INTERNATIONAL ISOTOPES INC - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _______________

Commission file number:

000-22923

INTERNATIONAL ISOTOPES INC.

(Exact name of registrant as specified in its charter)

4137 Commerce Circle

Idaho Falls, Idaho, 83401

(Address of principal executive offices, including zip code)

(208) 524-5300

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes ¨ No

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

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of August 8, 2021, the number of shares of common stock, $0.01 par value, outstanding was 501,003,705.

INTERNATIONAL ISOTOPES INC.

Form 10-Q

For The Quarter Ended June 30, 2021

TABLE OF CONTENTS

Part I. Financial Information

Item I. Financial Statements

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements.

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations 

See accompanying notes to the unaudited condensed consolidated financial statements.

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows 

See accompanying notes to the unaudited condensed consolidated financial statements.

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Reconciliation of Stockholders' (Deficit) Equity

Three and Six Months Ended June 30, 2021

(Unaudited)

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Reconciliation of Stockholders' (Deficit) Equity

Three and Six Months Ended June 30, 2020

(Unaudited)

See accompanying notes to the unaudited condensed consolidated financial statements

INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2021

(1)      The Company and Basis of Presentation

Subsequent Event 

International Isotopes Inc. (INIS) was incorporated in Texas in November 1995. The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and include all operations and balances of INIS and its wholly owned subsidiaries. The unaudited condensed consolidated financial statements also include the accounts of INIS’s 50% owned joint venture, TI Services, LLC (TI Services), and the accounts of INIS’s 24.5% interest in RadQual, LLC (RadQual). TI Services is headquartered in Youngstown, Ohio and was formed with RadQual in December 2010 to distribute products and services for nuclear medicine, nuclear cardiology and Positron Emission Tomography (PET) imaging. RadQual is a global supplier of molecular imaging quality control and calibration devices, and is headquartered in Idaho Falls, Idaho. In August 2017, affiliates of INIS purchased 75.5% of RadQual and at the time INIS was named as one of the two managing members of RadQual. As a result of this ownership change, INIS has significant influence in management decisions with regard to RadQual’s business operations. In July 2021, INIS purchased the remaining interest in RadQual and now owns 100% of RadQual. INIS, its subsidiaries, TI Services, and RadQual are collectively referred to herein as the “Company,” “we,” “our” or “us.”

Affiliates 

Nature of Operations – INIS and its subsidiaries, TI Services and RadQual, manufacture a full range of nuclear medicine calibration and reference standards, generic sodium iodide I-131 drug product, cobalt teletherapy sources, and a varied selection of radiochemicals for medical research, and clinical applications. The Company also offers contract manufacturing services for certain pharmaceutical products. The Company’s business consists of five business segments: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, Fluorine Products, and Radiological Services. The Company’s headquarters and all operations, with the exception of TI Services, are located in Idaho Falls, Idaho.

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

Principles of Consolidation 

Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements are presented in conformity with GAAP and include all operations and balances of INIS and its wholly-owned subsidiaries. The Company also consolidates the accounts of RadQual into the accompanying unaudited condensed consolidated financial statements. See Note 4 “Investment and Business Consolidation” for additional information regarding RadQual. All significant intercompany accounts and transactions have been eliminated in consolidation.

Interim Financial Information 

Interim Financial Information – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, the accompanying unaudited condensed consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments and reclassifications considered necessary in order to make the financial statements not misleading and for a fair and comparable presentation have been included and are of a normal recurring nature. Operating results for the three or six-month period ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future periods. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021.

Recent Accounting Pronouncements 

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

(2)       Current Developments and Liquidity

Business Condition – Since inception, the Company has incurred substantial losses. During the six months ended June 30, 2021, the Company reported net loss of $782,539, net of non-controlling interest, and net cash used in operating activities of $238,773. During the six months ended June 30, 2020, the Company reported a net loss of $193,166, net of non-controlling interest, and net cash provided by operating activities of $415,918.

During the six months ended June 30, 2021, the Company continued its focus on its strongest long-standing core business segments which consist of its radiochemical products, cobalt products, and nuclear medicine standards, and in particular, the pursuit of new business opportunities within those segments.

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

The Company expects that cash from operations, equity or debt financing, and its current cash balance will be sufficient to fund operations for the next twelve months. 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.

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

Series B Preferred Stock

Series C Preferred Stock

For the three and six months ended June 30, 2021, the Company had 18,252,500 stock options outstanding, 7,065,000 warrants outstanding, 675 outstanding shares of Series B redeemable convertible preferred stock (Series B Preferred Stock), and 4,188 outstanding shares of Series C redeemable convertible preferred stock (Series C Preferred Stock), each of which were not included in the computation of diluted income (loss) per common share because they would be anti-dilutive.

