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, 2010
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number:
0-22923
INTERNATIONAL ISOTOPES INC.
(Exact name of registrant as specified in its charter)
Texas |
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74-2763837 |
(State of incorporation) |
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(IRS Employer Identification Number) |
4137 Commerce Circle
Idaho Falls, Idaho, 83401
(Address of principal executive offices)
(208) 524-5300
(Registrants telephone number, including area code)
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. þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). ¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer," "accelerated filer and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨ |
Accelerated filer ¨ |
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes þ No
As of August 13, 2010 the number of shares of Common Stock, $.01 par value, outstanding was 293,944,348.
INTERNATIONAL ISOTOPES INC.
For the Quarter Ended June 30, 2010
TABLE OF CONTENTS
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Page No. |
PART 1 FINANCIAL INFORMATION |
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Item 1 |
Financial Statements |
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Unaudited Condensed Consolidated Balance Sheets at June 30, 2010 and December 31, 2009 |
3 |
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Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 |
4 |
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Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 |
5 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
6 |
Item 2 |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
14 |
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk |
21 |
Item 4 |
Controls and Procedures |
21 |
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PART II OTHER INFORMATION |
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Item 5 |
Other Information |
21 |
Item 6 |
Exhibits |
21 |
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Signatures |
22 |
- 2 -
Part I. Financial Information
Item 1. Financial Statements
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES |
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Unaudited Condensed Consolidated Balance Sheets |
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June 30, |
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December 31, |
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Assets |
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2010 |
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2009 |
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Current assets |
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Cash and cash equivalents |
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$ |
1,192,310 |
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$ |
461,091 |
Accounts receivable |
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942,289 |
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481,702 |
Inventories |
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1,920,851 |
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1,835,345 |
Prepaids and other current assets |
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48,460 |
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126,316 |
Total current assets |
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4,103,910 |
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2,904,454 |
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Long-term assets |
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Restricted certificate of deposit |
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427,390 |
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264,751 |
Property, plant and equipment, net |
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2,269,542 |
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2,475,466 |
Capitalized lease disposal costs, net |
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168,212 |
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196,287 |
Investment |
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1,290,000 |
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1,290,000 |
Patents and other intangibles, net |
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242,006 |
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250,347 |
Total long-term assets |
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4,397,150 |
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4,476,851 |
Total assets |
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$ |
8,501,060 |
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$ |
7,381,305 |
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Liabilities and Stockholders Equity |
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Current liabilities |
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Accounts payable |
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$ |
608,974 |
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$ |
569,076 |
Accrued liabilities |
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777,536 |
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351,437 |
Deferred revenue |
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8,226 |
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- |
Current installments of notes payable |
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501,623 |
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126,480 |
Current installments of capital leases |
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28,977 |
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37,061 |
Total current liabilities |
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1,925,336 |
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1,084,054 |
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Long-term liabilities |
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Obligation for lease disposal costs |
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429,237 |
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412,569 |
Notes payable, excluding current installments |
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524,590 |
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963,657 |
Capital leases, excluding current installments |
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- |
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9,930 |
Convertible debentures, net of beneficial conversion feature of $527,145 |
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2,547,855 |
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- |
Mandatorily redeemable convertible preferred stock |
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850,000 |
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850,000 |
Total long-term liabilities |
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4,351,682 |
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2,236,156 |
Total liabilities |
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6,277,018 |
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3,320,210 |
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Stockholders Equity |
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Common stock, $0.01 par value; 500,000,000 shares authorized; 293,929,827 and 293,677,806 shares issued and outstanding respectively |
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2,939,298 |
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2,936,777 |
Additional paid-in capital |
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101,609,647 |
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100,477,289 |
Accumulated deficit |
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(102,324,903) |
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(99,352,971) |
Total stockholders equity |
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2,224,042 |
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4,061,095 |
Total liabilities and stockholders equity |
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$ |
8,501,060 |
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$ |
7,381,305 |
See accompanying notes to condensed consolidated financial statements.
- 3 -
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES |
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Unaudited Condensed Consolidated Statements of Operations |
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Three Months ended June 30, |
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Six Months ended June 30, |
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2010 |
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2009 |
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2010 |
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2009 |
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Sale of product |
$ |
1,485,293 |
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$ |
1,485,599 |
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$ |
2,594,844 |
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$ |
3,185,269 |
Cost of product |
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748,373 |
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684,741 |
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1,482,243 |
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1,515,477 |
Gross profit |
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736,920 |
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800,858 |
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1,112,601 |
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1,669,792 |
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Operating costs and expenses: |
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Salaries and contract labor |
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448,795 |
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519,034 |
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967,876 |
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1,055,088 |
General, administrative and consulting |
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478,838 |
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457,873 |
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850,203 |
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889,514 |
Research and development |
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1,362,805 |
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580,867 |
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2,018,970 |
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1,053,306 |
Total operating expenses |
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2,290,438 |
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1,557,774 |
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3,837,049 |
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2,997,908 |
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Net operating loss |
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(1,553,518) |
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(756,916) |
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(2,724,448) |
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(1,328,116) |
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Other income (expense): |
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Other income (expense) |
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19,103 |
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20,872 |
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16,063 |
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37,316 |
Interest income |
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667 |
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1,718 |
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1,714 |
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7,675 |
Interest expense |
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(173,322) |
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(24,308) |
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(265,261) |
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(63,436) |
Total other expense |
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(153,552) |
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(1,718) |
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(247,484) |
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(18,445) |
Net loss |
$ |
(1,707,070) |
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$ |
(758,634) |
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$ |
(2,971,932) |
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$ |
(1,346,561) |
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Net loss per common share basic and diluted |
$ |
(0.01) |
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$ |
(0.00) |
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$ |
(0.01) |
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$ |
(0.00) |
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Weighted average common shares outstanding -basic and diluted |
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293,926,893 |
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288,870,769 |
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293,900,022 |
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288,836,531 |
See accompanying notes to condensed consolidated financial statements.
- 4 -
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES |
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Unaudited Condensed Consolidated Statements of Cash Flows |
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Six Months ended June 30, |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net loss |
$ |
(2,971,932) |
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$ |
(1,346,561) |
Adjustments to reconcile net loss to net cash used in operating activities |
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Depreciation and amortization |
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231,112 |
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204,785 |
Loss on disposal of property, plant and equipment |
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14,635 |
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3,100 |
Accretion of obligation for lease disposal costs |
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16,668 |
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9,794 |
Accretion of beneficial conversion feature |
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175,712 |
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- |
Equity based compensation |
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418,982 |
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312,177 |
Changes in operating assets and liabilities: |
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Accounts receivable |
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(460,587) |
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(146,369) |
Prepaids and other assets |
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77,856 |
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48,294 |
Deferred revenue |
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8,226 |
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(102,814) |
Inventories |
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(85,506) |
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(181,749) |
Accounts payable and accrued liabilities |
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465,997 |
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43,921 |
Net cash used in operating activities |
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(2,108,837) |
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(1,155,422) |
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Cash flows from investing activities: |
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Restricted certificate of deposit |
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(162,639) |
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(1,845) |
Proceeds from sale of property, plant and equipment |
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3,800 |
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1,900 |
Purchase of property, plant and equipment |
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(7,207) |
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(142,216) |
Net cash used in investing activities |
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(166,046) |
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(142,161) |
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Cash flows from financing activities: |
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Proceeds from sale of stock |
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13,040 |
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13,615 |
Proceeds from issuance of convertible debentures |
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3,075,000 |
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- |
Proceeds from issuance of debt |
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- |
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26,769 |
Principal payments on notes payable and capital leases |
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(81,938) |
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(62,732) |
Net cash provided by (used in) financing activities |
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3,006,102 |
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(22,348) |
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Net (decrease) increase in cash and cash equivalents |
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731,219 |
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(1,319,931) |
Cash and cash equivalents at beginning of period |
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461,091 |
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2,149,340 |
Cash and cash equivalents at end of period |
$ |
1,192,310 |
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$ |
829,409 |
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Supplemental disclosure of cash flow activities: |
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Cash paid for interest |
$ |
47,900 |
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$ |
93,648 |
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Supplemental disclosure of noncash transactions: |
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Increase in equity for the beneficial conversion feature associated with the convertible debentures |
$ |
702,857 |
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$ |
- |
Retirement of 77,091 shares of common stock at $0.18 per share to cover certain payroll taxes of employees in connection with shares granted to employees for restricted stock awards |
$ |
- |
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$ |
13,877 |
See accompanying notes to condensed consolidated financial statements.
- 5 -
INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2010
(1)
The Company and Basis of Presentation
International Isotopes Inc. (the Company) was incorporated in Texas in November 1995. The Company has three wholly owned subsidiaries: International Isotopes Idaho, Inc., International Isotopes Fluorine Products, Inc., and International Isotopes Transportation Services, Inc., all of which are Idaho corporations. The Companys headquarters and all operations are located in Idaho Falls, Idaho.
Nature of Operations The Companys business consists of six major business segments which include: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, Fluorine Products, Radiological Services, and Transportation.
With the exception of certain unique products, the Companys normal operating cycle is considered to be one year. Due to the time required to produce some cobalt products, the Companys operating cycle for those products is considered to be three years. All assets expected to be realized in cash or sold during the normal operating cycle of business are classified as current assets.
Principles of Consolidation The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Interim Financial Information The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). Accordingly, they 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 six-month period ended June 30, 2010, are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. The accompanying financial statements should be read in conjunction with the Companys most recent audited financial statements.
Reclassification For the three and six months ended June 30, 2010, costs related to the work on the de-conversion and fluorine extraction project have been reported as research and development expense. These costs were reported as general and administrative expense for the period ended March 31, 2009; consequently, the prior year information has been reclassified to report these costs as if they had been previously reported as research and development expense. This reclassification had no affect on net loss.
Recent Accounting Pronouncements - In May 2009, the FASB issued a new standard which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance, among other things, sets forth the period after the balance sheet date during which management should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures an entity should make about events or transactions that occurred after the balance sheet date. In February 2010, new guidance was issued which removes the requirement for public companies to disclose the date through which subsequent events were reviewed. This guidance was effective upon issuance and has been adopted by the Company.
- 6 -
In April 2010, the FASB issued guidance related to accounting for certain tax effects of the 2010 Health Care Reform Acts. This update clarifies questions surrounding the accounting implications of the different signing dates of the Health Care and Education Reconciliation Act (signed March 30, 2010) and the Patient Protection and Affordable Care Act (signed March 23, 2010). This guidance states that the FASB and the Office of the Chief Accountant at the SEC would not be opposed to view the two Acts together for accounting purposes. The Company is currently assessing the impact, if any, the adoption of this guidance will have on the Companys disclosures, operating results, financial position and cash flows.
In January 2010, the FASB issued guidance related to escrowed share arrangement and the presumption of compensation. This update provides clarification when escrowed shares are considered compensation or in substance an inducement made to facilitate certain transactions. This guidance was effective upon issuance. The Company has adopted this guidance which had no impact on the Companys operations, financial position, cash flow or disclosures.
(2)
Current Developments and Liquidity
Business Condition Since inception, the Company has suffered substantial losses. During the six-month period ended June 30, 2010, the Company reported a loss of $2,971,932 and operations used cash of $2,108,837. During the same period in 2009, the Company reported a loss of $1,346,561 and operations used cash of $1,155,422. The Company has made significant investments in, and will continue to invest in, the design, licensing, and construction of a large scale uranium de-conversion and fluorine extraction facility. The Company expects that such investments will exceed current revenue from sales by a significant amount. As a result, the Company expects to continue to incur significant losses until the planned uranium de-conversion facility commences commercial production, which the Company does not to expect to occur until the first quarter of 2013 at the earliest. Management expects to generate sufficient cash flows from the existing business segments to meet operational needs during 2010; however, there is no assurance that these cash flows will occur. In addition, the Company will require additional capital to support ongoing efforts to expand the Companys business to include the planned large scale uranium de-conversion processing and fluorine extraction plant. Current expenditures on that project include licensing, design, and related subcontractor project efforts.
The Companys effort to start the uranium de-conversion project began in 2004 with the acquisition of patents for its Fluorine Extraction Process (FEP). Since that time the Company has made significant investments in this major undertaking to construct the first commercial depleted uranium de-conversion and fluorine extraction facility in the U.S. The Company believes this will provide a commercial opportunity because there are several companies constructing new uranium enrichment facilities in the U.S., and these facilities will produce a large amount of depleted uranium hexafluoride (UF6) that must be de-converted for disposal. In the process of de-conversion the Company plans to use FEP to produce high-value, high-purity fluoride gases.
Additional design and licensing activities for this new facility will continue throughout the remainder of 2010 and 2011. In April of 2010, the Company entered into an agreement with URENCO U.S.A. (UUSA) a wholly owned subsidiary of URENCO, to provide depleted uranium de-conversion services for its enrichment facility located in Eunice, New Mexico upon the commencement of commercial operations of the Companys planned de-conversion facility. The term of the agreement extends through the first five years of the Companys operation of its planned uranium de-conversion facility in Hobbs, New Mexico. It will require significant capital and time to design, license, and construct such a uranium de-conversion facility before the Company can recognize revenue under this agreement.
On June 16, 2010, the Company filed a Form S-3 shelf registration statement with the SEC. Pursuant to this shelf registration statement, the Company may from time to time sell common stock, preferred stock, debt securities, convertible debt securities or warrants to purchase common stock, preferred stock, debt securities or convertible debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities, in one or more offerings up to a total dollar amount of $100,000,000. The Company hopes to raise funds through one or more registered offerings to support the construction and start-up costs of the depleted uranium de-conversion facility.
- 7 -
(3)
Net Loss Per Common Share - Basic and Diluted
At June 30, 2010, and 2009, the Company had the following common stock equivalents outstanding that were not included in the computation of diluted net loss per common share as their effect would have been anti-dilutive, thereby decreasing the net loss per common share:
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June 30, |
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2010 |
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2009 |
Stock options |
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26,700,000 |
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27,080,000 |
Warrants |
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25,940,637 |
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21,533,331 |
Restricted stock awards issued under the 2006 Equity Incentive Plan |
|
579,947 |
|
994,850 |
850 shares of Series B redeemable convertible preferred stock |
|
425,000 |
|
425,000 |
Convertible debentures and accrued interest |
|
8,907,997 |
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|
|
|
62,553,581 |
|
50,033,181 |
(4)
Investments
At June 30, 2010, the Company owned a 24.5% interest in RadQual, LLC, with which the Company has an exclusive manufacturing agreement for nuclear medicine products. The remaining 75.5% ownership of RadQual, LLC, is concentrated among a very small group of investors and due to this concentration the Company is unable to exert significant control or influence over the operations or policies of RadQual, LLC. Accordingly, the investment in RadQual, LLC is recorded on the cost method at the lower of cost or fair value. The 24.5% ownership of RadQual, LLC has been recorded at a cost of $1,290,000. For the six months ended June 30, 2010, member distributions from RadQual, LLC totaled $30,436 and for the similar period in 2009, member distributions totaled $40,365. These distributions were recorded as Other Income.
At June 30, 2010, and 2009, the Company had receivables from RadQual, LLC in the amount of $469,988 and $426,840, respectively, which are recorded as part of accounts receivable. For the six months ended June 30, 2010 and 2009, the Company had revenues from RadQual, LLC in the amount of $1,674,925 and $1,607,490, respectively, which are recorded as sale of product.
(5)
Inventories
Inventories consisted of the following at June 30, 2010, and December 31, 2009:
|
June 30, 2010 |
|
December 31, 2009 |
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Raw materials |
$ |
268,585 |
|
$ |
251,035 |
Work in progress |
|
1,652,266 |
|
|
1,584,310 |
|
$ |
1,920,851 |
|
$ |
1,835,345 |
Included in inventories are the various pellet holders and housings involved in target fabrication, raw cobalt, nickel and other raw elements, completed flood sources, and irradiated cobalt.
Work in progress includes cobalt-60 isotopes that are located in the U.S. federal governments Advanced Test Reactor (ATR) located outside Idaho Falls, Idaho. These isotopes are at various stages of irradiation. Some isotopes are near completion and others may require several years to complete. At June 30, 2010, and December 31, 2009, these isotopes had a carrying value of $1,339,286 and $1,154,459, respectively. This value is based on accumulated costs which are allocated based on the length of time isotopes remain in the reactor.
- 8 -
(6)
Convertible Debentures and Notes Payable
On February 24, 2010, the Company entered into a securities purchase agreement with certain institutional and private investors pursuant to which it sold convertible debentures for an aggregate of $3,075,000, which accrue a fixed sum of interest equal to 6% of the principal amount automatically upon issuance of the debenture. These debentures are convertible at the option of the holders into shares of common stock at an initial conversion price equal to $0.35, subject to certain adjustments. Upon maturity on August 24, 2011, the outstanding principal amount of the debentures and all accrued but unpaid interest will be converted into common stock at a conversion price equal to the lesser of $0.35 or the average closing price of our common stock for the 120 consecutive trading days up to, but not including, the maturity date, subject to adjustment as set forth in the debentures. To the extent any of the debentures are outstanding as of the maturity date and are automatically converted pursuant to the terms of the debentures, then investors holding such debentures will receive warrants to purchase the number of shares of common stock equal to one half of the number of shares of common stock issued upon automatic conversion of the debenture. The Company can prepay all or part of the principal without penalty provided interest is paid proportionately with the principal being prepaid. The fair market value of the Companys common stock was $0.43 per share on the date of the agreement. Consequently, the difference between the anticipated conversion price of $0.35 and the closing price of $0.43, multiplied by the number of issuable common shares upon conversion, has been recorded as a beneficial conversion feature with an increase to equity and a debt discount in the amount of $702,877. This amount will be accreted to interest expense over the remaining life of the debt.
The securities purchase agreement provides the investors with certain registration rights should the debt be converted to stock. An investor may demand that the Company register the securities if it is unable to sell the securities at any time following the six-month holding period provided in Rule 144. The Company is to use all commercially reasonable efforts to file a shelf registration statement within 45 days of notice, cause the registration statement to be effective with 120 days of notice and keep the registration statement continuously effective for five years after the effective date or until the underlying securities have been sold.
If the Company fails to timely file the registration statement or maintain its effectiveness, the Company is required to pay a monthly penalty equal to the greater of 1% of the purchase price paid by the investor or 1% of the market value of the shares then outstanding. Demand for registration has not yet been made.
(7)
Stockholders Equity, Options and Warrants
Employee Stock Purchase
During the six months ended June 30, 2010, and 2009, the Company issued 33,018, and 80,072 shares of common stock, respectively, to employees for proceeds of $13,040, and $13,615, respectively. Subsequent to June 30, 2010, the Company issued 14,521 shares of common stock to employees for proceeds of $4,443. All of these shares were issued in accordance with the Companys employee stock purchase plan.
Share-based Compensation Plans
Employee/Director Grants - The Company accounts for issuances of stock-based compensation to employees by recognizing the cost of employee services received in exchange for an award of equity instruments in the financial statements and 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 measuring the value of any awards that were vested and non-forfeitable at their date of issuance based on the fair value of the equity instruments at the date of issuance. The non-vested portion of awards that are subject to the future performance of the counterparty are adjusted at each reporting date to their fair values based upon the then current market value of the Companys stock and other assumptions that management believes are reasonable.
- 9 -
Option awards outstanding as of June 30, 2010, and changes during the six months ended June 30, 2010, were as follows:
|
|
|
|
|
|
|
Weighted Average Remaining Term |
|
|
|
|
|
|
|
Weighted Average Exercise Price |
|
|
Aggregate Intrinsic Value |
|||
|
|
|
|
|
|
|||||
Fixed Options |
|
Shares |
|
|
|
|||||
Outstanding at December 31, 2009 |
|
26,700,000 |
|
$ |
0.16 |
|
|
|
|
|
Granted |
|
- |
|
|
- |
|
|
|
|
|
Exercised |
|
- |
|
|
- |
|
|
|
|
|
Forfeited |
|
- |
|
|
- |
|
|
|
|
|
Outstanding at June 30, 2010 |
|
26,700,000 |
|
|
0.16 |
|
4.9 |
|
$ |
5,669,500 |
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2010 |
|
19,835,000 |
|
|
0.09 |
|
3.6 |
|
$ |
5,450,225 |
The intrinsic value of outstanding and exercisable shares is based on a June 30, 2010, closing price of the Companys common stock of $0.355 per share.
As of June 30, 2010, there was approximately $906,596 of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 2.0 years.
Restricted Stock Grants
Restricted stock awards outstanding as June 30, 2010, and changes during the six months ended June 30, 2010, were as follows:
Restricted Stock Awards |
|
Shares |
Non-vested at December 31, 2009 |
|
876,014 |
Granted |
|
- |
Vested |
|
(219,003) |
Forfeited |
|
(77,064) |
Non-vested at June 30, 2010 |
|
579,947 |
The value of non-vested stock under the 2006 Equity Incentive Plan at June 30, 2010, was $205,881 and is based on a June 30, 2010, value of $0.355 per share. As of June 30, 2010, there was approximately $40,596 of unamortized deferred compensation that will be recognized over a weighted average period of 1.8 years.
Compensation expense charged against income for stock based awards during the six-month period ended June 30, 2010, was $421,522 of which $418,982 is included in general and administrative expense and $2,540 is included in research and development expense. Stock based compensation expense for this same period in 2009 was $312,177 and is included in general and administrative expense in the accompanying financial statements.
(8)
Commitments and Contingencies
Dependence on Third Parties
The production of HSA Cobalt is dependent upon the U.S. Department of Energy (DOE), and its prime operating contractor, which controls the reactor operations and, therefore, controls the continued production of cobalt in the government funded reactor. Previously, the Companys agreement with the prime operating contractor had been on a reactor cycle-by-cycle contract basis, but in July 2010, the Company entered into a three-year Work For Others agreement with the DOE prime operating contractor to continue cobalt production and cask handling. However, continued access to the reactor for cobalt production still remains subject to approval by the prime operating contractor of the reactor based upon the priorities of its experiments program.
- 10 -
Nuclear Medicine Reference and Calibration Standard manufacturing is conducted under an exclusive contract with RadQual, LLC, which in turn has an agreement in place with several companies for distributing the products. The contract states that the Company will manufacture these products exclusively for RadQual LLC, will not manufacture any products that would directly compete with RadQual, LLC, and that the Company holds the right of first refusal to contract manufacture products that RadQual, LLC wishes to supply to its customers. The current contract with RadQual, LLC was originally executed January 2006, and automatically renews for additional one year terms on each January 1st anniversary date unless terminated in writing by either party 90 days in advance of the anniversary date. A discontinuation of the Companys relationship with RadQual, LLC could adversely affect operating results by causing a possible loss of sales.
The majority of the radiochemical iodine sold by the Company is provided through a supply agreement with a single entity, NTP Radioisotopes (Pty) Ltd. The termination of our relationship with NTP Radioisotopes could adversely affect operating results by causing a delay in production or a possible loss of sales.
The Companys gemstone production is tied to an exclusive agreement with Quali-Tech, Inc., and future gemstone irradiation services are dependent upon the continuation of that agreement. Should this agreement terminate, sales in the Companys Radiological Services would be negatively impacted because the agreement prohibits it from processing gemstones for other customers for two years after the agreement terminates.
Contingencies
Because all of the Companys business segments involve radioactive materials the Company is required to have an operating license from the Nuclear Regulatory Commission (NRC) and specially trained staff to handle these materials. The Company has an NRC operating license and has amended this license several times to increase the amount of material permitted within the facility. Additional processing capabilities and license amendments could be implemented that would permit processing of other reactor produced radioisotopes by the Company. Should this occur, the current license does not restrict the volume of business operation performed or projected to be performed in the coming year. An irrevocable, automatically renewable letter of credit against a Certificate of Deposit at Wells Fargo Bank has been used to provide the financial assurance required by the NRC for the Idaho facility license.
(9)
Subsequent Events
On July 20, 2010, at the Companys Annual Meeting of Shareholders, an amendment to the Companys Restated Articles of Incorporation was approved. The amendment increased the number of authorized shares of common stock, having a par value of $0.01 per share, from 500,000,000 to 750,000,000. This increase in authorized shares has been reflected on the Consolidated Balance Sheet as of June 30, 2010 and December 31, 2009.
- 11 -
(10)
Segment Information
The Company has six reportable segments which include; Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, Fluorine Products, Radiological Services, and Transportation. Information regarding the operations and assets of these reportable business segments is contained in the following table:
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
||||||||
Sale of Product |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiochemical Products |
|
$ |
404,620 |
|
$ |
398,895 |
|
$ |
848,660 |
|
$ |
747,666 |
Cobalt Products |
|
|
486,377 |
|
|
375,759 |
|
|
646,262 |
|
|
1,114,039 |
Nuclear Medicine Standards |
|
|
483,520 |
|
|
466,113 |
|
|
917,039 |
|
|
955,099 |
Radiological Services |
|
|
57,876 |
|
|
154,600 |
|
|
105,533 |
|
|
234,953 |
Fluorine Products |
|
|
- |
|
|
- |
|
|
- |
|
|
878 |
Transportation |
|
|
52,900 |
|
|
90,232 |
|
|
77,350 |
|
|
132,634 |
Total Segments |
|
|
1,485,293 |
|
|
1,485,599 |
|
|
2,594,844 |
|
|
3,185,269 |
Corporate revenue |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Total Consolidated |
|
$ |
1,485,293 |
|
$ |
1,485,599 |
|
$ |
2,594,844 |
|
$ |
3,185,269 |
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
||||||||
Depreciation and Amortization |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiochemical Products |
|
$ |
9,350 |
|
$ |
9,866 |
|
$ |
18,799 |
|
$ |
19,789 |
Cobalt Products |
|
|
27,619 |
|
|
26,128 |
|
|
55,238 |
|
|
52,291 |
Nuclear Medicine Standards |
|
|
1,278 |
|
|
1,190 |
|
|
2,556 |
|
|
1,758 |
Radiological Services |
|
|
2,600 |
|
|
2,600 |
|
|
5,200 |
|
|
5,200 |
Fluorine Products |
|
|
48,129 |
|
|
50,597 |
|
|
99,054 |
|
|
101,037 |
Transportation |
|
|
7,414 |
|
|
6,872 |
|
|
16,525 |
|
|
12,892 |
Total Segments |
|
|
96,389 |
|
|
97,253 |
|
|
197,371 |
|
|
192,967 |
Corporate depreciation and amortization |
|
|
28,248 |
|
|
5,872 |
|
|
33,741 |
|
|
11,818 |
Total Consolidated |
|
$ |
124,637 |
|
$ |
103,125 |
|
$ |
231,112 |
|
$ |
204,785 |
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
||||||||
Segment Income (Loss) |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiochemical Products |
|
$ |
19,793 |
|
$ |
39,692 |
|
$ |
77,550 |
|
$ |
95,704 |
Cobalt Products |
|
|
287,241 |
|
|
230,702 |
|
|
263,342 |
|
|
592,102 |
Nuclear Medicine Standards |
|
|
223,078 |
|
|
178,605 |
|
|
396,603 |
|
|
406,901 |
Radiological Services |
|
|
26,737 |
|
|
96,001 |
|
|
35,427 |
|
|
155,108 |
Fluorine Products |
|
|
(1,508,477) |
|
|
(758,911) |
|
|
(2,232,930) |
|
|
(1,435,098) |
Transportation |
|
|
(22,775) |
|
|
2,938 |
|
|
(50,973) |
|
|
(15,320) |
Total Segments |
|
|
(974,402) |
|
|
(210,973) |
|
|
(1,510,980) |
|
|
(200,603) |
Corporate Loss |
|
|
(732,668) |
|
|
(547,661) |
|
|
(1,460,952) |
|
|
(1,145,958) |
Net Loss |
|
$ |
(1,707,070) |
|
$ |
(758,634) |
|
$ |
(2,971,932) |
|
$ |
(1,346,561) |
- 12 -
|
|
Three Months ended June 30, |
|
Six Months ended June 30, |
||||||||
Expenditures for Segment Assets |
|
2010 |
|
2009 |
|
2010 |
|
2009 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Radiochemical Products |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
Cobalt Products |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Nuclear Medicine Standards |
|
|
- |
|
|
13,801 |
|
|
- |
|
|
23,531 |
Radiological Services |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Fluorine Products |
|
|
- |
|
|
7,844 |
|
|
7,207 |
|
|
37,032 |
Transportation |
|
|
- |
|
|
34,332 |
|
|
- |
|
|
81,653 |
Total Segments |
|
|
- |
|
|
55,977 |
|
|
7,207 |
|
|
142,216 |
Corporate purchases |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
Total Consolidated |
|
$ |
- |
|
$ |
55,977 |
|
$ |
7,207 |
|
$ |
142,216 |
|
|
June 30, |
|
December 31, |
||
Segment Assets |
|
2010 |
|
2009 |
||
|
|
|
|
|
|
|
Radiochemical Products |
|
$ |
269,577 |
|
$ |
314,386 |
Cobalt Products |
|
|
2,616,926 |
|
|
2,150,012 |
Nuclear Medicine Standards |
|
|
584,502 |
|
|
546,521 |
Radiological Services |
|
|
42,922 |
|
|
38,708 |
Fluorine Products |
|
|
1,790,147 |
|
|
1,884,243 |
Transportation |
|
|
60,790 |
|
|
95,749 |
Total Segments |
|
|
5,364,864 |
|
|
5,029,619 |
Corporate assets |
|
|
3,136,196 |
|
|
2,351,686 |
Total Consolidated |
|
$ |
8,501,060 |
|
$ |
7,381,305 |
- 13 -
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and within the safe harbor provisions 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. In particular, statements regarding growth in our business segments; progress on our depleted uranium de-conversion and fluorine extraction processing facility; the potential market for de-conversion services; increased cash flow to meet operational needs; improvement in our financial strength, debt ratio and attractiveness to investors and lenders; future liquidity requirements; NRC licensing requirements; and the consequences of the loss of any of our major customers or suppliers are forward looking. Forward-looking statements reflect managements current 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 report. Certain risks and uncertainties that could cause our actual results to differ significantly from managements expectations are described in the risk factors set forth in our annual report on Form 10-K for the fiscal year ended December 31, 2009 filed with the securities and Exchange Commission on March 31, 2010. These factors, describe some but not all of the factors that could cause actual results to differ significantly from managements expectations. The Company will not publicly release any revisions to these 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 factors set forth in reports that we file from time to time with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Three months ended June 30, 2010, and 2009
Revenues for the three-month period ended June 30, 2010, were $1,485,293, as compared to $1,485,599 for the same period in 2009, a decrease of $306 or less than 1%. All business segments showed increases in revenues with the exception of the Radiological Services and Transportation segments which reported decreases in revenue of 63% and 41%, respectively, for the second quarter of the 2010 fiscal year, as compared to the same period in 2009. The following table illustrates a year-to-year comparison of segment revenue for the three-month periods ended June 30, 2010 and 2009:
|
Three months ended June 30, |
|||||||||
Sale of Product |
2010 |
|
2009 |
|
Increase (Decrease) |
|
% Change |
|||
Radiochemical Products |
$ |
404,620 |
|
$ |
398,895 |
|
$ |
5,725 |
|
1% |
Cobalt Products |
|
486,377 |
|
|
375,759 |
|
|
110,618 |
|
29% |
Nuclear Medicine Standards |
|
483,520 |
|
|
466,113 |
|
|
17,407 |
|
4% |
Radiological Services |
|
57,876 |
|
|
154,600 |
|
|
(96,724) |
|
-63% |
Flourine Products |
|
- |
|
|
- |
|
|
- |
|
- |
Transportation |
|
52,900 |
|
|
90,232 |
|
|
(37,332) |
|
-41% |
Total Segments |
|
1,485,293 |
|
|
1,485,599 |
|
|
(306) |
|
-0.02% |
Corporate revenue |
|
- |
|
|
- |
|
|
- |
|
- |
Total Consolidated |
$ |
1,485,293 |
|
$ |
1,485,599 |
|
$ |
(306) |
|
-0.02% |
- 14 -
Gross profit for the three-month period ended June 30, 2010, was $736,920 compared to $800,858, for the same period in 2009. This represents a decrease of $63,938, or 8%. The decrease in gross profit is due to total sales remaining relatively unchanged coupled with increases in the cost of product materials. Operating expenses increased to $2,290,438 for the three-month period ended June 30, 2010, compared to $1,557,774 for the same period in 2009. This represents an increase of $732,664 or approximately 47%. The following table shows a year to year comparison of total operating expenses for the three-month period:
|
Three months ended June 30, |
|||||||||
|
2010 |
|
2009 |
|
Increase (Decrease) |
|
% Change |
|||
Operating costs and expenses: |
|
|
|
|
|
|
|
|
|
|
Salaries and contract labor |
$ |
448,795 |
|
$ |
519,034 |
|
$ |
(70,239) |
|
-14% |
General, administrative and consulting |
|
478,838 |
|
|
457,873 |
|
|
20,965 |
|
5% |
Research and development |
|
1,362,805 |
|
|
580,867 |
|
|
781,938 |
|
135% |
Total operating expenses |
$ |
2,290,438 |
|
$ |
1,557,774 |
|
$ |
732,664 |
|
47% |
As illustrated, the increase in operating costs and expenses is directly attributable to research and development expenses associated with the planning and licensing of the planned depleted uranium de-conversion facility. Salaries and contract labor decreased by $70,239, or approximately 14%, for the three-month period ended June 30, 2010, as compared to the same period in 2009. General administrative costs increased by $20,965, or approximately 5%, for this same period, to $478,838 for the three months ended June 30, 2010, as compared to $457,873 for the same period in 2009. Research and development costs increased by $781,938, or approximately 135%, for the three months ended June 30, 2010, to $1,362,805, as compared to $580,867 for the same period in 2009. The decrease in salaries and contract labor expense is a result of personnel being redirected to support the research and development work related to the de-conversion facility project. The slight increase in general administrative costs is a result of overall corporate administrative support to all business segments including the general and administrative support for the de-conversion project. The significant increase in research and development expense is almost entirely attributable to the continued planning and licensing activities with regard to the depleted uranium de-conversion facility. These research and development expenses have increased from period-to-period and are expected to continue to do so as the uranium de-conversion project progresses. Our net loss for the three-month period ended June 30, 2010, was $1,707,070, as compared to $758,634 for the same period in 2009. This is an increase in loss of $948,436, or 125%, and was largely attributable to the increases in research and development related to the planned depleted uranium de-conversion and fluorine extraction processing facility.
Interest expense for the three-month period ended June 30, 2010, was $173,322, as compared to $24,308 for the same period in 2009. The increase of $149,014, or 613%, is primarily interest expense recorded as a result of the convertible debentures we issued in February 2010 to various institutional and private investors. The debentures contain a beneficial conversion feature, and accordingly, we have recorded this feature as a contra-liability while simultaneously accreting the beneficial portion of the debt as interest expense over the 18-month life of the agreement.
Radiochemical Products . Revenues from the sale of radiochemical products for the three-month period ended June 30, 2010, were $404,620, compared to $398,895 for the same period in 2009. This represents a slight increase in revenue of $5,725, or approximately 1%. Historically, annual revenue growth in this segment has been approximately 20% or greater. However, due to tighter market conditions which have persisted over the past year, iodine sales have remained steady for the three-month period ended June 30, 2010, without showing significant increase. Gross profit in this segment for the three months ended June 30, 2010, was $53,426, compared to $100,973 for the same period in 2009. Gross profit percentages were approximately 13% and 25%, for the second quarter of 2010 and 2009, respectively. This decrease in gross profit reflects the period-to-period decrease in sales coupled with an increase in the cost of materials, such as iodine-131, as well as increased freight and shipping costs. Operating expense for this segment for the three-month period ended June 30, 2010, was $33,634, as compared to $61,281, for the same period in 2009. This decrease of $27,647, or 45%, is the result of managements on-going efforts to reduce all operating expenses. Net income for this segment decreased for the three-month period ended June 30, 2010, to $19,793, from $39,692 for the same period in 2009, a decrease of $19,899, or approximately 50%. We intend to increase pricing of radiochemical products in the second half of 2010 and have implemented alternate shipment methods, which we expect will increase revenues and reduce costs in this segment.
- 15 -
Cobalt Products . Revenues from the sale of cobalt products for the three-month period ended June 30, 2010, were $486,377, compared to $375,759 for the same period in 2009. This represents an increase in revenue attributable to this segment of $110,618, or approximately 29%. This increase in segment revenue is the result of increased efforts in marketing sealed source products world-wide. Gross profit in this segment for the three-month period ended June 30, 2010 was $351,598, compared to $273,396 for the same period in 2009. This increase in gross profit of $78,202 is due to increased sales coupled with successful efforts to maintain decreased manufacturing costs. Operating expense in this segment increased by $21,663 to $64,357 for the three-month period ended June 30, 2010, from $42,694 for the same period in 2009. This increase was primarily due to general support and supply costs incurred to support product manufacturing in this segment. Net income for this segment was $287,241 for the three-month period ended June 30, 2010, as compared to $230,702 for the same period in 2009. The increase in net income of $56,539 is attributable to increased sealed source sales, particularly sales in South America, where we have continued to expand our market. We anticipate continued growth in this segment for 2010 as foreign markets increase their purchases. We will continue to market our sealed source products in foreign markets, particularly South America, and will continue to research and pursue additional transportation containers for shipment of material.
We have a contract with one customer, GE-Hitachi, pursuant to which we supply all of its bulk cobalt requirements. This contract was renewed in April 2010 with a term of four years. The contract requires minimum annual purchases of material, and any shortages in annual purchases are to be invoiced to the customer. Under the contract, we expect to have a minimum of $2,656,000 in bulk cobalt sales to GE-Hitachi over the four-year period.
The production of HSA cobalt, which we use in both bulk cobalt sales and sealed source sales, is dependent on the U.S. Department of Energy, and its prime-operating contractor which manages the Idaho reactor. A loss of the ability to use this reactor would cause a significant negative impact on both our bulk cobalt sales and sealed source sales. Previously, our agreement with the prime-operating contractor had been on a reactor cycle-by-cycle contract basis, but in July 2010, we entered into a three-year Work For Others agreement with the DOE prime operating contractor to continue cobalt production and cask handling. However, continued access to the reactor for cobalt production remains subject to approval by the prime operating contractor of the reactor based upon the priorities of its experiments program.
Nuclear Medicine Standards . Revenues from nuclear medicine products for the three-month period ended June 30, 2010, were $483,520, compared to $466,113 for the same period in 2009. This represents an increase in revenue attributable to this segment of $17,407, or approximately 4%. Gross profit for this segment for the three-month period ended June 30, 2010, was $255,553, as compared to $213,825 for the same period in 2009, or 53% and 46% of nuclear medicine segment sales, respectively. Operating expense for this segment for the three-month period ended June 30, 2010 decreased to $32,475, from $35,219 for the same period in 2009, a decrease of $2,744 or approximately 8%. The small decrease in operating expense was the result of managements successful efforts to limit operating costs in the nuclear medicine products segment. Net income for this segment increased $44,473, or approximately 24%, to $223,078 for the period ended June 30, 2010, as compared to $178,605, for the same period in 2009. Management believes that this increase is reflective of the resumption of necessary purchases by customers who, because of economic conditions, had previously postponed these purchases. We are taking steps to implement an ISO-9000 quality program that will allow sales of calibration and reference standards into Canada and the European Union. Improvements in general economic conditions and this new quality certification are expected to strengthen sales in this segment.
Radiological Services . Revenues from the radiological services segment for the three-month period ended June 30, 2010, were $57,876, compared to $154,600 for the same period in 2009, a decrease of $96,724 or approximately 63%. Gross profit for this segment for the three-month period ended June 30, 2010 was $36,861, and $147,646 for the same period in 2009, or 64% and 96% of radiological services segment revenue, respectively. Operating expense for this segment for the three months ended June 30, 2010, was $10,124, as compared to $51,645 for the same period in 2009. This decrease is due to economizing on all costs in this segment until such time as the gemstone processing market , the principal market for our radiological services segment, resumes historical activity. Net income for this segment for the three-month period ended June 30, 2010 was $26,737, as compared to $96,001 for the same period in 2009. The decrease of $69,264, or 72%, was due to decreases in revenue for both gemstone processing and radiological services consulting. Most of our radiological services are performed in support of gemstone processing for Quali-Tech, Inc. There are very few companies in the U.S. that possess the mix of qualifications and licensing necessary to provide this type of service, and although the volume of gemstones has not been at historical proportions, management anticipates volume will resume as economic conditions improve.
- 16 -
Fluorine Products . There were no revenues to report from the fluorine products segment for the three-month period ended June 30, 2010, or for the same period in 2009. We are developing our fluorine products in conjunction with uranium de-conversion, in order to take advantage of the anticipated need for depleted uranium de-conversion services. Our Fluorine Extraction Process (FEP) patents provide a unique opportunity to provide certain high-purity fluoride compounds while also offering a for fee de-conversion service to the uranium enrichment industry. During 2010, we plan to use our existing FEP facility in Idaho for testing individual components and analytical processes required for the planned uranium de-conversion facility in New Mexico. We are also in discussions with customers for the production and sale of germanium tetrafluoride, which would be produced in the Idaho FEP facility in conjunction with the testing and analytical activities.
Transportation Services . Revenues from the transportation services segment for the three-month period ended June 30, 2010, were $52,900, compared to $90,232 for the same period in 2009. This is a decrease of $37,332, or approximately 41%. This decrease in revenue is largely due to fewer opportunities for for hire transportation services. Gross profit for this segment was $39,481 for the three-month period ended June 30, 2010, and $65,019 for the same period in 2009, or 75% and 72%, respectively, of transportation segment revenue for these periods. Operating expense for this segment was $61,906 for the three-month period ended June 30, 2010, and $61,560 for the same period in 2009. This represents an increase of $346 or less than 1%. This slight increase in expense is the result of managements on-going efforts to control operating costs in this segment. For the three-month period ended June 30, 2010, the transportation services segment reported a net loss of $22,775, as compared to net income of $2,938 for the same period in 2009. The transportation services segment was established to provide for transportation of our products (such as cobalt sources) and to offer for hire transportation services of hazardous and non-hazardous cargo materials. This business segment provides us with considerable savings for the transportation of its products and produces a small revenue stream by providing transportation of products for other companies. It is anticipated that this segment will also provide some of the transportation services for the planned de-conversion facility.
Six months ended June 30, 2010, and 2009
Revenues for the six-month period ended June 30, 2010, were $2,594,844, as compared to $3,185,269 for the same period in 2009, a decrease of $590,425 or approximately 19%. The Company recorded no bulk cobalt sales for the six-month period ended June 30, 2010, but recorded $494,661 of bulk cobalt sales during the same period in 2009. Because each bulk cobalt sale represents a material dollar amount, these sales can create significant variations in period-to-period comparisons. Therefore, management believes that a comparison of total revenue excluding bulk cobalt sales provides meaningful information to investors because of these large period-to-period variations.
The following table presents a period-to-period comparison of total revenue by segment, as well as a period-to-period comparison of total revenue by segment excluding bulk cobalt sales. This information has limitations as an analytical tool and you should not consider it in isolation or as a substitute for total revenue.
|
Six months ended June 30, |
|||||||||
Sale of Product |
2010 |
|
2009 |
|
Increase (Decrease) |
|
% Change |
|||
Radiochemical Products |
$ |
848,660 |
|
$ |
747,666 |
|
$ |
100,994 |
|
14% |
Cobalt Products (including bulk cobalt sales) |
|
646,262 |
|
|
1,114,039 |
|
|
(467,777) |
|
-42% |
Nuclear Medicine Standards |
|
917,039 |
|
|
955,099 |
|
|
(38,060) |
|
-4% |
Radiological Services |
|
105,533 |
|
|
234,953 |
|
|
(129,420) |
|
-55% |
Flourine Products |
|
- |
|
|
878 |
|
|
(878) |
|
-100% |
Transportation |
|
77,350 |
|
|
132,634 |
|
|
(55,284) |
|
-42% |
Total Segments |
|
2,594,844 |
|
|
3,185,269 |
|
|
(590,425) |
|
-19% |
Corporate revenue |
|
- |
|
|
- |
|
|
- |
|
- |
Total Consolidated |
$ |
2,594,844 |
|
$ |
3,185,269 |
|
$ |
(590,425) |
|
-19% |
- 17 -
|
Six months ended June 30, |
|||||||||
Sale of Product |
2010 |
|
2009 |
|
Increase (Decrease) |
|
% Change |
|||
Radiochemical Products |
$ |
848,660 |
|
$ |
747,666 |
|
$ |
100,994 |
|
14% |
Cobalt Products (excluding bulk cobalt sales) |
|
646,262 |
|
|
619,378 |
|
|
26,884 |
|
4% |
Nuclear Medicine Standards |
|
917,039 |
|
|
955,099 |
|
|
(38,060) |
|
-4% |
Radiological Services |
|
105,533 |
|
|
234,953 |
|
|
(129,420) |
|
-55% |
Flourine Products |
|
- |
|
|
878 |
|
|
(878) |
|
-100% |
Transportation |
|
77,350 |
|
|
132,634 |
|
|
(55,284) |
|
-42% |
Total Segments |
|
2,594,844 |
|
|
2,690,608 |
|
|
(95,764) |
|
-4% |
Corporate revenue |
|
- |
|
|
- |
|
|
- |
|
- |
Total Consolidated |
$ |
2,594,844 |
|
$ |
2,690,608 |
|
$ |
(95,764) |
|
-4% |
Gross profit for the six-month period ended June 30, 2010 was $1,112,601, compared to $1,669,792, for the same period in 2009. This represents a decrease of $557,191, or approximately 34%. This decrease in gross profit for the six-month period is attributable to reporting no bulk cobalt sales for the six-month period in 2010, as compared to reporting $494,661 of bulk cobalt sales for the same period in 2009. Gross profit for the six-month period ended June 30, 2009, excluding bulk cobalt sales was $1,175,131, as compared to $1,112,601 in 2010, a decrease of $62,530 or approximately 5%.
Operating expenses were $3,837,049 for the six-month period ended June 30, 2010, compared to $2,997,908 for the same period in 2009. This represents an increase of $839,141 or approximately 28%. This increase is attributable to the increase in research and development costs generated by work related to the continued planning and licensing of the uranium de-conversion facility. The following table shows a year to year comparison of total operating expenses for the six-month period:
|
Six Months ended June 30, |
||||
|
2010 |
|
2009 |
||
Operating costs and expenses: |
|
|
|
|
|
Salaries and contract labor |
$ |
967,876 |
|
$ |
1,055,088 |
General, administrative and consulting |
|
850,203 |
|
|
889,514 |
Research and development |
|
2,018,970 |
|
|
1,053,306 |
Total operating expenses |
$ |
3,837,049 |
|
$ |
2,997,908 |
Our net loss for the six-month period ended June 30, 2010, was $2,971,932, as compared to $1,346,561for the same period in 2009. This is an increase in loss of $1,625,371, or 121%, and was largely attributable to the increases in research and development costs related to the planned depleted uranium de-conversion and fluorine extraction processing facility.
Radiochemical Products . Revenues from the sale of radiochemical products for the six-month period ended June 30, 2010, were $848,660, compared to $747,666 for the same period in 2009. This represents an increase in revenue of $100,994, or approximately 14%. Increases in this segments performance are attributable to increased sales of radiochemical iodine-131 which have remained strong for the six-month period. Gross profit in this segment for the six months ended June 30, 2010, was $146,164, compared to $192,342 for the same period in 2009. Gross profit percentages for the six months ended June 30, 2010 and 2009 were approximately 17% and 25%, respectively. This decrease in gross profit reflects the period-to-period increase in sales coupled with increases in the cost of materials, such as iodine-131, as well as increased freight and shipping costs. Operating expense for this segment for the six-month period ended June 30, 2010, was $68,614 as compared to $96,638 for the same period in 2009. This is a decrease of $28,024, or 29%, and is the result of managements on-going efforts to reduce operating expenses. Net income for this segment decreased for the six-month period ended June 30, 2010, to $77,550, a decrease of $18,154, or approximately 19%, as compared to net income of $95,704 for the same period in 2009. We intend to increase pricing of radiochemical products in the second half of 2010 and have implemented alternate shipment methods, which we expect will increase revenues and reduce costs in this segment.
- 18 -
Cobalt Products . Revenues from the sale of cobalt products for the six-month period ended June 30, 2010, were $646,262, compared to $1,114,039 for the same period in 2009. This represents a decrease in revenue of $467,777, or approximately 42%. This decrease in segment revenue is the result of the timing of large bulk cobalt product sales which have a dramatic affect on period-to-period comparisons, as illustrated in the Sale of Product table above. Management believes that a period-to-period comparison excluding bulk cobalt sales offers a more useful comparison for the shareholder. Excluding bulk cobalt sales, total cobalt product sales increased to $646,262 for the six months ended June 30, 2010, as compared to $619,378 for the same period in 2009. This is an increase of $26,884, or approximately 4%. This slight increase in sales, excluding bulk cobalt sales, reflects the on-going marketing efforts of cobalt products into new markets. Gross profit for the six-month period ended June 30, 2010 was $383,801, as compared to $690,455 for the same period in 2009. This decrease in gross profit is primarily the result of reporting no bulk cobalt sales for this period in 2010 as compared to reporting $494,661 in bulk cobalt sales for the six months ending June 30, 2009. Operating expense in this segment increased by $22,106, to $120,459 for the six-month period ended June 30, 2010, from $98,353 for the same period in 2009. This is an increase of approximately 22% and is the result of increases in operating supplies and indirect labor charges for this six-month period ended June 30, 2010, as compared to the same period in 2009. Net income for the six months ended June 30, 2010 was $263,343, as compared to $592,102 for the same period in 2009. This decrease of $328,759, or approximately 56%, is attributable to reporting no bulk cobalt sales for the six-month period ended June 30, 2010, as compared to reporting $494,661 in bulk cobalt sales for the same period in 2009.
Nuclear Medicine Standards . Revenues from nuclear medicine products for the six-month period ended June 30, 2010, were $917,039, compared to $955,099 for the same period in 2009. This is a decrease in revenue of $38,060, or approximately 4%. Gross profit for this segment for the six-month period ended June 30, 2010, was $460,080, as compared to $471,319 for the same period in 2009, or 51% and 49% of nuclear medicine segment sales, respectively. Operating expense for this same period decreased to $63,476 for 2010, from $64,418 in 2009, a decrease of $942, or approximately 2%. Net income for the nuclear medicine products segment decreased $10,298, or approximately 3% for the period ended June 30, 2010, as compared to the same period in 2009. Based on discussions with a major customer, management believes revenues and net income for this segment will improve during the second half of 2010, as customers resume purchases of nuclear medicine products that were previously postponed because of economic considerations.
Radiological Services . The radiological services segment reported revenues of $105,533 for the six-month period ended June 30, 2010 and $234,953 for the same period in 2009. This is a decrease of $129,420, or approximately 55%. Gross profit was $62,386 for this segment for the six months ended June 30, 2010 and $213,812 for the same period in 2009. This is a decrease in gross profit of $151,426, or approximately 71%. Operating costs were $26,960 and $58,702 for 2010 and 2009, respectively, for the same six-month period. Net income for the period ended June 30, 2010 was $35,427, compared to $155,108 for the same period in 2009. The overall decrease in both revenue and expenses for this business segment is due to the decrease in gemstone processing as well as decreases in radiological services consulting. Most radiological services are performed in connection with gemstone processing which, due to decreased demand, has slowed significantly which management believes is due to global economic trends in general.
Fluorine Products . Revenues from the fluorine products segment for the six-month period ended June 30, 2010, were $0 and $878 for the same period in 2009. We are developing our fluorine products in conjunction with uranium de-conversion in order to take advantage of the anticipated need for depleted uranium de-conversion services. Based on market studies, we believe that continued financial investment in the uranium de-conversion facility is justified, and will continue to invest in this project throughout the remainder of 2010. The FEP facility in Idaho continues to be used for testing individual components and analytical processes required for the planned uranium de-conversion facility in New Mexico.
Transportation Services . Revenues from the transportation services segment for the six-month period ended June 30, 2010, were $77,350 compared to $132,635 for the same period in 2009. This is a decrease of $55,285, or approximately 42% and is largely the result of decreased for hire revenues. Gross profit for this segment was $60,170 for the six-month period ended June 30, 2010, and $100,987 for the same period in 2009. This is a decrease in gross profit of $40,817, or approximately 41%. Operating expense for this segment was $110,387 for the six-month period ended June 30, 2010, and $115,795 for the same period in 2009. This represents a decrease of $5,408 or approximately 5%. The transportation services business segment continues to provide hazardous and non-hazardous transportation services to us at significant savings as compared to outside commercial carriers. Our specially trained drivers and equipped vehicles are well suited to meeting the security and regulatory requirements necessary for the transport of these types of shipments while significantly reducing the costs of transport to our Company.
- 19 -
LIQUIDITY AND CAPITAL RESOURCES
On June 30, 2010, we had cash and cash equivalents of $1,192,310. For the six months ended June 30, 2010, net cash used in operating activities was $2,108,837. Use of cash in operating activities is a combination of typical operating purchases, including inventory purchases, as well as an increase in accounts receivable.
Inventories at June 30, 2010 totaled $1,920,851, and inventories at December 31, 2009, totaled $1,835,345. This significant investment in inventory is due to the time required to produce some cobalt products and the operating cycle for those products is considered to be approximately three years. Irradiation costs paid to the Department of Energys prime contractor account for approximately 70% of total inventory cost for the period ended June 30, 2010, and approximately 75% of total inventory cost for the similar period in 2009. In December of 2009, it was determined that some cobalt target material had decreased in activity level and was written down to its estimated market value. We recorded an impairment charge of $740,719 at that time. Further impairments are not anticipated.
Increases in accounts receivable reflect normal fluctuations in segment sales as well as payment terms. Historically, we have not written off any accounts receivable and we expect that trend to continue. For the six-month period ended June 30, 2010, we used $166,046 in investing activities. This use of funds was primarily attributable to increasing the amount held in a restricted certificate of deposit by $161,353 as part of our financial assurance obligations under our NRC license. As a condition of our NRC licenses in Idaho, we are required to provide financial assurance for decommissioning activities. We fulfill this license requirement with an actual cash reserve, in the form of a certificate of deposit and irrevocable letter of credit to the NRC, to support our estimated decommissioning and disposal costs for our facilit ies . Financing activities provided $3,006,102 during the six months ended June 30, 2010, which was the result of issuing convertible debentures yielding cash proceeds of $3,075,000 during the first quarter of 2010.
At June 30, 2010, we had two outstanding loans with Compass Bank. One loan carries an outstanding balance of $52,978, with an interest rate of 9.25%, and matures September 15, 2011. The second loan, matures April 20, 2011, and has an outstanding balance of $445,593, with an interest rate of 7.25%. We also have an unsecured note payable totaling $500,000 which is payable to the former Chairman of the Board. The loan requires annual interest payments on the principal balance at 7% per year, payable each April 1st, and the note matures on April 1, 2012.
We are continuing to pursue the planning, licensing and construction of a depleted uranium de-conversion and fluorine extraction processing facility. We spent approximately $2,025,000 during the first six months of 2010 on this project, and anticipate this spending level to continue through the remainder of 2010. In 2009, we produced the Conceptual Design Report for the project and submitted the license application and required environmental report for the Nuclear Regulatory Commission license application. In the first half of 2010, we continued to support the licensing process with the NRC, completed additional facility design, worked on the transfer of property for the facility, and continued to work towards completing sales agreements for the sale of products from the proposed facility. We are exploring several options for funding of the project at this time including a loan guarantee under the Department of Energy loan guarantee program solicitation for renewable energy, energy savings in manufacturing projects.
We have a long term investment of $1,290,000, which is a 24.5% ownership in units of RadQual, LLC. The value of this asset is based upon the purchase price of those shares and the continued business performance of RadQual, LLC. We purchased these shares with the intent to eventually acquire the remaining shares of RadQual, LLC and thus improve the revenues and profit margin for the nuclear medicine business segment. At the present time there is no immediate action pending or planned to acquire the remainder of those shares. Future plans to complete this acquisition will depend upon our ability to obtain additional capital.
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.
- 20 -
At June 30, 2010 there were 25,940,637 outstanding warrants to purchase common stock. Included in these are 13,333,331 Class E warrants outstanding which entitle the holder to purchase shares of common stock at an exercise price equal to $0.51 per share. These Class E warrants were issued in 2008 and expire on March 20, 2011. In November 2008, 8,200,000 Class F warrants were issued with an exercise price of $0.30 per share and an expiration date of November 7, 2013. In September 2009, the Company issued 4,407,306 Class G warrants with an exercise price of $.40 per share. These Class G warrants expire on September 16, 2011.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) that are designed to ensure that material information relating to the Company is made known to the officers who certify the Companys financial reports and to other members of senior management and the Board of Directors. These disclosure controls and procedures are designed to ensure that information required to be disclosed in the Companys reports that are filed or submitted under the Exchange Act, are recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Management, with the participation of the CEO and CFO, has evaluated the effectiveness, as of June 30, 2010, of the Companys disclosure controls and procedures. Based on that evaluation, the CEO and CFO have concluded that the Companys disclosure controls and procedures were effective as of June 30, 2010.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended June 30, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 5. Other Information
None
Item 6. Exhibits
3(i)
Restated Articles of Incorporation as amended.
3(ii)
Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed on May 1, 1997 (Registration No. 333-26269)).
10.1
Employment Agreement, by and between International Isotopes Inc. and Stephen Laflin dated as of May 31, 2010 (incorporated by reference to Exhibit 99.1 of the Companys Current Report on Form 8-K filed on June 23, 2010).*
- 21 -
10.2
Work For Others Agreement by and between International Isotopes Inc. and Battelle Energy Alliance, LLC dated July 31, 2010 (incorporated by reference to Exhibit 99.1 of the Companys Current Report on Form 8-K filed on August 3, 2010).
10.3
Sales Agreement effective August 1, 2010 by and between International Isotopes Idaho, Inc. and NTP Radioisotopes (Pty) Ltd.**
31.1
Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Executive Officer.
31.2
Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Financial Officer.
32.1
Certification by the Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by the Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* This exhibit constitutes a management contract or compensatory plan or arrangement
** Contains material that has been omitted pursuant to a request for confidential treatment and such material has been filed separately with the Commission.
SIGNATURES
In accordance with the requirements of the Exchange Act the registrant caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
International Isotopes Inc. |
|
|
(Registrant) |
|
|
|
|
|
|
|
|
By: |
/s/ Steve T. Laflin |
|
|
Steve T. Laflin |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
By: |
/s/ Laurie McKenzie-Carter |
|
|
Laurie McKenzie-Carter |
|
|
Chief Financial Officer |
|
|
|
Date: August 16, 2010 |
|
|
- 22 -
EXHIBIT INDEX
Exhibit
Number
Description of Document
3(i)
Restated Articles of Incorporation as amended.
3(ii)
Bylaws (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed on May 1, 1997 (Registration No. 333-26269)).
10.1
Employment Agreement, by and between International Isotopes Inc. and Stephen Laflin dated as of May 31, 2010 (incorporated by reference to Exhibit 99.1 of the Companys Current Report on Form 8-K filed on June 23, 2010).*
10.2
Work For Others Agreement by and between International Isotopes Inc. and Battelle Energy Alliance, LLC dated July 31, 2010 (incorporated by reference to Exhibit 99.1 of the Companys Current Report on Form 8-K filed on August 3, 2010).
10.3
Sales Agreement effective August 1, 2010 by and between International Isotopes Idaho, Inc. and NTP Radioisotopes (Pty) Ltd.**
31.1
Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Executive Officer.
31.2
Certification under Section 302 of the Sarbanes-Oxley Act of 2002 for Chief Financial Officer.
32.1
Certification by the Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification by the Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* This exhibit constitutes a management contract or compensatory plan or arrangement
** Contains material that has been omitted pursuant to a request for confidential treatment and such material has been filed separately with the Commission.
- 23 -
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF FORMATION
OF
INTERNATIONAL ISOTOPES INC.
International Isotopes Inc. (the "Corporation"), a corporation organized and existing under and by virtue of the Texas Business Organizations Code, hereby certifies that:
1.
The name of the filing entity is International Isotopes Inc.
2.
The filing entity is a For-profit Corporation.
3.
The first sentence of Article IV of the Corporation's Restated Certificate of Formation is hereby amended and restated in its entirety to read as follows:
"The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is Seven Hundred Fifty Five Million (755,000,000), of which (a) Seven Hundred Fifty Million (750,000,000) shares shall be designated as Common Stock, par value $.01 per share, and (b) Five Million (5,000,000) shares shall be designated as Preferred Stock, par value $.01 per share."
4.
The aforesaid amendment to the Corporation's Restated Certificate of Formation has been approved in the manner required by the Texas Business Organizations Code and by the governing documents of the Corporation.
IN WITNESS WHEREOF, International Isotopes Inc. has caused this Certificate of Amendment to be signed by its duly authorized officer, this 21st day of July, 2010.
INTERNATIONAL ISOTOPES INC.
By: /s/ Steve T. Laflin
Steve T. Laflin, President and CEO
RESTATED CERTIFICATE OF FORMATION
OF
INTERNATIONAL ISOTOPES INC.
International Isotopes Inc. (the "Corporation"), pursuant to the provisions of the Texas Business Organizations Code, hereby adopts the Restated Certificate of Formation which sets forth the Articles of Incorporation and supersedes the original Restated Articles of Incorporation and all amendments thereto.
The Articles of Incorporation are hereby amended and restated as follows:
ARTICLE I
The name of the Corporation is "International Isotopes Inc." (the "Corporation").
ARTICLE II
The period of duration of the Corporation is perpetual.
ARTICLE III
The purpose for which the Corporation is organized is to transact any and all lawful business for which a corporation may be incorporated under the Texas Business Organizations Code.
ARTICLE IV
The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is Five Hundred Five Million (505,000,000), of which (a) Five Hundred Million (500,000,000) shares shall be designated as Common Stock, par value $.01 per share, and (b) Five Million (5,000,000) shares shall be designated as Preferred Stock, par value $.01 per share.
The following is a statement of the designations, preferences, limitations, and relative rights, including voting rights, in respect of the classes of stock of the Corporation and of the authority with respect thereto expressly vested in the Board of Directors of the Corporation:
COMMON STOCK
(1) Each share of Common Stock of the Corporation shall have identical rights and privileges in every respect. The holders of shares of Common Stock shall be entitled to vote upon all matters submitted to a vote of the shareholders of the Corporation and shall be entitled to one vote for each share of Common Stock held.
(2) Subject to the prior rights and preferences, if any, applicable to shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive such dividends (payable in cash, stock, or otherwise) as may be declared thereon by the Board of Directors at any time and from time to time out of any funds of the Corporation legally available therefore.
(3) In the event of any voluntary or involuntary liquidation, dissolution, or winding-up of the Corporation, after distribution in full of the preferential amounts, if any, to be distributed to the holders of shares of the Preferred Stock or any series thereof, the holders of shares of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation available for distribution to its shareholders, ratably in proportion to the number of shares of the Common Stock held by them. A liquidation, dissolution, or winding-up of the Corporation, as such terms are used in this Paragraph (3), shall not be deemed to be occasioned by or to include any merger of the Corporation with or into one or more corporations or other entities, any acquisition or exchange of the outstanding shares of one or more classes or series of the Corporation, or any sale, lease, exchange, or other disposition of all or a part of the assets of the Corporation.
PREFERRED STOCK
(1) Shares of the Preferred Stock may be issued from time to time in one or more series, the shares of each series to have such designations, preferences, limitations, and relative rights, including voting rights, as shall be stated and expressed herein or in a resolution or resolutions providing for the issue of such series adopted by the Board of Directors of the Corporation. Each such series of Preferred Stock shall be designated so as to distinguish the shares thereof from the shares of all other series and classes. The Board of Directors of the Corporation is hereby expressly authorized, subject to the limitations provided by law, to establish and designate series of the Preferred Stock, to fix the number of shares constituting each series, and to fix the designations and the preferences, limitations, and relative rights, including voting rights, of the shares of each series and the variations of the relative rights and preferences as between series, and to increase and to decrease the number of shares constituting each series, provided that the Board of Directors may not decrease the number of shares within a series to less than the number of shares within such series that are then issued. The relative powers, rights, preferences, and limitations may vary between and among series of Preferred Stock in any and all respects so long as all shares of the same series are identical in all respects, except that shares of any such series issued at different times may have different dates from which dividends thereon cumulate. The authority of the Board of Directors of the Corporation with respect to each series shall include, but shall not be limited to, the authority to determine the following:
(a)
The designation of such series;
(b)
The number of shares initially constituting such series;
(c)
The rate or rates and the times at which dividends on the shares of such series shall be paid, the periods in respect of which dividends are payable, the conditions upon such dividends, the relationship and preferences, if any, of such dividends to dividends payable on any other class or series of shares, whether or not such dividends shall be cumulative, partially cumulative, or noncumulative, if such dividends shall be cumulative or partially cumulative, the date or dates from and after which, and the amounts in which, they shall accumulate, whether such dividends shall be share dividends, cash or other dividends, or any combination thereof, and the other terms and conditions, if any, applicable to dividends on shares of such series;
(d)
Whether or not the shares of such series shall be redeemable or subject to repurchase at the option of the Corporation or the holder thereof or upon the happening of a specified event, if such shares shall be redeemable, the terms and conditions of such redemption, including but not limited to the date or dates upon or after which such shares shall be redeemable, the amount per share which shall be payable upon such redemption, which amount may vary under different conditions and at different redemption dates, and whether such amount shall be payable in cash, property, or rights, including securities of the Corporation or another corporation;
(e)
The rights of the holders of shares of such series (which may vary depending upon the circumstances or nature of such liquidation, dissolution, or winding up) in the event of the voluntary or involuntary liquidation, dissolution, or winding up of the Corporation and the relationship or preference, if any, of such rights to rights of holders of stock of any other class or series. A liquidation, dissolution, or winding up of the Corporation, as such terms are used in this subparagraph (e), shall not be deemed to be occasioned by or to include any merger of the Corporation with or into one or more corporations or other entities, any acquisition or exchange of the outstanding shares of one or more classes or series of the Corporation, or any sale, lease, exchange, or other disposition of all or a part of the assets of the Corporation;
(f)
Whether or not the shares of such series shall have voting powers and, if such shares shall have such voting powers, the terms and conditions thereof, including, but not limited to, the right of the holders of such shares to vote as a separate class either alone or with the holders of shares of one or more other classes or series of stock and the right to have more (or less) than one vote per share; provided, however, that the right to cumulate votes for the election of directors is expressly denied and prohibited;
(g)
Whether or not a sinking fund shall be provided for the redemption of the shares of such series and, if such a sinking fund shall be provided, the terms and conditions thereof;
(h)
Whether or not a purchase fund shall be provided for the shares of such series and, if such a purchase fund shall be provided, the terms and conditions thereof;
(i)
Whether or not the shares of such series, at the option of either the Corporation or the holder or upon the happening of a specified event, shall be convertible into stock of any other class or series and, if such shares shall be so convertible, the terms and conditions of conversion, including, but not limited to, any provision for the adjustment of the conversion rate or the conversion price;
(j)
Whether or not the shares of such series, at the option of either the Corporation or the holder or upon the happening of a specified event, shall be exchangeable for securities, indebtedness, or property of the Corporation and, if such shares shall be so exchangeable, the terms and conditions of exchange, including, but not limited to, any provision for the adjustment of the exchange rate or the exchange price; and
(k)
Any other preferences, limitations, and relative rights as shall not be inconsistent with the provisions of this Article IV or the limitations provided by law.
(2) Except as otherwise required by law or in any resolution of the Board of Directors creating any series of Preferred Stock, the holders of shares of Preferred Stock and all series thereof who are entitled to vote shall vote together with the holders of shares of Common Stock, and not separately by class.
(3) The Corporation has designated up to 10,000 shares of Preferred Stock as Series A Convertible Redeemable Preferred Stock. The designations, preferences and rights of the Series A Convertible Redeemable Preferred Stock are as set forth on Exhibit A .
(4) The Corporation has designated up to 14,300 shares of Preferred Stock as Series B Convertible Redeemable Preferred Stock. The designations, preferences and rights of the Series B Convertible Redeemable Preferred Stock are as set forth on Exhibit B .
ARTICLE V
At each election of directors, each shareholder entitled to vote at such election shall have the right to vote in person or by proxy the number of shares owned by such shareholder for as many persons as there are directors to be elected and for whose election such shareholder has a right to vote. No shareholder shall have the right to cumulate their votes in any election of directors.
ARTICLE VI
The corporation will not commence business until it has received for the issuance of its shares consideration of the value of at least One Thousand Dollars ($1,000.00), consisting of money, labor done or property actually received.
ARTICLE VII
No holder of any shares of any class of stock of the corporation shall, as such holder, have any preemptive or preferential right to receive, purchase or subscribe to additional, unissued or treasury shares of any class of stock of the corporation, or securities, obligations or evidences of indebtedness of the corporation convertible into or carrying a right to subscribe to or purchase such shares, or any other securities that may hereafter from time to time be issued or sold by the corporation.
ARTICLE VIII
The address of the initial registered office of the corporation is 3400 Chase Tower, 600 Travis, Houston, Texas, 77002 and the name of its registered agent at such address is Curtis Ashmos.
ARTICLE IX
The number of the members of the Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The names and address of the persons who currently service as directors until their successors are elected and qualified are:
Ralph M. Richart, M.D.
350 Shore Drive, Oakdale, NY 11769
Steve T. Laflin
4137 Commerce Circle, Idaho Falls, Idaho 83401
Christopher Grosso
480 Broadway, Suite 310, Saratoga Springs, NY 12866
ARTICLE X
The Corporation shall indemnify any person who was, is, or is threatened to be made a named defendant or respondent in a proceeding (as hereinafter defined) because the person (i) is or was a director or officer of the Corporation or (ii) while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise, to the fullest extent that a corporation may grant indemnification to a director under the Texas Business Corporation Act, as the same exists or may hereafter be amended. Such right shall be a contract right and as such shall run to the benefit of any director or officer who is elected and accepts the position of director or officer of the Corporation or elects to continue to serve as a director or officer of the Corporation while this Article X is in effect. Any repeal or amendment of this Article X shall be prospective only and shall not limit the rights of any such director or officer or the obligations of the Corporation with respect to any claim arising from or related to the services of such director or officer in any of the foregoing capacities prior to any such repeal or amendment of this Article X. Such right shall include the right to be paid or reimbursed by the Corporation for expenses incurred in defending any such proceeding in advance of its final disposition to the maximum extent permitted under the Texas Business Corporation Act, as the same exists or may hereafter be amended. If a claim for indemnification or advancement of expenses hereunder is not paid in full by the Corporation within 90 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action that such indemnification or advancement of costs of defense are not permitted under the Texas Business Corporation Act, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or any committee thereof, special legal counsel, or shareholders) to have made its determination prior to the commencement of such action that indemnification of, or advancement of costs of defense to, the claimant is permissible in the circumstances nor an actual determination by the Corporation (including its Board of Directors or any committee thereof, special legal counsel, or shareholders) that such indemnification or advancement is not permissible, shall be a defense to the action or create a presumption that such indemnification or advancement is not permissible. In the event of the death of any person having a right of indemnification under the foregoing provisions, such right shall inure to the benefit of his heirs, executors, administrators, and personal representatives. The rights conferred above shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, bylaw, resolution of shareholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any person covered by the grant of mandatory indemnification contained above to such further extent as is permitted by law and may indemnify any other person to the fullest extent permitted by law.
To the extent permitted by then applicable law, the grant of mandatory indemnification to any person pursuant to this Article X shall extend to proceedings involving the negligence of such person.
As used herein, the term "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding.
ARTICLE XI
Any action of the Corporation which, under the provisions of the Texas Business Corporation Act or any other applicable law, is required to be authorized or approved by the holders of any specified percentage which is in excess of fifty percent of the outstanding shares (or of any class or series thereof) of the Corporation shall, notwithstanding any law, be deemed effectively and properly authorized or approved if authorized or approved by the vote of the holders of more than fifty percent of the outstanding shares entitled to vote thereon (or, if the holders of any class or series of the Corporation's shares shall be entitled by the Texas Business Corporation Act or any other applicable law to vote thereon separately as a class, by the vote of the holders of more than fifty percent of the outstanding shares of each such class or series). Without limiting the generality of the foregoing, the foregoing provisions of this Article Ten shall be applicable to any required shareholder authorization or approval of: (a) any amendment to these articles of incorporation; (b) any plan of merger, share exchange, or reorganization involving the Corporation; (c) any sale, lease, exchange, or other disposition of all, or substantially all, the property and assets of the Corporation; and (d) any voluntary dissolution of the Corporation.
ARTICLE XII
Any action required by the Texas Business Corporation Act to be taken at any annual or special meeting of shareholders, or any action which may be taken at any annual or special meeting of shareholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the actions so taken, shall be signed by the holder or holders of shares of the Corporation having not less than a minimum of votes that would be necessary to take such action at a meeting at which the holders of all shares of the Corporation entitled to vote on the action were present and voted.
International Isotopes Inc.
By: Steve T. Laflin
---------------------------------
Steve T. Laflin, President and CEO
EXHIBIT A
ARTICLE I
Designation, Amount, Par Value, Liquidation Value And Rank
1.1
The series of preferred stock shall be designated as Series A Convertible Redeemable Preferred Stock, ( Series A Preferred Stock or Preferred Stock ), and the number of shares so designated shall be up to 10,000 (which shall not be subject to increase without the consent of each of the holders of the Series A Preferred Stock ( Holders )). Each share of Preferred Stock, $.01 par value per share, shall have a liquidation value of $1,000 per share (the Liquidation Value ).
1.2
The Series A Preferred Stock shall rank senior to the Junior Securities upon liquidation, dissolution or winding up. No class of equity securities of the Company shall be senior to the Series A Preferred Stock upon liquidation, dissolution or winding up.
ARTICLE II
Dividends
2.1
Holders of Series A Preferred Stock shall be entitled to receive dividends if, when and in such amounts as are declared by the Companys Board of Directors from time to time, provided that Holders shall not be entitled to any specified dividends and, unless declared by the Company, no dividends shall accrue.
ARTICLE III
Voting Rights
3.1
Except as otherwise provided herein and as otherwise required by law, the Preferred Stock shall have no voting rights. However, so long as any shares of Preferred Stock are outstanding, the Company shall not and shall cause its subsidiaries not to, without the affirmative vote of the Holders of more than 75% of the shares of the Preferred Stock then outstanding, (a) alter or change adversely the absolute or relative powers, preferences or rights given to the Preferred Stock, (b) alter or amend this Certificate of Designation, (c) amend its, or their, Certificate of Incorporation, bylaws or other charter documents so as to affect adversely any rights of any Holders, (d) increase the authorized number of shares of Preferred Stock, (e) sell all or substantially all of its, or their, assets, (f) merge with or into another company, in the event that the Company will not be the surviving entity or (g) enter into any agreement with respect to the foregoing.
ARTICLE IV
Liquidation
4.1
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a Liquidation ), the Holders shall be entitled to receive out of the assets of the Company legally available therefor, whether such assets are capital or surplus, for each share of Preferred Stock an amount equal to the Liquidation Value before any distribution or payment shall be made to the Holders of any Junior Securities. If the assets of the Company shall be insufficient to pay in full all amounts due to the Holders then the entire assets to be distributed to the Holders and the Holders of all securities ranking pari passu to the Preferred Stock ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A sale, conveyance, lease, transfer or disposition of all or substantially all of the assets of the Company or the consummation by the Company of a transaction or series of related transactions in which more than 40% of the voting power of the Company is disposed of, or a consolidation or merger of the Company with or into any other company or companies shall not be treated as a Liquidation, but instead shall be subject to the provisions of Article VII. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
ARTICLE V
Conversion
5.1
Right of Holders to Convert Preferred Stock into Common Stock.
(a)
Conversion Price . Subject to and upon compliance with the provisions of this Section 5.1, each share of Preferred Stock at a price per share equal to the purchase price as set forth in the Purchase Agreement plus any and all accrued but unpaid dividends thereon may, at any time at or before the close of business on May 31, 2022 be converted into duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock at a conversion price of $2.00 per share to be adjusted as set forth in Article VII, and subject to the provisions of this Article V (the Conversion Price ).
(b)
Notice of Conversion . If an adjustment in the Conversion Price and, if applicable, a change in the securities or other property issuable upon conversion has taken place pursuant to Articles V or VII, then the conversion described in Section 5.1(a) shall be at the applicable Conversion Price and in such securities or other property as so adjusted. The Purchaser desiring to make a conversion shall deliver to the Company, during usual business hours of the Companys office, or, at the Purchasers option, to the Companys transfer agent during its usual business hours (with a copy to the Company), a written notice of election to convert, as provided in the form attached hereto as Exhibit A (a Notice of Conversion ), accompanied, if required, by the stock certificate(s) evidencing the shares of Preferred Stock which are to be converted.
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5.2
Issuance of Shares Upon Conversion.
(a)
As promptly as practicable, but in any event no later than five (5) Trading Days after delivery of a Notice of Conversion and, if required, the surrender, as herein provided, of any certificates for shares of Preferred Stock for conversion, the Company shall deliver or cause to be delivered to the Holder of the Preferred Stock delivering such Notice of Conversion, or such Holders designee, a certificate or certificates representing the number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock, into which such shares of Preferred Stock may be converted in accordance with the provisions of this Article V. Such conversion shall be deemed to have been made at the time and on the date the Notice of Conversion is delivered to the Company, as long as, if required, the Preferred Stock being converted are promptly delivered to the Company and the rights of the Holder of such Preferred Stock as a Holder (subject to the Companys satisfaction of its obligations hereunder with respect to such conversion) shall cease at such time with respect to the shares of Preferred Stock that such Holder would have held had the shares of Preferred Stock converted into Underlying Shares not been so converted (the Converted Preferred Stock ), the Person or Persons entitled to receive the shares of Common Stock, upon conversion of such Preferred Stock, shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time (the Conversion Date ). Subject to paragraph 5.2(b), if any certificated shares of Preferred Stock are converted in part only, upon such conversion the Company shall execute and deliver to the Holder thereof, as requested by such Holder, a new Preferred Stock certificate for the number of shares of Preferred Stock equal to the unconverted portion of such Preferred Stock certificate.
(b)
Notwithstanding anything to the contrary set forth herein, upon conversion of shares of Preferred Stock in accordance with the terms hereof, the Holder shall not be required to physically surrender its certificate of Preferred Stock to the Company unless the entire amount of shares of Preferred Stock is so converted. The Holder and the Company shall maintain records showing the number of shares of Preferred Stock already converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of the Preferred Stock certificate(s) upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of shares of a Preferred Stock certificate is converted, the Holder may not transfer the Preferred Stock certificate unless the Holder first physically surrenders the certificate to the Company, whereupon the Company shall promptly issue and deliver upon the order of the Holder a new certificate of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing the number of remaining unconverted shares of Preferred Stock. The Holder and any assignee, by acceptance of the Preferred Stock, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of a Preferred Stock certificate, the unpaid and unconverted shares of such Preferred Stock certificate may be less than the amount stated on the face thereof.
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(c)
In lieu of delivering physical certificates representing the Conversion Shares, provided the Companys transfer agent is participating in the Depositary Trust Company Fast Automated Securities Transfer ( FAST ) program, upon request of the Holder and in compliance with the provisions of Sections 5.1 and 5.2, the Company shall use its best efforts to cause its transfer agent to electronically transmit the shares of Common Stock issuable upon conversion of the Preferred Stock to the Holder by crediting the account of the Holders Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. The time period for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.
5.3
Mandatory Redemption on May 31, 2022.
(a)
All outstanding and unconverted shares of Series A Preferred Stock on May 31, 2022 shall be redeemed by the Company pursuant to this Section 5.3 from funds or shares of Common Stock legally available therefor at a price per share equal to the purchase price as set forth in the Purchase Agreement. Thereafter, all shares of Series A Preferred Stock shall cease to be outstanding and shall have the status of authorized but undesignated preferred stock. The Company, at its option, shall pay the redemption price either in cash or in shares of Common Stock valued at the Average Price on May 31, 2002.
(b)
If any portion of the applicable redemption price under Section 5.3(a) shall not be paid by the Company within seven (7) calendar days after the date due, interest shall accrue thereon at the rate of 15% per annum until the redemption price plus all such interest is paid in full (which amount shall be paid as liquidated damages and not as a penalty).
ARTICLE VI
Registration Requirements
6.1
Reservation of Shares. The Company covenants that it will at all times reserve and keep available out of its authorized shares of Common Stock, free from preemptive rights, solely for the purpose of issue upon conversion of the Preferred Stock as herein provided, such number of shares of the Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock into Common Stock (the Reserved Amount ). The Company covenants that all shares of the Common Stock issued upon conversion of the Preferred Stock which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable.
ARTICLE VII
Adjustment of Conversion Price
7.1
Adjustment of Conversion Price. In addition to any adjustment to the Conversion Price provided elsewhere in this Certificate of Designation, the Conversion Price in effect at any time shall be subject to adjustment from time to time upon the happening of certain events, as follows:
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(a)
Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits . If the Company, at any time while the Preferred Stock is outstanding, (a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of Capital Stock of the Company, the Conversion Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and the denominator of which shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 7.1(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b)
Rounding . All calculations under Section 7.1 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(c)
Notice of Adjustment . Whenever the Conversion Price is adjusted pursuant to paragraph 7.1(a), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
7.2
Officers Certificate. Whenever the number of shares purchasable upon conversion shall be adjusted as required by the provisions of Section 7.1, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officers certificate showing the adjusted number of shares determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officers certificate shall be made available at all reasonable times for inspection by any holder of the Preferred Stock and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the each of the Holders.
7.3
Compliance With Governmental Requirements. The Company covenants that if any shares of Common Stock required to be reserved for purposes of conversion of Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law, or any national securities exchange, before such shares may be issued upon conversion, the Company will use its best efforts to cause such shares to be duly registered or approved, as the case may be.
7.4
Fractional Shares. Upon a conversion hereunder, the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.
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7.5
Payment of Tax Upon Issue or Transfer. The issuance of certificates for shares of the Common Stock on conversion of the Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Preferred Stock so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
7.6
Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back received), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if received by 8:00 p.m. EST where such notice is to be received), or the first Business Day following such delivery (if received after 8:00 p.m. EST where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to International Isotopes Inc., 4137 Commerce Circle, Idaho Falls, Idaho 83401, Telephone: 208-524-5300, Facsimile: 208-524-1411, Attention: Steve Laflin with copies to Locke Liddell & Sapp, LLP, 100 Congress, Suite 300, Austin, Texas 78731, Attention: Curtis R. Ashmos, and (ii) if to any Holder to the address set forth on Schedule II to the Purchase Agreement or such other address as may be designated in writing hereafter, in the same manner, by such Person.
7.7
Allocations of Reserved Amount. The Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock issued to each Holder. Each increase to the Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock held by each Holder at the time of the increase in the Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holders Preferred Stock, each transferee shall be allocated a pro rata portion of such transferors Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining Holders, pro rata, based on the number of shares of Preferred Stock then held by such Holders.
7.8
Nasdaq Limitation. In no event shall the Company be required to issue shares of Common Stock upon the conversion of Preferred Stock if such issuance would violate the rules of Nasdaq.
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ARTICLE VIII
Optional Redemption
8.1
Optional Redemption.
(a)
The shares of Preferred Stock are redeemable, in whole or in part, at the option of the Company during the following time periods, from time to time, under the following conditions and subject also to the conditions set forth in Section 8.1(b) (the Optional Redemption ):
(i)
Prior to the first anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over twenty (20) consecutive Trading Days reaches over 200% of the Conversion Price as at the Original Issue Date;
(ii)
During the period commencing on the first Business Day immediately after the first anniversary of the Original Issue Date and ending on the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over twenty (20) consecutive Trading Days reaches over 175% of the Conversion Price as at the Original Issue Date; and
(iii)
After the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over twenty (20) consecutive Trading Days reaches over 150% of the Conversion Price as at the Original Issue Date.
(b)
Subject to the conditions set forth in Section 8.1(a), so long as (i) any Registration Statement required to be filed and be effective pursuant to the Registration Rights Agreement is then in effect and has been in effect and sales of all of the Registrable Securities can be made thereunder for at least twenty (20) days prior to the Redemption Notice Date (as defined below) and (ii) the Company has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Preferred Stock, upon ten (10) Business Days prior written notice to the Holder (a Redemption Notice ), the full number of outstanding shares of Preferred Stock may be redeemed by the Company, in whole at a price equal to the original purchase price of the Preferred Stock (the Redemption Price ), together with any declared but unpaid dividends and all liquidated damages and other amounts due in respect thereof up to the Redemption Date (as defined below) (subject to the right of the Holder on the Record Date to receive dividends due on the Dividend Payment Date).
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8.2
Mechanics of Redemption. The Company shall exercise its right to redeem by delivering its Redemption Notice by facsimile and overnight courier to each Holder (such date that the notice is given, the Redemption Notice Date ). Such Redemption Notice shall indicate (A) the Redemption Price, (B) each Holders pro rata allocation of such maximum amount, and (C) a confirmation of the date ( Redemption Date ) that the Company shall effect the redemption, which date shall be not less than thirty (30) Business Days and not more than sixty (60) calendar days after the Redemption Notice Date. Notwithstanding anything in this Section 8.2, the Company shall convert any Preferred Stock pursuant to Article VIII if the Conversion Notice for shares of Preferred Stock submitted for conversion is (i) delivered before the Redemption Date, (ii) for a Conversion Price greater than or equal to the Redemption Price (appropriately adjusted in accordance with the terms hereof) or (iii) in excess of such Holders pro rata allocation of the maximum Redemption Price indicated in its Redemption Notice.
8.3
Payment of Redemption Price. The Company shall pay the applicable Optional Redemption Price to the Holder of the shares of Preferred Stock being redeemed in cash on the Redemption Date. If the Company shall fail to pay the applicable Redemption Price to such Holder on the Redemption Date, in addition to any remedy such Holder may have under this Certificate of Designation and the Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month until paid in full.
ARTICLE IX
Definitions
9.1
Definitions . For the purposes hereof, the following terms shall have the following meanings:
Act means the Securities Act of 1993, as amended.
Affiliate of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, control when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Appraiser means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing.
Authorization Date has the meaning set forth in Section 6.2.
Average Price on any date means (x) the sum of the Per Share Market Value for the five (5) Trading Days immediately preceding such date, divided by (z) five (5).
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Business Day means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close.
Change of Control means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or group (as described in Section 13(d)(3) of the Exchange Act) of in excess of 40% of the voting securities of the Issuer, (ii) a replacement of more than one-half of the members of the Issuers Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof, or their duly elected successors who are directors immediately prior to such transaction, in one or a series of related transactions, (iii) the merger of the Issuer with or into another entity, unless following such transaction, the Holders of the Issuers securities continue to hold at least 67% of such securities following such transaction, (iv) the consolidation or sale of all or substantially all of the assets of the Issuer in one or a series of related transactions, or (v) the execution by the Issuer of an agreement to which the Issuer is a party or by which it is bound, providing for any of the events set forth above in (i), (ii), (iii) or (iv).
Closing Date means the date of the closing of the purchase and sale of the Preferred Stock.
Commission means the United States Securities and Exchange Commission, or any successor to such agency.
Common Stock means the Companys common stock, $.01 par value per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.
Conversion Date has the meaning set forth in Section 5.3(a).
Conversion Price has the meaning set forth in Section 5.1.
Conversion Shares has the meaning set forth in the Purchase Agreement.
Converted Preferred Stock has the meaning set forth in Section 5.3(a).
DTC means the Depositary Trust Corporation.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Holder or other similar terms means the registered holder of any share of Preferred Stock.
Issuance Date means the date of first issue of any shares of Preferred Stock.
Junior Securities means the Common Stock and all other equity securities of the Company which are junior in rights and liquidation preference to Preferred Stock.
Liquidation Value has the meaning set forth in Section 1.1.
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Nasdaq means the Nasdaq Smallcap Market.
Notice of Conversion has the meaning set forth in Section 5.1(b).
Original Issue Date shall mean the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
Per Share Market Value means (i) on any particular date the closing bid price per share of the Common Stock on such date (as reported by Bloomberg Information Services, Inc., or any successor reporting service) on Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent Market on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date or (ii) if the Common Stock is not listed then on Nasdaq or any Subsequent Market, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (iii) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser selected in good faith by the holder of this Debenture; provided , however , that the Company, after receipt of the determination by such Appraiser, shall have the right to select in good faith an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.
Person means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.
Purchase Agreement means the Securities Purchase Agreement, dated as of the Original Issue Date, among the Company and the original Holders of the Preferred Stock.
Redemption Date has the meaning set forth in Section 8.2.
Redemption Notice has the meaning set forth in Section 8.1(b). Redemption Notice Date has the meaning set forth in Section 8.2. Redemption Price has the meaning set forth in Section 8.1(b).
Registrable Securities has the meaning set forth in the Registration Rights Agreement.
Registration Rights Agreement means the Registration Rights Agreement, dated as of the Original Issue Date, by and among the Company and the original Holders.
Registration Statement has the meaning set forth in the Registration Rights Agreement,
Reserved Amount has the meaning set forth in Section 6.1.
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Stock Option Plan means any contract, plan or agreement which has been approved by the Board of Directors of the Issuer, pursuant to which the Issuers securities may be issued to any employee, officer, director or consultant.
Subsidiary means, with respect to any Person, any corporation or other entity of which a majority of the Capital Stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.
Subsequent Market means the New York Stock Exchange, American Stock Exchange or Nasdaq National Market.
Trading Day means (a) a day on which the Common Stock is traded on Nasdaq or, if the Common Stock is not then designated on Nasdaq, on such Subsequent Market on which the Common Stock is then listed or quoted or (b) if the Common Stock is not listed on Nasdaq or a Subsequent Market, a day on which the Common Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions or reporting prices) provided , however that in any event that the Common Stock is not listed or quoted as set forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business Day.
Underlying Shares means the number of shares of Common Stock into which the shares of Preferred Stock are convertible in accordance with the terms hereof and the Purchase Agreement.
Warrant or Warrants has the meaning set forth in the Purchase Agreement.
ARTICLE X
Miscellaneous
10.1
Modification of Certificate of Designation. This Certificate of Designation may be modified without prior notice to any Holder upon the written consent of the Company and the Holders of more than 75% of the shares of Preferred Stock then outstanding. The Holders of more than 75% of the shares of Preferred Stock then outstanding may waive compliance by the Company with any provision of this Certificate of Designation without prior notice to any Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver may not (1) reduce the number of shares of Preferred Stock whose Holders must consent to an amendment, supplement or waiver, or (2) make any shares of Preferred Stock payable in money or property other than as stated in the Certificate of Designation.
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10.2
Miscellaneous. This Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of New York without regard to the principles of conflicts of law thereof, except for matters of corporate law, which shall be governed by the laws of the State of Texas. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Certificate of Designation, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. The Holder of Preferred Stock by acceptance of a share of Preferred Stock agrees to be bound by the provisions of this Certificate of Designation which are expressly binding on such Holder.
