Unassociated Document
As
filed with the Securities and Exchange Commission on November 16, 2007
Registration
Statement No. 333-129646
SECURITIES
AND EXCHANGE COMMISSION
POST-EFFECTIVE
AMENDMENT
NO. 6 TO
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 1400
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.
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
|
|
|
43,219
|
|
$
|
5.38
|
(2)
|
$
|
232,518
|
|
$
|
24.88
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, issuable upon exercise of stock
options
|
|
|
218,454
|
|
$
|
5.38
|
(2)
|
$
|
1,175,283
|
|
$
|
125.76
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value
|
|
|
4,004,264
|
|
$
|
5.45
|
(4)
|
$
|
21,823,238
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|
$
|
2,334.87
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, issuable upon exercise of
warrants
|
|
|
371,163
|
|
$
|
5.38
|
(2)
|
$
|
1,996,857
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|
$
|
213.66
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,637,100
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|
|
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|
$
|
25,227,896
|
|
$
|
2,699.17
|
(3)
|
(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.
|
(4) |
Represents
a combination of (2) and (5).
|
(5) |
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 March 20, 2006.
|
ISORAY,
INC.
4,637,100
Shares
Common
Stock
This
prospectus relates to the sale by the selling shareholders of up to 4,637,100
shares of our common stock, $0.001 par value. The 4,637,100 shares being
registered consist of the following: up to 4,004,264 shares of common stock,
up
to 43,219 shares of common stock underlying our convertible preferred stock
(including up to 6,967 shares of common stock issuable upon conversion of
preferred stock following the exercise of warrants to acquire our preferred
stock), up to 371,163 shares of common stock underlying warrants to purchase
common stock and up to 218,454 shares of common stock underlying options
to
purchase common stock, all held by the selling shareholders as of June 8,
2006.
The preferred stock is convertible into our common stock at one (1) share
of
common stock for each preferred share converted, the warrants are exercisable
at
prices ranging from $0.70 to $4.15 (excluding a warrant issued at an exercise
price of $10.00 for 12,500 shares of common stock) with expiration dates
ranging
from March 26, 2007 to May 10, 2008 and the options are exercisable at prices
ranging from $1.19 to $2.00 per share with expiration in July of 2015.
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 American Stock Exchange under the symbol "ISR".
On
November 9, 2007, the closing price of our common stock was $2.28 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 3.
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 16, 2007.
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
______________________________________________________________________________
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
|
1
|
RISK
FACTORS
|
3
|
USE
OF PROCEEDS
|
10
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS
|
10
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MARKET
FOR COMMON STOCK
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24
|
DESCRIPTION
OF BUSINESS
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25
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DESCRIPTION
OF PROPERTY
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44
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LEGAL
PROCEEDINGS
|
44
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
|
45
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
51
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SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
52
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
52
|
SELLING
SHAREHOLDERS
|
53
|
PLAN
OF DISTRIBUTION
|
62
|
DESCRIPTION
OF SECURITIES
|
63
|
LEGAL
MATTERS
|
67
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EXPERTS
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68
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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68
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FURTHER
INFORMATION
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68
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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.
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
("Medical"), began selling its initial product, the Food and Drug Administration
cleared ProxcelanTM
Cesium-131 brachytherapy seed (the "Proxcelan Cs-131
seed"), in October 2004 for the treatment of prostate cancer. Cesium-131
or
Cs-131 is an isotope of the element cesium that gives off low energy, “soft”
x-rays as it decays killing diseased tissue by irradiating it where it is
placed. Brachytherapy seeds allow physicians to place Cs-131 or another
radioactive isotope within the body to kill cancerous tissue. Our management
believes that the clinical benefits of Cesium-131 will enable us to capture
market share within the existing brachytherapy market, which uses the
radioactive isotopes Palladium-103 ("Pd-103") and Iodine-125 ("I-125").
Our
Corporate History
We
were
incorporated under Minnesota law in 1983. Since 1998 and until our merger with
Medical, we had no significant operations. On July 28, 2005, our subsidiary,
Century Park Transitory Subsidiary, Inc. merged into IsoRay Medical, Inc.,
making Medical our wholly-owned subsidiary.
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
|
|
4,637,100
shares by selling shareholders as of June 8, 2006
|
|
|
|
|
|
Offering
Price
|
|
Market
price or negotiated price
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Common
Stock Outstanding Before the Offering
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23,090,200
shares as of November 9, 2007
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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
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|
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
3.
|
|
|
AMEX
Symbol
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|
ISR
|
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. See, “Cautionary Note Regarding Forward-Looking Statements and Risk
Factors” below.
Risks
Related To Our Business
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 Proxcelan Cs-131
brachytherapy 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, Europe,
and Russia; 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 or third-party payers; regulatory developments
related to the manufacture or continued use of the product; availability
of
sufficient supplies of enriched barium for Cs-131 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
Cleared To Treat Any Malignant Tissue, Our Sole Product Is Currently Used
To
Treat One Type Of Cancer.
Currently, the Proxcelan Cs-131 seed is used exclusively for the treatment
of
prostate cancer. We believe the Proxcelan Cs-131 seed will be used to treat
cancers of other sites as well, as is currently the case with our competitors’
I-125 and Pd-103 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 Increasing Cash Requirements.
IsoRay
has generated material operating losses since inception. We expect to continue
to experience net operating losses. However, in March 2007, we completed
a
public equity offering and a warrant call that raised gross proceeds of
approximately $20 million. Due to raising this additional capital,
management believes cash and cash equivalents on hand at June 30, 2007 will
be sufficient to meet our anticipated cash requirements for operations, debt
service, and capital expenditure requirements through at least the next twelve
months. While we are generating significantly more revenue, if operating
costs
expand proportionately with revenue increases, other applications are pursued
for seed usage outside the prostate market, if protocols are expanded supporting
the integrity of our product, and marketing expenses increased, management
believes approximately $2 million in monthly revenue will be needed to reach
break-even. However, there is no assurance as to when break-even will
occur. If we are unable to generate profits and unable to obtain
additional financing to meet our working capital requirements, we may have
to
curtail our business.
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. Over eighty percent (80%) of our cesium is now supplied
through the Institute of Nuclear Materials (INM) located in Russia. This
percentage will continue to increase as demand for our products increases.
Management expects that we will be able to supplement our supply of cesium
with
deliveries under our recent contract with the Russian Research Institute
of
Atomic Reactors (RIAR). Although deliveries have not yet begun under this
contract, production capabilities at RIAR are well under development. With
the
development of barium enrichment capabilities, the Company plans to expand
Cs-131 manufacturing capability at the MURR reactor and create production
capabilities at Idaho’s Advanced Test Reactor (ATR). This strategy will reduce
the risk associated with concentrating isotope production at a single reactor
facility. Failure to obtain deliveries of cesium from these sources could
have a
material adverse effect on seed production and there may be a delay before
we
could locate alternative suppliers. We may not be able to locate suppliers
outside of Russia capable of producing the level of output of cesium at the
quality standards we require. 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 and our suppliers’ control.
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. We do not have formal written agreements with
either this key supplier or with Accellent Corporation. 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. To mitigate any
potential interruptions, the Company continually evaluates its inventory
levels
and management believes that the Company maintains a sufficient quantity
on hand
to alleviate any potential disruptions.
Future
Production Increases Will Depend on Our Ability to Acquire Larger Quantities
of
Cs-131 and Hire More Employees.
IsoRay
currently obtains Cs-131 through its contract with INM and through reactor
irradiation of natural barium and subsequent separation of cesium from the
irradiated barium targets. The amount of Cs-131 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 Ba-130.
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 exclusive agreements with the INM and the RIAR in Russia
to
provide Cs-131 in quantities sufficient to supply a significant percentage
of
future demand for this isotope. Delivery of the isotope from INM began in
January 2006 and delivery of initial quantities of the isotope from RIAR
is
expected to begin within the next six months. INM has unique capabilities
due to
its large irradiation capacity which will allow the Company to meet all of
its
Cs-131 demands without the use of enriched material for the foreseeable future.
Due to the purchase of enriched barium in June 2007, IsoRay now has access
to
sufficient quantities of enriched barium that may be recycled to increase
the
production of Cs-131 once the technology is developed to permit the use of
enriched barium to produce cesium. Although the agreements provide for supplying
Cs-131 in significant quantities, there is no assurance that this will result
in
IsoRay gaining access to a continuing sufficient supply of enriched barium
feedstock and if sufficient supplies are attained, we will need to increase
our
manufacturing staff. If we were unable to obtain supplies of isotopes from
Russia in the future, our overall supply of cesium and barium would be reduced
significantly unless the Company has a source of enriched barium for utilization
in domestic reactors.
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 payers, such as Medicare and private health insurance
plans. Currently, Medicare reimburses hospitals, clinics and physicians for
the
cost of seeds used in brachytherapy procedures on a pass through basis.
Historically, private insurers have followed Medicare guidelines in establishing
reimbursement rates. However, third-party payers 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 payers, and we can provide no assurance that
our
products will continue to qualify for reimbursement from all third-party
payers
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,
we applied to the Centers for Medicare and Medicaid Services (CMS) and received
a reimbursement code for use of our Cs-131 seed. As of July 1, 2007, CMS
revised
the coding system for brachytherapy seeds and separated the single code into
two
codes - one code for loose seeds and a second code for stranded seeds. This
methodology was applied to all companies manufacturing and distributing
brachytherapy seeds. Reimbursement amounts are reviewed and revised annually.
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.
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
facility;
|
|
·
|
the
amount and timing of sales
orders;
|
|
·
|
rate
and success of future product
approvals;
|
|
·
|
timing
of FDA clearance, 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
Have Limited Data on the Clinical Performance of Cs-131.
As of
November 1, 2007, the Proxcelan Cs-131 seed has been implanted in approximately
1,900 patients
and research papers are beginning to be published on the use of the Proxcelan
seed. However, we have less statistical data than is available for I-125
and
Pd-103 seeds. While this limited data 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 I-125 and
Pd-103 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 limited findings
support management’s belief that the Cs-131 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.
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.
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 production facility will 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. In June 2006, a U.S.
District court judge ruled that Initiative 297 was unconstitutional in its
entirety. However, the State of Washington has appealed this decision. If
this
decision is overturned and Initiative 297 is enforced, it could impact our
ability to manufacture our seeds in the State of Washington.
Management
believes that we will be able to continue our manufacturing operations in
the
State of Washington for the foreseeable future. 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
Are Subject To The Risk That Certain Third Parties May Mishandle Our
Product.
We
rely
on third parties, such as Federal Express, to deliver our Proxcelan Cs-131
seed,
and on other third parties, including various radiopharmacies, to package
our
Proxcelan Cs-131 seed in certain specialized packaging forms requested by
customers. We are subject to the risk that these third parties may mishandle
our
product, which could result in adverse effects, particularly given the
radioactive nature of our product.
It
Is
Possible That Other Treatments May Be Deemed Superior To
Brachytherapy.
Our
Proxcelan Cs-131 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 device 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. In addition, centers that wish to offer the Proxcelan
Cs-131 seed must comply with licensing requirements specific to the state
in
which they do business and these licensing requirements may take a considerable
amount of time to comply with. Certain centers may choose to not offer our
Proxcelan Cs-131 seed due to the time required to obtain necessary license
amendments. 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 Cs-131 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
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.
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
Cs-131, our patent pending on the manufacture of the brachytherapy seed,
our
patent applications on additional methods for producing Cs-131 and other
isotopes 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.
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 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 Proxcelan Cs-131 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 Proxcelan Cs-131 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 to the Company.
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 a five million dollar policy, 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.
At
our leased facility we 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 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.
Our
Ability To Operate In 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 Cs-131 from Russia under our contracts with INM and RIAR. If the
strategic alliance with IBt is ultimately consummated, it will allow the
Company
to obtain access to various foreign countries through IBt distribution channels
and customer relationships and leverage IBt's international regulatory
expertise.
Our
Ability To Expand Operations And Manage Growth Is Uncertain.
Our
efforts to expand our operations 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 the Proxcelan
Cs-131 seed were to rapidly become the “seed of choice,” 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 provisions
of
the Sarbanes Oxley Act of 2002 are implemented. The Company no longer qualifies
as a small business issuer under the federal securities laws for fiscal year
2008 and will therefore need to implement additional provisions of the Sarbanes
Oxley Act during this fiscal year. These reporting obligations will increase
our
operating costs.
Risks
Related To This Offering
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.
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 issuable upon conversion of outstanding preferred
stock
or exercise of warrants and options, 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 June 30, 2007, we had 22,789,324 outstanding shares of common
stock, and the following additional shares were reserved for issuance: 3,683,439
shares upon exercise of outstanding options, 3,627,764 shares upon exercise
of
outstanding warrants, and 59,065 shares upon conversion of preferred stock.
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 Exercise Of Derivative Securities May Cause Immediate
And Substantial Dilution To Our Existing Shareholders.
The
issuance of shares upon conversion of the preferred stock and the exercise
of
warrants and options may result in substantial dilution to the interests
of
other shareholders since these selling shareholders may ultimately convert
or
exercise and sell all or a portion of the full amount issuable upon exercise.
If
all derivative securities were converted or exercised into shares of common
stock, there would be an approximate additional 7,300,000 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.
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 our subsidiary's outstanding indebtedness
substantially restrict the ability of either company to pay dividends.
Accordingly, shareholders must be prepared to rely on sales of their common
stock after price appreciation to earn an investment return, which may never
occur. 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.
Certain
Provisions of Minnesota Law and Our Charter Documents Have an Anti-Takeover
Effect.
There
exist certain mechanisms under Minnesota law and our charter documents that
may
delay, defer or prevent a change of control. Anti-takeover provisions of
our
articles of incorporation, bylaws and Minnesota law could diminish the
opportunity for shareholders to participate in acquisition proposals at a
price
above the then-current market price of our common stock. For example, while
we
have no present plans to issue any preferred stock, our Board of Directors,
without further shareholder approval, may issue shares of undesignated preferred
stock and fix the powers, preferences, rights and limitations of such class
or
series, which could adversely affect the voting power of the common shares.
In
addition, our bylaws provide for an advance notice procedure for nomination
of
candidates to our Board of Directors that could have the effect of delaying,
deterring or preventing a change in control. Further, as a Minnesota
corporation, we are subject to provisions of the Minnesota Business Corporation
Act, or MBCA, regarding “business combinations,” which can deter attempted
takeovers in certain situations. Pursuant to the terms of a shareholder rights
plan adopted in February 2007, each outstanding share of common stock has
one
attached right. The rights will cause substantial dilution of the ownership
of a
person or group that attempts to acquire the Company on terms not approved
by
the Board of Directors and may have the effect of deterring hostile takeover
attempts. The effect of these anti-takeover provisions may be to deter business
combination transactions not approved by our Board of Directors, including
acquisitions that may offer a premium over the market price to some or all
shareholders. We may, in the future, consider adopting additional anti-takeover
measures. The authority of our Board to issue undesignated preferred or other
capital stock and the anti-takeover provisions of the MBCA, as well as other
current and any future anti-takeover measures adopted by us, may, in certain
circumstances, delay, deter or prevent takeover attempts and other changes
in
control of the company not approved by our Board of
Directors.
Cautionary
Note Regarding Forward-Looking Statements and Risk
Factors
In
addition to historical information, this prospectus contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (PSLRA). This statement is included for the
express purpose of availing IsoRay, Inc. of the protections of the safe harbor
provisions of the PSLRA.
All
statements contained in this prospectus, other than statements of historical
facts, that address future activities, events or developments are
forward-looking statements, including, but not limited to, statements containing
the words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions. 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
revenue, economic conditions or performance; any statements of belief; and
any
statements of assumptions underlying any of the foregoing. These statements
are
based on certain assumptions and analyses made by us in light of our experience
and our assessment of historical trends, current conditions and expected
future
developments as well as other factors we believe are appropriate under the
circumstances. However, whether actual results will conform to the expectations
and predictions of management is subject to a number of risks and uncertainties
described under “Risk Factors” above that may cause actual results to differ
materially.
Consequently,
all of the forward-looking statements made in this prospectus are qualified
by
these cautionary statements and there can be no assurance that the actual
results anticipated by management will be realized or, even if substantially
realized, that they will have the expected consequences to or effects on
our
business operations. 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.
USE
OF PROCEEDS
Critical
Accounting Policies and Estimates
Management’s
discussion and analysis of the Company’s financial condition and results of
operations is based upon its consolidated financial statements, which have
been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
management to make estimates and judgments that affect the reported amounts
of
assets, liabilities, revenues and expenses, and related disclosure of contingent
liabilities. On an on-going basis, management evaluates past judgments and
estimates, including those related to bad debts, inventories, accrued
liabilities, and contingencies. Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
Short-Term
Investments
The
Company invests certain excess cash in marketable securities consisting
primarily of commercial paper, auction rate securities, and money market
funds.
The Company classifies all debt securities as “available-for-sale” and records
the debt securities at fair value with unrealized gains and losses included
in
shareholders’ equity.
The
Company’s short-term investments consisted of the following at June 30, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Municipal
debt securities
|
|
$
|
3,000,000
|
|
$
|
–
|
|
Corporate
debt securities
|
|
|
6,942.840
|
|
|
–
|
|
|
|
$
|
9,942,840
|
|
$
|
–
|
|
At
June
30, 2007, all of the Company’s corporate debt securities mature within fiscal
year 2008. All municipal debt consists of auction rate securities that may
have
maturity dates exceeding 5 years, however, they reset each month. Based on
the
frequency of the auction reset periods, the fair market value approximates
cost.
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 or market. Cost of raw materials is determined
using the weighted average method. Cost of work in process and finished goods
is
computed using standard cost, which approximates actual cost, on a first-in,
first-out basis. As the Company has had minimal gross margin throughout the
past
fiscal years, inventories have generally been recorded at market 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
$1,500 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 following estimated useful
lives:
Production
equipment
|
|
|
3
to 7 years
|
|
Office
equipment
|
|
|
2
to 5 years
|
|
Furniture
and fixtures
|
|
|
2
to 5 years
|
|
Leasehold
improvements and capital lease assets are amortized over the shorter of the
life
of the lease or the estimated life of the asset.
The
Company has adopted the provisions of Statement of Financial Accounting
Standards (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.
Deferred
Financing Costs
Financing
costs related to the acquisition of debt are deferred and amortized over
the
term of the related debt using the effective interest method. Deferred financing
costs include the fair value of common shares issued to certain shareholders
for
their guarantee of certain Company debt in accordance with APB 21 and EITF
Issue
95-13. The value of the shares issued was the estimated market price of the
shares as of the date of issuance. Amortization of deferred financing costs,
totaling $178,633 and $296,608 for the years ended June 30, 2007 and 2006,
respectively, is included in financing expense on the statements of
operations.
The
Company’s deferred financing costs consisted of the following at June 30, 2007
and 2006:
|
|
2007
|
|
2006
|
|
Value
of shares issued to guarantors:
|
|
|
|
|
|
|
|
Benton-Franklin
Economic Development District (83,640
shares)
|
|
$
|
138,006
|
|
$
|
138,006
|
|
Columbia
River Bank line of credit (127,500
shares)
|
|
|
–
|
|
|
210,375
|
|
Benton-Franklin
Economic Development District loan fees
|
|
|
3,450
|
|
|
3,450
|
|
Columbia
River Bank line of credit loan fees
|
|
|
–
|
|
|
500
|
|
Convertible
debentures issuance costs
|
|
|
–
|
|
|
30,047
|
|
Hanford
Area Economic Investment Fund Committee loan fees
|
|
|
22,128
|
|
|
22,128
|
|
Less
amortization
|
|
|
(67,859
|
)
|
|
(130,148
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
95,725
|
|
$
|
274,358
|
|
In
June
2007, the Company elected not to renew its line of credit with Columbia River
Bank due to the Company’s current cash position. The Company wrote off the
remaining net deferred financing charges of $98,409 relating to this line
of
credit.
Licenses
Amortization
of licenses is computed using the straight-line method over the estimated
economic useful lives of the assets. In fiscal year 2006, the Company entered
into an agreement with IBt, SA, a Belgian company (IBt) to use IBt’s proprietary
“Ink Jet” production process and its proprietary polymer seed technology for use
in brachytherapy procedures using Cs-131. The Company paid license fees of
$275,000 during fiscal year 2006 and another payment of $225,000 was to be
made
in August 2006 pursuant to the license agreement. Royalty payments based
on net
sales revenue incorporating the technology are also required, with minimum
quarterly royalties ranging from $100,000 to $200,000 and minimum annual
royalties ranging from $400,000 to $800,000 over the term of the agreement.
The
IBt license is being amortized over the 15-year term of the license
agreement.
In
the
fourth quarter of fiscal year 2007, the Company reviewed the carrying values
of
licenses. As of the date of this prospectus, the August 2006 payment has
not
been made as the Company and IBt intend to enter into an amendment to the
license agreement.
Amortization
of licenses was $23,426 and $20,530 for the years ended June 30, 2007 and
2006,
respectively. Based on the licenses recorded at June 30, 2007, and assuming
no
subsequent impairment of the underlying assets, the annual amortization expense
for each fiscal year ending June 30, is expected to be as follows: $30,795
for
2008, $18,770 for 2009, $18,481 for 2010, $18,333 for 2011, $18,333 for 2012,
and $157,363 thereafter.
Other
Assets
Other
assets, which include deferred charges and patents, are stated at cost, less
accumulated amortization. Amortization of patents 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 any impairments
are recognized when the expected future operating cash flows to be derived
from
such assets are less than their carrying value.
Based
on
the patents and other intangible assets recorded in other assets at June
30,
2007, and assuming no subsequent impairment of the underlying assets, the
annual
amortization expense for each fiscal year ending June 30, is expected to
be as
follows: $30,155 for 2008, $2,632 for 2009, $2,632 for 2010, $2,632 for 2011,
$2,632 for 2012, and $12,192 thereafter.
Asset
Retirement Obligation
SFAS
No.
143, Asset
Retirement Obligations,
establishes standards for the recognition, measurement and disclosure of
legal
obligations associated with the costs to retire long-lived assets. Accordingly,
under SFAS No. 143, the fair value of the future retirement costs of the
Company’s leased assets are recorded as a liability on a discounted basis when
they are incurred and an equivalent amount is capitalized to property and
equipment. The initial recorded obligation, which has been discounted using
the
Company’s credit-adjusted risk free-rate, will be reviewed periodically to
reflect the passage of time and changes in the estimated future costs underlying
the obligation. The Company amortizes the initial amount capitalized to property
and equipment and recognizes accretion expense in connection with the discounted
liability over the estimated remaining useful life of the leased
assets.
In
fiscal
year 2006, the Company established an initial asset retirement obligation
of
$63,040 which represents the discounted cost of cleanup that the Company
anticipates it will have to incur at the end of its equipment and property
leases. This amount was determined based on discussions with qualified
production personnel and on historical evidence. During fiscal year 2007,
the
Company reevaluated its obligations based on discussions with the Washington
Department of Health and determined that the initial asset retirement obligation
should be increased by an additional $56,120. The Company anticipates spending
most of the amounts represented by this accrual in fiscal year 2008. In
addition, another asset retirement obligation will be established in the
first
quarter of fiscal year 2008 representing obligations at its new production
facility. This new asset retirement obligation will be for obligations to
remove
any residual radioactive materials and to remove any unwanted leasehold
improvements.
During
the years ended June 30, 2007 and 2006, the asset retirement obligation changed
as follows:
|
|
2007
|
|
2006
|
|
Beginning
balance
|
|
$
|
67,425
|
|
$
|
–
|
|
New
obligations
|
|
|
–
|
|
|
63,040
|
|
Changes
in estimates of existing obligations
|
|
|
56,120
|
|
|
–
|
|
Accretion
of discount
|
|
|
7,597
|
|
|
4,385
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
131,142
|
|
$
|
67,425
|
|
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;
short-term investments; accounts receivable; accounts payable; notes payable;
capital lease obligations; and convertible debentures payable, approximated
their fair values at June 30, 2007 and 2006.
Revenue
Recognition
The
Company applies the provisions of SEC Staff Accounting Bulletin (SAB)
No. 104, Revenue
Recognition.
SAB
No. 104, which supersedes SAB No. 101, Revenue
Recognition in Financial Statements,
that
provides guidance on the recognition, presentation and disclosure of revenue
in
financial statements. SAB No. 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for the disclosure of revenue
recognition policies. The Company recognizes revenue related to product sales
when (i) persuasive evidence of an arrangement exists, (ii) shipment
has occurred, (iii) the fee is fixed or determinable, and
(iv) collectability is reasonably assured.
Revenue
for the fiscal years ended June 30, 2007 and 2006 was derived solely from
sales
of the Proxcelan Cs-131 brachytherapy seed, which is used in the treatment
of
cancer. The Company recognizes revenue once an order has been received and
shipped to the customer. Prepayments, if any, received from customers prior
to
the time that products are shipped are recorded as deferred revenue. In these
cases, when the related products are shipped, the amount recorded as deferred
revenue is recognized as revenue. The Company accrues for sales returns and
other allowances at the time of shipment. Although the Company does not have
an
extensive operating history upon which to develop sales returns estimates,
we
have used the expertise of our management team, particularly those with
extensive industry experience and knowledge, to develop a proper methodology
for
estimating returns.
Stock-Based
Compensation
Prior
to
July 1, 2006, the Company accounted for share-based employee compensation,
including stock options, using the method prescribed in Accounting Principles
Board Opinion No. 25, Accounting
for Stock Issued to Employees
and
related interpretations (APB 25). Under APB 25, for stock options granted
at
market price, no compensation cost was recognized and a disclosure was made
regarding the pro forma effect on net earnings assuming compensation cost
had
been recognized in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation
(SFAS
123). On December 16, 2004, the Financial Accounting Standards Board issued
SFAS
No. 123 (Revised 2004), Share
Based Payment
(SFAS
123R), which requires companies to measure and recognize expense for all
share-based payments at fair value. SFAS 123R eliminates the ability to account
for share-based compensation transactions using APB 25 and generally requires
that such transactions be accounted for using prescribed fair-value-based
methods. SFAS 123R permits public companies to adopt its requirements using
one
of two methods: (a) a “modified prospective” method in which compensation
costs are recognized beginning with the effective date based on the requirements
of SFAS No. 123R for all share-based payments granted or modified after the
effective date, and based on the requirements of SFAS No. 123 for all awards
granted to employees prior to the effective date of SFAS No. 123R that remain
unvested on the effective date or (b) a “modified retrospective” method
which includes the requirements of the modified prospective method described
above, but also permits companies to restate based on the amounts previously
recognized under SFAS No. 123 for purposes of pro forma disclosures either
for
all periods presented or for prior interim periods of the year of adoption.
Effective July 1, 2006, the Company adopted SFAS 123R using the modified
prospective method. No share-based employee compensation cost was reflected
in
the statement of operations prior to the adoption of SFAS No. 123R. Results
for
prior periods have not been restated.
The
following table presents the share-based compensation expense recognized
in
accordance with SFAS 123R during the year ended June 30, 2007 and in accordance
with APB 25 during the year ended June 30, 2006:
|
|
Year
ended June 30,
|
|
|
|
|
|
2006
|
|
Cost
of product sales
|
|
$
|
120,710
|
|
$
|
–
|
|
Research
and development
|
|
|
41,481
|
|
|
–
|
|
Sales
and marketing
|
|
|
216,432
|
|
|
–
|
|
General
and administrative
|
|
|
1,449,491
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Total
share-based compensation
|
|
$
|
1,828,114
|
|
$
|
–
|
|
The
total
value of the stock options awards is expensed ratably over the service
period of
the employees receiving the awards. As of June 30, 2007, total unrecognized
compensation cost related to stock-based options and awards was $1,707,843
and
the related weighted-average period over which it is expected to be recognized
is approximately 1.23 years.
Research
and Development Costs
Research
and development costs, including salaries, research materials, administrative
expenses and contractor fees, are charged to operations as incurred. The
cost of
equipment used in research and development activities that 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.
Legal
Contingencies
In
the
ordinary course of business, the Company is involved in legal proceedings
involving contractual and employment relationships, product liability claims,
patent rights, environmental matters, and a variety of other matters. The
Company is also subject to various local, state, and federal environmental
regulations and laws due to the isotopes used to produce the Company’s product.
As part of normal operations, amounts are expended to ensure that the Company
is
in compliance with these laws and regulations. While there have been no
reportable incidents or compliance issues, the Company believes that when
it
relocates its production facilities then certain decommissioning expenses
will
be incurred and has recorded an asset retirement obligation for these
expenses.
The
Company records contingent liabilities resulting from asserted and unasserted
claims against it, when it is probable that a liability has been incurred
and
the amount of the loss is reasonably estimable. The Company discloses contingent
liabilities when there is a reasonable possibility that the ultimate loss
will
exceed the recorded liability. Estimating probable losses requires analysis
of
multiple factors, in some cases including judgments about the potential
actions
of third-party claimants and courts. Therefore, actual losses in any future
period are inherently uncertain. Currently, the Company does not believe
any
probable legal proceedings or claims will have a material impact on its
financial position or results of operations. However, if actual or estimated
probable future losses exceed the Company’s recorded liability for such claims,
it would record additional charges as other expense during the period in
which
the actual loss or change in estimate occurred.
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 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 shareholders
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. At June 30, 2007 and
2006,
the calculation of diluted weighted average shares does not include preferred
stock, options, or warrants that are potentially convertible into common
stock
as those would be antidilutive due to the Company’s net loss
position.
Securities
that could be dilutive in the future as of June 30, 2007 and 2006 are as
follows:
|
|
2007
|
|
2006
|
|
Preferred
stock
|
|
|
59,065
|
|
|
144,759
|
|
Preferred
stock warrants
|
|
|
–
|
|
|
179,512
|
|
Common
stock warrants
|
|
|
3,627,764
|
|
|
2,502,769
|
|
Common
stock options
|
|
|
3,683,439
|
|
|
3,129,692
|
|
Convertible
debentures
|
|
|
–
|
|
|
109,639
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities
|
|
|
7,370,268
|
|
|
6,066,371
|
|
Results
of Operations
Financial
Presentation
The
following sets forth a discussion and analysis of the Company’s financial
condition and results of operations for the two years ended June 30, 2007
and
2006 and the three months ended September 30, 2007 and 2006. This discussion
and
analysis should be read in conjunction with our consolidated financial
statements appearing elsewhere in this prospectus. The following discussion
contains forward-looking statements. Our actual results may differ significantly
from the results discussed in such forward-looking statements. Factors that
could cause or contribute to such differences include, but are not limited
to,
those discussed in the “ Risk Factors” section of this
prospectus.
Year
ended June 30, 2007 compared to year ended June 30, 2006
Product
sales.
Revenues
for the year ended June 30, 2007 were $5,738,033 compared to revenues of
$1,994,306 for the year ended June 30, 2006. The increase of $3,743,727 or
188%
is due to increased sales volume of the Company’s Proxcelan (Cs-131) seed. All
of the Company’s revenues were generated through sales of its Proxcelan (Cs-131)
seeds for the treatment of prostate cancer. The number of medical centers
that
purchased Proxcelan seeds during the fiscal year ended June 30, 2007 has
grown
to 59 as compared to 26 medical centers that ordered seeds in the fiscal
year
ended June 30, 2006.
Cost
of product sales.
Cost of
product sales was $5,792,630 for the year ended June 30, 2007 compared to
cost
of product sales of $3,815,122 for the year ended June 30, 2006. The increase
of
$1,977,508 or 52% was mainly due to higher production levels during the year
ended June 30, 2007 which were related to the increase in sales volume over
the
corresponding period from 2006. The major components of the increase were
wages,
benefits and related taxes, materials, depreciation, preload expenses, and
share-based compensation. Wages, benefits, and related taxes increased about
$753,000 for the year ended June 30, 2007 due to the hiring of additional
production employees to support the higher production levels. Materials costs
increased about $201,000 due to increased sales volume. Depreciation and
amortization expense increased about $245,000 due to the addition of equipment
that was placed in service in fiscal year 2006 or 2007. Preload expenses
increased about $301,000 due to higher sales volumes. Share-based compensation
expense was about $121,000 in fiscal year 2007 as the Company implemented
SFAS
No. 123R on July 1, 2006. These increases were partially offset by a decrease
in
payments to Pacific Northwest National Laboratory (PNNL). During part of
fiscal
year 2006, the Company used PNNL for manufacturing and other ancillary services.
The Company stopped using PNNL to produce the seeds during fiscal year 2006
but
continues to use PNNL for certain analytical support
functions.
Gross
loss.
Gross
loss for the year ended June 30, 2007 was $54,597 compared to gross loss
of
$1,820,816 for the year ended June 30, 2006. The decrease of $1,766,219 or
97%
was due to higher revenues offsetting fixed production costs and increased
production efficiency.
Research
and development.
Research
and development expenses for the year ended June 30, 2007 were $1,345,163
which
represents an increase of $894,738 or 199% over the research and development
expenses of $450,425 for the corresponding period of 2006. The major components
of the increase were wages, benefits and related taxes, consulting, legal
expenses, share-based compensation, and protocol expenses. Wages, benefits
and
related taxes were approximately $294,000 and $77,000 for the years ended
June
30, 2007 and 2006, respectively as the Company hired research scientists
and
associated personnel. Consulting expenses increased during 2007 due to a
project
to increase the efficiency of isotope production. The Company incurred
approximately $245,000 of legal expense related to patents and trademarks
that
were expensed. Share-based compensation expense was approximately $41,000
and $0
for the years ended June 30, 2007 and 2006, respectively, as the Company
implemented SFAS No. 123R on July 1, 2006. Clinical study protocol expenses
were
approximately $227,000 and $116,000 for the years ended June 30, 2007 and
2006,
respectively, due to payments to clinics for participation in the Company’s
protocols.
Sales
and marketing expenses.
Sales
and marketing expenses were $3,384,472 for the year ended June 30, 2007.
This
represents an increase of $1,963,972 or 138% compared to the year ended June
30,
2006 sales and marketing expenses of $1,420,500. Wages, benefits, payroll
taxes,
travel, and office and other support expenses on behalf of our sales, marketing,
and customer service staff increased about $1,100,000 due to the hiring of
additional sales and marketing personnel. Conventions and tradeshows increased
by about $217,000 due to the Company’s continued and expanding presence at these
events in an effort to expand its market share. Marketing and advertising
expenses increased about $149,000 as the Company has created and distributed
brochures, videos, and other promotional literature designed to promote the
benefits of our product. Consulting expenses increased about $151,000 due
to
consultants hired to assist with protocols, develop a branding strategy,
and
increase brand awareness. Share-based compensation expense was about $216,000
in
fiscal year 2007 as the Company implemented SFAS No. 123R on July 1,
2006.
General
and administrative expenses.
General
and administrative expenses for the year ended June 30, 2007 were $4,915,598
compared to general and administrative expenses of $3,503,522 for the
corresponding period of 2006. The increase of $1,412,076 or 40% is primarily
due
to approximately $1,449,000 of share-based compensation expense related to
the
implementation of SFAS No. 123R on July 1, 2006, approximately $440,000 of
increased payroll costs due to a higher headcount, and approximately $243,000
relating to investor relations and other public company expenses. These
increased expenses were partially offset by a reduction in consulting fees
of
approximately $455,000 including $330,000 which represented merger consulting
fees incurred in the three months ended September 30, 2005. Other consulting
fees were reduced as the Company used less external resources. Legal expenses
and audit fees decreased approximately $160,000 as the Company had more
regulatory and other filings in fiscal year 2006 due to the merger, private
placements, and registration statement filings.
Operating
loss.
Due to
our rapid structural growth and related need to capture additional market
share,
product revenues not covering production costs, and significant research
and
development expenditures, we have not been profitable, and have generated
operating losses since our inception. In the year ended June 30, 2007, the
Company had an operating loss of $9,699,830 which is an increase of $2,504,567
or 35% over the operating loss of $7,195,263 for the year ended June 30,
2006.
Included in the operating loss for the year ended June 30, 2007 is share-based
compensation of $1,828,114 due to the implementation of SFAS No. 123R on
July 1,
2006. Without the share-based compensation expense, our operating loss would
have only increased by $676,453 or 9%.
Interest
income.
Interest
income was $406,921 for the year ended June 30, 2007 compared to interest
income
of $51,744 for the year ended June 30, 2006. Interest income is mainly derived
from excess funds held in money market and investment accounts. The increase
of
$355,177 or 686% was due to the additional cash and investment balances held
by
the Company due to the additional capital raised throughout the year ended
June
30, 2007.
Financing
expense.
Financing expense for the year ended June 30, 2007 was $312,246 or a decrease
of
$376,854 or 55% from financing expense of $689,100 for the corresponding
period
in 2006. Included in financing expense is interest expense of approximately
$134,000 and $332,493 for the years ended June 30, 2007 and 2006, respectively.
The decrease in interest expense is due to the conversion of debentures to
common stock during the fiscal year ended June 30, 2006 partially offset
by
interest expense related to the Hanford Area Economic Investment Fund Committee
(HAEIFC) loan that was entered into in June 2006. The remaining balance of
financing expense represents the amortization of deferred financing costs
which
decreased due to the write-off in fiscal year 2006 of the deferred financing
costs relating to the debentures that were converted to common stock, partially
offset by the amortization of the HAEIFC deferred financing costs and the
write-off in fiscal year 2007 of the deferred financing costs relating to
the
Columbia River Bank line of credit that the Company elected not to
renew.
Debt
conversion expense.
Debt
conversion expense for the year ended June 30, 2006 relates to the one-time
recognition of $385,511 expense in short-term inducement to convert
debentures.
Three
months ended September 30, 2007 compared to three months ended September
30,
2006
Revenues.
The
Company generated revenue of $1,855,719 during the three months ended September
30, 2007 compared to sales of $1,025,444 during the three months ended September
30, 2006. The increase of $830,275 or 81% is due to increased sales of the
Company’s Proxcelan Cs-131 brachytherapy seed. During the three months ended
September 30, 2007, the Company sold its Proxcelan seeds to 49 different
medical
centers as compared to 23 medical centers during the corresponding period
of
2006.
Cost
of product sales.
Cost of
product sales was $2,005,502 for the three months ended September 30, 2007
compared to cost of product sales of $1,288,145 during the three months ended
September 30, 2006. The increase of $717,357 or 56% was mainly due to higher
production levels during the three months ended September 30, 2007 which
were
related to the increase in sales volume over the corresponding period from
2006
and increased isotope expenditures and small tools expense related to the
start-up of the new facility. The major components of the increase attributable
to higher production levels were wages, benefits, and related taxes, materials,
depreciation, preload expenses, and occupancy costs. Wages, benefits, and
related taxes increased approximately $131,000 due to the hiring of additional
production employees to support the higher production levels. Material costs
increased approximately $281,000 due to increased sales volume. Depreciation
and
amortization expense increased approximately $118,000 due to the additional
equipment placed in service in fiscal year 2007 and 2008. Preload expenses
increased approximately $88,000 due to higher sales volumes. Occupancy costs
increased approximately $42,000 due to higher rent expense on the Company’s new,
larger production facility and the continued rental payments on our old
production facility. These increases were partially offset by a decrease
in
consulting expenses of approximately $64,000 as the quarter ended September
30,
2006 contained consulting projects that were completed during fiscal year
2007
and less consulting projects were undertaken in the quarter ended September
30,
2007 due to the Company’s focus on opening the new facility.
In
addition to the increases noted above, the Company also had the following
increases in cost of product sales expenditures that are directly related
to the
new facility that was opened in September 2007. The Company ordered isotope
for
the old facility to ensure adequate supply based on sales forecasts while
it
prepared to transition into the new production facility. To ensure a smooth
transition with no missed order shipments, the Company ordered an additional
$38,000 of isotope in September 2007 that was not utilized as the removal
and
transportation of the isotope from the old facility to the new facility
presented logistical challenges that made it cost prohibitive. As part of
opening the new facility, the Company incurred approximately $20,000 of wages
and related taxes for personnel to perform equipment set-up and validation.
The
Company also expensed approximately $82,000 of production materials and small
tools for the new facility, none of which individually exceeded the $2,500
threshold the Company uses in determining whether to capitalize production
equipment.
Gross
loss. Gross
loss was $149,783 for the three month period ended September 30, 2007 compared
to a gross loss of $262,701 for the three month period
ended
September 30, 2006. The decrease of $112,918 or 43% was due to higher revenues
offsetting fixed production costs partially offset by start-up costs of the
new
production facility.
