4

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2008 and 2007

5

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2 – Management's Discussion and Analysis of Operations or Plan of Operation

11

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

12

Item 4 – Disclosure, Controls, and Procedures

13

 

 

PART II – OTHER INFORMATION

 

Item 6 – Exhibits

13

 

 

Signatures

14





2







Part I.  Financial Statements

Item 1.  Financial Statements


INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets


 

 

March 31,

 

December 31,

Assets

 

2008

 

2007

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,003,259 

 

$

 121,887 

Accounts receivable

 

 

536,836 

 

 

518,464 

Inventories

 

 

2,606,712 

 

 

2,502,266 

Prepaids and other current assets

 

 

98,274 

 

 

94,936 

Total current assets

 

 

4,245,081 

 

 

3,237,553 

 

 

 

 

 

 

 

Long-term assets

 

 

 

 

 

 

Restricted certificate of deposit

 

 

245,000 

 

 

184,937 

Property, plant and equipment, net

 

 

2,179,217 

 

 

2,095,610 

Capitalized lease disposal costs, net

 

 

98,098 

 

 

83,271 

Investment

 

 

330,000 

 

 

330,000 

Patents, net

 

 

90,103 

 

 

91,857 

Total long-term assets

 

 

2,942,418 

 

 

2,785,675 

Total assets

 

$

 7,187,499 

 

$

 6,023,228 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

 402,559 

 

$

 441,910 

Accrued liabilities

 

 

521,899 

 

 

402,950 

Current installments of capital leases  

 

 

30,487 

 

 

29,648 

Current installments of notes payable

 

 

939,572 

 

 

937,969 

Total current liabilites

 

 

1,894,517 

 

 

1,812,477 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

Obligation for lease disposal costs

 

 

246,999 

 

 

221,742 

Capital leases, excluding current installments

 

 

72,195 

 

 

80,138 

Notes payable, excluding current installments

 

 

644,872 

 

 

669,859 

Mandatorily redeemable convertible preferred stock

 

 

850,000 

 

 

850,000 

Total long-term liabilities

 

 

1,814,066 

 

 

1,821,739 

Total liabilities

 

 

3,708,583 

 

 

3,634,216 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.01 par value; 500,000,000 shares authorized;

264,047,395 and 250,481,324 shares issued and outstanding respectively

 

 

2,640,474 

 

 

2,504,811 

Additional paid-in capital

 

 

93,857,092 

 

 

92,436,907 

Accumulated deficit

 

 

 (93,018,650)

 

 

 (92,552,706)

Total stockholders’ equity

 

 

3,478,916 

 

 

2,389,012 

Total liabilities and stockholders’ equity

 

$

 7,187,499 

 

$

 6,023,228 


See accompanying notes to condensed consolidated financial statements.




3







INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations


 

Three Months ended March 31,

 

2008

 

2007

Sale of product

$

1,307,938 

 

$

 902,632 

Cost of product

 

609,536 

 

 

529,019 

Gross profit

 

698,402 

 

 

373,613 

 

 

 

 

 

 

 Operating costs and expenses:

 

 

 

 

 

Salaries and contract labor

 

512,612 

 

 

336,262 

General, administrative and consulting

 

617,167 

 

 

575,705 

Research and development

 

15,728 

 

 

8,858 

Total operating expenses

 

1,145,507 

 

 

920,825 

 

 

 

 

 

 

Operating loss

 

 (447,105)

 

 

 (547,212)

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

Other income

 

12,016 

 

 

68,870 

Interest income

 

5,314 

 

 

1,936 

Interest expense

 

 (36,169)

 

 

 (42,140)

Total other income (expense)

 

 (18,839)

 

 

28,666 

Net loss

$

 (465,944)

 

$

 (518,546)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share – basic and diluted

$

 (0.00)

 

$

 (0.00)

 

 

 

 

 

 

Weighted average common shares outstanding -

basic and diluted

 

262,570,892 

 

 

219,552,696 


See accompanying notes to condensed consolidated financial statements.




