As
filed with the Securities and Exchange Commission on November 10, 2005
Registration
Statement No. 333-__________
SECURITIES
AND EXCHANGE COMMISSION
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ISORAY,
INC.
(Name
of Small Business Issuer in its Charter)
|
|
|
|
|
Minnesota
|
|
3841
|
|
41-1458152
|
(State
of Incorporation)
|
|
(Primary
Standard Industrial Classification Code Number)
|
|
(IRS
Employer ID No.)
|
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
(Address
and Telephone Number of Principal Executive Offices and Principal Place of
Business)
Roger
Girard, CEO
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
(Name,
Address and Telephone Number of Agent for Service)
Copies
of communications to:
Stephen
R. Boatwright, Esq.
Alicia
M. Corbett, Esq.
Keller
Rohrback, PLC
3101
North Central Avenue, Suite 900
Phoenix,
Arizona 85012
(602)
248-0088
Facsimile
Number: (602) 248-2822
Approximate
date of commencement of proposed sale to the public:
From
time to time after this registration statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant
to Rule
462(b) under the Securities Act of 1933, please check the following box and
list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
CALCULATION
OF REGISTRATION FEE
Title
Of Each Class Of Securities To Be Registered
|
|
Amount
To Be Registered (1)
|
|
Proposed
Maximum Offering Price Per Unit
|
|
Proposed
Maximum Aggregate Offering Price
|
|
Amount
Of Registration Fee
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, issuable upon conversion of preferred
stock
|
|
193,515
|
|
$5.38
(2)
|
|
$1,041,110
|
|
$122.54
|
Common
stock, $0.001 par value, issuable upon conversion of convertible
debentures
|
|
995,891
|
|
$5.38
(2)
|
|
$5,357,894
|
|
$630.62
|
Common
stock, $0.001 par value, issuable upon exercise of
warrants
|
|
332,130
|
|
$5.38
(2)
|
|
$1,786,859
|
|
$210.31
|
Common
stock, $0.001 par value, issuable upon exercise of stock
options
|
|
218,457
|
|
$5.38
(2)
|
|
$1,175,299
|
|
$138.33
|
Common
stock, $0.001 par value
|
|
3,701,028
|
|
$5.38
(2)
|
|
$19,911,531
|
|
$2,343.59
|
|
|
|
|
|
|
|
|
|
Total
|
|
5,441,022
|
|
|
|
$29,272,693
|
|
$3,445.39
|
(1) |
Includes
shares of our common stock, par value $0.001 per share, which may
be
offered pursuant to this registration statement, a portion of which
shares
are issuable upon conversion of preferred stock and convertible
debentures
and exercise of warrants and stock options held by the selling
shareholders. In addition to the shares set forth in the table,
the amount
to be registered includes an indeterminate number of shares, including
those issuable upon conversion of the preferred stock and convertible
debentures and exercise of the warrants and stock options, as such
number
may be adjusted as a result of stock splits, stock dividends and
similar
transactions in accordance with Rule 416.
|
(2) |
Estimated
solely for the purpose of calculating the amount of the registration
fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based upon the average of the bid and asked prices of the Registrant’s
common stock on November 7, 2005.
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
shareholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer
to
buy these securities in any state where the offer or sale is not permitted.
Preliminary
Prospectus, Subject to Completion, dated November 10, 2005
ISORAY,
INC.
5,441,022
Shares
Common
Stock
This
prospectus relates to the sale by the selling shareholders of up to 5,441,022
shares of our common stock, $0.001 par value, including up to
3,701,028 shares of common stock, up to 193,515 shares of common stock
underlying our convertible preferred stock (including up to 44,363 shares
of
common stock issuable upon conversion of preferred stock following the exercise
of warrants to acquire our preferred stock), up to 995,891 shares of common
stock underlying convertible debentures of our subsidiary, IsoRay Medical,
Inc.,
in a principal amount of $4,132,948, up to 332,130 shares of common stock
underlying warrants to purchase common stock and up to 218,457 shares of
common
stock underlying options to purchase common stock, all currently held by
the
selling shareholders. The preferred stock is convertible into our common
stock
at one (1) share of common stock for each preferred share converted, the
convertible debentures are convertible into our common stock at $4.15, the
warrants are exercisable at prices ranging from $.70 to $1.40 and the options
are exercisable at prices ranging from $1.19 to $2.00 per share. Holders
of the
debentures must provide a conversion notice to us by December 31, 2005 or
the
shares they could receive upon conversion of their debentures will be removed
from this prospectus by amendment.
The
prices at which the selling shareholders may sell shares will be determined
by
the prevailing market price for the shares or in negotiated transactions.
We will not receive any proceeds from the sale of our shares by the selling
shareholders. The selling shareholders may be deemed underwriters of the
shares
of common stock which they are offering. We will pay the expenses of registering
these shares.
Our
common stock is listed on the OTC Bulletin Board under the symbol
“ISRY.OB.” On November 7, 2005, the last reported bid price of our common
stock was $5.25 per share.
No
underwriter or other person has been engaged to facilitate the sale of shares
of
common stock in this offering.
INVESTING
IN OUR SECURITIES INVOLVES RISKS. SEE “RISK FACTORS”
BEGINNING
ON PAGE 5.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The
date
of this prospectus is November 10, 2005.
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
______________________________________________________________________________
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
|
1
|
|
|
RISK
FACTORS
|
5
|
|
|
USE
OF PROCEEDS
|
13
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|
|
MANAGEMENT'S
PLAN OF OPERATIONS
|
13
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|
|
MARKET
FOR COMMON STOCK
|
14
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|
|
DESCRIPTION
OF BUSINESS
|
16
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|
|
DESCRIPTION
OF PROPERTY
|
37
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|
|
LEGAL
PROCEEDINGS
|
37
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|
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|
37
|
|
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
41
|
|
|
SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
41
|
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
43
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|
|
SELLING
SHAREHOLDERS
|
44
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|
|
PLAN
OF DISTRIBUTION
|
49
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|
|
DESCRIPTION
OF SECURITIES
|
50
|
|
|
LEGAL
MATTERS
|
51
|
|
|
EXPERTS
|
51
|
|
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
|
51
|
|
|
FURTHER
INFORMATION
|
51
|
|
|
AUDITED
FINANCIAL STATEMENTS
|
F-1
|
You
should rely only on the information contained in this prospectus. We have
not,
and the selling shareholders have not, authorized anyone to provide you with
information that is different from that contained in this prospectus. The
selling shareholders are offering to sell shares of common stock and seeking
offers to buy shares of common stock only in jurisdictions where offers and
sales are permitted. The information in this prospectus is accurate only
as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Except
as
otherwise indicated, market data and industry statistics used throughout
this
prospectus are based on independent industry publications and other publicly
available information. Although we believe that these data and statistics
are
reasonable and sound, they have been prepared on the basis of underlying
data to
which we do not have access, and which we cannot independently verify.
For
definitions of many of the technical terms used throughout this prospectus,
see
page 18.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in our common stock. Before making an investment decision, you
should
read the entire prospectus carefully, including the “RISK FACTORS” section, the
financial statements and the notes to the financial statements. As used
throughout this prospectus, the terms “IsoRay,” the “Company,”“we,”“us” and
“our” refer to IsoRay, Inc.
Our
Business
We
are a
medical technology company focusing on innovative treatments for prostate
cancer
and other solid cancer tumors, with a goal of improved patient outcomes.
Our
wholly-owned subsidiary, IsoRay Medical, Inc., a Delaware corporation ("IsoRay
Medical"), began selling its initial product, the Food and Drug Administration
approved IsoRay Cesium-131 brachytherapy seed (the “IsoRay 131Cs
seed”), in October 2004 for the treatment of prostate cancer. Our management
believes that the clinical benefits of Cesium-131 will enable us to capture
market share within the existing brachytherapy market, which uses Palladium-103
and Iodine-125. We are also in the process of developing a second product,
Yttrium-90, which is a radioisotope that is already in use for the treatment
of
certain forms of metastasized, or “spread throughout the body,” cancers.
Our
Corporate History
We
were
incorporated under Minnesota law in 1983. Since 1998 and until our recent
merger
with IsoRay Medical, we had no significant operations. On July 28, 2005,
our
subsidiary, Century Park Transitory Subsidiary, Inc. merged into IsoRay Medical,
Inc., making IsoRay Medical our wholly-owned subsidiary.
IsoRay
Medical was formed under Delaware law on June 15, 2004 and merged with IsoRay
Products LLC and IsoRay, Inc., each formed under Washington law, on October
1,
2004. The first IsoRay company was originally organized in 1998 as a Washington
limited liability company, IsoRay, LLC, to develop a medical device using
the
Cesium-131 seed technology and later transferred its operations to IsoRay,
Inc.
on May 1, 2002. IsoRay Products LLC was formed in September 2003 to raise
capital to fund the operations of IsoRay, Inc. Both IsoRay, Inc. and IsoRay
Products LLC merged with IsoRay Medical, Inc. on October 1, 2004.
Our
principal office is located at 350 Hills Street, Suite 106, Richland, Washington
99354. Our general office phone number is (509) 375-1202. Our website is
www.isoray.com. Information on our website is not part of this prospectus.
The
Offering
|
|
|
Common
Stock Offered
|
|
5,441,022
shares by selling shareholders
|
|
|
Offering
Price
|
|
Market
price or negotiated price
|
|
|
Common
Stock Outstanding Before the Offering
|
|
9,767,026
shares as of November 7, 2005
|
Use
of Proceeds
|
|
We
will not receive any proceeds from the resale of the shares offered
hereby, all of which proceeds will be paid to the selling
shareholders.
|
|
|
Risk
Factors
|
|
The
purchase of our common stock involves a high degree of risk. You
should
carefully review and consider the “RISK FACTORS” section beginning on page
5.
|
|
|
OTC
Bulletin Board Symbol
|
|
ISRY.OB
|
Summary
Financial Data
Due
to
the July 28, 2005 closing of our merger with IsoRay Medical, the summary
financial information below is presented as a proforma as if the merger had
occurred on June 30, 2005.
|
|
|
|
Historical
IsoRay Medical, Inc. as of June 30, 2005
|
|
|
|
|
|
Notes
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
$
|
1,653,144
|
|
$
|
32,587
|
|
$
|
-
|
|
|
|
|
$
|
1,685,731
|
|
Other
current assets
|
|
|
|
|
|
313,161
|
|
|
-
|
|
|
|
|
|
|
|
$
|
313,161
|
|
Total
current assets
|
|
|
|
|
|
1,966,305
|
|
|
32,587
|
|
|
-
|
|
|
|
|
$
|
1,998,892
|
|
Noncurrent
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Fixed
assets, net
|
|
|
|
|
|
842,323
|
|
|
-
|
|
|
|
|
|
|
|
$
|
842,323
|
|
Other
noncurrent assets, net
|
|
|
|
|
|
793,756
|
|
|
-
|
|
|
|
|
|
|
|
$
|
793,756
|
|
Total
noncurrent assets
|
|
|
|
|
|
1,636,079
|
|
|
-
|
|
|
-
|
|
|
|
|
$
|
1,636,079
|
|
Total
assets
|
|
|
|
|
$
|
3,602,384
|
|
$
|
32,587
|
|
$
|
-
|
|
|
|
|
$
|
3,634,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Accounts
payable
|
|
|
|
|
$
|
695,588
|
|
$
|
21,355
|
|
|
|
|
|
|
|
$
|
716,943
|
|
Accrued
liabilities
|
|
|
|
|
|
208,853
|
|
|
-
|
|
|
|
|
|
|
|
$
|
208,853
|
|
Long-term
debt, current
|
|
|
|
|
|
43,116
|
|
|
-
|
|
|
|
|
|
|
|
$
|
43,116
|
|
Total
current liabilities
|
|
|
|
|
|
947,557
|
|
|
21,355
|
|
|
-
|
|
|
|
|
$
|
968,912
|
|
Long-term
debt, noncurrent
|
|
|
|
|
|
4,169,683
|
|
|
-
|
|
|
|
|
|
|
|
$
|
4,169,683
|
|
Total
liabilities
|
|
|
|
|
|
5,117,240
|
|
|
21,355
|
|
|
-
|
|
|
|
|
$
|
5,138,595
|
|
Shareholders'
equity (deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Preferred
stock, $.001 par value
|
|
|
|
|
|
1,589
|
|
|
-
|
|
|
(251
|
)
|
|
(1)
|
|
$
|
1,338
|
|
Common
stock, $.001 par value
|
|
|
|
|
|
7,317
|
|
|
2,498
|
|
|
(985
|
)
|
|
(2)
|
|
$
|
8,830
|
|
Additional
paid-in capital
|
|
|
|
|
|
3,804,369
|
|
|
7,003,100
|
|
|
(7,003,100
|
)
|
|
(3)
|
|
$
|
3,804,369
|
|
Accumulated
deficit
|
|
|
|
|
|
(5,328,131
|
)
|
|
(6,994,366
|
)
|
|
6,994,366
|
|
|
(3)
|
|
$
|
(5,328,131
|
)
|
Total
shareholders' equity (deficit)
|
|
|
|
|
|
(1,514,856
|
)
|
|
11,232
|
|
|
|
|
|
|
|
$
|
(1,513,594
|
)
|
Total
liabilities and shareholders' equity (deficit)
|
|
|
|
|
$
|
3,602,384
|
|
$
|
32,587
|
|
$
|
-
|
|
|
|
|
$
|
3,634,971
|
|
NOTES
TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE
SHEET
(1) |
Reflects
the issuance of 1,338,167 shares of IsoRay, Inc. $.001 par value
preferred
stock to the current holders of IsoRay Medical, Inc. Series B preferred
stock. The
shares currently held by the IsoRay Medical, Inc. Series B preferred
shareholders will be cancelled upon issuance of the IsoRay, Inc.
preferred
shares.
|
(2) |
Reflects
the issuance of 200,000 shares of IsoRay Medical, Inc. common stock,
to an
individual as a finder's fee associated with the merger transaction,
and
subsequent cancellation
of all 7,517,073 shares of IsoRay Medical, Inc. stock, and the
issuance of
6,332,097 shares of IsoRay, Inc. common stock. IsoRay Medical,
Inc.
will
be recapitalized with the issuance of 100,000 shares of IsoRay
Medical,
Inc. common stock to IsoRay, Inc.
|
(3) |
To
eliminate intercompany
balances.
|
UNAUDITED
PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR
THE FISCAL YEAR, AND THE TWELVE MONTHS ENDED JUNE 30 2005
|
|
|
|
Historical
|
|
|
|
Consolidated
|
|
|
|
|
|
IsoRay,
Inc.
|
|
|
|
Pro
Forma
|
|
|
|
Historical
|
|
(formerly
Century Park
|
|
|
|
Statement
of
|
|
|
|
IsoRay
Medical, Inc.
|
|
Pictures
Corporation)
|
|
|
|
Operations
|
|
|
|
for
the
|
|
for
the twelve months
|
|
|
|
for
the twelve months,
|
|
|
|
year
ended
|
|
ended
|
|
Consolidation
|
|
and
fiscal year ended,
|
|
|
|
June
30, 2005
|
|
June
30, 2005 (1)
|
|
Adjustments
(2)
|
|
June
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
201,731
|
|
|
|
|
|
|
|
$
|
201,731
|
|
Cost
of product sales
|
|
|
1,474,251
|
|
|
|
|
|
|
|
|
1,474,251
|
|
Gross
profit (loss)
|
|
|
(1,272,520
|
)
|
|
|
|
|
|
|
|
(1,272,520
|
)
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Research
and development
|
|
|
137,532
|
|
|
-
|
|
|
|
|
|
137,532
|
|
Sales
and Marketing expenses
|
|
|
701,822
|
|
|
-
|
|
|
|
|
|
701,822
|
|
General
and administrative expenses
|
|
|
1,871,325
|
|
|
34,297
|
|
|
|
|
|
1,905,622
|
|
Officer
compensation
|
|
|
|
|
|
(304,500
|
)
|
|
|
|
|
(304,500
|
)
|
Total
operating expenses
|
|
|
2,710,679
|
|
|
(270,203
|
)
|
|
-
|
|
|
2,440,476
|
|
Operating
loss
|
|
|
3,983,199
|
|
|
(270,203
|
)
|
|
-
|
|
|
3,712,996
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,464
|
|
|
-
|
|
|
|
|
|
2,464
|
|
Financing
expense
|
|
|
(167,493
|
)
|
|
|
|
|
|
|
|
(167,493
|
)
|
Loss
on disposal of fixed assets
|
|
|
(120,890
|
)
|
|
|
|
|
|
|
|
(120,890
|
)
|
Total
non-operating income
|
|
|
(285,919
|
)
|
|
-
|
|
|
-
|
|
|
(285,919
|
)
|
Loss
before extraordinary item
|
|
|
(4,269,118
|
)
|
|
270,203
|
|
|
-
|
|
|
(3,998,915
|
)
|
Extraordinary
credit
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
Net
income (loss)
|
|
$
|
(4,269,118
|
)
|
$
|
270,203
|
|
$
|
-
|
|
$
|
(3,998,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) per weighted-average share of common stock
|
|
$
|
(0.66
|
)
|
$
|
0.11
|
|
|
|
|
$
|
(0.45
|
)
|
Weighted-average
number of shares of common stock outstanding
|
|
|
6,493,700
|
|
|
2,428,913
|
|
|
|
|
|
8,922,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Pursuant
to the merger of IsoRay Medical, Inc. and IsoRay, Inc. (formerly
known as
Century Park Pictures Corporation), the fiscal year end of
IsoRay, Inc.
was changed from September 30 to June 30. Accordingly, to
provide this
comparative information, twelve months of IsoRay, Inc. operations
are presented even though those twelve months include quarterly
periods
which had formerly spanned two separate fiscal years.
|
(2) |
The
pro forma statements give rise to the effect that the merger
had occurred
at the beginning of the fiscal year ended June 30, and the
twelve months
ended June 30.
|
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in
this
prospectus and any other filings we may make with the United States Securities
and Exchange Commission in the future before investing in our common stock.
There may also be risks of which were are currently unaware, or that we
currently regard as immaterial based on the information available to us that
later prove to be material. If any of these risks occur, our business, operating
results and financial condition could be seriously harmed, the trading price
of
our common stock could decline, and you could lose some or all of your
investment.
Risks
Related To Our Business
Our
Subsidiary's Independent Accountants Have Expressed Doubt About Its Ability
To
Continue As A Going Concern.
IsoRay
Medical has generated material operating losses since inception and has a
shareholders’ deficit. We expect to continue to experience net operating losses.
Our ability to continue as a going concern is subject to our ability to obtain
necessary funding from outside sources, including obtaining additional funding
from the sale of our securities or obtaining loans and grants from various
financial institutions where possible. The going concern increases the
difficulty in meeting such goals. IsoRay Medical began generating revenue
in
October 2004, has generated revenue of approximately $410,000 through September
30, 2005, and is in the early stages of marketing its IsoRay 131Cs
seed.
IsoRay Medical and the Company have limited historical, operating or financial
information upon which to evaluate their performance. There can be no assurance
that the Company will attain profitability.
Our
Revenues Depend Upon One Product.
Until
such time as we develop additional products, our revenues depend upon the
successful production, marketing, and sales of the IsoRay 131Cs
seed.
The rate and level of market acceptance of this product may vary depending
on
the perception by physicians and other members of the healthcare community
of
its safety and efficacy as compared to that of competing products, if any;
the
clinical outcomes of the patients treated; the effectiveness of our sales
and
marketing efforts in the United States and Europe; any unfavorable publicity
concerning our product or similar products; our product’s price relative to
other products or competing treatments; any decrease in current reimbursement
rates from the Centers for Medicare and Medicaid Services (“CMS”) or third party
payors; regulatory developments related to the manufacture or continued use
of
the product; availability of sufficient supplies of enriched barium for
131Cs
seed
production; ability to produce sufficient quantities of this product; and
the
ability of physicians to properly utilize the device and avoid excessive
levels
of radiation to patients. Because of our reliance on this product as the
sole
source of our revenue, any material adverse developments with respect to
the
commercialization of this product may cause us to continue to incur losses
rather than profits in the future.
Although
Approved To Treat Any Malignant Tissue, Our Sole Product Is Currently Used
To
Treat One Type Of Cancer. Currently,
the IsoRay 131Cs
seed
is used exclusively for the treatment of prostate cancer. We believe the
131Cs
seed
will be used to treat cancers of other sites as well, as is currently the
case
with our competitors’125I
and
103Pd
seeds.
However, we believe that clinical data gathered by select groups of physicians
under treatment protocols specific to other organs will be needed prior to
widespread acceptance of our product for treating other cancer sites. If
our
current and future products do not become accepted in treating cancers of
other
sites, our sales will depend solely on treatment of prostate cancer and will
require ever increasing market share to increase revenues.
We
Have Limited Data On The Clinical Performance Of 131Cs.
As of
October 31, 2005, the IsoRay 131Cs
seed
had been implanted in approximately 100 patients.
While this limited number of patients may prevent us from drawing statistically
significant conclusions, the side effects experienced by these patients were
less severe than side effects observed in seed brachytherapy with 125I
and
103Pd
and in
other forms of treatment such as radical prostatectomy. These early results
indicate that the onset of side effects generally occurs between one and
three
weeks post-implant, and the side effects are resolved between five and eight
weeks post-implant, indicating that, at least for these initial patients,
side
effects resolved more quickly than the side effects that occur with competing
seeds or with other forms of treatment. These findings support management's
belief that the 131Cs
seed
will result in less severe side effects than competing treatments, but we
may
have to gather data on outcomes from additional patients before we can establish
statistically valid conclusions regarding the incidence of side effects from
our
seeds.
We
Will Need To Raise Additional Capital.
The
hiring of upper level sales executives, entry into capital lease agreements
for
a glove box and a hot cell, and entry into executive contracts requiring
payments upon reaching certain milestones significantly increased IsoRay
Medical's monthly cash requirements since August 2004. Monthly operating
cash
requirements as of the date of this filing were approximately $500,000,
excluding capital equipment and other items. Ongoing requirements
to
meet greater payroll obligations coupled with legal and accounting fees related
to completing this prospectus and public reporting status have resulted in
greater amounts of short-term cash demands.
We
will
also need substantial funds to complete the development, manufacturing, and
marketing of our current and future products. We are presently seeking to
raise
up to $4 million through the sale of common stock of the Company pursuant
to a
private placement memorandum. We are seeking not only to raise additional
capital through a private offering of equity securities, but also through
collaborative arrangements, strategic alliances, and equity and debt financings
or from other sources. IsoRay Medical has entered into a facility lease
agreement and has constructed a manufacturing and production facility located
in
Richland, Washington that its management believes will provide adequate space
to
manufacture the 131Cs
seed
product for the prostate and other organ cancer markets until late 2007.
We
may be
unable to raise additional capital on commercially acceptable terms, if at
all,
and if we raise capital through additional equity financing, existing
shareholders may have their ownership interests diluted. Our failure to be
able
to generate adequate funds from operations or from additional sources would
harm
our business.
The
Passage Of Initiative 297 In Washington May Result In The Relocation Of Our
Manufacturing Operations.
Washington
voters approved Initiative 297 in late 2004, which may impose restrictions
on
sites at which mixed radioactive and hazardous wastes are generated and stored,
including the Pacific Northwest National Laboratory (“PNNL”), which is where our
131Cs
seed
product has historically been manufactured. IsoRay has been assured by the
Attorney General’s office of the State of Washington that medical isotopes are
not included in Initiative 297 and that manufacturing in IsoRay’s new production
facility would not be interrupted, but there is no assurance that this
interpretation of Initiative 297 by the Attorney General’s Office will continue
to exclude medical isotopes. We are currently in the process of transitioning
from PNNL to full production in our new, leased facility outside of PNNL.
The
U.S.
Secretary of Energy is a party to litigation challenging the constitutionality
of Initiative 297 in U.S. District Court. Due to this litigation, the State
of
Washington and the U.S. Justice Department have agreed to delay any
implementation of Initiative 297 for an indefinite period of time. Thus,
we have
the ability to continue manufacturing seeds at PNNL for some period of time
if
needed as a back-up to our new IsoRay production facility, or to manufacture
some of our new products there. If the State of Washington begins enforcement
of
the initiative, we may be unable to conduct any future production operations
at
PNNL under our Commercial Work For Others (CWFD) contract with the Department
of
Energy, and would have to conduct our manufacturing operations in alternate
facilities.
Management
believes that we will be able to continue our manufacturing operations in
the
State of Washington for the foreseeable future, whether at PNNL or at our
new
leased facility, which is now operational. In the event Initiative 297 is
enforced against us, management may consider establishing an alternate
manufacturing facility outside of Washington, and we may consider moving
all or
part of our operations to another state even if Initiative 297 is not enforced
against us.
We
Have Limited Manufacturing Experience And May Not Be Able To Meet
Demand.
The
existing management team and staff of IsoRay Medical and the Company have
experience primarily in research and development of products and our experience
in commercial-scale manufacturing is limited. IsoRay Medical began commercial
production of the 131Cs
seed
in the fourth quarter of 2004. IsoRay Medical recently demonstrated production
of 90Y
using a
process suitable for weekly production of commercial-scale quantities of
this
isotope. Although IsoRay Medical's management team has significant
radiochemistry experience, there is a possibility that future production
demands
may result in challenges that may be too difficult or expensive to overcome.
IsoRay Medical has developed and deployed semi-automated laser welding equipment
that can produce seeds faster than a fully-automated line of equipment the
Company has reviewed that would cost several million dollars to design and
fabricate. IsoRay Medical believes it will continually find more efficient
means
of welding the titanium seeds; however, there is a possibility that future
demand will outstrip our ability to produce seeds using the semi-automated
process. We cannot ensure that either IsoRay Medical's manufacturing processes
or its ability to sustain ongoing production of its products will be able
to
meet demand. IsoRay Medical has entered into a lease agreement and has
constructed a manufacturing and production facility located in Richland,
Washington that its management believes will provide adequate space to
manufacture the 131Cs
seed
product for the prostate and other organ cancer markets until late
2007.
Sales
And Marketing Experience.
IsoRay
Medical's sales and marketing team has extensive experience in successfully
establishing and training domestic and international sales forces as well
as
successfully introducing new medical devices to the market, but we have limited
specific experience with commercial sales and marketing of the Cesium-131
radioisotope. IsoRay Medical has employed marketing professionals with extensive
experience selling medical devices, including radioisotopes for large,
international companies. Our initial marketing activities have been targeted
to
a limited number of physicians and treatment centers, and we will need to
recruit additional employees to assist in expanding our customer base. We
have
developed in-house customer service, order entry, shipping, billing,
customer payor coding and billing assistance, and sales support.
However, we cannot be certain that our products will be marketed and distributed
in accordance with our expectations or that our market research will be
accurate. We also cannot be certain that we will be able to develop our own
sales and marketing capabilities to the extent anticipated by management.
We may
choose to add third-party distribution channels, but we may not be able to
maintain satisfactory arrangements with the third parties upon whom we
rely.
Our
Operating Results Will Be Subject To Significant Fluctuations.
Our
quarterly revenues, expenses, and operating results are likely to fluctuate
significantly in the future. Fluctuation may result from a variety of factors,
which are discussed in detail throughout this “RISK FACTORS” section,
including:
· our
achievement of product development objectives and milestones;
· demand
and pricing for the Company's products;
· effects
of aggressive competitors;
· hospital,
clinic and physician buying decisions;
· research
and development and manufacturing expenses;
· patient
outcomes from our therapy;
· physician
acceptance of our products;
· government
or private healthcare reimbursement policies;
· our
manufacturing performance and capacity;
· incidents,
if any, that could cause temporary shutdown of our manufacturing facilities;
· the
amount and timing of sales orders;
· rate
and
success of future product approvals;
·
timing
of
FDA approval, if any, of competitive products and the rate of market penetration
of competing products;
· seasonality
of purchasing behavior in our market;
· overall
economic conditions; and
· the
successful introduction or market penetration of alternative therapies.
We
Rely Heavily On A Limited Number Of Suppliers.
Some
materials used in our products are currently available only from a limited
number of suppliers. For example, virtually all titanium tubing used in
brachytherapy seed manufacture comes from a single source, Accellent
Corporation. We currently obtain a key component of our seed core from a
single
supplier. Any interruption or delay in the supply of materials required to
produce our products could harm our business if we were unable to obtain
an
alternative supplier or substitute equivalent materials in a cost-effective
and
timely manner. Additional factors that could cause interruptions or delays
in
our source of materials include limitations on the availability of raw materials
or manufacturing performance experienced by our suppliers and a breakdown
in our
commercial relations with one or more suppliers. Some of these factors may
be
completely out of our control and our suppliers’ control.
Future
Production Increases Will Depend on Our Ability to Acquire Larger Quantities
of
131Cs
and Hire More Employees. IsoRay
currently obtains 131Cs
through reactor irradiation of natural barium and subsequent separation of
cesium from the irradiated barium targets. The amount of 131Cs
that
can be produced from a given reactor source is limited by the power level
and
volume available within the reactor for irradiating targets. This limitation
can
be overcome by utilizing barium feedstock that is enriched in the stable
isotope
130Ba.
However, the number of suppliers of enriched barium is limited and they may
be
unable to produce this material in sufficient quantities at a reasonable
price.
IsoRay has entered into an exclusive agreement with the Institute of Nuclear
Materials in the former Soviet Union to provide irradiated barium and
131Cs
in
quantities sufficient to supply a significant percentage of future demand
for
131Cs,
however, management believes that if the rate of demand for our products
continues to dramatically increase then we may not have a sufficient supply
of
isotopes to meet demand until delivery begins from the Institute of Nuclear
Materials, which is anticipated by management to occur in early 2006. IsoRay
believes this will provide access to a supply of enriched barium as well
that
may be recycled for use in other reactors to increase the production of
131Cs.
Although the agreement provides for supplying 131Cs
in
significant quantities, there is no assurance that this will result in IsoRay
gaining access to a sufficient supply of enriched barium feedstock and if
sufficient supplies are attained we will need to increase our manufacturing
staff.
We
Are Subject To Uncertainties Regarding Reimbursement For
Use Of Our Products. Hospitals
and freestanding clinics may be less likely to purchase our products if they
cannot be assured of receiving favorable reimbursement for treatments using
our
products from third-party payors, such as Medicare, Medicaid and private
health
insurance plans. Currently, Medicare reimburses hospitals, clinics and
physicians for the cost of seeds used in brachytherapy procedures on a per
seed
basis. Historically, private insurers have followed Medicare guidelines in
establishing reimbursement rates. However, third-party payors are increasingly
challenging the pricing of certain medical services or devices, and we cannot
be
sure that they will reimburse our customers at levels sufficient for us to
maintain favorable sales and price levels for our products. There is no uniform
policy on reimbursement among third-party payors, and we can provide no
assurance that our products will continue to qualify for reimbursement from
all
third-party payors or that reimbursement rates will not be reduced. A reduction
in or elimination of third-party reimbursement for treatments using our products
would likely have a material adverse effect on our revenues.
In
2003,
IsoRay applied to CMS and received reimbursement codes for use of our
131Cs
seed
(HCPCS code C2633 and APC code 2633). However, since January 1, 2004 hospitals
and clinics ordering brachytherapy seeds have been reimbursed for the cost
of
the seeds plus a fixed mark-up at a rate prescribed by CMS. Reimbursement
amounts are typically reviewed and adjusted every two years (the next scheduled
adjustment is in January 2006 for the calendar years 2007 and 2008) while
reimbursement policies are reviewed and revised on an ad hoc basis. Adjustments
could be made to these reimbursement amounts or policies, which could result
in
reduced reimbursement for brachytherapy services, which could negatively
affect
market demand for our products.
Furthermore,
any federal and state efforts to reform government and private healthcare
insurance programs could significantly affect the purchase of healthcare
services and products in general and demand for our products in particular.
We
are unable to predict whether potential healthcare reforms will be enacted,
whether other healthcare legislation or regulations affecting the business
may
be proposed or enacted in the future or what effect any such legislation
or
regulations would have on our business, financial condition or results of
operations.
It
Is
Possible That Other Treatments May Be Deemed Superior To Brachytherapy.
Our
131Cs
seed
faces competition not only from companies that sell other radiation therapy
products, but also from companies that are developing alternative therapies
for
the treatment of cancers. It is possible that advances in the pharmaceutical,
biomedical, or gene therapy fields could render some or all radiation therapies,
whether conventional or brachytherapy, obsolete. If alternative therapies
are
proven or even perceived to offer treatment options that are superior to
brachytherapy, physician adoption of our product could be negatively affected
and our revenues from our product could decline.
Our
Industry Is Intensely Competitive.
The
medical products industry is intensely competitive. We compete with both
public
and private medical device, biotechnology and pharmaceutical companies that
have
been established longer than we have, have a greater number of products on
the
market, have greater financial and other resources, and have other technological
or competitive advantages. We also compete with academic institutions,
government agencies, and private research organizations in the development
of
technologies and processes and in acquiring key personnel. Although we have
patents granted and patents applied for to protect our isotope separation
processes and 131Cs
seed
manufacturing technology, we cannot be certain that one or more of our
competitors will not attempt to obtain patent protection that blocks or
adversely affects our product development efforts. To minimize this potential,
we have entered into exclusive agreements with key suppliers of isotopes
and
isotope precursors.
We
Are Smaller Than Many Of Our Competitors.
Because
we are a relatively small company, there is a risk that potential customers
will
purchase products from larger manufacturers, even if our products are
technically superior, based on the perception that a larger, more established
manufacturer may offer greater certainty of continued product improvements,
support and service, which could cause our sales to fail to increase or to
decline.
We
May Be Unable To Adequately Protect Or Enforce Our Intellectual Property
Rights
Or Secure Rights To Third-Party Patents.
Our
ability and the abilities of our partners to obtain and maintain patent and
other protection for our products will affect our success. We are assigned,
have
rights to, or have exclusive licenses to patents and patents pending in the
U.S.
and numerous foreign countries. The patent positions of medical device companies
can be highly uncertain and involve complex legal and factual questions.
Our
patent rights may not be upheld in a court of law if challenged. Our patent
rights may not provide competitive advantages for our products and may be
challenged, infringed upon or circumvented by our competitors. We cannot
patent
our products in all countries or afford to litigate every potential violation
worldwide.
Because
of the large number of patent filings in the medical device and biotechnology
field, our competitors may have filed applications or been issued patents
and
may obtain additional patents and proprietary rights relating to products
or
processes competitive with or similar to ours. We cannot be certain that
U.S. or
foreign patents do not exist or will not be issued that would harm our ability
to commercialize our products and product candidates.
One
Of Our Licensed Patents May Be Terminated Under Certain
Conditions.
Our
131Cs
separation patent is essential for the production of Cesium-131. The owner
of
the patent, Lane Bray, a shareholder of the Company and Chief Chemist of
IsoRay
Medical, has the right to terminate the license agreement that allows the
Company to use this patent if we discontinue production for any consecutive
18
month period. The Company has no plans to discontinue production, and management
considers it highly unlikely that production will be discontinued for any
significant period at any time in the future.
Failure
To Comply With Government Regulations Could Harm Our Business.
As a
medical device and medical isotope manufacturer, we are subject to extensive,
complex, costly, and evolving governmental rules, regulations and restrictions
administered by the Food and Drug Administration (“FDA”), by other federal and
state agencies, and by governmental authorities in other countries. Compliance
with these laws and regulations is expensive and time-consuming, and changes
to
or failure to comply with these laws and regulations, or adoption of new
laws
and regulations, could adversely affect our business.
In
the
United States, as a manufacturer of medical devices and devices utilizing
radioactive by-product material, we are subject to extensive regulation by
federal, state, and local governmental authorities, such as the FDA and the
Washington State Department of Health, to
ensure
such devices are safe and effective. Regulations promulgated by the FDA under
the U.S. Food, Drug and Cosmetic Act, or the FDC Act, govern the design,
development, testing, manufacturing, packaging, labeling, distribution,
marketing and sale, post-market surveillance, repairs, replacements, and
recalls
of medical devices. In Washington State, the Department of Health, by agreement
with the federal Nuclear Regulatory Commission (“NRC”), regulates the
possession, use, and disposal of radioactive byproduct material as well as
the
manufacture of radioactive sealed sources to ensure compliance with state
and
federal laws and regulations. Our 131Cs
brachytherapy seeds constitute both medical devices and radioactive sealed
sources and are subject to these regulations.
Under
the
FDC Act, medical devices are classified into three different categories,
over
which the FDA applies increasing levels of regulation: Class I,
Class II, and Class III. Our 131Cs
seed
has been classified as a Class II device and has received clearance from
the FDA
through the 510(k) pre-market notification process. Although not anticipated,
any modifications to the device that would significantly affect safety or
effectiveness, or constitute a major change in intended use, would require
a new
510(k) submission. As with any submittal to the FDA, there is no assurance
that
a 510(k) clearance would be granted.
In
addition to FDA-required market clearances and approvals for our products,
our
manufacturing operations are required to comply with the FDA’s Quality System
Regulation, or QSR, which addresses requirements for a company’s quality program
such as management responsibility, good manufacturing practices, product
and
process design controls, and quality controls used in manufacturing. Compliance
with applicable regulatory requirements is monitored through periodic
inspections by the FDA Office of Regulatory Affairs (“ORA”). We anticipate both
announced and unannounced inspections by the FDA. Such inspections could
result
in non-compliance reports (Form 483) which, if not adequately responded to,
could lead to enforcement actions. The FDA can institute a wide variety of
enforcement actions, ranging from public warning letters to more severe
sanctions such as fines, injunctions, civil penalties, recall of our products,
operating restrictions, suspension of production, non-approval or withdrawal
of
pre-market clearances for new products or existing products, and criminal
prosecution. There can be no assurance that we will not incur significant
costs
to comply with these regulations in the future or that the regulations will
not
have a material adverse effect on our business, financial condition and results
of operations.
The
marketing of our products in foreign countries will, in general, be regulated
by
foreign governmental agencies similar to the FDA. Foreign regulatory
requirements vary from country to country. The time and cost required to
obtain
regulatory approvals could be longer than that required for FDA clearance
in the
United States and the requirements for licensing a product in another country
may differ significantly from FDA requirements. We will rely, in part, on
foreign distributors to assist us in complying with foreign regulatory
requirements. We may not be able to obtain these approvals without incurring
significant expenses or at all, and the failure to obtain these approvals
would
prevent us from selling our products in the applicable countries. This could
limit our sales and growth.
Our
Business Exposes Us To Product Liability Claims.
Our
design, testing, development, manufacture, and marketing of products involve
an
inherent risk of exposure to product liability claims and related adverse
publicity. Insurance coverage is expensive and difficult to obtain, and,
although we currently have coverage in amounts our management believes are
customary for similarly situated businesses, in the future we may be unable
to
obtain or renew coverage on acceptable terms, if at all. If we are unable
to
obtain or renew sufficient insurance at an acceptable cost or if a successful
product liability claim is made against us, whether fully covered by insurance
or not, our business could be harmed.
Our
Business Involves Environmental Risks.
Our
business involves the controlled use of hazardous materials, chemicals,
biologics, and radioactive compounds. Manufacturing is extremely susceptible
to
product loss due to radioactive, microbial, or viral contamination; material
or
equipment failure; vendor or operator error; or due to the very nature of
the
product's short half-life. Although we believe that our safety procedures
for
handling and disposing of such materials comply with state and federal standards
there will always be the risk of accidental contamination or injury. In
addition, radioactive, microbial, or viral contamination may cause the closure
of the respective manufacturing facility for an extended period of time.
