6.	Contingencies

Royalty Agreement for Invention and Patent Application

A shareholder of the Company previously assigned his rights, title and interest in an invention to IsoRay Products LLC (a predecessor company) in exchange for a royalty equal to 1% of the Gross Profit, as defined in the royalty agreement, from the sale of “seeds” incorporating the technology. The patent and associated royalty obligations were transferred to the Company as part of a merger.

The Company must also pay a royalty of 2% of Gross Sales, as defined in the royalty agreement, for any sub-assignments of the aforesaid patented process to any third parties. The royalty agreement will remain in force until the expiration of the patents on the assigned technology, unless earlier terminated in accordance with the terms of the underlying agreement.

During the three months ended September 30, 2011 and 2010, the Company recorded royalty expenses of $3,914 and $5,743, respectively.

Patent and Know-How Royalty License Agreement

The Company is the holder of an exclusive license to use certain “know-how” developed by one of the founders of a predecessor to the Company and licensed to the Company by the Lawrence Family Trust, a Company shareholder. The terms of this license agreement require the payment of a royalty based on the Net Factory Sales Price, as defined in the agreement, of licensed product sales. Because the licensor’s patent application was ultimately abandoned, only a 1% “know-how” royalty based on Net Factory Sales Price, as defined in the agreement, remains applicable. To date, management believes that there have been no product sales incorporating the “know-how” and therefore no royalty is due pursuant to the terms of the agreement. Management believes that ultimately no royalties should be paid under this agreement as there is no intent to use this “know-how” in the future.

The licensor of the “know-how” has disputed management’s contention that it is not using this “know-how”. On September 25, 2007 and again on October 31, 2007, the Company participated in nonbinding mediation regarding this matter; however, no settlement was reached with the Lawrence Family Trust. After additional settlement discussions, which ended in April 2008, the parties failed to reach a settlement. The parties may demand binding arbitration at any time.

Wrongful Death Claim

The Company and a former employee have been named as defendants in a wrongful death claim in the State of Indiana as the result of an automobile accident. The suit alleges that the individual died as the result of a medical condition alleged to be the result of injuries sustained in the automobile accident. The claim if upheld at trial is not expected to result in an award of damages that will exceed the available insurance coverage. However, if the court awards exemplary damages then this award may have a financial impact on the Company. Management plans to defend the Company against the claim.