Research
and development. Research
and development
expenses
for the three month period ended September 30, 2007 were $256,370 which
represents an increase of $10,772 or 4% over the research and development
expenses of $245,598 for the corresponding period of 2006. The slight increase
is due to wages, benefits, and related taxes increasing approximately $13,000
due to higher salaries, consulting expenses increasing approximately $9,000
as
the Company continues its project to increase the efficiency of isotope
production, legal fees increasing approximately $17,000 relating to patents
and
trademarks, and other miscellaneous expenses increasing approximately $15,000.
These increases were partially offset by a decrease of approximately $43,000
in
clinical study protocol expenses as our mono therapy protocol is fully enrolled
and our dual therapy protocol is just beginning to enroll
patients.
Sales
and marketing expenses. Sales
and
marketing expenses were $1,059,816 for the three months ended September 30,
2007. This represents an increase of $386,886 or 57% compared to expenditures
in
the three months ended September 30, 2006 of $672,930 for sales and marketing.
Wages, benefits, payroll taxes, travel and office and other support expenses
relating to the Company’s sales, marketing, and customer service personnel
increased approximately $304,000 due to the hiring of additional
sales
and marketing personnel. From September 30, 2006 to September 30, 2007, the
Company increased its sales staff by eight persons. Marketing and advertising
increased approximately $40,000 as the Company’s brochures, literature, and
other marketing materials have been updated to reflect new clinical study
protocol results and conclusions and the new Proxcelan brand name. Consulting
expenses also increased about $48,000 relating to consultants hired to assist
with protocols, healthcare reimbursement, and business
development.
General
and administrative expenses.
General
and administrative expenses for the three months ended September 30, 2007
were
$902,025 compared to general and administrative expenses of $1,733,132 for
the
corresponding period of 2006. The decrease of $831,107 or 48% is primarily
due
to a decrease in share-based compensation expense of approximately $592,000
and
a one-time severance accrual of $288,000 in the corresponding period of 2006.
These were partially offset by an increase in investor relations and other
public company expenses of approximately $77,000 due to higher cash payments
to
directors and increased investor relations activities.
Operating
loss.
Due to
the Company’s rapid structural growth and related need to capture additional
market share, through the hiring of additional sales and marketing personnel,
product revenues not covering production costs, and significant research
and
development expenditures, the Company has not been profitable, and has generated
operating losses since its inception. In the three months ended September
30,
2007, the Company had an operating loss of $2,367,994 which is a decrease
of
$546,367 or 19% over the operating loss of $2,914,361 for the three months
ended
September 30, 2006.
Interest
income.
Interest
income was $238,696 for the three months ended September 30, 2007. This
represents an increase of $198,513 or 494% compared to interest income of
$40,183 for the three months ended September 30, 2006. Interest income is
mainly
derived from excess funds held in money market accounts and invested in
short-term investments.
Financing
expense.
Financing expense for the three months ended September 30, 2007 was $30,103
or a
decrease of $23,154 or 43% from financing expense of $53,257 for the
corresponding period in 2006. Included in financing expense is interest expense
of approximately $22,000 and $31,000 for the three months ended September
30,
2007 and 2006, respectively. The decrease in interest expense is due to the
maturity and payment of the convertible debentures during the fiscal year
ended
June 30, 2007. The remaining balance of financing expense represents the
amortization of deferred financing costs which decreased due to the final
amortization of the deferred financing costs relating to the convertible
debentures and the write-off in fiscal year 2007 of the deferred financing
costs
relating to the Columbia River line of credit.
Liquidity
and capital resources.
We have
historically financed our operations through cash investments from shareholders.
During fiscal year 2007 our primary source of cash was an institutional round
of
financing (August 2006), a public direct equity offering (March 2007), and
the
exercise of common stock warrants and options and preferred stock warrants.
During the quarter ended September 30, 2007, the Company’s primary source of
cash was the exercise of common stock warrants and options for $983,000 and
the
Company primarily used existing cash reserves to fund its operations and
capital
expenditures.
Cash
flows from operating activities
Cash
used
in operating activities was $7.3 million in fiscal year 2007 compared to
$7.0
million in fiscal year 2006, an increase of approximately $300,000. Cash
used by
operating activities is net loss adjusted for non-cash items and changes
in
operating assets and liabilities. The increase is mainly related to an increase
in net loss of approximately $600,000. The large increase due to the higher
accounts payable balance is partially offset by the large decrease related
to
higher inventory levels and mainly results from the accrual of approximately
$470,000 for the purchase of enriched barium in June 2007. This invoice was
paid
in July 2007. The remaining increase in accounts payable is due to higher
production and operating levels.
Cash
used
in operating activities was $2.3 million for the three months ended September
30, 2007 compared to $2.0 million for the three months ended September 30,
2006.
Cash used by operating activities is net loss adjusted for non-cash items
and
changes in operating assets and liabilities. The increase in cash usage is
mainly due to an increase in operating assets and liabilities related to
a large
decrease in accounts payable and accrued expenses. This is due to a payment
in
July 2007 for enriched barium that was included in the Company’s June 2007
accounts payable balance.
Cash
flows from investing activities
In
2007,
the Company invested its excess cash generated from shareholder investments.
During 2007, the Company purchased $10.9 million of various short-term
investments (mainly commercial paper and municipal auction rate securities).
One
of these investments valued at approximately $1.0 million matured and was
subsequently reinvested. As of June 30, 2007, short-term investments held
by the
Company amounted to $9.9 million.
Cash
expenditures for fixed assets were $2.4 million in fiscal 2007 and $475,000
in
fiscal 2006. The large increase is mainly due to construction of our new
facility and equipment purchases for the new facility. The Company expects
to
spend approximately $4.0 to $5.0 million during fiscal year 2008 for capital
expenditures to complete the construction of our new facility and purchase
other
equipment.
Cash
used
in investing activities was approximately $1.5 million and $77,000 for the
three
months ended September 30, 2007 and 2006, respectively. Cash expenditures
for
fixed assets were approximately $2.5 million and $55,000 during the three
months
ended September 30, 2007 and 2006, respectively. The large increase is mainly
due to construction of our new facility and equipment purchases for the new
facility. This was partially offset by net proceeds of approximately $1.0
million from the sale of short-term securities.
Cash
flows from financing activities
In
August
2006, the Company completed an institutional round of financing. Pursuant
to the
round of institutional financing the Company issued 2,063,000 shares of common
stock at a price of $2.50 per share and 2,269,300 common stock warrants
(including broker warrant commissions) with an exercise price of $3.00 per
share. The common stock issued provided approximately $4.7 million, net of
offering costs. All of the warrants were exercised prior to the call date
of
March 26, 2007 which provided an additional $6.8 million of
cash.
In
March
2007, the Company issued 4,130,500 shares of common stock at a price of $4.00
per share, 826,100 common stock warrants with an exercise price of $5.00
per
share, and 206,526 common stock warrants representing placement agent warrants
with an exercise price of $4.40 per share. This public direct equity offering
provided approximately $15.1 million, net of offering costs.
Additionally,
the Company issued 781,705 shares of common stock pursuant to the exercise
of
common stock options and warrants (excluding the warrants issued pursuant
to the
round of institutional financing) and preferred stock warrants, which were
exchanged for common stock immediately upon exercise. The Company received
approximately $900,000 in cash pursuant to these exercises.
During
the three months ended September 30, 2007, the Company issued 244,000 shares
of
common stock pursuant to the exercise of common stock options and warrants.
The
Company received $983,000 in cash pursuant to these
exercises.
Projected
2008 Liquidity and Capital Resources
At
September 30, 2007, cash and cash equivalents amounted to $6,448,058 and
short-term investments amounted to $8,972,430 compared to $9,355,730 of cash
and
cash equivalents and $9,942,840 of short-term investments at June 30,
2007.
The
Company had approximately $4.8 million of cash and $9.0 million of short-term
investments as of November 2, 2007. As of that date management believed that
the
Company’s monthly required cash operating expenditures were approximately
$600,000 excluding capital expenditure requirements. The Company’s cash
operating expenditures were higher than this level during the quarter ended
September 30, 2007 but this was mainly due to the additional expenditures
necessary to make the new facility operational while maintaining operations
at
the previous facility.
Assuming
operating costs expand proportionately with revenue increases, other
applications are pursued for seed usage outside the prostate market, protocols
are expanded supporting the integrity of the Company’s product and sales and
marketing expenses continue to increase, management believes the Company
will
reach breakeven with revenues of approximately $2 million per month.
Management’s plans to attain breakeven and generate additional cash flows
include increasing revenues from both new and existing customers, developing
additional therapies, and maintaining cost control. However, there can be
no
assurance that the Company will attain profitability or that the Company
will be
able to attain its aggressive revenue targets. If the Company does not
experience the necessary increases in sales or if it experiences unforeseen
manufacturing constraints, the Company may need to obtain additional
funding.
The
Company expects to finance its future cash needs through the sale of equity
securities, solicitation to warrant holders to exercise their warrants, and
possibly strategic collaborations or debt financing or through other sources
that may be dilutive to existing shareholders. If the Company needs to raise
additional money to fund its operations, funding may not be available to
it on
acceptable terms, or at all. If the Company is unable to raise additional
funds
when needed, it may not be able to market its products as planned or continue
development and regulatory approval of its future products. If the Company
raises additional funds through equity sales, these sales may be dilutive
to
existing investors.
Long-Term
Debt and Capital Lease Agreements
IsoRay
has two loan facilities in place as of September 30, 2007. The first loan
is
from the Benton-Franklin Economic Development District (BFEDD) 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
September 30, 2007, the principal balance owed was $179,412. This loan is
secured by certain equipment, materials and inventory of the Company, and
also
required personal guarantees, for which the guarantors were issued approximately
70,455 shares of common stock. The second loan is from the Hanford Area Economic
Investment Fund Committee (HAEIFC) and was originated in June 2006. The loan
originally had a total facility of $1,400,000 which was subject to a recent
reduction effective as of September 2007 to the amount of the Company’s initial
draw of $418,670 (see Note 9). The loan bears interest at nine percent and
the
principal balance owed as of September 30, 2007 was $384,458. This loan is
secured by receivables, equipment, materials and inventory, and certain life
insurance policies and also required personal guarantees.
The
Company has certain capital leases for production and office equipment that
expire at various times from March 2008 to April 2009. These leases currently
call for total monthly payments of $19,361. The total of all capital lease
obligations at September 30, 2007 was $170,255.
Principal
maturities on notes payable are due as follows:
Year
ending June 30,
|
|
|
|
2008
|
|
$
|
49,212
|
|
2009
|
|
|
53,609
|
|
2010
|
|
|
182,566
|
|
2011
|
|
|
38,436
|
|
2012
|
|
|
41,983
|
|
Thereafter
|
|
|
211,652
|
|
|
|
|
|
|
|
|
$
|
577,458
|
|
Future
minimum lease payments under capital lease obligations are as follows:
Year
ending June 30,
|
|
|
|
2008
|
|
$
|
214,269
|
|
2009
|
|
|
27,626
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
|
241,895
|
|
Less
amounts representing interest
|
|
|
(21,480
|
)
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
220,415
|
|
Less
amounts due in one year
|
|
|
(194,855
|
)
|
|
|
|
|
|
Amounts
due after one year
|
|
$
|
25,560
|
|
Other
Commitments and Contingencies
As
of
September 1, 2007, the Company had issued purchase orders for approximately
$681,000 of production and office equipment and inventory materials that
were
not yet received. The Company anticipates financing most of these purchases
through its cash reserves.
On
May 2,
2007, Medical entered into a lease for its new production facility with Energy
Northwest, the owner of the Applied Process Engineering Laboratory (the APEL
lease). The
APEL
lease has a three year term expiring on April 30, 2010, an option to renew
for
two additional three-year terms, and monthly rent of approximately $26,700,
subject to annual increases based on the Consumer Price Index, plus monthly
janitorial expenses of approximately $700. This new facility became operational
in September 2007.
The
Company’s lease agreement with PEcoS IsoRay Radioisotope Laboratory (PIRL) is
scheduled to expire in October 2007 but has been extended through December
2007
at a monthly rent of $5,000.
Future
minimum lease payments under operating leases including the two three-year
renewals of the APEL lease are as follows:
Year
ending June 30,
|
|
|
|
2008
|
|
$
|
372,118
|
|
2009
|
|
|
338,496
|
|
2010
|
|
|
338,354
|
|
2011
|
|
|
337,925
|
|
2012
|
|
|
328,749
|
|
Thereafter
|
|
|
1,260,206
|
|
|
|
|
|
|
|
|
$
|
2,975,848
|
|
In
February 2006, the Company signed a License Agreement with International
Brachytherapy s.a. (IBt) covering North America and providing the Company
with
access to IBt’s Ink Jet production process and its proprietary polymer seed
technology for use in brachytherapy procedures using Cesium-131 (Cs-131).
The
Company paid license fees of $275,000 during 2006 and another payment of
$225,000 was to be made in August 2006 pursuant to the License Agreement.
Royalty payments based on net sales revenue were also required, with minimum
quarterly royalties ranging from $100,000 to $200,000 and minimum annual
royalties ranging from $400,000 to $800,000 over the term of the License
Agreement.
On
October 12, 2007, the Company entered into Amendment No. 1 (the Amendment)
to
its License Agreement dated February 2, 2006 with IBt. The License Agreement
provided the Company with access to IBt’s proprietary polymer based seed
encapsulation technology for use in brachytherapy procedures using Cesium-131
in
the United States for a fifteen year term. A payment of $225,000 was made
on
October 12, 2007 pursuant to the Amendment. As the parties agreed that the
ink
jet technology was not viable for Cesium-131 seeds, the Amendment eliminated
the
previously required royalty payments based on net sales revenue, and the
parties
intend to negotiate terms for future payments by the Company for polymer
seed
components to be purchased from IBt in the future at IBt's cost plus a
to-be-determined profit percentage, although no agreement has been reached
on
these terms and there is no assurance that the parties will consummate an
agreement pursuant to such terms.
In
September 2007, the Company entered into a letter of intent with IBt to enter
into a Global Strategic Alliance incorporating various cooperative initiatives
which will be the subject of a number of subsequent agreements and transactions.
The proposed initiatives, each of which are subject to Board approval by
each
respective party, include:
|
|
An
amendment to IsoRay’s license agreement with IBt for use of its polymer
seed technology whereby IsoRay would pay the remaining $225,000
license
fee but would not be subject to ongoing royalty payments. IsoRay
would
purchase polymer seed components at cost plus a profit margin to
be
determined.
|
|
|
The
Company would grant IBt an exclusive license to distribute Cs-131
brachytherapy seeds in certain markets outside of North and South
America,
including the European Union.
|
|
|
The
Company would receive the exclusive right to manufacture and distribute
polymer I-125 brachytherapy seeds in North and South
America.
|
|
|
The
Company would also receive IBt’s US subsidiary’s customer list and the
right to offer employment to certain IBt US
employees.
|
The
Company is subject to various local, state, and federal environmental
regulations and laws due to the isotopes used to produce the Company’s product.
As part of normal operations, amounts are expended to ensure that the Company
is
in compliance with these laws and regulations. While there have been no
reportable incidents or compliance issues, the Company will incur certain
decommissioning expenses as part of vacating its old production facility.
Therefore, the Company established in fiscal year 2006 an initial asset
retirement obligation of $63,040 which represented the discounted cost of
cleanup that the Company anticipated it will have to incur at the end of
its
equipment and property leases. This amount was determined based on discussions
with qualified production personnel and on historical evidence. During fiscal
year 2007, the Company reevaluated its obligations based on discussions with
the
Washington Department of Health and determined that the initial asset retirement
obligation should be increased by an additional $56,120. The Company anticipates
spending most of the amounts represented by this accrual in fiscal year 2008.
In
addition, another asset retirement obligation of $473,096 was established
in the
first quarter of fiscal year 2008 representing obligations at its new production
facility. This new asset retirement obligation is for obligations to remove
any
residual radioactive materials and to remove any unwanted leasehold improvements
at the end of the lease term.
The
industry that the Company operates in is subject to product liability
litigation. Through its production and quality assurance procedures, the
Company
works to mitigate the risk of any lawsuits concerning its product. The Company
also carries product liability insurance to help protect it from this
risk.
The
Company has no off-balance sheet arrangements.
Related
Party Transactions
The
Company received legal services from a law firm in which Stephen Boatwright,
a
member of the Board of Directors, is one of the firm’s partners. The total
amounts paid in 2007 and 2006 to the law firm were $458,534 and $390,000,
respectively. The 2007 amount includes approximately $18,000 accrued in accounts
payable as of June 30, 2007.
Inflation
Management
does not believe that the current levels of inflation in the United States
have
had a significant impact on the operations of the Company. If current levels
of
inflation hold steady, management does not believe future operations will
be
negatively impacted.
New
Accounting Standards
In
September 2006, the FASB issued statement No. 157, Fair
Value Measurements,
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States, and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15,
2007, with earlier application encouraged. Any amounts recognized upon adoption
as a cumulative effect adjustment will be recorded to the opening balance
of
retained earnings in the year of adoption. The Company does not believe the
adoption of SFAS 157 will have a material effect on its consolidated financial
statements.
In
February 2007, the FASB issued statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities Including
an
Amendment of FASB Statement No. 115
(SFAS
159). The statement allows entities to value financial instruments and certain
other items at fair value. The statement provides guidance over the election
of
the fair value option, including the timing of the election and specific
items
eligible for the fair value accounting. Changes in fair values would be recorded
in earnings. The statement is effective for fiscal years beginning after
November 15, 2007. The Company does not believe the adoption of SFAS 159
will have a material effect on its consolidated financial
statements.
The
Company’s Articles of Incorporation provide that the Company has the authority
to issue 200,000,000 shares of capital stock, which are currently divided
into
two classes as follows: 194,000,000 shares of common stock, par value of
$0.001
per share; and 6,000,000 shares of preferred stock, par value of $0.001 per
share. As of November 9, 2007, we had 23,090,200 outstanding shares of Common
Stock and 59,065 outstanding shares of Preferred Stock.
On
April
19, 2007, our common stock began trading on the American Stock Exchange (AMEX)
under the symbol "ISR." Prior to this our common stock was quoted on the
OTC
Bulletin Board and the Pink Sheets under the symbols “ISRY.OB” and “ISRY.PK,”
respectively. Even though we have now obtained our AMEX listing, at times
there
is still limited trading activity in our securities.
The
following table sets forth, for the fiscal quarters indicated, the high and
low
sales prices for our common stock as reported on the American Stock Exchange,
the OTC Bulletin Board, and the Pink Sheets. The OTC Bulletin Board and Pink
Sheet quotations are high and low last reported bid prices representing
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. In the past, there was an absence of an
established trading market for the Company's common stock, as the market
was
limited, sporadic and highly volatile, which may have affected the prices
listed
below.
Year
ended June 30, 2008
|
|
|
High
|
|
|
Low
|
|
First
quarter
|
|
$
|
5.20
|
|
$
|
3.40
|
|
Year
ended June 30, 2007
|
|
|
High
|
|
|
Low
|
|
First
quarter
|
|
$
|
3.50
|
|
$
|
2.75
|
|
Second
quarter
|
|
|
6.00
|
|
|
3.00
|
|
Third
quarter
|
|
|
4.90
|
|
|
3.80
|
|
Fourth
quarter
|
|
|
5.18
|
|
|
3.51
|
|
Year
ended June 30, 2006
|
|
|
High
|
|
|
Low
|
|
First
quarter
|
|
$
|
5.95
|
|
$
|
1.00
|
|
Second
quarter
|
|
|
8.25
|
|
|
4.50
|
|
Third
quarter
|
|
|
7.25
|
|
|
6.20
|
|
Fourth
quarter
|
|
|
6.40
|
|
|
3.25
|
|
The
Company has never paid any cash dividends on its Common Stock and does not
plan
to pay any cash dividends in the foreseeable future. On February 1, 2007,
the
Board of Directors declared a dividend on the Series B Preferred Stock of
all
outstanding and cumulative dividends through December 31, 2006. There is
no
Series A Preferred Stock outstanding. The total Series B dividends of $38,458
were paid on February 15, 2007. The Company does not plan on paying any cash
dividends on the Series B Preferred Stock in the foreseeable
future.
As
of
November 9, 2007, we had approximately 859 shareholders of record, exclusive
of
shares held in street name.
Equity
Compensation Plans
On
May
27, 2005, the Company adopted the 2005 Stock Option Plan (the Option Plan)
and
the 2005 Employee Stock Option Plan (the Employee Plan), pursuant to which
it
may grant equity awards to eligible persons. On August 15, 2006, the Company
adopted the 2006 Director Stock Option Plan (the Director Plan) pursuant
to
which it may grant equity awards to eligible persons. Each of the Plans has
subsequently been amended. 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. The
Director Plan allows the Board of Directors to grant options to purchase
up to
1,000,000 shares of common stock to directors of the Company. Options granted
under all of the Plans have a ten year maximum term, an exercise price equal
to
at least the fair market value of the Company’s common stock (based on the
trading price on the American Stock Exchange or the OTC Bulletin Board) on
the
date of the grant, and with varying vesting periods as determined by the
Board.
As
of
June 30, 2007, the following options had been granted under the option
plans.
Plan
Category
|
|
Number
of securities to be issued on 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
|
|
|
3,683,439
|
|
$
|
2.86
|
|
|
259,778
|
|
Total
|
|
|
3,683,439
|
|
$
|
2.86
|
|
|
259,778
|
|
General
Century
Park Pictures Corporation (Century) was organized under Minnesota law in
1983.
Century had no operations since its fiscal year ended September 30, 1999
through
June 30, 2005.
On
July
28, 2005, IsoRay Medical, Inc. (Medical) became a wholly-owned subsidiary
of
Century pursuant to a merger. Century changed its name to IsoRay, Inc. (IsoRay
or the Company). In the merger, the Medical stockholders received approximately
82% of the then outstanding securities of the Company.
Medical,
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 malignant diseases. Medical is headquartered
in
Richland, Washington.
Business
Operations
Overview
IsoRay
is
utilizing its patented radioisotope technology, experienced chemists and
engineers, and management team to produce a major therapeutic medical isotope
with a goal of providing improved patient outcomes in the treatment of prostate
cancer and other malignant disease. IsoRay began production and sales of
Proxcelan Cesium-131 (Cs-131) brachytherapy seed, in October 2004 for the
treatment of prostate cancer after clearance of its premarket notification
(510(k)), by the Food and Drug Administration (FDA). Cs-131 could also enable
meaningful market penetration for other solid tumor applications such as
breast,
lung, liver, brain and pancreatic cancer, expanding the total available market
opportunity for brachytherapy. Management believes this technology will allow
it
to capture a leadership position in an expanded brachytherapy market. The
beneficial characteristics of the Cs-131 isotope are expected to result in
decreased radiation exposure to the patient and reduced severity and duration
of
side effects, while treating cancer cells as effectively, if not more so
than,
other isotopes used in seed brachytherapy.
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. The brachytherapy procedure places radioactive seeds as close as
possible to (in or near) the cancerous tumor (the word “brachytherapy” means
close therapy). The seeds deliver therapeutic radiation thereby killing the
cancerous tumor cells while minimizing exposure to adjacent healthy tissue.
This
procedure allows doctors to administer a higher dose of radiation direct
to the
tumor than is possible with external beam radiation. Each seed contains a
radioisotope sealed within a welded titanium capsule. Approximately 70 to
120
seeds are permanently implanted in the prostate in an outpatient procedure
lasting less than one hour. The isotope decays over time and eventually 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 or chemotherapy, or as treatment for residual disease after excision
of
primary tumors.
Management
believes that the IsoRay Proxcelan Cesium-131 brachytherapy seed represents
the
first
major advancement in brachytherapy technology in over 20 years with attributes
that could make it the long term “seed of choice” for internal radiation therapy
procedures. The Cs-131 seed has an FDA cleared 510(k) 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.
Increasingly,
prostate cancer patients and their doctors who decide on seed brachytherapy
choose Cs-131 because of its significant advantages over Palladium-103 (Pd-103)
and Iodine-125 (I-125), two other isotopes currently in use. These
advantages include:
Higher
Energy
Cs-131
has a higher average energy than any other commonly used prostate brachytherapy
isotope on the market. Energy is a key factor in how uniformly the radiation
dose can be delivered throughout the prostate. This is known as homogeneity.
Early studies demonstrate Cs-131 implants are able to deliver the required
dose
while maintaining homogeneity across the gland itself and potentially reducing
unnecessary dose to critical structures such as the urethra and rectum.
(Prestidge B.R., Bice W.S., Jurkovic I., et
al.
Cesium-131 Permanent Prostate Brachytherapy: An Initial Report.
Int.
J. Radiation Oncology Biol. Phys.
2005: 63 (1) 5336-5337.)
Shorter
Half-Life
Cs-131
has the shortest half-life of any commonly used prostate brachytherapy isotope
at 9.7 days. Cs-131 delivers 90% of the prescribed dose in just 33 days compared
to 58 days for Pd-103 and 204 days for I-125. The short half-life of Cs-131
reduces the duration of time during which the patient experiences the irritating
effects of the radiation. Early studies demonstrate that Cs-131 is well
tolerated with minimal to moderate urinary symptoms that resolve relatively
rapidly, within approximately 4-8 weeks. (Prestidge B.R., Bice W.S., Jurkovic
I., et
al.
Cesium-131 Permanent Prostate Brachytherapy: An Initial Report.
Int.
J. Radiation Oncology Biol. Phys.
2005: 63 (1) 5336-5337.)
Higher
Biologically Effective Dose
Another
benefit to the short half-life of Cs-131 is what is known as the “biological
effective dose” or BED. BED is a way for health care providers to predict how an
isotope will perform against slow versus fast growing tumors. Studies have
shown
Cs-131 is able to deliver a higher BED across a wide range of tumor types
than
either I-125 or Pd-103. Although prostate cancer is typically viewed as a
slow
growing cancer it can present with aggressive features. Cs-131’s higher BED may
be particularly beneficial in such situations. (Armpilia CI, Dale RG, Coles
IP
et
al.
The Determination of Radiobiologically Optimized Half-lives for Radionuclides
Used in Permanent Brachytherapy Implants. Int.
J. Radiation Oncology Biol. Phys.
2003;
55 (2): 378-385.)
IsoRay
and its predecessor companies have accomplished the following key milestones
(listed in reverse chronological order):
·
|
Treated
approximately 1,900 patients with Proxcelan Cs-131 seeds (October
2004 to
October 2007);
|
·
|
Opened
a new manufacturing and production facility at the Applied Process
Engineering Laboratory to replace the PEcoS-IsoRay
Radioisotope Laboratory (PIRL)
facility (September 2007);
|
·
|
Deployed
and grew the direct sales force to 11 people in the market (July
2007);
|
·
|
Branded
Cs-131 seeds as Proxcelan Cesium-131 brachytherapy seeds (July
2007);
|
·
|
Developed
a dual therapy treatment protocol with 9 centers participating
(June
2007);
|
·
|
Raised
over $42 million in debt and equity funding (September 2003 -
June
2007);
|
·
|
Filed
additional patent applications for the production of purified
Cs-131
(November 2003 - February 2007);
|
·
|
Completed
the monotherapy treatment protocol for prostate cancer (February
2007);
|
·
|
Obtained
FDA 510(k) clearance to market preloaded brachytherapy seeds
(preloaded
Mick cartridges, strands, and needles) (November 2006);
|
·
|
Opened
a manufacturing and production facility at PIRL (October
2005);
|
·
|
Treated
the first patient with Cs-131 seeds (October 2004);
|
·
|
Commenced
production of the Cs-131 seed (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);
|
·
|
Signed
a Commercial Work for Others Agreement between Battelle (manager
of the
Pacific Northwest National Laboratory or PNNL) and IsoRay, allowing
initial production of seeds through 2006 at PNNL (April
2004);
|
·
|
Obtained
Medicare reimbursement codes for the Cs-131 brachytherapy seed
(November
2003);
|
·
|
Obtained
FDA 510(k) clearance to market the first product: the Cs-131
brachytherapy
seed (March 2003);
|
·
|
Implemented
a quality management system and production operating procedures
that are
compliant with the FDA’s Quality System Regulation (QSR) (January
2003);
|
·
|
Completed
prototype 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
the initial patent for Cs-131 isotope separation and purification
(May
2000).
|
Industry
Information
Incidence
of Prostate Cancer
According
to the American Cancer Society, prostate cancer is the most common form of
cancer in men after skin cancer, and the second leading cause of cancer deaths
in men. The American Cancer Society estimates there will be about 218,890
new
cases of prostate cancer diagnosed and an estimated 27,050 deaths associated
with the disease in the United States in 2007. Because of early detection
techniques (e.g., screening for prostate specific antigen, or PSA) approximately
70% (153,200) 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. 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. According to the
American Cancer Society, approximately one man in six will be diagnosed with
prostate cancer during his lifetime.
The
American Cancer Society lists the following factors that can increase the
risk
of developing prostate cancer:
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|
Age –
about 2 out of every 3 prostate cancers are found in men over the
age of
65;
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|
Race –
prostate cancer is more prevalent in African-American men who are
also
twice as likely to die of the
disease;
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Nationality –
prostate cancer is most common in North America and northwestern
Europe;
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|
Family
history – men are more likely to have prostate cancer if a close
relative had the disease and especially if the relatives were young
at the
time of diagnosis;
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|
Diet –
men who eat more red meat or high-fat dairy products seem to have
a
greater chance of getting prostate cancer;
and
|
|
|
Exercise –
men over the age of 65 who exercised vigorously had a lower rate
of
prostate cancer.
|
Prostate
cancer incidence and mortality increase with age. 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. 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
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.
Brachytherapy
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.
Management
believes that brachytherapy in Europe is growing aggressively each year,
with
the use of I-125 growing by approximately 30% in 2006. Management expects
that
market growth in the U.S. will increase at the rate of 5% per year through
2011.
In
1996
only 4% of prostate cancer cases were treated with brachytherapy, or about
8,000
procedures. The number of brachytherapy cases has consistently increased
and in
2006 it was estimated that over 60,000 brachytherapy procedures were performed
to treat prostate cancer.
Management
believes that 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 higher risk and
faster growing prostate cancers as well. Brachytherapy has significant
advantages over competing treatments including lower cost, equal or better
survival data, fewer side effects, faster recovery time and the convenience
of a
single outpatient implant procedure that generally lasts less than one
hour
(Merrick, et al., Techniques in Urology, Vol. 7, 2001; Potters, et al.,
Journal
of Urology, May 2005; Sharkey, et al., Current Urology Reports,
2002).
Treatment
Options and Protocol
In
addition to brachytherapy, localized prostate cancer can be treated with
radical
prostatectomy (RP), external beam radiation therapy (EBRT), intensity modulated
radiation therapy (IMRT), dual or combination therapy, high dose rate
brachytherapy (HDR), cryosurgery, hormone therapy, and watchful waiting.
The
success of any treatment is measured by the feasibility of the procedure
for the
patient, morbidities associated with the treatment, overall survival, and
cost.
When the cancerous tissue is not completely eliminated, the cancer typically
returns to the primary site, often with metastases to other areas of the
body.
Radical
Prostatectomy.Historically
the
most
common treatment option for prostate cancer, radical prostatectomy is the
removal of the prostate gland and some surrounding tissue through an invasive
surgical procedure. RP is performed under general anesthesia and involves
a
hospital stay of three days on average for patient observation and recovery.
Possible side affects of RP include impotence and incontinence. According
to a
study published in the Journal
of the American
Medical Association
in
January 2000 approximately 60% of men who had a RP reported erectile
dysfunction as a result of surgery. This same study stated that approximately
40% of the patients observed reported at least occasional incontinence.
New
methods such as laparoscopic radical prostatectomy are currently being
used more
frequently in order to minimize the nerve damage that leads to impotence
and
incontinence, but these techniques require a high degree of surgical skill.
RP
is generally more expensive than other common treatment modalities.
External
Beam Radiation Therapy. EBRT
involves directing a beam of radiation from outside the body at the prostate
gland in order to destroy cancerous tissue. EBRT treatments are received
on an
outpatient basis 5 days a week usually over a period of 8 or 9 weeks. Some
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. Side effects of EBRT can include diarrhea, rectal
leakage, irritated intestines, frequent urination, burning while urinating,
and
blood in the urine. Also the incidence of incontinence and impotence 5
to 6
years after EBRT is comparable to that for surgery.
Intensity
Modulated Radiation Therapy.IMRT
is a
relatively new treatment modality and considered a more advanced form of
EBRT in
which sophisticated computer control is used to aim the beam at the prostate
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. Because
IMRT is a new treatment, less clinical data regarding treatment effectiveness
and the incidence of side effects is 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 brachytherapy, known
as
combination or dual therapy.
Dual
or Combination Therapy.Dual
therapy is the combination of IMRT or 3-dimensional conformal external
beam
radiation and seed brachytherapy to treat extra-prostatic extensions or
high
risk prostate cancers that have grown outside the prostate. Combination
therapy
treats high risk patients with a full course of IMRT or EBRT over a period
of
several weeks. When this initial treatment is completed the patient must
then
wait for several more weeks to months to have the prostate seed
implant.
With
the
arrival of Proxcelan Cs-131, with its short half life, patients may now
complete
their course of treatment sooner and have shorter duration of side-effects.
Management estimates that at least 30% of all prostate implants are now
dual
therapy cases.
High
Dose Rate Temporary Brachytherapy.
HDR
temporary brachytherapy involves placing very tiny plastic catheters into
the
prostate gland, and then giving a series of radiation treatments through
these
catheters. The catheters are then removed, and no radioactive material
is left
in the prostate gland. A computer-controlled machine inserts a single highly
radioactive iridium seed into the catheters one by one. This procedure
is
typically repeated at least three times while the patient is hospitalized
for at
least 24 hours.
Cryosurgery.Cryosurgery
involves placing cold metal probes into the prostate and freezing the tissue
in
order to destroy the tumor. Cryosurgery patients typically stay in the hospital
for a day or two and have had higher rates of impotence and other side
effects
than seed implant brachytherapy.
Additional
Treatments.Additional
treatments include hormone therapy and chemotherapy. Hormone therapy is
generally used to shrink the tumor or make it grow more slowly but will
not
eradicate the cancer. Likewise, chemotherapy will not eradicate the cancer
but
can slow the tumor growth. Generally, these treatment alternatives are
used by
doctors to extend patients’ lives once the cancer has reached an advanced stage
or in conjunction with other treatment methods. Hormone therapy can cause
impotence, decreased libido, and breast enlargement. Most recently hormone
therapy has been linked to an increased risk of cardiovascular disease
in men
with certain pre-existing conditions such as heart disease or diabetes.
Chemotherapy can cause anemia, nausea, hair loss, and
fatigue.
Watchful
Waiting.Watchful
waiting is not a treatment but might be suggested by some healthcare providers
depending on the age and life expectancy of the patient. Watchful waiting
may be
recommended if the cancer is diagnosed as localized and slow growing, and
the
patient is asymptomatic. Generally, this approach is chosen when patients
are
trying to avoid the side affects associated with other treatments or when
they
are not candidates for current therapies due to other health issues. Healthcare
providers will carefully monitor the patient’s PSA levels and other symptoms of
prostate cancer and may decide on active treatments at a later
date.
Brachytherapy
Clinical Results
Long
term
survival data are now available for brachytherapy with I-125 and Pd-103,
which
support the efficacy of brachytherapy. Clinical data indicate that brachytherapy
offers success rates for early-stage prostate cancer treatment that are
equal to
or better than those of RP or EBRT. While clinical studies of brachytherapy
to
date have focused primarily on results from brachytherapy with I-125 and
Pd-103,
management believes that these data are also relevant for brachytherapy
with
Cs-131, and that Cs-131 appears to offer improved clinical outcomes over
I-125
and Pd-103, given its shorter half-life and higher energy.
Improved
patient outcomes.
A number
of published studies on the use of I-125 and Pd-103 brachytherapy in the
treatment of early-stage prostate cancer have been very
positive.
|
|
In
September 2006, a 5-year prospective study to assess the impact
of
interstitial brachytherapy on the quality of life of patients with
localized prostate cancer was published. The results of the study
confirm
the low impact of interstitial brachytherapy on the patients’ quality of
life despite its transient negative effects on some functions (Caffo,
O.,
et al. International
Journal of Radiation Oncology; Volume 66; 1;31-37).
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Results
of a trial published in 2007 in the International Journal of Radiation
Oncology looking at 15-year survival in 223 patients with stage
T1-T3
prostate cancer and treated with brachytherapy in combination with
external beam and demonstrated excellent long-term biochemical
control.
Fifteen-year biochemical relapse free survival (BRFS) for the entire
treatment group was 74%. BRFS using the Memorial Sloan-Kettering
risk
cohort analysis (95% confidence interval) were as follows: low
risk 88%,
intermediate risk 80%, and high risk 53% (Sylvester J. et al. “15-year
biochemical relapse free survival in clinical stage T1-T3 prostate
cancer
following combined external beam radiotherapy and brachytherapy;
Seattle
experience”, Int. J. Rad. Onc. Biol., Vol. 67, 2007,
57-64.).
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A
study of 367 patients with localized prostate cancer treated using
real-time intraoperative planning technique with median follow
up of 63
months demonstrated this technique consistently achieved optimal
coverage
of the prostate with concomitant low doses delivered to the urethra
and
rectum. Biochemical control outcomes were excellent at 5 years
(Zelefsky
M, et al. “Five-year outcome of intraoperative conformal permanent I-125
interstitial implantation for patient with clinically localized
prostate
cancer’, Int. J. Rad. Onc. Biol., Vol. 67, 2007,
65-70.).
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A
1700 patient case review over 12 years was conducted by J. Sharkey
and
published in the August 2004 edition of Brachytherapy. The review
of
patients diagnosed with T1 or T2 adenocarcinoma of the prostate
and
treated with either radical prostatectomy or brachytherapy showed
superiority of brachytherapy over prostatectomy. Low risk brachytherapy
resulted in 99% freedom from PSA failure while surgery showed results
of
97% (Sharkey J, et al. “Pd-103 brachytherapy versus radical prostatectomy
in patient with clinically localized prostate cancer: a 12-year
experience
from a single group practice”. Brachytherapy, 4,
2005.).
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Reduced
Incidence of Side Effects.
Sexual
potency and urinary incontinence are two major concerns men face when choosing
among various forms of treatment for prostate cancer. Because the Proxcelan
Cesium-131 brachytherapy 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
or isotopes. Additionally when side effects do occur, they should resolve
more
rapidly than those experienced with I-125 and Pd-103
isotopes.
Cs-131
Clinical Results and Ongoing Trials
A
Cs-131
monotherapy trial for the treatment of prostate cancer was fully enrolled
in
February 2007. The trial was a 100 patient multi-institutional study to observe
the dosimetric characteristics of Cs-131 and its side effect profile. The
results of the monotherapy trial have demonstrated that Cs-131 is a viable
alternative as an isotope for permanent seed prostate brachytherapy. Some
of the
significant and specific findings were as follows:
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Patient
reported symptoms (IPSS Scores) were mild to moderate with relatively
rapid resolution within 4-6
months.
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Prostate
Specific Antigen, or PSA, response over 12 months was very encouraging,
i.e. low levels with no failures per the nadir definition. (Prestidge
BR,
Bice WS, “Clinical
outcomes
of
a
Phase II, multi-institutional
Cesium-131 permanent prostate brachytherapy trial”. Brachytherapy, Volume
6, Issue 2, April-June
2007, Page
78) (Moran BJ, Braccioforte MH, “Cesium-131
prostate brachytherapy:
An
early experience”. Brachytherapy, Volume
6, Issue 2, April-June
2007, Page
80).
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The
resolution of acute side effects proved to be much quicker with
Cs-131
compared to I-125 thus validating the theoretical argument that
dose
related side effects dissipate faster with shorter lived isotopes.
(Prestidge BR, “Cesium-131; the isotope of choice in permanent prostate
brachytherapy”. Oral Presentation at the American Brachytherapy Society
annual conference, April
2007.).
