As
filed with the Securities and Exchange Commission on May 26, 2006
Registration
Statement No. 333-129646
SECURITIES
AND EXCHANGE COMMISSION
AMENDMENT
NO. 4 TO
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
ISORAY,
INC.
(Name
of Small Business Issuer in its Charter)
Minnesota
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3841
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41-1458152
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(State
of Incorporation)
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(Primary
Standard Industrial Classification Code Number)
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(IRS
Employer ID No.)
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350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
(Address
and Telephone Number of Principal Executive Offices and Principal Place of
Business)
Roger
Girard, CEO
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
(Name,
Address and Telephone Number of Agent for Service)
Copies
of communications to:
Stephen
R. Boatwright, Esq.
Alicia
M. Corbett, Esq.
Keller
Rohrback, PLC
3101
North Central Avenue, Suite 900
Phoenix,
Arizona 85012
(602)
248-0088
Facsimile
Number: (602) 248-2822
Approximate
date of commencement of proposed sale to the public:
From
time to time after this registration statement becomes effective.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the
following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act of 1933, please check the following box and
list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. o
CALCULATION
OF REGISTRATION FEE
Title
Of Each Class Of Securities To Be Registered
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Amount
To Be Registered (1)
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Proposed
Maximum Offering Price Per Unit
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Proposed Maximum
Aggregate Offering Price
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Amount
Of Registration Fee
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|
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|
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Common
stock, $0.001 par value, issuable upon conversion of preferred
stock
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|
|
43,219
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$
|
5.38(2)
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$
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232,518
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$
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24.88(3)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.001 par value, issuable upon exercise of stock
options
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|
218,454
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|
$
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5.38(2)
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|
$
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1,175,283
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|
$
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125.76(3)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Common
stock, $0.001 par value
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|
|
4,004,264
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$
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5.45(4)
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|
$
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21,823,238
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|
$
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2334.87(3)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Common
stock, $0.001 par value, issuable upon exercise of warrants |
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371,163 |
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$
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5.38(2)
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$ |
1,996,857 |
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$ |
$213.66(3) |
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Total
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4,637,100
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$
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25,227,896
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$
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2699.17(3)
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(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.
(3)
Previously paid.
(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.
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed. The selling
shareholders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell these securities and it is not soliciting an offer
to
buy these securities in any state where the offer or sale is not permitted.
Preliminary
Prospectus, Subject to Completion, dated May 26, 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 currently held by the selling shareholders. The
preferred stock is convertible into our common stock at one (1) share of common
stock for each preferred share converted, the 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 OTC Bulletin Board under the symbol
"ISRY.OB." On May 24, 2006, the last reported bid price of our common
stock was $4.20 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 4.
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 May 26, 2006.
350
Hills Street, Suite 106
Richland,
WA 99354
(509)
375-1202
______________________________________________________________________________
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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1
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RISK
FACTORS
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4
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USE
OF PROCEEDS
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13
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MANAGEMENT'S
DISCUSSION AND ANALYSIS
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13
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MARKET
FOR COMMON STOCK
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18
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DESCRIPTION
OF BUSINESS
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19
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DESCRIPTION
OF PROPERTY
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39
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LEGAL
PROCEEDINGS
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40
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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40
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INDEMNIFICATION
OF DIRECTORS AND OFFICERS
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45
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SECURITIES
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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46
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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47
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SELLING
SHAREHOLDERS
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49
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PLAN
OF DISTRIBUTION
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52
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DESCRIPTION
OF SECURITIES
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53
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LEGAL
MATTERS
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55
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EXPERTS
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55
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
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55
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FURTHER
INFORMATION
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56
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ABOUT
THIS PROSPECTUS
You
should rely only on the information contained in this prospectus. We have not,
and the selling shareholders have not, authorized anyone to provide you with
information that is different from that contained in this prospectus. The
selling shareholders are offering to sell shares of common stock and seeking
offers to buy shares of common stock only in jurisdictions where offers and
sales are permitted. The information in this prospectus is accurate only as
of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
Except
as
otherwise indicated, market data and industry statistics used throughout this
prospectus are based on independent industry publications and other publicly
available information. Although we believe that these data and statistics are
reasonable and sound, they have been prepared on the basis of underlying data
to
which we do not have access, and which we cannot independently verify.
For
definitions of many of the technical terms used throughout this prospectus,
see
page 2.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained in this prospectus.
This summary does not contain all the information you should consider before
investing in our common stock. Before making an investment decision, you should
read the entire prospectus carefully, including the "RISK FACTORS" section,
the
financial statements and the notes to the financial statements. As used
throughout this prospectus, the terms "IsoRay," the "Company," "we," "us" and
"our" refer to IsoRay, Inc.
Our
Business
We
are a
medical technology company focusing on innovative treatments for prostate cancer
and other solid cancer tumors, with a goal of improved patient outcomes. Our
wholly-owned subsidiary, IsoRay Medical, Inc., a Delaware corporation ("IsoRay
Medical"), began selling its initial product, the Food and Drug Administration
approved IsoRay Cesium-131 brachytherapy seed (the "IsoRay 131Cs
seed"), in October 2004 for the treatment of prostate cancer. Cesium-131 or
131Cs
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 131Cs
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 and Iodine-125. We are also in the process
of
developing a second product, Yttrium-90, which is a radioisotope that is already
in use for the treatment of certain forms of metastasized, or "spread throughout
the body," cancers.
Our
Corporate History
We
were
incorporated under Minnesota law in 1983. Since 1998 and until our merger with
IsoRay Medical, we had no significant operations. On July 28, 2005, our
subsidiary, Century Park Transitory Subsidiary, Inc. merged into IsoRay Medical,
Inc., making IsoRay Medical our wholly-owned subsidiary.
IsoRay
Medical was formed under Delaware law on June 15, 2004 and merged with IsoRay
Products LLC and IsoRay, Inc., each formed under Washington law, on October
1,
2004. The first IsoRay company was originally organized in 1998 as a Washington
limited liability company, IsoRay, LLC, to develop a medical device using the
Cesium-131 seed technology and later transferred its operations to IsoRay,
Inc.
on May 1, 2002. IsoRay Products LLC was formed in September 2003 to raise
capital to fund the operations of IsoRay, Inc. Both IsoRay, Inc. and IsoRay
Products LLC merged with IsoRay Medical, Inc. on October 1, 2004.
Our
independent auditors have expressed doubt about our ability to continue as
a
going concern due to ongoing operating losses, which our management expects
to
continue for the foreseeable future. Because our revenues from sales of our
131Cs
seed
are insufficient to find our operations at this time, we will need to obtain
financing in the near future to continue our operations. Management expects
our
independent auditors will continue to express doubt about our ability to
continue as a going concern for the foreseeable future.
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
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Common
Stock Offered
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4,637,100
shares by selling shareholders
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Offering
Price
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Market
price or negotiated price
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Common
Stock Outstanding Before the Offering
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14,722,686
shares as of May 24, 2006
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Use
of Proceeds
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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.
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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
4.
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OTC
Bulletin Board Symbol
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ISRY.OB
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Certain
Defined Terms
The
technical terms defined below are important to understand as they are used
throughout this prospectus. When used in this prospectus, unless the context
requires otherwise:
"Brachytherapy"
refers
to the process of placing therapeutic radiation sources in, or near, diseased
tissue. Brachytherapy is derived from a Greek term meaning "short distance"
therapy.
"Cesium-131"
or
"131Cs"
is an
isotope of the element Cesium that gives off low energy, "soft" x-rays as it
decays. Cesium-131 decays to 50% of its original activity every 9.7 days,
becoming essentially inert after 100 days.
"EBRT"
(external beam radiation therapy) is the external treatment of prostate cancer
using an x-ray-like machine that targets a beam of radiation at the cancer
site.
The treatment damages genetic material within the cancer cells, which prevents
the cells from growing and the affected cells eventually die. Treatments are
generally performed at an outpatient center five days a week for seven or eight
weeks.
"Half-life"
means
the time required for a radioisotope to decay to one-half of its previous
activity. The amount of radiation emitted thus decreases to 25% of original
activity in two half-lives, 12.5% in three half-lives, and so on.
"Isotope"
refers
to atoms of the same element that have different atomic masses. The word
"isotope" means "same place," referring to the fact that isotopes of a given
element have the same atomic number and hence occupy the same place in the
Periodic Table of the Elements. Thus, they are very similar in their chemical
behavior.
"131Cs
seed"
is the
name by which IsoRay Medical's first product, the Cesium-131-based brachytherapy
seed, is currently known.
"Pure-beta
particle emitter"
is a
radioisotope whose only emissions during radioactive decay are beta particles
(electrons). Beta particles can travel several millimeters in
tissue.
"RP"
(radical
prostatectomy or prostatectomy) is the complete surgical removal of the
prostate, under significant anesthesia. Two main types of surgery have evolved:
nerve-sparing and non nerve-sparing. The nerve-sparing surgery is designed
to
minimize damage to the nerves that control penile erection.
"Radiobiologic"
is
characteristic of the effects of radiation on organisms or tissues, most
commonly the effectiveness of therapeutic radiation in interrupting cell growth
and replication.
"Radioisotope"
is a
natural or man-made isotope of an element that spontaneously decays while
emitting ionizing radiation.
"Seed"
is a
common term for small radiation sources consisting of a radioisotope sealed
within a biocompatible capsule such as gold or titanium, suitable for temporary
or permanent brachytherapy implantation.
"Therapeutic
radiation" refers
to
ionizing radiation with sufficient energy to disrupt basic biological processes
of cells.
"Yttrium-90"
or
"90Y"
is a
radioisotope that emits high energy beta particles with a half-life of 2.67
days.
"Zirconium-90"
is a
stable (non-radioactive) decay product of Yttrium-90.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should
carefully consider the risks described below and the other information in this
prospectus and any other filings we may make with the United States Securities
and Exchange Commission in the future before investing in our common stock.
There may also be risks of which were are currently unaware, or that we
currently regard as immaterial based on the information available to us that
later prove to be material. If any of these risks occur, our business, operating
results and financial condition could be seriously harmed, the trading price
of
our common stock could decline, and you could lose some or all of your
investment.
Risks
Related To Our Business
Our
Subsidiary's Independent Accountants Have Expressed Doubt About Its Ability
To
Continue As A Going Concern.
IsoRay
Medical has generated material operating losses since inception. We expect
to
continue to experience net operating losses. Our ability to continue as a
going
concern is subject to our ability to obtain necessary funding from outside
sources, including obtaining additional funding from the sale of our securities
or obtaining loans and grants from various financial institutions where
possible. The doubt expressed by our subsidiary's auditors about its ability
to
continue as a going concern increases the difficulty in meeting such goals.
IsoRay Medical began generating revenue in October 2004, has generated revenue
of approximately $1,378,000 through March 31, 2006, and is in the early stages
of marketing its IsoRay 131Cs
seed.
IsoRay Medical and the Company have limited historical, operating or financial
information upon which to evaluate their performance. There can be no assurance
that the Company will attain profitability.
Our
Revenues Depend Upon One Product.
Until
such time as we develop additional products, our revenues depend upon the
successful production, marketing, and sales of the IsoRay 131Cs
seed.
The rate and level of market acceptance of this product may vary depending
on
the perception by physicians and other members of the healthcare community
of
its safety and efficacy as compared to that of competing products, if any;
the
clinical outcomes of the patients treated; the effectiveness of our sales and
marketing efforts in the United States and Europe; any unfavorable publicity
concerning our product or similar products; our product's price relative to
other products or competing treatments; any decrease in current reimbursement
rates from the Centers for Medicare and Medicaid Services ("CMS") or third
party
payors; regulatory developments related to the manufacture or continued use
of
the product; availability of sufficient supplies of enriched barium for
131Cs
seed
production; ability to produce sufficient quantities of this product; and the
ability of physicians to properly utilize the device and avoid excessive levels
of radiation to patients. Because of our reliance on this product as the sole
source of our revenue, any material adverse developments with respect to the
commercialization of this product may cause us to continue to incur losses
rather than profits in the future.
Although
Approved To Treat Any Malignant Tissue, Our Sole Product Is Currently Used
To
Treat One Type Of Cancer. Currently,
the IsoRay 131Cs
seed
is used exclusively for the treatment of prostate cancer. We believe the
131Cs
seed
will be used to treat cancers of other sites as well, as is currently the case
with our competitors' 125I
and
103Pd
seeds.
However, we believe that clinical data gathered by select groups of physicians
under treatment protocols specific to other organs will be needed prior to
widespread acceptance of our product for treating other cancer sites. If our
current and future products do not become accepted in treating cancers of other
sites, our sales will depend solely on treatment of prostate cancer and will
require ever increasing market share to increase revenues.
We
Have Limited Data On The Clinical Performance Of 131Cs.
As of
April 30, 2006 the IsoRay 131Cs
seed
had been implanted in approximately 230 patients.
While this limited number of patients may prevent us from drawing statistically
significant conclusions, the side effects experienced by these patients were
less severe than side effects observed in seed brachytherapy with 125I
and
103Pd
and in
other forms of treatment such as radical prostatectomy. These early results
indicate that the onset of side effects generally occurs between one and
three
weeks post-implant, and the side effects are resolved between five and eight
weeks post-implant, indicating that, at least for these initial patients,
side
effects resolved more quickly than the side effects that occur with competing
seeds or with other forms of treatment. These findings support management's
belief that the 131Cs
seed
will result in less severe side effects than competing treatments, but we
may
have to gather data on outcomes from additional patients before we can establish
statistically valid conclusions regarding the incidence of side effects from
our
seeds.
We
Will Need To Raise Additional Capital.
Monthly
operating cash requirements were approximately $630,000, and monthly capital
expenditures were approximately $50,000, as of May 17, 2006. Capital
expenditures typically include the purchase or capital lease of equipment,
with
a life-expectancy of more than 12 months, costing in excess of $2,500, which
would include among other things: analytical systems, improved packaging
for
final products and new production systems which increase manufacturing
throughput. Budgets have been established with a goal of anticipating and
supporting sales growth to meet increasing market demand. The IsoRay companies
have raised over $18 million from 1998 through February 2006, and we will
need
to raise additional cash to support market acceptance of our initial product
and
market readiness of any subsequent products. Consequently, we intend to seek
to
raise additional capital through not only public and private offerings of
equity
and debt securities, but also through collaborative arrangements, strategic
alliances, or from other sources. IsoRay Medical has entered into a facility
lease agreement and has relocated to a manufacturing and production facility
located in Richland, Washington that its management believes will provide
adequate space to manufacture the 131Cs
seed
product for the prostate and other organ cancer markets until late 2007.
We
may be
unable to raise additional capital on commercially acceptable terms, if at
all,
and if we raise capital through additional equity financing, existing
shareholders may have their ownership interests diluted. Our failure to be
able
to generate adequate funds from operations or from additional sources would
harm
our business.
The
Passage Of Initiative 297 In Washington May Result In The Relocation Of Our
Manufacturing Operations.
Washington
voters approved Initiative 297 in late 2004, which may impose restrictions
on
sites at which mixed radioactive and hazardous wastes are generated and stored,
including the Pacific Northwest National Laboratory ("PNNL"), which is where
our
131Cs
seed
product has historically been manufactured. IsoRay has been assured by the
Attorney General's office of the State of Washington that medical isotopes
are
not included in Initiative 297 and that manufacturing in IsoRay's new production
facility would not be interrupted, but there is no assurance that this
interpretation of Initiative 297 by the Attorney General's Office will continue
to exclude medical isotopes. In December 2005 IsoRay transitioned production
operations from PNNL to our new, leased facility outside of PNNL.
The
U.S.
Secretary of Energy is a party to litigation challenging the constitutionality
of Initiative 297 in U.S. District Court. Due to this litigation, the State
of
Washington and the U.S. Justice Department have agreed to delay any
implementation of Initiative 297 for an indefinite period of time. Thus, we
have
the ability to continue manufacturing seeds at PNNL for some period of time
if
needed as a back-up to our new IsoRay production facility, or to conduct further
development activities there. If the State of Washington begins enforcement
of
the initiative, we may be unable to conduct any future activities at PNNL that
would generate mixed radioactive and hazardous wastes.
Management
believes that we will be able to continue our manufacturing operations in the
State of Washington for the foreseeable future, whether at PNNL or at our new
leased facility, which is now operational. In the event Initiative 297 is
enforced against us, management may consider establishing an alternate
manufacturing facility outside of Washington, and we may consider moving all
or
part of our operations to another state even if Initiative 297 is not enforced
against us.
We
Have Limited Manufacturing Experience And May Not Be Able To Meet
Demand.
The
existing management team and staff of IsoRay Medical and the Company have
experience primarily in research and development of products and our experience
in commercial-scale manufacturing is limited. IsoRay Medical began commercial
production of the 131Cs
seed
in the fourth quarter of 2004. IsoRay Medical recently demonstrated production
of 90Y
using a
process suitable for weekly production of commercial-scale quantities of this
isotope. Although IsoRay Medical's management team has significant
radiochemistry experience, there is a possibility that future production demands
may result in challenges that may be too difficult or expensive to overcome.
IsoRay Medical has developed and deployed semi-automated laser welding equipment
that can produce seeds faster than a fully-automated lines of equipment the
Company has reviewed that would cost several million dollars to design,
fabricate and install. IsoRay Medical believes it will continually find more
efficient means of welding the titanium seeds; however, there is a possibility
that future demand will outstrip our ability to produce seeds using the
semi-automated process. With its new facility, IsoRay’s management believes that
IsoRay will be able to meet future demand unless demand greatly exceeds
management’s current projections, which management does not believe will occur.
IsoRay Medical has entered into a lease agreement and has relocated to a
manufacturing and production facility located in Richland, Washington that
its
management believes will provide adequate space to manufacture the 131Cs
seed
product for the prostate and other organ cancer markets until late
2007.
Sales
And Marketing Experience.
IsoRay
Medical's sales and marketing team has extensive experience in successfully
establishing and training domestic and international sales forces as well
as
successfully introducing new medical devices to the market, but we have less
than three years of specific experience with commercial sales and marketing
of
the Cesium-131 radioisotope. IsoRay Medical has employed marketing professionals
with extensive experience selling medical devices, including radioisotopes
for
large, international companies. Our initial marketing activities have been
targeted to a select number of physicians and cancer treatment centers, and
we
will need to recruit additional sales representatives to assist in expanding
our
customer base. We have developed in-house customer service, order entry,
shipping, billing, and sales support. In addition, the Company has engaged
a
nationally recognized reimbursement specialist Kathy Francisco, of The Pinnacle
Health Group, with over 25 years of healthcare reimbursement experience,
to
assist with reimbursement questions and to provide reimbursement guidelines
and
appropriate insurance coding numbers needed to obtain reimbursement for seed
costs and the implant procedure by our customers. This consulting project
was
completed by the Spring of 2005 and cost IsoRay approximately $7,500 plus
travel-related expenses. Although this group and other consultants continue
to
be available to support the Company in its reimbursement and marketing programs,
we cannot be certain that our products will be marketed and distributed in
accordance with our expectations or that our market research will be accurate.
We also cannot be certain that we will be able to develop our own sales and
marketing capabilities to the extent anticipated by management. We may choose
to
add third-party distribution channels, but we may not be able to maintain
satisfactory arrangements with the third parties upon whom we rely.
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 131Cs
seed,
and on other third parties, including various radiopharmacies, to package our
131Cs
seed
in certain specialized packaging forms that, as of the date of this Prospectus,
we do not provide at our own facilities. 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.
As
an
example, on January 5, 2006, IsoRay Medical was notified by one of its
primary
customers, Chicago Prostate Cancer Center (“CPCC”), that it would no longer
accept 131Cs
products from the radiopharmacy exclusively used by IsoRay Medical at that
time
due to quality control concerns. The role of the radiopharmacy is to provide
third party assay, preloading, and sterilization of the 131Cs
seeds
which are then shipped directly to customers for use in patient implants.
IsoRay
immediately began working to bring these functions in house. On March 28,
2006,
following commencement of operations of the Company’s pre-load department, which
performs third party assay, preloading and sterilization of the 131Cs
seeds,
CPCC resumed ordering from us. Initial shipments of 131Cs
seeds,
custom-loaded to this customer’s specifications, met the quality control
guidelines established by CPCC. Although the temporary three month’s suspension
of seed orders by CPCC had a negative impact on revenue in the quarter
ended
March 31, 2006, the Company’s management believes any long-term impact will be
nominal.
Our
Operating Results Will Be Subject To Significant Fluctuations.
Our
quarterly revenues, expenses, and operating results are likely to fluctuate
significantly in the future. Fluctuation may result from a variety of factors,
which are discussed in detail throughout this "RISK FACTORS" section,
including:
· |
our
achievement of product development objectives and milestones;
|
· |
demand
and pricing for the Company's products;
|
· |
effects
of aggressive competitors;
|
· |
hospital,
clinic and physician buying decisions;
|
· |
research
and development and manufacturing expenses;
|
· |
patient
outcomes from our therapy;
|
· |
physician
acceptance of our products;
|
· |
government
or private healthcare reimbursement policies;
|
· |
our
manufacturing performance and capacity;
|
· |
incidents,
if any, that could cause temporary shutdown of our manufacturing
facilities;
|
· |
the
amount and timing of sales orders;
|
· |
rate
and success of future product approvals;
|
· |
timing
of FDA approval, if any, of competitive products and the rate of
market
penetration of competing products;
|
· |
seasonality
of purchasing behavior in our market;
|
· |
overall
economic conditions; and
|
· |
the
successful introduction or market penetration of alternative therapies.
|
We
Heavily Rely On A Limited Number Of Suppliers.
Some
materials used in our products are currently available only from a limited
number of suppliers. For example, virtually all titanium tubing used in
brachytherapy seed manufacture comes from a single source, Accellent
Corporation. We currently obtain a key component of our seed core from a single
supplier. 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. Additional factors that could cause
interruptions or delays in our source of materials include limitations on the
availability of raw materials or manufacturing performance experienced by our
suppliers and a breakdown in our commercial relations with one or more
suppliers. Some of these factors may be completely out of our control and our
suppliers' control.
Future
Production Increases Will Depend on Our Ability to Acquire Larger Quantities
of
131Cs
and Hire More Employees. IsoRay
currently obtains 131Cs
through reactor irradiation of natural barium and subsequent separation of
cesium from the irradiated barium targets. The amount of 131Cs
that
can be produced from a given reactor source is limited by the power level and
volume available within the reactor for irradiating targets. This limitation
can
be overcome by utilizing barium feedstock that is enriched in the stable isotope
130Ba.
However, the number of suppliers of enriched barium is limited and they may
be
unable to produce this material in sufficient quantities at a reasonable price.
IsoRay
has entered into an exclusive agreement with the Institute of Nuclear Materials
in the former Soviet Union to provide irradiated barium and 131Cs
in
quantities sufficient to supply a significant percentage of future demand for
131Cs.
Delivery of the isotopes from the Institute of Nuclear Materials began in
January 2006. IsoRay believes this supplier may also provide access to
sufficient quantities of enriched barium that may be recycled for use in other
reactors to increase the production of 131Cs.
Although the agreement provides for supplying 131Cs
in
significant quantities, there is no assurance that this will result in IsoRay
gaining access to a sufficient supply of enriched barium feedstock and if
sufficient supplies are attained we will need to increase our manufacturing
staff.
We
Are Subject To Uncertainties Regarding Reimbursement For
Use Of Our Products. Hospitals
and freestanding clinics may be less likely to purchase our products if they
cannot be assured of receiving favorable reimbursement for treatments using
our
products from third-party payors, such as Medicare, Medicaid and private health
insurance plans. Currently, Medicare reimburses hospitals, clinics and
physicians for the cost of seeds used in brachytherapy procedures on a per
seed
basis. Historically, private insurers have followed Medicare guidelines in
establishing reimbursement rates. However, third-party payors are increasingly
challenging the pricing of certain medical services or devices, and we cannot
be
sure that they will reimburse our customers at levels sufficient for us to
maintain favorable sales and price levels for our products. There is no uniform
policy on reimbursement among third-party payors, and we can provide no
assurance that our products will continue to qualify for reimbursement from
all
third-party payors or that reimbursement rates will not be reduced. A reduction
in or elimination of third-party reimbursement for treatments using our products
would likely have a material adverse effect on our revenues.
In
2003,
IsoRay applied to CMS and received reimbursement codes for use of our
131Cs
seed
(HCPCS code C2633 and APC code 2633). However, since January 1, 2004 hospitals
and clinics ordering brachytherapy seeds have been reimbursed for the cost
of
the seeds plus a fixed mark-up at a rate prescribed by CMS. Reimbursement
amounts are reviewed and revised periodically, and on an ad hoc basis. Although
the Company is not currently aware of any changes to CMS reimbursement rates
that would have a material effect on our ability to maintain our pricing
structure, adjustments could be made to these reimbursement amounts or policies,
which could result in reduced reimbursement for brachytherapy services, which
could negatively affect market demand for our products.
Furthermore,
any federal and state efforts to reform government and private healthcare
insurance programs could significantly affect the purchase of healthcare
services and products in general and demand for our products in particular.
We
are unable to predict whether potential healthcare reforms will be enacted,
whether other healthcare legislation or regulations affecting the business
may
be proposed or enacted in the future or what effect any such legislation or
regulations would have on our business, financial condition or results of
operations.
It
Is
Possible That Other Treatments May Be Deemed Superior To Brachytherapy.
Our
131Cs
seed
faces competition not only from companies that sell other radiation therapy
products, but also from companies that are developing alternative therapies
for
the treatment of cancers. It is possible that advances in the pharmaceutical,
biomedical, or gene therapy fields could render some or all radiation therapies,
whether conventional or brachytherapy, obsolete. If alternative therapies are
proven or even perceived to offer treatment options that are superior to
brachytherapy, physician adoption of our product could be negatively affected
and our revenues from our product could decline.
Our
Industry Is Intensely Competitive.
The
medical products industry is intensely competitive. We compete with both public
and private medical device, biotechnology and pharmaceutical companies that
have
been established longer than we have, have a greater number of products on
the
market, have greater financial and other resources, and have other technological
or competitive advantages. We also compete with academic institutions,
government agencies, and private research organizations in the development
of
technologies and processes and in acquiring key personnel. Although we have
patents granted and patents applied for to protect our isotope separation
processes and 131Cs
seed
manufacturing technology, we cannot be certain that one or more of our
competitors will not attempt to obtain patent protection that blocks or
adversely affects our product development efforts. To minimize this potential,
we have entered into exclusive agreements with key suppliers of isotopes and
isotope precursors.
We
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, and the deadline to file for patent protection in certain countries
is approaching. If management determines that the cost of filing in certain
countries is not justified, our products may not have adequate protection in
those countries.
Because
of the large number of patent filings in the medical device and biotechnology
field, our competitors may have filed applications or been issued patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or similar to ours. We cannot be certain that U.S.
or
foreign patents do not exist or will not be issued that would harm our ability
to commercialize our products and product candidates.
One
Of Our Licensed Patents May Be Terminated Under Certain
Conditions.
Our
131Cs
separation patent is essential for the production of Cesium-131. The owner
of
the patent, Lane Bray, a shareholder of the Company and Chief Chemist of IsoRay
Medical, has the right to terminate the license agreement that allows the
Company to use this patent if we discontinue production for any consecutive
18
month period. The Company has no plans to discontinue production, and management
considers it highly unlikely that production will be discontinued for any
significant period at any time in the future.
Failure
To Comply With Government Regulations Could Harm Our Business.
As a
medical device and medical isotope manufacturer, we are subject to extensive,
complex, costly, and evolving governmental rules, regulations and restrictions
administered by the Food and Drug Administration ("FDA"), by other federal
and
state agencies, and by governmental authorities in other countries. Compliance
with these laws and regulations is expensive and time-consuming, and changes
to
or failure to comply with these laws and regulations, or adoption of new laws
and regulations, could adversely affect our business.
In
the
United States, as a manufacturer of medical devices and devices utilizing
radioactive by-product material, we are subject to extensive regulation by
federal, state, and local governmental authorities, such as the FDA and the
Washington State Department of Health, to
ensure
such devices are safe and effective. Regulations promulgated by the FDA under
the U.S. Food, Drug and Cosmetic Act, or the FDC Act, govern the design,
development, testing, manufacturing, packaging, labeling, distribution,
marketing and sale, post-market surveillance, repairs, replacements, and recalls
of medical devices. In Washington State, the Department of Health, by agreement
with the federal Nuclear Regulatory Commission ("NRC"), regulates the
possession, use, and disposal of radioactive byproduct material as well as
the
manufacture of radioactive sealed sources to ensure compliance with state and
federal laws and regulations. Our 131Cs
brachytherapy seeds constitute both medical devices and radioactive sealed
sources and are subject to these regulations.
Under
the
FDC Act, medical devices are classified into three different categories, over
which the FDA applies increasing levels of regulation: Class I,
Class II, and Class III. Our 131Cs
seed
has been classified as a Class II device and has received clearance from the
FDA
through the 510(k) pre-market notification process. Although not anticipated,
any modifications to the device that would significantly affect safety or
effectiveness, or constitute a major change in intended use, would require
a new
510(k) submission. As with any submittal to the FDA, there is no assurance
that
a 510(k) clearance would be granted.
In
addition to FDA-required market clearances and approvals for our products,
our
manufacturing operations are required to comply with the FDA's Quality System
Regulation, or QSR, which addresses requirements for a company's quality program
such as management responsibility, good manufacturing practices, product and
process design controls, and quality controls used in manufacturing. Compliance
with applicable regulatory requirements is monitored through periodic
inspections by the FDA Office of Regulatory Affairs ("ORA"). We anticipate
both
announced and unannounced inspections by the FDA. Such inspections could result
in non-compliance reports (Form 483) which, if not adequately responded to,
could lead to enforcement actions. The FDA can institute a wide variety of
enforcement actions, ranging from public warning letters to more severe
sanctions such as fines, injunctions, civil penalties, recall of our products,
operating restrictions, suspension of production, non-approval or withdrawal
of
pre-market clearances for new products or existing products, and criminal
prosecution. There can be no assurance that we will not incur significant costs
to comply with these regulations in the future or that the regulations will
not
have a material adverse effect on our business, financial condition and results
of operations.
The
marketing of our products in foreign countries will, in general, be regulated
by
foreign governmental agencies similar to the FDA. Foreign regulatory
requirements vary from country to country. The time and cost required to obtain
regulatory approvals could be longer than that required for FDA clearance in
the
United States and the requirements for licensing a product in another country
may differ significantly from FDA requirements. We will rely, in part, on
foreign distributors to assist us in complying with foreign regulatory
requirements. We may not be able to obtain these approvals without incurring
significant expenses or at all, and the failure to obtain these approvals would
prevent us from selling our products in the applicable countries. This could
limit our sales and growth.
Our
Business Exposes Us To Product Liability Claims.
Our
design, testing, development, manufacture, and marketing of products involve
an
inherent risk of exposure to product liability claims and related adverse
publicity. Insurance coverage is expensive and difficult to obtain, and,
although we currently have coverage in amounts our management believes are
customary for similarly situated businesses, in the future we may be unable
to
obtain or renew coverage on acceptable terms, if at all. If we are unable to
obtain or renew sufficient insurance at an acceptable cost or if a successful
product liability claim is made against us, whether fully covered by insurance
or not, our business could be harmed.
Our
Business Involves Environmental Risks.
Our
business involves the controlled use of hazardous materials, chemicals,
biologics, and radioactive compounds. Manufacturing is extremely susceptible
to
product loss due to radioactive, microbial, or viral contamination; material
or
equipment failure; vendor or operator error; or due to the very nature of
the
product's short half-life. Although we believe that our safety procedures
for
handling and disposing of such materials comply with state and federal standards
there will always be the risk of accidental contamination or injury. In
addition, radioactive, microbial, or viral contamination may cause the closure
of the respective manufacturing facility for an extended period of time.
By law,
radioactive materials may only be disposed of at state-approved facilities.
We
currently dispose of radioactive waste generated at PNNL under a one year
renewable agreement that also covers our use of PNNL’s facilities and personnel
for our activities there. Waste disposal costs for production runs through
April
2006 totaled approximately $82,000. At our new, leased facility we intend
to use
a commercial disposal contractor, although we have not yet entered into any
agreements for these services. We may incur substantial costs related to
the
disposal of these materials depending on final waste classification. Waste
disposal costs for 2006 are projected by management to be similar to disposal
costs for 2005. In addition to ongoing waste disposal costs, we anticipate
paying approximately $70,000 of additional cleanup costs in 2006 as a result
of
our withdrawal from PNNL. 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.
We
have an employment agreement with Roger Girard, our Chief Executive Officer,
and
our subsidiary has employment agreements with most of its executive officers
and
key scientific personnel. If we lose the services of several of these officers
or key scientific personnel, our business could be harmed. Our success also
will
depend upon our ability to attract and retain other highly qualified scientific,
managerial, sales, and manufacturing personnel and their ability to develop
and
maintain relationships with key individuals in the industry. Competition for
these personnel and relationships is intense and we compete with numerous
pharmaceutical and biotechnology companies as well as with universities and
non-profit research organizations. We may not be able to continue to attract
and
retain qualified personnel.
The
Value Of Our Granted Patent, and Our Patents Pending, Is
Uncertain.
Although
our management strongly believes that our patent on the process for producing
131Cs,
our
patent pending on the manufacture of the brachytherapy seed, our patent
applications on additional methods for producing 131Cs
and
90Y
which
have been filed, and anticipated future patent applications, which have not
yet
been filed, have significant value, we cannot be certain that other like-kind
processes may not exist or be discovered, that any of these patents is
enforceable, or that any of our patent applications will result in issued
patents.
Our
Ability To Expand Into Foreign Markets Is Uncertain. Our
future growth will depend in part on our ability to establish, grow and maintain
product sales in foreign markets, particularly in Europe and Asia. However,
we
have limited experience in marketing and distributing products in other
countries. Any foreign operations would subject us to additional risks and
uncertainties, including our customers' ability to obtain reimbursement for
procedures using our products in foreign markets; the burden of complying with
complex and changing foreign regulatory requirements; language barriers and
other difficulties in providing long-range customer service; potentially longer
accounts receivable collection times; significant currency fluctuations, which
could cause third party distributors to reduce the number of products they
purchase from us because the cost of our products to them could fluctuate
relative to the price they can charge their customers; reduced protection of
intellectual property rights in some foreign countries; and the possibility
that
contractual provisions governed by foreign laws would be interpreted differently
than intended in the event of a contract dispute. Any future foreign sales
of
our products could also be adversely affected by export license requirements,
the imposition of governmental controls, political and economic instability,
trade restrictions, changes in tariffs and difficulties in staffing and managing
foreign operations. Many of these factors may also affect our ability to import
enriched barium from Russia under our contract with the Institute of Nuclear
Materials.
Our
Ability To Initiate Operations And Manage Growth Is Uncertain.
Our
efforts to commercialize our medical products will result in new and increased
responsibilities for management personnel and will place a strain upon the
entire company. To compete effectively and to accommodate growth, if any, we
may
be required to continue to implement and to improve our management,
manufacturing, sales and marketing, operating and financial systems, procedures
and controls on a timely basis and to expand, train, motivate and manage our
employees. There can be no assurance that our personnel, systems, procedures,
and controls will be adequate to support our future operations. We could
experience significant cash flow difficulties and may have difficulty obtaining
the working capital required to manufacture our products and meet demand. This
would cause customer discontent and invite competition.
Our
Reporting Obligations As A Public Company Are Costly. Operating
a public company involves substantial costs to comply with reporting obligations
under federal securities laws that are continuing to increase as additional
provisions of the Sarbanes Oxley Act of 2002 are implemented. These reporting
obligations will increase our operating costs. We may not reach sufficient
business volume to justify our public reporting status.
Risks
Related To This Offering
There
Is A Limited Market For Our Common Stock. Currently
only a limited trading market exists for our common stock. Our common stock
trades on the OTC Bulletin Board, a market with limited liquidity, under
the
symbol "ISRY.OB" and on the Pink Sheets, also a market with limited liquidity,
under the symbol "ISRY.PK." During the fifty days preceding May 24, 2006,
our
average daily volume on the OTCBB was 2,400 shares. Any broker/dealer that
makes
a market in our stock or other person that buys or sells our stock could
have a
significant influence over its price at any given time, and quotations are
limited and sporadic. Shareholders may experience more difficulty in attempting
to sell their shares than if the shares were listed on a national stock exchange
or quoted on the NASDAQ Stock Market. We cannot assure our shareholders that
a
market for our stock will be sustained. There is no assurance that our shares
will have any greater liquidity than shares that do not trade on a public
market. We have applied for listing on the NASDAQ Capital Market but there
is no
assurance that our shares will ultimately be listed.
Our
Stock Price Is Likely To Be Volatile. There
is
generally significant volatility in the market prices and limited liquidity
of
securities of early stage companies, and particularly of early stage medical
product companies. Contributing to this volatility are various events that
can
affect our stock price in a positive or negative manner. These events include,
but are not limited to: governmental approvals, refusals to approve, regulations
or actions; market acceptance and sales growth of our products; litigation
involving the Company or our industry; developments or disputes concerning
our
patents or other proprietary rights; changes in the structure of healthcare
payment systems; departure of key personnel; future sales of our securities;
fluctuations in our financial results or those of companies that are perceived
to be similar to us; investors' general perception of us; and general economic,
industry and market conditions. If
any of
these events occur, it could cause our stock price to fall.
Our
Common Stock May Be Deemed To Be “Penny
Stock.” Our
common stock will be deemed to be “penny stock” as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934, as amended,
so
long as it remains at a price of less than $5.00 per share. These requirements
may reduce the potential market for our common stock by reducing the number
of
potential investors. This may make it more difficult for investors in our
common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline. Penny stocks are stock:
· |
With
a price of less than $5.00 per
share;
|
· |
That
are not traded on a “recognized” national exchange;
|
· |
Whose
prices are not quoted on the NASDAQ automated quotation system
(NASDAQ
listed stock must still have a price of not less than $5.00 per
share); or
|
· |
In
issuers with net tangible assets less than $2 million (if the issuer
has
been in continuous operation for at least three years) or $5 million
(if
in continuous operation for less than three years), or with average
revenues of less than $6 million for the last three years.
|
Broker/dealers
dealing in penny stocks are required to provide potential investors with
a
document disclosing the risks of penny stocks. Moreover, broker/dealers are
required to determine whether an investment in a penny stock is a suitable
investment for a prospective investor.
Future
Sales By Shareholders, Or The Perception That Such Sales May Occur, May Depress
The Price Of Our Common Stock. The
sale
or availability for sale of substantial amounts of our shares in the public
market, including shares covered by this prospectus and shares issuable upon
exercise or conversion of outstanding preferred stock and derivative securities,
or the perception that such sales could occur, could adversely affect the
market
price of our common stock and also could impair our ability to raise capital
through future offerings of our shares. As of May 24, 2006, we had 14,722,686
outstanding shares of common stock, and the following additional shares were
reserved for issuance: 2,952,699 shares upon exercise of outstanding
options, 3,073,561 shares upon exercise of outstanding warrants, 181,249
shares upon conversion of preferred stock, 34,836 shares upon conversion
of
options to purchase preferred stock, and 109,639 shares upon conversion of
convertible debentures. On the effective date of this prospectus, a total
of
7,654,272 shares of common stock (including 632,836 shares issuable upon
conversion or exercise of preferred stock and derivative securities and
including not only shares registered through this prospectus but also the
2,832,529 shares registered through our Form S-8 registration statement filed
on
August 19, 2005 and 604,769 shares eligible for resale under Rule 144(k))
to be offered and sold by selling shareholders will be eligible for sale
in the
public market, collectively constituting approximately 38% of our shares
of
common stock on a fully diluted basis.