By law,
radioactive materials may only be disposed of at state-approved facilities.
We
currently dispose of our radioactive waste through the Battelle managed PNNL
site under a one year renewable agreement. At our new, leased facility we
intend
to use commercial disposal contractors. We may incur substantial costs related
to the disposal of these materials. If we were to become liable for an accident,
or if we were to suffer an extended facility shutdown, we could incur
significant costs, damages, and penalties that could harm our business.
We
Rely Upon Key Personnel.
Our
success will depend, to a great extent, upon the experience, abilities and
continued services of our executive officers and key scientific personnel.
If we
lose the services of several of these officers or key scientific personnel,
our
business could be harmed. Our success also will depend upon our ability to
attract and retain other highly qualified scientific, managerial, sales,
and
manufacturing personnel and their ability to develop and maintain relationships
with key individuals in the industry. Competition for these personnel and
relationships is intense and we compete with numerous pharmaceutical and
biotechnology companies as well as with universities and non-profit research
organizations. We may not be able to continue to attract and retain qualified
personnel.
The
Value Of Our Granted Patent, and Our Patents Pending, Is
Uncertain.
Although
our management strongly believes that our patent on the process for producing
131Cs,
our
patent pending on the manufacture of the brachytherapy seed, our patent
applications on additional methods for producing 131Cs
and
90Y
which
have been filed, and anticipated future patent applications, which have not
yet
been filed, have significant value, we cannot be certain that other like-kind
processes may not exist or be discovered, that any of these patents is
enforceable, or that any of our patent applications will result in issued
patents.
Our
Ability To Expand Into Foreign Markets Is Uncertain. Our
future growth will depend in part on our ability to establish, grow and maintain
product sales in foreign markets, particularly in Europe and Asia. However,
we
have limited experience in marketing and distributing products in other
countries. Any foreign operations would subject us to additional risks and
uncertainties, including our customers' ability to obtain reimbursement for
procedures using our products in foreign markets; the burden of complying
with
complex and changing foreign regulatory requirements; language barriers and
other difficulties in providing long-range customer service; potentially
longer
accounts receivable collection times; significant currency fluctuations,
which
could cause third party distributors to reduce the number of products they
purchase from us because the cost of our products to them could fluctuate
relative to the price they can charge their customers; reduced protection
of
intellectual property rights in some foreign countries; and the possibility
that
contractual provisions governed by foreign laws would be interpreted differently
than intended in the event of a contract dispute. Any future foreign sales
of
our products could also be adversely affected by export license requirements,
the imposition of governmental controls, political and economic instability,
trade restrictions, changes in tariffs and difficulties in staffing and managing
foreign operations. Many of these factors may also affect our ability to
import
enriched barium from Russia under our contract with the Institute of Nuclear
Materials.
Our
Ability To Initiate Operations And Manage Growth Is Uncertain.
Our
efforts to commercialize our medical products will result in new and increased
responsibilities for management personnel and will place a strain upon the
entire company. To compete effectively and to accommodate growth, if any,
we may
be required to continue to implement and to improve our management,
manufacturing, sales and marketing, operating and financial systems, procedures
and controls on a timely basis and to expand, train, motivate and manage
our
employees. There can be no assurance that our personnel, systems, procedures,
and controls will be adequate to support our future operations. If demand
for
the IsoRay 131Cs
seed
continues to increase at current levels, it is unlikely that we could meet
demand. We could experience significant cash flow difficulties and may have
difficulty obtaining the working capital required to manufacture our products
and meet demand. This would cause customer discontent and invite competition.
Our
Reporting Obligations As A Public Company Are Costly. Operating
a public company involves substantial costs to comply with reporting obligations
under federal securities laws that are continuing to increase as additional
provisions of the Sarbanes Oxley Act of 2002 are implemented. These reporting
obligations will increase our operating costs. We may not reach sufficient
business volume to justify our public reporting status.
Risks
Related To This Offering
There
Is A Limited Market For Our Common Stock. Currently
only a limited trading market exists for our common stock. Our common stock
trades on the OTC Bulletin Board, a market with limited liquidity, under
the
symbol "ISRY.OB." Any broker/dealer that makes a market in our stock or other
person that buys or sells our stock could have a significant influence over
its
price at any given time, and quotations are limited and sporadic. Shareholders
may experience more difficulty in attempting to sell their shares than if
the
shares were listed on a national stock exchange or quoted on the NASDAQ Stock
Market. We cannot assure our shareholders that a market of our stock will
be
sustained. There is no assurance that our shares will have any greater liquidity
than shares that do not trade on a public market.
Our
Stock Price Is Likely To Be Volatile. There
is
generally significant volatility in the market prices and limited liquidity
of
securities of early stage companies, and particularly of early stage medical
product companies. Contributing to this volatility are various events that
can
affect our stock price in a positive or negative manner. These events include,
but are not limited to: governmental approvals, refusals to approve, regulations
or actions; market acceptance and sales growth of our products; litigation
involving the Company or our industry; developments or disputes concerning
our
patents or other proprietary rights; changes in the structure of healthcare
payment systems; departure of key personnel; future sales of our securities;
fluctuations in our financial results or those of companies that are perceived
to be similar to us; investors' general perception of us; and general economic,
industry and market conditions. If
any of
these events occur, it could cause our stock price to fall.
Our
Common Stock May Be Subject To Penny Stock Regulation. If
the
market price of our shares declines below $5.00 per share, our shares would
be
subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred
to as
the "penny stock" rule. Section 15(g) sets forth certain requirements for
transactions in penny stocks and Rule 15g-9(d)(1) incorporates the definition
of
penny stock as that used in Rule 3a51-1 of the Exchange Act. The SEC generally
defines penny stock to be any equity security that has a market price less
than
$5.00 per share, subject to certain exceptions. Rule 3a51-1 provides that
any
equity security is considered to be penny stock unless that security is:
registered and traded on a national securities exchange meeting specified
criteria set by the SEC; authorized for quotation on the NASDAQ Stock Market;
issued by a registered investment company; excluded from the definition on
the
basis of price (at least $5.00 per share) or the registrant's net tangible
assets; or exempted from the definition by the SEC. If our shares were deemed
to
be "penny stocks", trading in the shares would be subject to additional sales
practice requirements on broker-dealers who sell penny stocks to persons
other
than established customers and accredited investors.
Future
Sales By Shareholders, Or The Perception That Such Sales May Occur, May Depress
The Price Of Our Common Stock. The
sale
or availability for sale of substantial amounts of our shares in the public
market, including shares covered by this prospectus and shares issuable upon
exercise or conversion of outstanding preferred stock and derivative securities,
or the perception that such sales could occur, could adversely affect the
market
price of our common stock and also could impair our ability to raise capital
through future offerings of our shares. As of November 6, 2005, we had 9,767,026
outstanding shares of common stock, and the following additional shares were
reserved for issuance: 2,608,052 shares upon exercise of outstanding options,
563,945 shares upon exercise of outstanding warrants, 745,762 shares upon
conversion of preferred stock, and 995,891 shares upon conversion of convertible
debentures. On the effective date of this prospectus, a total of 8,458,194
shares of common stock (including 1,739,994 shares issuable upon conversion
or
exercise of preferred stock and derivative securities and including not only
shares registered through this prospectus but also the 2,389,595 shares
registered through our Form S-8 registration statement filed on August 19,
2005
and 627,577 shares eligible for resale under Rule 144(k)) to be offered and
sold
by selling shareholders will be eligible for sale in the public market.
In
addition, we are granting registration rights that may not be exercised prior
to
October 2006 to purchasers of units pursuant to a pending private
placement
memorandum. As additional shares of our common stock become available
for
resale in the public market, the price of our common stock may decrease due
to
the additional shares in the market. Any decline in the price of our common
stock may encourage short sales, which could place further downward pressure
on
the price of our common stock and may impair our ability to raise additional
capital through the sale of equity securities.
The
Issuance Of Shares Upon Conversion Or Exercise Of The Preferred Stock And
Derivative Securities May Cause Immediate And Substantial Dilution To Our
Existing Shareholders. The
issuance of shares upon conversion of the preferred stock and convertible
debentures and the exercise of warrants and options may result in substantial
dilution to the interests of other shareholders since the selling shareholders
may ultimately convert or exercise and sell all or a portion of the full
amount
issuable upon conversion or exercise. If all derivative securities being
registered through this prospectus were converted or exercised into shares
of
common stock, there would be an additional 1,739,993 shares of common stock
outstanding as a result. The issuance of these shares will have the effect
of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.
We
Do
Not Expect To Pay Any Dividends For The Foreseeable Future. We
do not
anticipate paying any dividends to our shareholders for the foreseeable future.
The terms of certain of our and IsoRay Medical's outstanding indebtedness
substantially restrict the ability of either company to pay dividends.
Accordingly, investors must be prepared to rely on sales of their common
stock
after price appreciation to earn an investment return, which may never occur.
Investors seeking cash dividends should not purchase our common stock. Any
determination to pay dividends in the future will be made at the discretion
of
our Board of Directors and will depend on our results of operations, financial
conditions, contractual restrictions, restrictions imposed by applicable
law and
other factors our Board deems relevant.
Cautionary
Note Regarding Forward-looking Statements and Risk
Factors
This
prospectus, the Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of
the
Company or any other written or oral statements made by or on behalf of the
Company may contain “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 subject to the safe harbor created
by the
Private Securities Litigation Reform Act of 1995, which reflect the Company's
current views with respect to future events and financial performance. The
words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
and similar expressions identify forward-looking statements. All statements
other than statements of historical fact are statements that could be deemed
forward-looking statements, including any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new products, services, developments or industry rankings; any
statements regarding future economic conditions or performance; any statements
of belief; any statements regarding the validity of our intellectual property
and patent protection; and any statements of assumptions underlying any of
the
foregoing. Such "forward-looking statements" are subject to risks and
uncertainties set forth from time to time in the Company's SEC reports and
include, among others, the Risk Factors set forth above.
Readers
are cautioned not to place undue reliance on such forward-looking statements
as
they speak only of the Company's views as of the date the statement was made.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
You
should read the following discussion in conjunction with our financial
statements, including the notes thereto, at the end of this prospectus. Some
of
the information contained in this discussion, or set forth elsewhere in this
prospectus contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of a variety of certain factors,
including those set forth under “Risk Factors” and elsewhere in this prospectus.
Due
to
our significant research and development expenditures and nominal product
revenues, we have not been profitable and have generated operating losses
since
our inception. The Company had approximately $405,575 cash on hand as of
October
31, 2005. At the Company's current monthly required operating cash expenditures
of approximately $500,000 per month, cash on hand would fund the Company's
operations through November 2005, not including $1.9 million in approved
loans
to fund operations for a longer period of time. In addition, we are raising
funds through our October 17, 2005 Private Placement Memorandum, pursuant
to
which we are selling units, each unit consisting of 5,000 shares of common
stock
and a warrant to purchase 5,000 shares of common stock at an exercise price
of
$6.00 per share. The price for each unit is $20,000, and we are offering
up to
200 Units (may be increased to 300 Units in our discretion) through January
31,
2006. As of November 4, 2005, we had raised $750,000 through this private
offering. Our growth plan for 2006 includes expanding sales to existing
customers, continuing a trend that has improved in the last half of 2005;
discontinuing production efforts at Pacific Northwest National Laboratory,
which
should decrease operating costs; enhancing efforts to reduce the internal
cost
of goods; and expanding the base of suppliers of direct materials and value
added services to direct materials.
IsoRay
Medical has five outstanding loans. The first, from Tri-City Industrial
Development Council, with an original principal amount of $40,000,
was
funded in 2001 and requires a final principal only payment of $10,000 in
August
2006. It is non-interest bearing and unsecured. The second loan is from
the
Benton-Franklin Economic Development District in an original
principal amount of $230,000 and was funded in December 2004. It bears
interest at eight percent and has a sixty month term with a final balloon
payment. As of November 7, 2005, the principal balance owed was $215,795.
This
loan is secured by certain equipment, materials and inventory of IsoRay Medical,
and also required personal guarantees, for which the guarantors were issued
83,640 shares of common stock in IsoRay Medical. The third loan is a line
of
credit from Columbia River Bank, which provides credit in the amount of
$395,000. It bears interest at a floating prime plus two percent rate, and
is
secured by certain accounts receivable and inventory and personal guarantees,
for which the guarantors were issued 127,500 shares of common stock of IsoRay
Medical. As of November 7, 2005, $200,000 was owed on the line of credit.
The
fourth loan is with Columbia River Bank in the amount of $150,000, of which
$50,000 was funded as of October 31, 2005. This loan is to be used for equipment
purchases only and is secured by the equipment purchased with the borrowed
funds. It bears interest at seven percent for thirty-six months. As of November
7, 2005, the principal balance owed was approximately $35,925. The fifth
loan is
with Albert Smith in the amount of $250,000, and was funded on October 14,
2005.
This loan bears interest at ten percent and matures on December 1, 2005.
In
connection with the loan with Mr. Smith, IsoRay, Inc. granted a warrant to
purchase 12,500 shares of common stock at an aggregate exercise price of
$10.00
to Mr. Smith. IsoRay Medical applied to the Hanford Area Economic Investment
Fund Committee (HAEIFC) for a $1,400,000 loan to fund equipment for IsoRay’s
leased production facility. The HAEIFC Board has preliminarily approved
this loan with an interest rate of prime plus 2% and a ten year amortization
period. The loan will be secured in part by the equipment acquired as well
as
personal guarantees. These guarantors will be issued approximately one share
of
our common stock for every $12.00 of the loan guaranteed.
IsoRay
Medical also had $4,132,948 in principal amount of convertible debentures
outstanding as of November 7, 2005 which were issued between February and
June
2005. These debentures could be converted into 995,891 shares of common stock
at
a conversion rate of $4.15 per share. Each debenture bears interest at an
annual
rate of eight percent (not compounded), and has a twenty-four month term
with
accrued interest paid quarterly.
On
April
4, 2005 a capital lease agreement was executed by IsoRay Medical with Nationwide
Funding LLC, whereby the lessor funded the $75,000 acquisition of a glove
box
being built to the Company's specifications by Premier Technology, Inc. of
Pocatello, ID. This is a 48 month agreement with minimum monthly lease
payments of $2,475.38.
On
May
16, 2005 a capital lease agreement was executed by IsoRay Medical with Vencore
Solutions LLC. This is a capital lease for a hot cell with a lease line in
the
amount of $430,000. This is a 36 month lease, with a purchase option at fair
market value, defined in the lease agreement as not more than 15% of the
initial
fair value purchase price. Based on this amount, for the first five months,
the
minimum monthly lease payment will be $8,348.50. The minimum monthly lease
payment increases to $17,500 for the remaining 31 months, based on the entire
value of the $430,000 lease line. In connection with the lease agreement,
IsoRay
Medical granted warrants to purchase 6,757 shares of its common stock at
$3.50/share.
We
expect
to finance our future cash needs through the sale of equity securities and
possibly strategic collaborations or debt financing or through other sources
that may be dilutive to existing shareholders. If we need to raise additional
money to fund our operations, funding may not be available to us on acceptable
terms, or at all. If we are unable to raise additional funds when needed,
we may
not be able to market our products as planned or continue development and
regulatory approval of our future products. If we raise additional funds
through
equity sales, these sales may be dilutive to existing investors.
We
have
no material commitments for capital expenditures and no off-balance sheet
arrangements.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “ISRY.OB.”
There is limited trading activity in our securities, and there can be no
assurance a regular trading market for our common stock will be sustained.
We
resumed trading on the Pink Sheets on August 18, 2005, after a period of
no
trading activity from February 18, 2005 until August 18, 2005. We also had
a
period of no trading activity from July 2003 until February 7, 2005. On November
2, 2005, we began trading on the OTC Bulletin Board. The following table
sets
forth, for the calendar periods indicated, the range of the high and low
last
reported bid prices of our common stock from October 1, 2003 through September
30, 2005, as reported by the Pink Sheets. The
quotations represent inter-dealer prices without retail mark-ups, mark-downs
or
commissions, and may not necessarily represent actual transactions.
The
quotations may be rounded for presentation. There is an absence of an
established trading market for the Company’s common stock, as the market is
limited, sporadic and highly volatile, which may affect the prices listed
below.
Period
|
|
High
|
|
Low
|
October
1, 2003 - December 31, 2004
|
|
N/A
|
|
N/A
|
January
2, 2005 - March 31, 2005
|
|
*
|
|
*
|
April
1, 2005 - June 30, 2005(1)
|
|
N/A
|
|
N/A
|
July
1, 2005 - September 30, 2005
|
|
$5.95
|
|
$1.00
|
(1)
|
Due
to our change of fiscal year end from September 30 to June 30,
our 2005
fiscal year was only nine months
long.
|
On
November 7, 2005, the last reported bid price of our common stock as reported
on
the OTC Bulletin Board was $5.25 per share. As of November 7, 2005, we had
approximately 811 shareholders of record of our common stock and 9,767,026
outstanding shares of our common stock. Certain of the shares of common stock
are held in “street” name and may be held by numerous beneficial owners.
Dividends.
The
Company's Board of Directors, in its sole discretion, may declare and pay
dividends on the common stock, payable in cash or other consideration, out
of
funds legally available, if all dividends due on the preferred stock have
been
declared and paid. The Company has not paid any cash dividends on its common
stock and does not plan to pay any cash dividends on its common stock for
the
foreseeable future.
Equity
Compensation Plans
On
July
28, 2005, the Company adopted the Amended and Restated 2005 Stock Option
Plan
(the "Option Plan") and the Amended and Restated 2005 Employee Stock Option
Plan
(the "Employee Plan"), pursuant to which it may grant equity awards to eligible
persons. The Option Plan allows the Board of Directors to grant options to
purchase up to 1,800,000 shares of common stock to directors, officers, key
employees and service providers of the Company, and the Employee Plan allows
the
Board of Directors to grant options to purchase up to 2,000,000 shares of
common
stock to officers and key employees of the Company. As of October 31, 2005,
options to purchase 1,353,479 shares had been granted under the Option Plan
and
options to purchase 1,315,858 shares had been granted under the Employee
Plan.
Of these options issued under the Employee Plan, 62,224 had been exercised
as of
October 31, 2005.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights (#)
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
($)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
Equity
compensation plans approved by shareholders
|
|
N/A
|
|
N/A
|
|
N/A
|
Equity
compensation plans not approved by shareholders
|
|
2,607,113
|
|
$1.37
|
|
1,130,663
|
Total
|
|
2,607,113
|
|
$1.37
|
|
1,130,663
|
The
Merger
On
July
28, 2005, the merger (the "Merger") contemplated by the Merger Agreement
dated
as of May 27, 2005 by and among Century Park Pictures Corporation (the former
name of the Company), Century Park Transitory Subsidiary, Inc., IsoRay Medical,
Inc. and certain shareholders (the "Merger Agreement"), was completed.
As
a
result of the Merger and pursuant to the Merger Agreement, IsoRay Medical,
Inc.
became a wholly-owned subsidiary of Century Park Pictures Corporation, Century
Park Pictures Corporation changed its name to "IsoRay, Inc.", and the Company
issued shares of its common and preferred stock, and options and warrants
to
purchase shares of its common and preferred stock, to holders of securities
in
IsoRay Medical, Inc.
Immediately
after the Merger, the Company had 10,237,797 shares of common and preferred
stock outstanding. The total amount of shares outstanding post merger was
13,880,822, which includes not only shares of common stock, but also shares
of
preferred stock, warrants, options and convertible debentures that could
be
exercised or converted into shares of common stock. Following the Merger,
on a
fully diluted basis, the shareholders of IsoRay Medical, Inc. owned
approximately 82% of the Company's outstanding securities, and the Company's
shareholders owned approximately 18% of the Company's outstanding securities.
Business
of IsoRay, Inc.
The
Company was incorporated in Minnesota in 1983. Until 1998, the Company was
engaged in the development, production and marketing of various entertainment
intellectual properties and other assets in the motion picture, television
and
theatrical stage markets. Since 1998 and until the completion of the Merger,
the
Company did not conduct any business operations and had minimal assets and
liabilities. The Company now acts as a holding company for its wholly-owned
subsidiary, IsoRay Medical, Inc.
Business
of IsoRay Medical, Inc.
IsoRay
Medical, Inc. was formed on June 15, 2004 as a corporation in the State of
Delaware, and in October 2004 it merged with two predecessor companies to
combine all of the IsoRay operations into one company.
IsoRay
Medical intends to utilize its patented radioisotope technology, experienced
chemists and engineers, and management team to create a major therapeutic
medical isotope and medical device company with a goal of providing improved
patient outcomes in the treatment of prostate cancer and other solid cancer
tumors. IsoRay Medical began production and sales of its initial FDA approved
product, the IsoRay 131Cs
brachytherapy seed, in October 2004 for the treatment of prostate cancer.
Management believes its technology will allow it to capture a leadership
position in an expanded brachytherapy market. The physical characteristics
of the Cesium-131 (Cs-131 or 131Cs)
isotope are expected to decrease radiation exposure to the patient and reduce
the severity and duration of side effects, while treating cancer cells as
effectively, if not more so than Iodine-125 and Palladium-103. Cesium-131
offers
a combination of patient benefits that management believes are superior to
other
currently available brachytherapy isotopes. Cesium-131 could also enable
meaningful penetration in other solid tumor applications such as breast,
lung,
liver, brain and pancreatic cancer, expanding the total available market
opportunity. The second radioisotope, Yttrium-90 (Y-90 or 90Y),
is
currently being used in the treatment of non-Hodgkin's lymphoma and is in
clinical trials for other applications. Other manufacturers have received
FDA
approval for 90Y
and
IsoRay Medical believes production will not require clinical trials or an
extensive FDA application process. Production is expected to begin in 2006.
Brachytherapy
seeds are small devices used in an internal radiation therapy procedure.
In
recent years the procedure has become one of the primary treatments for prostate
cancer and is now used more often than surgical removal of the prostate.
The
brachytherapy procedure places radioactive seeds as close as possible to
(in or
near) the cancer tumor (the word "brachytherapy" means close therapy). The
seeds
deliver therapeutic radiation by killing the tumor cells and cells located
in
the immediate vicinity of the tumor while minimizing exposure to adjacent
healthy tissue. This allows doctors to administer a higher dose of radiation
at
one time than is possible with external beam radiation. Each seed contains
a
radioisotope sealed within a welded titanium capsule. Approximately 85 to
135
seeds are permanently implanted in the prostate in a 45-minute outpatient
procedure. The isotope decays over time and the seeds become inert. The seeds
may be used as a primary treatment or, in conjunction with other treatment
modalities such as external beam radiation therapy, chemotherapy, or as
treatment for residual disease after excision of primary tumors.
Management
believes that the IsoRay 131Cs
seed
represents the
first
major advancement in brachytherapy technology in over 18 years with attributes
that could make it the long term "seed of choice" for internal radiation
procedures. The 131Cs
seed
has FDA approval for treatment of malignant disease (e.g. cancers of the
head
and neck, brain, liver, lung, breast, prostate, etc.) and may be used in
surface, interstitial, and intracavity applications for tumors with known
radiosensitivity.
The
131Cs
isotope has specific advantages for treating cancer over Iodine-125 (I-125
or
125I)
and
Palladium-103 (Pd-103 or 103Pd),
the
other isotopes commonly used in brachytherapy procedures. IsoRay Medical
believes that the short half-life and higher dose rate characteristics of
131Cs
will
expand industry applications and facilitate meaningful penetration into the
treatment of other forms of cancer tumors such as breast cancer. The shorter
half-life of 9.7 days for 131Cs
(versus 17.5 days for 103Pd
and 60
days for 125I)
mitigates negative effects of long radiation periods on healthy tissue and
is
believed to reduce the duration of certain side effects. The higher initial
dose
rate is believed to be more effective on fast growing cancers by aggressively
attacking cancer cells and disrupting cancer cell re-population cycles. The
characteristics of 131Cs may
result in the use of 10-30% fewer seeds per procedure thereby reducing the
total
physical radiation dose to the patient and reducing the costs of the procedure
for both third party payors and the patient.
IsoRay
Medical's second product, Yttrium-90, is also a short-lived (half-life of
64
hrs) radioisotope that is already used in the treatment of non-Hodgkin's
lymphoma, leukemia, ovarian cancer, prostate cancer, osteosarcomas, and tumors
of the breast, lung, kidney, colon and brain. These applications apply primarily
to metastasized, or spread through the body, cancers. Currently more than
20
clinical trials using 90Y
are
underway in the U.S. Yttrium-90 is also used at multiple treatment centers
in
Europe. Several members of the current IsoRay Medical team developed a process
to produce high-purity 90Y for
medical applications during the mid-1990s. Currently over 90 percent of the
90Y used
in
the U.S. is imported. IsoRay Medical's management believes there is an immediate
market opportunity for a highly purified 90Y.
IsoRay
Medical and its predecessor companies have accomplished the following key
milestones:
· |
Opened
a new manufacturing and production facility (October
2005);
|
· |
Deployed
a direct sales force to the market (July 2004 - July
2005);
|
· |
Developed
a treatment protocol for prostate cancer with a leading oncologist
(January 2005);
|
· |
Treated
the first patient (October 2004);
|
· |
Commenced
production of the 131Cs
seed (August 2004);
|
· |
Filed
five additional patent applications for 131Cs
and 90Y
processes (November 2003 -August
2004);
|
· |
Obtained
a Nuclear Regulatory Commission Sealed Source and Device Registration
required by the Washington State Department of Health and the FDA
(September 2004);
|
· |
Received
a Radioactive Materials License from the Washington State Department
of
Health (July 2004);
|
· |
Implemented
an ISO-9000 Quality Management System and production operating
procedures
(under continuing development);
|
· |
Signed
a Commercial Work for Others Agreement between Battelle (manager
of the
Pacific Northwest National Laboratory or PNNL) and IsoRay Medical,
allowing initial production of seeds through 2006 at PNNL (April
2004);
|
· |
Raised
over $10.3 M in debt and equity funding (September 2003 - July
2005)
|
· |
Obtained
favorable Medicare reimbursement codes for the Cs-131 brachytherapy
seed
(November 2003);
|
· |
Obtained
FDA 510(k) approval to market the first product: the 131Cs
brachytherapy seed (March 2003);
|
· |
Completed
initial radioactive seed production, design verification, computer
modeling of the radiation profile, and actual dosimetric data compiled
by
the National Institute of Standards and Technology and PNNL (October
2002); and
|
· |
Obtained
initial patent for 131Cs
isotope separation and purification (May 2000).
|
Certain
Defined Terms
The
technical terms defined below are important to understand as they are used
throughout this prospectus and particularly in this discussion of the business
of IsoRay Medical. When used in this prospectus, unless the context requires
otherwise:
"Brachytherapy"
refers
to the process of placing therapeutic radiation sources in, or near, diseased
tissue. Brachytherapy is derived from a Greek term meaning "short distance"
therapy.
"Cesium-131"
or
"131Cs"
is an
isotope of the element Cesium that gives off low energy, "soft" x-rays as
it
decays. Cesium-131 decays to 50% of its original activity every 9.7 days,
becoming essentially inert after 100 days.
"EBRT"
(external beam radiation therapy) is the external treatment of prostate cancer
using an x-ray-like machine that targets a beam of radiation at the cancer
site.
The treatment damages genetic material within the cancer cells, which prevents
the cells from growing and the affected cells eventually die. Treatments
are
generally performed at an outpatient center five days a week for seven or
eight
weeks.
"Half-life"
means
the time required for a radioisotope to decay to one-half of its previous
activity. The amount of radiation emitted thus decreases to 25% of original
activity in two half-lives, 12.5% in three half-lives, and so on.
"Isotope"
refers
to atoms of the same element that have different atomic masses. The word
"isotope" means "same place," referring to the fact that isotopes of a given
element have the same atomic number and hence occupy the same place in the
Periodic Table of the Elements. Thus, they are very similar in their chemical
behavior.
"131Cs
seed"
is the
name by which IsoRay Medical's first product, the Cesium-131-based brachytherapy
seed, is currently known.
"Pure-beta
particle emitter"
is a
radioisotope whose only emissions during radioactive decay are beta particles
(electrons). Beta particles can travel several millimeters in
tissue.
"RP"
(radical
prostatectomy or prostatectomy) is the complete surgical removal of the
prostate, under significant anesthesia. Two main types of surgery have evolved:
nerve-sparing and non nerve-sparing. The nerve-sparing surgery is designed
to
minimize damage to the nerves that control penile erection.
"Radiobiologic"
is
characteristic of the effects of radiation on organisms or tissues, most
commonly the effectiveness of therapeutic radiation in interrupting cell
growth
and replication.
"Radioisotope"
is a
natural or man-made isotope of an element that spontaneously decays while
emitting ionizing radiation.
"Seed"
is a
common term for small radiation sources consisting of a radioisotope sealed
within a biocompatible capsule such as gold or titanium, suitable for temporary
or permanent brachytherapy implantation.
"Therapeutic
radiation" refers
to
ionizing radiation with sufficient energy to disrupt basic biological processes
of cells.
"Yttrium-90"
or
"90Y"
is a
radioisotope that emits high energy beta particles with a half-life of 2.67
days.
"Zirconium-90"
is a
stable (non-radioactive) decay product of Yttrium-90.
Industry
Information
Incidence
of Prostate Cancer
Excluding
skin cancer, prostate cancer is the most common form of cancer, and the second
leading cause of cancer deaths, in men. The American Cancer Society estimated
there will be about 232,090 new cases of prostate cancer diagnosed and an
estimated 30,350 deaths associated with the disease in the United States
during
2005. Because of early detection techniques (e.g., screening for prostate
specific antigen, or PSA) approximately 70% (162,400) of these cases are
potentially treatable with seed brachytherapy, when the cancers are still
locally confined within the prostate.
The
prostate is a walnut-sized gland surrounding the male urethra, located below
the
bladder and adjacent to the rectum. The two most prevalent prostate diseases
are
benign prostatic hyperplasia (BPH) and prostate cancer. BPH is a non-cancerous
enlargement of the innermost part of the prostate. Prostate cancer is a
malignant tumor that begins most often in the periphery of the gland and,
like
other forms of cancer, may spread beyond the prostate to other parts of the
body.
Prostate
cancer incidence and mortality increase with age. Prostate cancer is found
most
often in men who are over the age of 50. More than seven out of ten men
diagnosed with prostate cancer are over the age of 65. According to the American
Cancer Society, approximately one man in six will be diagnosed with prostate
cancer during his lifetime, although only one man in thirty-three will die
of
this disease.
In
addition to age, other risk factors are linked to prostate cancer, such as
genetics. Men who have relatives that have been affected, especially if the
relatives were young at the time of diagnosis, have an even higher risk of
contracting the disease. Researchers have discovered that changes in certain
genes, influenced by DNA mutations inherited from a parent, may cause some
men
to be more inclined to develop prostate cancer. It has also been suggested
that
environmental factors such as exposure to cancer-causing chemicals or radiation
may cause DNA mutations in many organs, but this theory has not been confirmed.
Another factor that may contribute to prostate cancer is diet, with diets
high
in fat and high in calcium possibly increasing the risk of prostate cancer.
The
American Cancer Society recommends that men without symptoms, risk factors
and
who have a life expectancy of at least ten years should begin regular annual
medical exams at the age of 50, and believes that health care providers should
offer as part of the exam the prostate-specific antigen (“PSA”) blood test and a
digital rectal examination. The PSA blood test determines the amount of prostate
specific antigen present in the blood. PSA is found in a protein secreted
by the
prostate, and elevated levels of PSA can be associated with either prostatitis
(a noncancerous inflammatory condition) or a proliferation of cancer cells
in
the prostate. Transrectal ultrasound tests and biopsies are typically performed
on patients with elevated PSA readings to confirm the existence of cancer.
A
tumor
found by a prostate biopsy is usually assigned a grade by a pathologist.
The
most common prostate cancer grading system is called the Gleason grading
system.
A Gleason score, which ranges from 2 to 10, usually is used to estimate the
tumor’s growth rate. Typically, the lower the score, the slower the cancer
grows. Most localized cancers of the prostate gland are associated with an
intermediate score ranging from Gleason scores 4 through 6.
Staging
is the process of determining how far the cancer has spread. The treatment
and
recovery outlook depend on the stage of the cancer. The TNM system is the
staging process used most often. The TNM system describes the extent of the
primary tumor (T stage), whether the cancer has spread to nearby lymph nodes
(N
stage), and the absence or presence of distant metastasis (M stage). The
TNM
descriptions can be grouped together with stages labeled 0 through IV (0-4).
The
higher the number, the further the cancer has spread. The following table
summarizes the various stages of prostate cancer.
Stages
|
Characteristics
of prostate cancer
|
T1
or T2
|
Localized
in the prostate
|
T3
or T4
|
Locally
advanced
|
N+
or M+
|
Spread
to pelvic lymph nodes (N+)or distant organs
(M+)
|
Treatment
Options and Protocol
In
addition to brachytherapy, localized prostate cancer is commonly treated
with
radical prostatectomy (“RP”) and external beam radiation therapy (“EBRT”).
Recently, intensity modulated radiation therapy (“IMRT”) has seen increased
application, particularly in combination with brachytherapy for cancers that
have begun to spread beyond the prostate. Other treatments include cryosurgery,
hormone therapy, watchful waiting, and finasteride, a drug commonly prescribed
to treat benign enlargement of the prostate and male baldness. Some of these
therapies may be combined in special cases to address a specific cancer stage
or
patient need. When the cancerous tissue is not completely eliminated, the
cancer
typically returns to the primary site, often with metastases to other areas.
Radical
Prostatectomy. Historically
the most common treatment option for prostate cancer, radical prostatectomy
is
an invasive surgical procedure in which the entire prostate gland is removed.
RP
is performed under general anesthesia and typically involves a hospital stay
of
several days for patient observation and recovery. This procedure is often
associated with relatively high rates of impotence and incontinence. For
instance, a study published in the Journal
of the American
Medical Association
in
January 2000 reported that approximately 60% of men who had received
RP
reported erectile dysfunction as a result of surgery. The same report found
that
approximately 40% of the patients studied reported at least occasional
incontinence. New bilateral nerve-sparing techniques are currently being
used
more frequently in order to address these side effects, but these techniques
require a high degree of surgical skill. RP is typically more expensive than
other common treatment modalities.
External
Beam Radiation Therapy. EBRT
allows patients to receive treatment on an outpatient basis and at a lower
cost
than RP. EBRT involves directing a beam of radiation from outside the body
at
the prostate gland in order to destroy cancerous tissue. The course of treatment
usually takes seven to eight weeks to deliver the total dose of radiation
prescribed to kill the tumor. Studies have shown, however, that the ten-year
disease free survival rates with treatment through EBRT are less than the
disease free survival rates after RP or brachytherapy treatment. In addition,
because the radiation beam travels through the body to reach the prostate,
normal tissue lying in the path of the radiation beam is also damaged. Other
side effects are associated with EBRT. For instance, rectal wall damage caused
by the radiation beam is a noted negative side effect. Data suggests that
between 30% and 40% of the patients who undergo EBRT suffer problems with
erectile dysfunction after treatment.
Intensity
Modulated Radiation Therapy. IMRT
is a
newer, more advanced form of EBRT in which sophisticated computer control
is
used to aim the beam at the target volume from multiple different angles
and to
vary the intensity of the beam. Thus, damage to normal tissue and critical
structures is minimized by distributing the unwanted radiation over a larger
geometric area. The course of treatment is similar to EBRT and requires daily
doses over a period of seven to eight weeks to deliver the total dose of
radiation prescribed to kill the tumor. IMRT is relatively new and thus not
widely available for use as a treatment modality. As a result fewer clinical
data regarding treatment effectiveness and the incidence of side effects
are
available. One advantage of IMRT, and to some extent EBRT, is the ability
to
treat cancers that have begun to spread from the tumor site. An increasingly
popular therapy for patients with more advanced prostate cancer is a combination
of IMRT with seed implant brachytherapy (which, until protocols are developed,
does not include the Cesium-131 seed).
Cryosurgery.
Cryosurgery,
a procedure in which tissue is frozen to destroy tumors, is another treatment
option for prostate cancer. Currently, this procedure is less widely used,
although promising treatment outcomes have been reported. Cryosurgery typically
requires a one to two day hospital stay and is associated with higher rates
of
impotence and other side effects than brachytherapy.
Other
Treatments. Other
treatments include hormone therapy and chemotherapy, which may be used to
reduce
the size of cancerous tumors. However, these treatments are not intended
to
ultimately cure a patient of prostate cancer. Instead, such treatment choices
are made by physicians in an attempt to extend patients’ lives if the cancer has
reached an advanced stage or as ancillary treatment methods used in conjunction
with other treatment modalities. Common side effects of hormone therapy are
impotence, decreased libido and development of breasts, and common side effects
of chemotherapy are nausea, hair loss and fatigue.
“Watchful
waiting,” while not a treatment, is recommended by some physicians in extreme
circumstances based on the severity and growth rate of the disease, as
well as
the age and life expectancy of the patient. Physicians and patients who
choose
watchful waiting are frequently seeking to avoid the negative side effects
associated with RP or other treatment modalities. Through careful monitoring
of
PSA levels and close examination for advancing symptoms of prostate cancer,
physicians may choose more active treatments at a later date.
Treatment
Protocol. Prostate
cancer patients electing seed therapy first undergo an ultrasound test
or CT
scan, which generates a series of two-dimensional image of the prostate.
With
the assistance of a computer program, a three-dimensional treatment plan
is
created that calculates the number and placement of the seeds required
for the
best possible distribution of radiation to the prostate. Once the implant
model
has been constructed, the procedure is scheduled and the seeds are ordered.
The
number of seeds implanted normally ranges from 85 to 135, with the number
of
seeds varying with the size of the prostate. The procedure is usually performed
under local anesthesia in an outpatient setting. The seeds are implanted
using
needles inserted into the prostate. When all seeds have been inserted,
seed
placement is verified through an ultrasound image, CT scan, fluoroscope
or MRI.
An experienced practitioner typically performs the procedure in approximately
45
minutes, with the patient normally returning home the same day. Most patients
are able to return to their normal activities within one or two days following
the procedure.
Origin
of Brachytherapy seeds
One
of
the first reports in the medical literature regarding brachytherapy seeds
that
deliver "soft x-ray" radiation directly to tumors by permanent implantation
appeared in 1965, authored by Donald C. Lawrence and Dr. Ulrich
K.
Henschke. Don Lawrence later developed and patented the titanium-encapsulated
125I
brachytherapy seed. His company, Lawrence Soft Ray Inc., provided the world's
supply of seeds from 1967 to 1978 until the 3M Corporation purchased the
technology. Eventually 3M sold the business to Amersham PLC, which spun
off this
business to its division Oncura, today the market leader in Iodine-125
seeds.
All commercially available seeds trace their origin to Mr. Lawrence's
invention. Don Lawrence was a founder of IsoRay, LLC, the first predecessor
company to IsoRay Medical.
Brachytherapy
has been used as a treatment for prostate cancer for more than 30 years.