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The
dosimetric observations of the trial demonstrated that it was possible
to
deliver adequate dose to the prostate while maintaining dose uniformity
across the gland. The dose delivered to critical structures was
well
within acceptable limits. (Bice WS, Prestidge BR, “Cesium-131 permanent
prostate brachytherapy: The dosimetric analysis of a multi-institutional
Phase II trial”. Brachytherapy 2007(6);
88-89.).
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The
monotherapy Cs-131 trial will continue to follow patients with annual updates
on
IPSS and patient long-term survival data.
A
second
prospective randomized monotherapy trial is underway at The Chicago Prostate
Cancer Center. Headed by Dr. Brian Moran, this trial directly compares Cs-131
and I-125 treatment related morbidities such as sexual dysfunction and
incontinence following brachytherapy for localized carcinoma of the prostate
in
low to intermediate risk patients.
A
third
ongoing study first presented at the American Association of Physicists in
Medicine (AAPM) meeting in July 2007 compared the dosimetry of Cesium-131
and
Palladium-103 directly. The study showed a 17.5% reduction in the number
of
seeds, 6% reduction in planned needles, 35.5% reduction in V150 (percent
of
gland that receives more than 150% of the prescription dose), and 44.2%
reduction in R100 (percent of rectal tissue that receives the full prescription
dose of radiation). (Musmacher, J., “Dosimetric comparison of Cesium-131 and
Palladium-103 for permanent prostate brachytherapy”, poster presented at
49th
AAPM
Annual Conference, Minneapolis, MN, April 22-26, 2007.)
The
Company has also commissioned a dual therapy protocol. This multi-institutional
trial observes the dosimetric characteristics of Cs-131 and health related
quality of life (HRQOL) results following combined Cs-131 transperineal
permanent prostate brachytherapy and external beam radiotherapy in patients
with
intermediate to high risk prostate cancer. This protocol is being conducted
to
confirm clinically what radiobiological data suggests regarding this treatment
modality. The quantified dosimetric variables collected will be correlated
to
the reported HRQOL data and ultimately compared to existing data in the
literature for similar investigations using I-125 and Pd-103. Patient enrollment
for this study began in April 2007.
In
addition to establishing the dosimetric and quality of life impact of Proxcelan
Cesium-131 brachytherapy seeds in different treatment modalities, all trials
have been designed to collect ongoing PSA results for the purposes of
establishing long-term survival rates using Cs-131 seed implant
brachytherapy.
Our
Strategy
The
key
elements of IsoRay’s strategy for fiscal year 2008 include:
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Continue
to introduce the Proxcelan Cs-131 brachytherapy seed into the U.S.
market.
Utilizing our direct sales organization and selected channel partners,
IsoRay intends to continue expanding the use of Proxcelan Cs-131
seeds in
brachytherapy procedures for prostate cancer, by increasing the
number of
treatment centers offering Cs-131 and increasing the number of
patients
treated at each center using Cs-131. IsoRay hopes to capture much
of the
incremental market growth in seed implant brachytherapy and take
market
share from existing
competitors.
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Move
our state-of-the-art manufacturing process to a new
facility.
IsoRay has completed construction of a new manufacturing facility
in
Richland, Washington in its recently leased facility at the Applied
Process Engineering Laboratory (APEL facility). This facility replaces
our
currently leased production facility (PIRL facility). The new facility
is
four times larger than the size of our former facility and will
allow
production to expand as sales orders
increase.
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Develop
an enriched barium manufacturing process.
Working
with leading scientists, IsoRay is working to design and create
a
proprietary process for manufacturing enriched barium, a key source
material for Cs-131. This will ensure adequate future supply of
Cs-131 and
greater efficiencies in producing the
isotope.
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Introduce
Cs-131 therapies for other cancers.
IsoRay intends to partner with other companies to develop the appropriate
technologies and therapeutic delivery systems for treatment of
other solid
tumors such as breast, lung, liver, ocular, pancreas, neck, and
brain
cancers. IsoRay’s management believes that the first major opportunities
may be for the use of Cs-131 for ocular melanoma and as adjunct
therapy
for lung cancer (treating the surgical
margins).
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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 plans to sustain
long-term growth by implementing research and development programs
with
leading medical institutions in the U.S. and other countries to
identify
and develop other applications for IsoRay’s core radioisotope
technology.
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Diversify
our supply of Cs-131.
Currently, the Company relies heavily on Cs-131 from its primary
Russian
supplier. This supplier has significant capacity for producing
Cs-131 with
higher quality than currently available from other sources. The
Company is
actively developing the capability to produce multi-curie quantities
of
Cs-131 from several reactor sources located both abroad and
domestically.
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Introduce
Proxcelan Cesium-131 brachytherapy seeds to the European and Russian
markets.
The Company is currently working to obtain the European CE Mark
and
certification to ISO 13485 to enable the sale of our product in
the
European Union. If the proposed strategic alliance with IBt, SA,
a Belgian
company, is ultimately consummated, it will allow the Company to
obtain
access to various foreign countries through IBt distribution channels
and
leverage IBt's international regulatory
expertise.
|
Management
believes there is a large and growing addressable market for IsoRay’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 Proxcelan 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. Seed brachytherapy has significant advantages
over
competing treatments including lower cost, fewer side effects, a faster recovery
time and the convenience of an outpatient procedure that generally lasts
45
minutes. Over 60,000 procedures were forecasted to occur in the U.S. in 2006.
(At the June 30, 2007 average Proxcelan seed price of $72, this represents
a
potential market of over $300 million for seeds that is forecast to grow
substantially by 2009 according to a 2004 market survey performed by Frost
&
Sullivan, a nationally recognized market research firm.) IsoRay’s management
believes that the Proxcelan 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
Cs-131, and the anticipated related reduction of side effects that it
offers.
Products
IsoRay
markets the Proxcelan Cesium-131 brachytherapy
seed for the treatment of prostate cancer and intends to market Cs-131 for
the
treatment of other malignant disease in the future. Additionally, the Company
may market other radioactive isotopes in the future.
Competitive
Advantages of Proxcelan Cs-131
Management
believes that the Proxcelan Cesium-131 brachytherapy seed 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 Cs-131 will increase industry growth and
facilitate meaningful penetration into the treatment of other forms of cancer
such as lung cancer and ocular melanoma.
Brachytherapy
Isotope Comparison
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Cesium-131
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Palladium-103
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|
Iodine-125
|
Half
Life
|
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9.7
Days
|
|
17.5
days
|
|
60
days
|
Avg.
Energy
|
|
30.4
keV+
|
|
20.8
keV+
|
|
28.5
keV+
|
Dose
Delivery
|
|
90%
in 33 days
|
|
90%
in 58 days
|
|
90%
in 204 days
|
Total
Dose
|
|
115
Gy
|
|
125
Gy
|
|
145
Gy
|
Anisotropy
Factor*
|
|
0.969
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|
0.877
(TheraSeed® 200)
|
|
0.930
(OncoSeed® 6711)
|
*Degree
of symmetry of therapeutic dose, a factor of 1.00 indicates
symmetry.
+keV
= kiloelectron volt, a standard unit of measurement for electrical
energy.
|
Shorter
half-life.
The
Company believes that Cs-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).
Higher
energy.
The
Cs-131 isotope average decay energy of 30.4 keV (versus 21 keV for Pd-103
and
28.5 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
Proxcelan 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 Pd-103 seeds may also result in lesser homogeneity 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. The higher
energy of Cs-131 can result in radiation toxicity if the dosage is not properly
calculated by the implanting physician and staff but the higher energy of
Cs-131
does make the isotope more “forgiving” for treatment planning
purposes.
Quality
of Life.
Because
IsoRay’s Proxcelan Cesium-131 brachytherapy seed 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.
Initial results indicated that the side effects experienced, if any, are
mild to
moderate and urinary symptoms resolve more rapidly, within 4-6 months, when
compared to I-125. Management believes that as the data matures it will continue
to support fewer and less severe side effects and complications when compared
to
other conventional therapies.
Shape
of radiation field.
The
shape
of the radiation field generated by a Proxcelan seed is more uniform than
most
brachytherapy seed designs, and this uniformity may result in better radiation
dose coverage and improved therapeutic effectiveness. IsoRay has conducted
extensive computer modeling of the seed design. The dosimetric characteristics
of the Cs-131 seed were recently confirmed through American Association of
Physicists in Medicine (AAPM) evaluations of the seed design (Med Phys, 34:2).
The results of these tests showed superior dose characteristics relative
to the
leading I-125 and Pd-103 seeds. The IsoRay seed has also met all Nuclear
Regulatory Commission (NRC) requirements for sealed radioactive
sources.
Cs-131
Manufacturing Process
Overview.
Cs-131
is a radioactive isotope that can be produced by the neutron bombardment
of
Barium-130 (Ba-130). When Ba-130 is put into a nuclear reactor and is exposed
to
a flux of neutrons it becomes Ba-131, the radioactive material that is the
parent isotope of Cs-131. The radioactive isotope Cs-131 is normally produced
by
placing a quantity of stable non-radioactive barium (ideally barium enriched
in
isotope 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). Due to the short half-life of both the Ba-131
and
Cs-131 isotopes, potential suppliers must be capable of removing irradiated
materials from the reactor core on a routine basis for subsequent processing
to
produce ultra-pure Cs-131. In addition, the supplier’s nuclear reactor facility
must have sufficient irradiation capacity to accommodate barium targets and
the
nuclear reactors must have sufficient neutron flux to economically produce
commercially viable quantities of Cs-131. Ideally, the irradiation facility
will
also have a radiochemical separation infrastructure to carry out the initial
separation steps. The Company has identified key reactor facilities in the
U.S.
and the former Soviet Union that are capable of meeting these
requirements.
As
of the
date of this prospectus, IsoRay has exclusive agreements in place with
three
suppliers of irradiated Ba-131 or Cs-131. During fiscal year 2007, the
Company
obtained approximately 80% of its isotope from the Institute of Nuclear
Materials (INM) located in Russia. The Company has an exclusive supply
agreement
with INM that originally commenced August 25, 2005 and was amended on September
3, 2006 and February 2, 2007. The agreement has a ten-year term but is
not an
obligation to purchase any given quantity of the isotope; however, if the
Company does not purchase certain minimum levels, then INM is no longer
bound by
the exclusivity portion of the agreement. Even if INM were to become the
sole
supplier, INM has sufficient irradiation capacity to meet the Company’s Cs-131
anticipated demand through fiscal year 2009 without the use of enriched
barium.
However, the Company is actively seeking other suppliers in order to diversify
its supply of Cs-131.
During
fiscal year 2007, the Company also obtained irradiated barium from the
University of Missouri under an agreement originally signed on August 9,
2005.
The Company also has an exclusive agreement in place with the Russian Institute
of Atomic Reactors (RIAR) for supply of Cs-131. The production development
activities at RIAR are under way and the Company currently anticipates
accepting
deliveries of Cs-131 within the next six months, but there is no assurance
as to
this delivery schedule.
To
produce the Proxcelan seed, the purified Cs-131 isotope is absorbed onto
a
ceramic core containing a gold X-ray marker. This internal core assembly
is
subsequently inserted into a titanium capsule that is then welded shut
and
becomes a sealed radioactive source and a biocompatible medical device.
The
dimensional tolerances for the ceramic core, gold X-ray marker, and the
titanium
capsule are extremely important. To date the Company has used sole-source
providers for certain components such as the gold X-ray marker and the
titanium
capsule as these suppliers have been validated by our quality department
and
they have been cost effective.
We
have
established procedures and controls to comply with the FDA’s Quality System
Regulation. The Company constantly monitors these procedures and controls
to
ensure that they are operating properly thereby working to maintain a
high-quality product. Also, the quality, production, and customer service
departments maintain open communications to ensure that all regulatory
requirements for the FDA, DOT, and applicable nuclear radiation and health
authorities are fulfilled.
The
Company has implemented a just-in-time production process that is 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 is 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.
It
is up
to each physician to determine the dosage necessary for implants and acceptable
dosages vary among physicians. Many of the physicians who order our seeds
order
more seeds than necessary but wish to assure themselves that they have a
sufficient quantity. Upon receipt of an order, the Company either delivers
the
seeds from its facility directly to the physician or sends the order to an
independent preloading service that delivers the seeds preloaded into needles
or
cartridges just prior to implant. If the implant is postponed or rescheduled,
the short half-life of the seeds makes them unsuitable for use and therefore
they must be re-ordered.
Due
to
the lead time for obtaining and processing the Cs-131 isotope and the short
half-life, the Company relies on sales forecasts and historical knowledge
to
estimate the proper inventory levels of isotope in order to be able to fulfill
all customer orders. Consequently, some portion of the isotope is written
off to
current period costs as it decays and is not used in an end
product.
Automated
Manufacturing Process
Based
on
evaluations of automation options by management, IsoRay has elected to automate
its current manufacturing process in phases. Management believes that current
production rates with the Company’s semi-automated seed welding equipment exceed
those attainable with fully automated lines that the Company has evaluated.
Phased implementation of automation is expected to be less costly than fully
automated production lines and will benefit IsoRay by reducing labor costs
and
helping to ensure consistent manufacturing quality. The Company has purchased
some automation equipment and is reviewing options for the development of
additional automated equipment. The Company also has a contract with a third
party to outsource certain sub-processes.
Manufacturing
Facility
The
Company has replaced the manufacturing facility located at PEcoS-IsoRay
Radioisotope Laboratory (PIRL)
with a
new production facility located at Applied Process Engineering Laboratory
(APEL). The APEL facility became operational in September 2007, which was
three
months earlier than the original scheduled opening. The facility has over
19,000
square feet and includes space for isotope separation, seed production, order
dispensing, a clean room for radiopharmacy work, and a dedicated shipping
area.
A description of the lease terms for the APEL facility is located in the
Other
Commitments and Contingencies section of “Management’s Discussion and Analysis”
above. The Company now plans to decommission the PIRL facility and return
it to
the landlord by the end of calendar year 2007. Management believes that the
APEL
facility will be utilized for manufacturing space through fiscal year 2016
which
is the original lease term plus the two three-year renewal options. Management
currently anticipates exercising both three-year renewal options to extend
the
APEL facility lease through April 2016.
The
Company has used Pacific Northwest National Laboratory (PNNL) to provide
third-party assay of its products but has otherwise vacated PNNL facilities.
Management is currently setting up facilities to move the independent assay
of
its products to its new production facility and will utilize in-house resources
which will reduce isotope depletion and also minimize assay
expenditures.
The
Company intends to establish a new facility in Russia to produce Proxcelan
Cesium-131 brachytherapy seeds. This new facility is part of the Company’s
strategy to expand into the Russian and European markets. The Company has
not
entered into any agreements concerning this facility and has not begun any
negotiations with any third-parties.
The
Company is also considering another state as a location for a future facility
as
a secondary production facility. No agreements have been reached for any
possible facilities outside of Washington.
Isotope
Testing in Idaho
On
December 14, 2005, IsoRay and Idaho’s Advanced Test Reactor (ATR) entered into a
collaboration and partnership agreement for the design, analysis and fabrication
of a capsule containing barium carbonate, to be irradiated at the ATR and
then
shipped to IsoRay for processing and analysis of the Cs-131 product. As an
adjunct to this testing, IsoRay and the Pocatello Development Authority entered
into an Economic Development Agreement, dated December 14, 2005, under which
the
Pocatello Development Authority provided IsoRay with $200,000 (subject to
repayment under certain conditions) to use toward the cost of testing at
the
ATR. During July 2006, several capsules were irradiated and shipped to
IsoRay’s PIRL facility for analysis. The results of the analyses indicate
the capsule performed as designed and that a planned capsule shuttle system
will
provide adequate conditions for Cs-131 production that will enhance IsoRay’s
overall production capacity. ATR has now obtained the funding to design and
implement the necessary capsule shuttle system and IsoRay has collaborated
with
ATR on its design and testing. The Company is seeking to enter into a contract
with ATR in fiscal year 2008 to produce irradiated barium but there is no
assurance that this will ultimately occur.
Repackaging
Services
Most
brachytherapy manufacturers offer their seed product to the end user packaged
in
four principal 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)
|
No
single
package configuration dominates the market at this point. In 2007, the Millenium
Research Group reported that the estimated market shares for each of the four
packaging types are: loose seeds (9.5%), Mick cartridges (29.1%), pre-loaded
needles (19.4%) and all strand configurations (42.0%). Market trends indicate
significant movement toward the 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 preloading 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. 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 radiopharmacies then sterilize the product and certify
the
final packaging prior to shipping directly to the end user.
IsoRay
currently has agreements with several independent radiopharmacies to assay,
preload, and sterilize our loose seeds. This 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 these services until our own
custom
preloading operation comes fully on-line in our new APEL facility. Once our
custom preloading operation comes fully on-line, we anticipate completing
most
of the assay, preload, and sterilization in-house rather than relying on
independent radiopharmacies.
The
Company currently loads most Mick cartridges in our own facility which in
recent
months accounted for more than 65% of total seed orders.
Currently, PNNL provides independent third-party assay of seeds for customers
who request this service. The Company expects to begin offering a 100%
confirmation assay in Q2 of FY2008 performed by in-house analytical services.
Providing the assay and preloading services in-house allows the Company to
reduce the time to process an order by two to four days as the additional
shipping and third-party handling time are eliminated. This reduction in
order
processing time eliminates approximately 25% loss in isotope activity due
to
radioactive decay. The cost of priority overnight shipment of each order
of
seeds to a third-party provider is also eliminated. However, we
will
continue to utilize the independent radiopharmacies in the future both as
a
backup to our own preloading operation and to handle periodic increases in
demand.
Independent
radiopharmacies usually provide the final packaging of the product delivered
to
the end user. This eliminates the opportunity for reinforcing the "branding"
of
our 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 they
realize 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.
Barium
Enrichment Device
Ba-130
is
the original source material for Cs-131. When Ba-130 is put into a nuclear
reactor it becomes Ba-131 which is the radioactive material that is the parent
isotope of Cs-131. Natural barium contains only 0.1% of Ba-130 with six other
isotopes making up the other 99.9%. The Company is currently developing an
enrichment device to produce “enriched barium” having a higher concentration of
the Ba-130 isotope than is found in naturally occurring barium. Irradiating
enriched barium will result in higher yields of Cs-131. The Company anticipates
the use of enriched barium will also streamline the manufacturing process
and
reduce Cs-131 production costs. In June 2007, the Company purchased
approximately 6 grams of Ba-130 (metal equivalent) that will be used in future
production of Cs-131 subject to development of an enrichment device. The
enriched barium is being stored in Russia and is included in raw materials
at
June 30, 2007.
Marketing
and Sales
Marketing
Strategy
The
Company has worked to position Proxcelan Cesium-131 brachytherapy seeds as
the
seed of choice for prostate brachytherapy. Based on current and preliminary
clinical studies, management believes there is no apparent clinical reason
to
use other isotopes when Cs-131 is available. The advantages associated with
a
higher energy and shorter 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 their brachytherapy seed treatment. The potential negative effects of
the
prolonged radiation times associated with the long half-life of I-125 make
this
isotope less attractive than Cs-131. The low energy of Pd-103 creates potential
cold or hot areas in the treatment plan and requires more seeds to optimize
the
implant.
IsoRay
has chosen to identify its proprietary Cs-131 seed with the brand of
“Proxcelan.” Management is using this brand to differentiate Cs-131 seeds from
seeds using the other isotopes. We continue 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
professional and patient market segments each play a role in the ultimate
choice
of cancer treatment and the specific isotope chosen for seed brachytherapy
treatment. The Company has developed a customized brand message for each
audience. For medical professionals, IsoRay has created print and visual
medias
(including physician brochures discussing the clinical advantages of Cs-131,
clinical information binders, informational DVDs, single sheet glossies with
targeted clinical data, etc.), advertisements in the leading medical journals
and a physician targeted website. In addition, the Company attends national
professional meetings, including the following:
|
|
American
Brachytherapy Society (ABS),
|
|
|
American
Society for Therapeutic Radiation and Oncology
(ASTRO),
|
|
|
American
Urological Association (AUA),
|
|
|
Association
of American Physicists in Medicine (AAPM),
and
|
|
|
various
other professional society
meetings.
|
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 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 emphasizes the specific advantages of the Proxcelan Cesium-131
brachytherapy seed, including fewer side effects, less total radiation,
and a
shorter period of radiation exposure. The Company is targeting this market
through its websites (located at www.isoray.com, www.cesium.com, and
www.proxcelan.com), advertising in magazines read by prostate cancer patients
and their care givers, through patient advocacy efforts, informational
patient
brochures and DVDs with patient testimonials, and advertisements in specific
markets supporting brachytherapy, etc.
In
addition, the Company continues to promote the clinical findings of the
various
protocols through presentations by respected thought leaders. The Company
will
continually review and update all marketing materials as more clinical
information is gathered from the protocols and studies.
During
fiscal year 2007, the first abstracts were published on the results of
clinical
studies of Cs-131 treatments. In fiscal year 2008, the Company will continue
its
collaboration with leading physicians to develop clinical data on the efficacy
of Cs-131 seeds including the dual therapy protocol and the prospective
randomized trial. In addition, the Company continues to consult with noted
contributors from the medical physics community and will have articles
submitted
to professional journals such as Medical
Physics
and the
International
Journal of Radiation Oncology,
Biology, and Physics
regarding the benefits of and clinical trials involving Cs-131.
At
ASTRO
2007, held in Los Angeles on October 28th
through
November 1st,
the
following abstracts related to Cs-131 were presented:
|
·
|
Is
Cesium-131 or Iodine-125 or Palladium-103 the “Ideal” Isotope for Prostate
Boost Brachytherapy? - A Dosimetric
Viewpoint
|
Principal
Researcher:
W.
Choi
Research
Institutions:
Montefiore
Medical Center, the Albert Einstein College of Medicine, Bronx, New York,
NY and
The Haakon Ragde Foundation for Advanced Cancer Studies, Seattle,
WA
Highlights:
In
a
15-patient study, Cesium-131 seeds yielded “homogeneous” dose distributions
within the prostate while providing desired dose coverage and acceptable
normal
tissue doses compared to Iodine-125 or Palladium-103 seed implants.
|
·
|
Urinary
Morbidity Following Cs-131 Brachytherapy for Localized Prostate
Cancer
|
Principal
Researcher:
B.J.
Moran
Research
Institution:
Chicago
Prostate Cancer Center, Westmont, IL
Highlights:
Between
November 2004 and April 2007, 171 consecutive patients underwent Cesium-131
brachytherapy by a single physician at a single out-patient center. Based
on
observed data, the resolution of urinary symptoms as measured by group IPSS
scores may occur more rapidly with Cesium-131 than with
Iodine-125.
|
·
|
Results
of a Multi-Institutional Trial Using Cs-131 Permanent Prostate
Brachytherapy
|
Principal
Researcher:
B.
Prestidge
Principal
Research Institutions:
Texas
Cancer Clinic, San Antonio, TX; and International Medical Physics Service,
Helotes, TX
Highlights:
Dosimetric
guidelines for Cesium brachytherapy were developed from the results of this
100-patient trial. A total of seven institutions participated in this study
from
November 2004 to February 2007. The study concluded that Cesium-131 is a
viable
alternative to Palladium-103 or Iodine-125 for prostate brachytherapy.
|
·
|
Biologically
Effective Dose (BED) is a Predictive Tool for the Outcome of a
Permanent
Prostate Brachytherapy Trial Using Cesium-131 as
Monotherapy
|
Principal
Researcher:
W.
Bice
Research
Institutions:
International
Medical Physics Service, Helotes, TX; and Texas Cancer Clinic, San Antonio,
TX
Highlights:
This
100-patient, multi-institutional study suggests that Cesium-131 is an acceptable
alternative to Palladium-103 and Iodine-125.
|
·
|
Dosimetric
Comparison of Cesium-131 and Palladium-103 for Permanent Prostate
Brachytherapy
|
Principal
Researcher:
J.S.
Musmacher
Research
Institution:
North
Shore Medical Accelerator, Smithtown, NY
Highlights:
This
study quantified dosimetric outcomes using post-plan dosimetry data following
Cesium-131 and Palladium-103 after therapeutic implantation. The study concluded
that, given the greater average energy of Cesium-131 relative to Palladium-103,
it may be possible to deliver a more homogenous implant with Cesium-131 than
with Palladium-103.
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 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
has a direct sales organization to introduce Proxcelan Cesium-131 brachytherapy
seeds to radiation oncologists and medical physicists. During 2007 IsoRay
expanded its sales force to eleven sales people. These sales people include
those experienced in the brachytherapy market and the medical device
market.
The
initial response to our new isotope from prominent radiation oncologists,
medical physicists and urologists in the US has been very positive and the
number of surgical centers and clinics using the Proxcelan seed continues
to
increase.
The
Company expects to expand its customer base in fiscal year 2008. When the
Company implements its plans to expand 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 expenses 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.
Reimbursement
Payment
for IsoRay products comes from third-party payers including the Centers for
Medicare and Medicaid Services (CMS) and private insurance companies. These
payers reimburse the hospitals and clinics via well-established payment
procedures. In 2003, the Company was approved for an initial HCPCS code for
Cs-131 brachytherapy seeds. In July 2007 CMS divided the HCPCS code into
two
codes for all manufacturers of brachytherapy seeds. The current method has
assigned one HCPCS code for loose seeds and a second HCPCS code for stranded
seeds. Medicare is the most significant U.S. payer for prostate brachytherapy
services, and is the payer in approximately 70% of all U.S. prostate
brachytherapy cases.
Prostate
brachytherapy is typically performed in an outpatient setting, and as such,
is
covered by the CMS Outpatient Prospective Payment System. Currently, when
charges for the seeds are correctly submitted to CMS, the total cost of the
seeds is reimbursed to the hospital or clinic by CMS. CMS reviews and adjusts
outpatient reimbursement on a periodic basis. On November 1, 2007 CMS
released its final payment rates for brachytherapy seeds. The final non-stranded
rate for Cesium is $64.08 and the final rate for stranded is $97.72.
CMS’s non-stranded and stranded seed payment rates for brachytherapy sources
are
scheduled to take effect January 1, 2008. Other
insurance companies have historically followed CMS’s reimbursement
policies.
Other
Information
Customers
Customers
representing ten percent or more of total Company sales for the twelve months
ended June 30, 2007 include:
Community
Hospital of Los Gatos
|
Los
Gatos, CA
|
24.5%
of revenue
|
Chicago
Prostate Cancer Center
|
Westmont,
IL
|
13.2%
of revenue
|
The
loss
of any of these significant customers would have an adverse effect on the
Company’s revenues, which would continue until the Company located new customers
to replace them.
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, 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 was 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,
Chief
Chemist and a shareholder of the Company, and has been assigned exclusively
to
IsoRay. IsoRay’s predecessor also filed for patent protection in four European
countries under the Patent Cooperation Treaty. Those patents have been assigned
to IsoRay.
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’s procedures and documentation. In June 2004, July 2004,
and February 2007, five patent applications were filed relating to methods
of
deriving Cs-131 developed by IsoRay employees. The Company is currently working
on developing and patenting additional methods of deriving Cs-131 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 to Lane Bray and 1% of gross profit from any
use
of the Cs-131 process patent for non-seed products. If IsoRay reassigns the
Royalty Agreement to another company, these royalties increase to 2%. The
Royalty Agreement has an anti-shelving clause which requires IsoRay to return
the patent if IsoRay permanently abandons sales of products using the invention.
During fiscal years 2007 and 2006, the Company recorded royalty expense of
$2,161 and $0, respectively.
Effective
August 1, 1998, Pacific Management Associates Corporation (PMAC) transferred
its
entire right, title and interest in an exclusive license agreement with Donald
Lawrence to IsoRay, LLC (a predecessor company) in exchange for a membership
interest. The license agreement was transferred to IsoRay through a series
of
mergers and the reverse acquisition.
The
terms
of the license agreement require the payment of a royalty based on the Net
Factory Sales Price, as defined in the agreement, of licensed product sales.
Because the licensor’s patent application was ultimately abandoned, only a 1%
“know-how” royalty based on Net Factory Sales Price, as defined, remains
applicable. To date, management believes that there have been no product
sales
incorporating the “know-how” and that therefore no royalty is due pursuant to
the terms of the agreement. Management believes that ultimately no royalties
should be paid under this agreement as there is no intent to use this “know-how”
in the future.
The
licensor of the “know-how” has disputed management’s contention that it is not
using this “know-how”. On September 25, 2007 and again on October 31, 2007, the
Company participated in nonbinding mediation and no settlement was reached
with
the Lawrence Family Trust. The parties have agreed to extend negotiations
of a
mutually agreeable settlement through December 1, 2007. If no settlement
is
reached, the parties may demand binding arbitration.
Research
and Development
During
the three-year period ended June 30, 2007, IsoRay and its predecessor companies
incurred more than $1.8 million in costs related to research and development
activities. The Company expects to continue to devote employees to ongoing
research and development activities for the foreseeable future.
The
Company anticipates finishing its major research and development project
to
develop a proprietary separation process to manufacture enriched barium
and
thereby increase isotope production efficiency during fiscal year 2008.
The
remaining project costs are anticipated to be approximately
$400,000.
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 Quality System Regulations, also known as the Good
Manufacturing Practices, which include extensive record keeping and periodic
inspections of manufacturing facilities. IsoRay's predecessor obtained FDA
510(k) clearance in March 2003 to market the Proxcelan Cs-131 seed for the
treatment of localized solid tumors and other malignant disease and IsoRay
obtained FDA 510(k) clearance in November 2006 to market preloaded brachytherapy
seeds.
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.
In
the
United States, medical devices are classified into three different categories
over which the 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 Proxcelan Cs-131 seed
is
a Class II device and received 510(k) clearance in March 2003.
Approval
of new Class III medical devices is a lengthy procedure and can take a number
of
years and require the expenditure of significant resources. There is a shorter
FDA review and clearance process for Class II medical devices, the premarket
notification or 510(k) process, whereby a company can market certain Class
II
medical devices that can be shown to be substantially equivalent to other
legally marketed devices. Since brachytherapy seeds have been classified
by the
FDA as a Class II device, we have been able to achieve market clearance for
our
Cs-131 seed using the 510(k) process.
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. We are 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.
In
support of IsoRay’s global strategy to expand marketing to other countries such
as Europe, Canada, as well as other foreign markets, we have initiated a
project
to obtain the European CE Mark, Canadian registration, and certification
to ISO
13485, an internationally recognized quality system. European law requires
that
medical devices sold in any EU member state comply with the requirements
of the
European Medical Device Directive (MDD). Compliance with the MDD and obtaining
a
CE Mark involves being certified to ISO 13485 and obtaining approval of the
product technical file by a notified body that is recognized by competent
authorities of a member state. Compliance with ISO 13485 is also required
for
registration of a company for sale of its products in Canada. Many of the
recognized EU Notified Bodies are also recognized by Health Canada to conduct
the ISO 13485 inspections for Canadian registration.
In
the
United States, as a manufacturer of medical devices and devices utilizing
radioactive byproduct material, we are subject to extensive regulation by
not
only federal governmental authorities, such as the FDA, but also by state
and
local governmental authorities, such as the Washington State Department of
Health, to
ensure
such devices are safe and effective. 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 Cs-131 brachytherapy seeds
constitute both medical devices and radioactive sealed sources and are subject
to these regulations.
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, as it prohibits additional mixed
radioactive and hazardous waste from being brought to sites, such as PNNL,
until
the existing on-site waste conforms to all state and federal environment
laws.
In June 2006, a U.S. District court judge ruled that Initiative 297 was
unconstitutional in its entirety. However, the State of Washington has appealed
the decision. If this decision is overturned and Initiative 297 is enforced
it
could impact our ability to manufacture our seeds, whether at PNNL or elsewhere
in the State of Washington.
Seasonality
The
Company believes that some seed implantation procedures are deferred around
physician vacations (particularly in the summer months), holidays, and medical
conventions and conferences resulting in a seasonal influence on the Company’s
business. These factors cause a momentary decline in revenue which management
believes is ultimately realized later.
Employees
As
of
November 9, 2007, IsoRay employed 70 full-time individuals 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. None of the Company's employees
are
represented by any collective bargaining unit. IsoRay estimates that successful
implementation of its growth plan would result in up to 30 additional employees
by the end of fiscal year 2008.
Competition
The
Company competes in a market characterized by technological innovation,
extensive research efforts, and significant competition. In general, the
Proxcelan Cesium-131 brachytherapy 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 but has declined in recent years. 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 Proxcelan Cesium-131 brachytherapy 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, better quality of life outcomes, 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 currently claims about 35% of the market with
the
original I-125 seed. Theragenics Corp., which introduced the original Pd-103
seed, currently claims (through CR Bard and direct distribution) over 50%
of the
Pd-103 market share. The Company believes it may 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 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 clearances
before
marketing a competing device.
Several
companies have obtained regulatory clearance to produce and distribute Pd-103
and I-125 seeds, which compete directly with our seed. Six of those companies
represent nearly 100% of annual brachytherapy seed sales worldwide: CR Bard,
Inc., Oncura (part of GE Healthcare), Theragenics Corp., North American
Scientific, Inc., Mentor Corp., and Best Medical International, Inc. The
top
three - CR Bard, Inc., Oncura and Theragenics - currently garner over 80%
of
annual sales.
It
is
possible that three or four of the current I-125 or Pd-103 seed manufacturers
(e.g., CR Bard, 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) clearance to market a Cs-131 seed on June 6, 1993 but
to
date has not produced 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 for prostate brachytherapy to Russia, Europe, Canada,
and
other international markets, introducing Cs-131-based therapies for other
indications such as lung cancer and ocular melanoma, and through the marketing
of other radioactive isotopes. These growth initiatives appear to be significant
incremental opportunities.
The
Company plans to introduce Cs-131 for prostate brachytherapy 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 clearance 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 residual lung cancer and ocular melanoma. The Company
has
had discussions with prominent physicians and is looking at treatment of
lung,
pancreatic and brain cancer. 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 currently leases approximately
19,330 square feet of office and laboratory space for approximately $26,700
per
month plus monthly janitorial expenses of approximately $700 from Energy
Northwest, the owner of the Applied Process Engineering Laboratory (the APEL
facility). The Company is not affiliated with this lessor. The monthly rent
is
subject to annual increases based on the Consumer Price Index. The current
lease
was entered into in May 2007, expires on April 30, 2010, and has two three-year
renewal options. Additional office space will be needed as other general
and
administrative employees are hired and will be secured in the Richland
area.
In
February 2005, the Company entered into a lease agreement for leased space
at
the PEcoS-IsoRay
Radioisotope Laboratory (PIRL)
in
which it established production facilities. The lease was for 4,400 total
square
feet and the term commenced on regulatory licensing approval, which was obtained
in October 2005. The lease had a base term of one year with a one year renewal
option. The first year of rent was paid by issuing 24,000 shares of the
Company’s common stock.
On
October 10, 2007, the Company executed a Lease Agreement with Perma-Fix
Northwest Richland, Inc. (Perma-Fix). The Lease Agreement has an effective
date of September 1, 2007, and provides for the continuation of the Company's
lease of its PIRL facility located at 2025 Battelle Boulevard, Richland,
Washington. The Company previously leased this facility from Nuvotec USA,
Inc. under a Lease Agreement dated February 9, 2005, but Nuvotec USA, Inc.
subsequently sold the facility to Perma-Fix. The new lease term is through
January 31, 2008, with early termination permitted upon 45 days prior written
notice. Monthly rent payments are $5,000 and increase to $50,000 per month
if the Company has not vacated the premises by January 31, 2008, with an
additional one-time payment due of $100,000 if the Company continues to occupy
the premises beyond February 1, 2008. The Company has already moved its
production operations to its new facility at the Applied Process Engineering
Laboratory, and is in the process of completing decommissioning work to vacate
the PIRL facility, which management anticipates will occur by the end of
December 2007. The Company is not affiliated with the lessor.
In
September 2007, the Company moved all manufacturing operations to the APEL
facility after completing the necessary improvements and installing the required
equipment and will vacate its leased space at PIRL. The
APEL
facility has over 19,000 square feet and includes space for isotope separation,
seed production, order dispensing, a clean room for preloading seeds into
strands, needles, and cartridges, and a dedicated shipping area. A description
of the lease terms for the APEL facility is located in the Other Commitments
and
Contingencies section of “Management’s Discussion and Analysis” above. The
Company believes that the APEL facility will be used through April 2016 which
is
the end of the original lease term plus the two three-year renewal options.
Other facilities could be necessary to produce additional Cs-131 products
for
the prostate and other organ cancer markets in other regions of the country
or
the world if demand continues to grow.
The
Company has used Pacific Northwest National Laboratory (PNNL) to provide
third-party assay of its products but has otherwise vacated PNNL facilities.
The
Company intends to establish a new facility in Russia to produce Cs-131
brachytherapy seeds. This new facility is part of the Company’s strategy to
expand into the Russian and European markets. The Company has not entered
into
any agreements concerning this facility and has not started negotiations
with
any third-parties.
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
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The
executive officers and directors serving the Company as of the date of this
prospectus were as follows:
Name
|
|
Age
|
|
Position
Held
|
|
Term*
|
|
|
|
|
|
|
|
Roger
Girard
|
|
64
|
|
Chairman,
President, CEO
|
|
Annual
|
Jonathan
Hunt
|
|
40
|
|
Chief
Financial Officer – Treasurer
|
|
|
David
Swanberg
|
|
51
|
|
Executive
Vice President – Operations and Corporate Secretary,
Director
|
|
Annual
|
Lori
Woods
|
|
45
|
|
Vice
President
|
|
|
Dwight
Babcock
|
|
59
|
|
Director
|
|
Annual
|
Stephen
Boatwright
|
|
44
|
|
Director
|
|
Annual
|
Robert
Kauffman
|
|
66
|
|
Director
|
|
Annual
|
Thomas
LaVoy
|
|
47
|
|
Director
|
|
Annual
|
Albert
Smith
|
|
63
|
|
Director
|
|
Annual
|
*
For
directors only
Roger
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'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,
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 business consulting company based in Seattle, Washington
designed to help wealthy individuals and companies with strategic planning
and
financial strategy. Strategic Financial Services previously provided its
services to another medical device company. Mr. Girard served as its sole
employee. Mr. Girard also served as the managing partner for the Northwest
office of Capital Consortium, another business consulting company based in
Seattle, during this time. Capital Consortium employed four people and analyzed
business market potential for start-ups and early stage companies. 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.
Jonathan
Hunt – Mr. Hunt has over 10 years of finance and accounting experience,
including financial reporting, SEC knowledge, and operational analysis. Before
joining IsoRay, he was employed by Hypercom Corporation, a global provider
of
electronic payment solutions and manufacturer of credit card terminals, serving
as its Assistant Corporate Controller from 2005 to 2006. His finance background
also includes serving as both a Manager and Director of Financial Reporting
and
a Director of Operational Planning and Analysis for Circle K Corporation
and its
affiliates from 2000 to 2005 and working for PricewaterhouseCoopers LLP from
1992 to 1999 where his last position held was Business Assurance Manager.
Mr.
Hunt holds Masters of Accountancy and Bachelor of Science degrees from Brigham
Young University and is a Certified Public Accountant.
David
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'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
in
February 2004. He has been instrumental in development of IsoRay's initial
product, the Cs-131 brachytherapy seed, including interfaces with technical,
regulatory, and quality assurance requirements. With IsoRay 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.
Lori
Woods – Ms. Woods joined the Company in July 2006 and has over 20 years
experience in medical device technology and healthcare services. Ms. Woods
served as the CEO of Pro-Qura, a medical services company focusing on
brachytherapy quality assurance and education, from 2002 until joining the
Company. During her tenure at Pro-Qura, Ms. Woods developed its business
strategy, expanded its business portfolio in quality assurance beyond prostate
brachytherapy into other areas of cancer, and increased funding by 50%. Prior
to
this, she served as the Vice President of Sales at ATI Medical in 2002, Vice
President of Sales - West and Vice President of Marketing and Business
Development for Imagyn Medical Technologies from 2000 to 2002, Director of
Business Development for Seattle Prostate Institute from 1998 to 2000, and
Regional Vice President and Regional Manager of Interdent from 1994 to 1998.
Ms.
Woods holds a Bachelor of Science degree in Business Administration - Marketing
from Loma Linda University.
