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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 September 30, 2022

 

OR

 

o 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 registrant as specified in its charter)

 

Texas   74-2763837

(State or other jurisdiction of

incorporation or organization)

  (IRS Employer Identification No.)

 

4137 Commerce Circle

Idaho Falls, Idaho, 83401

(Address of principal executive offices, including zip code)

 

(208) 524-5300

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ý Yes ¨ No

 

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

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer ý Smaller reporting company x
   
  Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ¨

 

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 November 11, 2022, the number of shares of common stock, $0.01 par value, outstanding was 514,889,916.

 

 

1 

 

 

 

INTERNATIONAL ISOTOPES INC.

Form 10-Q

For The Quarter Ended September 30, 2022

 

TABLE OF CONTENTS

 

    Page No.
PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
  Unaudited Condensed Consolidated Balance Sheets at September 30, 2022 and December 31, 2021 3
  Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 4
  Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 5
  Unaudited Statement of Reconciliation of Stockholder’s (Deficit) Equity for the Three and Nine Months Ended September 30, 2022 and 2021 6
  Notes to Unaudited Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 4. Controls and Procedures 27
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 27
Item 1A. Risk Factors 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 6. Exhibits 28
Signatures 29

 

 

 

 

 

 

2 

 

 

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited)

 

   September 30,   December 31, 
   2022   2021 
Assets        
Current assets          
Cash and cash equivalents  $2,989,236   $474,851 
Accounts receivable   1,542,711    853,675 
Inventories   879,210    924,775 
Prepaids and other current assets   891,681    1,004,423 
Total current assets   6,302,838    3,257,724 
           
Long-term assets          
Restricted cash   834,170    830,752 
Property, plant and equipment, net   2,011,513    4,299,937 
Capitalized lease disposal costs, net   232,781    246,748 
Financing lease right-of-use asset   14,124    18,631 
Operating lease right-of-use asset   2,341,495    2,429,622 
Goodwill   1,384,255    1,384,255 
Patents and other intangibles, net   3,744,577    3,859,473 
Total long-term assets   10,562,915    13,069,418 
Total assets  $16,865,753   $16,327,142 
           
Liabilities and Stockholders' Equity          
Current liabilities          
Accounts payable  $1,181,199   $1,424,028 
Accrued liabilities   1,230,248    1,189,165 
Unearned revenue   908,843    907,953 
Current portion of operating lease right-of-use liability   129,376    121,069 
Current portion of financing lease liability   6,981    8,542 
Current portion of related party notes payable, net of debt discount   935,934    993,735 
Current installments of notes payable   36,253    290,017 
Current portion of mandatorily redeemable preferred stock, net of debt discount   4,063,000       
Total current liabilities   8,491,834    4,934,509 
           
Long-term liabilities          
Accrued long-term liabilities   121,875       
Related party notes payable, net of current portion and debt discount   620,000    620,000 
Notes payable, net of current portion   37,001    57,769 
Asset retirement obligation   929,545    892,086 
Financing lease liability, net of current portion   3,575    8,346 
Operating lease right-of-use liability, net of current portion   2,265,972    2,363,815 
Mandatorily redeemable convertible preferred stock, net of current portion and discount         4,719,822 
Total long-term liabilities   3,977,968    8,661,838 
Total liabilities   12,469,802    13,596,347 
           
Stockholders' equity          
Common stock, $0.01 par value; 750,000,000 shares authorized; 514,817,369 and 502,584,176 shares issued and outstanding respectively   5,148,174    5,025,842 
Additional paid in capital   125,597,530    124,469,034 
Accumulated deficit   (126,349,753)   (126,764,081)
Total equity   4,395,951    2,730,795 
Total liabilities and stockholders' equity  $16,865,753   $16,327,142 

 

See accompanying notes to consolidated financial statements

 

3 

 

 

 

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

 

                                 
  

Three months ended

September 30,

  

Nine months ended

September 30,

 
   2022   2021   2022   2021 
                 
Sale of product  $2,789,273   $2,617,514   $8,031,522   $7,369,922 
Cost of product   1,305,730    1,006,334    3,470,706    3,009,656 
Gross profit   1,483,543    1,611,180    4,560,816    4,360,266 
                     
Operating costs and expenses                    
Salaries and contract labor   800,550    650,065    2,535,771    1,944,013 
General, administrative and consulting   1,008,219    885,807    2,784,367    2,667,535 
Research and development   148,327    73,886    442,383    183,102 
Total operating expenses   1,957,096    1,609,758    5,762,521    4,794,650 
                     
Net operating income (loss)   (473,553)   1,422    (1,201,705)   (434,384)
                     
Other income (expense):                    
Other income   49,151    54,083    2,077,719    229,559 
Interest income   2,849    14    3,574    95 
Interest expense   (147,116)   (191,544)   (465,260)   (601,291)
Total other (expense) income   (95,116)   (137,447)   1,616,033    (371,637)
Net (loss) income   (568,669)   (136,025)   414,328    (806,021)
Less income attributable to noncontrolling interest         844          113,387 
                     
Net (loss) income attributable to International Isotopes Inc.  $(568,669)  $(136,869)  $414,328   $(919,408)
                     
Net loss per common share - basic:  $     $     $     $   
                     
Net loss per common share - diluted:  $     $     $     $   
                     
Weighted average common shares outstanding - basic:   514,789,680    494,635,990    509,587,202    469,627,961 
                     
Weighted average common shares outstanding - diluted:   514,789,680    494,635,990    511,057,330    469,627,961 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

 

 

4 

 

 

 INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

 

                 
   Nine months ended September 30, 
   2022   2021 
Cash flows from operating activities          
Net (loss) income  $414,328   $(806,021)
Adjustments to reconcile net (loss) income to net Cash provided by operating activities          
Depreciation and amortization   288,047    440,718 
Accretion of obligation for lease disposal costs   37,459    31,119 
Accretion of beneficial conversion feature and discount   210,377    301,575 
Equity based compensation   297,243    60,671 
Gain on sale of property, plant, and equipment   (1,797,978)      
Right-of-use asset amortization   (1,409)   19,260 
Changes in operating assets and liabilities:          
Accounts receivable   (689,036)   (247,593)
Inventories   45,565    255,489 
Prepaids and other current assets   112,742    931,953 
Accounts payable and accrued liabilities   124,609    (789,406)
Unearned revenues   890    (133,471)
Net cash provided by operating activities   (957,163)   64,294 
           
Cash flows from investing activities:          
Proceeds from sale of property, plant and equipment   4,000,000       
Purchase of property, plant, and equipment   (68,275)   (196,730)
Net cash (used in) provided in investing activities   3,931,725    (196,730)
           
Cash flows from financing activities:          
Proceeds from sale of stock and exercise of options and warrants   74,105    13,527 
Payments on financing lease   (6,332)   (5,772)
Distributions to non-controlling interest         (3,431)
Proceeds from the issuance of notes payable         351,253 
Principal payments on notes payable   (524,532)   (390,571)
Net cash used in financing activities   (456,759)   (34,994)
           
Net (decrease) increase in cash, cash equivalents, and restricted cash   2,517,803    (167,430)
Cash, cash equivalents, and restricted cash at beginning of period   1,305,603    1,751,692 
Cash, cash equivalents, and restricted cash at end of period  $3,823,406   $1,584,262 
           
Supplemental disclosure of cash flow activities:          
Cash paid for interest  $49,699   $69,042 
           
Supplemental disclosure of noncash financing and investing transactions          
Decrease in accrued interest and increase in equity for conversion of dividends to stock  $204,480   $207,480 
Increase in operating lease right-of-use asset and right-of-use liability for new lease  $     $1,603 
Increase in equity and decrease in liability for the conversion of preferred stock  $675,000   $325,000 
Non-cash increase of capitalized ARO for increased funding plan  $     $260,715 
Decrease in unearned revenue and increase in notes payable for repayment plan  $     $146,072 
Increase in equity and decrease in Non-controlling interest for acquisition of non controlling interest in RadQual and TI Services  $     $2,423,662 

 

Reconciliation of cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows is presented in the table below:

 

