News

11/19/2002
Press Release

Isonics CEO Provides Annual Shareholder Update - Discusses Company Valuation
GOLDEN, Colo.--(BUSINESS WIRE)--Nov. 19, 2002--Isonics Corporation (NASDAQ: ISON - News), a world leader in isotopically engineered materials, isotopes for lifesciences and healthcare, silicon-on-insulator wafers, and technologies and products for homeland security, released the following text of Chairman & CEO James E. Alexander's address at the annual shareholder meeting held today: Ladies and Gentlemen, thank you for attending Isonics Corporation's annual shareholder meeting. Management and the Board of Directors are pleased to be here to meet you and to answer any questions which we reasonably can. But first, I would like to provide a brief update on the state of the Company. Some of the statements I make will be my opionions which are based on facts and market conditions as I understand them to be. Other statements are forward-looking which are subject to numerous risks which are more fully described in our form 10-KSB and our other public documents. I am pleased to report that the fundamentals of Isonics have never been better. As is our philosophy, we have been quietly building long-term value for Isonics shareholders by diligently managing and growing our existing businesses and identifying and exploiting new opportunities. The balance sheet is strong. We have no long-term debt and we have sufficient cash. We are addressing large and rapidly growing markets with products and technology that are the best in their individual markets. I believe that the intrinsic value of Isonics has never been greater. Unfortunately, the stock market does not seem to agree with me. On November 19, 2001 our stock closed at $1.02 per share. Over the past year, we have lost about 25% of our market value. While management does not worry about day-to-day fluctuations in the stock price, this longer- term trend must be dealt with since our present stock price in no way reflects the positive trend in Isonics' intrinsic value. Question: Has anyone ever heard a CEO say that his stock was overvalued? I suppose not. However, I do think Isonics is severely undervalued and I will tell you why I think that, and you can decide if I am right or wrong. I will make the proposition that Isonics stock would be fairly valued at no less than $3.75 per share today. The market presently values the whole of Isonics at about $10 million. At a ratio of one times revenue, this is about the value of our life sciences segment alone. The market is giving essentially zero value to the silicon-28 business, zero value to the SOI wafer business, and zero value to our recently announced homeland Security business. The board of directors calculates the intrinsic value of Isonics based on the value of each of the parts - a combined value exceeding $45 million -- which implies a stock price of at least $3.75 per share. Now I will provide our basis for our valuations as I update you on each of the parts of Isonics. Let's begin with out newest business - Homeland Security. We recently announced in a press release that we have formed a new Homeland Security subsidiary. We have established this business as a wholly owned subsidiary of Isonics with the purpose of commercializing isotope-based trace detection technologies for explosives, chemical and biological weapons. These technologies have been successfully demonstrated and are believed to be superior to competing technologies still under development elsewhere. The requested US government budget for homeland security in 2003 is $37 billion. It is expected that a substantial portion of that amount will be spent on development and acquisition of these types of technologies. We are negotiating an equity investment directly into our homeland security subsidiary and will commission a search for an experienced industry CEO to lead this business along with Boris Rubizhevsky, Isonics' Vice Chairman. For valuation purposes, we can consider this business as a start-up with a demonstrated, effective technology, which addresses a large market. Venture capitalists provide a generic valuation for businesses of this type and at this stage of development of around $10 million. We, in fact, are negotiating a direct cash investment into our homeland security subsidiary at a pre-money valuation of $10 million. Next is the silicon-on-insulator wafer business. Many of you know we entered the SOI business arena because it is synergistic with high thermal conductivity silicon-28. We acquired the SOI wafer business of Silicon Evolution and have improved their manufacturing technology while selling thick-film SOI wafers over the past year. Last month we announced the establishment of our own SOI wafer fab to adequately support the dynamic market for SOI wafers. The market for SOI wafers grew 16% in 2001 while the overall silicon wafer market declined 29% due to the severe downturn in the semiconductor industry. SOI wafers will grow at a compounded annual rate of 47% for the next 5 years according to a recent report by Gartner Dataquest. For 2002, SOI is expected to exceed 2001 by 24%, followed by a robust 72% growth in 2003. We are poised to take advantage of this situation. We are now aggressively working to sell out the 120,000 wafer per year capacity that we have put in place. Considering the market size and growth rate and the quality wafers we are providing, we believe we can get at least half way there by this time next year - resulting in a revenue run rate of over $12 million and robust profitability. In fact, we have targeted 10 customers, several of which could individually require all our capacity for only a part of their needs. Our SOI operation is early stage commercial. Such companies are valued as private entities in the $10 to $20 million range. Considering the extensive intellectual property and the nearness to profitability, we consider it worth at least $15 million. Our silicon-28 business has been quiet, but not because nothing is happening -- our customers have strongly requested that their names be kept confidential. We presently have seven product evaluations underway with five customers. The longest program is over three years old now and the newest is just beginning. These programs include both epitaxial and SOI wafers. Applications range from microprocessors to power semiconductors to telecom chips. As we have said all along, as feature size of devices are decreased and power increased, the benefit of silicon-28 will be recognized - and it is! Not only are thermal benefits becoming clearly evident, but other improved properties, such as gate oxide integrity, are being seen. Now that silicon-28 benefits are maturing, customers have begun asking about