Dwight
Babcock – Mr. Babcock has served as Chairman and Chief Executive Officer of Apex
Data Systems, Inc. an information technology company, since 1975. Apex Data
Systems automates the administration and claims adjudication needs of insurance
companies both nationally and internationally. Mr. Babcock was formerly
President and CEO of Babcock Insurance Corporation (BIC) from 1974 until
1985.
BIC was a nationally recognized third party administrator operating within
35
states. Mr. Babcock has knowledge and experience in the equity arena and
has
participated in various activities within the venture capital, private and
institutional capital markets. Mr. Babcock studied marketing and economics
at
the University of Arizona where he currently serves on the University of
Arizona
Astronomy Board.
Stephen
Boatwright – Mr. Boatwright has been a member of Keller Rohrback, PLC in
Phoenix, Arizona since 2005. From 1997 through 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.
Robert
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
LaVoy – Mr. LaVoy has served as Chief Financial Officer of SuperShuttle
International, Inc., since July 1997 and as Secretary since March 1998.
SuperShuttle is one of the largest providers of shuttle services in major
cities
throughout the West and Southwest regions of the United States. 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.
Albert
Smith – Mr. Smith was the co-founder of and served as Vice Chairman of CSI
Leasing, Inc., a private computer leasing company from 1972 until March
2005. He
founded Extreme Video, LLC a private video conferencing company in Scottsdale,
Arizona in December 2005 where he presently serves as CEO and President.
Mr.
Smith presently serves as a director for Center for Arizona Policy (Scottsdale)
and Doulos Ministries (Denver). Mr. Smith has extensive experience in marketing
and sales having managed a national sales force of over fifty people while
at
CSI Leasing, Inc. Mr. Smith holds a BS in Business Administration from
Ferris
State College.
The
Company’s directors, as named above, will serve until the next annual meeting of
the Company’s shareholders or until their successors are duly elected and have
qualified. Directors will be elected for one-year terms at the annual
shareholders meeting. There is no arrangement or understanding between any
of
the directors or officers of the Company and any other person pursuant to
which
any director or officer was or is to be selected as a director or officer,
and
there is no arrangement, plan or understanding as to whether non-management
shareholders will exercise their voting rights to continue to elect the current
directors to the Company’s board. There are also no arrangements, agreements or
understandings between non-management shareholders that may directly or
indirectly participate in or influence the management of the Company’s
affairs.
There
are
no agreements or understandings for any officer or director to resign at
the
request of another person, and none of the officers or directors are acting
on
behalf of, or will act at the direction of, any other person. There are no
family relationships among our executive officers and
directors.
Significant
Employees
Certain
significant employees of our subsidiary, IsoRay Medical, Inc., and their
respective ages as of the date of this prospectus 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
Held and Tenure
|
Fredric Swindler
|
|
59
|
|
VP,
Regulatory Affairs and Quality Assurance
|
Lane
Bray
|
|
79
|
|
Chemist
|
Oleg Egorov
|
|
37
|
|
Director
of Research and Development
|
Fredric
Swindler – Mr.
Swindler
joined the Company in October 2006 and has over 30 years experience in
manufacturing and regulatory compliance. Mr. Swindler served as VP, Quality
Assurance and Regulatory Affairs for Medisystems Corporation, a manufacturer
and
distributor of medical devices, from 1994 until joining the Company. During
his
tenure at Medisystems Corporation, Mr. Swindler developed a quality system
to
accommodate vertically integrated manufacturing, developed regulatory
strategies, policies and procedures, and submitted nine pre-market notifications
(510(k)) to the FDA. Prior to this, Mr. Swindler held various positions with
Marquest Medical Products from 1989 to 1994, Sherwood Medical Products from
1978
to 1989, Oak Park Pharmaceuticals in 1978, and Mead Johnson & Company from
1969 to 1978. Mr. Swindler holds a Bachelor of Science degree in Biomedical
Engineering from Rose Hulman Institute of Technology and a Masters of Business
Administration from the University of Evansville.
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.
Oleg
Egorov –
Dr. Egorov is recognized nationally and internationally for his work in
radiochemistry, radioanalytical chemistry, analytical chemistry and
instrumentation. Prior to joining IsoRay in December of 2005 as Director
of
Radiochemical Development and then Director of Research and Development,
Dr.
Egorov worked from May 1998 as a Senior Research Scientist at the Pacific
Northwest National Laboratory (PNNL). Prior to that time, he served the
Environmental Molecular Sciences Laboratory at PNNL as a Graduate Research
Fellow from August 1994 to May 1998 and as a Graduate Research Assistant
to the
University of Washington’s Center for Process Analytical Chemistry from
September 1992 to August 1993. Former positions included a tenure as a Research
Engineer at the Department of Radiochemistry at the Moscow State University,
Moscow, Russia between September 1998 to August 1992, and Field Chemist at
the
Institute of Volcanology, at the Russian Academy of Science at
Petropavlovsk-Kamchatsky, Russia, during the summers of 1989 and 1990 concurrent
to studies that lead to his acquisition of Master of Science in Radiochemistry
from the Moscow State University. During his tenure at PNNL, Dr. Egorov had
led
world-class basic and applied R&D programs directed at new chemistries and
instrumentation for automated production of short-lived medical isotopes
for the
treatment of cancer, automated process monitoring, radionuclide sensors for
groundwater monitoring, and laboratory automation. Dr. Egorov pioneered the
application of flow-based techniques for automating radiochemical analyses
of
nuclear wastes, renewable surface sensing and separations, and
equilibration-based radionuclide sensing. He has authored/co-authored numerous
peer-reviewed publications in these areas, including several book chapters.
Dr.
Egorov holds four U.S./international patents, three of which have been licensed
to industry. Dr. Egorov has been a recipient of numerous outstanding performance
and key contributor awards. In 2003, Dr. Egorov was nominated for the American
Chemical Society Arthur F. Findeis Award for Achievements by a Young Analytical
Scientist. In 2004, Dr. Egorov was a recipient of a Federal Laboratory
Consortium Award for Excellence in Technology Transfer for “Alpha Particle
Immunotherapy for Treating Leukemia and Solid-Tumor Metastases”. Dr. Egorov
holds a M.S. in Radiochemistry from Moscow State University, Moscow, Russia;
a
M.S. in Environmental and Analytical Chemistry and a Ph.D. in Analytical
Chemistry from the University of Washington.
Executive
Compensation
The
following summary compensation table sets forth information concerning
compensation for services rendered in all capacities during our past two
fiscal
years awarded to, earned by or paid to each of the following individuals.
Salary
and other compensation for these officers are set by the Compensation Committee
of the Board of Directors.
Summary
Compensation Table
Name
and principal position
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
Stock
awards ($)
|
|
Option
awards ($)
(1)
|
|
Nonequity
incentive
plan
compensation
($)
|
|
Nonqualified
deferred
compensation
earnings
($)
|
|
All other
compensation
($)
|
|
Total ($)
|
|
Roger
Girard, Chairman and CEO (2)
|
|
|
2007
|
|
|
298,042
|
|
|
-
|
|
|
-
|
|
|
600,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
898,542
|
|
|
|
|
2006
|
|
|
199,231
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
199,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Swanberg, Executive Vice
|
|
|
2007
|
|
|
161,539
|
|
|
-
|
|
|
-
|
|
|
372,228
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
533,767
|
|
President
-Operations (2) (3)
|
|
|
2006
|
|
|
120,000
|
|
|
25,000
|
|
|
-
|
|
|
79,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
224,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lori
Woods, Vice President (4)
|
|
|
2007
|
|
|
155,692
|
|
|
-
|
|
|
-
|
|
|
327,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
482,842
|
|
|
|
|
2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Hunt, Chief Financial
|
|
|
2007
|
|
|
120,000
|
|
|
-
|
|
|
-
|
|
|
205,650
|
|
|
-
|
|
|
-
|
|
|
24,266
|
|
|
349,916
|
|
Officer
(5)
|
|
|
2006
|
|
|
18,462
|
|
|
-
|
|
|
-
|
|
|
58,512
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
76,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Dunlop, former Chief
|
|
|
2007
|
|
|
30,660
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
288,000
|
|
|
318,660
|
|
Financial
Officer (6)
|
|
|
2006
|
|
|
80,167
|
|
|
-
|
|
|
-
|
|
|
79,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
159,667
|
|
(1)
|
Amounts
represent the FAS 123R valuation for the fiscal year ended June
30, 2007
and 2006, respectively. All such options were awarded under one
of the
Company’s stock option plans. All options awarded (with the exception of
Mr. Swanberg’s and Mr. Dunlop’s fiscal year 2006 stock option grants that
were immediately vested on the grant date) vest in three equal
annual
installments beginning with the first anniversary from the date
of grant
and expire ten years after the date of grant. All options were
granted at
the fair market value of the Company’s stock on the date of grant and the
Company used a Black-Scholes methodology as discussed in the footnotes
to
the financial statements to value the
options.
|
(2)
|
Mr.
Girard and Mr. Swanberg were granted 150,000 and 100,000 options,
respectively, on June 1, 2007. These options have an exercise price
of
$4.14 and vest over 3 years. On July 25, 2007, the Board discussed
the
issue of director compensation and each director (including Mr.
Girard and
Mr. Swanberg) elected to cancel 50,000 of their options from the
June 1,
2007 grant. After the cancellation, Mr. Girard and Mr. Swanberg
had
100,000 and 50,000 options, respectively, from the June 1, 2007
grant. The
terms of these options were not changed as part of the cancellation.
Under
FAS 123R, the value of the cancelled options to Mr. Girard and
Mr.
Swanberg were $128,500 each. The value of these options has been
included
in the table above.
|
(3)
|
The
value of Mr. Swanberg’s options includes $7,728 relating to options
granted to his wife who is also an employee of the
Company.
|
(4)
|
Ms.
Woods became an employee of the Company on July 5,
2006.
|
(5)
|
Mr.
Hunt became an employee of the Company on May 1, 2006. The Company
reimbursed Mr. Hunt for certain of his relocation costs and this
amount is
included in the “All other compensation” column for fiscal year
2007.
|
(6)
|
Mr.
Dunlop left the Company in September 2006. As part of his employment
agreement, Mr. Dunlop was entitled to a severance payment of $288,000
and
this amount is included in the “All other compensation”
column.
|
Mr.
Girard and Ms. Woods have employment contracts with the Company. Mr. Swanberg
had an employment agreement with the Company’s subsidiary that expired on
September 1, 2007. The Company and Mr. Swanberg are negotiating terms for
a new
employment agreement as of the date of this prospectus.
Mr.
Girard’s employment agreement is dated October 6, 2005 and expires on October 6,
2009. The agreement will be automatically extended at the end of the fourth
year
for one year on each anniversary date unless the agreement is modified at
least
90 days prior to the anniversary date. Effective July 1, 2006, the agreement
calls for an annual salary of $300,000 with increases as determined by the
Compensation Committee of the Board and a bonus plan as determined by the
Board.
Under the terms of the agreement, if Mr. Girard is terminated without cause
or
he terminates his employment for good reason then he is entitled to receive
his
continued salary and benefits for a one year period. Good reason is defined
in
the agreement to mean a reduction of salary or benefits, a change in Mr.
Girard’s title, position, authority, or responsibilities, or any breach by the
Company of this agreement. In the event of disability, Mr. Girard is entitled
to
his continued salary and benefits for a one year period. The agreement also
includes certain restrictive covenants that prohibit Mr. Girard from providing
services to a competing business for the period of this agreement plus one
year.
Mr.
Swanberg’s employment agreement was with IsoRay Medical, Inc. and was dated
September 1, 2004. The agreement had a term of three years and expired on
September 1, 2007. Mr. Swanberg is due $50,000 under this agreement as a
bonus
from August 2007.
Ms.
Woods’ employment agreement dated February 14, 2007, is for an initial term of
two years but will be automatically extended for an additional year on each
anniversary date unless terminated in accordance with the provisions of the
agreement. The agreement entitles Ms. Woods to a salary of at least $160,000
with increases as determined by the Compensation Committee of the Board and
annual bonus payments under a bonus plan as established by the Compensation
Committee. In the event that Ms. Woods is terminated without cause, becomes
disabled, or terminates her employment for good reason, she will be entitled
to
her salary and benefits for the remaining term of the agreement or 18 months,
whichever is shorter. Good reason is defined in the agreement to mean a
reduction of salary or benefits, a change in Ms. Woods’ title, position,
authority, or responsibilities, causing Ms. Woods to relocate, or any breach
by
the Company of this agreement. If Ms. Woods is terminated within one year
of a
change of control then she shall be entitled to her salary and benefits for
the
remaining term of the agreement or 18 months, whichever is longer, in addition
to a one-time payment equal to her most recently received bonus. In the event
of
Ms. Woods’ termination without cause or termination within one year of a change
of control, all of her unvested stock options shall immediately vest in full
and
shall be exercisable as provided in the applicable stock option plan. The
agreement also includes certain restrictive covenants that prohibit Ms. Woods
from providing services to a competing business for the period of this agreement
plus one year.
Outstanding
Equity Awards at Fiscal Year-End
|
|
Option
awards
|
|
Name
|
|
Number of
securities
underlying
unexercised
options (#)
exercisable
|
|
Number of
securities
underlying
unexercised
options (#)
unexercisable
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options (#)
|
|
Option
exercise
price ($)
|
|
Option
expiration
date
|
|
Roger
Girard, Chief Executive Officer (Principal Executive Officer)
|
|
|
513,840
|
|
|
-
|
|
|
-
|
|
|
1.19
|
|
|
8/1/2015
|
|
|
|
|
-
|
|
|
100,000
|
(1)
|
|
-
|
|
|
3.11
|
|
|
8/15/2016
|
|
|
|
|
-
|
|
|
150,000
|
(2)
|
|
-
|
|
|
4.14
|
|
|
6/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Swanberg, Executive Vice President - Operations
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
1.00
|
|
|
8/18/2015
|
|
|
|
|
-
|
|
|
50,000
|
(1)
|
|
-
|
|
|
3.11
|
|
|
8/15/2016
|
|
|
|
|
-
|
|
|
100,000
|
(2)
|
|
-
|
|
|
4.14
|
|
|
6/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lori
Woods , Vice President
|
|
|
-
|
|
|
50,000
|
(3)
|
|
-
|
|
|
3.50
|
|
|
7/5/2016
|
|
|
|
|
-
|
|
|
50,000
|
(4)
|
|
-
|
|
|
3.10
|
|
|
10/17/2016
|
|
|
|
|
-
|
|
|
15,000
|
(5)
|
|
-
|
|
|
4.40
|
|
|
3/2/2017
|
|
|
|
|
-
|
|
|
20,000
|
(6)
|
|
-
|
|
|
4.14
|
|
|
6/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jonathan
Hunt, Chief Financial Officer
|
|
|
10,000
|
|
|
20,000
|
(7)
|
|
-
|
|
|
5.50
|
|
|
5/1/2016
|
|
|
|
|
-
|
|
|
50,000
|
(4)
|
|
-
|
|
|
3.10
|
|
|
10/17/2016
|
|
|
|
|
-
|
|
|
15,000
|
(5)
|
|
-
|
|
|
4.40
|
|
|
3/2/2017
|
|
|
|
|
-
|
|
|
20,000
|
(6) |
|
-
|
|
|
4.14
|
|
|
6/1/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Dunlop, former Chief Financial Officer
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
(1)
|
Represents
the August 15, 2006 grant, one-third of which became exercisable
on August
15, 2007, one-third of which will become exercisable on August
15, 2008,
and the final third will become exercisable on August 15,
2009.
|
(2)
|
Mr.
Girard and Mr. Swanberg were granted 150,000 and 100,000 options,
respectively, on June 1, 2007. These options have an exercise price
of
$4.14 and vest over 3 years. On July 25, 2007, the Board discussed
the
issue of director compensation and each director (including Mr.
Girard and
Mr. Swanberg) elected to cancel 50,000 of their options from the
June 1,
2007 grant. After the cancellation, Mr. Girard and Mr. Swanberg
had
100,000 and 50,000 options, respectively, from the June 1, 2007
grant. The
terms of these options was not changed as part of the cancellation.
These
cancelled options have been included in the table above as they
were
outstanding on June 30, 2007.
|
(3)
|
Represents
a July 5, 2006 grant, one-third of which became exercisable on
July 1,
2007, one-third of which will become exercisable on July 1, 2008,
and the
final third will become exercisable on July 1,
2009.
|
(4)
|
Represents
the October 17, 2006 grant, one-third of which will become exercisable
on
October 17, 2007, one-third of which will become exercisable on
October
17, 2008, and the final third will become exercisable on October
17,
2009.
|
(5)
|
Represents
the March 2, 2007 grant, one-third of which will become exercisable
on
March 2, 2008, one-third of which will become exercisable on March
2,
2009, and the final third will become exercisable on March 2,
2010.
|
(6)
|
Represents
the June 1, 2007 grant, one-third of which will become exercisable
on June
1, 2008, one-third of which will become exercisable on June 1,
2009, and
the final third will become exercisable on June 1,
2010.
|
(7)
|
Represents
the final two-thirds vesting of a May 1, 2006 grant, half of which
will
become exercisable on May 1, 2008 and the other half will become
exercisable on May 1, 2009.
|
The
Company has a 401(k) plan that commenced in fiscal year 2007. The 401(k)
plan
covers all eligible full-time employees of the Company. Contributions to
the
401(k) plan are made by participants to their individual accounts through
payroll withholding. Additionally, the 401(k) plan provides for the Company
to
make contributions to the 401(k) plan in amounts at the discretion of
management. The Company has not made any contributions to the 401(k) plan
and
does not maintain any other retirement plans for its executives or
employees.
Non-Employee
Director Compensation
Name
|
|
Fees
earned or
paid in
cash ($)
(1)
|
|
Stock
awards ($)
|
|
Option
awards ($)
(2) (3)
|
|
Non-equity
incentive
plan
compensation
($)
|
|
Non-
qualified
deferred
compensation
earnings
($)
|
|
All other
compensation
($)
|
|
Total ($)
|
|
Dwight
Babcock
|
|
|
8,000
|
|
|
-
|
|
|
236,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
244,000
|
|
Stephen
Boatwright
|
|
|
8,000
|
|
|
-
|
|
|
236,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
244,000
|
|
Robert
Kauffman
|
|
|
8,000
|
|
|
-
|
|
|
236,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
244,000
|
|
Thomas
LaVoy
|
|
|
7,000
|
|
|
-
|
|
|
236,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
243,000
|
|
Albert
Smith
|
|
|
7,000
|
|
|
-
|
|
|
236,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
243,000
|
|
(1)
|
In
fiscal year 2007, each non-employee director received cash compensation
of
$1,000 per meeting attended. Beginning in fiscal year 2008, each
non-employee director will receive cash compensation of $3,000
per month,
except for Mr. Boatwright who will receive $1,000 per month. In
addition,
each non-employee director will receive $1,000 per Board meeting
attended
in person or $500 per Board meeting attended via telephone and
$500 per
committee meeting attended.
|
(2)
|
This
represents the value determined in accordance with FAS 123R for
the option
grant of August 15, 2006. Each non-employee director also received
a grant
of 50,000 options with an exercise price of $4.14 per share on
June 1,
2007. After a discussion of director compensation with the entire
Board,
each Board member elected to cancel their June 1, 2007 option grant
on
July 25, 2007 in exchange for the additional cash compensation
discussed
in (1) above. Under FAS 123R, these options were valued at $128,500
per
director. The value of these options has been included in the table
above
and in the financial statements as they were fully vested on the
day of
grant.
|
(3)
|
Each
director had stock options to purchase 200,000 shares of the Company’s
common stock outstanding as of June 30, 2007 including the June
1, 2007
grant (for 50,000 shares per director) that was subsequently cancelled
on
July 25, 2007.
|
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. On July 1, 2006, the Company entered into
Indemnification Agreements with each of its directors and executive officers,
and the Company intends to enter into substantially identical agreements with
any officers and directors who take office in the future. The purpose of the
Indemnification Agreements is to provide all officers and directors with
indemnification to the fullest extent permitted under the Minnesota Business
Corporations Act.
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 9,
2007 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) directors and executive officers of the Company as a group. As of November
9, 2007, the Company had 23,090,200 shares of common stock and 59,065 shares
of
preferred stock outstanding.
Common
Stock Share Ownership
Name
of Beneficial Owner
|
|
Common Shares
Owned
|
|
Common Stock
Options
Exercisable
Within 60 Days
|
|
Common
Warrants
|
|
Percent
of
Class
(1)
|
|
Roger
Girard
|
|
|
368,534
|
|
|
547,173
|
|
|
-
|
|
|
3.97
|
%
|
David
Swanberg (2)
|
|
|
324,327
|
|
|
179,999
|
|
|
5,500
|
|
|
2.21
|
%
|
Lori
Woods
|
|
|
3,000
|
|
|
33,332
|
|
|
-
|
|
|
—
|
%
|
Jonathan
Hunt
|
|
|
-
|
|
|
26,666
|
|
|
-
|
|
|
—
|
%
|
Michael
Dunlop
|
|
|
195,050
|
|
|
-
|
|
|
-
|
|
|
—
|
%
|
Dwight
Babcock (3)
|
|
|
61,002
|
|
|
150,000
|
|
|
12,500
|
|
|
—
|
%
|
Stephen
Boatwright (4)
|
|
|
60,000
|
|
|
150,000
|
|
|
-
|
|
|
—
|
%
|
Robert
Kauffman
|
|
|
43,802
|
|
|
150,000
|
|
|
-
|
|
|
—
|
%
|
Thomas
LaVoy
|
|
|
8,423
|
|
|
150,000
|
|
|
-
|
|
|
—
|
%
|
Albert
Smith
|
|
|
108,947
|
|
|
150,000
|
|
|
-
|
|
|
1.12
|
%
|
Directors
and Executive Officers as a group
|
|
|
1,173,085
|
|
|
1,537,170
|
|
|
18,000
|
|
|
11.82
|
%
|
|
(1)
|
Percentage
ownership is based on 23,090,200 shares of Common Stock outstanding
on
November 9, 2007. Shares of Common Stock subject to stock options
which
are currently exercisable or will become exercisable within 60
days after
November 9, 2007 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.
|
|
(2)
|
Mr.
Swanberg’s options include 13,333 options granted to his
spouse.
|
|
(3)
|
Mr.
Babcock’s common shares owned include 2,695 shares owned by his
spouse.
|
|
(4)
|
Mr.
Boatwright’s common shares owned are held by an entity controlled by Mr.
Boatwright.
|
Preferred
Stock Share Ownership
|
|
Preferred
Shares
|
|
Percent of
|
|
Name
of Beneficial Owner
|
|
Owned
|
|
Class
(1)
|
|
Aissata
Sidibe (2)
|
|
|
20,000
|
|
|
33.86
|
%
|
William
and Karen Thompson Trust (3)
|
|
|
14,218
|
|
|
24.07
|
%
|
Jamie
Granger (4)
|
|
|
10,529
|
|
|
17.83
|
%
|
Hostetler
Living Trust (5)
|
|
|
9,479
|
|
|
16.05
|
%
|
Leslie
Fernandez (6)
|
|
|
3,688
|
|
|
6.24
|
%
|
|
(1)
|
Percentage
ownership is based on 59,065 shares of Preferred Stock outstanding
on
November 9, 2007.
|
|
(2)
|
The
address of Ms. Sidibe is 229 Lasiandra Ct, Richland, WA
99352.
|
|
(3)
|
The
address of the William and Karen Thompson Trust is 285 Dondero
Way, San
Jose, CA 95119.
|
|
(4)
|
The
address of Jamie Granger is 53709 South Nine Canyon Road, Kennewick,
WA
99337.
|
|
(5)
|
The
address of the Hostetler Living Trust is 9257 NE 175th Street,
Bothell, WA
98011.
|
|
(6)
|
The
address of Leslie Fernandez is 2615 Scottsdale Place, Richland,
WA
99352.
|
No
officers or directors beneficially own shares of Preferred Stock.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
IsoRay
Medical, Inc.’s patent rights to its Cs-131 process were acquired from Lane
Bray, a shareholder and employee of the Company, and are subject to a 1%
royalty
on gross profits and certain contractual restrictions. Pursuant to the royalty
agreement, 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. During fiscal year 2007, the Company achieved
its first gross margin and began making quarterly payments to Mr. Bray as
outlined in the royalty agreement. The Company recorded royalty expense of
$2,161 for fiscal year 2007 related to these payments.
Mr. Stephen
Boatwright, a Company director, has been actively involved in providing various
legal services to the Company and IsoRay Medical, Inc. through the law firm
of
Keller Rohrback, PLC. During the fiscal years ended June 30, 2007 and 2006,
the
Company paid Keller Rohrback, PLC approximately $459,000 and $390,000,
respectively, for legal services. In addition, the Company had accrued at
June
30, 2007 approximately $18,000 in legal fees to be paid.
Certain
members of management, including Roger Girard and David Swanberg, personally
guaranteed a loan from HAEIFC, in exchange for which they have a contractual
right to receive their pro rata portion of the 70,455 shares that will be
issued
to the guarantors of this loan.
Patent
and Know-How Royalty License Agreement
Effective
August 1, 1998, Pacific Management Associates Corporation (PMAC) transferred
its
entire right, title and interest in an exclusive license agreement with Donald
Lawrence to IsoRay, LLC (a predecessor company) in exchange for a membership
interest. The terms of the license agreement require the payment of a royalty
based on the Net Factory Sales Price, as defined in the agreement, of licensed
product sales. Because the licensor’s patent application was ultimately
abandoned, only a 1% “know-how” royalty based on Net Factory Sales Price, as
defined, remains applicable. To date, management believes that there have
been
no product sales incorporating the “know-how” and that therefore no royalty is
due pursuant to the terms of the agreement. Management believes that ultimately
no royalties should be paid under this agreement as there is no intent to
use
this “know-how” in the future.
The
licensor of the “know-how” has disputed management’s contention that it is not
using this “know-how”. On September 25, 2007 and again on October 31, 2007, the
Company participated in nonbinding mediation and no settlement was reached
with
the Lawrence Family Trust. The parties have agreed to extend negotiations
of a
mutually agreeable settlement through December 1, 2007. If no settlement
is
reached, the parties may demand binding arbitration.
SELLING
SHAREHOLDERS
The
following table details, as of June 8, 2006, the name of each selling
shareholder (including, for entity shareholders, the name of the natural
person
controlling the selling shareholder in parentheses), 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 4,637,100 shares of our common stock from time
to
time in one or more offerings under this prospectus, of which 4,004,264 are
shares of common stock held by the selling shareholders, 43,219 are shares
of
common stock issuable upon the conversion of preferred stock held by the
selling
shareholders (including 6,967 shares of common stock issuable upon the
conversion of preferred stock receivable upon the exercise of warrants to
purchase preferred stock), 371,163 are shares of common stock issuable upon
the
exercise of warrants held by the selling shareholders, and 218,454 are shares
of
common stock issuable upon the exercise of options held by the selling
shareholders. 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.
|
|
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,
Options or
Warrants
Included in
Prospectus
(3)
|
|
Exercise
Price of
Option or
Warrant
Included in
Prospectus
|
|
Grant Date
of Option
or Warrant
Included in
Prospectus
|
|
Term of Option
or Warrant
Included in
Prospectus
|
|
Total Shares
of Common
Stock
Included in
Prospectus
|
|
Beneficial
Ownership After
the Offering (4)
|
|
Percentage of Common Stock
Owned After Offering (4)
|
|
Alan
E. Waltar and Anna E. Waltar, Trustees
of
the Alan E. and Anna E. Waltar Trust U/A DTD 7/3/98
|
|
|
57,982
|
|
|
*
|
|
|
7,480
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,480
|
|
|
50,502
|
|
|
*
|
|
All
Seasons Painting Co. (Richard Rusch)
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
Anastassatos,
Efthimios Christopher
|
|
|
14,819
|
|
|
*
|
|
|
4,819
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,819
|
|
|
10,000
|
|
|
*
|
|
Babcock,
Dwight W. (5)
|
|
|
102,207
|
|
|
*
|
|
|
22,962
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
22,962
|
|
|
79,245
|
|
|
*
|
|
Babcock,
Elaine
|
|
|
2,695
|
|
|
*
|
|
|
539
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
539
|
|
|
2,156
|
|
|
*
|
|
Bales,
Matt
|
|
|
5,178
|
|
|
*
|
|
|
1,036
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,036
|
|
|
4,142
|
|
|
*
|
|
Bartholomew,
Richard & Suzanne
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Bates,
Christopher Matthew
|
|
|
4,265
|
|
|
*
|
|
|
853
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
853
|
|
|
3,412
|
|
|
*
|
|
Bates,
Robert and Lisa
|
|
|
47,873
|
|
|
*
|
|
|
16,335
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
16,335
|
|
|
31,538
|
|
|
*
|
|
Bavispe
Limited Partnership (Robert Caylor)
|
|
|
126,283
|
|
|
*
|
|
|
14,235
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
14,235
|
|
|
112,048
|
|
|
1.28%
|
|
Bear
Stearns Securities Corporation
Custodian
Michael Eric Jacobson IRA(9)
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Bear
Stearns Securities Corporation
Custodian
Mishawn Marie Nelson IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Bear
Stearns Securities Corporation
Custodian
Steven Mark Nelson IRA(9)
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Berglin,
Bruce D. and Doneda E.
|
|
|
15,475
|
|
|
*
|
|
|
5,475
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,475
|
|
|
10,000
|
|
|
*
|
|
Berglund,
Greg
|
|
|
35,769
|
|
|
*
|
|
|
15,769
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
15,769
|
|
|
20,000
|
|
|
*
|
|
Betty
McCormick Trust
|
|
|
7,108
|
|
|
*
|
|
|
1,422
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,422
|
|
|
5,686
|
|
|
*
|
|
Bock,
Daniel
|
|
|
18,072
|
|
|
*
|
|
|
18,072
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
18,072
|
|
|
0
|
|
|
*
|
|
Boesel,
John(9)
|
|
|
1,084
|
|
|
*
|
|
|
|
|
|
1,084
|
|
$
|
0.59 - 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
1,084
|
|
|
0
|
|
|
*
|
|
Boggess,
Thomas S. IV and Jonette D.
|
|
|
36,145
|
|
|
*
|
|
|
36,145
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
36,145
|
|
|
0
|
|
|
*
|
|
Boland,
John C.
|
|
|
28,437
|
|
|
*
|
|
|
5,687
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,687
|
|
|
22,750
|
|
|
*
|
|
Boland,
John L.
|
|
|
116,098
|
|
|
*
|
|
|
10,384
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
17,493
|
|
|
98,605
|
|
|
1.13%
|
|
Bonanza,
LLC (David and Donna Whitehead)
|
|
|
39,672
|
|
|
*
|
|
|
25,454
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
25,454
|
|
|
14,218
|
|
|
*
|
|
Boster,
Gary
|
|
|
29,399
|
|
|
*
|
|
|
29,399
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
29,399
|
|
|
0
|
|
|
*
|
|
Bragdon,
George and Barbara
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Brown
Larsen, Pamela
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Brown,
Alexis and Alan
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Brown,
Anne J.
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Brown,
Garrett N. (6)
|
|
|
552,237
|
|
|
4.11%
|
|
|
31,546
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
31,546
|
|
|
520,691
|
|
|
5.95%
|
|
Bunting,
Brandt E. & Collen M.
|
|
|
38,435
|
|
|
*
|
|
|
5,687
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,687
|
|
|
32,748
|
|
|
*
|
|
Burstein,
Fred
|
|
|
290,016
|
|
|
2.16%
|
|
|
290,016
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
290,016
|
|
|
0
|
|
|
*
|
|
Burstein,
Fred IRA
|
|
|
16,425
|
|
|
*
|
|
|
16,425
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
16,425
|
|
|
0
|
|
|
*
|
|
Cangiane,
Lorraine and Gilson, Bernard
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Carroll,
Bridget M.
|
|
|
14,218
|
|
|
*
|
|
|
14,218
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
14,218
|
|
|
0
|
|
|
*
|
|
Chapman,
Milton A
|
|
|
48,782
|
|
|
*
|
|
|
9,756
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
9,756
|
|
|
39,026
|
|
|
*
|
|
Clark,
R. Jeanne
|
|
|
25,541
|
|
|
*
|
|
|
4,878
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
5,108
|
|
|
20,433
|
|
|
*
|
|
Clement,
James H.
|
|
|
20,046
|
|
|
*
|
|
|
7,642
|
|
|
747
|
|
$
|
1.06
|
|
|
2/28/2005
|
|
|
2/28/2007
|
|
|
8,388
|
|
|
11,657
|
|
|
*
|
|
Clerf,
Craig
|
|
|
1,300
|
|
|
*
|
|
|
260
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
1,040
|
|
|
*
|
|
Clerf,
Robert
|
|
|
1,950
|
|
|
*
|
|
|
390
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
390
|
|
|
1,560
|
|
|
*
|
|
Clerf,
Roger
|
|
|
3,251
|
|
|
*
|
|
|
650
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
650
|
|
|
2,601
|
|
|
*
|
|
Cohen,
Loren
|
|
|
26,426
|
|
|
*
|
|
|
16,426
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
16,426
|
|
|
10,000
|
|
|
*
|
|
Collier
Living Trust
|
|
|
44,885
|
|
|
*
|
|
|
7,545
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,545
|
|
|
37,340
|
|
|
*
|
|
Cone-Gilreath
Law Firm(Douglas Nicholson)
|
|
|
48,782
|
|
|
*
|
|
|
9,756
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
9,756
|
|
|
39,026
|
|
|
*
|
|
Conner
III, Thomas E.
|
|
|
33,698
|
|
|
*
|
|
|
4,740
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,740
|
|
|
28,958
|
|
|
*
|
|
Craddock,
Steven Lee
|
|
|
7,229
|
|
|
*
|
|
|
7,228
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,228
|
|
|
1
|
|
|
*
|
|
Daniels,
Frederic R. & Anita C. Family Trust
|
|
|
72,477
|
|
|
*
|
|
|
9,597
|
|
|
2,488
|
|
$
|
1.06
|
|
|
2/28/2005
|
|
|
2/28/2007
|
|
|
12,085
|
|
|
60,391
|
|
|
*
|
|
Daswick,
Gregory
|
|
|
10,663
|
|
|
*
|
|
|
2,133
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,133
|
|
|
8,530
|
|
|
*
|
|
Daswick,
Michael and Kimberly
|
|
|
62,943
|
|
|
*
|
|
|
8,589
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
8,589
|
|
|
54,354
|
|
|
*
|
|
DFC
401(k) Profit Sharing Plan FBO Benjamin J. Schwartz
|
|
|
24,882
|
|
|
*
|
|
|
5,564
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,564
|
|
|
19,318
|
|
|
*
|
|
Douglas
D. Thornton Family Trust
|
|
|
308,957
|
|
|
2.30%
|
|
|
61,791
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
61,791
|
|
|
247,166
|
|
|
2.82%
|
|
Dunlop,
Michael(5) (6)
|
|
|
286,618
|
|
|
2.13%
|
|
|
24,746
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
24,746
|
|
|
261,872
|
|
|
2.99%
|
|
Ecclestone,
Andrew
|
|
|
59,842
|
|
|
*
|
|
|
59,842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
59,842
|
|
|
0
|
|
|
*
|
|
Edmund,
Robert
|
|
|
3,369
|
|
|
*
|
|
|
674
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
2,695
|
|
|
*
|
|
Engels,
Kevin F.
|
|
|
18,423
|
|
|
*
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
16,738
|
|
|
*
|
|
Fabri,
Jon
|
|
|
43,423
|
|
|
*
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
41,738
|
|
|
*
|
|
Falls
Rd LLC (Paul Hatch)
|
|
|
23,698
|
|
|
*
|
|
|
4,740
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,740
|
|
|
18,958
|
|
|
*
|
|
Feder,
Dr. Henry
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Feidelberg,
Steven O. and Codini,
Anna-Maria,
Trustees of the Feidelberg-Codini
Family
Trust U/T/A dated April 15, 2003
|
|
|
6,024
|
|
|
*
|
|
|
6,024
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,024
|
|
|
0
|
|
|
*
|
|
Fernandez,
Leslie
|
|
|
3,688
|
|
|
*
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
738
|
|
|
2,950
|
|
|
*
|
|
Ferrick,
Patrick N.
|
|
|
9,479
|
|
|
*
|
|
|
1,896
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Fookes,
Larry
|
|
|
46,529
|
|
|
*
|
|
|
3,577
|
|
|
22,914
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
26,491
|
|
|
20,038
|
|
|
*
|
|
Fookes,
Sharon
|
|
|
3,553
|
|
|
*
|
|
|
711
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
711
|
|
|
2,842
|
|
|
*
|
|
Forest
Ridge Properties, Ltd. (Beverly Unger)
|
|
|
12,441
|
|
|
*
|
|
|
1,244
|
|
|
1,244
|
|
$
|
1.40
|
|
|
2/28/2005
|
|
|
2/28/2007
|
|
|
2,488
|
|
|
9,953
|
|
|
*
|
|
Forsman,
John Arvid
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Freeman,
Kevin
|
|
|
22,440
|
|
|
*
|
|
|
2,488
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,488
|
|
|
19,952
|
|
|
*
|
|
Gainer,
Ronald G. & Linda J.
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Gaines,
Ira J.
|
|
|
30,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
20,000
|
|
|
*
|
|
Galanty,
Thomas M.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Giammattei,
Shawn and Peggy
|
|
|
252
|
|
|
*
|
|
|
50
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
202
|
|
|
*
|
|
Girard,
Roger E. (5) (6)
|
|
|
852,301
|
|
|
6.35%
|
|
|
73,285
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
73,285
|
|
|
779,016
|
|
|
8.90%
|
|
Gold
Trust Co FBO Don Goeckner IRA
|
|
|
86,733
|
|
|
*
|
|
|
17,346
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
17,346
|
|
|
69,387
|
|
|
*
|
|
Goldsmith,
Hugh G.
|
|
|
18,959
|
|
|
*
|
|
|
|
|
|
3,792
|
|
|
|
|
|
|
|
|
|
|
|
3,792
|
|
|
15,167
|
|
|
*
|
|
Goodrich,
Daniel A
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Granger,
Jamie
|
|
|
10,529
|
|
|
*
|
|
|
|
|
|
2,106
|
|
|
|
|
|
|
|
|
|
|
|
2,106
|
|
|
8,423
|
|
|
*
|
|
Griffith,
Richard and Barbara
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry
and Adeline Silverman Foundation
|
|
|
20,000
|
|
|
*
|
|
|
20,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
|
0
|
|
|
*
|
|
Hartley,
James N.
|
|
|
9,479
|
|
|
*
|
|
|
|
|
|
1,896
|
|
|
|
|
|
|
|
|
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Hedstrom,
Gary A.
|
|
|
12,527
|
|
|
*
|
|
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
505
|
|
|
12,022
|
|
|
*
|
|
Hernandez,
Jesus and Melissa
|
|
|
16,955
|
|
|
*
|
|
|
5,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,581
|
|
|
11,374
|
|
|
*
|
|
Holcomb,
Sr,, Hampton A.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Hostetler
Living Trust
|
|
|
18,679
|
|
|
*
|
|
|
1,895
|
|
|
1,895
|
|
|
|
|
|
|
|
|
|
|
|
3,790
|
|
|
14,889
|
|
|
*
|
|
Huls,
Michael, Roth IRA
|
|
|
33,333
|
|
|
*
|
|
|
33,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
333
|
|
|
*
|
|
Intellegration,
LLP(Christopher Smith)
|
|
|
35,526
|
|
|
*
|
|
|
25,526
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
25,526
|
|
|
10,000
|
|
|
*
|
|
Jackson,
John J. & Ellen K.