   September 30,   September 30, 
   2022   2021 
Cash and cash equivalents  $2,989,236   $753,526 
Restricted cash included in long-term assets   834,170    830,736 
Total cash, cash equivalents, and restricted cash shown in statement of cash flows  $3,823,406   $1,584,262 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

  

5 

 

 

 

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Reconciliation of Stockholders' (Deficit) Equity

Three and Nine Months Ended September 30, 2022

(Unaudited)

 

                                                 
               Equity     
               Attributable     
   Common stock           to     
           Additional       Internat'l   Total 
   Shares   Common   Paid-in   Accumulated   Isotopes   (Deficit) 
   Outstanding   Stock   Capital   Deficit   Shareholders   Equity 
Balance, January 1, 2022   502,584,176    5,025,842    124,469,034    (126,764,081)   2,730,795    2,730,795 
Shares issued under employee stock purchase plan   172,534    1,726    10,579          12,305    12,305 
Stock grant   187,231    1,872    (1,872)                  
Stock in lieu of dividends on convertible preferred C   2,271,980    22,720    181,760          204,480    204,480 
Shares issued for exercise of employee stock options   648,948    6,489    (6,489)                  
Warrant exercise   515,000    5,150    56,650          61,800    61,800 
Conversion of preferred B stock   8,437,500    84,375    590,625         675,000    675,000 
Stock based compensation   —            297,243          297,243    297,243 
Net (loss) income   —                  414,328    414,328    414,328 
Balance, September 30, 2022   514,817,369   $5,148,174   $125,597,530   $(126,349,753)  $4,395,951   $4,395,951 

 

               Equity     
               Attributable     
   Common stock           to     
           Additional       Internat'l   Total 
   Shares   Common   Paid-in   Accumulated   Isotopes   (Deficit) 
   Outstanding   Stock   Capital   Deficit   Shareholders   Equity 
Balance, July 1, 2022   514,726,908   $5,147,269   $125,535,534   $(125,781,084)  $4,901,719   $4,901,719 
Shares issued under employee stock purchase plan   52,624    527    2,605          3,132    3,132 
Shares issued for exercise of employee stock options   37,837    378    (378)                  
Stock based compensation   —            59,769          59,769    59,769 
Net (loss) income   —                  (568,669)   (568,669)   (568,669)
Balance, September 30, 2022   514,817,369   $5,148,174   $125,597,530   $(126,349,753)  $4,395,951   $4,395,951 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 

 

6 

 

 

 

Three and Nine Months Ended September 30, 2021

(Unaudited)

 

                                                         
               Equity         
               Attributable   Equity     
   Common stock           to   Attributable     
           Additional       Internat'l   to   Total 
   Shares   Common   Paid-in   Accumulated   Isotopes   Noncontrolling   (Deficit) 
   Outstanding   Stock   Capital   Deficit   Shareholders   Interest   Equity 
Balance, January 1, 2021   424,344,298   $4,243,443   $122,191,837   $(125,861,734)  $573,546   $2,313,706   $2,887,252 
Shares issued under employee stock purchase plan   256,079    2,561    10,966          13,527          13,527 
Stock grant   118,315    1,183    (1,183)                        
Stock in lieu of dividends on convertible preferred C   1,398,200    13,982    193,498          207,480          207,480 
Shares issued for exercise of employee stock options   1,908,198    19,082    (19,082)                        
Warrant exercise   32,621,409    326,214    (326,214)                        
Conversion of preferred C stock   1,500,000    15,000    135,000          150,000          150,000 
Conversion of preferred B stock   87,500    875    174,125          175,000          175,000 
Stock based compensation   —            60,671          60,671          60,671 
Shares issued for purchase of 75.5% of RadQual   40,176,236    401,762    2,021,900          2,423,662    (2,423,662)      
Distribution to non-controlling interest   —                              (3,431)   (3,431)
Net (loss) income   —                  (919,408)   (919,408)   113,387    (806,021)
Balance, September 30, 2021   502,410,235   $5,024,102   $124,441,518   $(126,781,142)  $2,684,478   $     $2,684,478 

 

 

               Equity         
               Attributable   Equity     
   Common stock           to   Attributable     
           Additional       Internat'l   to   Total 
   Shares   Common   Paid-in   Accumulated   Isotopes   Noncontrolling   (Deficit) 
   Outstanding   Stock   Capital   Deficit   Shareholders   Interest   Equity 
Balance, July 1, 2021   460,830,469   $4,608,305   $122,292,543   $(126,644,273)  $256,575   $2,426,249   $2,682,824 
Shares issued under employee stock purchase plan   44,439    444    4,088          4,532          4,532 
Shares issued for exercise of employee stock options   109,091    1,091    (1,091)                        
Conversion of preferred C stock   1,250,000    12,500    112,500          125,000          125,000 
Stock based compensation   —            11,578          11,578          11,578 
Shares issued for purchase of 75.5% of RadQual   40,176,236    401,762    2,021,900          2,423,662    (2,423,662)      
Distribution to non-controlling interest   —                              (3,431)   (3,431)
Net (loss) income   —                  (136,869)   (136,869)   844    (136,025)
Balance, September 30, 2021   502,410,235   $5,024,102   $124,441,518   $(126,781,142)  $2,684,478   $     $2,684,478 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 

7 

 

 

 

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 2022

 

(1)       The Company and Basis of Presentation

 

International Isotopes Inc. (INIS) was incorporated in Texas in November 1995. The accompanying unaudited condensed 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 INIS and its wholly owned subsidiaries, including RadQual, LLC (RadQual) and TI Services, LLC (TI Services). TI Services is headquartered in Youngstown, Ohio and was formed with RadQual in December 2010 to distribute products and services for nuclear medicine, nuclear cardiology, and Positron Emission Tomography (PET) imaging. RadQual is a global supplier of molecular imaging quality control and calibration devices, and is headquartered in Idaho Falls, Idaho. In August 2017, affiliates of INIS purchased 75.5% of RadQual and at the time INIS was named as one of the two managing members of RadQual. In July 2021, INIS purchased the remaining interest in RadQual and now owns 100% of RadQual. INIS, its subsidiaries RadQual and TI Services are collectively referred to herein as the “Company,” “we,” “our” or “us.”

 

Nature of Operations – The Company manufactures a full range of nuclear medicine calibration and reference standards, generic sodium iodide I-131 drug product, cobalt teletherapy sources, and a varied selection of radiochemicals for medical research, and clinical applications. For 2022, the Company’s business consists of four business segments: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, and Fluorine Products. Due to minimal activity, the Radiological Services business segment was reorganized into the Company’s Nuclear Medicine Standards segment as of January 1, 2022. The Company’s headquarters and all operations, with the exception of TI Services, are located in Idaho Falls, Idaho.

 

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 two to three years. Accordingly, preliminary payments received on cobalt contracts, where shipment will not take place for greater than one year, have been recorded as unearned revenue and, depending upon estimated ship dates, classified under either current or long-term liabilities on the Company’s condensed consolidated balance sheets. These unearned revenues are being recognized as revenue in the periods during which the cobalt shipments take place. All assets expected to be realized in cash or sold during the normal operating cycle of business are classified as current assets.

 

Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements are presented in conformity with GAAP and include all operations and balances of INIS and its wholly-owned subsidiaries. See Note 4 “RadQual Acquisition” for additional information regarding RadQual and TI Services. 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 GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP 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 or nine-month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or any future periods. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 31, 2022.

 

Recent Accounting Pronouncements – In August 2020, the Financial Accounting Standards Board issued ASU 2020-06 Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). The update simplifies accounting related to convertible debt instruments. The standard is effective for fiscal years beginning after December 15, 2023 including interim periods within those fiscal years. INIS is currently evaluating the effect this standard will have on its financial statements.

 

(2)       Current Developments and Liquidity

 

Business Condition – Since inception, the Company has incurred substantial losses. During the nine months ended September 30, 2022, the Company reported net income of $414,328, net of non-controlling interest, and net cash used in operating activities of $957,163. During the nine months ended September 30, 2021, the Company reported a net loss of $919,408, net of non-controlling interest, and net cash provided by operating activities of $64,294.