4







INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows


 

Three Months ended

March 31,

 

2008

 

2007

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

 (465,944)

 

$

 (518,546)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

Depreciation and amortization

 

93,545 

 

 

81,158 

Acretion of obligation for lease disposal costs

 

6,722 

 

 

3,823 

Compensation expense related to issuance of options

 

87,672 

 

 

44,052 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

 (18,372)

 

 

 (133,430)

Prepaids and other current assets

 

 (3,338)

 

 

33,921 

Inventories

 

 (104,446)

 

 

 (121,592)

Accounts payable and accrued liabilities

 

79,598 

 

 

42,918 

Net cash used in operating activities

 

 (324,563)

 

 

 (567,696)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Restricted certificate of deposit

 

 (60,063)

 

 

 (1,976)

Purchase of property, plant and equipment

 

 (171,690)

 

 

 (112,959)

Net cash used in investing activites

 

 (231,753)

 

 

 (114,935)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from exercise of warrants

 

1,466,666 

 

 

35,645 

Proceeds from sale of stock

 

1,510 

 

 

1,202,305 

Principal payments on notes payable

 

 (30,488)

 

 

 (34,439)

Net cash provided by financing activities

 

1,437,688 

 

 

1,203,511 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

881,372 

 

 

520,880 

Cash and cash equivalents at beginning of period

 

121,887 

 

 

169,702 

Cash and cash equivalents at end of period

$

 1,003,259 

 

$

 690,582 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow activities:

 

 

 

 

 

Cash paid for interest

$

 22,581 

 

$

 23,828 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

Issuance of note payable for property and equipment

$

 - 

 

$

 42,499 


See accompanying notes to condensed consolidated financial statements.




5







INTERNATIONAL ISOTOPES INC. AND SUBSIDIARY

Notes to Unaudited Condensed Consolidated Financial Statements



(1)

The Company and Basis of Presentation


International Isotopes Inc. (the Company) was incorporated in Texas in November 1995. The consolidated financial statements include all the accounts of the Company and its wholly owned subsidiaries, International Isotopes Idaho Inc., International Isotopes Fluorine Products Inc., and International Isotopes Transportation Services Inc., all of which are Idaho corporations.  The Company’s headquarters and all operations are located in Idaho Falls, Idaho.


Nature of Operations –The Company’s business consists of six major business segments which include: Nuclear Medicine, Cobalt Products, Radiochemical Products, Fluorine Products, Radiological Services, and Transportation.


With the exception of certain unique products, the Company’s normal operating cycle is considered to be one year.  Due to the time required to produce some cobalt products, the Company’s operating cycle for those products is considered to be three years.  All assets expected to be realized in cash or sold during the normal operating cycle of business are classified as current assets. As of March 31, 2008, the Company had 30 full time employees.


 Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries International Isotopes Idaho Inc., International Isotopes Fluorine Products Inc., and International Isotopes Transportation Services Inc.  All significant intercompany accounts and transactions have been eliminated in consolidation.


Interim Financial Information – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission.  Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature.  Operating results for the three-month period ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.  The accompanying financial statements should be read in conjunction with the Company’s most recent audited financial statements.


Recent Accounting Standards - In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued FASB Staff Position (FSP FIN) No. 157-2 which extended the effective date for certain nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.  The adoption of the portions of SFAS No. 157 that were not postponed by (FSP FIN) No. 157-2 did not have a material impact on our consolidated financial statements. The Company does not expect the adoption of the postponed portions of SFAS No. 157 to have a material impact on our consolidated financial statements.


(2)

Current Developments and Liquidity


Business Condition – Since inception, the Company has suffered substantial losses. During the period ended March 31, 2008, the Company had a loss of $465,944 and operations used cash of $324,563.  During the same period in 2007, the Company had a loss of $518,546 and operations used cash of $567,696. The Company believes that continued growth in their major business segments, and the start of the fluorine product sales will lead to increased revenue and improved cash flow for the Company.  Based upon these improvements to business conditions, management expects to generate sufficient cash flows to meet operational needs during 2008; however, there is no assurance that these cash flows will occur.