Stock Options 

For the six months ended June 30, 2020, the Company had 24,605,000 stock options outstanding, 50,090,000 warrants outstanding, 850 outstanding shares of Series B Preferred Stock, and 4,213 outstanding shares of Series C Preferred Stock, each of which were not included in the computation of diluted income per common share because they would be anti-dilutive.

Warrants 

For the three months ended June 30, 2020, the Company had 14,005,000 stock options outstanding, 20,090,000 warrants outstanding, 850 outstanding shares of Series B redeemable convertible preferred stock, and 4,213 outstanding shares of Series C redeemable convertible preferred stock, each of which were not included in the computation of diluted income (loss) per common share because they would be anti-dilutive. The Company used the treasury stock method in calculating weighted average common shares diluted.

The table below shows the calculation of diluted shares:

Net Income (Loss) Per Common Share - Basic and Diluted - Schedule of Weighted Average Number of Shares

The table below summarizes common stock equivalents outstanding at June 30, 2021 and 2020:

Net Income (Loss) Per Common Share - Basic and Diluted - Schedule of Common Stock Equivalents Outstanding  

(4)       Investment and Business Consolidation

At June 30, 2021, the Company owned a 24.5% interest in RadQual, with which the Company has an exclusive manufacturing agreement for nuclear medicine products. 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 each serve as the managing members of RadQual. As a result of this change in ownership, and other factors, the Company determined that it gained the ability to exercise significant management control over the operations of RadQual. Because of this increased management control, and pursuant to GAAP, the Company has consolidated the accounts of RadQual into its financial statements.

(5)       Inventories

Inventories consisted of the following at June 30, 2021 and December 31, 2020:

Inventories - Schedule of Inventory, Current 

Work in process also includes costs to irradiate cobalt-60 material under a contract with the DOE. This material has been placed in the ATR and the Company made progress payments to purchase this material. During the second quarter and fourth quarter of 2020, the Company modified its agreement with the DOE due to delays in delivery of Cobalt material. As a result, the DOE refunded certain payments made by INIS in relation to this material and INIS stopped paying the scheduled payments for the inventory. At June 30, 2021, and at December 31, 2020, this cobalt target inventory had a carrying value of $0 and $383,312, respectively.

The Company has contracted with several customers for the sale of some of this product material and has collected advance payments for project management, up-front handling, and other production costs from those customers. The advance payments from customers were recorded as unearned revenue which are recognized in the Company’s condensed consolidated financial statements as cobalt products are completed and shipped. For the six months ended June 30, 2021 and 2020, the Company recognized approximately $157,890 and $22,000, respectively, of revenue in its condensed consolidated statements of operations for customer orders filled during the period under these cobalt contracts. For the three-months ended June 30, 2021 and 2020, the Company recognized approximately $150,090 and $11,500, respectively of revenue in its condensed consolidated statements of operations for customer orders filled during the period under these cobalt contracts.

(6)       Stockholders’ Equity, Options, and Warrants

Employee Stock Purchase Plan

The Company has an employee stock purchase plan pursuant to which employees of the Company may participate to purchase shares of common stock at a discount. During the six months ended June 30, 2021 and 2020, the Company issued 211,640 and 241,707 shares of common stock, respectively, to employees under the employee stock purchase plan for proceeds of $8,995 and $10,273, respectively. As of June 30, 2021, 2,888,271 shares of common stock remain available for issuance under the employee stock purchase plan.

Stock-Based Compensation Plans

2015 Incentive Plan - In April 2015, the Company’s Board of Directors approved the International Isotopes Inc. 2015 Incentive Plan (as amended, the 2015 Plan), which was subsequently approved by the Company’s shareholders in July 2015. The 2015 Plan was amended and restated in July 2018 to increase the number of shares authorized for issuance under the 2015 Plan by an additional 20,000,000 shares. The 2015 Plan provides for the grant of incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock or cash-based awards. At June 30, 2021, there were 37,204,004 shares available for issuance under the 2015 Plan.

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

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

Option awards outstanding as of June 30, 2021, and changes during the six months ended June 30, 2021, were as follows:

Stockholders’ Equity, Options and Warrants - Schedule of Share-Based Compensation Stock Option Activity

The intrinsic value of outstanding and exercisable shares is based on the closing price of the Company’s common stock on the OTCQB of $0.14 per share on June 30, 2021, the last trading day of the quarter.

