INTERNATIONAL ISOTOPES INC. 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 endedDecember 31, 2021 filed with theSecurities and Exchange Commission (SEC) onMarch 31, 2022 and in the other reports we file with theSEC . 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
theSEC . BUSINESS OVERVIEWInternational Isotopes Inc. , its wholly owned subsidiaries, includingRadQual, LLC andTI 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 iodideI-131 as a generic drug. We own 100% interest ofRadQual, LLC (RadQual), a global supplier of molecular imaging quality control and calibration devices. RADQUAL ACQUISTION OnJuly 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 toJune 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 onJuly 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 fromTI Services, LLC (TI Services), a joint venture that we formed with RadQual inDecember 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. BeginningJanuary 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 theU.S. that can provide all these unique services. There has been a significant increase in regulation by theNuclear 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 theU.S. Department of Energy (DOE) for the production of high specific activity cobalt in the Advanced Test Reactor (ATR) inIdaho . This agreement will be in effect untilOctober 2024 . 17 Radiochemical Products. Our Radiochemical Products segment includes production and distribution and FDA approved generic sodium iodideI-131 drug product for the treatment of hyperthyroidism and carcinoma of the thyroid. We are the onlyU.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 inLea 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, startingJanuary 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 endedMarch 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 endedSeptember 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
Revenue for the three months endedSeptember 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
For the three- For the three-
months ended months ended
September 30, 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 endedSeptember 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 endedSeptember 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 endedSeptember 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
For the three- For the three-
months ended % of months ended % of
September 30, Total Sales September 30, Total Sales
2022 2022 2021 2021
Total Sales $ 2,789,273 $ 2,617,514
Cost of SalesRadiochemical 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
For the three- For the three-
months ended months ended
September 30, 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 endedSeptember 30, 2022 , as compared to$54,083 for the same period in 2021. This is a decrease of$4,932 , or approximately 9%. InSeptember 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 endingSeptember 30, 2022 , we recognized "other income" to offset the fraudulent charges recorded under "other expense". In October andNovember 2022 , we recovered all of the fraudulent charges from
our bank. Interest expense for the three months endedSeptember 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 inFebruary 2017 andMay 2017 . For the three months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 , as compared to the same period in 2021. Radiochemical Products. Revenue from the sale of Radiochemical Products for the three months endedSeptember 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 endedSeptember 30, 2022 . The increase is the result of continued increased sales of our generic sodium iodideI-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 endedSeptember 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 endedSeptember 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 endedSeptember 30 for both 2022 and 2021. Operating expense for this segment decreased to$346,234 for the three months endedSeptember 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 endedSeptember 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 endedSeptember 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. InOctober 2014 , we entered into a ten-year agreement with theDOE 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 aboutJune 2021 . At that point the material still had lower than expected activity, and we reached an agreement with theDOE 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 theDOE 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 , as compared to the same period in 2021. Our gross profit percentages were approximately 45% and 64% for the three-month periods endedSeptember 30, 2022 and 2021, respectively. The decrease in the gross profit percentage for the three months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 , as compared to the same period in 2021. Gross profit for our nuclear medicine standards segment for the three months endedSeptember 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 endedSeptember 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 endedSeptember 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 endedSeptember 30, 2022 . Operating expenses includes non-controlling member interest expense attributable to RadQual and TI Services of$0 for the three months endedSeptember 30, 2022 compared with$4,275 for the three months endedSeptember 30, 2021 . InJuly 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 endedSeptember 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.
InJanuary 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
We continue to engage in source disposal activities and have begun reporting these activities under the Nuclear Medicine Standards segment startingJanuary 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 endedSeptember 30, 2022 , we had no revenue for our Fluorine Products segment as compared to$7,763 for the three months endedSeptember 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 endedSeptember 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 theState of New Mexico andLea County officials until such time that we decide to resume the project.
Nine Months Ended
Revenue for the nine-month period endedSeptember 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 endedSeptember 30, 2022 andSeptember 30, 2021 : For the nine- For the nine- months ended months ended September 30, September 30, Sale of Product 2022 2021 $ change % change Radiochemical Products$ 4,304,629 $ 3,100,001 $ 1,204,628 39 % Cobalt Products 695,783 1,104,176 (408,393 ) -37 % Nuclear Medicine Standards 3,031,110 3,135,970 (104,860 ) -3 % Fluorine Products - 29,775 (29,775 ) 0 % Total Consolidated$ 8,031,522 $ 7,369,922 $ 661,600 Gross profit for the nine-month period endedSeptember 30, 2022 was$4,560,816 , compared to$4,360,266 , for the same period in 2021. This represents an increase of$200,550 or approximately 5%.