In
addition, we are granting registration rights that may not be exercised prior
to
October 2006 to purchasers of units pursuant to the October 17, 2005 private
placement memorandum, as amended, which closed in January 2006 (the “October 17,
2005 Offering”), pursuant to the February 1, 2006 private placement memorandum,
which closed on February 28, 2006, and to debenture holders that elected to
remove the shares into which their debentures are convertible from this
Prospectus and convert their debentures instead into units, consisting of 5,000
shares of common stock and warrants to purchase 5,000 shares of common stock
per
unit at a price of $20,000 per unit. As additional shares of our common stock
become available for resale in the public market, the price of our common stock
may decrease due to the additional shares in the market. Any decline in the
price of our common stock may encourage short sales, which could place further
downward pressure on the price of our common stock and may impair our ability
to
raise additional capital through the sale of equity securities.
The
Issuance Of Shares Upon Conversion Or Exercise Of The Preferred Stock And
Derivative Securities May Cause Immediate And Substantial Dilution To Our
Existing Shareholders. The
issuance of shares upon conversion of the preferred stock and convertible
debentures and the exercise of warrants and options may result in substantial
dilution to the interests of other shareholders since the selling shareholders
may ultimately convert or exercise and sell all or a portion of the full amount
issuable upon conversion or exercise. If all derivative securities being
registered through this prospectus were converted or exercised into shares
of
common stock, there would be an additional 594,651 shares of common stock
outstanding as a result. The issuance of these shares will have the effect
of
further diluting the proportionate equity interest and voting power of holders
of our common stock, including investors in this offering.
We
Do
Not Expect To Pay Any Dividends For The Foreseeable Future. We
do not
anticipate paying any dividends to our shareholders for the foreseeable future.
The terms of certain of our and IsoRay Medical's outstanding indebtedness
substantially restrict the ability of either company to pay dividends.
Accordingly, investors must be prepared to rely on sales of their common stock
after price appreciation to earn an investment return, which may never occur.
Investors seeking cash dividends should not purchase our common stock. Any
determination to pay dividends in the future will be made at the discretion
of
our Board of Directors and will depend on our results of operations, financial
conditions, contractual restrictions, restrictions imposed by applicable law
and
other factors our Board deems relevant.
Cautionary
Note Regarding Forward-looking Statements and Risk
Factors
This
prospectus, the Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the
Company or any other written or oral statements made by or on behalf of the
Company may contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and subject to the safe harbor created by
the
Private Securities Litigation Reform Act of 1995, which reflect the Company's
current views with respect to future events and financial performance. The
words
"believe," "expect," "anticipate," "intends," "estimate," "forecast," "project,"
and similar expressions identify forward-looking statements. All statements
other than statements of historical fact are statements that could be deemed
forward-looking statements, including any statements of the plans, strategies
and objectives of management for future operations; any statements concerning
proposed new products, services, developments or industry rankings; any
statements regarding future economic conditions or performance; any statements
of belief; any statements regarding the validity of our intellectual property
and patent protection; and any statements of assumptions underlying any of
the
foregoing. Such "forward-looking statements" are subject to risks and
uncertainties set forth from time to time in the Company's SEC reports and
include, among others, the Risk Factors set forth above.
Readers
are cautioned not to place undue reliance on such forward-looking statements
as
they speak only of the Company's views as of the date the statement was made.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
This
prospectus relates to shares of our common stock that may be offered and sold
from time to time by selling shareholders. We will receive no proceeds from
the
sale of shares of common stock in this offering. Certain of the selling
shareholders will receive shares of our common stock upon conversion of
outstanding warrants and options that they own. If all of the warrants and
options owned by the selling shareholders are exercised in full, we would
receive $1,512,180 in proceeds. Any proceeds received upon exercise of the
warrants and options will be used for working
capital. We will receive no proceeds from the conversion of the preferred stock
owned by the selling shareholders.
You
should read the following discussion in conjunction with our financial
statements, including the notes thereto, at the end of this prospectus. Some
of
the information contained in this discussion, or set forth elsewhere in this
prospectus contains forward-looking statements that involve risks, uncertainties
and assumptions. Our actual results may differ materially from those anticipated
in these forward-looking statements as a result of a variety of certain factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
IsoRay,
Inc. (formerly known as Century Park Pictures Corporation) is 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, began
selling its initial product, the Food and Drug Administration approved IsoRay
Cesium-131 brachytherapy seed (the “IsoRay 131Cs
seed”), in October 2004 for the treatment of prostate cancer. Our management
believes that the clinical benefits of using Cesium-131 will enable us to
capture market share within the existing brachytherapy market, which uses
Palladium-103 and Iodine-125. We are also in the process of developing a second
product, Yttrium-90, which is a radioisotope that is already in use for the
treatment of certain forms of metastasized, or “spread throughout the body,”
cancers.
The
physical characteristics of the Cesium-131 (Cs-131 or 131Cs)
isotope are expected to decrease radiation exposure to the patient and reduce
the severity and duration of side effects, while treating cancer cells as
effectively, if not more so than, other isotopes used in seed brachytherapy.
Cesium-131 could also enable meaningful penetration in other solid tumor
applications such as breast, lung, liver, brain and pancreatic cancer, expanding
the total available market opportunity. The second radioisotope, Yttrium-90
(Y-90 or 90Y),
is
currently being used in the treatment of non-Hodgkin’s lymphoma and is in
clinical trials for other applications, including brachytherapy. Other
manufacturers have received FDA approval for 90Y
and
IsoRay Medical believes production will not require clinical trials or an
extensive FDA application process. Production is expected to begin in
2006.
Brachytherapy
seeds are small devices used in an internal radiation therapy procedure. In
recent years the procedure has become one of the primary treatments for prostate
cancer and is now used more often than surgical removal of the prostate. The
brachytherapy procedure places radioactive seeds as close as possible to (in
or
near) the cancer tumor (the word “brachytherapy” means close therapy). The seeds
deliver therapeutic radiation by killing the tumor cells and cells located
in
the immediate vicinity of the tumor while minimizing exposure to adjacent
healthy tissue. This allows doctors to administer a radioisotope sealed within
a
welded titanium capsule. Approximately 85 to 135 seeds are permanently implanted
in the prostate in a 45-minute outpatient procedure. The isotope decays over
time and the seeds become inert. The seeds may be used as a primary treatment
or
in conjunction with other treatment modalities such as external beam radiation
therapy, chemotherapy, or as treatment for residual disease after excision
of
primary tumors.
Management
believes that the IsoRay 131Cs
seed
represents the first major advancement in brachytherapy technology in over
18
years with attributes that could make it the long term “seed of choice” for
internal radiation procedures. The 131Cs
seed
has FDA approval for treatment of malignant disease (e.g. cancers of the head
and neck, brain, liver, lung, breast, prostate, etc.) and may be used in
surface, interstitial, and intracavity applications for tumors with known
radiosensitivity.
IsoRay
was incorporated under Minnesota law in 1983 as Century Park Pictures
Corporation. Since 1998 and until our merger with IsoRay Medical, we had
no
significant operations. On July 28, 2005, our subsidiary, Century Park
Transitory Subsidiary, Inc. merged into IsoRay Medical, Inc., making IsoRay
Medical our wholly-owned subsidiary.
Results
of Operations.
Nine
months ended June 30, 2005 compared to the year ended September 30,
2004
Century
Park Pictures Corporation (now IsoRay, Inc.) had no revenue for the nine months
ended June 30, 2005 or for either of the years ended September 30, 2004 and
2003.
On
July
28, 2005, the Company entered into a reverse merger transaction with IsoRay
Medical, Inc. whereby IsoRay Medical, Inc. became a wholly-owned subsidiary
of
the Company.
The
acquisition of IsoRay Medical on July 28, 2005 by the Company was accounted
for
as a “reverse acquisition” whereby IsoRay is the accounting acquirer for
financial statement purposes. Accordingly, for all periods subsequent to July
28, 2005, the financial statements of the Company reflect the historical
financial statements of IsoRay from the inception of each respective entity
composing IsoRay Medical, Inc. at the July 28, 2005 change in control
transaction and the operations of the Company subsequent to the July 28, 2005
transaction.
The
Company originally had a September 30 year end. As a result of the July 28,
2005
reverse acquisition transaction, the Company’s Board of Directors changed
IsoRay, Inc.’s (formerly Century Park Pictures Corporation) year-end to
June 30 to correspond to the year end of its newly acquired subsidiary,
IsoRay Medical, Inc.
General
and administrative expenses for the nine months ended June 30, 2005 were
approximately $30,128 as compared to approximately $9,095 for the year ended
September 30, 2004. The increase was directly related to various professional
fees incurred in the consummation of the July 2005 business combination
transaction with IsoRay Medical, Inc.
In
conjunction with a May 2005 sale of equity securities for approximately $85,000,
the Company, the Company’s then-CEO and the purchasing shareholders negotiated a
settlement whereby all outstanding debt owed to the then-CEO in the form of
accrued compensation and working capital advances was settled in full for
approximately $50,000. As a result of these negotiations, the Company's then-CEO
forgave approximately $304,500 in accrued salary for prior periods and this
forgiveness was credited as "additional paid-in capital".
Year
ended September 30, 2004 compared to year ended September 30,
2003
General
and administrative expenses for the years ended September 30, 2004 and 2003
were
approximately $9,095 and $19,022, respectively. The principal component of
these
expenditures was the accrual of interest on outstanding notes payable and
operating expenses related to maintaining the Company’s compliance with the
Securities Exchange Act of 1934. Interest expense for the years ended September
30, 2004 and 2003 was approximately $2,100 in each respective year. Included
in
interest expense for Fiscal 2004 and 2003 is approximately $2,100 and $41,000
in
imputed interest calculated as a result of the respective noteholders agreeing
to discontinue their rights to interest subsequent to July 31,
2002.
The
Company’s expenditures prior to the merger consisted solely of items necessary
to comply with the Company’s periodic reporting obligations under the Securities
Exchange Act of 1934 and were not necessarily reflective of what may be expected
in future periods subsequent to the merger.
Three
and nine month periods ended March 31, 2006 and 2005
Revenues.
During
the three month period ended March 31, 2006, the Company generated $479,225
in
sales of its 131Cs
seed.
This represents an increase of $428,660 over sales in the three months ended
March 31, 2005 (the “Prior Quarter”) of $50,565. Sales for the nine month period
ended March 31, 2006 were $1,176,387. This represents an increase of $1,101,652
over sales in the nine month period ended March 31, 2005. IsoRay Medical
began
sales of its 131Cs
seed
on October 26, 2004 with one medical center customer. By March 31, 2006 the
number of medical center customers who have ordered the 131Cs
seed
had grown to 21. Although sales in the three month period ended March 31,
2006
were largely unchanged from sales levels in the previous quarter, sales in
the
most recent quarter included no sales to Chicago Prostate Cancer Center
(“CPCC”), whose orders comprised a significant portion of total sales in the
three month period ended December 31, 2005. However, the expansion of our
customer base during the most recent quarter provided additional new customers
whose orders essentially maintained the sales levels of the previous quarter.
On
January 5, 2006, IsoRay Medical was notified by one of its primary customers,
Chicago Prostate Cancer Center (“CPCC”), that it would no longer accept
131Cs
products from the radiopharmacy exclusively used by IsoRay Medical at that
time
due to quality control concerns. The role of the radiopharmacy is to provide
third party assay, preloading, and sterilization of the 131Cs
seeds
which are then shipped directly to customers for use in patient implants.
IsoRay
immediately began working to bring these functions in house. On March 28,
2006,
following commencement of operations of the Company’s pre-load department, which
performs third party assay, preloading and sterilization of the 131Cs
seeds,
CPCC resumed ordering from us. Initial shipments of 131Cs
seeds,
custom-loaded to this customer’s specifications, met the quality control
guidelines established by CPCC. Although the temporary three month’s suspension
of seed orders by CPCC has had a negative impact on revenue in the past quarter,
the Company’s management believes any long-term impact will be nominal. With the
resumption of orders by CPCC, added to the increasing customer base, management
believes sales for the following quarters will increase.
Gross
loss. Gross
loss was $312,232 for the three month period ended March 31, 2006. This
represents an improvement of $209,075, or 40% over the Prior Quarter’s gross
loss of $521,307. Gross loss was $1,251,510 for the nine month period
ended March 31, 2006. This represents an increased loss of $367,322 over
the
gross loss of $884,188 for the nine month period ended March 31, 2005. Cost
of
products sold was $791,457 for the three month period ended March 31,
2006. Components of this cost include charges from Pacific Northwest
National Laboratories of approximately $200,000 for ancillary manufacturing
services, which terminated in January 2006, waste disposal, testing and sample
analysis and assay and technical services; approximately $256,000 in wages,
benefits and related taxes, approximately $208,000 in direct and indirect
materials, and the balance of approximately $127,000 in overhead expenses.
This
was an increase in cost of products sold of $219,585 or 38% more than the
Prior
Quarter. Cost of products sold for the nine month period ended March 31,
2006
was $2,427,897. This was an increase in cost of products sold of $1,468,974
over
the nine month period ended March 31, 2005. Increased costs in the three
and
nine month periods are generally attributable to the Company’s increased selling
activity during the nine month period ended March 31, 2006.
Research
and development. Research
and development expenses for the three month period ended March 31, 2006
were
$86,194. This represents an increased expenditure of $56,164, or a 187% increase
over the Prior Quarter’s expense of $30,030. Research and development expenses
for the nine month period ended March 31, 2006 were $208,813 or an increase
of
$150,752 over the nine month period ended March 31, 2005. Of this amount,
$86,700 was paid in conjunction with an ongoing protocol study on the results
of
100 patients who have recently been implanted, or will be implanted in the
near
future, with the Company’s 131Cs
brachytherapy seed.
Sales
and marketing expenses. Sales
and
marketing expenses were $325,858 for the three-month period ended March 31,
2006. This represents an increase of $300,638 compared to the Prior Quarter’s
expenditure of $25,220 for sales and marketing. Of the $325,858, approximately
$237,883 was paid for wages, including payroll-related taxes, travel, office
and
other support expenses on behalf of our sales and marketing and customer
service
staff. The balance was spent on advertising, market research, and trade shows
and conferences. Sales and marketing expense for the nine month period ended
March 31, 2006 was $981,429. This represents an increase of 560,667 or 133%
compared to the nine month period ended March 31, 2005 expenditures of $420,762.
These increases have occurred as the Company has hired more sales staff and
incurred more marketing expenditures since October 2004 when we began selling
our product.
General
and administrative expenses.
General
and administrative expenses for the three month period ended March 31, 2006
amounted to $738,494. This represents an increase of $696,570 in comparison
to
the Prior Quarter’s expense of $41,924. General and administrative expenses for
the nine month period ended March 31, 2006 were $2,374,887. This is an increase
of $1,568,845 over the nine month period ended March 31, 2005, during which
general and administrative expense was $806,042. The increases over the prior
periods are due to supporting the Company’s increased manufacturing and sales
activities. These activities have increased as the Company has only been
manufacturing and selling its product since October 2004. Additionally,
increased expenses in the nine month period ended March 31, 2006 were due
to
compliance with SEC regulations, which the consolidated companies first began
to
experience following the July 28, 2005 merger. Significant components of
general
and administrative expenses for the period ended March 31, 2006 included
$296,093 in consulting expense, an increase from $161,609 in the comparative
nine month period; payroll and related expenses of $448,449, an increase
from
$286,318 in the comparative nine month period; and professional fees, including
accounting and legal fees and broker-dealer commissions of $347,598, an increase
from $165,656 in the comparative nine month period.
Operating
(loss).
Due to
our significant research and development expenditures, additional
responsibilities as a reporting company, rapid structural growth, and nominal
product revenues, we have not been profitable, and have generated operating
losses since our inception. In the three month period ended March 31, 2006,
the
Company had an operating loss of $1,462,778. This represents an increased
loss
of $844,297 or 137%, in comparison with the Prior Quarter’s operating loss of
$618,481. Operating loss for the nine month period ended March 31, 2006 was
$4,816,639. Operating loss for the nine month period ended March 31, 2005
was
$2,169,053.
Non-operating
income (expense).
Total
non-operating income (expense) was $(197,091) for the three month period
ended
March 31, 2006. This represents an increase in net expense of $91,258 or
86%
over the Prior Quarter’s non-operating income (expense) of $(105,833). This
decrease in non-operating income (expense) was largely due to a debt conversion
expense of $141,414 (see Note 6) The Company earned $25,472 of interest income
on funds held in certain near-liquid accounts. This was $25,238 more than
the
Prior Quarter’s interest income of $234. During this period, financing expense
was $81,149, or an increased expense of $43,653 or 116% over the Prior Quarter’s
financing expense of $37,496. Of this amount, $29,376 was paid as interest
on
loans, notes and convertible debentures outstanding. The balance of the
financing expense was amortization of pre-paid financing expense, primarily
the
January 2005 issuance of common stock to guarantors of certain loans made
to the
Company, and commissions and legal costs paid in conjunction with the issuance
of convertible debentures. Total non-operating income (expense) for the nine
month period ended March 31, 2006 was $(782,144) which represents an increase
of
$603,498 or 338% over the nine month period ended March 31, 2005. This increase
is mainly due to the one-time recognition of expense associated with a
short-term inducement to convert debentures (see Note 6) and an increase
in
financing expenses as noted above.
Liquidity
and capital resources.
At
March 31, 2006, cash and cash equivalents amounted to $2,472,218. During
the
three months ended March 31, 2006, the Company issued 1,123,384 shares of
common
stock and granted an equal number of warrants to purchase shares of common
stock
pursuant to the October 17, 2005 and February 1, 2006 Offerings. This issuance
of common stock provided the Company approximately $4,200,000, in cash, net
of
legal costs and commissions paid pursuant to the Offerings. Additionally,
the
Company issued 32,000 shares of common stock pursuant to the exercise of
options
to purchase common stock. This exercise of options provided the Company with
$37,130.
On
January 30, 2006, IsoRay closed a round of private financing under its October
17, 2005 private placement memorandum, as amended, which was fully sold at
$6
million. In February, IsoRay commenced a new round of private financing under
its February 1, 2006 private placement memorandum, and had raised approximately
$1.2 million under that offering as of March 31, 2006.
The
Company had approximately $1.2 million cash on hand as of May 17,
2006.
As of
that date the Company's monthly required cash operating expenditures were
approximately $630,000, and capital expenditures were approximately $50,000.
As
of May 17, 2006, management believes that assuming expenditures continue
at
approximately the same monthly rate that the Company's cash on hand would
fund
operating expenditures through the end of the fiscal year, June 30,
2006.
Our
growth plan for 2006 includes expanding sales to existing customers, continuing
a trend that has improved starting in the second quarter of FY 2006; continuing
to reduce the level of services provided by Pacific Northwest National
Laboratory as equivalent company resources become available, which should
decrease operating costs; enhancing efforts to reduce internal production
costs;
and expanding the base of suppliers of direct materials and value added services
to direct materials.
On
February 9, 2006, IsoRay signed a definitive license agreement with
International Brachytherapy s.a. (“IBt”) covering North America and providing
IsoRay with access to IBt’s fluid jet production process and its proprietary
polymer seed technology for use in brachytherapy procedures using Cesium-131.
IsoRay intends to apply for FDA approval for the use of IBt’s proprietary
technology in tandem with IsoRay’s Cesium-131 proprietary technology following
completion of initial milestones designed to determine whether the two
technologies are compatible. This agreement required a cash outlay of
approximately $225,000 in March 2006, which was paid. A second payment of
$225,000 will be due in August 2006.
At
March
31, 2006 IsoRay Medical had four outstanding loans. The first, from Tri-City
Industrial Development Council, with an original principal amount of $40,000,
was funded in 2001 and requires a final principal only payment of $10,000
in
August 2006. It is non-interest bearing and unsecured. The second loan is
from
the Benton-Franklin Economic Development District in an original principal
amount of $230,000 and was funded in December 2004. It bears interest at
eight
percent and has a sixty month term with a final balloon payment. As of March
31,
2006, the principal balance owed was $208,511. This loan is secured by certain
equipment, materials and inventory of IsoRay Medical, and also required personal
guarantees, for which the guarantors were issued approximately 70,455 shares
of
our common stock. The third loan is a revolving line of credit from Columbia
River Bank, which provides credit in the amount of $375,000. It bears interest
at a floating prime plus two percent rate, and is secured by certain accounts
receivable and inventory and personal guarantees, for which the guarantors
were
issued approximately 107,401 shares of our common stock. As of March 31,
2006,
there were no advances outstanding under the line of credit. The fourth loan
is
with Columbia River Bank in the amount of $150,000, of which $50,000 was
funded
as of October 31, 2005. This loan is to be used for equipment purchases only
and
is secured by the equipment purchased with the borrowed funds. It bears interest
at seven percent for thirty-six months. As of March 31, 2006, the principal
balance owed was approximately $30,813. This loan was retired subsequent
to
March 31, 2006. On April 26, 2006, the Company received a commitment letter
from
the Hanford Area Economic Investment Fund Committee, or HAEIFC, for a $1.4
million loan for equipment purchases, to be funded at a future date. There
can
be no assurance that the HAEIFC loan will ever be funded.
The
BFEDD
has granted IsoRay Medical a waiver from enforcing violations of paying officers
in excess of $100,000 per year and maintaining a certain current asset
ratio. The
waiver, effective from March 31, 2005 through June 30, 2006, also excuses
non-compliance with covenants prohibiting fixed asset or lease obligations
in
excess of $24,000 per year, covenants prohibiting mergers, and covenants
requiring maintenance of a certain long-term debt to equity ratio. However,
IsoRay Medical is currently in default of a covenant requiring that it pay
no
greater than forty-five thousand dollars ($45,000) annually for lease payments
during the life of the loan. Management believes that if the BFEDD accelerates
repayment that is has sufficient cash resources to satisfy this obligation.
IsoRay
Medical also had $455,000 in principal amount of convertible debentures
outstanding as of March 31, 2006, which were issued between February and
July
2005. These debentures could be converted into 127,711 shares of common stock
at
a conversion rate of $4.15 per share. Each debenture bears interest at an
annual
rate of eight percent (not compounded), and has a twenty-four month term
with
accrued interest paid quarterly.
IsoRay
Medical also had $71,001 in principal amount of notes payable outstanding
as of
March 31, 2006, which were issued in a private placement to a predecessor
IsoRay
company between October 2003 and September 2004. Each note bears interest
at an
annual rate of ten percent (not compounded), and has a thirty-six month term
with accrued interest paid quarterly. Subsequent to March 31, 20065 the Company
retired these note payable obligations with part of the proceeds received
from
the New Offering of February 1, 2006 (See Note 9).
On
April
4, 2005 a capital lease agreement was executed by IsoRay Medical with Nationwide
Funding LLC, whereby the lessor funded the $75,000 acquisition of a glove
box
built to the Company's specifications by Premier Technology, Inc. of Pocatello,
ID. This is a 48 month agreement with minimum monthly lease payments of
$2,475.
On
May
16, 2005 a capital lease agreement was executed by IsoRay Medical with Vencore
Solutions LLC. This is a capital lease for a hot cell with a lease line in
the
amount of $430,000. This is a 36 month lease, with a purchase option at fair
market value, defined in the lease agreement as not more than 15% of the
initial
fair value purchase price. Based on this amount, for the first five months,
the
minimum monthly lease payment will be $8,349. The minimum monthly lease payment
increases to $17,500 for the remaining 31 months, based on the entire value
of
the $430,000 lease line. In connection with the lease agreement, IsoRay granted
warrants to purchase 5,692 shares of its common stock at $4.15/share.
We
expect
to finance our 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 we need to raise additional money to
fund
our operations, funding may not be available to us on acceptable terms, or
at
all. If we are unable to raise additional funds when needed, we may not be
able
to market our products as planned or continue development and regulatory
approval of our future products. If we raise additional funds through equity
sales, these sales may be dilutive to existing investors, and we may decide
to
lower the exercise price of previously issued warrants.
We
have
no material commitments for capital expenditures and no off-balance sheet
arrangements.
Our
common stock is quoted on the OTC Bulletin Board under the symbol "ISRY.OB"
and
on the Pink Sheets under the symbol "ISRY.PK." There is limited trading activity
in our securities, and there can be no assurance a regular trading market for
our common stock will be sustained. We resumed trading on the Pink Sheets on
August 18, 2005, after a period of no trading activity from February 18, 2005
until August 18, 2005. We also had a period of no trading activity from July
2003 until February 7, 2005. On November 2, 2005, we began trading on the OTC
Bulletin Board. The following table sets forth, for the calendar periods
indicated, the range of the high and low last reported bid prices of our common
stock from October 1, 2003 through December 31, 2005, as reported by the Pink
Sheets and the OTC Bulletin Board. The
quotations represent inter-dealer prices without retail mark-ups, mark-downs
or
commissions, and may not necessarily represent actual transactions.
The
quotations may be rounded for presentation. There is an absence of an
established trading market for the Company's common stock, as the market is
limited, sporadic and highly volatile, which may affect the prices listed below.
Period
|
|
High
|
|
Low
|
October
1, 2003 - December 31, 2004
|
|
N/A
|
|
N/A
|
January
2, 2005 - March 31, 2005
|
|
*
|
|
*
|
April
1, 2005 - June 30, 2005(1)
|
|
N/A
|
|
N/A
|
July
1, 2005 - September 30, 2005
|
|
$5.95
|
|
$1.00
|
October
1, 2005 - December 31, 2005
|
|
$8.25
|
|
$4.50
|
January
2, 2006 - March 31, 2006
|
|
$7.00
|
|
$6.50
|
(1)
|
Due
to our change of fiscal year end from September 30 to June 30, our
2005
fiscal year was only nine months
long.
|
On
May
24, 2006, the last reported bid price of our common stock as reported on
the OTC
Bulletin Board was $4.20 per share. As of May 24, 2006, we had approximately
850
shareholders of record of our common stock and 14,722,686 outstanding shares
of
our common stock. Certain of the shares of common stock are held in "street"
name and may be held by numerous beneficial owners.
Dividends.
The
Company's Board of Directors, in its sole discretion, may declare and pay
dividends on the common stock, payable in cash or other consideration, out
of
funds legally available, if all dividends due on the preferred stock have been
declared and paid. The Company has not paid any cash dividends on its common
stock and does not plan to pay any cash dividends on its common stock for the
foreseeable future.
Equity
Compensation Plans
On
July
28, 2005, the Company adopted the Amended and Restated 2005 Stock Option
Plan
(the "Option Plan") and the Amended and Restated 2005 Employee Stock Option
Plan
(the "Employee Plan"), pursuant to which it may grant equity awards to eligible
persons. The Option Plan allows the Board of Directors to grant options to
purchase up to 1,800,000 shares of common stock to directors, officers, key
employees and service providers of the Company, and the Employee Plan allows
the
Board of Directors to grant options to purchase up to 2,000,000 shares of
common
stock to officers and key employees of the Company. As of March 31, 2006,
options to purchase 1,630,472 shares had been granted under the Option Plan
and
options to purchase 1,420,511 shares had been granted under the Employee
Plan.
Of these options, 66,291 had been exercised under the Employee Plan, and
26,993
had been exercised under the Option Plan, as of March 31, 2006.
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights (#)
|
|
Weighted-average
exercise price of outstanding options, warrants and rights
($)
|
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
Equity
compensation plans approved by shareholders
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by shareholders
|
|
3,050,983
|
|
$1.90
|
|
749,017
|
|
|
|
|
|
|
|
Total
|
|
3,050,983
|
|
$1.90
|
|
749,017
|
DESCRIPTION
OF BUSINESS
The
Merger
On
July
28, 2005, the merger (the "Merger") contemplated by the Merger Agreement
dated
as of May 27, 2005 by and among Century Park Pictures Corporation (the former
name of the Company), Century Park Transitory Subsidiary, Inc., IsoRay Medical,
Inc. and certain shareholders (the "Merger Agreement"), was completed.
As
a
result of the Merger and pursuant to the Merger Agreement, IsoRay Medical,
Inc.
became a wholly-owned subsidiary of Century Park Pictures Corporation, Century
Park Pictures Corporation changed its name to "IsoRay, Inc.", and the Company
issued shares of its common and preferred stock, and options and warrants
to
purchase shares of its common and preferred stock, to holders of securities
in
IsoRay Medical, Inc.
Immediately
after the Merger, the Company had 10,237,797 shares of common and preferred
stock outstanding. The total amount of shares outstanding post merger was
13,880,822, which includes not only shares of common stock, but also shares
of
preferred stock, warrants, options and convertible debentures that could
be
exercised or converted into shares of common stock. Following the Merger,
on a
fully diluted basis, the shareholders of IsoRay Medical, Inc. owned
approximately 82% of the Company's outstanding securities, and the Company's
shareholders owned approximately 18% of the Company's outstanding securities.
Business
of IsoRay, Inc.
The
Company was incorporated in Minnesota in 1983. Until 1998, the Company was
engaged in the development, production and marketing of various entertainment
intellectual properties and other assets in the motion picture, television
and
theatrical stage markets. Since 1998 and until the completion of the Merger,
the
Company did not conduct any business operations and had minimal assets and
liabilities. The Company is now a holding company for its wholly-owned
subsidiary, IsoRay Medical, Inc.
Business
of IsoRay Medical, Inc.
IsoRay
Medical, Inc. was formed on June 15, 2004 as a corporation in the State of
Delaware, and in October 2004 it merged with two predecessor companies to
combine all of the IsoRay operations into one company.
IsoRay
Medical intends to utilize its patented radioisotope technology, experienced
chemists and engineers, and management team to create a major therapeutic
medical isotope and medical device company with a goal of providing improved
patient outcomes in the treatment of prostate cancer and other solid cancer
tumors. IsoRay Medical began production and sales of its initial FDA approved
product, the IsoRay 131Cs
brachytherapy seed, in October 2004 for the treatment of prostate cancer.
Management believes its technology will allow it to capture a leadership
position in an expanded brachytherapy market. The physical characteristics
of
the Cesium-131 (Cs-131 or 131Cs)
isotope are expected to decrease radiation exposure to the patient and reduce
the severity and duration of side effects, while treating cancer cells as
effectively, if not more so than, other isotopes used in seed brachytherapy.
Cesium-131 could also enable meaningful penetration in other solid tumor
applications such as breast, lung, liver, brain and pancreatic cancer, expanding
the total available market opportunity. The second radioisotope, Yttrium-90
(Y-90 or 90Y),
is
currently being used in the treatment of non-Hodgkin's lymphoma and is in
clinical trials for other applications. Other manufacturers have received
FDA
approval for 90Y
and
IsoRay Medical believes production will not require clinical trials or an
extensive FDA application process. Production is expected to begin in 2006.
Brachytherapy
seeds are small devices used in an internal radiation therapy procedure.
In
recent years the procedure has become one of the primary treatments for prostate
cancer and is now used more often than surgical removal of the prostate.
The
brachytherapy procedure places radioactive seeds as close as possible to
(in or
near) the cancer tumor (the word "brachytherapy" means close therapy). The
seeds
deliver therapeutic radiation by killing the tumor cells and cells located
in
the immediate vicinity of the tumor while minimizing exposure to adjacent
healthy tissue. This allows doctors to administer a higher dose of radiation
at
one time than is possible with external beam radiation. Each seed contains
a
radioisotope sealed within a welded titanium capsule. Approximately 85 to
135
seeds are permanently implanted in the prostate in a 45-minute outpatient
procedure. The isotope decays over time and the seeds become inert. The seeds
may be used as a primary treatment or, in conjunction with other treatment
modalities such as external beam radiation therapy, chemotherapy, or as
treatment for residual disease after excision of primary tumors.
Management
believes that the IsoRay 131Cs
seed
represents the
first
major advancement in brachytherapy technology in over 18 years with attributes
that could make it the long term "seed of choice" for internal radiation
procedures. The 131Cs
seed
has FDA approval for treatment of malignant disease (e.g. cancers of the
head
and neck, brain, liver, lung, breast, prostate, etc.) and may be used in
surface, interstitial, and intracavity applications for tumors with known
radiosensitivity.
The
131Cs
isotope appears to have specific advantages for treating cancer over Iodine-125
(I-125 or 125I)
and
Palladium-103 (Pd-103 or 103Pd),
the
other isotopes commonly used in brachytherapy procedures. IsoRay Medical
believes that the short half-life and higher dose rate characteristics of
131Cs
will
expand industry applications and facilitate meaningful penetration into the
treatment of other forms of cancer tumors such as breast cancer. The shorter
half-life of 9.7 days for 131Cs
(versus 17.5 days for 103Pd
and 60
days for 125I)
mitigates negative effects of long radiation periods on healthy tissue and
is
believed to reduce the duration of certain side effects. The higher initial
dose
rate is believed to be more effective on fast growing cancers by aggressively
attacking cancer cells and disrupting cancer cell re-population cycles. The
characteristics of 131Cs may
result in the use of 10-30% fewer seeds per procedure thereby reducing the
total
physical radiation dose to the patient and reducing the costs of the procedure
for both third party payors and the patient.
IsoRay
Medical's second product, Yttrium-90, is also a short-lived (half-life of
64
hrs) radioisotope that is already used in the treatment of non-Hodgkin's
lymphoma, leukemia, ovarian cancer, prostate cancer, osteosarcomas, and tumors
of the breast, lung, kidney, colon and brain. These applications apply primarily
to metastasized, or spread through the body, cancers. Currently more than
20
clinical trials using 90Y
are
underway in the U.S. Yttrium-90 is also used at multiple treatment centers
in
Europe. Several members of the current IsoRay Medical team developed a process
to produce high-purity 90Y for
medical applications during the mid-1990s. Currently over 90 percent of the
90Y used
in
the U.S. is imported. IsoRay Medical's management believes there is an immediate
market opportunity for a highly purified 90Y.
IsoRay
Medical and its predecessor companies have accomplished the following key
milestones:
· |
Began
offering seeds loaded in sterile strands and needles from IsoRay’s custom
preloading service (March 2006);
|
· |
Began
radioactive operations in our new manufacturing facility in Richland,
Washington (November 2005);
|
· |
Deployed
a direct sales force to the market (July 2004 - July
2005);
|
· |
Developed
a treatment protocol for prostate cancer with a leading oncologist
(January 2005);
|
· |
Treated
the first patient (October 2004);
|
· |
Commenced
production of the 131Cs
seed (August 2004);
|
· |
Filed
five additional patent applications for 131Cs
and 90Y
processes (November 2003 -August 2004);
|
· |
Obtained
a Nuclear Regulatory Commission Sealed Source and Device Registration
required by the Washington State Department of Health and the FDA
(September 2004);
|
· |
Received
a Radioactive Materials License from the Washington State Department
of
Health (July 2004);
|
· |
Implemented
an ISO-9000 Quality Management System and production operating procedures
(under continuing development);
|
· |
Signed
a Commercial Work for Others Agreement between Battelle (manager
of the
Pacific Northwest National Laboratory or PNNL) and IsoRay Medical,
allowing initial production of seeds through 2006 at PNNL (April
2004);
|
· |
Raised
over $17.5 M in debt and equity funding (September 2003 - February
2006)
|
· |
Obtained
favorable Medicare reimbursement codes for the Cs-131 brachytherapy
seed
(November 2003);
|
· |
Obtained
FDA 510(k) approval to market the first product: the 131Cs
brachytherapy seed (March 2003);
|
· |
Completed
initial radioactive seed production, design verification, computer
modeling of the radiation profile, and actual dosimetric data compiled
by
the National Institute of Standards and Technology and PNNL (October
2002); and
|
· |
Obtained
initial patent for 131Cs
isotope separation and purification (May 2000).
|
Industry
Information
Incidence
of Prostate Cancer
Excluding
skin cancer, prostate cancer is the most common form of cancer, and the second
leading cause of cancer deaths, in men. The American Cancer Society estimated
that about 232,090 new cases of prostate cancer were diagnosed and an estimated
30,350 deaths were associated with the disease in the United States during
2005.
Because of early detection techniques (e.g., screening for prostate specific
antigen, or PSA) approximately 70% (162,400) of these cases are potentially
treatable with seed brachytherapy, when the cancers are still locally confined
within the prostate.
The
prostate is a walnut-sized gland surrounding the male urethra, located below
the
bladder and adjacent to the rectum. The two most prevalent prostate diseases
are
benign prostatic hyperplasia (BPH) and prostate cancer. BPH is a non-cancerous
enlargement of the innermost part of the prostate. Prostate cancer is a
malignant tumor that begins most often in the periphery of the gland and,
like
other forms of cancer, may spread beyond the prostate to other parts of the
body.
Prostate
cancer incidence and mortality increase with age. Prostate cancer is found
most
often in men who are over the age of 50. More than seven out of ten men
diagnosed with prostate cancer are over the age of 65. According to the American
Cancer Society, approximately one man in six will be diagnosed with prostate
cancer during his lifetime, although only one man in thirty-three will die
of
this disease.
In
addition to age, other risk factors are linked to prostate cancer, such as
genetics. Men who have relatives that have been affected, especially if the
relatives were young at the time of diagnosis, have an even higher risk of
contracting the disease. Researchers have discovered that changes in certain
genes, influenced by DNA mutations inherited from a parent, may cause some
men
to be more inclined to develop prostate cancer. It has also been suggested
that
environmental factors such as exposure to cancer-causing chemicals or radiation
may cause DNA mutations in many organs, but this theory has not been confirmed.
Another factor that may contribute to prostate cancer is diet, with diets
high
in fat and high in calcium possibly increasing the risk of prostate cancer.
The
American Cancer Society recommends that men without symptoms, risk factors
and
who have a life expectancy of at least ten years should begin regular annual
medical exams at the age of 50, and believes that health care providers should
offer as part of the exam the prostate-specific antigen ("PSA") blood test
and a
digital rectal examination. The PSA blood test determines the amount of prostate
specific antigen present in the blood. PSA is found in a protein secreted
by the
prostate, and elevated levels of PSA can be associated with either prostatitis
(a noncancerous inflammatory condition) or a proliferation of cancer cells
in
the prostate. Transrectal ultrasound tests and biopsies are typically performed
on patients with elevated PSA readings to confirm the existence of cancer.
A
tumor
found by a prostate biopsy is usually assigned a grade by a pathologist.
The
most common prostate cancer grading system is called the Gleason grading
system.
A Gleason score, which ranges from 2 to 10, usually is used to estimate the
tumor's growth rate. Typically, the lower the score, the slower the cancer
grows. Most localized cancers of the prostate gland are associated with an
intermediate score ranging from Gleason scores 4 through 6.
Staging
is the process of determining how far the cancer has spread. The treatment
and
recovery outlook depend on the stage of the cancer. The TNM system is the
staging process used most often. The TNM system describes the extent of the
primary tumor (T stage), whether the cancer has spread to nearby lymph nodes
(N
stage), and the absence or presence of distant metastasis (M stage). The
TNM
descriptions can be grouped together with stages labeled 0 through IV (0-4).
The
higher the number, the further the cancer has spread. The following table
summarizes the various stages of prostate cancer.