Formerly, seeds containing the radioactive isotope Iodine-125 were implanted
in
prostate tumors through open surgery. However, this technique fell into
disfavor
because the seeds were often haphazardly arranged resulting in radiation
not
reaching all of the targeted cancerous tissue. Compounding this was the
fact
that often an unintended radiation dose was delivered to healthy surrounding
tissues, particularly the urethra and rectum. Originally, brachytherapy
earned
an unfavorable reputation because the early adopters did not have the imaging
technologies needed for accurate placement of the seeds. This resulted
in poor
tumor control and greater damage to surrounding healthy tissue. Since the
introduction of the ultrasound-guided, transperineal implantation technique
in
the late 1980s, brachytherapy has become a treatment that not only provides
excellent therapeutic value but is very convenient and economical for the
patient. The benefits of the advancements in imaging, computer dose planning,
and the actual implant procedure are borne out by the improved clinical
results
achieved using modern brachytherapy techniques.
The
introduction of Palladium-103 in the mid-1980s represented a major technology
advancement in brachytherapy and played a significant role in the dramatic
increase in the number of brachytherapy procedures performed. Within a
relatively short period of time, 103Pd
captured 40% of the growing brachytherapy market.
Cesium-131 represents the
first
major advancement in brachytherapy technology in over 18 years with attributes
that management believes could make it the long term "seed of choice" for
internal radiation procedures. Management believes that the 131Cs
seed
has specific clinical advantages for treating cancer over 125I
and
103Pd.
There
is
a large and growing potential market for the Company's products. Several
significant clinical and market factors are contributing to the increasing
popularity of the brachytherapy procedure. In Europe brachytherapy is growing
in
excess of 20% per year and it is expected that market growth in the U.S.
will
also increase dramatically. In 1996 only 4% of prostate cancer cases were
treated with brachytherapy, or about 8,000 procedures. In 2005, it is estimated
that over 60,000 brachytherapy procedures will be performed for prostate
cancer.
Brachytherapy as a treatment is now more common than radical prostatectomy
and
has become the treatment of choice for early-stage prostate cancer. Considerable
attention is now being given to high risk and faster growing prostate cancers
as
well. Brachytherapy has significant advantages over competing treatments
including lower cost, better survival data, fewer side effects, a faster
recovery time and the convenience of a single outpatient procedure that
generally lasts 45 minutes (Merrick, et. al., Techniques
in Urology,
Vol. 7,
2001; Potters, et. al., Journal
of Urology,
May,
2005; Sharkey, et. al., Current
Urology Reports,
2002).
Clinical
Results
Long
term
survival data are now available for brachytherapy with 103Pd
and
125I,
which
support the efficacy of brachytherapy. Clinical data indicate that brachytherapy
offers success rates for early-stage prostate cancer treatment that are
better
than those of RP or EBRT. While clinical studies of brachytherapy to date
have
focused on results from brachytherapy with Pd-103 and I-125, management
believes
that this data will be relevant for brachytherapy with Cs-131, and Cs-131
may
offer improved clinical outcomes over Pd-103 and I-125, given its shorter
half-life and higher energy.
Improved
patient outcomes.
A number
of published studies on the use of 103Pd
and
125I
brachytherapy in the treatment of early-stage prostate cancer have been
very
positive.
· |
A
twelve-year clinical study published in the 2004 Supplement of
the
International
Journal of Radiation Oncology, Biology and Physics,
reported that the relative survival rate is 84% for low risk
cancer
patients, 78% for intermediate risk cancer patients and 68% for
high risk
cancer patients. The study was conducted by Dr. Lou Potters,
et al. of the
New York Prostate Institute and included 1,504 patients treated
with
brachytherapy between 1992 and 2000.
|
· |
A
study published in the January 2004 issue of the International
Journal of Radiation Oncology, Biology and Physics,
reported that brachytherapy, radical prostatectomy, high-dose
external
beam radiation therapy and combined therapies produced similar
cure rates.
The study was conducted by Dr. Patrick Kupelian, Dr. Louis Potters,
et al.
and included 2,991 patients with Stage T1 or T2 prostate cancer.
Of these
patients, 35% of patients underwent surgery, 16% received low-dose
EBRT,
10% received high-dose EBRT, 7% received combination therapy
and 32%
received brachytherapy. After five years, the biochemical relapse-free
survival rate was 83% for brachytherapy, 81% for radical prostatectomy,
81% for high-dose EBRT, 77% for combination therapy and 51% for
low-dose
EBRT.
|
· |
A
nine-year clinical study published in the March 2000 issue of
the
International
Journal of Radiation Oncology, Biology and Physics,
reported that 83.5% of patients treated with the Pd-103 device
were
cancer-free at nine years. The study was conducted by Dr. John
Blasko of
the Seattle Prostate Institute and included 230 patients with
clinical
stage T1 and T2 prostate cancer. Only 3% experienced cancer recurrence
in
the prostate.
|
· |
Results
from a 10-year study conducted by Dr. Datolli and Dr. Wallner
published in
the International
Journal of Radiation Oncology, Biology and Physics
in
September 2002, were presented at the October 2002 American Society
for
Therapeutic Radiology and Oncology conference confirming the
effectiveness
of the Pd-103 seed in patients with aggressive cancer who previously
were
considered poor candidates for brachytherapy. The 10-year study
was
comprised of 175 patients with Stage T2-T3 prostate cancer treated
from
1991 through 1995. Of these patients, 79 percent remained completely
free
of cancer without the use of hormonal therapy or chemotherapy.
|
· |
A
study by the Northwest Prostate Institute in Seattle, Washington
reported
79% disease-free survival at 12 years for brachytherapy in combination
with external beam radiation (Ragde, et
al.,
Cancer,
July 2000). The chance of cure from brachytherapy is nearly 50%
higher
than for other therapies for men with large cancers (PSA 10-20)
and over
twice as high as other therapies for men with the largest cancers
(PSA
20+) (K. Wallner, Prostate
Cancer: A Non-Surgical Perspective,
Smart Medicine Press, 2000).
|
The
table
below summarizes published results comparing survival rates 10 years after
treatment for patients undergoing different types of treatment. Biochemical
Disease-Free Survival is defined as the percentage of patients with normal
prostate specific antigen or PSA after treatment and is the most rigorous
definition of treatment success. Disease-Specific Survival is defined as
the
percentage of patients not dying from prostate cancer.
Comparative
Survival and Disease-Free States
Treatment
|
Seed
Implants
|
External
Radiation
|
Prostatectomy
|
Disease-Free
Survival
|
64%
- 85%
|
59%
- 78%
|
65%
|
Disease-Specific
Survival
|
98%
- 100%
|
75%
- 97%
|
84%
- 85%
|
Source:
Kaiser Brachytherapy Department, Roseville,
CA
|
Reduced
Incidence of Side Effects.
Because
the IsoRay 131Cs
seed
delivers a highly concentrated and confined dose of radiation directly
to the
prostate, healthy surrounding tissues and organs typically experience less
radiation exposure. Management believes, and initial results appear to
support,
that this should result in lower incidence of side effects and complications
than may be incurred with other conventional therapies, and when side effects
do
occur, they should resolve more rapidly than those experienced with I-125
and
Pd-103 isotopes.
Sexual
potency and urinary incontinence are two major concerns men face when choosing
among various forms of treatment for prostate cancer. Kaiser patient education
information lists the following data from clinical studies that monitored
rates
of impotence and incontinence.
Comparative
Rates of Potency and Incontinence
Treatment
|
Seed
implants
|
External
Radiation
|
Prostatectomy
(nerve sparing)
|
Prostatectomy
(non nerve-sparing)
|
Rate
of Impotence
|
10%
- 50%
|
40%
- 60%
|
14%
- 56%
|
65%
- 90%
|
Urinary
Incontinence
|
1%
|
1%
|
Not
Reported
|
7%
- 8%
|
Source:
Kaiser Brachytherapy Department, Roseville,
CA
|
Favorable
Market Factors
Lower
Treatment Cost.
The
total one-time cost of brachytherapy ranges from $13,000 to $17,000 per
procedure. This is approximately two-thirds the cost of a radical prostatectomy
or RP, which ranges from $19,000 to $25,000, excluding treatment for side
effects and post-operative complications. Brachytherapy cost is comparable
to
the cost of EBRT (external beam radiation), which ranges from $13,000 up
to
$40,000 for a seven to nine week course of treatment.
Favorable
Demographics.
Prostate cancer incidence and mortality increase with age. Prostate cancer
is
found most often in men who are over the age of 50. The National Cancer
Institute has reported that the incidence of prostate cancer increases
dramatically in men over the age of 55. Currently, one out of every six
men is
at lifetime risk of developing prostate cancer. More than seven out of
ten men
diagnosed with prostate cancer are over the age of 65. At the age of 70,
the
chance of having prostate cancer is 12 times greater than at age 50. According
to the American Cancer Society, prostate cancer incidence rates increased
between 1988 and 1992 due to earlier diagnosis in men who otherwise had
no sign
of symptoms. Early screening has fostered a decline in the prostate cancer
death
rate since 1990.
The
number of prostate cancer cases in the U.S. is expected to increase due
to the
expanding population of men over the age of 55. The U.S. Census Bureau
estimates
this segment of the population will increase from 25.9 million men in 2000
to 32
million men by 2008 - a 24% increase. Extrapolating that data, management
believes that the U.S. will provide over 180,000 candidates annually for
prostate brachytherapy by 2008.
Increased
PSA Screening.
Early
PSA screening and testing leads to early diagnosis. The American Cancer
Society
recommends that men without symptoms or risk factors and who have a life
expectancy of at least ten years, should begin regular annual medical exams
at
the age of 50, and believes that health care providers should offer as
part of
the exam the prostate-specific antigen blood test. The PSA blood test determines
the amount of prostate specific antigen present in the blood. PSA is found
in a
protein secreted by the prostate, and elevated levels of PSA can be associated
with either prostatitis (a noncancerous inflammatory condition) or a
proliferation of cancer cells in the prostate. Industry studies have shown
that
the PSA test can detect prostate cancer up to five years earlier than the
digital rectal exam. Ultrasound tests and biopsies are typically performed
on
patients with elevated PSA readings to confirm the existence of cancer.
Our
Strategy
The
key
elements of IsoRay Medical's strategy include:
· |
Continue
to introduce the IsoRay 131Cs
seed into the U.S. brachytherapy market.
Utilizing a direct sales organization and selected channel partners,
IsoRay Medical intends to capture a leadership position by expanding
overall use of the brachytherapy procedure for prostate cancer,
capturing
much of the incremental market growth and taking market share
from
existing competitors.
|
· |
Create
a state-of-the-art manufacturing process.
IsoRay Medical has constructed a state-of- the-art manufacturing
facility
in Richland, Washington in its newly leased facility, to implement
our
proprietary manufacturing process which is designed to improve
profit
margins and provide adequate manufacturing capacity to support
future
growth and ensure quality control. If Initiative 297 presents
a strategic
roadblock to the Company, IsoRay plans to construct a permanent
manufacturing facility in another state. Working with leading
scientists,
IsoRay Medical intends to design and create a proprietary separation
process to manufacture enriched barium, a key source material
for
131Cs,
to ensure adequate supply and greater manufacturing efficiencies.
Also
planned is a custom preloading service to supply pre-loaded needles,
stranded seeds and pre-loaded cartridges used in the implant
procedure.
IsoRay Medical plans to enter into a long-term program with a
leading
brachytherapy seed automation design and engineering company
to design and
build a highly automated manufacturing process to help ensure
consistent
quality and improve profitability.
|
· |
Introduce
Cesium-131 therapies for other solid cancer tumors.
IsoRay Medical intends to partner with other companies to develop
the
appropriate delivery technology and therapeutic delivery systems
for
treatment of other solid cancer tumors such as breast, lung,
liver,
pancreas, neck, and brain cancer. IsoRay Medical's management
believes
that the first major opportunities may be for the use of Cesium-131
in
adjunct therapy for the treatment of residual lung and breast
cancers.
|
· |
Introduce
other isotope products to the U.S. market.
IsoRay Medical plans to introduce its Yttrium-90 radioisotope
in 2006.
Currently, FDA approved 90Y
manufactured by other suppliers is used in the treatment of non-Hodgkin's
lymphoma and is in clinical trials for other applications. Other
products
may be added in the future as they are developed. IsoRay Medical
has the
ability to make several different isotopes for multiple medical
and
industrial applications. During 2005 the Company has identified
and
prioritized additional market opportunities for these
isotopes.
|
· |
Support
clinical research and sustained product development.
The Company plans to structure and support clinical studies on
the
therapeutic benefits of Cs-131 for the treatment of solid tumors
and other
patient benefits. We are and will continue to support clinical
studies
with several leading radiation oncologists to clinically document
patient
outcomes, provide support for our product claims and compare
the
performance of our seeds to competing seeds. IsoRay Medical plans
to
sustain long-term growth by implementing research and development
programs
with leading medical institutions in the U.S. to identify and
develop
other applications for IsoRay Medical's core radioisotope technology.
|
Management
believes there is a large and growing addressable market for IsoRay Medical's
products. Several factors appear to contribute to the increasing popularity
of
the brachytherapy procedure. Long-term survival data are now available
for
brachytherapy (other than with respect to treatment from Cs-131 seeds).
Brachytherapy has become the treatment of choice for not only early-stage
prostate cancer but is now being considered for treatment of fast growing,
aggressive tumors. For the treatment of prostate cancer, seed brachytherapy
is
now more common than surgery (radical prostatectomy). Seed Brachytherapy
has
significant advantages over competing treatments including lower cost,
better
survival data, fewer side effects, a faster recovery time and the convenience
of
a 45-minute outpatient procedure. Over 60,000 procedures were forecasted
to
occur in the U.S. in 2005. At the October 31, 2005 seed price for
131Cs
of
$55, this represents a potential $330 million seed market that is forecast
to
grow substantially by 2009 according to a recent market survey performed
by
Frost & Sullivan, a nationally recognized market research firm. IsoRay
Medical's management believes that the 131Cs
seed
will add incremental growth to the existing brachytherapy seed market as
physicians who are currently reluctant to recommend brachytherapy for their
prostate patients due, in part, to side effects caused by longer-lived
isotopes,
become comfortable with the shorter half-life of 131Cs,
and
the anticipated reduction of side effects.
Products
IsoRay
Medical markets the Cesium-131 seed
and
intends to market Yttrium-90 and other radioactive isotopes in the future.
Additionally, it will attempt to create a market, primarily in clinical
trials,
for the liquid Cs-131 isotope, which is created in the production of IsoRay
Medical's 131Cs
seed.
Cs-131
Seed Product Description and Use in Cancer Treatment
Brachytherapy
seeds are small devices that deliver therapeutic radiation directly to
tumors.
Each seed contains a radioisotope sealed within a welded titanium case.
In
prostate cancer procedures, approximately 85 to 135 seeds are permanently
implanted in a 45-minute outpatient procedure. The isotope decays over
time, and
the seeds become inert. The seeds may be used as a primary treatment or
in
conjunction with other treatment modalities such as external beam radiation
therapy, chemotherapy, or as treatment for residual disease after excision
of
primary tumors.
Significant
advantages of brachytherapy over competing treatments include: fewer side
effects (the likelihood of impotence and incontinence is reduced when seeds
are
used to treat prostate cancer); short, convenient outpatient procedure
(typically 45 minutes); faster recovery time (days vs. weeks); lower cost
than
other treatment modalities; higher cure rates for solid tumors; less pain;
and
overall considerably better quality of life.
A
diagram
of the IsoRay seed appears in Figure 1. The seed contains an x-ray opaque
marker
surrounded by a ceramic substrate to which the isotope is chemically attached.
The seed core is placed in a titanium tube and precision laser welded to
form a
hermetically sealed source of therapeutic radiation suitable for permanent
implantation. The x-ray marker allows the physician to accurately determine
seed
placement within the tumor.
Figure
1: Cross section of 131Cs
seed
Competitive
Advantages of Cs-131
Management
believes that 131Cs
has
specific clinical advantages for treating cancer over I-125 and Pd-103,
the
other isotopes currently used in brachytherapy seeds. The table below highlights
the key differences of the three seeds. The Company believes that the short
half-life, high-energy characteristics of 131Cs
will
increase industry growth and facilitate meaningful penetration into the
treatment of other forms of cancer such as breast cancer.
Brachytherapy
Isotope Comparison
|
Cesium-131
|
Palladium-103
|
Iodine-125
|
Half
Life
|
9.7
Days
|
17.5
days
|
60
days
|
Energy
|
29
KeV
|
22
KeV
|
28
KeV
|
Dose
Delivery
|
90%
in 33 days
|
90%
in 58 days
|
90%
in 204 days
|
Total
Dose
|
100
Gy
|
125
Gy
|
145
Gy
|
Anisotropy
Factor*
|
.969
|
.877
(TheraSeed® 2000)
|
.930
(OncoSeed® 6711)
|
*Degree
of symmetry of therapeutic dose, a factor of 1.00 indicates symmetry.
|
Shorter
half-life. The
Company believes that Cesium-131's shorter half-life of 9.7 days will prove
to
have greater biological effectiveness, will mitigate the negative effects
of
long radiation periods on healthy tissue and will reduce the duration of
any
side effects. A shorter half-life produces more intense therapeutic radiation
over a shorter period of time and may reduce the potential for cancer cell
survival and tumor recurrence. Radiobiological studies indicate that
shorter-lived isotopes are more effective against faster growing tumors
(Dicker,
et. al., Semin.
Urol. Onc.
18:2,
May 2000). Other researchers conclude that "half-lives in the approximate
range
4-17 days are likely to be significantly better for a wide range of tumor
types
for which the radiobiologic characteristics may not be precisely known
in
advance." (Armpilia CI, et. al., Int.
J. Rad. Oncol. Biol. Phys. 55:2,
February 2003).
High
energy.
The
Cs-131 isotope decay energy of 29 KeV (versus 22 KeV for Pd-103 and 28
KeV for
I-125) generates a therapeutic radiation field that extends beyond the
current
dosimetry reference point of 1 cm. Pd-103 seeds emit radiation that does
not
penetrate as far in tissue (up to 40% lower than Cs-131). To compensate
for this
more Pd-103 seeds are required to attain the equivalent dose as if Cs-131
seeds
were used. This increase in the number of seeds implanted increases the
time and
cost required to perform Pd-103-based procedures. The lower energy from
103Pd
seeds
may also result in greater non-uniformity of the implant dose as dose rates
near
the surface of each seed must be higher to compensate for lower doses at
greater
distances from each seed.
Reduced
side effects. Because
the IsoRay 131Cs
seed
device delivers a highly concentrated and confined dose of radiation directly
to
the prostate, healthy surrounding tissues and organs are exposed to less
radiation than with other treatments. Management believes this should result
in
fewer and less severe side effects and complications than may be incurred
with
other conventional therapies.
Figure
2. Cs-131 seed Autoradiograph
Shape
of radiation field. The
shape
of the radiation field generated by a 131Cs
seed
is uniform, and this uniformity may result in better radiation dose coverage
and
improved therapeutic effectiveness. The adjacent picture is an autoradiograph
(film exposed by radiation from the seed itself) of an IsoRay seed, which
shows
this uniformity of the radiation field that is expected to result in better
radiation dose coverage. IsoRay Medical has conducted extensive computer
modeling and testing of the seed design. The IsoRay seed has passed all
Nuclear
Regulatory Commission ("NRC") requirements for sealed radioactive sources.
Dose
uniformity was tested and the results compared well to those predicted
by
industry standard computer modeling techniques. In the third quarter of
2002,
seeds were sent to the National Institute for Standards and Technology
for
calibration, and have undergone dosimetry testing according to American
Association of Physicists in Medicine ("AAPM") protocols. The results of
these
tests were compiled in IsoRay Medical's 510(k) submission to the FDA and
were
subsequently published in the June 2004 issue of Medical
Physics.
The
results of these tests showed superior dose characteristics relative to
the
leading I-125 and Pd-103 seeds.
Reduced
costs.
The
characteristics of 131Cs
seeds
described above may result in the use of 10%-30% less seeds per procedure,
compared to other isotopes, thereby reducing the total physical radiation
dose
to the patient and reducing the costs of the procedure for the third party
payors and the patient.
Yttrium-90
Y-90
and
Cs-131 are short-lived isotopes that are well suited to treatment of tumors
by
cell-directed therapy. The Company plans to introduce its second product,
Yttrium-90, in 2006. Y-90 is already available from other companies. When
used
in combination with molecular targeting agents, Y-90 is proving to be an
ideal
isotope to provide localized radiation therapy for various types of cancer,
such
as non-Hodgkin's lymphoma, leukemia, ovarian and prostate cancers,
osteosarcomas, and tumors of the breast, lung, kidney, colon, and brain.
Y-90's
properties of short half-life, high specific activity, high energy and
pure
beta-emissions can be chemically attached to targeting agents that are
highly
selective for specific tumors. These targeting agents may include monoclonal
antibodies, molecules derived from antibodies, peptides, or other tumor-specific
molecules. Most Y-90 currently used in the U.S. is imported with varying
degrees
of quality. IsoRay Medical has developed a proprietary separation process
that
produces Y-90 that management believes will meet or exceed the purity and
quality required for clinical trials and medical applications.
Y-90
is a
significant component of several commercially available products. These
products
use radiopharmaceutical grade Y-90 derived using manufacturing methods
and
techniques that conform to current cGMP (current Good Manufacturing Practices),
allowing them to be used invasively in commercially available healthcare
products.
We
will
initially target the clinical trial market. Currently there are several
clinical
trials and medical applications involving Y-90 underway around the world
that
represent a potential market for Y-90. These customers hold significant
growth
potential, as products undergoing successful trials become approved for
general
use. Our strategy will be to attempt to develop exclusive sales arrangements
with companies that are close to FDA approval or foreign companies authorized
to
commercially sell their products in various overseas markets.
Y-90
is a
pure-beta particle emitter with a physical half-life of 64.1 hours (2.7
days)
that decays to stable Zirconium-90. The average energy of the beta emissions
from Y-90 is 2.37 MeV, with an effective path-length in tissue of 5.3 mm.
This
means that 90% of the energy is absorbed within a 5.3-mm radius.
Y-90
is
manufactured by chemical separation from a long-lived Strontium-90 (Sr-90)
generator stock. We intend to purchase or lease the Sr-90 feedstock from
the
U.S. DOE and international suppliers. Due to the radiological characteristics
of
Sr-90, initial processing will occur under stringent radiological controls
in a
highly shielded isolator or "hot cell" using remote manipulators. Following
preliminary separation, the Y-90 may be further purified and converted
to
pharmaceutical grade material in a shielded environmentally-controlled
glove
box. After completing the separation process (e.g., collecting or
"milking"
the therapeutic Y-90), the residual Sr-90 generator is recycled for subsequent
separations. In theory, the Sr-90 generator can continue to generate Y-90
for
decades. However, the process periodically requires infusion of new Sr-90.
In
addition to acquiring Sr-90, we will need to acquire equipment and develop
manufacturing procedures for the Y-90 isotope that meet cGMP criteria.
While we
initially plan to produce solely radiochemical purity Y-90, which does
not need
to meet the more stringent manufacturing standards required for
radiopharmaceutical purity Y-90, we intend to develop our manufacturing
methods
to this higher level and produce radiopharmaceutical purity Y-90 in the
future.
IsoRay
Medical has identified four principal suppliers of Y-90: MDS Nordion (a
division
of MDS, Inc.), Perkin-Elmer, Inc., Amersham (part of General Electric Company)
and Iso-Tex Diagnostics, Inc. If we begin marketing Y-90, these companies
will
be our principal competitors within this market.
Cs-131
Manufacturing Process
Cs-131
is
a radioactive isotope that can be produced by the neutron bombardment of
Barium-130. When Ba-130 is put into a nuclear reactor it becomes Ba-131,
the
radioactive material that is the parent of Cs-131. The process includes
the
following:
· |
Isotope
Generation. The
radioactive isotope Cs-131 is normally produced by placing a
quantity of
stable non-radioactive barium (ideally pure Ba-130) into the
neutron flux
of a nuclear reactor. The irradiation process converts a small
fraction of
this material into a radioactive form of barium (Ba-131). The
Ba-131
decays by electron capture to the radioactive isotope of interest
(Cs-131). IsoRay Medical has evaluated several international
nuclear
reactors and a few potential facilities in the United States.
Due to the
short half-life of both the Ba-131 and Cs-131 isotopes, these
facilities
must be capable of removing irradiated materials from the reactor
core on
a routine basis. Reactor personnel will ship the irradiated barium
on a
pre-determined schedule to our facilities for subsequent separation,
purification and seed assembly. The Company has identified more
than five
reactors in the U.S., Europe and the former Soviet Union that
are capable
of meeting these requirements. This routine isotope generation
cycle at
supplier reactors will allow significant quantities of Ba-131
to be on
hand at our facilities for the completion of the rest of the
manufacturing
process. To ensure reliability of supply, we intend to seek agreements
with multiple facilities to produce Ba-131. As of the date of
this
prospectus, IsoRay Medical has agreements in place with more
than one
supplier of irradiated Ba-131. In addition, the Company is engaged
in the
development of a barium enrichment device that, if successful,
should
reduce the cost of producing Cs-131 while maintaining the purity
and
consistency required in the end product.
|
· |
Isotope
Separation and Purification. Upon
irradiation of the barium feedstock, the Ba-131 begins decaying
to Cs-131.
At pre-determined intervals the Cs-131 produced is separated
from the
barium feedstock and purified using a proprietary radiochemical
separations process (patent applied for). Due to the high-energy
decay of
Ba-131, this process is performed under stringent radiological
controls in
a highly shielded isolator or "hot cell" using remote manipulators.
After
separating Cs-131 from the energetic Ba-131, subsequent seed
processing
may be performed in locally shielded fume hoods or glove boxes.
If
enriched barium feedstock is used, the residual barium remaining
after
subsequent Cs-131 separation cycles (“milkings”) will be recycled back to
the reactor facility for re-irradiation. This material will be
recycled as
many times as economically feasible, which should make the process
more
cost effective. As an alternative to performing the Cs-131 separation
in
our own facilities, IsoRay may enter into agreements with other
entities
to supply "raw" Cs-131 by performing the initial barium/cesium
separation
at their facilities, followed by final purification at IsoRay’s facility.
|
· |
Internal
Seed Core Technology. The
purified Cs-131 isotope will be incorporated into an internal
assembly
that contains a binder, spacer and X-ray marker. This internal
core
assembly is subsequently inserted into a titanium case. The dimensional
tolerance for each material is extremely important. Several carrier
materials and placement methods have been evaluated, and through
a process
of elimination, we have developed favored materials and methods
during our
laboratory testing. The equipment necessary to produce the internal
core
includes accurate cutting and gauging devices, isotope incorporation
vessels, reaction condition stabilization and monitoring systems,
and
tools for placing the core into the titanium tubing prior to
seed
welding.
|
· |
Seed
Welding. Following
production of the internal core and placement into the titanium
capsule, a
seed is hermetically sealed to produce a sealed radioactive source
and
biocompatible medical device. This manufacturing technology requires:
accurate placement of seed components with respect to the welding
head,
accurate control of welding parameters to ensure uniform temperature
and
depth control of the weld, quality control assessment of the
weld
integrity, and removal of the finished product for downstream
processing
or rejection of unacceptable materials to waste. Inspection systems
are
capable of identifying and classifying these variations for quality
control ensuring less material is wasted. Finally, the rapid
placement and
removal of components from the welding zone will affect overall
product
throughput.
|
· |
Quality
Control. We
have established procedures and controls to meet all FDA and
ISO 9001:2000
Quality Standards. Product quality and reliability will be secured
by
utilizing multiple sources of irradiation services, feedstock
material,
and other seed manufacturing components. An intensive production
line
preventive maintenance and spare parts program will be implemented.
Also,
an ongoing training program will be established for customer
service to
ensure that all regulatory requirements for the FDA, DOT and
applicable
nuclear radiation and health authorities are fulfilled.
|
The
Company intends to implement a just-in-time production capability that
is keenly
responsive to customer input and orders to ensure that individual customers
receive a higher level of customer service from us than from existing seed
suppliers who have the luxury of longer lead times due to longer half-life
products. Time from order confirmation to completion of product manufacture
can
be reduced to several working days, including receipt of
irradiated
barium (from a supplier's reactor), separation of Cs-131 (at our facilities),
isotope labeling of the core, and loading of cores into pre-welded titanium
"cans" for final welding, testing, quality assurance and shipping.
Automated
Manufacturing Process
IsoRay
Medical has begun discussions with a leading designer and manufacturer
of
automated seed manufacturing equipment that has manufactured, installed
and
deployed automated production lines in Europe and the United States. In
addition, IsoRay Medical is engaged in preliminary discussions with another
seed
manufacturer regarding obtaining an existing automated production line.
An
automated production line may benefit IsoRay because of potentially reduced
labor costs, and help ensure consistent manufacturing quality.
Manufacturing
Facility
The
initial production of the IsoRay Cs-131 brachytherapy seed commenced at
PNNL in
2004. IsoRay Medical has completed construction (tenant improvements) of
a new
interim leased production facility in Richland, Washington that received
final
regulatory approval on October 6, 2005, and IsoRay expects this
facility
to begin radioactive production operations shortly. The Company is also
considering another state as a location for a future facility, either as
the
Company's sole manufacturing facility or as a secondary facility. No agreements
have been reached for any possible facilities outside of
Washington.
Repackaging/Preloading
Services
Most
brachytherapy manufacturers offer their seed product to the end user packaged
in
four principal packing configurations provided in a sterile or non-sterile
package depending on the customer's preference. These include:
· |
Pre-loaded
needles
(loaded with 3 to 5 seeds and
spacers)
|
· |
Strands
of seeds
(consists of seeds and spacers in a biocompatible "shrink wrap")
|
· |
Pre-loaded
Mick cartridges
(fits the Mick applicator - seed manufacturers usually load and
sterilize
Mick cartridges in their own manufacturing
facilities)
|
No
single
package configuration dominates the market at this point. Market share
estimates
for each of the four packaging types are: loose seeds (20%-30%) Mick cartridges
(25%-35%), pre-loaded needles (40%-55%) and strands (10%-20%). Market trends
indicate some movement to the recently introduced stranded configuration,
as
there are some clinical data suggesting less potential for post-implant
seed
migration when a stranded configuration is used.
The
role
of the repackaging service is to package, assay and certify the contents
of the
final product configuration shipped to the customer. A commonly used method
of
providing this service is through independent radiopharmacies such as Anazao
Healthcare and Advanced Care Pharmacy. Manufacturers send loose seeds along
with
the physician's instructions to the radiopharmacy who, in turn, loads needles
and/or strands the seeds according to the doctor's instructions. These
pharmacies then sterilize the product and certify the final packaging prior
to
shipping directly to the end user.
IsoRay
Medical has held discussions with the major independent radiopharmacies
and
determined the additional time required for delivery of loose
seeds
to an off-site radiopharmacy for subsequent assay,
preloading and
sterilization creates additional loss of our isotope due to decay and is
prohibitive on a long-term basis. However, to increase sales in the near-term
we
are using one of these services on an interim basis until our own custom
preloading operation comes on-line late in 2005. The Company intends to
market
its seeds to the end user in all four of the commonly used packaging
configurations, and has retained an experienced consultant to assist in
the
development of this custom preloading service.
Prior
to
the establishment of a custom preloading service, IsoRay Medical is offering
loose seeds which will require the implant center to load the seeds into
their
preferred implant configuration. IsoRay is currently loading Mick cartridges
for
those implant centers using the Mick applicator as their method of injecting
the
seeds into the prostate. The Company currently offers non-sterile, pre-loaded
Mick cartridges. As soon as the Company acquires the proper sterilization
equipment, pre-loaded Mick cartridges will be offered in a sterile package.
When
the custom preloading service is operational, the Company will add pre-loaded
needles and strands in a sterile package. Management believes the
custom
preloading service will be operational by the end of 2005.
Independent
radiopharmacies usually provide the final packaging of the product delivered
to
the end user. This negates an opportunity for reinforcing the "branding"
of the
seed product. By providing its own repackaging service, the Company preserves
the product branding opportunity and eliminates any concerns related to
the
handling of its product by a third party prior to delivery to the end
user.
Providing
different packaging configurations adds significant value to the product
while
providing an additional revenue stream and incremental margins to the Company
through the pricing premiums that can be charged. The end users of these
packaging options are willing to pay a premium because of the savings realized
by eliminating the need for loose seed handling and loading capabilities
on
site, eliminating the need for additional staffing to load and sterilize
seeds
and needles, and eliminating the expense of additional assaying of the
seeds.
Management
estimates the cost of establishing a custom preloading service in its new,
leased facility to be approximately $250,000. Space for this custom preloading
operation has been reserved in the facility and most of the necessary equipment
has been delivered and installed. Preloading procedures have been drafted,
staff
are being trained, and process validation activities are scheduled for
the
fourth quarter of 2005. One or more technicians will be added to the staff
to
handle the seed loading, stranding and assaying operations. Our customer
service
staff will provide assistance with shipping, documentation and tracking
of all
orders from the repackaging service to the end user.
Barium
Enrichment Device
Barium-130
is the original source material for Cs-131. When Ba-130 is put into a nuclear
reactor it becomes Ba-131, the radioactive material that is the parent
of
Cs-131. Barium metal found in nature contains only 0.1% of Ba-130 with
six other
isotopes making up the other 99.9%. As part of its manufacturing process
the
Company intends to develop a barium enrichment device that should create
"enriched barium" with a higher concentration of the Ba-130 isotope than
is
found in naturally occurring barium. In addition to creating a higher purity
Ba-130, which translates into higher purity Cs-131, a barium enrichment
device
will result in higher yields of Cs-131. The Company has identified sources
of
enriched barium, including in the former Soviet Union, that we believe
we can
use until the barium enrichment device is developed.
Marketing
and Sales
Marketing
Strategy
The
Company intends to position Cs-131 as the isotope of choice. Based on
preliminary clinical studies, management believes there is no apparent
clinical
reason to use other isotopes when Cesium-131 is available.
The
advantages associated with a high energy and short half-life isotope are
generally accepted within the clinical community and the Company intends
to help
educate potential patients about the clinical benefits a patient would
experience from the use of Cs-131 for his brachytherapy seed treatment.
The
potential negative effects of the prolonged radiation times associated
with the
long half-life of Iodine-125 make this isotope less attractive than Cesium-131.
We
intend
to target competing isotopes as our principal competition rather than the
various manufacturers and distributors of these isotopes. In this way,
the
choice of brachytherapy isotopes will be less dependent on the name and
distribution strengths of the various iodine and palladium manufacturers
and
distributors and more dependent on the therapeutic benefits of Cs-131.
The
Company will focus the purchasing decision on the advantages and functionality
of the Cs-131 isotope while seeking to educate the prostate cancer patient
about
these clinical benefits.
The
professional and patient market segments each play a role in the ultimate
choice
of prostate cancer treatment and the specific isotope chosen for seed
brachytherapy treatment. The Company will tailor its marketing message
to each
audience. IsoRay Medical has retained an advertising agency in the Seattle
area
to assist with its marketing communication program. The agency will coordinate
the creation and distribution of all advertising material and work with
the
print and visual media.
The
advantages of Cs-131's unique combination of high energy and short half-life
will be heavily promoted within the clinical market. Because we believe
there is
no apparent clinical reason to choose other isotypes over
cesium, we
have and will continue to target those high volume users of other
isotopes as our first implant sites. We will also emphasize the
prolonged
radiation times and the high doses of radiation given to the patient by
the
iodine isotope and the possible negative effects of this prolonged radiation
to
the adjacent healthy tissues. We believe that this is an important marketing
message because clinicians generally agree the radiation given by Iodine
has
little or no clinical benefit after 120 to 150 days.
To
promote our products to the clinical and professional audience, we will
use a
combination of marketing messages to appear in print and visual media.
Planned
marketing activities include: attendance at the major brachytherapy-related
clinical conferences to exhibit our products and provide marketing information
for annual meetings, conferences and other forums of the various professional
societies; print advertising in brachytherapy clinical journals; and promoting
clinical presentations by experts in the field at major
conferences.
In
today's U.S. health care market patients are more informed and involved
in the
management of their health and any treatments required. Many physicians
relate
incidents of their patients coming for consultations armed with articles
researched on the Internet and other sources describing new treatments
and
medications. In many cases, these patients are demanding a certain therapy
or
drug and the physicians are complying when medically appropriate.
Because
of this market factor, we will also promote our products directly to the
general
population. The audience targeted will be the prostate cancer patient,
his
spouse, family and care givers. The marketing message to this segment of
the
market will emphasize the specific advantages of Cs-131, including fewer
side
effects, less total radiation, and shorter period of radiation. The Company
plans to reach this market through its website, located at www.isoray.com,
advertising in magazines read by prostate cancer patients and their caregivers,
and through patient advocacy efforts.
Another
key element of our strategy will be to validate and support all product
claims
with well-designed and executed clinical studies that support the efficacy
and
positive patient outcomes of our Cs-131 seed. We intend to sponsor
physician-directed studies that will compare the performance of our seeds
to
Pd-103 and I-125 seeds. During the remainder of 2005 and into 2006, IsoRay
Medical plans to continue its collaboration with leading physicians to
develop
clinical data on the efficacy of Cs-131 seeds. Noted contributors from
the
medical physics community will be consulted regarding the benefits of
brachytherapy using shorter half-life, improved dosimetry, and higher decay
energy seeds. Articles will be submitted to professional journals such
as
Medical
Physics
and the
International
Journal of Radiation Oncology,
Biology, and Physics.
Sales
and Distribution
According
to a recent industry survey, approximately 2,000 hospitals and free standing
clinics are currently offering radiation oncology services in the United
States.
Not all of these facilities offer seed brachytherapy services. These
institutions are staffed with radiation oncologists and medical physicists
who
provide expertise in radiation therapy treatments and serve as consultants
for
urologists and prostate cancer patients. We will target the radiation
oncologists and the medical physicists as well as urologists as key clinical
decision makers in the type of radiation therapy offered to prostate cancer
patients.
IsoRay
Medical has started to build a direct sales organization to introduce Cs-131
to
radiation oncologists and medical physicists. In August 2004 IsoRay Medical
hired two highly successful sales professionals from the brachytherapy
industry
that bring well established relationships with key radiation oncologists
and
medical physicists, and in 2005, IsoRay Medical expanded its sales force
to four
experienced individuals. By hiring experienced and successful brachytherapy
sales people, the Company reduces the risk of delay in penetrating the
market
due to a lack of knowledge of the industry or unfamiliarity with the key
members
of the brachytherapy community.
The
initial response to our new isotope from prominent radiation oncologists,
medical physicists and urologists in the US has been very positive. As
of
October 31, 2005 the Company had supplied the 131Cs
seed
to seventeen well-known implant centers strategically located throughout
the
U.S., in the states of Arizona, California, Delaware, Illinois, Michigan,
New
York, North Carolina, Pennsylvania, Tennessee, Texas, Utah, Washington
and
Wisconsin, which have implanted our seed into approximately 100 patients
as of
that date. As production increases, additional centers will be added. Clinical
results from the patients implanted through October 31, 2005, while perhaps
not
a large enough group to draw statistically significant conclusions, have
been
consistent with the reduced side effects expected from the shorter half-life
of
Cs-131.
The
Company will expand its U.S. sales force as it increases production capacity
and
expands the customer base. If the Company expands outside the U.S. market,
it
plans to use established distributors in the key markets in these other
countries. This strategy should reduce the time and expense required to
identify, train and penetrate the key implant centers and establish
relationships with the key opinion leaders in these markets. Using established
distributors also should reduce the time spent acquiring the proper radiation
handling licenses and other regulatory requirements of these
markets.
