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MarketScreener Homepage  >  Equities  >  OTC Bulletin Board  >  International Isotopes Inc.    

INTERNATIONAL ISOTOPES INC.

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INTERNATIONAL ISOTOPES : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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08/14/2019 | 02:59pm EDT
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.  In particular, statements regarding the future prospects of our
business segments, future cash flow from operations, the Company's ability to
achieve profitability, the business prospects and growth projection for our
business segments, the U.S. Food and Drug Administration (FDA) approval for
certain of our products, and the status of our proposed uranium de-conversion
facility, are 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, 2018 filed with the Securities and Exchange
Commission (SEC) on March 22, 2019 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. 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 subsidiaries and joint venture, TI Services,
LLC, and RadQual, LLC (collectively, the Company, we, our, or us) manufacture a
full range of nuclear medicine calibration and reference standards, a wide range
of products including cobalt teletherapy sources, a varied selection of
radioisotopes and radiochemicals for medical research and clinical applications,
and provide contract manufacturing of radiochemical products. We also hold
several patents for a fluorine extraction process that we intend to use in
conjunction with a planned commercial depleted uranium de-conversion facility,
and provide a host of transportation, recycling, and processing services on a
contract basis for clients. We also own a 24.5% interest in, and have management
control of, RadQual, LLC (RadQual), a global supplier of molecular imaging
quality control and calibration devices, with which we have an exclusive
manufacturing agreement.



In August 2017, affiliates of the Company, including the Company's Chairman of
the Board and the Chief Executive Officer, acquired the remaining 75.5% interest
in RadQual. The Company's Chairman of the Board and its Chief Executive Officer
also serve as the managing members of RadQual. As a result of this change in
ownership, and other factors, the Company determined that it had gained the
ability to exercise significant management control over the operations of
RadQual. Because of this increased management ability and pursuant to GAAP, the
Company has consolidated the accounts of RadQual into its financial statements
beginning as of August 2017. See Note 4 "Investment and Business Consolidation"
to our unaudited consolidated financial statements in this report for additional
information.


Our business consists of the following five major business segments:

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 for SPECT imaging,
SPECT camera operational testing, and calibration of dose measurement equipment.
Revenue from nuclear medicine products includes consolidated sales from TI
Services, LLC (TI Services), a 50/50 joint venture that we formed with RadQual
in December 2010 to distribute our products, as well as consolidated sales from
RadQual, pursuant to the change in RadQual's ownership in August 2017, as
discussed above. 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.



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.



18







Radiochemical Products. Our Radiochemical Products segment includes production
and distribution of various isotopically pure radiochemicals for medical,
industrial, or research applications. These products are either directly
produced by us or are purchased in bulk form from other producers and
distributed by us in customized packages and chemical forms tailored to meet
customer requirements. In addition, we provide contract manufacturing of
radiochemical products for our customers, discussed below. This segment will
also include our generic radiopharmaceutical and pharmaceutical products we plan
to begin producing and selling pending FDA approval.



We have submitted an abbreviated New Drug Application (aNDA) to the FDA for a
radiochemical product. The FDA has granted the Company's request for an
expedited review of the application which could accelerate the approval of the
product. Once approved we anticipate a quick start-up of commercial sales of the
drug product which should have a significant positive impact on our revenues. We
are also considering other generic drug opportunities and plan to expand the
range of products offered within this business segment in the coming years.



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 consists 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. We are licensed through the NRC to perform certain field
service activities in connection with the U.S. Department of Energy's (DOE)
Orphan Source Recovery Program (OSRP).  These activities include services to
support recovery of disused sources under the DOE's OSRP and installation or
removal of certain cobalt therapy units. We designed and built a mobile hot cell
unit to use in the performance of OSRP field service jobs. This type of field
service work is expected to generate the majority of revenue within this
business segment in the coming years and has expanded to include similar
international contract opportunities through the International Atomic Energy
Agency (IAEA).


CRITICAL ACCOUNTING POLICIES




From time-to-time, management reviews and evaluates certain accounting policies
that are considered to be significant in determining our results of operations
and financial position.


A description of the Company's critical accounting policies 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 ended December 31, 2018, filed with
the
SEC on March 22, 2019.



RESULTS OF OPERATIONS


Three Months Ended June 30, 2019 Compared to Three Months Ended June 30, 2018

Revenue for the three months ended June 30, 2019 was $2,135,839 as compared to
$2,392,306 for the same period in 2018, an overall decrease of $256,467, or
approximately 11%. This decrease in revenue was largely the result of decreased
revenue in our cobalt products and radiological services 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 June 30, 2019 and 2018:





19









                                     For the            For the
                                   three-months       three-months
                                  ended June 30,     ended June 30,
Sale of Product                        2019               2018           $ change       % change
Radiochemical Products            $      774,107$      602,344$  171,763              29 %
Cobalt Products                          213,239            324,768       (111,529 )           -34 %
Nuclear Medicine Standards               930,696            962,674        (31,978 )            -3 %
Radiological Services                    217,797            502,520       (284,723 )           -57 %
Fluorine Products                             -                  -              -                0 %
Total Consolidated                $    2,135,839$    2,392,306$ (256,467 )           -11 %




Cost of sales decreased to $971,384 for the three months ended June 30, 2019
from $1,363,564 for the same period in 2018. This is a decrease of $392,180, or
approximately 29%. The decrease in cost of sales in the three-month comparison
was primarily due to the decreased sales activity in two of our five business
segments, particularly the cobalt products and radiological services segments,
as discussed in detail below. Gross profit for the three months ended June 30,
2019 was $1,164,455, compared to $1,028,742 for the same period in 2018. This
represents an increase in gross profit of $135,713, or approximately 13%, and is
primarily due to the decrease in cost of sales in the cobalt products and
radiological services segments as a result of the decreased revenue in these
segments.