Stages
|
|
Characteristics
of prostate cancer
|
T1
or T2
|
|
Localized
in the prostate
|
T3
or T4
|
|
Locally
advanced
|
N+
or M+
|
|
Spread
to pelvic lymph nodes (N+)or distant organs
(M+)
|
Treatment
Options and Protocol
In
addition to brachytherapy, localized prostate cancer is commonly treated
with
radical prostatectomy ("RP") and external beam radiation therapy ("EBRT").
Recently, intensity modulated radiation therapy ("IMRT") has seen increased
application, particularly in combination with brachytherapy for cancers that
have begun to spread beyond the prostate. Other treatments include cryosurgery,
hormone therapy, watchful waiting, and finasteride, a drug commonly prescribed
to treat benign enlargement of the prostate and male baldness. Some of these
therapies may be combined in special cases to address a specific cancer stage
or
patient need. When the cancerous tissue is not completely eliminated, the
cancer
typically returns to the primary site, often with metastases to other areas.
Radical
Prostatectomy. Historically
the most common treatment option for prostate cancer, radical prostatectomy
is
an invasive surgical procedure in which the entire prostate gland is removed.
RP
is performed under general anesthesia and typically involves a hospital stay
of
several days for patient observation and recovery. This procedure is often
associated with relatively high rates of impotence and incontinence. For
instance, a study published in the Journal
of the American
Medical Association
in
January 2000 reported that approximately 60% of men who had received RP
reported erectile dysfunction as a result of surgery. The same report found
that
approximately 40% of the patients studied reported at least occasional
incontinence. New bilateral nerve-sparing techniques are currently being
used
more frequently in order to address these side effects, but these techniques
require a high degree of surgical skill. RP is typically more expensive than
other common treatment modalities.
External
Beam Radiation Therapy. EBRT
allows patients to receive treatment on an outpatient basis and at a lower
cost
than RP. EBRT involves directing a beam of radiation from outside the body
at
the prostate gland in order to destroy cancerous tissue. The course of treatment
usually takes seven to eight weeks to deliver the total dose of radiation
prescribed to kill the tumor. Studies have shown, however, that the ten-year
disease free survival rates with treatment through EBRT are less than the
disease free survival rates after RP or brachytherapy treatment. In addition,
because the radiation beam travels through the body to reach the prostate,
normal tissue lying in the path of the radiation beam is also damaged. Other
side effects are associated with EBRT. For instance, rectal wall damage caused
by the radiation beam is a noted negative side effect. Data suggests that
between 30% and 40% of the patients who undergo EBRT suffer problems with
erectile dysfunction after treatment.
Intensity
Modulated Radiation Therapy. IMRT
is a
newer, more advanced form of EBRT in which sophisticated computer control
is
used to aim the beam at the target volume from multiple different angles
and to
vary the intensity of the beam. Thus, damage to normal tissue and critical
structures is minimized by distributing the unwanted radiation over a larger
geometric area. The course of treatment is similar to EBRT and requires daily
doses over a period of seven to eight weeks to deliver the total dose of
radiation prescribed to kill the tumor. IMRT is relatively new and thus not
widely available for use as a treatment modality. As a result fewer clinical
data regarding treatment effectiveness and the incidence of side effects
are
available. One advantage of IMRT, and to some extent EBRT, is the ability
to
treat cancers that have begun to spread from the tumor site. An increasingly
popular therapy for patients with more advanced prostate cancer is a combination
of IMRT with seed implant brachytherapy (which, until protocols are developed,
does not include the Cesium-131 seed).
Cryosurgery.
Cryosurgery,
a procedure in which tissue is frozen to destroy tumors, is another treatment
option for prostate cancer. Currently, this procedure is less widely used,
although promising treatment outcomes have been reported. Cryosurgery typically
requires a one to two day hospital stay and is associated with higher rates
of
impotence and other side effects than brachytherapy.
Other
Treatments. Other
treatments include hormone therapy and chemotherapy, which may be used to
reduce
the size of cancerous tumors. However, these treatments are not intended
to
ultimately cure a patient of prostate cancer. Instead, such treatment choices
are made by physicians in an attempt to extend patients' lives if the cancer
has
reached an advanced stage or as ancillary treatment methods used in conjunction
with other treatment modalities. Common side effects of hormone therapy are
impotence, decreased libido and development of breasts, and common side effects
of chemotherapy are nausea, hair loss and fatigue.
"Watchful
waiting," while not a treatment, is recommended by some physicians in extreme
circumstances based on the severity and growth rate of the disease, as well
as
the age and life expectancy of the patient. Physicians and patients who choose
watchful waiting are frequently seeking to avoid the negative side effects
associated with RP or other treatment modalities. Through careful monitoring
of
PSA levels and close examination for advancing symptoms of prostate cancer,
physicians may choose more active treatments at a later date.
Treatment
Protocol. Prostate
cancer patients electing seed therapy first undergo an ultrasound test or
CT
scan, which generates a series of two-dimensional image of the prostate.
With
the assistance of a computer program, a three-dimensional treatment plan
is
created that calculates the number and placement of the seeds required for
the
best possible distribution of radiation to the prostate. Once the implant
model
has been constructed, the procedure is scheduled and the seeds are ordered.
The
number of seeds implanted normally ranges from 85 to 135, with the number
of
seeds varying with the size of the prostate. The procedure is usually performed
under local anesthesia in an outpatient setting. The seeds are implanted
using
needles inserted into the prostate. When all seeds have been inserted, seed
placement is verified through an ultrasound image, CT scan, fluoroscope or
MRI.
An experienced practitioner typically performs the procedure in approximately
45
minutes, with the patient normally returning home the same day. Most patients
are able to return to their normal activities within one or two days following
the procedure.
Origin
of Brachytherapy seeds
One
of
the first reports in the medical literature regarding brachytherapy seeds
that
deliver "soft x-ray" radiation directly to tumors by permanent implantation
appeared in 1965, authored by Donald C. Lawrence and Dr. Ulrich K.
Henschke. Don Lawrence later developed and patented the titanium-encapsulated
125I
brachytherapy seed. His company, Lawrence Soft Ray Inc., provided the world's
supply of seeds from 1967 to 1978 until the 3M Corporation purchased the
technology. Eventually 3M sold the business to Amersham PLC, which spun off
this
business to its division Oncura, today the market leader in Iodine-125 seeds.
All commercially available seeds trace their origin to Mr. Lawrence's
invention. Don Lawrence was a founder of IsoRay, LLC, the first predecessor
company to IsoRay Medical.
Brachytherapy
has been used as a treatment for prostate cancer for more than 30 years.
Formerly, seeds containing the radioactive isotope Iodine-125 were implanted
in
prostate tumors through open surgery. However, this technique fell into disfavor
because the seeds were often haphazardly arranged resulting in radiation
not
reaching all of the targeted cancerous tissue. Compounding this was the fact
that often an unintended radiation dose was delivered to healthy surrounding
tissues, particularly the urethra and rectum. Originally, brachytherapy earned
an unfavorable reputation because the early adopters did not have the imaging
technologies needed for accurate placement of the seeds. This resulted in
poor
tumor control and greater damage to surrounding healthy tissue. Since the
introduction of the ultrasound-guided, transperineal implantation technique
in
the late 1980s, brachytherapy has become a treatment that not only provides
excellent therapeutic value but is very convenient and economical for the
patient. The benefits of the advancements in imaging, computer dose planning,
and the actual implant procedure are borne out by the improved clinical results
achieved using modern brachytherapy techniques.
The
introduction of Palladium-103 in the mid-1980s represented a major technology
advancement in brachytherapy and played a significant role in the dramatic
increase in the number of brachytherapy procedures performed. Within a
relatively short period of time, 103Pd
captured 40% of the growing brachytherapy market.
Cesium-131 represents the
first
major advancement in brachytherapy technology in over 18 years with attributes
that management believes could make it the long term "seed of choice" for
internal radiation procedures. Management believes that the 131Cs
seed
has specific clinical advantages for treating cancer over 125I
and
103Pd.
There
is
a large and growing potential market for the Company's products. Several
significant clinical and market factors are contributing to the increasing
popularity of the brachytherapy procedure. In Europe brachytherapy is growing
in
excess of 25% per year and it is expected that market growth in the U.S.
will
also increase dramatically. In 1996 only 4% of prostate cancer cases were
treated with brachytherapy, or about 8,000 procedures. In 2005, it was
estimated
that over 60,000 brachytherapy procedures would be performed for prostate
cancer. Brachytherapy as a treatment is now more common than radical
prostatectomy and has become the treatment of choice for early-stage prostate
cancer. Considerable attention is now being given to high risk and faster
growing prostate cancers as well. Brachytherapy has significant advantages
over
competing treatments including lower cost, better survival data, fewer
side
effects, a faster recovery time and the convenience of a single outpatient
procedure that generally lasts 45 minutes (Merrick, et. al., Techniques
in Urology,
Vol. 7,
2001; Potters, et. al., Journal
of Urology,
May,
2005; Sharkey, et. al., Current
Urology Reports,
2002).
Clinical
Results
Long
term
survival data are now available for brachytherapy with 103Pd
and
125I,
which
support the efficacy of brachytherapy. Clinical data indicate that brachytherapy
offers success rates for early-stage prostate cancer treatment that are equal
to
or better than those of RP or EBRT. While clinical studies of brachytherapy
to
date have focused on results from brachytherapy with Pd-103 and I-125,
management believes that this data will be relevant for brachytherapy with
Cs-131, and Cs-131 may offer improved clinical outcomes over Pd-103 and I-125,
given its shorter half-life and higher energy.
Improved
patient outcomes.
A number
of published studies on the use of 103Pd
and
125I
brachytherapy in the treatment of early-stage prostate cancer have been very
positive. We have not obtained consent to cite the studies listed
below.
·
|
A
twelve-year clinical study published in the 2004 Supplement of the
International
Journal of Radiation Oncology, Biology and Physics,
reported that the relative survival rate is 84% for low risk cancer
patients, 78% for intermediate risk cancer patients and 68% for high
risk
cancer patients. The study was conducted by Dr. Lou Potters, et al.
of the
New York Prostate Institute and included 1,504 patients treated with
brachytherapy between 1992 and 2000.
|
·
|
A
study published in the January 2004 issue of the International
Journal of Radiation Oncology, Biology and Physics,
reported that brachytherapy, radical prostatectomy, high-dose external
beam radiation therapy and combined therapies produced similar cure
rates.
The study was conducted by Dr. Patrick Kupelian, Dr. Louis Potters,
et al.
and included 2,991 patients with Stage T1 or T2 prostate cancer.
Of these
patients, 35% of patients underwent surgery, 16% received low-dose
EBRT,
10% received high-dose EBRT, 7% received combination therapy and
32%
received brachytherapy. After five years, the biochemical relapse-free
survival rate was 83% for brachytherapy, 81% for radical prostatectomy,
81% for high-dose EBRT, 77% for combination therapy and 51% for low-dose
EBRT.
|
·
|
A
nine-year clinical study published in the March 2000 issue of the
International
Journal of Radiation Oncology, Biology and Physics,
reported that 83.5% of patients treated with the Pd-103 device were
cancer-free at nine years. The study was conducted by Dr. John Blasko
of
the Seattle Prostate Institute and included 230 patients with clinical
stage T1 and T2 prostate cancer. Only 3% experienced cancer recurrence
in
the prostate.
|
·
|
Results
from a 10-year study conducted by Dr. Datolli and Dr. Wallner published
in
the International
Journal of Radiation Oncology, Biology and Physics
in
September 2002, were presented at the October 2002 American Society
for
Therapeutic Radiology and Oncology conference confirming the effectiveness
of the Pd-103 seed in patients with aggressive cancer who previously
were
considered poor candidates for brachytherapy. The 10-year study was
comprised of 175 patients with Stage T2-T3 prostate cancer treated
from
1991 through 1995. Of these patients, 79 percent remained completely
free
of cancer without the use of hormonal therapy or chemotherapy.
|
·
|
A
study by the Northwest Prostate Institute in Seattle, Washington
reported
79% disease-free survival at 12 years for brachytherapy in combination
with external beam radiation (Ragde, et
al.,
Cancer,
July 2000). The chance of cure from brachytherapy is nearly 50% higher
than for other therapies for men with large cancers (PSA 10-20) and
over
twice as high as other therapies for men with the largest cancers
(PSA
20+) (K. Wallner, Prostate
Cancer: A Non-Surgical Perspective,
Smart Medicine Press, 2000).
|
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 IsoRay
131Cs
seed
delivers a highly concentrated and confined dose of radiation directly to
the
prostate, healthy surrounding tissues and organs typically experience less
radiation exposure. Management believes, and initial results appear to support,
that this should result in lower incidence of side effects and complications
than may be incurred with other conventional therapies, and when side effects
do
occur, they should resolve more rapidly than those experienced with I-125
and
Pd-103 isotopes.
Favorable
Market Factors
Lower
Treatment Cost.
The
total one-time cost of brachytherapy ranges from $10,000 to $17,000 per
procedure. This is less than the cost of a radical prostatectomy or RP, which
ranges from $17,000 to $20,000, excluding treatment for side effects and
post-operative complications. Brachytherapy cost is comparable to the cost
of
EBRT (external beam radiation), which is approximately $14,000 to $35,000
for a
seven to nine week course of treatment.
Favorable
Demographics.
Prostate cancer incidence and mortality increase with age. Prostate cancer
is
found most often in men who are over the age of 50. The National Cancer
Institute has reported that the incidence of prostate cancer increases
dramatically in men over the age of 55. Currently, one out of every six men
is
at lifetime risk of developing prostate cancer. More than seven out of ten
men
diagnosed with prostate cancer are over the age of 65. At the age of 70,
the
chance of having prostate cancer is 12 times greater than at age 50. According
to the American Cancer Society, prostate cancer incidence rates increased
between 1988 and 1992 due to earlier diagnosis in men who otherwise had no
sign
of symptoms. Early screening has fostered a decline in the prostate cancer
death
rate since 1990.
The
number of prostate cancer cases in the U.S. is expected to increase due to
the
expanding population of men over the age of 55. The U.S. Census Bureau estimates
this segment of the population will increase from 25.9 million men in 2000
to 32
million men by 2008 - a 24% increase. Extrapolating that data, management
believes that the U.S. will provide over 180,000 candidates annually for
prostate brachytherapy by 2008.
Increased
PSA Screening.
Early
PSA screening and testing leads to early diagnosis. The American Cancer Society
recommends that men without symptoms or risk factors and who have a life
expectancy of at least ten years, should begin regular annual medical exams
at
the age of 50, and believes that health care providers should offer as part
of
the exam the prostate-specific antigen blood test. The PSA blood test determines
the amount of prostate specific antigen present in the blood. PSA is found
in a
protein secreted by the prostate, and elevated levels of PSA can be associated
with either prostatitis (a noncancerous inflammatory condition) or a
proliferation of cancer cells in the prostate. Industry studies have shown
that
the PSA test can detect prostate cancer up to five years earlier than the
digital rectal exam. Ultrasound tests and biopsies are typically performed
on
patients with elevated PSA readings to confirm the existence of cancer.
Our
Strategy
The
key
elements of IsoRay Medical's strategy include:
· |
Continue
to introduce the IsoRay 131Cs
seed into the U.S. brachytherapy market.
Utilizing a direct sales organization and selected channel partners,
IsoRay Medical intends to capture a leadership position by expanding
overall use of the brachytherapy procedure for prostate cancer, capturing
much of the incremental market growth and taking market share from
existing competitors.
|
· |
Create
a state-of-the-art manufacturing process.
IsoRay Medical has constructed a state-of-the-art manufacturing
facility
in Richland, Washington in its newly leased facility, to implement
our
proprietary manufacturing process which is designed to improve
profit
margins and provide adequate manufacturing capacity to support
future
growth and ensure quality control. If Initiative 297 presents
a strategic
roadblock to the Company, IsoRay plans to construct a permanent
manufacturing facility in another state. Working with leading
scientists,
IsoRay Medical intends to design and create a proprietary separation
process to manufacture enriched barium, a key source material
for
131Cs,
to ensure adequate supply and greater manufacturing efficiencies.
|
· |
Introduce
Cesium-131 therapies for other solid cancer tumors.
IsoRay Medical intends to partner with other companies to develop
the
appropriate delivery technology and therapeutic delivery systems
for
treatment of other solid cancer tumors such as breast, lung, liver,
pancreas, neck, and brain cancer. IsoRay Medical's management believes
that the first major opportunities may be for the use of Cesium-131
in
adjunct therapy for the treatment of residual lung and breast cancers.
|
· |
Introduce
other isotope products to the U.S. market.
IsoRay Medical plans to introduce its Yttrium-90 radioisotope in
2006.
Currently, FDA approved 90Y
manufactured by other suppliers is used in the treatment of non-Hodgkin's
lymphoma and is in clinical trials for other applications. Other
products
may be added in the future as they are developed. IsoRay Medical
has the
ability to make several different isotopes for multiple medical and
industrial applications. During 2005 the Company identified and
prioritized additional market opportunities for these
isotopes.
|
· |
Support
clinical research and sustained product development.
The Company plans to structure and support clinical studies on the
therapeutic benefits of Cs-131 for the treatment of solid tumors
and other
patient benefits. We are and will continue to support clinical studies
with several leading radiation oncologists to clinically document
patient
outcomes, provide support for our product claims and compare the
performance of our seeds to competing seeds. IsoRay Medical plans
to
sustain long-term growth by implementing research and development
programs
with leading medical institutions in the U.S. to identify and develop
other applications for IsoRay Medical's core radioisotope technology.
|
Management
believes there is a large and growing addressable market for IsoRay Medical's
products. Several factors appear to contribute to the increasing popularity
of
the brachytherapy procedure. Long-term survival data are now available
for
brachytherapy (other than with respect to treatment from Cs-131 seeds).
Brachytherapy has become the treatment of choice for not only early-stage
prostate cancer but is now being considered for treatment of fast growing,
aggressive tumors. For the treatment of prostate cancer, seed brachytherapy
is
now more common than surgery (radical prostatectomy). Seed brachytherapy
has
significant advantages over competing treatments including lower cost,
better
survival data, fewer side effects, a faster recovery time and the convenience
of
a 45-minute outpatient procedure. Over 60,000 procedures were forecasted
to
occur in the U.S. in 2005. At the April 30, 2006 seed price for 131Cs
of
$55, this represents a potential $330 million seed market that is forecast
to
grow substantially by 2009 according to a recent market survey performed
by
Frost & Sullivan, a nationally recognized market research firm. IsoRay
Medical's management believes that the 131Cs
seed
will add incremental growth to the existing brachytherapy seed market as
physicians who are currently reluctant to recommend brachytherapy for their
prostate patients due, in part, to side effects caused by longer-lived
isotopes,
become comfortable with the shorter half-life of 131Cs,
and
the anticipated reduction of side effects.
Products
IsoRay
Medical markets the Cesium-131 seed
and
intends to market Yttrium-90 and other radioactive isotopes in the future.
Additionally, it will attempt to create a market, primarily in clinical trials,
for the liquid Cs-131 isotope, which is created in the production of IsoRay
Medical's 131Cs
seed.
Cs-131
Seed Product Description and Use in Cancer Treatment
Brachytherapy
seeds are small devices that deliver therapeutic radiation directly to tumors.
Each seed contains a radioisotope sealed within a welded titanium case. In
prostate cancer procedures, approximately 85 to 135 seeds are permanently
implanted in a 45-minute outpatient procedure. The isotope decays over time,
and
the seeds become inert. The seeds may be used as a primary treatment or in
conjunction with other treatment modalities such as external beam radiation
therapy, chemotherapy, or as treatment for residual disease after excision
of
primary tumors.
Significant
advantages of brachytherapy over competing treatments include: fewer side
effects (the likelihood of impotence and incontinence is reduced when seeds
are
used to treat prostate cancer); short, convenient outpatient procedure
(typically 45 minutes); faster recovery time (days vs. weeks); lower cost
than
other treatment modalities; higher cure rates for solid tumors; less pain;
and
overall considerably better quality of life. The primary disadvantage of
brachytherapy is subjecting the human body to radiation and the side effects
of
radiation. Physician errors in seed placement and the number of seeds implanted
may also result in the failure to eradicate the cancer or in negative side
effects from over-radiation of certain tissues in the body.
A
diagram
of the IsoRay seed appears in Figure 1. The seed contains an x-ray opaque
marker
surrounded by a ceramic substrate to which the isotope is chemically attached.
The seed core is placed in a titanium tube and precision laser welded to
form a
hermetically sealed source of therapeutic radiation suitable for permanent
implantation. The x-ray marker allows the physician to accurately determine
seed
placement within the tumor.
Figure
1: Cross section of 131Cs
seed
Competitive
Advantages of Cs-131
Management
believes that 131Cs
has
specific clinical advantages for treating cancer over I-125 and Pd-103, the
other isotopes currently used in brachytherapy seeds. The table below highlights
the key differences of the three seeds. The Company believes that the short
half-life, high-energy characteristics of 131Cs
will
increase industry growth and facilitate meaningful penetration into the
treatment of other forms of cancer such as breast cancer.
Brachytherapy
Isotope Comparison
|
|
Cesium-131
|
|
Palladium-103
|
|
Iodine-125
|
Half
Life
|
|
9.7
Days
|
|
17.5
days
|
|
60
days
|
Energy
|
|
29
KeV+
|
|
22
KeV+
|
|
28
KeV+
|
Dose
Delivery
|
|
90%
in 33 days
|
|
90%
in 58 days
|
|
90%
in 204 days
|
Total
Dose
|
|
100
Gy
|
|
125
Gy
|
|
145
Gy
|
Anisotropy
Factor*
|
|
.969
|
|
.877
(TheraSeed® 2000)
|
|
.930
(OncoSeed® 6711)
|
|
|
|
|
|
|
|
+KeV
= kiloelectron volt, a standard unit of measurement for electrical
energy.
*Degree
of symmetry of therapeutic dose, a factor of 1.00 indicates symmetry.
|
Shorter
half-life. The
Company believes that Cesium-131's shorter half-life of 9.7 days will prove
to
have greater biological effectiveness, will mitigate the negative effects
of
long radiation periods on healthy tissue and will reduce the duration of
any
side effects. A shorter half-life produces more intense therapeutic radiation
over a shorter period of time and may reduce the potential for cancer cell
survival and tumor recurrence. Radiobiological studies indicate that
shorter-lived isotopes are more effective against faster growing tumors (Dicker,
et. al., Semin.
Urol. Onc.
18:2,
May 2000). Other researchers conclude that "half-lives in the approximate
range
4-17 days are likely to be significantly better for a wide range of tumor
types
for which the radiobiologic characteristics may not be precisely known in
advance." (Armpilia CI, et. al., Int.
J. Rad. Oncol. Biol. Phys. 55:2,
February 2003).
High
energy.
The
Cs-131 isotope decay energy of 29 KeV (versus 22 KeV for Pd-103 and 28 KeV
for
I-125) generates a therapeutic radiation field that extends beyond the current
dosimetry reference point of 1 cm. Pd-103 seeds emit radiation that does
not
penetrate as far in tissue (up to 40% lower than Cs-131). To compensate for
this
more Pd-103 seeds are required to attain the equivalent dose as if Cs-131
seeds
were used. This increase in the number of seeds implanted increases the time
and
cost required to perform Pd-103-based procedures. The lower energy from
103Pd
seeds
may also result in greater non-uniformity of the implant dose as dose rates
near
the surface of each seed must be higher to compensate for lower doses at
greater
distances from each seed. The high energy of Cs-131 can result in radiation
toxicity if the dosage is not properly calculated by the implanting physician
and staff.
Reduced
side effects. Because
the IsoRay 131Cs
seed
device delivers a highly concentrated and confined dose of radiation directly
to
the prostate, healthy surrounding tissues and organs are exposed to less
radiation than with other treatments. Management believes this should result
in
fewer and less severe side effects and complications than may be incurred
with
other conventional therapies.
Figure
2. Cs-131 seed Autoradiograph
Shape
of radiation field. The
shape
of the radiation field generated by a 131Cs
seed
is uniform, and this uniformity may result in better radiation dose coverage
and
improved therapeutic effectiveness. The adjacent picture is an autoradiograph
(film exposed by radiation from the seed itself) of an IsoRay seed, which
shows
this uniformity of the radiation field that is expected to result in better
radiation dose coverage. IsoRay Medical has conducted extensive computer
modeling and testing of the seed design. The IsoRay seed has passed all Nuclear
Regulatory Commission ("NRC") requirements for sealed radioactive sources.
Dose
uniformity was tested and the results compared well to those predicted by
industry standard computer modeling techniques. In the third quarter of 2002,
seeds were sent to the National Institute for Standards and Technology for
calibration, and have undergone dosimetry testing according to American
Association of Physicists in Medicine ("AAPM") protocols. The results of
these
tests were compiled in IsoRay Medical's 510(k) submission to the FDA and
were
subsequently published in the June 2004 issue of Medical
Physics.
The
results of these tests showed superior dose characteristics relative to the
leading I-125 and Pd-103 seeds.
Reduced
costs.
The
characteristics of 131Cs
seeds
described above may result in the use of 10%-30% less seeds per procedure,
compared to other isotopes, thereby reducing the total physical radiation
dose
to the patient and reducing the costs of the procedure for the third party
payors and the patient.
Yttrium-90
Y-90
and
Cs-131 are short-lived isotopes that are well suited to treatment of tumors
by
cell-directed therapy. The Company plans to introduce its second product,
Yttrium-90, in 2006. Y-90 is already available from other companies. When
used
in combination with molecular targeting agents, Y-90 is proving to be an
ideal
isotope to provide localized radiation therapy for various types of cancer,
such
as non-Hodgkin's lymphoma, leukemia, ovarian and prostate cancers,
osteosarcomas, and tumors of the breast, lung, kidney, colon, and brain.
Y-90's
properties of short half-life, high specific activity, high energy and pure
beta-emissions can be chemically attached to targeting agents that are highly
selective for specific tumors. These targeting agents may include monoclonal
antibodies, molecules derived from antibodies, peptides, or other tumor-specific
molecules. Most Y-90 currently used in the U.S. is imported with varying
degrees
of quality. IsoRay Medical has developed a proprietary separation process
that
produces Y-90 that management believes will meet or exceed the purity and
quality required for clinical trials and medical applications.
Y-90
is a
significant component of several commercially available products. These products
use radiopharmaceutical grade Y-90 derived using manufacturing methods and
techniques that conform to current cGMP (current Good Manufacturing Practices),
allowing them to be used invasively in commercially available healthcare
products.
We
intend
to initially target the clinical trial market. Currently there are several
clinical trials and medical applications involving Y-90 underway around the
world that represent a potential market for Y-90. These customers hold
significant growth potential, as products undergoing successful trials become
approved for general use. Our strategy will be to attempt to develop exclusive
sales arrangements with companies that are close to FDA approval or foreign
companies authorized to commercially sell their products in various overseas
markets.
Y-90
is a
pure-beta particle emitter with a physical half-life of 64.1 hours (2.7 days)
that decays to stable Zirconium-90. The average energy of the beta emissions
from Y-90 is 2.37 MeV, with an effective path-length in tissue of 5.3 mm.
This
means that 90% of the energy is absorbed within a 5.3-mm radius.
Y-90
is
manufactured by chemical separation from a long-lived Strontium-90 (Sr-90)
generator stock. We intend to purchase or lease the Sr-90 feedstock from
the
U.S. DOE and international suppliers. Due to the radiological characteristics
of
Sr-90, initial processing will occur under stringent radiological controls
in a
highly shielded isolator or "hot cell" using remote manipulators. Following
preliminary separation, the Y-90 may be further purified and converted to
pharmaceutical grade material in a shielded environmentally-controlled glove
box. After completing the separation process (e.g., collecting or "milking"
the
therapeutic Y-90), the residual Sr-90 generator is recycled for subsequent
separations. In theory, the Sr-90 generator can continue to generate Y-90
for
decades. However, the process periodically requires infusion of new Sr-90.
In
addition to acquiring Sr-90, we will need to acquire equipment and develop
manufacturing procedures for the Y-90 isotope that meet cGMP criteria. While
we
initially plan to produce solely radiochemical purity Y-90, which does not
need
to meet the more stringent manufacturing standards required for
radiopharmaceutical purity Y-90, we intend to develop our manufacturing methods
to this higher level and produce radiopharmaceutical purity Y-90 in the
future.
IsoRay
Medical has identified four principal suppliers of Y-90: MDS Nordion (a division
of MDS, Inc.), Perkin-Elmer, Inc., Amersham (part of General Electric Company)
and Iso-Tex Diagnostics, Inc. If we begin marketing Y-90, these companies
will
be our principal competitors within this market.
Cs-131
Manufacturing Process
Cs-131
is
a radioactive isotope that can be produced by the neutron bombardment of
Barium-130. When Ba-130 is put into a nuclear reactor it becomes Ba-131,
the
radioactive material that is the parent of Cs-131. The process includes the
following:
· |
Isotope
Generation. The
radioactive isotope Cs-131 is normally produced by placing a
quantity of
stable non-radioactive barium (ideally pure Ba-130) into the
neutron flux
of a nuclear reactor. The irradiation process converts a small
fraction of
this material into a radioactive form of barium (Ba-131). The
Ba-131
decays by electron capture to the radioactive isotope of interest
(Cs-131). IsoRay Medical has evaluated several international
nuclear
reactors and a few potential facilities in the United States.
Due to the
short half-life of both the Ba-131 and Cs-131 isotopes, these
facilities
must be capable of removing irradiated materials from the reactor
core on
a routine basis. Reactor personnel will ship the irradiated barium
on a
pre-determined schedule to our facilities for subsequent separation,
purification and seed assembly. The Company has identified more
than five
reactors in the U.S., Europe and the former Soviet Union that
are capable
of meeting these requirements. This routine isotope generation
cycle at
supplier reactors will allow significant quantities of Ba-131
to be on
hand at our facilities for the completion of the rest of the
manufacturing
process. To ensure reliability of supply, we intend to seek agreements
with multiple facilities to produce Ba-131. As of the date of
this
Prospectus, IsoRay Medical has agreements in place with two suppliers
of
irradiated Ba-131. The Company’s agreement with Russia’s Institute of
Nuclear Materials for irradiated Ba-131 has a seven year term
(ending
August 25, 2012) and allows the Company to purchase irradiated
Ba-131 for
$300.00 per Curie of the isotope. The projected value of the
agreement
over its term is $30,000,000, with $300,000 worth of irradiated
Ba-131
projected to be delivered in the first year. Through March 31,
2006, the
Company had paid approximately $30,000 to the Institute of Nuclear
Materials. In addition, the Company continues to engage in the
development
of a barium enrichment device that, if successful, should reduce
the cost
of producing Cs-131 while maintaining the purity and consistency
required
in the end product.
|
· |
Isotope
Separation and Purification. Upon
irradiation of the barium feedstock, the Ba-131 begins decaying to
Cs-131.
At pre-determined intervals the Cs-131 produced is separated from
the
barium feedstock and purified using a proprietary radiochemical
separations process (patent applied for). Due to the high-energy
decay of
Ba-131, this process is performed under stringent radiological controls
in
a highly shielded isolator or "hot cell" using remote manipulators.
After
separating Cs-131 from the energetic Ba-131, subsequent seed processing
may be performed in locally shielded fume hoods or glove boxes. If
enriched barium feedstock is used, the residual barium remaining
after
subsequent Cs-131 separation cycles ("milkings") will be recycled
back to
the reactor facility for re-irradiation. This material will be recycled
as
many times as economically feasible, which should make the process
more
cost effective. As an alternative to performing the Cs-131 separation
in
our own facilities, IsoRay may enter into agreements with other entities
to supply "raw" Cs-131 by performing the initial barium/cesium separation
at their facilities, followed by final purification at IsoRay's facility.
|
· |
Internal
Seed Core Technology. The
purified Cs-131 isotope will be incorporated into an internal assembly
that contains a binder, spacer and X-ray marker. This internal core
assembly is subsequently inserted into a titanium case. The dimensional
tolerance for each material is extremely important. Several carrier
materials and placement methods have been evaluated, and through
a process
of elimination, we have developed favored materials and methods during
our
laboratory testing. The equipment necessary to produce the internal
core
includes accurate cutting and gauging devices, isotope incorporation
vessels, reaction condition stabilization and monitoring systems,
and
tools for placing the core into the titanium tubing prior to seed
welding.
|
· |
Seed
Welding. Following
production of the internal core and placement into the titanium capsule,
a
seed is hermetically sealed to produce a sealed radioactive source
and
biocompatible medical device. This manufacturing technology requires:
accurate placement of seed components with respect to the welding
head,
accurate control of welding parameters to ensure uniform temperature
and
depth control of the weld, quality control assessment of the weld
integrity, and removal of the finished product for downstream processing
or rejection of unacceptable materials to waste. Inspection systems
are
capable of identifying and classifying these variations for quality
control ensuring less material is wasted. Finally, the rapid placement
and
removal of components from the welding zone will affect overall product
throughput.
|
· |
Quality
Control. We
have established procedures and controls to meet all FDA and ISO
9001:2000
Quality Standards. Product quality and reliability will be secured
by
utilizing multiple sources of irradiation services, feedstock material,
and other seed manufacturing components. An intensive production
line
preventive maintenance and spare parts program will be implemented.
Also,
an ongoing training program will be established for customer service
to
ensure that all regulatory requirements for the FDA, DOT and applicable
nuclear radiation and health authorities are fulfilled.
|
The
Company intends to implement a just-in-time production capability that is
keenly
responsive to customer input and orders to ensure that individual customers
receive a higher level of customer service from us than from existing seed
suppliers who have the luxury of longer lead times due to longer half-life
products. Time from order confirmation to completion of product manufacture
can
be reduced to several working days, including receipt of irradiated barium
(from
a supplier's reactor), separation of Cs-131 (at our facilities), isotope
labeling of the core, and loading of cores into pre-welded titanium "cans"
for
final welding, testing, quality assurance and shipping.
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 amount. Upon receipt of an order, the Company either delivers the
seeds from its facility directly to the physician using Federal Express or
sends
the order to an independent third party with expertise in seed delivery who
delivers the seeds 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. The Company's historical profit margin on seeds has
been sufficient to justify unusable inventory and management has monitored
the
amount of unused inventory carefully to review its calculations of wastage
in
its business plans.
Automated
Manufacturing Process
IsoRay
Medical has held discussions with a leading designer and manufacturer of
automated seed manufacturing equipment that has manufactured, installed and
deployed automated production lines in Europe and the United States. In
addition, IsoRay Medical engaged in preliminary discussions with another seed
manufacturer regarding obtaining an existing automated seed production line.
Based on technical evaluations and on-site reviews of both lines, IsoRay elected
to automate its current manufacturing process in phases. Current production
rates with IsoRay’s semi-automated seed welding equipment exceed those
attainable with the fully automated lines. 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.
Manufacturing
Facility
The
initial production of the IsoRay Cs-131 brachytherapy seed commenced at PNNL
in
2004. IsoRay Medical began operations in its new interim leased production
facility in Richland, Washington on November 30, 2005. The Company is also
considering another state as a location for a future facility, either as the
Company's sole manufacturing facility or as a secondary facility. No agreements
have been reached for any possible facilities outside of
Washington.
Isotope
Testing in Idaho
On
December 14, 2005, IsoRay and Idaho's Advanced Test Reactor entered into
a
collaboration and partnership agreement for the design, analysis and fabrication
of a capsule containing barium carbonate, which will be irradiated at the
Advanced Test Reactor and then shipped to IsoRay for processing and analysis
of
the 131Cs
product. If testing of this production method is successful, it would further
enhance IsoRay's production capabilities. The testing has commenced and is
expected to be completed by August 2006. As an adjunct to the 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 costs of the testing at the Advanced Test
Reactor.
Repackaging/Preloading
Services
Most
brachytherapy manufacturers offer their seed product to the end user
packaged in
four principal packing configurations provided in a sterile or non-sterile
package depending on the customer's preference. These include:
· |
Pre-loaded
needles
(loaded with 3 to 5 seeds and spacers)
|
· |
Strands
of seeds
(consists of seeds and spacers in a biocompatible "shrink wrap")
|
· |
Pre-loaded
Mick cartridges
(fits the Mick applicator)
|
No
single
package configuration dominates the market at this point. Market share
estimates, based on internal management studies of the market, for each
of the
four packaging types are: loose seeds (negligible amount) Mick cartridges
(30%),
pre-loaded needles (20%) and strands (50%). 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 repackaging service is to package, assay and certify the contents
of the
final product configuration shipped to the customer. A commonly used method
of
providing this service is through independent radiopharmacies such as Anazao
Healthcare and Advanced Care Medical Inc.. Manufacturers send loose seeds
along
with the physician's instructions to the radiopharmacy who, in turn, loads
needles and/or strands the seeds according to the doctor's instructions.
These
pharmacies then sterilize the product and certify the final packaging prior
to
shipping directly to the end user.
IsoRay
Medical has held discussions with the major independent radiopharmacies
and
determined the additional time required for delivery of loose seeds to
an
off-site radiopharmacy for subsequent assay, preloading and sterilization
creates additional loss of our isotope due to decay and is prohibitive
on a
long-term basis. However, to increase sales in the near-term we are using
these
services until our own custom preloading operation comes fully on-line
in 2006.
On March 1, 2006, the Company entered into a Service Agreement with Advanced
Care Medical, Inc. for radiopharmacy services. The term of the Service
Agreement
is one year, with automatic one year extensions unless terminated, and
prices
vary from $6-15 per seed depending on how the seeds are packaged. In late
March,
2006, the Company’s stranding service became operational and our first stranded
order was shipped from the facility on April 5, 2006.
We
currently load Mick cartridges in our own facility which in recent months
accounted for more than 50% of total seed orders. The Company has retained
an
experienced consultant to assist with implementation of the custom preloading
service and is now marketing its seeds to the end user in all four of the
commonly used packaging configurations. 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 negates an 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 realized
by eliminating the need for loose seed handling and loading capabilities
on
site, eliminating the need for additional staffing to load and sterilize
seeds
and needles, and eliminating the expense of additional assaying of the
seeds.
Management
estimates the cost of establishing the custom preloading service in its
new,
leased facility to be approximately $250,000, most of which has already
been
spent on capital equipment. The custom preloading area has been created
in the
facility the necessary equipment has been delivered and installed. Operating
procedures are in place, staff have been trained, and process validation
activities have been completed. Technicians have been added to the staff
to
handle the seed loading and stranding operations. PNNL will continue to
provide
independent third party assay of the seeds for the foreseeable future.
Our
customer service staff will provide assistance with shipping, documentation
and
tracking of all orders from the repackaging service to the end
user.
Barium
Enrichment Device
Barium-130
is the original source material for Cs-131. When Ba-130 is put into a nuclear
reactor it becomes Ba-131, the radioactive material that is the parent of
Cs-131. Barium metal found in nature contains only 0.1% of Ba-130 with six
other
isotopes making up the other 99.9%. As part of its manufacturing process the
Company intends to develop a barium enrichment device that should create
"enriched barium" with a higher concentration of the Ba-130 isotope than is
found in naturally occurring barium. In addition to creating a higher purity
Ba-130, which translates into higher purity Cs-131, a barium enrichment device
will result in higher yields of Cs-131. The Company has identified sources
of
enriched barium, including in the former Soviet Union, that we believe we can
use until the barium enrichment device is developed.
Marketing
and Sales
Marketing
Strategy
The
Company intends to position Cs-131 as the isotope of choice for prostate
brachytherapy. Based on preliminary clinical studies, management believes there
is no apparent clinical reason to use other isotopes when Cesium-131 is
available. The advantages associated with a high energy and short half-life
isotope are generally accepted within the clinical community and the Company
intends to help educate potential patients about the clinical benefits a patient
would experience from the use of Cs-131 for his brachytherapy seed treatment.