Pricing
Payment
for IsoRay Medical products comes from third-party payors including
Medicare/Medicaid and private insurance groups. These payors reimburse
the
hospitals and clinics via well-established payment procedures. On October
31,
2003, as a result of IsoRay Medical's predecessor's filing for an Additional
Device Category, CMS approved a HCPCS/CPT code for Cs-131 brachytherapy
seeds of
$44.67 per seed. This is the same price as awarded to Pd-103 seeds, and
compares
favorably to the $37.34 price granted to I-125 seeds. Medicare is the most
significant U.S. payor for prostate brachytherapy services, and is the
payor in
close to 70% of all U.S. prostate brachytherapy cases. CMS will have the
right
to adjust this pricing in January 2006 for the calendar years 2007 and
2008.
Prostate
brachytherapy is typically performed in the outpatient setting, and as
such, is
covered by the CMS Outpatient Prospective Payment System. In January 2004,
brachytherapy procedure prices were unbundled by CMS, allowing itemized
invoicing for seeds with no limit on the number of seeds used per procedure,
and
CMS currently reimburses hospitals and clinics for their seed purchases
on a
cost basis. Other insurance companies have followed these CMS changes.
With the
new reimbursement structure and industry consolidation, prices of brachytherapy
seeds are expected to stabilize and increase over the next few years.
Pricing
premiums for pre-loaded needles, strands and pre-loaded Mick cartridges
will be
added as these packaging alternatives are offered to our customers. When
charges
for the seeds are correctly submitted in the appropriate format to CMS,
100% of
the total cost of the seeds is reimbursed to the hospital or clinic by
CMS.
Other
Information
Customers
Customers
representing ten percent or more of total Company sales as of the date
of this
prospectus include:
Arizona
Oncology Services
|
Phoenix,
AZ
|
Centennial
Medical Center
|
Nashville,
TN
|
Chicago
Prostate Cancer Center
|
Westmont,
IL
|
Community
Hospital of Los Gatos
|
Los
Gatos, CA
|
El
Camino Hospital
|
Mountain
View, CA
|
Mills
Peninsula Health Services
|
San
Mateo, CA
|
St.
Luke's Medical Center
|
Milwaukee,
WI
|
Texas
Cancer Clinic
|
San
Antonio, TX
|
Warren
General Hospital
|
Warren,
PA
|
Western
Cancer Center, Inc.
|
San
Diego, CA
|
Proprietary
Rights
The
Company relies on a combination of patent, copyright and trademark laws,
trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary rights. Some of the Company's proprietary
information may not be patentable.
The
Company intends to vigorously defend its proprietary technologies, trademarks,
and trade secrets. Members of management, employees, and certain equity
holders
have previously signed non-disclosure, non-compete agreements, and future
employees, consultants, and advisors, with whom the Company engages, and
who are
privy to this information, will be required to do the same. A patent for
the
Cesium separation and purification process has been granted on May 23,
2000 by
the U.S. Patent and Trademark Office (USPTO) under Patent Number 6,066,302,
with
an expiration date of May 23, 2020. The process was developed by Lane Bray,
a
shareholder of the Company, and has been assigned exclusively to IsoRay
Medical.
IsoRay Medical’s predecessor also filed for patent protection in four European
countries under the Patent Cooperation Treaty. Those patents have been
assigned
to IsoRay Medical.
Our
management believes that certain aspects of the IsoRay seed design and
construction techniques are patentable innovations. These innovations have
been
documented in IsoRay laboratory records, and a patent application was filed
with
the USPTO on November 12, 2003. Certain methodologies regarding isotope
production, separation, and seed manufacture are retained as trade secrets
and
are embodied in IsoRay Medical's procedures and documentation. In June
and July
of 2004, three patent applications were filed relating to methods of deriving
Cs-131 and Y-90 developed by IsoRay Medical employees. The Company is currently
working on developing and patenting additional methods of deriving Cs-131
and
Y-90, and other isotopes.
There
are
specific conditions attached to the assignment of the Cs-131 patent from
Lane
Bray. In particular, the associated Royalty Agreement provides for 1% of
gross
profit payment from seed sales (gross seed sales price minus direct production
cost) to Lane Bray and 1% of gross profit from any use of the Cs-131 process
patent for non-seed products. If IsoRay Medical reassigns the Royalty Agreement
to another company, these royalties increase to 2%. The Royalty Agreement
has an
anti-shelving clause which requires IsoRay Medical to return the patent
if
IsoRay Medical permanently abandons sales of products using the invention.
Additionally, when IsoRay Medical attains a 15% domestic market share,
it will
pay to the Lawrence Family Trust, a major shareholder of the Company, 1%
of the
"Factory Price" with a minimum annual royalty of $4,000, pursuant to an
agreement with Don Lawrence.
Research
And Development
From
inception (December 17, 2001) through September 30, 2005, IsoRay Medical
and its
predecessor companies incurred approximately $1.8 million in costs related
to
research and development activities. The Company expects to continue to
have
employees working on activities that will be classified as research or
development for the foreseeable future.
Government
Regulation
The
Company's present and future intended activities in the development, manufacture
and sale of cancer therapy products are subject to extensive laws, regulations,
regulatory approvals and guidelines. Within the United States, the Company's
therapeutic radiological devices must comply with the U.S. Federal Food,
Drug
and Cosmetic Act, which is enforced by the FDA. The Company is also required
to
adhere to applicable FDA regulations for Good Manufacturing Practices,
including
extensive record keeping and periodic inspections of manufacturing facilities.
IsoRay Medical's predecessor obtained FDA 510(k) clearance in March 2003
to
market the IsoRay 131Cs
seed
for the treatment of localized solid tumors.
Specifically,
in the United States, the FDA regulates, among other things, new product
clearances and approvals to establish the safety and efficacy of these
products.
We are also subject to other federal and state laws and regulations, including
the Occupational Safety and Health Act and the Environmental Protection
Act.
The
Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations
govern or influence the research, testing, manufacture, safety, labeling,
storage, record keeping, approval, distribution, use, reporting, advertising
and
promotion of such products. Noncompliance with applicable requirements
can
result in civil penalties, recall, injunction or seizure of products, refusal
of
the government to approve or clear product approval applications,
disqualification from sponsoring, or conducting clinical investigations,
prevent
us from entering into government supply contracts, withdrawal of previously
approved applications and criminal prosecution.
Approval
of new medical devices is a lengthy procedure and can take a number of
years and
the expenditure of significant resources. There is a shorter FDA review
and
clearance process, the premarket notification process, or the 510(k) process,
whereby a company can market certain medical devices that can be shown
to be
substantially equivalent to other legally marketed devices. We have been
able to
achieve market clearance for our 131Cs
seed
using the 510(k) process.
In
the
United States, medical devices are classified into three different categories
over which FDA applies increasing levels of regulation: Class I,
Class II and Class III. Most Class I devices are exempt
from
premarket notification (510(k)); most Class II devices require premarket
notification (510(k)) and most Class III devices require premarket
approval. Our 131Cs
seed
is a Class II device and has received 510(k) clearance.
As
a
registered medical device manufacturer with the FDA, we are subject to
inspection to ensure compliance with their current Good Manufacturing Practices,
or cGMP. These regulations require that we and any of our contract manufacturers
design, manufacture and service products and maintain documents in a prescribed
manner with respect to manufacturing, testing, distribution, storage, design
control and service activities. Modifications or enhancements that could
significantly affect the safety or effectiveness of a device or that constitute
a major change to the intended use of the device require a new 510(k) notice
for
any product modification. Management has no current intent to modify the
131Cs
seed
such that a new 510(k) notice would be required, but if management in the
future
determines that it would be beneficial to substantially modify the 131Cs
seed
or use a delivery device not previously approved by the FDA, we would be
prohibited from marketing the modified product until the 510(k) notice
is
cleared by the FDA.
The
Medical Device Reporting regulation requires that we provide information
to the
FDA on deaths or serious injuries alleged to be associated with the use
of our
devices, as well as product malfunctions that are likely to cause or contribute
to death or serious injury if the malfunction were to recur. Labeling and
promotional activities are regulated by the FDA and, in some circumstances,
by
the Federal Trade Commission.
As
a
medical device manufacturer, we are also subject to laws and regulations
administered by governmental entities at the federal, state and local levels.
For example, our facility is licensed as a medical product manufacturing
facility in the State of Washington and is subject to periodic state regulatory
inspections. Our customers are also subject to a wide variety of laws and
regulations that could affect the nature and scope of their relationships
with
us.
Moreover,
our use, management and disposal of certain radioactive substances and
wastes
are subject to regulation by several federal and state agencies depending
on the
nature of the substance or waste material. We believe that we are in compliance
with all federal and state regulations for this purpose.
Washington
voters approved Initiative 297 in late 2004, which may impose additional
restrictions on sites at which mixed radioactive and hazardous wastes are
generated and stored, including PNNL. The constitutionality of this initiative
has been challenged, but if it were enforced it could impact our ability
to
manufacture our seeds, whether at PNNL or elsewhere in the State of
Washington.
Seasonality
The
Company is aware of a decrease in orders for the 131Cs
seed
during the month of December. This decrease in orders is related to a decrease
in the number of brachytherapy procedures performed during the month of
December, as many physicians are on vacation. The Company is not aware
of any
other significant seasonal influences on its business. The composition
of
certain products and services changes modestly with shifts in weather with
no
material impact on total revenues.
Employees
IsoRay,
Inc. has four full-time employees.
As of
November 4, 2005, IsoRay Medical employed twenty full-time individuals,
one
temporary individual and one part-time individual. The Company's future
success
will depend, in part, on its ability to attract, retain, and motivate highly
qualified technical and management personnel. From time to time, the Company
may
employ independent consultants or contractors to support its research and
development, marketing, sales and support and administrative organizations.
Neither the Company's nor IsoRay Medical's employees are represented by
any
collective bargaining unit. IsoRay Medical estimates that successful
implementation of its growth plan would result in up to 46 additional employees
by the end of 2006.
Competition
The
Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. In general, the
IsoRay
seed competes with conventional methods of treating localized cancer, including,
but not limited to, radical prostatectomy and external beam radiation therapy
which includes intensity modulated radiation therapy, as well as competing
permanent brachytherapy devices. RP has historically represented the most
common
medical treatment for early-stage, localized prostate cancer. EBRT is also
a
well-established method of treatment and is widely accepted for patients
who
represent a poor surgical risk or whose prostate cancer has advanced beyond
the
stage for which surgical treatment is indicated. Management believes that
if
general conversion from these treatment options (or other established or
conventional procedures) to the IsoRay seed does occur, such conversion
will
likely be the result of a combination of equivalent or better efficacy,
reduced
incidence of side effects and complications, lower cost, quality of life
issues
and pressure by health care providers and patients.
History
has shown the advantage of being the first to market a new brachytherapy
product. For example, ONCURA, now part of General Electric Company, currently
claims nearly 50% of the market with the original I-125 seed. Theragenics
Corp.,
which introduced the original Pd-103 seed, is second with a nearly 30%
market
share. The Company believes it will obtain a similar and significant advantage
by being the first to introduce a Cs-131 seed.
The
Company's patented Cs-131 separation process is likely to provide us a
sustainable competitive advantage in this area. Production of Cs-131 also
requires specialized facilities (hot cells) that represent high cost and
long
lead time if not readily available. In addition, a competitor would need
to
develop a method for isotope attachment and seed assembly, would need to
conduct
testing to meet NRC and FDA requirements, and would need to obtain regulatory
approvals before marketing a competing device.
Because
the exterior seed dimensions of all seeds are substantially the same, the
threshold to physician acceptance of the IsoRay seed is not significant.
Treatment planning systems and seed implantation equipment used worldwide
all
rely on seeds of the same length and diameter. Technical costs for users
to
switch from I-125 and Pd-103 to the IsoRay Cs-131 seed should be minimal.
Several
companies have obtained regulatory approval to produce and distribute
Palladium-103 and Iodine-125 seeds, which compete directly with our seed.
Ten of
those companies represent nearly 100% of annual brachytherapy seed sales
worldwide: Oncura (part of General Electric Company), Theragenics Corp.,
North
American Scientific, Inc., Mentor Corp., Implant Sciences Corp., International
Brachytherapy S.A., Cardinal Health, Inc., C.R. Bard, Inc., Draximage (a
division of Draxis Health, Inc.) and Best Medical International, Inc. The
top
three - ONCURA, Theragenics, and North American Scientific - currently
garner
nearly 90% of annual sales.
It
is
possible that three or four of the current I-125 or Pd-103 seed manufacturers
(i.e., ONCURA, Theragenics, North American Scientific, etc.) are capable
of
producing and marketing a Cs-131 seed, but none have reported efforts to
do so.
Best Medical obtained a seed core patent in 1992 that named 10 different
isotopes, including Cs-131, for use in their seeds. Best Medical received
FDA
510(k) approval to market a Cs-131 seed on June 6, 1993 but has failed
to
produce any products for sale.
Additional
Growth Opportunities
The
Cs-131 isotope has the performance characteristics to be a technological
platform for sustained long-term growth. The most immediate opportunities
are
introducing Cs-131 to Canada, Europe and other international markets,
introducing Cs-131-based therapies for other forms of solid tumors focusing
first on breast tumors, and through the marketing of other radioactive
isotopes.
These growth initiatives are in the early stages of planning and appear
to be
significant incremental opportunities.
The
Company plans to introduce Cs-131 initially
into Europe and later into other international markets through partnerships
and
strategic alliances with channel partners for manufacturing and distribution.
Another advantage of the Cs-131 isotope is its potential applicability
to other
cancers and other diseases. Cs-131 has FDA approval to be used for treatments
for a broad spectrum of cancers including breast, brain, lung, and liver
cancer,
and the Company believes that a major opportunity exists as an adjunct
therapy
for the treatment of breast cancer. Preliminary discussions have begun
with
prominent physicians regarding the use of Cs-131-based therapies for the
treatment of lung, pancreatic and brain cancer. In addition to Y-90, there
is
the opportunity to develop and market other radioactive isotopes to the
US
market, and to market the Cs-131 isotope itself, separate from its use
in our
seeds. The Company is also in the preliminary stages of exploring alternate
methods of delivering our isotopes to various organs of the body, as it
may be
advantageous to use delivery methods other than a titanium-encapsulated
seed to
deliver radiation to certain organs.
The
Company's executive offices are located at 350 Hills Street, Suite 106,
Richland, WA 99354, (509) 375-1202, where IsoRay Medical currently leases
approximately 3,100 square feet of office and laboratory space for $4,196
per
month from Energy Northwest. The lease expires December 31, 2005. The Company
is
not affiliated with its lessor. Additional office space will be needed
as
employees are hired, and is currently available at this location. The Company
believes that its current facilities will be adequate until the end of
2005, but
it will need additional facilities at that time. In the future, due to
business
growth, the Company may elect to combine administrative services and production
in one building which the Company may lease or build depending on market
conditions.
In
April
2004, IsoRay Medical's predecessor signed a contract with PNNL, permitting
IsoRay Medical to subcontract certain of its manufacturing needs to PNNL,
use
PNNL facilities to produce the Cs-131 brachytherapy seeds, and ship them
to
customers from the PNNL facilities. Using PNNL's facilities has reduced
the
immediate need for IsoRay Medical to purchase specialized capital-intensive
equipment. The contract allows it to manufacture Cs-131 seeds in PNNL until
it
expires in December 2006. Management believes that IsoRay will have sufficient
time prior to this contract’s expiration to shift production to IsoRay’s new
facility, described below.
We
have
entered into a lease, which commenced as of regulatory licensing approval
on
October 6, 2005, for a facility located in Richland, Washington
that
management believes will provide adequate space to manufacture the Cs-131
product for the prostate cancer markets until late 2007. The lease is for
a term
of twelve months following regulatory licensing approval, and payment for
the
lease term is the issuance of 21,733 shares of IsoRay, Inc. common
stock. The lease may be extended on a month-to-month basis by mutual agreement
of the parties. The lessor is Pacific EcoSolutions Incorporated, and the
Company
is not affiliated with this lessor.
The
Company’s management believes that all facilities occupied by the Company are
adequate for present requirements, and that the Company’s current equipment is
in good condition and is suitable for the operations involved.
LEGAL
PROCEEDINGS
We
are
not a party to any pending legal proceeding. Management is not aware of
any
threatened litigation, claims or assessments.
Set
forth
below is certain information regarding our directors and executive officers,
each of whom took office in July 2004. Our Board of Directors is comprised
of
five directors. There are no family relationships between any of our directors
or executive officers. Each of our directors is elected to serve
until our
next annual meeting of our shareholders and until his successor is elected
and
qualified or until such director’s earlier death, removal or termination. Our
Board of Directors appoints our officers, and their terms of office are
at the
discretion of the Board of Directors, except to the extent governed by
an
employment contract.
Name
|
Age
|
Position
|
|
|
|
Roger
E. Girard
|
62
|
CEO,
President, Chairman
|
John
Hrobsky
|
56
|
VP
- Sales and Marketing
|
Michael
K. Dunlop
|
54
|
CFO,
Treasurer
|
David
J. Swanberg
|
49
|
VP-Operations,
Secretary, Director
|
Robert
R. Kauffman
|
65
|
Director
|
Thomas
C. LaVoy
|
46
|
Director
|
Stephen
R. Boatwright
|
42
|
Director
|
Roger
E. Girard:
In
addition to serving as President, Chairman and CEO for the Company, Mr.
Girard
is also the CEO, President and Chairman of the Board of IsoRay Medical,
Inc.,
and has served in these positions since the formation of IsoRay Medical,
Inc.
Mr. Girard was CEO and Chairman of IsoRay Medical's predecessor company
from
August of 2003 until October 1, 2004. Mr. Girard has been actively involved
in
the management and the development of the management team at IsoRay Medical,
and
his experienced leadership has helped drive IsoRay's development to date.
From
June 1998 until August of 2003, Mr. Girard served as President of Strategic
Financial Services, a company designed to help wealthy individuals and
companies
with strategic planning and financial strategy. Mr. Girard also served
as the
managing partner for the Northwest office of Capital Consortium during
this
time. Mr. Girard has knowledge, experience and connections to private,
institutional and public sources of capital and is experienced
in
managing and designing capital structures for business organizations as
well as
organizing and managing the manufacturing process, distribution,
sales, and
marketing, based on his 35 years of experience.
John
Hrobsky:
Prior to
joining IsoRay's predecessor company as Executive Vice President of Sales
and
Marketing in 2004, Mr. Hrobsky was President, CEO and a director of Advanced
Cochlear Systems, positions he held beginning in 2001. From 1999 to 2001,
Mr.
Hrobsky served as President, CEO and a director of Zaxis International,
Inc., a
biotechnology company. In 2003, Zaxis filed bankruptcy proceedings. Prior
to
1999, Mr. Hrobsky served as a senior executive with a number of biotech
and
medical device companies. Mr. Hrobsky's sales and marketing experience
with
medical devices includes a device for restoring neuro-control after spinal
cord
injury, the worldwide leading cochlear implant as well as various radiology,
imaging and diagnostic equipment products. Notably, Mr. Hrobsky served
as Vice
President of Sales for Cochlear Corporation, the U.S. subsidiary of Cochlear
Ltd., an Australian based manufacturer of cochlear implants where he was
responsible for its introduction to the markets in the US, Canada and South
America. Cochlear Ltd. is the world's leading provider of cochlear implants
commanding approximately 60% of the market. Mr. Hrobsky earned a Bachelor
of
Science in Medical Technology in 1971 from the University of Wisconsin
- Eau
Claire, and has earned credits toward an MBA from Regis University, Denver,
CO.
Michael
K. Dunlop: Mr.
Dunlop has been responsible for IsoRay Medical and its predecessor companies'
financial and accounting operations and administrative services in his
position
as CFO since April 2001. Mr. Dunlop has over 18 years of financial and
administrative experience in the healthcare industry. As Director of Contracting
and Marketing for Community Choice, PHCO, an organized healthcare delivery
system, from October 1997 to December 2003, he assisted in developing the
strategic direction and business plan of the PHCO, negotiated and maintained
contractual relations with state-wide major health insurance plans, increased
compensation for 80+ independent providers and 6 area hospitals, and enhanced
PHCO provider membership through development of programs that lowered clinic
and
hospital operating costs. He was granted the Pentad Industry Council,
Chelan-Douglas Counties' Employer of the Year award in 1996, while administrator
of Lake Chelan Clinic. Mr. Dunlop holds an M.B.A. from California State
University and B.M. Education from Walla Walla College.
David
J. Swanberg: Mr.
Swanberg has more than 22 years experience in engineering and materials
science,
nuclear waste and chemical processing, aerospace materials and processes,
and
environmental technology development and environmental compliance. Beginning
in
November 1995 and until January 2004, Mr. Swanberg was employed full time
as Sr.
Chemical/Environmental Engineer for Science Applications International
Corporation working on a variety of projects including nuclear waste research
and development. Mr. Swanberg joined IsoRay Medical's predecessor company
in
March of 1999 on a part-time basis and has held management positions in
the
IsoRay companies since 2000. Mr. Swanberg began full-time employment with
IsoRay
Medical in February 2004. He has been instrumental in development of IsoRay
Medical's initial product, the Cs-131 brachytherapy seed, including interfaces
with technical, regulatory, and quality assurance requirements. With IsoRay
Medical and its predecessor companies, he has managed the development and
production of radioactive seeds to support testing to meet NRC and FDA
requirements, provided technical guidance for characterization of the IsoRay
seed to meet AAPM Task Group 43 protocols, and coordinated production and
testing of non-radioactive seeds to conform to ISO standards for brachytherapy
devices. He is President of the Nuclear Medicine Research Council. He holds
an
MS in Chemical Engineering, is a licensed Chemical Engineer, and a certified
Level II Radiation Worker.
Robert
R. Kauffman:
Mr.
Kauffman has served as Chief Executive Officer and Chairman of the Board
of
Alanco Technologies, Inc. (NASDAQ: ALAN), an Arizona-based information
technology company, since July 1, 1998. Mr. Kauffman was formerly President
and
Chief Executive Officer of NASDAQ-listed Photocomm, Inc., from 1988 until
1997
(since renamed Kyocera Solar, Inc.). Photocomm was the nation's largest
publicly
owned manufacturer and marketer of wireless solar electric power systems
with
annual revenues in excess of $35 million. Prior to Photocomm, Mr. Kauffman
was a
senior executive of the Atlantic Richfield Company (ARCO) whose varied
responsibilities included Senior Vice President of ARCO Solar, Inc., President
of ARCO Plastics Company and Vice President of ARCO Chemical Company. Mr.
Kauffman earned an M.B.A. in Finance at the Wharton School of the University
of
Pennsylvania, and holds a B.S. in Chemical Engineering from Lafayette College,
Easton, Pennsylvania.
Thomas
C. LaVoy:
Mr.
LaVoy has served as Chief Financial Officer of SuperShuttle International,
Inc.,
since July 1997 and as Secretary since March 1998. He has also served as
a
director of Alanco Technologies, Inc. (NASDAQ: ALAN) since 1998. From September
1987 to February 1997, Mr. LaVoy served as Chief Financial Officer of
NASDAQ-listed Photocomm, Inc. Mr. LaVoy was a Certified Public Accountant
with
the firm of KPMG Peat Marwick from 1980 to 1983. Mr. LaVoy has a Bachelor
of
Science degree in Accounting from St. Cloud University, Minnesota, and
is a
Certified Public Accountant.
Stephen
R. Boatwright:
Mr.
Boatwright has been a member of Keller Rohrback, PLC in Phoenix, Arizona
since
January 2005. From 1997 through January 2005 Mr. Boatwright was a partner
at
Gammage & Burnham, PLC, also in Phoenix, Arizona. Throughout his career, he
has provided legal counsel to both private and public companies in many
diverse
industries. In recent years, Mr. Boatwright's legal practice has focused
on
representing technology, biotechnology, life science and medical device
companies for their securities, corporate and intellectual property licensing
needs. Mr. Boatwright earned both a J.D. and an M.B.A. from the University
of
Texas at Austin, and holds a B.A. in Philosophy from Wheaton College.
Significant
Employees
Certain
significant employees of our subsidiary, IsoRay Medical, Inc., and their
respective ages as of the date of this report are set forth in the table
below.
Also provided is a brief description of the experience of each significant
employee during the past five years.
Name
|
Age
|
Position
with IsoRay Medical, Inc.
|
Lane
Bray
|
77
|
Chief
Chemist
|
Garrett
Brown
|
42
|
Chief
Technology Officer
|
Keith
Welsch
|
58
|
Chief
Quality Officer
|
Lane
Bray:
Mr.
Bray is known nationally and internationally as a technical expert in
separations, recovery, and purification of isotopes and is a noted authority
in
the use of cesium and strontium ion exchange for Department of Energy's
West
Valley and Hanford nuclear waste cleanup efforts. In 2000, Mr. Bray received
the
'Radiation Science and Technology' award from the American Nuclear Society.
Mr.
Bray has authored or co-authored over 110 research publications, 12 articles
for
9 technical books, and holds 24 U.S. and foreign patents. Mr. Bray patented
the
USDOE/PNNL process for purifying medical grade Yttrium-90 that was successfully
commercialized in 1999. Mr. Bray also recently invented and patented the
proprietary isotope separation and purification process that is assigned
to
IsoRay. Mr. Bray was elected 'Tri-Citian of the Year' in 1988, nominated
for
'Engineer of the Year' by the American Nuclear Society in 1995, and was
elected
'Chemist of the Year for 1997' by the American Chemical Society, Eastern
Washington Section. Mr. Bray retired from the Pacific Northwest National
Laboratory in 1998. Since retiring in 1998, Mr. Bray worked part time for
PNNL
on special projects until devoting all of his efforts to IsoRay in 2004.
Mr.
Bray has been a Washington State Legislator, a Richland City Councilman,
and a
Mayor of Richland. Mr. Bray has a B.A. in Chemistry from Lake Forest
College.
Garrett
Brown:
Dr.
Brown was Manager of Radiochemistry - Hot Cell Operations for International
Isotopes, Inc., a major radiopharmaceutical and medical device startup
company,
from January 1998 until May 1999 and was instrumental in bringing a new
brachytherapy seed implant device to commercialization. Dr. Brown’s
responsibilities included hands-on radiological work in fume hoods, glove
boxes
and remote manipulator hot cells, process definition, research, development,
installation, optimization, waste minimization, procedure documentation,
facility design and training. Dr. Brown also served as the technical interface
to executive management for business development, shipping/receiving, QA/QC,
facilities and marketing/sales. Prior to that, Dr. Brown, as a Senior Research
Scientist at the Pacific Northwest National Laboratory, was responsible
for the
weekly production of multi-Curie quantities of medical grade Y-90, and
research
programs to develop high tech sorbents for separation of Cs-137, Sr-90
and Tc-99
from high-level radioactive wastes stored at the Hanford Nuclear Reservation.
From May 1999 to the present, Dr. Brown has been a technical consultant
with GNB
Technical Consultants. Dr. Brown has co-authored numerous technical publications
in the field. Dr. Brown has a Ph.D. in Analytical Chemistry and BS in Chemistry,
cum laude. He has served as IsoRay Medical's Chief Technical Officer since
May
of 2000. In March 2004, Dr. Brown was certified as a Radiological Safety
Officer.
Keith
Welsch:
Mr.
Welsch is a quality control professional with experience in a wide range
of
organizations and disciplines including the nuclear, aerospace, environmental
restoration, construction, tubing, steel and aluminum industries. Mr. Welsch
managed the registration of a plant to ISO 9002:1994 and subsequently
transitioned the facility to ISO 9001:2000 and conducted continuous improvement
actions. These included statistical process control, six sigma, lean
manufacturing, and total preventive maintenance programs. Mr. Welsch's
other
significant achievements include facilitation of quality improvement and
stand
down teams, innovative education training manager, management of records
review
for two nuclear sites, management of audit programs and corrective-action
systems, and teaching safety, technical, and quality courses. He has earned
the
Certified Quality Auditor, Certified Quality Technician and Certified Quality
Improvement Associate certifications from the American Society for Quality.
Prior to joining IsoRay in 2004, Mr. Welsch served as Quality Assurance
Manager
for Kaiser Aluminum Products of Richland, Washington since 1997. Mr. Welsch
received a BA in Business Administration from Washington State
University.
Executive
Compensation
The
following summary compensation table sets forth information concerning
compensation for services rendered in all capacities during our past three
fiscal years awarded to, earned by or paid to each of the following executive
officers (the "Executive Officers"). None of the Company’s executive officers,
other than those listed below, received compensation in fiscal year 2004
in
excess of $100,000.
|
|
Annual
Compensation
|
|
Long-Term
Compensation Awards
|
|
Name
and Principal Position
|
|
Fiscal
Year(1)
|
|
Salary
|
|
Restricted
Stock Awards
|
|
Securities
Underlying Options
|
|
All
Other Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Girard, Chief Executive Officer(2)
|
|
|
2005
|
|
$
|
113,958
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2004
|
|
$
|
71,031
|
|
$
|
9,900
|
|
|
513,840
|
|
|
--
|
|
|
|
|
2003
|
|
$
|
4,000
|
|
$
|
49,900
|
|
|
--
|
|
|
--
|
|
Thomas
Scallen, Former Chief Executive Officer(3)
|
|
|
2005
|
|
|
--
|
|
|
--
|
|
|
--
|
|
$
|
50,000(4
|
)
|
|
|
|
2004
|
|
|
--
|
|
$
|
7,871
|
|
|
--
|
|
|
--
|
|
|
|
|
2003
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
(1)
|
Fiscal
year 2005 consisted of the period from October 1, 2004 through
June 30,
2005; fiscal year 2004 consisted of the year ended September
20, 3004; and
fiscal year 2003 consisted of the year ended September 30, 2003.
|
(2)
|
Mr.
Girard did not begin serving as our CEO until July 28, 2005,
but he has
served as CEO of our subsidiary and its predecessor company since
August
2003. The compensation listed was paid to Mr. Girard by IsoRay
Medical or
its predecessor company.
|
(3) |
Mr.
Scallen served as our CEO during the listed fiscal years and
until his
resignation effective July 28, 2005.
|
(4) |
Represents
a $50,000 cash payment in June 2005 to Mr. Scallen in settlement
of all
accrued but unpaid compensation.
|
Employment
Agreements
The
Company entered into an employment agreement with Roger Girard, its Chief
Executive Officer, effective October 6, 2005 (the "Girard Agreement").
The term
of the Girard Agreement is through October 6, 2009, and will automatically
extend for an additional one year term on each anniversary date unless
the term
is modified or terminated in accordance with the terms of the Girard
Agreement
at least ninety days prior to a given anniversary date. The Girard Agreement
provides for a base salary of $180,000, an automatic increase to $220,000
effective January 1, 2006, and an increase to $300,000 effective July
1, 2006 if
certain performance goals set by the Board of Directors are met. Mr.
Girard is
also entitled to participate in any benefit plans provided to key executives
of
the Company, and to a bonus if certain performance goals set by the Board
of
Directors are met. These performance goals have not yet been set by the
Board.
Compensation
of Non-Employee Directors
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Company's Articles of Incorporation provide to directors and officers
indemnification to the full extent provided by law, and provide that,
to the
extent permitted by Minnesota law, a director will not be personally
liable for
monetary damages to the Company or its shareholders for breach of his
or her
fiduciary duty as a director, except for liability for certain actions
that may
not be limited under Minnesota law.
Insofar
as indemnification for liabilities arising under the Securities Act of
1933 may
be permitted to directors, officers and controlling persons pursuant
to the
foregoing provisions, or otherwise, in the opinion of the Securities
and
Exchange Commission such indemnification is against public policy as
expressed
in the Act and is, therefore, unenforceable.
SECURITIES
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following tables set forth certain information regarding the beneficial
ownership of the Company's common stock and preferred stock as of November
6,
2005 for (a) each person known by the Company to be a beneficial owner
of five
percent or more of the outstanding common or preferred stock of the Company,
(b)
each executive officer, director and nominee for director of the Company,
and
(c) all directors and executive officers of the Company as a group. As
of
November 6, 2005, the Company had 9,767,026 shares of common stock and
745,762
shares of preferred stock outstanding.
COMMON
STOCK SHARE OWNERSHIP AS OF NOVEMBER 6, 2005
|
|
Name
and Address of
Beneficial
Owner(1)
|
|
Amount
of
Common
Shares
Owned
|
|
Derivative
Securities
Exercisable
or Convertible
Within
60 Days
of
November 6,
2005
|
|
Total
Common
Shares
Beneficially
Owned
|
|
Percent
of
Common
Shares
Owned(2)
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Girard, Chief Executive
Officer,
President and
Chairman
|
|
|
338,460
|
|
|
513,841
|
|
|
852,301
|
|
|
8.29
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Dunlop, Chief
Financial
Officer
|
|
|
136,618
|
|
|
150,000
|
|
|
286,618
|
|
|
2.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Hrobsky, Vice President
|
|
|
4,296
|
|
|
280,787
|
|
|
285,083
|
|
|
2.84
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Swanberg, Vice
President
and Director
|
|
|
297,109
|
|
|
150,000
|
|
|
447,109
|
|
|
4.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Kauffman, Director
|
|
|
43,801
|
|
|
100,000
|
|
|
143,801
|
|
|
1.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
LaVoy, Director
|
|
|
8,426
|
|
|
100,000
|
|
|
108,426
|
|
|
1.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Boatwright, Director
|
|
|
0
|
|
|
184,236
|
|
|
184,236
|
|
|
1.85
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Scallen, Former Chief
Executive
Officer(3)
|
|
|
329,942
|
|
|
0
|
|
|
329,942
|
|
|
3.38
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
Family Trust(4)
|
|
|
888,529
|
|
|
0
|
|
|
888,529
|
|
|
9.10
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donald
Segna
|
|
|
511,213
|
|
|
0
|
|
|
511,213
|
|
|
5.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Silverman (5)
|
|
|
462,199
|
|
|
144,404
|
|
|
606,603
|
|
|
6.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Officers and Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
a group (7 persons)
|
|
|
826,710
|
|
|
1,479,426
|
|
|
2,308,136
|
|
|
20.52
|
%
|
(1) |
Except
as otherwise noted, the address for each of these individuals
is c/o
IsoRay, Inc., 350 Hills St., Suite 106, Richland, WA
99354.
|
(2) |
Percentage
ownership is based on 9,767,026 shares of Common Stock outstanding
on
November 6, 2005. Shares of Common Stock subject to stock options,
warrants or convertible debentures which are currently
exercisable/convertible or will become exercisable/convertible
within 60
days after November 6, 2005 are deemed outstanding for computing
the
percentage ownership of the person or group holding such options,
but are
not deemed outstanding for computing the percentage ownership
of any other
person or group.
|
(3) |
Mr.
Scallen's address is 4701 IDS Center, Minneapolis, MN 55402.
|
(4) |
The
address of the Lawrence Family Trust is 285 Dondero Way, San
Jose, CA
95119.
|
(5) |
Mr.
Silverman's address is 2747 Paradise Road, #903, Las Vegas,
NV 98109.
27,376 of the shares of common stock and 24,067 of the derivative
securities beneficially owned by Mr. Silverman are held of
record by
Katsinam Partners, LP, an entity of which Mr. Silverman is
a member of the
general partner.
|
PREFERRED
STOCK SHARE OWNERSHIP AS OF NOVEMBER 6, 2005
Name
and Address of
Beneficial
Owner(1)
|
|
Amount
of Preferred
Shares
Owned
|
|
Options
or
Warrants
Exercisable
Within
60 Days of
November
6, 2005
|
|
Total
Preferred
Shares
Beneficially
Owned
|
|
Percent
of
Preferred
Shares
Owned(2)
|
|
|
|
|
|
|
|
|
|
|
|
Frederic
and Anita Daniels Family Trust(3)
|
|
|
47,987
|
|
|
12,442
|
|
|
60,429
|
|
|
7.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ronald
and Cathy Weinstein
And
The Ronald A Weinstein 2004 Living Trust(4)
|
|
|
59,244
|
|
|
0
|
|
|
59,244
|
|
|
7.94
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
and Bonnie Kennedy(5)
|
|
|
54,506
|
|
|
0
|
|
|
54,506
|
|
|
7.31
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold
Trust Co. FBO Don Goeckner IRA(6)
|
|
|
51,187
|
|
|
0
|
|
|
51,187
|
|
|
6.86
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
and Bonita Stiller(7)
|
|
|
38,034
|
|
|
2,488
|
|
|
40,522
|
|
|
5.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Swanberg, Vice President and Director(8)
|
|
|
14,218
|
|
|
0
|
|
|
14,218
|
|
|
1.91
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Except
as otherwise noted, the address for each of these individuals
is c/o
IsoRay, Inc., 350 Hills St., Suite 106, Richland, WA
99354.
|
(2) |
Percentage
ownership is based on 745,762 shares of Preferred Stock outstanding
on
November 6, 2005. Shares of Preferred Stock subject to stock
options or
warrants which are currently exercisable or will become exercisable
within
60 days after November 6, 2005 are deemed outstanding for computing
the
percentage ownership of the person or group holding such options,
but are
not deemed outstanding for computing the percentage ownership
of any other
person or group.
|
(3) |
The
address for the Frederic and Anita Daniels Family Trust is
16465 SE Mill
St., Portland, OR 97233.
|
(4) |
The
address for Ronald and Cathy Weinstein, and the Ronald A Weinstein
2004
Living Trust is 1901 Parkview Dr. NE, Tacoma, WA
98422.
|
(5) |
The
address for Patrick and Bonnie Kennedy is 4902 W. 12th,
Kennewick, WA 99336.
|
(6) |
The
address for Gold Trust Co FBO Don Goeckner IRA is 1769 NW Riverview
Dr.,
Roseburg, OR 97470.
|
(7) |
The
address for David and Bonita Stiller is 14123 SE Nicholas St.,
Boring, OR
97009.
|
(8) |
Other
than Mr. Swanberg, no other director or officer of the Company
beneficially owns shares of Preferred
Stock.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
IsoRay
Medical's patent rights to its Cesium-131 process were acquired from
Lane Bray,
a shareholder of the Company, and are subject to a 1% royalty on gross
profits
and certain contractual restrictions. In addition, when IsoRay Medical
attains a
15% domestic market share, it will pay to the Lawrence Family Trust,
a major
shareholder of the Company, 1% of the "Factory Price" with a minimum
annual
royalty of $4,000, pursuant to an agreement with Don Lawrence.
In
exchange for consulting services, Quatsch Ventures, LLC, an entity controlled
by
Stephen Boatwright, one of the Company's directors, received options
to purchase
84,236 shares of our common stock in 2004. Mr. Boatwright is a member
of Keller
Rohrback, PLC, which provides legal services to the Company and IsoRay
Medical.
During IsoRay Medical’s fiscal year ended June 30, 2005, IsoRay Medical paid
Keller Rohrback, PLC and Gammage & Burnham, PLC (of which Mr. Boatwright was
a partner) approximately $285,000 for legal services.
Through
June 30, 2005, the Company’s former Chief Executive Officer, Thomas K. Scallen,
advanced the Company an aggregate of approximately $44,400 to support
operations, settle outstanding trade accounts payable and provide working
capital. The advance was repayable upon demand and was non-interest bearing
and
unsecured. Effective June 30, 2005, with the anticipation of the consummation
of
the reverse acquisition transaction with IsoRay Medical, Inc., these
advances
were forgiven and reclassified as additional paid-in capital in the accompanying
financial statements of the Company as of that date.