As of June 30, 2021, there was $29,693 of unrecognized compensation expense related to stock options that will be recognized over a weighted-average period of 1.98 years.

Total stock-based compensation expense for the six months ended June 30, 2021 and 2020 was $49,093 and $68,531 respectively. Total stock-based compensation expense for the three-months ended June 30, 2021 and 2020 was $11,674 and $17,009, respectively.

During the six months ended June 30, 2021, the Company granted 125,000 qualified stock options to several of its employees. All options vest over a five-year period with the first vesting at one-year anniversary for all grants and expiration at the ten year anniversary for all grants. The weighted average exercise price for these options was $0.05 per share. The options have a fair value of $3,280 as estimated on the date of issue using the Black-Scholes options pricing model with the following weighted-average assumptions: risk free interest rate of 0.46% to 0.78%, expected dividend yield rate of 0%, expected volatility of 52.52% to 55.63% and an expected life between 5.5 and 7.5 years.

Minimum

Maximum 

In January 2021, 2,062,500 qualified stock options were exercised under a cashless exercise. The company withheld 263,393 shares to satisfy the exercise price and issued 1,799,107 shares of common stock. The options exercised were granted under the 2015 Plan, and, accordingly, there was not any income tax effect in the condensed consolidated financial statements for the year ended December 31, 2021.

Chief Executive Officer 

Pursuant to an employment agreement with its Chief Executive Officer, the Company awarded 195,804 fully vested shares of common stock to its Chief Executive Officer in February 2021 under the 2015 Plan. The number of shares awarded was based on a $28,000 stock award using a price of $0.143 per share. The employment agreement provides that the number of shares issued will be based on the average closing price of common stock for the 20 trading days prior to issue date but not less than $0.05 per share. Compensation expense recorded pursuant to this stock grant was $14,198, which was determined by multiplying the number of shares awarded by the closing price of the common stock on February 28, 2021, which was $0.12 per share. The Company withheld 77,489 shares of common stock to satisfy payroll tax obligations in connection with this issuance. The net shares issued on February 28, 2021 totaled 118,315.

Warrants

In January 2021, all 30,000,000 Class O Warrants and 13,025,000 Class M Warrants were exercised under a cashless exercise. The Company withheld 10,403,591 shares to satisfy the exercise price and issued 32,621,409 shares of common stock.

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

Warrants outstanding at June 30, 2020, included 17,165,000 Class M Warrants which are immediately exercisable at an exercise price of $0.12 per share and expire on February 17, 2022 and 2,925,000 Class N Warrants which are immediately exercisable at an exercise price of $0.10 per share and expire on May 12, 2022; and 30,000,000 Class O Warrants which are immediately exercisable at an exercise price of $0.045 per share and expire December 30, 2024.

Preferred Stock

At June 30, 2021, there were 675 shares of the Series B Preferred Stock outstanding with a mandatory redemption date of May 2022 at $1,000 per share or $675,000. The shares of Series B Preferred Stock are also convertible into 337,500 shares of the Company’s common stock at a conversion price of $2.00 per share. These shares of Series B Preferred Stock do not carry any dividend preferences. Due to the mandatory redemption provision, the Series B Preferred Stock has been classified as a liability in the accompanying condensed consolidated balance sheets.

At June 30, 2021, there were 4,188 shares of the Series C Preferred Stock outstanding with a mandatory redemption date of February 2022 at $1,000 per share in either cash or shares of common stock, at the option of the holder. Holders of the Series C Preferred Stock do not have any voting rights except as required by law and in connection with certain events as set forth in the Statement of Designation of the Series C Preferred Stock. The Series C Preferred Stock accrues dividends at a rate of 6% per annum, payable annually on February 17th of each year. The Series C Preferred Stock are convertible at the option of the holders at any time into shares of the Company's common stock at an initial conversion price equal to $0.10 per share, subject to adjustment. If the volume-weighted average closing price of the Company’s common stock over a period of 90 consecutive trading days is greater than $0.25 per share, the Company may redeem all or any portion of the outstanding Series C Preferred Stock at the original purchase price per share plus any accrued and unpaid dividends, payable in shares of common stock.

In March 2021, 25 shares of the Series C Preferred Stock were converted to 250,000 shares of common stock at the request of the holder.

In April 2021, 175 shares of the Series B Preferred Stock were converted to 87,500 shares of common stock at the request of the holder.