The potential negative effects of the prolonged radiation times associated
with
the long half-life of Iodine-125 make this isotope less attractive than
Cesium-131.
We
target
competing isotopes as our principal competition rather than the various
manufacturers and distributors of these isotopes. In this way, the choice
of
brachytherapy isotopes will be less dependent on the name and distribution
strengths of the various iodine and palladium manufacturers and distributors
and
more dependent on the therapeutic benefits of Cs-131. The Company focuses
the
purchasing decision on the advantages and functionality of the Cs-131 isotope
while seeking to educate the prostate cancer patient about these clinical
benefits.
The
professional and patient market segments each play a role in the ultimate
choice
of prostate cancer treatment and the specific isotope chosen for seed
brachytherapy treatment. The Company is tailoring its marketing message to
each
audience. IsoRay Medical has retained an advertising agency in the Seattle
area
to assist with its marketing communication program. The agency is coordinating
the creation and distribution of all advertising material and work with the
print and visual media.
The
advantages of Cs-131's unique combination of high energy and short half-life
are
heavily promoted within the clinical market. Because we believe there is
no
apparent clinical reason to choose other isotopes over cesium, we have and
will
continue to target those high volume users of other isotopes as our first
implant sites. We also emphasize the prolonged radiation times and the high
doses of radiation given to the patient by the iodine isotope and the possible
negative effects of this prolonged radiation to the adjacent healthy tissues.
We
believe that this is an important marketing message because clinicians generally
agree the radiation given by Iodine has little or no clinical benefit after
120
to 150 days.
To
promote our products to the clinical and professional audience, we use a
combination of marketing messages to appear in print and visual media. Past
and
planned marketing activities include: attendance at the major
brachytherapy-related clinical conferences to exhibit our products and provide
marketing information for annual meetings, conferences and other forums of
the
various professional societies; print advertising in brachytherapy clinical
journals; and promoting clinical presentations by experts in the field at
major
conferences.
In
today's U.S. health care market patients are more informed and involved in
the
management of their health and any treatments required. Many physicians relate
incidents of their patients coming for consultations armed with articles
researched on the Internet and other sources describing new treatments and
medications. In many cases, these patients are demanding a certain therapy
or
drug and the physicians are complying when medically appropriate.
Because
of this market factor, we 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 Cs-131, including fewer side
effects, less total radiation, and shorter period of radiation. The Company
plans to reach this market through its website, located at www.isoray.com,
advertising in magazines read by prostate cancer patients and their caregivers,
and through patient advocacy efforts.
Another
key element of our strategy is to validate and support all product claims
with
well-designed and executed clinical studies that support the efficacy and
positive patient outcomes of our Cs-131 seed. We intend to sponsor
physician-directed studies that will compare the performance of our seeds
to
Pd-103 and I-125 seeds. During 2006, IsoRay Medical plans to continue its
collaboration with leading physicians to develop clinical data on the efficacy
of Cs-131 seeds. Noted contributors from the medical physics community will
be
consulted regarding the benefits of brachytherapy using shorter half-life,
improved dosimetry, and higher decay energy seeds. Articles will be submitted
to
professional journals such as Medical
Physics
and the
International
Journal of Radiation Oncology,
Biology, and Physics.
Sales
and Distribution
According
to a recent industry survey, approximately 2,000 hospitals and free standing
clinics are currently offering radiation oncology services in the United States.
Not all of these facilities offer seed brachytherapy services. These
institutions are staffed with radiation oncologists and medical physicists
who
provide expertise in radiation therapy treatments and serve as consultants
for
urologists and prostate cancer patients. We target the radiation oncologists
and
the medical physicists as well as urologists as key clinical decision makers
in
the type of radiation therapy offered to prostate cancer patients.
IsoRay
Medical has started to build a direct sales organization to introduce Cs-131
to
radiation oncologists and medical physicists. In August 2004 IsoRay Medical
hired two highly successful sales professionals from the brachytherapy industry
that bring well established relationships with key radiation oncologists and
medical physicists, and in 2005, IsoRay Medical expanded its sales force to
four
experienced individuals. By hiring experienced and successful brachytherapy
sales people, the Company reduces the risk of delay in penetrating the market
due to a lack of knowledge of the industry or unfamiliarity with the key members
of the brachytherapy community.
The
initial response to our new isotope from prominent radiation oncologists,
medical physicists and urologists in the US has been very positive. As of
May
24, 2006, forty cancer therapy centers located across the United States have
received licenses from state and federal authorities to provide Cesium-131
seed
implants for their prostate cancer patients. States where cancer treatment
centers were offering Cesium-131 seed implants as of May 24, 2006 include
Washington, California, Arizona, Texas, Illinois, Wisconsin, Michigan,
Pennsylvania, Tennessee, New York, Massachusetts, Maryland, Florida, Arkansas
and North Carolina. Additional centers will be added as the Company's
manufacturing capacity increases. Preliminary reported clinical outcomes
for
patients receiving Cesium-131 indicate a normal level of toxicity related
to
radiation but a much faster resolution of side effects associated with seed
brachytherapy. These results are not statistically significant nor are they
large enough to make any definitive conclusions, however, they are consistent
with what clinicians might expect from a high-energy, short half-life isotope.
The
Company will expand its U.S. sales force as it increases production capacity
and
expands the customer base. If the Company expands outside the U.S. market,
it
plans to use established distributors in the key markets in these other
countries. This strategy should reduce the time and expense required to
identify, train and penetrate the key implant centers and establish
relationships with the key opinion leaders in these markets. Using established
distributors also should reduce the time spent acquiring the proper radiation
handling licenses and other regulatory requirements of these
markets.
Pricing
Payment
for IsoRay Medical products comes from third-party payors including
Medicare/Medicaid and private insurance groups. These payors reimburse the
hospitals and clinics via well-established payment procedures. On October
31,
2003, as a result of IsoRay Medical's predecessor's filing for an Additional
Device Category, CMS approved a HCPCS/CPT code for Cs-131 brachytherapy seeds
of
$44.67 per seed. We have never sold a seed at this price. This is the same
price
as awarded to Pd-103 seeds, and compares favorably to the $37.34 price granted
to I-125 seeds. Medicare is the most significant U.S. payor for prostate
brachytherapy services, and is the payor in close to 70% of all U.S. prostate
brachytherapy cases. CMS reviews and adjusts outpatient reimbursement on
a
periodic and ad hoc basis, but no changes are expected for 2006. As of April
30,
2006, the price for our loose seeds was $55 per seed.
Prostate
brachytherapy is typically performed in the outpatient setting, and as such,
is
covered by the CMS Outpatient Prospective Payment System. In January 2004,
brachytherapy procedure prices were unbundled by CMS, allowing itemized
invoicing for seeds with no limit on the number of seeds used per procedure,
and
CMS currently reimburses hospitals and clinics for their seed purchases on
a
cost basis. Other insurance companies have followed these CMS changes. With
the
new reimbursement structure and industry consolidation, prices of brachytherapy
seeds are expected to stabilize and increase over the next few years.
Pricing
premiums for pre-loaded needles, strands and pre-loaded Mick cartridges will
be
added as these packaging alternatives are offered to our customers. When charges
for the seeds are correctly submitted in the appropriate format to CMS, 100%
of
the total cost of the seeds is reimbursed to the hospital or clinic by CMS.
Other
Information
Customers
Customers
representing ten percent or more of total Company sales for the three months
ended March 31, 2006 include:
Eisenhower
Medical Center
|
Rancho
Mirage, CA
|
25%
of revenue
|
Mills
Peninsula Health Services
|
San
Mateo, CA
|
19%
of revenue
|
Community
Hospital of Los Gatos
|
Los
Gatos, CA
|
18%
of revenue
|
The
loss
of either 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.
Proprietary
Rights
The
Company relies on a combination of patent, copyright and trademark laws, trade
secrets, software security measures, license agreements and nondisclosure
agreements to protect its proprietary rights. Some of the Company's proprietary
information may not be patentable.
The
Company intends to vigorously defend its proprietary technologies, trademarks,
and trade secrets. Members of management, employees, and certain equity holders
have previously signed non-disclosure, non-compete agreements, and future
employees, consultants, and advisors, with whom the Company engages, and who
are
privy to this information, will be required to do the same. A patent for the
Cesium separation and purification process has been granted on May 23, 2000
by
the U.S. Patent and Trademark Office (USPTO) under Patent Number 6,066,302,
with
an expiration date of May 23, 2020. The process was developed by Lane Bray,
a
shareholder of the Company, and has been assigned exclusively to IsoRay Medical.
IsoRay Medical's predecessor also filed for patent protection in four European
countries under the Patent Cooperation Treaty. Those patents have been assigned
to IsoRay Medical.
Our
management believes that certain aspects of the IsoRay seed design and
construction techniques are patentable innovations. These innovations have
been
documented in IsoRay laboratory records, and a patent application was filed
with
the USPTO on November 12, 2003. Certain methodologies regarding isotope
production, separation, and seed manufacture are retained as trade secrets
and
are embodied in IsoRay Medical's procedures and documentation. In June and
July
of 2004, three patent applications were filed relating to methods of deriving
Cs-131 and Y-90 developed by IsoRay Medical employees. The Company is currently
working on developing and patenting additional methods of deriving Cs-131 and
Y-90, and other isotopes.
There
are
specific conditions attached to the assignment of the Cs-131 patent from Lane
Bray. In particular, the associated Royalty Agreement provides for 1% of gross
profit payment from seed sales (gross seed sales price minus direct production
cost) to Lane Bray and 1% of gross profit from any use of the Cs-131 process
patent for non-seed products. If IsoRay Medical reassigns the Royalty Agreement
to another company, these royalties increase to 2%. The Royalty Agreement has
an
anti-shelving clause which requires IsoRay Medical to return the patent if
IsoRay Medical permanently abandons sales of products using the invention.
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 in exchange for a membership interest. The license
agreement was transferred to IsoRay, Inc. (WA domiciled) effective May 1, 2002
in connection with the tax-free reorganization.
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, there have been no product sales incorporating the licensed
technology and there is no royalty due pursuant to the terms of the agreement.
Management believes that because this technology is not presently being used
and
believes it will not be used in the future that no royalties will be paid under
this agreement.
Research
And Development
From
inception (December 17, 2001) through March 31, 2006, IsoRay Medical and
its
predecessor companies incurred approximately $2 million in costs related
to
research and development activities. The Company expects to continue to have
employees working on activities that will be classified as research or
development for the foreseeable future.
Government
Regulation
The
Company's present and future intended activities in the development, manufacture
and sale of cancer therapy products are subject to extensive laws, regulations,
regulatory approvals and guidelines. Within the United States, the Company's
therapeutic radiological devices must comply with the U.S. Federal Food, Drug
and Cosmetic Act, which is enforced by the FDA. The Company is also required
to
adhere to applicable FDA regulations for Good Manufacturing Practices, including
extensive record keeping and periodic inspections of manufacturing facilities.
IsoRay Medical's predecessor obtained FDA 510(k) clearance in March 2003 to
market the IsoRay 131Cs
seed
for the treatment of localized solid tumors. The Company has not applied for
clearance from the FDA to market its second product (currently in development),
Yttrium-90, but management believes that it will not be difficult to obtain
clearance for Y-90, since other manufacturers of this product have already
obtained clearance for it.
Specifically,
in the United States, the FDA regulates, among other things, new product
clearances and approvals to establish the safety and efficacy of these products.
We are also subject to other federal and state laws and regulations, including
the Occupational Safety and Health Act and the Environmental Protection Act.
The
Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations
govern or influence the research, testing, manufacture, safety, labeling,
storage, record keeping, approval, distribution, use, reporting, advertising
and
promotion of such products. Noncompliance with applicable requirements can
result in civil penalties, recall, injunction or seizure of products, refusal
of
the government to approve or clear product approval applications,
disqualification from sponsoring, or conducting clinical investigations, prevent
us from entering into government supply contracts, withdrawal of previously
approved applications and criminal prosecution.
Approval
of new medical devices is a lengthy procedure and can take a number of years
and
the expenditure of significant resources. There is a shorter FDA review and
clearance process, the premarket notification process, or the 510(k) process,
whereby a company can market certain medical devices that can be shown to be
substantially equivalent to other legally marketed devices. We have been able
to
achieve market clearance for our 131Cs
seed
using the 510(k) process.
In
the
United States, medical devices are classified into three different categories
over which FDA applies increasing levels of regulation: Class I,
Class II and Class III. Most Class I devices are exempt from
premarket notification (510(k)); most Class II devices require premarket
notification (510(k)) and most Class III devices require premarket
approval. Our 131Cs
seed
is a Class II device and has received 510(k) clearance.
As
a
registered medical device manufacturer with the FDA, we are subject to
inspection to ensure compliance with their current Good Manufacturing Practices,
or cGMP. These regulations require that we and any of our contract manufacturers
design, manufacture and service products and maintain documents in a prescribed
manner with respect to manufacturing, testing, distribution, storage, design
control and service activities. Modifications or enhancements that could
significantly affect the safety or effectiveness of a device or that constitute
a major change to the intended use of the device require a new 510(k) notice
for
any product modification. Management has no current intent to modify the
131Cs
seed
such that a new 510(k) notice would be required, but if management in the future
determines that it would be beneficial to substantially modify the 131Cs
seed
or use a delivery device not previously approved by the FDA, we would be
prohibited from marketing the modified product until the 510(k) notice is
cleared by the FDA.
The
Medical Device Reporting regulation requires that we provide information to
the
FDA on deaths or serious injuries alleged to be associated with the use of
our
devices, as well as product malfunctions that are likely to cause or contribute
to death or serious injury if the malfunction were to recur. Labeling and
promotional activities are regulated by the FDA and, in some circumstances,
by
the Federal Trade Commission.
As
a
medical device manufacturer, we are also subject to laws and regulations
administered by governmental entities at the federal, state and local levels.
For example, our facility is licensed as a medical product manufacturing
facility in the State of Washington and is subject to periodic state regulatory
inspections. Our customers are also subject to a wide variety of laws and
regulations that could affect the nature and scope of their relationships with
us.
In
the
United States, as a manufacturer of medical devices and devices utilizing
radioactive by product 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 131Cs
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.
The constitutionality of this initiative has been challenged, but if it were
enforced it could impact our ability to manufacture our seeds, whether at PNNL
or elsewhere in the State of Washington.
Seasonality
The
Company is not aware of any significant seasonal influences on its business.
The
composition of certain products and services changes modestly with shifts in
weather with no material impact on total revenues.
Employees
IsoRay,
Inc. has one full-time employee.
As of
March 31, 2006, IsoRay Medical employed thirty-three full-time individuals,
one
occasional individual and two part-time individuals. The Company's future
success will depend, in part, on its ability to attract, retain, and motivate
highly qualified technical and management personnel. From time to time, the
Company may employ independent consultants or contractors to support its
research and development, marketing, sales and support and administrative
organizations. Neither the Company's nor IsoRay Medical's employees are
represented by any collective bargaining unit. IsoRay Medical estimates that
successful implementation of its growth plan would result in up to 37 additional
employees by the end of 2006.
Competition
The
Company competes in a market characterized by technological innovation,
extensive research efforts and significant competition. In general, the IsoRay
seed competes with conventional methods of treating localized cancer, including,
but not limited to, radical prostatectomy and external beam radiation therapy
which includes intensity modulated radiation therapy, as well as competing
permanent brachytherapy devices. RP has historically represented the most common
medical treatment for early-stage, localized prostate cancer. EBRT is also
a
well-established method of treatment and is widely accepted for patients who
represent a poor surgical risk or whose prostate cancer has advanced beyond
the
stage for which surgical treatment is indicated. Management believes that if
general conversion from these treatment options (or other established or
conventional procedures) to the IsoRay seed does occur, such conversion will
likely be the result of a combination of equivalent or better efficacy, reduced
incidence of side effects and complications, lower cost, quality of life issues
and pressure by health care providers and patients.
History
has shown the advantage of being the first to market a new brachytherapy
product. For example, ONCURA, now part of General Electric Company, currently
claims nearly 50% of the market with the original I-125 seed. Theragenics Corp.,
which introduced the original Pd-103 seed, is second with a nearly 30% market
share. The Company believes it will obtain a similar and significant advantage
by being the first to introduce a Cs-131 seed.
The
Company's patented Cs-131 separation process is likely to provide us a
sustainable competitive advantage in this area. Production of Cs-131 also
requires specialized facilities (hot cells) that represent high cost and long
lead time if not readily available. In addition, a competitor would need to
develop a method for isotope attachment and seed assembly, would need to conduct
testing to meet NRC and FDA requirements, and would need to obtain regulatory
approvals before marketing a competing device.
Several
companies have obtained regulatory approval to produce and distribute
Palladium-103 and Iodine-125 seeds, which compete directly with our seed. Nine
of those companies represent nearly 100% of annual brachytherapy seed sales
worldwide: Oncura (part of General Electric Company), Theragenics Corp., North
American Scientific, Inc., Mentor Corp., Implant Sciences Corp., International
Brachytherapy S.A., Cardinal Health, Inc., C.R. Bard, Inc., and Best Medical
International, Inc. The top three - ONCURA, Theragenics, and North American
Scientific - currently garner nearly 90% of annual sales.
It
is
possible that three or four of the current I-125 or Pd-103 seed manufacturers
(i.e., ONCURA, Theragenics, North American Scientific, etc.) are capable of
producing and marketing a Cs-131 seed, but none have reported efforts to do
so.
Best Medical obtained a seed core patent in 1992 that named 10 different
isotopes, including Cs-131, for use in their seeds. Best Medical received FDA
510(k) approval to market a Cs-131 seed on June 6, 1993 but has failed to
produce any products for sale.
Additional
Growth Opportunities
The
Cs-131 isotope has the performance characteristics to be a technological
platform for sustained long-term growth. The most immediate opportunities are
introducing Cs-131 to Canada, Europe and other international markets,
introducing Cs-131-based therapies for other forms of solid tumors focusing
first on breast tumors, and through the marketing of other radioactive isotopes.
These growth initiatives are in the early stages of planning and appear to
be
significant incremental opportunities.
The
Company plans to introduce Cs-131 initially
into Europe and later into other international markets through partnerships
and
strategic alliances with channel partners for manufacturing and distribution.
Another advantage of the Cs-131 isotope is its potential applicability to other
cancers and other diseases. Cs-131 has FDA approval to be used for treatments
for a broad spectrum of cancers including breast, brain, lung, and liver cancer,
and the Company believes that a major opportunity exists as an adjunct therapy
for the treatment of breast cancer. Preliminary discussions have begun with
prominent physicians regarding the use of Cs-131-based therapies for the
treatment of lung, pancreatic and brain cancer. In addition to Y-90, there
is
the opportunity to develop and market other radioactive isotopes to the US
market, and to market the Cs-131 isotope itself, separate from its use in our
seeds. The Company is also in the preliminary stages of exploring alternate
methods of delivering our isotopes to various organs of the body, as it may
be
advantageous to use delivery methods other than a titanium-encapsulated seed
to
deliver radiation to certain organs.
The
Company's executive offices are located at 350 Hills Street, Suite 106,
Richland, WA 99354, (509) 375-1202, where IsoRay Medical currently leases
approximately 3,100 square feet of office and laboratory space for $4,282
per
month from Energy Northwest. The lease expires December 31, 2006. The Company
is
not affiliated with its lessor. Additional office space will be needed as
employees are hired, and is currently available at this location. The Company
recently added approximately 650 square feet of space to this lease at $1.138
per square foot per month. The Company believes that its current facilities
will
be adequate until late Summer 2006, at which time we will need to add
administrative facilities. In the future, due to business growth, the Company
may elect to combine administrative services and production in one building
which we may lease or build depending on market conditions.
In
April
2004, IsoRay Medical's predecessor signed a contract with PNNL, permitting
IsoRay Medical to subcontract certain of its manufacturing needs to PNNL, use
PNNL facilities to produce the Cs-131 brachytherapy seeds, and ship them to
customers from the PNNL facilities. Using PNNL's facilities has reduced the
immediate need for IsoRay Medical to purchase specialized capital-intensive
equipment. The contract allows it to manufacture Cs-131 seeds in PNNL until
it
expires in December 2006. Management believes that IsoRay will have sufficient
time prior to this contract's expiration to shift production to IsoRay's new
facility, described below.
We
have
entered into a lease, which commenced as of regulatory licensing approval on
October 6, 2005, for a facility located in Richland, Washington that
management believes will provide adequate space to manufacture the Cs-131
product for the prostate cancer markets until late 2007, with a maximum
manufacturing capacity of approximately 60,000 seeds per month and total square
footage of 4,400 feet. The lease is for a term of twelve months following
regulatory licensing approval, with a twelve-month extension option. Payment
for
the lease term is the issuance of 24,007 shares of IsoRay, Inc. common stock
annually. The lease may be extended on a month-to-month basis by mutual
agreement of the parties. The lessor is Pacific EcoSolutions Incorporated
(PEcoS), and the Company is not affiliated with this lessor. Equipment installed
at this facility includes a hot cell, a glove box, three fume-hoods, laser
welders and laser welding tooling, which complete the laser sealing of the
seeds; sophisticated testing equipment that allows us to test materials used
at
several stages of the production process and assay the completed seeds prior
to
shipment; and sterilizing and packaging systems that allow the seeds to be
pre-loaded into delivery systems according to customer specifications. We
believe we will need to add to the capital production equipment installed at
this facility within the next six to twelve months to meet increasing demand
for
our product, and have adequate room at the facility to install equipment that
would approximately double the production capacity up to 60,000 seeds per month;
approximately 600 patient treatments. If additional production space is needed
it is available at the PEcoS facility.
On
December 14, 2005, IsoRay and Idaho's Advanced Test Reactor entered into a
collaboration and partnership agreement for the design, analysis and fabrication
of a capsule containing barium carbonate, which will be irradiated at the
Advanced Test Reactor and then shipped to IsoRay for final analysis. This
agreement is part of management's plan to possibly expand the Company's
manufacturing capabilities in the future through the construction of an
additional facility in Idaho. If a facility is constructed in the future, it
could provide additional capacity to meet increased demand for our
products.
The
Company's management believes that all facilities occupied by the Company are
adequate for present requirements, and that the Company's current equipment
is
in good condition and is suitable for the operations involved.
LEGAL
PROCEEDINGS
We
are
not a party to any pending legal proceeding. Management is not aware of any
threatened litigation, claims or assessments.
Set
forth
below is certain information regarding our directors and executive officers,
each of whom took office in July 2004, except for Mr. Babcock and Mr. Smith,
who
took office on March 31, 2006. Our Board of Directors is comprised of five
directors. There are no family relationships between any of our directors or
executive officers. Each of our directors is elected to serve until our
next annual meeting of our shareholders and until his successor is elected
and
qualified or until such director's earlier death, removal or termination. Our
Board of Directors appoints our officers, and their terms of office are at
the
discretion of the Board of Directors, except to the extent governed by an
employment contract.
Name
|
Age
|
Position
|
|
|
|
Roger
E. Girard
|
62
|
CEO,
President, Chairman
|
Michael
K. Dunlop
|
54
|
CFO,
Treasurer
|
David
J. Swanberg
|
49
|
Exec.
VP- Operations, Secretary, Director
|
Robert
R. Kauffman
|
65
|
Director
|
Thomas
C. Lavoy
|
46
|
Director
|
Stephen
R. Boatwright
|
42
|
Director
|
Dwight
Babcock
|
58
|
Director
|
Albert
Smith
|
62
|
Director
|
Roger
E. Girard:
In
addition to serving as President, Chairman and CEO for the Company, Mr. Girard
is also the CEO, President and Chairman of the Board of IsoRay Medical, Inc.,
and has served in these positions since the formation of IsoRay Medical, Inc.
Mr. Girard was CEO and Chairman of IsoRay Medical's predecessor company from
August of 2003 until October 1, 2004. Mr. Girard has been actively involved
in
the management and the development of the management team at IsoRay Medical,
and
his experienced leadership has helped drive IsoRay's development to date. From
June 1998 until August of 2003, Mr. Girard served as President of Strategic
Financial Services, a business consulting company based in Seattle, Washington
designed to help wealthy individuals and companies with strategic planning
and
financial strategy. Strategic Financial Services had annual revenues under
$500,000 and previously provided its services to a 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.
Michael
K. Dunlop: Mr.
Dunlop has been responsible for IsoRay Medical and its predecessor companies'
financial and accounting operations and administrative services in his position
as CFO since April 2001. Mr. Dunlop has over 18 years of financial and
administrative experience in the healthcare industry. As Director of Contracting
and Marketing for Community Choice, Physician Hospital Community Organization,
an organized healthcare delivery system, from October 1997 to December 2003,
he
assisted in developing the strategic direction and business plan of the PHCO,
negotiated and maintained contractual relations with state-wide major health
insurance plans, increased compensation for 80+ independent providers and 6
area
hospitals, and enhanced PHCO provider membership through development of programs
that lowered clinic and hospital operating costs. He was granted the Pentad
Industry Council, Chelan-Douglas Counties' Employer of the Year award in 1996,
while administrator of Lake Chelan Clinic. Mr. Dunlop holds an M.B.A. from
California State University and B.M. Education from Walla Walla College.
David
J. Swanberg: Mr.
Swanberg has more than 22 years experience in engineering and materials science,
nuclear waste and chemical processing, aerospace materials and processes, and
environmental technology development and environmental compliance. Beginning
in
November 1995 and until January 2004, Mr. Swanberg was employed full time as
Sr.
Chemical/Environmental Engineer for Science Applications International
Corporation working on a variety of projects including nuclear waste research
and development. Mr. Swanberg joined IsoRay Medical's predecessor company in
March of 1999 on a part-time basis and has held management positions in the
IsoRay companies since 2000. Mr. Swanberg began full-time employment with IsoRay
Medical in February 2004. He has been instrumental in development of IsoRay
Medical's initial product, the Cs-131 brachytherapy seed, including interfaces
with technical, regulatory, and quality assurance requirements. With IsoRay
Medical and its predecessor companies, he has managed the development and
production of radioactive seeds to support testing to meet NRC and FDA
requirements, provided technical guidance for characterization of the IsoRay
seed to meet AAPM Task Group 43 protocols, and coordinated production and
testing of non-radioactive seeds to conform to ISO standards for brachytherapy
devices. He is President of the Nuclear Medicine Research Council. He holds
an
MS in Chemical Engineering, is a licensed Chemical Engineer, and a certified
Level II Radiation Worker.
Robert
R. Kauffman:
Mr.
Kauffman has served as Chief Executive Officer and Chairman of the Board of
Alanco Technologies, Inc. (NASDAQ: ALAN), an Arizona-based information
technology company, since July 1, 1998. Mr. Kauffman was formerly President and
Chief Executive Officer of NASDAQ-listed Photocomm, Inc., from 1988 until 1997
(since renamed Kyocera Solar, Inc.). Photocomm was the nation's largest publicly
owned manufacturer and marketer of wireless solar electric power systems with
annual revenues in excess of $35 million. Prior to Photocomm, Mr. Kauffman
was a
senior executive of the Atlantic Richfield Company (ARCO) whose varied
responsibilities included Senior Vice President of ARCO Solar, Inc., President
of ARCO Plastics Company and Vice President of ARCO Chemical Company. Mr.
Kauffman earned an M.B.A. in Finance at the Wharton School of the University
of
Pennsylvania, and holds a B.S. in Chemical Engineering from Lafayette College,
Easton, Pennsylvania.
Thomas
C. Lavoy:
Mr.
Lavoy has served as Chief Financial Officer of SuperShuttle International,
Inc.,
since July 1997 and as Secretary since March 1998. 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.
Stephen
R. Boatwright:
Mr.
Boatwright has been a member of Keller Rohrback, PLC in Phoenix, Arizona since
January 2005. From 1997 through January 2005 Mr. Boatwright was a partner at
Gammage & Burnham, PLC, also in Phoenix, Arizona. Throughout his career, he
has provided legal counsel to both private and public companies in many diverse
industries. In recent years, Mr. Boatwright's legal practice has focused on
representing technology, biotechnology, life science and medical device
companies for their securities, corporate and intellectual property licensing
needs. Mr. Boatwright earned both a J.D. and an M.B.A. from the University
of
Texas at Austin, and holds a B.A. in Philosophy from Wheaton College.
Dwight
W. 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.
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 has a BS in Business Administration from Ferris State
College.
Significant
Employees
Certain
significant employees of our subsidiary, IsoRay Medical, Inc., and their
respective ages as of the date of this report are set forth in the table below.
Also provided is a brief description of the experience of each significant
employee during the past five years.
Name
|
Age
|
Position
with IsoRay Medical, Inc.
|
Lane
Bray
|
77
|
Chief
Chemist
|
Garrett
Brown
|
43
|
Chief
Technology Officer
|
Oleg
Egorov
|
36
|
Director
of Radiochemical Development
|
Lisa
Mayfield
|
37
|
Director
of Operations
|
Keith
Welsch
|
59
|
Chief
Quality Officer
|
Lane
Bray:
Mr.
Bray is known nationally and internationally as a technical expert in
separations, recovery, and purification of isotopes and is a noted authority
in
the use of cesium and strontium ion exchange for Department of Energy's West
Valley and Hanford nuclear waste cleanup efforts. In 2000, Mr. Bray received
the
'Radiation Science and Technology' award from the American Nuclear Society.
Mr.
Bray has authored or co-authored over 110 research publications, 12 articles
for
9 technical books, and holds 24 U.S. and foreign patents. Mr. Bray patented
the
USDOE/PNNL process for purifying medical grade Yttrium-90 that was successfully
commercialized in 1999. Mr. Bray also recently invented and patented the
proprietary isotope separation and purification process that is assigned to
IsoRay. Mr. Bray was elected 'Tri-Citian of the Year' in 1988, nominated for
'Engineer of the Year' by the American Nuclear Society in 1995, and was elected
'Chemist of the Year for 1997' by the American Chemical Society, Eastern
Washington Section. Mr. Bray retired from the Pacific Northwest National
Laboratory in 1998. Since retiring in 1998, Mr. Bray worked part time for PNNL
on special projects until devoting all of his efforts to IsoRay in 2004. Mr.
Bray has been a Washington State Legislator, a Richland City Councilman, and
a
Mayor of Richland. Mr. Bray has a B.A. in Chemistry from Lake Forest
College.
Garrett
Brown:
Dr.
Brown was Manager of Radiochemistry - Hot Cell Operations for International
Isotopes, Inc., a major radiopharmaceutical and medical device startup company,
from January 1998 until May 1999 and was instrumental in bringing a new
brachytherapy seed implant device to commercialization. Dr. Brown's
responsibilities included hands-on radiological work in fume hoods, glove boxes
and remote manipulator hot cells, process definition, research, development,
installation, optimization, waste minimization, procedure documentation,
facility design and training. Dr. Brown also served as the technical interface
to executive management for business development, shipping/receiving, QA/QC,
facilities and marketing/sales. Prior to that, Dr. Brown, as a Senior Research
Scientist at the Pacific Northwest National Laboratory, was responsible for
the
weekly production of multi-Curie quantities of medical grade Y-90, and research
programs to develop high tech sorbents for separation of Cs-137, Sr-90 and
Tc-99
from high-level radioactive wastes stored at the Hanford Nuclear Reservation.
From May 1999 to the present, Dr. Brown has been a technical consultant with
GNB
Technical Consultants. Dr. Brown has co-authored numerous technical publications
in the field. Dr. Brown has a Ph.D. in Analytical Chemistry and BS in Chemistry,
cum laude. He has served as IsoRay Medical's Chief Technical Officer since
May
of 2000. In March 2004, Dr. Brown was certified as a Radiological Safety
Officer.
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, 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 was 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.
Lisa
Mayfield: Lisa
Mayfield comes to IsoRay with over ten years of commercial healthcare sales,
marketing and business development experience. Between December 1993 and August
2004, Ms. Mayfield has held senior management positions in the pharmaceutical
and medical device and diagnostics sectors of Johnson & Johnson as well as
at J&J Corporate. During her time at J&J and prior to joining IsoRay in
December 2005, Ms. Mayfield was responsible for implementing positive business
results in over 11 different therapeutic markets. After leaving J&J and
prior to joining IsoRay, Ms. Mayfield worked as a consultant to various
healthcare companies in the radioisotope and oncology markets. As a result
of
her exposures, Ms. Mayfield has built a wealth of knowledge about the healthcare
marketplace as a whole and complements this knowledge with a comprehensive
understanding of internal operations. Ms. Mayfield has been responsible for
best
practices for product development, branding, forecasting, regulatory compliance,
reimbursement and strategic planning. During her time at IsoRay, Ms. Mayfield
has been able to successfully implement new policies and procedures that
facilitate growth as well as provide top level guidance over strategic business
operations. Currently Ms. Mayfield is acting Director of Operations at IsoRay.
Ms. Mayfield holds a Bachelors of Science in Economics from the University
of
Washington.
Keith
Welsch:
Mr.
Welsch is a quality control professional with experience in a wide range of
organizations and disciplines including the nuclear, aerospace, environmental
restoration, construction, tubing, steel and aluminum industries. Mr. Welsch
managed the registration of a plant to ISO 9002:1994 and subsequently
transitioned the facility to ISO 9001:2000 and conducted continuous improvement
actions. These included statistical process control, six sigma, lean
manufacturing, and total preventive maintenance programs. Mr. Welsch's other
significant achievements include facilitation of quality improvement and stand
down teams, innovative education training manager, management of records review
for two nuclear sites, management of audit programs and corrective-action
systems, and teaching safety, technical, and quality courses. He has earned
the
Certified Quality Auditor, Certified Quality Technician and Certified Quality
Improvement Associate certifications from the American Society for Quality.
Prior to joining IsoRay in 2004, Mr. Welsch served as Quality Assurance Manager
for Kaiser Aluminum Products of Richland, Washington since 1997. Mr. Welsch
received a BA in Business Administration from Washington State
University.
Executive
Compensation
The
following summary compensation table sets forth information concerning
compensation for services rendered in all capacities during our past three
fiscal years awarded to, earned by or paid to each of the following executive
officers (the "Executive Officers"). None of the Company's executive officers,
other than those listed below, received compensation in fiscal year 2004 in
excess of $100,000.
|
|
|
|
Long-Term
Compensation Awards
|
|
Name
and Principal Position
|
|
Fiscal
Year(1)
|
|
Annual
Compensation Salary
|
|
Restricted
Stock Awards
|
|
Securities
Underlying Options
|
|
All
Other Compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Girard, Chief Executive Officer(2)
|
|
|
2005
|
|
$
|
113,958
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
|
|
2004
|
|
$
|
71,031
|
|
$
|
9,900
|
|
|
513,840
|
|
|
--
|
|
|
|
|
2003
|
|
$
|
4,000
|
|
$
|
49,900
|
|
|
--
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Scallen, Former Chief Executive Officer(3)
|
|
|
2005
|
|
|
--
|
|
|
--
|
|
|
--
|
|
$
|
50,000
|
(4)
|
|
|
|
2004
|
|
|
--
|
|
$
|
7,871
|
|
|
--
|
|
|
--
|
|
|
|
|
2003
|
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
(1) Fiscal
year 2005 consisted of the period from October 1, 2004 through June 30, 2005;
fiscal year 2004 consisted of the year ended September 20, 3004; and fiscal
year
2003 consisted of the year ended September 30, 2003.
(2) Mr.
Girard
did not begin serving as our CEO until July 28, 2005, but he has served as
CEO
of our subsidiary and its predecessor company since August 2003. The
compensation listed was paid to Mr. Girard by IsoRay Medical or its predecessor
company.
(3) Mr.
Scallen served as our CEO during the listed fiscal years and until his
resignation effective July 28, 2005.
(4) Represents
a $50,000 cash payment in June 2005 to Mr. Scallen in settlement of all accrued
but unpaid compensation.
Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The
following table sets forth the number of shares covered by unexercised stock
options held by the Executive Officers as of June 30, 2005, and the value of
"in-the-money" stock options, which represents the positive spread between
the
exercise price of a stock option or warrant and the market price of the shares
subject to such option or warrant as of June 30, 2005.
|
|
|
|
|
|
Number
of Securities
Underlying
Unexercised
Options
at Fiscal Year-End(#)
|
|
Value
of Unexercised In-the-
Money
Options at Fiscal Year-
End($)
|
|
Name
|
|
Number
of Shares Acquired on Exercise (#)
|
|
Value
Realized ($)
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Roger
Girard(1)
|
|
|
0
|
|
|
0
|
|
|
513,841
|
|
|
0
|
|
$
|
39,650
|
|
|
n/a
|
|
Thomas
Scallen
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
n/a
|
|
|
n/a
|
|
(1) Mr.
Girard
held options to acquire 513,841 IsoRay Medical, Inc. shares at June 30, 2005.
He
held no options in the Registrant at June 30, 2005.
Employment
Agreements
The
Company entered into an employment agreement with Roger Girard, its Chief
Executive Officer, effective October 6, 2005 (the "Girard Agreement"). The
term
of the Girard Agreement is through October 6, 2009, and will automatically
extend for an additional one year term on each anniversary date unless the
term
is modified or terminated in accordance with the terms of the Girard Agreement
at least ninety days prior to a given anniversary date. The Girard Agreement
provides for a base salary of $180,000, an automatic increase to $220,000
effective January 1, 2006, and an increase to $300,000 effective July 1, 2006
at
the discretion of the Board of Directors. Mr. Girard is also entitled to
participate in any benefit plans provided to key executives of the Company,
and
to a bonus at the discretion of the Board of Directors.
Equity
Compensation Plans
On
July
28, 2005, the Company adopted the Amended and Restated 2005 Stock Option
Plan
(the "Option Plan") and the Amended and Restated 2005 Employee Stock Option
Plan
(the "Employee Plan"), pursuant to which it may grant equity awards to eligible
persons. The Option Plan allows the Board of Directors to grant options to
purchase up to 1,800,000 shares of common stock to directors, officers, key
employees and service providers of the Company, and the Employee Plan allows
the
Board of Directors to grant options to purchase up to 2,000,000 shares of
common
stock to officers and key employees of the Company. Options granted under
either
Plan 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
OTC Bulletin Board) on the date of the grant, and with varying vesting periods
as determined by the Board. IsoRay Medical, Inc.’s option plans were cancelled
and replaced in the merger with the Plans described above, and new options
were
issued without any change in the material terms of the options, other than
acceleration of all unvested options (other than those issued to Mr. Griffiths,
Mr. Hrobsky and Mr. Hutchinson which retained their original vesting terms).
As
of March 31, 2006, options to purchase 1,630,472 shares had been granted
under
the Option Plan and options to purchase 1,420,511 shares had been granted
under
the Employee Plan. Of these options, 93,284 had been exercised as of March
31,
2006.
Compensation
of Non-Employee Directors
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Company's Articles of Incorporation provide to directors and officers
indemnification to the full extent provided by law, and provide that, to the
extent permitted by Minnesota law, a director will not be personally liable
for
monetary damages to the Company or its shareholders for breach of his or her
fiduciary duty as a director, except for liability for certain actions that
may
not be limited under Minnesota law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
SECURITIES
OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of May 24, 2006 for (a) each person
known by the Company to be a beneficial owner of five percent or more of
the
outstanding common stock of the Company, (b) each executive officer, director
and nominee for director of the Company, and (c) all directors and executive
officers of the Company as a group. As of May 24, 2006, the Company had
14,722,686 shares of common stock and 181,248 shares of preferred stock
outstanding. No director or officer of the Company owns any shares of preferred
stock.