The following table presents cost of sales and gross profit data for each of our
business segments for the nine months ended
For the nine- For the nine-
months ended % of months ended % of
September 30, Total Sales September 30, Total Sales
2022 2022 2021 2021
Total Sales $ 8,031,522 $ 7,369,922
Cost of SalesRadiochemical Products$ 1,567,097 19 %$ 1,251,953 17 % Cobalt Products 315,204 4 % 456,056 6 % Nuclear Medicine Standards 1,588,405 20 %
1,301,647 18 % Fluorine Products - 0 % - 0 % Total Segments 3,470,706 43 % 3,009,656 41 % Gross Profit$ 4,560,816 $ 4,360,266 Gross Profit % 57 % 59 % Operating expenses were$5,762,521 for the nine-month period endedSeptember 30, 2022 , compared to$4,794,650 for the same period in 2021. This represents an increase of$967,871 , or approximately 20%. This increase is primarily due to an approximate 30% increase in Salaries and Contract Labor costs and a 142% increase in Research and Development costs. The increase in Salaries and Contract Labor costs is a result of increased equity-based compensation and increases to labor rates incurred during the nine months endedSeptember 30, 2022 , as compared to the same period in 2021. The increase in Research and Development cost is due to increased activity in product development during the nine months endedSeptember 30, 2022 , as compared to the same period in 2021.
The following table shows total operating expenses for the nine-month period
ended
For the nine- For the nine-
months ended months ended
September 30, September 30,
Operating Costs and
Expenses: 2022 2021 % change $ change
Salaries and Contract Labor $ 2,535,771 $ 1,944,013 30 % $ 591,758
General, Administrative and
Consulting 2,784,367 2,667,535 4 % 116,832
Research and Development 442,383 183,102 142 % 259,281
Total operating expenses $ 5,762,521 $ 4,794,650 20 % $ 967,871
Other income was $2,077,719 for the nine months ended September 30, 2022 , as
compared to $229,559 for the same period in 2021. This is an increase of
$1,848,160 , or approximately 805%, primarily due to a $1,797,978 gain on sale of
assets to Pharmalogic Idaho, LLC . In February 2022 , we entered into an Asset
Purchase Agreement with Pharmalogic Idaho, LLC , pursuant to which we 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.
22
Interest expense for the nine months endedSeptember 30, 2022 was$465,260 , compared to$601,291 for the same period in 2021. This is a decrease of$136,031 , or approximately 23%. Interest expense includes dividends accrued on our Series C Preferred Stock. For the nine months endedSeptember 30, 2022 , we accrued dividends payable of$182,835 which have been recorded as interest expense. Additionally, non-cash interest expense in the amount of$79,644 for the accretion of the beneficial conversion feature of the 2019 Promissory Note and$112,555 for the issuance of warrants in conjunction with the 2019 Promissory Note were recorded for the nine months endedSeptember 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 income for the nine months endedSeptember 30, 2022 , was$414,328 , compared to net loss of$919,408 , for the same period in 2021. This is an increase in income of$1,333,736 is largely the result of the approximate$1.8 million gain on sale of assets. Additionally, the increase in income is the result of the increase in revenue in our Radiochemical Products segment offset by the increase in operating expense from salaries and contract labor and expenses from research and development for the nine months endedSeptember 30, 2022 , as compared to the same period in 2021. Radiochemical Products. Revenue from the sale of Radiochemical Products for the nine-month period endedSeptember 30, 2022 , was$4,304,629 compared to$3,100,001 for the same period in 2021. This is an increase of$1,204,628 , or approximately 39%. The increase is the result of increased sales to most of our customers and further enhanced by a reduction in sales by our competitor in the first quarter of 2022. The reduction in sales by our competitor resulted from a short-term shutdown of a European reactor facility that normally supplied their sodium iodideI-131 during the first quarter of 2022. The increase is also the result of increased sales of our new generic sodium iodideI-131 drug product. We expect continued sales growth for our Radiochemical Products going forward. Cost of sales was$1,567,097 for the nine-month period endedSeptember 30, 2022 , and$1,251,953 for the same period in 2021. This is an increase of$315,144 , or approximately 25%. This increase is primarily the result increased sales for the period.
