UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| þ | QUARTERLY Report PURSUANT TO Section
13 or 15(d) of the
Securities Exchange Act of 1934 |
For the quarterly period
ended December 31, 2014
or
| ¨ | Transition
Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 |
For the transition
period from __________ to ____________
Commission File No. 001-33407
ISORAY, INC.
(Exact name of registrant as specified in its
charter)
Minnesota |
41-1458152 |
(State or other jurisdiction of incorporation or |
(I.R.S. Employer |
organization) |
Identification No.) |
|
|
350
Hills St., Suite 106, Richland, Washington |
99354 |
(Address of principal executive
offices) |
(Zip Code) |
Registrant's telephone number, including area
code: (509) 375-1202
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or such shorter
period that the registrant was required to submit and post such files).
Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule
12b-2 of the Exchange Act.
Large accelerated filer ¨ Accelerated
filer ¨ Non-accelerated filer ¨
Smaller reporting company x
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ¨
No x
Number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date:
Class |
Outstanding as of
February 11, 2015 |
Common stock, $0.001 par value |
54,883,445 |
ISORAY, INC.
Table of Contents
PART I – FINANCIAL INFORMATION
IsoRay, Inc. and Subsidiaries
Consolidated Balance Sheets
| |
(Unaudited) | | |
| |
| |
December 31, | | |
June 30, | |
| |
2014 | | |
2014 | |
| |
| | |
| |
ASSETS | |
| | | |
| | |
| |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 1,336,853 | | |
$ | 7,680,073 | |
Certificates of deposit (Note 3) | |
| 10,047,298 | | |
| 10,002,912 | |
Accounts receivable, net of allowance for doubtful accounts
of $30,000 and $38,607, respectively | |
| 797,381 | | |
| 913,049 | |
Inventory | |
| 411,420 | | |
| 359,737 | |
Other receivables | |
| 10,978 | | |
| 53,082 | |
Prepaid expenses and other current assets | |
| 221,167 | | |
| 206,047 | |
| |
| | | |
| | |
Total current assets | |
| 12,825,097 | | |
| 19,214,900 | |
| |
| | | |
| | |
Fixed assets, net of accumulated depreciation and amortization | |
| 761,425 | | |
| 1,017,915 | |
Certificates of deposit, non-current (Note 3) | |
| 10,096,680 | | |
| 5,401,398 | |
Restricted cash | |
| 181,235 | | |
| 181,208 | |
Inventory, non-current | |
| 469,758 | | |
| 469,758 | |
Other assets, net of accumulated amortization | |
| 250,903 | | |
| 264,076 | |
| |
| | | |
| | |
Total assets | |
$ | 24,585,098 | | |
$ | 26,549,255 | |
| |
| | | |
| | |
LIABILITIES AND SHAREHOLDERS' EQUITY | |
| | | |
| | |
| |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Accounts payable and accrued expenses | |
$ | 488,321 | | |
$ | 574,855 | |
Accrued protocol expense | |
| 90,380 | | |
| 80,433 | |
Accrued radioactive waste disposal | |
| 108,068 | | |
| 141,592 | |
Accrued payroll and related taxes | |
| 146,745 | | |
| 236,282 | |
Accrued vacation | |
| 108,378 | | |
| 120,765 | |
| |
| | | |
| | |
Total current liabilities | |
| 941,892 | | |
| 1,153,927 | |
| |
| | | |
| | |
Warrant derivative liability | |
| 209,000 | | |
| 573,000 | |
Asset retirement obligation | |
| 906,294 | | |
| 866,560 | |
| |
| | | |
| | |
Total liabilities | |
| 2,057,186 | | |
| 2,593,487 | |
| |
| | | |
| | |
Commitments and contingencies (Note 7) | |
| | | |
| | |
| |
| | | |
| | |
Shareholders' equity: | |
| | | |
| | |
Preferred stock, $.001 par value; 7,001,671 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 | |
Series C: 1,000,000 shares allocated; no shares issued and outstanding | |
| - | | |
| - | |
Series D: 1,671 and 0 shares allocated; no shares issued and outstanding | |
| - | | |
| - | |
Common stock, $.001 par value; 192,998,329 & 193,000,000 shares authorized;
54,883,445 and 54,701,708 shares issued and outstanding | |
| 54,883 | | |
| 54,702 | |
Treasury stock, at cost, 13,200 shares | |
| (8,390 | ) | |
| (8,390 | ) |
Additional paid-in capital | |
| 82,224,632 | | |
| 81,959,853 | |
Accumulated deficit | |
| (59,743,272 | ) | |
| (58,050,456 | ) |
| |
| | | |
| | |
Total shareholders' equity | |
| 22,527,912 | | |
| 23,955,768 | |
| |
| | | |
| | |
Total liabilities and shareholders' equity | |
$ | 24,585,098 | | |
$ | 26,549,255 | |
The accompanying notes are an integral part
of these consolidated financial statements.