Through
December 31, 2004, the Company owed the Company’s Chief Executive Officer,
Thomas K. Scallen, approximately $354,500 for cumulative accrued salary.
During
the quarter ended March 31, 2005, the Company’s former Chief Executive Officer
forgave approximately $304,500 in accrued salary for prior periods.
On
January 16, 2005, in addition to certain other shareholders, the following
officers and directors of the Company were awarded shares of common stock
for
guaranteeing a loan with Benton Franklin Economic Development District
("BFEDD")
in the amount of $230,000, which was funded in December 2004, and a line
of
credit with Columbia River Bank in the amount of $395,000: Michael Dunlop
guaranteed $15,000 of the BFEDD loan and $30,000 of the Columbia River
Bank line
of credit, for which he received 12,888 post-merger shares; Roger Girard
guaranteed $20,000 of the BFEDD loan, for which he received 5,728 post-merger
shares; John Hrobsky guaranteed $15,000 of the Columbia River Bank line
of
credit, for which he received 4,296 post-merger shares; and David Swanberg
guaranteed $30,000 of the Columbia River Bank line of credit, for which
he
received 8,592 post-merger shares.
The
following table details the name of each selling shareholder, the number
of
shares owned by that selling shareholder, and the number of shares that
may be
offered by each selling shareholder for resale under this prospectus.
The
selling shareholders may sell up to 5,441,022 shares of our common stock
from
time to time in one or more offerings under this prospectus, of which
3,701,028
are shares of common stock currently held by the selling shareholders,
193,515
are shares of common stock issuable upon the conversion of preferred
stock held
by the selling shareholders (including 44,363 shares of common stock
issuable
upon the conversion of preferred stock receivable upon the exercise of
warrants
to purchase preferred stock), 995,891 are shares of common stock issuable
upon
the conversion of debentures held by the selling shareholders, 332,130
are
shares of common stock issuable upon the exercise of warrants held by
the
selling shareholders, and 218,457 are shares of common stock issuable
upon the
exercise of options held by the selling shareholders. Holders of the
debentures
must provide a conversion notice to us by December 31, 2005 or the shares
they
could receive upon conversion of their debentures will be removed from
this
prospectus by amendment. Because each selling shareholder may offer all,
some or
none of the shares it holds, and because, based upon information provided
to us,
there are currently no agreements, arrangements, or understandings with
respect
to the sale of any of the shares, no definitive estimate as to the number
of
shares that will be held by each selling shareholder after the offering
can be
provided. The following table has been prepared on the assumption that
all
shares offered under this prospectus will be sold to parties unaffiliated
with
the selling shareholders. Except as indicated below, no selling shareholder
nor
any of their affiliates have held a position or office, or had any other
material relationship, with us.
Name
|
|
Beneficial
Ownership Before the Offering
(1)
|
|
Percentage
of Common Stock Owned Before Offering
|
|
Shares
of Common Stock Included in Prospectus
(2)
|
|
Shares
of Common Stock Issuable Upon Conversion or Exercise of Preferred
Stock or
Derivative Securities and Included in Prospectus
(3)
|
|
Total
Shares of Common Stock Included in Prospectus
|
|
Beneficial
Ownership After the Offering
(4)
|
|
Percentage
of
Common
Stock
Owned
After
Offering
(4)
|
|
Abelson,
Mark B. and Abelson, Janet W. 1991 Revocable Trust
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Agger
Capital Management, LLC
|
|
|
3,832
|
|
|
*
|
|
|
0
|
|
|
3,832
|
|
|
3,832
|
|
|
0
|
|
|
*
|
|
Alan
E. and Anna E. Waltar Trust U/A DTD 7/3/98
|
|
|
41,982
|
|
|
*
|
|
|
7,480
|
|
|
0
|
|
|
7,480
|
|
|
34,502
|
|
|
*
|
|
All
Seasons Painting Co.
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
0
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
Anastassatos,
Efthimios
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Angioletti,
John K.
|
|
|
9,627
|
|
|
*
|
|
|
0
|
|
|
9,627
|
|
|
9,627
|
|
|
0
|
|
|
*
|
|
Arcadia
Land and Development Company LLC
|
|
|
48,135
|
|
|
*
|
|
|
0
|
|
|
48,135
|
|
|
48,135
|
|
|
0
|
|
|
*
|
|
Babcock,
Dwight W.
|
|
|
39,241
|
|
|
*
|
|
|
22,962
|
|
|
12,034
|
|
|
34,996
|
|
|
4,245
|
|
|
*
|
|
Babcock,
Elaine
|
|
|
2,695
|
|
|
*
|
|
|
539
|
|
|
0
|
|
|
539
|
|
|
2,156
|
|
|
*
|
|
Bales,
Matt
|
|
|
5,178
|
|
|
*
|
|
|
1,036
|
|
|
0
|
|
|
1,036
|
|
|
4,142
|
|
|
*
|
|
Bartholomew,
Richard & Suzanne
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
0
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Bates,
Christopher
|
|
|
4,265
|
|
|
*
|
|
|
853
|
|
|
0
|
|
|
853
|
|
|
3,412
|
|
|
*
|
|
Bates,
Robert and Lisa
|
|
|
37,873
|
|
|
*
|
|
|
16,335
|
|
|
0
|
|
|
16,335
|
|
|
21,538
|
|
|
*
|
|
Bavispe
Limited Partnership
|
|
|
74,404
|
|
|
*
|
|
|
14,235
|
|
|
60,169
|
|
|
74,404
|
|
|
0
|
|
|
*
|
|
Bear
Stearns Securities Corporation Custodian Michael Eric Jacobson
IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Bear
Stearns Securities Corporation Custodian Mishawn Marie Nelson
IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Bear
Stearns Securities Corporation Custodian Steven Mark Nelson
IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Berglin,
Bruce and Doneda
|
|
|
5,475
|
|
|
*
|
|
|
5,475
|
|
|
0
|
|
|
5,475
|
|
|
0
|
|
|
*
|
|
Berglund,
Greg
|
|
|
15,764
|
|
|
*
|
|
|
10,950
|
|
|
4,814
|
|
|
15,764
|
|
|
0
|
|
|
*
|
|
Betty
McCormick Trust
|
|
|
7,108
|
|
|
*
|
|
|
1,422
|
|
|
0
|
|
|
1,422
|
|
|
5,686
|
|
|
*
|
|
Bock,
Daniel
|
|
|
18,051
|
|
|
*
|
|
|
0
|
|
|
18,051
|
|
|
18,051
|
|
|
0
|
|
|
*
|
|
Boggess,
Thomas S. IV and Jonette D.
|
|
|
36,101
|
|
|
*
|
|
|
0
|
|
|
36,101
|
|
|
36,101
|
|
|
0
|
|
|
*
|
|
Boland,
John C.
|
|
|
28,437
|
|
|
*
|
|
|
0
|
|
|
5,687
|
|
|
5,687
|
|
|
22,750
|
|
|
*
|
|
Boland,
John L.
|
|
|
116,098
|
|
|
1.21
|
%
|
|
10,384
|
|
|
7,109
|
|
|
17,493
|
|
|
98,605
|
|
|
*
|
|
Boster,
Gary
|
|
|
29,399
|
|
|
*
|
|
|
29,399
|
|
|
0
|
|
|
29,399
|
|
|
0
|
|
|
*
|
|
Bragdon,
George and Barbara
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
0
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Brown
Larsen, Pamela
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Brown,
Alexis and Alan
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Brown,
Anne J.
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Brown,
Garrett N. (6)
|
|
|
480,637
|
|
|
4.87
|
%
|
|
31,546(7)
|
)
|
|
0
|
|
|
31,546
|
|
|
449,091
|
|
|
3.19
|
%
|
Bunting,
Brandt E. & Collen M.
|
|
|
28,435
|
|
|
*
|
|
|
1,422
|
|
|
4,265
|
|
|
5,687
|
|
|
22,748
|
|
|
*
|
|
Burstein,
Fred
|
|
|
290,016
|
|
|
3.03
|
%
|
|
290,016
|
|
|
0
|
|
|
290,016
|
|
|
0
|
|
|
*
|
|
Burstein,
Fred IRA
|
|
|
16,425
|
|
|
*
|
|
|
16,425
|
|
|
0
|
|
|
16,425
|
|
|
0
|
|
|
*
|
|
Cangiane,
Lorraine and Gilson, Bernard
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Carroll,
Bridget M.
|
|
|
14,218
|
|
|
*
|
|
|
14,218
|
|
|
0
|
|
|
14,218
|
|
|
0
|
|
|
*
|
|
Chapman,
Milton A
|
|
|
48,782
|
|
|
*
|
|
|
9,756
|
|
|
0
|
|
|
9,756
|
|
|
39,026
|
|
|
*
|
|
Chubb,
Gordon R.
|
|
|
2,407
|
|
|
*
|
|
|
0
|
|
|
2,407
|
|
|
2,407
|
|
|
0
|
|
|
*
|
|
Chubb,
James L.
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Chubb,
Michael A
|
|
|
2,407
|
|
|
*
|
|
|
0
|
|
|
2,407
|
|
|
2,407
|
|
|
0
|
|
|
*
|
|
Clara
E. Caylor, LLC
|
|
|
12,034
|
|
|
*
|
|
|
0
|
|
|
12,034
|
|
|
12,034
|
|
|
0
|
|
|
*
|
|
Clark,
R. Jeanne
|
|
|
25,541
|
|
|
*
|
|
|
4,878
|
|
|
230
|
|
|
5,108
|
|
|
20,433
|
|
|
*
|
|
Clement,
James H.
|
|
|
20,046
|
|
|
*
|
|
|
6,896
|
|
|
1,493
|
|
|
8,389
|
|
|
11,657
|
|
|
*
|
|
Clerf,
Craig
|
|
|
1,300
|
|
|
*
|
|
|
260
|
|
|
0
|
|
|
260
|
|
|
1,040
|
|
|
*
|
|
Clerf,
Robert
|
|
|
1,950
|
|
|
*
|
|
|
390
|
|
|
0
|
|
|
390
|
|
|
1,560
|
|
|
*
|
|
Clerf,
Roger
|
|
|
3,251
|
|
|
*
|
|
|
650
|
|
|
0
|
|
|
650
|
|
|
2,601
|
|
|
*
|
|
Cohen,
Loren
|
|
|
16,426
|
|
|
*
|
|
|
16,426
|
|
|
0
|
|
|
16,426
|
|
|
0
|
|
|
*
|
|
Collier
Living Trust
|
|
|
44,885
|
|
|
*
|
|
|
7,545
|
|
|
0
|
|
|
7,545
|
|
|
37,340
|
|
|
*
|
|
Cone-Gilreath
Law Firm
|
|
|
48,782
|
|
|
*
|
|
|
9,756
|
|
|
0
|
|
|
9,756
|
|
|
39,026
|
|
|
*
|
|
Conner
III, Thomas E.
|
|
|
23,698
|
|
|
*
|
|
|
0
|
|
|
4,740
|
|
|
4,740
|
|
|
18,958
|
|
|
*
|
|
Craddock,
Steven Lee
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
Daniels,
Frederic R. & Anita C. Family Trust
|
|
|
72,462
|
|
|
*
|
|
|
0
|
|
|
24,119
|
|
|
24,119
|
|
|
48,343
|
|
|
*
|
|
Daswick,
Gregory
|
|
|
10,663
|
|
|
*
|
|
|
2,133
|
|
|
0
|
|
|
2,133
|
|
|
8,530
|
|
|
*
|
|
Daswick,
Michael and Kimberly
|
|
|
42,943
|
|
|
*
|
|
|
8,589
|
|
|
0
|
|
|
8,589
|
|
|
34,354
|
|
|
*
|
|
DFC
401(k) Profit Sharing Plan FBO Benjamin L. Schwartz
|
|
|
24,883
|
|
|
*
|
|
|
2,488
|
|
|
2,488
|
|
|
4,976
|
|
|
19,906
|
|
|
*
|
|
Douglas
D. Thornton Family Trust
|
|
|
308,957
|
|
|
3.23
|
%
|
|
61,791
|
|
|
0
|
|
|
61,791
|
|
|
247,166
|
|
|
1.75
|
%
|
Dunlop,
Michael (5)
(6)
|
|
|
286,618
|
|
|
2.95
|
%
|
|
26,936(7)
|
)
|
|
0
|
|
|
26,936
|
|
|
259,682
|
|
|
1.84
|
%
|
Ecclestone,
Andrew
|
|
|
59,829
|
|
|
*
|
|
|
48,999
|
|
|
10,830
|
|
|
59,829
|
|
|
0
|
|
|
*
|
|
Edmund,
Robert
|
|
|
3,369
|
|
|
*
|
|
|
674
|
|
|
0
|
|
|
674
|
|
|
2,695
|
|
|
*
|
|
Engels,
Kevin F.
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Fabri,
Jon
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Falls
Rd LLC
|
|
|
23,698
|
|
|
*
|
|
|
0
|
|
|
4,740
|
|
|
4,740
|
|
|
18,958
|
|
|
*
|
|
Feidelberg-Codini
Family Trust U/T/A dated April 15, 2003
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Fernandez,
Leslie
|
|
|
3,688
|
|
|
*
|
|
|
0
|
|
|
738
|
|
|
738
|
|
|
2,950
|
|
|
*
|
|
Ferrick,
Patrick N.
|
|
|
9,479
|
|
|
*
|
|
|
0
|
|
|
1,896
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Fischer,
Thaine J.
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Fookes,
Larry
|
|
|
46,529
|
|
|
*
|
|
|
3,577
|
|
|
22,9140
|
|
|
26,492
|
|
|
20,037
|
|
|
*
|
|
Fookes,
Sharon
|
|
|
3,553
|
|
|
*
|
|
|
711
|
|
|
0
|
|
|
711
|
|
|
2,842
|
|
|
*
|
|
Forest
Ridge Properties, Ltd.
|
|
|
12,441
|
|
|
*
|
|
|
0
|
|
|
2,488
|
|
|
2,488
|
|
|
9,953
|
|
|
*
|
|
Forsman,
John Arvid
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Freeman,
Kevin
|
|
|
12,440
|
|
|
*
|
|
|
2,488
|
|
|
0
|
|
|
2,488
|
|
|
9,952
|
|
|
*
|
|
Giammattei,
Shawn and Peggy
|
|
|
252
|
|
|
*
|
|
|
50
|
|
|
0
|
|
|
50
|
|
|
202
|
|
|
*
|
|
Gaines,
Ira J.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Galanty,
Thomas M.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Gelber
Group
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Girard,
Roger E.(5)
(6)
|
|
|
852,301
|
|
|
8.44
|
%
|
|
73,285(7)
|
)
|
|
0
|
|
|
73,285
|
|
|
779,016
|
|
|
5.53
|
%
|
Gold
Trust Co FBO Don Goeckner IRA
|
|
|
86,733
|
|
|
*
|
|
|
7,109
|
|
|
10,237
|
|
|
17,347
|
|
|
69,386
|
|
|
*
|
|
Goldsmith,
Hugh G.
|
|
|
18,959
|
|
|
*
|
|
|
0
|
|
|
3,792
|
|
|
3,792
|
|
|
15,167
|
|
|
*
|
|
Goodrich,
Daniel A
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Granger,
Jamie
|
|
|
10,529
|
|
|
*
|
|
|
0
|
|
|
2,106
|
|
|
2,106
|
|
|
8,423
|
|
|
*
|
|
Griffith,
Richard and Barbara
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
0
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Griffiths,
Harlyn R. and Catherine G.
|
|
|
12,034
|
|
|
*
|
|
|
0
|
|
|
12,034
|
|
|
12,034
|
|
|
0
|
|
|
*
|
|
Haenert,
Herman and Judith
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Hartley,
James N.
|
|
|
9,479
|
|
|
*
|
|
|
0
|
|
|
1,896
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Hedstrom,
Gary A.
|
|
|
2,527
|
|
|
*
|
|
|
505
|
|
|
0
|
|
|
505
|
|
|
2,022
|
|
|
*
|
|
Hernandez,
Jesus and Melissa
|
|
|
16,955
|
|
|
*
|
|
|
2,737
|
|
|
2,844
|
|
|
5,581
|
|
|
11,374
|
|
|
*
|
|
Holcomb,
Sr,, Hampton A.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Hostetler
Living Trust
|
|
|
18,957
|
|
|
*
|
|
|
0
|
|
|
3,791
|
|
|
3,791
|
|
|
15,166
|
|
|
*
|
|
Huls,
Michael, Roth IRA
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
0
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
Iannicca,
Paul
|
|
|
6,949
|
|
|
*
|
|
|
0
|
|
|
6,949
|
|
|
6,949
|
|
|
0
|
|
|
*
|
|
Intellegration,
LLP
|
|
|
25,526
|
|
|
*
|
|
|
25,526
|
|
|
0
|
|
|
25,526
|
|
|
0
|
|
|
*
|
|
James
J. Minder & Susan A. Davis Family Trust
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Joffe,
Robert
|
|
|
12,034
|
|
|
*
|
|
|
0
|
|
|
12,034
|
|
|
12,034
|
|
|
0
|
|
|
*
|
|
Johnson,
Carolyn M.
|
|
|
8,422
|
|
|
*
|
|
|
1,684
|
|
|
0
|
|
|
1,684
|
|
|
6,738
|
|
|
*
|
|
Johnson,
Tom and Lindsay
|
|
|
8,422
|
|
|
*
|
|
|
1,684
|
|
|
0
|
|
|
1,684
|
|
|
6,738
|
|
|
*
|
|
July
Partners LLP
|
|
|
16,847
|
|
|
*
|
|
|
0
|
|
|
16,847
|
|
|
16,847
|
|
|
0
|
|
|
*
|
|
Kaiser,
James S.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
10,950
|
|
|
*
|
|
Kalos,
Shaun and Cathy
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
0
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Kang,
Dr. Young S.
|
|
|
16,260
|
|
|
*
|
|
|
3,252
|
|
|
0
|
|
|
3,252
|
|
|
13,008
|
|
|
*
|
|
Kaser,
Kathryn and John Clark Kaser
|
|
|
710
|
|
|
*
|
|
|
142
|
|
|
0
|
|
|
142
|
|
|
568
|
|
|
*
|
|
Kaser,
Kathryn and John Lucas Kaser
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
0
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Jordan Rae Emmil
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
0
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Kenneth Tyler Emmil
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
0
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Laura Kaser Emmil
|
|
|
710
|
|
|
*
|
|
|
142
|
|
|
0
|
|
|
142
|
|
|
568
|
|
|
*
|
|
Kaser,
Kathryn and Levi Clark Kaser
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
0
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Katsinam
Partners LP
|
|
|
51,443
|
|
|
*
|
|
|
27,376
|
|
|
24,067
|
|
|
51,443
|
|
|
0
|
|
|
*
|
|
Kauffman,
Robert R.(5)
|
|
|
110,950
|
|
|
1.15
|
%
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
100,000
|
|
|
*
|
|
Kelly,
Gerald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Kemeny,
Matthias D.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Kennedy,
Patrick H. & Bonnie M. (6)
|
|
|
54,506
|
|
|
*
|
|
|
0
|
|
|
10,901
|
|
|
10,901
|
|
|
43,605
|
|
|
*
|
|
Klostermann,
Bill and Donna
|
|
|
16,425
|
|
|
*
|
|
|
16,425
|
|
|
0
|
|
|
16,425
|
|
|
0
|
|
|
*
|
|
Kocherer,
Rosalee
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
0
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Konietzko,
Neil
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Korb,
Leroy J. MD
|
|
|
248,368
|
|
|
2.59
|
%
|
|
45,530
|
|
|
20,716
|
|
|
66,247
|
|
|
182,121
|
|
|
1.29
|
%
|
Koslowski,
Barbara
|
|
|
8,129
|
|
|
*
|
|
|
1,626
|
|
|
0
|
|
|
1,626
|
|
|
6,503
|
|
|
*
|
|
Kryszek,
Jakob
|
|
|
40,522
|
|
|
*
|
|
|
8,104
|
|
|
0
|
|
|
8,104
|
|
|
32,418
|
|
|
*
|
|
Lambert,
Patrick
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
0
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
Lane
A. & Gwen M. Bray Trust
(6)
|
|
|
386,997
|
|
|
4.03
|
%
|
|
68,298(7)
|
)
|
|
2,844
|
|
|
71,142
|
|
|
315,855
|
|
|
2.24
|
%
|
Lanza,
Costantio IRA Charles Schwab & Co., Inc. Custodian
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Larson,
Damian
|
|
|
14,320
|
|
|
*
|
|
|
2,864
|
|
|
0
|
|
|
2,864
|
|
|
11,456
|
|
|
*
|
|
Lavoy,
Thomas (5)
|
|
|
108,423
|
|
|
1.12
|
%
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
106,738
|
|
|
*
|
|
Lawrence
Family Trust (6)
|
|
|
888,529
|
|
|
9.28
|
%
|
|
177,706(7)
|
)
|
|
0
|
|
|
177,706
|
|
|
710,823
|
|
|
5.05
|
%
|
Le
Sueur, Charles
|
|
|
30,084
|
|
|
*
|
|
|
0
|
|
|
30,084
|
|
|
30,084
|
|
|
0
|
|
|
*
|
|
Lebowitz
Living Trust
|
|
|
142,188
|
|
|
1.48
|
%
|
|
28,438
|
|
|
0
|
|
|
28,438
|
|
|
113,750
|
|
|
1.19
|
%
|
Little,
John W. and Marina Zeiber
|
|
|
9,627
|
|
|
*
|
|
|
0
|
|
|
9,627
|
|
|
9,627
|
|
|
0
|
|
|
*
|
|
Livingston,
James P. & Keri Segna
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
0
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Lord,
Brandon
|
|
|
421
|
|
|
*
|
|
|
84
|
|
|
0
|
|
|
84
|
|
|
337
|
|
|
*
|
|
Lord,
Leonard L. and Patricia G.
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
MacKay,
Daniel P
|
|
|
18,015
|
|
|
*
|
|
|
3,603
|
|
|
0
|
|
|
3,603
|
|
|
14,412
|
|
|
*
|
|
MacPherson,
Carl D. III and MacPherson, Marcia K. Revocable Living
Trust Dated
03/15/93
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Madsen,
James L.
|
|
|
166,706
|
|
|
1.73
|
%
|
|
27,130
|
|
|
0
|
|
|
27,130
|
|
|
139,576
|
|
|
1.15
|
%
|
Majchrowski,
Thomas
|
|
|
75,401
|
|
|
*
|
|
|
15,080
|
|
|
0
|
|
|
15,080
|
|
|
60,321
|
|
|
*
|
|
Marlin
Hull LLC
|
|
|
179,422
|
|
|
*
|
|
|
179,422
|
|
|
0
|
|
|
179,422
|
|
|
0
|
|
|
*
|
|
Martin,
Leslie A
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Mason,
David Vere
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Mason,
Vere Karsdale
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Matsock,
Mark
|
|
|
54,271
|
|
|
*
|
|
|
10,950
|
|
|
43,321
|
|
|
54,271
|
|
|
0
|
|
|
*
|
|
McInnis,
Greg and Cynthia Family Trust
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
McKenna,
Jean
|
|
|
16,260
|
|
|
*
|
|
|
3,252
|
|
|
0
|
|
|
3,252
|
|
|
13,008
|
|
|
*
|
|
Meadow,
Stephen
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
0
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
Mebesius,
William
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Meyers
Associates, LP
|
|
|
29,348
|
|
|
*
|
|
|
0
|
|
|
29,348
|
|
|
29,348
|
|
|
0
|
|
|
*
|
|
Miller,
Thomas F.
|
|
|
289,159
|
|
|
3.02
|
%
|
|
289,159
|
|
|
0
|
|
|
289,159
|
|
|
0
|
|
|
*
|
|
Moore,
Terry R
|
|
|
15,427
|
|
|
*
|
|
|
6,469
|
|
|
995
|
|
|
7,465
|
|
|
7,962
|
|
|
*
|
|
Moseley,
Gerard F.
|
|
|
9,526
|
|
|
*
|
|
|
0
|
|
|
1,905
|
|
|
1,905
|
|
|
7,621
|
|
|
*
|
|
Moss,
Lynette F.
|
|
|
8,424
|
|
|
*
|
|
|
0
|
|
|
8,424
|
|
|
8,424
|
|
|
0
|
|
|
*
|
|
Mountain
View Asset Management
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Mountain
View Opportunistic Growth Fund LP
|
|
|
44,223
|
|
|
*
|
|
|
30,745
|
|
|
0
|
|
|
30,745
|
|
|
13,478
|
|
|
*
|
|
Muldoon,
William G and Janet L
|
|
|
100,930
|
|
|
1.05
|
%
|
|
26,022
|
|
|
26,565
|
|
|
52,587
|
|
|
48,343
|
|
|
*
|
|
Murphy,
Tom
|
|
|
3,369
|
|
|
*
|
|
|
674
|
|
|
0
|
|
|
674
|
|
|
2,695
|
|
|
*
|
|
Newman,
Bruce W. & Jeannie G.
|
|
|
16,587
|
|
|
*
|
|
|
1,422
|
|
|
1,896
|
|
|
3,317
|
|
|
13,270
|
|
|
*
|
|
Nichols,
Dale and Kathyrn E. Kaser
|
|
|
17,772
|
|
|
*
|
|
|
0
|
|
|
3,554
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Oak
Ridge Financial Services Group, Inc.
|
|
|
3,285
|
|
|
*
|
|
|
0
|
|
|
3,285
|
|
|
3,285
|
|
|
0
|
|
|
*
|
|
Oliver,
Marlene
|
|
|
58,322
|
|
|
*
|
|
|
0
|
|
|
44,002
|
|
|
44,002
|
|
|
14,320
|
|
|
*
|
|
Olson,
Claire A & Mary Ann
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
0
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Onwuegbusi,
Charles
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Ott,
Suzann J & Dennis L.
|
|
|
35,546
|
|
|
*
|
|
|
7,109
|
|
|
0
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Oystacher,
Igor
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Palasota,
Vince
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
Palitz,
Louis and Ruth
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
0
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Peterson,
Jerry
|
|
|
38,326
|
|
|
*
|
|
|
38,326
|
|
|
0
|
|
|
38,326
|
|
|
0
|
|
|
*
|
|
Pinnacle
International Holdings LLC
|
|
|
177,736
|
|
|
1.82
|
%
|
|
0
|
|
|
35,547
|
|
|
35,547
|
|
|
142,189
|
|
|
1.01
|
%
|
Press,
Richard
|
|
|
227,652
|
|
|
2.38
|
%
|
|
45,530
|
|
|
0
|
|
|
45,530
|
|
|
182,122
|
|
|
1.29
|
%
|
Quatsch
Ventures, LLC (5)
|
|
|
84,236
|
|
|
*
|
|
|
0
|
|
|
84,236
|
|
|
84,236
|
|
|
0
|
|
|
*
|
|
Reynolds,
J. Scott
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Robert
Furney Living Trust
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Roberts,
Cory B.
|
|
|
1,263
|
|
|
*
|
|
|
252
|
|
|
0
|
|
|
252
|
|
|
1,011
|
|
|
*
|
|
Roberts,
Elizabeth
|
|
|
1,263
|
|
|
*
|
|
|
253
|
|
|
0
|
|
|
253
|
|
|
1,011
|
|
|
*
|
|
Roberts,
Joshua
|
|
|
2,947
|
|
|
*
|
|
|
589
|
|
|
0
|
|
|
589
|
|
|
2,358
|
|
|
*
|
|
Roberts,
Donald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Roberts,
Leslie and Rex Armstrong
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Rogers,
Philip and Stephanie (9)
|
|
|
8,245
|
|
|
*
|
|
|
8,245
|
|
|
0
|
|
|
8,245
|
|
|
0
|
|
|
*
|
|
Roman,
Patrick and Nichole
|
|
|
1,052
|
|
|
*
|
|
|
210
|
|
|
0
|
|
|
210
|
|
|
842
|
|
|
*
|
|
Ronald
L and Susan R. Kathren Trust
|
|
|
5,171
|
|
|
*
|
|
|
0
|
|
|
5,171
|
|
|
5,171
|
|
|
0
|
|
|
*
|
|
Root,
R. William, Jr.
|
|
|
76,157
|
|
|
*
|
|
|
37,131
|
|
|
0
|
|
|
37,131
|
|
|
39,026
|
|
|
*
|
|
Roozen,
Richard and Jaynie
|
|
|
5,474
|
|
|
*
|
|
|
5,474
|
|
|
0
|
|
|
5,474
|
|
|
0
|
|
|
*
|
|
Rothstein,
Alan F.
|
|
|
35,546
|
|
|
*
|
|
|
7,109
|
|
|
0
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Rothstein,
Lawrence R. and Deborah E.
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Rowland,
Chris C.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Russell,
Jerry L.
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
S
& J Veal, Inc.
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Safdi
Investments Limited Partnership
|
|
|
62,921
|
|
|
*
|
|
|
34,484
|
|
|
0
|
|
|
34,484
|
|
|
28,437
|
|
|
*
|
|
Saito,
Dr. Robert N.
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
0
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Sanders
Family Limited Partnership III
|
|
|
28,880
|
|
|
*
|
|
|
3,369
|
|
|
12,034
|
|
|
15,403
|
|
|
13,477
|
|
|
*
|
|
Sanders,
Vernon
|
|
|
41,275
|
|
|
*
|
|
|
8,255
|
|
|
0
|
|
|
8,255
|
|
|
33,020
|
|
|
*
|
|
Scallen,
Thomas K.(9)
|
|
|
329,942
|
|
|
3.44
|
%
|
|
329,942
|
|
|
0
|
|
|
329,942
|
|
|
0
|
|
|
*
|
|
Schatzmair,
Ralph
|
|
|
33,091
|
|
|
*
|
|
|
4,211
|
|
|
12,034
|
|
|
16,245
|
|
|
16,846
|
|
|
*
|
|
Schenter,
Robert
|
|
|
218,860
|
|
|
2.27
|
%
|
|
35,489
|
|
|
41,417
|
|
|
76,905
|
|
|
141,955
|
|
|
1.01
|
%
|
Schipfer,
John D., Jr.
|
|
|
5,263
|
|
|
*
|
|
|
1,053
|
|
|
0
|
|
|
1,053
|
|
|
4,210
|
|
|
*
|
|
Schloz
Family 1998 Trust
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Schloz,
Stanley Roth IRA
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
0
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
Schramm,
Margaret
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Schreifels,
Donald B
|
|
|
40,914
|
|
|
*
|
|
|
3,369
|
|
|
24,067
|
|
|
27,437
|
|
|
13,477
|
|
|
*
|
|
Ruth
Schwartz Trust
|
|
|
49,766
|
|
|
*
|
|
|
4,977
|
|
|
4,976
|
|
|
9,953
|
|
|
39,813
|
|
|
*
|
|
Schwartz,
Benjamin, MD, PC
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Schwartz,
Jacob
|
|
|
13,357
|
|
|
*
|
|
|
10,950
|
|
|
2,407
|
|
|
13,357
|
|
|
13,357
|
|
|
*
|
|
Segna,
Donald R & Joan F. (6)
|
|
|
511,213
|
|
|
5.34
|
%
|
|
96,515(7
|
)
|
|
0
|
|
|
96,515
|
|
|
414,638
|
|
|
2.94
|
%
|
Segna,
Jan M
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Segna,
Todd D. & Deborah L.J. Chew
|
|
|
21,327
|
|
|
*
|
|
|
0
|
|
|
4,265
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
Selma
Teicher Trust
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Shimek,
Chad J.
|
|
|
6,017
|
|
|
*
|
|
|
0
|
|
|
6,017
|
|
|
6,017
|
|
|
0
|
|
|
*
|
|
Shukov,
George
|
|
|
227,652
|
|
|
2.38
|
%
|
|
45,530
|
|
|
0
|
|
|
45,530
|
|
|
182,122
|
|
|
1.29
|
%
|
Siddall,
John W.
|
|
|
54,752
|
|
|
*
|
|
|
54,752
|
|
|
0
|
|
|
54,752
|
|
|
0
|
|
|
*
|
|
Sidibe,
Aissata
|
|
|
35,546
|
|
|
*
|
|
|
0
|
|
|
7,109
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Silverman,
Anthony
|
|
|
682,052
|
|
|
6.93
|
%
|
|
422,323
|
|
|
259,729
|
|
|
682,052
|
|
|
0
|
|
|
*
|
|
Silverman,
Kay
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Silverman,
Kay S. Revocable Trust
|
|
|
32,851
|
|
|
*
|
|
|
32,851
|
|
|
0
|
|
|
32,851
|
|
|
0
|
|
|
*
|
|
Singleton,
Julie
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Smith,
Albert
|
|
|
121,447
|
|
|
1.27
|
%
|
|
21,789
|
|
|
2,500
|
|
|
24,289
|
|
|
97,158
|
|
|
*
|
|
Smith,
Thomas S. and Sheila T.
|
|
|
17,828
|
|
|
*
|
|
|
2,844
|
|
|
3,610
|
|
|
6,454
|
|
|
11,374
|
|
|
*
|
|
Source
Capital Group, Inc.
|
|
|
9,857
|
|
|
*
|
|
|
0
|
|
|
9,857
|
|
|
9,857
|
|
|
0
|
|
|
*
|
|
Stack,
Peter R and Judy J
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Stealth
Investments, Inc.
|
|
|
35,800
|
|
|
*
|
|
|
27,376
|
|
|
8,424
|
|
|
35,800
|
|
|
0
|
|
|
*
|
|
Stenson,
Calvin B.
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Sterne
Agee and Leach, Inc. C/F Jill Ryan IRA
|
|
|
5,474
|
|
|
*
|
|
|
5,474
|
|
|
0
|
|
|
5,474
|
|
|
0
|
|
|
*
|
|
Sterne
Agee and Leach, Inc. C/F Robert Ryan IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Sterne
Agee Leach FBO Barry K Griffith IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Sterne
Agee Leach, Inc C/F Paul E Ruecker IRA Rollover
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Sterne,
Agee & Leach, IPO C/F Robert Ryan SEP IRA
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
Stewart,
James P. and Patricia A.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
0
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Stiller,
David L & Bonita L.
|
|
|
54,740
|
|
|
*
|
|
|
2,844
|
|
|
8,104
|
|
|
10,948
|
|
|
43,792
|
|
|
*
|
|
Stokes,
William J.
|
|
|
78,052
|
|
|
*
|
|
|
15,610
|
|
|
0
|
|
|
15,610
|
|
|
62,442
|
|
|
*
|
|
Strain,
Audrey
|
|
|
4,975
|
|
|
*
|
|
|
0
|
|
|
995
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Swanberg,
Daniel L. & Joni A.
|
|
|
9,479
|
|
|
*
|
|
|
1,896
|
|
|
0
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Swanberg,
David J. and Janet C. (5)
(6)
|
|
|
290,235
|
|
|
3.03
|
%
|
|
55,203(7
|
)
|
|
2,844
|
|
|
58,047
|
|
|
232,188
|
|
|
1.65
|
%
|
The
Alan Gess Living Trust, UTD 02/03/05
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
0
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
The
Anderson Family Trust UTD 12/20/93
|
|
|
21,059
|
|
|
*
|
|
|
4,212
|
|
|
0
|
|
|
4,212
|
|
|
16,847
|
|
|
*
|
|
The
Bates Revocable Trust
|
|
|
37,144
|
|
|
*
|
|
|
6,283
|
|
|
0
|
|
|
6,283
|
|
|
30,861
|
|
|
*
|
|
The
Lanzer Revocable Living Trust
|
|
|
18,051
|
|
|
*
|
|
|
0
|
|
|
18,051
|
|
|
18,051
|
|
|
0
|
|
|
*
|
|
The
Nancy R. McCormick Family Trust U/A dated June 14, 2002
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
The
Smart Family Trust
|
|
|
10,450
|
|
|
*
|
|
|
6,469
|
|
|
0
|
|
|
6,469
|
|
|
3,981
|
|
|
*
|
|
Thomas,
Cam
|
|
|
56,875
|
|
|
*
|
|
|
11,375
|
|
|
0
|
|
|
11,375
|
|
|
45,500
|
|
|
*
|
|
Thompson,
April
|
|
|
4,975
|
|
|
*
|
|
|
995
|
|
|
0
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Thompson,
Karen (6)
|
|
|
27,192
|
|
|
*
|
|
|
4,293(7
|
)
|
|
0
|
|
|
4,293
|
|
|
22,899
|
|
|
*
|
|
Thompson,
Randy
|
|
|
4,975
|
|
|
*
|
|
|
995
|
|
|
0
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Thompson,
William and Karen Trust (6)
|
|
|
14,218
|
|
|
*
|
|
|
0
|
|
|
2,844
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
TTR
Properties, LLC
|
|
|
48,135
|
|
|
*
|
|
|
0
|
|
|
48,135
|
|
|
48,135
|
|
|
0
|
|
|
*
|
|
Turchetta,
Anthony J
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
0
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Turnbull,
Timothy L.
|
|
|
8,530
|
|
|
*
|
|
|
1,706
|
|
|
0
|
|
|
1,706
|
|
|
6,824
|
|
|
*
|
|
UBS
Financial Services IRA FBO Robert R Kauffman (6)
|
|
|
32,851
|
|
|
*
|
|
|
32,851
|
|
|
0
|
|
|
32,851
|
|
|
0
|
|
|
*
|
|
Van
Benthem, Heather
|
|
|
12,034
|
|
|
*
|
|
|
0
|
|
|
12,034
|
|
|
12,034
|
|
|
0
|
|
|
*
|
|
Van
Leeuwen, John E. and Christine
|
|
|
7,220
|
|
|
*
|
|
|
0
|
|
|
7,220
|
|
|
7,220
|
|
|
0
|
|
|
*
|
|
Vencore
LLC
|
|
|
5,692
|
|
|
*
|
|
|
0
|
|
|
5,692
|
|
|
5,692
|
|
|
0
|
|
|
*
|
|
Viereck,
Wayne R. and Patricia A.
|
|
|
4,814
|
|
|
*
|
|
|
0
|
|
|
4,814
|
|
|
4,814
|
|
|
0
|
|
|
*
|
|
Charles
Schwab & Company, Inc., Custodian, Vista Mortgage IRA Services,
Inc.
401(k) FBO James Scannell
|
|
|
6,980
|
|
|
*
|
|
|
0
|
|
|
6,980
|
|
|
6,980
|
|
|
0
|
|
|
*
|
|
Waters,
Bryan
|
|
|
18,051
|
|
|
*
|
|
|
0
|
|
|
18,051
|
|
|
18,051
|
|
|
0
|
|
|
*
|
|
Weber,
Ronald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Weinstein
Inter-Vivos Trust Agreement Lawrence and Gloria Weinstein
|
|
|
24,067
|
|
|
*
|
|
|
0
|
|
|
24,067
|
|
|
24,067
|
|
|
0
|
|
|
*
|
|
Weinstein,
Ronald A 2004 Living Trust
|
|
|
9,479
|
|
|
*
|
|
|
0
|
|
|
1,896
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Weinstein,
Ronald Alan and Cathy Lynn
|
|
|
61,799
|
|
|
*
|
|
|
0
|
|
|
21,987
|
|
|
21,987
|
|
|
39,812
|
|
|
*
|
|
West,
Ron H.