The following table presents cost of sales and gross profit data for each of our business segments for the three months ended June 30, 2019 and 2018:




                                       For the three-                         For the three-
                                        months ended           % of            months ended           % of
                                          June 30,          Total Sales          June 30,          Total Sales
                                            2019               2019                2018               2018
Total Sales                           $      2,135,839$      2,392,306
Cost of Sales
Radiochemical Products                $        338,487                16 %   $        439,600                18 %
Cobalt Products                                 51,494                 2 %            182,729                 8 %
Nuclear Medicine Standards                     446,699                21 %            457,058                19 %
Radiological Services                          134,704                 6 %            284,177                12 %
Fluorine Products                                   -                 -                    -                 -
Total Segments                                 971,384                45 %          1,363,564                57 %

Gross Profit                          $      1,164,455$      1,028,742
Gross Profit %                                      55 %                                   43 %




Operating expense increased approximately 2% to $1,246,979 for the three months
ended June 30, 2019, from $1,228,136 for the same period in 2018. This increase
of $18,843, is primarily due to an approximate 3% increase in General,
Administrative and Consulting costs combined with an approximate 6% increase in
Salaries and Contract Labor costs. The increase in General, Administrative and
Consulting costs is a result of increased legal and general operating supply
costs incurred during the three months ended June 30, 2019, as compared to the
same period in 2018. The increase in Salaries and Contract Labor was a result of
adding staff to our payroll. Research and Development costs decreased to
$50,354, for the three months ended June 30, 2019, as compared to $84,464, for
the same period in 2018. This is a decrease of $34,110, or approximately 40% and
is primarily the result of a decrease in expenditures for product development in
several of our business segments for the three months ended June 30, 2019, as
compared to the same period in 2018.



The following table presents a comparison of total operating expense for the three months ended June 30, 2019 and 2018:



                                       For the three-       For the three-
                                        months ended         months ended
                                          June 30,             June 30,
Operating Costs and Expenses:               2019                 2018            % change        $ change
Salaries and Contract Labor           $        596,045$        561,058               6 %   $   34,987
General, Administrative and
Consulting                                     600,580              582,614               3 %       17,966
Research and Development                        50,354               84,464             -40 %      (34,110 )
Total operating expenses              $      1,246,979$      1,228,136
              2 %   $   18,843




20







Other expense was $867,660 for the three months ended June 30, 2019, as compared
to other expense of $381 for the same period in 2018. This is an increase of
$867,279. The increase is due to income and expenses related to the costs
resulting from the contamination event that occurred at an offsite location in
the state of Washington in May 2019. For the three months ended June 30, 2019,
net expenses for this cleanup were $887,686. This is a combination of expenses
related to the cleanup of $1,522,605, offset by income from insurance proceeds
for the claim of $634,919 for payments received in July 2019.



Interest expense for the three months ended June 30, 2019 was $136,842, compared
to $115,882 for the same period in 2018. This is an increase of $20,960, or
approximately 18%. 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 June 30, 2019, we accrued dividends payable of $63,646, which
have been recorded as interest expense. Additionally, non-cash interest expense
in the amount of $32,084 was recorded for this same period for the issuance of
warrants related to the preferred stock issuances. In April 2019, we agreed to
modify our cobalt supply agreement with one of our cobalt customers. The
modification was necessary to address the delays to cobalt delivery in 2019
caused by changes to the ATR operating schedule and also to accommodate this
customer's request to reduce their cobalt purchase obligations in future years.
The modifications require that we refund $2,182,142 for prior year undelivered
material. The Company has been able to contract for the sale of this cobalt to a
separate new customer for approximately the same amount. Approximately
$1,050,000 of this refund will include interest at 12% per year, payable over a
one-year period on a portion of that amount. Interest for this refund for the
three months ended June 30, 2019 was $18,153 whereas there was no similar
interest expense for the same period in 2018. Interest was also paid on a loan
for a vehicle purchased in May 2016. 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 June 30, 2019, was $1,157,194, compared
to a net loss of $332,279, for the same period in 2018. This is an increase in
loss of $824,915 and is a result of net expenses of $887,686 related to the
cleanup of the contamination event that occurred at an offsite location in the
state of Washington. These expenses are included in an ongoing insurance claim.



Radiochemical Products. Revenue from the sale of radiochemical products for the
three months ended June 30, 2019 was $774,107, compared to $602,344 for the same
period in 2018. This is an increase of $171,763, or approximately 29%. The
increase is primarily the result of payments related to our contract
manufacturing and supply agreement with Progenics Pharmaceuticals, Inc.
(Progenics), as discussed below.