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
James
J. Minder & Susan A. Davis Family Trust
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Johnson,
Carolyn M.
|
|
|
8,422
|
|
|
*
|
|
|
1,684
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,684
|
|
|
6,738
|
|
|
*
|
|
Johnson,
Tom and Lindsay
|
|
|
8,422
|
|
|
*
|
|
|
1,684
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,684
|
|
|
6,738
|
|
|
*
|
|
Kaiser,
James S.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Kalos,
Shaun and Cathy
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Kang,
Dr. Young S.
|
|
|
16,260
|
|
|
*
|
|
|
3,252
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,252
|
|
|
13,008
|
|
|
*
|
|
Kaser,
Kathryn and John Clark Kaser
|
|
|
710
|
|
|
*
|
|
|
142
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
568
|
|
|
*
|
|
Kaser,
Kathryn and John Lucas Kaser
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Jordan Rae Emmil
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Kenneth Tyler Emmil
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kaser,
Kathryn and Laura Kaser Emmil
|
|
|
710
|
|
|
*
|
|
|
142
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
142
|
|
|
568
|
|
|
*
|
|
Kaser,
Kathryn and Levi Clark Kaser
|
|
|
1,065
|
|
|
*
|
|
|
213
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
213
|
|
|
852
|
|
|
*
|
|
Kauffman,
Robert R. (5)
|
|
|
110,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
100,000
|
|
|
1.14%
|
|
Kelly,
Gerald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Kelly,
Richard
|
|
|
1,675
|
|
|
*
|
|
|
|
|
|
1,675
|
|
$
|
.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
1,675
|
|
|
0
|
|
|
*
|
|
Kemeny,
Matthias D.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Kennedy,
Patrick H. & Bonnie M. (6)
|
|
|
54,506
|
|
|
*
|
|
|
10,941
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,941
|
|
|
43,565
|
|
|
*
|
|
Klostermann,
Bill and Donna
|
|
|
16,425
|
|
|
*
|
|
|
16,425
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
16,425
|
|
|
0
|
|
|
*
|
|
Kocherer,
Rosalee
|
|
|
2,105
|
|
|
*
|
|
|
421
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
421
|
|
|
1,684
|
|
|
*
|
|
Konietzko,
Neil
|
|
|
198,423
|
|
|
1.48%
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
196,738
|
|
|
2.25%
|
|
Korb,
Leroy J.
|
|
|
248,368
|
|
|
1.85%
|
|
|
45,530
|
|
|
20,716
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
66,246
|
|
|
182,122
|
|
|
2.08%
|
|
Koslowski,
Barbara
|
|
|
8,129
|
|
|
*
|
|
|
1,626
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,626
|
|
|
6,503
|
|
|
*
|
|
Kryszek,
Jakob
|
|
|
40,522
|
|
|
*
|
|
|
8,104
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
8,104
|
|
|
32,418
|
|
|
*
|
|
Lambert,
Pat(9)
|
|
|
115,444
|
|
|
*
|
|
|
33,000
|
|
|
16,590
|
|
$
|
.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
49,590
|
|
|
65,854
|
|
|
*
|
|
Lane
A. & Gwen M. Bray Trust(6)
|
|
|
386,997
|
|
|
2.88%
|
|
|
71,142
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
71,142
|
|
|
315,855
|
|
|
3.61%
|
|
Lanza,
Costantio IRA
Charles
Schwab & Co., Inc. Custodian
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Larson,
Damian
|
|
|
14,320
|
|
|
*
|
|
|
2,864
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,864
|
|
|
11,456
|
|
|
*
|
|
Lavoy,
Thomas(5)
|
|
|
108,423
|
|
|
*
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
106,738
|
|
|
1.22%
|
|
Lawrence
Family Trust(6)
|
|
|
888,529
|
|
|
6.62%
|
|
|
177,706
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
177,706
|
|
|
710,823
|
|
|
8.12%
|
|
Lebowitz
Living Trust
|
|
|
142,188
|
|
|
1.06%
|
|
|
28,438
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
28,438
|
|
|
113,750
|
|
|
1.30%
|
|
Little,
John W. and Marina Zeiber
|
|
|
9,639
|
|
|
*
|
|
|
6,024
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,024
|
|
|
3,615
|
|
|
*
|
|
Livingston,
James P. & Keri Segna
|
|
|
24,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
21,374
|
|
|
*
|
|
Lord,
Brandon
|
|
|
421
|
|
|
*
|
|
|
84
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
337
|
|
|
*
|
|
Lord,
Leonard L. and Patricia G.
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
MacKay,
Daniel P
|
|
|
18,015
|
|
|
*
|
|
|
3,603
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,603
|
|
|
14,412
|
|
|
*
|
|
Madsen,
James L.
|
|
|
166,706
|
|
|
1.24%
|
|
|
27,130
|
|
|
-
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
27,130
|
|
|
139,576
|
|
|
1.59%
|
|
Majchrowski,
Thomas
|
|
|
75,401
|
|
|
*
|
|
|
15,080
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
15,080
|
|
|
60,321
|
|
|
*
|
|
Marlin
Hull LLC (Michael Huls)
|
|
|
169,422
|
|
|
1.26%
|
|
|
169,422
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
169,422
|
|
|
0
|
|
|
*
|
|
Martin,
Leslie A
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Matsock,
Mark
|
|
|
113,721
|
|
|
*
|
|
|
10,950
|
|
|
25,270
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
36,221
|
|
|
77,500
|
|
|
*
|
|
McInnis,
Greg and Cynthia Family Trust
|
|
|
7,228
|
|
|
*
|
|
|
7,228
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,228
|
|
|
1
|
|
|
*
|
|
McKenna,
Jean
|
|
|
16,260
|
|
|
*
|
|
|
3,252
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,252
|
|
|
13,008
|
|
|
*
|
|
Mebesius,
William
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Meyers
Associates LP (8)
|
|
|
49,744
|
|
|
*
|
|
|
|
|
|
16,590
|
|
$
|
.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
16,590
|
|
|
33,154
|
|
|
*
|
|
Miller,
Thomas F.
|
|
|
289,159
|
|
|
2.15%
|
|
|
289,159
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
289,159
|
|
|
0
|
|
|
*
|
|
Moore,
Terry R
|
|
|
15,426
|
|
|
*
|
|
|
7,464
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,464
|
|
|
7,962
|
|
|
*
|
|
Moseley,
Gerard F.
|
|
|
9,526
|
|
|
*
|
|
|
1,905
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,905
|
|
|
7,621
|
|
|
*
|
|
Moss,
Lynette F.
|
|
|
44,438
|
|
|
*
|
|
|
15,249
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
15,249
|
|
|
29,189
|
|
|
*
|
|
Mountain
View Asset Management (Andrew Eccleston)
|
|
|
24,096
|
|
|
*
|
|
|
24,096
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
24,096
|
|
|
0
|
|
|
*
|
|
MountainView
Opportunistic
Growth
Fund LP (Andrew Eccleston)
|
|
|
94,223
|
|
|
*
|
|
|
30,745
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
30,745
|
|
|
63,478
|
|
|
*
|
|
Muldoon,
William G and Janet L
|
|
|
126,854
|
|
|
*
|
|
|
26,022
|
|
|
2,488
|
|
$
|
1.06
|
|
|
2/28/2005
|
|
|
2/28/2007
|
|
|
28,510
|
|
|
98,344
|
|
|
1.12%
|
|
Murphy,
Tom
|
|
|
3,369
|
|
|
*
|
|
|
674
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
674
|
|
|
2,695
|
|
|
*
|
|
Newman,
Bruce W. & Jeannie G.
|
|
|
16,587
|
|
|
*
|
|
|
3,318
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,318
|
|
|
13,269
|
|
|
*
|
|
Nichols,
Dale and Kathyrn E. Kaser
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Oak
Ridge Financial Group Inc. (8)
|
|
|
3,285
|
|
|
*
|
|
|
|
|
|
3,285
|
|
$
|
.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
3,285
|
|
|
0
|
|
|
*
|
|
Oliver,
Marlene
|
|
|
58,322
|
|
|
*
|
|
|
|
|
|
44,002
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
44,002
|
|
|
14,320
|
|
|
*
|
|
Olson,
Claire A & Mary Ann
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Onwuegbusi,
Charles
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Ott,
Suzann J & Dennis L.
|
|
|
40,546
|
|
|
*
|
|
|
7,109
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,109
|
|
|
33,437
|
|
|
*
|
|
Palitz,
Louis and Ruth
|
|
|
17,772
|
|
|
*
|
|
|
3,554
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
3,554
|
|
|
14,218
|
|
|
*
|
|
Peterson,
Jerry
|
|
|
38,326
|
|
|
*
|
|
|
38,326
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
38,326
|
|
|
0
|
|
|
*
|
|
Pinnacle
International
Holdings
LLC (Cliff Aaron)
|
|
|
177,736
|
|
|
1.32%
|
|
|
7,109
|
|
|
28,438
|
|
$
|
0.70
|
|
|
11/29/2005
|
|
|
10/30/2006 -
03/30/2007
|
|
|
35,547
|
|
|
142,189
|
|
|
1.62%
|
|
Press,
Richard
|
|
|
227,652
|
|
|
1.70%
|
|
|
45,530
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
45,530
|
|
|
182,122
|
|
|
2.08%
|
|
Quatsch
Ventures, LLC (Stephen Boatwright) (5)
|
|
|
84,236
|
|
|
*
|
|
|
|
|
|
84,236
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
84,236
|
|
|
0
|
|
|
*
|
|
Reynolds,
J. Scott
|
|
|
6,024
|
|
|
*
|
|
|
6,024
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,024
|
|
|
0
|
|
|
*
|
|
Roberts,
Cory B.
|
|
|
1,263
|
|
|
*
|
|
|
253
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
1,010
|
|
|
*
|
|
Roberts,
Donald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Roberts,
Elizabeth
|
|
|
1,263
|
|
|
*
|
|
|
253
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
253
|
|
|
1,010
|
|
|
*
|
|
Roberts,
Joshua
|
|
|
2,947
|
|
|
*
|
|
|
589
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
589
|
|
|
2,358
|
|
|
*
|
|
Roberts,
Leslie and Rex Armstrong
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Rogers,
Philip and Stephanie(7)
|
|
|
8,245
|
|
|
*
|
|
|
8,245
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
8,245
|
|
|
0
|
|
|
*
|
|
Roman,
Patrick and Nichole
|
|
|
1,052
|
|
|
*
|
|
|
210
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
842
|
|
|
*
|
|
Ronald
L and Susan R. Kathren Trust
|
|
|
5,171
|
|
|
*
|
|
|
|
|
|
5,170
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
5,170
|
|
|
1
|
|
|
*
|
|
Root,
R. William, Jr.
|
|
|
176,157
|
|
|
1.31%
|
|
|
37,131
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
37,131
|
|
|
139,026
|
|
|
1.59%
|
|
Roozen,
Richard and Jaynie
|
|
|
5,474
|
|
|
*
|
|
|
5,474
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,474
|
|
|
0
|
|
|
*
|
|
Rothstein,
Alan F.
|
|
|
35,546
|
|
|
*
|
|
|
7,109
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Rothstein,
Lawrence R. and Deborah E.
|
|
|
74,096
|
|
|
*
|
|
|
24,096
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
24,096
|
|
|
50,000
|
|
|
*
|
|
Rowland,
Chris C.
|
|
|
10,475
|
|
|
*
|
|
|
5,475
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,475
|
|
|
5,000
|
|
|
*
|
|
Rowland,
Joseph Perry Jr.
|
|
|
5,475
|
|
|
*
|
|
|
5,475
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,475
|
|
|
0
|
|
|
*
|
|
Ruth
Schwartz Trust
|
|
|
60,716
|
|
|
*
|
|
|
12,143
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
12,143
|
|
|
48,573
|
|
|
*
|
|
Safdi
Investments Limited
Partnership
(Rosemary Safdi)
|
|
|
62,921
|
|
|
*
|
|
|
34,484
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
34,484
|
|
|
28,437
|
|
|
*
|
|
Saito,
Dr. Robert N.
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Sanders
Family Limited
Partnership
III (Vernon Sanders)
|
|
|
54,166
|
|
|
*
|
|
|
20,472
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
20,472
|
|
|
33,694
|
|
|
*
|
|
Scallen,
Thomas K. (7)
|
|
|
329,942
|
|
|
2.46%
|
|
|
329,942
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
329,942
|
|
|
0
|
|
|
*
|
|
Schatzmair,
Ralph
|
|
|
46,057
|
|
|
*
|
|
|
4,211
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
|
41,846
|
|
|
*
|
|
Schenter,
Robert
|
|
|
218,860
|
|
|
1.63%
|
|
|
35,489
|
|
|
41,416
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
76,905
|
|
|
141,955
|
|
|
1.62%
|
|
Schipfer,
John D., Jr.
|
|
|
5,263
|
|
|
*
|
|
|
1,053
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,053
|
|
|
4,210
|
|
|
*
|
|
Schloz
Family 1998 Trust
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Schloz,
Stanley
|
|
|
33,333
|
|
|
*
|
|
|
33,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
333
|
|
|
*
|
|
Schreifels,
Donald B
|
|
|
140,943
|
|
|
1.05%
|
|
|
27,465
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
27,465
|
|
|
113,478
|
|
|
1.30%
|
|
Schwartz,
Jacob
|
|
|
15,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
5,000
|
|
|
*
|
|
Segna,
Donald R & Joan F. (6)
|
|
|
511,213
|
|
|
3.81%
|
|
|
96,515
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
96,515
|
|
|
414,698
|
|
|
4.74%
|
|
Segna,
Jan M
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Segna,
Todd D. & Deborah L.J. Chew
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
Selma
Teicher Trust, Stuart Teicher, Trustee
|
|
|
4,819
|
|
|
*
|
|
|
4,819
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,819
|
|
|
0
|
|
|
*
|
|
Shukov,
George
|
|
|
227,652
|
|
|
1.70%
|
|
|
45,530
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
45,530
|
|
|
182,122
|
|
|
2.08%
|
|
Siddall,
John W.
|
|
|
104,752
|
|
|
*
|
|
|
54,752
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
54,752
|
|
|
50,000
|
|
|
*
|
|
Sidibe,
Aissata
|
|
|
35,546
|
|
|
*
|
|
|
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Silverman,
Anthony
|
|
|
442,627
|
|
|
3.30%
|
|
|
298,236
|
|
|
139,391
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
437,627
|
|
|
5,000
|
|
|
*
|
|
Silverman,
Anthony (shares held in escrow)
|
|
|
50,000
|
|
|
*
|
|
|
49,334
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
49,334
|
|
|
666
|
|
|
*
|
|
Silverman,
Anthony IRA Rollover
|
|
|
304,753
|
|
|
2.27%
|
|
|
54,753
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
54,753
|
|
|
250,000
|
|
|
2.86%
|
|
Silverman,
Jeff
|
|
|
72,776
|
|
|
*
|
|
|
|
|
|
6,110
|
|
$
|
.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
6,110
|
|
|
66,666
|
|
|
*
|
|
Silverman,
Kay
|
|
|
24,096
|
|
|
*
|
|
|
24,096
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
24,096
|
|
|
0
|
|
|
*
|
|
Silverman,
Kay S. Revocable Trust
|
|
|
32,851
|
|
|
*
|
|
|
32,851
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
32,851
|
|
|
0
|
|
|
*
|
|
Smith,
Albert(5)
|
|
|
171,447
|
|
|
1.28%
|
|
|
21,789
|
|
|
12,500
|
|
$
|
0.00
|
|
|
10/14/2005
|
|
|
10/13/2007
|
|
|
34,289
|
|
|
137,158
|
|
|
1.57%
|
|
Smith,
Thomas and Sheila
|
|
|
31,718
|
|
|
*
|
|
|
671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
671
|
|
|
31,047
|
|
|
*
|
|
Source
Capital Group, Inc.(8)
|
|
|
10,584
|
|
|
*
|
|
|
|
|
|
1,084
|
|
$
|
0.59
- 2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
1,084
|
|
|
9,500
|
|
|
*
|
|
Stack,
Peter R and Judy J
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Stealth
Investments, Inc. (James Scannell)
|
|
|
44,876
|
|
|
*
|
|
|
27,376
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
27,376
|
|
|
17,500
|
|
|
*
|
|
Stenson,
Calvin B.
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
Sterne
Agee and Leach, Inc. C/F Jill Ryan IRA
|
|
|
5,474
|
|
|
*
|
|
|
5,474
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,474
|
|
|
0
|
|
|
*
|
|
Sterne
Agee and Leach, Inc. C/F Robert Ryan IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Sterne
Agee Leach FBO Barry K Griffith IRA
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Stewart,
James P. and Patricia A.
|
|
|
10,950
|
|
|
*
|
|
|
10,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,950
|
|
|
0
|
|
|
*
|
|
Stiller,
David L & Bonita L.
|
|
|
54,740
|
|
|
*
|
|
|
10,451
|
|
|
497
|
|
$
|
1.06
|
|
|
2/28/2005
|
|
|
2/28/2007
|
|
|
10,949
|
|
|
43,792
|
|
|
*
|
|
Stokes,
William J.
|
|
|
78,052
|
|
|
*
|
|
|
15,610
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
15,610
|
|
|
62,442
|
|
|
*
|
|
Strain,
Audrey
|
|
|
4,975
|
|
|
*
|
|
|
995
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Swanberg,
Daniel L. & Joni A.
|
|
|
9,479
|
|
|
*
|
|
|
1,896
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Swanberg,
David J. & Janet C. (5) (6)
|
|
|
448,827
|
|
|
3.34%
|
|
|
58,047
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
58,047
|
|
|
390,780
|
|
|
4.46%
|
|
TEC
Ministries
|
|
|
10,000
|
|
|
*
|
|
|
10,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
0
|
|
|
*
|
|
The
Alan Gess Living Trust
|
|
|
36,327
|
|
|
*
|
|
|
4,265
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,265
|
|
|
32,062
|
|
|
*
|
|
The
Anderson Family Trust UTD 12/20/93
|
|
|
21,059
|
|
|
*
|
|
|
4,212
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,212
|
|
|
16,847
|
|
|
*
|
|
The
Bates Revocable Trust, Fred and Linda Bates, Trustees
|
|
|
37,144
|
|
|
*
|
|
|
6,283
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,283
|
|
|
30,861
|
|
|
*
|
|
The
Lanzer Revocable Living Trust
|
|
|
18,072
|
|
|
*
|
|
|
18,072
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
18,072
|
|
|
0
|
|
|
*
|
|
The
Nancy R. McCormick Family
Trust
U/A dated June 14,2002,
John
E McCormick, Trustee
|
|
|
4,819
|
|
|
*
|
|
|
4,819
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,819
|
|
|
0
|
|
|
*
|
|
The
Smart Family Trust
|
|
|
15,450
|
|
|
*
|
|
|
6,469
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,469
|
|
|
8,981
|
|
|
*
|
|
Thomas,
Cam
|
|
|
56,875
|
|
|
*
|
|
|
11,375
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
11,375
|
|
|
45,500
|
|
|
*
|
|
Thompson,
April
|
|
|
4,975
|
|
|
*
|
|
|
995
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Thompson,
Randy
|
|
|
4,975
|
|
|
*
|
|
|
995
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
995
|
|
|
3,980
|
|
|
*
|
|
Thompson,
William and Karen Trust (6)
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Turchetta,
Anthony J
|
|
|
14,218
|
|
|
*
|
|
|
2,844
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Turnbull,
Timothy L.
|
|
|
8,530
|
|
|
*
|
|
|
1,706
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,706
|
|
|
6,824
|
|
|
*
|
|
UBS
Financial Services IRA FBO Robert R Kauffman
(5)
|
|
|
32,851
|
|
|
*
|
|
|
32,851
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
32,851
|
|
|
0
|
|
|
*
|
|
Vencore
LLC
|
|
|
5,692
|
|
|
*
|
|
|
|
|
|
5,691
|
|
$
|
4.15
|
|
|
5/10/2004
|
|
|
5/10/2008
|
|
|
5,692
|
|
|
0
|
|
|
*
|
|
Weber,
Ronald
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Weinstein,
Ronald A 2004 Living Trust
|
|
|
9,479
|
|
|
*
|
|
|
1,896
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,896
|
|
|
7,583
|
|
|
*
|
|
Weinstein,
Ronald Alan and Cathy Lynn
|
|
|
99,765
|
|
|
*
|
|
|
9,953
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
9,953
|
|
|
89,812
|
|
|
1.03%
|
|
West,
Ron H.
|
|
|
4,211
|
|
|
*
|
|
|
842
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
3,369
|
|
|
*
|
|
Whalen,
Ryan and Jennifer
|
|
|
1,052
|
|
|
*
|
|
|
210
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
210
|
|
|
842
|
|
|
*
|
|
Wilkie,
David J
|
|
|
8,423
|
|
|
*
|
|
|
1,685
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,685
|
|
|
6,738
|
|
|
*
|
|
William
Wesley Thompson & Karen Louise Thompson
|
|
|
21,464
|
|
|
*
|
|
|
4,293
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,293
|
|
|
17,171
|
|
|
*
|
|
Revocable
Trust Dated January 6, 1999 (6)
|
|
Wynnjam
Corp. (Nancy Lake)
|
|
|
107,057
|
|
|
*
|
|
|
10,950
|
|
|
96,106
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
107,057
|
|
|
0
|
|
|
*
|
|
Zaragosa,
Ernesto
|
|
|
26,847
|
|
|
*
|
|
|
|
|
|
16,847
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
16,847
|
|
|
10,000
|
|
|
*
|
|
Zielke,
David C. and Diane M.
|
|
|
34,123
|
|
|
*
|
|
|
6,825
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
6,825
|
|
|
27,298
|
|
|
*
|
|
Zimmerman,
Paul
|
|
|
21,327
|
|
|
*
|
|
|
4,265
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,265
|
|
|
17,062
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
|
|
|
|
|
|
4,004,264
|
|
|
632,830
|
|
|
|
|
|
|
|
|
|
|
|
4,637,100
|
|
|
|
|
|
|
|
(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 preferred stock and exercise of
the
options and warrants, as applicable, 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 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) |
These
selling shareholders are our former executive officers and
directors.
|
(8) |
These
selling shareholders are
broker/dealers.
|
(9) |
These
selling shareholders are affiliates of
broker/dealers.
|
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
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 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.
PLAN
OF DISTRIBUTION
|
·
|
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 or warrants, 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. The
selling shareholders who are affiliates of a broker-dealer will be deemed to
be
underwriters in connection with their resale of the shares registered
hereunder.
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 was equal to approximately 168,154 shares of common stock as of February
7, 2007) 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.
DESCRIPTION
OF SECURITIES
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 9, 2007, the Company had 23,090,200 shares
of
common stock and 59,065 shares of Series B preferred stock outstanding. The
Company also had options to purchase 3,236,670 shares of common stock and
warrants to purchase 3,127,774 shares of common stock outstanding on that
date.
The
Common Stock
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.
On
February 1, 2007, the Board of Directors of IsoRay, Inc. declared a
dividend of one preferred share purchase right (a “Right”) for each outstanding
Common Share of the par value of $.001 per share (the “Common Shares”) of the
Company. The dividend is payable on February 16, 2007 (the “Record Date”) to
shareholders of record on that date.
Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a Series C Junior Participating Preferred Share of the par
value of $.001 per share (the “Preferred Shares”) of the Company at a price of
$25 per one one-hundredth of a Preferred Share (the “Purchase Price”), subject
to adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the “Rights Agreement”), dated as of February 1, 2007, between
the Company and Computershare Trust Company N.A., as Rights Agent (the “Rights
Agent”).
Initially,
the Rights will attach to all certificates representing Common Shares then
outstanding and no separate Right Certificates will be distributed. The Rights
will separate from the Common Shares and a Distribution Date for the Rights
will
occur upon the earlier of:
(i) the
close
of business on the fifteenth day following a public announcement that a person
or group of affiliated or associated persons has become an “Acquiring Person”
(i.e., has become, subject to certain exceptions, the beneficial owner of 15%
or
more of the voting power of the outstanding shares of voting capital stock
of
the Company in the election of directors), or
(ii) the
close
of business on the fifteenth day following the first public announcement
relating to a tender offer or exchange offer the consummation of which would
result in a person or group of affiliated or associated persons becoming,
subject to certain exceptions, the beneficial owner of 15% or more of the voting
power of the outstanding shares of voting capital stock of the Company in the
election of directors (or such later date as may be determined by the Board
of
Directors of the Company prior to a person or group of affiliated or associated
persons becoming an Acquiring Person).
Until
the
Distribution Date,
(i) the
Rights will be evidenced by the Common Share certificates and will be
transferred with and only with the Common Shares,
(ii) new
Common Share certificates issued after the Record Date upon transfer or new
issuance of the Common Shares will contain a notation incorporating the Rights
Agreement by reference, and
(iii) the
surrender for transfer of any Common Share certificate, even without such
notation or a copy of this Summary of Rights attached thereto, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate.
As
promptly as practicable following the Distribution Date, separate certificates
evidencing the Rights (“Right Certificates”) will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The
Rights are not exercisable until the Distribution Date. The Rights will expire
on February 16, 2017, unless extended or earlier redeemed or exchanged by the
Company as described below.
The
Purchase Price payable, and the number of Preferred Shares or other securities
or property issuable, upon exercise of the Rights are subject to adjustment
from
time to time to prevent dilution:
(i) in
the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Shares,
(ii) upon
the
grant to holders of the Preferred Shares of certain rights, options or warrants
to subscribe for or purchase Preferred Shares or convertible securities at
less
than the then current market price of the Preferred Shares, or
(iii) upon
the
distribution to holders of the Preferred Shares of evidences of indebtedness
or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than those
described in clause (ii) hereof).
The
number of Preferred Shares issuable upon the exercise of a Right is also subject
to adjustment in the event of a dividend on Common Shares payable in Common
Shares, or a subdivision, combination or consolidation of the Common
Shares.
With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price. No fractional Preferred Shares will be issued (other than fractional
shares which are integral multiples of one one-hundredth (subject to adjustment)
of a Preferred Share, which may, at the election of the Company, be evidenced
by
depositary receipts) if in lieu thereof a payment in cash is made based on
the
closing price (pro-rated for the fraction) of the Preferred Shares on the last
trading date prior to the date of exercise.
In
the
event that any person or group of affiliated or associated persons becomes
an
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights that are or were beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive
upon
exercise thereof at the then current exercise price of the Right that number
of
Common Shares having a market value of two times the exercise price of the
Right, subject to certain possible adjustments.
In
the
event that, after the Distribution Date or within 15 days prior thereto, the
Company is acquired in certain mergers or other business combination
transactions or 50% or more of the assets or earning power of the Company and
its subsidiaries (taken as a whole) are sold after the Distribution Date or
within 15 days prior thereto, each holder of a Right (other than Rights which
have become void under the terms of the Rights Agreement) will thereafter have
the right to receive, upon exercise thereof at the then current exercise price
of the Right, that number of common shares of the acquiring company (or, in
certain cases, one of its affiliates) having a market value of two times the
exercise price of the Right.
In
certain events specified in the Rights Agreement, the Company is permitted
to
temporarily suspend the exercisability of the Rights.
At
any
time after a person or group of affiliated or associated persons becomes an
Acquiring Person (subject to certain exceptions) and prior to the acquisition
by
a person or group of affiliated or associated persons of 50% or more of the
voting power of the outstanding shares of voting capital stock of the Company
in
the election of directors, the Board of Directors of the Company may exchange
all or part of the Rights (other than Rights which have become void under the
terms of the Rights Agreement) for Common Shares or equivalent securities at
an
exchange ratio per Right equal to the result obtained by dividing the exercise
price of a Right by the current per share market price of the Common Shares,
subject to adjustment.
At
any
time prior to such time as a person or group of affiliated or associated persons
becomes an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right, subject
to
adjustment (the “Redemption Price”), payable in cash. The period of time during
which the Rights may be redeemed may be extended by the Board of Directors
of
the Company if no person has become an Acquiring Person. The redemption of
the
Rights may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.
The
Board of Directors and the Company shall not have any liability to any person
as
a result of the redemption or exchange of the Rights pursuant to the provisions
of the Rights Agreement.
The
terms
of the Rights may be amended by the Board of Directors of the Company, subject
to certain limitations after such time as a person or group of affiliated or
associated persons becomes an Acquiring Person, without the consent of the
holders of the Rights, including an amendment prior to the date a person or
group of affiliated or associated persons becomes an Acquiring Person to lower
the 15% threshold for exercisability of the Rights to not less than the greater
of (i) the sum of .001% and the largest percentage of the outstanding
shares of voting capital stock of the Company with voting power in the election
of directors then known by the Company to be beneficially owned by any person
or
group of affiliated or associated persons (subject to certain exceptions) or
(ii) 10%.
Until
a
Right is exercised, the holder thereof, as such, will have no rights as a
shareholder of the Company, including, without limitation, the right to vote
or
to receive dividends.
The
foregoing description of the Rights Agreement is qualified in its entirety
by
reference to the full text of the Rights Agreement.
The
Preferred Stock
The
Company’s preferred stock is divided into three series – Series
A, Series
B and Series C – designated as follows:
|
·
|
1,000,000
shares of Series A are authorized and 5,000,000 shares of Series
B are
authorized. As of November 9, 2007 there were no shares of Series
A issued
and outstanding; there were 59,065 Series B preferred shares issued and
outstanding. The Company has no plans to issue any Series A shares
for the
foreseeable future.
|
|
·
|
The
Series A shares are entitled to a 10% dividend annually on the stated
value per share ($1.20) of the Series A, while the Series B shares
are
entitled to a cumulative 15% dividend annually on the stated value
per
share ($1.20) of the Series B. Such dividends will be declared and
paid at
the discretion of the Board to the extent funds are legally available
for
the payment of dividends.
|
|
·
|
Both
series of preferred shares vote equally with the common stock, with
each
share of preferred having the number of votes equal to the voting
power of
one share 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 Articles of Incorporation, Bylaws or Certificate of
Designation or for any bankruptcy, insolvency, dissolution or liquidation
of the company.
|
|
·
|
Shares
of either series of preferred stock may be converted at the option
of the
holder into shares of common stock at a rate of one share of common
stock
for each share of preferred stock being converted, subject to adjustment
for stock splits, stock combinations, reorganization, merger,
consolidation, reclassification, exchange or
substitution.
|
|
·
|
Both
series of preferred stock are subject to automatic conversion into
common
stock upon the closing of a firmly underwritten public offering pursuant
to an effective registration statement under the Act, covering the
offer
and sale of common stock in which the gross proceeds to the Company
are at
least $4 million.
|
|
·
|
The
Board of Directors has approved the cancellation of the Series A
Preferred
Stock, given that there are no Series A shares issued, and this
cancellation will occur in the near future. The Board of Directors
has no
plans at this time to issue additional series of preferred stock.
|
In
connection with its adoption of the Rights Agreement, the Company’s Board of
Directors approved the filing of a Certificate of Designation of Rights,
Preferences and Privileges of Series C Junior Participating Preferred Stock
of
the Company (the “Certificate of Designation”). The Company filed the
Certificate of Designation with the Secretary of State of the State of Minnesota
on February 2, 2007.
The
Series C Preferred Shares will not be redeemable. Each Series C Preferred Share
will be entitled to a minimum preferential quarterly dividend payment of the
greater of $1.00 per share or 100 times the dividend declared per Common Share,
subject to adjustment. In the event of liquidation, the holders of the Series
C
Preferred Shares will be entitled to a minimum preferential liquidation payment
of the greater of $100 per share or 100 times the payment made per Common Share,
subject to adjustment. Each 1/100th
of a
Series C Preferred Share will have one vote per share, voting together with
holders of Common Shares, subject to adjustment. In the event of any
consolidation, merger, combination, statutory share exchange or other
transaction in which Common Shares are exchanged, each Series C Preferred Share
will be entitled to receive 100 times the amount received per Common Share,
subject to adjustment. These rights are protected by customary antidilution
provisions. Outstanding Series B Preferred Shares are senior to the Series
C
Preferred Shares in terms of dividends and liquidation payments.
The
foregoing description of the rights of the Series C Preferred Shares is
qualified in its entirety by reference to the full text of the Certificate
of
Designation.
Warrants
We
are
registering 371,163 shares of common stock underlying warrants, outstanding
as
of June 8, 2006, as part of this Prospectus. The warrants vary in exercise
price
from $0.70 to $4.15 (excluding a warrant issued at an exercise price of $10.00
for 12,500 shares of common stock) and have terms expiring from March 26,
2007
to May 10, 2008. The number of shares and price at which the warrants are
exercisable is subject to adjustment in certain events, such as mergers,
reorganizations or stock splits, to prevent dilution. If one of these events
occurs, the number of shares into which the warrants may be converted and
the
exercise price will be adjusted as needed to ensure that the warrant holder
continues to have the right to receive a comparable number of shares or cash
consideration as the holder would have received had the holder already exercised
its warrant prior to the event. The warrants have no price protection features,
and may not be redeemed by the Company.
Although
not included in this Registration Statement, the Company also has warrants
outstanding entitling the holder to purchase one share of Common Stock at
any
time until expiration (varying from October 2007 to February 2008) for $6.00
or
$6.50. The total number of shares of common stock issuable upon conversion
of
these warrants as of June 8, 2006 was 1,964,650 shares. The
number of shares and price at which these warrants are exercisable is subject
to
adjustment in certain events, such as mergers, reorganizations or stock splits,
to prevent dilution. At any time after the closing bid price for the common
stock on the NASDAQ (or, if the Common Stock is not then traded on the NASDAQ,
then on the principal exchange on which the Common Stock is traded) has equaled
or exceeded $9.00 per share for any consecutive two month period, upon 30
days’
written notice, the Company may redeem any unexercised outstanding warrants
for
$0.01 per warrant. Holders of these warrants will have the right to exercise
the
warrants after such notification and through the redemption date of the
warrants. These warrants have no price protection features.
The
Company also had an additional 2,269,500 warrants outstanding as of June
8, 2006
that are not included in this Registration Statement. These warrants entitle
the
holder to purchase one share of common stock at any time until their expiration
on August 17, 2011 for $3.00. The number of shares and price at which these
warrants are exercisable is subject to adjustment in certain events, such
as
mergers, reorganizations or stock splits, to prevent dilution. At any time
after
the closing bid price for the common stock on the NASDAQ (or, if the Common
Stock is not then traded on the NASDAQ, then on the principal exchange on
which
the Common Stock is traded) has equaled or exceeded $4.50 per share for any
consecutive two month period, upon 30 days’ written notice, the Company may
redeem any unexercised outstanding warrants for $0.01 per warrant. Holders
of
these warrants will have the right to exercise the warrants after such
notification and through the redemption date of the warrants. These warrants
have no price protection features.
Options
We
are
registering certain shares of common stock underlying options outstanding
as of
June 8, 2006 as part of this Prospectus. The options vary in exercise price
from
$1.19 to $2.00 per share and have ten year terms expiring in July of 2015.
These
options were granted under the Option Plan and consist of options that were
not
included in either of the Company's now-effective Form S-8 registration
statements. Each of the options included in this Prospectus vested in full
immediately upon their grant in July of 2005, and they were issued in exchange
for IsoRay Medical, Inc. options that were granted prior to the Company's
merger.
Keller
Rohrback, PLC, Phoenix, Arizona will issue an opinion with respect to the
validity of the shares of common stock being offered hereby. Mr. Boatwright,
a
member of Keller Rohrback, PLC, is a director of the Company. Mr. Boatwright
beneficially owned 60,000 shares of our common stock and options to purchase
150,000 shares of our common stock as of the date of the opinion. Keller
Rohrback, PLC provides legal services to the Company and IsoRay Medical.
During
IsoRay’s fiscal year ended June 30, 2007, IsoRay paid Keller Rohrback, PLC
approximately $459,000 for legal services.
EXPERTS
Our
audited financial statements for the fiscal years ended June 30, 2007 and
June
30, 2006 have been audited by DeCoria, Maichel & Teague, P.S., independent
registered public accountants. Our financial statements are included in
reliance upon this report and upon the authority of such firm as an expert
in
auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
The
Company’s Board of Directors engaged DeCoria, Maichel & Teague, P.S., then
the independent auditor for the Company's wholly-owned subsidiary, to be
its new
independent auditor effective November 15, 2005, which was also the effective
date of S.W. Hatfield, CPA’s dismissal as the Company’s certifying accountant by
the Board.
Except
for an expression of doubt about our ability to continue as a going concern,
S.W. Hatfield, CPA's audit reports on the Company’s financial statements as of
June 30, 2005 and September 30, 2004 did not contain an adverse opinion or
disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope or accounting principles.
During
the two fiscal years ended June 30, 2005 and September 30, 2004, and through
November 15, 2005 there were no disagreements with S.W. Hatfield, CPA on
any
matter of accounting principles or practices, financial statement disclosure,
or
auditing scope or procedures, which disagreements, if not resolved to the
satisfaction of S.W. Hatfield, CPA would have caused it to make a reference
to
the subject matter of the disagreements in connection with its report; and
there
were no reportable events as described in Item 304(a)(1)(iv)(B) of Regulation
S-B promulgated by the Securities and Exchange Commission (the SEC) pursuant
to
the Securities Exchange Act of 1934, as amended.
During
the Company’s two most prior fiscal years and through November 15, 2005, the
Company did not consult DeCoria, Maichel & Teague, P.S. with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on
the Company’s financial statements, or any other matters or reportable events
listed in Item 304(a)(2) of Regulation S-B. However, IsoRay Medical, Inc.,
the
Company's wholly-owned subsidiary, has consulted with DeCoria, Maichel &
Teague, P.S., its independent auditor, during these time periods solely in
connection with IsoRay Medical, Inc.'s financial statements.
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.
In
addition, the Company makes copies of its annual and quarterly reports available
to the public at its website at www.isoray.com. Information on this website
is
not a part of this prospectus.
IsoRay,
Inc.
Index
to Financial Statements
|
Page
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Financial
Statements:
|
|
|
Consolidated
Balance Sheets as of June 30, 2007 and 2006
|
F-3
|
|
Consolidated
Statements of Operations for the years ended June 30, 2007 and
2006
|
F-4
|
|
Consolidated
Statement of Changes in Shareholders’ Equity for the years ended June 30,
2007 and 2006
|
F-5
|
|
Consolidated
Statements of Cash Flows for the years ended June 30, 2007 and
2006
|
F-6
|
|
Notes
to Consolidated Financial Statements
|
F-7
|
|
|
|
Unaudited
Financial Statements:
|
|
|
Consolidated
Unaudited Balance Sheets as of September 30, 2007 and June 30,
2007
|
F-29
|
|
|
|
|
Consolidated
Unaudited Statements of Operations for the three months ended September
30, 2007 and 2006
|
F-30
|
|
|
|
|
Consolidated
Unaudited Statements of Cash Flows for the three months ended September
30, 2007 and 2006
|
F-31
|
|
|
|
|
|
F-32
|
Report
of Independent Registered Public Accounting Firm
Board
of
Directors and Shareholders
IsoRay,
Inc.
Richland,
Washington
We
have
audited the accompanying consolidated balance sheets of IsoRay, Inc. and
Subsidiary (“the Company”) (see Note 1) as of June 30, 2007 and 2006, and the
related consolidated statements of operations, changes in shareholders’ equity
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 the standards of the Public Company
Accounting Oversight Board (United States). 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
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 consolidated financial position of IsoRay, Inc. and
Subsidiary as of June 30, 2007 and 2006, and the consolidated results of
their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of
America.
/s/
DeCoria, Maichel & Teague, P.S.