During the six months ended June 30, 2021 and 2020 dividends paid to holders of the Series C Preferred Stock totaled $254,280 and $251,280, respectively. Some holders of the Series C Preferred Stock elected to settle their dividend payments with shares of the Company’s common stock in lieu of cash. For the six months ended June 30, 2021 and 2020 the Company issued 1,398,200 and 3,408,000 shares of common stock, respectively, in lieu of a dividend payment of $207,480 and $204,480, respectively. The remaining $46,800 of dividend payable was settled with cash.

(7)          Debt

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

At June 30, 2021, the principal balance of the 2013 Promissory Note was $500,000 and accrued interest payable on the 2013 Promissory Note was $226,734. Interest expense recorded for the six months ended June 30, 2021, was $15,000.

In April 2018, the Company borrowed $120,000 from its Chief Executive Officer and Chairman of the Board pursuant to a promissory note (the 2018 Promissory Note). The 2018 Promissory Note accrues interest at 6% per annum, which is payable upon maturity of the 2018 Promissory Note. The 2018 Promissory Note was originally unsecured and originally matured on August 1, 2018. At any time, the holder of the 2018 Promissory Note may elect to have any or all of the principal and accrued interest settled with shares of our common stock based on the average price of the shares over the previous 20 trading days. Pursuant to an amendment to the 2018 Promissory Note in June 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 in February 2019, the maturity date was extended to July 31, 2019 with all other provisions remaining unchanged. Pursuant to a third amendment to the 2018 Promissory Note in July 2019, the maturity date was extended to January 31, 2020 with all other provisions remaining unchanged. Pursuant to a fourth amendment to the 2018 Promissory Note in December 2019, the maturity date was extended to December 31, 2021, the note was modified to become secured by company assets, with all other provisions remaining unchanged. At June 30, 2021, accrued interest on the 2018 Promissory Note totaled $22,970.

In April 2019, one of the prepaid revenue customers requested a refund of the amounts paid. The Company entered into a note agreement to repay $2,182,142 over the next 12 months. 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 the Company refund approximately $1,100,000, of payments received for prior year undelivered material, plus interest at 12% per year, payable over a one-year period on a portion of that amount. The Company has 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 December 2019, this agreement was modified further allowing the Company to delay the original payments by 3 months and refund an additional $462,258 with no interest charge. At June 30, 2021 balance on this refund is $154,282 and is included in short-term notes payable.

On December 20, 2019, the Company entered into a promissory note agreement with four of the Company’s major shareholders (the 2019 Promissory Note). The 2019 Promissory Note authorizes the Company to borrow up to $1,000,000. As of December 31, 2019, the Company had borrowed $675,000 under the 2019 promissory note. In February 2020, the Company borrowed an additional $325,000. The 2019 Promissory Note bears an interest rate of 4% annually and is due December 31, 2022. According to the terms of the 2019 Promissory Note, at any time, the lenders may settle any or all of the principal and accrued interest with shares of the Company’s common stock based on the average closing price of the Company’s common stock for the 20 days preceding the payment. In connection with the 2019 Promissory Note, the lenders were issued warrants totaling 30,000,000 warrants to purchase shares of the Company’s common stock at $0.045 per share (the Class O Warrants). The fair value of these Class O Warrants issued totaled $446,079 and was recorded as a debt discount and will be amortized over the life of the 2019 Promissory Note. The Company calculated a beneficial conversion feature of $315,643 which will be accreted to interest expense over the life of the 2019 Promissory Note. At June 30, 2021 accrued interest on the 2019 Promissory Note totaled $59,131.

In March 2021, one of the Company’s subsidiaries, RadQual, entered into a promissory note (the March 2021 Promissory Note) for the purchase of equipment. The principal amount under the March 2021 Promissory Note totals $101,250, bears interest at 5%, is secured by equipment, and is due March 2023.

RadQual 

In April 2021, the Company borrowed $250,000 from our Chief Executive Officer and Chairman of the Board pursuant to a promissory note (the April 2021 Promissory Note). The April 2021 Promissory Note bears an interest rate of 6% annually and is due December 31, 2022. At any time, the holder of the April 2021 Promissory Note may elect to have any or all of the principal and accrued interest settled with shares of the Company’s common stock based at the price of $0.11 per share. .At June 30, 2021 accrued interest on the April 2021 Promissory Note totaled $3,250.

(8)       Commitments and Contingencies

Dependence on Third Parties

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

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

Nuclear Medicine Reference and Calibration Standard manufacturing is conducted under an exclusive contract with RadQual, which in turn has an agreement in place with several companies for distributing the products. The radiochemical product sold by the Company is supplied to the Company through agreements with two suppliers. A loss of any of these customers or suppliers could adversely affect operating results by causing a delay in production or a possible loss of sales.