6








(3)

Net Loss Per Common Share - Basic and Diluted


At March 31, 2008, and 2007, the Company had the following common stock equivalents outstanding that were not included in the computation of diluted net loss per common share as their effect would have been anti-dilutive, thereby decreasing the net loss per common share:


 

 

March 31,

 

 

2008

 

2007

Stock options

 

20,430,000

 

22,650,000

Series B warrants

 

-

 

8,741,965

Class C warrants

 

13,333,331

 

13,333,331

Class D warrants

 

-

 

13,333,331

850 shares of Series B redeemable

  convertible preferred stock

 

425,000

 

425,000

$650,000 of convertible notes payable

 

-

 

8,125,000

 

 

34,188,331

 

66,608,627


(4)

Inventories


Inventories consist of the following at March 31, 2008 and December 31, 2007:


 

March 31,

2008

 

December 31,

2007

Raw materials

$

254,366

 

$

260,611

Work in progress

 

2,352,346

 

 

2,241,655

 

$

2,606,712

 

$

2,502,266


(5)

Stockholders’ Equity and Warrants


Options


During the three months ended March 31, 2008, certain option holders exercised 320,000 options under cashless exercises and the Company issued 230,204 shares of common stock.


Warrants


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 Class C warrants were exercised for cash totaling $1,333,331 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.


Employee Stock Purchase


During the three months ended March 31, 2008, the Company issued 2,538 shares of common stock to employees for proceeds of $1,510.  Subsequent to March 31, 2008, the Company issued 7,460 shares of common stock to employees for proceeds of $4,883.  All of these shares were issued in accordance with the Company’s employee stock purchase plan.




7







(6)

Stock-based Compensation Plans  


The Company accounts for issuances of stock-based compensation to employees under the provisions of Statement of Financial Accounting Standards (SFAS) No. 123(R). SFAS 123R requires the recognition of the cost of employee services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. SFAS 123R also requires the stock option compensation expense to be recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).


The Company accounts for its issuances of stock-based compensation to non-employees for services using the measurement date guidelines enumerated in SFAS 123(R) and EITF 96-18.  Accordingly, the value of any awards that were vested and non forfeitable at their date of issuance were measured based on the fair value of the equity instruments at the date of issuance.  The non-vested portion of awards that are subject to the future performance of the counterparty are adjusted at each reporting date to their fair values based upon the then current market value of the Company’s stock and other assumptions that management believes are reasonable.  The fair value of the stock options granted was calculated using the Black-Scholes option pricing model as prescribed by SFAS 123(R).


In January 2008, the Company granted stock options to a consultant to purchase 400,000 shares of common stock, with an exercise price of $0.77 per share.  The options vest at the rate of 25% each year over four years beginning one year from the date granted.  The options had a grant date fair value of $258,012 or $0.65 per share as calculated using the Black-Scholes option pricing model.  


The following are the weighted-average assumptions used for options granted during the three months ended March 31, 2008:


Expected dividend yield

 

-   

Risk-free interest rate

 

3.33%

Expected volatility

 

110.92%

Expected life

 

 6.26 years

Weighted average fair value

per share

 

$0.06


In accordance with EITF 96-18, as of March 31, 2008, the options awarded to consultants were re-valued using the Black-Scholes option pricing model and had a fair value of $246,237 or $0.62 per share with the following assumptions: volatility of 101.31%, remaining expected life of six years, risk free interest rate of 2.57% and no dividends.


The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends.  The expected volatility is based on the historical price volatility of the Company’s common stock.  The risk-free interest rate represents the U.S. Treasury bill rate for the expected life of the related stock options.  The dividend yield represents the anticipated cash dividend over the expected life of the stock options.


Compensation expense charged against income for stock based awards during the three months ended March 31, 2008 was $87,672, as compared to $44,052 for the three months ended March 31, 2007, and is included in general and administrative expense in the accompanying financial statements.




8







A summary of the status of the stock options as of March 31, 2008 and changes during the three months ended March 31, 2008 is as follows:


 

 

 

 

 

 

Weighted

 

 

 

 

 

Weighted

 

Average

 

Aggregate

 

 

 

Average

 

Remaining

 

Intrinsic

Fixed Options

Shares

 

Exercise Price

 

Term

 

Value

Outstanding at December 31, 2007

21,350,000 

 

$

0.05

 

 

 

 

   

Granted

400,000 

 

 

0.77

 

 

 

 

 

Exercised

 (320,000)

 

 

0.28

 

 

 

$

230,000

Forfeited

 (1,000,000)

 

 

0.17

 

 

 

 

 

Outstanding at March 31, 2008

20,430,000 

 

 

0.09

 

5.3

 

$

15,834,900

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2008

17,105,000 

 

 

0.04

 

4.7

 

$

14,013,400


The intrinsic value is based on a March 31, 2008 closing price of the Company’s common stock of $0.86 per share.