IsoRay, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
| |
Three months ended December 31, | | |
Six months ended December 31, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
| |
| | |
| | |
| | |
| |
Product sales, net | |
$ | 1,065,585 | | |
$ | 1,085,408 | | |
$ | 2,107,686 | | |
$ | 2,135,323 | |
Cost of product sales | |
| 1,103,549 | | |
| 1,119,314 | | |
| 2,200,452 | | |
| 2,246,537 | |
| |
| | | |
| | | |
| | | |
| | |
Gross loss | |
| (37,964 | ) | |
| (33,906 | ) | |
| (92,766 | ) | |
| (111,214 | ) |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
Research and development expenses | |
| 140,627 | | |
| 170,030 | | |
| 317,237 | | |
| 317,020 | |
Sales and marketing expenses | |
| 303,783 | | |
| 326,467 | | |
| 657,526 | | |
| 685,652 | |
General and administrative expenses | |
| 537,940 | | |
| 513,964 | | |
| 1,113,891 | | |
| 1,165,000 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 982,350 | | |
| 1,010,461 | | |
| 2,088,654 | | |
| 2,167,672 | |
| |
| | | |
| | | |
| | | |
| | |
Operating loss | |
| (1,020,314 | ) | |
| (1,044,367 | ) | |
| (2,181,420 | ) | |
| (2,278,886 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-operating income (expense): | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 72,360 | | |
| 481 | | |
| 145,055 | | |
| 835 | |
Change in fair value of warrant derivative liability | |
| 41,000 | | |
| 117,000 | | |
| 347,000 | | |
| 81,000 | |
Financing and interest expense | |
| - | | |
| (86 | ) | |
| (3,451 | ) | |
| (827 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-operating income (expense), net | |
| 113,360 | | |
| 117,395 | | |
| 488,604 | | |
| 81,008 | |
| |
| | | |
| | | |
| | | |
| | |
Net loss | |
| (906,954 | ) | |
| (926,972 | ) | |
| (1,692,816 | ) | |
| (2,197,878 | ) |
Preferred stock dividends (Note 10) | |
| | | |
| | | |
| - | | |
| (726,378 | ) |
Preferred stock dividends | |
| (2,658 | ) | |
| (2,658 | ) | |
| (5,316 | ) | |
| (5,316 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss applicable to common shareholders | |
$ | (909,612 | ) | |
$ | (929,630 | ) | |
$ | (1,698,132 | ) | |
$ | (2,929,572 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted loss per share | |
$ | (0.02 | ) | |
$ | (0.02 | ) | |
$ | (0.03 | ) | |
$ | (0.08 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares used in computing net loss per share: Basic and
diluted | |
| 54,883,445 | | |
| 38,419,502 | | |
| 54,875,749 | | |
| 37,133,875 | |
The accompanying notes are an integral part
of these consolidated financial statements.
IsoRay, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| |
Six months ended December 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net loss | |
$ | (1,692,816 | ) | |
$ | (2,197,878 | ) |
Adjustments to reconcile net loss to net cash used by operating activities: | |
| | | |
| | |
Allowance for doubtful accounts | |
| (8,607 | ) | |
| (20,083 | ) |
Depreciation and amortization of fixed assets | |
| 305,147 | | |
| 349,232 | |
Amortization other assets | |
| 15,469 | | |
| 15,371 | |
Change in fair value of warrant derivative liability | |
| (347,000 | ) | |
| (81,000 | ) |
Accretion of asset retirement obligation | |
| 39,734 | | |
| 36,326 | |
Share-based compensation | |
| 42,907 | | |
| 51,786 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable, gross | |
| 124,275 | | |
| 26,641 | |
Inventory | |
| (51,683 | ) | |
| (20,762 | ) |
Other receivables | |
| 42,104 | | |
| 1,438 | |
Prepaid expenses and other current assets | |
| (15,120 | ) | |
| 46,515 | |
Accounts payable and accrued expenses | |
| (86,534 | ) | |
| (2,273 | ) |
Accrued protocol expense | |
| 9,947 | | |
| 21,668 | |
Accrued radioactive waste disposal | |
| (33,524 | ) | |
| 24,000 | |
Accrued payroll and related taxes | |
| (89,537 | ) | |
| 13,663 | |
Accrued vacation | |
| (12,387 | ) | |
| (2,646 | ) |
| |
| | | |
| | |
Net cash used by operating activities | |
| (1,757,625 | ) | |
| (1,738,002 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Purchases of fixed assets | |
| (48,657 | ) | |
| (14,419 | ) |
Additions to licenses and other assets | |
| (2,296 | ) | |
| (1,562 | ) |
Proceeds from the maturity of certificates of deposit | |
| 5,013,694 | | |
| - | |
Purchases of certificates of deposit | |
| (5,058,080 | ) | |
| - | |
Purchases of certificates of deposit - non-current | |
| (4,695,282 | ) | |
| - | |
Change in restricted cash | |
| (27 | ) | |
| (32 | ) |
| |
| | | |
| | |
Net cash used by investing activities | |
| (4,790,648 | ) | |
| (16,013 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Preferred dividends paid | |
| (10,632 | ) | |
| (10,632 | ) |
Proceeds from sales of preferrred stock, pursuant to underwritten offering, net | |
| - | | |
| 1,478,712 | |
Proceeds from sales of common stock, pursuant to underwritten offering, net | |
| - | | |
| 1,800,580 | |