8 

 

 

During the nine months ended September 30, 2022, the Company continued its focus on its strongest long-standing core business segments which consist of its radiochemical products, cobalt products, and nuclear medicine standards, and in particular, the pursuit of new business opportunities within those segments.

 

Additionally, the Company holds a Nuclear Regulatory Commission (NRC) construction and operating license for the depleted uranium facility and a property agreement with, Lea County, New Mexico, where the plant is intended to be constructed. The NRC license for the de-conversion facility is a forty (40) year operating license and is the first commercial license of this type issued in the United States.  There are no other companies with a similar license application under review by the NRC. Therefore, the NRC license represents a significant competitive barrier, and the Company considers it a valuable asset.

 

(3)       Net Income (Loss) Per Common Share - Basic and Diluted

 

For the nine months ended September 30, 2022, the Company had 21,718,500 stock options outstanding, and 4,063 outstanding shares of Series C Preferred Stock, each of which were not included in the computation of diluted income per common share because they would be anti-dilutive. The Company used the treasury stock method in calculating weighted average common shares diluted.

 

For the three months ended September 30, 2022, the Company had 24,868,500 stock options outstanding, and 4,063 outstanding shares of Series C Preferred Stock, each of which were not included in the computation of diluted income (loss) per common share because they would be anti-dilutive. The Company used the treasury stock method in calculating weighted average common shares diluted.

 

For the three and nine months ended September 30, 2021, the Company had 21,102,500 stock options outstanding, 7,065,000 warrants outstanding, 675 outstanding shares of Series B redeemable convertible preferred stock (Series B Preferred Stock), and 4,063 outstanding shares of Series C redeemable convertible preferred stock (Series C Preferred Stock), each of which were not included in the computation of diluted income (loss) per common share because they would be anti-dilutive.

 

The table below shows the calculation of diluted shares:

                                 
   3 Months Ended   9 Months Ended 
   September 30,   September 30,   September 30,   September 30, 
   2022   2021   2022   2021 
Weighted average common shares outstanding - basic   514,789,680    494,635,990    509,587,202    469,627,961 
                     
Effects of dilutive shares                    
Stock Options               1,470,128       
Weighted average common shares outstanding - diluted   514,789,680    494,635,990    511,057,330    469,627,961 

 

The table below summarizes common stock equivalents outstanding at September 30, 2022 and 2021:

               
  September 30, 
   2022   2021 
Stock options   24,868,500    21,102,500 
Warrants         7,065,000 
Shares of Series B redeemable convertible preferred stock         337,500 
Shares of Series C redeemable convertible preferred stock   40,630,000    40,630,000 
    65,498,500    69,135,000 

 

(4)       RadQual Acquisition

 

On July 8, 2021, the Company entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with RadQual and the sellers set forth in the Purchase Agreement, which included the Company’s Chairman of the Board, Chief Executive Officer, former Chairman of the Board, and certain other stockholders of the Company (collectively, the “Sellers”). Pursuant to the Purchase Agreement, the Company acquired all of the outstanding membership interests of RadQual not then owned by the Company for an aggregate purchase price of approximately $4.4 million, payable in shares of the Company’s common stock valued at $0.11 per share (determined by the average trading price of the Company’s common stock on the OTC Markets during the 60 trading day period immediately prior to June 2, 2021) (the RadQual Acquisition). The Company issued an aggregate of 40,176,236 shares of its common stock to the Sellers as consideration in the RadQual Acquisition. As a result of the RadQual Acquisition, RadQual became a wholly-owned subsidiary of the Company. Prior to the RadQual Acquisition, the Company owned 24.5% of the outstanding membership interests of RadQual. The RadQual Acquisition closed on July 8, 2021. As TI Services is a 50/50 joint venture between the Company and RadQual, TI Services also became a wholly-owned subsidiary of the Company as a result of the RadQual Acquisition.

 

9 

 

 

(5)       Sale of Assets

 

In February 2022, the Company entered into an Asset Purchase Agreement with Pharmalogic Idaho, LLC, pursuant to which the Company sold certain assets for $4,000,000 in cash. The Assets consisted primarily of manufacturing equipment and a sublease acquired by the Company in connection with the previously announced termination of the manufacturing and supply agreement with another company. The transaction resulted in a $1,797,978 gain on sale of assets.

 

(6)       Inventories

 

At September 30, 2022 and December 31, 2021, the company held inventories of $879,210 and $924,775 respectfully.

 

Inventories consisted of work in process for the following business segments:

 

   September 30, 2022   December 31, 2021 
Radiochemical Products  $39,900   $79,747 
Cobalt Products   391,899    441,749 
Nuclear Medicine Products   447,411    403,279 
   $879,210   $924,775 

 

When indicators of inventory impairment exist, the Company measures the carrying value of the inventory against its market value, and if the carrying value exceeds the market value, the inventory value is adjusted down accordingly.  No impairment was recorded for the nine months ended September 30, 2022 or 2021.

 

(7)       Stockholders’ Equity, Options, and Warrants

 

Employee Stock Purchase Plan

 

The Company has an employee stock purchase plan pursuant to which employees of the Company may participate to purchase shares of common stock at a discount. During the nine months ended September 30, 2022 and 2021, the Company issued 172,534 and 256,079 shares of common stock, respectively, to employees under the employee stock purchase plan for proceeds of $12,304 and $13,528, respectively. As of September 30, 2022, 2,613,957 shares of common stock remain available for issuance under the employee stock purchase plan.

 

Stock-Based Compensation Plans

 

2015 Incentive Plan - In April 2015, the Company’s Board of Directors approved the International Isotopes Inc. 2015 Incentive Plan (as amended, the 2015 Plan), which was subsequently approved by the Company’s shareholders in July 2015. The 2015 Plan was amended and restated in July 2018 to increase the number of shares authorized for issuance under the 2015 Plan by an additional 20,000,000 shares. The 2015 Plan provides for the grant of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock or cash-based awards. At September 30, 2022, there were 29,526,134 shares available for issuance under the 2015 Plan.

 

Employee/Director Grants - The Company accounts for issuances of stock-based compensation to employees by recognizing, as compensation expense, the cost of employee services received in exchange for equity awards. The compensation expense is based on the grant date fair value of the award. Stock option compensation expense is recognized over the period during which an employee is required to provide service in exchange for the award (the vesting period).

 

Non-Employee Grants - The Company accounts for its issuances of stock-based compensation to non-employees by recognizing compensation expense based on the grant date fair value of the award. Stock option compensation expense is recognized over the vesting period for the award.

 

Option awards outstanding as of September 30, 2022, and changes during the nine months ended September 30, 2022, were as follows:

 

Fixed Options  Shares  

Weighted

Average

Exercise Price

  

Weighted

Average

Remaining

Contractual Life

  

Aggregate

Intrinsic Value

 
Outstanding at December 31, 2021   20,777,500   $0.06           
Granted   8,025,000    0.09           
Exercised   (1,200,000)   0.04           
Expired   (1,000,000)   0.04           
Forfeited   (1,734,000)   0.08           
Outstanding at September 30, 2022   24,868,500   $0.07    6.3   $15,750 
Exercisable at September 30, 2022   16,676,000   $0.06    4.9   $15,750 

 

10 

 

 

The intrinsic value of outstanding and exercisable shares is based on the closing price of the Company’s common stock on the OTCQB of $0.04 per share on September 30, 2022, the last trading day of the quarter.

 

As of September 30, 2022, there was $224,222 of unrecognized compensation expense related to stock options that will be recognized over a weighted-average period of 1.85 years.

 

Total stock-based compensation expense for the nine months ended September 30, 2022 and 2021 was $297,243 and $60,671 respectively. Total stock-based compensation expense for the three-months ended September 30, 2022 and 2021 was $59,769 and $11,578, respectively.