As of March 31, 2008, there was approximately $545,299 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 2.2 years.


(7)

Commitments and Contingencies


Dependence on Third Parties


The production of HSA Cobalt is dependent upon the U.S. Department of Energy, and its prime operating contractor, which controls the reactor operations and, therefore, controls the continued production of cobalt in the government funded  reactor.  The revenue associated with the sale of HSA Cobalt is largely dependent on General Electric, the Company’s sole customer for this product.  Nuclear Medicine Reference and Calibration Standard manufacturing is conducted under an exclusive contract with another of our customers, RadQual, LLC, which in turn has an agreement in place with several companies for distributing the product.  A loss of either of these customers could adversely affect operating results by causing a delay in production or a possible loss of sales.


Contingencies


Because all of the Company’s business segments involve radioactive materials the Company is required to have an operating license from the Nuclear Regulatory Commission (“NRC”) and specially trained staff to handle these materials.  The Company has an NRC operating license and has amended this license several times to increase the amount of material permitted within the facility.   Additional processing capabilities and license amendments could be implemented that would permit processing of other reactor produced radioisotopes by the Company but this license does not currently restrict the volume of business operation performed or projected to be performed in the coming year.  An irrevocable, automatic renewable letter of credit against a Certificate of Deposit at Texas State Bank and Wells Fargo Bank has been used to provide the financial assurance required by the NRC for the Idaho facility license.


(8)

Segment Information


Segment information has been prepared in accordance with SFAS No. 131, “Disclosure About Segments of an Enterprise and Related Information.”


The Company has six reportable segments which include; Nuclear Medicine, Cobalt Products, Radiochemical Products, Fluorine Products, Radiological Services, and Transportation. Information regarding the operations and assets of these reportable business segments is contained in the following table:




9








 

 

Three Months ended March 31,

Sale of Product

 

2008

 

2007

Radiochemical Products

 

$

318,408 

 

$

225,914 

Cobalt Products

 

 

270,528 

 

 

39,025 

Nuclear Medicine

 

 

447,410 

 

 

463,868 

Radiological Services

 

 

245,722 

 

 

147,609 

Flourine Products

 

 

 

 

Transportation

 

 

25,870 

 

 

26,216 

Total Segments

 

 

1,307,938 

 

 

902,632 

Corporate revenue

 

 

 

 

Total Consolidated

 

$

1,307,938 

 

$

902,632 


 

 

Three Months ended March 31,

Depreciation and Amortization

 

2008

 

2007

Radiochemical Products

 

$

11,326 

 

$

11,395 

Cobalt Products

 

 

22,319 

 

 

15,906 

Nuclear Medicine

 

 

846 

 

 

1,758 

Radiological Services

 

 

813 

 

 

314 

Flourine Products

 

 

40,846 

 

 

39,531 

Transportation

 

 

4,591 

 

 

1,273 

Total Segments

 

 

80,741 

 

 

70,177 

Corporate depreciation and amortization

 

 

12,804 

 

 

10,981 

Total Consolidated

 

$

93,545 

 

$

81,158 


 

 

Three Months ended March 31,

Segment Income (Loss)

 

2008

 

2007

Radiochemical Products

 

$

6,332 

 

$

18,883 

Cobalt Products

 

 

195,274 

 

 

7,087 

Nuclear Medicine

 

 

173,970 

 

 

143,019 

Radiological Services

 

 

173,756 

 

 

75,800 

Flourine Products

 

 

(288,355)

 

 

(268,777)

Transportation

 

 

(34,959)

 

 

(25,045)

Total Segments

 

 

226,018 

 

 

(49,033)

Corporate loss

 

 

(691,962)

 

 

(469,513)

Net Loss

 

$

(465,944)

 

$

(518,546)


 

 

Three Months ended March 31,

Expenditures for Segment Assets

 

2008

 

2007

Radiochemical Products

 

$

 

$

Cobalt Products

 

 

118,000 

 

 

83,958 

Nuclear Medicine

 

 

 

 

Radiological Services

 

 

48,795 

 

 

Flourine Products

 

 

1,636 

 

 

27,812 

Transportation

 

 

 

 

42,499 

Total Segments

 

 

168,431 

 

 

154,269 

Corporate purchases

 

 

3,259 

 

 

1,189 

Total Consolidated

 

$

171,690 

 