Contingencies

Because all the Company’s business segments involve the handling or use of radioactive material, the Company is required to have an operating license from the NRC and specially trained staff to handle these materials. The Company has amended this operating license numerous times to increase the amount of material permitted within the Company’s facility. Although this license does not currently restrict the volume of business operations performed or projected to be performed in the upcoming year, additional processing capabilities and license amendments could be implemented that would permit processing of other reactor-produced radioisotopes by the Company. The financial assurance required by the NRC to support this license has been provided for with a surety bond held with North American Specialty Insurance Company which is supported by a restricted money market account held with Merrill Lynch in the amount of $830,725.

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

On May 2, 2019, the Company’s radiological services team was involved in a contamination event involving a breached cesium-137 source at an off-site location in the state of Washington. This work was being performed under a contract with the DOE. The Company supported the initial onsite contamination clean-up operations at that location and completed removal of the cesium source and Company equipment. The Company has reviewed the results of the DOE investigation into this event and has implemented appropriate corrective actions. Beginning in August 2019, the DOE assumed full control of the cleanup operations and assumed all the financial obligations associated with the contractors hired to carry out all of the facility recovery operations. On January 5, 2021, the Company was notified by the DOE that they have been indemnified from any financial liability for this event under the Price Anderson Act (PAA). As part of this indemnification notification, the Company received payment in full for its claim with the DOE for recovery of certain expenses incurred for this event. The Company recognized Other Income of approximately $112,000 in the six months ended June 30, 2021 for additional cost recoveries for this event. All remaining cost recoveries as part of this settlement with the DOE were recognized in previous financial periods pursuant to ASC 410-30. The Company used these funds to pay all outstanding subcontractors and reimburse their insurance company for payments they previous paid the Company for this matter. The Company is actively pursuing a final settlement with its insurance company regarding this claim as of the date of this filing.

The Company’s corrective actions for this event included termination of all field service activities and removal of these activities from the Company’s NRC license. The Company believes that the loss in revenue resulting from suspension of radiological field service work will be compensated for by increased revenues in the Company’s remaining business segments.

(9)         Revenue Recognition

Revenue from Product Sales

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

Revenue Recognition - Summary of Sales from Contracts with Customers Disaggregated by Business Segment and Geography 

The Company’s revenue consists primarily of calibration and reference standards manufactured for use in the nuclear medicine industry, distribution of radiochemicals including sodium iodide I-131 drug product, and cobalt source manufacturing. With the exception of certain unique products, the Company’s normal operating cycle is considered to be one year. Due to the time required to produce some cobalt products, the Company’s operating cycle for those products is considered to be two to three years. Accordingly, preliminary payments received on cobalt contracts, where shipment will not take place for greater than one year, have been recorded as unearned revenue on the Company’s condensed consolidated balance sheets and classified under current or long-term liabilities, depending upon estimated ship dates. For the six months ended June 30, 2021, the Company reported current unearned revenue of $990,886. For the period ended December 31, 2020, the Company reported current unearned revenue of $1,160,274. These unearned revenues will be recognized as revenue in the periods during which the cobalt shipments take place. 

Contract Balances

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied.  As of June 30, 2021, and December 31, 2020, accounts receivable totaled $1,068,550 and $796,128, respectively.  For the six months ended June 30, 2021, the Company did not incur material impairment losses with respect to its receivables.

(10)         Leases

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

The future minimum payments under these operating lease agreements are as follows:

Leases - Schedule of Future Minimum Payments of Lease Liabilities 

(11)        Segment Information

The Company has five reportable segments which include: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, Fluorine Products, and Radiological Services. Information regarding the operations and assets of these reportable business segments is contained in the following table:

(12)         Subsequent Events

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

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

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including statements regarding industry prospects and future results of operations or financial position, made in this Quarterly Report are forward-looking statements. Words such as “anticipates,” “believes,” “should,” “expects,” “future,” “intends” and similar expressions identify forward-looking statements.  In particular, statements regarding impact of the COVID-19 outbreak on our business, financial condition, operating results and liquidity, 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, 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, 2020 filed with the Securities and Exchange Commission (SEC) on March 30, 2021 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, manufacture a range of cobalt products, and distribute sodium iodide I-131 as a generic drug. 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 condensed consolidated financial statements in this report for additional information.