Gross profit of radiochemical products for the three months ended June 30, 2019
was $435,620, compared to $162,745, for the same period in 2018, and gross
profit percentages were approximately 56% and 27% for the three months ended
June 30, 2019 and 2018, respectively. Cost of sales for radiochemical products
decreased to $338,487 for the three months ended June 30, 2019, as compared to
$439,600 for the same period in 2018. This is a decrease of $101,112, or
approximately 23%, and was primarily the result of improvements in the
utilization of raw material purchased in this segment, in the three-month
comparison. Our decrease in material costs is due to a reduction in freight
charges as a result of purchasing our material within the U.S. thus eliminating
international shipping and customs fees. We expect this cost savings in shipping
to continue with future shipments from this domestic supplier. Operating expense
for this segment increased to $182,674 for the three months ended June 30, 2019,
compared to $59,707 for the same period in 2018. This increase in operating
expense of $122,967, or approximately 206%, is primarily due to costs related to
the aNDA repairs to equipment, and costs incurred for contract manufacturing.
This segment reported net income of $252,946 for the three months ended June 30,
2019, as compared to net income of $103,038 for the same period in 2018. The
increase in net income of $149,908 or approximately 145%, is primarily the
result of a $250,000 payment related to our contract manufacturing and supply
agreement with Progenics. Other changes were the decrease in cost of goods sold
as discussed above, and, increase in operating expenses as discussed above.



In April 2019, we entered into a contract manufacturing and supply agreement
with Progenics. Under the agreement, we will provide contract manufacturing
services for AZEDRA®(Ultratrace® Iobenguane I-131) and other iodine products. We
believe that this contract manufacturing for Progenics helps further broaden our
customer base and technical experience and positions us for future additional
agreements under which we can use our license qualifications and experience
in
handling iodine-131.



Cobalt Products. Revenue from the sale of cobalt products for the three months
ended June 30, 2019 was $213,239, compared to $324,768, for the same period in
2018. This represents a decrease of $111,529, or approximately 34%. Our cobalt
sealed source manufacturing is largely dependent on our ability to procure
cobalt material from the DOE's Advanced Test Reactor (ATR). Although we have not
been able to obtain cobalt from the ATR reactor since late 2013, we have been
able to contract with another supplier for the purchase of cobalt material, and
during the three months ended June 30, 2019, we were able to manufacture
products for customers using this material. In addition, we have begun to supply
cobalt to customers who previously paid for the material under supply agreements
entered into with us in 2015. As we have supplied this material to our
customers, we have recognized the sales on our statement of operations.



21









We have experienced delays in the delivery of cobalt material from the DOE's
ATR. Because of these delays, we have been forced to purchase cobalt material,
at lower activity levels, from alternate suppliers in order to meet contract
obligations. Deliveries of cobalt from the ATR are expected to begin in the
beginning of 2020.



In October 2014, we entered into a ten-year agreement with the DOE for the
irradiation of cobalt targets. It takes approximately four to five years to
irradiate the cobalt targets to the desired level of activity and we anticipate
having high specific activity cobalt available to our customers early in 2020
and every year thereafter through at least 2024.



As of June 30, 2019, we continued to hold many in-progress, old design cobalt
targets at the ATR. We believe that many of the older design targets we hold at
the ATR, and that we report as inventory, still hold significant market value in
excess of their current carrying values and we have concluded that no impairment
existed at that time. We will periodically continue to review the residual value
of this cobalt material for potential impairment and make adjustments as deemed
appropriate.



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
consolidated balance sheet. During the three months ended June 30, 2019, we
began supplying material to some customers and have accordingly recognized
approximately $8,000 of revenue as a result of these deliveries.



In April 2019, because of our inability to supply high specific activity cobalt
material produced by the DOE's ATR in 2018, we modified our supply agreement
with one of our cobalt customers. The modification included our agreement to
reduce the customers cobalt purchase obligations in future years and we agreed
to refund approximately $2,182,142. Approximately $1,050,000 of this refund is
for payments received from this customer for prior year undelivered material and
will include interest at 12% per year, payable over a one-year period on a
portion of the payments. We have also agreed with this customer to refund
approximately $1,100,000 paid for material that was to have been delivered in
later years. There will be no interest charge on this portion of the refund. In
addition, we have identified another customer ready to purchase this material.
The Company does not anticipate any significant net negative effect of this
change as sales under the new agreement are expected to completely offset
refunds made under the old agreement. Accordingly, we will classify refund
payments due within one year as a short-term liability and payments due beyond
one year as a long-term liability, rather than as short-term deferred revenue on
our consolidated balance sheets.



Cost of sales for the three months ended June 30, 2019, was $51,494, as compared
to $182,729, for the same period in 2018. Gross profit for cobalt products for
the three months ended June 30, 2019 was $161,745 compared to $142,040 for the
same period in 2018. This is an increase of $19,705, or approximately 14% and is
primarily attributable to our increase in source manufacturing for the three
months ended June 30, 2019, as compared to the same period in 2018. Our gross
profit percentages were approximately 76% and 44% for the three-month periods
ended June 30, 2019 and 2018, respectively. The increase in the gross profit
percentage for the three months ended June 30, 2019 is primarily due to
decreased costs of raw material used in the manufacture of sealed sources.
Operating expense in this segment decreased to $39,493 for the three months
ended June 30, 2019, from $48,927 for the same period in 2018. This is a
decrease of $9,434, or approximately 19%. This is due to a decrease in labor
costs for the period. Our net income for cobalt products was $122,252 for the
three months ended June 30, 2019, as compared to a net income of $93,112 for the
same period in 2018. The increase in net income of $29,140, or approximately
31%, was attributable to the decreased cost of sales for cobalt products during
the quarter.