$

155,458 




10








Segment Assets

 

March 31,

2008

 

December 31,

2007

Radiochemical Products

 

$

337,029 

 

$

311,278 

Cobalt Products

 

 

3,056,481 

 

 

2,915,698 

Nuclear Medicine Standards

 

 

434,040 

 

 

439,875 

Radiological Services

 

 

123,192 

 

 

28,374 

Flourine Products

 

 

1,211,177 

 

 

1,255,049 

Transportation

 

 

55,175 

 

 

59,766 

Total Segments

 

 

5,217,094 

 

 

5,010,040 

Corporate assets

 

 

1,970,405 

 

 

1,013,188 

Total Consolidated

 

$

7,187,499 

 

$

6,023,228 


(9)

Subsequent Events


As noted in Note (5) in April 2008 all 13,333,331 Class C warrants were called for cash totaling $1,333,331.  


In addition, in April 2008 the Company issued 7,460 shares of common stock through the Employee Stock Purchase Program.


In April 2008, 1,500,000 share of common stock were issued to one employee for $30,000 cash in accordance with the Company’s Incentive Stock Option Plan.


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION


This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Quarterly  Report are forward looking.  In particular, statements regarding growth in our business segments; increased cash flow to meet operational needs;  improvement in our financial strength, debt ratio and attractiveness to investors and lenders; future liquidity requirements; NRC licensing requirements; and the consequences of the loss of any of our major customers are forward looking.  Forward-looking statements reflect management’s current expectations, plans or projections.   Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Certain risks and uncertainties that could cause our actual results to differ significantly from management’s expectations are described in the risk factors set forth in our annual report on Form 10-KSB for the fiscal year ended December 31, 2007 filed with the securities and Exchange Commission on March 28, 2008.  These factors, describe some but not all of the factors that could cause actual results to differ significantly from management’s expectations.  The Company will not publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are urged, however, to review the factors set forth in reports that we file from time to time with the Securities and Exchange Commission.


RESULTS OF OPERATIONS


Three-month periods ended March 31, 2008 and 2007.  

Revenues for the three-month period ended March 31, 2008 were $1,307,938 as compared to $902,632 for the same period in 2007, an increase of $405,306 or approximately 45%.  The increase in total revenues was attributable to strong performance in cobalt products, radiochemical products, and radiological services business segments.  Revenues from the sale of cobalt products for the three-month period ending March 31, 2008 were $270,528 compared to $39,025 for the similar period in 2007.  This represents nearly a factor of six increase in revenue in the segment and is attributable to increased sales of sealed cobalt sources and teletherapy capsules to numerous customers.  Revenues from the sale of radiochemical products for the three-month period ending March 31, 2008 were $318,408 compared to $225,914 for the similar period in 2007.  This represents an increase in revenue of $92,495 or nearly a 41% in the segment and is attributable to increased sales of radiochemical iodine-131.  And, finally revenues from radiological services segment for the three-month period ending March 31, 2008 were $245,722 compared to $147,609 for the similar period in 2007.  This represents an increase in revenue of $98,113 or approximately a 66% and is primarily attributable to increased volumes of gemstone processing that have resulted following resolution of the regulatory issues that had limited revenues in this segment during 2007.   



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Gross profit for the three-month period ended March 31, 2008 was $698,402 (or 53% of revenue) compared to $373,613 (or 41% of revenue) for the same period in 2007.  Operating expenses for the period were $1,145,507 for the three-month period ended March 31, 2008 compared to $920,825 for the same period of 2007.  Although operating expense increased by $224,682, or 24%, in the period comparisons, it is important to note that when compared to revenue, operating expense actually declined from 102% of revenue for the period in 2007 to approximately 88% of revenue for the same period in 2008.  The most significant factor in the increased operating expense was attributable to an increases in contract labor expense, and cost of stock option benefits during the period.  Salaries and contract labor expenses totaled $512,612 for the three-month period ended March 31, 2008, as compared to $336,262 for the same period of 2007, an increase of $176,350 or 52% and primarily attributable to accounting methods of costing stock options.   General and administrative (G&A) expense, for the three-month period ended March 31, 2008, were $617,167 as compared to $575,705 for the same period of 2007, an increase of $41,462 or 7%, and was attributable to additions to administrative staff.  