Spokane,
Washington
September
28, 2007
IsoRay,
Inc. and Subsidiary
Consolidated
Balance Sheets
|
|
June
30,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
9,355,730
|
|
$
|
2,207,452
|
|
Short-term
investments
|
|
|
9,942,840
|
|
|
-
|
|
Accounts
receivable, net of allowance for doubtful accounts of $99,789 and
$85,183,
respectively
|
|
|
1,092,925
|
|
|
596,447
|
|
Inventory
|
|
|
880,834
|
|
|
161,381
|
|
Prepaid
expenses and other current assets
|
|
|
458,123
|
|
|
161,546
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
21,730,452
|
|
|
3,126,826
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation
|
|
|
3,665,551
|
|
|
1,642,293
|
|
Deferred
financing costs, net of accumulated amortization
|
|
|
95,725
|
|
|
274,358
|
|
Licenses,
net of accumulated amortization
|
|
|
262,074
|
|
|
273,475
|
|
Other
assets, net of accumulated amortization
|
|
|
322,360
|
|
|
338,987
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
26,076,162
|
|
$
|
5,655,939
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,946,042
|
|
$
|
584,296
|
|
Accrued
payroll and related taxes
|
|
|
459,068
|
|
|
614,645
|
|
Accrued
interest payable
|
|
|
1,938
|
|
|
11,986
|
|
Deferred
revenue
|
|
|
23,874
|
|
|
-
|
|
Notes
payable, due within one year
|
|
|
49,212
|
|
|
51,351
|
|
Capital
lease obligations, due within one year
|
|
|
194,855
|
|
|
183,554
|
|
Convertible
debentures payable, due within one year
|
|
|
-
|
|
|
455,000
|
|
Asset
retirement obligation, current portion
|
|
|
131,142
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,806,131
|
|
|
1,900,832
|
|
|
|
|
|
|
|
|
|
Notes
payable, due after one year
|
|
|
528,246
|
|
|
581,557
|
|
Capital
lease obligations, due after one year
|
|
|
25,560
|
|
|
220,415
|
|
Asset
retirement obligation
|
|
|
-
|
|
|
67,425
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,359,937
|
|
|
2,770,229
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 6,000,000 shares authorized:
|
|
|
|
|
|
|
|
Series
A: 1,000,000 shares allocated; no shares issued and
outstanding
|
|
|
-
|
|
|
-
|
|
Series
B: 5,000,000 shares allocated; 59,065 and 144,759 shares issued and
outstanding
|
|
|
59
|
|
|
145
|
|
Common
stock, $.001 par value; 194,000,000 shares authorized; 22,789,324
and
15,157,901 shares issued and outstanding
|
|
|
22,789
|
|
|
15,158
|
|
Subscriptions
receivable
|
|
|
-
|
|
|
(6,122,007
|
)
|
Additional
paid-in capital
|
|
|
45,844,793
|
|
|
22,538,675
|
|
Accumulated
deficit
|
|
|
(23,151,416
|
)
|
|
(13,546,261
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
22,716,225
|
|
|
2,885,710
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
26,076,162
|
|
$
|
5,655,939
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statements of Operations
|
|
Year
ended June 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
5,738,033
|
|
$
|
1,994,306
|
|
Cost
of product sales
|
|
|
5,792,630
|
|
|
3,815,122
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(54,597
|
)
|
|
(1,820,816
|
)
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,345,163
|
|
|
450,425
|
|
Sales
and marketing expenses
|
|
|
3,384,472
|
|
|
1,420,500
|
|
General
and administrative expenses
|
|
|
4,915,598
|
|
|
3,503,522
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
9,645,233
|
|
|
5,374,447
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(9,699,830
|
)
|
|
(7,195,263
|
)
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
406,921
|
|
|
51,744
|
|
Financing
expense
|
|
|
(312,246
|
)
|
|
(689,100
|
)
|
Debt
conversion expense (Note 10)
|
|
|
-
|
|
|
(385,511
|
)
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
94,675
|
|
|
(1,022,867
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,605,155
|
)
|
$
|
(8,218,130
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.54
|
)
|
$
|
(0.68
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing net loss per share:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
17,827,522
|
|
|
12,051,964
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statement of Changes in Shareholders' Equity
(Deficit)
|
|
IsoRay,
Inc. (MN)
|
|
IsoRay
Medical, Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Series
B Preferred Stock
|
|
Common
Stock
|
|
Series
B Preferred Stock
|
|
Common
Stock
|
|
Subscriptions
|
|
Additional
|
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
|
|
Deficit
|
|
Total
|
|
Balances
at June 30, 2005
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
|
1,338,167
|
|
$
|
1,338
|
|
$
|
6,163,623
|
|
$
|
6,164
|
|
$
|
-
|
|
$
|
3,805,773
|
|
$
|
(5,328,131
|
)
|
$
|
(1,514,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
of IsoRay, Inc. (formerly Century Park Pictures Corporation)
and IsoRay
Medical, Inc., net of fractional shares paid in cash (see Note
1)
|
|
|
1,338,132
|
|
|
1,338
|
|
|
6,163,518
|
|
|
6,164
|
|
|
(1,338,167
|
)
|
|
(1,338
|
)
|
|
(6,163,623
|
)
|
|
(6,164
|
)
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Common
stock held by shareholders of Century Park Picture Corporation
after the
reverse acquisition
|
|
|
|
|
|
|
|
|
2,498,534
|
|
|
2,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,733
|
|
|
|
|
|
11,232
|
|
Issuance
of common shares as payment for merger consulting services
|
|
|
|
|
|
|
|
|
168,472
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
329,831
|
|
|
|
|
|
330,000
|
|
Payments
to shareholders in lieu of issuing fractional shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(734
|
)
|
|
|
|
|
(734
|
)
|
Issuance
of preferred stock pursuant to exercise of warrants
|
|
|
8,708
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,977
|
|
|
|
|
|
6,985
|
|
Issuance
of preferred stock pursuant to exercise of warrants paid by
surrending a
partial note payable
|
|
|
44,788
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,268
|
|
|
|
|
|
48,313
|
|
Issuance
of common stock pursuant to exercise of warrants
|
|
|
|
|
|
|
|
|
84,147
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,866
|
|
|
|
|
|
49,950
|
|
Issuance
of common stock pursuant to exercise of options
|
|
|
|
|
|
|
|
|
101,284
|
|
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119,476
|
|
|
|
|
|
119,577
|
|
Conversion
of preferred stock to common stock
|
|
|
(1,246,869
|
)
|
|
(1,246
|
)
|
|
1,246,869
|
|
|
1,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Exchange
of convertible debentures payable to common stock
|
|
|
|
|
|
|
|
|
911,271
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,681,964
|
|
|
|
|
|
3,682,875
|
|
Issuance
of warrants pursuant to short-term inducement to convert
debentures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,511
|
|
|
|
|
|
385,511
|
|
Issuance
of warrants as inducement for note payable from shareholder
(see Note
8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,000
|
|
|
|
|
|
60,000
|
|
Issuance
of common stock pursuant to the October 2005 private placement,
net of
offering costs
|
|
|
|
|
|
|
|
|
1,500,000
|
|
|
1,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,406,626
|
|
|
|
|
|
5,408,126
|
|
Issuance
of common stock pursuant to the February 2006 private placement,
net of
offering costs
|
|
|
|
|
|
|
|
|
268,889
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,107,955
|
|
|
|
|
|
1,108,224
|
|
Issuance
of common stock to Mercatus subject to a subscription receivable
agreement
|
|
|
|
|
|
|
|
|
1,748,146
|
|
|
1,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,122,007
|
)
|
|
6,120,259
|
|
|
|
|
|
-
|
|
Issuance
of common stock for payment of invoices
|
|
|
|
|
|
|
|
|
39,007
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,996
|
|
|
|
|
|
185,035
|
|
Issuance
of common stock pursuant to the June 2006 warrant exercise
solicitation,
net of offering costs
|
|
|
|
|
|
|
|
|
427,764
|
|
|
428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,223,174
|
|
|
|
|
|
1,223,602
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,218,130
|
)
|
|
(8,218,130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2006
|
|
|
144,759
|
|
|
145
|
|
|
15,157,901
|
|
|
15,158
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(6,122,007
|
)
|
|
22,538,675
|
|
|
(13,546,261
|
)
|
|
2,885,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of preferred stock pursuant to exercise of warrants
|
|
|
37,322
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,642
|
|
|
|
|
|
41,679
|
|
Issuance
of common stock pursuant to exercise of warrants
|
|
|
|
|
|
|
|
|
2,295,506
|
|
|
2,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,857,385
|
|
|
|
|
|
6,859,680
|
|
Issuance
of common stock pursuant to exercise of options
|
|
|
|
|
|
|
|
|
755,499
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873,937
|
|
|
|
|
|
874,692
|
|
Conversion
of preferred stock to common stock
|
|
|
(123,016
|
)
|
|
(123
|
)
|
|
123,016
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Issuance
of common stock to Mercatus subject to a subscription receivable
agreement
|
|
|
|
|
|
|
|
|
(1,748,146
|
)
|
|
(1,748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,122,007
|
|
|
(6,120,259
|
)
|
|
|
|
|
-
|
|
Exchange
of convertible debentures payable for common stock
|
|
|
|
|
|
|
|
|
12,048
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,987
|
|
|
|
|
|
49,999
|
|
Issuance
of common stock pursuant to the August 2006 Stock Purchase
Agreement, net
of offering costs (see Note 12)
|
|
|
|
|
|
|
|
|
2,063,000
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,700,870
|
|
|
|
|
|
4,702,933
|
|
Issuance
of common stock pursuant to the Public Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering,
net of offering costs (see Note 12)
|
|
|
|
|
|
|
|
|
4,130,500
|
|
|
4,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,112,900
|
|
|
|
|
|
15,117,031
|
|
Payment
of dividend to Preferred shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,458
|
)
|
|
|
|
|
(38,458
|
)
|
Share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,828,114
|
|
|
|
|
|
1,828,114
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,605,155
|
)
|
|
(9,605,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2007
|
|
|
59,065
|
|
$
|
59
|
|
|
22,789,324
|
|
$
|
22,789
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
45,844,793
|
|
$
|
(23,151,416
|
)
|
$
|
22,716,225
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statements of Cash Flows
|
|
Year
ended June 30,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(9,605,155
|
)
|
$
|
(8,218,130
|
)
|
Adjustments
to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of fixed assets
|
|
|
491,643
|
|
|
271,060
|
|
Amortization
of deferred financing costs and other assets
|
|
|
223,604
|
|
|
384,266
|
|
Accretion
of asset retirement obligation
|
|
|
7,597
|
|
|
4,385
|
|
Share-based
compensation (Note 11)
|
|
|
1,828,114
|
|
|
-
|
|
Merger
consulting fees paid by issuance of common stock
|
|
|
-
|
|
|
330,000
|
|
Consulting
and repair fees paid by issuance of common stock
|
|
|
-
|
|
|
39,750
|
|
Rent
expense paid by issuance of common stock
|
|
|
-
|
|
|
90,026
|
|
Debt
conversion expense (Note 10)
|
|
|
-
|
|
|
385,511
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(496,478
|
)
|
|
(546,478
|
)
|
Inventory
|
|
|
(719,453
|
)
|
|
(79,455
|
)
|
Prepaid
expenses
|
|
|
(296,577
|
)
|
|
41,252
|
|
Accounts
payable and accrued expenses
|
|
|
1,361,746
|
|
|
(132,646
|
)
|
Accrued
payroll and related taxes
|
|
|
(10,577
|
)
|
|
456,721
|
|
Accrued
interest payable
|
|
|
(10,048
|
)
|
|
(29,339
|
)
|
Deferred
revenue
|
|
|
23,874
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(7,201,710
|
)
|
|
(7,003,077
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(2,445,850
|
)
|
|
(474,795
|
)
|
Additions
to licenses and other assets
|
|
|
(29,874
|
)
|
|
(395,201
|
)
|
Purchase
of short-term investments
|
|
|
(10,931,920
|
)
|
|
-
|
|
Proceeds
from the sale or maturity of short-term investments
|
|
|
989,080
|
|
|
-
|
|
Cash
acquired in reverse acquisition (Note 1)
|
|
|
-
|
|
|
32,587
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(12,418,564
|
)
|
|
(837,409
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable, net of financing costs
|
|
|
-
|
|
|
646,542
|
|
Proceeds
from sales of convertible debentures payable
|
|
|
-
|
|
|
550,000
|
|
Repayment
of convertible debentures payable
|
|
|
(405,001
|
)
|
|
-
|
|
Principal
payments on notes payable
|
|
|
(55,450
|
)
|
|
(592,790
|
)
|
Principal
payments on capital lease obligations
|
|
|
(183,554
|
)
|
|
(124,688
|
)
|
Proceeds
from cash sales of common shares, net of offering costs
|
|
|
19,819,964
|
|
|
6,516,350
|
|
Proceeds
from cash sales of preferred stock, pursuant to exercise of warrants
|
|
|
41,679
|
|
|
6,985
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of warrants
|
|
|
6,859,680
|
|
|
49,950
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of options
|
|
|
729,692
|
|
|
119,577
|
|
Proceeds
from cash sales of common stock, pursuant to June 2006 warrant exercises
|
|
|
-
|
|
|
1,223,602
|
|
Payments
of dividends to preferred shareholders
|
|
|
(38,458
|
)
|
|
-
|
|
Payments
to common shareholders in lieu of issuing fractional shares
|
|
|
-
|
|
|
(734
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
26,768,552
|
|
|
8,394,794
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
7,148,278
|
|
|
554,308
|
|
Cash
and cash equivalents, beginning of period
|
|
|
2,207,452
|
|
|
1,653,144
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
9,355,730
|
|
$
|
2,207,452
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
143,662
|
|
$
|
361,832
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Cashless
exercise of common stock options in lieu of severance pay
|
|
$
|
145,000
|
|
$
|
-
|
|
Exchange
of convertible debentures payable for shares of common stock
|
|
|
49,999
|
|
|
3,682,875
|
|
Fixed
assets acquired by capital lease obligations
|
|
|
-
|
|
|
507,947
|
|
Increase
in PP&E related to asset retirement obligation
|
|
|
56,120
|
|
|
63,040
|
|
Issuance
of common shares as partial payment for production equipment
|
|
|
-
|
|
|
25,248
|
|
Issuance
of common shares as partial payment of notes payable
|
|
|
-
|
|
|
48,313
|
|
Liabilities
acquired in acquisition
|
|
|
-
|
|
|
21,355
|
|
Prepaid
rent paid by issuance of common stock
|
|
|
-
|
|
|
120,036
|
|
Issuance
of warrants as an inducement for a note payable
|
|
|
-
|
|
|
60,000
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
Notes
to Consolidated Financial Statements
For
the years ended June 30, 2007 and 2006
Historical
Organization
Century
Park Pictures Corporation (Century) was organized under Minnesota law in 1983.
Century is a public company subject to the periodic reporting requirements
of
the Securities Exchange Act of 1934.
Century
had no operations since its fiscal year ended September 30, 1999 through June
30, 2005.
Merger
Transaction
On
May
27, 2005, IsoRay Medical, Inc. (Medical) entered into a merger agreement with
Century to merge with Century’s newly-formed, wholly-owned subsidiary.
On
July
28, 2005, the merger transaction closed. As a result of the merger, Medical
became a wholly-owned subsidiary of Century, which concurrently changed its
name
to IsoRay, Inc. (IsoRay or the Company).
IsoRay
issued shares of its common and preferred stock to the holders of common
and
preferred stock of Medical at a rate of 0.842362 share of IsoRay’s stock for
each share of Medical’s stock. Options and warrants to purchase common and
preferred stock of Medical were also converted at the same rate into options
and
warrants to purchase common and preferred stock of IsoRay, Inc. On a
fully-diluted basis, Medical’s shareholders owned approximately 82% of IsoRay’s
outstanding securities following the merger.
Management
believes the transaction was structured to qualify as a non-taxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended.
As
part
of the reverse merger, Medical acquired cash of $32,587 and accounts payable
of
$21,355.
2. |
Summary
of Significant Accounting
Policies
|
Consolidation
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary (collectively the Company). All
significant intercompany accounts and transactions have been
eliminated.
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
Short-Term
Investments
The
Company invests certain excess cash in marketable securities consisting
primarily of commercial paper, auction rate securities, and money market
funds.
The Company classifies all debt securities as “available-for-sale” and records
the debt securities at fair value with unrealized gains and losses included
in
shareholders’ equity.
The
Company’s short-term investments consisted of the following at June 30, 2007 and
2006:
|
|
2007
|
|
2006
|
|
Municipal
debt securities
|
|
$
|
3,000,000
|
|
$
|
–
|
|
Corporate
debt securities
|
|
|
6,942.840
|
|
|
–
|
|
|
|
$
|
9,942,840
|
|
$
|
–
|
|
At
June
30, 2007, all of the Company’s corporate debt securities mature within fiscal
year 2008. All municipal debt consists of auction rate securities that may
have
maturity dates exceeding 5 years, however, they reset each month. Based on
the
frequency of the auction reset periods, the fair market value approximates
cost.
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 or market. Cost of raw materials is determined
using the weighted average method. Cost of work in process and finished goods
is
computed using standard cost, which approximates actual cost, on a first-in,
first-out basis. As the Company has had minimal gross margin throughout the
past
fiscal years, inventories have generally been recorded at market 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
$1,500 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 following estimated useful
lives:
Production
equipment
|
3
to 7 years
|
Office
equipment
|
2
to 5 years
|
Furniture
and fixtures
|
2
to 5 years
|
Leasehold
improvements and capital lease assets are amortized over the shorter of the
life
of the lease or the estimated life of the asset.
The
Company has adopted the provisions of Statement of Financial Accounting
Standards (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.
Deferred
Financing Costs
Financing
costs related to the acquisition of debt are deferred and amortized over
the
term of the related debt using the effective interest method. Deferred financing
costs include the fair value of common shares issued to certain shareholders
for
their guarantee of certain Company debt (see Notes 7 and 8) in accordance
with
APB 21 and EITF Issue 95-13. The value of the shares issued was the estimated
market price of the shares as of the date of issuance. Amortization of deferred
financing costs, totaling $178,633 and $296,608 for the years ended June
30,
2007 and 2006, respectively, is included in financing expense on the statements
of operations.
The
Company’s deferred financing costs consisted of the following at June 30, 2007
and 2006:
|
|
2007
|
|
2006
|
|
Value
of shares issued to guarantors:
|
|
|
|
|
|
|
|
Benton-Franklin
Economic Development District (83,640 shares)
|
|
$
|
138,006
|
|
$
|
138,006
|
|
Columbia
River Bank line of credit (127,500 shares)
|
|
|
–
|
|
|
210,375
|
|
Benton-Franklin
Economic Development District loan fees
|
|
|
3,450
|
|
|
3,450
|
|
Columbia
River Bank line of credit loan fees
|
|
|
–
|
|
|
500
|
|
Convertible
debentures issuance costs
|
|
|
–
|
|
|
30,047
|
|
Hanford
Area Economic Investment Fund Committee loan fees
|
|
|
22,128
|
|
|
22,128
|
|
Less
amortization
|
|
|
(67,859
|
)
|
|
(130,148
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
95,725
|
|
$
|
274,358
|
|
In
June
2007, the Company elected not to renew its line of credit with Columbia River
Bank due to the Company’s current cash position. The Company wrote off the
remaining net deferred financing charges of $98,409 relating to this line
of
credit.
Licenses
Amortization
of licenses is computed using the straight-line method over the estimated
economic useful lives of the assets. In fiscal year 2006, the Company entered
into an agreement with IBt, SA, a Belgian company (IBt) to use IBt’s proprietary
“Ink Jet” production process and its proprietary polymer seed technology for use
in brachytherapy procedures using Cesium-131 (Cs-131). The Company paid license
fees of $275,000 during fiscal year 2006 and another payment of $225,000
was to
be made in August 2006 pursuant to the license agreement. Royalty payments
based
on net sales revenue incorporating the technology are also required, with
minimum quarterly royalties ranging from $100,000 to $200,000 and minimum
annual
royalties ranging from $400,000 to $800,000 over the term of the agreement.
The
IBt license is being amortized over the 15-year term of the license
agreement.
In
the
fourth quarter of fiscal year 2007, the Company reviewed the carrying values
of
licenses. As of the date of this report, the August 2006 payment has not
been
made as the Company has been in continued negotiations with IBt concerning
the
license agreement and other business arrangements (see Note
19).
Amortization
of licenses was $23,426 and $20,530 for the years ended June 30, 2007 and
2006,
respectively. Based on the licenses recorded at June 30, 2007, and assuming
no
subsequent impairment of the underlying assets, the annual amortization expense
for each fiscal year ending June 30 is expected to be as follows: $30,795
for
2008, $18,770 for 2009, $18,481 for 2010, $18,333 for 2011, $18,333 for 2012,
and $157,363 thereafter.
Other
Assets
Other
assets, which include deferred charges and patents, are stated at cost, less
accumulated amortization. Amortization of patents 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 any impairments
are recognized when the expected future operating cash flows to be derived
from
such assets are less than their carrying value.
Based
on
the patents and other intangible assets recorded in other assets at June
30,
2007, and assuming no subsequent impairment of the underlying assets, the
annual
amortization expense for each fiscal year ending June 30 is expected to be
as
follows: $30,155 for 2008, $2,632 for 2009, $2,632 for 2010, $2,632 for 2011,
$2,632 for 2012, and $12,192 thereafter.
Asset
Retirement Obligation
SFAS
No.
143, Asset
Retirement Obligations,
establishes standards for the recognition, measurement and disclosure of
legal
obligations associated with the costs to retire long-lived assets. Accordingly,
under SFAS No. 143, the fair value of the future retirement costs of the
Company’s leased assets are recorded as a liability on a discounted basis when
they are incurred and an equivalent amount is capitalized to property and
equipment. The initial recorded obligation, which has been discounted using
the
Company’s credit-adjusted risk free-rate, will be reviewed periodically to
reflect the passage of time and changes in the estimated future costs underlying
the obligation. The Company amortizes the initial amount capitalized to property
and equipment and recognizes accretion expense in connection with the discounted
liability over the estimated remaining useful life of the leased
assets.
In
fiscal
year 2006, the Company established an initial asset retirement obligation
of
$63,040 which represents the discounted cost of cleanup that the Company
anticipates it will have to incur at the end of its equipment and property
leases. This amount was determined based on discussions with qualified
production personnel and on historical evidence. During fiscal year 2007,
the
Company reevaluated its obligations based on discussions with the Washington
Department of Health and determined that the initial asset retirement obligation
should be increased by an additional $56,120. The Company anticipates spending
most of the amounts represented by this accrual in fiscal year 2008. In
addition, another asset retirement obligation will be established in the
first
quarter of fiscal year 2008 representing obligations at its new production
facility. This new asset retirement obligation will be for obligations to
remove
any residual radioactive materials and to remove any unwanted leasehold
improvements.
During
the years ended June 30, 2007 and 2006, the asset retirement obligation changed
as follows:
|
|
2007
|
|
2006
|
|
Beginning
balance
|
|
$
|
67,425
|
|
$
|
–
|
|
New
obligations
|
|
|
–
|
|
|
63,040
|
|
Changes
in estimates of existing obligations
|
|
|
56,120
|
|
|
–
|
|
Accretion
of discount
|
|
|
7,597
|
|
|
4,385
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$
|
131,142
|
|
$
|
67,425
|
|
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;
short-term investments; accounts receivable; accounts payable; notes payable;
capital lease obligations; and convertible debentures payable, approximated
their fair values at June 30, 2007 and 2006.
Revenue
Recognition
The
Company applies the provisions of SEC Staff Accounting Bulletin (SAB)
No. 104, Revenue
Recognition.
SAB
No. 104, which supersedes SAB No. 101, Revenue
Recognition in Financial Statements,
provides guidance on the recognition, presentation and disclosure of revenue
in
financial statements. SAB No. 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for the disclosure of revenue
recognition policies. The Company recognizes revenue related to product sales
when (i) persuasive evidence of an arrangement exists, (ii) shipment
has occurred, (iii) the fee is fixed or determinable, and
(iv) collectability is reasonably assured.
Revenue
for the fiscal years ended June 30, 2007 and 2006 was derived solely from
sales
of the Proxcelan Cs-131 brachytherapy seed, which is used in the treatment
of
cancer. The Company recognizes revenue once an order has been received and
shipped to the customer. Prepayments, if any, received from customers prior
to
the time that products are shipped are recorded as deferred revenue. In these
cases, when the related products are shipped, the amount recorded as deferred
revenue is recognized as revenue. The Company accrues for sales returns and
other allowances at the time of shipment. Although the Company does not have
an
extensive operating history upon which to develop sales returns estimates,
we
have used the expertise of our management team, particularly those with
extensive industry experience and knowledge, to develop a proper
methodology.
Stock-Based
Compensation
Prior
to
July 1, 2006, the Company accounted for share-based employee compensation,
including stock options, using the method prescribed in Accounting Principles
Board Opinion No. 25, Accounting
for Stock Issued to Employees
and
related interpretations (APB 25). Under APB 25, for stock options granted
at
market price, no compensation cost was recognized and a disclosure was made
regarding the pro forma effect on net earnings assuming compensation cost
had
been recognized in accordance with SFAS No. 123, Accounting
for Stock-Based Compensation
(SFAS
123). On December 16, 2004, the Financial Accounting Standards Board issued
SFAS
No. 123 (Revised 2004), Share
Based Payment
(SFAS
123R), which requires companies to measure and recognize expense for all
share-based payments at fair value. SFAS 123R eliminates the ability to account
for share-based compensation transactions using APB 25 and generally requires
that such transactions be accounted for using prescribed fair-value-based
methods. SFAS 123R permits public companies to adopt its requirements using
one
of two methods: (a) a “modified prospective” method in which compensation
costs are recognized beginning with the effective date based on the requirements
of SFAS No. 123R for all share-based payments granted or modified after the
effective date, and based on the requirements of SFAS No. 123 for all awards
granted to employees prior to the effective date of SFAS No. 123R that remain
unvested on the effective date or (b) a “modified retrospective” method
which includes the requirements of the modified prospective method described
above, but also permits companies to restate based on the amounts previously
recognized under SFAS No. 123 for purposes of pro forma disclosures either
for
all periods presented or for prior interim periods of the year of adoption.
Effective July 1, 2006, the Company adopted SFAS 123R using the modified
prospective method. No share-based employee compensation cost was reflected
in
the statement of operations prior to the adoption of SFAS No. 123R. Results
for
prior periods have not been restated. (see Note 11).
Research
and Development Costs
Research
and development costs, including salaries, 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.
Advertising
and Marketing Costs
Advertising
costs are expensed as incurred except for the cost of tradeshows and related
marketing materials which are deferred until the tradeshow occurs. Advertising
and marketing costs expensed (including tradeshows) were $441,196 and $292,351
for the years ended June 30, 2007 and 2006, respectively. Marketing costs
of
$162,307 are capitalized at June 30, 2007.
Shipping
and Handling Costs
Shipping
and handling costs are expensed as incurred and included in cost of product
sales.
Legal
Contingencies
In
the
ordinary course of business, the Company is involved in legal proceedings
involving contractual and employment relationships, product liability claims,
patent rights, environmental matters, and a variety of other matters. The
Company is also subject to various local, state, and federal environmental
regulations and laws due to the isotopes used to produce the Company’s product.
As part of normal operations, amounts are expended to ensure that the Company
is
in compliance with these laws and regulations. While there have been no
reportable incidents or compliance issues, the Company believes that when
it
relocates its current production facilities then certain decommissioning
expenses will be incurred and has recorded an asset retirement obligation
for
these expenses.
The
Company records contingent liabilities resulting from asserted and unasserted
claims against it, when it is probable that a liability has been incurred and
the amount of the loss is reasonably estimable. The Company discloses contingent
liabilities when there is a reasonable possibility that the ultimate loss will
exceed the recorded liability. Estimating probable losses requires analysis
of
multiple factors, in some cases including judgments about the potential actions
of third-party claimants and courts. Therefore, actual losses in any future
period are inherently uncertain. Currently, the Company does not believe any
probable legal proceedings or claims will have a material impact on its
financial position or results of operations. However, if actual or estimated
probable future losses exceed the Company’s recorded liability for such claims,
it would record additional charges as other expense during the period in which
the actual loss or change in estimate occurred.
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 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 shareholders
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. At June 30, 2007 and
2006,
the calculation of diluted weighted average shares does not include preferred
stock, options, or warrants that are potentially convertible into common
stock
as those would be antidilutive due to the Company’s net loss
position.
Securities
that could be dilutive in the future as of June 30, 2007 and 2006 are as
follows:
|
|
2007
|
|
2006
|
|
Preferred
stock
|
|
|
59,065
|
|
|
144,759
|
|
Preferred
stock warrants
|
|
|
–
|
|
|
179,512
|
|
Common
stock warrants
|
|
|
3,627,764
|
|
|
2,502,769
|
|
Common
stock options
|
|
|
3,683,439
|
|
|
3,129,692
|
|
Convertible
debentures
|
|
|
–
|
|
|
109,639
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities
|
|
|
7,370,268
|
|
|
6,066,371
|
|
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.
Inventory
consists of the following at June 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Raw
materials
|
|
$
|
682,327
|
|
$
|
61,531
|
|
Work
in process
|
|
|
120,242
|
|
|
67,906
|
|
Finished
goods
|
|
|
78,265
|
|
|
31,944
|
|
|
|
$
|
880,834
|
|
$
|
161,381
|
|
The
cost
of materials and production costs contained in inventory that are not useable
due to the passage of time, and resulting loss of bio-effectiveness, are
written
off to cost of product sales at the time it is determined that the product
is
not useable.
In
June
2007, the Company purchased $469,758 of enriched barium that will be used
in
future production of our isotope. The enriched barium is held by a Russian
vendor and is included in raw materials at June 30, 2007.
Prepaid
expenses consist of the following at June 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Prepaid
contract work
|
|
$
|
–
|
|
$
|
7,913
|
|
Prepaid
insurance
|
|
|
37,001
|
|
|
21,340
|
|
Prepaid
rent
|
|
|
26,693
|
|
|
30,009
|
|
Other
prepaid expenses
|
|
|
249,184
|
|
|
21,200
|
|
Other
current assets
|
|
|
145,245
|
|
|
81,084
|
|
|
|
|
|
|
|
|
|
|
|
$
|
458,123
|
|
$
|
161,546
|
|
Fixed
assets consist of the following at June 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Production
equipment
|
|
$
|
807,838
|
|
$
|
590,908
|
|
Office
equipment
|
|
|
111,218
|
|
|
70,060
|
|
Furniture
and fixtures
|
|
|
118,227
|
|
|
100,653
|
|
Leasehold
improvements
|
|
|
522,951
|
|
|
652,404
|
|
Capital
lease assets (a)
|
|
|
655,858
|
|
|
599,738
|
|
Construction
in progress
|
|
|
2,217,372
|
|
|
34,254
|
|
|
|
|
|
|
|
|
|
|
|
|
4,433,464
|
|
|
2,048,017
|
|
Less
accumulated depreciation
|
|
|
(767,913
|
)
|
|
(405,724
|
)
|
|
|
$
|
3,665,551
|
|
$
|
1,642,293
|
|
(a) Balance
includes asset retirement addition of $119,160 and $63,040 as of June 30,
2007
and 2006, respectively.
Depreciation
and amortization expense related to fixed assets totaled $491,643 and $271,060
for 2007 and 2006, respectively. Accumulated amortization of capital lease
assets totaled $198,171 and $55,644 at June 30, 2007 and 2006,
respectively.
Other
assets, net of accumulated amortization, consist of the following at June
30,
2007 and 2006:
|
|
2007
|
|
2006
|
|
Deferred
charges
|
|
$
|
297,008
|
|
$
|
318,885
|
|
Patents
and trademarks, net of accumulated amortization of $16,463 and
$13,831
|
|
|
25,352
|
|
|
20,102
|
|
|
|
|
|
|
|
|
|
|
|
$
|
322,360
|
|
$
|
338,987
|
|
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 trademarks was $2,632 and $1,513 for the years
ended
June 30, 2007 and 2006, respectively.
The
Company had a $375,000 revolving line of credit with Columbia River Bank
that
expired on March 1, 2007. The Company intended to renew the line of credit
and
received a proposal from the bank. In June 2007, the Company decided not
to
renew this line of credit as part of its overall review of its banking and
cash
management relationships. The Company had no borrowings under the line of
credit
during the fiscal year ended June 30, 2007.
Notes
payable consist of the following at June 30, 2007 and 2006:
|
|
2007
|
|
2006
|
|
Tri-City
Industrial Development Council (TRIDEC) note payable (a)
|
|
$
|
–
|
|
$
|
10,000
|
|
Benton-Franklin
Economic Development District (BFEDD) note payable (b)
|
|
|
185,848
|
|
|
204,237
|
|
Hanford
Area Economic Investment Fund Committee (HAEIFC) note payable
(c)
|
|
|
391,610
|
|
|
418,671
|
|
|
|
|
|
|
|
|
|
|
|
|
577,458
|
|
|
632,908
|
|
Less
amounts due within one year
|
|
|
(49,212
|
)
|
|
(51,351
|
)
|
|
|
|
|
|
|
|
|
Amounts
due after one year
|
|
$
|
528,246
|
|
$
|
581,557
|
|
|
(a)
|
This
is a non-interest bearing note, due in annual installments of $10,000
that
matured in August 2006. The note payable to TRIDEC did not bear
interest,
but was not discounted because the note was exchanged solely for
cash.
|
|
(b)
|
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.
The note
is payable in monthly installments including interest at 8.0% per
annum
with a final balloon payment due in October 2009. At June 30, 2007,
the
Company was not in compliance with certain of the covenants. The
Company
has obtained a waiver from BFEDD, relating to these covenants,
through
June 30, 2008.
|
|
(c)
|
In
June 2006, the Company entered into a note payable with HAEIFC,
which is
collateralized by receivables, inventory, equipment, and certain
life
insurance policies. The total note payable facility is for $1.4
million
and is to be used to purchase production equipment. In June 2006,
the
Company requested an initial disbursement of approximately $400,000.
The
note contains certain restrictive covenants relating to: financial
ratios;
payment of compensation to officers and directors; and payment
of
dividends. The note accrues interest at 9% and is payable in monthly
installments with the final installment due in July 2016. At June
30,
2007, the Company was not in compliance with certain of the covenants.
The
Company has obtained a waiver from HAEFIC, relating to these covenants,
through June 30, 2008.
|
On
October 14, 2005, the Company borrowed $250,000 under a short-term note payable
from a shareholder who was later appointed to the Board of Directors in April
2006. The note, which bore interest at the rate of 10.0%, was paid in full
on
its due date of December 1, 2005. In connection with the loan, the Company
granted a warrant to purchase 12,500 shares of common stock at an aggregate
total exercise price of $10. The Company recorded financing expenses of $60,000
related to the issuance of these warrants.
Principal
maturities on notes payable are due as follows:
Year
ending June 30,
|
|
|
|
2008
|
|
$
|
49,212
|
|
2009
|
|
|
53,609
|
|
2010
|
|
|
182,566
|
|
2011
|
|
|
38,436
|
|
2012
|
|
|
41,983
|
|
Thereafter
|
|
|
211,652
|
|
|
|
|
|
|
|
|
$
|
577,458
|
|
9. |
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,
|
|
|
|
2008
|
|
$
|
214,269
|
|
2009
|
|
|
27,626
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
|
241,895
|
|
Less
amounts representing interest
|
|
|
(21,480
|
)
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
220,415
|
|
Less
amounts due within one year
|
|
|
(194,855
|
)
|
|
|
|
|
|
Amounts
due after one year
|
|
$
|
25,560
|
|
10. |
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 12). In July 2005, the
Company sold an additional $550,000 of these convertible debentures. The
debentures, which bore interest at 8% and matured two years from the date
of
issuance (through June 2007), could be converted into shares of the Company’s
common stock at a rate of $4.15 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 $4.15 per share.
Based
upon reviews of SFAS 133, EITF 00-19, and EITF 98-5, the Company determined
that
the conversion feature did not have a derivative value.
On
December 13, 2005, the Board of Directors announced a short-term conversion
inducement to current holders of the convertible debentures, originally issued
in conjunction with the January 31, 2005 Private Placement Offering. Holders
were permitted two conversion options: 1) convert under the original terms
of
the debenture to the Company’s common stock at a $4.15 conversion price, and
register the newly issued shares in the Form SB-2 Registration Statement filed
with the SEC on November 10, 2005, or 2) convert under terms essentially
identical to those offered to purchasers of Units in the Offering of October
17,
2005 - a $4.00 conversion price and one callable warrant to purchase one share
of the Company's common stock at an exercise price of $6.00 per share for each
share issued upon conversion (waiving registration rights for approximately
one
year).
As
of
June 30, 2006, holders of $3,682,875 of debentures had converted to common
stock
of the Company, responding to the inducement of the second exercise method
described above. As of June 30, 2006, the Company had issued 911,271 shares
of
common stock (including approximately 23,840 incremental shares not previously
available to holders of debentures under the original conversion terms),
and
659,469 warrants to purchase shares of common, exercisable at $6.00 per share.
During the fiscal year ended June 30, 2006, the Company recognized $385,511
in
non-cash short-term inducement expense, in accordance with SFAS No. 84. The
Company reviewed SFAS 133 and EITF 00-19 and determined that the warrants
issued
in connection with the short-term conversion inducement did not have derivative
value.
The
remaining convertible debentures matured during the fiscal year ended June
30,
2006. One $50,000 convertible debenture holder converted into 12,048 common
shares and the remaining balance and accrued interest was paid in cash. All
other debenture holders elected to receive cash payments of their principal
and
accrued interest on the maturity dates.
11. |
Share-Based
Compensation
|
Prior
to
July 1, 2006, the Company accounted for share-based employee compensation,
including stock options, using the method prescribed by APB 25. Under APB
25,
for stock options granted at market price, no compensation cost was recognized,
and a disclosure was made regarding the pro forma effect on net earnings
assuming compensation cost had been recognized in accordance with SFAS 123.
Effective July 1, 2006, the Company adopted SFAS 123R using the modified
prospective method.
The
following table presents the share-based compensation expense recognized
in
accordance with SFAS 123R during the year ended June 30, 2007 and in accordance
with APB 25 during the year ended June 30, 2006:
|
|
Year
ended June 30,
|
|
|
|
2007
|
|
2006
|
|
Cost
of product sales
|
|
$
|
120,710
|
|
$
|
–
|
|
Research
and development
|
|
|
41,481
|
|
|
–
|
|
Sales
and marketing expenses
|
|
|
216,432
|
|
|
–
|
|
General
and administrative expenses
|
|
|
1,449,491
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Total
share-based compensation
|
|
$
|
1,828,114
|
|
$
|
–
|
|
The
adoption of SFAS 123R reduced net income for the year ended June 30, 2007
by
$1,828,114. Basic loss per common share for the year ended June 30, 2007
would
have been $0.44 if the Company had not adopted SFAS 123R, compared to reported
basic loss per common share of $0.54. The total value of the stock options
awards is expensed ratably over the service period of the employees receiving
the awards. As of June 30, 2007, total unrecognized compensation cost related
to
stock-based options and awards was $1,707,843 and the related weighted-average
period over which it is expected to be recognized is approximately
1.23 years.
The
Company currently provides share-based compensation under three equity incentive
plans approved by the Board of Directors: the Amended and Restated 2005 Stock
Option Plan (the Option Plan), the Amended and Restated 2005 Employee Stock
Option Plan (the Employee Plan), and the 2006 Director Stock Option Plan
(the
Director Plan). 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. 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. The Director Plan allows
the
Board of Directors to grant options to purchase up to 1,000,000 shares of
common
stock to directors of the Company. Options granted under all of the plans
have a
ten year maximum term, an exercise price equal to at least the fair market
value
of the Company’s common stock on the date of the grant, and varying vesting
periods as determined by the Board. For stock options with graded vesting
terms,
the Company recognizes compensation cost on a straight-line basis over the
requisite service period for the entire award.
On
June
1, 2007, the Company issued an option grant to employees and directors. The
options had an exercise price of $4.14 which was the closing market price
of the
Company’s stock. The options issued to the employees vest over 3 years while the
options granted to the non-employee directors were immediately
vested.
The
Company’s CEO, who also serves as Chairman of the Board, was granted 150,000
options, the Executive Vice President Operations (EVP-Operations), who also
serves as a Director, was granted 100,000 options, and all non-employee
directors were granted 50,000 options each. On July 25, 2007, the Board
discussed the issue of director compensation and each director (including
the
employee directors) elected to cancel 50,000 of their options from the June
1,
2007 grant. After the cancellation, the CEO and EVP-Operations had 100,000
and
50,000 options, respectively, and the non-employee directors had no options
from
the June 1, 2007 grant. The terms of these remaining options for the CEO
and
EVP-Operations were not changed as part of the cancellation.
In
accordance with SFAS 123R, all of the options that were cancelled have been
accounted for as cancellation of options with no consideration. No additional
compensation cost associated with the CEO’s and EVP-Operations’s options will be
recognized after the cancellation date of July 25, 2007. Cancelled options
that
had been granted to non-employee directors were immediately vested on the
date
of grant; therefore all related compensation cost was recognized in fiscal
year
2007. Under SFAS 123R, the value of the cancelled options to each non-employee
director was $128,500.
All
of
these subsequently cancelled options are included in the options granted
and
outstanding as of June 30, 2007.