Nuclear Medicine Standards. Revenue from nuclear medicine products for the three
months ended June 30, 2019, was $930,696, compared to $962,674 for the same
period in 2018. This represents a decrease in revenue of $31,978, or
approximately 3%. As discussed above, due to a change in the member ownership of
RadQual, in August 2017 we began reporting our investment in RadQual on a
consolidated basis. Therefore, revenue in this segment includes all sales of
RadQual and TI Services with all intercompany sales for the consolidated period
eliminated.



We anticipate that our sales through RadQual will remain strong and that,
because of our RadQual ownership, we will continue to have significant future
opportunities to work on new product development and to further expand our
international sales. Additionally, we have continued to work with TI Services on
marketing strategies to boost customer service and sales of some unique nuclear
medicine and pharmacy products.





22







Cost of sales for our nuclear medicine standards segment for the three months
ended June 30, 2019, was $446,699, as compared to $457,058 for the same period
in 2018. The decrease in cost of sales in the period-to-period comparison of
$10,359, or approximately 2%, was due to slight decreases in material purchased
for flood source manufacturing for the three-month period ended June 30, 2019,
as compared to the same period in 2018. Gross profit for our nuclear medicine
standards segment for the three months ended June 30, 2019 was $483,997 compared
to $505,616 for the same period in 2018. This is a decrease in gross profit of
$21,619, or approximately 4%. The decrease in gross profit in the
period-to-period comparison is primarily the result of the decreased sales.



Operating expense for this segment for the three months ended June 30, 2019
increased to $378,539, from $306,728 for the same period in 2018. This is an
increase of $71,811, or approximately 23%, and is the result of increased wage
expense for the three months ended June 30, 2019, as compared to the same period
in 2018. Operating expense also includes consolidated net operating expense
reported for RadQual of $137,187 and non-controlling member interest expense of
$76,204, for the three months ended June 30, 2019, as compared to $139,524 of
net operating expense and non-controlling member interest expense of $19,965 for
the same period in 2018. Net operating expense included for TI Services was
$29,393 for the three months ended June 30, 2019, and $27,810 for the same
period in 2018. TI Services non-controlling interest included was ($2,425) for
the three-month period ended June 30, 2019, as compared to ($1,026) for the same
period in 2018. Net income for this segment for the three months ended June 30,
2019 was $111,921, compared to $165,295 for the same period in 2018. This is a
decrease in net income of $53,374, or approximately 32% and is primarily the
result of the increase in operating expense reported for the three months ended
June 30, 2019, as compared to the same period in 2018.



Radiological Services. Revenue from all radiological services for the three
months ended June 30, 2019 was $217,797, compared to $502,520, for the same
period in 2018, a decrease of $284,723 or approximately 57%. The majority of our
revenue in this segment is generated by the performance of activities in
connection with contracts for the DOE and the IAEA. The decrease in the revenue
for the period comparison is the result of the random timing of the work
performed by us for these agencies. These contracts are historically awarded
sporadically over time and thus will continue to create fluctuations in the
period-to-period comparisons in radiological services revenue. The work
performed for the DOE and the IAEA includes services to support recovery of
disused sources and installation or removal of certain devices.



Cost of sales for the three months ended June 30, 2019, was $134,704, as
compared to $284,178, for the same period in 2018. Gross profit for this segment
for the three months ended June 30, 2019 was $83,093, compared to $218,342,
reported for the same period in 2018. The decrease in gross profit of $135,249,
or approximately 62%, is the result of the decrease in service contracts
completed and reported in this segment for the three months ended June 30, 2019,
as compared to the same period in 2018. Operating expense for the three months
ended June 30, 2019 was $96,641, as compared to $53,901, reported for the same
period in 2018. This increase of $42,740, or approximately 79%, is the result of
an increase in costs in equipment repairs and professional fees.



On May 3, 2019, the Company's radiological services team was involved in a
contamination event at an off-site location in the state of Washington. The
Company is currently supporting clean-up operations at that location and is
supporting an investigation into the possible causes of the event. The Company
has reported this incident to its insurance carrier and a claim is being
processed to address the cost of recovery operations. During the three months
ended June 30, 2019 the company incurred $1,522,605 in expenses related to the
event which is included in "other expense" on the Company's P&L statements. The
company has received $634,919 to-date in reimbursements from its insurance
company for this ongoing claim which is included in "other income". The Company
is actively working with its insurance company and believes it will recover a
majority of the external contract cost of these clean-up operations.



Net loss for this segment for the three months ended June 30, 2019 was
($901,234), compared to net income of $164,441, for the same period in 2018.
This is a decrease in net income of $1,065,675 is the result of costs associated
with clean-up operations related to the contamination event as noted above.
Additionally, the decrease in revenue reported for the three months ended June
30, 2019, as compared to the same period in 2018 contributes to the decrease in
net income.



