þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF
1934
|
Minnesota
|
41-1458152
|
|
(State
or other jurisdiction of incorporation or
organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
350
Hills St., Suite 106, Richland, Washington
|
99354
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Class
|
Outstanding
as of May 2, 2008
|
|
Common
stock, $0.001 par value
|
22,942,088
|
PART
I
|
FINANCIAL
INFORMATION
|
|
Item
1
|
Consolidated
Unaudited Financial Statements
|
1
|
Consolidated
Balance Sheets
|
1
|
|
Consolidated
Statements of Operations
|
2
|
|
Consolidated
Statements of Cash Flows
|
3
|
|
Notes
to Consolidated Financial Statements
|
4
|
|
Item
2
|
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
|
12
|
Item
3
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
Item
4
|
Controls
and Procedures
|
20
|
PART
II
|
OTHER
INFORMATION
|
|
Item
1A
|
Risk
Factors
|
21
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
21
|
Item
6
|
Exhibits
and Reports on Form 8-K
|
22
|
Signatures
|
23
|
|
March 31,
|
|
|||||
|
2008
|
June 30,
|
|||||
|
(Unaudited)
|
2007
|
|||||
|
|||||||
ASSETS
|
|||||||
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
3,353,295
|
$
|
9,355,730
|
|||
Short-term
investments
|
6,506,859
|
9,942,840
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of $39,780 and
$99,789,
respectively
|
808,673
|
1,092,925
|
|||||
Inventory
|
862,439
|
880,834
|
|||||
Prepaid
expenses
|
400,027
|
458,123
|
|||||
Total
current assets
|
11,931,293
|
21,730,452
|
|||||
Fixed
assets, net of accumulated depreciation
|
6,401,331
|
3,665,551
|
|||||
Deferred
financing costs, net of accumulated amortization
|
72,847
|
95,725
|
|||||
Licenses,
net of accumulated amortization
|
455,539
|
262,074
|
|||||
Restricted
cash
|
174,273
|
-
|
|||||
Other
assets, net of accumulated amortization
|
341,036
|
322,360
|
|||||
Total
assets
|
$
|
19,376,319
|
$
|
26,076,162
|
|||
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and accrued expenses
|
$
|
1,066,270
|
$
|
1,946,042
|
|||
Accrued
payroll and related taxes
|
242,234
|
459,068
|
|||||
Accrued
interest payable
|
1,111
|
1,938
|
|||||
Deferred
revenue
|
-
|
23,874
|
|||||
Notes
payable, due within one year
|
55,025
|
49,212
|
|||||
Capital
lease obligations, due within one year
|
61,390
|
194,855
|
|||||
Asset
retirement obligation, current portion
|
-
|
131,142
|
|||||
Total
current liabilities
|
1,426,030
|
2,806,131
|
|||||
Notes
payable, due after one year
|
404,019
|
528,246
|
|||||
Capital
lease obligations, due after one year
|
3,422
|
25,560
|
|||||
Asset
retirement obligation
|
494,788
|
-
|
|||||
Total
liabilities
|
2,328,259
|
3,359,937
|
|||||
Commitments
and contingencies (see Note 11)
|
|||||||
Shareholders'
equity:
|
|||||||
Preferred
stock, $.001 par value; 6,000,000 shares authorized:
|
|||||||
Series
A: 1,000,000 shares allocated; no shares issued and
outstanding
|
-
|
-
|
|||||
Series
B: 5,000,000 shares allocated; 59,065 shares issued and
outstanding
|
59
|
59
|
|||||
Common
stock, $.001 par value; 194,000,000 shares authorized; 23,090,200