 

During the nine months ended September 30, 2022, the Company granted an employee 1,000,000 qualified stock options with an exercise price of $0.10 per share and another 25,000 qualified stock options with an exercise price of $0.08 per share to one of its employees. These options vest over a five-year period with the first vesting at the one-year anniversary of the grant and expiration at ten-year anniversary for all grants. On February 21, 2022, the Compensation Committee granted 3,000,000 qualified stock options to the Company’s executive officers and 4,000,000 non-qualified stock options to members of the Board. The exercise price for these options was $0.09 per share. 2,000,000 of the options granted to an executive officer vest one half immediately and one half at the one-year anniversary of the grant. The remaining executive officer and board member options vest one fourth immediately and one fourth each subsequent year. All these granted options expire at the ten-year anniversary of the grant. The options issued during the nine months ended September 30, 2022 have a fair value of $379,581 as estimated on the date of issue using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of 1.37% to 3.06%, expected dividend yield rate of 0%, expected volatility of 65.92% to 69.16% and an expected life between 5 and 7.5 years.

 

In March 2022, 1,000,000 qualified stock options were exercised under a cashless exercise. The company withheld 388,889 shares to satisfy the exercise price and issued 611,111 shares of common stock. The options exercised were granted under the 2015 Plan, and, accordingly, there was not any income tax effect in the accompanying unaudited condensed consolidated financial statements.

 

In August 2022, 200,000 qualified stock options were exercised under a cashless exercise. The company withheld 162,163 shares to satisfy the exercise price and issued 37,837 shares of common stock. The options exercised were granted under the 2015 Plan, and, accordingly, there was not any income tax effect in the accompanying unaudited condensed consolidated financial statements.

 

Pursuant to an employment agreement with its Chief Executive Officer, the Company awarded 307,692 fully vested shares of common stock to its Chief Executive Officer in February 2022 under the 2015 Plan. The number of shares awarded was based on a $28,000 stock award using a price of $0.091 per share. The employment agreement provides that the number of shares issued will be based on the average closing price of common stock for the 20 trading days prior to issue date but not less than $0.05 per share. Compensation expense recorded pursuant to this stock grant was $27,692, which was determined by multiplying the number of shares awarded by the closing price of the common stock on February 28, 2021, which was $0.09 per share. The Company withheld 120,461 shares of common stock to satisfy payroll tax obligations in connection with this issuance. The net shares issued on February 28, 2022 totaled 187,231.

 

Warrants

 

As of September 30, 2022, there are no outstanding warrants. On February 14, 2022, 515,000 Class M Warrants were exercised for an exercise price of $0.12 per share. The Company received $61,800 of proceeds as a result of the exercise. On February 17, 2022 the 3,625,000 remaining unexercised Class M Warrants expired. On May 12, 2022, the 2,925,000 remaining unexercised Class N Warrants expired.

 

Warrants outstanding at September 30, 2021, included 4,140,000 Class M Warrants which were immediately exercisable at an exercise price of $0.12 per share and expired on February 17, 2022 and 2,925,000 Class N Warrants which were immediately exercisable at an exercise price of $0.10 per share and expired on May 12, 2022.

 

Preferred Stock

 

On May 31, 2022, the Company paid with shares of the Company’s common stock all 675 outstanding Series B Preferred Stock outstanding with a mandatory redemption date of May 2022 at $1,000 per share or $675,000. The May 31, 2022 average price of the Company’s common stock was $0.08 per share. The Company issued 8,437,500 shares of common stock to satisfy the $675,000 redemption amount.

 

11 

 

 

At September 30, 2022, there were 4,063 shares of the Series C Preferred Stock outstanding with a mandatory redemption date of February 17, 2023 at $1,000 per share in either cash or shares of common stock, at the option of the holder. Holders of the Series C Preferred Stock do not have any voting rights except as required by law and in connection with certain events as set forth in the Statement of Designation of the Series C Preferred Stock. The Series C Preferred Stock accrues dividends at a rate of 6% per annum, payable annually on February 17th of each year. The Series C Preferred Stock are convertible at the option of the holders at any time into shares of the Company's common stock at an initial conversion price equal to $0.10 per share, subject to adjustment. If the volume-weighted average closing price of the Company’s common stock over a period of 90 consecutive trading days is greater than $0.25 per share, the Company may redeem all or any portion of the outstanding Series C Preferred Stock at the original purchase price per share plus any accrued and unpaid dividends, payable in shares of common stock.

 

During the nine months ended September 30, 2022 and 2021 dividends paid to holders of the Series C Preferred Stock totaled $243,780 and $254,280, respectively. Some holders of the Series C Preferred Stock elected to settle their dividend payments with shares of the Company’s common stock in lieu of cash. For the nine months ended September 30, 2022 and 2021 the Company issued 2,271,980 and 1,398,200 shares of common stock, respectively, in lieu of a dividend payment of $204,480 and $207,480, respectively. The remaining dividend payable was settled with cash of $39,300 and $46,800 respectively.

 

(8)        Debt

 

In December 2013, the Company entered into a promissory note agreement with its then Chairman of the Board and one of our major shareholders, pursuant to which we borrowed $500,000 (the 2013 Promissory Note). The 2013 Promissory Note is secured and bears interest at 6% per annum and was originally due June 30, 2014. According to the terms of the 2013 Promissory Note, at any time, the lenders may settle any or all of the principal and accrued interest with shares of our common stock. In December 2019, the 2013 Promissory Note was modified to extend the maturity date to December 31, 2021, with all remaining terms unchanged. In January 2022, the 2013 Promissory Note was modified to extend the maturity date to December 31, 2023, with all remaining terms unchanged. At September 30, 2022, the principal balance of the 2013 Promissory Note was $500,000 and accrued interest payable on the 2013 Promissory Note was $264,234.

 

In April 2018, the Company borrowed $120,000 from its Chief Executive Officer and Chairman of the Board pursuant to a promissory note (the 2018 Promissory Note). The 2018 Promissory Note accrues interest at 6% per annum, which is payable upon maturity of the 2018 Promissory Note. The 2018 Promissory Note was originally unsecured and originally matured on August 1, 2018. At any time, the holder of the 2018 Promissory Note may elect to have any or all of the principal and accrued interest settled with shares of our common stock based on the average price of the shares over the previous 20 trading days. In June 2018, the 2018 Promissory Note was modified to extend the maturity date to March 31, 2019 with all other provisions remaining unchanged. In February 2019, the 2018 Promissory Note was modified to extend the maturity date to July 31, 2019 with all other provisions remaining unchanged. In July 2019, the 2018 Promissory Note was modified to extend the maturity date to January 31, 2020 with all other provisions remaining unchanged. In December 2019, the 2018 Promissory Note was modified to extend the maturity date to December 31, 2021, the note was also modified to become secured by company assets, with all other provisions remaining unchanged. In December 2021, the 2018 Promissory Note was modified to extend the maturity date to December 31, 2023, with all remaining terms unchanged. At September 30, 2022, accrued interest on the 2018 Promissory Note totaled $31,970.

 

In December 2019 and February 2020, the Company borrowed $1,000,000 from four of the Company’s major shareholders pursuant to a promissory note (the 2019 Promissory Note). The 2019 Promissory Note bears an interest rate of 4% annually and is due December 31, 2022. According to the terms of the 2019 Promissory Note, at any time, the lenders may settle any or all of the principal and accrued interest with shares of the Company’s common stock based on the average closing price of the Company’s common stock for the 20 days preceding the payment. In connection with the 2019 Promissory Note, the lenders were issued warrants totaling 30,000,000 warrants to purchase shares of the Company’s common stock at $0.045 per share (the Class O Warrants). The fair value of these Class O Warrants issued totaled $446,079 and was recorded as a debt discount and will be amortized over the life of the 2019 Promissory Note. The Company calculated a beneficial conversion feature of $315,643 which will be accreted to interest expense over the life of the 2019 Promissory Note. At September 30, 2022, the balance of the 2019 Promissory Note was $1,000,000, The remaining debt discount was $37,518, the remaining beneficial conversion feature was $26,548, and the accrued interest on the 2019 Promissory Note totaled $109,131.

 

In April 2021, the Company borrowed $250,000 from its Chief Executive Officer and Chairman of the Board pursuant to a promissory note (the 2021 Promissory Note). The 2021 Promissory Note accrued interest at 6% per annum, which was payable upon maturity of the 2021 Promissory Note. The 2021 Promissory Note was secured and was to mature on December 31, 2022. At any time, the holders of the 2021 Promissory Note were able to elect to have any or all of the principal and accrued interest settled with shares of our common stock at a conversion price of $0.11 per share. On March 31, 2022, the Company repaid the 2021 Promissory Note in full. The payment included $250,000 in principal and $14,500 in interest.