COMMON
STOCK SHARE OWNERSHIP AS OF MAY 24, 2006
Name
and Address of Beneficial Owner(1)
|
|
Amount
of Common Shares Owned
|
|
Derivative
Securities Exercisable or Convertible Within 60 Days of May 24,
2006
|
|
Total
Common Shares Beneficially Owned
|
|
Percent
of Common Shares Owned(2)
|
|
|
|
|
|
|
|
|
|
|
|
Roger
Girard, Chief Executive
Officer,
President and
Chairman
|
|
|
338,460
|
|
|
513,841
|
|
|
852,301
|
|
|
5.59
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael
Dunlop, Chief
Financial
Officer
|
|
|
141,618
|
|
|
145,000
|
|
|
286,618
|
|
|
1.93
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Swanberg, Exec. Vice
President
and Director
|
|
|
314,327
|
|
|
165,500
|
|
|
479,827
|
|
|
3.22
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Kauffman, Director
|
|
|
43,801
|
|
|
100,000
|
|
|
143,801
|
|
|
0.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Lavoy, Director
|
|
|
8,426
|
|
|
100,000
|
|
|
108,426
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
Boatwright, Director
|
|
|
0
|
|
|
184,236
|
|
|
184,236
|
|
|
1.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albert
Smith, Director
|
|
|
108,947
|
|
|
50,000
|
|
|
158,947
|
|
|
1.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dwight
Babcock, Director
|
|
|
50,802
|
|
|
50,000
|
|
|
100,802
|
|
|
0.68
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas
Scallen, Former Chief
Executive
Officer(4)
|
|
|
329,942
|
|
|
0
|
|
|
329,942
|
|
|
2.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence
Family Trust(5)
|
|
|
888,529
|
|
|
0
|
|
|
888,529
|
|
|
6.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony
Silverman(6)
|
|
|
604,699
|
|
|
321,391
|
|
|
926,090
|
|
|
6.16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Officers and Directors
as
a group (8 persons)
|
|
|
1,006,381
|
|
|
1,308,577
|
|
|
2,314,958
|
|
|
14.44
|
%
|
(1) |
Except
as otherwise noted, the address for each of these individuals is
c/o
IsoRay, Inc., 350 Hills St., Suite 106, Richland, WA
99354.
|
(2) |
Percentage
ownership is based on 14,722,686 shares of Common Stock outstanding
on May
24, 2006. Shares of Common Stock subject to stock options, warrants
or
convertible debentures which are currently exercisable/convertible
or will
become exercisable/convertible within 60 days after May 24, 2006
are
deemed outstanding for computing the percentage ownership of the
person or
group holding such options, but are not deemed outstanding for
computing
the percentage ownership of any other person or group.
|
(3) |
Mr.
Scallen's address is 4701 IDS Center, Minneapolis, MN 55402.
|
(4) |
The
address of the Lawrence Family Trust is 285 Dondero Way, San Jose,
CA
95119.
|
(5) |
Mr.
Silverman’s address is 2747 Paradise Road, #903, Las Vegas, NY 98109.
64,876 of the shares of common stock and 37,500 of the derivative
securities beneficially owned by Mr. Silverman are held of record
by
Katsinam Partners, LP, an entity of which Mr. Silverman is a member
of the
general partner.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
IsoRay
Medical's patent rights to its Cesium-131 process were acquired from Lane Bray,
a shareholder of the Company, and are subject to a 1% royalty on gross profits
and certain contractual restrictions.
In
exchange for consulting services including providing advice to IsoRay Medical
as
to the structure of organization and compensation arrangements with employees
and also in connection with developing various policies and procedures, Quatsch
Ventures, LLC, an entity controlled by Stephen Boatwright, one of the Company's
directors, received options to purchase 84,236 shares of our common stock
in
2004. Mr. Boatwright is a member of Keller Rohrback, PLC, which provides
legal
services to the Company and IsoRay Medical. During IsoRay Medical's fiscal
year
ended June 30, 2005, IsoRay Medical paid Keller Rohrback, PLC and Gammage
&
Burnham, PLC (of which Mr. Boatwright was a partner) approximately $285,000
for
legal services. During the three and nine months ended March 31, 2006, IsoRay
Medical paid Keller Rohrback, PLC approximately $126,300 and $363,200 for
legal
services, respectively.
Through
June 30, 2005, the Company's former Chief Executive Officer, Thomas K. Scallen,
advanced the Company an aggregate of approximately $44,400 to support
operations, settle outstanding trade accounts payable and provide working
capital. The advance was repayable upon demand and was non-interest bearing
and
unsecured. Effective June 30, 2005, with the anticipation of the consummation
of
the reverse acquisition transaction with IsoRay Medical, Inc., these advances
were forgiven and reclassified as additional paid-in capital in the accompanying
financial statements of the Company as of that date.
Through
December 31, 2004, the Company owed the Company's Chief Executive Officer,
Thomas K. Scallen, approximately $354,500 for cumulative accrued salary. During
the quarter ended March 31, 2005, the Company's former Chief Executive Officer
forgave approximately $304,500 in accrued salary for prior periods.
On
January 16, 2005, in addition to certain other shareholders, the following
officers and directors of the Company were awarded shares of common stock for
guaranteeing a loan with Benton Franklin Economic Development District ("BFEDD")
in the amount of $230,000, which was funded in December 2004, and a line of
credit with Columbia River Bank in the amount of $395,000: Michael Dunlop
guaranteed $15,000 of the BFEDD loan and $30,000 of the Columbia River Bank
line
of credit, for which he received 12,888 shares; Roger Girard guaranteed $20,000
of the BFEDD loan, for which he received 5,728 shares; John Hrobsky (former
officer) guaranteed $15,000 of the Columbia River Bank line of credit, for
which
he received 4,296 shares; and David Swanberg guaranteed $30,000 of the Columbia
River Bank line of credit, for which he received 8,592 shares.
On
May
27, 2005, the Company, Century Park Transitory Subsidiary, Inc., a Delaware
corporation, Thomas Scallen and Anthony Silverman (shareholders of the Company),
and IsoRay Medical, Inc., a Delaware corporation, entered into a Merger
Agreement. Pursuant to the Merger Agreement, Century Park Transitory Subsidiary,
Inc. was merged with and into IsoRay Medical, Inc. and IsoRay Medical, Inc.
became a wholly-owned subsidiary of the Company. The Merger Agreement was
subject to the satisfaction of certain conditions, including the granting of
certain "piggy-back" and demand registration rights to the purchasers of certain
convertible debentures of IsoRay Medical, Anthony Silverman and certain other
affiliates of the Company; the agreements of the officers and directors of
IsoRay Medical, Inc. to lock-up the shares of common stock of the Company they
received in the merger for a period of one year from the closing of the merger;
the agreements of Thomas Scallen and Anthony Silverman to escrow certain shares
of common stock of the Company; and the receipt by IsoRay Medical from Anthony
Silverman or his associates of one million dollars as the purchase price of
certain securities of IsoRay Medical before the closing. These conditions were
satisfied prior to the closing of the merger, which occurred on July 28,
2005.
On
July
28, 2005, the Registrant’s Board of Directors granted 100,000 options to
purchase common stock to each of its three independent Directors: Thomas Lavoy,
Stephen Boatwright, and Robert Kauffman. On March 31, 2006, the Registrant’s
Board of Directors granted 50,000 options to purchase common stock to its two
newly-appointed independent Directors: Dwight Babcock and Albert Smith.
Additionally, the Board voted on July 28, 2005 to compensate each of the
independent Directors $1,000 per meeting for their attendance at the Board
meetings. Directors who are also serving as management of the Company were
not
granted stock options for Director service, and will not be paid for attendance
at Board meetings.
During
2005, IsoRay Medical, Inc. paid or accrued $5,600 for accounting services
performed by a company owned by a member of the Board of Directors of IsoRay
Medical, Inc.
In
September 2003, IsoRay Products LLC issued 100,000 of its Class B member shares,
for services rendered, to Roger Girard, the IsoRay, Inc. President, who was
also
a Director of IsoRay, Inc. Based on an estimate of the fair value of the Class
B
shares, as determined by reference to cash sales of Class A member shares,
IsoRay Products LLC recorded $50,000 of compensation expense in connection
with
the issuance of these shares. The 100,000 Class B member shares were exchanged
for 168,798 IsoRay Medical, Inc. common shares in connection with the merger
transaction, which were subsequently exchanged for 142,189 shares of IsoRay,
Inc. common stock.
In
June
2004, IsoRay Medical, Inc. issued 10,000 of its common shares to Mr. Girard
for
services rendered and $100 cash. The Company recorded $9,900 of compensation
expense in connection with the issuance of these shares. These shares were
subsequently exchanged for 8,423 shares of IsoRay, Inc. common
stock.
During
2003, IsoRay Products LLC granted warrants for the purchase of 100,000 of its
Class A member shares to a financial services company for consulting services.
These warrants were exercisable at $1.00 per share and are set to expire on
October 30, 2006. The financial services company was a shareholder of IsoRay
Products LLC. Because the exercise price was equal to the estimated fair value
at the date of grant, no compensation was recognized associated with these
warrants. In connection with the business combination of the IsoRay companies,
IsoRay Medical, Inc. granted warrants for the purchase of 168,799 of its Series
B Preferred shares, exercisable at $.59 per share, in exchange for the warrants
granted by IsoRay Products LLC. Subsequent to the merger with the Registrant,
these shares were exchanged for 142,189 shares of IsoRay, Inc. common
stock.
During
2003 and 2002, IsoRay, Inc. (WA domiciled) contracted with a consultant. Under
the terms of the agreement, the consultant, who was a director of IsoRay, Inc.
(WA domiciled), was paid a monthly retainer of $1,500 plus out-of-pocket
expenses. During 2003 and 2002, IsoRay, Inc. (WA domiciled) paid the consultant
$15,398 and $12,681, respectively.
During
2003, IsoRay, Inc. (WA domiciled) paid or accrued $17,500 to a consultant,
who
was also an officer of IsoRay, Inc. (WA domiciled), for certain consulting
services.
During
2003, IsoRay, Inc. (WA domiciled) paid or accrued $23,000 to a financial
services company, which has owned by an officer of IsoRay, Inc. (WA domiciled),
for financial consulting services.
During
2002, IsoRay, Inc. (WA domiciled) issued 35,200 shares of its common stock
to
certain shareholders, including five directors of that predecessor entity,
as
compensation for their guarantee of notes payable to Benton-Franklin Economic
Development District. The transaction was recorded at the fair value of the
shares, estimated to be $35,200, as management considered it to be more readily
determinable than the value of the guarantees. The following directors of
IsoRay, Inc. (WA domiciled) received shares of common stock, which have been
exchanged for shares of the Company’s common stock: Lane Bray, 4,936 Company
shares; Michael Dunlop, 5,265 Company shares; Karen Thompson, 5,265 Company
shares; Donald Segna, 5,265 Company shares; and David Swanberg, 3,291 Company
shares.
Effective
July 12, 1999, Lane Bray, a Member of IsoRay, LLC (and also a shareholder and
Director of IsoRay, Inc.), assigned his right, title and interest in an
invention (including the U.S. patent application therefore and any associated
patent rights) to IsoRay, LLC in exchange for a royalty equal to 1% of the
Gross
Profit, as defined, from the sale of “seeds” incorporating the technology.
IsoRay, LLC also agreed to pay all remaining costs associated with obtaining
the
patent. In January 2000, IsoRay, LLC applied for the patent, which was
subsequently granted effective May 23, 2000. The patent and associated royalty
obligation were transferred to IsoRay, Inc. (WA domiciled) effective May 1,
2002
in connection with a tax-free reorganization whereby IsoRay LLC ceased
operations, and assigned all assets and liabilities to IsoRay, Inc. (WA
domiciled).
IsoRay
Inc. assigned this patent to IsoRay Products LLC, who assigned the patent to
IsoRay Medical, Inc. who, pursuant to the royalty agreement must also pay a
royalty of 2% of Gross Sales, as defined, for any sub-assignments of the
aforesaid patented process to any third parties. The royalty agreement will
remain in force until the expiration of the patents on the assigned technology,
unless earlier terminated in accordance with the terms of the underlying
agreement. To date, there have been no product sales incorporating the
technology and there is no royalty due pursuant to the terms of the
agreement.
Patent
and Know-How Royalty License Agreement
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 in exchange for a membership interest. The license
agreement was transferred to IsoRay, Inc. (WA domiciled) effective May 1, 2002
in connection with the tax-free reorganization.
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, there have been no product sales incorporating the licensed
technology and there is no royalty due pursuant to the terms of the agreement.
Management believes that because this technology is not presently being used
and
believes it will not be used in the future that no royalties will be paid under
this agreement.
SELLING
SHAREHOLDERS
The
following table details 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
currently 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
|
|
Percentage
of Common Stock Owned Before
|
|
Shares
of Common Stock Included in
|
|
Shares
of Common Stock Issuable Upon Conversion or Exercise of Preferred
Stock,
Options or Warrants Included in
|
|
Exercise
Price of Option or Warrant Included in
|
|
Grant
Date of Option or Warrant Included in
|
|
Term
of Option or Warrant Included in
|
|
Total
Shares of Common Stock Included in
|
|
Beneficial
Ownership After the
|
|
Percentage
of Common Stock Owned After
|
|
Name
|
|
Offering
(1) |
|
Offering |
|
Prospectus
(2) |
|
Prospectus
(3) |
|
Prospectus |
|
Prospectus |
|
Prospectus |
|
Prospectus |
|
Offering
(4) |
|
Offering
(4) |
|
Agger
Capital
|
|
|
3,832
|
|
|
*
|
|
|
|
|
|
3,832
|
|
|
.59-2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
3,832
|
|
|
0
|
|
|
*
|
|
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.
|
|
|
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(11)
|
|
|
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(11)
|
|
|
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(11)
|
|
|
1,084
|
|
|
*
|
|
|
|
|
|
1,084
|
|
$
|
0.59-2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
1,084
|
|
|
0
|
|
|
*
|
|
Boggess,
Thomas S. IV and Jonette D. JTROS
|
|
|
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
|
|
|
4.13
|
%
|
|
31,546
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
31,546
|
|
|
520,691
|
|
|
5.97
|
%
|
Bunting,
Brandt E. & Collen M.
|
|
|
38,435
|
|
|
*
|
|
|
5,687
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
5,687
|
|
|
32,748
|
|
|
*
|
|
Burstein,
Fred
|
|
|
290,016
|
|
|
2.17
|
%
|
|
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
|
|
|
2.31
|
%
|
|
61,791
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
61,791
|
|
|
247,166
|
|
|
2.83
|
%
|
Dunlop,
Michael(5)
(6)
|
|
|
286,618
|
|
|
2.14
|
%
|
|
24,746
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
24,746
|
|
|
261,872
|
|
|
3.00
|
%
|
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
|
|
|
6.38
|
%
|
|
73,285
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
73,285
|
|
|
779,016
|
|
|
8.92
|
%
|
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
|
|
|
18,957
|
|
|
*
|
|
|
1,896
|
|
|
1,896
|
|
|
|
|
|
|
|
|
|
|
|
3,791
|
|
|
15,166
|
|
|
*
|
|
Huls,
Michael, Roth IRA
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
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
|
|
|
1.15
|
%
|
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
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
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. MD
|
|
|
248,368
|
|
|
1.86
|
%
|
|
45,530
|
|
|
20,716
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
66,246
|
|
|
182,122
|
|
|
2.09
|
%
|
Koslowski,
Barbara
|
|
|
8,129
|
|
|
*
|
|
|
1,626
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
1,626
|
|
|
6,503
|
|
|
*
|
|
Kryszek,
Jakob
|
|
|
40,522
|
|
|
*
|
|
|
8,104
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
8,104
|
|
|
32,418
|
|
|
*
|
|
Lambert,
Pat(11)
|
|
|
113,195
|
|
|
*
|
|
|
33,000
|
|
|
14,674
|
|
$
|
.59-2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
47,674
|
|
|
65,521
|
|
|
*
|
|
Lane
A. & Gwen M. Bray Trust(6)
|
|
|
386,997
|
|
|
2.90
|
%
|
|
71,142
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
71,142
|
|
|
315,855
|
|
|
3.62
|
%
|
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
|
|
|
6.65
|
%
|
|
177,706
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
177,706
|
|
|
710,823
|
|
|
8.14
|
%
|
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
|
|
|
1.25
|
%
|
|
27,130
|
|
|
-
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
27,130
|
|
|
139,576
|
|
|
1.60
|
%
|
Majchrowski,
Thomas
|
|
|
75,401
|
|
|
*
|
|
|
15,080
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
15,080
|
|
|
60,321
|
|
|
*
|
|
Marlin
Hull LLC (Michael Huls)
|
|
|
169,422
|
|
|
1.27
|
%
|
|
169,422
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
169,422
|
|
|
0
|
|
|
*
|
|
Martin,
Leslie A
|
|
|
14,218
|
|
|
*
|
|
|
|
|
|
2,844
|
|
|
|
|
|
|
|
|
|
|
|
2,844
|
|
|
11,374
|
|
|
*
|
|
Matsock,
Mark
|
|
|
113,721
|
|
|
*
|
|
|
10,950
|
|
|
25,271
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
36,221
|
|
|
77,500
|
|
|
*
|
|
McInnis,
Greg and Cynthia Family Trust
|
|
|
7,229
|
|
|
*
|
|
|
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 (10)
|
|
|
47,828
|
|
|
*
|
|
|
|
|
|
14,674
|
|
$
|
.59-2.37
|
|
|
3/25/2005
|
|
|
3/25/2007
|
|
|
14,674
|
|
|
33,154
|
|
|
*
|
|
Miller,
Thomas F.
|
|
|
289,159
|
|
|
2.16
|
%
|
|
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
|
|
|
1.13
|
%
|
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. (10)
|
|
|
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
|
|
|
1.33
|
%
|
|
7,109
|
|
|
28,438
|
|
$
|
0.70
|
|
|
11/29/2005
|
|
|
10/30/2006-03/30/2007
|
|
|
35,547
|
|
|
142,189
|
|
|
1.63
|
%
|
Press,
Richard
|
|
|
227,652
|
|
|
1.70
|
%
|
|
45,530
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
45,530
|
|
|
182,122
|
|
|
2.09
|
%
|
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(9)
|
|
|
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
|
|
|
1.32
|
%
|
|
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. (9)
|
|
|
329,942
|
|
|
2.47
|
%
|
|
329,942
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
329,942
|
|
|
0
|
|
|
*
|
|
Schatzmair,
Ralph
|
|
|
46,057
|
|
|
*
|
|
|
4,211
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,211
|
|
|
41,846
|
|
|
*
|
|
Schenter,
Robert
|
|
|
218,860
|
|
|
1.64
|
%
|
|
35,489
|
|
|
41,416
|
|
$
|
1.19
|
|
|
8/1/2005
|
|
|
7/31/2015
|
|
|
76,905
|
|
|
141,955
|
|
|
1.63
|
%
|
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
|
|
|
33,000
|
|
|
*
|
|
|
33,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
33,000
|
|
|
0
|
|
|
*
|
|
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
|
|
|
3.82
|
%
|
|
96,515
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
96,515
|
|
|
414,698
|
|
|
4.75
|
%
|
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
|
|
|
2.09
|
%
|
Siddall,
John W.
|
|
|
104,752
|
|
|
*
|
|
|
54,752
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
54,752
|
|
|
50,000
|
|
|
*
|
|
Sidibe,
Aissata
|
|
|
35,546
|
|
|
*
|
|
|
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
|
7,109
|
|
|
28,437
|
|
|
*
|
|
Silverman,
Anthony
|
|
|
743,961
|
|
|
5.56
|
%
|
|
347,570
|
(8)
|
|
139,391
|
|
$
|
4.15
|
|
|
7/15/2005
|
|
|
7/15/2007
|
|
|
486,961
|
|
|
257,000
|
|
|
2.94
|
%
|
Silverman,
Anthony IRA Rollover
|
|
|
54,753
|
|
|
*
|
|
|
54,753
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
54,753
|
|
|
0
|
|
|
*
|
|
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
|
|
$
|
0.0008
|
|
|
10/14/2005
|
|
|
10/13/2007
|
|
|
34,289
|
|
|
137,158
|
|
|
1.57
|
%
|
Source
Capital Group, Inc.(10)
|
|
|
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
|
|
|
498
|
|
$
|
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
|
|
|
3.36
|
%
|
|
58,047
|
(7)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
58,047
|
|
|
390,780
|
|
|
4.48
|
%
|
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
|
|
|
*
|
|
|
|
|
|
5,692
|
|
$
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revocable
Trust Dated January 6, 1999 (6)
|
|
|
21,464
|
|
|
*
|
|
|
4,293
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
4,293
|
|
|
17,171
|
|
|
*
|
|
Wynnjam
Corp. (Michael Huls)
|
|
|
107,057
|
|
|
*
|
|
|
10,950
|
|
|
96,107
|
|
$
|
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
|
|
|
13,365,905
|
|
|
73.66
|
%
|
|
4,004,264
|
|
|
632,835
|
|
|
|
|
|
|
|
|
|
|
|
4,637,100
|
|
|
8,728,806
|
|
|
70.73
|
%
|
(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) |
Indicates
shares subject to lock-up through July 28, 2006.
|
(8) |
233,333
of these shares are subject to lock-up through July 28, 2006.
|
(9) |
These
selling shareholders are our former executive officers and
directors.
|
(10) |
These
selling shareholders are
broker/dealers.
|
(11) |
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. In certain instances shareholders are required to affirmatively elect
to have their shares included in this registration statement, and we may amend
the above list of selling shareholders (through an amendment to this prospectus)
to remove shareholders who elect not to register their shares.
PLAN
OF DISTRIBUTION
The
common stock offered by this prospectus is being offered by the selling
shareholders. The common stock may be sold or distributed from time to
time by the selling shareholders directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents at market prices
prevailing at the time of sale, at prices related to the prevailing market
prices, at negotiated prices, or at fixed prices, which may be changed.
The sale of the common stock offered by this prospectus may be effected in
one
or more of the following methods:
· |
ordinary
brokers' transactions,
|
· |
through
brokers, dealers, or underwriters who may act solely as agents,
|
· |
"at
the market" into an existing market for the common stock,
|
· |
in
other ways not involving market makers or established trading markets,
including direct sales to purchasers or sales effected through agents,
|
· |
in
privately negotiated transactions, and
|
· |
any
combination of the foregoing.
|
In
order
to comply with the securities laws of certain states, if applicable, the shares
may be sold only through registered or licensed brokers or dealers. In addition,
in certain states, the shares may not be sold unless they have been registered
or qualified for sale in the state or an exemption from the registration or
qualification requirement is available and complied with.
The
selling shareholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling shareholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by a selling shareholder may arrange for other
broker-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the selling shareholders (or, if any broker-dealer acts as
agent for the purchaser of shares 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 is equal to approximately 146,156 shares of common stock as of the date
of this filing) or (ii) the average weekly trading volume of our shares of
common stock during the four calendar weeks preceding the filing of a Form
144
with respect to such sale. Under Rule 144(k), a person who is not deemed to
have
been our affiliate at any time during the three months preceding a sale, and
who
has owned the shares proposed to be sold for at least two years, is entitled
to
sell his shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144.
The
Company's Articles of Incorporation provide that the Company has the authority
to issue 200 million shares of capital stock, which are currently divided
into
two classes as follows: 194 million shares of common stock, par value of
$0.001
per share; and 6 million shares of preferred stock, also with a par value
of
$0.001 per share. As of May 24, 2006, the Company had 14,722,686 shares of
common stock and 181,248 shares of Series B preferred stock outstanding.
The
Company also had options to purchase 2,952,698 shares of common stock, warrants
to purchase 3,073,560 shares of common stock, warrants to purchase 34,836
shares
of preferred stock, and $445,000 in principal amount of convertible debentures
(convertible into common stock at $4.15 per share) 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.
The
Preferred Stock
The
Company’s preferred stock is divided into two series - Series A and Series B -
designated as follows:
· |
1,000,000
shares of Series A are authorized and 5,000,000 shares of Series
B are
authorized. As of May 24, 2006 there were no shares of Series A
issued and
outstanding; there were 181,248 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.
|
Warrants
We
are
registering 371,163 shares of common stock underlying warrants 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.
The total number of shares of common stock issuable upon conversion of these
warrants is 1,768,899 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.
Options
We
are
registering certain shares of common stock underlying options 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 the Company's
Form S-8 registration statement. Each of these options 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. In exchange for
consulting services, Quatsch Ventures, LLC, an entity controlled by Stephen
Boatwright, one of the Company's directors, received options to purchase 84,236
shares of our common stock in 2004. Mr. Boatwright is a member of Keller
Rohrback, PLC, which provides legal services to the Company and IsoRay Medical.
During IsoRay Medical's fiscal year ended June 30, 2005, IsoRay Medical paid
Keller Rohrback, PLC and Gammage & Burnham, PLC (of which Mr. Boatwright was
a partner) approximately $285,000 for legal services.
EXPERTS
Our
audited financial statements for the fiscal years ended June 30, 2005 and
September 30, 2004 have been audited by S.W. Hatfield, CPA. Our
subsidiary's audited financial statements for the fiscal years ended June 30,
2005 and June 30, 2004 have been audited by DeCoria, Maichel & Teague, P.S.,
independent public accountants. The report of each of these registered
public accounting firms, which appears elsewhere herein, includes an explanatory
paragraph as to our ability to continue as a going concern. Our financial
statements are included in reliance upon such reports and upon the authority
of
such firms as experts in auditing and accounting.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE
The
Company’s Board of Directors engaged DeCoria, Maichel & Teague, P.S., 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'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 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 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 recent fiscal years and through November 15, 2005, the
Company did not consult DeCoria, Maichel & Teague 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, the
Company’s wholly-owned subsidiary, has consulted with DeCoria, Maichel &
Teague, its independent auditor, during these time periods solely in connection
with IsoRay Medical’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.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Index
to Financial Statements
|
Page
|
|
|
Report
of Registered Independent Certified Public Accounting Firm
|
F-2
|
|
|
Financial
Statements
|
|
|
|
Balance
Sheets
|
|
as
of June 30, 2005, September 30, 2004 and 2003
|
F-3
|
|
|
Statements
of Operations and Comprehensive Income (Loss)
|
|
for
the nine months ended June 30, 2005 and
|
|
for
the years ended September 30, 2004 and 2003
|
F-4
|
|
|
Statement
of Changes in Shareholders' Equity
|
|
for
the nine months ended June 30, 2005 and
|
|
for
the years ended September 30, 2004 and 2003
|
F-5
|
|
|
Statements
of Cash Flows
|
|
for
the nine months ended June 30, 2005 and
|
|
for
the years ended September 30, 2004 and 2003
|
F-6
|
|
|
Notes
to Financial Statements
|
F-7
|
|
|
Unaudited
Financial Statements
|
F-21
|
|
|
Consolidated
Balance Sheets
|
|
as
of March 31, 2006
|
F-22
|
|
|
Consolidated
Statements of Operations
|
|
for
the three and nine months ended March 31, 2006
|
F-23
|
|
|
Consolidated
Statements of Cash Flows
|
|
for
the nine months ended March 31, 2006
|
F-24
|
|
|
Notes
to Financial Statements
|
F-25
|
REPORT
OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING
FIRM
Board
of
Directors and Stockholders
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
We
have
audited the accompanying balance sheets of IsoRay, Inc. (formerly Century Park
Pictures Corporation) (a Minnesota corporation) as of June 30, 2005, September
30, 2004 and 2003 and the related statements of operations and comprehensive
loss, changes in shareholders' equity and cash flows for the nine months ended
June 30, 2005 and for each of the years ended September 30, 2004 and 2003,
respectively. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of IsoRay, Inc. (formerly Century
Park
Pictures Corporation) as of June 30, 2005, September 30, 2004 and 2003 and
the
results of its operations and its cash flows for the nine months ended June
30,
2005 and for each of the years ended September 30, 2004 and 2003, respectively,
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note C to the financial
statements, the Company completed a reverse acquisition transaction in July
2005. At the commencement of the reverse acquisition transaction, the target
enterprise was in the process of implementing its respective business plan
to
achieve a sustainable revenue stream. Due to the uncertainty of the ultimate
success of the target enterprise, this circumstance creates substantial doubt
about the Company’s ability to continue as a going concern. The financial
statements do not contain any adjustments that might result from the outcome
of
these uncertainties.
|
|
|
|
|
/s/
S.
W. Hatfield, CPA |
|
|
|
S.W.
HATFIELD, CPA |
Dallas, Texas |
|
September 16, 2005 |
|
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Balance
Sheets
June
30,
2005, September 30, 2004 and 2003
|
|
(Restated) June
30,
2005
|
|
September
30,
2004
|
|
September
30, 2003
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
on hand and in bank
|
|
$
|
32,587
|
|
$
|
-
|
|
$
|
-
|
|
Total
current assets
|
|
|
32,587
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
|
|
|
-
|
|
|
926
|
|
|
926
|
|
Rent
deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
32,587
|
|
$
|
926
|
|
$
|
926
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Shareholders' Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
-
|
|
$
|
-
|
|
$
|
100,000
|
|
Accounts
payable –
trade
|
|
|
21,355
|
|
|
395
|
|
|
-
|
|
Accrued
officer compensation
|
|
|
-
|
|
|
354,500
|
|
|
354,500
|
|
Accrued
interest payable
|
|
|
-
|
|
|
-
|
|
|
73,714
|
|
Other
accrued expenses
|
|
|
-
|
|
|
-
|
|
|
9,027
|
|
Advances
from shareholder
|
|
|
-
|
|
|
37,744
|
|
|
27,887
|
|
Total
current liabilities
|
|
|
21,355
|
|
|
392,639
|
|
|
565,128
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $0.001 par value
|
|
|
|
|
|
|
|
|
|
|
6,000,000
shares authorized
|
|
|
|
|
|
|
|
|
|
|
1,000,000
shares allocated to Series A
|
|
|
-
|
|
|
-
|
|
|
-
|
|
5,000,000
shares allocated to Series B
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Common
stock - $0.001 par value.
|
|
|
|
|
|
|
|
|
|
|
194,000,000
shares authorized.
|
|
|
|
|
|
|
|
|
|
|
2,498,319,
2,414,985 and 2,099,554 shares issued
and outstanding, respectively
|
|
|
2,498
|
|
|
2,415
|
|
|
|
|
Additional
paid-in capital
|
|
|
7,307,600
|
|
|
6,874,610
|
|
|
6,778,194
|
|
Accumulated
deficit
|
|
|
(7,298,866
|
)
|
|
(7,268,738
|
)
|
|
(7,344,495
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders' equity (deficit)
|
|
|
11,232
|
|
|
(391,713
|
)
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders'
Equity (Deficit)
|
|
$
|
32,587
|
|
$
|
926
|
|
$ |
926
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statements
of Operations and Comprehensive Loss
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
ended
June
30,
2005
|
|
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
30,128
|
|
|
9,095
|
|
|
19,022
|
|
Statutory
cancellation of notes payable and accrued interest
|
|
|
-
|
|
|
(86,956
|
)
|
|
-
|
|
Total
expenses
|
|
|
30,128
|
|
|
(77,861
|
)
|
|
19,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) from operations
|
|
|
(30,128
|
)
|
|
77,861
|
|
|
(19,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Expense
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
(2,104
|
)
|
|
(41,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) before provision
for
income taxes
|
|
|
(30,128
|
)
|
|
75,757
|
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
|
(30,128
|
)
|
|
75,757
|
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss)
|
|
$
|
(30,128
|
)
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) per weighted-average
share
of common stock outstanding,
computed
on Net Loss - basic and fully diluted
|
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares
of
common stock outstanding
|
|
|
2,429,027
|
|
|
2,360,690
|
|
|
804,619
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statement
of Changes in Shareholders' Equity
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
Common
Stock
|
|
Additional paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
capital
|
|
deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at October 1, 2002
|
|
|
9,886,641
|
|
$
|
9,887
|
|
$
|
6,191,566
|
|
$
|
(7,284,468
|
)
|
$
|
(1,083,015
|
)
|
Effect
of April 29, 2005
1-for-30
reverse stock split
|
|
|
(9,557,317
|
)
|
|
(9,558
|
)
|
|
9,558
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
October
1, 2002, as reset
|
|
|
329,324
|
|
|
329
|
|
|
6,201,124
|
|
|
(7,284,468
|
)
|
|
(1,083,015
|
)
|
Conversion
of notes payable
and
accrued interest payable
to
common stock
|
|
|
1,770,230
|
|
|
1,770
|
|
|
529,299
|
|
|
-
|
|
|
531,069
|
|
Forgiveness
of accrued interest
|
|
|
-
|
|
|
-
|
|
|
6,766
|
|
|
-
|
|
|
6,766
|
|
Contribution
of imputed interest
on
suspended interest on
notes
payable
|
|
|
-
|
|
|
-
|
|
|
41,005
|
|
|
-
|
|
|
41,005
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(60,027
|
)
|
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
September
30, 2003
|
|
|
2,099,554
|
|
|
2,099
|
|
|
6,778,194
|
|
|
(7,344,495
|
)
|
|
(564,202
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of notes payable
and
accrued interest payable
to
common stock
|
|
|
289,194
|
|
|
290
|
|
|
86,468
|
|
|
-
|
|
|
86,758
|
|
Contribution
of imputed interest on
suspended
interest on notes payable
|
|
|
-
|
|
|
-
|
|
|
2,104
|
|
|
-
|
|
|
2,104
|
|
Common
stock issued for
debt
conversion services
|
|
|
26,237
|
|
|
26
|
|
|
7,844
|
|
|
-
|
|
|
7,870
|
|
Net
income for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
75,757
|
|
|
75,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
September
30, 2004
|
|
|
2,414,985
|
|
|
2,415
|
|
|
6,874,610
|
|
|
(7,268,738
|
)
|
|
(391,713
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock
for
cash
|
|
|
83,334
|
|
|
83
|
|
|
84,917
|
|
|
-
|
|
|
85,000
|
|
Contributed
capital
|
|
|
-
|
|
|
-
|
|
|
43,573
|
|
|
-
|
|
|
43,573
|
|
Contribution
of forgiven
accrued
officer's compensation
|
|
|
-
|
|
|
-
|
|
|
304,500
|
|
|
-
|
|
|
304,500
|
|
Net
income for the nine months
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(30,128
|
)
|
|
(30,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at
June
30, 2005
|
|
|
2,498,319
|
|
$
|
2,498
|
|
$
|
7,307,600
|
|
$
|
(7,298,866
|
)
|
$
|
11,232
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Statements
of Cash Flows
Nine
months ended June 30, 2005 and
Years
ended September 30, 2004 and 2003
|
|
(Restated) Nine
months
ended
June
30,
2005
|
|
Year
ended
September
30, 2004
|
|
Year
ended
September 30, 2003
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(30,128
|
)
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
Adjustments
to reconcile net income to net cash
provided
by operating activities
|
|
|
|
|
|
|
|
|
|
|
Extinguishment
of notes payable and accrued interest
|
|
|
-
|
|
|
(86,956
|
)
|
|
-
|
|
Consulting
fees paid with common stock
|
|
|
-
|
|
|
7,870
|
|
|
-
|
|
Contribution
of interest expense related to
suspended
interest payable on notes payable
|
|
|
-
|
|
|
2,104
|
|
|
41,005
|
|
Increase
(Decrease) in
Accounts
payable and other accrued expenses
|
|
|
(29,040
|
)
|
|
(8,632
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(59,168
|
)
|
|
(9,857
|
)
|
|
(19,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock
|
|
|
85,000
|
|
|
-
|
|
|
-
|
|
Funds
advanced by officer/shareholder
|
|
|
6,735
|
|
|
9,857
|
|
|
19,022
|
|
Net
cash provided by financing activities
|
|
|
91,755
|
|
|
9,857
|
|
|
19,022
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
|
32,587
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$
|
32,587
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Interest and Income
Taxes
Paid
|
|
|
|
|
|
|
|
|
|
|
Interest
paid during the period
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Income
taxes paid (refunded)
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-cash Investing
and
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Conversion
of forgiven unpaid accrued officers
compensation
to accrued capital
|
|
$
|
304,500
|
|
$
|
-
|
|
$
|
-
|
|
Conversion
of advances from shareholder to contributed
capital
|
|
$
|
44,500
|
|
$
|
-
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements
Note
A - Organization and Description of Business
Century
Park Pictures Corporation (Company) was incorporated in 1983 in accordance
with
the Laws of the State of Minnesota.
In
prior
periods, the Company developed, produced and marketed various entertainment
properties, including without limitation, the intellectual product(s) of
entities engaged in the motion picture, television, and theatrical state
productions, such as creative writers, producers and directors, for the motion
picture, pay/cable and commercial television markets.
The
Company had no operations, assets or liabilities since its fiscal year ended
September 30, 1999 through May 27, 2005.
On
May
27, 2005, the Company's Board of Directors reallocated the Company's authorized
capital stock into 2 categories with the designation of preferred stock. The
effect of this action was to allocate the authorized aggregate 200,000,000
shares of capital stock into 194,000,000 shares of $0.001 par value Common
Stock
and 6,000,000 shares of $0.001 par value Preferred Stock. As filed with the
State of Minnesota on June 29, 2005, the Board of Directors allocated the
6,000,000 shares of Preferred Stock as follows: 1,000,000 shares as $0.001
par
value Class A Convertible Preferred Stock and 5,000,000 shares as $0.001 par
value Class B Convertible Preferred Stock. The effect of this action is
reflected in the accompanying financial statements as of the first day of the
first period presented.
On
May
27, 2005, the Company; a newly-formed, wholly-owned subsidiary, Century Park
Transitory Subsidiary, Inc., a Delaware corporation (Merger Subsidiary) , Thomas
Scallen and Anthony Silverman, shareholders of the Company, and IsoRay Medical,
Inc., a Delaware corporation (IsoRay) entered into a Merger Agreement. Pursuant
to the Merger Agreement, the Merger Subsidiary will be merged with and into
IsoRay and IsoRay will become a wholly-owned subsidiary of the Company (Merger).
In the Merger, the IsoRay stockholders are entitled to receive approximately
82%
of the then outstanding shares of common stock of the Company. The Merger
Agreement is subject to the satisfaction of certain conditions, including the
approval of the Merger by stockholders of IsoRay representing a majority of
the
outstanding shares of common stock of IsoRay entitled to vote, which occurred
on
June 28, 2005, the granting of certain "piggy-back" and demand registration
rights to the purchasers of the certain debentures of IsoRay, Anthony Silverman
and certain other affiliates of the Company, the agreements of the officers
and
directors of IsoRay to lock-up the shares of the Company received in the Merger
for a period of one year from the closing of the Merger, the agreements of
Thomas Scallen and Anthony Silverman to escrow certain shares of common stock
of
the Company, and the receipt by IsoRay from Anthony Silverman or his associates
of One Million Dollars as the purchase price of certain securities of IsoRay
before the closing.