A
summary
of stock option activity within the Company’s share-based compensation plans for
the year ended June 30, 2007 is as follows:
|
|
Shares
|
|
Price
(a)
|
|
Life
(b)
|
|
Value
(c)
|
|
Outstanding
at June 30, 2007
|
|
|
3,683,439
|
|
$
|
2.86
|
|
|
8.67
|
|
$
|
8,259,814
|
|
Vested
and expected to vest at June 30, 2007
|
|
|
3,270,441
|
|
$
|
2.85
|
|
|
8.68
|
|
$
|
8,150,622
|
|
Vested
and exercisable at June 30, 2007
|
|
|
2,278,172
|
|
$
|
2.45
|
|
|
8.42
|
|
$
|
6,726,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Weighted average price per share. |
(b)
Weighted average remaining contractual life. |
(c)
Aggregate intrinsic value.
|
The
aggregate intrinsic value of options exercised during the years ended June
30,
2007 and 2006 was $2,286,370 and $391,908, respectively. The Company’s current
policy is to issue new shares to satisfy option
exercises.
The
weighted average fair value of stock option awards granted and the key
assumptions used in the Black-Scholes valuation model to calculate the fair
value are as follows for the year ended June 30, 2007 and 2006:
|
|
Year
ended June 30,
|
|
|
|
2007
|
|
2006
|
|
Weighted
average fair value of options granted
|
|
$
|
2.29
|
|
$
|
1.38
|
|
Key
assumptions used in determining fair value:
|
|
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
4.86
|
%
|
|
4.67
|
%
|
Weighted
average life of the option (in years)
|
|
|
5.58
|
|
|
7.31
|
|
Weighted
average historical stock price volatility
|
|
|
69.87
|
%
|
|
31.24
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
0.00
|
%
|
The
Black-Scholes option valuation model was developed for use in estimating
the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair
value
estimate, in management’s opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. The risk-free interest rate is based on the U.S. treasury security
rate
in effect as of the date of grant. The expected lives of options and the
volatility are based on historical data of the Company.
The
following table illustrates the effect on net loss and net loss per common
share
for the year ended June 30, 2006 as if the Company had applied the fair value
recognition provisions of SFAS 123 to all outstanding stock option awards
for
periods presented prior to the Company’s adoption of SFAS 123R. The fair value
of these options was estimated at the date of grant using the Black-Scholes
method set forth in SFAS No. 123R.
|
|
2006
|
|
Net
loss, as reported
|
|
$
|
8,218,130
|
|
SFAS
No. 123 stock option expense
|
|
|
1,167,086
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
9,385,216
|
|
Net
loss per share:
|
|
|
|
|
Basic
and Diluted, as reported
|
|
$
|
0.68
|
|
Basic
and Diluted, pro forma
|
|
$
|
0.77
|
|
The
authorized capital structure of the Company consists of $.001 par value
preferred stock and $.001 par value common stock.
Preferred
Stock
The
Company's Certificate of Incorporation authorizes 6,000,000 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, 2007, there were 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 B
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 B 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.
On
February 1, 2007, the Board of Directors declared a dividend on the Series
B
Preferred Stock of all outstanding and cumulative dividends through December
31,
2006. The total dividends of $38,458 were paid on February 15, 2007. The
Company
does not anticipate paying any cash dividends on the Series B Preferred Stock
in
the foreseeable future. At June 30, 2007, there were 59,065 Series B preferred
shares outstanding and cumulative dividends in arrears were
$5,272.
In
addition to the shares of common stock and Series B preferred stock issued
pursuant to the merger transaction (see Note 1), the Company had the following
transactions that affected shareholders’ equity during the years ended June 30,
2007 and 2006.
March
2007 Public Equity Offering
On
March 20, 2007, the Company entered into definitive securities purchase
agreements (the March 2007 Purchase Agreements) with certain institutional
investors pursuant to which the Company agreed to issue and sell an aggregate
of
4,130,500 shares of its common stock at $4.00 per share, through a registered
direct offering, for aggregate gross proceeds of approximately $16,522,000,
before deducting estimated fees and expenses associated with the offering
(the
Offering). As part of the Offering, each purchaser of five shares of common
stock received a warrant to purchase one share of common stock at an exercise
price of $5.00 per share with a 4-year term. A total of 826,100 warrants
were
issued under these terms. The closing took place on March 22, 2007. The
shares of common stock offered by the Company in this transaction were
registered under the Company’s existing shelf registration statement (File
No. 333-140246) on Form S-3, which was declared effective by the Securities
and Exchange Commission on February 15, 2007, and the prospectus supplement
dated March 21, 2007.
Punk,
Ziegel & Company, L.P. and Maxim Group LLC (the Placement Agents) acted as
the placement agents for the Offering. On March 14, 2007 and February 2,
2006,
the Company executed placement agent agreements (the Placement Agent Agreements)
by and between the Company and Punk, Ziegel & Company, L.P. and Maxim Group
LLC, respectively. The Company paid the Placement Agents an aggregate fee
equal
to 6% of the gross proceeds of the Offering or approximately $991,000. In
addition, the Placement Agents also received 206,526 warrants with an exercise
price of $4.40 per share and a 5-year term as part of their overall
fee.
The
warrants issued in the March 2007 Purchase Agreements were not accounted
for as
derivatives in accordance SFAS 133 paragraph 11(a), SFAS 150, and EITF
00-19.
March
2007 Warrant Call
As
part
of the August 2006 Stock Purchase Agreement, the Company issued warrants
with an
exercise price of $3.00 per share. The warrants were callable by the Company
for
45 days after a period of 60 trading days in which the closing price of the
underlying stock was at or above $4.50 per share for 30 of the 60
days.
As
of
February 16, 2007, the Company’s common stock had traded at or above $4.50 for
30 of the previous 60 days. On February 21, 2007, the Company sent out notices
to the warrant holders establishing a call date of March 26, 2007. The warrant
holders had the option to either exercise their warrants or permit the Company
to repurchase the warrants for $.01 per share on the call date. All of the
remaining warrants were exercised prior to the call date.
August
2006 Stock Purchase Agreement
On
August
17, 2006, the Company sold certain shares of its common stock and warrants
to
purchase common stock pursuant to a Common Stock and Warrant Purchase Agreement
(the August 2006 Purchase Agreement) dated August 9, 2006. The securities were
issued to 25 accredited investors pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended.
MicroCapital, LLC acted as the lead investor for the transaction. Net proceeds
of $4.7 million were received by the Company in exchange for the issuance
of
2,063,000 shares of common stock and warrants to purchase 2,063,000 shares
of
common stock. In addition, brokers assisting the Company with the capital
raise
were issued warrants to purchase 206,300 shares of common stock on identical
terms as the warrants issued to investors.
Pursuant
to the August 2006 Purchase Agreement, the purchase price per share of the
Company’s common stock was $2.50, and the accompanying warrants were issued with
an exercise price of $3.00 per share. The warrants and the August 2006 Purchase
Agreement contained anti-dilution provisions, including one providing that,
if
the Company issues stock or rights to acquire stock at a price less than
$2.00
(excluding certain issuances such as options to employees, directors and
certain
consultants and shares issued in connection with licensing or leasing
transactions), the Company is required to issue to each investor additional
shares equal to 25% of what such investor purchased in the original transaction.
The warrants were exercisable by the holder (subject to anti-dilution and
adjustment provisions) for a period of five years from the date of issuance.
The
warrants were callable by the Company for 45 days after a period of 60 trading
days in which the price of the underlying stock exceeds $4.50 per share for
30
of the 60 days, and only if a registration statement covering the underlying
shares is effective.
In
connection with the August 2006 Purchase Agreement, the Company also entered
into a Registration Rights Agreement whereby the Company agreed to file a
registration statement to cover the re-sale of the shares of common stock
sold
and issuable upon exercise of the warrants. Under the Registration Rights
Agreement, the Company agreed to file the registration statement within 60
days
of the closing, cure any defect causing the registration statement to fail
to be
effective within 10 business days, and cause suspension periods for the
registration statement to not exceed 60 days in any 360 day period. If the
Company fails to comply with these provisions, the Company will be required
to
pay as liquidated damages an amount equal to 2% of the aggregate purchase
price
paid by the investors for each 30 day period during which the failure continues,
not to exceed 10% of the aggregate purchase price. A Form SB-2 Registration
Statement to register these shares was filed with the SEC on October 16,
2006
and declared effective on December 5, 2006.
The
warrants issued in the August 2006 Purchase Agreement were not accounted
for as
derivatives in accordance SFAS 133 paragraph 11(a), SFAS 150, and EITF
00-19.
IsoRay,
Inc. June 2006 Warrant Exercise Solicitation
In
June
2006, the Board of Directors approved a limited one-time discount of the
exercise price of outstanding warrants (with exercise prices over $3.00)
to
$3.00 per share of common stock if the warrants were exercised on or before
June
30, 2006. The warrants exercised as part of this one-time discount were
primarily held by investors who purchased them as part of the Company’s October
2005 and February 2006 private placement offerings and had original exercise
prices of $6.00 and $6.50. The change in exercise price was a modification
of
the original warrant based on market conditions and was accounted for as
a
financing transaction similar to a modification of the offering price of
shares
in a stock sale. Therefore there was no effect on the statement of operations
as
the Company had previously determined that under SFAS 133 and EITF 00-19
these
warrants were equity instruments rather than derivatives. The Company issued
427,764 common shares and raised $1,223,602, net of offering costs, through
this
warrant exercise solicitation.
IsoRay,
Inc. February 2006 Private Placement
On
February 1, 2006 the Company commenced an offering of Investment Units (Units)
for sale, pursuant to a Private Placement Offering (the February 2006 Offering),
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 February 2006 Offering consisted of a maximum of 89 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 $6.50 per share. The Units
were
sold for $22,500 per Unit. The Company closed this offering on February 24,
2006. Approximately $1.1 million, net of offering costs, was raised under
the
February 2006 Offering. The warrants issued in the February 2006 Offering
were
not accounted for as derivatives in accordance SFAS 133 paragraph 11(a) and
EITF
00-19.
IsoRay,
Inc. Subscriptions Receivable
On
December 7, 2005, the Company entered into a SICAV ONE Securities Purchase
Agreement and a SICAV TWO Securities Purchase Agreement (collectively, the
December 2005 Purchase Agreements) with Mercatus & Partners, Limited, a
United Kingdom private limited company (Mercatus). The December 2005 Purchase
Agreements permitted Mercatus to purchase 1,748,146 shares of the Company's
common stock at a purchase price of $3.502 per share subject to receipt of
funding. As no funding had been received, on May 18, 2006, the Company requested
immediate return of the certificates representing all shares of common stock
to
which Mercatus had previously subscribed in accordance with the terms of
the
December 2005 Purchase Agreements. The December 2005 Purchase Agreements
called
for return of certificates within ten days if funding is not received within
two
days of receipt of the notice. After significant delay and the Company's
attainment of a court order, the share certificates were returned. On August
8,
2006, the share certificates were cancelled and the December 2005 Purchase
Agreements were terminated.
IsoRay,
Inc. October 2005 Private Placement
On
January 30, 2006 the Company closed an offering of Units for sale, pursuant
to a
Private Placement Offering (the October 2005 Offering) of October 17, 2005,
which management believes was exempt from registration under the Act pursuant
to
Section 4(2) of the Act and Rule 506 of Regulation D. The October 2005 Offering
consisted of a maximum of 200 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. This maximum was increased, pursuant to
the
terms of the October 2005 Offering, at the sole discretion of the Company,
to a
maximum of 300 Units. The Units were sold for $20,000 per Unit. Approximately
$5.4 million, net of offering costs, was raised under the October 2005 Offering.
The warrants issued in the October 2005 Offering were not accounted for as
derivatives in accordance SFAS 133 paragraph 11(a) and EITF
00-19.
IsoRay
Medical, Inc. January 2005 Private Placement
In
January 2005, Medical commenced an offering (the January 2005 Offering) of
up to
$2,000,000 of 8% convertible debentures (see Note 10) to accredited investors
in
a private placement, which management believes was exempt from registration
under the Act pursuant to Section 4(2) of the Act and Rule 506 of Regulation
D.
On May 27, 2005, Medical amended and restated the January 2005 Offering to
increase the maximum amount of the offering to $4,150,000.
Through
June 30, 2005, Medical sold debentures totaling $3,587,875. In connection with
the sales of these debentures, Medical paid commissions totaling $216,783 and
legal expenses totaling $56,470, which amounts have been recorded as deferred
financing costs.
In
July
2005, Medical sold an additional $550,000 of debentures pursuant to this
offering. The sale of these additional debentures was not subject to payment
of
commissions.
In
2006,
$3,682,875 of the debentures were converted to common stock pursuant to a
short-term conversion inducement (see Note 10).
Issuance
of Common Stock in Payment of Consulting Services
During
2006, the Company issued 173,472 shares of its common stock in full satisfaction
of consulting services including 168,472 shares that were issued as payment
for
merger consulting services (see Note 1). The shares were valued using the market
price of the stock on the date of issue.
Issuance
of Common Stock in Partial Payment of Equipment Purchase
During
2006, the Company issued 10,000 shares of its common stock and paid $962 of
cash
in full satisfaction for the purchase of production equipment and repairs and
maintenance invoices totaling $40,962. The shares were valued using the market
price of the stock on the date of issue.
Cash
Payments for Fractional Shares
During
2006, the Company paid a combined total of $734 to the former common and
preferred shareholders of Medical and Century for fractional shares that
resulted from the merger that was effective July 28, 2005 (see Note
1).
Warrants
to Purchase Series B Preferred Stock
Pursuant
to a private placement of debt units during 2003 and 2004, a predecessor
company
issued $365,000 of notes payable to investors and granted warrants for the
purchase of 227,750 of its Class A member shares. Through a series of mergers
these warrants were exchanged for warrants to purchase 323,830 Series B
preferred shares. The warrants activity is summarized as
follows:
|
|
2007
|
|
2006
(a)
|
|
|
|
Warrants
|
|
Price
(b)
|
|
Warrants
|
|
Price
(b)
|
|
Beginning
balance outstanding
|
|
|
179,512
|
|
$
|
0.79
|
|
|
233,008
|
|
$
|
0.84
|
|
Converted
to common warrants (c)
|
|
|
(142,190
|
)
|
|
0.70
|
|
|
–
|
|
|
–
|
|
Exercised
|
|
|
(37,322
|
)
|
|
1.12
|
|
|
(53,496
|
)
|
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance outstanding
|
|
|
–
|
|
$
|
–
|
|
|
179,512
|
|
$
|
0.79
|
|
|
(a)
|
The
2006 beginning balance has been adjusted to reflect the 0.842362
conversion ration (see Note
1).
|
|
(b)
|
Weighted
average price per share.
|
|
(c)
|
During
fiscal year 2007, one preferred warrant holder requested the Board
of
Directors to extend the expiration date of his warrants and to
convert
them to common warrants. The Board granted this request and set
new
expiration dates as noted below. The exercise price was not changed.
The
change in expiration date and the conversion to common warrants
was a
modification of the original warrant based on market conditions
and was
accounted for as a financing transaction similar to a modification
of the
offering price of shares in a stock sale. Therefore there was no
effect on
the statement of operations as the Company had previously determined
that
under SFAS 133 and EITF 00-19 these warrants were equity instruments
rather than derivatives.
|
Number
of Warrants
|
|
Price
|
|
New Expiration Date
|
|
Old
Expiration Date
|
|
56,876
|
|
$
|
0.70
|
|
|
October
30, 2007
|
|
|
October
30, 2006
|
|
28,438
|
|
|
0.70
|
|
|
January
31, 2009
|
|
|
January
31, 2007
|
|
56,876
|
|
|
0.70
|
|
|
March
30, 2010
|
|
|
March
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
142,190
|
|
|
|
|
|
|
|
|
|
|
Warrants
to Purchase Common Stock
In
connection with the various common stock offerings and at other times the
Company has issued warrants for the purchase of common stock. The warrants
activity is summarized as follows:
|
|
2007
|
|
2006
(a)
|
|
|
|
Warrants
|
|
Price
(b)
|
|
Warrants
|
|
Price
(b)
|
|
Beginning
balance outstanding
|
|
|
2,502,769
|
|
$
|
5.73
|
|
|
136,158
|
|
$
|
1.20
|
|
Warrants
issued
|
|
|
3,301,926
|
|
|
3.59
|
|
|
2,878,522
|
|
|
5.85
|
|
Converted
from preferred (c)
|
|
|
142,190
|
|
|
0.70
|
|
|
–
|
|
|
–
|
|
Cancelled/expired
|
|
|
(23,615
|
)
|
|
2.54
|
|
|
–
|
|
|
–
|
|
Exercised
|
|
|
(2,295,506
|
)
|
|
2.99
|
|
|
(511,911
|
)
|
|
2.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance outstanding
|
|
|
3,627,764
|
|
$
|
5.31
|
|
|
2,502,769
|
|
$
|
5.73
|
|
|
(a)
|
The
2006 beginning balance has been adjusted to reflect the 0.842362
conversion ratio (see Note
1).
|
|
(b)
|
Weighted
average price per share.
|
|
(c)
|
During
fiscal year 2007, one preferred warrant holder requested the Board
of
Directors to extend the expiration date of his warrants and to
convert
them to common warrants. The Board granted this request and set
new
expiration dates as noted in the Preferred Warrants section of
this
footnote.
|
The
following table summarizes additional information about the Company’s common
warrants outstanding as of June 30, 2007:
Number of Warrants
|
|
Range of Exercise Prices
|
|
Expiration Date
|
|
277,614
|
|
$4.15
|
|
|
July
2007
|
|
12,500
|
|
$0.0008
|
|
|
October
2007
|
|
56,876
|
|
$0.70
|
|
|
October
2007
|
|
53,000
|
|
$6.00
|
|
|
October
2007
|
|
162,500
|
|
$6.00
|
|
|
November
2007
|
|
934,469
|
|
$5.75
to $6.00
|
|
|
December
2007
|
|
700,250
|
|
$6.00
|
|
|
January
2008
|
|
276,923
|
|
$6.00
to $6.50
|
|
|
February
2008
|
|
5,000
|
|
$7.00
|
|
|
March
2008
|
|
5,692
|
|
$4.15
|
|
|
May
2008
|
|
28,438
|
|
$0.70
|
|
|
January
2009
|
|
56,876
|
|
$0.70
|
|
|
March
2010
|
|
826,100
|
|
$5.00
|
|
|
March
2011
|
|
206,526
|
|
$4.40
|
|
|
March
2012
|
|
25,000
|
|
$2.00
|
|
|
July
2015
|
|
|
|
|
|
|
|
|
|
3,627,764
|
|
|
|
|
|
|
|
Stock
Options
A
summary
of the Company’s stock option activity and related information for the years
ended June 30, 2007 and 2006 is as follows:
|
|
2007
|
|
2006
(a)
|
|
|
|
Shares
|
|
Price
(b)
|
|
Shares
|
|
Price
(b)
|
|
Beginning
balance outstanding
|
|
|
3,129,692
|
|
$
|
2.05
|
|
|
2,237,802
|
|
$
|
1.31
|
|
Granted
(c) (d)
|
|
|
1,488,700
|
|
|
3.67
|
|
|
1,189,722
|
|
|
3.23
|
|
Cancelled
|
|
|
(179,454
|
)
|
|
2.68
|
|
|
(196,548
|
)
|
|
1.19
|
|
Exercised
|
|
|
(755,499
|
)
|
|
1.16
|
|
|
(101,284
|
)
|
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance outstanding
|
|
|
3,683,439
|
|
$
|
2.86
|
|
|
3,129,692
|
|
$
|
2.05
|
|
Exercisable
at end of year
|
|
|
2,528,172
|
|
$
|
2.45
|
|
|
2,649,576
|
|
$
|
1.79
|
|
|
(a)
|
The
2006 beginning balances have been adjusted to reflect the 0.842362
conversion ratio (see Note
1).
|
|
(b)
|
Weighted
average price per share.
|
|
(c)
|
All
options granted had exercise prices equal to the ending market
price of
the Company’s common stock on the grant
date.
|
|
(d)
|
Included
in options granted are 350,000 options granted with an exercise
price of
$4.14 to members of the Board of Directors that were subsequently
cancelled on July 25, 2007. 100,000 of these options were granted
to the
Company’s CEO and Executive Vice-President Operations and were to vest
over three years. The remaining 250,000 options were granted to
non-employee Directors and were immediately vested. See Note 11
for a
further discussion of these cancelled
options.
|
The
following table summarizes additional information about the Company’s stock
options outstanding as of June 30, 2007:
|
|
Options
Outstanding
|
|
Options
Exercisable
|
|
Range
of Exercise Prices
|
|
Shares
|
|
Price
(a)
|
|
Life
(b)
|
|
Shares
|
|
Price
(a)
|
|
$1.00
to $1.19
|
|
|
1,002,892
|
|
$
|
1.16
|
|
|
7.85
yrs
|
|
|
934,322
|
|
$
|
1.16
|
|
$1.96
to $2.00
|
|
|
653,791
|
|
|
1.98
|
|
|
8.09
yrs
|
|
|
653,791
|
|
|
1.98
|
|
$3.10
to $3.20
|
|
|
676,234
|
|
|
3.12
|
|
|
9.16
yrs
|
|
|
342,075
|
|
|
3.12
|
|
$3.50
to $3.85
|
|
|
200,000
|
|
|
3.74
|
|
|
9.00
yrs
|
|
|
116,666
|
|
|
3.81
|
|
$4.14
to $4.15
|
|
|
820,472
|
|
|
4.14
|
|
|
9.54
yrs
|
|
|
334,235
|
|
|
4.14
|
|
$4.40
|
|
|
108,800
|
|
|
4.40
|
|
|
9.68
yrs
|
|
|
–
|
|
|
–
|
|
$5.50
to $6.50
|
|
|
221,250
|
|
|
6.06
|
|
|
8.65
yrs
|
|
|
147,083
|
|
|
6.18
|
|
Total
options
|
|
|
3,333,439
|
|
|
|
|
|
|
|
|
2,278,172
|
|
|
|
|
|
(a)
|
Weighted
average exercise price.
|
|
(b) |
Weighted
average remaining contractual life. |
The
Company recorded no income tax provision or benefit for the years ended June
30,
2007 and 2006.
The
Company had a net deferred tax asset of approximately $6.7 million and $3.8
million as of June 30, 2007 and 2006, respectively. The deferred tax asset
has
arisen principally from net operating loss carryforwards, share-based
compensation, depreciation and amortization, and accrued compensation. 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, 2007 and 2006 has been established.
At
June
30, 2007, the Company had tax basis net operating loss carryforwards of
approximately $19 million available to offset future regular taxable income.
These net operating loss carryforwards expire through 2027.
14. |
401(k)
and Profit Sharing
Plan
|
The
Company has a 401(k) plan, which commenced in fiscal year 2007, covering
all
eligible full-time employees of the Company. Contributions to the 401(k)
plan
are made by the participants to their individual accounts through payroll
withholding. The 401(k) plan also allows the Company to make contributions
at
the discretion of management. To date, the Company has not made any
contributions to the 401(k) plan.
15. |
Related
Party Transactions
|
The
Company received various legal services for assistance with the common stock
and
warrant offerings, lease and contract review, and other general counsel support
from a law firm in which one of the firm’s partners is a member of the Company’s
Board of Directors. The total amounts paid in 2007 and 2006 to the law firm
were
$458,534 and $390,000, respectively. The 2007 amount includes approximately
$18,000 accrued in accounts payable as of June 30, 2007.
During
fiscal year 2006, the Company paid $60,000 to a shareholder for strategic
business and financial consulting.
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 (a predecessor company) 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 in connection with the merger transactions (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.
During
fiscal years 2007 and 2006, the Company recorded royalty expenses of $2,161
and
$0, respectively.
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 Medical and subsequently to the Company in
connection with the merger transactions (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, management believes that there have been no product sales incorporating
the “know-how” and that therefore no royalty is due pursuant to the terms of the
agreement. Management believes that ultimately no royalties should be paid
under
this agreement as there is no intent to use this “know-how” in the
future.
The
licensor of the Lawrence “know-how” has disputed management’s contention that it
is not using this “know-how”. On September 25, 2007, the Company participated in
nonbinding mediation and no settlement was reached. The parties have agreed
to
extend mediation discussions until late October, 2007. If no settlement is
reached, the parties may demand binding arbitration.
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 Medical and subsequently by the
Company following the merger transactions (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 years ended June 30, 2007 and 2006, the Company incurred $151,065 and
$868,650, respectively, of costs for production-related services and facilities
provided by Battelle. At June 30, 2007, accrued liabilities included $494
related to this agreement. The agreement, which expires December 31, 2007,
may
be terminated at any time by either party, upon giving a 60-day written notice
to the other party.
Operating
Lease Agreements
The
Company leases office and laboratory space and production and office equipment
under noncancelable operating leases. The lease agreements require monthly
lease
payments and expire on various dates through June 2011. The Company’s two
significant leases are described below.
On
May 2,
2007, Medical entered into a lease for its new production facility with Energy
Northwest, the owner of the Applied Process Engineering Laboratory (the APEL
lease). The new lease provides the Company with 19,328 square feet of
manufacturing and office space and the Company has moved all manufacturing
operations to this new leased space as of September 2007 and will vacate
its
leased space at the PEcoS-IsoRay Radioisotope Laboratory (PIRL). The
APEL
lease has a three year term expiring on April 30, 2010, an option to renew
for
two additional three-year terms, and monthly rent of approximately $26,700,
subject to annual increases based on the Consumer Price Index, plus monthly
janitorial expenses of approximately $700. Due to the severe economic penalty
associated with not exercising the two lease renewal options, the Company
currently intends to exercise both of the three-year renewal options at the
appropriate time in the lease.
In
February 2005, the Company entered into a lease agreement for leased space
at
PIRL in which it established production facilities. The lease term commenced
on
regulatory licensing approval, which was obtained in October 2005. The lease
had
a base term of one year with a one year renewal option. The first year of
rent
was paid using 24,000 shares of the Company’s common stock which was valued at
$120,035 based on the date of issuance. The Company has agreed to pay $5,000
per
month for its second year of occupancy.
Future
minimum lease payments under operating leases including the two three-year
renewals of the APEL lease, which the Company intends to exercise, are as
follows:
Year
ending June 30,
|
|
|
|
2008
|
|
$
|
372,118
|
|
2009
|
|
|
338,496
|
|
2010
|
|
|
338,354
|
|
2011
|
|
|
337,925
|
|
2012
|
|
|
328,749
|
|
Thereafter
|
|
|
1,260,206
|
|
|
|
|
|
|
|
|
$
|
2,975,848
|
|
Rental
expense (including rent paid with common stock) amounted to $207,044 and
$155,838 for the years ended June 30, 2007 and 2006,
respectively.
License
Agreement with IBt
In
February 2006, the Company signed a license agreement with International
Brachytherapy s.a. (IBt) covering North America and providing the Company
with
access to IBt’s Ink Jet production process and its proprietary polymer seed
technology for use in brachytherapy procedures using Cs-131. The Company
paid
license fees of $275,000 during 2006 and another payment of $225,000 was
to be
made in August 2006 pursuant to the license agreement. Royalty payments based
on
net sales revenue incorporating the technology are also required, with minimum
quarterly royalties ranging from $100,000 to $200,000 and minimum annual
royalties ranging from $400,000 to $800,000 over the term of the
agreement.
As
of the
date of this report, the August 2006 payment has not been made. In the fourth
quarter of fiscal year 2007, the Company reviewed the carrying values of
licenses, including the IBt license. As of the date of this report, the August
2006 payment has not been made as the Company has been in continued negotiations
with IBt concerning the license agreement and other business arrangements
(see
Note 19).
17. |
Concentrations
of Credit and Other
Risks
|
Financial
Instruments
The
Company’s financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents, short-term investments,
and
accounts receivable.
The
Company’s cash and cash equivalents are maintained with high-quality financial
institutions. The accounts are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At June 30, 2007, uninsured cash balances
totaled $9,418,359.
Short-term
investments are held by a major, high-quality financial institution. Generally,
these securities are traded in a highly liquid market and may be redeemed
upon
demand and bear minimal risk. Management regularly monitors the composition
and
maturities of these investments and the Company has not experienced any material
loss on its investments.
The
Company’s accounts receivable result from credit sales to customers. The Company
had two and three customers whose sales were greater than 10% for each of
the
years ended June 30, 2007 and 2006, respectively. These customers represented
37.7% and 49.2% of the Company’s total revenues for the years ended June 30,
2007 and 2006, respectively. Those same customers accounted for 25.6% and
47.9%
of the Company’s net accounts receivable balance at June 30, 2007 and 2006,
respectively.
The
Company’s Proxcelan brachytherapy seed is currently its only product and all of
the Company’s revenues are derived from sales of the Proxcelan seed in the
United States. Sales to the Company’s largest customer totaled 24.5% and 20.6%
of total revenues in 2007 and 2006, respectively.
The
loss
of any of these significant customers would have a temporary adverse effect
on
the Company’s revenues, which would continue until the Company located new
customers to replace them.
The
Company routinely assesses the financial strength of its customers and provides
an allowance for doubtful accounts as necessary.
Inventories
Most
components used in the Company’s product are purchased from outside sources.
Certain components are purchased from single suppliers. The failure of any
such
supplier to meet its commitment on schedule could have a material adverse effect
on the Company’s business, operating results and financial condition. If a
sole-source supplier were to go out of business or otherwise become unable
to
meet its supply commitments, the process of locating and qualifying alternate
sources could require up to several months, during which time the Company’s
production could be delayed. Such delays could have a material adverse effect
on
the Company’s business, operating results and financial condition.
18. |
New
Accounting Standards
|
In
July
2006, the FASB issued Financial Accounting Standard Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (FIN 48). FIN 48 is an
interpretation of SFAS 109 and it seeks to reduce the diversity in practice
associated with certain aspects of measurement and recognition in accounting
for
income taxes. In addition, FIN 48 requires expanded disclosure with respect
to uncertainties in income taxes. The Company does not believe the adoption
of
FIN 48 on July 1, 2007 will have a material effect on its consolidated
financial statements.
In
September 2006, the FASB issued statement No. 157, Fair Value Measurements,
(SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with accounting principles generally accepted
in the United States, and expands disclosures about fair value measurements.
SFAS 157 is effective for fiscal years beginning after November 15,
2007, with earlier application encouraged. Any amounts recognized upon adoption
as a cumulative effect adjustment will be recorded to the opening balance
of
retained earnings in the year of adoption. The Company is currently evaluating
the impact this statement will have on its financial
statements.
In
February 2007, the FASB issued statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115 (SFAS 159). The statement allows entities to value financial
instruments and certain other items at fair value. The statement provides
guidance over the election of the fair value option, including the timing
of the
election and specific items eligible for the fair value accounting. Changes
in
fair values would be recorded in earnings. The statement is effective for
fiscal
years beginning after November 15, 2007. The Company is currently
evaluating the impact this statement will have on its financial
statements.
The
following events and transactions have occurred subsequent to June 30,
2007:
Option
Cancellations
On
June
1, 2007, the Company issued an option grant to employees and directors. The
options had an exercise price of $4.14 which was the closing market price
of the
Company’s stock. The options issued to the employees vest over 3 years while the
options granted to the non-employee directors were immediately
vested.
The
Company’s CEO, who also serves as Chairman of the Board, was granted 150,000
options, the EVP- Operations, who also serves as a Director, was granted
100,000
options, and all non-employee directors were granted 50,000 options each.
On
July 25, 2007, the Board discussed the issue of director compensation and
each
director (including the employee directors) elected to cancel 50,000 of their
options from the June 1, 2007 grant.
After
the
cancellation, the CEO and EVP-Operations had 100,000 and 50,000 options,
respectively, and the non-employee directors had no options from the June
1,
2007 grant. The terms of these remaining options for the CEO and EVP-Operations
were not changed as part of the cancellation.
In
accordance with SFAS 123R, all of the options that were cancelled have been
accounted for as cancellation of options with no consideration. No additional
compensation cost associated with the CEO’s and EVP-Operations’s options will be
recognized after the cancellation date of July 25, 2007. Cancelled options
that
had been granted to non-employee directors were immediately vested on the
date
of grant; therefore all related compensation cost was recognized in fiscal
year
2007.
All
of
these subsequently cancelled options are included in the options granted
and
outstanding as of June 30, 2007.
Global
Strategic Alliance with IBt
In
September 2007, the Company entered into a letter of intent with IBt to enter
into a Global Strategic Alliance incorporating various cooperative initiatives
which will be the subject of a number of future agreements and transactions.
Each of the following proposed initiatives are subject to Board approval
by each
of the respective parties:
|
§
|
An
amendment to the IsoRay’s license agreement with IBt for the use of its
polymer seed technology whereby IsoRay would pay the remaining
$225,000
license fee but would not be subject to ongoing royalty payments.
IsoRay
would purchase polymer seed components at cost plus a profit margin
to be
determined.
|
|
§
|
The
Company would grant IBt an exclusive license to distribute Cs-131
brachytherapy seeds in certain markets outside of North and South
America,
including the European Union.
|
|
§
|
The
Company would receive the exclusive right to manufacture and distribute
polymer I-125 brachytherapy seeds in North and South
America.
|
|
§
|
The
Company would also receive IBt’s US subsidiary’s customer list and the
right to offer employment to certain IBt US
employees.
|
IsoRay,
Inc. and Subsidiary
Consolidated
Balance Sheets
|
|
September 30,
2007
(Unaudited)
|
|
June
30,
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
6,448,058
|
|
$
|
9,355,730
|
|
Short-term
investments
|
|
|
8,972,430
|
|
|
9,942,840
|
|
Accounts
receivable, net of allowance for doubtful accounts of $69,936 and
$99,789,
respectively
|
|
|
1,008,016
|
|
|
1,092,925
|
|
Inventory
|
|
|
913,676
|
|
|
880,834
|
|
Prepaid
expenses
|
|
|
630,216
|
|
|
458,123
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
17,972,396
|
|
|
21,730,452
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation
|
|
|
6,416,073
|
|
|
3,665,551
|
|
Deferred
financing costs, net of accumulated amortization
|
|
|
88,099
|
|
|
95,725
|
|
Licenses,
net of accumulated amortization
|
|
|
254,375
|
|
|
262,074
|
|
Other
assets, net of accumulated amortization
|
|
|
320,659
|
|
|
322,360
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
25,051,602
|
|
$
|
26,076,162
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,352,991
|
|
$
|
1,946,042
|
|
Accrued
payroll and related taxes
|
|
|
627,528
|
|
|
459,068
|
|
Accrued
interest payable
|
|
|
2,316
|
|
|
1,938
|
|
Deferred
revenue
|
|
|
-
|
|
|
23,874
|
|
Notes
payable, due within one year
|
|
|
46,130
|
|
|
49,212
|
|
Capital
lease obligations, due within one year
|
|
|
155,271
|
|
|
194,855
|
|
Asset
retirement obligation, current portion
|
|
|
134,115
|
|
|
131,142
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
2,318,351
|
|
|
2,806,131
|
|
|
|
|
|
|
|
|
|
Notes
payable, due after one year
|
|
|
517,740
|
|
|
528,246
|
|
Capital
lease obligations, due after one year
|
|
|
14,984
|
|
|
25,560
|
|
Asset
retirement obligation
|
|
|
473,096
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
3,324,171
|
|
|
3,359,937
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 6,000,000 shares authorized:
|
|
|
|
|
|
|
|
Series
A: 1,000,000 shares allocated; no shares issued and
outstanding
|
|
|
-
|
|
|
-
|
|
Series
B: 5,000,000 shares allocated; 59,065 shares issued and
outstanding
|
|
|
59
|
|
|
59
|
|
Common
stock, $.001 par value; 194,000,000 shares authorized; 23,033,324
and
22,789,324 shares issued and outstanding
|
|
|
23,033
|
|
|
22,789
|
|
Additional
paid-in capital
|
|
|
47,015,156
|
|
|
45,844,793
|
|
Accumulated
deficit
|
|
|
(25,310,817
|
)
|
|
(23,151,416
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
21,727,431
|
|
|
22,716,225
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
25,051,602
|
|
$
|
26,076,162
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statements of Operations
(Unaudited)
|
|
Three months ended September 30,
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
1,855,719
|
|
$
|
1,025,444
|
|
Cost
of product sales
|
|
|
2,005,502
|
|
|
1,288,145
|
|
|
|
|
|
|
|
|
|
Gross
loss
|
|
|
(149,783
|
)
|
|
(262,701
|
)
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
256,370
|
|
|
245,598
|
|
Sales
and marketing expenses
|
|
|
1,059,816
|
|
|
672,930
|
|
General
and administrative expenses
|
|
|
902,025
|
|
|
1,733,132
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
2,218,211
|
|
|
2,651,660
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,367,994
|
)
|
|
(2,914,361
|
)
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
238,696
|
|
|
40,183
|
|
Financing
expense
|
|
|
(30,103
|
)
|
|
(53,257
|
)
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
208,593
|
|
|
(13,074
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,159,401
|
)
|
$
|
(2,927,435
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
Weighted
average shares used in computing net loss per share:
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
|
23,001,041
|
|
|
15,300,747
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statements of Cash Flows
(Unaudited)
|
|
Three months ended September 30,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,159,401
|
)
|
$
|
(2,927,435
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of fixed assets
|
|
|
206,937
|
|
|
89,426
|
|
Amortization
of deferred financing costs and other assets
|
|
|
68,733
|
|
|
39,773
|
|
Amortization
of discount on short-term investments
|
|
|
(67,593
|
)
|
|
-
|
|
Accretion
of asset retirement obligation
|
|
|
2,973
|
|
|
1,528
|
|
Noncash
share-based compensation
|
|
|
187,607
|
|
|
781,443
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
84,909
|
|
|
(55,808
|
)
|
Inventory
|
|
|
(32,842
|
)
|
|
(56,407
|
)
|
Prepaid
expenses
|
|
|
(172,093
|
)
|
|
(32,225
|
)
|
Accounts
payable and accrued expenses
|
|
|
(593,051
|
)
|
|
69,766
|
|
Accrued
payroll and related taxes
|
|
|
168,460
|
|
|
92,182
|
|
Accrued
interest payable
|
|
|
378
|
|
|
1,713
|
|
Deferred
revenue
|
|
|
(23,874
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(2,328,857
|
)
|
|
(1,996,044
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(2,484,363
|
)
|
|
(55,390
|
)
|
Additions
to licenses and other assets
|
|
|
(51,707
|
)
|
|
(21,256
|
)
|
Purchases
of short-term investments
|
|
|
(5,947,407
|
)
|
|
-
|
|
Proceeds
from the sale or maturity of short-term investments
|
|
|
6,985,410
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(1,498,067
|
)
|
|
(76,646
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Principal
payments on notes payable
|
|
|
(13,588
|
)
|
|
(17,269
|
)
|
Principal
payments on capital lease obligations
|
|
|
(50,160
|
)
|
|
(51,061
|
)
|
Proceeds
from cash sales of common shares pursuant to private placement, net
of
offering costs
|
|
|
-
|
|
|
4,702,931
|
|
Proceeds
from cash sales of preferred stock, pursuant to exercise of
warrants
|
|
|
-
|
|
|
8,709
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of
warrants
|
|
|
971,100
|
|
|
-
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of
options
|
|
|
11,900
|
|
|
382,485
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
919,252
|
|
|
5,025,795
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(2,907,672
|
)
|
|
2,953,105
|
|
Cash
and cash equivalents, beginning of period
|
|
|
9,355,730
|
|
|
2,207,452
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
6,448,058
|
|
$
|
5,160,557
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Increase
in fixed assets related to asset retirement obligation
|
|
$
|
473,096
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
Notes
to the Unaudited Consolidated Financial Statements
For
the three-month periods ended September 30, 2007 and
2006
The
accompanying consolidated financial statements are those of IsoRay, Inc.,
and
its wholly-owned subsidiary (IsoRay or the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
The
accompanying interim consolidated financial statements have been prepared
in
conformity with U.S. generally accepted accounting principles, consistent
in all
material respects with those applied in the Company’s Annual Report on Form
10-KSB for the fiscal year ended June 30, 2007. The financial information
is
unaudited but reflects all adjustments, consisting only of normal recurring
accruals, which are, in the opinion of the Company’s management, necessary for a
fair statement of the results for the interim periods presented. Interim
results
are not necessarily indicative of results for a full year. The information
included in this Form 10-Q should be read in conjunction with the Company’s
Annual Report on Form 10-KSB for the fiscal year ended June 30,
2007.
