Description of Business and Significant Accounting Policies

12 Months Ended

Dec. 31, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Significant Accounting Policies

NOTE 1 – DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Description of business

International Isotopes Inc. (the “Company”) was incorporated in Texas in November 1995. The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and include all operations and balances of the Company and its wholly owned subsidiaries, International Isotopes Idaho Inc., International Isotopes Fluorine Products, Inc., and International Isotopes Transportation Services, Inc. The consolidated financial statements also include the accounts of the Company’s 50% owned joint venture, TI Services, LLC, which is located in Ohio. Intercompany balances and transactions have been eliminated in consolidation. The Company’s headquarters and all operations, with the exception of TI Services, LLC, are located in Idaho Falls, Idaho.

Nature of operations – The Company’s business consists of six major business segments which include: Nuclear Medicine Standards, 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 the business are classified as current assets.

Principles of consolidation – The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its 50% owned joint venture, TI Services, LLC. All significant intercompany accounts and transactions have been eliminated in consolidation.

Significant accounting policies

a) Financial instruments and cash equivalents

The carrying value of notes payable approximates fair value because they bear interest at rates which approximate market rates.

Cash and cash equivalents, totaling $546,143 and $2,102,696 at December 31, 2012 and 2011, respectively, consist of operating accounts, money market accounts, and certificates of deposit. 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.

At December 31, 2012 and 2011, the Company had pledged certificates of deposit valued at $203,177 and $428,886, respectively, as security on letters of credit. The letters of credit are required as part of the operating license agreement with the Nuclear Regulatory Commission (NRC). Previously, the Company maintained an irrevocable, automatically renewable letter of credit against a Certificate of Deposit to provide the financial assurance required by the NRC for the operating license. However, in April 2012, that letter of credit was replaced by a surety bond naming the NRC as beneficiary. The surety bond renews annually and requires a letter of credit against a certificate of deposit at Wells Fargo bank in the amount of 50% of the face value of the surety bond. In April 2012, the Company placed $203,177 into a certificate of deposit for this purpose. At December 31, 2012, restricted cash consisted of the new certificate of deposit in the amount of $203,177.

b) Accounts receivable

The Company sells products mainly to recurring customers, wherein the customer’s ability to pay has previously been evaluated. The Company generally does not require collateral. The Company periodically reviews accounts receivable for amounts considered uncollectible. Allowances are provided for uncollectible accounts when deemed necessary. At December 31, 2012 and 2011, the Company recorded no allowance for uncollectible accounts.

c) Inventories

Inventories are carried at the lower of cost or market. Cost is determined using the first in, first out method. Work in progress inventory contains product that is undergoing irradiation. This irradiation process can take up to three years to reach high specific activity (HSA) levels.

d) Property, plant and equipment

Depreciation on property, plant and equipment is computed using the straight-line method over the estimated useful life of the asset.

Leasehold improvements are amortized over the shorter of the life of the lease or the service life of the improvements. Maintenance, repairs, and renewals that neither materially add to the value of the property nor appreciably prolong its life are charged to expense as incurred. Gains or losses on dispositions of property and equipment are included in the results of operations.

e) Patents and other intangibles

Patents and other intangibles are amortized using the straight-line method over their estimated useful lives and are evaluated for impairment at least annually or when events or circumstances arise that indicate the existence of impairment. The Company evaluates the recoverability of identifiable intangible assets whenever events or changes in circumstances indicate that an intangible asset’s carrying amount may not be recoverable. Such circumstances could include, but are not limited to (1) a significant decrease in the market value of an asset, (2) a significant adverse change in the extent or manner in which an asset is used, or (3) an accumulation of the costs significantly in excess of the amount originally expected for the acquisition of an asset. The Company measures the carrying amount of the asset against the estimated undiscounted future cash flows associated with it. Should the sum of the expected future cash flows be less than the carrying value of the asset being evaluated, an impairment loss would be recognized. The impairment loss would be calculated as the amount by which the carrying value of the asset exceeds its fair value. The evaluation of asset impairment requires the Company to make assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts. During the years ended December 31, 2012 and 2011, the Company had no impairment losses related to intangible assets.

f) Impairment of long-lived assets

Long-lived assets are reviewed for impairment annually, or when events or circumstances arise that indicate the existence of impairment, using the same evaluation process as described above for patents and other intangibles. Based on the evaluation, no impairment was considered necessary during the years ended December 31, 2012 and 2011, respectively.

g) 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 carry-forwards. Deferred tax assets and liabilities 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.

h) 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 GAAP. Actual results could differ from those estimates.

i) Revenue recognition

Revenue is recognized when products are shipped. No warranty coverage or right of return provisions are provided to customers.

During the fiscal year ending December 31, 2012, the Company had sales to one entity which represented more than 10% of its revenues. These sales are reported in the Radiochemical Products and Nuclear Medicine business segments. Sales to this customer accounted for approximately 45% and 38% of total revenues for the years ended December 31, 2012 and 2011, respectively. During the fiscal year ending December 31, 2011, the Company had sales to two different entities each of which represented more than 10% of its revenues. These sales were reported in the Radiochemical Products, Nuclear Medicine and Cobalt Products business segments. These two customers accounted for approximately 48% of revenues for the year ended December 31, 2011. At December 31, 2012 and 2011, 48% and 47% of accounts receivable, respectively, were from one of these customers due to their additional role as a distributor for the Company’s radiochemical and nuclear medicine products. This customer accounted for 45% of total sales in 2012 and 38% of total sales in 2011. The loss of either customer may result in lower revenues and limit the cash available to grow the business and achieve profitability.

j) Research and development costs

The Company had research and development expenses totaling $990,021 in 2012 and $1,695,315 in 2011. Beginning in 2011, the Company became reasonably certain that the NRC would issue the license for the planned de-conversion facility in New Mexico, and therefore began capitalizing costs associated with securing the license for the planned depleted uranium de-conversion and fluorine extraction processing facility.

k) Share-based compensation

The Company accounts for issuances of share-based compensation to employees in accordance with GAAP which 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. Compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).

For the years ended December 31, 2012 and 2011, the Company recognized share-based compensation expense of $286,015 and $1,411,476, respectively, related to stock options, warrants and unvested stock grants. This expense is included as part of salaries and contract labor on the accompanying statements of operations.

l) 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 is computed on the basis of the weighted-average number of common shares plus all potentially dilutive issuable common shares outstanding during the year.

At December 31, 2012 and 2011, 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:

	December 31,
	2012	2011
Stock options	17,700,000	25,700,000
Warrants	38,059,303	33,556,783
Unvested stock awards issued under the 2006 Equity Incentive Plan	151,719	370,917
850 shares of Series B redeemable convertible preferred stock	425,000	425,000
	56,336,022	60,052,700

m) Business segments and related information

GAAP establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires enterprises to report selected information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosure about products and services, geographic areas and major customers. The Company currently operates in six business segments.