On
July
28, 2005, the Merger contemplated by the Merger Agreement dated May 27, 2005
was
completed with the filing of a Certificate of Merger with the Secretary of
State
of Delaware, merging Century Park Transitory Subsidiary, Inc. into IsoRay
Medical, Inc. As a result of the Merger and pursuant to the Merger Agreement,
IsoRay Medical, Inc. became a wholly-owned subsidiary of the Company. The
Company concurrently changed its name to IsoRay, Inc.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
A - Organization and Description of Business - Continued
The
Company issued shares of its common stock and shares of its preferred stock
to
holders of common and preferred stock of IsoRay Medical, Inc. at a rate of
0.842362 share of the Company's common stock for each share of IsoRay Medical,
Inc. stock. Options and warrants to purchase common and preferred stock of
IsoRay Medical, Inc. will also be converted at the same rate into options and
warrants to purchase common and preferred stock of the Company. At the time
of
the Merger and following its recent 1:30 reverse stock split, the Company had
2,498,319 shares of common stock outstanding. Following the Merger, the Company
has approximately 10,237,797 shares of common and preferred stock outstanding.
The total amount of shares outstanding, on a fully-diluted basis, post merger
will be 13,880,822, which includes not only shares of common stock, but also
shares of preferred stock, warrants, options and convertible debentures that
could be exercised or converted into shares of common stock. Following the
Merger, on a fully diluted basis, the shareholders of IsoRay Medical, Inc.
own
82% of the Company's outstanding securities.
Note
B - Preparation of Financial Statements
The
acquisition of IsoRay on July 28, 2005, by the Company effected a change in
control and was accounted for as a "reverse acquisition" whereby IsoRay is
the
accounting acquirer for financial statement purposes. Accordingly, for all
periods subsequent to July 28, 2005, the financial statements of the Company
reflect the historical financial statements of IsoRay from the inception of
each
respective entity composing IsoRay Medical, Inc. at the July 28, 2005 change
in
control transaction and the operations of the Company subsequent to the July
28,
2005 transaction.
The
Company originally had a September 30 year-end. As a result of the July 28,
2005
reverse acquisition transaction, the Company's Board of Directors changed
IsoRay, Inc.'s (formerly Century Park Pictures Corporation) year-end to
June 30 to correspond to the year end of its then-newly acquired
subsidiary, IsoRay Medical, Inc.
The
Company and its subsidiaries follow the accrual basis of accounting in
accordance with accounting principles generally accepted in the United States
of
America.
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Management
further acknowledges that it is solely responsible for adopting sound accounting
practices, establishing and maintaining a system of internal accounting control
and preventing and detecting fraud. The Company's system of internal accounting
control is designed to assure, among other items, that 1) recorded transactions
are valid; 2) valid transactions are recorded; and 3) transactions are recorded
in the proper period in a timely manner to produce financial statements which
present fairly the financial condition, results of operations and cash flows
of
the Company for the respective periods being presented.
For
segment reporting purposes, the Company operated in only one industry segment
during the periods represented in the accompanying financial statements and
makes all operating decisions and allocates resources based on the best benefit
to the Company as a whole.
Note
C - Going Concern Uncertainty
The
Company has effectively had no operations, assets or liabilities since its
fiscal year ended September 30, 1999.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
C - Going Concern Uncertainty - Continued
The
Company had no operations, assets or liabilities since its fiscal year ended
September 30, 1999 through June 28, 2005.
The
Company formed a new wholly-owned subsidiary, Century Park Transitory
Subsidiary, Inc., (a Delaware corporation) (Merger Corporation) to function
as a
merger subsidiary for the reverse acquisition of IsoRay Medical, Inc., a
Delaware corporation (IsoRay). On May 27, 2005, the Company, the Merger
Subsidiary and IsoRay entered into a Merger Agreement, dated May 27, 2005.
On
July 28, 2005, the May 27, 2005 Merger Agreement was consummated with the filing
of a Certificate of Merger with the Secretary of State of Delaware, merging
Century Park Transitory Subsidiary, Inc. into IsoRay Medical, Inc. As a result
of the Merger and pursuant to the Merger Agreement, IsoRay Medical, Inc. became
a wholly-owned subsidiary of the Company.
IsoRay
Medical, Inc., on the date of the reverse acquisition transaction was classified
as a development stage enterprise which was in the process of implementing
its
respective business plan to achieve a sustainable revenue stream. At the date
of
the reverse merger transaction, IsoRay Medical, Inc. has a limited operating
history and its future success was subject to the expenses, risks and
uncertainties frequently encountered by companies in similar stages of
development. These potential risks include failure to acquire adequate financing
to fund further development of its products; failure to obtain and operate
a
production facility; failure to successfully create a market for its products;
and other risks and uncertainties.
Management's
plans to raise additional financing include the sale of additional equity or
borrowings. Management expects to obtain the necessary financing, however,
no
assurance can be given that such financing will be completed on terms acceptable
to the Company. If the Company is not able to obtain additional financing,
the
development of the Company's products could be delayed or suspended.
Note
D - Summary of Significant Accounting Policies
1. Cash
and cash equivalents
For
Statement of Cash Flows purposes, the Company considers all cash on hand and
in
banks, certificates of deposit and other highly-liquid investments with
maturities of three months or less, when purchased, to be cash and cash
equivalents.
2. Property
and equipment
Property
and equipment consists of furniture and fixtures and is stated at the lower
of
depreciated cost or net realizable value.
3. Income
Taxes
The
Company uses the asset and liability method of accounting for income taxes.
At
June 30, 2005, September 30, 2004 and 2003, respectively, the deferred tax
asset
and deferred tax liability accounts, as recorded when material to the financial
statements, are entirely the result of temporary differences. Temporary
differences represent differences in the recognition of assets and liabilities
for tax and financial reporting purposes, primarily accumulated depreciation
and
amortization, allowance for doubtful accounts and vacation
accruals.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
D - Summary of Significant Accounting Policies - Continued
As
of
June 30, 2005, September 30, 2004 and 2003, the deferred tax asset related
to
the Company's net operating loss carryforward is fully reserved. Due to the
provisions of Internal Revenue Code Section 338, the Company may have limited
net operating loss carryforwards available to offset financial statement or
tax
return taxable income in future periods as a result of any future change in
control involving 50 percentage points or more of the issued and outstanding
securities of the Company.
4. Income
(Loss) per share
Basic
earnings (loss) per share is computed by dividing the net income (loss)
available to common shareholders by the weighted-average number of common shares
outstanding during the respective period presented in our accompanying financial
statements.
Fully
diluted earnings (loss) per share is computed similar to basic income (loss)
per
share except that the denominator is increased to include the number of common
stock equivalents (primarily outstanding options and warrants).
Common
stock equivalents represent the dilutive effect of the assumed exercise of
the
outstanding stock options and warrants, using the treasury stock method, at
either the beginning of the respective period presented or the date of issuance,
whichever is later, and only if the common stock equivalents are considered
dilutive based upon the Company's net income (loss) position at the calculation
date.
At
June
30, 2005, September 30, 2004 and 2003, the Company has no outstanding stock
warrants, options or convertible securities which could be considered as
dilutive for purposes of the loss per share calculation.
Note
E - Correction of an Error and
Financial Statement Restatement
In
April
2002, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 145 “Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections(SFAS
145”). FAS 145 amended Accounting Principles Board Opinion No. 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions (APB 30), by deleting the phrase, “(1) Classifications of gains or
losses from extinguishment of debt pursuant to paragraph 8 of FASB Statement
No.
4, Reporting Gains and Losses from Extinguishment of Debt. In deleting this
phrase, the FASB obviated the customary classification of material aggregations
of extinguishment of debt as extraordinary items. However Paragraph 4 of the
SFAS 145 Summary, leaves open the possibility of classifying the extinguishment
of debt as an extraordinary item if these items meet the criteria in APB
30.
During
the three-month period ended December 31, 2003, the Company was in the process
of converting all outstanding debt into shares of the Company's common stock,
and had continually attempted to contact specific noteholders. Certain specific
noteholders were unresponsive to the Company's continued inquiries related
to
the conversion of the debts into common stock, as discussed in detail in the
Company's contemporaneously filed financial statements, and the Company’s Board
of Directors, relying on legal counsel, at the time, acted to create a
“technical forgiveness” of the notes and accrued interest. It was the
then-management's position and interpretation, after reviewing the requirements
of both APB 30 and FAS 145 that the failure to timely convert or post a timely
claim for repayment by these specific noteholders, with concurrence of the
Company's then-legal counsel, and independent auditor, met both of the required
criteria of “unusual nature” (it is extraordinary that a note holder would
not
respond to numerous requests to change the nature of an investment), and
“infrequency of occurrence (as no similar event had occurred previously, and
none has occurred subsequently, including the redirection of the Company with
the July 28, 2005 aforementioned reverse merger transaction) and should be
stated as an “extraordinary item.”
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
E - Correction of an Error and
Financial Statement Restatement - Continued
The
SEC
staff has taken recent exception to former management's interpretation, and
requested reclassification of this item from “extraordinary item” to a component
of operating income, and the Company is restating the accompanying financial
statements to comply with that request.
Additionally,
we have also revised our treatment of the forgiveness of debt owed to our former
CEO in the amount of $304,500 revising it from a reduction of operating expenses
to a contribution of capital.
The
effect of any and all changes are reflected in the accompanying restated
financial statements as of the respective date of the transaction and the effect
of the corrections are summarized below by fiscal period and cumulatively.
|
|
Nine
months
ended
June
30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
Cumulative
effect
of
changes
|
|
Net
Income (Loss),
|
|
|
|
|
|
|
|
|
|
as
previously reported
|
|
$
|
274,372
|
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of the correction of an error
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification
of statutory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
cancellation
of notes payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
accrued interest from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
extraordinary
item to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
“ordinary”
expense
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Contribution
of forgiven
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accrued
officer’s compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
contributed capital
|
|
|
(304,500
|
)
|
|
-
|
|
|
-
|
|
|
(304,500
|
)
|
Total
effect of changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
on
Income (Loss) from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
and Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss)
|
|
|
(304,500
|
)
|
|
-
|
|
|
-
|
|
$
|
(304,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss), as restated
|
|
$
|
(30,128
|
)
|
$
|
75,757
|
|
$
|
(60,027
|
)
|
|
|
|
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
E - Correction of an Error and
Financial Statement Restatement - Continued
|
|
Nine
months
ended
June
30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended
September
30,
2003
|
|
Cumulative
effect
of
changes
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share,
|
|
|
|
|
|
|
|
|
|
as
previously reported
|
|
$
|
(0.11
|
)
|
$
|
0.03
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
effect of changes
|
|
|
0.10
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share, as restated
|
|
$
|
(0.01
|
)
|
$
|
0.03
|
|
$
|
(0.07
|
)
|
|
|
|
Note
F - Fair Value of Financial Instruments
The
carrying amount of cash, accounts receivable, accounts payable and notes
payable, as applicable, approximates fair value due to the short term nature
of
these items and/or the current interest rates payable in relation to current
market conditions.
Interest
rate risk is the risk that the Company's earnings are subject to fluctuations
in
interest rates on either investments or on debt and is fully dependent upon
the
volatility of these rates. The Company does not use derivative instruments
to
moderate its exposure to interest rate risk, if any.
Financial
risk is the risk that the Company's earnings are subject to fluctuations in
interest rates or foreign exchange rates and are fully dependent upon the
volatility of these rates. The company does not use derivative instruments
to
moderate its exposure to financial risk, if any.
Note
G - Notes Payable
On
July
31, 2002, the Company's Board of Directors and the respective noteholders
approved the extension of the ultimate maturity date of the notes through
December 3, 2003. In conjunction with the extension, the noteholders agreed
to
discontinue the accrual of interest subsequent to July 31, 2002.
The
effect of the discontinuance of interest accruals subsequent to July 31, 2002
will be charged to operations as a component of interest expense with an offset
to contributed additional paid-in capital to recognize the economic effect
of
the suspended and forgiven interest on these notes in the respective future
period.
On
June
25, 2003, noteholders aggregating $300,000 in outstanding principal and $231,900
in accrued interest payable exercised their respective conversion rights and
received an aggregate 53,106,900 pre-reverse split shares of restricted, common
stock upon conversion.
On
December 3, 2003, the final ultimate maturity date, one remaining noteholder
exercised his conversion rights and converted approximately $50,000 in principal
and $36,758 in accrued interest payable into 8,675,800 pre-reverse split shares
of restricted, unregistered common stock.
On
December 3, 2003, upon the failure to timely convert or post a timely claim
for
repayment, the Company's Board of Directors, acting upon the advice of legal
counsel, voided the remaining outstanding unconverted notes payable of
approximately $50,000 and the associated accrued interest of approximately
$36,956 and recognized a one-time gain on the technical cancellation of these
debts.
For
the
respective years ended September 30, 2004 and 2003, the Company has recognized
approximately $2,104 and $41,005 in additional paid-in capital for imputation
of
suspended interest on these notes.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
H - Related Party Transactions
Through
June 30, 2005, the Company's former Chief Executive Officer advanced the Company
approximately $44,500 to support operations, settle outstanding trade accounts
payable and provide working capital. The advance was
repayable upon demand and is non-interest bearing and is unsecured. Effective
June 30, 2005, with the anticipation of the consummation of the reverse
acquisition transaction with IsoRay Medical, Inc., as previously discussed,
these advances were forgiven and reclassified as additional paid-in capital
in
the accompanying financial statements as of that date.
Through
December 31, 2004, the Company owed the Company's Chief Executive Officer
approximately $354,500 for accrued salary incurred during the Company’s
operational periods prior to September 30, 1999. In periods subsequent to
September 30, 1999, management of the Company required significantly less time
than in prior periods due to a lessening of the Company's operations. As the
Company's officer and directors did not devote a significant portion of their
time to the Company, no officer or director compensation was accrued subsequent
to September 30, 1999.
During
the quarter ended March 31, 2005, the Company's former Chief Executive Officer
forgave approximately $304,500 in accrued salary for prior periods and this
forgiveness was credited as "additional paid-in capital" to reflect the
contribution effect of this action.
Note
I - Income Taxes
The
components of income tax (benefit) expense for the nine months ended June 30,
2005 and for each of the years ended September 30, 2004 and 2003, respectively,
are as follows:
|
|
Nine
months
ended
June 30, 2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended September 30, 2003
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
As
of
June 30, 2005, the Company has a Federal net operating loss carryforward of
approximately $3,900,000 and a State net operating loss carryforward of
approximately $1,200,000 to offset future taxable income. Subject to current
regulations, these carryforwards expire, if unused, through 2015. Due to the
July 2005 business combination transaction, the utilization of these
carryforwards, if any, will be governed by the appropriate Federal and State
statutes.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Income Taxes - Continued
The
Company's income tax expense (benefit) for the nine months ended June 30, 2005
and for each of the years ended September 30, 2004 and 2003, respectively,
differed from the statutory federal rate of 34 percent as follows:
|
|
Nine
months
ended
June 30,
2005
|
|
Year
ended
September
30,
2004
|
|
Year
ended September 30, 2003
|
|
|
|
|
|
|
|
|
|
Statutory
rate applied to earnings (loss) before income taxes
|
|
$
|
10,200
|
|
$
|
25,750
|
|
$
|
(20,400
|
)
|
Increase
(decrease) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
State
income taxes
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other,
including reserve for deferred tax asset
|
|
|
(10,200
|
)
|
|
(25,750
|
)
|
|
20,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Temporary
differences, consisting primarily of statutory differences between the financial
statement carrying amounts and tax bases of assets and liabilities give rise
to
deferred tax assets and liabilities as of the nine months ended June 30, 2005
and each of the respective years ended September 30, 2004 and 2003.
|
|
Nine
months ended June 30, 2005
|
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Year
ended September 30, 2004
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
Year
ended September 30, 2003
|
|
|
|
Federal
|
|
State
|
|
Total
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Other
(current)
|
|
$
|
96,000
|
|
$
|
35,000
|
|
$
|
131,000
|
|
Net
operating loss carryforwards (non-current)
|
|
|
932,000
|
|
|
77,000
|
|
|
1,009,000
|
|
|
|
|
1,028,000
|
|
|
112,000
|
|
|
1,140,000
|
|
Valuation
allowance
|
|
|
(1,028,000
|
)
|
|
(112,000
|
)
|
|
(1,140,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Deferred tax asset
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
I - Income Taxes - Continued
During
the nine months ended June 30, 2005 and for each of the years ended September
30, 2004 and 2003, respectively, the valuation allowance increased (decreased)
by approximately $-0-, $-0- and $-0-. Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that
deductible temporary differences and carryforwards are expected to be available
to reduce taxable income.
Note
J - Preferred Stock Transactions
On
May
27, 2005, and filed with the State of Minnesota on July 27, 2005, the Company's
Board of Directors created two series of shares of Preferred Stock designated
as
Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.
The Series A Convertible Preferred Stock (the Series A Stock) consists of an
aggregate of 1,000,000 shares, $0.001 par value, and the Series B Convertible
Preferred Stock (Series B Stock) consists 5,000,000 shares, $0.001 par value
(collectively, Preferred Stock). The Preferred Stock has preferences,
limitations and relative rights in preference to the holders of any other stock
of the Company (Junior Stock).
Dividends
Dividends
shall be paid, out of funds legally available for that purpose, with respect
to
all outstanding shares of Series A Stock in an amount equal to ten percent
(10%)
per annum of the stated value per share of the Series A Stock, which shall
be
$1.20 per share. Such dividends shall only be paid or accrue through March
31,
2007. Beginning April 1, 2007, no dividends shall be paid with respect to the
outstanding shares of Series A Stock.
Dividends
shall be paid, out of funds legally available for that purpose, with respect
to
all outstanding shares of Series B Stock in an amount equal to fifteen percent
(15%) per annum of the stated value per share of the Series B Stock, which
shall
be $1.20 per share (Dividend Payment Amount). Such dividends shall be payable
in
full on or before December 31st of each year the Series B Stock is outstanding
(Dividend Payment Date). Each such dividend shall be paid to the holders of
record of the Series B Stock as their names appear on the share register of
the
Company on the date which is fifty (50) days preceding December 31st
of each
year (Record Date). If, on the Dividend Payment Date, the holders of the Series
B Stock shall not have received the full dividends provided for, then such
dividends shall cumulate, at the rate of 15% per annum on the Dividend Payment
Amount, beginning to accrue on the Dividend Payment Date whether or not earned
or declared, with additional dividends thereon for each succeeding year during
which dividends shall remain unpaid. Unpaid dividends for any period less than
a
full year shall cumulate on a day-to-day basis and shall be computed on the
basis of a 360-day year.
The
Company shall not declare or pay on any Junior Stock any dividend whatsoever,
whether in cash, property or otherwise (other than dividends payable in shares
of the class or series upon which such dividends are declared or paid), nor
shall the Company make any distribution on any Junior Stock, unless all
dividends to which the holders of Preferred Stock shall have been entitled
shall
have been paid or declared and a sum of money sufficient for the payment thereof
set apart.
Voting
Rights
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
J - Preferred Stock Transactions - Continued
Except
as
otherwise provided herein or by contract, or as required by law, the Preferred
Stock shall be voted equally with the shares of the Common Stock and not as
a
separate class, at any annual or special meeting of stockholders of the Company,
and may act by written consent in the same manner as the Common Stock, in either
case upon the following basis: each share of Preferred Stock shall be entitled
to such number of votes as shall be equal to the voting power of one (1) share
of Common Stock at the time of the vote.
Notwithstanding
anything to the contrary in the Company's Articles of Incorporation or Bylaws,
for so long as any shares of Preferred Stock remain outstanding, in addition
to
any other vote or consent required herein or by law, the
vote
or
written consent of the holders of at least fifty percent (50%) of the
outstanding Preferred Stock shall be necessary for effecting or validating
the
following actions:
(i) Any
amendment, alteration, waiver or repeal of any provision of the Articles of
Incorporation or the Bylaws of the Company (including any filing of a
Certificate of Designation); or
(ii) Any
bankruptcy, insolvency, dissolution or liquidation of the Company.
In
addition to the vote or consent required above, the Company may not amend,
alter, waive or repeal any provisions of the Articles of Incorporation or
Certificate of Designation which would have a material adverse effect on the
rights, privileges or preferences granted to either the Series A Stock or the
Series B Stock without the vote or written consent of the holders of at least
fifty percent (50%) of the outstanding affected shares.
Liquidation
Rights
Upon
any
liquidation, dissolution, or winding up of the Company, whether voluntary or
involuntary, the assets of the Company legally available for distribution,
if
any, shall be distributed ratably first, to the holders of the Series A Stock,
second, to the holders of the Series B Stock and third, to the holders of the
Common Stock.
The
following events shall be considered a liquidation under this
Section:
(i) any
consolidation or merger of the Company with or into any other corporation or
other entity or person, or any other corporate reorganization, in which the
stockholders of the Company immediately prior to such consolidation, merger
or
reorganization, own less than 50% of the Company's voting power immediately
after such consolidation, merger or reorganization, or any transaction or series
of related transactions to which the Company is a party in which in excess
of
fifty percent (50%) of the Company's voting power is transferred, excluding
any
consolidation or merger effected exclusively to change the domicile of the
Company (Acquisition); or
(ii) a
sale,
lease or other disposition of all or substantially all of the assets of the
Company (Asset Transfer).
In
the
event of any liquidation event as defined, if the consideration received by
the
Company is other than cash, its value will be deemed its fair market value
as
determined in good faith by the Board. Any securities shall be valued as
follows:
(i) Securities
not subject to investment letter or other similar restrictions on free
marketability:
(A) If
traded
on a securities exchange or through the NASDAQ National Market, the value shall
be deemed to be the average closing price of the securities on such quotation
system for the ten days prior to and including the date of closing;
(B) If
actively traded over-the-counter, the value shall be deemed to be the closing
bid or sale price (whichever is applicable) as of the date of closing;
and
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
J - Preferred Stock Transactions - Continued
(C) If
there
is no active public market, the value shall be the fair market value thereof,
as
determined by the Board.
(ii) The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely
by
virtue of a stockholder's status as an affiliate or former affiliate) shall
be
to make an appropriate discount from the market value determined, as defined
above, to reflect the approximate fair market value thereof, as determined
by
the Board.
Conversion
The
holders of the Preferred Stock shall have the following rights with respect
to
the conversion of the Preferred Stock into shares of Common Stock (Conversion
Rights):
Optional
Conversion
Any
outstanding shares of Preferred Stock may, at the option of the holder, be
converted at any time into fully-paid and nonassessable shares of Common Stock.
The number of shares of Common Stock to which a holder of Preferred Stock shall
be entitled upon conversion shall be one (1) share of Common Stock for each
share of Preferred Stock being converted (Preferred Stock Conversion Rate).
Such
initial Preferred Stock Conversion Rate shall be adjusted from time to time
as
defined in the Certificate of Designation.
Automatic
Conversion
Each
share of Preferred Stock shall automatically be converted into shares of Common
Stock, based on the then-effective Preferred Stock Conversion Rate, immediately
upon the closing of a firmly underwritten public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company
in
which the gross proceeds to the Company are at least $4,000,000. Upon such
automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the appropriate provisions of Certificate of
Designation.
No
fractional shares of Common Stock shall be issued upon conversion of Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Preferred Stock by a holder thereof shall
be aggregated for purposes of determining whether the conversion would result
in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of any fractional share, the Company
shall, in lieu of issuing any fractional share, pay cash equal to the product
of
such fraction multiplied by the Common Stock's fair market value (as determined
by the Board) on the date of conversion.
Reservation
of Stock Issuable Upon Conversion
The
Company shall at all times reserve and keep available out of its authorized
but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares
of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Preferred Stock. If at any time the number
of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock
to
such number of shares as shall be sufficient for such purpose.
Adjustment
for Stock Splits and Combinations
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
J - Preferred Stock Transactions - Continued
If
the
Company shall at any time or from time to time after the filing date of the
Certificate of Designation (the Original Issue Date) effect a subdivision of
the
outstanding Common Stock without a corresponding subdivision of the Preferred
Stock, the Preferred Stock Conversion Rate in effect immediately before that
subdivision shall be proportionately adjusted. Conversely, if the Company shall
at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares without
a
corresponding combination of the Preferred Stock, the Preferred Stock Conversion
Rate in effect immediately before the combination shall be proportionately
adjusted. Any adjustment shall become effective at the close of business on
the
date the subdivision or combination becomes effective.
Adjustment
for Reclassification, Exchange and Substitution
If
at any
time or from time to time after the Original Issue Date, the Common Stock
issuable upon the conversion of the Preferred Stock is changed into the same
or
a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition
or
Asset Transfer as defined or a subdivision or combination of shares or stock
dividend or a reorganization, merger, consolidation or sale of assets as
otherwise provided for), in any such event each holder of Preferred Stock shall
have the right thereafter to convert such stock into the kind and amount of
stock and other securities and property receivable upon such recapitalization,
reclassification or other change by holders of the maximum number of shares
of
Common Stock into which such shares of Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
Reorganizations,
Mergers or Consolidations
If
at any
time or from time to time after the Original Issue Date, there is a capital
reorganization of the Common Stock or the merger or consolidation of the Company
with or into another corporation or another entity or person (other than an
Acquisition or Asset Transfer or a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares as otherwise provided
for),
as a part of such capital reorganization, provision shall be made so that the
holders of the Preferred Stock shall thereafter be entitled to receive upon
conversion of the Preferred Stock the number of shares of stock or other
securities or property of the Company to which a holder of the number of shares
of Common Stock deliverable upon conversion would have been entitled on such
capital reorganization, subject to adjustment in respect of such stock or
securities by the terms thereof. In any such case, appropriate adjustment shall
be made in the application of the appropriate provisions with respect to the
rights of the holders of Preferred Stock after the capital reorganization to
the
end that the various conversion provisions (including adjustment of the
Preferred Stock Conversion Rate then in effect and the number of shares issuable
upon conversion of the Preferred Stock) shall be applicable after that event
and
be as nearly equivalent as practicable.
Certificate
of Adjustment
In
each
case of an adjustment or readjustment of the Preferred Stock Conversion Rate
or
the number of shares of Common Stock or other securities issuable upon
conversion of the Preferred Stock, if the Preferred Stock is then convertible,
as previously defined, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder
of
Preferred Stock at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (I) the Preferred Stock Conversion Rate at the time in effect,
and
(ii) the type and amount, if any, of other property which at the time would
be
received upon conversion of the Preferred Stock.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
J - Preferred Stock Transactions - Continued
Notices
of Record Date
Upon
(i)
any taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, or (ii) any Acquisition (as defined) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined), or any voluntary or involuntary dissolution, liquidation
or winding up of the Company, the Company shall mail to each holder of Preferred
Stock at least ten (10) days prior to the record date specified therein (or
such
shorter period approved by a majority of the outstanding Preferred Stock) a
notice specifying (A) the date on which any such record is to be taken for
the
purpose of such dividend or distribution and a description of such dividend
or
distribution, (B) the date on which any such Acquisition, reorganization,
reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
liquidation or winding up is expected to become effective, and (C) the date,
if
any, that is to be fixed as to when the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock
(or
other securities) for securities or other property deliverable upon such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up.
No
Dilution or Impairment
Without
the consent of the holders of then outstanding Preferred Stock, as required,
the
Company shall not amend its Articles of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or
sale of securities or take any other voluntary action, for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but shall at all times
in
good faith assist in carrying out all such action as may be reasonably necessary
or appropriate in order to protect the conversion rights of the holders of
the
Preferred Stock against dilution or other impairment.
Note
K - Common Stock Transactions
On
April
29, 2005, the Company's Board of Directors approved and authorized a 1-for-30
reverse split of the then issued and outstanding common stock of the Company.
The reverse stock split did not change the number of authorized shares of common
stock or the par value of the Company's common stock. Except for any changes
as
a result of the treatment of fractional shares, each shareholder holds the
same
percentage of common stock outstanding immediately following the reverse stock
split as such shareholder did immediately prior to the reverse stock split.
The
effect of this action is reflected in the accompanying financial statements
as
of the first day of the first period presented.
On
June
25, 2003, the Company issued an aggregate 1,770,230 post-reverse split shares
of
restricted, unregistered common stock (53,106,900 pre-reverse split shares)
in
redemption of various outstanding notes payable in the face amount of
approximately $300,000 and accrued interest payable of approximately $237,835,
pursuant to the conversion terms of the respective notes. The valuation of
this
transaction was equal to the "fair value" of the Company's common stock on
the
conversion date.
IsoRay,
Inc.
(formerly
Century Park Pictures Corporation)
Notes
to Financial Statements - Continued
Note
K - Common Stock Transactions - Continued
On
December 3, 2003, the Company issued 289,194 post-reverse split shares of
restricted, unregistered common stock (8,675,800 pre-reverse split shares)
in
redemption of two (2) notes payable in the face amount of approximately $50,000
and accrued interest payable of approximately $36,758, pursuant to the
conversion terms of the respective notes. The valuation of this transaction
was
equal to the "fair value" of the Company's common stock on the conversion date.
The Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
for an exemption from registration of these shares and no underwriter was used
in this transaction.
On
December 3, 2003, the Company issued 26,237 post-reverse split shares of
restricted, unregistered common stock (787,100 pre-reverse split shares) as
compensation for fees associated with the conversion of the outstanding notes
payable and accrued interest payable. This transaction was valued at
approximately $7,871, which was equal to the "fair value" of the Company's
common stock on the conversion date. The Company relied upon Section 4(2) of
The
Securities Act of 1933, as amended, for an exemption from registration of these
shares and no underwriter was used in this transaction.
On
or
about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
shares of unregistered, restricted common stock (2,500,000 pre-reverse split
shares) for cash proceeds of approximately $85,000 to three (3) separate
individuals, including 148,000 shares to the Company's former President. The
Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
for
an exemption from registration of these shares and no underwriter was used
in
this transaction. The Company granted "piggy-back" registration rights to the
holders of the shares of common stock which would entitle a holder to request
that the Company register the common stock if the Company files a registration
statement at any time prior to three years from the date the Company sold such
shares of common stock. The Company has agreed to keep such registration
statement current for up to 270 days. The Company has agreed to pay all expenses
associated with any registration of the common stock except any underwriter's
commissions or fees or any fees of others employed by a selling shareholder,
including attorneys' fees; which shall be the responsibility of the selling
shareholder.
On
July
28, 2005, the Company issued approximately 7,739,478 post-reverse split shares
of restricted, unregistered common stock for 100.0% of the issued and
outstanding shares of IsoRay Medical, Inc. This transaction made IsoRay a
wholly-owned subsidiary of the Company.
Note
L - Commitments and Contingencies
The
Company, prior to the July 2005 change in control transaction, leased office
space under a noncancellable operating lease that expired on August 31, 2002.
The space was sub-leased to a separate company owned by the Company's then-CEO.
The Company incurred no expense related to this lease during any period
reflected in the accompanying financial statements.
(Remainder
of this page left blank intentionally)
IsoRay,
Inc.
Consolidated
Unaudited
Financial
Statements
for
the nine months
ended
March 31, 2006
IsoRay,
Inc. and Subsidiary
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
March
31,
|
|
June
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,472,218
|
|
$
|
1,653,144
|
|
Accounts
receivable, net
|
|
|
593,310
|
|
|
49,969
|
|
Inventory
|
|
|
311,340
|
|
|
81,926
|
|
Prepaid
expenses
|
|
|
174,999
|
|
|
181,266
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
3,551,867
|
|
|
1,966,305
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation and amortization
|
|
|
1,575,040
|
|
|
842,323
|
|
Other
assets, net of accumulated amortization
|
|
|
960,936
|
|
|
793,756
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
6,087,843
|
|
$
|
3,602,384
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
392,383
|
|
$
|
695,588
|
|
Accrued
payroll and related taxes
|
|
|
286,692
|
|
|
157,924
|
|
Accrued
interest payable
|
|
|
-
|
|
|
41,325
|
|
Notes
payable, due within one year
|
|
|
44,992
|
|
|
43,116
|
|
Capital
lease obligations, due within one year
|
|
|
181,185
|
|
|
9,604
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
905,252
|
|
|
947,557
|
|
|
|
|
|
|
|
|
|
Notes
payable, due after one year
|
|
|
275,333
|
|
|
562,224
|
|
Capital
lease obligations, due after one year
|
|
|
240,257
|
|
|
19,584
|
|
Convertible
debentures payable, due after one year
|
|
|
455,000
|
|
|
3,587,875
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
1,875,842
|
|
|
5,117,240
|
|
|
|
|
|
|
|
|
|
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; 292,328 and no shares issued and
outstanding
|
|
|
181
|
|
|
1,589
|
|
Common
stock, $.001 par value; 194,000,000 shares authorized; 13,383,139
and
|
|
|
|
|
|
|
|
7,317,073
shares issued and outstanding
|
|
|
14,716
|
|
|
7,317
|
|
Subscriptions
receivable (Note 8)
|
|
|
(6,227,067
|
)
|
|
-
|
|
Additional
paid-in capital
|
|
|
21,351,085
|
|
|
3,804,369
|
|
Accumulated
deficit
|
|
|
(10,926,914
|
)
|
|
(5,328,131
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders' equity
|
|
|
4,212,001
|
|
|
(1,514,856
|
)
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
6,087,843
|
|
$
|
3,602,384
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc and Subsidiary
Consolidated
Statements of Operations
Three
and Nine Months Ended March 31, 2006 and 2005
(Unaudited)
|
|
For
the three months ended
|
|
For
the nine months ended
|
|
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
479,225
|
|
$
|
50,565
|
|
$
|
1,176,387
|
|
$
|
74,735
|
|
Cost
of product sales
|
|
|
791,457
|
|
|
571,872
|
|
|
2,427,897
|
|
|
958,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
(312,232
|
)
|
|
(521,307
|
)
|
|
(1,251,510
|
)
|
|
(884,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
86,194
|
|
|
30,030
|
|
|
208,813
|
|
|
58,061
|
|
Sales
and marketing expenses
|
|
|
325,858
|
|
|
25,220
|
|
|
981,429
|
|
|
420,762
|
|
General
and administrative expenses
|
|
|
738,494
|
|
|
41,924
|
|
|
2,374,887
|
|
|
806,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
1,150,546
|
|
|
97,174
|
|
|
3,565,129
|
|
|
1,284,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(1,462,778
|
)
|
|
(618,481
|
)
|
|
(4,816,639
|
)
|
|
(2,169,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
25,472
|
|
|
234
|
|
|
35,624
|
|
|
529
|
|
Financing
expense
|
|
|
(81,149
|
)
|
|
(37,496
|
)
|
|
(432,257
|
)
|
|
(58,285
|
)
|
Loss
on disposal of fixed assets
|
|
|
-
|
|
|
(68,571
|
)
|
|
-
|
|
|
(120,890
|
)
|
Debt
conversion expense (Note 7)
|
|
|
(141,414
|
)
|
|
-
|
|
|
(385,511
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
(197,091
|
)
|
|
(105,833
|
)
|
|
(782,144
|
)
|
|
(178,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,659,869
|
)
|
$
|
(724,314
|
)
|
$
|
(5,598,783
|
)
|
$
|
(2,347,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per weighted-average share of common stock
|
|
$
|
(0.11
|
)
|
$
|
(0.10
|
)
|
$
|
(0.49
|
)
|
$
|
(0.36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
14,567,672
|
|
|
7,193,735
|
|
|
11,502,400
|
|
|
6,509,762
|
|
The
accompanying notes are an integral part of these financial
statements.
IsoRay,
Inc. and Subsidiary
Consolidated
Statements of Cash Flows
Nine
Months Ended March 31, 2006 and 2005 (Unaudited)
|
|
For
the nine months ended
|
|
|
|
March
31,
|
|
March
31,
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,598,783
|
)
|
$
|
(2,347,699
|
)
|
Adjustments
to reconcile net loss to net cash used by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of fixed assets
|
|
|
|
|
|
|
|
Amortization
of deferred financing costs and other assets
|
|
|
174,751
|
|
|
98,824
|
|
Loss
on disposal of fixed assets
|
|
|
185,634
|
|
|
-
|
|
Compensation
recorded in connection with issuance of common stock
|
|
|
-
|
|
|
120,890
|
|
Rent
expense paid by issuance of common stock
|
|
|
60,018
|
|
|
-
|
|
Repair
and maintenance expense paid by issuance of common stock
|
|
|
14,752
|
|
|
-
|
|
Debt
conversion expense (Note 7)
|
|
|
385,511
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(543,341
|
)
|
|
(21,238
|
)
|
Inventory
|
|
|
(229,414
|
)
|
|
19,451
|
|
Prepaid
expenses
|
|
|
66,285
|
|
|
(436,282
|
)
|
Accounts
payable
|
|
|
(324,560
|
)
|
|
450,751
|
|
Accrued
payroll and related taxes
|
|
|
128,768
|
|
|
114,553
|
|
Accrued
interest payable
|
|
|
(41,325
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(5,366,704
|
)
|
|
(2,000,750
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(376,549
|
)
|
|
(112,127
|
)
|
Additions
to other assets
|
|
|
(352,815
|
)
|
|
(100,072
|
)
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(729,364
|
)
|
|
(212,199
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
advances on bank line of credit
|
|
|
-
|
|
|
200,000
|
|
Proceeds
from issuance of notes payable
|
|
|
450,000
|
|
|
280,000
|
|
Proceeds
from sales of convertible debentures payable
|
|
|
550,000
|
|
|
495,000
|
|
Principal
payments on notes payable
|
|
|
(689,331
|
)
|
|
(6,946
|
)
|
Principal
payments on capital lease obligations
|
|
|
(113,417
|
)
|
|
(122
|
)
|
Proceeds
for shares of sales for cash pursuant to private placements, net
of
offering costs
|
|
|
6,518,773
|
|
|
1,399,964
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of warrants
|
|
|
56,936
|
|
|
-
|
|
Proceeds
from cash sales of common stock, pursuant to exercise of options
|
|
|
110,058
|
|
|
-
|
|
Payments
to common shareholders in lieu of issuing fractional shares
|
|
|
(734
|
)
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
6,882,285
|
|
|
2,367,796
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
786,217
|
|
|
154,847
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,686,001
|
|
|
100
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
2,472,218
|
|
$
|
154,
947
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
318,173
|
|
$
|
33,312
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Exchange
of convertible debentures payable for shares of common stock
|
|
$
|
3,682,875
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Fixed
assets acquired by capital lease obligations
|
|
$
|
505,671
|
|
$
|
25,559
|
|
Issuance
of common shares as compensation for guarantee of debt
|
|
$
|
-
|
|
$
|
348,381
|
|
Issuance of common shares as partial payment for production
equipment
|
|
$
|
25,248
|
|
$
|
50,000
|
|
Issuance
of common shares as partial payment of notes payable
|
|
$
|
45,684
|
|
$
|
-
|
|
Prepaid
rent paid by issuance of common stock
|
|
$
|
120,036
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financial
statements.
NOTE
1— ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Organization:
The
accompanying consolidated financial statements are those of IsoRay, Inc. (“the
Company”), formerly known as Century Park Pictures Corporation, and its
subsidiary operating company, IsoRay Medical, Inc. (“IsoRay Medical”).
Both
companies are headquartered in Richland, Washington.
The
accompanying consolidated financial statements should be read in conjunction
with the Company’s audited financial statements and the notes thereto as of June
30, 2005, and for the nine months then ended, as contained in the Company’s
transitional report on Form 10-KSB filed on October 11, 2005, as amended,
and
with the audited financial statements of IsoRay Medical as of June 30, 2005
and
2004, and for the years then ended, filed on Form 8-K on November 3,
2005.