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
0
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Whalen,
Ryan and Jennifer
|
|
|
1,052
|
|
|
*
|
|
|
210
|
|
|
0
|
|
|
210
|
|
|
842
|
|
|
*
|
|
Whitehead,
David L and Donna F.
|
|
|
39,672
|
|
|
*
|
|
|
21,900
|
|
|
3,554
|
|
|
25,454
|
|
|
14,218
|
|
|
*
|
|
Wilkie,
David J
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
0
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Wynnjam
Corp.
|
|
|
107,057
|
|
|
1.11
|
%
|
|
10,950
|
|
|
96,107
|
|
|
107,057
|
|
|
0
|
|
|
*
|
|
Zaragosa,
Ernesto
|
|
|
16,847
|
|
|
*
|
|
|
|
|
|
16,847
|
|
|
16,847
|
|
|
0
|
|
|
*
|
|
Zielke,
David C. and Diane M.
|
|
|
34,123
|
|
|
*
|
|
|
6,825
|
|
|
0
|
|
|
6,825
|
|
|
27,298
|
|
|
*
|
|
Zimmerman,
Paul
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
0
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
12,215,151
|
|
|
86.73
|
%
|
|
3,701,028
|
|
|
1,754,141
|
|
|
5,441,022
|
|
|
6,774,129
|
|
|
61.37
|
%
|
(
(1) |
The
number and percentage of shares beneficially owned is determined
in
accordance with Rule 13d-3 of the Securities Exchange Act
of 1934, as
amended, and the information is not necessarily indicative
of beneficial
ownership for any other purpose. Under such rule, beneficial
ownership
includes any shares as to which the selling shareholder
has sole or shared
voting power or investment power and also any shares that
the selling
shareholder has the right to acquire within 60 days.
|
(2)
|
The
actual number of shares of common stock offered in this prospectus,
and
included in the registration statement of which this prospectus
is a part,
includes such additional number of shares of common stock as
may be issued
or issuable upon conversion of the convertible debentures by
reason of any
stock split, stock dividend or similar transaction involving
the common
stock, in accordance with Rule 416 under the Securities Act
of 1933, as
amended.
|
(3) |
This
column includes all shares of common stock issuable upon conversion
of
preferred stock and convertible debentures and exercise of
options and
warrants, as applicable, held by the named selling shareholder.
|
(4) |
Assumes
that all securities registered will be sold.
|
(5) |
These
selling shareholders are our executive officers and directors,
or are
entities controlled by our executive officers and
directors.
|
(6) |
These
selling shareholders are executive officers and directors of
our
subsidiary, or are entities controlled by the executive officers
and
directors of our subsidiary.
|
(7) |
Indicates
shares subject to lock-up through July 28, 2006.
|
(8) |
233,333
of these shares are subject to lock-up through July 28, 2006.
|
(9) |
These
selling shareholders are our former executive officers and
directors.
|
We
are
registering certain of the shares listed above pursuant to contractual
registration obligations. We entered into a Registration Rights Agreement
dated
June 30, 2005 with certain shareholders and debenture holders, which
provided
certain demand and piggyback registration rights. Our subsidiary entered
into a
Registration Rights Agreement dated October 15, 2004, the obligations
of which
we have assumed, pursuant to which certain shareholders (then shareholders
of
our subsidiary) were granted certain piggyback registration rights. In
addition
to these contractual registration obligations, our Board of Directors,
at its
October 5, 2005 meeting, voted in favor of registering 20% of all shares
of
common stock acquired by former IsoRay Medical shareholders on or before
October
1, 2004, 20% of all other securities that could be converted or exercised
into
common stock and were acquired by former IsoRay Medical shareholders
on or
before October 1, 2004, and 100% of all options granted under the Amended
and
Restated 2005 Stock Option Plan that were not registered in the Company’s Form
S-8 filed on August 19, 2005. In certain instances shareholders are required
to
affirmatively elect to have their shares included in this registration
statement, and we may amend the above list of selling shareholders (through
an
amendment to this prospectus) to remove shareholders who elect not to
register
their shares. In addition, any holders of convertible debentures who
do not
convert their debentures into common stock by delivering a conversion
notice to
the Company on or before December 31, 2005 will be removed, pursuant
to the
Company's Registration Rights Agreement with these debenture
holders.
PLAN
OF DISTRIBUTION
The
common stock offered by this prospectus is being offered by the selling
shareholders. The common stock may be sold or distributed from
time to
time by the selling shareholders directly to one or more purchasers or
through
brokers, dealers or underwriters who may act solely as agents at market
prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the common stock offered by this prospectus may be effected
in one
or more of the following methods:
· |
ordinary
brokers’ transactions,
|
· |
through
brokers, dealers, or underwriters who may act solely as agents,
|
· |
“at
the market” into an existing market for the common stock,
|
· |
in
other ways not involving market makers or established trading
markets,
including direct sales to purchasers or sales effected through
agents,
|
· |
in
privately negotiated transactions, and
|
· |
any
combination of the foregoing.
|
In
order
to comply with the securities laws of certain states, if applicable,
the shares
may be sold only through registered or licensed brokers or dealers. In
addition,
in certain states, the shares may not be sold unless they have been registered
or qualified for sale in the state or an exemption from the registration
or
qualification requirement is available and complied with.
The
selling shareholders may pledge their shares to their brokers under the
margin
provisions of customer agreements. If a selling shareholder defaults
on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by a selling shareholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer
acts as
agent for the purchaser of shares, from the purchaser) in amounts to
be
negotiated.
The
selling shareholders and any broker-dealers or agents that are involved
in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act of 1933, as amended, in connection with such sales. In
such
event, any commissions received by such broker-dealers or agents and
any profit
on the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act of 1933, as amended.
We
will
pay all of the expenses incident to the registration, offering, and sale
of the
shares to the public other than commissions or discounts of underwriters,
broker-dealers, or agents. We have also agreed to indemnify the selling
shareholders and related persons against specified liabilities, including
liabilities under the Securities Act.
While
they are engaged in a distribution of the shares included in this prospectus
the
selling shareholders are required to comply with Regulation M promulgated
under
the Securities Exchange Act of 1934, as amended. With certain exceptions,
Regulation M precludes the selling shareholders, any affiliated purchasers,
and
any broker-dealer or other person who participates in the distribution,
from
bidding for or purchasing, or attempting to induce any person to bid
for or
purchase any security which is the subject of the distribution until
the entire
distribution is complete. Regulation M also prohibits any bids or purchases
made
in order to stabilize the price of a security in connection with the
distribution of that security. All of the foregoing may affect the marketability
of the shares offered by this prospectus.
The
selling shareholders may also sell shares under Rule 144 promulgated
under the
Securities Act of 1933, as amended, rather than selling under this prospectus,
if eligible to do so. This offering will terminate on the date that all
shares
offered by this prospectus have been sold by the selling shareholders
or are
eligible for sale under Rule 144(k). In general, under Rule 144
as
currently in effect, a person (or persons whose shares are required to
be
aggregated) who has owned shares for at least one year would be entitled
to sell
within any three-month period a number of shares that does not exceed
the
greater of (i) 1% of the number of shares of our common stock then outstanding
(which is equal to approximately 97,670 shares of common stock as of
the date of
this filing) or (ii) the average weekly trading volume of our shares
of common
stock during the four calendar weeks preceding the filing of a Form 144
with
respect to such sale. Under Rule 144(k), a person who is not deemed to
have been
our affiliate at any time during the three months preceding a sale, and
who has
owned the shares proposed to be sold for at least two years, is entitled
to sell
his shares without complying with the manner of sale, public information,
volume
limitation or notice provisions of Rule 144.
The
Company's Articles of Incorporation provide that the Company has the
authority
to issue 200 million shares of capital stock, which are currently divided
into
two classes as follows: 194 million shares of common stock, par value
of $0.001
per share; and 6 million shares of preferred stock, also with a par value
of
$0.001 per share. As of November 6, 2005, the Company had 9,767,026 shares
of
common stock and 745,762 shares of Series B preferred stock outstanding.
Voting.
Holders
of the common stock are entitled to one vote per share on all matters
to be
voted on by the Company's shareholders. The Company's bylaws provide
that a
majority of the outstanding shares of the corporation entitled to vote
constitute a quorum at a meeting of the shareholders.
Dividends.
The
Company's Board of Directors, in its sole discretion, may declare and
pay
dividends on the common stock, payable in cash or other consideration,
out of
funds legally available, if all dividends due on the preferred stock
have been
declared and paid. The Company has not paid any cash dividends on its
common
stock and does not plan to pay any cash dividends on its common stock
for the
foreseeable future.
Liquidation,
Subdivision, or Combination.
In the
event of any liquidation, dissolution or winding up of the Company or
upon the
distribution of its assets, all assets and funds remaining after payment
in full
of the Company's debts and liabilities, and after the payment to holders
of any
then outstanding preferred stock of the full preferential amounts to
which they
were entitled, would be divided and distributed among holders of the
common
stock.
Anti-Takeover
Effects Of Provisions Of The Articles Of Incorporation.
The
authorized but unissued shares of our common and preferred stock are
available
for future issuance without our shareholders’ approval. These additional shares
may be utilized for a variety of corporate purposes including but not
limited to
future public or direct offerings to raise additional capital, corporate
acquisitions and employee incentive plans. The issuance of such shares
may also
be used to deter a potential takeover of IsoRay that may otherwise be
beneficial
to shareholders by diluting the shares held by a potential suitor or
issuing
shares to a shareholder that will vote in accordance with IsoRay’s Board of
Directors’ desires. A takeover may be beneficial to shareholders because, among
other reasons, a potential suitor may offer shareholders a premium for
their
shares of stock compared to the then-existing market price.
Keller
Rohrback, PLC, Phoenix, Arizona will issue an opinion with respect to
the
validity of the shares of common stock being offered hereby. In exchange
for
consulting services, Quatsch Ventures, LLC, an entity controlled by Stephen
Boatwright, one of the Company's directors, received options to purchase
84,236
shares of our common stock in 2004. Mr. Boatwright is a member of Keller
Rohrback, PLC, which provides legal services to the Company and IsoRay
Medical.
During IsoRay Medical’s fiscal year ended June 30, 2005, IsoRay Medical paid
Keller Rohrback, PLC and Gammage & Burnham, PLC (of which Mr. Boatwright was
a partner) approximately $285,000 for legal services.
EXPERTS
Our
audited financial statements for the fiscal years ended June 30, 2005
and
September 30, 2004 have been audited by S.W. Hatfield, CPA.
Our
subsidiary's audited financial statements for the fiscal years ended
June 30,
2005 and June 30, 2004 have been audited by DeCoria, Maichel & Teague, P.S.,
independent public accountants. The report of each of these registered
public accounting firms, which appears elsewhere herein, includes an
explanatory
paragraph as to our ability to continue as a going concern. Our
financial
statements are included in reliance upon such reports and upon the authority
of
such firms as experts in auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
None.
FURTHER
INFORMATION
We
are
subject to the reporting requirements of the Securities Exchange Act
of 1934, as
amended, and file reports, proxy statements and other information with
the
Securities and Exchange Commission. These reports, proxy statements
and
other information may be inspected and copied at the public reference
facilities
maintained by the Securities and Exchange Commission at 100 F Street,
N.E., Room
1580, Washington, D.C. 20549 and at the Securities and Exchange Commission’s
regional offices. You can obtain copies of these materials from
the Public
Reference Section of the Securities and Exchange Commission upon payment
of fees
prescribed by the Securities and Exchange Commission. You may
obtain
information on the operation of the Public Reference Room by calling
the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities
and
Exchange Commission’s Web site contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Securities and Exchange Commission. The address of that
site is
www.sec.gov.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Index
to Financial Statements
|
Page |
|
|
Report
of Registered Independent Certified Public Accounting
Firm
|
|
F-2
|
|
|
|
|
|
Financial
Statements
|
|
|
|
Balance
Sheets
|
|
|
|
as
of June 30, 2005, September 30, 2004 and 2003
|
|
F-3
|
|
|
|
|
|
Statements
of Operations and Comprehensive Income (Loss)
|
|
|
|
for
the nine months ended June 30, 2005 and
|
|
|
|
for
the years ended September 30, 2004 and 2003
|
|
F-4
|
|
|
|
|
|
Statement
of Changes in Shareholders' Equity
|
|
|
|
for
the nine months ended June 30, 2005 and
|
|
|
|
for
the years ended September 30, 2004 and 2003
|
|
F-5
|
|
|
|
|
|
Statements
of Cash Flows
|
|
|
|
for
the nine months ended June 30, 2005 and
|
|
|
|
for
the years ended September 30, 2004 and 2003
|
|
F-6
|
|
|
|
|
|
Notes
to Financial Statements
|
|
F-7
|
|
REPORT
OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING
FIRM
Board
of
Directors and Stockholders
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
We
have
audited the accompanying balance sheets of IsoRay, Inc. (formerly Century
Park
Pictures Corporation) (a Minnesota corporation) as of June 30, 2005,
September
30, 2004 and 2003 and the related statements of operations and comprehensive
loss, changes in shareholders' equity and cash flows for the nine months
ended
June 30, 2005 and for each of the years ended September 30, 2004 and
2003,
respectively. These financial statements are the responsibility of the
Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as
evaluating the overall financial statement presentation. We believe that
our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of IsoRay, Inc. (formerly Century
Park
Pictures Corporation) as of June 30, 2005, September 30, 2004 and 2003
and the
results of its operations and its cash flows for the nine months ended
June 30,
2005 and for each of the years ended September 30, 2004 and 2003, respectively,
in conformity with accounting principles generally accepted in the United
States
of America.
The
accompanying financial statements have been prepared assuming that the
Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company completed a reverse acquisition transaction in
July 2005
with a development stage enterprise, which has yet to fully implement
its
business plan and develop a sustainable revenue stream. These circumstances
create substantial doubt about the Company's ability to continue as a
going
concern. The financial statements do not contain any adjustments that
might
result from the outcome of these uncertainties.
S.
W.
HATFIELD, CPA
Dallas,
Texas
September
16, 2005
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Balance
Sheets
June
30,
2005, September 30, 2004 and 2003
|
|
|
|
June
30,
2005
|
|
September
30,
2004
|
|
September
30,
2003
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
on hand and in bank
|
|
|
|
|
$
|
32,587
|
|
$
|
-
|
|
$
|
-
|
|
Total
current assets
|
|
|
|
|
|
32,587
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
|
|
|
-
|
|
|
926
|
|
|
926
|
|
Rent
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
|
|
|
$
|
32,587
|
|
$
|
926
|
|
$
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders’ Equity (Deficit)
Current
Liabilities
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
100,000
|
|
Accounts
payable - trade
|
|
|
21,355
|
|
|
395
|
|
|
-
|
|
Accrued
officer compensation
|
|
|
-
|
|
|
354,500
|
|
|
354,500
|
|
Accrued
interest payable
|
|
|
-
|
|
|
-
|
|
|
73,714
|
|
Other
accrued expenses
|
|
|
-
|
|
|
-
|
|
|
9,027
|
|
Advances
from shareholder
|
|
|
-
|
|
|
37,744
|
|
|
27,887
|
|
Total
current liabilities
|
|
|
21,355
|
|
|
392,639
|
|
|
565,128
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
Shareholders’
Equity (Deficit)
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value
|
|
|
|
|
|
|
|
6,000,000
shares authorized
|
|
|
|
|
|
|
|
1,000,000
shares allocated to Series A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
5,000,000
shares allocated to Series B
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock - $0.001 par value.
|
|
|
|
|
|
|
|
|
|
|
194,000,000
shares authorized.
|
|
|
|
|
|
|
|
|
|
|
2,498,319,
2,414,985 and 2,099,554 shares issued
and outstanding, respectively
|
|
|
2,498
|
|
|
2,415
|
|
|
2,099
|
|
Additional
paid-in capital
|
|
|
7,003,100
|
|
|
6,874,610
|
|
|
6,778,194
|
|
Accumulated
deficit
|
|
|
(6,994,366
|
)
|
|
(7,268,738
|
)
|
|
(7,344,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity (deficit)
|
|
|
11,232
|
|
|
(391,713
|
)
|
|
(564,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders’
Equity (Deficit)
|
|
$
|
32,587
|
|
$
|
926
|
|
$
|
926
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statements
of Operations and Comprehensive Loss
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
Nine
months
ended
June
30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
30,128
|
|
|
9,095
|
|
|
19,022
|
|
Officer
compensation
|
|
|
(304,500
|
)
|
|
-
|
|
|
-
|
|
Total
expenses
|
|
|
(274,372
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from operations
|
|
|
274,372
|
|
|
(9,095
|
)
|
|
(19,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
(2,104
|
)
|
|
(41,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before provision for
income taxes and extraordinary item
|
|
|
274,372
|
|
|
(11,199
|
)
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before extraordinary item
|
|
|
274,372
|
|
|
(11,199
|
)
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Extraordinary
item
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of notes payable and
accrued interest, net of income taxes
|
|
|
-
|
|
|
86,956
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
274,372
|
|
|
75,757
|
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss)
|
|
$
|
274,372
|
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) per weighted-average share
of common stock outstanding, computed
on Net Loss - basic and fully diluted
|
|
|
|
|
|
|
|
|
|
|
From
continuing operations
|
|
$
|
(0.11
|
)
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
From
extraordinary item
|
|
|
0.00
|
|
|
0.04
|
|
|
0.00
|
|
|
|
$
|
(0.11
|
)
|
$
|
(0.03
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of
common stock outstanding
|
|
|
2,429,027
|
|
|
2,360,690
|
|
|
804,619
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statement
of Changes in Shareholders’ Equity
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional
paid-in
capital
|
|
Accumulated
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at October 1, 2002
|
|
|
9,886,641
|
|
$
|
9,887
|
|
$
|
6,191,566
|
|
$
|
(7,284,468
|
)
|
$
|
(1,083,015
|
)
|
Effect
of April 29, 2005 1-for-30
reverse stock split
|
|
|
(9,557,317
|
)
|
|
(9,558
|
)
|
|
9,558
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at October
1, 2002, as reset
|
|
|
329,324
|
|
|
329
|
|
|
6,201,124
|
|
|
(7,284,468
|
)
|
|
(1,083,015
|
)
|
Conversion
of notes payable and
accrued interest payable to
common stock
|
|
|
1,770,230
|
|
|
1,770
|
|
|
529,299
|
|
|
-
|
|
|
531,069
|
|
Forgiveness
of accrued interest
|
|
|
-
|
|
|
-
|
|
|
6,766
|
|
|
-
|
|
|
6,766
|
|
Contribution
of imputed interest on
suspended interest on notes
payable
|
|
|
-
|
|
|
-
|
|
|
41,005
|
|
|
-
|
|
|
41,005
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,027
|
)
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at September
30, 2003
|
|
|
2,099,554
|
|
|
2,099
|
|
|
6,778,194
|
|
|
(7,344,495
|
)
|
|
(564,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable and
accrued interest payable to
common stock
|
|
|
289,194
|
|
|
290
|
|
|
86,468
|
|
|
-
|
|
|
86,758
|
|
Contribution
of imputed interest on suspended
interest on notes payable
|
|
|
-
|
|
|
-
|
|
|
2,104
|
|
|
-
|
|
|
2,104
|
|
Common
stock issued for debt
conversion services
|
|
|
26,237
|
|
|
26
|
|
|
7,844
|
|
|
-
|
|
|
7,870
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75,757
|
|
|
75,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at September
30, 2004
|
|
|
2,414,985
|
|
|
2,415
|
|
|
6,874,610
|
|
|
(7,268,738
|
)
|
|
(391,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock for
cash
|
|
|
83,334
|
|
|
83
|
|
|
84,917
|
|
|
-
|
|
|
85,000
|
|
Contributed
capital
|
|
|
|
|
|
-
|
|
|
43,573
|
|
|
-
|
|
|
43,573
|
|
Net
income for the nine months
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
274,372
|
|
|
274,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June
30, 2005
|
|
|
2,498,319
|
|
$
|
2,498
|
|
$
|
7,003,100
|
|
$
|
(6,994,366
|
)
|
$
|
11,232
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statements
of Cash Flows
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
Nine
months
ended
June
30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
274,372
|
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
Adjustments
to reconcile net income to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of notes payable and accrued interest
|
|
|
-
|
|
|
(86,956
|
)
|
|
-
|
|
Consulting
fees paid with common stock
|
|
|
-
|
|
|
7,870
|
|
|
-
|
|
Contribution
of interest expense related to suspended
interest payable on notes payable
|
|
|
-
|
|
|
2,104
|
|
|
41,005
|
|
Increase
(Decrease) in Accounts
payable and other accrued expenses
|
|
|
(333,540
|
)
|
|
(8,632
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(59,168
|
)
|
|
(9,857
|
)
|
|
(19,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
85,000
|
|
|
-
|
|
|
-
|
|
Funds
advanced by officer/shareholder
|
|
|
6,735
|
|
|
9,857
|
|
|
19,022
|
|
Net
cash provided by financing activities
|
|
|
91,755
|
|
|
9,857
|
|
|
19,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
|
32,587
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
32,587
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Interest and Income Taxes
Paid
|
|
|
|
|
|
|
|
|
|
|
Interest
paid during the period
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Income
taxes paid (refunded)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements
Note
A - Organization and Description of Business
Century
Park Pictures Corporation (Company) was incorporated in 1983 in accordance
with
the Laws of the State of Minnesota.
In
prior
periods, the Company developed, produced and marketed various entertainment
properties, including without limitation, the intellectual product(s)
of
entities engaged in the motion picture, television, and theatrical state
productions, such as creative writers, producers and directors, for the
motion
picture, pay/cable and commercial television markets.
The
Company had no operations, assets or liabilities since its fiscal year
ended
September 30, 1999 through May 27, 2005.
On
May
27, 2005, the Company’s Board of Directors reallocated the Company’s authorized
capital stock into 2 categories with the designation of preferred stock.
The
effect of this action was to allocate the authorized aggregate 200,000,000
shares of capital stock into 194,000,000 shares of $0.001 par value Common
Stock
and 6,000,000 shares of $0.001 par value Preferred Stock. As filed with
the
State of Minnesota on June 29, 2005, the Board of Directors allocated
the
6,000,000 shares of Preferred Stock as follows: 1,000,000 shares as $0.001
par
value Class A Convertible Preferred Stock and 5,000,000 shares as $0.001
par
value Class B Convertible Preferred Stock. The effect of this action
is
reflected in the accompanying financial statements as of the first day
of the
first period presented.
On
May
27, 2005, the Company; a newly-formed, wholly-owned subsidiary, Century
Park
Transitory Subsidiary, Inc., a Delaware corporation (Merger Subsidiary)
, Thomas
Scallen and Anthony Silverman, shareholders of the Company, and IsoRay
Medical,
Inc., a Delaware corporation (IsoRay) entered into a Merger Agreement.
Pursuant
to the Merger Agreement, the Merger Subsidiary will be merged with and
into
IsoRay and IsoRay will become a wholly-owned subsidiary of the Company
(Merger).
In the Merger, the IsoRay stockholders are entitled to receive approximately
82%
of the then outstanding shares of common stock of the Company. The Merger
Agreement is subject to the satisfaction of certain conditions, including
the
approval of the Merger by stockholders of IsoRay representing a majority
of the
outstanding shares of common stock of IsoRay entitled to vote, which
occurred on
June 28, 2005, the granting of certain "piggy-back" and demand registration
rights to the purchasers of the certain debentures of IsoRay, Anthony
Silverman
and certain other affiliates of the Company, the agreements of the officers
and
directors of IsoRay to lock-up the shares of the Company received in
the Merger
for a period of one year from the closing of the Merger, the agreements
of
Thomas Scallen and Anthony Silverman to escrow certain shares of common
stock of
the Company, and the receipt by IsoRay from Anthony Silverman or his
associates
of One Million Dollars as the purchase price of certain securities of
IsoRay
before the closing.
On
July
28, 2005, the Merger contemplated by the Merger Agreement dated May 27,
2005 was
completed with the filing of a Certificate of Merger with the Secretary
of State
of Delaware, merging Century Park Transitory Subsidiary, Inc. into IsoRay
Medical, Inc. As a result of the Merger and pursuant to the Merger Agreement,
IsoRay Medical, Inc. became a wholly-owned subsidiary of the Company.
The
Company concurrently changed its name to IsoRay, Inc.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
A - Organization and Description of Business - Continued
The
Company issued shares of its common stock and shares of its preferred
stock to
holders of common and preferred stock of IsoRay Medical, Inc. at a rate
of
0.842362 share of the Company’s common stock for each share of IsoRay Medical,
Inc. stock. Options and warrants to purchase common and preferred stock
of
IsoRay Medical, Inc. will also be converted at the same rate into options
and
warrants to purchase common and preferred stock of the Company. At the
time of
the Merger and following its recent 1:30 reverse stock split, the Company
had
2,498,319 shares of common stock outstanding. Following the Merger, the
Company
has approximately 10,237,797 shares of common and preferred stock outstanding.
The total amount of shares outstanding, on a fully-diluted basis, post
merger
will be 13,880,822, which includes not only shares of common stock, but
also
shares of preferred stock, warrants, options and convertible debentures
that
could be exercised or converted into shares of common stock. Following
the
Merger, on a fully diluted basis, the shareholders of IsoRay Medical,
Inc. own
82% of the Company’s outstanding securities.
Note
B - Preparation of Financial Statements
The
acquisition of IsoRay on July 28, 2005, by the Company effected a change
in
control and was accounted for as a “reverse acquisition” whereby IsoRay is the
accounting acquirer for financial statement purposes. Accordingly, for
all
periods subsequent to July 28, 2005, the financial statements of the
Company
reflect the historical financial statements of IsoRay from the inception
of each
respective entity composing IsoRay Medical, Inc. at the July 28, 2005
change in
control transaction and the operations of the Company subsequent to the
July 28,
2005 transaction.
The
Company originally had a September 30 year-end. As a result of the July
28, 2005
reverse acquisition transaction, the Company’s Board of Directors changed
IsoRay, Inc.’s (formerly Century Park Pictures Corporation) year-end to
June 30 to correspond to the year end of its then-newly acquired
subsidiary, IsoRay Medical, Inc.
The
Company and its subsidiaries follow the accrual basis of accounting in
accordance with accounting principles generally accepted in the United
States of
America.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at the
date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Management
further acknowledges that it is solely responsible for adopting sound
accounting
practices, establishing and maintaining a system of internal accounting
control
and preventing and detecting fraud. The Company’s system of internal accounting
control is designed to assure, among other items, that 1) recorded transactions
are valid; 2) valid transactions are recorded; and 3) transactions are
recorded
in the proper period in a timely manner to produce financial statements
which
present fairly the financial condition, results of operations and cash
flows of
the Company for the respective periods being presented.
For
segment reporting purposes, the Company operated in only one industry
segment
during the periods represented in the accompanying financial statements
and
makes all operating decisions and allocates resources based on the best
benefit
to the Company as a whole.
Note
C - Going Concern Uncertainty
The
Company has effectively had no operations, assets or liabilities since
its
fiscal year ended September 30, 1999.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
C - Going Concern Uncertainty - Continued
The
Company had no operations, assets or liabilities since its fiscal year
ended
September 30, 1999 through June 28, 2005.
The
Company formed a new wholly-owned subsidiary, Century Park Transitory
Subsidiary, Inc., (a Delaware corporation) (Merger Corporation) to function
as a
merger subsidiary for the reverse acquisition of IsoRay Medical, Inc.,
a
Delaware corporation (IsoRay). On May 27, 2005, the Company, the Merger
Subsidiary and IsoRay entered into a Merger Agreement, dated May 27,
2005. On
July 28, 2005, the May 27, 2005 Merger Agreement was consummated with
the filing
of a Certificate of Merger with the Secretary of State of Delaware, merging
Century Park Transitory Subsidiary, Inc. into IsoRay Medical, Inc. As
a result
of the Merger and pursuant to the Merger Agreement, IsoRay Medical, Inc.
became
a wholly-owned subsidiary of the Company.
IsoRay
is
a development stage enterprise, and as such, has a limited operating
history and
its future success is subject to the expenses, risks and uncertainties
frequently encountered by companies in similar stages of development.
These
potential risks include failure to acquire adequate financing to fund
further
development of its products; failure to obtain and operate a production
facility; failure to successfully create a market for its products; and
other
risks and uncertainties.
Management’s
plans to raise additional financing include the sale of additional equity
or
borrowings. Management expects to obtain the necessary financing, however,
no
assurance can be given that such financing will be completed on terms
acceptable
to the Company. If the Company is not able to obtain additional financing,
the
development of the Company’s products could be delayed or suspended.
Note
D - Summary of Significant Accounting Policies
1. Cash
and
cash equivalents
For
Statement of Cash Flows purposes, the Company considers all cash on hand
and in
banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
2. Property
and equipment
Property
and equipment consists of furniture and fixtures and is stated at the
lower of
depreciated cost or net realizable value.
3. Income
Taxes
The
Company uses the asset and liability method of accounting for income
taxes. At
June 30, 2005, September 30, 2004 and 2003, respectively, the deferred
tax asset
and deferred tax liability accounts, as recorded when material to the
financial
statements, are entirely the result of temporary differences. Temporary
differences represent differences in the recognition of assets and liabilities
for tax and financial reporting purposes, primarily accumulated depreciation
and
amortization, allowance for doubtful accounts and vacation
accruals.
As
of
June 30, 2005, September 30, 2004 and 2003, the deferred tax asset related
to
the Company’s net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have
limited
net operating loss carryforwards available to offset financial statement
or tax
return taxable income in future periods as a result of any future change
in
control involving 50 percentage points or more of the issued and outstanding
securities of the Company.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
D - Summary of Significant Accounting Policies - Continued
4. Income
(Loss) per share
Basic
earnings (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted-average number of common
shares
outstanding during the respective period presented in our accompanying
financial
statements.
Fully
diluted earnings (loss) per share is computed similar to basic income
(loss) per
share except that the denominator is increased to include the number
of common
stock equivalents (primarily outstanding options and warrants).
Common
stock equivalents represent the dilutive effect of the assumed exercise
of the
outstanding stock options and warrants, using the treasury stock method,
at
either the beginning of the respective period presented or the date of
issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company’s net income (loss) position at the calculation
date.
At
June
30, 2005, September 30, 2004 and 2003, the Company has no outstanding
stock
warrants, options or convertible securities which could be considered
as
dilutive for purposes of the loss per share calculation.
Note
E - Fair Value of Financial Instruments
The
carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term
nature of
these items and/or the current interest rates payable in relation to
current
market conditions.
Interest
rate risk is the risk that the Company’s earnings are subject to fluctuations in
interest rates on either investments or on debt and is fully dependent
upon the
volatility of these rates. The Company does not use derivative instruments
to
moderate its exposure to interest rate risk, if any.
Financial
risk is the risk that the Company’s earnings are subject to fluctuations in
interest rates or foreign exchange rates and are fully dependent upon
the
volatility of these rates. The company does not use derivative instruments
to
moderate its exposure to financial risk, if any.
Note
F - Notes Payable
On
July
31, 2002, the Company’s Board of Directors and the respective noteholders
approved the extension of the ultimate maturity date of the notes through
December 3, 2003. In conjunction with the extension, the noteholders
agreed to
discontinue the accrual of interest subsequent to July 31, 2002.
The
effect of the discontinuance of interest accruals subsequent to July
31, 2002
will be charged to operations as a component of interest expense with
an offset
to contributed additional paid-in capital to recognize the economic effect
of
the suspended and forgiven interest on these notes in the respective
future
period.
On
June
25, 2003, noteholders aggregating $300,000 in outstanding principal and
$231,900
in accrued interest payable exercised their respective conversion rights
and
received an aggregate 53,106,900 pre-reverse split shares of restricted,
common
stock upon conversion.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
F - Notes Payable - Continued
On
December 3, 2003, the final ultimate maturity date, one remaining noteholder
exercised his conversion rights and converted approximately $50,000 in
principal
and $36,758 in accrued interest payable into 8,675,800 pre-reverse split
shares
of restricted, unregistered common stock.
On
December 3, 2003, upon the failure to timely convert or post a timely
claim for
repayment, the Company’s Board of Directors, acting upon the advice of legal
counsel, voided the remaining outstanding unconverted notes payable of
approximately $50,000 and the associated accrued interest of approximately
$36,956 and recognized a one-time gain on the technical forgiveness of
these
debts.
For
the
respective years ended September 30, 2004 and 2003, the Company has recognized
approximately $2,104 and $41,005 in additional paid-in capital for imputation
of
suspended interest on these notes.
Note
G - Related Party Transactions
Through
June 30, 2005, the Company’s former Chief Executive Officer advanced the Company
approximately $44,500 to support operations, settle outstanding trade
accounts
payable and provide working capital. The advance was repayable upon demand
and
is non-interest bearing and is unsecured. Effective June 30, 2005, with
the
anticipation of the consummation of the reverse acquisition transaction
with
IsoRay Medical, Inc., as previously discussed, these advances were forgiven
and
reclassified as additional paid-in capital in the accompanying financial
statements as of that date.
Through
December 31, 2004, the Company owed the Company's Chief Executive Officer
approximately $354,500 for cumulative accrued salary. During the quarter
ended
March 31, 2005, the Company’s former Chief Executive Officer forgave
approximately $304,500 in accrued salary for prior periods.
Note
H - Income Taxes
The
components of income tax (benefit) expense for the nine months ended
June 30,
2005 and for each of the years ended September 30, 2004 and 2003, respectively,
are as follows:
|
|
Nine
months ended
June
30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
- |
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
As
of
June 30, 2005, the Company has a Federal net operating loss carryforward
of
approximately $3,100,000 and a State net operating loss carryforward
of
approximately $790,000 to offset future taxable income. Subject to current
regulations, these carryforwards expire, if unused, through 2015. Due
to the
July 2005 business combination transaction, the utilization of these
carryforwards, if any, will be governed by the appropriate Federal and
State
statutes.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
H - Income Taxes - Continued
The
Company's income tax expense (benefit) for the nine months ended June
30, 2005
and for each of the years ended September 30, 2004 and 2003, respectively,
differed from the statutory federal rate of 34 percent as follows:
|
|
Nine
months
ended
June 30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
|
|
|
|
|
|
|
|
Statutory
rate applied to earnings (loss) before income taxes
|
|
$
|
93,300
|
|
$
|
25,750
|
|
$
|
(20,400
|
)
|
Increase
(decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
State
income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other,
including reserve for deferred tax asset
|
|
|
(93,300
|
)
|
|
(25,750
|
)
|
|
20,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Temporary
differences, consisting primarily of statutory differences between the
financial
statement carrying amounts and tax bases of assets and liabilities give
rise to
deferred tax assets and liabilities as of the nine months ended June
30, 2005
and each of the respective years ended September 30, 2004 and 2003.
|
|
Nine
months ended June 30, 2005
|
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended September 30, 2004
|
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
H - Income Taxes - Continued
|
|
Year
ended September 30, 2003
|
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
During
the nine months ended June 30, 2005 and for each of the years ended September
30, 2004 and 2003, respectively, the valuation allowance increased (decreased)
by approximately $-0-, $-0- and $-0-. Realization of deferred tax assets
is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be
available
to reduce taxable income.
Note
I - Preferred Stock Transactions
On
May
27, 2005, and filed with the State of Minnesota on July 27, 2005, the
Company’s
Board of Directors created two series of shares of Preferred Stock designated
as
Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock.
The Series A Convertible Preferred Stock (the Series A Stock) consists
of an
aggregate of 1,000,000 shares, $0.001 par value, and the Series B Convertible
Preferred Stock (Series B Stock) consists 5,000,000 shares, $0.001 par
value
(collectively, Preferred Stock). The Preferred Stock has preferences,
limitations and relative rights in preference to the holders of any other
stock
of the Company (Junior Stock).
Dividends
Dividends
shall be paid, out of funds legally available for that purpose, with
respect to
all outstanding shares of Series A Stock in an amount equal to ten percent
(10%)
per annum of the stated value per share of the Series A Stock, which
shall be
$1.20 per share. Such dividends shall only be paid or accrue through
March 31,
2007. Beginning April 1, 2007, no dividends shall be paid with respect
to the
outstanding shares of Series A Stock.
Dividends
shall be paid, out of funds legally available for that purpose, with
respect to
all outstanding shares of Series B Stock in an amount equal to fifteen
percent
(15%) per annum of the stated value per share of the Series B Stock,
which shall
be $1.20 per share (Dividend Payment Amount). Such dividends shall be
payable in
full on or before December 31st of each year the Series B Stock is outstanding
(Dividend Payment Date). Each such dividend shall be paid to the holders
of
record of the Series B Stock as their names appear on the share register
of the
Company on the date which is fifty (50) days preceding December 31st
of each
year (Record Date). If, on the Dividend Payment Date, the holders of
the Series
B Stock shall not have received the full dividends provided for, then
such
dividends shall cumulate, at the rate of 15% per annum on the Dividend
Payment
Amount, beginning to accrue on the Dividend Payment Date whether or not
earned
or declared, with additional dividends thereon for each succeeding year
during
which dividends shall remain unpaid. Unpaid dividends for any period
less than a
full year shall cumulate on a day-to-day basis and shall be computed
on the
basis of a 360-day year.
The
Company shall not declare or pay on any Junior Stock any dividend whatsoever,
whether in cash, property or otherwise (other than dividends payable
in shares
of the class or series upon which such dividends are declared or paid),
nor
shall the Company make any distribution on any Junior Stock, unless all
dividends to which the holders of
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Preferred Stock Transactions - Continued
Preferred
Stock shall have been entitled shall have been paid or declared and a
sum of
money sufficient for the payment thereof set apart.
Voting
Rights
Except
as
otherwise provided herein or by contract, or as required by law, the
Preferred
Stock shall be voted equally with the shares of the Common Stock and
not as a
separate class, at any annual or special meeting of stockholders of the
Company,
and may act by written consent in the same manner as the Common Stock,
in either
case upon the following basis: each share of Preferred Stock shall be
entitled
to such number of votes as shall be equal to the voting power of one
(1) share
of Common Stock at the time of the vote.
Notwithstanding
anything to the contrary in the Company's Articles of Incorporation or
Bylaws,
for so long as any shares of Preferred Stock remain outstanding, in addition
to
any other vote or consent required herein or by law, the vote or written
consent
of the holders of at least fifty percent (50%) of the outstanding Preferred
Stock shall be necessary for effecting or validating the following
actions:
(i) Any
amendment, alteration, waiver or repeal of any provision of the Articles
of
Incorporation or the Bylaws of the Company (including any filing of a
Certificate of Designation); or
(ii) Any
bankruptcy, insolvency, dissolution or liquidation of the Company.
In
addition to the vote or consent required above, the Company may not amend,
alter, waive or repeal any provisions of the Articles of Incorporation
or
Certificate of Designation which would have a material adverse effect
on the
rights, privileges or preferences granted to either the Series A Stock
or the
Series B Stock without the vote or written consent of the holders of
at least
fifty percent (50%) of the outstanding affected shares.
Liquidation
Rights
Upon
any
liquidation, dissolution, or winding up of the Company, whether voluntary
or
involuntary, the assets of the Company legally available for distribution,
if
any, shall be distributed ratably first, to the holders of the Series
A Stock,
second, to the holders of the Series B Stock and third, to the holders
of the
Common Stock.