 

12 

 

 

(9)       Commitments and Contingencies

 

Dependence on Third Parties

 

The production of High Specific Activity Cobalt is dependent upon the Department of Energy (DOE), and its prime operating contractor, which controls the Advanced Test Reactor (ATR) and laboratory operations at the ATR located outside of Idaho Falls, Idaho. In October 2014, the Company signed a ten-year contract with the DOE for the irradiation of cobalt targets for the production of cobalt-60. The Company will be able to purchase cobalt targets for a fixed price per target with an annual 5% escalation in price. The contract term is October 1, 2014, through September 30, 2024, however, the contract may be extended beyond that date. Also, the DOE may end the contract if it determines termination is necessary for the national defense, security or environmental safety of the United States. If this were to occur, all payments made by the Company, for partially irradiated undelivered cobalt material, would be refunded.

 

Sales of our most predominant radiochemical products are dependent upon a few key suppliers. An interruption in production by any of these individual suppliers could have an immediate negative impact upon radiochemical sales until material could be purchased from alternate suppliers including obtaining regulatory approval to use material from alternative suppliers if necessary.

 

The Nuclear Medicine Reference and Calibration Standard products sold by the Company are dependent upon certain radioisotopes that are supplied to the Company through agreements with several suppliers. A loss of any of these suppliers could adversely affect operating results by causing a delay in production or a possible loss of sales.

 

Contingencies

 

Because all the Company’s business segments involve the handling or use of radioactive material, the Company is required to have an operating license from the NRC and specially trained staff to handle these materials. The Company has amended this operating license numerous times to increase the amount of material permitted within the Company’s facility. Although this license does not currently restrict the volume of business operations performed or projected to be performed in the upcoming year, additional processing capabilities and license amendments could be implemented that would permit processing of other reactor-produced radioisotopes by the Company. The financial assurance required by the NRC to support this license has been provided for with a surety bond held with North American Specialty Insurance Company which is supported by a restricted money market account held with Merrill Lynch in the amount of $834,170 at September 30, 2022.

 

In August 2011, the Company received land from Lea County, New Mexico, pursuant to a Project Participation Agreement (PPA), whereby the land was deeded to the Company for no monetary consideration. In return, the Company committed to construct a uranium de-conversion and Fluorine Extraction Process facility on the land.  In order to retain title to the property, the Company was to begin construction of the de-conversion facility no later than December 31, 2014, and complete Phase I of the project and have hired at least 75 persons to operate the facility no later than December 31, 2015, although commercial operations need not have begun by that date. In 2015, the Company negotiated a modification to the PPA that extended the start of construction date to December 31, 2015, and the hiring milestone to December 31, 2016. Those dates were also not met. The Company has been in discussion with commercial companies possibly interested in purchasing rights to this project. Should those discussions come to fruition the Company plans to negotiate a second modification to the PPA agreement to further extend the commitment dates. If the Company is not successful in reaching an amendment to extend the performance dates in the PPA then it may, at its sole option, either purchase or re-convey the property to Lea County, New Mexico.  The purchase price of the property would be $776,078, plus interest at the annual rate of 5.25% from the date of the closing to the date of payment.  The Company has not recorded the value of this property as an asset and will not do so until such time that sufficient progress on the project has been made to meet the Company’s obligations under the agreements for permanent transfer of the title.

 

 

13 

 

 

 

(10)      Revenue Recognition

 

Revenue from Product Sales

 

The following tables present the Company’s revenue disaggregated by business segment and geography, based on management’s assessment of available data:

 

  Three Months Ended September 30, 2022   Three Months Ended September, 2021 
  U.S. 

Outside

U.S.

 

Total

Revenues

 

% of Total

Revenues

   U.S. 

Outside

U.S.

 

Total

Revenues

 

% of Total

Revenues

 
Radiochemical Products  $1,140,535  $158,132  $1,298,667   47%  $1,065,690  $144,925  $1,210,615   46%
Cobalt Products   412,811   11,920   424,731   15%   407,308   1,500   408,808   16%
Nuclear Medicine Products   859,933   205,942   1,065,875   38%   769,264   221,064   990,328   38%
Fluorine Products                  0%   7,763        7,763   0%
   $2,413,279  $375,994  $2,789,273   100%  $2,250,025  $367,489  $2,617,514   100%

 

   Nine Months Ended September 30, 2022   Nine Months Ended September 30, 2021 
   U.S. 

Outside

U.S.

 

Total

Revenues

 

% of Total

Revenues

   U.S. 

Outside

U.S.

 

Total

Revenues

 

% of Total

Revenues

 
Radiochemical Products  $3,917,106  $387,523  $4,304,629   53%  $2,703,614  $396,387  $3,100,001   42%
Cobalt Products   668,563   27,220   695,783   9%   1,083,332   20,844   1,104,176   15%
Nuclear Medicine Products   2,444,469   586,641   3,031,110   38%   2,481,467   654,503   3,135,970   43%
Fluorine Products                  0%   29,775        29,775   0%
   $7,030,138  $1,001,384  $8,031,522   100%  $6,298,188  $1,071,734  $7,369,922   100%

 

The Company’s revenue consists primarily of distribution of radiochemicals including sodium iodide I-131 drug product, calibration and reference standards manufactured for use in the nuclear medicine industry, and cobalt source manufacturing. 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 two to three years. Accordingly, preliminary payments received on cobalt contracts, where shipment will not take place for greater than one year, have been recorded as unearned revenue on the Company’s condensed consolidated balance sheets and classified under current or long-term liabilities, depending upon estimated ship dates. For the nine months ended September 30, 2022, the Company reported current unearned revenue of $908,843. For the period ended December 31, 2021, the Company reported current unearned revenue of $907,953. These unearned revenues will be recognized as revenue in the periods during which the cobalt shipments take place.

 

Accounts Receivable

 

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied.  As of September 30, 2022, and December 31, 2021, accounts receivable totaled $1,542,711 and $853,675, respectively.

 

(11)      Leases

 

The Company leases office and warehouse space under operating leases. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments under the lease. Operating lease, right-of-use assets, and liabilities are recognized at the lease commencement date based on the present value of lease payments over the reasonably certain lease term. The implicit rates with the Company’s operating leases are generally not determinable and the Company uses its incremental borrowing rate at the lease commencement date to determine the present value of its lease payments. The determination of the Company’s incremental borrowing rate requires judgement. The company determines its incremental borrowing rate for each lease using its then-current borrowing rate. Certain of the Company’s leases include options to extend or terminate the lease. The Company establishes the number of renewal options periods used in determining the operating lease term based upon its assessment at the inception of the operating lease. The option to renew the lease may be automatic, at the option of the Company, or mutually agreed to between the landlord and the Company. Once the facility lease term has begun, the present value of the aggregate future minimum lease payments is recorded as a right-of-use asset. Lease expense is recognized on a straight-line basis over the term of the lease.

 

14 

 

 

 

                 
   Nine Months Ended September 30, 
   2022   2021 
Operating lease costs  $213,382   $192,833 
Short-term operating lease costs   7,996    9,951 
Financing lease expense:          
Amortization of right-of-use assets   6,331    5,771 
Interest on lease liabilities   899    1,459 
Total financing lease expense   7,230    7,230 
Total lease expense  $228,608   $210,014 
           
Right-of-use assets obtained in exchange for new operating lease liabilities  $     $1,603 
Right-of-use assets obtained in exchange for new financing lease liabilities  $     $   
           
Weighted-average remaining lease term (years) - operating leases   12.3    13.3 
Weighted-average remaining lease term (years) - financing leases   1.6    2.4 
Weighted-average discount rate - operating leases   6.75%   6.75%
Weighted-average discount rate - financing leases   8.22%   8.70%

 

   Operating   Financing 
2022 (excluding the nine-months ended September 30, 2022)  $71,777   $2,410 
2023   287,108    5,881 
2024   287,108    2,929 
2025   287,108       
2026   287,108     
Thereafter   2,312,301       
Total minimum operating lease obligations   3,532,510    11,220 
Less-amounts representing interest   (1,137,162)   (664)
Present value of minimum operating lease obligations   2,395,348    10,556 
Current maturities   (129,376)   (6,981)
Lease obligations, net of current maturities  $2,265,972   $3,575 

 

(12)        Segment Information

 

The Company has four reportable segments which include: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, and Fluorine Products. The Company had five reportable segments in 2021 which also included Radiological Services. The Radiological Services business segment included field services, gemstone processing, and source disposal. As the Company is no longer engaged in field services and gemstone processing, which made up the substantial portion of activities of this segment, separate reporting of this segment has been discontinued. The Company continues to engage in source disposal activities and has begun reporting these activities under the Nuclear Medicine Standards segment starting January 1, 2022. Additionally, the Company reclassified its reporting for 2021 to include all activities for the Radiological Services business segment under the Nuclear Medicine Standards segment.