Segment
Reporting and Major Customers:
IsoRay
Medical operates in a single segment: isotope-based medical devices. IsoRay
Medical began production and sales of its initial FDA approved product, the
IsoRay 131Cs
brachytherapy seed, in October 2004 for the treatment of prostate cancer.
Sales
of the 131Cs
brachytherapy seed comprise all operating revenues of the combined companies.
Three customers individually comprised more than 10% of product sales for
the
three month period ended March 31, 2006: Community Hospital of Los Gatos,
CA,
Eisenhower Medical Center, Rancho Mirage, CA, and Mills Peninsula Health
Services, San Mateo, CA .
Summary
of Significant Accounting Policies:
Basis
of presentation
- The
accompanying unaudited consolidated financial statements have been prepared
in
conformity with accounting principles generally accepted in the United States
of
America and reflect all normal recurring adjustments which, in the opinion
of
management of the Company, are necessary for a fair presentation of the results
for the periods presented. The results of operations for such periods are
not
necessarily indicative of the results expected for the full fiscal year or
for
any future period.
Basis
of consolidation -
The
accompanying unaudited consolidated financial statements reflect the balance
sheets of IsoRay, Inc. and its subsidiary as of March 31, 2006, and the results
of operation and statements of cash flows for the three and nine months then
ended net of all adjustments for inter-company transactions.
Use
of estimates
- The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company’s
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates and assumptions and affect the amounts reported in the financial
statements.
Cash
and cash equivalents
- Such
assets consist of demand deposits, including interest-bearing money market
accounts, held in one financial institution. These amounts are potentially
subject to concentration of credit risk. The accounts are guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000. At March 31,
2006,
uninsured cash balances totaled approximately $2,400,000.
Inventory
- Inventory
is reported at the lower of cost, determined using the weighted average method,
or net realizable value.
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) collectibility is reasonably assured.
Revenue
for the three and nine months ended March 31, 2006 was derived solely from
sales
of the 131Cs
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.
Stock-based
compensation - The
Company currently provides stock-based compensation under two equity incentive
plans approved by the Board of Directors on July 28, 2005: the Amended And
Restated 2005 Employee Stock Option Plan, and the Amended and Restated 2005
Stock Option Plan. As of March 31, 2006, there were 3,050,983 options to
purchase common stock issued and approximately 749,000 options remaining
available for issuance under the Company’s equity incentive plans. Under the
terms of the two plans, stock option grants are required to be granted with
an
exercise price equal to the market value of the underlying Company common
stock
at the date of grant. Options granted expire ten years after the grant date,
and
have various vesting periods.
In
December 2002, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 148, Accounting
for Stock-Based Compensation-Transition and Disclosure (“FAS
148”),
which
amends Statement No. 123, Accounting
for Stock-Based Compensation
(“FAS
123”). FAS 148 requires companies to provide expanded footnote disclosures
regarding stock-based expense, but still allows companies to retain the approach
set forth in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB
25),
provided that expanded footnote disclosure is presented. As of March 31,
2006,
the Company had not yet adopted the fair value method of accounting for
stock-based compensation under SFAS No. 123, and accounts for stock-based
compensation for employees under APB 25. No compensation expense was recognized
in net earnings, as all options had an exercise price equal to, or above,
the
market value of the common stock on the date of grant. In accordance with
SFAS
No. 148, the following table presents the effect on net earnings and net
earnings per share had compensation cost of the Company’s stock plans been
determined consistent with fair valuation rather than intrinsic
valuation:
|
|
For
the three months ended
|
|
For
the nine months ended
|
|
|
|
March
31,
2006
|
|
March
31,
2005
|
|
March
31,
2006
|
|
March
31,
2005
|
|
Net
loss, as reported
|
|
$
|
(1,659,869
|
)
|
$
|
(724,314
|
)
|
$
|
(5,598,783
|
)
|
$
|
(2,347,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Stock-based compensation expense determined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
under
fair value method for all stock options, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
related
tax benefit
|
|
|
(180,000
|
)
|
|
-
|
|
$
|
(336,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profoma
net loss
|
|
$
|
(1,839,869
|
)
|
$
|
(724,314
|
)
|
$
|
(5,934,783
|
)
|
$
|
(2,347,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.11
|
)
|
$
|
(0.10
|
)
|
$
|
(0.49
|
)
|
$
|
(0.36
|
)
|
Proforma
|
|
$
|
(0.13
|
)
|
$
|
(0.10
|
)
|
$
|
(0.52
|
)
|
$
|
(0.36
|
)
|
Income
tax
-
Deferred taxes are provided, when material, on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. There were no material temporary
differences for the periods presented. Deferred tax assets, subject to a
valuation allowance, are recognized for future benefits of net operating losses
being carried forward.
Earnings
per share -
Statement
of Financial Accounting Standards No. 128, “Earnings per Share,” requires dual
presentation of basic earnings per share (“EPS”) and diluted EPS on the face of
all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net loss divided by
the
weighted average number of common shares outstanding for the period. Diluted
EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants, and other convertible securities. For the
periods ended March 31, 2006 and 2005, the effect of the Company’s outstanding
options and common stock equivalents would have been anti-dilutive. Accordingly,
only basic EPS is presented, and is
computed
on the basis of the weighted-average number of common shares outstanding
during
the period presented. At March 31, 2006, the Company had 181,248 shares of
preferred stock which are exchangeable, on a one-to-one basis, with common
stock; debentures which could be converted into 109,638 shares of common
stock;
options and warrants to purchase 5,981,519 shares of common stock; and warrants
to purchase 34,836 shares of preferred stock (which could be exchanged to
common
stock) issued and outstanding. If the Company had been profitable as of the
end
of the period, these 6,263,711 shares of common stock that are issuable upon
conversion, exercise or exchange of the debentures, options, warrants, and
preferred stock would have been included in a separate calculation for diluted
EPS.
NOTE
2 -RELATED PARTY TRANSACTIONS:
On
July
28, 2005, the Board of Directors granted 100,000 options to purchase common
stock to each of its three independent Directors: Thomas Lavoy, Stephen
Boatwright, and Robert Kauffman. The requisite Form 4 has been filed with
the
SEC for each grantee. Additionally, the Board voted to compensate each of
the
independent Directors $1,000 per meeting for their attendance at the Board
meetings. Directors who are also serving as management of the Company were
not
granted stock options for Director service, and will not be paid for attendance
at Board meetings.
Mr.
Boatwright is a member of Keller Rohrback, PLC, which provides legal services
to
the Company and IsoRay Medical. Fees for legal services of approximately
$126,300 and $363,200 have been included in expense for the three and nine
months ended March 31, 2006, respectively.
NOTE
3 - INCOME TAX:
As
of
March 31, 2006, the deferred tax asset related to the Company’s net operating
loss carryforward is fully reserved. Due to the provisions of Internal Revenue
Code Section 338, the Company may have limited net operating loss carryforwards
available to offset financial statement or tax return taxable income in future
periods as a result of the July 28, 2005 merger which involved a change in
control of more than 50 percentage points of the issued and outstanding
securities of the Company.
NOTE
4 - GOING CONCERN:
The
financial statements have been prepared assuming that the Company will continue
as a going concern. Certain conditions indicate substantial doubt that the
Company will continue as a going concern. These conditions include the Company’s
cash balance of $2,465,703 at March 31, 2006, coupled with its cash expenditure
rate of approximately $630,000 per month, excluding capital items that have
recently been approximately $50,000 per month. Management continues to seek
opportunities to obtain additional cash for the Company, and past attempts
have
been successful. However, although management believes the Company has enough
cash on hand to continue operations until the end of the fiscal year, there
is
no assurance future plans will be successful in providing the Company with
the
cash it needs on a timely basis to support operations until it reaches
profitability. The accompanying financial statements do not include any
adjustments that might be necessary should the Company be unable to continue
as
a going concern.
NOTE
5 - CONTINGENCIES:
On
December 14, 2005, the Company entered into an Economic Development Agreement
(“Agreement”) with the Pocatello Development Authority ("PDA"), an urban renewal
agency formed under the laws of the State of Idaho. Pursuant to the Agreement,
the PDA has provided the Company with $200,000 of funding, to be used for
costs
associated with testing of production methods for Cesium-131 at Idaho's Advanced
Test Reactor. This agreement stipulates that, pending successful test outcomes,
and approval for reactor use, the Company will attempt to construct a
manufacturing facility within the city limits of Pocatello so that operations
begin no later than January 1, 2008. If the Company declines to build the
manufacturing facility, it will be required to repay the $200,000 funding
plus
5% interest from the date of disbursement, within 30 days demand from the
PDA.
NOTE
6 - INDUCEMENT TO CONVERT DEBENTURES:
On
December 13, 2005, the Board of Directors announced a short-term conversion
inducement to current holders of IsoRay Medical, Inc. 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 March 31, 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 March 31,
2006,
the Company had issued 911,276 shares of common stock (including approximately
23,840 incremental shares not previously available to holders of debentures
under the original terms), and 659,469 warrants to purchase shares of common,
exercisable at $6.00 per share. As of March 31, 2006, the Company recognized
$385,511 in non-cash short-term inducement expense, in accordance with FASB
Statement of Financial Accounting Standards No. 84.
NOTE
7 -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
"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 Registrant's common stock at a purchase
price of $3.502 per share subject to receipt of funding. 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 Purchase Agreements. The Agreements call for return of
certificates within ten days if funding is not received within two days of
receipt of the notice.
NOTE
8 - EQUITY OFFERINGS:
On
January 30, 2006 the Company closed an offering of Investment Units (“Units”)
for sale, pursuant to a Private Placement Offering (the “Offering”) of October
17, 2005. The 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 Offering, at the sole discretion of the Company,
to
a maximum of 300 Units. The Units were sold for $20,000 per Unit. The $6,000,000
maximum amount was fully subscribed as of January 30, 2006.
On
February 1, 2006 the Company commenced an offering of Investment Units (“Units”)
for sale, pursuant to a Private Placement Offering (the “New Offering”) of
February 1, 2006. The New 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
being sold for $22,500 per Unit. The Company closed this offering on February
24, 2006. As of March 31, 2006, approximately $1.2 million had been raised
under
the New Offering.
NOTE
9 - SUBSEQUENT EVENTS:
On
April
4, 2006, the Board of Directors granted 50,000 options to purchase common
stock
to each of its newly added independent Directors: Albert Smith and Dwight
Babcock. The requisite Form 4 has been filed with the SEC for each
grantee.
On
April
14, 2006, the Company retired notes payable of $71,001 with a cash payment.
On
April
18, 2006, IsoRay Medical, Inc. hired Jonathan Hunt as corporate controller.
Filling this staff position is a partial fulfillment of our commitment to
remediate one of the material weaknesses in our internal financial controls
(See
Item 3).
On
April
27, 2006, with a cash payment of $30,645, which included interest accrued
through that date, the Company retired the balance outstanding on the $50,000
Columbia River Bank equipment loan.
On
May
18, 2006, the Company requested immediate return of the certificates
representing all shares of common stock to which Mercatus previously subscribed
in accordance with the Purchase Agreements. In future periods, this will
have
the effect of reducing the number of common shares issued and outstanding
by
approximately 1,778,150 shares, and on subsequent balance sheets, reduce
the
Subscriptions Receivable contra-equity account by $6,227,067, reduce the
Common
stock account by 1,778, and reduce the Additional paid-in capital account
by
$6,225,289.
IsoRay
Medical, Inc.
Index
to Financial Statements
|
Page
|
|
|
Report
of Independent Auditor
|
F-31
|
|
|
Financial
Statements
|
|
|
|
Combined
Balance Sheets
|
|
as
of June 30, 2005 and 2004
|
F-32
|
|
|
Combined
Statements of Operations
|
|
for
the years ended June 30, 2005 and 2004
|
F-33
|
|
|
Combined
Statement of Changes in Shareholders' Equity (Deficit)
|
|
for
the years ended June 30, 2005 and 2004
|
F-34
|
|
|
Combined
Statements of Cash Flows
|
|
for
the years ended June 30, 2005 and 2004
|
F-35
|
|
|
Notes
to Combined Financial Statements
|
F-36
|
Report
of
Independent Auditor
Board
of
Directors
IsoRay
Medical, Inc.
Richland,
Washington
We
have
audited the accompanying combined balance sheets of IsoRay Medical, Inc. ("the
Company") (see Note 1) as of June 30, 2005 and 2004, and the related combined
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an
opinion on these financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted
in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An
audit also includes assessing the accounting principles used and the significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In
our
opinion the financial statements referred to above present fairly, in all
material respects, the combined financial position of IsoRay Medical, Inc.
as of
June 30, 2005 and 2004, and the combined results of its operations and its
cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3 to the financial
statements, certain conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these
matters are also described in Note 3. The accompanying financial statements
do
not include any adjustments that might result from the outcome of this
uncertainty.
DeCoria,
Maichel & Teague, P.S.
Spokane,
Washington
October
14, 2005
Combined
Balance Sheets
June
30, 2005 and 2004
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents (Note 2)
|
|
$
|
1,653,144
|
|
$
|
470,439
|
|
Accounts
receivable, net of allowance for doubtful
|
|
|
|
|
|
|
|
accounts
of $17,075
|
|
|
49,969
|
|
|
-
|
|
Inventory
(Note 5)
|
|
|
81,926
|
|
|
19,726
|
|
Prepaid
expenses (Note 6)
|
|
|
181,266
|
|
|
77,133
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,966,305
|
|
|
567,298
|
|
|
|
|
|
|
|
|
|
Fixed
assets, net of accumulated depreciation and amortization (Note 7)
|
|
|
842,323
|
|
|
297,181
|
|
Other
assets, net of accumulated amortization (Note 8)
|
|
|
793,756
|
|
|
96,295
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,602,384
|
|
$
|
960,774
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
695,588
|
|
$
|
129,021
|
|
Accrued
payroll and related taxes
|
|
|
157,924
|
|
|
58,010
|
|
Accrued
interest payable
|
|
|
41,325
|
|
|
8,235
|
|
Other
current liabilities (Note 4)
|
|
|
-
|
|
|
91,765
|
|
Notes
payable, due within one year (Note 10)
|
|
|
43,116
|
|
|
10,000
|
|
Capital
lease obligations, due within one year (Note 11)
|
|
|
9,604
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
947,557
|
|
|
297,031
|
|
|
|
|
|
|
|
|
|
Notes
payable, due after one year (Note 10)
|
|
|
562,224
|
|
|
350,000
|
|
Capital
lease obligations, due after one year (Note 11)
|
|
|
19,584
|
|
|
-
|
|
Convertible
debentures payable, due after one year (Note 12)
|
|
|
3,587,875
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
5,117,240
|
|
|
647,031
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Notes 16 and 17)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity (deficit) (Notes 1, 4 and 13):
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value, 10,000,000 shares authorized:
|
|
|
|
|
|
|
|
Series
A: No shares issued and outstanding
|
|
|
-
|
|
|
-
|
|
Series
B: 1,588,589 and no shares issued and outstanding
|
|
|
1,589
|
|
|
-
|
|
IsoRay
Medical, Inc. common stock, $.001 par value; 100,000,000 shares
|
|
|
|
|
|
|
|
authorized;
7,317,073 and 10,000 shares issued and outstanding
|
|
|
7,317
|
|
|
10
|
|
IsoRay,
Inc. common stock , $.001 par value; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
no
shares and 2,767,700 shares issued and outstanding
|
|
|
-
|
|
|
2,768
|
|
Additional
paid-in capital
|
|
|
3,804,369
|
|
|
1,369,908
|
|
Accumulated
deficit
|
|
|
(5,328,131
|
)
|
|
(1,058,943
|
)
|
|
|
|
|
|
|
|
|
Total
shareholders' equity (deficit)
|
|
|
(1,514,856
|
)
|
|
313,743
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity (deficit)
|
|
$
|
3,602,384
|
|
$
|
960,774
|
|
Combined
Statements of Operations
Years
Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
201,731
|
|
$
|
-
|
|
Cost
of product sales (Note 5)
|
|
|
1,474,251
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Gross
profit (loss)
|
|
|
(1,272,520
|
)
|
|
-
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Research
and development
|
|
|
137,532
|
|
|
42,326
|
|
Sales
and marketing expenses
|
|
|
701,822
|
|
|
81,486
|
|
General
and administrative expenses
|
|
|
1,871,325
|
|
|
650,161
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
2,710,679
|
|
|
773,973
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(3,983,199
|
)
|
|
(773,973
|
)
|
Non-operating
income (expense):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
2,394
|
|
|
1,898
|
|
Financing
expense (Note 8)
|
|
|
(167,493
|
)
|
|
(23,470
|
)
|
Loss
on disposal of fixed assets
|
|
|
(120,890
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Non-operating
income (expense), net
|
|
|
(285,989
|
)
|
|
(21,572
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,269,188
|
)
|
$
|
(795,545
|
)
|
|
|
|
|
|
|
|
|
Net
loss per share of common stock
|
|
$
|
(0.66
|
)
|
$
|
(0.15
|
)
|
Basic
weighted average shares outstanding (Note 2)
|
|
|
6,493,700
|
|
|
5,174,346
|
|
Combined
Statement of Changes in Shareholders' Equity
(Deficit)
Years
Ended June 30, 2005 and 2004
|
|
|
|
IsoRay,
Inc.
|
|
IsoRay
Medical, Inc.
|
|
Additional
|
|
|
|
|
|
|
|
Common
Stock
|
|
Series
B Preferred Stock
|
|
Common
Stock
|
|
Paid-in
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Total
|
|
Balances
at June 30, 2003
|
|
|
2,607,700
|
|
$
|
2,608
|
|
|
-
|
|
$
|
-
|
|
|
-
|
|
$
|
-
|
|
$
|
181,642
|
|
$
|
(263,398
|
)
|
$
|
(79,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of IsoRay, Inc. common shares as payment for
prototype laser welding station (Note 13)
|
|
|
80,000
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,920
|
|
|
|
|
|
80,000
|
|
Issuance
of IsoRay, Inc. common shares for cash
|
|
|
80,000
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,920
|
|
|
|
|
|
80,000
|
|
Issuance
of IsoRay Products LLC member shares for
cash, net of offering costs (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,060,201
|
|
|
|
|
|
1,060,201
|
|
Accrual
of dividends payable to IsoRay Products LLC members
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(91,765
|
)
|
|
|
|
|
(91,765
|
)
|
Issuance
of IsoRay Products LLC member shares and
IsoRay
Medical, Inc. common shares to related
party
for cash and compensation (Note 15)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
10
|
|
|
59,990
|
|
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended June 30, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(795,545
|
)
|
|
(795,545
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2004
|
|
|
2,767,700
|
|
|
2,768
|
|
|
-
|
|
|
-
|
|
|
10,000
|
|
|
10
|
|
|
1,369,908
|
|
|
(1,058,943
|
)
|
|
313,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of IsoRay, Inc. common shares pursuant to
exercise
of options (Note 13)
|
|
|
71,580
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,509
|
|
|
|
|
|
71,580
|
|
Issuance
of IsoRay, Inc. common shares as
compensation
(Note 13)
|
|
|
57,025
|
|
|
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,968
|
|
|
|
|
|
57,025
|
|
Issuance
of IsoRay Products LLC member shares for
cash,
net of offering costs (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303,743
|
|
|
|
|
|
303,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merger
transaction (Note 1)
|
|
|
(2,896,305
|
)
|
|
(2,896
|
)
|
|
1,483,723
|
|
|
1,484
|
|
|
6,167,426
|
|
|
6,167
|
|
|
(4,755
|
)
|
|
|
|
|
-
|
|
Reversal
of dividends accrued by IsoRay
Products
LLC (Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,765
|
|
|
|
|
|
91,765
|
|
Issuance
of IsoRay Medical, Inc. common shares for
cash
pursuant to private placement, net of offering
costs
(Note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
765,500
|
|
|
766
|
|
|
1,355,812
|
|
|
|
|
|
1,356,578
|
|
Issuance
of IsoRay Medical, Inc. common shares
pursuant
to exercise of warrants granted in connection
with
private placement (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,750
|
|
|
130
|
|
|
64,745
|
|
|
|
|
|
64,875
|
|
Issuance
of IsoRay Medical, Inc. common shares as
inducement
for guarantee of debt (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
211,140
|
|
|
211
|
|
|
348,170
|
|
|
|
|
|
348,381
|
|
Issuance
of IsoRay Medical, Inc. common shares as
partial
payment for laser welding stations (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,303
|
|
|
30
|
|
|
49,970
|
|
|
|
|
|
50,000
|
|
Issuance
of Series B preferred shares pursuant
to
exercise of warrants (Note 13)
|
|
|
|
|
|
|
|
|
107,820
|
|
|
108
|
|
|
|
|
|
|
|
|
96,634
|
|
|
|
|
|
96,742
|
|
Exchange
of Series B preferred shares for IsoRay
Medical,
Inc. common shares
|
|
|
|
|
|
|
|
|
(2,954
|
)
|
|
(3
|
)
|
|
2,954
|
|
|
3
|
|
|
|
|
|
|
|
|
-
|
|
Payments
to common shareholders in lieu of issuing
fractional
shares (Note 13)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended June 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,269,188
|
)
|
|
(4,269,188
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances
at June 30, 2005
|
|
|
-
|
|
$
|
-
|
|
|
1,588,589
|
|
$
|
1,589
|
|
|
7,317,073
|
|
$
|
7,317
|
|
$
|
3,804,369
|
|
$
|
(5,328,131
|
)
|
$
|
(1,514,856
|
)
|
Combined
Statements of Cash Flows
Years
Ended June 30, 2005 and 2004
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
loss
|
|
$
|
(4,269,188
|
)
|
$
|
(795,545
|
)
|
Adjustments
to reconcile net loss to net cash used by operating
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization of fixed assets
|
|
|
140,099
|
|
|
23,233
|
|
Amortization
of deferred financing costs and other assets
|
|
|
82,358
|
|
|
5,200
|
|
Loss
on disposal of fixed assets
|
|
|
120,890
|
|
|
-
|
|
Compensation
recorded in connection with issuance of common stock
|
|
|
57,025
|
|
|
59,900
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(49,969
|
)
|
|
-
|
|
Inventory
|
|
|
(62,200
|
)
|
|
(19,726
|
)
|
Prepaid
expenses
|
|
|
(104,133
|
)
|
|
(72,439
|
)
|
Accounts
payable
|
|
|
566,567
|
|
|
114,958
|
|
Accrued
payroll and related taxes
|
|
|
99,914
|
|
|
58,010
|
|
Accrued
interest payable
|
|
|
33,090
|
|
|
107
|
|
|
|
|
|
|
|
|
|
Net
cash used by operating activities
|
|
|
(3,385,547
|
)
|
|
(626,302
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of fixed assets
|
|
|
(724,029
|
)
|
|
(167,875
|
)
|
Additions
to other assets
|
|
|
(431,438
|
)
|
|
(70,117
|
)
|
|
|
|
|
|
|
|
|
Net
cash used by investing activities
|
|
|
(1,155,467
|
)
|
|
(237,992
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Borrowings
under notes payable
|
|
|
315,000
|
|
|
330,000
|
|
Proceeds
from sales of convertible debentures payable
|
|
|
3,587,875
|
|
|
-
|
|
Principal
payments on notes payable
|
|
|
(23,653
|
)
|
|
(139,803
|
)
|
Principal
payments on capital lease obligations
|
|
|
(2,914
|
)
|
|
-
|
|
Issuance
of common shares and LLC member shares for cash, net of
|
|
|
|
|
|
|
|
offering
costs
|
|
|
1,847,511
|
|
|
1,140,301
|
|
Payments
to common and Series B preferred shareholders in lieu of
|
|
|
|
|
|
|
|
issuing
fractional shares
|
|
|
(100
|
)
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
5,723,719
|
|
|
1,330,498
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,182,705
|
|
|
466,204
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
470,439
|
|
|
4,235
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
1,653,144
|
|
$
|
470,439
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
57,657
|
|
$
|
23,577
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
Fixed
assets acquired by capital lease obligations
|
|
$
|
32,102
|
|
$
|
-
|
|
Issuance
of IsoRay Medical, Inc. preferred shares for debt reduction
|
|
$
|
46,007
|
|
|
|
|
Issuance
of common shares as compensation for guarantee of debt
|
|
$
|
348,381
|
|
|
|
|
Accrual
(reversal) of dividends payable to IsoRay Products LLC members
|
|
$
|
(91,765
|
)
|
$
|
91,765
|
|
Issuance
of common shares for laser welding stations purchases
|
|
$
|
50,000
|
|
$
|
80,000
|
|
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements
June
30, 2005
1. Organization
IsoRay
Medical, Inc. ("the Company"), a Delaware corporation, was incorporated
effective June 15, 2004 to develop, manufacture and sell isotope-based medical
products and devices for the treatment of cancer and other diseases. The Company
is headquartered in Richland, Washington.
The
Company was formed for the purpose of combining the operations of IsoRay, Inc.
and its subsidiary, IsoRay Products LLC, two companies that shared common
ownership and management with the Company. The Company's management initiated
a
merger transaction effective October 1, 2004, in order to accomplish the
combining of operations.
The
provisions of Statement of Financial Accounting Standards (SFAS) No. 141,
Business
Combinations, specifically
exclude transfers of net assets or exchanges of shares between entities under
common control from the definition of business combinations. Accordingly, the
financial statements of the Company have been reported as though the transfer
of
net assets and exchange of equity interests occurred at the beginning of the
fiscal year. As such, results of operations for the fiscal year ended June
30, 2005 include those of the previously separate entities as though they were
combined from the beginning of the fiscal year to the effective date of the
merger, and those of the combined operations from that date to the end of the
fiscal year.
The
transfer of assets and liabilities has been recorded at the carrying amount
in
the accounts of the transferring entity at the date of transfer. Intercompany
transactions have been eliminated in determining the results of operations
for
the period prior to the combination. The effects of intercompany
transactions on current assets, current liabilities and accumulated deficit
at
the beginning of the year have also been eliminated.
In
connection with the merger transaction, the Company issued 6,167,426 shares
of
its common stock to the common shareholders of IsoRay, Inc. and the Class B
and
C members of IsoRay Products LLC, and 1,483,723 Series B preferred shares to
the
Class A members of IsoRay Products LLC, in exchange for their IsoRay, Inc.
common shares and their IsoRay Products LLC membership interests and all rights,
title and interests, in and to the consolidated net assets of IsoRay, Inc.
and
IsoRay Products LLC.
The
shares of IsoRay Medical, Inc. common stock and Series B preferred stock issued
pursuant to the transaction bear a restrictive legend and are not freely
transferable.
The
balance sheets of the respective companies as of June 30, 2004, their results
of
operations, changes in shareholders' equity (deficit), and cash flows for the
year then ended, have also been combined for purposes of enhanced
comparability.
2. Summary
of Significant Accounting Policies
Basis
of Presentation
During
the fourth quarter of fiscal year 2005, the Company's management determined
that
the Company had emerged from the development stage, inasmuch as its planned
principal operations had commenced. Prior to that time, the Company's activities
had consisted primarily of soliciting equity and debt financing, and conducting
research and development. Accordingly, the Company's financial statements are
no
longer presented as those of a development stage enterprise as they were in
prior periods, as prescribed by Statement of Financial Accounting Standards
(SFAS) No. 7, Accounting
and Reporting by Development Stage Enterprises.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
Cash
Equivalents
The
Company considers all highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
Financial
instruments which potentially subject the Company to concentration of credit
risk consist principally of temporary cash investments which are classified
as
cash equivalents. The accounts are guaranteed by the Federal Deposit Insurance
Corporation (FDIC) up to $100,000. At June 30, 2005, uninsured cash balances
totaled $1,562,904.
Accounts
Receivable
Accounts
receivable are stated at the amount that management of the Company expects
to
collect from outstanding balances. Management provides for probable
uncollectible amounts through an allowance for doubtful accounts. Additions
to
the allowance for doubtful accounts are based on management's judgment,
considering historical write-offs, collections and current credit conditions.
Balances which remain outstanding after management has used reasonable
collection efforts are written off through a charge to the allowance for
doubtful accounts and a credit to the applicable accounts receivable. Payments
received subsequent to the time that an account is written off are considered
bad debt recoveries.
Inventory
Inventory
is reported at the lower of cost, determined using the weighted average method,
or net realizable value.
Fixed
Assets
Fixed
assets are carried at the lower of cost or net realizable value. Production
equipment with a cost of $2,500 or greater, and other fixed assets with a cost
of $1,000 or greater are capitalized. Major betterments that extend the useful
lives of assets are also capitalized. Normal maintenance and repairs are charged
to expense as incurred. When assets are sold or otherwise disposed of, the
cost
and accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations. Depreciation is computed using the
straight-line method over the estimated useful lives of the respective assets,
which range from 3 to 7 years.
The
Company has adopted the provisions of SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.
The
provisions of SFAS No. 144 require that an impairment loss be recognized when
the estimated future cash flows (undiscounted and without interest) expected
to
result from the use of an asset are less than the carrying amount of the asset.
Measurement of an impairment loss is based on the estimated fair value of the
asset if the asset is expected to be held and used.
Management
of the Company periodically reviews the net carrying value of all of its
equipment on an asset by asset basis. These reviews consider the net realizable
value of each asset, as measured in accordance with the preceding paragraph,
to
determine whether an impairment in value has occurred, and the need for any
asset impairment write-down.
Although
management has made its best estimate of the factors that affect the carrying
value based on current conditions, it is reasonably possible that changes could
occur which could adversely affect management's estimate of net cash flows
expected to be generated from its assets, and necessitate asset impairment
write-downs.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
Other
Assets
Other
assets, which include deferred financing costs, deferred charges, patents and
licenses, are stated at cost, less accumulated amortization. Amortization of
deferred financing costs is computed using the interest method over the term
of
the associated debt. Amortization of patents and licenses is computed using
the
straight-line method over the estimated economic useful lives of the assets.
The
Company periodically reviews the carrying values of patents and licenses in
accordance with SFAS No. 144 and any impairments are recognized when the
expected future operating cash flows to be derived from such assets are less
than their carrying value.
Financial
Instruments
The
Company discloses the fair value of financial instruments, both assets and
liabilities, recognized and not recognized in the balance sheet, for which
it is
practicable to estimate the fair value. The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced liquidation
sale.
The
carrying amounts of financial instruments, including cash and cash equivalents;
accounts receivable; accounts payable; notes payable; capital lease obligations;
and convertible debentures payable, approximated their fair values at June
30,
2005 and 2004.
Revenue
Recognition
The
Company sells products for radiation therapy treatment, consisting of
brachytherapy seeds used in the treatment of cancer. Product sales are recorded
at the time of shipment, which is when title and risk of loss pass 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's sales agreements do not provide for product
returns or allowances.
In
determining when to recognize revenue from the sale of its products, 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) collectibility is
reasonably assured.
Stock-Based
Compensation
SFAS
No.
123, Accounting
for Stock-Based Compensation,
as
amended by SFAS No. 148, requires companies to recognize stock-based expense
based on the estimated fair value of employee stock options. Alternatively,
SFAS
No. 123 allows companies to retain the current approach set forth in Accounting
Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB
25),
provided that expanded footnote disclosure is presented. The Company has not
adopted the fair value method of accounting for stock-based compensation under
SFAS No. 123, but provides the pro forma disclosure required when appropriate
(see Note 13).
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
2. Summary
of Significant Accounting Policies, Continued
Research
and Development Costs
Research
and development costs, including research materials, administrative expenses
and
contractor fees, are charged to operations as incurred. The cost of equipment
used in research and development activities which has alternative uses is
capitalized as part of fixed assets and not treated as an expense in the period
acquired. Depreciation of capitalized equipment used to perform research and
development is classified as research and development expense in the year
computed.
Income
Taxes
Income
taxes are accounted for under the liability method. Under this method, the
Company provides deferred income taxes for temporary differences that will
result in taxable or deductible amounts in future years based on the reporting
of certain costs in different periods for financial statement and income tax
purposes. This method also requires the recognition of future tax benefits
such
as net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
of
the change.
Income
(Loss) Per Common Share
The
Company accounts for its income (loss) per common share according to SFAS No.
128, Earnings
Per Share.
Under
the provisions of SFAS No. 128, primary and fully diluted earnings per share
are
replaced with basic and diluted earnings per share. Basic earnings per share
is
calculated by dividing net income (loss) available to common stockholders by
the
weighted average number of common shares outstanding, and does not include
the
impact of
any
potentially dilutive common stock equivalents. Common stock equivalents,
including warrants to purchase the Company's common stock and common stock
issuable upon the conversion of notes payable, are excluded from the
calculations when their effect is antidilutive. Basic weighted average shares
outstanding for the year ended June 30, 2004 have been adjusted to reflect
the
exchange ratio contained in the merger transaction dated October 1, 2004 (see
Note 1).
Use
of
Estimates
The
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management of the
Company to make estimates and assumptions that affect the amounts reported
in
the financial statements and accompanying notes. Accordingly, actual results
could differ from those estimates and affect the amounts reported in the
financial statements.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
3. Risks
and Uncertainties
The
Company has a limited operating history and its prospects are subject to the
expenses, risks and uncertainties frequently encountered by companies in similar
stages of development. These potential risks include failure to acquire adequate
financing to fund further development of its products; failure to obtain and
operate a production facility; failure to successfully create a market for
its
products; and other risks and uncertainties. The Company's financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course
of
business. Management's plans to raise additional financing include the sale
of
additional equity or borrowings. Management expects to obtain the necessary
financing; however, no assurance can be given that such financing will be
completed on terms acceptable to the Company. If the Company is unable to obtain
additional financing, the further development of the Company's products could
be
delayed or suspended. The financial statements do not include any adjustments
relating to the recoverability of assets and classification of liabilities
that
might be necessary should the Company be unable to continue as a going
concern.
4. Private
Placement Offerings
IsoRay
Products LLC October 15, 2003 Private Placement
In
October 2003, IsoRay Products LLC commenced an offering ("the Products LLC
October 15, 2003 Offering") of up to $2,400,000 of securities to accredited
and
non-accredited outside investors in a private placement, which management
believes was exempt from registration under the Securities Act of 1933 ("the
Act") pursuant to Section 4(2) of the Act and Rule 506 of Regulation D. The
securities offered for sale consisted of Class A shares, Class C shares and
"debt units."
Class
A Shares.
Through
June 30, 2004, IsoRay Products LLC sold Class A shares for cash totaling
$1,060,201, net of offering-related costs of $106,414. The net proceeds from
the
sales were recorded as additional paid-in capital in the balance
sheet.
The
Class
A shareholders were entitled to a 15% annual, cumulative dividend payable
quarterly. Although management, in its sole discretion, could elect to not
pay
dividends in any quarter, the terms of the offering required the accrual of
any
unpaid dividends as unsecured debt, with the same status as unsecured trade
payables. Accordingly, dividends totaling $91,765 were accrued at June 30,
2004.
In connection with the merger (see Note 1), the Class A shareholders were issued
Series B preferred shares. The terms associated with the Series B preferred
shares do not require the accrual of dividends, although they continue to
accumulate in accordance with their cumulative feature. Accordingly, the
dividends accrued during the year ended June 30, 2004 were reversed during
2005.
Cumulative dividends in arrears at June 30, 2005 associated with the Series
B
preferred shares totaled $249,890.
Class
C Shares.
During
the period from July 1, 2004 through the merger with the Company (see Note
1),
IsoRay Products LLC sold Class C shares for cash totaling $303,743, net of
offering costs of $7,130. The net proceeds from the sales were recorded as
additional paid-in capital in the balance sheet.
Debt
Units.
Each
debt unit consisted of a $5,000 secured note payable and two warrants. The
notes
payable were secured by the Company's patents, patents pending and current
patent applications, bore interest at 10%, payable quarterly, and matured three
years from their issue date. Each warrant entitled the holder to purchase 875
IsoRay Products LLC Class A shares. One of the warrants was exercisable through
July 1, 2005, and the second warrant is exercisable through February 28, 2007.
The warrant exercise prices ranged from $1.00 to $2.00 per share, depending
on
the IsoRay Products LLC Class A share price at the time of the debt unit
sale.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
4.
Private Placement Offerings, Continued
In
connection with the merger between IsoRay Medical, Inc., IsoRay, Inc. and IsoRay
Products LLC (see Note 1), the note holders were issued IsoRay Medical, Inc.
notes payable with substantially the same terms and conditions as their IsoRay
Products LLC notes (see Note 10), and the IsoRay Products LLC warrants were
exchanged for warrants to purchase 384,440 IsoRay Medical, Inc. Series B
Preferred shares (see Note 13).
IsoRay
Medical, Inc. October 15, 2004 Private Placement
In
October 2004, the Company commenced an offering ("the October 15, 2004
Offering") of up to $2,000,000 of securities to accredited investors in a
private placement, which management believes was exempt from registration under
the Securities Act of 1933 ("the Act") pursuant to Section 4(2) of the Act
and
Rule 506 of Regulation D. The October 15, 2004 Offering consisted of up to
100
Investment Units, each unit consisting of 10,000 shares of the Company's common
stock and a callable warrant to purchase 3,000 shares of common stock at an
exercise price of $.50 per share, for $20,000 per Investment Unit. Simultaneous
with the October 15, 2004 Offering, the officers and directors of the Company
had the right to independently sell similar Investment Units pursuant to a
separate private placement memorandum on substantially the same terms and
conditions as the October 15, 2004 Offering.
During
the year ended June 30, 2005, the Company sold 76.55 Investment Units,
representing 765,500 common shares and callable warrants for the purchase of
229,650 common shares, for cash totaling $1,531,000. In connection with the
sales of the Investment Units, the Company paid commissions and expense
allowances totaling $119,980 to broker-dealers, and legal expenses totaling
$54,442 to attorneys, which amounts have been recorded as
reductions
of additional paid-in capital. Additionally, the broker-dealers were granted
warrants for the purchase of 4.23 Investment Units at $20,000 per Investment
Unit (see Note 13).
IsoRay
Medical, Inc. January 31, 2005 Private Placement
In
January 2005, the Company commenced an offering ("the January 31, 2005
Offering") of up to $2,000,000 of 8% convertible debentures (see Note 12) to
accredited investors in a private placement, which management believes was
exempt from registration under the Securities Act of 1933 ("the Act") pursuant
to Section 4(2) of the Act and Rule 506 of Regulation D. On May 27, 2005, the
Company amended and restated the January 31, 2005 Offering to increase the
maximum amount of the offering to $4,150,000.
Through
June 30, 2005, the Company sold debentures totaling $3,587,785. In connection
with the sales of these debentures, the Company paid commissions totaling
$216,783 and legal expenses totaling $56,470, which amounts have been recorded
as deferred financing costs.
Subsequent
to June 30, 2005, the Company sold an additional $550,000 of debentures pursuant
to this offering. The sale of these additional debentures was not subject to
payment of commissions.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
5. Inventory
Inventory
consists of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Raw
materials
|
|
$
|
27,659
|
|
$
|
19,726
|
|
Work
in process
|
|
|
54,267
|
|
|
—
|
|
|
|
$
|
81,926
|
|
$
|
19,726
|
|
The
cost
of materials and production costs contained in inventory that is not useable
due
to the passage of time, and resulting loss of bio-effectiveness, is written
off
to cost of product sales at the time it is determined that the product is not
useable. It is not possible to determine what portion of cost of product sales
is represented by "spoilage."