Fluorine Products. There was no revenue to report from the fluorine products
segment for the three months ended June 30, 2019, or for the same period in
2018. During the three months ended June 30, 2019, we incurred $39,927 of
expense related to items in support of future planning and design for the
proposed de-conversion facility, as compared to $31,613 for the same three-month
period in 2018. The increase of $8,314, or approximately 26% is the result of
increased costs for professional services recorded 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 the State of New Mexico and Lea County
officials.



23








Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018

Revenue for the six-month period ended June 30, 2019 was $4,663,691, as compared to $5,193,332 for the same period in 2018, a decrease of $529,641, or approximately 10%. The performance of all our business segments for the six-month period is discussed in further detail below.

The following table presents a period-to-period comparison of total revenue by segment for the six months ended June 30, 2019 and June 30, 2018:



                              For the six-       For the six-
                              months ended       months ended
                                June 30,           June 30,
Sale of Product                   2019               2018           $ change      % change
Radiochemical Products       $    1,237,339$    1,185,885$   51,454             4 %
Cobalt Products                     589,328            652,546        (63,218 )         -10 %
Nuclear Medicine Standards        2,031,618          1,964,787         66,831             3 %
Radiological Services               805,406          1,390,114       (584,708 )         -42 %
Fluorine Products                        -                  -              -              0 %
Total Consolidated           $    4,663,691$    5,193,332$ (529,641 )         -10 %



Gross profit for the six-month period ended June 30, 2019 was $2,603,878, compared to $2,387,361, for the same period in 2018. This represents a decrease of $216,517 or approximately 9%.

The following table presents cost of sales and gross profit data for each of our business segments for the six months ended June 30, 2019 and 2018:




                                       For the six-                         For the six-
                                       months ended          % of           months ended          % of
                                         June 30,         Total Sales         June 30,         Total Sales
                                           2019              2019               2018              2018
Total Sales                           $    4,663,691$    5,193,332
Cost of Sales
Radiochemical Products                $      618,137                13 %   $      931,053                18 %
Cobalt Products                              171,638                 4 %          263,243                 5 %
Nuclear Medicine Standards                   917,842                20 %          930,109                18 %
Radiological Services                        352,195                 7 %          681,567                13 %
Fluorine Products                                 -                  0 %               -                  0 %
Total Segments                             2,059,812                44 %        2,805,972                54 %

Gross Profit                          $    2,603,878$    2,387,360
Gross Profit %                                    56 %                                 46 %



Operating expenses were $2,543,845 for the six-month period ended June 30, 2019,
compared to $2,437,149 for the same period in 2018. This represents an increase
of $106,696, or approximately 4%. This increase is primarily due to an
approximate 10% increase in General, Administrative and Consulting costs
combined with an approximate 8% increase in Salaries and Contract Labor costs.
The increase in General, Administrative and Consulting costs is a result of
increased legal and general operating supply costs incurred during the six
months ended June 30, 2019, as compared to the same period in 2018. The increase
in Salaries and Contract Labor was a result of adding staff to our payroll.
Research and Development costs decreased to $96,658, for the six months ended
June 30, 2019, as compared to $190,884, for the same period in 2018. This is a
decrease of $94,226, or approximately 49% and is primarily the result of a
decrease in expenditures for product development in several of our business
segments for the six months ended June 30, 2019, as compared to the same period
in 2018.



24







The following table shows total operating expenses for the six-month period
ended June 30, 2019 and 2018:



                                       For the six-       For the six-
                                       months ended       months ended
                                         June 30,           June 30,
Operating Costs and Expenses:              2019               2018           % change        $ change
Salaries and Contract Labor           $    1,219,744$    1,130,517               8 %   $   89,227
General, Administrative and
Consulting                                 1,227,443          1,115,748              10 %      111,695
Research and Development                      96,658            190,884             -49 %      (94,226 )
Total operating expenses              $    2,543,845$    2,437,149               4 %   $  106,696




Interest expense for the six months ended June 30, 2019 was $250,919, compared
to $221,916 for the same period in 2018. This is an increase of $29,003, or
approximately 13%. Interest expense includes dividends accrued on our Series C
Preferred Stock. As discussed below, we issued Series C Preferred Stock in
February and May 2017. For the six months ended June 30, 2019, we accrued
dividends payable of $115,538 which have been recorded as interest expense.
Additionally, non-cash interest expense in the amount of $64,167 was recorded
for this same period for the issuance of warrants related to the preferred stock
issuances. Interest was also paid on a loan for a vehicle purchased in May 2016.



Our net loss for the six-month period ended June 30, 2019, was $1,209,151 as
compared to $297,875 for the same period in 2018. This is an increase in loss of
$911,276 or approximately 306%. This increase in net loss is a result of net
expenses of $887,686 related to the cleanup resulting from the contamination
event occurring at an offsite location in the state of Washington in May 2019.
These expenses are included in an ongoing insurance claim.



Radiochemical Products. Revenue from the sale of radiochemical products for the
six-month period ended June 30, 2019 was $1,237,339 compared to $1,185,885 for
the same period in 2018. This is an increase of $51,454, or approximately 4%.



Cost of sales was $618,137 for the six-month period ended June 30, 2019, and
$931,053 for the same period in 2018. This is a decrease of $312,916, or
approximately 34%. This decrease is primarily the result of decreased sales of
product and improvements in the utilization of raw material purchased in this
segment, in the six-month comparison. Our decrease in material costs is due to a
reduction in freight charges as a result of purchasing our material within the
U.S. thus eliminating international shipping and customs fees. We expect this
cost savings in shipping to continue with future shipments from this domestic
supplier.