 

15 

 

 

 

Information regarding the operations and assets of these reportable business segments is contained in the following table:

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
Sale of Product  2022   2021   2022   2021 
Radiochemical Products  $1,298,667   $1,210,615   $4,304,629   $3,100,001 
Cobalt Products   424,731    408,808    695,783    1,104,176 
Nuclear Medicine Standards   1,065,875    990,328    3,031,110    3,135,970 
Fluorine Products         7,763          29,775 
Total Segments   2,789,273    2,617,514    8,031,522    7,369,922 
Corporate revenue                        
Total Consolidated  $2,789,273   $2,617,514   $8,031,522   $7,369,922 

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
Depreciation and Amortization  2022   2021   2022   2021 
Radiochemical Products  $7,102   $77,740   $56,447   $235,717 
Cobalt Products   12,087    12,399    36,368    38,437 
Nuclear Medicine Standards   28,710    27,043    85,943    61,785 
Fluorine Products   26,095    28,649    78,285    85,902 
Total Segments   73,994    145,831    257,043    421,841 
Corporate depreciation and amortization   10,502    7,636    31,004    18,876 
Total Consolidated  $84,496   $153,468   $288,047   $440,718 

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
Segment Income (Loss)  2022   2021   2022   2021 
Radiochemical Products  $454,223   $370,586   $3,430,516   $779,468 
Cobalt Products   (134,044)   166,808    (189,451)   345,292 
Nuclear Medicine Standards   65,171    133,185    76,743    506,590 
Fluorine Products   (37,204)   (26,585)   (111,377)   (91,725)
Total Segments   348,146    643,994    3,206,431    1,539,623 
Corporate loss   (916,815)   (780,863)   (2,792,103)   (2,459,031)
Net (Loss) Income  $(568,669)  $(136,869)  $414,328   $(919,408)

 

  

Three months ended

September 30,

  

Nine months ended

September 30,

 
Expenditures for Segment Assets  2022   2021   2022   2021 
Radiochemical Products  $     $     $     $3,103 
Cobalt Products                     16,592 
Nuclear Medicine Standards   4,150    5,064    55,250    172,975 
Fluorine Products               4,100    4,060 
Total Segments   4,150    5,064    59,350    196,730 
Corporate purchases   8,925          8,925       
Total Consolidated  $13,075   $5,064   $68,275   $196,730 

 

   September 30,   December 31, 
Segment Assets  2022   2021 
Radiochemical Products  $890,369   $2,890,590 
Cobalt Products   697,752    597,420 
Nuclear Medicine Standards   1,476,708    2,259,759 
Fluorine Products   5,176,296    5,258,823 
Total Segments   8,241,125    11,006,592 
Corporate assets   8,624,628    5,320,550 
Total Consolidated  $16,865,753   $16,327,142 

 

 

 

16 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning 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 statements. Words such as “anticipates,” “believes,” “should,” “expects,” “future,” “intends” and similar expressions identify forward-looking statements. Forward-looking statements reflect management’s current expectations, plans or projections, and are inherently uncertain. Actual results could differ materially from management's 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 Quarterly 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-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (SEC) on March 31, 2022 and in the other reports we file with the SEC. These factors describe some but not all of the factors that could cause actual results to differ significantly from management’s expectations. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by applicable law. Readers are urged, however, to review the risks and other factors set forth in the reports that we file from time to time with the SEC.

 

BUSINESS OVERVIEW

 

International Isotopes Inc., its wholly owned subsidiaries, including RadQual, LLC and TI Services, LLC (collectively, the Company, we, our, or us) manufacture a full range of nuclear medicine calibration and reference standards, manufacture a range of cobalt products, and distribute sodium iodide I-131 as a generic drug. We own 100% interest of RadQual, LLC (RadQual), a global supplier of molecular imaging quality control and calibration devices.

 

RADQUAL ACQUISTION

 

On July 8, 2021, we entered into a Membership Interest Purchase Agreement (the Purchase Agreement) with RadQual and the sellers set forth in the Purchase Agreement, which included our Chairman of the Board, Chief Executive Officer, former Chairman of the Board, and certain other stockholders of the Company (collectively, the Sellers). Pursuant to the Purchase Agreement, we acquired all of the outstanding membership interests of RadQual not then-owned by the Company for an aggregate purchase price of approximately $4.4 million, payable in shares of our common stock valued at $0.11 per share (determined by the average trading price of our common stock on the OTC Markets during the 60 trading day period immediately prior to June 2, 2021) (the RadQual Acquisition). We issued an aggregate of 40,176,236 shares of its common stock to the Sellers as consideration in the RadQual Acquisition. Prior to the RadQual Acquisition, we owned approximately 24.5% of the outstanding membership interests of RadQual, and after acquiring all of the remaining membership interests of RadQual, RadQual became a wholly-owned subsidiary of the Company. The RadQual Acquisition closed on July 8, 2021.

 

Our business consists of the following four business segments in 2022 and consisted of five business segments in 2021:

 

Nuclear Medicine Standards. Our Nuclear Medicine Standards segment consists of the manufacture of sources and standards associated with Single Photon Emission Computed Tomography (SPECT) and Positron Emission Tomography (PET) imaging. These sources are used for indication of patient positioning, SPECT and PET camera operational testing, and calibration of dose measurement equipment. Revenue from nuclear medicine products includes consolidated sales from TI Services, LLC (TI Services), a joint venture that we formed with RadQual in December 2010 to distribute our products. Our nuclear medicine standards products include a host of specially designed items used in the nuclear medicine industry. In addition to the manufacture of these products, we have developed a complete line of specialty packaging for the safe transport and handling of these products. Beginning January 1, 2022, this segment also includes miscellaneous source disposal activities that were previously reported as part of the Radiological Services segment.

 

Cobalt Products. Our Cobalt Products segment includes the production of bulk cobalt (cobalt-60), fabrication of cobalt capsules for radiation therapy and various industrial applications, and recycling of expended cobalt sources. We are the only company in the U.S. that can provide all these unique services. There has been a significant increase in regulation by the Nuclear Regulatory Commission (NRC) in recent years that has created a significant barrier to new entrants into this market. The Company has a contract in place with the U.S. Department of Energy (DOE) for the production of high specific activity cobalt in the Advanced Test Reactor (ATR) in Idaho. This agreement will be in effect until October 2024.

 

17 

 

 

Radiochemical Products. Our Radiochemical Products segment includes production and distribution and FDA approved generic sodium iodide I-131 drug product for the treatment of hyperthyroidism and carcinoma of the thyroid. We are the only U.S. Company distributing this generic drug product. This segment also includes distribution of certain other radiochemical products and contract manufacturing of radiopharmaceutical products for our customers.

 

Fluorine Products. We established the Fluorine Products segment in 2004 to support production and sale of the gases that we expected to produce using our Fluorine Extraction Process (FEP) in conjunction with the operation of the proposed depleted uranium de-conversion facility in Lea County, New Mexico. Near the end of 2013, due to changes in the nuclear industry, we placed further engineering work on this project on hold. We continue to hold discussions with potential future customers seeking this type of service, however, further development activity within this segment will be deferred until market and industry conditions change to justify resuming design and construction of the facility. In the meantime, the Company expects to continue to incur some costs associated with the maintenance of licenses and other necessary project investments, and to continue to keep certain agreements in place that will support resumption of project activities at the appropriate time.