The
following events shall be considered a liquidation under this
Section:
(i) any
consolidation or merger of the Company with or into any other corporation
or
other entity or person, or any other corporate reorganization, in which
the
stockholders of the Company immediately prior to such consolidation,
merger or
reorganization, own less than 50% of the Company's voting power immediately
after such consolidation, merger or reorganization, or any transaction
or series
of related transactions to which the Company is a party in which in excess
of
fifty percent (50%) of the Company's voting power is transferred, excluding
any
consolidation or merger effected exclusively to change the domicile of
the
Company (Acquisition); or
(ii) a
sale,
lease or other disposition of all or substantially all of the assets
of the
Company (Asset Transfer).
In
the
event of any liquidation event as defined, if the consideration received
by the
Company is other than cash, its value will be deemed its fair market
value as
determined in good faith by the Board. Any securities shall be valued
as
follows:
(i) Securities
not subject to investment letter or other similar restrictions on free
marketability:
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Preferred Stock Transactions - Continued
(A) If
traded
on a securities exchange or through the NASDAQ National Market, the value
shall
be deemed to be the average closing price of the securities on such quotation
system for the ten days prior to and including the date of closing;
(B) If
actively traded over-the-counter, the value shall be deemed to be the
closing
bid or sale price (whichever is applicable) as of the date of closing;
and
(C) If
there
is no active public market, the value shall be the fair market value
thereof, as
determined by the Board.
(ii) The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely
by
virtue of a stockholder's status as an affiliate or former affiliate)
shall be
to make an appropriate discount from the market value determined, as
defined
above, to reflect the approximate fair market value thereof, as determined
by
the Board.
Conversion
The
holders of the Preferred Stock shall have the following rights with respect
to
the conversion of the Preferred Stock into shares of Common Stock (Conversion
Rights):
Optional
Conversion
Any
outstanding shares of Preferred Stock may, at the option of the holder,
be
converted at any time into fully-paid and nonassessable shares of Common
Stock.
The number of shares of Common Stock to which a holder of Preferred Stock
shall
be entitled upon conversion shall be one (1) share of Common Stock for
each
share of Preferred Stock being converted (Preferred Stock Conversion
Rate). Such
initial Preferred Stock Conversion Rate shall be adjusted from time to
time as
defined in the Certificate of Designation.
Automatic
Conversion
Each
share of Preferred Stock shall automatically be converted into shares
of Common
Stock, based on the then-effective Preferred Stock Conversion Rate, immediately
upon the closing of a firmly underwritten public offering pursuant to
an
effective registration statement under the Securities Act of 1933, as
amended,
covering the offer and sale of Common Stock for the account of the Company
in
which the gross proceeds to the Company are at least $4,000,000. Upon
such
automatic conversion, any declared and unpaid dividends shall be paid
in
accordance with the appropriate provisions of Certificate of
Designation.
No
fractional shares of Common Stock shall be issued upon conversion of
Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable
upon
conversion of more than one share of Preferred Stock by a holder thereof
shall
be aggregated for purposes of determining whether the conversion would
result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of any fractional share,
the Company
shall, in lieu of issuing any fractional share, pay cash equal to the
product of
such fraction multiplied by the Common Stock's fair market value (as
determined
by the Board) on the date of conversion.
Reservation
of Stock Issuable Upon Conversion
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of effecting
the
conversion of the shares of the Preferred Stock, such number of its
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Preferred Stock Transactions - Continued
shares
of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number
of
authorized but unissued shares of Common Stock shall not be sufficient to
effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock
to
such number of shares as shall be sufficient for such purpose.
Adjustment
for Stock Splits and Combinations
If
the
Company shall at any time or from time to time after the filing date of the
Certificate of Designation (the Original Issue Date) effect a subdivision
of the
outstanding Common Stock without a corresponding subdivision of the Preferred
Stock, the Preferred Stock Conversion Rate in effect immediately before that
subdivision shall be proportionately adjusted. Conversely, if the Company
shall
at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares without
a
corresponding combination of the Preferred Stock, the Preferred Stock Conversion
Rate in effect immediately before the combination shall be proportionately
adjusted. Any adjustment shall become effective at the close of business
on the
date the subdivision or combination becomes effective.
Adjustment
for Reclassification, Exchange and Substitution
If
at any
time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Preferred Stock is changed into the same
or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition
or
Asset Transfer as defined or a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets as
otherwise provided for), in any such event each holder of Preferred Stock
shall
have the right thereafter to convert such stock into the kind and amount
of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares
of
Common Stock into which such shares of Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such
other
securities or property by the terms thereof.
Reorganizations,
Mergers or Consolidations
If
at any
time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock or the merger or consolidation of the
Company
with or into another corporation or another entity or person (other than
an
Acquisition or Asset Transfer or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares as otherwise provided
for),
as a part of such capital reorganization, provision shall be made so that
the
holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Company to which a holder of the number of
shares
of Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment
shall
be made in the application of the appropriate provisions with respect to
the
rights of the holders of Preferred Stock after the capital reorganization
to the
end that the various conversion provisions (including adjustment of the
Preferred Stock Conversion Rate then in effect and the number of shares issuable
upon conversion of the Preferred Stock) shall be applicable after that event
and
be as nearly equivalent as practicable.
Certificate
of Adjustment
In
each
case of an adjustment or readjustment of the Preferred Stock Conversion Rate
or
the number of shares of Common Stock or other securities issuable upon
conversion of the Preferred Stock, if the Preferred Stock is then
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Preferred Stock Transactions - Continued
convertible,
as previously defined, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder
of
Preferred Stock at the holder's address as shown in the Company's books.
The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including
a
statement of (I) the Preferred Stock Conversion Rate at the time in effect,
and
(ii) the type and amount, if any, of other property which at the time would
be
received upon conversion of the Preferred Stock.
Notices
of Record Date
Upon
(i)
any taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, or (ii) any Acquisition (as defined)
or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined), or any voluntary or involuntary dissolution, liquidation
or winding up of the Company, the Company shall mail to each holder of Preferred
Stock at least ten (10) days prior to the record date specified therein (or
such
shorter period approved by a majority of the outstanding Preferred Stock)
a
notice specifying (A) the date on which any such record is to be taken for
the
purpose of such dividend or distribution and a description of such dividend
or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date,
if
any, that is to be fixed as to when the holders of record of Common Stock
(or
other securities) shall be entitled to exchange their shares of Common Stock
(or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.
No
Dilution or Impairment
Without
the consent of the holders of then outstanding Preferred Stock, as required,
the
Company shall not amend its Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or
sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the
terms
to be observed or performed hereunder by the Company, but shall at all times
in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of
the
Preferred Stock against dilution or other impairment.
Note
J - Common Stock Transactions
On
April
29, 2005, the Company's Board of Directors approved and authorized a 1-for-30
reverse split of the then issued and outstanding common stock of the Company.
The reverse stock split did not change the number of authorized shares of
common
stock or the par value of the Company’s common stock. Except for any changes as
a result of the treatment of fractional shares, each shareholder holds the
same
percentage of common stock outstanding immediately following the reverse
stock
split as such shareholder did immediately prior to the reverse stock split.
The
effect of this action is reflected in the accompanying financial statements
as
of the first day of the first period presented.
On
June
25, 2003, the Company issued an aggregate 1,792,783 post-reverse split shares
of
restricted, unregistered common stock (53,783,500 pre-reverse split shares)
in
redemption of various outstanding notes payable in the face amount of
approximately $300,000 and accrued interest payable of approximately $237,835,
pursuant to the
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
J - Common Stock Transactions - Continued
conversion
terms of the respective notes. The valuation of this transaction was equal
to
the “fair value” of the Company’s common stock on the conversion
date.
On
December 3, 2003, the Company issued 289,194 post-reverse split shares of
restricted, unregistered common stock (8,675,800 pre-reverse split shares)
in
redemption of two (2) notes payable in the face amount of approximately $50,000
and accrued interest payable of approximately $36,758, pursuant to the
conversion terms of the respective notes. The valuation of this transaction
was
equal to the “fair value” of the Company’s common stock on the conversion date.
The Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
for an exemption from registration of these shares and no underwriter was
used
in this transaction.
On
December 3, 2003, the Company issued 26,237 post-reverse split shares of
restricted, unregistered common stock (3,787,100 pre-reverse split shares)
as
compensation for fees associated with the conversion of the outstanding notes
payable and accrued interest payable. This transaction was valued at
approximately $7,871, which was equal to the “fair value” of the Company’s
common stock on the conversion date. The Company relied upon Section 4(2)
of The
Securities Act of 1933, as amended, for an exemption from registration of
these
shares and no underwriter was used in this transaction.
On
or
about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
shares of unregistered, restricted common stock (2,500,000 pre-reverse split
shares) for cash proceeds of approximately $85,000 to three (3) separate
individuals, including 148,000 shares to the Company’s former President. The
Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
for
an exemption from registration of these shares and no underwriter was used
in
this transaction. The Company granted “piggy-back” registration rights to the
holders of the shares of common stock which would entitle a holder to request
that the Company register the common stock if the Company files a registration
statement at any time prior to three years from the date the Company sold
such
shares of common stock. The Company has agreed to keep such registration
statement current for up to 270 days. The Company has agreed to pay all expenses
associated with any registration of the common stock except any underwriter's
commissions or fees or any fees of others employed by a selling shareholder,
including attorneys' fees; which shall be the responsibility of the selling
shareholder.
On
July
28, 2005, the Company issued approximately 7,739,478 post-reverse split shares
of restricted, unregistered common stock for 100.0% of the issued and
outstanding shares of IsoRay Medical, Inc. This transaction made IsoRay a
wholly-owned subsidiary of the Company.
Note
K - Commitments and Contingencies
The
Company, prior to the July 2005 change in control transaction, leased office
space under a noncancellable operating lease that expired on August 31, 2002.
The space was sub-leased to a separate company owned by the Company's then-CEO.
The Company incurred no expense related to this lease during any period
reflected in the accompanying financial statements.
(Remainder
of this page left blank intentionally)
IsoRay
Medical, Inc.
Index
to Financial Statements
|
Page
|
|
|
Report of Independent
Auditor |
F-20
|
|
|
Financial
Statements |
|
Combined
Balance Sheets as of June 30, 2005 and
2004
|
F-21
|
|
|
Combined
Statements of Operations for the years ended June 30, 2005
and 2004
|
F-22
|
|
|
Combined
Statement of Changes in Shareholders’ Equity (Deficit) for
the years ended June 30, 2005 and 2004
|
F-23
|
|
|
Combined
Statements of Cash Flows for the years ended June 30, 2005
and 2004
|
F-24
|
|
|
Notes
to Combined Financial Statements
|
F-25
|
Report
of
Independent Auditor
Board
of
Directors
IsoRay
Medical, Inc.
Richland,
Washington
We
have
audited the accompanying combined balance sheets of IsoRay Medical, Inc.
(“the
Company”) (see Note 1) as of June 30, 2005 and 2004, and the related combined
statements of operations, changes in shareholders’ equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion the financial statements referred to above present fairly, in all
material respects, the combined financial position of IsoRay Medical, Inc.
as of
June 30, 2005 and 2004, and the combined results of its operations and its
cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3, certain conditions
indicate that the Company may be unable to continue as a going concern. The
accompanying financial statements do not include any adjustments that might
be
necessary should the Company be unable to continue as a going
concern.
DeCoria,
Maichel & Teague, P.S.
Spokane,
Washington
October
14, 2005
Combined
Balance Sheets
June
30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents (Note 2)
|
|
|
|
|
$
|
1,653,144
|
|
$
|
470,439
|
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
|
|
|
accounts
of $17,075
|
|
|
|
|
|
49,969
|
|
|
-
|
|
Inventory
(Note 5)
|
|
|
|
|
|
81,926
|
|
|
19,726
|
|
Prepaid
expenses (Note 6)
|
|
|
|
|
|
181,266
|
|
|
77,133
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
|
|
|
1,966,305
|
|
|
567,298
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation and amortization (Note
7)
|
|
|
|
|
|
842,323
|
|
|
297,181
|
|
Other
assets, net of accumulated amortization (Note 8)
|
|
|
|
|
|
793,756
|
|
|
96,295
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
|
|
$
|
3,602,384
|
|
$
|
960,774
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
|
|
$
|
695,588
|
|
$
|
129,021
|
|
Accrued
payroll and related taxes
|
|
|
|
|
|
157,924
|
|
|
58,010
|
|
Accrued
interest payable
|
|
|
|
|
|
41,325
|
|
|
8,235
|
|
Other
current liabilities (Note 4)
|
|
|
|
|
|
-
|
|
|
91,765
|
|
Notes
payable, due within one year (Note 10)
|
|
|
|
|
|
43,116
|
|
|
10,000
|
|
Capital
lease obligations, due within one year (Note 11)
|
|
|
|
|
|
9,604
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
|
|
|
947,557
|
|
|
297,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable, due after one year (Note 10)
|
|
|
|
|
|
562,224
|
|
|
350,000
|
|
Capital
lease obligations, due after one year (Note 11)
|
|
|
|
|
|
19,584
|
|
|
-
|
|
Convertible
debentures payable, due after one year (Note 12)
|
|
|
|
|
|
3,587,875
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
|
|
|
5,117,240
|
|
|
647,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 16 and 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (deficit) (Notes 1, 4 and 13):
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
|
|
|
Series
A: No shares issued and outstanding
|
|
|
|
|
|
-
|
|
|
-
|
|
Series
B: 1,588,589 and no shares issued and outstanding
|
|
|
|
|
|
1,589
|
|
|
-
|
|
IsoRay
Medical, Inc. common stock, $.001 par value; 100,000,000 shares
|
|
|
|
|
|
|
|
|
|
|
authorized;
7,317,073 and 10,000 shares issued and outstanding
|
|
|
|
|
|
7,317
|
|
|
10
|
|
IsoRay,
Inc. common stock , $.001 par value; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
no
shares and 2,767,700 shares issued and outstanding
|
|
|
|
|
|
-
|
|
|
2,768
|
|
Additional
paid-in capital
|
|
|
|
|
|
3,804,369
|
|
|
1,369,908
|
|
Accumulated
deficit
|
|
|
|
|
|
(5,328,131
|
)
|
|
(1,058,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity (deficit)
|
|
|
|
|
|
(1,514,856
|
)
|
|
313,743
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity (deficit)
|
|
|
|
|
$
|
3,602,384
|
|
$
|
960,774
|
|
IsoRay
Medical, Inc.
Combined
Statements of Operations
Years
Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
|
|
|
$
|
201,731
|
|
$
|
-
|
|
Cost
of product sales (Note 5)
|
|
|
|
|
|
1,474,251
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
|
|
|
(1,272,520
|
)
|
|
-
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
|
|
|
137,532
|
|
|
42,326
|
|
Sales
and marketing expenses
|
|
|
|
|
|
701,822
|
|
|
81,486
|
|
General
and administrative expenses
|
|
|
|
|
|
1,871,325
|
|
|
650,161
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
|
|
|
2,710,679
|
|
|
773,973
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
|
|
|
(3,983,199
|
)
|
|
(773,973
|
)
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
|
|
|
2,394
|
|
|
1,898
|
|
Financing
expense (Note 8)
|
|
|
|
|
|
(167,493
|
)
|
|
(23,470
|
)
|
Loss
on disposal of fixed assets
|
|
|
|
|
|
(120,890
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
|
|
|
(285,989
|
)
|
|
(21,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
$
|
(4,269,188
|
)
|
$
|
(795,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share of common stock
|
|
|
|
|
$
|
(0.66
|
)
|
$
|
(0.15
|
)
|
Basic
weighted average shares outstanding (Note 2)
|
|
|
|
|
|
6,493,700
|
|
|
5,174,346
|
|
Combined
Statement of Changes in Shareholders' Equity
(Deficit)
Years
Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
IsoRay,
Inc.
|
|
IsoRay
Medical, Inc.
|
|
Additional
|
|
|
|
|
|
|
|
Common
Stock
|
|
Series
B Preferred Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Balances
at June 30, 2003
|
|
|
2,607,700
|
|
$
|
2,608
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
181,642
|
|
$
|
(263,398
|
)
|
$
|
(79,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of IsoRay, Inc. common shares as payment for
prototype laser welding station (Note 13)
|
|
|
80,000
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,920
|
|
|
|
|
|
80,000
|
|
Issuance
of IsoRay, Inc. common shares for cash
|
|
|
80,000
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,920
|
|
|
|
|
|
80,000
|
|
Issuance
of IsoRay Products LLC member shares for
cash, net of offering costs (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,060,201
|
|
|
|
|
|
1,060,201
|
|
Accrual
of dividends payable to IsoRay Products LLC
members
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,765
|
)
|
|
|
|
|
(91,765
|
)
|
Issuance
of IsoRay Products LLC member shares and IsoRay
Medical, Inc. common shares to related party
for cash and compensation (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
10
|
|
|
59,990
|
|
|
|
|
|
60,000
|
|
Net
loss for the year ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(795,545
|
)
|
|
(795,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2004
|
|
|
2,767,700
|
|
|
2,768
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
|
10
|
|
|
1,369,908
|
|
|
(1,058,943
|
)
|
|
313,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of IsoRay, Inc. common shares pursuant to exercise
of options (Note 13)
|
|
|
71,580
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,509
|
|
|
|
|
|
71,580
|
|
Issuance
of IsoRay, Inc. common shares as
compensation
(Note 13)
|
|
|
57,025
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,968
|
|
|
|
|
|
57,025
|
|
Issuance
of IsoRay Products LLC member shares for cash,
net of offering costs (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303,743
|
|
|
|
|
|
303,743
|
|
Merger
transaction (Note 1)
|
|
|
(2,896,305
|
)
|
|
(2,896
|
)
|
|
1,483,723
|
|
|
1,484
|
|
|
6,167,426
|
|
|
6,167
|
|
|
(4,755
|
)
|
|
|
|
|
-
|
|
Reversal
of dividends accrued by IsoRay
Products
LLC (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,765
|
|
|
|
|
|
91,765
|
|
Issuance
of IsoRay Medical, Inc. common shares for cash
pursuant to private placement, net of offering costs
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765,500
|
|
|
766
|
|
|
1,355,812
|
|
|
|
|
|
1,356,578
|
|
Issuance
of IsoRay Medical, Inc. common shares pursuant
to exercise of warrants granted in connection with
private placement (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,750
|
|
|
130
|
|
|
64,745
|
|
|
|
|
|
64,875
|
|
Issuance
of IsoRay Medical, Inc. common shares as inducement
for guarantee of debt (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,140
|
|
|
211
|
|
|
348,170
|
|
|
|
|
|
348,381
|
|
Issuance
of IsoRay Medical, Inc. common shares as partial
payment for laser welding stations (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,303
|
|
|
30
|
|
|
49,970
|
|
|
|
|
|
50,000
|
|
Issuance
of Series B preferred shares pursuant to
exercise of warrants (Note 13)
|
|
|
|
|
|
|
|
|
107,820
|
|
|
108
|
|
|
|
|
|
|
|
|
96,634
|
|
|
|
|
|
96,742
|
|
Exchange
of Series B preferred shares for IsoRay Medical,
Inc. common shares
|
|
|
|
|
|
|
|
|
(2,954
|
)
|
|
(3
|
)
|
|
2,954
|
|
|
3
|
|
|
|
|
|
|
|
|
-
|
|
Payments
to common shareholders in lieu of issuing fractional
shares (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
(100
|
)
|
Net
loss for the year ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,269,188
|
)
|
|
(4,269,188
|
)
|
Balances
at June 30, 2005
|
|
|
-
|
|
$
|
-
|
|
|
1,588,589
|
|
$
|
1,589
|
|
|
7,317,073
|
|
$
|
7,317
|
|
$
|
3,804,369
|
|
$
|
(5,328,131
|
)
|
$
|
(1,514,856
|
)
|
Combined
Statements of Cash Flows
Years
Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
$
|
(4,269,188
|
)
|
$
|
(795,545
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
|
|
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization of fixed assets
|
|
|
|
|
|
140,099
|
|
|
23,233
|
|
Amortization
of deferred financing costs and other assets
|
|
|
|
|
|
82,358
|
|
|
5,200
|
|
Loss
on disposal of fixed assets
|
|
|
|
|
|
120,890
|
|
|
-
|
|
Compensation
recorded in connection with issuance of common stock
|
|
|
|
|
|
57,025
|
|
|
59,900
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
|
|
|
(49,969
|
)
|
|
-
|
|
Inventory
|
|
|
|
|
|
(62,200
|
)
|
|
(19,726
|
)
|
Prepaid
expenses
|
|
|
|
|
|
(104,133
|
)
|
|
(72,439
|
)
|
Accounts
payable
|
|
|
|
|
|
566,567
|
|
|
114,958
|
|
Accrued
payroll and related taxes
|
|
|
|
|
|
99,914
|
|
|
58,010
|
|
Accrued
interest payable
|
|
|
|
|
|
33,090
|
|
|
107
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
|
|
|
(3,385,547
|
)
|
|
(626,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
|
|
|
(724,029
|
)
|
|
(167,875
|
)
|
Additions
to other assets
|
|
|
|
|
|
(431,438
|
)
|
|
(70,117
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
|
|
|
(1,155,467
|
)
|
|
(237,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
Borrowings
under notes payable
|
|
|
|
|
|
315,000
|
|
|
330,000
|
|
Proceeds
from sales of convertible debentures payable
|
|
|
|
|
|
3,587,875
|
|
|
-
|
|
Principal
payments on notes payable
|
|
|
|
|
|
(23,653
|
)
|
|
(139,803
|
)
|
Principal
payments on capital lease obligations
|
|
|
|
|
|
(2,914
|
)
|
|
-
|
|
Issuance
of common shares and LLC member shares for cash, net of
|
|
|
|
|
|
|
|
|
|
|
offering
costs
|
|
|
|
|
|
1,847,511
|
|
|
1,140,301
|
|
Payments
to common and Series B preferred shareholders in lieu of
|
|
|
|
|
|
|
|
|
|
|
issuing
fractional shares
|
|
|
|
|
|
(100
|
)
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
|
|
|
5,723,719
|
|
|
1,330,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
|
|
|
1,182,705
|
|
|
466,204
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
|
|
|
470,439
|
|
|
4,235
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
|
|
|
$
|
1,653,144
|
|
$
|
470,439
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
|
|
$
|
57,657
|
|
$
|
23,577
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
Fixed
assets acquired by capital lease obligations
|
|
|
|
|
$
|
32,102
|
|
$
|
-
|
|
Issuance
of IsoRay Medical, Inc. preferred shares for debt reduction
|
|
|
|
|
$
|
46,007
|
|
|
|
|
Issuance
of common shares as compensation for guarantee of debt
|
|
|
|
|
$
|
348,381
|
|
|
|
|
Accrual
(reversal) of dividends payable to IsoRay Products LLC members
|
|
|
|
|
$
|
(91,765
|
)
|
$
|
91,765
|
|
Issuance
of common shares for laser welding stations purchases
|
|
|
|
|
$
|
50,000
|
|
$
|
80,000
|
|
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements
June
30, 2005
1. Organization
IsoRay
Medical, Inc. (“the Company”), a Delaware corporation, was incorporated
effective June 15, 2004 to develop, manufacture and sell isotope-based medical
products and devices for the treatment of cancer and other diseases. The
Company
is headquartered in Richland, Washington.
The
Company was formed for the purpose of combining the operations of IsoRay,
Inc.
and its subsidiary, IsoRay Products LLC, two companies that shared common
ownership and management with the Company. The Company’s management initiated a
merger transaction effective October 1, 2004, in order to accomplish the
combining of operations.
The
provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business
Combinations, specifically
exclude transfers of net assets or exchanges of shares between entities under
common control from the definition of business combinations. Accordingly,
the
financial statements of the Company have been reported as though the transfer
of
net assets and exchange of equity interests occurred at the beginning of
the
fiscal year. As such, results of operations for the fiscal year ended
June
30, 2005 include those of the previously separate entities as though they
were
combined from the beginning of the fiscal year to the effective date of the
merger, and those of the combined operations from that date to the end of
the
fiscal year.
The
transfer of assets and liabilities has been recorded at the carrying amount
in
the accounts of the transferring entity at the date of transfer. Intercompany
transactions have been eliminated in determining the results of operations
for
the period prior to the combination. The effects of intercompany
transactions on current assets, current liabilities and accumulated deficit
at
the beginning of the year have also been eliminated.
In
connection with the merger transaction, the Company issued 6,167,426 shares
of
its common stock to the common shareholders of IsoRay, Inc. and the Class
B and
C members of IsoRay Products LLC, and 1,483,723 Series B preferred shares
to the
Class A members of IsoRay Products LLC, in exchange for their IsoRay, Inc.
common shares and their IsoRay Products LLC membership interests and all
rights,
title and interests, in and to the consolidated net assets of IsoRay, Inc.
and
IsoRay Products LLC.
The
shares of IsoRay Medical, Inc. common stock and Series B preferred stock
issued
pursuant to the transaction bear a restrictive legend and are not freely
transferable.
The
balance sheets of the respective companies as of June 30, 2004, their results
of
operations, changes in shareholders’ equity (deficit), and cash flows for the
year then ended, have also been combined for purposes of enhanced
comparability.
2. Summary
of Significant Accounting Policies
Basis
of Presentation
During
the fourth quarter of fiscal year 2005, the Company’s management determined that
the Company had emerged from the development stage, inasmuch as its planned
principal operations had commenced. Prior to that time, the Company’s activities
had consisted primarily of soliciting equity and debt financing, and conducting
research and development. Accordingly, the Company’s financial statements are no
longer presented as those of a development stage enterprise as they were
in
prior periods, as prescribed by Statement of Financial Accounting Standards
(SFAS) No. 7, Accounting
and Reporting by Development Stage Enterprises.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three
months
or less when purchased to be cash equivalents.
Financial
instruments which potentially subject the Company to concentration of credit
risk consist principally of temporary cash investments which are classified
as
cash equivalents. The accounts are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At June 30, 2005, uninsured cash balances
totaled $1,562,904.
Accounts
Receivable
Accounts
receivable are stated at the amount that management of the Company expects
to
collect from outstanding balances. Management provides for probable
uncollectible amounts through an allowance for doubtful accounts. Additions
to
the allowance for doubtful accounts are based on management’s judgment,
considering historical write-offs, collections and current credit conditions.
Balances which remain outstanding after management has used reasonable
collection efforts are written off through a charge to the allowance for
doubtful accounts and a credit to the applicable accounts receivable. Payments
received subsequent to the time that an account is written off are considered
bad debt recoveries.
Inventory
Inventory
is reported at the lower of cost, determined using the weighted average method,
or net realizable value.
Fixed
Assets
Fixed
assets are carried at the lower of cost or net realizable value. Production
equipment with a cost of $2,500 or greater, and other fixed assets with a
cost
of $1,000 or greater are capitalized. Major betterments that extend the useful
lives of assets are also capitalized. Normal maintenance and repairs are
charged
to expense as incurred. When assets are sold or otherwise disposed of, the
cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations. Depreciation is computed using
the
straight-line method over the estimated useful lives of the respective assets,
which range from 3 to 7 years.
The
Company has adopted the provisions of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
The
provisions of SFAS No. 144 require that an impairment loss be recognized
when
the estimated future cash flows (undiscounted and without interest) expected
to
result from the use of an asset are less than the carrying amount of the
asset.
Measurement of an impairment loss is based on the estimated fair value of
the
asset if the asset is expected to be held and used.
Management
of the Company periodically reviews the net carrying value of all of its
equipment on an asset by asset basis. These reviews consider the net realizable
value of each asset, as measured in accordance with the preceding paragraph,
to
determine whether an impairment in value has occurred, and the need for any
asset impairment write-down.
Although
management has made its best estimate of the factors that affect the carrying
value based on current conditions, it is reasonably possible that changes
could
occur which could adversely affect management's estimate of net cash flows
expected to be generated from its assets, and necessitate asset impairment
write-downs.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
Other
Assets
Other
assets, which include deferred financing costs, deferred charges, patents
and
licenses, are stated at cost, less accumulated amortization. Amortization
of
deferred financing costs is computed using the interest method over the term
of
the associated debt. Amortization of patents and licenses is computed using
the
straight-line method over the estimated economic useful lives of the assets.
The
Company periodically reviews the carrying values of patents and licenses
in
accordance with SFAS No. 144 and any impairments are recognized when the
expected future operating cash flows to be derived from such assets are less
than their carrying value.
Financial
Instruments
The
Company discloses the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the balance sheet, for which
it is
practicable to estimate the fair value. The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced liquidation
sale.
The
carrying amounts of financial instruments, including cash and cash equivalents;
accounts receivable; accounts payable; notes payable; capital lease obligations;
and convertible debentures payable, approximated their fair values at June
30,
2005 and 2004.
Revenue
Recognition
Product
sales are recorded when title passes to the customer, which is generally
at the
time of shipment. Prepayments, if any, received from customers prior to the
time
that products are shipped are recorded as deferred revenue. When the related
products are shipped, the amount recorded as deferred revenue is recognized
as
revenue. The Company's sales agreements do not provide for product returns
or
allowances.
Stock-Based
Compensation
SFAS
No.
123, Accounting
for Stock-Based Compensation,
as
amended by SFAS No. 148, requires companies to recognize stock-based expense
based on the estimated fair value of employee stock options. Alternatively,
SFAS
No. 123 allows companies to retain the current approach set forth in Accounting
Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB
25),
provided that expanded footnote disclosure is presented. The Company has
not
adopted the fair value method of accounting for stock-based compensation
under
SFAS No. 123, but provides the pro forma disclosure required when appropriate
(see Note 13).
Research
and Development Costs
Research
and development costs, including research materials, administrative expenses
and
contractor fees, are charged to operations as incurred. The cost of equipment
used in research and development activities which has alternative uses is
capitalized as part of fixed assets and not treated as an expense in the
period
acquired. Depreciation of capitalized equipment used to perform research
and
development is classified as research and development expense in the year
computed.
Income
Taxes
Income
taxes are accounted for under the liability method. Under this method, the
Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the reporting
of certain costs in different periods for financial statement and income
tax
purposes. This method also
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
requires
the recognition of future tax benefits such as net operating loss carryforwards,
to the extent that realization of such benefits is more likely than not.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax
assets and liabilities of a change in tax rates is recognized in operations
in
the period that includes the enactment of the change.
Income
(Loss) Per Common Share
The
Company accounts for its income (loss) per common share according to SFAS
No.
128, Earnings
Per Share.
Under
the provisions of SFAS No. 128, primary and fully diluted earnings per share
are
replaced with basic and diluted earnings per share. Basic earnings per share
is
calculated by dividing net income (loss) available to common stockholders
by the
weighted average number of common shares outstanding, and does not include
the
impact of
any
potentially dilutive common stock equivalents. Common stock equivalents,
including warrants to purchase the Company's common stock and common stock
issuable upon the conversion of notes payable, are excluded from the
calculations when their effect is antidilutive. Basic weighted average shares
outstanding for the year ended June 30, 2004 have been adjusted to reflect
the
exchange ratio contained in the merger transaction dated October 1, 2004
(see
Note 1).
Use
of
Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management of
the
Company to make estimates and assumptions that affect the amounts reported
in
the financial statements and accompanying notes. Accordingly, actual results
could differ from those estimates and affect the amounts reported in the
financial statements.
3. Risks
and Uncertainties
The
Company has a limited operating history and its prospects are subject to
the
expenses, risks and uncertainties frequently encountered by companies in
similar
stages of development. These potential risks include failure to acquire adequate
financing to fund further development of its products; failure to obtain
and
operate a production facility; failure to successfully create a market for
its
products; and other risks and uncertainties. The Company’s financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course
of
business. Management’s plans to raise additional financing include the sale of
additional equity or borrowings. Management expects to obtain the necessary
financing; however, no assurance can be given that such financing will be
completed on terms acceptable to the Company. If the Company is unable to
obtain
additional financing, the further development of the Company’s products could be
delayed or suspended. The financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
that
might be necessary should the Company be unable to continue as a going
concern.
4. Private
Placement Offerings
IsoRay
Products LLC October 15, 2003 Private Placement
In
October 2003, IsoRay Products LLC commenced an offering (“the Products LLC
October 15, 2003 Offering”) of up to $2,400,000 of securities to accredited and
non-accredited outside investors in a private placement, which management
believes was exempt from registration under the Securities Act of 1933 ("the
Act") pursuant to Section
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
4.
Private Placement Offerings, Continued
4(2)
of
the Act and Rule 506 of Regulation D. The securities offered for sale consisted
of Class A shares, Class C shares and “debt units.”
Class
A Shares.
Through
June 30, 2004, IsoRay Products LLC sold Class A shares for cash totaling
$1,060,201, net of offering-related costs of $106,414. The net proceeds from
the
sales were recorded as additional paid-in capital in the balance
sheet.
The
Class
A shareholders were entitled to a 15% annual, cumulative dividend payable
quarterly. Although management, in its sole discretion, could elect to not
pay
dividends in any quarter, the terms of the offering required the accrual
of any
unpaid dividends as unsecured debt, with the same status as unsecured trade
payables. Accordingly, dividends totaling $91,765 were accrued at June 30,
2004.
In connection with the merger (see Note 1), the Class A shareholders were
issued
Series B preferred shares. The terms associated with the Series B preferred
shares do not require the accrual of dividends, although they continue to
accumulate in accordance with their cumulative feature. Accordingly, the
dividends accrued during the year ended June 30, 2004 were reversed during
2005.
Cumulative dividends in arrears at June 30, 2005 associated with the Series
B
preferred shares totaled $249,890.
Class
C Shares.
During
the period from July 1, 2004 through the merger with the Company (see Note
1),
IsoRay Products LLC sold Class C shares for cash totaling $303,743, net of
offering costs of $7,130. The net proceeds from the sales were recorded as
additional paid-in capital in the balance sheet.
Debt
Units.
Each
debt unit consisted of a $5,000 secured note payable and two warrants. The
notes
payable were secured by the Company's patents, patents pending and current
patent applications, bore interest at 10%, payable quarterly, and matured
three
years from their issue date. Each warrant entitled the holder to purchase
875
IsoRay Products LLC Class A shares. One of the warrants was exercisable through
July 1, 2005, and the second warrant is exercisable through February 28,
2007.
The warrant exercise prices ranged from $1.00 to $2.00 per share, depending
on
the IsoRay Products LLC Class A share price at the time of the debt unit
sale.
In
connection with the merger between IsoRay Medical, Inc., IsoRay, Inc. and
IsoRay
Products LLC (see Note 1), the note holders were issued IsoRay Medical, Inc.
notes payable with substantially the same terms and conditions as their IsoRay
Products LLC notes (see Note 10), and the IsoRay Products LLC warrants were
exchanged for warrants to purchase 384,440 IsoRay Medical, Inc. Series B
Preferred shares (see Note 13).
IsoRay
Medical, Inc. October 15, 2004 Private Placement
In
October 2004, the Company commenced an offering (“the October 15, 2004
Offering”) of up to $2,000,000 of securities to accredited investors in a
private placement, which management believes was exempt from registration
under
the Securities Act of 1933 ("the Act") pursuant to Section 4(2) of the Act
and
Rule 506 of Regulation D. The October 15, 2004 Offering consisted of up to
100
Investment Units, each unit consisting of 10,000 shares of the Company’s common
stock and a callable warrant to purchase 3,000 shares of common stock at
an
exercise price of $.50 per share, for $20,000 per Investment Unit. Simultaneous
with the October 15, 2004 Offering, the officers and directors of the Company
had the right to independently sell similar Investment Units pursuant to
a
separate private placement memorandum on substantially the same terms and
conditions as the October 15, 2004 Offering.
During
the year ended June 30, 2005, the Company sold 76.55 Investment Units,
representing 765,500 common shares and callable warrants for the purchase
of
229,650 common shares, for cash totaling $1,531,000. In
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
4.
Private Placement Offerings, Continued
connection
with the sales of the Investment Units, the Company paid commissions and
expense
allowances totaling $119,980 to broker-dealers, and legal expenses totaling
$54,442 to attorneys, which amounts have been recorded as
reductions
of additional paid-in capital. Additionally, the broker-dealers were granted
warrants for the purchase of 4.23 Investment Units at $20,000 per Investment
Unit (see Note 13).
IsoRay
Medical, Inc. January 31, 2005 Private Placement
In
January 2005, the Company commenced an offering (“the January 31, 2005
Offering”) of up to $2,000,000 of 8% convertible debentures (see Note 12) to
accredited investors in a private placement, which management believes was
exempt from registration under the Securities Act of 1933 ("the Act") pursuant
to Section 4(2) of the Act and Rule 506 of Regulation D. On May 27, 2005,
the
Company amended and restated the January 31, 2005 Offering to increase the
maximum amount of the offering to $4,150,000.
Through
June 30, 2005, the Company sold debentures totaling $3,587,785. In connection
with the sales of these debentures, the Company paid commissions totaling
$216,783 and legal expenses totaling $56,470, which amounts have been recorded
as deferred financing costs.
Subsequent
to June 30, 2005, the Company sold an additional $550,000 of debentures pursuant
to this offering. The sale of these additional debentures was not subject
to
payment of commissions.
5. Inventory
Inventory
consists of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Raw
materials
|
|
$
|
27,659
|
|
$
|
19,726
|
|
Work
in process
|
|
|
54,267
|
|
|
—
|
|
|
|
$
|
81,926
|
|
$
|
19,726
|
|
The
cost
of materials and production costs contained in inventory that is not useable
due
to the passage of time, and resulting loss of bio-effectiveness, is written
off
to cost of product sales at the time it is determined that the product is
not
useable. It is not possible to determine what portion of cost of product
sales
is represented by “spoilage.”
6. Prepaid
Expenses
Prepaid
expenses consist of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Prepaid
contract work
|
|
$
|
65,328
|
|
$
|
69,063
|
|
Prepaid
insurance
|
|
|
15,853
|
|
|
5,350
|
|
Other
prepaid expenses
|
|
|
100,085
|
|
|
2,720
|
|
|
|
$
|
181,266
|
|
$
|
77,133
|
|
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
7. Fixed
Assets
Fixed
assets consist of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Production
equipment
|
|
$
|
399,448
|
|
$
|
290,864
|
|
Office
equipment
|
|
|
65,077
|
|
|
17,339
|
|
Furniture
and fixtures
|
|
|
7,736
|
|
|
7,736
|
|
Leasehold
improvements
|
|
|
138,692
|
|
|
38,368
|
|
|
|
|
|
|
|
|
|
|
|
|
610,953
|
|
|
354,307
|
|
Less
accumulated depreciation and amortization
|
|
|
(134,664
|
)
|
|
(57,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
476,289
|
|
|
297,181
|
|
Construction
in progress (Note 16)
|
|
|
366,034
|
|
|
--
|
|
|
|
$
|
842,323
|
|
$
|
297,181
|
|
Depreciation
and amortization expense related to fixed assets totaled $140,099 and $23,233
for 2005 and 2004, respectively. Office equipment includes $34,049 of assets
under capital lease at June 30, 2005. Accumulated amortization of this equipment
totaled $1,470 at June 30, 2005.