2. |
Accounting
for Uncertainty in Income
Taxes
|
On
July
1, 2007, the Company adopted Financial Accounting Standards Board Interpretation
No. 48 (FIN No. 48) Accounting
for Uncertainty in Income Taxes.
FIN No.
48 clarifies the accounting for uncertainty in income taxes recognized in
accordance with SFAS No. 109 “Accounting for Income Taxes,” prescribing a
recognition threshold and measurement attribute for the recognition and
measurement of a tax position taken or expected to be taken in a tax return.
In
the course of its assessment, management has determined that the Company,
its
subsidiary, and its predecessors is subject to examination of its income
tax
filings in the United States and state jurisdictions for the 2003 through
2006
tax years. In the event that the Company is assessed penalties and or interest;
penalties will be charged to other operating expense and interest will be
charged to interest expense.
The
Company adopted FIN No. 48 using the modified prospective transition method,
which requires the application of the accounting standard as of July 1, 2007.
There was no impact on the financial statements as of and for the three months
ended September 30, 2007 as a result of the adoption of FIN No. 48. In
accordance with the modified prospective transition method, the financial
statements for prior periods have not been restated to reflect, and do not
include, the impact of FIN No. 48.
The
Company accounts for its income (loss) per common share according to Statement
of Financial Accounting Standard (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 shareholders
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. At September 30, 2007
and
2006, the calculation of diluted weighted average shares does not include
preferred stock, options, or warrants that are potentially convertible into
common stock as those would be antidilutive due to the Company’s net loss
position.
Securities
that could be dilutive in the future as of September 30, 2007 and 2006 are
as
follows:
|
|
September
30,
|
|
|
|
2007
|
|
2006
|
|
Preferred
stock
|
|
|
59,065
|
|
|
91,928
|
|
Preferred
stock warrants
|
|
|
-
|
|
|
173,292
|
|
Common
stock warrants
|
|
|
3,350,150
|
|
|
4,768,563
|
|
Common
stock options
|
|
|
3,320,906
|
|
|
3,436,176
|
|
Convertible
debentures
|
|
|
-
|
|
|
109,639
|
|
|
|
|
|
|
|
|
|
Total
potential dilutive securities
|
|
|
6,730,121
|
|
|
8,579,598
|
|
4. |
Short-Term
Investments
|
The
Company short-term investments are classified as available-for-sale and recorded
at fair market value. As of September 30, 2007 and June 30, 2007, the amortized
cost of the Company’s short-term investments equaled their fair market value.
Accordingly, there were no unrealized gains and losses as of September 30,
2007
or June 30, 2007.
The
Company’s short-term investments consisted of the following at September 30,
2007 and June 30, 2007:
|
|
September 30,
|
|
June
30,
|
|
|
|
2007
|
|
2007
|
|
Municipal
debt securities
|
|
$
|
4,000,000
|
|
$
|
3,000,000
|
|
Corporate
debt securities
|
|
|
4,972,430
|
|
|
6,942,840
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,972,430
|
|
$
|
9,942,840
|
|
Inventory
consists of the following at September 30, 2007 and June 30,
2007:
|
|
September 30,
|
|
June
30,
|
|
|
|
2007
|
|
2007
|
|
Raw
materials
|
|
$
|
734,249
|
|
$
|
682,327
|
|
Work
in process
|
|
|
147,637
|
|
|
120,242
|
|
Finished
goods
|
|
|
31,790
|
|
|
78,265
|
|
|
|
|
|
|
|
|
|
|
|
$
|
913,676
|
|
$
|
880,834
|
|
6. |
Asset
Retirement
Obligations
|
SFAS
No.
143, Asset
Retirement Obligations,
establishes standards for the recognition, measurement and disclosure of
legal
obligations associated with the costs to retire long-lived assets. Accordingly,
under SFAS No. 143, the fair value of the future retirement costs of the
Company’s leased assets are recorded as a liability on a discounted basis when
they are incurred and an equivalent amount is capitalized to property and
equipment. The initial recorded obligation, which was discounted using the
Company’s credit-adjusted risk-free rate, is reviewed periodically to reflect
the passage of time and changes in the estimated future costs underlying
the
obligation. The Company amortizes the initial amount capitalized to property
and
equipment and recognizes accretion expense in connection with the discounted
liability over the estimated remaining useful life of the leased
assets.
In
fiscal
year 2006, the Company established an initial asset retirement obligation
of
$63,040 which represented the discounted cost of cleanup that the Company
anticipated it would have to incur at the end of its equipment and property
leases in its old production facility. This amount was determined based on
discussions with qualified production personnel and on historical evidence.
During fiscal year 2007, the Company reevaluated its obligations based on
discussions with the Washington Department of Health and determined that
the
initial asset retirement obligation should be increased by an additional
$56,120. The Company anticipates spending most of the amounts represented
by
this accrual in fiscal year 2008.
In
September 2007, a new asset retirement obligation of $473,096 was established
representing the discounted cost of the Company’s obligations to remove any
residual radioactive materials and any unwanted leasehold improvements at
the
end of the lease term at its new production facility. The estimate was developed
by qualified production personnel and the general contractor of the new
facility.
7. |
Share-Based
Compensation
|
Effective
July 1, 2006, the Company adopted SFAS No. 123R, Share-Based
Payment,
using
the modified prospective method. The following table presents the share-based
compensation expense recognized in accordance with SFAS No. 123R during the
three months ended September 30, 2007 and 2006:
|
|
Three months ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Cost
of product sales
|
|
$
|
37,003
|
|
$
|
50,833
|
|
Research
and development
|
|
|
11,550
|
|
|
11,835
|
|
Sales
and marketing expenses
|
|
|
59,557
|
|
|
46,781
|
|
General
and administrative expenses
|
|
|
79,497
|
|
|
671,994
|
|
|
|
|
|
|
|
|
|
Total
share-based compensation
|
|
$
|
187,607
|
|
$
|
781,443
|
|
As
of
September 30, 2007, total unrecognized compensation expense related to
stock-based options was $1,470,023 and the related weighted-average period
over
which it is expected to be recognized is approximately 1.13
years.
The
Company currently provides stock-based compensation under three equity incentive
plans approved by the Board of Directors. Options granted under each of the
plans have a ten year maximum term, an exercise price equal to at least the
fair
market value of the Company’s common stock on the date of the grant, and varying
vesting periods as determined by the Board. For stock options with graded
vesting terms, the Company recognizes compensation cost on a straight-line
basis
over the requisite service period for the entire award.
A
summary
of stock option activity within the Company’s share-based compensation plans for
the three months ended September 30, 2007 is as follows:
|
|
Number
of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2007
|
|
|
3,320,906
|
|
$
|
2.73
|
|
|
8.29
|
|
$
|
3,600,466
|
|
Vested
and expected to vest at September 30, 2007
|
|
|
3,274,567
|
|
$
|
2.45
|
|
|
8.29
|
|
$
|
3,596,459
|
|
Vested
and exercisable at September 30, 2007
|
|
|
2,438,817
|
|
$
|
2.18
|
|
|
8.01
|
|
$
|
3,502,713
|
|
The
aggregate intrinsic value of options exercised during the three months ended
September 30, 2007 and 2006 was $25,300 and $702,763, respectively. The
Company’s current policy is to issue new shares to satisfy option
exercises.
During
the quarter ended September 30, 2007, the Company did not grant any stock
options. The weighted average fair value of stock option awards granted and
the
key assumptions used in the Black-Scholes valuation model to calculate the
fair
value are as follows:
|
|
Three months ended September 30,
|
|
|
|
2007
|
|
2006
|
|
Weighted
average fair value of options granted
|
|
$
|
-
|
|
$
|
2.10
|
|
Key
assumptions used in determining fair value:
|
|
|
|
|
|
|
|
Weighted
average risk-free interest rate
|
|
|
-
|
%
|
|
4.90
|
%
|
Weighted
average life of the option (in years)
|
|
|
-
|
|
|
5.51
|
|
Weighted
average historical stock price volatility
|
|
|
-
|
%
|
|
75.00
|
%
|
Expected
dividend yield
|
|
|
-
|
%
|
|
0.00
|
%
|
The
Black-Scholes option valuation model was developed for use in estimating
the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
changes in the subjective input assumptions can materially affect the fair
value
estimate, in management’s opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options. The risk-free interest rate is based on the U.S. treasury security
rate
in effect as of the date of grant. The expected lives of options and the
stock
price volatility are based on historical data of the Company.
8. |
Commitments
and Contingencies
|
Patent
and Know-How Royalty License Agreement
The
Company is the holder of an exclusive license to use certain “know-how”
developed by one of the founders of a predecessor to the Company and licensed
to
the Company by the Lawrence Family Trust, a Company shareholder. The terms
of
this license agreement require the payment of a royalty based on the Net
Factory
Sales Price, as defined in the agreement, of licensed product sales. Because
the
licensor’s patent application was ultimately abandoned, only a 1% “know-how”
royalty based on Net Factory Sales Price, as defined in the agreement, remains
applicable. To date, management believes that there have been no product
sales
incorporating the “know-how” and that therefore no royalty is due pursuant to
the terms of the agreement. Management believes that ultimately no royalties
should be paid under this agreement as there is no intent to use this “know-how”
in the future.
The
licensor of the “know-how” has disputed management’s contention that it is not
using this “know-how”. On September 25, 2007 and again on October 31, 2007, the
Company participated in nonbinding mediation and no settlement was reached
with
the Lawrence Family Trust. The parties have agreed to extend negotiations
of a
mutually agreeable settlement through December 1, 2007. If no settlement
is
reached, the parties may demand binding arbitration.
License
Agreement with IBt
In
February 2006, the Company signed a license agreement with International
Brachytherapy SA (IBt), a Belgian company, covering North America and providing
the Company with access to IBt’s Ink Jet production process and its proprietary
polymer seed technology for use in brachytherapy procedures using Cs-131.
The
Company paid license fees of $275,000 during 2006 and another payment of
$225,000 was to be made in August 2006 pursuant to the license agreement.
Royalty payments based on net sales revenue incorporating the technology
are
also required, with minimum quarterly royalties ranging from $100,000 to
$200,000 and minimum annual royalties ranging from $400,000 to $800,000 over
the
term of the agreement.
On
October 12, 2007, the Company entered into an amendment to the original license
agreement as part of the global strategic alliance with IBt and paid the
remaining $225,000 license fee to IBt (see Note 9).
Perma-Fix
Lease
On
October 10, 2007, the Company executed a Lease Agreement with Perma-Fix
Northwest Richland, Inc. (Perma-Fix). The Lease Agreement has an effective
date of September 1, 2007, and provides for the continuation of the Company's
lease of its PIRL facility located at 2025 Battelle Boulevard, Richland,
Washington. The Company previously leased this facility from Nuvotec USA,
Inc. under a Lease Agreement dated February 9, 2005, but Nuvotec USA, Inc.
subsequently sold the facility to Perma-Fix. The new lease term is through
January 31, 2008, with early termination permitted upon 45 days prior written
notice. Monthly rent payments are $5,000 and increase to $50,000 per month
if the Company has not vacated the premises by January 31, 2008, with an
additional one-time payment due of $100,000 if the Company continues to occupy
the premises beyond February 1, 2008. The Company has already moved its
production operations to its new facility at the Applied Process Engineering
Laboratory, and is in the process of completing decommissioning work to vacate
the PIRL facility, which management anticipates will occur by the end of
December 2007.
Amended
License Agreement with IBt
On
October 12, 2007, the Company entered into Amendment No. 1 (the Amendment)
to
its License Agreement dated February 2, 2006 with IBt. The original License
Agreement provided the Company with access to IBt’s proprietary ink jet
technology and polymer based seed encapsulation technology for use in
brachytherapy procedures using Cesium-131 in the United States for a fifteen
year term.
The
Company already paid a total of $275,000 in license fees during fiscal year
2006. Another payment of $225,000 was made on October 12, 2007 pursuant to
the
Amendment. The Amendment eliminates the previously required royalty payments
based on net sales revenue, and the parties intend to negotiate terms for
future
payments by the Company for polymer seed components to be purchased from
IBt in
the future at IBt's cost plus a to-be-determined profit percentage, although
no
agreement has been reached on these terms and there is no assurance that
the
parties will consummate an agreement pursuant to such terms.
HAEIFC
Loan Amendment
On
October 30, 2007 the Company was notified by the Hanford Area Economic
Investment Fund Committee (HAEIFC) that it had withdrawn the commitment of
the
Company’s remaining undisbursed loan funds as of September 24, 2007. With the
success of its capital raise completed in March 2007, management had no plans
to
use the undisbursed funds at an interest rate of 9% per
annum.
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. On July 1, 2006, the Company entered into
Indemnification Agreements with each of its directors and executive officers,
and the Company intends to enter into substantially identical agreements with
any officers and directors who take office in the future. The purpose of the
Indemnification Agreements is to provide all officers and directors with
indemnification to the fullest extent permitted under the Minnesota Business
Corporations Act.
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
|
|
$
|
4,423
|
|
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
|
|
$
|
96,423
|
|
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:
|
·
|
On
March 22, 2007, the Company issued 206,526 warrants with an exercise
price
of $4.40 per share to Punk, Ziegel & Company, L.P. and Maxim Group LLC
as part of their placement agent fee for the Company’s March 2007 public
offering, in reliance on the exemption from registration provided
by §
4(2) of the Securities Act of 1933, as
amended.
|
|
·
|
On
August 17, 2006, the Registrant sold certain shares of its common
stock
and warrants to purchase common stock pursuant to a Common Stock
and
Warrant Purchase Agreement (the "Purchase Agreement"). The securities
were
issued to 25 accredited investors pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act of
1933, as
amended. MicroCapital, LLC acted as the lead investor for the transaction.
A total of $5,158,000 in cash proceeds (less 6% commissions to
registered
broker-dealers) was received by the Registrant in exchange for
the
issuance of 2,063,200 shares of common stock and warrants to purchase
2,063,200 shares of common stock. In addition, brokers assisting
the
Registrant with the capital raise were issued warrants to purchase
206,300
shares of common stock on identical terms as the warrants issued
to
investors. If all warrants were exercised, the Registrant would
receive
$6,808,500.
|
|
·
|
On
January 2, 2006 the Registrant issued 5,000 shares of common stock
in
exchange for consulting services by Rockberry LLC pursuant to the
exemption from registration provided by Section 4(2) of the Securities
Act.
|
|
·
|
In
February 2006, the Registrant sold 268,899 shares of common stock,
and
issued an equal number of warrants to purchase common stock, for
cash
proceeds of $1,210,000. These sales were effected pursuant to the
exemption from registration provided by Regulation D promulgated
under the
Securities Act of 1933, as amended (the “Securities Act”), and Section
4(2) of the Securities Act. None of these shares or warrants are
included
in this registration statement. In connection with this sale, 12,889
warrants were issued as compensation to certain NASD registered
broker-dealers. None of these warrants or shares of common stock
which
would be issued pursuant to the exercise of these warrants are included
in
this registration.
|
|
·
|
Between
October 17, 2005 and January 31, 2006, the Registrant sold 1,500,000
shares of common stock, and issued an equal number of warrants to
purchase
common stock, for cash proceeds of $6,000,000 (less commissions of
ten
percent (10%) on securities placed by broker/dealers). This common
stock
was sold as part of a unit offering including one share of common
stock
and a callable warrant to purchase one share of common stock at $6.00
per
share with a two-year term. These sales were effected pursuant to
the
exemption from registration provided by Regulation D promulgated
under the
Securities Act, and Section 4(2) of the Securities Act. None of the
shares
or warrants are included in this registration statement. In connection
with this sale, 92,159 warrants were issued as compensation to certain
NASD registered broker-dealers. None of these warrants are included
in
this registration.
|
|
·
|
On
December 7, 2005, the Company entered into a SICAV ONE Securities
Purchase
Agreement and a SICAV TWO Securities Purchase Agreement (collectively,
the
“Purchase Agreements”) with Mercatus & Partners, Limited, a United
Kingdom private limited company (“Mercatus”). The Purchase Agreements
permitted Mercatus to purchase 1,778,146 shares of the Company’s common
stock at a purchase price of $3.502 per share, or an aggregate payment
of
$6,227,067, subject to receipt of funding. This sale was effected
pursuant
to the exemption from registration provided by Regulation D promulgated
under the Securities Act, and Section 4(2) of the Securities Act.
On May
18, 2006, the Company requested that the certificates representing
these
shares be returned immediately. On August 8, 2006, the share certificates
were cancelled and the Purchase Agreements were terminated.
|
|
·
|
On
November 18, 2005, the Registrant issued 10,000 shares of common
stock to
Intellegration LLC in
exchange for $40,000 of capital production equipment, consulting
services,
and repair and maintenance services on production equipment used
in the
PIRL facilities pursuant to the exemption from registration provided
by
Section 4(2) of the Securities Act. None of these shares are included
in
this registration.
|
|
·
|
On
October 6, 2005, the Registrant issued 24,007 shares of common
stock to
Nuvotec USA, Inc. as payment for one year’s lease of the PIRL facilities
pursuant to the exemption from registration provided by Section
4(2) of
the Securities Act. None of these shares are included in this
registration.
|
|
·
|
On
July 28, 2005, pursuant to the Merger, the Registrant issued 6,401,081
shares of its common stock, 1,338,167 shares of its Series B preferred
stock, options to purchase 2,069,337 shares of its common stock,
warrants
to purchase 344,792 shares of its common stock, and warrants to purchase
233,014 shares of its preferred stock. These securities were issued
by the
Registrant in reliance upon an exemption from registration under
Section
4(2) and Regulation D of the Securities Act of 1933, as
amended.
|
|
·
|
In
April 2005, the Registrant sold an aggregate of approximately 83,334
shares for cash proceeds of $85,000. These shares were sold to three
purchasers - Andrew Ecclestone (48,999 shares), Gary Boster (29,399
shares) and Philip and Stephanie Rogers (4,934 shares) - in reliance
on
the exemption from registration provided by Section 4(2) of the Securities
Act. All of these shares are included in this
registration.
|
Additionally,
during the past three years the following sales of unregistered securities
were
completed by IsoRay Medical, Inc. and its predecessor IsoRay Products LLC
as
noted:
IsoRay
Medical, Inc.
|
· |
Between
January 31, 2005 and July 10, 2005, IsoRay Medical, Inc. sold
approximately $4,137,875 in principal amount of 8% convertible
debentures
(less commissions of ten percent (10%) on securities placed by
broker/dealers), in reliance on the exemption from registration
provided
by Rule 506 of Regulation D of the Securities Act, that subsequent
to the
merger between the Registrant and IsoRay Medical, Inc. were convertible
into 995,882 shares of common stock of the Registrant. On December
13,
2005, the Board of Directors of the Registrant announced a short-term
conversion inducement to current holders of these convertible
debentures.
Holders were permitted two conversion options: 1) convert under
the
original terms of the debenture to the Company’s common stock at a $4.15
conversion price, and include the newly issued shares in this
registration
statement, or 2) convert under terms essentially identical to
those
offered to purchasers of Units in the Registrant’s offering of October 17,
2005: a $4.00 conversion price and one callable warrant to purchase
one
share of the Company's common stock at an exercise price of $6.00
per
share for each share issued upon conversion (waiving registration
rights
for approximately one year). As of May 5, 2006, holders of $3,682,875
of
debentures had converted to common stock of the Registrant. As
of that
date, the Registrant had issued 911,276 shares of common stock,
and
659,469 warrants to purchase shares of common stock, exercisable
at $6.00
per share, leaving $455,000 in principal amount of debentures
unconverted.
Of the 911,276 shares of common stock issued pursuant to conversion
of the
debentures, 251,800 shares are included in this registration.
|
·
On
March
31, 2005, IsoRay Medical, Inc. issued, in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, 30,303 shares
of
its common stock and paid $40,000 of cash to Intellegration LLC in full
satisfaction of the $90,000 purchase price of three laser welding stations.
Pursuant to the merger with the Registrant, these 30,303 shares were converted
into 25,526 shares of the Registrant’s common stock, of which all 25,526 are
included in this registration.
·
In
January, 2005, IsoRay Medical, Inc. issued, in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act, 211,140 shares
of
its common stock under §83(b) (subject to a substantial risk of forfeiture) to
certain shareholders as an inducement for their guarantee of the Columbia River
Bank line of credit and the note payable to Benton-Franklin Economic Development
District. The transactions were recorded at the fair value of the shares,
estimated to be $348,381. Pursuant to the merger with the Registrant, these
211,140 shares were converted into 177,854 shares of the Registrant’s common
stock, of which none are included in this registration.
·
Between
October 15, 2004 and January 21, 2005, IsoRay Medical, Inc. sold 765,500 shares
of common stock and issued 229,650 warrants to purchase shares of common stock
for $.50 per share, for a total of $1,531,000 to accredited individual
investors, (less commissions of ten percent (10%) on securities placed by
broker/dealers), in reliance on Rule 506 of Regulation D of the Securities
Act.
All 229,650 warrants were subsequently exercised prior to the completion of
the
merger on July 28, 2005. Pursuant to the merger, all 995,150 shares of IsoRay
Medical, Inc. were converted into 838,230 shares of the Registrant. All of
these
shares are included in this registration.
·
In
connection with the October 15, 2004 private placement, IsoRay Medical, Inc.
granted, in reliance on the exemption from registration provided by Section
4(2)
of the Securities Act, the selling broker-dealers warrants to purchase 4.23
units at $20,000 per unit. These units represented 42,300 shares of IsoRay
Medical, Inc. common stock and warrants to purchase 12,690 common shares
at $.50
per share. These units were converted into 35,631 shares of the Registrant’s
common stock and warrants to purchase 10,689 shares of the Registrant’s common
stock at $.59 per share. A total of 46,320 shares of common stock representing
the number of shares which would be issued pursuant to exercising the warrants
in these units are included in this registration.
IsoRay
Products LLC
|
· |
Between
October 15, 2003, and September 30, 2004, in reliance on the
exemption
from registration provided by Section 4(2) of the Securities
Act and Rule
506 of Regulation D of the Securities Act, in a three-phase private
equity
offering prior to the October 1, 2004 business combination of
IsoRay,
Inc., IsoRay Products LLC, and IsoRay Medical, Inc., IsoRay Products
LLC
sold 879,014 Class A shares, 241,500 Class C shares, and issued
127,750
warrants to debt unit investors, to purchase Class A or Class
C shares at
exercise prices ranging from $1.00 to $2.00 for a total of $1,541,417,
less offering costs.
|
Class
A Shares.
The
Class A shareholders were entitled to a 15% annual, cumulative dividend payable
quarterly. In connection with the business combination, the 879,014 IsoRay
Products LLC Class A shares were converted into approximately 1,483,723 IsoRay
Medical, Inc. Series B preferred shares. Subsequent to the merger with the
Registrant, these 1,483,723 IsoRay Medical, Inc. Series B preferred shares
were
converted into approximately 1,249,809 shares of the Registrant’s Series B
preferred stock. Subsequent to the merger with the Registrant, most Series
B
preferred shareholders converted their preferred stock into common stock, and
as
of May 5, of the initial 1,249,809 shares of the Registrant’s Series B preferred
stock issued, only 181,248 shares of Series B preferred stock remain issued
and
outstanding; the balance having been exchanged for shares of the Registrant’s
common stock. Approximately 36,252 shares of common stock to be received upon
conversion of the preferred stock are included in this registration.
Class
B and Class C Shares.
The
IsoRay Products LLC Class B and Class C shareholders were not entitled to a
dividend as were the IsoRay Products LLC Class A shareholders. Class B
Shareholders, in the aggregate, were the holders 2,896,305 shares of common
stock of the parent company, IsoRay, Inc. (WA domiciled). In connection with
the
business combination, these 2,896,305 IsoRay, Inc. (WA domiciled) shares of
common stock, 100,000 shares of additional Class B shares of IsoRay Products
LLC
issued to Roger Girard and 241,500 IsoRay Products LLC Class C shares were
converted into 6,167,470 replacement IsoRay Medical, Inc. shares of common
stock. Subsequent to the merger with the Registrant, these 6,167,470 IsoRay
Medical, Inc. common shares were converted into approximately 5,195,180 shares
of the Registrant’s common stock. Approximately 1,023,401 of these shares are
included in this registration.
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, accrued 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 business combination between IsoRay Medical, Inc., IsoRay,
Inc. and IsoRay Products LLC, the note holders were issued IsoRay Medical,
Inc.
notes payable with substantially the same terms and conditions as their IsoRay
Products LLC notes, and the IsoRay Products LLC warrants were exchanged for
warrants to purchase 215,640 IsoRay Medical, Inc. Series B Preferred shares.
Subsequent to the merger with the Registrant, these warrants to purchase 215,640
IsoRay Medical, Inc. Series B Preferred shares were exchanged for approximately
181,647 warrants to purchase Series B Preferred shares of the Registrant. As
of
May 5, 2006, only 34,836 of the 181,647 warrants remained unexercised, of which
6,967 underlying shares are included in this registration. The entire $365,000
outstanding secured notes payable, received in the IsoRay Products LLC private
placement, have now been repaid, and the balance of 146,811 warrants which
have
been exercised for Series B Preferred shares have been exchanged for an equal
number of shares of common stock, of which 20%, or approximately 29,362 shares
are included in this registration.
Other
than investors (this term excludes those who received shares for services)
who
purchased Class A or C shares, certain employee investors in IsoRay, Inc.,
and
purchasers of debt units, all of the investors were accredited. Regardless
of
status, all investors signed subscription agreements acknowledging their
accredited or non-accredited status and received a private placement memorandum
explaining the business of the Company and the related risks. None of the
offerings were underwritten or conducted by underwriters but were all conducted
on a best efforts basis.
(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 Company'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.
|
3.4
|
|
Text
of Amendments to the Amended and Restated By-Laws of the Company,
incorporated by reference to the Form 8-K filed on February 7,
2007.
|
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, incorporated by reference to the Form SB-2 filed on November
10,
2005.
|
4.10
|
|
Form
of Registration Rights Agreement among IsoRay, Inc., Meyers Associates,
L.P. and the other signatories thereto, dated February 1, 2006,
incorporated by reference to the Form SB-2/A1 filed on March 24,
2006.
|
4.11
|
|
Form
of IsoRay, Inc. Common Stock Purchase Warrant, incorporated by
reference
to the Form SB-2/A1 filed on March 24, 2006.
|
4.12
|
|
2006
Director Stock Option Plan, incorporated by reference to the Form
S-8
filed on August 18, 2006.
|
4.13
|
|
Form
of Registration Rights Agreement among IsoRay, Inc. and the other
signatories thereto, dated August 9, 2006, incorporated by reference
to
the Form 8-K filed on August 18, 2006.
|
4.14
|
|
Form
of IsoRay, Inc. Common Stock Purchase Warrant, dated August 9,
2006,
incorporated by reference to the Form 8-K filed on August 18,
2006.
|
4.15
|
|
Form
of Registration Rights Agreement among IsoRay, Inc., Meyers Associates,
L.P. and the other signatories thereto, dated October 17, 2005,
incorporated by reference to the Form SB-2 filed on October 16,
2006.
|
4.16
|
|
Amended
and Restated 2006 Director Stock Option Plan, incorporated by reference
to
the Form S-8/A1 filed on December 18, 2006.
|
4.17
|
|
Amended
and Restated 2005 Stock Option Plan, incorporated by reference
to the Form
S-8/A1 filed on December 18, 2006.
|
4.18
|
|
Intentionally
omitted.
|
4.19
|
|
Rights
Agreement, dated as of February 1, 2007, between the Computershare
Trust
Company N.A., as Rights Agent, incorporated by reference to Exhibit
1 to
the Company’s Registration Statement on Form 8-A filed on February 7,
2007.
|
4.20
|
|
Certificate
of Designation of Rights, Preferences and Privileges of Series
C Junior
Participating Preferred Stock, incorporated by reference to Exhibit
1 to
the Company’s Registration Statement on Form 8-A filed February 7,
2007.
|
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,
incorporated by reference to the Form SB-2 filed on November 10,
2005.
|
10.3
|
|
Royalty
Agreement of Invention and Patent Application, dated July 12, 1999
between
Lane A. Bray and IsoRay LLC, incorporated by reference to the Form
SB-2
filed on November 10, 2005.
|
10.4
|
|
Tri-City
Industrial Development Council Promissory Note, dated July 22,
2002,
incorporated by reference to the Form SB-2/A2 filed on April 27,
2006.
|
10.5
|
|
Section
510(k) Clearance from the Food and Drug Administration to market
Lawrence
CSERION Model CS-1, dated March 28, 2003, incorporated by reference
to the
Form SB-2 filed on November 10, 2005.
|
10.6
|
|
Battelle
Project No. 45836 dated June 20, 2003, incorporated by reference
to the
Form SB-2/A2 filed on April 27, 2006.
|
10.7
|
|
Applied
Process Engineering Laboratory APEL Tenant Lease Agreement, dated
April
23, 2001 between Energy Northwest and IsoRay, LLC, incorporated
by
reference to the Form SB-2/A2 filed on April 27, 2006.
|
10.8
|
|
Work
for Others Agreement No. 45658, R2, dated April 27, 2004 between
Battelle
Memorial Institute, Pacific Northwest Division and IsoRay Products
LLC,
incorporated by reference to the Form SB-2/A2 filed on April 27,
2006.
|
10.9
|
|
Development
Loan Agreement for $230,000, dated September 15, 2004 between
Benton-Franklin Economic Development District and IsoRay Medical,
Inc.,
incorporated by reference to the Form SB-2/A2 filed on April 27,
2006.
|
10.10
|
|
Registry
of Radioactive Sealed Sources and Devices Safety Evaluation of
Sealed
Source, dated September 17, 2004, incorporated by reference to
the Form
SB-2/A2 filed on April 27,
2006.
|
10.11
|
|
CRADA
PNNL/245, "Y-90 Process Testing for IsoRay", dated December 22,
2004
between Pacific Northwest National Laboratory and IsoRay Medical
Inc.,
including Amendment No. 1, incorporated by reference to the Form
SB-2/A2
filed on April 27, 2006.
|
10.12
|
|
Intentionally
Omitted
|
10.13
|
|
Amendment
1 to Agreement 45658, dated February 23, 2005 between Battelle
Memorial
Institute Pacific Northwest Division and IsoRay Medical, Inc.,
incorporated by reference to the Form SB-2/A2 filed on April 27,
2006.
|
10.14
|
|
Equipment
Lease Agreement dated April 14, 2005 between IsoRay Medical, Inc.
and
Nationwide Funding, LLC, incorporated by reference to the Form
SB-2/A2
filed on April 27, 2006.
|
10.15
|
|
Lease
Agreement, Rev. 2, dated November 1, 2005 between Pacific EcoSolutions,
Inc. and IsoRay Medical, Inc., incorporated by reference to the
Form
SB-2/A2 filed on April 27, 2006.
|
10.16
|
|
Master
Lease Agreement Number 5209, dated May 7, 2005 between VenCore
Solutions
LLC and IsoRay Medical, Inc., incorporated by reference to the
Form
SB-2/A2 filed on April 27, 2006.
|
10.17
|
|
Contract
#840/08624332/04031 dated August 25, 2005 between IsoRay, Inc.
and the
Federal State Unitary Enterprise << Institute of Nuclear Materials
>>, Russia, incorporated by reference to the Form SB-2 filed on
November 10, 2005.
|
10.18
|
|
State
of Washington Radioactive Materials License dated October 6, 2005,
incorporated by reference to the Form SB-2 filed on November 10,
2005.
|
10.19
|
|
Express
Pricing Agreement Number 219889, dated October 5, 2005 between
FedEx and
IsoRay Medical, Inc., incorporated by reference to the Form 10-QSB
filed
on November 21, 2005.
|
10.20
|
|
Girard
Employment Agreement, dated October 6, 2005 between Roger E. Girard
and
IsoRay, Inc., incorporated by reference to the Form 10-QSB filed
on
November 21, 2005.
|
10.21
|
|
Contract
Modification Quality Class G, dated October 25, 2005 to Contract
Number
X40224 between Energy Northwest and IsoRay, Inc., incorporated
by
reference to the Form 10-QSB filed on November 21,
2005.
|
10.22
|
|
Agreement
dated August 9, 2005 between the Curators of the University of
Missouri
and IsoRay Medical, Inc., incorporated by reference to the Form
SB-2/A2
filed on April 27, 2006 (confidential treatment
requested).
|
10.23
|
|
SICAV
ONE Securities Purchase Agreement, dated December 7, 2005, by and
between
IsoRay, Inc. and Mercatus & Partners, Ltd., incorporated by reference
to the Form 8-K filed on December 12, 2005.
|
10.24
|
|
SICAV
TWO Securities Purchase Agreement, dated December 7, 2005, by and
between
IsoRay, Inc. and Mercatus & Partners, Ltd., incorporated by reference
to the Form 8-K filed on December 12, 2005.
|
10.25
|
|
Economic
Development Agreement, dated December 14, 2005, by and between
IsoRay,
Inc. and the Pocatello Development Authority, incorporated by reference
to
the Form 8-K filed on December 20, 2005.
|
10.26
|
|
License
Agreement, dated February 2, 2006, by and between IsoRay Medical,
Inc. and
IBt SA, incorporated by reference to the Form 8-K filed on March
24, 2006
(confidential treatment requested).
|
10.27
|
|
Benton
Franklin Economic Development District Loan Covenant Waiver Letter,
dated
as of March 31, 2005, incorporated by reference to the Form SB-2/A3
filed
on May 12, 2006.
|
10.28
|
|
Service
Agreement between IsoRay, Inc. and Advanced Care Medical, Inc.,
dated
March 1, 2006, incorporated by reference to the Form SB-2/A2 filed
on
April 27, 2006.
|
10.29
|
|
Business
Loan Agreement between IsoRay Medical, Inc. and Columbia River
Bank, dated
March 1, 2006, incorporated by reference to the Form SB-2/A4 filed
on May
26, 2006.
|
10.30
|
|
Letter
from HAEIFC to IsoRay Medical, Inc. dated April 26, 2006, incorporated
by
reference to the Form SB-2/A5 filed on June 6, 2006.
|
10.31
|
|
Loan
Agreement, dated June 15, 2006, by and between IsoRay Medical,
Inc. and
the Hanford Area Economic Investment Fund Committee, incorporated
by
reference to the Form 8-K filed on June 21, 2006.
|
10.32
|
|
Commercial
Security Agreement, dated June 15, 2006, by and between IsoRay
Medical,
Inc. and the Hanford Area Economic Investment Fund Committee, incorporated
by reference to the Form 8-K filed on June 21,
2006.
|
10.33
|
|
Common
Stock and Warrant Purchase Agreement among IsoRay, Inc. and the
other
signatories thereto, dated August 9, 2006, incorporated by reference
to
the Form 8-K filed on August 18, 2006.
|
10.34
|
|
Benton
Franklin Economic Development District Loan Covenant Waiver Letter,
dated
September 26, 2006, filed herewith.
|
10.35
|
|
Form
of Officer and Director Indemnification Agreement, incorporated
by
reference to the Form SB-2 Post Effective Amendment No. 2 filed
on October
13, 2006.
|
10.36
|
|
Contract
No. 840/20553876/11806-32, dated October 6, 2006, by and between
IsoRay
Medical, Inc. and FSUE “SSC-Research Institute of Atomic Reactors,”
incorporated by reference to the Form 8-K filed on November 6,
2006
(confidential treatment requested for redacted
portions).
|
10.37
|
|
Agreement
for Exclusive Right to Buy, dated October 6, 2006, by and between
IsoRay
Medical, Inc. and FSUE “SSC-Research Institute of Atomic Reactors,”
incorporated by reference to the Form 8-K filed on November 6,
2006
(confidential treatment requested for redacted
portions).
|
10.38
|
|
Form
of Securities Purchase Agreement by and among IsoRay, Inc. and the
Buyers dated March 22, 2007, incorporated by reference to the Form
8-K filed on March 23, 2007.
|
10.39
|
|
Form
of Common Stock Purchase Warrant dated March 21, 2007, incorporated
by
reference to the Form 8-K filed on March 23, 2007.
|
10.40
|
|
Placement
Agent Agreement by and between the Company and Punk, Ziegel & Company,
L.P. dated March 14, 2007, incorporated by reference to the Form
8-K filed
on March 23, 2007.
|
10.41
|
|
Placement
Agent Agreement by and between the Company and Maxim Group LLC
dated
February 2, 2006, incorporated by reference to the Form 8-K filed
on March
23, 2007.
|
10.42
|
|
APEL
- Tenant Lease Agreement Revision No. 11 dated as of May 2, 2007
with an
effective date of May 1, 2007 between Energy Northwest and IsoRay
Medical,
Inc., incorporated by reference to the Form 8-K filed on May 8,
2007.
|
10.43
|
|
Loan
Covenant Waiver Letter dated September 24, 2007 from the Hanford
Area
Economic Investment Fund Committee, incorporated by reference to
the Form
10-KSB filed on September 28, 2007.
|
10.44
|
|
Loan
Covenant Waiver Letter dated September 26, 2007 from the Benton-Franklin
Economic Development District, incorporated by reference to the
Form
10-KSB filed on September 28, 2007.
|
10.45
|
|
Lease
Agreement, dated effective as of September 1, 2007, by and between
IsoRay,
Inc. and Perma-Fix Northwest Richland, Inc., incorporated by reference
to
the Form 8-K filed on October 16, 2007.
|
10.46
|
|
Amendment
No. 1 to License Agreement, dated October 12, 2007, by and between
IsoRay
Medical, Inc. and IBt SA, incorporated by reference to the Form
8-K filed
on October 17, 2007.
|
16.1
|
|
Letter
from S.W. Hatfield, CPA to the SEC dated December 13, 2005, incorporated
by reference to the Form 8-K filed on December 14,
2005.
|
21.1
|
|
Subsidiaries
of the Company, 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 DeCoria, Maichel & Teague, P.S., filed
herewith.
|
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.
4. For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
that in a primary offering of securities of the undersigned small business
issuer pursuant to this registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if the securities are
offered or sold to such purchaser by means of any of the following
communications, the undersigned small business issuer will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
|
i.
|
Any
preliminary prospectus or prospectus of the undersigned small business
issuer relating to the offering required to be filed pursuant to
Rule
424;
|
|
ii.
|
Any
free writing prospectus relating to the offering prepared by or on
behalf
of the undersigned small business issuer or used or referred to by
the
undersigned small business issuer;
|
|
iii.
|
The
portion of any other free writing prospectus relating to the offering
containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned
small
business issuer; and
|
|
iv.
|
Any
other communication that is an offer in the offering made by the
undersigned small business issuer to the
purchaser.
|
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 reasonable grounds to believe that it meets all of
the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized,
in the
City of Richland, Washington on this 15th
day of
November, 2007.
|
|
|
|
/s/
Roger E. Girard
|
|
Roger
E. Girard, Chairman and Chief Executive
Officer
|
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
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Roger E. Girard
|
|
Chief
Executive Officer and Chairman
|
|
November
15, 2007
|
Roger
E. Girard
|
|
|
|
|
|
|
|
|
|
/s/
Jonathan Hunt
|
|
Chief
Financial Officer and Principal
|
|
November
15, 2007
|
Jonathan
Hunt
|
|
Accounting
Officer
|
|
|
|
|
|
|
|
/s/
Dwight Babcock
|
|
Director
|
|
November
15, 2007
|
Dwight
Babcock
|
|
|
|
|
|
|
|
|
|
/s/
Stephen R. Boatwright
|
|
Director
|
|
November
15, 2007
|
Stephen
R. Boatwright
|
|
|
|
|
|
|
|
|
|
/s/
Robert R. Kauffman
|
|
Director
|
|
November
15, 2007
|
Robert
R. Kauffman
|
|
|
|
|
|
|
|
|
|
/s/
Thomas C. Lavoy
|
|
Director
|
|
November
15, 2007
|
Thomas
C. Lavoy
|
|
|
|
|
|
|
|
|
|
/s/
Albert Smith
|
|
Director
|
|
November
15, 2007
|
Albert
Smith
|
|
|
|
|
|
|
|
|
|
/s/
David J. Swanberg
|
|
Director
|
|
November
15, 2007
|
David
J. Swanberg
|
|
|
|
|