 

Radiological Services. Our Radiological Services segment consisted of a wide variety of miscellaneous services such as decommissioning disused irradiation units, performing sealed source exchanges in irradiation and therapy units, and gemstone processing. The Company has suspended all of its field service activities and has terminated most gemstone processing. Due to decreased activity in this segment, starting January 1, 2022, this segment was reorganized into our Nuclear Medicine Standards segment. Additionally, we reclassified our reporting for 2021 to include all activities for the Radiological Services business segment under the Nuclear Medicine Standards segment.

 

COVID-19 AND COST INFLATION UPDATE

 

As a result of the COVID-19 pandemic, we experienced a reduction of sales within our nuclear medicine calibration standards segment and radiochemicals segment during 2021. There was no discernable impact from COVID-19 to our cobalt products business segment during the period. The decrease in sales for 2021 for our nuclear medicine calibration standards segment was the result of the temporary closure of many imaging clinics and suspension of elective or non-essential imaging procedures. During the three months ended March 31, 2022, we experienced some global shipping disruption that were partially attributable to the COVID-19 pandemic. The decrease in sales in our nuclear medicine calibration standards segment for the nine months ended September 30, 2022, is partially due to these shipping disruptions.

 

To-date we have not furloughed or terminated any employees as a result of the financial impact of COVID-19. We have only seen a limited impact in our raw material supply chain related to the COVID-19. From the beginning of 2022, we have experienced an increase in costs for many raw materials and production supplies due to recent cost inflation which have led to increases to costs of goods sold and operating expenses. Although, all segments have been impacted from these cost increases, our nuclear medicine calibration standards segment has been impacted the most. We have seen these increased costs stabilize somewhat; and we are working on counteracting these cost increases with an increase to our produce prices. We believe we can increase our sales prices enough to overcome these cost increases while continuing to maintain and grow our sales.

 

RESULTS OF OPERATIONS

 

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

 

Revenue for the three months ended September 30, 2022 was $2,789,273 as compared to $2,617,514 for the same period in 2021, an overall increase of $171,759, or approximately 7%. This increase in revenue was the result of increased revenue in our Radiochemical Products, Cobalt Products, and Nuclear Medicine Standards segments, as discussed in detail below.

 

The following table presents a period-to-period comparison of total revenue by segment for the three months ended September 30, 2022 and 2021:

 

  

For the three-

months ended

September 30,

  

For the three-

months ended

September 30,

         
Sale of Product  2022   2021   $ change   % change 
Radiochemical Products  $1,298,667   $1,210,615   $88,052    7%
Cobalt Products   424,731    408,808    15,923    4%
Nuclear Medicine Standards   1,065,875    990,328    75,547    8%
Fluorine Products   —      7,763    (7,763)   -100%
Total Consolidated  $2,789,273   $2,617,514   $171,759      

 

18 

 

 

Cost of sales increased to $1,305,730 for the three months ended September 30, 2022 from $1,006,334 for the same period in 2021. This is an increase of $299,396, or approximately 30%. The increase in cost of sales in the three-month comparison was primarily due to the increased sales activity in all our business segments along with increases in the cost of raw materials and supplies driven by recent cost inflation, as discussed in detail below. Gross profit for the three months ended September 30, 2022 was $1,483,543, compared to $1,611,180 for the same period in 2021. This represents a decrease in gross profit of $127,637, or approximately 8%. Our Gross profit percentage for the three months ended September 30, 2022 was 53%, compared to 62% for the same period in 2021. This decrease in gross profit percentage is a result of increased cost in raw material and supplies driven by recent cost inflation, as discussed in detail below.

 

The following table presents cost of sales and gross profit data for each of our business segments for the three months ended September 30, 2022 and 2021:

 

  

For the three-

months ended

September 30,

  

% of

Total Sales

  

For the three-

months ended

September 30,

  

% of

Total Sales

 
   2022   2022   2021   2021 
Total Sales  $2,789,273        $2,617,514      
Cost of Sales                    
Radiochemical Products  $498,210    18%  $459,344    17%
Cobalt Products   232,679    8%   148,855    6%
Nuclear Medicine Standards   574,841    21%   398,135    15%
Fluorine Products   —      0%   —      0%
Total Segments   1,305,730    47%   1,006,334    38%
                     
Gross Profit  $1,483,543        $1,611,180      
Gross Profit %   53%        62%     

 

Operating expense increased approximately 22% to $1,957,096 for the three months ended September 30, 2022, from $1,609,758 for the same period in 2021. This increase of $347,338, is due to an increase of 23% in Salaries and Contract Labor expense, and increase of 14% in General, Administrative, and Consulting expenses, and a 101% increase in Research and Development costs. The increase in Salaries and Contract Labor costs is a result of an increased number of employees and increases to labor rates incurred during the three months ended September 30, 2022, as compared to the same period in 2021. The increase in General, Administrative, and Consulting expenses is due to periodic waste disposal costs that occurred in the three months ended September 30, 2022. The 101% increase in Research and Development cost is due to increased activity in product development during the three months ended September 30, 2022, as compared to the same period in 2021.

 

The following table presents a comparison of total operating expense for the three months ended September 30, 2022 and 2021:

 

  

For the three-

months ended

September 30,

  

For the three-

months ended

September 30,

         
Operating Costs and Expenses:  2022   2021   % change   $ change 
Salaries and Contract Labor  $800,550   $650,065    23%  $150,485 
General, Administrative and Consulting   1,008,219    885,807    14%   122,412 
Research and Development   148,327    73,886    101%   74,441 
Total operating expenses  $1,957,096   $1,609,758    22%  $347,338 

 

Other income was $49,151 for the three months ended September 30, 2022, as compared to $54,083 for the same period in 2021. This is a decrease of $4,932, or approximately 9%. In September 2022, we experienced a fraudulent transactions incident. The fraudulent charges totaled approximately $85,000. These charges were recorded as “other expense”. Investigations by our bank and by law enforcement are ongoing. There have been no indications of any involvement within our Company. As we expected to recoup all fraudulent changes from our bank, for the three months ending September 30, 2022, we recognized "other income" to offset the fraudulent charges recorded under “other expense”. In October and November 2022, we recovered all of the fraudulent charges from our bank.

 

Interest expense for the three months ended September 30, 2022 was $147,116, compared to $191,544 for the same period in 2021. This is a decrease of $44,428, or approximately 23%. Interest expense includes dividends accrued on our Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock). As discussed below, we issued Series C Preferred Stock in February 2017 and May 2017. For the three months ended September 30, 2022, we accrued dividends payable of $60,945, which have been recorded as interest expense. Additionally, non-cash interest expense in the amount of $26,548 for the

 

19 

 

 

accretion of the beneficial conversion feature of the 2019 Promissory Note (as defined below) and $37,518 for the issuance of warrants in conjunction with the 2019 Promissory Note were recorded for the three months ended September 30, 2022. See Note 7 “Debt” to our unaudited consolidated financial statements in this Quarterly Report for additional information about our indebtedness and the associated interest expense.

 

Our net loss for the three months ended September 30, 2022, was $568,669, compared to net loss of $136,869, for the same period in 2021. This is an increase in loss of $431,800 is largely the result of the increase in Cost of Sales in our Cobalt products and Nuclear Medicine Standards segments to the increase in operating expenses for the three months ended September 30, 2022, as compared to the same period in 2021.

 

Radiochemical Products. Revenue from the sale of Radiochemical Products for the three months ended September 30, 2022 was $1,298,667, compared to $1,210,615 for the same period in 2021. This is an increase of $88,052, or approximately 7% during the three months ended September 30, 2022. The increase is the result of continued increased sales of our generic sodium iodide I-131 drug product. We expect continued sales growth for our Radiochemical products going forward.