Proceeds from sales of common stock, pursuant to exercise of warrants, net | |
| 70,411 | | |
| - | |
Proceeds from sales of common stock, pursuant to exercise of options | |
| 145,274 | | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 205,053 | | |
| 3,268,660 | |
| |
| | | |
| | |
Net increase (decrease) in cash and cash equivalents | |
| (6,343,220 | ) | |
| 1,514,645 | |
Cash and cash equivalents, beginning of period | |
| 7,680,073 | | |
| 2,899,927 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | |
$ | 1,336,853 | | |
$ | 4,414,572 | |
| |
| | | |
| | |
Non-cash investing and financing activities: | |
| | | |
| | |
| |
| | | |
| | |
Reclassification of derivative warrant liability to equity on exercise | |
$ | 17,000 | | |
$ | - | |
Total non-cash investing and financing activities | |
$ | 17,000 | | |
$ | - | |
The accompanying notes are an integral part
of these consolidated financial statements.
IsoRay, Inc.
Notes to
the Consolidated Unaudited Financial Statements
For the three
and six months ended December 31, 2014 and 2013
The accompanying consolidated financial statements
are those of IsoRay, Inc., and its wholly-owned subsidiaries (IsoRay or the Company). All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the prior-year financial statements have been reclassified
to conform to the current year presentation.
In the opinion of
management, the accompanying unaudited interim consolidated financial statements and notes to the interim consolidated financial
statements contain all adjustments, consisting of normal recurring items, necessary to present fairly, in all material respects,
the financial position of IsoRay, Inc. and its wholly-owned subsidiaries. These unaudited interim consolidated financial
statements should be read in conjunction with our audited consolidated financial statements and related footnotes as set forth
in the Company’s annual report filed on Form 10-K for the year ended June 30, 2014, as it may be amended from time to time.
The results of operations
for the periods presented may not be indicative of those which may be expected for a full year. The unaudited consolidated
financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted
accounting principles in the United States (“GAAP”) have been condensed or omitted pursuant to those rules and regulations,
although we believe that the disclosures are adequate for the information not to be misleading.
The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities as of the date of the financial statements, the reported amounts of revenues and expenses during the
reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could differ materially
from those estimates.
2. | | New Accounting
Pronouncements |
In May 2014, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, "Revenue from Contracts with
Customers" (ASU 2014-09), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification
(ASC) Topic 605, "Revenue Recognition". The guidance requires that an entity recognize revenue in a way that depicts
the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects
to be entitled to in exchange for those goods and services. The guidance will be effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period and is to be applied retrospectively, with early
application not permitted. The Company is currently evaluating the new standard and its impact on the Company's consolidated financial
statements.
In August 2014, the
FASB issued ASU No. 2014-15—Presentation of Financial Statements—Going Concern. The guidance requires an entity’s
management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about
the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued
(or within one year after the date that the financial statements are available to be issued when applicable). If conditions or
events exist that raise substantial doubt about an entity’s ability to continue as a going concern, the guidance requires
disclosure in the financial statements. The guidance will be effective for the annual period ending after December 15, 2016, and
for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating the new
standard and its impact on the Company’s consolidated financial statements.
3. | | Certificates of Deposit |
Remaining time | |
Under 90 | | |
91 days to | | |
Six months to | | |
| |
to maturity | |
days | | |
six months | | |
1 year | | |
1 to 3 years | |
Certificates of Deposit1 | |
$ | 5,014,366 | | |
$ | 5,032,932 | | |
$ | - | | |
$ | 10,096,680 | |
1 - Certificate of Deposit Account
Registry Service (CDARS), which is a system method by which the Company may access multi-million-dollar Certificates of Deposit
(CDs) deposits in principal and interest amounts that are fully insured by the Federal Deposit Insurance Corporation (FDIC) with
original maturities that were greater than three months and up to three years at the time of purchase.