Gross profit percentages for our radiochemical products for the six months ended
June 30, 2019 and 2018 were approximately 50% and 21%, respectively. Operating
expense for this segment for the six-month period ended June 30, 2019 was
$270,200, compared to $111,276 for the same period in 2018. This is an increase
of $158,924, or approximately 143%, and is primarily due primarily due to
increased salaries and wages, costs related to the aNDA, repairs to equipment,
and costs incurred for contract manufacturing. Net income for this segment
increased to $349,002 for the six-month period ended June 30, 2019, from
$143,557 for the same period in 2018. This increase of $205,445, or
approximately 143%, is primarily the result of a $250,000 payment related to our
contract manufacturing and supply agreement with Progenics. Other changes were
the decrease in cost of goods sold as discussed above and increase in operating
expenses as discussed above.



Cobalt Products. Revenues from the sale of cobalt products for the six-month
period ended June 30, 2019 were $589,328, compared to $652,546 for the same
period in 2018. This is a decrease of $63,218, or approximately 10%, and is the
result of decreased Cobalt Recycling. Our cobalt sealed source manufacturing is
largely dependent on our ability to procure cobalt material from the DOE's ATR.
Although we have not been able to obtain cobalt from the ATR reactor since late
2013, we have been able to contract with another supplier for the purchase of
cobalt material and during the six months ended June 30, 2018, we were able to
resume manufacturing products for customers using this material.



In November 2018, we entered into a supply agreement with an additional customer
under which we will begin delivering cobalt material in late 2019 or early 2020.
During the six months ended June 30, 2019, we began fulfilling contract
milestones of this agreement. All pre-payments for material have been recorded
as unearned revenue on our consolidated balance sheets.



We have experienced delays in the delivery of cobalt material from the DOE's
ATR. Because of these delays, we have been forced to purchase cobalt material,
at lower activity levels, from alternate suppliers in order to meet contract
obligations.



25






In October 2014, we entered into a ten-year agreement with the DOE for the
irradiation of cobalt targets. It takes approximately three to four years to
irradiate the cobalt targets to the desired level of activity and we anticipate
having high specific activity cobalt available to our customers early 2020 and
every year thereafter through at least 2024. As mentioned above, we are
continuing to purchase some bulk cobalt from another supplier, which will allow
us to complete some additional source manufacturing sales during 2019 in advance
of the cobalt that is being produced in the ATR.



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
consolidated balance sheet. Beginning in 2019, we began supplying material to
some customers and have accordingly recognized approximately $102,360 of revenue
as a result of these deliveries.



In April 2019, because of our inability to supply high specific activity cobalt
material produced by the DOE's ATR in 2018, we modified our supply agreement
with one of our cobalt customers. The modification included our agreement to
reduce the customers cobalt purchase obligations in future years and we agreed
to refund approximately $1,100,000, of payments received from this customer for
prior year undelivered material, plus interest at 12% per year, payable over a
one-year period. We have also agreed with this customer to refund approximately
$1,100,000 paid for material that was to have been delivered in later years.
There will be no interest charge on this refund. In addition, we have identified
another customer ready to purchase this material. The Company does not
anticipate any significant net negative effect of this change as sales under the
new agreement are expected to completely offset refunds made under the old
agreement. Accordingly, we will classify refund payments due within one year as
a short-term liability and payments due beyond one year as a long-term
liability, rather than as short-term deferred revenue on our consolidated
balance sheet.



Cost of sales for the six months ended June 30, 2019, was $171,638, as compared
to $263,243, for the same period in 2018. Gross profit for cobalt products for
the six months ended June 30, 2019 was $417,689 compared to $389,304 for the
same period in 2018. This is an increase of $28,385, or approximately 7% and is
primarily attributable to our increase in source manufacturing and decrease in
cost of sales for the six months ended June 30, 2019, as compared to the same
period in 2018. Our gross profit percentages were approximately 71% and 60% for
the six-month periods ended June 30, 2019 and 2018, respectively. The increase
in the gross profit percentage for the six months ended June 30, 2019 is
primarily due to decreased costs of raw material used in the manufacture of
sealed sources. Operating expense in this segment decreased to $102,567 for the
six months ended June 30, 2019, from $111,399 for the same period in 2018. This
is a decrease of $8,832, or approximately 8%. Our net income for cobalt products
was $315,122 for the six months ended June 30, 2019, as compared to a net income
of $277,905 for the same period in 2018. The increase in net income of $37,217
or approximately 13%, was attributable to the significant decrease in cost of
sales as well as the decrease in operating expense in this segment for the six
months ended June 30, 2019, as compared to the same period in 2018.



Nuclear Medicine Standards. Revenue from nuclear medicine products for the
six-month period ended June 30, 2019 was $2,031,618 compared to $1,964,787 for
the same period in 2018. This represents an increase in revenue attributable to
this segment of $66,831, or approximately 3%.



As discussed above, due to a change in the member ownership of RadQual, during
2017, we began reporting our investment in RadQual on a consolidated basis.
Therefore, revenue in this segment includes all sales of RadQual and sales of TI
Services, a 50/50 joint venture that we formed with RadQual in December 2010, to
distribute products and services for nuclear medicine, nuclear cardiology, and
PET imaging. All intercompany sales for the consolidated period have been
eliminated.