8. Other
Assets
Other
assets, net of accumulated amortization, consist of the following at June
30,
2005 and 2004:
|
|
2005
|
|
2004
|
|
Deferred
financing costs, net of accumulated
amortization
of $76,746
|
|
$
|
548,837
|
|
$
|
--
|
|
Deferred
charges
|
|
|
204,649
|
|
|
84,683
|
|
Patents
and trademarks, net of accumulated
amortization
of $12,318 and $9,380
|
|
|
21,614
|
|
|
9,425
|
|
Licenses,
net of accumulated amortization of
$2,674
and $-0-
|
|
|
18,656
|
|
|
2,187
|
|
|
|
$
|
793,756
|
|
$
|
96,295
|
|
Deferred
financing costs include the fair value of shares issued to certain shareholders
for their guarantee of certain Company debt (see Note 13). Amortization of
deferred financing costs, totaling $76,746 for the year ended June 30, 2005,
is
included in financing expense on the statement of operations. Deferred charges
consist of prepaid legal fees for patents which have not yet been obtained,
and
prepayments and deposits on fixed assets and contracts. Amortization of patents
and licenses was $5,612 and $5,200 for the years ended June 30, 2005 and
2004.
9. Bank
Line of Credit
The
Company has a $395,000 revolving line of credit with Columbia River Bank
that
expired September 29, 2005. Amounts outstanding under the line bear interest
at
the bank’s reference rate (Wall Street Journal Prime Rate, which
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
9. Bank
Line of Credit, Continued
was
6.25%
at June 30, 2005) plus 2.0%. The line of credit is collateralized by all
accounts receivable and inventory, and is personally guaranteed by certain
shareholders up to $375,000 (see Note 13). The Company had no borrowings
under
the line of credit at June 30, 2005. At October 14, 2005, the Company was
negotiating with Columbia River Bank for the renewal and extension of the
line
of credit.
10. Notes
Payable
Notes
payable consist of the following at June 30, 2005:
Note
payable to Tri-City Industrial Development Council (TRIDEC),
non-interest
bearing, due in annual installments of $10,000,
maturing
August 2006
|
|
$
|
20,000
|
|
Note
payable to Benton-Franklin Economic Development District
(BFEDD),
due in monthly installments of $2,855, including interest
and
servicing fee at a combined 8.0%, maturing October 2009
|
|
|
222,693
|
|
Note
payable to Columbia River Bank, due in monthly installments
of
$1,551, including interest at 7.0%, maturing January 2008
|
|
|
43,654
|
|
Convertible
notes payable to investors, interest at 10.0%
payable
quarterly, principal due at maturity in 2006 and 2007
|
|
|
318,993
|
|
|
|
|
|
|
|
|
|
605,340
|
|
Less
amounts due within one year
|
|
|
(43,116
|
)
|
|
|
$
|
562,224
|
|
|
|
|
|
|
Principal
maturities on notes payable are due as follows:
|
|
|
|
|
2006
|
|
$
|
43,116
|
|
2007
|
|
|
329,685
|
|
2008
|
|
|
65,338
|
|
2009
|
|
|
21,661
|
|
2010
|
|
|
145,540
|
|
|
|
|
|
|
|
|
$
|
605,340
|
|
The
note
payable to TRIDEC bears no interest, but has not been discounted because
the
note was exchanged solely for cash.
The
note
payable to BFEDD, which is collateralized by substantially all of the Company’s
assets, and guaranteed by certain shareholders, was executed pursuant to
a
Development Loan Agreement. The note contains certain restrictive covenants
relating to: working capital; levels of long-term debt to equity; incurrence
of
additional indebtedness; payment of compensation to officers and directors;
and
payment of dividends. At June 30, 2005, the Company was not in compliance
with
certain of the covenants. The Company has obtained a waiver from BFEDD relating
to these covenants, which applies at both June 30, 2005 and through June
30,
2006.
The
note
payable to Columbia River Bank is collateralized by certain production
equipment.
The
merger agreement between IsoRay Medical, Inc., IsoRay, Inc. and IsoRay Products
LLC (see Note 1) provided the former note holders of IsoRay Products LLC
with
the option of exchanging their notes for IsoRay Medical, Inc.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
10. Notes
Payable, Continued
Series
A
preferred shares, or receiving IsoRay Medical, Inc. notes payable with
substantially the same terms and conditions as their IsoRay Products LLC
notes.
None of the IsoRay Products LLC note holders elected to receive
IsoRay
Medical, Inc. Series A preferred shares. Accordingly, all the note holders
(i.e., investors) were issued convertible notes as described above. Note
holders
can convert principal and accrued interest on their outstanding balances
into
Series B preferred shares by exercising the warrants that were issued to
them in
connection with the merger (see Notes 1 and 13).
11. Capital
Lease Obligations
The
Company leases certain equipment under long-term agreements that represent
capital leases. Future minimum lease payments under capital lease obligations
are as follows:
Year
ending June 30,
|
|
|
|
2006
|
|
$
|
13,524
|
|
2007
|
|
|
13,238
|
|
2008
|
|
|
9,819
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
|
36,581
|
|
Less
amount due within one year
|
|
|
(7,393
|
)
|
|
|
|
|
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
29,188
|
|
Less
amount due within one year
|
|
|
(9,604
|
)
|
|
|
|
|
|
Amount
due after one year
|
|
$
|
19,584
|
|
12. Convertible
Debentures Payable
Through
June 30, 2005, the Company had sold $3,587,875 of convertible debentures
pursuant to the January 31, 2005 Offering (see Note 4). The debentures, which
bear interest at 8% and mature two years from the date of issuance (through
June
2007), can be converted into shares of the Company’s common stock at a rate of
$3.50 per share plus, at the discretion of the Company, either a cash payment
for accrued interest, or that number of common shares equal to the amount
of
unpaid accrued interest at $3.50 per share.
After
the
debentures have been outstanding for six months, the Company may, at its
option,
prepay them, in whole or in part, by paying the principal and interest accrued
through the date of the prepayment. If such prepayment occurs within one
year of
the date of issuance of the debenture, the Company must also pay the debenture
holder 5% of the principal redeemed. If only a portion of the debenture is
prepaid, a new debenture with substantially the same terms and conditions
will
be issued to the debenture holder for the remaining principal
balance.
13. Shareholders’
Equity (Deficit)
The
authorized capital structure of the Company consists of 10,000,000 shares
of
$.001 par value preferred stock and 100,000,000 shares of $.001 par value
common
stock.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13.
Shareholders’ Equity (Deficit), Continued
Preferred
Stock
The
Company's Certificate of Incorporation authorizes 10,000,000 shares of $0.001
par value preferred stock available for issuance with such rights and
preferences, including liquidation, dividend, conversion and voting rights,
as
described below.
Series
A
Series
A
preferred shares are entitled to a 10% dividend annually on the stated par
value
per share. These shares are convertible into shares of common stock at the
rate
of one share of common stock for each share of Series A preferred stock,
and are
subject to automatic conversion into common stock upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of common stock
in
which the gross proceeds to the Company are at least $4 million. Series A
preferred shareholders have voting rights equal to the voting rights of common
stock, except that the vote or written consent of a majority of the outstanding
preferred shares is required for any changes to the Company’s Certificate of
Incorporation, Bylaws or Certificate of Designation, or for any bankruptcy,
insolvency, dissolution or liquidation of the Company. Upon liquidation of
the
Company, the Company’s assets are first distributed ratably to the Series A
preferred shareholders. At June 30, 2005, there are no Series A preferred
shares
outstanding.
Series
B
Series
B
preferred shares are entitled to a cumulative 15% dividend annually on the
stated par value per share. These shares are convertible into shares of common
stock at the rate of one share of common stock for each share of Series A
preferred stock, and are subject to automatic conversion into common stock
upon
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933 covering the offer
and
sale of common stock in which the gross proceeds to the Company are at least
$4
million. Series A preferred shareholders have voting rights equal to the
voting
rights of common stock, except that the vote or written consent of a majority
of
the outstanding preferred shares is required for any changes to the Company’s
Certificate of Incorporation, Bylaws or Certificate of Designation, or for
any
bankruptcy, insolvency, dissolution or liquidation of the Company. Upon
liquidation of the Company, the Company’s assets are first distributed ratably
to the Series A preferred shareholders, then to the Series B preferred
shareholders. At June 30, 2005, there were 1,588,589 Series B preferred shares
outstanding and cumulative dividends in arrears were $249,890.
In
addition to the shares of common stock and Series B preferred stock issued
pursuant to the merger transaction (see Note 1), and the common shares issued
pursuant to the October 15, 2004 Offering (see Note 4), the Company had the
following transactions that affected shareholders’ equity (deficit) during the
years ended June 30, 2005 and 2004.
Issuance
of IsoRay, Inc. Common Stock for Equipment Purchase
During
2004, IsoRay, Inc. issued 80,000 shares of its common in full satisfaction
of
the $80,000 purchase price of a prototype laser welding station. The transaction
was recorded at the purchase price of the laser welding station, since
management considered this amount to be more readily determinable than the
value
of the shares.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13.
Shareholders’ Equity (Deficit), Continued
Issuance
of Common Stock for Guarantee of Debt
During
2005, the Company issued 211,140 shares of its common stock to certain
shareholders as an inducement for their guarantee of the Columbia River Bank
line of credit (see Note 9) and the note payable to Benton-Franklin Economic
Development District (see Note 10). The transactions were recorded at the
fair
value of the shares,
estimated
to be $348,381, since management considered this amount to be more readily
determinable than the value of the guarantees. The guarantees were recorded
as
deferred financing costs (see Note 8).
Issuance
of Common Stock in Partial Payment of Equipment Purchase
During
2005, the Company issued 30,303 shares of its common stock and paid $40,000
of
cash in full satisfaction of the $90,000 purchase price of three laser welding
stations. The transaction was recorded at the purchase price of the laser
welding stations, since management considered this amount to be more readily
determinable than the fair value of the shares.
Cash
Payments for Fractional Shares
During
2005, the Company paid a combined total of $100 to the former common
shareholders of IsoRay, Inc. and the former Class A, B and C members of IsoRay
Products LLC for fractional shares that resulted from the merger that was
effective October 1, 2004 (see Note 1).
Warrants
to Purchase IsoRay Medical, Inc. Common Stock
Pursuant
to the October 15, 2004 Offering (see Note 4), the Company granted warrants
for
the purchase of 229,650 shares of its common stock at $.50 per share. Through
June 30, 2005, warrants for the purchase of 129,750 common shares had been
exercised for cash of $64,875. Warrants for the purchase of common stock
outstanding at June 30, 2005 totaled 99,900, which expire through January
2007.
The outstanding warrants are callable, in whole or in part, by the Company
any
time six months after the warrant grant date, at the exercise price then
in
effect, by giving at least 30 days notice. If any warrants are called by
the
Company, the warrant holder can exercise the warrants called, at the exercise
price then in effect, any time during the 30 day notice period.
Warrants
to Purchase IsoRay Medical, Inc. Series B Preferred Stock
Pursuant
to a private placement of debt units during 2003 and 2004, IsoRay Products
LLC
issued $365,000 of notes payable to investors (see Note 10) and granted warrants
for the purchase of 227,750 of its Class A member shares. In connection with
the
merger transaction (see Note 1), the Company exchanged the IsoRay Products
LLC
warrants for warrants to purchase 384,440 IsoRay Medical, Inc. Series B
preferred shares. The warrants granted are summarized as follows:
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13.
Shareholders’ Equity (Deficit), Continued
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
7,385
|
|
$.59
|
|
July
1, 2005
|
67,520
|
|
$.59
|
|
October
30, 2006
|
33,760
|
|
$.59
|
|
January
31, 2007
|
7,385
|
|
$.59
|
|
February
28, 2007
|
67,520
|
|
$.59
|
|
March
30, 2007
|
90,096
|
|
$.89
|
|
July
1, 2005
|
90,096
|
|
$.89
|
|
February
28, 2007
|
10,339
|
|
$1.18
|
|
July
1, 2005
|
10,339
|
|
$1.18
|
|
February
28, 2007
|
|
|
|
|
|
384,440
|
|
$.59
to $1.18
|
|
|
Through
June 30, 2005, the following warrants were exercised for $50,735 cash and
conversion of notes payable totaling $46,007 (see Note 10):
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
7,385
|
|
$.59
|
|
July
1, 2005
|
90,096
|
|
$.89
|
|
July
1, 2005
|
10,339
|
|
$1.18
|
|
July
1, 2005
|
|
|
|
|
|
107,820
|
|
$.59
to $1.18
|
|
|
Warrants
to Purchase IsoRay Medical, Inc. Series B Preferred Stock,
Continued
At
June
30, 2005, the following warrants to purchase IsoRay Medical, Inc. Series
B
Preferred shares remain outstanding, as follows:
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
67,520
|
|
$.59
|
|
October
30, 2006
|
33,760
|
|
$.59
|
|
January
31, 2007
|
7,385
|
|
$.59
|
|
February
28, 2007
|
67,520
|
|
$.59
|
|
March
30, 2007
|
90,096
|
|
$.89
|
|
February
28, 2007
|
10,339
|
|
$1.18
|
|
February
28, 2007
|
|
|
|
|
|
276,620
|
|
$.59
to $1.18
|
|
|
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13.
Shareholders’ Equity (Deficit), Continued
Warrants
to Purchase IsoRay Medical, Inc. Investment Units
In
connection with the October 15, 2004 Offering (see Note 4), the Company granted
the selling broker-dealers warrants to purchase 4.23 Investment Units at
$20,000
per Investment Unit. These Investment Units, which currently do not have
an
expiration date, represent 42,300 IsoRay Medical, Inc. common shares and
12,690
warrants to purchase common shares at $.50 per share. None of these warrants
had
been exercised at June 30, 2005.
Options
to Purchase IsoRay Medical, Inc. Common Stock
In
July
2003, the IsoRay, Inc. Board of Directors resolved to create the IsoRay,
Inc.
2003 Option Plan (“the 2003 Plan”). The purpose of the 2003 Plan was to retain
and reward the best available personnel for positions of substantial
responsibility and to provide additional incentive to employees, directors
and
consultants of the company to promote the success of the company’s business. The
maximum number of options to purchase IsoRay, Inc. common stock that could
be
granted pursuant to the 2003 Plan was 400,000. Through September 30, 2004,
options for the purchase of 354,812 shares of IsoRay, Inc.’s common stock had
been granted. The options, which were fully vested and exercisable at $1.00
per
share, were set to expire in July 2013. Because the option exercise price
was
equal to the estimated fair value of IsoRay Inc.’s common stock at the date of
grant, no compensation was recognized associated with these options. Through
the
effective date of the merger transaction (see Note 1), 71,580 of these options
had been exercised for cash of $71,580, and 114,050 had been exercised in
cashless transactions, in which $57,025 of compensation was recorded by IsoRay,
Inc. The remaining outstanding options, representing 169,182 shares of IsoRay,
Inc. common stock, were canceled by IsoRay, Inc. Replacement options to purchase
326,589 IsoRay Medical, Inc. common shares were granted pursuant to the IsoRay
Medical, Inc. 2004 Stock Option
Plan
(“the 2004 Plan”) and the IsoRay Medical, Inc. 2004 Employee Stock Option Plan
(“the 2004 Employee Plan”). The replacement options are included in the totals
shown below for options granted and outstanding pursuant to the 2004 Plan
and
the 2004 Employee Plan.
Options
to Purchase IsoRay Medical, Inc. Common Stock, Continued
In
June
2004, the IsoRay Medical, Inc. Board of Directors resolved to create the
2004
Plan and the 2004 Employee Plan. The stated purpose of the plans was to provide
an incentive-based form of compensation to directors, officers, key employees
and service providers of the Company and encourage such persons to invest
in
shares of the Company’s common stock, thereby acquiring a proprietary interest
in the success of the Company.
The
maximum number of options to purchase IsoRay Medical, Inc. common stock that
can
be granted pursuant to the 2004 Plan is 1,500,000. At June 30, 2005, options
for
the purchase of 1,401,384 shares of the Company’s common stock had been granted
and were outstanding. These options, which vest at various times, are
exercisable at $1.00 per share, and expire through August 2014. Because the
option exercise prices were equal to the estimated fair value of the Company’s
common stock at the date of grant, no compensation was recognized associated
with these options.
The
maximum number of options to purchase IsoRay Medical, Inc. common stock that
can
be granted pursuant to the 2004 Employee Plan is 1,500,000. At June 30, 2005,
options for the purchase of 1,255,205 shares of the Company’s common stock had
been granted and were outstanding. The options, which vest at various times,
are
exercisable at $1.00 to $2.00 per share, and expire through December 2014.
Because the option exercise prices were equal to the estimated fair value
of the
Company’s common stock at the date of grant, no compensation was recognized
associated with these options.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13.
Shareholders’ Equity (Deficit), Continued
Stock-Based
Compensation
As
described in Note 2, the Company currently accounts for stock-based compensation
in accordance with SFAS No. 123. As permitted by SFAS No. 123, management
currently accounts for share-based payments to employees using APB 25's
intrinsic value method, and provides expanded footnote disclosure when
necessary.
In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised 2004), Share-Based
Payment
("SFAS
No. 123(R)"), which is a revision of SFAS No. 123. SFAS No. 123(R) also
supersedes APB 25,
and
amends SFAS No. 95, Statement
of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach prescribed
by SFAS No. 123. SFAS No. 123(R) requires that all share-based payments to
employees, including grants of employee stock options, be recognized in the
income statement based on their fair values. Pro forma disclosure will no
longer
be permitted. SFAS No. 123(R) is effective at the beginning of the first
interim
or annual period beginning after December 15, 2005. Management expects to
adopt
SFAS No. 123(R) on January 1, 2006.
During
the year ended June 30, 2005, the Company granted stock options to employees
and
directors for the purchase of 2,230,000 shares of its common stock. These
options are exercisable at prices ranging from $1.00 to $2.00 per share and
expire through August 2014.
The
pro
forma net loss presented below was determined as if the Company had accounted
for these options under the fair value method of SFAS No. 123. The fair value
of
these options was estimated at the date of grant using the minimum value
method
set forth in SFAS No. 123(R).
Net
loss as reported for the year ended June 30, 2005$
|
|
$
|
4,375,904
|
|
SFAS
No. 123 stock option expense
|
|
|
771,365
|
|
Pro
forma net loss for the year ended June 30, 2005
|
|
$
|
5,147,269
|
|
The
following assumptions were used in calculating the fair value of the
options:
Risk-free
interest rate
|
|
|
3.50
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
If
the
Company had fully accounted for its employee stock options in accordance
with
the provisions of SFAS No. 123, compensation expense would have been $771,365
greater than the amount recorded for the year ended June 30, 2005.
14. Income
Taxes
The
Company recorded no income tax provision or benefit for the years ended June
30,
2005 and 2004.
At
June
30, 2005, the Company had a net deferred tax asset of approximately $1,250,000,
arising principally from net operating loss carryforwards. The deferred tax
asset was calculated based on the currently enacted 34% statutory income
tax
rate. Since management of the Company cannot determine if it is more likely
than
not that the Company will realize the benefit of its net deferred tax asset,
a
valuation allowance equal to the full amount of the net deferred tax asset
at
June 30, 2005 has been established.
At
June
30, 2005, the Company had tax basis net operating loss carryforwards of
approximately $3,700,000 available to offset future regular taxable income.
These net operating loss carryforwards expire through 2025.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
14. Income
Taxes, Continued
IsoRay
Management LLC and IsoRay Products LLC were limited liability companies prior
to
the merger with the Company. In lieu of current federal income taxes arising
at
the company level, the individual members were taxed on their proportionate
share of the companies’ taxable income. Accordingly, there are no net operating
loss carryforwards related to these entities.
15. Related
Party Transactions
In
addition to transactions described in Note 13, the Company had the following
transactions with related parties:
During
2005, the Company paid or accrued $5,600 for accounting services performed
by a
company owned by a member of the Board of Directors. In September 2003, IsoRay
Products LLC issued 100,000 of its Class B member shares to Roger Girard,
the
IsoRay, Inc. President, who was also a Director of IsoRay, Inc. The Class
B
member shares were similar in all respects to IsoRay Products LLC Class A
member
shares, except they were not entitled to a 15% annual, cumulative dividend.
Based on an estimate of the fair value of the Class B shares, as determined
by
reference
to cash sales of Class A member shares, IsoRay Products LLC recorded $50,000
of
compensation expense in connection with the issuance of these shares. The
100,000 Class B member shares were exchanged for 168,798 IsoRay Medical,
Inc.
common shares in connection with the merger transaction (see Note
1).
In
June
2004, the Company issued 10,000 of its common shares to Mr. Girard for $100
cash. The Company recorded $9,900 of compensation expense in connection with
the
issuance of these shares.
During
2005, IsoRay, Inc. and the Company received various legal services from two
law
firms in which one of the firm’s partners is a Director of IsoRay, Inc.
(formerly Century Park Pictures Corporation; see Note 17). The total amount
paid
to the law firms was $141,000 and $144,000, respectively.
During
2003, IsoRay Products LLC granted warrants for the purchase of 100,000 of
its
Class A member shares to a financial services company for its services in
connection with a private placement. These warrants were exercisable at $1.00
per share and were to expire on October 30, 2006. The financial services
company
was a shareholder of
IsoRay
Products LLC. Because the exercise price was equal to the estimated fair
value
at the date of grant, no compensation was recognized associated with these
warrants. In connection with the merger transaction (see Note 1), IsoRay
Medical, Inc. granted warrants for the purchase of 168,799 of its Series
B
Preferred shares, exercisable at $.59 per share, in exchange for the warrants
granted by IsoRay Products LLC. These warrants, one-half of which are
exercisable through July 1, 2005 and one-half of which are exercisable through
February 28, 2007, are included in the warrant totals disclosed in Note
13.
16. Commitments
and 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 in exchange for a royalty equal to 1%
of the
Gross Profit, as defined, from the sale of “seeds” incorporating the technology.
The patent and associated royalty obligations were transferred to the Company
effective October 1, 2004 in connection with the merger transaction (see
Note
1).
The
Company must also pay a royalty of 2% of Gross Sales, as defined, 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. To
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
16. Commitments
and Contingencies, Continued
date,
there have been no product sales incorporating the technology and there is
no
royalty due pursuant to the terms of the agreement.
Patent
and Know-How Royalty License Agreement
IsoRay
Products LLC was the holder of an exclusive license to use certain “know-how.”
This license was transferred to IsoRay Medical, Inc. in connection with the
merger transaction (see Note 1). The terms of the original license agreement
required 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, remains applicable. To date, there
have
been
no
product sales incorporating the licensed technology and there is no royalty
due
pursuant to the terms of the agreement. A minimum annual royalty of $4,000
will
apply once product sales incorporating the licensed technology
commence.
Battelle
Memorial Institute Production Agreement
In
April
2004, IsoRay Products LLC entered into an agreement with Battelle Memorial
Institute, Pacific Northwest Division (Battelle), the operator of the Pacific
Northwest National Laboratory, for certain production-related services and
facilities. This agreement was assumed by IsoRay Medical, Inc. following
the
merger (see Note 1). In
accordance
with the terms of the agreement, the Company is required to make advance
payments, which are then applied against billings by Battelle as services
are
provided. During the year ended June 30, 2005, the Company incurred $574,225
of
costs for production-related services and facilities provided by Battelle.
At
June 30, 2005, prepaid expenses include $43,764 related to this agreement.
The
agreement, which expires December 31, 2006, may be terminated at any time
by
either party, upon giving a 60-day written notice to the other
party.
Facility
Lease Agreements
The
Company leases office and laboratory space under a noncancelable operating
lease
agreement. The lease agreement, which currently requires monthly lease payments
of $4,196, expires December 31, 2005. Annual rent expense under this agreement
was $26,824 for the year ended June 30, 2005. Future minimum lease payments
under this lease for the period from July 1, 2005 through December 31, 2005
are
$25,176.
Facility
Lease Agreements, Continued
In
February 2005, the Company entered into a lease agreement for a portion of
a
building in which it intends to establish production facilities. The lease
term
commences upon regulatory licensing approval, which has not yet been obtained,
and terminates one year from the commencement date of the lease. The annual
rental is 25,800 shares of the Company’s common stock. Inasmuch as the lease
term has not yet commenced, there was no rent recognized during the year
ended
June 30, 2005.
Tenant
Improvement Construction Agreement
In
connection with the production facility lease agreement, the Company entered
into a tenant improvement construction agreement in April 2005. Per the terms
of
the agreement, the cost of the tenant improvement construction to be borne
by
the Company shall not exceed $365,760. Through June 30, 2005, the Company
work
performed under the tenant improvement construction agreement totaled $366,034
(see Note 7).
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
16. Commitments
and Contingencies, Continued
Equipment
Lease Agreements
The
Company leases certain production and office equipment under noncancelable
operating lease agreements. The lease agreements, which currently require
combined monthly lease payments of $450, expire through December 2009. Annual
rent expense under these agreements was $1,817 for the year ended June 30,
2005.
Future minimum lease payments under these lease agreements are as
follows:
Year
ending June 30,
|
|
|
2006
|
|
$
5,400
|
2007
|
|
5,400
|
2008
|
|
5,400
|
2009
|
|
5,400
|
2010
|
|
2,700
|
17. Subsequent
Events
The
following events and transactions have occurred subsequent to June 30,
2005:
Sale
of Convertible Debentures Payable
Subsequent
to June 30, 2005, the Company sold an additional $550,000 of convertible
debentures pursuant to the January 31, 2005 Offering (see Notes 4 and
12).
Short-Term
Borrowing
On
October 14, 2005, the Company borrowed $250,000 under a short-term note payable.
The note, which bears interest at the rate of 10.0%, is due and payable on
December 1, 2005.
Production
Contract
On
August
25, 2005, the Company entered into an agreement with the Federal State Unitary
Enterprise Institute of Nuclear Medicine in Russia to purchase Barium-131,
enriched Barium-131 and Cesium-131. Under this agreement, the Company agreed
to
purchase an indeterminate quantity of these three radioactive isotopes. The
agreement provides for a ten-year period of exclusivity to buy these radioactive
isotopes if certain conditions are met, including volume of purchases. The
contract will terminate on October 25, 2012.
Equipment
Leases
Through
October 14, 2005, the Company entered into one additional equipment lease,
which
qualifies as an operating lease. The terms of the lease, which expires September
2006, require monthly payments of $250.
Through
October 14, 2005, the Company took delivery of production equipment that
was
financed through equipment leases, each of which qualifies as a capital lease.
The lease term for one of the leases is 36 months, and the lease term for
the
second lease is 48 months. The contract terms require combined monthly payments
of
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
17. Subsequent
Events, Continued
$10,824
for the first five months; $19,975 for the next 31 months; and $2,475 for
the
last 12 months. Equipment to be capitalized under these leases totals
approximately $500,000.
Merger
Transaction
On
May
27, 2005, the Company entered into a merger agreement with Century Park Pictures
Corporation (“Century”) to merge with Century’s newly-formed, wholly-owned
subsidiary. Century is a public company subject to the periodic reporting
requirements of the Securities Exchange Act of 1934.
On
July
28, 2005, the merger transaction closed. As a result of the merger, the Company
became a wholly-owned subsidiary of Century, which concurrently changed its
name
to IsoRay, Inc. IsoRay, Inc. issued shares of its common and preferred stock
to
the holders of common and preferred stock of the Company at a rate of 0.842362
share of IsoRay, Inc.’s common stock for each share of the Company’s stock.
Options and warrants to purchase common and preferred stock of the Company
were
also converted at the same rate into options and warrants to purchase common
and
preferred stock of IsoRay, Inc. Following the merger, IsoRay, Inc. had
approximately 10,237,797 shares of common and preferred stock outstanding.
On a
fully-diluted basis, the Company’s shareholders owned approximately 82% of
IsoRay, Inc.’s outstanding securities. Management believes the transaction has
been structured to qualify as a non-taxable reorganization under Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended.
Part
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
Item 24.
|
Indemnification
of Directors and Officers
|
The
Company's Articles of Incorporation provide to directors and officers
indemnification to the full extent provided by law, and provide that, to
the
extent permitted by Minnesota law, a director will not be personally liable
for
monetary damages to the Company or its shareholders for breach of his or
her
fiduciary duty as a director, except for liability for certain actions that
may
not be limited under Minnesota law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 25.
|
Other
Expenses of Issuance and Distribution
|
Securities
and Exchange Commission registration fee
|
|
$
|
3,445
|
|
Transfer
agent fees
|
|
$
|
2,000
|
|
Accounting
fees and expenses
|
|
$
|
5,000
|
|
Legal
fees and expenses
|
|
$
|
75,000
|
|
Blue
sky fees and expenses
|
|
$
|
10,000
|
|
|
|
|
|
|
Total
|
|
$
|
95,445
|
|
All
amounts are estimates, other than the Commission’s registration fee. We are
paying all expenses of the offering listed above. No portion of these expenses
will be borne by the selling shareholders. The selling shareholders, however,
will pay any other expenses incurred in selling their common stock, including
any brokerage commissions or costs of sale.
Item 26.
|
Recent
Sales of Unregistered Securities
|
During
the past three years the following sales of unregistered securities were
completed by the Registrant:
· |
In
April 2005, the Registrant sold an aggregate of 2,500,000 shares
(prior to
the Registrant's April 29, 2005 30:1 reverse stock split) for cash
proceeds of $85,000. These shares were sold to three purchasers
- Andrew
Ecclestone (1,470,000 shares), Gary Boster (882,000 shares) and
Philip and
Stephanie Rogers (148,000 shares) - in reliance on the exemption
from
registration provided by Section 4(2) of the Securities Act.
|
· |
On
December 3, 2003, the Registrant issued 787,100 pre-30:1 reverse
stock
split shares of restricted stock to Thomas Scallen, its former
CEO, as
compensation valued at $7,871, in reliance on the exemption from
registration provided by Section 4(2) of the Securities
Act.
|
· |
On
December 3, 2003, the Registrant issued 8,675,800 pre-30:1 reverse
stock
split shares of restricted stock to Mark Rosenberg in redemption
of two
notes payable of approximately $36,758, pursuant to the conversion
terms
of the two notes and in reliance on the exemption from registration
provided by Section 4(2) of the Securities
Act.
|
· |
On
June 23, 2003, the Registrant issued an aggregate 53,783,500 pre-30:1
reverse stock split shares of restricted common stock in redemption
of
various outstanding notes payable in the face amount of approximately
$300,000 and accrued interest payable of approximately $237,835,
pursuant
to the conversion terms of the respective notes and in reliance
on the
exemption from registration provided by Section 4(2) of the Securities
Act.
|
(except
as otherwise indicated, all exhibits were previously filed)
|
|
|
Exhibit #
|
|
Description
|
|
|
2.1
|
|
Merger
Agreement dated as of May 27, 2005, by and among Century Park
Pictures
Corporation, Century Park Transitory Subsidiary, Inc., certain
shareholders and IsoRay Medical, Inc. incorporated by reference
to the
Form 8-K filed on August 3, 2005.
|
|
|
2.2
|
|
Certificate
of Merger, filed with the Delaware Secretary of State on July
28, 2005
incorporated by reference to the Form 8-K filed on August 3,
2005.
|
|
|
3.1
|
|
Articles
of Incorporation and By-Laws are incorporated by reference to
the Exhibits
to the Registrant’s Registration Statement of September 15,
1983.
|
|
|
|
3.2
|
|
Certificate
of Designation of Rights, Preferences and Privileges of Series
A and B
Convertible Preferred Stock, filed with the Minnesota Secretary
of State
on June 29, 2005 incorporated by reference to the Form 8-K filed
on August
3, 2005.
|
|
|
|
3.3
|
|
Restated
and Amended Articles of Incorporation incorporated by reference
to the
Form 10-KSB filed on October 11, 2005.
|
|
|
|
4.2
|
|
Form
of Lock-Up Agreement for Certain IsoRay Medical, Inc. Shareholders
incorporated by reference to the Form 8-K filed on August 3,
2005.
|
|
|
|
4.3
|
|
Form
of Lock-Up Agreement for Anthony Silverman incorporated by reference
to
the Form 8-K filed on August 3, 2005.
|
|
|
|
4.4
|
|
Form
of Registration Rights Agreement among IsoRay Medical, Inc.,
Century Park
Pictures Corporation and the other signatories thereto incorporated
by
reference to the Form 8-K filed on August 3, 2005.
|
|
|
|
4.5
|
|
Form
of Escrow Agreement among Century Park Pictures Corporation,
IsoRay
Medical, Inc. and Anthony Silverman incorporated by reference
to the Form
8-K filed on August 3, 2005.
|
|
|
|
4.6
|
|
Form
of Escrow Agreement among Century Park Pictures Corporation,
IsoRay
Medical, Inc. and Thomas Scallen incorporated by reference to
the Form 8-K
filed on August 3, 2005.
|
|
|
|
4.7
|
|
Amended
and Restated 2005 Stock Option Plan incorporated by reference
to the Form
S-8 filed on August 19, 2005.
|
|
|
|
4.8
|
|
Amended
and Restated 2005 Employee Stock Option Plan incorporated by
reference to
the Form S-8 filed on August 19, 2005.
|
|
|
|
4.9
|
|
Form
of Registration Right Agreement among IsoRay Medical, Inc., Meyers
Associates, L.P. and the other signatories thereto, dated October
15,
2004, filed herewith.
|
5.1
|
|
Opinion
of Keller Rohrback, P.L.C., filed herewith.
|
|
|
|
10.2
|
|
Universal
License Agreement, dated November 26, 1997 between Donald C.
Lawrence and
William J. Stokes of Pacific Management Associates Corporation,
filed
herewith.
|
|
|
|
10.3
|
|
Royalty
Agreement of Invention and Patent Application, dated July 12,
1999 between
Lane A. Bray and IsoRay LLC, filed herewith.
|
|
|
|
10.4
|
|
Tri-City
Industrial Development Council Promissory Note, dated July
22, 2002, to be
filed by amendment.
|
|
|
|
10.5
|
|
Section
510(k) Clearance from the Food and Drug Administration to market
Lawrence
CSERION Model CS-1, dated March 28, 2003, filed
herewith.
|
|
|
|
10.6
|
|
Battelle
Project No. 45836 dated June 20, 2003, to be filed by
amendment.
|
|
|
|
10.7
|
|
Applied
Process Engineering Laboratory Apel Tenant Lease Agreement,
dated November
17, 2003 between Energy Northwest and IsoRay, LLC, to be filed
by
amendment.
|
|
|
|
10.8
|
|
Work
for Others Agreement No. 45658, R2, dated April 27, 2004 between
Battelle
Memorial Institute, Pacific Northwest Division and IsoRay Products
LLC, to
be filed by amendment.
|
|
|
|
10.9
|
|
Development
Loan Agreement for $230,000, dated September 15, 2004 between
Benton-Franklin Economic Development District and IsoRay Medical,
Inc., to
be filed by amendment.
|
|
|
|
10.10
|
|
Registry
of Radioactive Sealed Sources and Devices Safety Evaluation
of Sealed
Source, dated September 17, 2004, to be filed by
amendment.
|
|
|
|
10.11
|
|
CRADA
PNNL/245, “Y-90 Process Testing for IsoRay”, dated December 22, 2004
between Pacific Northwest National Laboratory and IsoRay Medical
Inc., to
be filed by amendment.
|
|
|
|
10.12
|
|
Amendment
1 to CRADA PNNL/245, dated February 14, 2005, to be filed by
amendment.
|
|
|
|
10.13
|
|
Amendment
1 to Agreement 45658, dated February 23, 2005 between Battelle
Memorial
Institute Pacific Northwest Division and IsoRay Medical, Inc.,
to be filed
by amendment.
|
|
|
|
10.14
|
|
Equipment
Lease Agreement dated April 14, 2005 between IsoRay Medical,
Inc. and
Nationwide Funding, LLC, to be filed by amendment.
|
|
|
|
10.15
|
|
Lease
Agreement, Rev. 1, dated May 5, 2005 between Pacific EcoSolutions,
Inc.
and IsoRay Medical, Inc., to be filed by amendment.
|
|
|
|
10.16
|
|
Master
Lease Agreement Number 5209, dated May 7, 2005 between VenCore
Solutions
LLC and IsoRay Medical, Inc., to be filed by amendment.
|
|
|
|
10.17
|
|
Contract
#840/08624332/04031 dated August 25, 2005 between IsoRay, Inc.
and the
Federal State Unitary Enterprise << Institute of Nuclear Materials
>>, Russia, filed herewith.
|
|
|
|
10.18
|
|
State
of Washington Radioactive Materials License dated October 6,
2005, filed
herewith.
|
|
|
|
10.19
|
|
Girard
Employment Agreement, dated October 6, 2005 between Roger E.
Girard and
IsoRay, Inc., to be filed by amendment.
|
|
|
|
10.20
|
|
Express
Pricing Agreement Number 219889, dated October 5, 2005 between
FedEx and
IsoRay Medical, Inc., to be filed by
amendment.
|
10.21
|
|
Agreement
dated October 12, 2005 between the Curators of the University
of Missouri
and IsoRay Medical, Inc., to be filed by amendment.
|
|
|
|
10.22
|
|
Contract
Modification Quality Class G, dated October 25, 2005 to Contract
Number
X40224 between Energy Northwest and IsoRay, Inc., to be filed
by
amendment.
|
|
|
|
21.1
|
|
Subsidiaries
of the Registrant, incorporated by reference to the Form 10-KSB
filed on
October 11, 2005.
|
|
|
|
23.1
|
|
Consent
of Keller Rohrback, P.L.C. (included in Exhibit 5.1)
|
|
|
|
23.2
|
|
Consent
of S.W. Hatfield, CPA, filed herewith.
|
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23.3
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Consent
of DeCoria, Maichel & Teague, P.S., filed
herewith.
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The
undersigned Registrant hereby undertakes:
1. To
file,
during any period in which offers or sales are being made, a post-effective
amendment to this registration statement to:
(a)
include
any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(b)
reflect
in the prospectus any facts or events which, individually or, together,
represent a fundamental change in the information in the registration statement.
Notwithstanding the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
(c) include
any additional or changed material information on the plan of distribution.
2.
For
determining liability under the Securities Act, to treat each such
post-effective amendment as a new registration statement of the securities
offered, and the offering of such securities at that time to be the initial
bona
fide offering.
3.
To
file a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to
the
provisions above, or otherwise, we have been advised that in the opinion
of the
Securities and Exchange Commission such indemnification is against public
policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities, other than
the
payment by us of expenses incurred or paid by one of our directors, officers,
or
controlling persons in the successful defense of any action, suit or proceeding,
is asserted by one of our directors, officers, or controlling persons in
connection with the securities being registered, we will, unless in the opinion
of our counsel the matter has been settled by controlling precedent, submit
to a
court of appropriate jurisdiction the question whether such indemnification
is
against public policy as expressed in the Securities Act, and we will be
governed by the final adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has authorized this Registration Statement to be signed
on its
behalf by the undersigned, thereunto duly authorized, in the City of Richland,
Washington on this 9th day of November, 2005.
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ISORAY,
INC. |
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By: |
/s/
Roger E.
Girard
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Roger
E. Girard, Chairman and Chief Executive Officer
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In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated:
Signature
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Title
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Date
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/s/
Roger E. Girard
Roger
E. Girard
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Chief
Executive Officer and Chairman
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November
9, 2005
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/s/
Michael K. Dunlop
Michael
K. Dunlop
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Chief
Financial Officer and Principal Accounting Officer
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November
9, 2005
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/s/
Stephen R. Boatwright
Stephen
R. Boatwright
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Director
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November
9, 2005
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/s/
Robert R. Kauffman
Robert
R. Kauffman
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Director
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November
9, 2005
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/s/
Thomas C. Lavoy
Thomas
C. LaVoy
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Director
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November
9, 2005
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/s/
David J. Swanberg
David
J. Swanberg
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Director
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November
9, 2005
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