and
22,789,324 shares issued and outstanding
|
23,090
|
22,789
|
|||||
Additional
paid-in capital
|
47,292,395
|
45,844,793
|
|||||
Accumulated
deficit
|
(30,267,484
|
)
|
(23,151,416
|
)
|
|||
Total
shareholders' equity
|
17,048,060
|
22,716,225
|
|||||
Total
liabilities and shareholders' equity
|
$
|
19,376,319
|
$
|
26,076,162
|
|
Three months ended March 31,
|
Nine months ended March 31,
|
|||||||||||
|
2008
|
2007
|
2008
|
2007
|
|||||||||
|
|||||||||||||
Product
sales
|
$
|
1,783,642
|
$
|
1,645,694
|
$
|
5,397,705
|
$
|
4,085,293
|
|||||
Cost
of product sales
|
1,682,981
|
1,456,978
|
5,930,278
|
4,132,518
|
|||||||||
Gross
margin (loss)
|
100,661
|
188,716
|
(532,573
|
)
|
(47,225
|
)
|
|||||||
Operating
expenses:
|
|||||||||||||
Research
and development
|
434,418
|
437,143
|
1,086,333
|
898,995
|
|||||||||
Sales
and marketing expenses
|
888,448
|
849,744
|
3,091,091
|
2,412,691
|
|||||||||
General
and administrative expenses
|
869,435
|
937,905
|
2,690,624
|
3,492,565
|
|||||||||
Total
operating expenses
|
2,192,301
|
2,224,792
|
6,868,048
|
6,804,251
|
|||||||||
Operating
loss
|
(2,091,640
|
)
|
(2,036,076
|
)
|
(7,400,621
|
)
|
(6,851,476
|
)
|
|||||
Non-operating
income (expense):
|
|||||||||||||
Interest
income
|
131,442
|
68,760
|
549,993
|
158,947
|
|||||||||
Unrealized
loss on short-term investments (see Note 4)
|
(187,300
|
)
|
-
|
(187,300
|
)
|
-
|
|||||||
Financing
expense
|
(22,826
|
)
|
(56,772
|
)
|
(78,140
|
)
|
(177,443
|
)
|
|||||
Non-operating
income (expense), net
|
(78,684
|
)
|
11,988
|
284,553
|
(18,496
|
)
|
|||||||
Net
loss
|
$
|
(2,170,324
|
)
|
$
|
(2,024,088
|
)
|
$
|
(7,116,068
|
)
|
$
|
(6,869,972
|
)
|
|
Basic
and diluted loss per share
|
$
|
(0.09
|
)
|
$
|
(0.12
|
)
|
$
|
(0.31
|
)
|
$
|
(0.42
|
)
|
|
Weighted
average shares used in computing net loss per share:
|
|||||||||||||
Basic
and diluted
|
23,090,200
|
17,400,355
|
23,054,375
|
16,198,067
|
Nine months ended March 31,
|
|||||||
|
2008
|
2007
|
|||||
|
|
|
|||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
Net
loss
|
$
|
(7,116,068
|
)
|
$
|
(6,869,972
|
)
|
|
Adjustments
to reconcile net loss to net cash used by operating activities:
|
|||||||
Depreciation
and amortization of fixed assets
|
849,716
|
283,422
|
|||||
Amortization
of deferred financing costs and other assets
|
61,521
|
99,387
|
|||||
Amortization
of discount on short-term investments
|
(145,165
|
)
|
-
|
||||
Unrealized
loss on short-term investments
|
187,300
|
-
|
|||||
Loss
on settlement of ARO liability (Note 7)
|
(135,120
|
)
|
-
|
||||
Accretion
of asset retirement obligation
|
25,670
|
4,690
|
|||||
Noncash
share-based compensation
|
425,090
|
1,022,241
|
|||||
Changes
in operating assets and liabilities:
|
|||||||
Accounts
receivable, net
|
284,252
|
(646,869
|
)
|
||||
Inventory
|
18,395
|
(109,401
|
)
|
||||
Prepaid
expenses
|
58,095
|
(244,364
|
)
|
||||
Accounts
payable and accrued expenses
|
(879,772
|
)
|
222,910
|
||||
Accrued
payroll and related taxes
|
(216,834
|
)
|
(56,700
|
)
|
|||
Accrued
interest payable
|
(827
|
)
|
1,470
|
||||