Gross profit for the six-month period ended June 30, 2019 was $1,113,776, as
compared to $1,034,678 for the same period in 2018, an increase of $79,098, or
approximately 8%. Operating expense for this segment for the six-month period
ended June 30, 2019 increased to $800,601, from $651,152 for the same period in
2018. This is an increase of $149,449 or approximately 23% and includes
consolidated net operating expense reported for RadQual of $277,081 and
non-controlling member interest expense of $179,593, for the six months ended
June 30, 2019, compared to consolidated net operating expense of $263,377 and
non-controlling member interest expense of $84,328, for the six months ended
June 30, 2018. Net income for this segment for the six-month period ended June
30, 2019, decreased to $328,743, approximately 16%, from $389,236 for the same
six-month period in 2018.



Radiological Services. The radiological services segment reported revenue of
$805,406 for the six-month period ended June 30, 2019 compared to $1,390,114 for
the same period in 2018. This is a decrease of $584,708, or approximately 42%.
The majority of our revenue in this segment is generated by the performance of
activities in connection with contracts for the DOE and the IAEA. The decrease
in the revenue for the period comparison is the result of the random timing of
the work performed by us for these agencies. These contracts are historically
awarded sporadically over time and thus will continue to create fluctuations in
the period-to-period comparisons in radiological services revenue.



26









Gross profit was $453,211 for this segment for the six months ended June 30,
2019, and $708,547 for the same period in 2018. This is a decrease in gross
profit of $255,336, or approximately 36% and is the result of decreased revenue
reported in this business segment. Operating costs were $155,480 and $142,093
for the six months ended June 30, 2019 and 2018, respectively. The increase in
operating expense of $13,387, or approximately 9%, is due to increased
professional services.



On May 3, 2019, the Company's radiological services team was involved in a
contamination event at an off-site location in the state of Washington. The
Company is currently supporting clean-up operations at that location and is
supporting an investigation into the possible causes of the event. The Company
has reported this incident to its insurance carrier and a claim is being
processed to address the cost of recovery operations. During the three months
ended June 30, 2019 the company incurred $1,522,605 in expenses related to the
event which is included in "other expense" on the Company's P&L statements. The
company has received $634,919 to-date in reimbursements from its insurance
company for this ongoing claim which is included in "other income". The Company
is actively working with its insurance company and believes it will recover a
majority of the external contract cost of these clean-up operations.



Net loss for the six-month period ending June 30, 2019, was $589,956, as compared to net income $566,453 for the same period in 2018.




Fluorine Products. There was no revenue to report from the fluorine products
segment for the six months ended June 30, 2019 or for the same period in 2018.
During the six months ended June 30, 2019, we incurred $77,422 of expense
related to essential items in support of future planning and design for the
proposed de-conversion facility, as compared to $62,912 for the same six-month
period in 2018. The increase of $14,510, or approximately 23% is the result of
increased travel and professional services expenses 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 the State of New Mexico and Lea County
officials.


LIQUIDITY AND CAPITAL RESOURCES

At June 30, 2019, we had cash and cash equivalents of $443,310 as compared to
$828,039 at December 31, 2018. This is a decrease of $384,729 or approximately
46%. For the six months ended June 30, 2019, net cash used in operating
activities was $114,905 and for the six months ended June 30, 2018, net cash
used in operating activities was $328,026. The decrease in cash used in
operating activities and decrease in cash and cash equivalents at period end in
the period-to-period comparison is the result of increased inventory reported as
well as an increase in accounts receivable.



Inventories at June 30, 2019 totaled $3,219,941, and inventories at December 31,
2018 totaled $2,765,729. A significant amount of our inventory consists of
work-in-process cobalt raw material held at the ATR located outside of Idaho
Falls, Idaho. At June 30, 2019, this raw cobalt material inventory accounted for
approximately 93% of our work-in-process inventory. At December 31, 2018, this
in-process raw material inventory accounted for approximately 89% of our work in
process inventory. We periodically evaluate the carrying value of our raw
materials to determine their future market value to the Company. As of June 30,
2019, we determined that no impairment of this raw material inventory was
necessary.



Cash used in investing activities was $23,177 for the six months ended June 30,
2019, and cash used in investing activities was $62,976 for the same period in
2018. The cash used for the six months ended June 30, 2019, and for the same
period in 2018, was for the purchase of equipment.



Financing activities used cash of $239,629, during the six months ended June 30,
2019, and cash provided by financing activities for the same period in 2018 was
$189,648. During the six months ended June 30, 2019, cash paid for interest was
$86,388 and during the same six-month period in 2018, cash paid for interest was
$37,749. Additionally, during the six months ended June 30, 2019, we received
$3,438 in proceeds from the sale of our common stock through our Employee Stock
Purchase Plan, as compared to $3,304 for the same period in 2018.