RADQUAL ACQUISTION

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

Our business consists of the following five 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 and PET camera operational testing, and calibration of dose measurement equipment commonly used in the practice of nuclear pharmacy. 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. The Company has a contract in place with the U.S. Department of Energy (DOE) for the production of high specific activity cobalt in the Advanced Test Reactor (ATR) in Idaho. This agreement will be in effect until October 2024.

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

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

Radiological Services. Our Radiological Services segment consisted of a wide variety of miscellaneous services such as decommissioning disused irradiation units, performing sealed source exchanges in irradiation and therapy units, and gemstone processing. The Company has suspended all of its field service activities and is in the process of terminating most gemstone processing. The Company will continue to perform some limited testing services of various gemstones for exempt distribution. The Company believes that eliminating work in the Radiological Services segment will allow the Company to better focus upon our core business segments and our new products pipeline. We believe that the loss in revenue resulting from wrapping up of radiological field service work will be more than offset by increased revenues in our remaining business segments.

COVID-19 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 the six months ended June 30, 2020.  There was no discernable impact from COVID-19 to our cobalt products business segment during the period.  The decrease in sales for the six months ended June 30, 2020 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. The sale of radiochemical products increased during the six month period, however, we believe the increase in revenue would have been greater were it not for the negative impact of COVID-19. 

Starting in June 2020, we saw our sales through RadQual substantially recover from the impact of the COVID-19 pandemic. We have seen little impact on our 2021 sales due to COVID-19. We believe that many of the medical procedures had been delayed, not canceled, and there was a pent-up demand for these products. Revenue within our nuclear medicine calibration standards segment for the six months ended June 30, 2021 increased approximately 11% compared to the same period in 2020. We will also continue to work towards development of several new products and to further expand our international sales. In addition, we will continue to work with TI Services on marketing strategies to boost customer service and sales of some nuclear medicine imaging and pharmacy products.

To-date we have not furloughed or terminated any employees as a result of the financial impact of COVID-19.  The Company has only seen a limited impact in our raw material supply chain related to the COVID-19, primarily some plastics which have been in strong demand for certain types of PPE.  Alternative sources of raw materials have been obtained without any interruption to production.  With the heightened concern about corporate liquidity during the COVID-19 pandemic, the Company believes that it has adequate cash to support continuing operations.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Revenue for the three months ended June 30, 2021 was $2,759,896 as compared to $2,159,559 for the same period in 2020, an overall increase of $600,337, or approximately 28%. This increase in revenue was largely the result of increased revenue in our 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 June 30, 2021 and 2020:

Cost of sales increased to $1,171,968 for the three months ended June 30, 2021 from $903,909 for the same period in 2020. This is an increase of $268,059, or approximately 30%. The increase in cost of sales in the three-month comparison was primarily due to the increased sales activity in our Radiochemical, Cobalt, and Nuclear Medicine segments, as discussed in detail below. Gross profit for the three months ended June 30, 2021 was $1,587,928, compared to $1,255,650 for the same period in 2020. This represents an increase in gross profit of $332,278, or approximately 26%.

The following table presents cost of sales and gross profit data for each of our business segments for the three months ended June 30, 2021 and 2020:

Operating expense increased approximately 16% to $1,573,206 for the three months ended June 30, 2021, from $1,351,751 for the same period in 2020. This increase of $221,455, is primarily due to an approximate 53% increase in General, Administrative and Consulting Costs. This increase in mainly due to increased costs for licenses and depreciation.

The following table presents a comparison of total operating expense for the three months ended June 30, 2021 and 2020:

Other income was $32,356 for the three months ended June 30, 2021, as compared to Other Income of $559,895 for the same period in 2020. This is a decrease of $527,539. The decrease is due to income from the SBA Loan (as defined below) of $495,500 converted to grant income during the three months ended June 30, 2020. Interest expense for the three months ended June 30, 2021 was $211,456, compared to $196,344 for the same period in 2020. This is an increase of $15,112, or approximately 8%. Interest expense includes dividends accrued on our Series C Redeemable Convertible Preferred Stock (Series C Preferred Stock). For the three months ended June 30, 2021, we accrued dividends payable of $63,195, 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. See Note 7 “Debt” to our unaudited condensed 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, 2021, was ($181,387), compared to net income of $229,328, for the same period in 2020. This is a decrease of income of $410,715 is the result of $495,500 of income from the SBA Loan converted to grant income during the second quarter of 2020.

Radiochemical Products. Revenue from the sale of radiochemical products for the three months ended June 30, 2021 was $1,228,209, compared to $1,113,053 for the same period in 2020. This is an increase of $115,156, or approximately 10%. The increase is the result of increased sales of our new generic sodium iodide I-131 drug product.