Deferred
revenue
|
(23,874
|
)
|
-
|
||||
|
|||||||
Net
cash used by operating activities
|
(6,607,621
|
)
|
(6,293,186
|
)
|
|||
|
|||||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
Purchases
of fixed assets
|
(3,112,400
|
)
|
(786,614
|
)
|
|||
Additions
to licenses and other assets
|
(250,783
|
)
|
(27,657
|
)
|
|||
Change
in restricted cash
|
(174,273
|
)
|
-
|
||||
Purchases
of short-term investments
|
(13,273,653
|
)
|
-
|
||||
Proceeds
from the sale or maturity of short-term investments
|
16,667,499
|
-
|
|||||
|
|||||||
Net
cash used by investing activities
|
(143,610
|
)
|
(814,271
|
)
|
|||
|
|||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
Principal
payments on notes payable
|
(118,414
|
)
|
(95,301
|
)
|
|||
Principal
payments on capital lease obligations
|
(155,603
|
)
|
(135,165
|
)
|
|||
Proceeds
from cash sales of common shares pursuant to private placement, net
of
offering costs
|
-
|
19,819,962
|
|||||
Proceeds
from cash sales of preferred stock, pursuant to exercise of warrants
|
-
|
8,709
|
|||||
Proceeds
from cash sales of common stock, pursuant to exercise of warrants
|
1,010,913
|
6,448,181
|
|||||
Proceeds
from cash sales of common stock, pursuant to exercise of options
|
11,900
|
1,106,333
|
|||||
Payment
of dividend to preferred shareholders
|
-
|
(38,458
|
)
|
||||
|
|||||||
Net
cash provided by financing activities
|
748,796
|
27,114,261
|
|||||
|
|||||||
Net
(decrease) increase in cash and cash equivalents
|
(6,002,435
|
)
|
20,006,804
|
||||
Cash
and cash equivalents, beginning of period
|
9,355,730
|
2,207,452
|
|||||
|
|||||||
CASH
AND CASH EQUIVALENTS, END OF PERIOD
|
$
|
3,353,295
|
$
|
22,214,256
|
|||
|
|||||||
Non-cash
investing and financing activities:
|
|||||||
Increase
in fixed assets related to asset retirement obligation
|
$
|
473,096
|
$
|
-
|
|||
Cashless
exercise of common stock options
|
-
|
145,000
|
|||||
Exchange
of convertible debentures payable for shares of common stock
|
-
|
49,999
|
March 31,
|
|||||||
2008
|
2007
|
||||||
Preferred
stock
|
59,065
|
59,065
|
|||||
Common
stock warrants
|
3,250,774
|
3,627,767
|
|||||
Common
stock options
|
2,831,728
|
3,088,439
|
|||||
Convertible
debentures
|
-
|
85,542
|
|||||
Total
potential dilutive securities
|
6,141,567
|
6,860,813
|
March 31,
|
June 30,
|
||||||
2008
|
2007
|
||||||
Municipal
debt securities
|
$
|
3,812,700
|
$
|
3,000,000
|
|||
Corporate
debt securities
|
2,694,159
|
6,942,840
|
|||||
$
|
6,506,859
|
$
|
9,942,840
|
March 31,
|
June 30,
|
||||||
2008
|
2007
|
||||||
Raw
materials
|
$
|
702,210
|
$
|
682,327
|
|||
Work
in process
|
127,614
|
120,242
|
|||||
Finished
goods
|
32,615
|
78,265
|
|||||
$
|
862,439
|
$
|
880,834
|
Nine months
|
|||||||
ended March 31,
|
|||||||
2008
|
2007
|
||||||
Beginning
balance
|
$
|
131,142
|
$
|
67,425
|
|||
New
obligations
|
473,096
|
-
|
|||||
Settlement
of existing obligation
|
(135,120
|
)
|
-
|
||||
Accretion
of discount
|
25,670
|
4,690
|
|||||
Ending
balance
|
$
|
494,788
|
$
|
72,115
|
Three months
|
Nine months
|
||||||||||||
ended March 31,
|