6. Prepaid
Expenses
Prepaid
expenses consist of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Prepaid
contract work
|
|
$
|
65,328
|
|
$
|
69,063
|
|
Prepaid
insurance
|
|
|
15,853
|
|
|
5,350
|
|
Other
prepaid expenses
|
|
|
100,085
|
|
|
2,720
|
|
|
|
$
|
181,266
|
|
$
|
77,133
|
|
7. Fixed
Assets
Fixed
assets consist of the following at June 30, 2005 and 2004:
|
|
2005
|
|
2004
|
|
Production
equipment
|
|
$
|
399,448
|
|
$
|
290,864
|
|
Office
equipment
|
|
|
65,077
|
|
|
17,339
|
|
Furniture
and fixtures
|
|
|
7,736
|
|
|
7,736
|
|
Leasehold
improvements
|
|
|
138,692
|
|
|
38,368
|
|
|
|
|
|
|
|
|
|
|
|
|
610,953
|
|
|
354,307
|
|
Less
accumulated depreciation and amortization
|
|
|
(134,664
|
)
|
|
(57,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
476,289
|
|
|
297,181
|
|
Construction
in progress (Note 16)
|
|
|
366,034
|
|
|
--
|
|
|
|
$
|
842,323
|
|
$
|
297,181
|
|
Depreciation
and amortization expense related to fixed assets totaled $140,099 and $23,233
for 2005 and 2004, respectively. Office equipment includes $34,049 of assets
under capital lease at June 30, 2005. Accumulated amortization of this equipment
totaled $1,470 at June 30, 2005.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
8. Other
Assets
Other
assets, net of accumulated amortization, consist of the following at June 30,
2005 and 2004:
|
|
2005
|
|
2004
|
|
Deferred
financing costs, net of accumulated amortization
of $76,746
|
|
$
|
548,837
|
|
$
|
--
|
|
Deferred
charges
|
|
|
204,649
|
|
|
84,683
|
|
Patents
and trademarks, net of accumulated amortization
of $12,318 and $9,380
|
|
|
21,614
|
|
|
9,425
|
|
Licenses,
net of accumulated amortization of $2,674
and $-0-
|
|
|
18,656
|
|
|
2,187
|
|
|
|
$
|
793,756
|
|
$
|
96,295
|
|
Deferred
financing costs include the fair value of shares issued to certain shareholders
for their guarantee of certain Company debt (see Note 13). Amortization of
deferred financing costs, totaling $76,746 for the year ended June 30, 2005,
is
included in financing expense on the statement of operations. Deferred charges
consist of prepaid legal fees for patents which have not yet been obtained,
and
prepayments and deposits on fixed assets and contracts. Amortization of patents
and licenses was $5,612 and $5,200 for the years ended June 30, 2005 and
2004.
9. Bank
Line of Credit
The
Company has a $395,000 revolving line of credit with Columbia River Bank that
expired September 29, 2005. Amounts outstanding under the line bear interest
at
the bank's reference rate (Wall Street Journal Prime Rate, which was 6.25%
at
June 30, 2005) plus 2.0%. The line of credit is collateralized by all accounts
receivable and inventory, and is personally guaranteed by certain shareholders
up to $375,000 (see Note 13). The Company had no borrowings under the line
of
credit at June 30, 2005. At October 14, 2005, the Company was negotiating with
Columbia River Bank for the renewal and extension of the line of
credit.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
10. Notes
Payable
Notes
payable consist of the following at June 30, 2005:
Note
payable to Tri-City Industrial Development Council (TRIDEC), non-interest
bearing, due in annual installments of $10,000, maturing
August 2006
|
|
$
|
20,000
|
|
Note
payable to Benton-Franklin Economic Development District (BFEDD),
due in monthly installments of $2,855, including interest and
servicing fee at a combined 8.0%, maturing October 2009
|
|
|
222,693
|
|
Note
payable to Columbia River Bank, due in monthly installments of
$1,551, including interest at 7.0%, maturing January 2008
|
|
|
43,654
|
|
Convertible
notes payable to investors, interest at 10.0% payable
quarterly, principal due at maturity in 2006 and 2007
|
|
|
318,993
|
|
|
|
|
|
|
|
|
|
605,340
|
|
Less
amounts due within one year
|
|
|
(43,116
|
)
|
|
|
$
|
562,224
|
|
|
|
|
|
|
Principal
maturities on notes payable are due as follows:
|
|
|
|
|
2006
|
|
$
|
43,116
|
|
2007
|
|
|
329,685
|
|
2008
|
|
|
65,338
|
|
2009
|
|
|
21,661
|
|
2010
|
|
|
145,540
|
|
|
|
|
|
|
|
|
$
|
605,340
|
|
The
note
payable to TRIDEC bears no interest, but has not been discounted because the
note was exchanged solely for cash.
The
note
payable to BFEDD, which is collateralized by substantially all of the Company's
assets, and guaranteed by certain shareholders, was executed pursuant to a
Development Loan Agreement. The note contains certain restrictive covenants
relating to: working capital; levels of long-term debt to equity; incurrence
of
additional indebtedness; payment of compensation to officers and directors;
and
payment of dividends. At June 30, 2005, the Company was not in compliance with
certain of the covenants. The Company has obtained a waiver from BFEDD relating
to these covenants, which applies at both June 30, 2005 and through June 30,
2006.
The
note
payable to Columbia River Bank is collateralized by certain production
equipment.
The
merger agreement between IsoRay Medical, Inc., IsoRay, Inc. and IsoRay Products
LLC (see Note 1) provided the former note holders of IsoRay Products LLC with
the option of exchanging their notes for IsoRay Medical, Inc. Series
A
preferred shares, or receiving IsoRay Medical, Inc. notes payable with
substantially the same terms and conditions as their IsoRay Products LLC notes.
None of the IsoRay Products LLC note holders elected to receive IsoRay
Medical, Inc. Series A preferred shares. Accordingly, all the note holders
(i.e., investors) were issued convertible notes as described above. Note holders
can convert principal and accrued interest on their outstanding balances into
Series B preferred shares by exercising the warrants that were issued to them
in
connection with the merger (see Notes 1 and 13).
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
11. Capital
Lease Obligations
The
Company leases certain equipment under long-term agreements that represent
capital leases. Future minimum lease payments under capital lease obligations
are as follows:
Year
ending June 30,
|
|
|
|
2006
|
|
$
|
13,524
|
|
2007
|
|
|
13,238
|
|
2008
|
|
|
9,819
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
|
36,581
|
|
Less
amount due within one year
|
|
|
(7,393
|
)
|
|
|
|
|
|
|
|
|
|
|
Present
value of net minimum lease payments
|
|
|
29,188
|
|
Less
amount due within one year
|
|
|
(9,604
|
)
|
|
|
|
|
|
Amount
due after one year
|
|
$
|
19,584
|
|
12. Convertible
Debentures Payable
Through
June 30, 2005, the Company had sold $3,587,875 of convertible debentures
pursuant to the January 31, 2005 Offering (see Note 4). The debentures, which
bear interest at 8% and mature two years from the date of issuance (through
June
2007), can be converted into shares of the Company's common stock at a rate
of
$3.50 per share plus, at the discretion of the Company, either a cash payment
for accrued interest, or that number of common shares equal to the amount of
unpaid accrued interest at $3.50 per share.
After
the
debentures have been outstanding for six months, the Company may, at its option,
prepay them, in whole or in part, by paying the principal and interest accrued
through the date of the prepayment. If such prepayment occurs within one year
of
the date of issuance of the debenture, the Company must also pay the debenture
holder 5% of the principal redeemed. If only a portion of the debenture is
prepaid, a new debenture with substantially the same terms and conditions will
be issued to the debenture holder for the remaining principal
balance.
13. Shareholders'
Equity (Deficit)
The
authorized capital structure of the Company consists of 10,000,000 shares of
$.001 par value preferred stock and 100,000,000 shares of $.001 par value common
stock.
Preferred
Stock
The
Company's Certificate of Incorporation authorizes 10,000,000 shares of $0.001
par value preferred stock available for issuance with such rights and
preferences, including liquidation, dividend, conversion and voting rights,
as
described below.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13. Shareholders'
Equity (Deficit), Continued
Series
A
Series
A
preferred shares are entitled to a 10% dividend annually on the stated par
value
per share. These shares are convertible into shares of common stock at the
rate
of one share of common stock for each share of Series A preferred stock, and
are
subject to automatic conversion into common stock upon the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933 covering the offer and sale of common stock
in
which the gross proceeds to the Company are at least $4 million. Series A
preferred shareholders have voting rights equal to the voting rights of common
stock, except that the vote or written consent of a majority of the outstanding
preferred shares is required for any changes to the Company's Certificate of
Incorporation, Bylaws or Certificate of Designation, or for any bankruptcy,
insolvency, dissolution or liquidation of the Company. Upon liquidation of
the
Company, the Company's assets are first distributed ratably to the Series A
preferred shareholders. At June 30, 2005, there are no Series A preferred shares
outstanding.
Series
B
Series
B
preferred shares are entitled to a cumulative 15% dividend annually on the
stated par value per share. These shares are convertible into shares of common
stock at the rate of one share of common stock for each share of Series A
preferred stock, and are subject to automatic conversion into common stock
upon
the closing of an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933 covering the offer
and
sale of common stock in which the gross proceeds to the Company are at least
$4
million. Series A preferred shareholders have voting rights equal to the voting
rights of common stock, except that the vote or written consent of a majority
of
the outstanding preferred shares is required for any changes to the Company's
Certificate of Incorporation, Bylaws or Certificate of Designation, or for
any
bankruptcy, insolvency, dissolution or liquidation of the Company. Upon
liquidation of the Company, the Company's assets are first distributed ratably
to the Series A preferred shareholders, then to the Series B preferred
shareholders. At June 30, 2005, there were 1,588,589 Series B preferred shares
outstanding and cumulative dividends in arrears were $249,890.
In
addition to the shares of common stock and Series B preferred stock issued
pursuant to the merger transaction (see Note 1), and the common shares issued
pursuant to the October 15, 2004 Offering (see Note 4), the Company had the
following transactions that affected shareholders' equity (deficit) during
the
years ended June 30, 2005 and 2004.
Issuance
of IsoRay, Inc. Common Stock for Equipment Purchase
During
2004, IsoRay, Inc. issued 80,000 shares of its common in full satisfaction
of
the $80,000 purchase price of a prototype laser welding station. The transaction
was recorded at the purchase price of the laser welding station, since
management considered this amount to be more readily determinable than the
value
of the shares.
Issuance
of Common Stock for Guarantee of Debt
During
2005, the Company issued 211,140 shares of its common stock to certain
shareholders as an inducement for their guarantee of the Columbia River Bank
line of credit (see Note 9) and the note payable to Benton-Franklin Economic
Development District (see Note 10). The transactions were recorded at the fair
value of the shares,
estimated
to be $348,381, since management considered this amount to be more readily
determinable than the value of the guarantees. The guarantees were recorded
as
deferred financing costs (see Note 8).
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13. Shareholders'
Equity (Deficit), Continued
Issuance
of Common Stock in Partial Payment of Equipment Purchase
During
2005, the Company issued 30,303 shares of its common stock and paid $40,000
of
cash in full satisfaction of the $90,000 purchase price of three laser welding
stations. The transaction was recorded at the purchase price of the laser
welding stations, since management considered this amount to be more readily
determinable than the fair value of the shares.
Cash
Payments for Fractional Shares
During
2005, the Company paid a combined total of $100 to the former common
shareholders of IsoRay, Inc. and the former Class A, B and C members of IsoRay
Products LLC for fractional shares that resulted from the merger that was
effective October 1, 2004 (see Note 1).
Warrants
to Purchase IsoRay Medical, Inc. Common Stock
Pursuant
to the October 15, 2004 Offering (see Note 4), the Company granted warrants
for
the purchase of 229,650 shares of its common stock at $.50 per share. Through
June 30, 2005, warrants for the purchase of 129,750 common shares had been
exercised for cash of $64,875. Warrants for the purchase of common stock
outstanding at June 30, 2005 totaled 99,900, which expire through January 2007.
The outstanding warrants are callable, in whole or in part, by the Company
any
time six months after the warrant grant date, at the exercise price then in
effect, by giving at least 30 days notice. If any warrants are called by the
Company, the warrant holder can exercise the warrants called, at the exercise
price then in effect, any time during the 30 day notice period.
Warrants
to Purchase IsoRay Medical, Inc. Series B Preferred Stock
Pursuant
to a private placement of debt units during 2003 and 2004, IsoRay Products
LLC
issued $365,000 of notes payable to investors (see Note 10) and granted warrants
for the purchase of 227,750 of its Class A member shares. In connection with
the
merger transaction (see Note 1), the Company exchanged the IsoRay Products
LLC
warrants for warrants to purchase 384,440 IsoRay Medical, Inc. Series B
preferred shares. The warrants granted are summarized as follows:
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
7,385
|
|
$.59
|
|
July
1, 2005
|
67,520
|
|
$.59
|
|
October
30, 2006
|
33,760
|
|
$.59
|
|
January
31, 2007
|
7,385
|
|
$.59
|
|
February
28, 2007
|
67,520
|
|
$.59
|
|
March
30, 2007
|
90,096
|
|
$.89
|
|
July
1, 2005
|
90,096
|
|
$.89
|
|
February
28, 2007
|
10,339
|
|
$1.18
|
|
July
1, 2005
|
10,339
|
|
$1.18
|
|
February
28, 2007
|
|
|
|
|
|
384,440
|
|
$.59
to $1.18
|
|
|
Through
June 30, 2005, the following warrants were exercised for $50,735 cash and
conversion of notes payable totaling $46,007 (see Note 10):
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13. Shareholders'
Equity (Deficit), Continued
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
7,385
|
|
$.59
|
|
July
1, 2005
|
90,096
|
|
$.89
|
|
July
1, 2005
|
10,339
|
|
$1.18
|
|
July
1, 2005
|
|
|
|
|
|
107,820
|
|
$.59
to $1.18
|
|
|
Warrants
to Purchase IsoRay Medical, Inc. Series B Preferred Stock,
Continued
At
June
30, 2005, the following warrants to purchase IsoRay Medical, Inc. Series B
Preferred shares remain outstanding, as follows:
Number
of
Shares
|
|
Exercise
Price
|
|
Expiration
Date
|
|
|
|
|
|
67,520
|
|
$.59
|
|
October
30, 2006
|
33,760
|
|
$.59
|
|
January
31, 2007
|
7,385
|
|
$.59
|
|
February
28, 2007
|
67,520
|
|
$.59
|
|
March
30, 2007
|
90,096
|
|
$.89
|
|
February
28, 2007
|
10,339
|
|
$1.18
|
|
February
28, 2007
|
|
|
|
|
|
276,620
|
|
$.59
to $1.18
|
|
|
Warrants
to Purchase IsoRay Medical, Inc. Investment Units
In
connection with the October 15, 2004 Offering (see Note 4), the Company granted
the selling broker-dealers warrants to purchase 4.23 Investment Units at $20,000
per Investment Unit. These Investment Units, which currently do not have an
expiration date, represent 42,300 IsoRay Medical, Inc. common shares and 12,690
warrants to purchase common shares at $.50 per share. None of these warrants
had
been exercised at June 30, 2005.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13. Shareholders'
Equity (Deficit), Continued
Options
to Purchase IsoRay Medical, Inc. Common Stock
In
July
2003, the IsoRay, Inc. Board of Directors resolved to create the IsoRay, Inc.
2003 Option Plan ("the 2003 Plan"). The purpose of the 2003 Plan was to retain
and reward the best available personnel for positions of substantial
responsibility and to provide additional incentive to employees, directors
and
consultants of the company to promote the success of the company's business.
The
maximum number of options to purchase IsoRay, Inc. common stock that could
be
granted pursuant to the 2003 Plan was 400,000. Through September 30, 2004,
options for the purchase of 354,812 shares of IsoRay, Inc.'s common stock had
been granted. The options, which were fully vested and exercisable at $1.00
per
share, were set to expire in July 2013. Because the option exercise price was
equal to the estimated fair value of IsoRay Inc.'s common stock at the date
of
grant, no compensation was recognized associated with these options. Through
the
effective date of the merger transaction (see Note 1), 71,580 of these options
had been exercised for cash of $71,580, and 114,050 had been exercised in
cashless transactions, in which $57,025 of compensation was recorded by IsoRay,
Inc. The remaining outstanding options, representing 169,182 shares of IsoRay,
Inc. common stock, were canceled by IsoRay, Inc. Replacement options to purchase
326,589 IsoRay Medical, Inc. common shares were granted pursuant to the IsoRay
Medical, Inc. 2004 Stock Option Plan
("the 2004 Plan") and the IsoRay Medical, Inc. 2004 Employee Stock Option Plan
("the 2004 Employee Plan"). The replacement options are included in the totals
shown below for options granted and outstanding pursuant to the 2004 Plan and
the 2004 Employee Plan.
Options
to Purchase IsoRay Medical, Inc. Common Stock, Continued
In
June
2004, the IsoRay Medical, Inc. Board of Directors resolved to create the 2004
Plan and the 2004 Employee Plan. The stated purpose of the plans was to provide
an incentive-based form of compensation to directors, officers, key employees
and service providers of the Company and encourage such persons to invest in
shares of the Company's common stock, thereby acquiring a proprietary interest
in the success of the Company.
The
maximum number of options to purchase IsoRay Medical, Inc. common stock that
can
be granted pursuant to the 2004 Plan is 1,500,000. At June 30, 2005, options
for
the purchase of 1,401,384 shares of the Company's common stock had been granted
and were outstanding. These options, which vest at various times, are
exercisable at $1.00 per share, and expire through August 2014. Because the
option exercise prices were equal to the estimated fair value of the Company's
common stock at the date of grant, no compensation was recognized associated
with these options.
The
maximum number of options to purchase IsoRay Medical, Inc. common stock that
can
be granted pursuant to the 2004 Employee Plan is 1,500,000. At June 30, 2005,
options for the purchase of 1,255,205 shares of the Company's common stock
had
been granted and were outstanding. The options, which vest at various times,
are
exercisable at $1.00 to $2.00 per share, and expire through December 2014.
Because the option exercise prices were equal to the estimated fair value of
the
Company's common stock at the date of grant, no compensation was recognized
associated with these options.
Stock-Based
Compensation
As
described in Note 2, the Company currently accounts for stock-based compensation
in accordance with SFAS No. 123. As permitted by SFAS No. 123, management
currently accounts for share-based payments to employees using APB 25's
intrinsic value method, and provides expanded footnote disclosure when
necessary.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
13. Shareholders'
Equity (Deficit), Continued
In
December 2004, the Financial Accounting Standards Board issued SFAS No. 123
(revised 2004), Share-Based
Payment
("SFAS
No. 123(R)"), which is a revision of SFAS No. 123. SFAS No. 123(R) also
supersedes APB 25, and
amends SFAS No. 95, Statement
of Cash Flows.
Generally, the approach in SFAS No. 123(R) is similar to the approach prescribed
by SFAS No. 123. SFAS No. 123(R) requires that all share-based payments to
employees, including grants of employee stock options, be recognized in the
income statement based on their fair values. Pro forma disclosure will no longer
be permitted. SFAS No. 123(R) is effective at the beginning of the first interim
or annual period beginning after December 15, 2005. Management expects to adopt
SFAS No. 123(R) on January 1, 2006.
During
the year ended June 30, 2005, the Company granted stock options to employees
and
directors for the purchase of 2,230,000 shares of its common stock. These
options are exercisable at prices ranging from $1.00 to $2.00 per share and
expire through August 2014.
The
pro
forma net loss presented below was determined as if the Company had accounted
for these options under the fair value method of SFAS No. 123. The fair value
of
these options was estimated at the date of grant using the minimum value method
set forth in SFAS No. 123(R).
Net
loss as reported for the year ended June 30, 2005$
|
|
$
|
4,375,904
|
|
SFAS
No. 123 stock option expense
|
|
|
771,365
|
|
Pro
forma net loss for the year ended June 30, 2005
|
|
$
|
5,147,269
|
|
The
following assumptions were used in calculating the fair value of the
options:
Risk-free
interest rate
|
|
|
3.50
|
%
|
Expected
dividend yield
|
|
|
0.00
|
%
|
If
the
Company had fully accounted for its employee stock options in accordance with
the provisions of SFAS No. 123, compensation expense would have been $771,365
greater than the amount recorded for the year ended June 30, 2005.
14. Income
Taxes
The
Company recorded no income tax provision or benefit for the years ended June
30,
2005 and 2004.
At
June
30, 2005, the Company had a net deferred tax asset of approximately $1,250,000,
arising principally from net operating loss carryforwards. The deferred tax
asset was calculated based on the currently enacted 34% statutory income tax
rate. Since management of the Company cannot determine if it is more likely
than
not that the Company will realize the benefit of its net deferred tax asset,
a
valuation allowance equal to the full amount of the net deferred tax asset
at
June 30, 2005 has been established.
At
June
30, 2005, the Company had tax basis net operating loss carryforwards of
approximately $3,700,000 available to offset future regular taxable income.
These net operating loss carryforwards expire through 2025.
IsoRay
Management LLC and IsoRay Products LLC were limited liability companies prior
to
the merger with the Company. In lieu of current federal income taxes arising
at
the company level, the individual members were taxed on their proportionate
share of the companies' taxable income. Accordingly, there are no net operating
loss carryforwards related to these entities.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
15. Related
Party Transactions
In
addition to transactions described in Note 13, the Company had the following
transactions with related parties:
During
2005, the Company paid or accrued $5,600 for accounting services performed
by a
company owned by a member of the Board of Directors. In September 2003, IsoRay
Products LLC issued 100,000 of its Class B member shares to Roger Girard, the
IsoRay, Inc. President, who was also a Director of IsoRay, Inc. The Class B
member shares were similar in all respects to IsoRay Products LLC Class A member
shares, except they were not entitled to a 15% annual, cumulative dividend.
Based on an estimate of the fair value of the Class B shares, as determined
by
reference
to cash sales of Class A member shares, IsoRay Products LLC recorded $50,000
of
compensation expense in connection with the issuance of these shares. The
100,000 Class B member shares were exchanged for 168,798 IsoRay Medical, Inc.
common shares in connection with the merger transaction (see Note
1).
In
June
2004, the Company issued 10,000 of its common shares to Mr. Girard for $100
cash. The Company recorded $9,900 of compensation expense in connection with
the
issuance of these shares.
During
2005, IsoRay, Inc. and the Company received various legal services from two
law
firms in which one of the firm's partners is a Director of IsoRay, Inc.
(formerly Century Park Pictures Corporation; see Note 17). The total amount
paid
to the law firms was $141,000 and $144,000, respectively.
During
2003, IsoRay Products LLC granted warrants for the purchase of 100,000 of its
Class A member shares to a financial services company for its services in
connection with a private placement. These warrants were exercisable at $1.00
per share and were to expire on October 30, 2006. The financial services company
was a shareholder of
IsoRay
Products LLC. Because the exercise price was equal to the estimated fair value
at the date of grant, no compensation was recognized associated with these
warrants. In connection with the merger transaction (see Note 1), IsoRay
Medical, Inc. granted warrants for the purchase of 168,799 of its Series B
Preferred shares, exercisable at $.59 per share, in exchange for the warrants
granted by IsoRay Products LLC. These warrants, one-half of which are
exercisable through July 1, 2005 and one-half of which are exercisable through
February 28, 2007, are included in the warrant totals disclosed in Note
13.
16. Commitments
and Contingencies
Royalty
Agreement for Invention and Patent Application
A
shareholder of the Company previously assigned his rights, title and interest
in
an invention to IsoRay Products LLC in exchange for a royalty equal to 1% of
the
Gross Profit, as defined, from the sale of "seeds" incorporating the technology.
The patent and associated royalty obligations were transferred to the Company
effective October 1, 2004 in connection with the merger transaction (see Note
1).
The
Company must also pay a royalty of 2% of Gross Sales, as defined, for any
sub-assignments of the aforesaid patented process to any third parties. The
royalty agreement will remain in force until the expiration of the patents
on
the assigned technology, unless earlier terminated in accordance with the terms
of the underlying agreement. To date,
there have been no product sales incorporating the technology and there is
no
royalty due pursuant to the terms of the agreement.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
16. Commitments
and Contingencies, Continued
Patent
and Know-How Royalty License Agreement
IsoRay
Products LLC was the holder of an exclusive license to use certain "know-how."
This license was transferred to IsoRay Medical, Inc. in connection with the
merger transaction (see Note 1). The terms of the original license agreement
required the payment of a royalty based on the Net Factory Sales Price, as
defined in the agreement, of licensed product sales. Because the licensor's
patent application was ultimately abandoned, only a 1% "know-how" royalty based
on Net Factory Sales Price, as defined, remains applicable. To date, there
have
been
no
product sales incorporating the licensed technology and there is no royalty
due
pursuant to the terms of the agreement. A minimum annual royalty of $4,000
will
apply once product sales incorporating the licensed technology
commence.
Battelle
Memorial Institute Production Agreement
In
April
2004, IsoRay Products LLC entered into an agreement with Battelle Memorial
Institute, Pacific Northwest Division (Battelle), the operator of the Pacific
Northwest National Laboratory, for certain production-related services and
facilities. This agreement was assumed by IsoRay Medical, Inc. following the
merger (see Note 1). In
accordance
with the terms of the agreement, the Company is required to make advance
payments, which are then applied against billings by Battelle as services are
provided. During the year ended June 30, 2005, the Company incurred $574,225
of
costs for production-related services and facilities provided by Battelle.
At
June 30, 2005, prepaid expenses include $43,764 related to this agreement.
The
agreement, which expires December 31, 2006, may be terminated at any time by
either party, upon giving a 60-day written notice to the other
party.
Facility
Lease Agreements
The
Company leases office and laboratory space under a noncancelable operating
lease
agreement. The lease agreement, which currently requires monthly lease payments
of $4,196, expires December 31, 2005. Annual rent expense under this agreement
was $26,824 for the year ended June 30, 2005. Future minimum lease payments
under this lease for the period from July 1, 2005 through December 31, 2005
are
$25,176.
Facility
Lease Agreements, Continued
In
February 2005, the Company entered into a lease agreement for a portion of
a
building in which it intends to establish production facilities. The lease
term
commences upon regulatory licensing approval, which has not yet been obtained,
and terminates one year from the commencement date of the lease. The annual
rental is 25,800 shares of the Company's common stock. Inasmuch as the lease
term has not yet commenced, there was no rent recognized during the year ended
June 30, 2005.
Tenant
Improvement Construction Agreement
In
connection with the production facility lease agreement, the Company entered
into a tenant improvement construction agreement in April 2005. Per the terms
of
the agreement, the cost of the tenant improvement construction to be borne
by
the Company shall not exceed $365,760. Through June 30, 2005, the Company work
performed under the tenant improvement construction agreement totaled $366,034
(see Note 7).
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
16. Commitments
and Contingencies, Continued
Equipment
Lease Agreements
The
Company leases certain production and office equipment under noncancelable
operating lease agreements. The lease agreements, which currently require
combined monthly lease payments of $450, expire through December 2009. Annual
rent expense under these agreements was $1,817 for the year ended June 30,
2005.
Future minimum lease payments under these lease agreements are as
follows:
Year
ending June 30,
|
|
|
|
2006
|
|
$
|
5,400
|
|
2007
|
|
|
5,400
|
|
2008
|
|
|
5,400
|
|
2009
|
|
|
5,400
|
|
2010
|
|
|
2,700
|
|
17. Subsequent
Events
The
following events and transactions have occurred subsequent to June 30,
2005:
Sale
of Convertible Debentures Payable
Subsequent
to June 30, 2005, the Company sold an additional $550,000 of convertible
debentures pursuant to the January 31, 2005 Offering (see Notes 4 and
12).
Short-Term
Borrowing
On
October 14, 2005, the Company borrowed $250,000 under a short-term note payable.
The note, which bears interest at the rate of 10.0%, is due and payable on
December 1, 2005.
Production
Contract
On
August
25, 2005, the Company entered into an agreement with the Federal State Unitary
Enterprise Institute of Nuclear Medicine in Russia to purchase Barium-131,
enriched Barium-131 and Cesium-131. Under this agreement, the Company agreed
to
purchase an indeterminate quantity of these three radioactive isotopes. The
agreement provides for a ten-year period of exclusivity to buy these radioactive
isotopes if certain conditions are met, including volume of purchases. The
contract will terminate on October 25, 2012.
Equipment
Leases
Through
October 14, 2005, the Company entered into one additional equipment lease,
which
qualifies as an operating lease. The terms of the lease, which expires September
2006, require monthly payments of $250.
Through
October 14, 2005, the Company took delivery of production equipment that was
financed through equipment leases, each of which qualifies as a capital lease.
The lease term for one of the leases is 36 months, and the lease term for the
second lease is 48 months. The contract terms require combined monthly payments
of $10,824 for the first five months; $19,975 for the next 31 months; and $2,475
for the last 12 months. Equipment to be capitalized under these leases totals
approximately $500,000.
IsoRay
Medical, Inc.
Notes
to Combined Financial Statements - Continued
June
30, 2005
17. Subsequent
Events, Continued
Merger
Transaction
On
May
27, 2005, the Company entered into a merger agreement with Century Park Pictures
Corporation ("Century") to merge with Century's newly-formed, wholly-owned
subsidiary. Century is a public company subject to the periodic reporting
requirements of the Securities Exchange Act of 1934.
On
July
28, 2005, the merger transaction closed. As a result of the merger, the Company
became a wholly-owned subsidiary of Century, which concurrently changed its
name
to IsoRay, Inc. IsoRay, Inc. issued shares of its common and preferred stock
to
the holders of common and preferred stock of the Company at a rate of 0.842362
share of IsoRay, Inc.'s common stock for each share of the Company's stock.
Options to purchase common and preferred stock of the Company were also
converted at the same rate into options to purchase common and preferred stock
of IsoRay, Inc. Following the merger, IsoRay, Inc. had approximately 10,237,797
shares of common and preferred stock outstanding. On a fully-diluted basis,
the
Company's shareholders owned approximately 82% of IsoRay, Inc.'s outstanding
securities. Management believes the transaction has been structured to qualify
as a non-taxable reorganization under Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended.
Part
II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
|
Indemnification
of Directors and Officers
|
The
Company's Articles of Incorporation provide to directors and officers
indemnification to the full extent provided by law, and provide that, to the
extent permitted by Minnesota law, a director will not be personally liable
for
monetary damages to the Company or its shareholders for breach of his or her
fiduciary duty as a director, except for liability for certain actions that
may
not be limited under Minnesota law.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
Item 25.
|
Other
Expenses of Issuance and Distribution
|
Securities
and Exchange Commission registration fee
|
|
$
|
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.
|
Recent
Sales of Unregistered Securities
|
During
the past three years the following sales of unregistered securities were
completed by the Registrant:
· |
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. The agreement calls for a return
within 10
days of request if funding is not received within two days of receipt
of
the notice.
|
· |
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 is 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 is 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.
|
· |
On
December 3, 2003, the Registrant issued 26,236 shares of restricted
common
to Thomas Scallen, its former CEO, as compensation valued at $7,871,
in
reliance on the exemption from registration provided by Section 4(2)
of
the Securities Act. All of these shares are included in this
registration.
|
· |
On
December 3, 2003, the Registrant issued 289,193 shares of restricted
common stock to Mark Rosenberg in redemption of two notes payable
of
approximately $36,758, pursuant to the conversion terms of the two
notes
and in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. None of these shares are included in
this
registration.
|
· |
On
June 23, 2003, the Registrant issued an aggregate of approximately
1,792,783 shares of restricted common stock in redemption of various
outstanding notes payable in the face amount of approximately $300,000
and
accrued interest payable of approximately $237,835, pursuant to the
conversion terms of the respective notes and in reliance on the exemption
from registration provided by Section 4(2) of the Securities Act.
None of
these shares is included in this
registration.
|
Additionally,
during the past three years the following sales of unregistered securities
were
completed by IsoRay Medical, Inc. and predecessor IsoRay companies 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
include in this registration.
|
· |
In
June 2004, IsoRay Medical, Inc. issued 10,000 of its common shares
to Mr.
Girard primarily for services rendered and for $100 cash pursuant
to
Section 4(2) of the Securities Act. The Company recorded $9,900 of
compensation expense in connection with the issuance of these shares.
During the merger with the Registrant, these 10,000 shares were converted
into 8,423 shares of the Registrant’s common stock, of which 1,684 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.
· |
In
connection with the private placement of October 15, 2003, IsoRay
Products
LLC granted warrants for the purchase of 100,000 of its Class A member
shares to Pinnacle International Holdings, LLC, a financial services
company, pursuant to Section 4(2) of the Securities Act. These warrants
were exercisable at $1.00 per share. Subsequent to the business
combination of the IsoRay companies, these warrants were exchanged
for
168,799 warrants to purchase IsoRay Medical, Inc. shares of Series
B
Preferred stock at $.59 per share. Pursuant to the merger with the
registrant, these 168,799 warrants were exchanged for warrants to
purchase
142,190 shares of the Registrant’s common stock at $.70 per share. Of
these 142,190 warrants, 24,438 of the underlying shares of common
stock
are included in this registration.
|
· |
In
September 2003, Roger Girard, President of IsoRay, Inc., was issued
100,000 IsoRay Products LLC Class B shares primarily for services
rendered
and in reliance on the exemption from registration provided by Section
4(2) of the Securities Act. IsoRay Products LLC recorded $50,000
of
compensation expense in connection with the issuance of these shares.
Subsequent to the business combination among IsoRay companies, these
shares were exchanged for 168,798 shares of IsoRay Medical, Inc.,
which
were subsequently exchanged in connection with the merger with the
Registrant for 142,189 shares of the Registrant’s common stock, of which
28,437 are included in this registration
statement.
|
IsoRay,
Inc. (WA domicile)
· |
During
March 2004, IsoRay, Inc. issued 80,000 shares of its common stock
in full
satisfaction of the $80,000 purchase price of a prototype laser welding
station and in reliance on the exemption from registration provided
by
Section 4(2) of the Securities Act. Subsequent to the business combination
among IsoRay companies, these 80,000 shares were exchanged for 154,431
shares of IsoRay Medical, Inc. common stock, which were subsequently
exchanged for 130,088 shares of common stock of the Registrant pursuant
to
the Merger. Of those 130,088 shares of common stock, 26,018 are included
in this registration.
|
· |
As
of December 2003 IsoRay, Inc. sold 80,000 shares of its common stock
for
$80,000 cash and
in reliance on the exemption from registration provided by Section
4(2) of
the Securities Act. These
80,000 shares of IsoRay, Inc. common stock were exchanged for 154,431
shares of common stock of IsoRay Medical, Inc. This shareholder sold
92,800 shares of common stock of IsoRay Medical, Inc. at the time
of the
merger. The remaining 61,631 shares of IsoRay Medical, Inc. common
stock
held by this investor were exchanged for 51,915 shares of common
stock of
the Registrant at the time of the Merger, of which 10,382 are included
in
this registration.
|
· |
As
of December 2002, the Company issued 35,200 shares of its common
stock
pursuant to §83(b) (subject to substantial risk of forfeiture) to certain
shareholders as compensation for their guarantee of notes payable
to
Benton-Franklin Economic Development District and in reliance on
the
exemption from registration provided by Section 4(2) of the Securities
Act. The transaction was recorded at the fair value of the shares,
estimated to be $35,200, as management considered it to be more readily
determinable than the value of the guarantees. During the business
combination among IsoRay companies, these 35,200 shares of common
stock
were exchanged for 67,950 shares of IsoRay Medical, Inc. common stock,
which were subsequently exchanged pursuant to the merger with the
Registrant, for 57,241 shares of common stock of the Registrant,
of which
11,449 are included in the
merger.
|
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 Registrant's Registration Statement of September 15,
1983.
|
|
|
|
3.2
|
|
Certificate
of Designation of Rights, Preferences and Privileges of Series A
and B
Convertible Preferred Stock, filed with the Minnesota Secretary of
State
on June 29, 2005, incorporated by reference to the Form 8-K filed
on
August 3, 2005.
|
|
|
|
3.3
|
|
Restated
and Amended Articles of Incorporation, incorporated by reference
to the
Form 10-KSB filed on October 11, 2005.
|
|
|
|
4.2
|
|
Form
of Lock-Up Agreement for Certain IsoRay Medical, Inc. Shareholders,
incorporated by reference to the Form 8-K filed on August 3,
2005.
|
|
|
|
4.3
|
|
Form
of Lock-Up Agreement for Anthony Silverman, incorporated by reference
to
the Form 8-K filed on August 3, 2005
|
|
|
|
4.4
|
|
Form
of Registration Rights Agreement among IsoRay Medical, Inc., Century
Park
Pictures Corporation and the other signatories thereto, incorporated
by
reference to the Form 8-K filed on August 3, 2005.
|
|
|
|
4.5
|
|
Form
of Escrow Agreement among Century Park Pictures Corporation, IsoRay
Medical, Inc. and Anthony Silverman, incorporated by reference to
the Form
8-K filed on August 3, 2005.
|
|
|
|
4.6
|
|
Form
of Escrow Agreement among Century Park Pictures Corporation, IsoRay
Medical, Inc. and Thomas Scallen, incorporated by reference to the
Form
8-K filed on August 3, 2005.
|
4.7
|
|
Amended
and Restated 2005 Stock Option Plan, incorporated by reference to
the Form
S-8 filed on August 19, 2005.
|
|
|
|
4.8
|
|
Amended
and Restated 2005 Employee Stock Option Plan, incorporated by reference
to
the Form S-8 filed on August 19, 2005.
|
|
|
|
4.9
|
|
Form
of Registration Right Agreement among IsoRay Medical, Inc., Meyers
Associates, L.P. and the other signatories thereto, dated October
15,
2004, 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.
|
|
|
|
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.
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|
|
|
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.
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|
|
|
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.
|
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|
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).
|
|
|
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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, filed
herewith.
|
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 Registrant, incorporated by reference to the Form 10-KSB filed
on
October 11, 2005.
|
|
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|
23.1
|
|
Consent
of Keller Rohrback, P.L.C. (included in Exhibit 5.1)
|
|
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23.2
|
|
Consent
of S.W. Hatfield, CPA, filed herewith.
|
|
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23.3.
|
|
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 25th
day of
May, 2006.
|
|
|
|
ISORAY,
INC. |
|
|
|
|
By: |
/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
|
|
May
25, 2006
|
Roger
E. Girard
|
|
|
|
|
|
|
|
|
|
/s/
Michael K. Dunlop
|
|
Chief
Financial Officer and Principal Accounting Officer
|
|
May25,
2006
|
Michael
K.
Dunlop |
|
|
|
|
|
|
|
|
|
/s/
Dwight Babcock
|
|
Director
|
|
May
25, 2006
|
Dwight
Babcock
|
|
|
|
|
|
|
|
|
|
/s/
Stephen R. Boatwright
|
|
Director
|
|
May
25, 2006
|
Stephen
R. Boatwright
|
|
|
|
|
|
|
|
|
|
/s/
Robert R. Kauffman
|
|
Director
|
|
May
25, 2006
|
Robert
R. Kauffman
|
|
|
|
|
|
|
|
|
|
/s/
Thomas C. Lavoy
|
|
Director
|
|
May
25, 2006
|
Thomas
C. Lavoy
|
|
|
|
|
|
|
|
|
|
/s/
Albert Smith
|
|
Director
|
|
May
25, 2006
|
Albert
Smith
|
|
|
|
|
|
|
|
|
|
/s/
David J. Swanberg |
|
Director
|
|
May
25, 2006
|
David
J. Swanberg
|
|
|
|
|