Our loss for the three-month period ended March 31, 2008, was $465,944 compared to a loss of $518,546 for the same period in 2007.  This represents a decrease in loss of $52,608 for the periods in comparison.  The major elements responsible for this decreased loss were increased revenues in the three major segments discussed above, the reduction in costs of goods sold what has resulted in improved gross profit performance, and reductions in operating costs as compared to the percentage of total revenue for the period.


Interest expense for the three-month period ended March 31, 2008 was $36,169 as compared to $42,140 for the same period in 2007.  The small reduction in interest payments was attributable to reduced principal balances on the Company’s remaining outstanding long and short term debt.


LIQUIDITY AND CAPITAL RESOURCES


On March 31, 2008, we had cash and cash equivalents of $1,003,259 compared to $121,887 at December 31, 2007.  For the three months ended March 31, 2008, net cash used in operating activities was $324,563, net cash used in investing activities was $231,753, and net cash used in financing activities was $1,437,688.  The increase in net cash was attributable to the exercise of the Class D warrants for $1,466,666 in cash that was completed during the first quarter.


In April 2008, the Company’s Class C warrant holders agreed to modify the terms of their warrants to allow a call of  the warrants by the Company and to complete a cash exercise of those warrants.  As a result, the warrant holders paid $1,333,331 to the Company and the Company issued 13,333,331 shares of common stock and 13,333,331 exchange warrants (Class E) with an exercise price of $0.869 per share in accordance with the terms of the class C warrant agreement.


Our future liquidity and capital funding requirements will depend on numerous factors, including, contract manufacturing agreements, commercial relationships, technological developments, market factors, available credit, and voluntary warrant redemption by shareholders.    We have 13,333,331 Class E warrants still outstanding that were issued in connection with the exercise of the Class C warrants issued in the Company’s Private Placement Offering conducted in 2007.


As mentioned in Note (9), in April 2008, 1,500,000 shares of common stock were issued for cash of $30,000.  This stock issuance was in association with one employee’s purchase of shares in accordance with our stock option plan.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.




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ITEM 4.  CONTROLS, AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


The Company has established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) to ensure that material information relating to the Company is made known to the officers who certify the Company’s financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's (“SEC”) rules and forms. Under the supervision and with the participation of management, including the principal executive officer and principal financial officer an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2008 was completed based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are functioning effectively.


Although our disclosure controls and internal controls were designed to provide reasonable assurance of achieving their objectives, and our principal executive officer and principal financial officer have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.


Changes in Internal Control over Financial Reporting


There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.


PART II.   OTHER INFORMATION


Item 6. Exhibits


3(i)

Second Amended and Restated Articles of Incorporation (incorporated by reference to Appendix C to the Company's definitive proxy statement on Schedule 14A filed on April 28, 2005).


3(ii)

Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form  SB-2 filed on May 1, 1997 (Registration No. 333-26269)).


4.1

Form of Class E Warrant (incorporated by reference to Exhibit 4.1 of the Company's Current Report of Form 8-K filed on April 21, 2008).


10.1

Letter Agreement effective as of April 9, 2008 (incorporated by reference to Exhibit 99.1 of the Company's Current Report of Form 8-K filed on April 21, 2008).


31.1

Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Executive Officer.


31.2

Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Financial Officer.


32

Certification by the Chief Executive and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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SIGNATURES


In accordance with the requirements of the Exchange Act the registrant caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 

International Isotopes Inc.

 

(Registrant)

 

 

 

 

 

 

Date:  May 9, 2008

By:

/s/ Steve T. Laflin

 

 

 Steve T. Laflin

 

 

President and Chief Executive Officer




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EXHIBIT INDEX

Exhibit

Number

Description of Document


3(i)

Second Amended and Restated Articles of Incorporation (incorporated by reference to Appendix C to the Company's definitive proxy statement on Schedule 14A filed on April 28, 2005).


3(ii)

Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form  SB-2 filed on May 1, 1997 (Registration No. 333-26269)).


4.1

Form of Class E Warrant (incorporated by reference to Exhibit 4.1 of the Company's Current Report of Form 8-K filed on April 21, 2008).


10.1

Letter Agreement effective as of April 9, 2008 (incorporated by reference to Exhibit 99.1 of the Company's Current Report of Form 8-K filed on April 21, 2008).


31.1

Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Executive Officer.


31.2

Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Financial Officer.


32

Certification by the Chief Executive and Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




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