ended March 31,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Cost
of product sales
|
$
|
36,029
|
$
|
21,076
|
$
|
109,859
|
$
|
92,401
|
|||||
Research
and development
|
10,971
|
8,418
|
34,071
|
28,132
|
|||||||||
Sales
and marketing expenses
|
59,557
|
54,737
|
178,671
|
153,974
|
|||||||||
General
and administrative expenses
|
(36,080
|
)
|
40,123
|
102,489
|
747,734
|
||||||||
Total
share-based compensation
|
$
|
70,477
|
$
|
124,354
|
$
|
425,090
|
$
|
1,022,241
|
Weighted
|
|||||||||||||
Weighted
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Number of
|
Exercise
|
Contractual
|
Intrinsic
|
||||||||||
Options
|
Price
|
Term
|
Value
|
||||||||||
Outstanding
at March 31, 2008
|
2,831,728
|
$
|
2.72
|
7.83
|
$
|
0.00
|
|||||||
Vested
and expected to vest at March 31, 2008
|
2,793,342
|
$
|
2.70
|
7.83
|
$
|
0.00
|
|||||||
Vested
and exercisable at March 31, 2008
|
2,294,642
|
$
|
2.42
|
7.65
|
$
|
0.00
|
|
Three months
|
Nine months
|
|||||||||||
ended March 31,
|
ended March 31,
|
||||||||||||
2008
|
2007
|
2008
|
2007
|
||||||||||
Weighted
average fair value of options granted
|
$
|
-
|
$
|
2.68
|
$
|
-
|
$
|
2.18
|
|||||
Key
assumptions used in determining fair value:
|
|||||||||||||
Weighted
average risk-free interest rate
|
-
|
%
|
4.45
|
%
|
-
|
%
|
4.82
|
%
|
|||||
Weighted
average life of the option (in years)
|
-
|
4.97
|
-
|
5.5
|
|||||||||
-
|
%
|
80.00
|
%
|
-
|
%
|
75.65
|
%
|
||||||
Expected
dividend yield
|
-
|
%
|
0.00
|
%
|
-
|
%
|
0.00
|
%
|
(a)
|
Election
of Directors.
All nominees for election as Directors were unopposed and elected
as
follows:
|
Director
|
For
|
Withhold
|
|||||
Dwight
Babcock
|
14,449,758
|
2,726,725
|
|||||
Roger
E. Girard
|
15,552,855
|
1,623,628
|
|||||
Robert
R. Kauffman
|
14,312,149
|
2,864,334
|
|||||
Thomas
C. LaVoy
|
14,554,589
|
2,621,894
|
|||||
Albert
Smith
|
14,554,589
|
2,621,894
|
|||||
David
J. Swanberg
|
15,816,620
|
1,359,863
|
(b)
|
IsoRay,
Inc. 2008 Employee Stock Option Plan. Shareholder
approval was not obtained due to a lack of shareholder votes for
the 2008
Plan at the Company’s annual meeting held on February 20, 2008, and thus
no grants have been or will be made under the 2008 Option Plan. The
voting
totals were as follows:
|
For
|
Against
|
Abstain
|
Non-votes
|
|||||||
6,787,570
|
3,288,004
|
393,202
|
167,601
|
(c)
|
Appointment
of our independent registered public accounting firm.
Proposal to ratify the appointment of DeCoria, Maichel & Teague, P.S.
as independent registered public accounting firm of the Company for
the
fiscal year ending June 30, 2008 was approved as
follows:
|
For
|
Against
|
Abstain
|
|||||
16,483,868
|
525,014
|
167,601
|
(a) |
Exhibits:
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Executive
Officer
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial
Officer
|
32
|
Section
1350 Certifications
|
(b) |
Reports
on Form 8-K:
|
ISORAY,
INC., a Minnesota corporation
|
|
By
|
/s/ Dwight
Babcock
|
Dwight
Babcock, Interim Chief Executive Officer
|
|
|
|
By
|
/s/ Jonathan
R. Hunt
|
Jonathan
R. Hunt, Chief Financial
Officer
|