Gross profit percentages for our Radiochemical Products for the nine months endedSeptember 30, 2022 and 2021 were approximately 64% and 60%, respectively. This increased gross profit percentage is a result of increased sales of our new generic sodium iodineI-131 drug product, which carries a higher gross margin, and continued improvements of utilization of raw materials. Operating expense for this segment for the nine-month period endedSeptember 30, 2022 was$1,104,994 , compared to$1,068,580 for the same period in 2021. This is an increase of$36,414 , or approximately 3%, and is primarily due to increased costs for labor costs, production supplies, advertising expense, and professional services. As discussed above, other income from the Radiochemical Products segment included a$1,797,978 gain on sale 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. Net income for this segment increased to$3,430,516 for the nine-month period endedSeptember 30, 2022 , from$779,468 for the same period in 2021. This increase of$2,651,048 , or approximately 340%, is the result of the gain on sale of assets and the 39% increase in revenue. Cobalt Products. Revenues from the sale of Cobalt Products for the nine-month period endedSeptember 30, 2022 were$695,783 , compared to$1,104,176 for the same period in 2021. This is a decrease of$408,393 , or approximately 37%, and is the result of decreased cobalt sealed source manufacturing and cobalt recycling. The decrease 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. During 2015, we entered into cobalt-60 supply agreements with several customers. The terms of the agreements required pre-payments to secure cobalt material in future years. Those prepayments were recorded as unearned revenue on our condensed consolidated balance sheet. Cost of sales for the nine months endedSeptember 30, 2022 , was$315,204 , as compared to$456,056 , for the same period in 2021. Gross profit for cobalt products for the nine months endedSeptember 30, 2022 was$380,579 compared to$648,120 for the same period in 2021. This is a decrease of$267,541 , or 41%. Our gross profit percentages were approximately 55% and 59% for the nine-month periods endedSeptember 30, 2022 and 2021, respectively. Operating expense in this segment increased to$570,030 for the nine months endedSeptember 30, 2022 , from$302,828 for the same period in 2021. This is an increase of$267,202 , or approximately 88% is mainly the result of approximately$215,000 of waste disposal expenses in 2022 as compared to no such expense in 2021. Additionally, increased labor expenses and production supply costs contributed to the increase in operating expenses in the nine months endedSeptember 30, 2022 as compared to the same period in 2021. Our net loss for Cobalt Products was$189,451 for the nine months endedSeptember 30, 2022 , as compared to a net income of$345,292 for the same period in 2021. The decrease in net income of$534,743 or approximately 155%, was attributable to the decreased cobalt sealed source manufacturing sales and increased operating expenses for the nine months endedSeptember 30, 2022 , as compared to the same period in 2021. 23
Nuclear Medicine Standards. Revenue from Nuclear Medicine Standards for the nine-month period endedSeptember 30, 2022 was$3,031,110 compared to$3,135,970 for the same period in 2021. This represents a decrease in revenue attributable to this segment of$104,860 , or approximately 3%. The decrease in sales for the period endedSeptember 30, 2022 was due partly to continued slow demand of nuclear medicine imaging products resulting from the continued adverse impact of COVID-19 upon our customers and clinics during the nine months endedSeptember 30, 2022 . Gross profit for the nine-month period endedSeptember 30, 2022 was$1,442,705 , as compared to$1,834,323 for the same period in 2021, a decrease of$391,618 , or approximately 21%. Operating expense for this segment for the nine-month period endedSeptember 30, 2022 increased to$1,365,962 , from$1,327,733 for the same period in 2021. This is an increase of$38,229 or approximately 3% and is the result of increased waste disposal costs in the nine months endedSeptember 30, 2022 . Operating expenses include consolidated non-controlling member interest expense of$0 for the nine months endedSeptember 30, 2022 , compared to$116,816 , for the nine months endedSeptember 30, 2021 . Net income for this segment for the nine-month period endedSeptember 30, 2022 , decreased to$76,743 , approximately 85%, from$506,590 for the same nine-month period in 2021. This decrease is due to 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.
InJanuary 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 have converted the spaces in the facility that had been 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 theDOE had accounted for the majority of revenue in this segment. However, Radiological Field Services did not generate any Radiological Services segment sales in 2022 or 2021. This was the result the removal of this activity from our NRC license. Fluorine Products. For the nine months endedSeptember 30, 2022 , we had no revenue related to Fluorine Products compared to$29,775 , for the same period in 2021. These revenues were related to an agreement to provide engineering and technical assistance services related to our fluorine products intellectual property. During the nine months endedSeptember 30, 2022 , we incurred$111,377 of expenses related to items in support of future planning and design for the proposed de-conversion facility, as compared to$121,500 for the same nine-month period in 2021. This is a decrease of 8% in the period-to-period comparison. We established the Fluorine Products segment in 2004 to support production and sale of the gases produced using our Fluorine Extraction Process ("FEP"). 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 theState of New Mexico andLea County officials.