 

Cost of sales for Radiochemical Products increased to $498,210 for the three months ended September 30, 2022, as compared to $459,344 for the same period in 2021. This is an increase of $38,866, or approximately 8%, and was the result of increased sales of product. Gross profit of radiochemical products for the three months ended September 30, 2022 was $800,457, compared to $751,271, for the same period in 2021. Gross profit percentage was approximately 62% for the three months ended September 30 for both 2022 and 2021. Operating expense for this segment decreased to $346,234 for the three months ended September 30, 2022, compared to $380,684 for the same period in 2021. This decrease in operating expense of $34,450, or approximately 10%, was primarily due to decreased costs for production supplies, and depreciation expense. This segment reported net income of $454,223 for the three months ended September 30, 2022, as compared to net income of $370,586 for the same period in 2021. The increase in net income of $83,637 is the result of the increase in revenue.

 

Cobalt Products. Revenue from the sale of Cobalt Products for the three months ended September 30, 2022 was $424,731, compared to $408,808, for the same period in 2021. This represents an increase of $15,923, or approximately 4%. The increase was primarily due to the timing of cobalt sealed source manufacturing sales. Large value sales of high activity cobalt sources occur at somewhat random times throughout the year. Frequently the timing of these sales can have a significant impact on period over period comparisons.

 

In October 2014, we entered into a ten-year agreement with the DOE for the irradiation of cobalt targets. It takes many years to irradiate these cobalt targets to the desired level of activity and we anticipated having high specific activity cobalt available for our customers in 2020. However, the material had lower than expected activity and further receipt of material was delayed until about June 2021. At that point the material still had lower than expected activity, and we reached an agreement with the DOE to purchase the material at a discounted rate. Periodically we have been able to acquire recycled material that can be used to manufacture sealed sources for customers, and in some instances, our customers have supplied their own cobalt material for source fabrication. We also have access to additional low specific activity material produced by the DOE and expect to obtain, process, and sell additional cobalt products as a result during the remainder of 2022.

 

We have entered into cobalt purchase agreements with several customers. Pursuant to these contracts, we will supply some bulk cobalt-60 and provide sealed source manufacturing for the customers. The terms of these cobalt contracts require some advance progress payments from each customer. The funding received under these contracts has been recorded as unearned revenue under short- and long-term liabilities in our consolidated financial statements. For the three months ended September 30, 2022 and 2021, we recognized approximately $10,000 and $1,500, respectively when we fulfilled contract performance objectives by supplying sealed sources manufactured with cobalt from the ATR or alternate suppliers.

 

Cost of sales for the three months ended September 30, 2022, was $232,679, as compared to $148,855, for the same period in 2021. Gross profit for cobalt products for the three months ended September 30, 2022, was $192,052 compared to $259,953 for the same period in 2021. This is a decrease of $67,901, or approximately 26% and is attributable to an increased labor and material cost in source manufacturing for the three months ended September 30, 2022, as compared to the same period in 2021. Our gross profit percentages were approximately 45% and 64% for the three-month periods ended September 30, 2022 and 2021, respectively. The decrease in the gross profit percentage for the three months ended September 30, 2022 is primarily due to increased costs of raw material and labor used in the manufacture of sealed sources. Operating expense in this segment increased to $326,096 for the three months ended September 30, 2022, from $93,145 for the same period in 2021. This is an increase of $232,951, or approximately 250%. This increase in operating expenses for the three months ended September 30, 2022 is due to waste disposal expense of approximately $215,000. Our manufacturing processes generate some radioactive waste. The estimated costs of storage and disposal of these materials have been included in the manufacturing and sales price of our products. However, actual disposal costs are subject to change at the discretion of the disposal site and are ultimately applied at the time of disposal. Our net loss for Cobalt Products was $134,044 for the three months ended September 30, 2022, as compared to a net income of $166,808 for the same period in 2021. The decrease in income of $300,852, or approximately 180%, was attributable to an increased cost of materials from cobalt sealed source manufacturing due to recent cost inflation and due to increased operating expenses for waste disposal.

 

20 

 

 

Nuclear Medicine Standards. Revenue from Nuclear Medicine Standards for the three months ended September 30, 2022, was $1,065,875, compared to $990,328 for the same period in 2021. This represents an increase in revenue of $75,547, or approximately 8%.

 

Cost of sales for our Nuclear Medicine Standards segment for the three months ended September 30, 2022, was $574,841, as compared to $398,135 for the same period in 2021. The increase in cost of sales in the period-to-period comparison of $176,706, or 44%, was due to increased sales activity and increased costs for supplies and raw materials during the three-month period ended September 30, 2022, as compared to the same period in 2021. Gross profit for our nuclear medicine standards segment for the three months ended September 30, 2022 was $491,034 compared to $592,193 for the same period in 2021, and gross profit percentages were approximately 46% and 60% for the three months ended September 30, 2022 and 2021, respectively. This is a decrease in gross profit of $101,159, or approximately 17%. The decrease in gross profit in the period-to-period comparison is primarily the result of increased costs for supplies and raw materials attributable to cost inflation. We expect these increased costs to continue going forward, and we are adjusting our sales prices accordingly.

 

Operating expense for this segment for the three months ended September 30, 2022 decreased to $425,863, from $459,008 for the same period in 2021. This is a decrease of 33,145, or approximately 7%, and is the result of decreased marketing and consulting fees in the three months ended September 30, 2022. Operating expenses includes non-controlling member interest expense attributable to RadQual and TI Services of $0 for the three months ended September 30, 2022 compared with $4,275 for the three months ended September 30, 2021. In July 2021, we purchased the remaining 75.5% interest in RadQual; this resulted in RadQual and TI Services becoming our fully owned subsidiaries. Net income for this segment for the three months ended September 30, 2022 was $65,171, compared to net income $133,185 for the same period in 2021. This decrease in net income of $68,014, or approximately 51% and is primarily the result of increased costs for supplies and raw materials attributable to cost inflation.

 

Radiological Services. Starting in 2022, due to drastically decreased activity in the segment, all remaining activities in our Radiological Services is reported in our Nuclear Medicine Standards segment.

 

In January 2020, we notified our gemstone processing customer that the service contract with them was being terminated because the volume of gemstones sent for processing did not meet contract minimums. The termination activities and wrap up of this service substantially occurred in 2021 and the Company saw a steady decline in revenue from this service as production was wrapped up. In the first half of 2022, we converted the spaces in the facility that were previously used to perform this contract work into expanded Nuclear Medicine new product manufacturing. The loss in revenue expected from termination of the gemstone processing agreement is expected to be more than compensated for by the expansion of new nuclear medicine source products.

 

Revenue from field service work for the DOE had accounted for the majority of revenue in this segment. However, Radiological Field Services work was terminated in 2020 and we did not generate any Radiological Field Services revenue in 2021 or 2022. We have removed this type of activity from our NRC license and do not expect to perform this in future years.

 

We continue to engage in source disposal activities and have begun reporting these activities under the Nuclear Medicine Standards segment starting January 1, 2022. Additionally, we reclassified our reporting for 2021 to include all activities for the Radiological Services business segment under the Nuclear Medicine Standards segment.

 

Fluorine Products. For the three months ended September 30, 2022, we had no revenue for our Fluorine Products segment as compared to $7,763 for the three months ended September 30, 2021. Revenues were related to an agreement to provide engineering and technical assistance services related to our fluorine products intellectual property. The agreement concluded in 2021. During the three months ended September 30, 2022, we incurred $37,204 of expense related to items in support of future planning and design for the proposed de-conversion facility, as compared to $34,348 for the same three-month period in 2021. This is an increase of 8% in the period-to-period comparison and is the result of increased professional services costs related to exploring options for possible renewal of work on this project.

 

We established the Fluorine Products segment in 2004 to support production and sale of the gases produced using our FEP. The project has been placed on hold since 2013 and we will continue to limit our expenditures to essential items such as maintenance of the NRC license, land use agreements, communication with our prospective FEP product customers, and interface with the State of New Mexico and Lea County officials until such time that we decide to resume the project.

 

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

 

Revenue for the nine-month period ended September 30, 2022 was $8,031,522, as compared to $7,369,922 for the same period in 2021, an increase of $661,600, or approximately 9%. The performance of all our business segments for the nine-month period is discussed in further detail below.

 

21 

 

 

The following table presents a period-to-period comparison of total revenue by segment for the nine months ended September 30, 2022 and September 30, 2021:

 

  

For the nine-

months ended

September 30,

  

For the nine-

months ended

September 30,

         
Sale of Product  2022   2021   $ change