Gross profit of radiochemical products for the three months ended June 30, 2021 was $741,083, compared to $632,237, for the same period in 2020, and gross profit percentages were approximately 60% and 57% for the three months ended June 30, 2021 and 2020, respectively. This increased gross profit percentage is a result of sales of our new generic sodium iodine I-131 drug product and continued improvements of utilization of raw materials. Cost of sales for radiochemical products increased to $487,126 for the three months ended June 30, 2021, as compared to $480,816 for the same period in 2020. This is an increase of $6,310, or approximately 1%, and was the result of increased sales of product. Operating expense for this segment increased to $336,627 for the three months ended June 30, 2021, compared to $251,509 for the same period in 2020. This increase in operating expense of $85,118, or approximately 34%, is primarily due to increased costs for license and depreciation expenses. This segment reported net income of $404,457 for the three months ended June 30, 2021, as compared to net income of $380,728 for the same period in 2020. The increase in net income of $23,728 or approximately 6%, is primarily the result of increased radiochemical product sales but somewhat offset by increased operating expenses during the three months ended June 30, 2020.

Cobalt Products. Revenue from the sale of cobalt products for the three months ended June 30, 2021 was $576,994, compared to $224,666, for the same period in 2020. This represents an increase of $352,328, or approximately 157%. Our cobalt sealed source manufacturing is largely dependent on our ability to procure cobalt material from the DOE’s Advanced Test Reactor (ATR). The increased sales in the three months ended June 30, 2021 is due to sales of material received from the ATR during the period.

In October 2014, we entered into a ten-year agreement with the DOE for the irradiation of cobalt targets. The agreement gives us the ability to purchase the current full capacity of the DOE’s ATR throughout the ten-year period. It takes many years to irradiate these cobalt targets to the desired level of activity. Our production calculations indicated we should have anticipated having high specific activity cobalt available for our customers in late 2019. However, extended reactor shutdowns and lower than expected production rates of cobalt-60 in the new design cobalt targets delayed delivery of high specific activity cobalt until May 2021.

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 three months ended June 30, 2021, was $263,948, as compared to $79,091, for the same period in 2020. Gross profit for cobalt products for the three months ended June 30, 2021 was $313,046 compared to $145,575 for the same period in 2020. This is an increase of $167,471, or approximately 115% and is primarily attributable to increased sales for the three months ended June 30, 2021, as compared to the same period in 2020. Operating expense in this segment increased to $104,465 for the three months ended June 30, 2021, from $69,701 for the same period in 2020. This is an increase of $34,764, or approximately 50%. This increase in operating expenses for the three months ended June 30, 2021 is due to increased support labor from increased shipment activity. Our net income for cobalt products was $208,581 for the three months ended June 30, 2021, as compared to a net income of $75,874 for the same period in 2020. The increase in net income of $132,707, or approximately 175%, was attributable to increased sales.

Nuclear Medicine Standards. Revenue from nuclear medicine products for the three months ended June 30, 2021, was $885,728, compared to $777,873 for the same period in 2020. This represents an increase in revenue of $107,855, or approximately 14%. 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. The increase in sales for the period ended June 30, 2021 was due to increased order activity as recovery from the Covid-19 pandemic continues.

Cost of sales for our nuclear medicine standards segment for the three months ended June 30, 2021, was $420,894, as compared to $332,380 for the same period in 2020. The increase in cost of sales in the period-to-period comparison of $88,514, or 27%, is due to increased sales for the three-month period ended June, 2021, as compared to the same period in 2020. Gross profit for our nuclear medicine standards segment for the three months ended June 30, 2021 was $464,834 compared to $445,493 for the same period in 2020. This is an increase in gross profit of $19,341, or approximately 4%. The increase in gross profit in the period-to-period comparison is primarily the result of the increased sales. Our gross profit percentages were approximately 52% and 57% for the three-month periods ended June 30, 2021 and 2020, respectively. The decrease in the gross profit percentage for the three months ended June 30, 2021 is primarily due to increased raw material cost.

Operating expense for this segment for the three months ended June 30, 2021 increased to $412,992, from $328,437 for the same period in 2020. This is an increase of $84,555, or approximately 26%, and is the result of increased expenses for production supplies, support labor expenses, and operating expenses related to RadQual as compared to the same period in 2020. Operating expense includes consolidated net operating expense reported for RadQual of $174,113 and non-controlling member interest expense of $20,121, for the three months ended June 30, 2021, as compared to $126,367 of net operating expense and non-controlling member interest expense of $39,789 for the same period in 2020. Net operating expense included for TI Services was $29,522 for the three months ended June 30, 2021, and $23,381 for the same period in 2020. TI Services non-controlling interest included was ($3,066) for the three-month period ended June 30, 2021, as compared to ($919) for the same period in 2020. Net income for this segment for the three months ended June 30, 2021 was $51,843, compared to $117,056 for the same period in 2020. This is a decrease in net income of $65,213, or approximately 56% and is primarily the result of increased operating expenses partially offset by increased gross profit.