27







In February 2017, we entered into subscription agreements with certain
investors, including two of our directors, for the sale of (i) an aggregate of
3,433 shares of Series C Preferred Stock, and (ii) Class M warrants to purchase
an aggregate of 17,165,000 shares of our common stock (Class M Warrants), for
gross proceeds of $3,433,000. The Series C Preferred Stock accrues dividends at
a rate of 6% per annum, payable annually on February 17th of each year.  Shares
of Series C Preferred Stock are convertible at the option of the holder at any
time into shares of our common stock at an initial conversion price equal to
$0.10 per share, subject to adjustment.  At any time after February 17, 2019, if
the volume-weighted average closing price of our common stock over a period of
90 consecutive trading days is greater than $0.25 per share, we 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.  All outstanding shares of Series C Preferred Stock must
be redeemed by us on February 17, 2022 at the original purchase price per share,
payable in cash or shares of common stock, at the option of the holder. Holders
of 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 Class M Warrants are
immediately exercisable at an exercise price of $0.12 per share, subject to
adjustment as set forth in the warrant, and have a term of five years.



In February 2019, the Company paid its second annual dividend on the Series C
Preferred Stock. Dividends payable totaled $252,780. 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 3,433,000 shares of
common stock in lieu of a dividend payment of $205,980. The remaining $46,800 of
dividend payable was settled with cash.



Total decrease in cash for the six-month period ended June 30, 2019, was $377,711 compared to a cash decrease of $201,354 for the same period in 2018.

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
voluntary warrant redemption by shareholders. There is no assurance that
additional capital and financing will be available on acceptable terms to the
Company or at all.



At June 30, 2019, there were 20,090,000 outstanding warrants to purchase our
common stock. Included in this number are 17,165,000 Class M Warrants issued
February 17, 2017, with an exercise price of $0.12 per share and an expiration
date of February 17, 2022; and, 2,925,000 Class N Warrants issued May 12, 2017,
with an exercise price of $0.10 per share and an expiration date of May 12,
2022.



Debt


In December 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 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 connection with the 2013 Promissory Note, each of the two
lenders was issued 5,000,000 warrants to purchase shares of our common stock at
$0.06 per share. The warrants were immediately exercisable. In June 2014, we
renegotiated the terms of the 2013 Promissory Note. Pursuant to the
modification, the maturity date was extended to December 31, 2017 and each
lender was granted an additional 7,500,000 warrants to purchases shares of our
common stock at $0.06 per share. The warrants were immediately exercisable. In
December 2016, the 2013 Promissory Note was further modified to extend the
maturity date to December 31, 2022, with all remaining terms unchanged. On
December 23, 2018, all 25,000,000 warrants expired. At June 30, 2019, the
principal balance of the 2013 Promissory Note was $500,000 and accrued interest
payable on the 2013 Promissory Note was $166,734. Interest expense recorded for
the six-month period ended June 30, 2019, was $15,000.



In March 2016, we entered into a note payable for the purchase of a vehicle. The
principal amount financed was $47,513. The term of the note is six years and the
note carries an interest rate of 6.66%. Monthly payments are $805 and the note
matures April 2022. The note is secured by the vehicle that was purchased with
the note's proceeds.



28






In August 2017, we entered into a short-term promissory note agreement with our
Chairman of the Board, pursuant to which we borrowed $60,000 (the "2017
Promissory Note"). The 2017 Promissory Note accrues interest at 5% per annum,
which is payable upon maturity of the 2017 Promissory Note. The 2017 Promissory
Note is unsecured and was scheduled to mature on June 30, 2018. Pursuant to an
amendment to the 2017 Promissory Note on June 29, 2018, the maturity date was
extended to March 31, 2019, with all other provisions remaining unchanged.
Pursuant to a second amendment to the 2017 Promissory Note on February 12, 2019,
the maturity date was extended to July 31, 2019 with all other provisions of the
2017 Promissory Note remaining unchanged. On April 30, 2019, the 2017 Promissory
Note and accrued interest were repaid in full with a cash payment of $65,117.



In April 2018, we borrowed $120,000 from our Chief Executive Officer and
Chairman of the Board pursuant to a short-term 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 is unsecured and was originally scheduled to mature 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. Pursuant
to an amendment to the 2018 Promissory Note on June 29, 2018, the maturity date
was extended to March 31, 2019, with all other provisions remaining unchanged.
Pursuant to a second amendment to the 2018 Promissory Note on February 12, 2019,
the maturity date was extended to July 31, 2019, with all other terms remaining
unchanged. Pursuant to a third amendment to the 2018 Promissory Note in August
2019, the maturity date was extended to January 31, 2020, and the note was
modified to be secured. At June 30, 2019, accrued interest on the 2018
Promissory Note totaled $8,570.



In February 2019, we borrowed $185,474 from RadQual pursuant to a short-term
promissory note with a stated interest rate of 6% and a maturity date of July
31, 2019 (the "2019 Promissory Note"). The 2019 Promissory Note is unsecured. In
June 2019, we borrowed an additional $180,000. Additionally, in June 2019, an
amendment to the 2019 Promissory Note extended the maturity date to December 31,
2019 with all other terms remaining unchanged. At June 30, 2019, the principal
balance of the 2019 Promissory Note totaled $365,474 and accrued interest on the
2019 Promissory Note totaled $3,982.



OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2019, we had no off-balance sheet arrangements or obligations.

© Edgar Online, source Glimpses

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Managers
NameTitle
Steve T. Laflin President, Chief Executive Officer & Director
Christopher G. Grosso Chairman
Laurie A. McKenzie-Carter Chief Financial Officer & Secretary
Robert W. Atcher Independent Director
John Miller Radiation & Industrial Safety Officer
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