LIQUIDITY AND CAPITAL RESOURCES
AtSeptember 30, 2022 , we had cash and cash equivalents of$2,989,236 as compared to$474,851 atDecember 31, 2021 . This is an increase of$2,514,385 or approximately 530%. For the nine months endedSeptember 30, 2022 , net cash used in operating activities was$957,163 and for the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$64,294 . The increase in cash used in operating activities was a result of increased accounts receivable due to increased revenue. The increase in cash and cash equivalents at period end in the period-to-period comparison is the result of proceeds from sales of property, plant, and equipment. Inventories atSeptember 30, 2022 totaled$879,210 , and inventories atDecember 31, 2021 totaled$924,775 . Our inventory consists of work in process material for our Radiochemical Products, Cobalt Products, and Nuclear Medicine Products segments. Cash provided by investing activities was$3,931,725 for the nine months endedSeptember 30, 2022 , and cash used in investing activities was$196,730 for the same period in 2021. The cash provided by investing activities in the nine months endedSeptember 30, 2022 was mainly for the sale of assets for$4,000,000 . InFebruary 2022 , we entered into an Asset Purchase Agreement withPharmalogic Idaho, LLC , pursuant to which we 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 cash used in investing activities in the nine months endedSeptember 30, 2021 was for purchase of equipment. 24 Financing activities used cash of$456,759 , during the nine months endedSeptember 30, 2022 , and cash used in financing activities for the same period in 2021 was$34,994 . During the nine months endedSeptember 30, 2022 , cash paid for interest was$49,699 and during the same nine-month period in 2021, cash paid for interest was$69,042 . Additionally, during the nine months endedSeptember 30, 2022 , we received$12,305 in proceeds from the sale of our common stock through our Employee Stock Purchase Plan and$61,800 for exercise of warrants, as compared to$13,527 in proceeds from the sale of our common stock through our Employee Stock Purchase Plan for the same period in 2021. During the nine months endedSeptember 30, 2022 , principal payments on notes payable were$524,532 , as compared to$390,571 for the same period in 2021. This increase in principal payments was largely due to payment in full of the 2021 Promissory Note as described below. InFebruary 2022 , the Company paid its third annual dividend on the Series C Preferred Stock. Dividends paid totaled$243,780 . 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. The Company issued 2,271,980 shares of common stock in lieu of a dividend payment of$204,480 . The remaining$39,300 of dividend payable was settled with cash.
Total increase in cash for the nine-month period ended
We expect that cash from operations, cash raised via equity financing, and our current cash balance will be sufficient to fund operations for the next twelve months. Our future liquidity and capital funding requirements will depend on numerous factors, including, contract manufacturing agreements, commercial relationships, technological developments, market factors, available credit, and preferred stock shareholders. There is no assurance that additional capital and financing will be available on acceptable terms to the Company or at all.
At
Debt
InDecember 2013 , we entered into a promissory note agreement with our 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 dueJune 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. InJune 2014 , pursuant to a modification, the maturity date was extended toDecember 31, 2017 . InFebruary 2017 , the 2013 Promissory Note was further modified to extend the maturity date toDecember 31, 2020 , with all remaining terms unchanged. InDecember 2019 , the 2013 Promissory Note was further modified to extend the maturity date toDecember 31, 2021 , with all remaining terms unchanged. InJanuary 2022 , the 2013 Promissory Note was modified to extend the maturity date toDecember 31, 2023 , with all remaining terms unchanged. AtSeptember 30, 2022 , accrued interest payable on the 2013 Promissory Note totaled$264,234 . InApril 2018 , we borrowed$120,000 from our 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 onAugust 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. Pursuant to an amendment to the 2018 Promissory Note inJune 2018 , the maturity date was extended toMarch 31, 2019 with all other provisions remaining unchanged. Pursuant to a second amendment to the 2018 Promissory Note inFebruary 2019 , the maturity date was extended toJuly 31, 2019 with all other provisions remaining unchanged. Pursuant to a third amendment to the 2018 Promissory Note inJuly 2019 , the maturity date was extended toJanuary 31, 2020 with all other provisions remaining unchanged. Pursuant to a fourth amendment to the 2018 Promissory Note inDecember 2019 , the maturity date was extended toDecember 31, 2021 , the note was modified to become secured by company assets, with all other provisions remaining unchanged. InDecember 2021 , the 2018 Promissory Note was modified to extend the maturity date toDecember 31, 2023 , with all remaining terms unchanged. AtSeptember 30, 2022 , accrued interest on the 2018 Promissory Note totaled$31,970 . InDecember 2019 andFebruary 2020 , we borrowed$1,000,000 from our Chief Executive Officer, Chairman of the Board, former Chairman of the Board, and one of our major shareholders pursuant to a promissory note (the 2019 Promissory Note). The 2019 Promissory Note bears an interest rate of 4% annually and is dueDecember 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. AtSeptember 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 . 25 InApril 2021 , we 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 originally secured and was to mature onDecember 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. OnMarch 31, 2022 , the Company repaid the 2021 Promissory Note in full. The payment included$250,000 in principal and$14,500 in interest.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
From time-to-time, management reviews and evaluates certain accounting policies and estimates that are considered to be significant in determining our results of operations and financial position. A description of the Company's critical accounting policies and estimates that affect the preparation of the Company's financial statements is set forth in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 31, 2022 . 26
© Edgar Online, source