Radiological Services. Revenue from all radiological services for the three months ended June 30, 2021 was $68,964, compared to $43,967, for the same period in 2020, an increase of $24,997 or approximately 57%. The increase in the revenue for the period comparison is the result of increased gemstone processing activity from the wrapping up of this contract work.

On May 2, 2019, our radiological services team was involved in a contamination event involving a breached cesium-137 source at an off-site location in the state of Washington. This work was being performed under a contract with the DOE. We supported the initial onsite contamination clean-up operations at that location and completed removal of the cesium source and Company equipment. We have reviewed the results of the DOE investigation into this event and has implemented appropriate corrective actions. Beginning in August 2019, the DOE assumed full control of the cleanup operations and assumed all the financial obligations associated with the contractors hired to carry out all remaining facility recovery operations. On January 5, 2021, we were notified by the DOE that we have been indemnified from any financial liability for this event under the Price Anderson Act (PAA). We are actively pursuing a final settlement with its insurance company regarding this claim as of the date of this filing. 

In January 2020, we notified our gemstone processing customer that the service contract with them was being terminated because the volume of gemstones sent for processing did not meet contract minimums. The termination activities and wrap up of this service will continue throughout 2021 and the Company expects to see a steady decline in revenue from this service as production is wrapped up. We plan to convert the spaces in the facility that had been used to perform this contract work into expanded Nuclear Medicine 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.

Cost of sales for the three months ended June 30, 2021, was $0, as compared to $11,622, for the same period in 2020. Gross profit for this segment for the three months ended June 30, 2021 was $68,965, compared to $32,345, reported for the same period in 2020. The increase in gross profit of $36,619, or approximately 113%, is the result of decreased costs for gemstone processing for the three months ended June 30, 2021, as compared to the same period in 2020. We expect our costs of sales to continue to be very low going forward. Operating expense for the three months ended June 30, 2021 was $10,723 as compared to $45,877, reported for the same period in 2020. This decrease of $35,154, or approximately 77%, is the result of decreased sales and activity within the business segment.

Net income for this segment for the three months ended June 30, 2021 was $58,242, compared to net loss of $13,532, for the same period in 2020. This is an increase in net income of $71,774 is the result increase in gross profit and decreased operating expenses for the same period in 2020.

Fluorine Products. There was no revenue to report from the fluorine products segment for the three months ended June 30, 2021, or for the same period in 2020. During the three months ended June 30, 2021, we incurred $31,626 of expense related to items in support of future planning and design for the proposed de-conversion facility, as compared to $36,460 for the same three-month period in 2020. This is a decrease of 13% 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 FEP. The project has been placed on hold since 2013 and we will continue to limit our expenditures to essential items such as maintenance of the NRC license, land use agreements, communication with our prospective FEP product customers, and interface with the State of New Mexico and Lea County officials until such time that we decide to resume the project.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue for the six-month period ended June 30, 2021 was $4,752,408, as compared to $4,495,345 for the same period in 2020, an increase of $257,063, or approximately 6%. 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, 2021 and June 30, 2020:

Gross profit for the six-month period ended June 30, 2021 was $2,749,086, compared to $2,622,911, for the same period in 2020. This represents an increase of $126,175 or approximately 5%.

The following table presents cost of sales and gross profit data for each of our business segments for the six months ended June 30, 2021 and 2020:

Operating expenses were $3,184,892 for the six-month period ended June 30, 2021, compared to $2,928,322 for the same period in 2020. This represents an increase of $256,570, or approximately 9%. This increase is primarily due to an approximate 31% increase in General, Administrative and Consulting costs that is a result of increased license and permits costs incurred during the six months ended June 30, 2021, as compared to the same period in 2020. Research and Development costs increased to $109,216, for the six months ended June 30, 2021, as compared to $88,393, for the same period in 2020. This is an increase of $20,823, or approximately 24% and is primarily the result of an increase in expenditures for product development in several of our business segments for the six months ended June 30, 2021, as compared to the same period in 2020.

The following table shows total operating expenses for the six-month period ended June 30, 2021 and 2020: