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, 2015


OR


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


For the transition period from _____________ to _______________


Commission file number:

0-22923


INTERNATIONAL ISOTOPES INC.

(Exact name of registrant as specified in its charter)


Texas

 

74-2763837

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer Identification Number)


4137 Commerce Circle

Idaho Falls, Idaho, 83401

(Address of principal executive offices, including zip code)


(208) 524-5300

(Registrant’s telephone number, including area code)


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


Indicate by check mark whether the registrant has submitted electronically 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).    ý 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 the 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 ý


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


As of July 24, 2015, the number of shares of Common Stock, $.01 par value, outstanding was 402,231,195.




1





INTERNATIONAL ISOTOPES INC.

FORM 10-Q

For The Quarter Ended June 30, 2015


TABLE OF CONTENTS


 

 

Page No.

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.      Financial Statements

 

 

Unaudited Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014

3

 

Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014

4

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.      Management's Discussion and Analysis of Financial Condition and Results of Operations

13

Item 4.      Controls and Procedures

24

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.      Legal Proceedings

25

Item 1A.   Risk Factors

25

Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds

25

Item 6.      Exhibits

26

Signatures

27







2




Part I. Financial Information

Item 1. Financial Statements


INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets


 

 

June 30,

 

December 31,

Assets

 

2015

 

2014

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,178,378 

 

$

558,541 

Accounts receivable

 

 

674,406 

 

 

783,937 

Inventories

 

 

985,375 

 

 

1,049,106 

Prepaids and other current assets

 

 

576,555 

 

 

351,020 

Total current assets

 

 

3,414,714 

 

 

2,742,604 

 

 

 

 

 

 

 

Long-term assets

 

 

 

 

 

 

Restricted certificate of deposit

 

 

450,630 

 

 

225,315 

Property, plant and equipment, net

 

 

1,930,880 

 

 

2,214,850 

Investment

 

 

1,405,885 

 

 

1,368,185 

Patents and other intangibles, net

 

 

4,354,658 

 

 

4,399,183 

Total long-term assets

 

 

8,142,053 

 

 

8,207,533 

Total assets

 

$

11,556,767 

 

$

10,950,137 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

566,069 

 

$

635,876 

Accrued liabilities

 

 

464,208 

 

 

702,861 

Current installments of notes payable, net of debt discount

 

 

150,295 

 

 

1,262,919 

Total current liabilities

 

 

1,180,572 

 

 

2,601,656 

 

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

 

Convertible debt, net of debt discount

 

 

2,907,441 

 

 

2,868,200 

Unearned revenue

 

 

1,210,700 

 

 

- 

Obligation for lease disposal costs

 

 

455,148 

 

 

450,630 

Notes payable, net of current portion and debt discount

 

 

217,150 

 

 

204,500 

Mandatorily redeemable convertible preferred stock

 

 

850,000 

 

 

850,000 

Total long-term liabilities

 

 

5,640,439 

 

 

4,373,330 

Total liabilities

 

 

6,821,011 

 

 

6,974,986 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Common stock, $0.01 par value; 750,000,000 shares authorized; 402,215,235 and 369,895,032 shares issued and outstanding, respectively

 

 

4,022,152 

 

 

3,698,950 

Additional paid in capital

 

 

119,498,481 

 

 

118,444,070 

Accumulated deficit

 

 

(118,861,264)

 

 

(118,242,224)

Equity attributable to International Isotopes Inc. stockholders

 

 

4,659,369 

 

 

3,900,796 

Equity attributable to non-controlling interest

 

 

76,387 

 

 

74,355 

Total equity

 

 

4,735,756 

 

 

3,975,151 

Total liabilities and stockholders' equity

 

$

11,556,767 

 

$

10,950,137 


See accompanying notes to the unaudited condensed consolidated financial statements.





3




INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations


 

Three months ended June 30,

 

Six months ended June 30,

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Sale of product

$

1,580,376 

 

$

1,808,581 

 

$

3,516,857 

 

$

3,757,437 

Cost of product

 

953,163 

 

 

1,128,695 

 

 

2,079,106 

 

 

2,273,123 

Gross profit

 

627,213 

 

 

679,886 

 

 

1,437,751 

 

 

1,484,314 

 

 

 

 

 

 

 

 

 

 

 

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

Salaries and contract labor

 

422,068 

 

 

374,366 

 

 

830,252 

 

 

761,724 

General, administrative and consulting

 

426,028 

 

 

420,395 

 

 

802,724 

 

 

927,617 

Research and development

 

142,684 

 

 

130,537 

 

 

235,431 

 

 

212,484 

Total operating expenses

 

990,780 

 

 

925,298 

 

 

1,868,407 

 

 

1,901,825 

 

 

 

 

 

 

 

 

 

 

 

 

Net operating loss

 

(363,567)

 

 

(245,412)

 

 

(430,656)

 

 

(417,511)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

Other income

 

11,338 

 

 

10,345 

 

 

18,293 

 

 

15,628 

Equity in net income of affiliate

 

20,034 

 

 

19,006 

 

 

54,727 

 

 

40,586 

Interest income

 

122 

 

 

98 

 

 

214 

 

 

393 

Interest expense

 

(118,462)

 

 

(310,745)

 

 

(259,586)

 

 

(620,414)

Total other income (expense)

 

(86,968)

 

 

(281,296)

 

 

(186,352)

 

 

(563,807)

Net loss

 

(450,535)

 

 

(526,708)

 

 

(617,008)

 

 

(981,318)

Loss (income) attributable to non-controlling interest

 

3,043 

 

 

(1,590)

 

 

(2,032)

 

 

815 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to International Isotopes Inc.

$

(447,492)

 

$

(528,298)

 

$

(619,040)

 

$

(980,503)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share - basic and diluted

$

- 

 

$

- 

 

$

- 

 

$

- 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding –

basic and diluted

 

402,210,797 

 

 

369,387,638 

 

 

394,108,451 

 

 

369,269,226 


See accompanying notes to the unaudited condensed consolidated financial statements.





4




INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows


 

Six months ended June 30,

 

2015

 

2014

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(617,008)

 

$

(981,318)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

Net income in equity method investment

 

(54,727)

 

 

(40,586)

Depreciation and amortization

 

103,973 

 

 

136,892 

Accretion of obligation for lease disposal costs

 

4,518 

 

 

22,881 

Accretion of beneficial conversion feature and debt discount

 

103,170 

 

 

423,053 

Equity based compensation

 

92,787 

 

 

48,198 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

109,531 

 

 

255,996 

Prepaids and other assets

 

29,465 

 

 

255,047 

Inventories

 

63,731 

 

 

397,762 

Accounts payable and accrued liabilities

 

(85,860)

 

 

(15,263)

Unearned revenues

 

1,210,700 

 

 

- 

Net cash provided by operating activities

 

960,280 

 

 

502,662 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Restricted certificate of deposit

 

(225,315)

 

 

1,045 

Dividends received from equity method investment

 

17,027 

 

 

47,428 

Purchase of property, plant and equipment

 

(30,478)

 

 

(98,861)

Net cash used in investing activities

 

(238,766)

 

 

(50,388)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from sale of stock

 

2,226 

 

 

4,531 

Principal payments on notes payable

 

(103,903)

 

 

(102,870)

Net cash used in financing activities

 

(101,677)

 

 

(98,339)

 

 

 

 

 

 

Net increase  in cash and cash equivalents

 

619,837 

 

 

353,935 

Cash and cash equivalents at beginning of period

 

558,541 

 

 

456,374 

Cash and cash equivalents at end of period

$

1,178,378 

 

$

810,309 

 

 

 

 

 

 

Supplemental disclosure of cash flow activities:

 

 

 

 

 

Cash paid for interest

$

163,640 

 

$

3,084 

 

 

 

 

 

 

Supplemental disclosure of noncash financing and investing transactions:

 

 

 

 

 

 

 

 

 

 

 

Increase in equity and decrease in debt for conversion of debentures

$

1,060,000 

 

$

- 

Increase in equity and decrease in accrued interest for conversion of debentures

$

222,600 

 

$

- 

Increase in equity and decrease in debt for amount allocated to warrants issued with convertible debentures

$

- 

 

$

384,428 

Increase in equity and decrease in debt for the beneficial conversion feature associated with the convertible debentures

$

- 

 

$

15,464 

Increase in other assets and decrease in property, plant and equipment for cancellation of purchase contract

$

255,000 

 

 

 


See accompanying notes to the unaudited condensed consolidated financial statements.




5




INTERNATIONAL ISOTOPES INC. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

For the Quarter Ended June 30, 2015


(1)

The Company and Basis of Presentation


International Isotopes Inc. (INIS) was incorporated in Texas in November 1995. The accompanying unaudited condensed consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (GAAP) and include all operations and balances of INIS and its wholly-owned subsidiaries. The unaudited condensed consolidated financial statements also include the accounts of INIS’s 50% owned joint venture, TI Services, LLC, which is located in Youngstown, Ohio.  INIS’s headquarters and all operations, with the exception of TI Services, LLC, are located in Idaho Falls, Idaho.


Nature of Operations – INIS and its subsidiaries and joint venture (collectively, the “Company,” “we,” “our” or “us”) manufacture a full range of nuclear medicine calibration and reference standards, a wide range of products including cobalt teletherapy sources, and a varied selection of radioisotopes and radiochemicals for medical research, and clinical devices. The Company holds several patents for a fluorine extraction process that it plans to use in conjunction with a proposed commercial depleted uranium de-conversion facility, and provides a host of transportation, recycling, and processing services on a contract basis for clients. The Company’s business consists of six major business segments: Nuclear Medicine Standards, Cobalt Products, Radiochemical Products, Fluorine Products, Radiological Services, and Transportation.


With the exception of certain unique products, the Company’s normal operating cycle is considered to be one year. Due to the time required to produce some cobalt products, the Company’s operating cycle for those products is considered to be two to three years.  All assets expected to be realized in cash or sold during the normal operating cycle of business are classified as current assets.


Principles of Consolidation – The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries and its 50% owned joint venture, TI Services, LLC.  All intercompany accounts and transactions have been eliminated in consolidation.


Interim Financial Information – The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC).  Accordingly, 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, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 31, 2015.


Recent Accounting Standards - In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” which supersedes the guidance in “Revenue Recognition (Topic 605)” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period and is to be applied retrospectively, with early application not permitted. We are evaluating the new standard, but do not at this time expect this standard to have a material impact on our consolidated financial statements.


In July 2015, the FASB issued ASU 2015-11, “Inventory” which requires entities to measure inventory at the lower of cost and net realizable value with net realizable value being the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.  ASU 2015-11 is effective for fiscal years beginning after December 15, 2016 including interim periods within those fiscal years.  We are evaluating the new standard, but do not at this time, expect this standard to have a material impact on our consolidated financial statements.




6



In April 2015, the FASB issued ASU 2015-3 Interest-Imputation of Interest-Simplifying the presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. ASU 2015-3 is effective for fiscal years beginning after December 15, 2015 including interim periods within those fiscal years. We do not expect this standard to have a material impact on our consolidated financial statements .


(2)

Current Developments and Liquidity


Business Condition – Since inception, the Company has suffered substantial losses.  During the six-month period ended June 30, 2015, the Company reported a net loss of $619,040, net of non-controlling interest income, and net cash provided by operating activities of $960,280. During the same period in 2014, the Company reported a net loss of $980,503, net of non-controlling interest loss, and net cash provided by operating activities of $502,662.


During the six months ended June 30, 2015, the Company continued to focus on its long-standing core business segments, radiochemical products, cobalt products, nuclear medicine standards, and radiological services, particularly the pursuit of new business opportunities within those segments.


In October 2014, the Company secured a ten (10) year cobalt production agreement with the Department of Energy (DOE).  That agreement provides the Company with sole access to all of the currently available cobalt production positions in the DOE’s Advanced Test reactor (ATR) located at the Idaho National Laboratory in Idaho Falls, Idaho.  The ATR is the only DOE reactor in the United States capable of producing large quantities of high specific activity cobalt.  In addition to the cobalt production agreement, in January 2015 and April 2015 the Company entered into cobalt-60 supply agreements with certain customers, and continues to work on putting additional agreements in place.  Pursuant to these cobalt-60 supply agreements, the Company will supply cobalt-60 to the customers and will provide on-going services with respect to cobalt sales.  Each contract requires quarterly progress payments to be paid by each customer.


Due to changes in the nuclear industry over the past couple of years, the Company’s plans for the design and construction of a large scale uranium de-conversion and fluorine extraction facility were placed on hold.  The Company expects that further activity on this project will remain on hold until the market and industry conditions change to justify resuming design and construction of the facility.  The Company expects to continue to incur costs associated with the maintenance of licenses and other necessary project investments for the proposed facility, and the Company expects to continue to keep certain agreements in place to support resumption of project activities at the appropriate time. In July 2015, the Company announced that it executed an amendment to its Project Participation Agreement (PPA) with Lea County, New Mexico Board of Commissioners. The PPA granted to the Company direct and indirect assistance for locating its proposed depleted UF6 de-conversion facility in Hobbs, New Mexico.  The principal component of assistance was the conveyance of approximately 640 acres of land for construction and operation of the proposed facility.  The conveyance of the land was contingent upon the Company commencing construction on Phase 1 of the facility by December 31, 2014 and hiring a certain number of employees by December 31, 2015.  Under the amendment to the PPA, Lea County agreed to extend those dates to December 31, 2016 and December 31, 2017, respectively.


The Company holds a Nuclear Regulatory Commission (“NRC”) construction and operating license for the facility as well as the property agreement with Lea County, New Mexico, where the plant is intended to be constructed. The NRC license for the de-conversion facility is a forty (40) year operating license and is the first commercial license of this type issued in the United States.  There are no other companies with a similar license application under review by the NRC.  Therefore, the NRC license represents a significant competitive barrier and the Company believes that it provides it with a very valuable asset. During the six-month period ended June 30, 2015, the Company incurred costs of approximately $187,000 to maintain licenses and other necessary project investments. During the same six-month period in 2014, the Company incurred costs of approximately $206,000 for planning and development activities on the project.





7



In April 2015, the Company entered into a Cobalt-60 Pellet Supply Agreement with Nordion (Canada) Inc.  (Nordion). Pursuant to the terms of the contract, the Company will supply Nordion with cobalt-60 pellets and certain related on-going services.  The Company will provide the cobalt-60 pellets, produced at the DOE’s ATR located at the Idaho National Laboratory, to Nordion at certain specifications and standards. The agreement specifies certain pricing terms and conditions. The term of the agreement began on April 7, 2015, and unless earlier terminated or extended, ends on December 31, 2021. Either party may terminate the agreement upon breach of a material term of the agreement by the other party, subject to certain cure periods, or in the event of the bankruptcy of the other party.


In July 2012, the Company entered into a purchase agreement with Alpha Omega Services Inc. (AOS), of Bellflower, California, for the purchase of a type B(U) cask for use in its radiological services and transportation business segments.  Concurrently, the Company made a $255,000 down payment to AOS and anticipated receipt of the cask in 2013. In January 2014, due to multiple changes in the delivery schedule for the cask and the inability of the Company and AOS to reach mutually agreeable modified contract terms, the contract with AOS was terminated. The Company is currently seeking reimbursement of the down payment and accordingly, the $255,000 was reclassified from fixed assets to Prepaids and Other Current Assets in the financial statements.


(3)

Net Loss Per Common Share - Basic and Diluted


For the six months ended June 30, 2015, the Company had 27,950,000 stock options outstanding, 42,257,951 warrants outstanding, and 425,000 shares of Series B redeemable convertible preferred stock outstanding that were not included in the computation of diluted loss per common share because they would be anti-dilutive.

For the six months ended June 30, 2014, the Company had 16,450,000 stock options outstanding, 42,257,951 warrants outstanding, and 425,000 shares of Series B redeemable convertible preferred stock outstanding that were not included in the computation of diluted loss per common share because they would be anti-dilutive.


(4)

Investment


The Company owns a 24.5% interest in RadQual, LLC (RadQual), with which the Company has an exclusive manufacturing agreement for nuclear medicine products. The 24.5% ownership of RadQual has a balance of $1,405,885 and is reported as an asset at June 30, 2015.  For the six months ended June 30, 2015, member distributions from RadQual totaled $17,027 and were recorded as a reduction of the investment, and for the same period in 2014, member distributions totaled $47,428.  During the six months ended June 30, 2015 and 2014, earnings allocated to the Company from RadQual totaled $54,727 and $40,586, respectively.  These allocated earnings were recorded as equity in net income of affiliate on the Company’s condensed consolidated statements of operations.


At June 30, 2015 and 2014, the Company had receivables outstanding from RadQual in the amount of $322,385 and $466,218, respectively, which are recorded as part of accounts receivable on the Company’s condensed consolidated balance sheets.  For the six months ended June 30, 2015 and 2014, the Company had revenue from RadQual in the amount of $1,005,252 and $1,541,972, respectively, which is recorded as sale of product on the Company’s condensed consolidated statements of operations.


Summarized unaudited statement of operations for RadQual for the three and six month periods ended June 30, 2015 and 2014 was as follows:


 

 

For the three-months ended

June 30,

 

For the six-months ended

June 30,

RadQual LLC

 

2015

 

2014

 

2015

 

2014

Revenue

 

$

773,410

 

$

1,055,221

 

$

1,584,138

 

$

2,086,223

Gross profit

 

 

222,035

 

 

227,505

 

 

480,654

 

 

446,002

Net income

 

$

79,740

 

$

75,985

 

$

221,345

 

$

166,471




8



(5)

Inventories


Inventories consisted of the following at June 30, 2015 and December 31, 2014:


 

June 30,

2015

 

December 31,

2014

Raw materials

$

91,555

 

$

91,555

Work in progress

 

877,512

 

 

943,234

Finished goods

 

16,308

 

 

14,317

 

$

985,375

 

$

1,049,106


Work in progress includes cobalt-60 which is located in the ATR and is at various stages of production.  Irradiation of cobalt targets resumed at the ATR located in Idaho Falls, ID, after a new target design was approved for insertion into the reactor.  The new targets entered their first irradiation cycle in February 2015.  Targets of an older design that the Company holds at the reactor, continue to await further evaluation and may or may not undergo further irradiation. At June 30, 2015 and December 31, 2014, the cobalt had a carrying value of $699,595 and $691,501, respectively, which is based on accumulated costs allocated to cobalt targets depending on the length of time the cobalt has been processed in the ATR.


(6)

Stockholders’ Equity, Options and Warrants


Employee Stock Purchase Plan


During the six months ended June 30, 2015 and 2014, the Company issued 87,343 and 97,090 shares of common stock, respectively, to employees for proceeds of $2,226 and $4,531, respectively.  All of these shares were issued in accordance with the Company’s employee stock purchase plan.


Stock-Based Compensation Plans


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


Non-Employee Grants - The Company accounts for its issuances of stock-based compensation to non-employees by measuring the value of any awards that were vested and non-forfeitable at their date of issuance based on the grant date fair value of the award.  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 Company’s stock and other assumptions that management believes are reasonable.


Option awards outstanding as of June 30, 2015, and changes during the six months ended June 30, 2015, were as follows:


Stock Options

 

Shares

 

Weighted

Average

Exercise

Price

 

Weighted

Average

Remaining

Contractual Life

 

Aggregate

Intrinsic

Value

Outstanding at December 31, 2014

 

27,950,000

 

$

0.05

 

 

 

 

 

Granted

 

-

 

 

 

 

 

 

 

 

Exercised

 

-

 

 

 

 

 

 

 

 

Forfeited

 

-

 

 

 

 

 

 

 

 

Outstanding at June 30, 2015

 

27,950,000

 

 

0.04

 

6.0

 

$

517,500

Exercisable at June 30, 2015

 

18,908,333

 

$

0.05

 

4.5

 

$

172,500


The intrinsic value of outstanding and exercisable shares is based on the closing price of the Company’s common stock of $0.08 per share on June 30, 2015, the last trading day of the quarter.




9



As of June 30, 2015, there was approximately $95,292 of unrecognized compensation expense related to stock options that will be recognized over a weighted-average period of 1 year.


Pursuant to an employment agreement with its CEO, the Company issued 280,000 fully vested shares of common stock in February 2015, under the Company’s 2006 Equity Incentive Plan.  The number of shares awarded was based on a $28,000 stock award using a price of $0.10 per share. The agreement states that the number of shares issued will be based on the average closing price of common stock for the 20 trading days prior to issue date but not less than $0.10 per share.  Compensation expense recorded pursuant to this stock grant was $14,000, which was determined by multiplying the number of shares awarded by the closing price of the common stock on February 27, 2015, which was $0.05 per share. The Company withheld 112,140 shares of common stock to satisfy the employee’s payroll tax liabilities.  The net shares issued on February 28, 2015, totaled 167,860.


Total stock-based compensation expense for the six months ended June 30, 2015 and 2014 was $92,787 and $48,198, respectively.


Warrants


Warrants outstanding at June 30, 2015, and changes during the six months ended June 30, 2015, were as follows:


Warrants

 

Shares

Outstanding at December 31, 2014

 

42,257,951

Issued

 

-

Exercised

 

-

Forfeited

 

-

Outstanding at June 30, 2015

 

42,257,951


(7) Debt


On February 20, 2015, convertible debentures issued in February 2013 in an aggregate principal amount of $1,060,000 matured. In accordance with the terms of the convertible debentures, the outstanding principal of the convertible debentures totaling $1,060,000, plus accrued interest of $222,600, was converted into shares of the Company’s common stock. Pursuant to the terms of the convertible debentures, 32,065,000 shares of the Company’s common stock were issued using a conversion price of $0.04 per share, which was the average trading price of the Company’s common stock for the preceding 120 days prior to the conversion.


(8)

Commitments and Contingencies


Dependence on Third Parties


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


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





10



Contingencies


Because all of the Company’s business segments involve radioactive material, the Company is required to have an operating license from the NRC and specially trained staff to handle these materials. The Company has an NRC operating license and has amended this license numerous times to increase the amount of material permitted within the Company’s facility.  Additional processing capabilities and license amendments could be implemented that would permit processing of other reactor-produced radioisotopes by the Company, but this license does not currently restrict the volume of business operation performed or projected to be performed in the upcoming year. The financial assurance required by the NRC to support this license has been provided for with a letter of credit and a restricted certificate of deposit held with Wells Fargo Bank.  Previously, the Company maintained a surety bond issued by Argonaut Insurance Company, however, this surety bond was terminated in November 2014 and was replaced with the letter of credit and restricted certificate of deposit in the amount of $450,630 with Wells Fargo Bank.


(9) Subsequent Events


On July 14, 2015, the Company held its 2015 Annual Meeting of Shareholders (the “Annual Meeting”), at which the Company’s shareholders approved the International Isotopes Inc. 2015 Incentive Plan (the “Plan”). The Plan provides for the grant of  incentive and non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock or cash-based awards.  The Plan amends and restates the Company’s Amended and Restated 2006 Equity Incentive Plan.  The Plan became effective immediately upon shareholder approval at the Annual Meeting.


Additionally, on July 14, 2015, the Board of Directors determined that it was in the best interests of the Company to extend the expiration dates of all outstanding Class H and Class I Warrants to January 31, 2016.  Therefore, 1,913,892 Class H warrants, which previously carried an expiration date of August 24, 2015, and 12,924,887 Class I warrants, which previously carried an expiration date of October 24, 2015, will all now have an extended expiration date of January 31, 2016. The Company will record approximately $885 of equity compensation expense with respect to this extension in the third quarter of 2015.


In July 2015, in accordance with the Company’s employee stock purchase plan, the Company issued 15,960 shares of common stock to employees in exchange for proceeds of $814.


(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:





11




 

 

Three months ended June 30,

 

Six months ended June 30,

Sale of Product

 

2015

 

2014

 

2015

 

2014

Radiochemical Products

 

$

433,520 

 

$

460,988 

 

$

855,159 

 

$

879,392 

Cobalt Products

 

 

232,743 

 

 

152,100 

 

 

486,058 

 

 

694,048 

Nuclear Medicine Standards

 

 

778,791 

 

 

799,066 

 

 

1,648,773 

 

 

1,612,589 

Radiological Services

 

 

99,272 

 

 

375,727 

 

 

454,167 

 

 

500,483 

Fluorine Products

 

 

- 

 

 

- 

 

 

- 

 

 

- 

Transportation

 

 

36,050 

 

 

20,700 

 

 

72,700 

 

 

70,925 

Total Segments

 

 

1,580,376 

 

 

1,808,581 

 

 

3,516,857 

 

 

3,757,437 

Corporate revenue

 

 

- 

 

 

- 

 

 

- 

 

 

- 

Total Consolidated

 

$

1,580,376 

 

$

1,808,581 

 

$

3,516,857 

 

$

3,757,437 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

Depreciation and Amortization

 

2015

 

2014

 

2015

 

2014

Radiochemical Products

 

$

1,727 

 

$

1,681 

 

$

3,431 

 

$

3,800 

Cobalt Products

 

 

10,486 

 

 

19,367 

 

 

20,973 

 

 

39,869 

Nuclear Medicine Standards

 

 

3,598 

 

 

6,837 

 

 

7,214 

 

 

11,727 

Radiological Services

 

 

6,236 

 

 

7,155 

 

 

12,354 

 

 

13,054 

Fluorine Products

 

 

27,647 

 

 

28,396 

 

 

55,169 

 

 

54,491 

Transportation

 

 

1,110 

 

 

1,532 

 

 

2,221 

 

 

4,559 

Total Segments

 

 

50,804 

 

 

64,968 

 

 

101,362 

 

 

127,500 

Corporate depreciation and amortization

 

 

1,484 

 

 

3,469 

 

 

2,611 

 

 

9,392 

Total Consolidated

 

$

52,288 

 

$

68,437 

 

$

103,973 

 

$

136,892 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

Segment Income (Loss)

 

2015

 

2014

 

2015

 

2014

Radiochemical Products

 

$

79,142 

 

$

106,489 

 

$

166,110 

 

$

180,601 

Cobalt Products

 

 

115,414 

 

 

31,497 

 

 

265,682 

 

 

231,262 

Nuclear Medicine Standards

 

 

143,713 

 

 

153,921 

 

 

336,362 

 

 

312,897 

Radiological Services

 

 

42,772 

 

 

108,116 

 

 

185,133 

 

 

175,091 

Fluorine Products

 

 

(88,939)

 

 

(103,155)

 

 

(187,095)

 

 

(206,337)

Transportation

 

 

2,853 

 

 

(10,989)

 

 

(3,782)

 

 

(7,078)

Total Segments

 

 

294,955 

 

 

285,879 

 

 

762,409 

 

 

686,436 

Corporate loss

 

 

(742,447)

 

 

(814,178)

 

 

(1,381,449)

 

 

(1,666,939)

Net Loss

 

$

(447,492)

 

$

(528,298)

 

$

(619,040)

 

$

(980,503)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30,

 

Six months ended June 30,

Expenditures for Segment Assets

 

2015

 

2014

 

2015

 

2014

Radiochemical Products

 

$

549 

 

$

52,917 

 

$

1,419 

 

$

52,917 

Cobalt Products

 

 

- 

 

 

37,050 

 

 

- 

 

 

37,050 

Nuclear Medicine Standards

 

 

- 

 

 

527 

 

 

487 

 

 

527 

Radiological Services

 

 

7,034 

 

 

2,632 

 

 

7,034 

 

 

2,632 

Fluorine Products

 

 

2,458 

 

 

(14,291)

 

 

10,822 

 

 

(5,552)

Transportation

 

 

- 

 

 

- 

 

 

- 

 

 

- 

Total Segments

 

 

10,041 

 

 

78,835 

 

 

19,762 

 

 

87,574 

Corporate purchases

 

 

10,716 

 

 

11,287 

 

 

10,716 

 

 

11,287 

Total Consolidated

 

$

20,757 

 

$

90,121 

 

$

30,478 

 

$

98,861 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

 

 

 

 

 

 

Segment Assets

 

2015

 

2014

 

 

 

 

 

 

Radiochemical Products

 

$

205,740 

 

$

230,257 

 

 

 

 

 

 

Cobalt Products

 

 

940,472 

 

 

1,035,226 

 

 

 

 

 

 

Nuclear Medicine Standards

 

 

499,571 

 

 

564,034 

 

 

 

 

 

 

Radiological Services

 

 

387,495 

 

 

381,898 

 

 

 

 

 

 

Fluorine Products

 

 

5,951,001 

 

 

5,996,258 

 

 

 

 

 

 

Transportation

 

 

3,863 

 

 

8,434 

 

 

 

 

 

 

Total Segments

 

 

7,988,142 

 

 

8,216,107 

 

 

 

 

 

 

Corporate assets

 

 

3,568,625 

 

 

2,734,030 

 

 

 

 

 

 

Total Consolidated

 

$

11,556,767 

 

$

10,950,137 

 

 

 

 

 

 




12




ITEM 2. MANAGEMENT’S 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 prospects of our business segments, future positive cash flow from operations, the Company’s ability to achieve profitability, the ability to continue irradiation of the in-process cobalt targets, positive growth projection for TI Services, LLC, growth and expected revenue of the radiochemical, radiological and transportation segments, and the status of our proposed uranium de-conversion facility and related licenses and development, are forward-looking. Forward-looking statements reflect management’s 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 management’s expectations are described in the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) on March 31, 2015, in this report and in the other reports we file with the SEC.  These factors describe some but not all of the factors that could cause actual results to differ significantly from management’s expectations.  We 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 other factors set forth in reports that we file from time to time with the SEC.


BUSINESS OVERVIEW


International Isotopes Inc. and its subsidiaries and joint venture (collectively, the “Company,” “we,” “our,” or “us”) manufacture a full range of nuclear medicine calibration and reference standards, a wide range of products including cobalt teletherapy sources, and a varied selection of radioisotopes and radiochemicals for medical research, and clinical devices. We hold several patents for a fluorine extraction process that we expect to use in conjunction with a proposed depleted uranium de-conversion facility, and provide a host of transportation, recycling, and processing services on a contract basis for clients. Our business consists of the following six major business segments:


Nuclear Medicine Standards . Our Nuclear Medicine Standards segment consists of the manufacture of sources and standards associated with SPECT (Single Photon Emission Computed Tomography), patient positioning, and calibration or operational testing of dose measuring equipment for the nuclear pharmacy industry.


Cobalt Products. Our Cobalt Products segment includes the production of bulk cobalt (cobalt-60), fabrication of cobalt capsules for radiation therapy or various industrial applications, and recycling of expended cobalt sources.


Radiochemical Products. Our Radiochemical Products segment includes production and distribution of various isotopically pure radiochemicals for medical, industrial, or research applications.  These products are either directly produced by us or are purchased in bulk from other producers and distributed by us in customized packages and chemical forms tailored to meet customer requirements.


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


Radiological Services. Our Radiological Services segment consists of a wide variety of miscellaneous services, including processing gemstones which have undergone irradiation for color enhancement, radiological engineering consultant services, and field services that include the performance of source removal and decommissioning activities under government or commercial contracts.




13



Transportation. Our Transportation segment was established in 2006 to provide transportation of our own products and field services 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 our products and produces a small revenue stream by providing transportation of products for other companies.


RESULTS OF OPERATIONS


Three Months Ended June 30, 2015 Compared to Three Months Ended June 30, 2014


Revenue for the three months ended June 30, 2015 was $1,580,376 compared to $1,808,581 for the same period in 2014, an overall decrease of $228,205, or approximately 13%.  The following table presents a period-to-period comparison of total revenue by segment with further discussion of the performance of each business segment provided in the following paragraphs.


 

 

For the three-

months ended

June 30,

 

For the three-

months ended

June 30,

 

 

 

 

 

Sale of Product

 

2015

 

2014

 

$ change

 

% change

Radiochemical Products

 

$

433,520

 

$

460,988

 

$

(27,468)

 

-6%

Cobalt Products

 

 

232,743

 

 

152,100

 

 

80,643 

 

53%

Nuclear Medicine Standards

 

 

778,791

 

 

799,066

 

 

(20,275)

 

-3%

Radiological Services

 

 

99,272

 

 

375,727

 

 

(276,455)

 

-74%

Fluorine Products

 

 

-

 

 

-

 

 

- 

 

0%

Transportation

 

 

36,050

 

 

20,700

 

 

15,350 

 

74%

Total Segments

 

 

1,580,376

 

 

1,808,581

 

 

(228,205)

 

-13%

Corporate revenue

 

 

-

 

 

-

 

 

- 

 

-

Total Consolidated

 

$

1,580,376

 

$

1,808,581

 

$

(228,205)

 

-13%


Gross profit for the three months ended June 30, 2015 was $627,213, compared to $679,886 for the same period in 2014.  This represents a decrease of $52,673, or approximately 8%.  Cost of sales decreased to $953,163 for the three months ended June 30, 2015 from $1,128,695 for the same period in 2014.  This is a decrease of $175,532, or approximately 16%. This decrease was the result of efficient material purchases and monitoring labor costs.  Our gross profit percentage was up slightly to 40% for the three months ended June 30, 2015, from 38% for the same period in 2014, as a result of a decrease in cost of sales.


The following table presents gross profit data for our six business segments for the three months ended June 30, 2015 and 2014:


 

 

For the three-

months ended

June 30,

 

% of

Total Sales

 

For the three-

months ended

June 30,

 

% of

Total Sales

 

 

2015

 

2015

 

2014

 

2014

Total Sales

 

$

1,580,376

 

 

 

$

1,808,581

 

 

Cost of Sales

 

 

 

 

 

 

 

 

 

 

Radiochemical Products

 

$

322,208

 

20%

 

$

321,862

 

18%

Cobalt Products

 

 

61,493

 

4%

 

 

45,538

 

3%

Nuclear Medicine Standards

 

 

523,461

 

33%

 

 

516,065

 

29%

Radiological Services

 

 

44,428

 

3%

 

 

242,034

 

13%

Fluorine Products

 

 

-

 

-

 

 

-

 

-

Transportation

 

 

1,573

 

1%

 

 

3,196

 

0%

Total Segments

 

$

953,163

 

61%

 

$

1,128,695

 

63%

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

$

627,213

 

 

 

$

679,886

 

 


Operating expense increased to $990,780 for the three months ended June 30, 2015, from $925,298 for the same period in 2014. This increase of $65,482, or approximately 7%, is the result of increased labor and research and development expense as a result of our continued pursuit of improved and expanded product lines. Salaries and contract labor costs increased by approximately 13% to $47,702 for the three months ended June 30, 2015, as compared to the same period in 2014. Research and development expense increased by approximately 9%, to $142,684 for the three months ended June 30, 2015, from $130,537 for the same period in 2014. This $12,147 increase in expenditures is the result of additional product development work being conducted in several of our business segments, as mentioned above.



14




The following table presents a comparison of total operating expense for the three months ended June 30, 2015 and 2014:


 

For the three-

months ended

June 30,

 

For the three-

months ended

June 30,

 

 

 

 

 

Operating Costs and Expenses:

2015

 

2014

 

% change

 

$ change

Salaries and Contract Labor

$

422,068

 

$

374,366

 

13%

 

$

47,702

General, Administrative and Consulting

 

426,028

 

 

420,395

 

1%

 

 

5,633

Research and Development

 

142,684

 

 

130,537

 

9%

 

 

12,147

Total operating expenses

$

990,780

 

$

925,298

 

7%

 

$

65,482


Interest expense for the three months ended June 30, 2015 was $118,462, compared to $310,745 for the same period in 2014. The decrease of $192,283, or approximately 62%, is largely attributable to re-negotiating the maturity date of a note payable with an aggregate principal amount of $500,000.  The note was originally due June 30, 2014, and during June 2014, the maturity date was extended to December 31, 2017.  In connection with this note payable, we initially recorded approximately $380,000 of debt discount which was being accreted to interest expense over the initial six-month term of the loan.  Upon re-negotiation of the note payable, we recorded an additional $384,000 of debt discount which is being accreted over the new life of the note.   During the three months ended June 30, 2015, we recorded approximately $29,000 of interest accretion expense related to this loan, and during the same period in 2014 we recorded approximately $189,000 of interest accretion expense.


Our net loss for the three months ended June 30, 2015 was $447,492, compared to $528,298, for the same period in 2014.  This is a decrease in loss of $80,806, or approximately 15%, and is the result of the significant decrease in interest expense recorded in the period-to-period comparison.


Radiochemical Products .  Revenue from the sale of radiochemical products for the three months ended June 30, 2015 was $433,520, compared to $460,988 for the same period in 2014.  This represents a decrease in revenue of $27,468, or approximately 6%. Within this segment, sales of sodium iodide were $433,520 for the three months ending June 30, 2015, as compared to $410,987 for the same period in 2014.  This is an increase of $22,533, or approximately 5%.  During the three months ended June 30, 2014, we reported $50,000 of consulting income in this segment, whereas we had no consulting income to report for the same period in 2015. We are currently working on further enhancements of existing products within this segment and are evaluating the possible addition of several new products. In September 2014, through mutual consent with RadQual, we became the direct distributor of 100% of RadQual’s iodine products. This change was based on RadQual’s desire to focus more heavily on its core business of reference sources and nuclear imaging and on our desire to improve the margins realized by radiochemical sales. We intend to continue selling our products directly to our radiochemical customers since we believe this will strengthen our customer relationships and further improve our market position for current and future products.


Gross profit for radiochemical products for the three months ended June 30, 2015 was $111,312, compared to $139,126, for the same period in 2014. Gross profit percentages were approximately 26% and 30% for the three months ended June 30, 2015 and 2014, respectively. We purchase our iodine-131 under a contractual agreement with a supplier in South Africa. In past years, per the terms of the contract, price adjustments could occur annually in August.  However, in July 2015, we signed a pricing agreement with the supplier that secures a price for the iodine-131 through December 31, 2016.


Operating expense for this segment decreased to $32,170 for the three months ended June 30, 2015, compared to $32,637 for the same period in 2014. This slight decrease of $467 is due to minor fluctuations in various operating expenses. The radiochemical products segment reported net income of $79,142 for the three months ended June 30, 2015, as compared to net income of $106,489 for the same period in 2014.  The decrease of $27,347, or approximately 26%, is the result of the decrease in consulting revenue noted above.





15



Cobalt Products .  Revenue from the sale of cobalt products for the three months ended June 30, 2015 was $232,743, compared to $152,100 for the same period in 2014. This represents an increase of $80,643, or approximately 53%. Our cobalt sealed source manufacturing generates the majority of revenue in this segment and these sealed source sales depend on our ability to procure cobalt target material from the DOE’s ATR.  In December 2013, we were able to obtain several cobalt targets from the ATR.  Although most of this material was sold during 2014, the remainder has sustained some sealed source sales through the current period. Although we have not been able to obtain any additional cobalt material from the ATR since 2013, we have used recycled material and procured small quantities of material from other sources in order to fulfill some of our customer demand.


In October 2014, we entered into a ten year agreement with the DOE for the irradiation of cobalt targets.  It takes approximately two to three years to irradiate the cobalt targets to the desired level of activity and we anticipate having high specific activity cobalt available to our customers by the middle of 2017 and every year thereafter through at least 2024.  The agreement gives us the ability to purchase the current full capacity of the DOE’s ATR reactor throughout the ten year period.  In the meantime, we will continue to work with alternate cobalt suppliers to obtain material in the interim period in order to meet future short term customer needs.


We continue to hold many in-progress old design cobalt targets at the ATR.  The DOE suspended continued irradiation of those targets in 2013 due to a leak of a cobalt target belonging to another commercial business which resulted in the curtailment of all other cobalt handling and production activities at the ATR pending certain corrective actions. During 2014, we funded a report that has defined the specific engineering analyses that must be completed to resume irradiation of these old design targets.   We have several options with respect to how we will proceed with the older targets, and we believe the targets have significant but varying degrees of market value depending on whether or not further irradiation will or will not occur. We anticipate that the decision regarding the future of these targets is likely to be made by the end of 2015.


In January 2015 and April 2015, we entered into cobalt-60 supply agreements with certain customers.  Pursuant to these contracts, we will supply cobalt-60 to the customers and will provide on-going services with respect to the cobalt sales. The contract terms require quarterly progress payments from each customer.  Each contract agreement is for five years, unless earlier terminated or extended. The funding received under these contracts has been recorded as unearned revenue under long-term liabilities in our financial statements.


Gross profit for cobalt products for the three months ended June 30, 2015 was $171,249, compared to $106,562 for the same period in 2014. This is an increase of $65,687, or approximately 62% and is attributable to an increase in our cobalt sealed source sales. Operating expense in this segment decreased by $19,230, or approximately 26%, for the three months ended June 30, 2015, as compared to the same period in 2014, which was the result of decreased cost incurred for outside consulting and decreased depreciation expense as a result of assets reaching full depreciation. Our net income for cobalt products was $115,414 for the three months ended June 30, 2015, as compared to net income of $31,497 for the same period in 2014.  The increase in net income of $83,917 was due to the increased sales of our sealed source products and our ability to reduce operating costs in this segment.


Nuclear Medicine Standards .  Revenue from nuclear medicine products for the three months ended June 30, 2015 was $778,791, compared to $799,066 for the same period in 2014. This represents a decrease in revenue of $20,275, or approximately 3%. Revenue from nuclear medicine products includes sales from TI Services, LLC, a 50/50 joint venture that we formed with RadQual, LLC (RadQual) in December 2010 to distribute products and services for nuclear medicine, nuclear cardiology and Positron Emission Tomography (PET) imaging.


The following table presents sales for the nuclear medicine standards segment for the three months ended June 30, 2015 and 2014:


 

 

For the three-

months ended

June 30,

 

For the three-

months ended

June 30,

 

 

 

Nuclear Medicine Standards

 

2015

 

2014

 

 

% change

Sales

 

 

 

 

 

 

 

 

 

Sales to RadQual

 

$

489,018

 

$

466,122

 

 

5%

TI Services LLC

 

 

289,773

 

 

332,944

 

 

-13%

 

 

$

778,792

 

$

799,066

 

 

-3%




16



Sales to RadQual increased from $466,122 for the three month period ended June 30, 2014, to $489,018 for the same period in 2015.  This is an increase of $22,896, or approximately 5%, and is due in large part to the sales of the new lightweight flood source mentioned below.  We reported TI Services, LLC sales for the three months ended June 30, 2015 of $289,773, as compared to $332,944 for the same period in 2014, a decrease of $43,171, or approximately 13%.  The decrease in TI Services, LLC sales is due to the continued decrease in paper and ink sales as customers switch to more state of the art methods of recording information. To counter this decrease in paper and ink sales, we have been working with RadQual to focus TI Services’ marketing efforts on other in-demand products, such as the lightweight flood source. Although TI Services’ flood source sales were down slightly for the three months ended June 30, 2015, they continue to account for the bulk of TI Services, LLC sales. As a result of our collaborative product development efforts with RadQual, in April 2014, RadQual launched sales of a new lightweight flood source which is currently being marketed through TI Services, LLC and other distributors. This lighter and thinner product continues to be in strong demand by customers.


Gross profit for our nuclear medicine standards segment for the three months ended June 30, 2015 was $255,331, compared to $283,001 for the same period in 2014, a decrease in gross profit of $27,670, or approximately 10%. Our cost of goods sold in this segment was up slightly, for the three months ended June 30, 2015, to $523,460, from $516,065 for the same period in 2014. Operating expense for this segment for the three months ended June 30, 2015 decreased to $111,619, from $129,081 for the same period in 2014. This decrease of $17,462, or approximately 14%, is attributable to decreased labor and supply expenses, and decreased depreciation expense recorded. Net income for this segment for the three months ended June 30, 2015, was $143,713, compared to $153,921 for the same period in 2014, and is the combined result of our decreased sales and slight increase in cost of sales.


Radiological Services . Revenue from radiological services for the three months ended June 30, 2015 was $99,272, compared to $375,727 for the same period in 2014, a decrease of $276,455 or approximately 74%.  Radiological field services revenue accounted for approximately 28% of the revenue in this segment for the three months ended June 30, 2015, and approximately 66% of the revenue for the same period in 2014. Radiological field services revenue was $28,000 for the three months ended June 30, 2015, and was $247,436, for the same period in 2014.  This is a decrease in radiological field service revenue of $219,436, or approximately 89%, and is the result of fewer jobs awarded to us under the DOE’s Orphan Source Recovery Program (OSRP) during the three months ended June 30, 2015, as compared to the same period in 2014.  The majority of radiological field services revenue is generated by the performance of field service activities in connection with OSRP. These activities include services to support recovery of disused sources and installation or removal of certain cobalt or cesium units. During 2013, we designed and built a mobile hot cell unit to permit us to expand this field service work.  We also received an additional amendment to our NRC license that allows us to use this hot cell to perform source removal services on a wide variety of models. The mobile hot cell and license amendment have been used to support continued expansion of our field service activities.


In addition, in December 2013, we entered into a support services agreement with one customer to perform field service work related to source design and installation. There was some design work performed under this agreement during 2014 and we expect the source installation work to begin during the latter half of 2015. Revenue generated from field services work is somewhat random and we expect to continue to report large fluctuations in the period-to-period comparisons.  However, based upon the current and anticipated contract commitments for this type of work, we expect that field services will continue to be a major source of revenue within this segment in 2015.

 

Revenue generated from gemstone processing was $62,553 for the three months ended June 30, 2015, and was $38,317 for the same period in 2014.  This is an increase of $24,236 or approximately 63%, and reflects the fluctuations in volume of material shipped to us for processing.


The following table presents radiological services revenue for the three months ended June 30, 2015 and 2014:


 

 

For the three-

months ended

June 30,

 

For the three-

months ended

June 30,

 

 

Radiological Services

 

2015

 

2014

 

% change

Gemstone Processing

 

$

62,553

 

$

38,317

 

63%

Radiological Field Services

 

 

36,719

 

 

337,410

 

-89%

 

 

$

99,272

 

$

375,727

 

-74%




17



Gross profit for this segment for the three months ended June 30, 2015 was $54,844, compared to $133,692 for the same period in 2014.  The decrease of $78,848, or approximately 59%, is due to the fewer number of OSRP jobs performed during the period ended June 30, 2015, as compared to the same time period in 2014. Operating expense for the three months ended June 30, 2015 was $18,987, as compared to $32,491 for the same period in 2014.  This decrease of $13,504, or approximately 42%, was mainly due to decreased expense incurred for general labor support with regard to radiological field services work. Net income for the three months ended June 30, 2015 was $42,772, as compared to $108,116 for the same period in 2014.  This is a decrease of $65,344, or approximately 60% and is due to the decrease in radiological field services performed during the three month period ending June 30, 2015 as compared to the same period in 2014.


Fluorine Products .   There was no revenue to report from the fluorine products segment for the three months ended June 30, 2015, or for the same period in 2014. During the three months ended June 30, 2015, we incurred $88,939 of expense to maintain licenses and other necessary project activities related to the proposed de-conversion facility, as compared to $103,156 for the same three-month period in 2014. In July 2015, we executed an amendment to a Project Participation Agreement (PPA) we have with the Lea County, New Mexico Board of County Commissioners. The PPA granted us direct and indirect assistance for locating a proposed depleted UF6 de-conversion facility in Hobbs, New Mexico.  The principal component of assistance was the conveyance of approximately 640 acres for construction and operation of the proposed facility.  The conveyance of the land was contingent upon our commencement of construction on Phase 1 of the facility by December 31, 2014 and hiring seventy-five employees by December 31, 2015.  Under the amendment to the PPA, Lea County agreed to extend those dates to December 31, 2016 and December 31, 2017, respectively.


We developed our fluorine products in conjunction with uranium de-conversion, in order to take advantage of the anticipated need for depleted uranium de-conversion services. Near the end of 2013, due to changes in the nuclear industry, we placed further engineering work on the proposed uranium de-conversion facility on hold.


Further activity within this segment will be deferred until market and industry conditions change to justify resuming design and construction of the facility. In the meantime, we expect to continue to incur costs associated with the maintenance of licenses and other necessary project activities, and plan to continue to keep certain agreements in place that will support resumption of project activities at the appropriate time.


Transportation . Revenue from transportation services for the three months ended June 30, 2015 was $36,050, compared to $20,700 for the same period in 2014. This is an increase of $15,350, or approximately 74%.  Revenue in this business segment is directly affected by the activity of our cobalt products and radiological services business segments since we primarily use our transportation services to support the transport of cobalt products and offer transportation in conjunction with field services work. Gross profit was $34,477 for the three months ended June 30, 2015, compared to $17,504 for the same period in 2014, and operating expense was $31,624 for the three months ended June 30, 2015, compared to $28,492 for the same period in 2014. Net income reported for this segment was $2,853 for the three months ended June 30, 2015, and net loss was $10,989 for the same period in 2014.


Six Months Ended June 30, 2015 Compared to Six Months Ended June 30, 2014


Revenue for the six-month period ended June 30, 2015 was $3,516,857, as compared to $3,757,437 for the same period in 2014, a decrease of $240,580, or approximately 6%.  All of our business segments reported a decrease in revenue for the six months ending June 30, 2015 with the exception of our Nuclear Medicine Standards segment and our Transportation segment.  The performance of all of our business segments is discussed in further detail below.






18



The following table presents a period-to-period comparison of total revenue by segment for the six months ended June 30, 2015 and June 30, 2014:


 

 

For the six-

months ended

June 30,

 

For the six-

months ended

June 30,

 

 

 

 

 

Sale of Product

 

2015

 

2014

 

$ change

 

% change

Radiochemical Products

 

$

855,159

 

$

879,392

 

$

(24,233)

 

-3%

Cobalt Products

 

 

486,058

 

 

694,048

 

 

(207,990)

 

-30%

Nuclear Medicine Standards

 

 

1,648,773

 

 

1,612,589

 

 

36,184 

 

2%

Radiological Services

 

 

454,167

 

 

500,483

 

 

(46,316)

 

-9%

Fluorine Products

 

 

-

 

 

-

 

 

- 

 

0%

Transportation

 

 

72,700

 

 

70,925

 

 

1,775 

 

3%

Total Segments

 

 

3,516,857

 

 

3,757,437

 

 

(240,580)

 

-6%

Corporate revenue

 

 

-

 

 

-

 

 

- 

 

-

Total Consolidated

 

$

3,516,857

 

$

3,757,437

 

$

(240,580)

 

-6%


Gross profit for the six-month period ended June 30, 2015 was $1,437,751, compared to $1,484,314, for the same period in 2014.  This represents a decrease of $46,563, or approximately 3%. Operating expenses were $1,868,407 for the six-month period ended June 30, 2015, compared to $1,901,825 for the same period in 2014.  This represents a decrease of $33,418, or approximately 2%. Salaries and contract labor expense increased by $68,528, or approximately 9%, which is the result of recording more non-cash equity compensation for the six-month period ended June 30, 2015 as compared to the same period in 2014, as well as standard salary and wage increases to employees. General administrative expense decreased to $802,724 for the six months ending June 30, 2015 from $927,617 for the same period in 2014.  This is a decrease of $124,893, or approximately 13% and is the result of management’s efforts to reduce discretionary and overhead expense, as well as a reduction in the amount of lease obligation expense recorded for the six-month period ended June 30, 2015. The reduction in lease obligation expense is the result of a periodic review of our funding for decommissioning which took place in the latter half of 2014. At that time we adjusted the previously accrued liability and expense and since then, have not accrued any additional expense.  Our research and development expense increased by $22,947, or approximately 11%, to $235,431 for the six-month period ended June 30, 2015, from $212,484 for the same period in 2014.  The increase is due to development work we are conducting in our several of our core business segments.


The following table shows total operating expenses for the six-month period ended June 30, 2015 and 2014:


 

For the six-

months ended

June 30,

 

For the six-

months ended

June 30,

 

 

 

 

 

Operating Costs and Expenses:

2015

 

2014

 

% change

 

$ change

Salaries and Contract Labor

$

830,252

 

$

761,724 

 

9%

 

$

68,528 

General, Administrative and Consulting

 

802,724

 

 

927,617 

 

-13%

 

 

(124,893)

Research and Development

 

235,431

 

 

212,484 

 

11%

 

 

22,947 

Total operating expenses

$

1,868,407

 

$

1,901,825 

 

-2%

 

$

(33,418)


Interest expense for the six months ended June 30, 2015 was $259,586, compared to $620,414 for the same period in 2014. This is a decrease of $360,828, or approximately 58% and is largely attributable to re-negotiating the maturity date of a note payable with an aggregate principal amount of $500,000.  The note was originally due June 30, 2014, and during June 2014, the maturity date was extended to December 31, 2017. In connection with this note, we recorded approximately $365,000 of non-cash interest expense related to debt discount for the six months ending June 30, 2014, and approximately $56,000 of non-cash interest expense for the same period in 2015.


Our net loss for the six-month period ended June 30, 2015, was $619,040 as compared to $980,503 for the same period in 2014.  This is a decrease in loss of $361,463 or approximately 37%. This decrease in net loss was the result of our decreased operating and interest expense.





19



Radiochemical Products .  Revenue from the sale of radiochemical products for the six-month period ended June 30, 2015 was $855,159, compared to $879,392 for the same period in 2014. Within this segment, sales of sodium iodide were $855,159 for the six months ending June 30, 2015 as compared to $829,392 for the same period in 2014.  This is an increase of $25,767, or approximately 3%.  During the six months ended June 30, 2014, we reported $50,000 of consulting income in this segment, whereas we had no consulting income to report for the same period in 2015. Our sales of iodine remain strong and with product developments we are pursuing in this segment, we expect this to continue throughout 2015.


Gross profit percentages on our sodium iodide product for the six months ended June 30, 2015 and 2014 were approximately 26% and 24%, respectively. This increase of 2% is the result of competitive but aggressive pricing of our radiochemical product coupled with efficiently managing material and freight costs.  Operating expense for this segment for the six-month period ended June 30, 2015 was $56,925, compared to $65,701 for the same period in 2014. This is a decrease of $8,776, or approximately 13%, and is primarily due to decreased consulting expense. Net income for this segment decreased for the six-month period ended June 30, 2015, to $166,110, from $180,601 for the same period in 2014.  This decrease of $14,491, or approximately 8%, is due to the consulting revenue reported during the six-month period ended June 30, 2014, whereas we had no consulting revenue in this segment for the same period in 2015.


Cobalt Products .  Revenues from the sale of cobalt products for the six-month period ended June 30, 2015 were $486,058, compared to $694,048 for the same period in 2014. This is a decrease of $207,990 or approximately 30% and is the result of decreased sealed source sales. Our sealed source manufacturing generates the majority of our revenue in this segment and these sealed source sales depend on our ability to procure cobalt target material from the DOE’s ATR.  We have not been able to obtain cobalt material from the ATR since the end of 2013 and the majority of that material was sold during 2014.  We expect that the remaining material will be sold during 2015.  Our cobalt recycle revenue increased to $83,340, for the six months ending June 30, 2015, as compared to $16,980 for the same period in 2014.  This is an increase of $66,360 or approximately 391%.


As previously discussed, in October 2014, we entered into a ten year agreement with the DOE for the irradiation of cobalt targets and we anticipate having high specific activity cobalt available to our customers by the middle of 2017 and every year thereafter through at least 2024.  Until that time, we will continue to work with alternate cobalt suppliers to obtain the cobalt material to meet future short term customer needs.  We also hold many in-progress targets of an old design at the ATR.  At this point in time we have not decided how we will use these targets, but will weigh our options with regard to their future use to us and will likely come to a determination by the end of 2015.


 In January 2015 and April 2015, we entered into cobalt-60 supply agreements with two customers.  Under the terms of these contracts we will supply cobalt-60 to each customer and will provide on-going services with respect to the cobalt sales. The five-year contracts required an initial commitment fee plus quarterly progress payments from each customer. The amounts received under these contracts have been recorded as unearned revenue under long-term liabilities in our financial statements.


Gross profit for cobalt products for the six-month period ended June 30, 2015 was $372,276, as compared to $387,578 for the same period in 2014. Our cost of goods sold decreased significantly to $113,782 for the six months ending June 30, 2015, from $306,470 for the same period in 2014.  This dramatic decrease is the result of recording accumulated target irradiation costs during the six-month period ended June 30, 2014, when we sold the majority of material that was brought into our facility from the ATR at the end of 2013.  For this same period in 2015, our access to cobalt material was limited and our source sales were down significantly.  However, our sales of recycled material increased, as discussed above, and the cost to generate this type of revenue is much lower than the cost to manufacture sealed sources. Operating expense in this segment decreased by $49,723, to $106,594 for the six-month period ended June 30, 2015, from $156,317 for the same period in 2014. This is a decrease of approximately 32% and is largely due to a decrease in contractor costs related to target design and cobalt irradiation.  Net income for the six months ended June 30, 2015 was $265,682, compared to $231,262 for the same period in 2014. This increase of $34,420, or approximately 15%, is attributable to the significant reduction in cost of sales discussed earlier, as well as the reduction of operating expense.




20



Nuclear Medicine Standards .  Revenue from nuclear medicine products for the six-month period ended June 30, 2015 was $1,648,773 compared to $1,612,589 for the same period in 2014.  This represents an increase in revenue attributable to this segment of $36,184, or approximately 2%.


The table below presents nuclear medicine standards revenue for the six month periods ending June 30, 2015 and 2014:


 

 

For the six-

months ended

June 30

 

For the six-

months ended

June 30

 

 

 

Nuclear Medicine Standards

 

2015

 

2014

 

 

% change

Sales

 

 

 

 

 

 

 

 

 

Sales to RadQual

 

$

1,022,787

 

$

940,290 

 

 

9%

TI Services LLC

 

 

625,986

 

 

672,299 

 

 

-7%

 

 

$

1,648,773

 

$

1,612,589 

 

 

2%


Our sales to RadQual for the six months ending June 30, 2015 increased by $82,497 or approximately 9%.  This increase is the result of increased flood source sales.  In April 2014, in collaboration with RadQual, we introduced a new lightweight imaging source, the Rad-Lite, which has been very well received by customers and continues to generate strong sales in this segment. TI Services, LLC sales dropped by $46,313, or approximately 7%, from $672,299 for the six month period ending June 30, 2014 to $625,986 for the same period in 2015.  The decreased revenue is the result of a drop in sales of paper products used in nuclear medicine imaging. We have been working closely with RadQual, to develop new products to market through TI Services, LLC, while, at the same time, implementing cost reduction measures, where appropriate, to decrease operating expense for the joint-venture.


Gross profit for the six-month period ended June 30, 2015 was $567,696, as compared to $559,389 for the same period in 2014, an increase of $8,307, or approximately 1%.  Operating expense for this segment for the six-month period ended June 30, 2015 decreased to $231,334, from $246,493 for the same period in 2014.  This is a decrease of $15,159 or approximately 6%.  This decrease is the result of cost control measures implemented with TI Services, LLC, which have significantly reduced operating expense for the six-month period ended June 30, 2015 as compared to the same period in 2014. Net income for this segment increased by $23,465 or approximately 7%, to $336,362 for the six month period ended June 30, 2015, from $312,897 for the same period in 2014.


Radiological Services .  The radiological services segment reported revenue of $454,167 for the six-month period ended June 30, 2015 compared to $500,483 for the same period in 2014. This is a decrease of $46,316, or approximately 9%.  Revenue from field service work performed in connection with the DOE’s OSRP accounts for the majority of revenue in this segment, and for the six month period ended June 30, 2015 OSRP sales were $330,741 as compared to $286,801 for the same period in 2014. This is an increase of $43,940, or approximately 15%.  These OSRP jobs are sporadically offered by the DOE and we expect revenue comparisons will continue to vary from period-to-period.  Also, during the six-month period ending June 30, 2014, we reported a sale of nickel-62 in the amount of $82,292.  The nickel was held in our raw material inventory valued at actual cost of $146,534 and was sold at a loss of $64,242 which was reported in 2014 gross profit. There was no similar sale during the same period in 2015.


 

 

For the six-

months ended

June 30,

 

For the six-

months ended

June 30,

 

 

Radiological Services

 

2015

 

2014

 

% change

Gemstone Processing

 

$

111,383

 

$

115,431

 

-4%

Radiological Field Services

 

 

342,784

 

 

385,052

 

-11%

 

 

$

454,167

 

$

500,483

 

-9%


Gross profit was $209,445 for this segment for the six months ended June 30, 2015, and $228,774 for the same period in 2014. This is a decrease in gross profit of $19,329 and is the result lower margins realized on OSRP jobs performed. Operating costs were $38,142 and $64,763 for the six months ended June 30, 2015 and 2014, respectively. The decrease in operating expense of $26,621, or approximately 41%, is largely due to decreased general costs incurred during 2014 to build-up and support expanded field service work.  Net income for the six-month period ending June 30, 2015, was $185,133, as compared to $175,091 for the same period in 2014.




21



Fluorine Products .   There was no revenue to report from the fluorine products segment for the six months ended June 30, 2015 or for the same period in 2014.  We have developed our fluorine products in conjunction with the proposed uranium de-conversion facility in order to take advantage of the anticipated need for depleted uranium de-conversion services. However, in 2013, we made the decision to place continued formal design work on the de-conversion facility on hold and only continue to pay for essential items such as the NRC licensing and continued interactions with our customers, the state of New Mexico, and Lea County, New Mexico. Further activity within this segment will be deferred until market and industry conditions change to justify resuming design and construction of the facility. We do not anticipate any revenue from the sale of fluoride products in 2015 and have no certain date for resumption of engineering design and construction of this facility.


In July 2015, we executed an amendment to a Project Participation Agreement (PPA) we have with the Lea County, New Mexico, Board of Commissioners. The PPA granted us direct and indirect assistance for locating a proposed depleted UF6 de-conversion facility in Hobbs, New Mexico.  The principal component of assistance was the conveyance of approximately 640 acres for construction and operation of the proposed facility.  The conveyance of the land was contingent upon our commencement of construction on Phase 1 of the facility by December 31, 2014 and hiring seventy-five employees by December 31, 2015.  Under the amendment to the PPA, Lea County agreed to extend those dates to December 31, 2016 and December 31, 2017, respectively.


During the six months ended June 30, 2015, we incurred expenses of $187,095 for licensing, and other essential expenses, as compared to $206,337 for the same period in 2014. We expect to continue to incur similar maintenance cost through the remainder of 2015, and until such time as we are able to resume design and construction of the facility.


Transportation .  Revenue from transportation services for the six months ended June 30, 2015 was $72,700, compared to $70,925 for the same period in 2014.  Revenue in this business segment is directly affected by the activity in our cobalt products segment. We believe that, as revenues in our cobalt products segment improve, and revenues in our radiological services segment continue to grow, our transportation segment revenues will increase as well. Gross profit was $65,299 for the six months ended June 30, 2015, compared to $62,270 for the same period in 2014. Operating expense was $69,080 for the six months ended June 30, 2015, compared to $69,348 for the same period in 2014. Net loss for this segment was $3,782, and net loss was $7,078 for the six months ended June 30, 2015, and 2014, respectively.


LIQUIDITY AND CAPITAL RESOURCES


On June 30, 2015, we had cash and cash equivalents of $1,178,378 as compared to $558,541 at December 31, 2014.  This is an increase of $619,837, or approximately 111%.  For the six months ended June 30, 2015, net cash provided by operating activities was $960,280, and for the six months ended June 30, 2014, net cash provided by operating activities was $502,662. The increase in cash provided by operating activities is primarily the result of cash payments received on cobalt contracts and recorded as unearned revenue. The decrease in accounts receivable reflects normal fluctuations in segment sales and receipts from customers. Historically, we have not written off any accounts receivable, however, in July 2015, we will write off a customer account that has been determined to be un-collectable. The amount that will be written off is approximately $5,400.


Inventories at June 30, 2015 totaled $985,375, and inventories at December 31, 2014 totaled $1,049,106.  We have a significant investment in inventory which is due to the time required to produce some cobalt products and the operating cycle for those products is considered to be approximately two to three years. Irradiation costs paid to the DOE’s prime contractor account for approximately 80% of total work in process inventory cost for the six months ended June 30, 2015, and approximately 82% of total inventory cost for the same period in 2014. At this time, we have cobalt material stored at the ATR facility that is awaiting further irradiation to bring activity levels up to marketable levels. We are currently in discussions with the DOE regarding future options for these targets.  We believe the targets have significant but varying degrees of market value depending on whether or not further irradiation will or will not occur. We anticipate that the decision regarding the future of these targets is likely to be made during 2015.  If the DOE’s contractor is not able to perform this work, we may, at a future date determine that a write-down of the cobalt target inventory may be necessary.  However, at this time, we are working with the DOE to evaluate various options for sale or resumption of irradiation of this material.




22



Cash used in investing activities was $238,766 for the six months ended June 30, 2015, and for the same period in 2014, cash used in investing activities was $50,388. This increase in cash used in investing activities is due to an additional $225,315 placed into a restricted certificate of deposit that supports our decommissioning funding program required by the NRC.  The amount of cash received as dividend distributions from our investment in RadQual also decreased by $30,401, for the six months ending June 30, 2015 as compared to the same period in 2014.  During the six-month period ended June 30, 2015, we reported $30,478 of asset purchases and $98,861 of asset purchases for the same period in 2014.


Financing activities used cash of $101,677 during the six months ended June 30, 2015 and used cash of $98,339 for the same period in 2014. During the six months ended June 30, 2015, we received cash proceeds of $2,226 from the issuance of stock as compared to $4,531 for the same period in 2014. Principal payments on notes payable for the six months ended June 30, 2015, were $103,903 as compared to $102,870 for the same period in 2014.


We have a long term investment of $1,405,885, which represents a 24.5% ownership interest in RadQual. The value of this asset is based upon the purchase price and the continued business performance of RadQual. We purchased this ownership interest with the intent of eventually acquiring the remaining ownership interest of RadQual and thus improve the revenues and profit margin for the nuclear medicine business segment.  However, at the present time, there is no formal action being taken to increase our investment in RadQual.


We expect that cash from operations and our current cash balance will be sufficient to fund operations for the next twelve months.  Our future liquidity and capital funding requirements will depend on numerous factors, including, contract manufacturing agreements, commercial relationships, technological developments, market factors, available credit, and voluntary warrant redemption by shareholders. There is no assurance that additional capital and financing will be available on acceptable terms to the Company or at all.


On July 14, 2015, the Board of Directors determined that it was in the best interests of the company to extend the expiration dates of all outstanding Class H and Class I Warrants. As a result of this Board resolution, 1,913,892 Class H warrants, which previously carried an expiration date of August 24, 2015, and 12,924,887 Class I warrants, which previously carried an expiration date of October 24, 2015, will now expire January 31, 2016.


At June 30, 2015, there were 42,257,951 outstanding warrants to purchase our common stock.  Included in these are 1,913,892 Class H Warrants issued August 2011, with an exercise price of $0.22 per share and an extended expiration date of January 31, 2016; 12,924,887 Class I Warrants issued in October 2010, with an exercise price of $0.40 per share and an extended expiration date of January 31, 2016; 2,419,172 Class K Warrants issued July 27, 2012, with an exercise price of $0.30 per share and an expiration date of July 27, 2017; and 25,000,000 Class L Warrants issued June 30, 2014, with an exercise price of $0.06 per share and an expiration date of December 23, 2018.


In July 2012, we entered into a purchase agreement with Alpha Omega Services Inc. (AOS), of Bellflower, California, for the purchase of a type B(U) cask for use in our radiological services and transportation business segments. We made a $255,000 down payment to AOS at that time and had anticipated delivery of the container by February 2013. Our intention was to use the cask for a wide range of needs such as target transfers, source installations and type B shipments of radioactive material.  In January 2014, due to AOS’s failure to deliver the container as required by the original contract, or on multiple subsequent delivery dates, and our inability to reach mutually agreeable modified contract terms with AOS, the contract with AOS was terminated. We are currently considering legal actions to seek reimbursement of the down payment and damages from AOS.  Accordingly, the $255,000 was reclassified from fixed assets to Prepaids and Other Current Assets in our financial statements.


Debt


In July 2012, 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 $3,069,900. The debentures bear interest at 8%, mature July 2017 and are unsecured.  These debentures are convertible at any time into shares of the Company's common stock at an initial conversion price of $0.225 per share, subject to adjustment under certain conditions.  Each investor also received a common stock purchase warrant to purchase common stock equal to twenty five percent (25%) of the shares issuable upon conversion of the debentures.  The warrants are immediately exercisable at a price of $0.30 per share and have a term of five years. At June 30, 2015, the outstanding balance of these debentures, net of debt discount, was $2,907,441.



23




In February 2013, we entered into a securities purchase agreement with certain private investors pursuant to which we sold convertible debentures for an aggregate of $1,060,000. The debentures accrue interest at a rate of 10% per annum, and matured February 2015. The conversion price for these debentures, on any conversion date, was equal to the lesser of $0.14 or the average closing price of our common stock for the 120 consecutive trading days up to, but not including, the maturity date.  In February 2015, all the outstanding principal of the convertible debentures as well as the accrued interest in the amount of $222,600 was converted into 32,065,000 shares of common stock at a conversion price of $0.04 per share, which was the average trading price of the Company’s common stock for the preceding 120 days prior to conversion.


During April 2013, we negotiated with the NRC to convert amounts owing as a trade payable to a long-term note.  We converted a total of $596,816 in accounts payable to the note which is payable in monthly installments of $17,500 and accrues interest at a rate of 1% annually.  The note matures February 15, 2016 and is unsecured. At June 30, 2015, the outstanding balance of this note was $150,295.


Related Party Note Payable


On December 23, 2013, we entered into a promissory note agreement with our Chairman of the Board and one of our major shareholders (the “Lenders”), pursuant to which we borrowed $500,000 from the Lenders.  The loan bears interest at 6% per annum and was originally due June 30, 2014. At any time, the Lenders may elect to have any or all of the principal plus accrued interest under the promissory note repaid in the form of our common stock at a price per share determined based upon the average closing price of our common stock for the 20 days preceding the maturity or prepayment date.  In connection with the promissory note, each of the Lenders was issued 5,000,000 warrants to purchase shares of our common stock at $0.06 per share.  The warrants are immediately exercisable. Pursuant to an amendment to the promissory note on June 30, 2014, the maturity date was extended to December 31, 2017 and each lender was granted an additional 7,500,000 warrants to purchase shares of our common stock at $0.06 per share.  The warrants are immediately exercisable.


OFF-BALANCE SHEET ARRANGEMENTS


As of June 30, 2015, we had no off-balance sheet arrangements or obligations.


ITEM 4.  CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that material information relating to us is made known to the officers who certify our 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 our reports that are filed or submitted under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the SEC’s 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 Exchange 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 our CEO and CFO, has evaluated the effectiveness, as of June 30, 2015, of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of June 30, 2015.


Changes in Internal Control over Financial Reporting


There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



24



 

PART II – OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS


We are not a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.


ITEM 1A.  RISK FACTORS


There have been no material changes or updates to the risk factors previously disclosed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2014.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.











25



ITEM 6.  EXHIBITS


Exhibit

No.

Description


3.1

Restated Certificate of Formation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2010).


3.2

Bylaws (incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form SB-2 filed on May 1, 1997 (Registration No. 333-26269)).


10.1†

Cobalt-60 Pellet Supply Agreement, dated April 7, 2015, between Nordion (Canada) Inc., as general partner of and on behalf of Nordion Sterilization LP, and International Isotopes Inc. *


31.1

Certification by the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*


31.2

Certification by the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*


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.**


101

The following financial statements, formatted in XBRL: (i) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.*


________________

*   Filed herewith.

** Furnished herewith.

†   Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.




26




SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Date:  August 14, 2015

International Isotopes Inc.

 

 

 

 

 

 

By:

/s/ Steve T. Laflin

 

 

Steve T. Laflin

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

By:

/s/ Laurie McKenzie-Carter

 

 

Laurie McKenzie-Carter

 

 

Chief Financial Officer





27



EXHIBIT INDEX


Exhibit

No.

Description


3.1

Restated Certificate of Formation, as amended (incorporated by reference to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for quarter ended June 30, 2010).


3.2

Bylaws (incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form SB-2 filed on May 1, 1997 (Registration No. 333-26269)).


10.1†

Cobalt-60 Pellet Supply Agreement, dated April 7, 2015, between Nordion (Canada) Inc., as general partner of and on behalf of Nordion Sterilization LP, and International Isotopes Inc.*


31.1

Certification by the Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*


31.2

Certification by the Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.*


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.**


101

The following financial statements, formatted in XBRL: (i) Unaudited Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014, (ii) Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014, (iii) Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 and (iv) Notes to Unaudited Condensed Consolidated Financial Statements.*


________________

*   Filed herewith.

** Furnished herewith.

†   Confidential treatment requested as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.





28



Exhibit 10.1


CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR THE REDACTED PORTIONS OF THIS EXHIBIT.  THE REDACTIONS ARE INDICATED WITH “[**]”.  A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN FILED WITH THE U.S. SECURITIES AND EXCHANGE COMMISSION.


COBALT-60 PELLET SUPPLY AGREEMENT

THIS   AGREEMENT is made effective as of this 7th day of April, 2015, by and between Nordion (Canada) Inc. as general partner of and on behalf of Nordion Sterilization LP (a limited partnership constituted under the laws of the Province of Ontario, Canada (“ Nordion ”), having its principal address of business at 447 March Road, Ottawa, Ontario, Canada, K2K 1X8 and International Isotopes Inc . (“ INIS ”) having its principal address of business at 4137 Commerce Circle, Idaho Falls, Idaho, 83401.

RECITALS

WHEREAS:

A.

Nordion requires INIS to provide certain on-going services to Nordion with respect to the supply of Cobalt-60 Pellets. During the term of this Agreement Nordion, on a non-exclusive basis, will purchase from INIS and INIS shall supply Cobalt-60 Pellets in accordance with this Agreement meeting the specifications set out in Appendix A.

B.

INIS has the ability and expertise to provide such services and desires to provide such services to Nordion. During the term of this Agreement, as requested by Nordion, INIS will supply Nordion the Cobalt-60 Pellets in accordance with the pricing, terms and conditions set out in this Agreement and the Appendices attached.

NOW THEREFORE in consideration of the mutual covenants and provisions contained in this Agreement the parties agree as follows:

ARTICLE I - DEFINITIONS

As used herein, the following terms shall have the following definitions:

1.1

“ Affiliate ” shall mean an entity or person which controls, is controlled by, or is under common control with either party.  For Purposes of this Section “control” shall mean: (a) in the case of corporate entities, the direct or indirect ownership of more than one-half of the stock or participating shares entitled to vote for the election of directors; and (b) in the case of a partnership the power to direct the management and polices of such partnership.

1.2

“ Agreement ” means this agreement as may be amended from time to time.

1.3

“ Business Day ” means a day other than a Saturday, Sunday, or a statutory holiday in the Province of Ontario, Canada or the State of Idaho, USA

1.4

“ Cobalt-60 Pellets ” means Cobalt-60 pellets meeting the specifications set out in Appendix A.

1.5

“ Confidential Information ” has the meaning set out in Section 7.2.

1.6

“ Effective Date ” means the date first written above.





1.7

“ Contract Year ” means each successive calendar year of Cobalt-60 Pellet supply, during the term, commencing as of January 1, 2017.

1.8

“ Facility ” shall mean Nordion’s facility located in Ottawa Ontario, Canada.

1.9

“ Force Majeure ” has the meaning set out in Section 14.1.

1.10

“ Losses ” has the meaning set out in Section 9.1.

1.11

“ QA Standards ” has the meaning set out in Section 5.2.

1.12

“ Specification(s) ” means the specifications and design for the Cobalt-60 Pellets (produced from cobalt-59 pellets) set out in Appendix A, and as otherwise provided by Nordion and agreed to by INIS, from time to time.

1.13

“ Term ” has the meaning set out in Section 11.1.

Appendix

Appendix A: Specifications

Appendix B: Production and Delivery Schedule, Pricing and Payment

Appendix C: Deviation Request


ARTICLE II –SUPPLY

2.1

Supply INIS, in accordance with this Agreement and as set out in Appendix B shall supply to Nordion Cobalt-60 Pellets for use and/or sale (including use and or sale in Nordion manufactured sources) by Nordion. The Cobalt-60 shall be produced from cobalt-59 pellets that have been manufactured, tested and irradiated in accordance with the Specifications and QA Standards.

2.2

Deviation Requests .  INIS shall manufacture or have manufactured the Cobalt-59 pellets and Cobalt-60 Pellets in a controlled, documented manner in accordance with established and approved procedures. Any deviations requested by INIS from the Specifications for the Cobalt-60 Pellets, shall be submitted for approval to Nordion’s Senior Purchasing Agent, using Nordion’s QA-AP-02 Supplier Nonconformance Request attached as per Appendix C.  Deviations shall not be permitted to the Specifications, QA Standards or any design or manufacturing process, without Nordion’s prior written approval.

2.3

Confirmation of Insertion INIS shall provide to Nordion in writing confirmation of insertion of targets containing Cobalt-59 pellets intended to produce Cobalt-60 Pellets for supply and delivery to Nordion under this Agreement, within thirty (30)  days of insertion by U.S. Department of Energy (DOE) of such targets into the Advanced Test Reactor.  Such confirmation shall include the number of targets and total weight of Cobalt-59 pellets inserted.




Page 2 of 22

[**] - Indicates certain information has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the redacted portions.




ARTICLE III – PRODUCTION PLANNING AND SCHEDULING

3.1

Production and Delivery Schedule INIS agrees to supply and deliver to Nordion the quantities of Cobalt-60 Pellets set out in Appendix B.  For production and delivery planning purposes, INIS will provide to Nordion in writing on a quarterly basis a rolling 2 year forecast of estimated activity of Cobalt-60 Pellet deliveries and delivery dates.  The first 2 year forecast will be provided on or before April 1, 2015, and quarterly thereafter.  Beginning on June 30, 2016, and each June 30 thereafter, INIS will confirm delivery dates and activity of Cobalt-60 Pellets to be delivered to Nordion from January 1 to June 30 of the following Contract Year.  Beginning on January 1, 2017, and each January 1 thereafter, INIS will confirm delivery dates and activity of Cobalt-60 Pellets to be delivered to Nordion from July 1 to December 31 of that Contract Year. INIS shall use best efforts to deliver Cobalt-60 Pellets to Nordion in order to meet Nordion’s Cobalt-60 Pellet requirements.

Nordion acknowledges that the production rate for Cobalt-60 Pellets is dependent upon the Advanced Test Reactor (ATR) operating schedule.  The INIS Cobalt-60 Pellet production estimates are based upon the most current ATR schedule available and their historical cobalt production experience provided further, however, that reactor operating schedule and Cobalt-60 Pellet production may be impacted by reactor experiments, shutdowns, unplanned outages, and other similar events that are beyond the control of INIS and that could impact delivery dates and production quantities.  INIS will use best efforts to meet the established Production and Delivery Schedule (Appendix B), provided further,  that INIS shall communicate to Nordion in writing any changes in the Production and Delivery Schedule arising from the ATR operating schedule as soon as reasonably possible.


3.2

Target Capsule Loading  INIS shall produce and deliver Cobalt-60 Pellets in the quantity ordered by  Nordion in target capsules as specified in Appendix A.  Each target capsule shall contain approximately 45 grams of Cobalt-60 Pellets.  If any delivery of target capsules as a result of target capsule loading configuration, exceeds the annual curie content of Cobalt-60 Pellets ordered by Nordion, Nordion shall be required to purchase such additional Cobalt-60 Pellets at the price set out in Appendix B for such Contract Year.  If quantities of Cobalt-60 Pellets delivered to Nordion during a Contract Year are less than the annual curies ordered as a direct  result of target capsule loading configuration, then INIS shall immediately notify Nordion in writing and the difference  in curies delivered shall be made up in the immediately following Contract Year  (at the price applicable in the Contract  Year in which the delivery quantity was not met by INIS as a result of such  target configuration) (“Undelivered Pellets”). For the purposes of clarity in no event shall the foregoing reduce INIS’s supply obligation for Cobalt-60 Pellets to be delivered to Nordion in such immediately following Contract Year.

ARTICLE IV – PRICING, PAYMENT AND DELIVERY

4.1

Pricing, Title and Risk of Loss.  The price and payment schedule for Cobalt-60 Pellets purchased and delivered in Contract Year1 through Contract Year 5 is set out in Appendix B (provided such Cobalt-60 Pellets meet the minimum specific activity set out in Appendix A).  The price of Cobalt-60 Pellets that may be below the minimum specific activity specified in Appendix A, may at Nordion’s option, be purchased at a mutually agreed upon price.    [**].

Cobalt-60 Pellets supplied to Nordion by INIS shall be delivered FCA transport vehicle from the  INIS facility, Idaho Falls, Idaho, United States or [**] (Incoterms 2010).   INIS is responsible for all cost and expenses, including but not limited to transportation,   related to the delivery of Cobalt-60 Pellets  from the ATR to either INIS facility in Idaho Falls, Id. or [**]. Risk of loss in and title to the Cobalt-60 Pellets delivered to Nordion shall be passed from INIS   to Nordion at the



Page 3 of 22

[**] - Indicates certain information has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the redacted portions.




aforementioned point of delivery.  INIS warrants that upon delivery by INIS, the Cobalt-60 Pellets shall be free and clear of all liens and encumbrances or other defects in title, material or workmanship.

4.2

[**].


4.3

Commitment Fee Nordion agrees that in consideration of INIS’s confirmed commitment to reserve, make available and supply Cobalt-60 Pellets to Nordion in accordance with Appendix B, Nordion agrees to pay to INIS a fee of $[**] per curie as set out and calculated in accordance with Appendix B.  Such commitment fees shall be invoiced by INIS upon signing of this Agreement and shall be due and payable by Nordion  in full by wire transfer within five (5) Business Days of receipt of the invoice by Nordion.   Nordion may, at its sole discretion, request to purchase additional Cobalt-60 Pellets in excess of the quantities set out in Appendix B.  If Nordion  requests such additional Cobalt-60 Pellets and INIS agrees to supply such additional Cobalt-60 Pellets, Nordion shall, within five (5) Business Days of receipt by Nordion  of the invoice, pay INIS an additional commitment fee corresponding to the additional number of Curies purchased multiplied by $[**] per curie. In the event INIS, through no fault of Nordion, (including in the event of Force Majeure) fails to supply and deliver the quantity of Cobalt-60 Pellets in accordance with the quantities set out in Schedule B in any Contract Year and/or fails pursuant to section 3.2 to deliver Undelivered Pellets, INIS shall refund to Nordion the corresponding commitment fee paid by Nordion for such Cobalt-60 Pellets and Undelivered Pellets as the case may be, pursuant to this section 4.3 and corresponding  progress payments made by Nordion for such Cobalt-60 Pellets and Undelivered Pellets pursuant to section 4.4.   INIS shall pay to Nordion any refundable commitment fee and progress payments within 30 days of the end of each Contract Year.


4.4

Progress Payments The purchase price of Cobalt-60 Pellets to be supplied and delivered in each Contract Year shall be paid in advance by Nordion in [**] equal and consecutive quarterly progress payments as set out in Appendix B.  The first progress payment shall be payable by Nordion within ten (10) Business Days of receipt of invoice from INIS issued on or after April 1, 2015 and subsequent progress payments by Nordion shall be payable within ten (10) Business Days of receipt of an invoice from INIS issued on or after the first day of each three (3) month period, as set out in Appendix B.  In the event that INIS notifies Nordion in writing that  the Cobalt-60 Pellets specified for supply and delivery in a Contract Year as set out in Appendix B are available prior to the delivery date set out in Appendix B, Nordion at its option, exercised in writing, may request early delivery of such Cobalt-60 Pellets.  In the event Nordion exercises its option for early delivery of the Cobalt-60 Pellets, Nordion shall, prior to shipment of the Cobalt-60 Pellets, pay to INIS the outstanding purchase price for such Cobalt-60 Pellets, not otherwise paid by quarterly progress payments.  For the purposes of clarity there shall be no adjustment to the purchase price payable by Nordion as set out in Appendix B in the event the Cobalt-60 Pellets are required to remain in reactor for a longer period of time to meet Specification.

4.5

Measurement   Conformance to Specification and final activity measurement of Cobalt-60 Pellets shall be determined by Nordion at the time of completion of extraction of  the Cobalt-60 Pellets from the target  at Nordion’s  Facility. Nordion’s measurement of activity of the Cobalt-60 Pellets decayed to the aforementioned point of delivery, shall serve as the final agreed to activity measurement for the purposes of determining the final purchase price, invoice and payment adjustments (if applicable). Nordion shall provide such activity measurement to INIS in writing within ten (10) days of completion of extraction of the Cobalt-60 Pellets from the target at  Nordion’s facility.  



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[**] - Indicates certain information has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the redacted portions.




4.6

Final Invoices.  INIS shall within thirty (30) days after the end of each Contract Year, issue a final invoice to Nordion for the Cobalt-60 Pellets setting forth (i) the activity of Cobalt-60 Pellets delivered as per the agreed to activity measurement as described in section 4.5, (ii) total quarterly progress payments by Nordion and (iii) any outstanding balance or refund payable by or to Nordion.  In the event any balance is owed by Nordion to INIS on such invoice or a refund is owed by INIS to Nordion on such invoice, such amount shall be paid within thirty (30) days of the date appearing on the invoice.

4.7

Late Payments Commitment fees, progress payments and final invoices and refunds shall be paid in accordance with this agreement, unless Nordion or INIS in good faith disputes the amount due and payable.  Any undisputed amount which remains unpaid when due and payable shall bear annual interest at the rate of [**] calculated at the rate of [**] monthly.  If a portion of an amount is disputed by Nordion or INIS, Nordion or INIS shall make payment of the undisputed portion in accordance with the payment terms set out herein.  In the event Nordion or INIS disputes any particular amount, Nordion or INIS, shall pay the undisputed amount and the parties will attempt, in good faith, to resolve the dispute pertaining to the balance payable within fifteen (15) days of receipt of the notice of dispute.  In the event the parties cannot resolve the dispute within the aforementioned fifteen (15) day period, either party may pursue any remedy under this Agreement or available at law.

4.8

Taxes .  The purchase price for all Cobalt-60 Pellets under this Agreement do not include applicable federal or provincial sales taxes or levies (including HST) (“ Taxes ”) which Taxes shall be a separate line item on the invoice issued by INIS, and shall exclude any and all taxes based upon INIS’s   income or other taxes properly borne by INIS.  All Taxes as applicable shall be collected and remitted to the appropriate tax authority by INIS.

4.9

Shipping Containers Nordion will, at its expense, provide to INIS empty shipping containers approved and licensed for the transportation of the Cobalt-60 Pellets.  The shipping containers may or may not be new and shall remain the property of Nordion at all times.  Container specifications will be provided by Nordion to INIS as and when required as part of the shipping documentation.  Subject to Nordion obtaining and maintaining the container licenses, INIS shall ensure compliance with all applicable Law and regulatory authority requirements with respect to packing and handling the containers and shipping the Cobalt-60 Pellets to the point of delivery. INIS shall at all times ensure that the Cobalt-60 Pellets loaded in the shipping containers are within the authorized limits as specified on the applicable licenses issued by regulatory authorities.  Decontamination of the containers to a mutually acceptable standard prior to delivery to INIS will be the responsibility of Nordion.  INIS shall be responsible for any damage to or contamination of the outside of the containers caused by INIS while the containers are in its custody or control.  Nordion represents and warrants that the shipping containers it provides will be fit for shipping the Cobalt-60 Pellets.

4.10

Surface Contamination of Targets:  Prior to shipment of a target containing Cobalt-60 Pellets from INIS to Nordion, INIS shall provide in writing to Nordion the results of a contamination wipe test of such target, indicating the amount of each radionuclide present.  Nordion, at its sole discretion and in writing within five (5) Business Days of receipt of the wipe test results, may accept or reject delivery of the target on the basis that it may create a risk of contamination of the Nordion facility. INIS shall not ship the target prior to receipt of Nordion’s acceptance of the results of the wipe test.  INIS will have thirty (30) days after receipt of written notice of rejection of delivery of a target by Nordion to reduce the surface contamination to levels acceptable to Nordion.  In the event INIS is unable to remedy such delivery of Cobalt-60 Pellets to Nordion in the Contract Year in which such Cobalt-60 Pellets were due to be delivered to Nordion, in addition to any other remedy available, section 4.3 shall apply.



Page 5 of 22

[**] - Indicates certain information has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the redacted portions.




ARTICLE V–SPECIFICATIONS, QUALITY ASSURANCE, INSPECTION, SUPPORT

5.1

INIS agrees that, in carrying out its obligations set out in this Agreement, it shall:

(a)

supply Cobalt-60 Pellets in conformity with all applicable regulatory and quality requirements and the approved Specifications and INIS will maintain all such records as are necessary and appropriate to demonstrate compliance in the supply and delivery of the Cobalt-60 Pellets with applicable regulatory requirements and Specifications;

(b)

supply the Cobalt-60 Pellets free from any defects in manufacture, materials and workmanship; and

(c)

ensure that all inspection, measuring and test equipment used in connection with the testing and quality assurance of the Cobalt-60 Pellets shall be calibrated to ensure the validity of the test results and INIS shall maintain records of such calibration.

5.2

Quality Assurance .  INIS, in carrying out its obligations as set out in this Agreement, agrees to maintain quality assurance requirements as defined in the Specifications and INIS’s quality system which shall meet the requirements of ISO 9001 and US NRC 10 CFR Part 71 (“ QA Standards ”).  INIS shall not use, and shall not supply to Nordion, any Cobalt-60 Pellets which do not conform to the Specifications.    INIS shall have a process in place to reduce the risk of suspect or counterfeit material from being purchased for or used in the manufacture of Cobalt-60 Pellets.  INIS will immediately notify Nordion in the event of any regulatory inspection and/or action that may have any impact on the materials/services provided by INIS under this Agreement   Additionally, INIS will notify Nordion of any changes to their regulatory or certification status.    

5.3

Required Notification .  If INIS becomes aware of any end user complaint as to a defect or condition which in any way affects the Specifications, quality or safety of any Cobalt-60 Pellets or which may render any such Cobalt-60 Pellets ineffective, dangerous or in violation of the QA Standards, INIS shall notify Nordion in writing of such defect or condition within one (1) Business Day of INIS becoming aware of the defect or condition. INIS will immediately notify Nordion in the event of any regulatory inspection and/or action that may have any impact on the materials/services provided by INIS under this Agreement. Additionally, INIS will notify Nordion of any changes to their regulatory or certification status.

5.4   

Complaints and Adverse Events   Nordion and INIS shall cooperate with respect to any complaints or adverse events regarding the Cobalt-60 Pellets and other activities related to this Agreement. INIS will assist Nordion with reasonable effort in the evaluation and investigation of any compliant, recall or field action that could be reasonably attributed to the activities performed under this Agreement.  Each party shall provide to each other in a timely manner all information which the other party reasonably requests regarding the matter in order to enable the other party to comply with all applicable laws.  

5.6

Audit . Nordion and its representatives (subject to a confidentiality agreement acceptable to INIS acting reasonably) shall have the right during regular business hours, upon reasonable notice to INIS, to enter upon, examine and audit  (including those of INIS’s subcontractors providing services in respect of the manufacture and supply of the Cobalt-60 Pellets to Nordion hereunder) where the Cobalt-60 pellets are manufactured, assembled, packaged, stored, and/or disposed of, and to make any further examination reasonably necessary to properly ascertain compliance with the Specifications, QA Standards and this Agreement.  Nordion may observe, examine and/or



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audit all operating methods, method of manufacture, quality assurance policies and procedures and production and inventory records, relevant to the activities conducted and obligations imposed pursuant to this Agreement.  INIS shall make available or cause to be made available all manufacturing records reasonably requested by Nordion.  INIS shall maintain all records necessary to evidence compliance with:

(a)

applicable laws, regulations and other requirements of applicable government entities;

(b)

licenses, registrations, and authorizations as may be required by INIS to fulfill its manufacturing obligations set out in this Agreement; and

(c)

Specifications and QA Standards.

5.7

Pellet Extraction . Nordion and INIS agree to collaborate to optimize the process of extraction of Cobalt-60 Pellets from the target at the Nordion facility, with the objective of obtaining 100% recovery of Cobalt-60 Pellets.  The parties agree that chemical dissolution will not be considered in the extraction process.  In the event that the process, despite reasonable efforts by both parties, does  not yield 100% extraction of Cobalt-60 Pellets from the target, Nordion, at its sole option,  may return the target to INIS for replacement and  all costs incurred by Nordion and associated with the preparation, re-encapsulation, decontamination and transportation of the returned target  shall  be borne by INIS.  The returned target shall be delivered to INIS FCA transport vehicle (Incoterms 2010), Nordion’s Facility in Ottawa, Ontario.  Risk of loss in and title to the returned target shall pass to INIS at the aforementioned delivery point. In the event that Nordion returns the target INIS shall provide, at its cost a replacement target at the next available opportunity, but no more than six (6) months from the date the returned target leaves the Nordion Facility, and shall deliver, at INIS cost, the replacement target to Nordion’s Facility in Ottawa, Ontario. Risk of loss in and title to the replacement target shall pass to Nordion at the aforementioned delivery point.   

ARTICLE VI - PRODUCT WARRANTY

6.1

Product Warranty .  INIS warrants that the Cobalt-60 Pellets shall conform to the Specifications, and shall be free from foreign material contamination and free from defects in manufacture, materials, and workmanship for a period of [**] from the date of delivery to Nordion, Each party will notify the other party if it becomes aware of any alleged defects or damage at the time of delivery of Cobalt-60 Pellets hereunder or during handling at Nordion’s facility as the case may be.  A failure to so notify by Nordion shall not negate INIS’s warranties, liabilities, indemnifications or other obligations set forth herein.

All such INIS warranty obligations shall cease and have no effect to the extent that the Cobalt-60 Pellets are subject to accident, abuse, misuse, or alteration.  Except as otherwise set out in this Agreement, all warranty costs incurred by INIS, including the labour, repair or replacement of the Cobalt-60 Pellets and associated shipping costs, shall be borne by INIS.  Pursuant to a warranty claim, and upon request of INIS, Nordion, at INIS’s expense, shall return, or cause to be returned, defective Cobalt-60 Pellets to INIS. The cost of disposal of defective Coblat-60 Pellets shall be borne by INIS.

Nordion shall provide INIS with written notice of any warranty claim within a reasonable period of time after Nordion becomes aware of such claim.  At Nordion’s option, upon receipt of such notice, INIS shall either (i) reimburse Nordion for the purchase price by Nordion paid for the non-conforming Cobalt-60 Pellets, including the commitment fee; or (ii) promptly replace, repair or correct such non-conformity at INIS's expense in accordance with the above warranty.



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6.2    

Nordion acknowledges that INIS is supplying the Cobalt-60 Pellets to meet the Specifications.   EXCEPT AS EXPRESSLY SET OUT IN THIS AGREEMENT INIS HEREBY DISCLAIMS ALL OTHER WARRANTIES OR CONDITIONS EXPRESSED OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING BUT NOT LIMITED TO THOSE ARISING BY COURSE OF DEALING OR PERFORMANCE, CUSTOM, USAGE IN THE TRADE OR OTHERWISE, OR ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, USE OR APPLICATION.    

ARTICLE VII –CONFIDENTIALITY

7.1

Confidentiality .  The receiving party agrees to hold the Confidential Information (as hereinafter defined) received from the disclosing party, in strict confidence, which information will neither be disclosed nor used by recipient in any manner except in accordance with the terms herein.  The parties will use the Confidential Information solely for the purposes of carrying out its obligations under this Agreement.

7.2

Confidential Information .  “ Confidential Information ” means all information disclosed by a party, whether disclosed orally, in writing or via other media or tangible form, relating to its business or operations, including without limitation, data, trade secrets, patents, software, processes, methods, know-how, Specifications, designs, drawings, formulas, concepts, reports, product development activities, material samples, business plans, forecasts, marketing plans, customer and supplier lists, business strategies and financial information, and such other information designated as confidential or proprietary information or that would be reasonably construed as such based on the nature of the information and circumstances under which disclosed.  For greater certainty, the operations and processes observed by a party in visiting the facilities of the other shall be deemed to be included as Confidential Information under this Agreement.

Notwithstanding the foregoing, “Confidential Information” shall not include information which:

(a)

at the time of disclosure to the receiving party is or thereafter becomes part of the public domain through no act or omission of the receiving party or its employees, representatives or others for whom the disclosing party is responsible under this Agreement;

(b)

was in the receiving party’s lawful possession prior to disclosure to the receiving party by the disclosing party, as shown by written records in existence prior to such disclosure;

(c)

is hereafter lawfully disclosed to the receiving party by a person under no obligation of confidentiality, directly or indirectly, to the disclosing party with respect to such information; or

(d)

is hereafter independently developed, as shown by written records, by an agent or employee of the receiving party having no knowledge of or access to any Confidential Information disclosed hereunder.

The receiving party shall have the burden of demonstrating that information which would otherwise constitute Confidential Information is within the scope of the exceptions in Section 7.2(a) – (d).  Failure to mark or designate any Confidential Information as confidential or proprietary shall not affect its status as Confidential Information under this Agreement.



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7.3

Disclosure to Affiliates, Directors, Officers, Employees, Third Parties .  The receiving party will not disclose the Confidential Information to any person other than to Affiliates, directors, officers or employees, advisors, counsel, agents, consultants and potential acquirers (which persons or entities will be bound by a confidentiality agreement incorporating no less restrictive terms than those set forth herein) who have a need to know such Confidential Information to accomplish the obligations or activities imposed under this Agreement.  Such Affiliates, directors, officers and employees, advisors, counsel, agents, consultants and potential acquirers shall be informed of the confidential nature of the information and obligations of confidentiality set out in this Agreement and the receiving party shall remain liable for any use or disclosure by such persons of the Confidential Information contrary to the terms of this Agreement.  For greater certainty, the disclosure by the receiving party as permitted above to any of its directors, officers or employees of Confidential Information of the other party shall be deemed to be made to each such director, officer or employee solely in his or her capacity as such and not in any other capacity or position that such individual may hold (e.g. not as an employee of a third party that appoints such an individual to serve as a director of the receiving party disclosing the other party’s Confidential Information).

7.4

Period of Confidentiality .  The Confidential Information will be held by the receiving party in strict confidence in perpetuity and will not be disclosed, divulged, nor used by the receiving party in any manner except in accordance with this Agreement, or as otherwise agreed in writing by the parties.  The expiry or termination of this Agreement shall not affect the receiving party’s continuing obligations of confidentiality with respect to Confidential Information received up to the date of expiry or termination.

 7.5

Disclosure Required by Law .  Notwithstanding the foregoing, the receiving party may disclose the Confidential Information, if compelled to do so by judicial process, or order of a court or tribunal of competent jurisdiction; provided, however, that in such case the receiving party shall immediately upon receiving notice that disclosure is or may be required, give written notice by facsimile and overnight courier to the other party so that such other party may seek a protective order or other remedy from such court or tribunal.  The party being required to disclose shall only disclose that portion of the Confidential Information as is required to be disclosed by the applicable law and if permitted by applicable law, the other party shall be provided with the opportunity to review and comment on the disclosure to be made.  The party being required to disclose shall not be prevented from complying with applicable requirements if the other party does not seek or obtain a protective order or does not provide its comments on the disclosure promptly.

7.6

 Destruction of Materials .  All Confidential Information and all materials disclosed hereunder shall remain the sole and exclusive property of the disclosing party.  Upon termination or expiration of this Agreement or upon a party’s earlier written request, the receiving party will promptly return the Confidential information belonging to the other party or at such party’s request delete, destroy or render unreadable and unusable all materials, in any form, containing the Confidential Information, provided that the foregoing shall not require a party to return any part of such materials that consist of analyses or other materials that are derived from but do not reference or contain Confidential Information.  The receiving party shall, on request, certify to the disclosing party that all such Confidential Information has been destroyed. Notwithstanding the foregoing, the receiving party may retain one copy of Confidential Information for legal archival purposes subject to the limitations contained herein.

7.7

Injunctive Relief .  The parties acknowledge that the Confidential Information constitutes and contains confidential and proprietary information of a special and unique nature and value.  The receiving party also acknowledges that the disclosing party may suffer irreparable harm in the



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event the receiving party breaches any of the receiving party’s obligations under this Agreement and that monetary damages may be inadequate to compensate the disclosing party fully for such breach.  The parties accordingly agree that, in the event of a breach or threatened breach of any of the receiving party’s obligations under this Agreement, the disclosing party will be entitled to seek injunctive relief to prevent such breach by the receiving party and by all persons acting for, on behalf of or with the receiving party.  Such injunctive relief will be in addition to any other rights and remedies to which the disclosing party is or may be entitled at law or in equity or otherwise under this Agreement.

7.8

No Grant or Implied License .  Neither the execution of this Agreement, nor the disclosure of any Confidential Information hereunder, shall be construed as granting to any other party or any other person or entity a license (whether expressly or by implication, or otherwise), or any right of ownership or other right, title or interest, with respect to such Confidential Information.

7.9

No Breach of Confidence .  The parties each agree not to communicate any information to the other party if the disclosure would violate the proprietary rights of any third party.

ARTICLE VIII – REPRESENTATION AND WARRANTIES

8.1

Representations and Warranties of INIS .  INIS hereby represents and warrants  to Nordion as follows:

(a)

it is duly organized and validly existing and in good standing under the laws of the ,the State of Texas and the laws of the United States applicable therein;

(b)

INIS has the full power and authority required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder, and to perform the transactions contemplated by this Agreement;

(c)

this Agreement has been duly executed and delivered, is the valid and binding obligation of, and is enforceable against INIS in accordance with its terms, subject however to limitations on enforcement imposed by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of the rights of creditors and others and to the extent equitable remedies such as specific performance and injunctions are only available in the discretion of the court from which they are sought;

(d)

INIS has, and shall continue to have during this Agreement, sufficient and appropriate equipment, materials, supplies and qualified and skilled personnel to satisfactorily meet Nordion’s requirements for the supply of Cobalt-60 Pellets on a timely basis.

(e)

INIS, to its knowledge, is not in material violation of any law or regulation to which it is subject, which could or will have a material adverse affect on the obligations of INIS under this Agreement or its performance;

(f)

INIS (and its Affiliates) to its knowledge is not subject to any material litigation, action, suit, arbitration proceeding, governmental proceeding or other proceedings, or to the knowledge of INIS are threatened against or affecting INIS in any court or before any governmental authority (including any governmental department, panel, commission, board, bureau, agency or instrumentality), arbitration board or tribunal, domestic or



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foreign, which, if determined adversely to INIS, would have a material adverse affect on performance of its obligations or services contemplated under this Agreement;

(g)

neither INIS, nor its Affiliates, has received any notice of adverse claim of infringement of any patent or other intellectual property right or misappropriation of trade secrets in connection with performance of its obligations under this Agreement;

(h)

the execution and delivery of, and performance under, this Agreement by INIS does not, and will not, conflict with or violate any other agreement or obligations with third parties or any restrictions of any kind or any law to which it is bound or subject;

(i)

to INIS’s knowledge and belief, the method of manufacture of the Cobalt-60 Pellets do not infringe any valid third party patent, pending published patent application or other intellectual property right of any third party;

(j)

it shall, during this Agreement, at its own expense, maintain all licenses, permits and approvals necessary for it to perform its obligations under this Agreement;

(k)

INIS has the right to disclose any information it submits to Nordion, and that such disclosures do not breach or conflict with any confidentiality provisions of any agreement to which it is a party; and

(l)

it is not insolvent, subject to any proceeding, or to its knowledge, threatened for bankruptcy, liquidation or dissolution for the benefit of creditors or otherwise and in the event that this representation and warranty at any time becomes untrue, it shall immediately notify Nordion in writing.

8.2

Representations and Warranties of Nordion .  Nordion hereby represents and warrants to INIS as follows:

(a)

it is duly organized and validly existing and in good standing under the laws of the Province of Ontario and laws of Canada applicable therein;

(b)

Nordion has the full power and authority required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder, and to perform the transactions contemplated by this Agreement;

(c)

this Agreement has been duly executed and delivered by, is the valid and binding obligation of, and is enforceable against Nordion in accordance with its terms, subject however to limitations on enforcement imposed by bankruptcy, insolvency, reorganization or other laws affecting the enforcement of the rights of creditors and others and to the extent equitable remedies such as specific performance and injunctions are only available in the discretion of the court from which they are sought;

(d)

Nordion has, and shall continue to have during this Agreement, sufficient and appropriate equipment, materials, supplies and qualified and skilled personnel to satisfactorily meet Nordion’s  obligations under this Agreement on a timely basis.;



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(e)

Nordion, to its knowledge, is not in material violation of any law to which it is subject, which could, or will, have a material adverse affect on the obligations of Nordion under this Agreement or its performance;

(f)

Nordion (and its Affiliates) to its knowledge is not subject to any material litigation, action, suit, arbitration proceeding, governmental proceeding or other proceedings, or to the knowledge of Nordion are threatened against or affecting Nordion in any court or before any governmental authority (including any governmental department, panel, commission, board, bureau, agency or instrumentality), arbitration board or tribunal, domestic or foreign, which if determined adversely to Nordion would have a material adverse affect on performance of its obligations contemplated under this Agreement;

(g)

Nordion, nor its Affiliates, has received any notice of adverse claim of infringement of any patent or other intellectual property right or misappropriation of trade secrets in connection with performance of its obligations under this Agreement;

(h)

Nordion has the full power and authority required to enter into, execute and deliver this Agreement, to carry out its obligations hereunder, and to perform the transactions contemplated by this Agreement;

(i)

the execution and delivery of, and performance under, this Agreement by Nordion does not, and will not, conflict with or violate any other agreement or obligations with third parties or any restrictions of any kind or any law to which it is bound or subject;

(j)

it shall, during this Agreement, at its own expense, maintain all licenses, permits and approvals necessary for it to perform its obligations under this Agreement;

(l)

Nordion has the right to disclose any information it submits to INIS, and that such disclosure do not breach or conflict with any confidentiality provisions of any agreement to which it is a party; and

(m)

it is not insolvent, subject to any proceeding or, to its knowledge, threatened for bankruptcy, liquidation or dissolution for the benefit of creditors and in the event that this representation and warranty at any time becomes untrue, it shall immediately notify INIS in writing.

    ARTICLE IX – INDEMNIFICATION

9.1

INIS Indemnity .  INIS agrees to defend, indemnify and hold harmless Nordion its general partners and limited partners and its Affiliates, and their respective directors, officers, employees, agents and representatives from, and against, any damages, costs, claims, judgments, liabilities, penalties or fines or other expenses (including reasonable attorney’s fees) (the “ Losses ”) asserted against, or suffered by, Nordion resulting from any third party claim or suit to the extent arising from: (i)  INIS’s breach of any of its obligations, warranties or representations herein; (ii) INIS’s, or its subcontractor’s, agents or employees, negligent acts or omissions or willful misconduct; (iii) bodily injury, illness or death to any person, or damage to or destruction of tangible property, to the extent that such Losses are caused by the negligent acts or omissions or willful misconduct of INIS, in connection with INIS’s obligations under this Agreement; (iv) infringement or misappropriation by INIS of the intellectual property rights of a third party, including but not limited to, patent, copyright, or trade secrets; and (v) the contravention of applicable laws or



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standards, regulations, directives and policies of applicable governmental or other regulatory agencies, including in connection with environmental matters.

9.2

Nordion Indemnity .  Nordion agrees to defend, indemnify and hold harmless INIS and its Affiliates and their respective directors, officers, employees, agents and representatives from and against any Losses asserted against, or suffered by, INIS resulting from any third party claim or suit to the extent arising from: (i) Nordion’s breach of any of its obligations, warranties or representations herein; (ii) Nordion’s negligent acts or omissions or willful misconduct;  (iii) bodily injury, illness or death to any person, or damage to or destruction of tangible property, in connection with Nordion’s obligations under this Agreement; (iv) infringement or misappropriation by Nordion of the intellectual property rights of a third party, including, but not limited to, patent, copyright or trade secrets; and (v) the contravention of applicable laws or standards, regulations, directives and policies of applicable governmental or other regulatory agencies, including in connection with environmental matters.

9.3

Indemnification Procedure .  A party (the “Indemnitee”) intending to claim indemnification under this Agreement shall promptly notify the other party (the “Indemnitor”), in writing, of any action, claim or other matter in respect of which the Indemnitee or any of its directors, officers, employees or agents intend to claim such indemnification; provided, however, the failure to provide such notice within a reasonable period of time shall not relieve the Indemnitor of any of its obligations hereunder except to the extent the Indemnitor is materially prejudiced by such failure.  The Indemnitor shall be entitled to control the defense of and/or settle any such action, claim or other matter.  The Indemnitee agrees to the complete control of such defense or settlement by the Indemnitor, provided, however, any settlement of such claims shall require the Indemnitee’s prior written consent unless such settlement includes a full release of the Indemnitee, in which case no consent shall be required.  The Indemnitee and its directors, officers, employees and agents shall co-operate fully with the Indemnitor and its legal representatives in the investigation and defense of any action, claim or other matter covered by this indemnification.  The Indemnitee shall have the right, but not the obligation, to be represented by counsel of its own selection and at its own expense.

ARTICLE X – INSURANCE

10.1

Insurance .  During the Term of this Agreement, and for [**] thereafter, each   party, at its own expense, shall provide and maintain: (i) a Commercial General Liability and Completed Operations Products Liability policy (on a claims made or occurrence basis) covering product liability, including bodily injury and property damage to third parties, issued by an insurance company with an AM Best rating of A- or better; and (ii) Workers’ Compensation insurance in accordance with statutory limits and requirements.  Such Commercial General Liability policy, combined with Commercial Umbrella policy, shall have a limit of liability of not less than $[**] U.S. dollars per occurrence and $[**] U.S. dollars US in aggregate.  Each party shall be solely responsible for any deductable or retention associated with such policy.  Each party shall, upon request of the other party, provide a certificate of insurance issued by the insurer evidencing such policy.  Nordion and INIS shall each be named as an additional insured under the other party’s Commercial General Liability policy.  Nothing contained in this Section shall be deemed to limit in any way the indemnification provisions contained in this Agreement.

ARTICLE XI – TERM AND TERMINATION

11.1

Term .  This Agreement shall commence on the Effective Date, and unless earlier terminated in accordance with this Agreement shall remain in effect until December 31, 2021 (the “ Term ”).



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11.2

Termination for Breach .  This Agreement may be terminated by a party in the event of breach by the other party of a material term or condition hereof, provided however, the other party shall first give to the breaching party written notice of the proposed termination of this Agreement (a “ Breach Notice ”), specifying the grounds therefore.  Upon receipt of such Breach Notice, the breaching party shall have such time as necessary, but in any event not more than thirty (30) days to cure such breach (or fifteen (15) days with respect to a failure by a party to pay any amounts hereunder when due other than with respect to amounts which such party, in good faith, disputes are due to the other party).  Notwithstanding the foregoing, if the breaching party does not cure such breach within such cure period, the other party may, upon written notice, terminate the Agreement without prejudice to any other rights or remedies which may be available to such party.  Notwithstanding anything to the contrary, in the event INIS fails to meet its Cobalt-60 Pellet supply commitment to Nordion in any two (2) consecutive Contract Year periods, Nordion shall, in addition to any other remedies available, be entitled to terminate this Agreement upon written notice to INIS.

11.3

Termination for Bankruptcy .  This Agreement may be terminated by a party in the event the other party files a petition in bankruptcy, is adjudicated a bankrupt, makes an assignment for the benefit of its creditors, or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or reorganization statute or proceeding, or if a petition in bankruptcy is filed against it which is not dismissed within sixty (60) days or proceedings are taken to liquidate the assets of such party.

11.4

Effect of Expiry or Termination .  In the event of expiration or termination of this Agreement and notwithstanding any remedy that may be available to either party:

 (a)

each party, within forty five (45) days of such termination or expiration, pursuant to the request of the other party, shall return (or if requested destroy, with written certification thereof) to the other party, the Confidential Information, documentation and other information belonging to the other party, retaining one (1) archival copy thereof as necessary for compliance with applicable regulatory requirements and administration of obligations under this Agreement;   

(b)

each party shall, pay to the other party any  amounts otherwise due and owing by such party to the other party.

ARTICLE XII - DISPUTE RESOLUTION

12.1

Disposition of Disputes .  Except as otherwise set out or provided for in this Agreement, in the event that at any time during the Term of this Agreement, a disagreement, dispute, controversy or claim should arise with respect to the interpretation or application of this Agreement, the parties will attempt, in good faith, to resolve their difference for a period of ten (10) Business Days following written notice from one party to the other specifying such disputes.  In the event the parties are unable to agree on the resolution of the dispute during such ten (10) day period, either party will be free to take any action and seek any remedy it may have, in law or in equity, including specific performance and injunctive relief.

ARTICLE XIII – LIMITATION OF LIABILITY

13.1

Limitation .  NOTWITHSTANDING ANY OTHER TERM OR CONDITION OF THIS AGREEMENT, EXCEPT WITH RESPECT TO PAYMENTS FOR PRODUCTS OR SERVICES DUE AND OWING BY NORDION, BREACH OF CONFIDENTIALITY OBLIGATIONS UNDER THIS AGREEMENT OR MISAPROPRIATION OF THE INTELLECTUAL



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PROPERTY RIGHTS OF THE OTHER PARTY, IN NO EVENT SHALL EITHER PARTY OR ITS RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR REPRESENTATIVES BE LIABLE TO THE OTHER PARTY FOR INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOSS OF PROFITS,  LOSS OF BUSINESS OPPORTUNITY), WHETHER IN CONTRACT, WARRANTY, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, BREACH OF STATUTORY DUTY, OR ANY OTHER CAUSE OF ACTION WHETHER OR NOT SUCH PARTY WAS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

ARTICLE XIV – FORCE MAJEURE

14.1

Force Majeure .  Neither Nordion, nor INIS, shall be liable for damages for failure to perform or delay in performing its obligations under this Agreement if such delay or failure to perform arises from unforeseen circumstances beyond a party’s reasonable control which prevents, delays or interferes with the performance by such party of its obligations hereunder including an event that occurs by reason of an act of God, flood, power failure, fire, explosion, casualty or accident, war (declared or undeclared) revolution, civil commotion, acts of public enemies, act of terrorism, blockade or embargo, or a proclamation of any government, interruption or delay in transportation, strike or labour disturbance (“ Force Majeure ”).  In the event of Force Majeure, the affected party shall promptly notify the other party and shall exert commercially reasonable efforts to eliminate, cure or overcome such event and to resume performance of its obligations. If such Force Majeure endures for a period in excess of 180 days, the party not subject of the Force Majeure may terminate this Agreement.

ARTICLE XV – NOTICES

15.1

Notices .  All reports, approvals, requests, demands and notices or any other communications (a “ Notice ”) required or permitted by this Agreement to be given to a party shall be in writing and shall be deemed to be duly given if delivered by hand or by courier or sent by registered mail or transmitted by facsimile or e-mail to the party concerned at its address set forth below, or at such other address as a party may specify by notice to the other party hereunder:

NORDION:

447 March Road

Ottawa, ON, Canada

K2K 1X8

ATTN: Senior Purchasing Agent

Fax No.:

With copy to: Legal Department


INIS:

4137 Commerce Circle

Idaho Falls, ID.  83401

ATTN: Laurie McKenzie Carter, Chief Financial Officer

Fax No.:  

With copy to: Steve Laflin, CEO

Any Notice, if delivered by hand or by courier, shall be conclusively deemed to have been received on the date on which it is actually received at the designated address or, if sent by pre-paid registered mail, shall be conclusively deemed to have been received on the fifth (5 th ) Business Day following the mailing thereof.  Any such Notice transmitted by facsimile or e-mail shall be



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conclusively deemed to have been received on the date of its transmission provided that if such day is not a Business Day or if it is received after the end of normal business hours on the date of its transmission at the place of receipt, then, it shall be conclusively deemed to have been received at the opening of business on the first Business Day next following its transmission.  If normal mail service, facsimile or e-mail communication is interrupted by strike, slowdown, an event of Force Majeure or other cause, any notice sent by the impaired means of communication will not be deemed to be received until actual receipt, and the parties sending the notice shall utilize any other means of service which has not been so interrupted to deliver such notice.

ARTICLE XVI – MISCELLANEOUS

16.1

Interpretation .

(a)

The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

(b)

The Appendices to this Agreement are an integral part of this Agreement and a reference to this Agreement includes a reference to the Appendices.

(c)

Words importing persons or parties are to be broadly interpreted and include an individual, corporation, firm, partnership, joint venture, trust, unincorporated organization, governmental authority, unincorporated body of persons or association and any other entity having legal capacity, and the heirs, beneficiaries, executors, administrators or other legal representatives of a person in such capacity.

(d)

Unless the context otherwise requires, wherever used herein the plural includes the singular, the singular includes the plural, and each of the masculine, feminine and neuter genders include all other genders.

(e)

References containing terms such as “hereof”, “herein”, “hereto”, “hereinafter”, “hereunder” and other terms of like import are not limited in applicability to the specific provision within which such references are set forth but instead refer to this Agreement taken as a whole.

16.2

Severability .  If any term or other provision of this Agreement is declared invalid, illegal or incapable of being enforced by the courts of a competent jurisdiction, such term or other provision shall be severed and all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as such severed term or other provision does not affect the economic or legal substance of the transactions contemplated hereby in any manner materially adverse to any party.  Upon such declaration that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible.

16.3

Independent Contractors .  The parties hereto are independent contractors engaged in the operation of their own respective businesses.  Neither party is, or is to be considered as, the agent or employee of the other for any purpose whatsoever.  Neither party has the authority to enter into contracts or assume any obligations for the other party or make any warranties or representations on behalf of the other party.  Nothing in this Agreement shall be construed to establish a relationship of a partnership or joint venture between the parties.



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[**] - Indicates certain information has been redacted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the redacted portions.




16.4

Compliance with Law .  This Agreement, and Nordion’s and INIS’s obligations hereunder, shall be carried out in all material respects in compliance with all applicable laws, by-laws, rules regulations and orders of all applicable federal, state, provincial, municipal governments.  INIS agrees to comply with all applicable export and import control laws.  INIS understands that the Cobalt-60 Pellets may be subject to Canadian and local export and import laws and related export control legislation and regulations and upon request of Nordion shall provide to Nordion any export control item numbers of any export controlled material contained in the Cobalt-60 Pellets.

16.5

Currency .  All amounts in this Agreement are stated, and shall be paid, in United States currency.

16.6

Public Communications .  The parties agree that, except as may otherwise be set out in this Agreement, or be required by applicable laws, regulations, rules or orders no information concerning this Agreement, and the transactions contemplated herein, shall be made public by either party without the prior written consent of the other, which consent shall not be unreasonably withheld or delayed.  In the event either party decides to issue a press release announcing the execution of this Agreement, it shall not do so without the prior written approval of the other party, which shall not be unreasonably withheld.

A copy of any proposed press release shall be provided to the other party for approval at least ten (10) Business Days prior to any proposed release.

In the event that this Agreement, or any portion of its contents, is required to be disclosed by INIS or Nordion pursuant to Security Exchange Commission rules or regulations (if applicable), the FDA, or other federal or state authorities, INIS or Nordion, as the case may be, shall provide reasonable notice to the other prior to any such disclosure in order that, such other party may provide its views to the party required to disclose as to redactions that may be made to this Agreement or related materials in respect of sensitive or confidential information.  After considering the input of the other party the party required to disclose shall determine in its reasonable discretion the extent to which the Agreement and related materials may be redacted for sensitive or confidential information while complying with the applicable laws, rules and regulations in respect of the required disclosure.

16.7

Anti Corruption .  INIS and its personnel, agents and representatives are, and shall at all times during the Term, be aware of, and agree to abide by, the obligations imposed by the anti-bribery laws and foreign corrupt practices laws of all applicable jurisdictions in which the services are rendered, or obligations are carried out, and the laws of any other jurisdiction in which INIS or any of its personnel, agents or representatives conducts business in relation to dealing with payments to governments or related persons or officials, or a company, for the purpose of obtaining or retaining business for, or with, or directing business to, any person, or in performing under this Agreement.  For greater certainty, the foregoing laws shall include, among others, the Criminal Code Amendment (Bribery of Foreign Public Officials) Act 1999 and the Competition and Consumer Act 2010 of Australia, the Foreign Corrupt Practices Act of the United States of America, the Lobbyists Registration Act (Canada), the Corruption of Foreign Public Officials Act (Canada), the Bribery Act 2010 (United Kingdom), and the Criminal Code of Canada.  The parties agree that no portion of monies paid, or payable, in connection with its performance of this Agreement shall, directly, or indirectly, be paid, received, transferred, loaned, offered, promised or furnished to, or for, the use of an officer or employee of any institution, government department, agency, instrumentality or corporation thereof, or any political party or any official of such party or candidate for office or any person acting for, or on behalf of, any of the foregoing, for the purpose of obtaining or retaining business for, or with, or directing business to, any person.



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16.8

Assignment .  This Agreement shall enure to the benefit of, and shall be binding upon, the successors and permitted assigns of the parties.  Neither Nordion, nor INIS, may assign this Agreement. without the express written consent of the other party, such consent not to be unreasonably withheld or delayed; provided further however that Nordion: (i) may, upon written notice, assign this Agreement without consent to any of its Affiliates or subsidiaries, but without relieving Nordion from the responsibility for performance of any of such obligations; and (ii) may, upon written notice, assign this Agreement without consent to an entity which acquires all, or substantially all, of its assets or business to which this Agreement pertains, provided that such assignee duly and effectively assumes all of the obligations under this Agreement or in connection with a merger consolidation or similar transaction involving such party.

16.9

Amendment, Waiver .  This Agreement may not be amended or modified except by an instrument in writing signed by INIS and Nordion and referencing this Agreement.  Waiver of any term or condition of this Agreement shall only be effective if in writing and shall not be construed as a waiver of any subsequent breach or waiver of the same term or condition, or a waiver of any other term or condition of this Agreement.

16.10

Survival .  All Sections which by their nature must survive in order to give effect to their intent and meaning shall survive termination or expiration of this Agreement, including, without limitation, Sections 4.7, 5.4, 6.1, 6.2, Article VI, Article VII, Article IX, Article XIII, Article XV, Article XVI

16.11

Governing Law .  This Agreement shall be governed and construed in accordance with the laws of the Province of Ontario, Canada without reference to its principles on conflicts of laws.  The application of the United Nations Convention on Contracts for the International Sale of Goods is expressly excluded.  

16.12

Entire Agreement .  This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and there are no provisions terms or conditions or obligations, oral or written, express or implied other than those contained in this Agreement.  The terms of this Agreement supersede all previous oral or written agreements that may exist or have existed between the parties relating to the subject matter of this Agreement.

16.14

Execution .  This Agreement may be executed in two (2) or more counterparts, each of which together shall be deemed an original, but all of which together shall constitute one and the same instrument.  In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

[SIGNATURE PAGE FOLLOWS]



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IN WITNESS WHEREOF this Agreement has been duly executed by the parties hereto as of the date first above written.


NORDION (CANADA) INC . as general partner of and on behalf of Nordion Sterilization LP

 

INTERNATIONAL ISOTOPES INC.


/s/ Scott McIntosh

 


/s/ Steve T. Laflin

Nordion Representative (Signature)

 

INIS Representative (Signature)


Scott McIntosh

 


Steve T. Laflin

Name

 

Name


President, Gamma Technologies

 


President and Chief Executive Officer

Title

 

Title


April 7, 2015

 


April 7, 2015

Date

 

Date





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Appendix A

Specifications

Specifications for Cobalt-60 Pellets

1.

Inactive Pellet Dimensions: As per Nordion specification [**].

2.

Specific Activity: [**]

3.

Target Specification: Aluminum target of nominal dimensions 0.5” dia. X 16.0” length and as per dwg. [**]



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Appendix B

Production and Delivery Schedule, Pricing and Payments

[**]




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Appendix C

Supplier Nonconformance Report

[EXHIBIT101002.GIF]



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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 registrant’s 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 registrant’s internal control over financial reporting.


Date: August 14, 2015


/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 registrant’s 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 registrant’s internal control over financial reporting.


Date: August 14, 2015



/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 on Form 10-Q of International Isotopes Inc. and subsidiaries (the “Company”) for the period ended June 30, 2015, 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 to the best of my knowledge:


(1)

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 14, 2015

/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 on Form 10-Q of International Isotopes Inc. and subsidiaries (the “Company”) for the period ended June 30, 2015, 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 to the best of my knowledge:


(1)

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 14, 2015

/s/ Laurie McKenzie-Carter

 

Laurie McKenzie-Carter

 

Chief Financial Officer