10.3
Preferred Stock Owned by Company Deemed Not Outstanding. In determining whether the holders of the requisite number of shares of Preferred Stock have concurred in any direction, consent or waiver under this Certificate of Designation, shares of Preferred Stock which are owned by the Company or any other obligor on the Preferred Stock or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that any shares of Preferred Stock owned by the Purchasers shall be deemed outstanding for purposes of making such a determination. Shares of Preferred Stock so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Company the pledgees right so to act with respect to such shares of Preferred Stock and that the pledgee is not the Company or any other obligor upon the Preferred Stock or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock.
10.4
Notice to Holders Prior to Taking Certain Types of Action. In case:
(a)
the Company shall authorize the issuance, at any time from and after the Original Issue Date, to all holders of any class or series of its Capital Stock, of rights or warrants to subscribe for or purchase shares of its capital stock or of any other right;
(b)
the Company shall authorize, at any time from and after the Original Issue Date, the distribution to all holders of any class or series of its Capital Stock, of evidences of its indebtedness or assets;
(c)
the Company shall declare a dividend (or other distribution) on its Common Stock or the Company shall declare a special nonrecurring dividend on or a redemption of its Common Stock;
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(d)
of any subdivision, combination or reclassification of any class or series of Capital Stock of the Company at any time from and after the Original Issue Date or of any consolidation or merger to which the Company is a party and for which approval by the shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or
(e)
of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause to be mailed to the Holders, at their last addresses as they shall appear upon the registration books of the Company, at least 10 days prior to the applicable record date hereinafter specified, a notice stating (i) the date as of which the holders of record of such class or series of Capital Stock are to be entitled to receive any such rights, warrants or distribution are to be determined, or (ii) the date on which any such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action is expected to become effective, and the date as of which it is expected that holders of record of such class or series of Capital Stock record shall be entitled to exchange their stock for securities or other property, if any, deliverable upon such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action.
The failure to give the notice required by this Section 10.4 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action, or the vote upon any of the foregoing.
10.5
Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10.6
References. References to Sections and Articles are to Sections and Articles of this Certificate of Designation, unless otherwise expressly provided.
10.7
Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
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10.8
Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company (including any bond the Companys transfer agent requires the Holders to post) of the loss, theft, destruction or mutilation of any stock certificates representing Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of such Series A Preferred Stock certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided , however , the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Stock into Common Stock.
10.9
Remedies Characterized; Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holders right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. The Company covenants to each Holder of Preferred Stock that there shall be no characterization concerning this instrument other than as expressly provided herein. The Company further covenants that it will not take any action which might materially and adversely affect the rights of the Holders of Preferred Stock. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Stock and that the remedy at law in the event of any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
10.10
Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all Purchasers (as defined in this Purchase Agreement) and shall not be construed against any person as the drafter hereof.
10.11
Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder of Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
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10.12
Payment of Tax Upon Issue of Transfer. The issuance of certificates for shares of the Common Stock upon conversion of the Preferred Shares shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in
order to convert shares of Series A
Convertible Redeemable Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series A Convertible Redeemable Preferred Stock (Series A Preferred Stock) indicated below, into shares of common stock, par value $.01 per share (the Common Stock), of International Isotopes Inc. (the Company) according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
___________________________________________
Date to effect conversion
___________________________________________
Number of shares of Series A Preferred Stock to be converted
___________________________________________
Number of shares of Common Stock to be issued
___________________________________________
Applicable Conversion Price
___________________________________________
Signature
___________________________________________
Name
___________________________________________
Address
EXHIBIT B
ARTICLE I
Designation, Amount, Par Value, Liquidation Value And Rank
1.1
The series of preferred stock shall be designated as Series B Convertible Redeemable Preferred Stock, ( Series B Preferred Stock or Preferred Stock ), and the number of shares so designated shall be up to 14,300 (which shall not be subject to increase without the consent of each of the holders of the Series B Preferred Stock ( Holders )). Each share of Preferred Stock, $.01 par value per share, shall have a liquidation value of $1,000 per share (the Liquidation Value ).
1.2
The Series B Preferred Stock shall rank pari passu with the Series A Preferred Stock and senior to all Junior Securities upon liquidation, dissolution or winding up. No class of equity securities of the Company shall be senior to the Series B Preferred Stock upon liquidation, dissolution or winding up.
ARTICLE II
Dividends
2.1
Series B Preferred Stock shall be entitled to receive dividends if, when and in such amounts as are declared by the Companys Board of Directors from time to time, provided that Holders shall not be entitled to any specified dividends and, unless declared by the Company, no dividends shall accrue. Previous dividends shall cease to accrue as of December 1, 2001.
ARTICLE III
Voting Rights
3.1
Except as otherwise provided herein and as otherwise required by law, the Preferred Stock shall have no voting rights. However, so long as any shares of Preferred Stock are outstanding, the Company shall not and shall cause its subsidiaries not to, without the affirmative vote of the Holders of more than 75% of the shares of the Preferred Stock then outstanding, (a) alter or change adversely the absolute or relative powers, preferences or rights given to the Preferred Stock, (b) alter or amend this Certificate of Designation, (c) amend its, or their, Articles of Incorporation, bylaws or other charter documents so as to affect adversely any rights of any Holders, (d) increase the authorized number of shares of Preferred Stock, (e) sell all or substantially all of its, or their, assets, (f) merge with or into another company, in the event that the Company will not be the surviving entity or (g) enter into any agreement with respect to the foregoing.
ARTICLE IV
Liquidation
4.1
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a Liquidation ), the Holders shall be entitled to receive out of the assets of the Company legally available therefor, whether such assets are capital or surplus, for each share of Preferred Stock an amount equal to the Liquidation Value, before any distribution or payment shall be made to the Holders of any Junior Securities. If the assets of the Company shall be insufficient to pay in full all amounts due to the Holders then the entire assets to be distributed to the Holders and the Holders of all securities ranking pari passu to the Preferred Stock ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full. A sale, conveyance, lease, transfer or disposition of all or substantially all of the assets of the Company or the consummation by the Company of a transaction or series of related transactions in which more than 40% of the voting power of the Company is disposed of, or a consolidation or merger of the Company with or into any other company or companies shall not be treated as a Liquidation, but instead shall be subject to the provisions of Article VII. The Company shall mail written notice of any such Liquidation, not less than 45 days prior to the payment date stated therein, to each Holder.
ARTICLE V
Conversion
5.1
Right of Holders to Convert Preferred Stock into Common Stock.
(a)
Conversion Price . Subject to and upon compliance with the provisions of this Section 5.1, each share of Preferred Stock at a price per share equal to the Original Purchase Price as set forth in the Purchase Agreement may, at any time at or before the close of business of the date the Company pays the full redemption price therefor under Section 5.4(a), be converted into duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock at a conversion price of $2.00 per share, subject to the provisions of this Article V (the Conversion Price ).
(b)
Notice of Conversion . If an adjustment in the Conversion Price and, if applicable, a change in the securities or other property issuable upon conversion has taken place pursuant to Articles V or VII, then the conversion described in Section 5.1(a) shall be at the applicable Conversion Price and in such securities or other property as so adjusted. The Purchaser desiring to make a conversion shall deliver to the Company, or, at the Purchasers option, to the Companys transfer agent (with a copy to the Company), a written notice of election to convert, as provided in the form attached hereto as Exhibit A (a Notice of Conversion ), accompanied, if required, by the stock certificate(s) evidencing the shares of Preferred Stock which are to be converted.
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5.2
Issuance of Shares Upon Conversion.
(a)
As promptly as practicable, but in any event no later than five (5) Trading Days after delivery of a Notice of Conversion and, if required, the surrender, as herein provided, of any certificates for shares of Preferred Stock for conversion, the Company shall deliver or cause to be delivered to the Holder of the Preferred Stock delivering such Notice of Conversion, or such Holders designee, a certificate or certificates representing the number of duly authorized, validly issued, fully-paid and nonassessable shares of Common Stock, into which such shares of Preferred Stock may be converted in accordance with the provisions of this Article V. Such conversion shall be deemed to have been made at the time and on the date the Notice of Conversion is delivered to the Company under Section 7.7 (the Conversion Date ), as long as, if required, the Preferred Stock being converted are promptly delivered to the Company and the rights of the Holder of such Preferred Stock as a Holder (subject to the Companys satisfaction of its obligations hereunder with respect to such conversion) shall cease at such time with respect to the shares of Preferred Stock that such Holder would have held had the shares of Preferred Stock converted into Underlying Shares not been so converted (the Converted Preferred Stock ), the Person or Persons entitled to receive the shares of Common Stock, upon conversion of such Preferred Stock, shall be treated for all purposes as having become the record holder or holders of such shares of Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time. Subject to paragraph 5.2(b), if any certificated shares of Preferred Stock are converted in part only, upon such conversion the Company shall execute and deliver to the Holder thereof, as requested by such Holder, a new Preferred Stock certificate for the number of shares of Preferred Stock equal to the unconverted portion of such Preferred Stock certificate.
(b)
Notwithstanding anything to the contrary set forth herein, upon conversion of shares of Preferred Stock in accordance with the terms hereof, the Holder shall not be required to physically surrender its certificate of Preferred Stock to the Company unless the entire amount of shares of Preferred Stock is so converted. The Holder and the Company shall maintain records showing the number of shares of Preferred Stock already converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of the Preferred Stock certificate(s) upon each such conversion. In the event of any dispute or discrepancy, such records of the Company shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of shares of a Preferred Stock certificate is converted, the Holder may not transfer the Preferred Stock certificate unless the Holder first physically surrenders the certificate to the Company, whereupon the Company shall promptly issue and deliver upon the order of the Holder a new certificate of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing the number of remaining unconverted shares of Preferred Stock. The Holder and any assignee, by acceptance of the Preferred Stock, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of a Preferred Stock certificate, the unpaid and unconverted shares of such Preferred Stock certificate may be less than the amount stated on the face thereof.
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(c)
In lieu of delivering physical certificates representing the Conversion Shares, provided the Companys transfer agent is participating in the Depositary Trust Company Fast Automated Securities Transfer ( FAST ) program, upon request of the Holder and in compliance with the provisions of Sections 5.1 and 5.2, the Company shall use its best efforts to cause its transfer agent to electronically transmit the shares of Common Stock issuable upon conversion of the Preferred Stock to the Holder by crediting the account of the Holders Prime Broker with DTC through its Deposit Withdrawal Agent Commission system. The time period for delivery described in the immediately preceding paragraph shall apply to the electronic transmittals described herein.
5.3
Mandatory Redemption on May 31, 2022.
(a)
All outstanding and unconverted shares of Series B Preferred Stock on May 31, 2022 shall be redeemed by the Company pursuant to this Section 5.3 from funds or shares of Common Stock legally available therefor at a price per share equal to the purchase price as set forth in the Purchase Agreement. Thereafter, all shares of Series B Preferred Stock shall cease to be outstanding and shall have the status of authorized but undesignated preferred stock. The Company, at its option, shall pay the redemption price either in cash or in shares of Common Stock valued at the Average Price on May 31, 2022.
(b)
If any portion of the applicable redemption price under Section 5.3(a) shall not be paid by the Company within seven (7) calendar days after the date due, interest shall accrue thereon at the rate of 15% per annum until the redemption price plus all such interest is paid in full (which amount shall be paid as liquidated damages and not as a penalty).
ARTICLE VI
Registration Requirements
6.1
Reservation of Shares. The Company covenants that it will at all times reserve and keep available out of its authorized shares of Common Stock, free from preemptive rights, solely for the purpose of issue upon conversion of the Preferred Stock as herein provided, such number of shares of the Common Stock as shall then be issuable upon the conversion of all outstanding shares of Preferred Stock into Common Stock (the Reserved Amount ). The Company covenants that all shares of the Common Stock issued upon conversion of the Preferred Stock which shall be so issuable shall, when issued, be duly and validly issued and fully paid and non-assessable.
ARTICLE VII
Adjustment of Conversion Price
7.1
Adjustment of Conversion Price. In addition to any adjustment to the Conversion Price provided elsewhere in this Certificate of Designation, the Conversion Price in effect at any time shall be subject to adjustment from time to time upon the happening of certain events, as follows:
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(a)
Common Stock Dividends; Common Stock Splits; Reverse Common Stock Splits . If the Company, at any time while the Preferred Stock is outstanding, (a) shall pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of Capital Stock of the Company, the Conversion Price shall be multiplied by a fraction the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding before such event and the denominator of which shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section 7.1(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b)
Rounding . All calculations under Section 7.1 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.
(c)
Notice of Adjustment . Whenever the Conversion Price is adjusted pursuant to paragraphs 7.1(a), the Company shall promptly deliver to the Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
7.2
Officers Certificate. Whenever the number of shares purchasable upon conversion shall be adjusted as required by the provisions of Section 7.1, the Company shall forthwith file in the custody of its Secretary or an Assistant Secretary at its principal office and with its stock transfer agent, if any, an officers certificate showing the adjusted number of shares determined as herein provided, setting forth in reasonable detail the facts requiring such adjustment and the manner of computing such adjustment. Each such officers certificate shall be signed by the chairman, president or chief financial officer of the Company and by the secretary or any assistant secretary of the Company. Each such officers certificate shall be made available at all reasonable times for inspection by any holder of the Preferred Stock and the Company shall, forthwith after each such adjustment, deliver a copy of such certificate to the each of the Holders.
7.3
Compliance With Governmental Requirements. The Company covenants that if any shares of Common Stock required to be reserved for purposes of conversion of Preferred Stock hereunder require registration with or approval of any governmental authority under any Federal or state law, or any national securities exchange, before such shares may be issued upon conversion, the Company will use its best efforts to cause such shares to be duly registered or approved, as the case may be.
7.4
Fractional Shares. Upon a conversion hereunder, the Company shall not be required to issue stock certificates representing fractions of shares of the Common Stock, but may if otherwise permitted, make a cash payment in respect of any final fraction of a share based on the Per Share Market Value at such time. If the Company elects not, or is unable, to make such a cash payment, the holder shall be entitled to receive, in lieu of the final fraction of a share, one whole share of Common Stock.
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7.5
Payment of Tax Upon Issue or Transfer. The issuance of certificates for shares of the Common Stock on conversion of the Preferred Stock shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of such Preferred Stock so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
7.6
Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be deemed to have been received (a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct answer back delivered), telecopy or facsimile (with transmission confirmation report) at the address or number designated below (if delivered by 8:00 p.m. CST where such notice is to be delivered), or the first Business Day following such delivery (if delivered after 8:00 p.m. CST where such notice is to be delivered) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications are (i) if to the Company to International Isotopes Inc., 4137 Commerce Circle, Idaho Falls, Idaho 83401, Telephone: 208-524-5300, Facsimile: 208-524-1411, Attention: Steve Laflin with copies (which are not required for a Conversion Notice to be effective)to Locke Liddell & Sapp, LLP, 100 Congress, Suite 300, Austin, Texas 78731, Attention: Curtis R. Ashmos, and (ii) if to any Holder to the address set forth on Schedule II to the Purchase Agreement or such other address as may be designated in writing hereafter, in the same manner, by such Person.