cost and availability - questions which were not previously very important. I am pleased to report that our current supplier in Russia is adequate for continued development and evaluation purposes and has recently shipped silicon-28 as trichlorosilane, which will reduce our costs since it can be used directly without costly chemical conversion. We were disappointed by Eagle Picher's inability to produce lower cost isotopes, but the challenge has been accepted by a number of others utilizing unique approaches - all of which appear to have the potential to meet or beat our cost target. The leading technology has been successful in providing highly enriched silicon-28 samples, which we have verified at an independent laboratory. We are pleased that others have seen to invest their time and money in developing methods to manufacture silicon-28 isotopes. They obviously share our vision that silicon-28 has a very bright future. Our Silicon-28 business can be considered a pre-commercial, late stage start-up. It controls the key patents in its field and is shipping sample product and has the capability to quickly ramp up to commercial production upon the receipt of orders. It has formal and informal strategic relationships with leading industry participants. While the wide acceptance of silicon-28 has not yet been clearly demonstrated, we have several other isotopically engineered electronic materials in the development pipeline. Taking an extremely conservative position, the Board has placed a value of only $10 million on the silicon-28 business today, but has high expectations for it once initial commercialization has been achieved. The life sciences and healthcare segment of Isonics would be profitable as a stand-alone, private entity. The profits from this business allow us to invest into the other developing businesses. Revenue and margin continues to be solid on the whole. Oxygen-18 sales for positron emission tomography (PET) imaging continues to grow rapidly as new imaging procedures are developed and approved for insurance reimbursement. The next exciting procedure expected to be approved is for diagnosis of Alzheimer's disease. This huge development could single-handedly drive double-digit annual demand for PET and our oxygen-18. Evidence of this dynamic market is our previously announced $9 million supply contract with Eastern Isotopes, a leading purveyor of PET radiopharmaceuticals. To improve our margins, we have taken cost cutting measures by closing one of our offices in Germany and reducing staff accordingly. The full effect of these measures will be seen in our January 2003 quarter. Additionally, we are exploring opportunities to diversify our radioisotope supplies from the former Soviet Union to some European and US sources. If we are successful, we should be able to increase margins on existing products as well as add new products to our repertoire. Finally, we will be looking at acquisition and partnering opportunities to further enhance this business. Our life sciences and healthcare business is at the commercial stage. Companies in this market are valued at 3 to 10 times revenue. Discounting our life sciences business for its relatively small size, lack of patented technology and modest growth rate, we believe a valuation of $12 million is appropriate based on a ratio of 1.5 times last years revenue. The aggregate intrinsic value of Isonics' businesses is $47 million. This calculates to a stock price of nearly $4 per share - 5 times our present market valuation. What is the reason for this apparent disconnect? We believe that we have not done a good job at articulating the value of Isonics to our existing and potential investors. Isonics is an exciting company with great possibilities. Our shareholder base has consistently grown in numbers over the years. While there is some opportunistic trading in the stock, the majority of shareholders, we believe, have invested for the long run. What are we going to do about this problem? Tomorrow I am going on the road to begin telling our story personally to potential investors: retail stockbrokers, money managers, microcap fund managers, and individual investors. Subsequently, all of senior management will be participating in getting our story out. We would request that our existing shareholders recommend Isonics to their colleagues and friends for consideration. If we all work diligently, I am confident we can reverse the trend and quickly attain a market valuation more in line with Isonics actual worth. In summary, I will reiterate our commitment to continue to work to create long-term value for Isonics shareholders. We will, in the short term, give a substantial portion of our time and effort to educate the market regarding the depth of value that exists within the Company and its exciting businesses. Your confidence and patience is highly valued and we hope you will continue to bless us with it. Thank you all, again, for coming. ABOUT ISONICS CORPORATION Isonics is a world leader in isotopically engineered materials and produces isotopically pure, high thermal conductivity silicon-28 chemicals and wafers for the semiconductor industry. Isonics also markets and sells stable isotopes for the health care industry such as carbon- 13 for diagnostic breath tests and drug design, and oxygen- 18 for positron emission tomography (PET) imaging. Stable isotopes can be thought of as ultra pure materials. This high degree of purification provides enhanced properties as compared to natural materials. Additional information may be obtained at www.isonics.com. Except for historical information contained herein, this document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks and uncertainties that may cause the Company's actual results or outcomes to be materially different from those anticipated and discussed herein. Further, the Company operates in industries where securities values may be volatile and may be influenced by regulatory and other factors beyond the Company's control. Other important factors that the Company believes might cause such differences are discussed in the risk factors detailed in the Company's 10-KSB for the year ended April 30, 2002 as filed with the Securities and Exchange Commission, which include the Company's cash flow difficulties, dependence on significant customers, and rapid development of technology, among other risks. In assessing forward-looking statements contained herein, readers are urged to carefully read all cautionary statements contained in the Company's filings with the Securities and Exchange Commission. Contact: Investor Awareness, Inc. Tony Schor/Paul Arndt, 847/945-2222 www.investorawareness.com or Isonics Corporation James E. Alexander, 303/279-7900 www.isonics.com