7.7
Allocations of Reserved Amount. The Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock issued to each Holder. Each increase to the Reserved Amount shall be allocated pro rata among the Holders based on the number of shares of Preferred Stock held by each Holder at the time of the increase in the Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such Holders Preferred Stock, each transferee shall be allocated a pro rata portion of such transferors Reserved Amount. Any portion of the Reserved Amount which remains allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining Holders, pro rata, based on the number of shares of Preferred Stock then held by such Holders.
7.8
Nasdaq Limitation. In no event shall the Company be required to issue shares of Common Stock upon the conversion of Preferred Stock if such issuance would violate the rules of Nasdaq.
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ARTICLE VIII
Optional Redemption
8.1
Optional Redemption.
(a)
The shares of Preferred Stock are redeemable, in whole or in part, at the option of the Company during the following time periods, from time to time, under the following conditions and subject also to the conditions set forth in Section 8.1(b) (the Optional Redemption ):
(i)
Prior to the first anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over five (5) consecutive Trading Days reaches over 200% of the Conversion Price as at the Original Issue Date;
(ii)
During the period commencing on the first Business Day immediately after the first anniversary of the Original Issue Date and ending on the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over five (5) consecutive Trading Days reaches over 175% of the Conversion Price as at the Original Issue Date; and
(iii)
After the second anniversary of the Original Issue Date, the Company may redeem the shares of Preferred Stock subject to the other conditions herein, if the average closing price of the Companys Common Stock over five (5) consecutive Trading Days reaches over 150% of the Conversion Price as at the Original Issue Date.
(b)
Subject to the conditions set forth in Section 8.1(a), so long as (i) any Registration Statement required to be filed and be effective pursuant to the Registration Rights Agreement is then in effect and has been in effect and sales of all of the Registrable Securities can be made thereunder for at least twenty (20) days prior to the Redemption Notice Date (as defined below) and (ii) the Company has a sufficient number of authorized shares of Common Stock reserved for issuance upon full conversion of the Preferred Stock, upon ten (10) Business Days prior written notice to the Holder (a Redemption Notice ), the full number of outstanding shares of Preferred Stock may be redeemed by the Company, in whole at a price equal to the original purchase price of the Preferred Stock (the Redemption Price ), together with any declared but unpaid dividends and all liquidated damages and other amounts due in respect thereof up to the Redemption Date (as defined below) (subject to the right of the Holder on the Record Date to receive dividends due on the Dividend Payment Date).
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8.2
Mechanics of Redemption. The Company shall exercise its right to redeem by delivering its Redemption Notice by facsimile and overnight courier to each Holder (such date that the notice is given, the Redemption Notice Date ). Such Redemption Notice shall indicate (A) the Redemption Price, (B) each Holders pro rata allocation of such maximum amount, and (C) a confirmation of the date ( Redemption Date ) that the Company shall effect the redemption, which date shall be not less than thirty (30) Business Days and not more than sixty (60) calendar days after the Redemption Notice Date. Notwithstanding anything in this Section 8.2, the Company shall convert any Preferred Stock pursuant to Article VIII if the Conversion Notice for shares of Preferred Stock submitted for conversion is (i) delivered before the Redemption Date, (ii) for a Conversion Price greater than or equal to the Redemption Price (appropriately adjusted in accordance with the terms hereof) or (iii) in excess of such Holders pro rata allocation of the maximum Redemption Price indicated in its Redemption Notice.
8.3
Payment of Redemption Price. The Company shall pay the applicable Optional Redemption Price to the Holder of the shares of Preferred Stock being redeemed in cash on the Redemption Date. If the Company shall fail to pay the applicable Redemption Price to such Holder on the Redemption Date, in addition to any remedy such Holder may have under this Certificate of Designation and the Purchase Agreement, such unpaid amount shall bear interest at the rate of 2.0% per month until paid in full.
ARTICLE IX
Definitions
9.1
Definitions. For the purposes hereof, the following terms shall have the following meanings:
Act means the Securities Act of 1993, as amended.
Affiliate of any Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, control when used with respect to any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms controlling and controlled have meanings correlative to the foregoing.
Appraiser means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing
Average Price on any date means (x) the sum of the Per Share Market Value for the five (5) Trading Days immediately preceding such date, divided by (y) five (5).
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to close.
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Change of Control means the occurrence of any of (i) an acquisition after the date hereof by an individual or legal entity or group (as described in Section 13(d)(3) of the Exchange Act) of in excess of 40% of the voting securities of the Issuer, (ii) a replacement of more than one-half of the members of the Issuers Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the date hereof, or their duly elected successors who are directors immediately prior to such transaction, in one or a series of related transactions, (iii) the merger of the Issuer with or into another entity, unless following such transaction, the Holders of the Issuers securities continue to hold at least 67% of such securities following such transaction, (iv) the consolidation or sale of all or substantially all of the assets of the Issuer in one or a series of related transactions, or (v) the execution by the Issuer of an agreement to which the Issuer is a party or by which it is bound, providing for any of the events set forth above in (i), (ii), (iii) or (iv).
Closing Date means the date of the closing of the purchase and sale of the Preferred Stock.
Commission means the United States Securities and Exchange Commission, or any successor to such agency.
Common Stock means the Companys common stock, $.01 par value per share, of the Company and stock of any other class into which such shares may hereafter have been reclassified or changed.
Conversion Date has the meaning set forth in Section 5.2(a).
Conversion Price has the meaning set forth in Section 5.1.
Converted Preferred Stock has the meaning set forth in Section 5.2(a).
DTC means the Depositary Trust Corporation.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Holder or other similar terms means the registered holder of any share of Preferred Stock.
Junior Securities means the Common Stock and all other equity securities of the Company which are junior in rights and liquidation preference to Preferred Stock, but does not include the Series A Preferred Stock, which shall be pari passu with the Preferred Stock.
Liquidation Value has the meaning set forth in Section 1.1.
Nasdaq means the Nasdaq Smallcap Market.
Notice of Conversion has the meaning set forth in Section 5.1(b).
9
Original Issue Date shall mean the date of the first issuance of any shares of the Preferred Stock regardless of the number of transfers of any particular shares of Preferred Stock and regardless of the number of certificates which may be issued to evidence such Preferred Stock.
Original Purchase Price shall mean the price per share paid for the Preferred Stock on the Closing Date.
Per Share Market Value means (i) on any particular date the closing bid price per share of the Common Stock on such date (as reported by Bloomberg Information Services, Inc., or any successor reporting service) on Nasdaq or, if the Common Stock is not then quoted on Nasdaq, any Subsequent Market on which the Common Stock is then listed or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date or (ii) if the Common Stock is not listed then on Nasdaq or any Subsequent Market, the closing bid price for a share of Common Stock in the over-the-counter market, as reported by the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (iii) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Appraiser selected in good faith by the Holder; provided , however , that the Company, after receipt of the determination by such Appraiser, shall have the right to select in good faith an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser; and provided, further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period.
Person means a corporation, an association, a partnership, organization, a business, an individual, a government or political subdivision thereof or a governmental agency.
Purchase Agreement means the Securities Purchase Agreement, dated as of the Original Issue Date, among the Company and the original Holders of the Preferred Stock.
Redemption Date has the meaning set forth in Section 8.2.
Redemption Notice has the meaning set forth in Section 8.1(b).
Redemption Notice Date has the meaning set forth in Section 8.2.
Redemption Price has the meaning set forth in Section 8.1(b).
Registrable Securities has the meaning set forth in the Registration Rights Agreement.
Registration Rights Agreement means the Registration Rights Agreement, dated as of the Original Issue Date, by and among the Company and the original Holders.
Registration Statement has the meaning set forth in the Registration Rights Agreement.
10
Reserved Amount has the meaning set forth in Section 6.1.
Series A Preferred Stock means the Companys Convertible Redeemable Preferred Stock.
Stock Option Plan means any contract, plan or agreement which has been approved by the Board of Directors of the Issuer, pursuant to which the Issuers securities may be issued to any employee, officer, director or consultant.
Subsidiary means, with respect to any Person, any corporation or other entity of which a majority of the Capital Stock or other ownership interests having ordinary voting power to elect a majority of the Board of Directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.
Subsequent Market means the New York Stock Exchange, American Stock Exchange or Nasdaq National Market.
Trading Day means (a) a day on which the Common Stock is traded on Nasdaq or, if the Common Stock is not then designated on Nasdaq, on such Subsequent Market on which the Common Stock is then listed or quoted or (b) if the Common Stock is not listed on Nasdaq or a Subsequent Market, a day on which the Common Stock is traded in the over-the-counter Market, as reported by the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions or reporting prices) provided , however that in any event that the Common Stock is not listed or quoted as set forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business Day.
Underlying Shares means the number of shares of Common Stock into which the shares of Preferred Stock are convertible in accordance with the terms hereof and the Purchase Agreement.
Warrant or Warrants has the meaning set forth in the Purchase Agreement.
ARTICLE X
Miscellaneous
10.1
Modification of Certificate of Designation. This Certificate of Designation may be modified without prior notice to any Holder upon the written consent of the Company and the Holders of more than 75% of the shares of Preferred Stock then outstanding. The Holders of more than 75% of the shares of Preferred Stock then outstanding may waive compliance by the Company with any provision of this Certificate of Designation without prior notice to any Holder. However, without the consent of each Holder affected, an amendment, supplement or waiver may not (1) reduce the number of shares of Preferred Stock whose Holders must consent to an amendment, supplement or waiver, or (2) make any shares of Preferred Stock payable in money or property other than as stated in the Certificate of Designation.
11
10.2
Miscellaneous. This Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Texas without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the nonexclusive jurisdiction of the state and federal courts sitting in Denton, County, Texas, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. The parties hereto, including all guarantors or endorsers, hereby waive presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance and enforcement of this Certificate of Designation, except as specifically provided herein, and assent to extensions of the time of payment, or forbearance or other indulgence without notice. The Holder of Preferred Stock by acceptance of a share of Preferred Stock agrees to be bound by the provisions of this Certificate of Designation which are expressly binding on such Holder.
10.3
Preferred Stock Owned by Company Deemed Not Outstanding. In determining whether the holders of the requisite number of shares of Preferred Stock have concurred in any direction, consent or waiver under this Certificate of Designation, shares of Preferred Stock which are owned by the Company or any other obligor on the Preferred Stock or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock shall be disregarded and deemed not to be outstanding for the purpose of any such determination; provided that any shares of Preferred Stock owned by the Purchasers shall be deemed outstanding for purposes of making such a determination. Shares of Preferred Stock so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Company the pledgees right so to act with respect to such shares of Preferred Stock and that the pledgee is not the Company or any other obligor upon the Preferred Stock or any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Preferred Stock.
10.4
Notice to Holders Prior to Taking Certain Types of Action. In case:
(a)
the Company shall authorize the issuance, at any time from and after the Original Issue Date, to all holders of any class or series of its Capital Stock, of rights or warrants to subscribe for or purchase shares of its capital stock or of any other right;
(b)
the Company shall authorize, at any time from and after the Original Issue Date, the distribution to all holders of any class or series of its Capital Stock, of evidences of its indebtedness or assets;
(c)
the Company shall declare a dividend (or other distribution) on its Common Stock or the Company shall declare a special nonrecurring dividend on or a redemption of its Common Stock;
12
(d)
of any subdivision, combination or reclassification of any class or series of Capital Stock of the Company at any time from and after the Original Issue Date or of any consolidation or merger to which the Company is a party and for which approval by the shareholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or
(e)
of the voluntary or involuntary dissolution, liquidation or winding up of the Company;
then the Company shall cause to be mailed to the Holders, at their last addresses as they shall appear upon the registration books of the Company, at least 10 days prior to the applicable record date hereinafter specified, a notice stating (i) the date as of which the holders of record of such class or series of Capital Stock are to be entitled to receive any such rights, warrants or distribution are to be determined, or (ii) the date on which any such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action is expected to become effective, and the date as of which it is expected that holders of record of such class or series of Capital Stock record shall be entitled to exchange their stock for securities or other property, if any, deliverable upon such subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action.
The failure to give the notice required by this Section 10.4 or any defect therein shall not affect the legality or validity of any distribution, right, warrant, subdivision, combination, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation, winding up or other action, or the vote upon any of the foregoing.
10.5
Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.
10.6
References. References to Sections and Articles are to Sections and Articles of this Certificate of Designation, unless otherwise expressly provided.
10.7
Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
13
10.8
Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company (including any bond the Companys transfer agent requires the Holders to post) of the loss, theft, destruction or mutilation of any stock certificates representing Preferred Stock, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of such Series B Preferred Stock certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date; provided , however , the Company shall not be obligated to re-issue preferred stock certificates if the Holder contemporaneously requests the Company to convert such Preferred Stock into Common Stock.
10.9
Remedies Characterized; Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), no remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy and nothing herein shall limit a Holders right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. The Company covenants to each Holder of Preferred Stock that there shall be no characterization concerning this instrument other than as expressly provided herein. The Company further covenants that it will not take any action which might materially and adversely affect the rights of the Holders of Preferred Stock. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder thereof and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of the Preferred Stock and that the remedy at law in the event of any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holders of the Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
10.10
Specific Shall Not Limit General; Construction. No specific provision contained in this Certificate of Designation shall limit or modify any more general provision contained herein. This Certificate of Designation shall be deemed to be jointly drafted by the Company and all Holders and shall not be construed against any person as the drafter hereof.
10.11
Failure or Indulgence Not Waiver. No failure or delay on the part of a Holder of Preferred Stock in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege.
14
10.12
Payment of Tax Upon Issue of Transfer. The issuance of certificates for shares of the Common Stock upon conversion of the Preferred Shares shall be made without charge to the Holders thereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holders so converted and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
15
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in
order to convert shares of Series B
Convertible Redeemable Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series B Convertible Redeemable Preferred Stock (Series B Preferred Stock) indicated below, into shares of common stock, par value $.01 per share (the Common Stock), of International Isotopes Inc. (the Company ) according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the Holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
___________________________________________
Date to effect conversion
___________________________________________
Number of shares of Series B Preferred Stock to be converted
___________________________________________
Number of shares of Common Stock to be issued
___________________________________________
Applicable Conversion Price
___________________________________________
Signature
___________________________________________
Name
___________________________________________
Address
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Steve T. Laflin, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of International Isotopes, Inc;
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15 (f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 16, 2010
/s/ Steve T. Laflin
Steve T. Laflin, Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES OXLEY ACT OF 2002
I, Laurie McKenzie-Carter, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of International Isotopes, Inc;
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15 (e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have:
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: August 16, 2010
/s/ Laurie McKenzie-Carter
Laurie McKenzie-Carter, Chief Financial Officer
Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES OXLEY ACT OF 2002
In connection with the Quarterly Report of International Isotopes, Inc and subsidiaries (the Company) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the Form 10-Q), I, Steve T. Laflin, Chief Executive Officer of the Company, in my capacity as such, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
To my knowledge, the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 16, 2010
/s/ Steve T. Laflin
Steve T. Laflin
Chief Executive Officer
Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906
OF THE SARBANES OXLEY ACT OF 2002
In connection with the Quarterly Report of International Isotopes, Inc and subsidiaries (the Company) on Form 10-Q for the period ended June 30, 2010, as filed with the Securities and Exchange Commission (the Form 10-Q), I, Laurie McKenzie-Carter, Chief Financial Officer of the Company, in my capacity as such, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
To my knowledge, the Form 10-Q fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (15 U.S.C. 78m or 78o(d)); and
(2)
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 16, 2010
/s/ Laurie McKenzie-Carter
Laurie McKenzie-Carter
Chief Financial Officer