Basic earnings per share is calculated by
dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding, and does
not include the impact of any potentially dilutive common stock equivalents. Common stock equivalents, including warrants and
options to purchase the Company's common stock, are excluded from the calculations when their effect is antidilutive. At December
31, 2014 and 2013, the calculation of diluted weighted average shares did not include preferred stock, common stock warrants,
or options that are potentially convertible into common stock as those would be antidilutive due to the Company’s net loss
position.
Securities not considered in the calculation
of diluted weighted average shares are presented on an as converted to common stock basis which could be dilutive in the future
as of December 31, 2014 and 2013, were as follows:
| |
December 31, | |
| |
2014 | | |
2013 | |
Series B preferred stock | |
| 59,065 | | |
| 59,065 | |
Series D preferred stock | |
| - | | |
| 3,121,480 | |
Common stock warrants | |
| 396,574 | | |
| 7,605,771 | |
Common stock options | |
| 2,180,858 | | |
| 2,370,072 | |
Total potential dilutive securities | |
| 2,636,497 | | |
| 13,156,388 | |
Inventory consisted of the following at December
31, 2014 and June 30, 2014:
| |
December 31, | | |
June 30, | |
| |
2014 | | |
2014 | |
Raw materials | |
$ | 191,581 | | |
$ | 173,417 | |
Work in process | |
| 191,229 | | |
| 151,321 | |
Finished goods | |
| 28,610 | | |
| 34,999 | |
Total inventory | |
$ | 411,420 | | |
$ | 359,737 | |
6. | | Share-Based Compensation |
The following table presents the share-based
compensation expense recognized during the three and six months ended December 31, 2014 and 2013:
| |
Three months | | |
Six months | |
| |
ended December 31, | | |
ended December 31, | |
| |
2014 | | |
2013 | | |
2014 | | |
2013 | |
Cost of product sales | |
$ | 7,972 | | |
$ | 4,499 | | |
$ | 15,945 | | |
$ | 8,921 | |
Research and development expenses | |
| 3,117 | | |
| 3,482 | | |
| 6,235 | | |
| 6,965 | |
Sales and marketing expenses | |
| 2,158 | | |
| 879 | | |
| 4,317 | | |
| 1,757 | |
General and administrative expenses | |
| 8,206 | | |
| 4,572 | | |
| 16,410 | | |
| 34,143 | |
Total share-based compensation | |
$ | 21,453 | | |
$ | 13,432 | | |
$ | 42,907 | | |
$ | 51,786 | |
As of December 31, 2014, total unrecognized
compensation expense related to stock-based options was $297,591 and the related weighted-average period over which it is expected
to be recognized is approximately 2.05 years.
The Company currently provides stock-based
compensation under four equity incentive plans approved by the Board of Directors. Options granted under each of the plans have
a ten-year maximum term, an exercise price equal to at least the fair market value of the Company’s common stock on the
date of the grant, and varying vesting periods as determined by the Board. For stock options with graded vesting terms, the Company
recognizes compensation cost on a straight-line basis over the requisite service period for the entire award.
A summary of stock options within the Company’s
share-based compensation plans as of December 31, 2014 was as follows:
| |
| | |
| | |
Weighted | | |
| |
| |
| | |
Weighted | | |
Average | | |
| |
| |
| | |
Average | | |
Remaining | | |
Aggregate | |
| |
Number of | | |
Exercise | | |
Contractual | | |
Intrinsic | |
| |
Options | | |
Price | | |
Term | | |
Value | |
| |
| | |
| | |
| | |
| |
Outstanding at December 31, 2014 | |
| 2,057,620 | | |
$ | 1.98 | | |
| 4.43 | | |
$ | 672,597 | |
Vested and expected to vest at December 31, 2014 | |
| 1,988,995 | | |
$ | 2.00 | | |
| 4.35 | | |
$ | 645,947 | |
Vested and exercisable at December 31, 2014 | |
| 1,821,504 | | |
$ | 1.96 | | |
| 3.83 | | |
$ | 644,927 | |
There were 133,564 options exercised during
the six months ended December 31, 2014 and no options exercised during the six months ended December 31, 2013. The Company’s
current policy is to issue new shares to satisfy option exercises. The intrinsic value of the employee options exercised during
the six months ended December 31, 2014 was $252,308.
There were no stock option awards granted
and 65,000 stock option awards granted during the six months ended December 31, 2014 and 2013, respectively.
There were 84,236 stock option awards forfeited
and no stock option awards forfeited by former employees during the six months ended December 31, 2014 and 2013, respectively.
There were 39,002 stock option awards which
expired and no stock option awards which expired during the six months ended December 31, 2014 and 2013, respectively.
There were 50,000 director stock options issued
to the Chief Executive Officer and Chairman on September 5, 2013 with an exercise price of $0.58 per share which was the closing
price of the Company common stock on the day of issuance. The fair value of the stock options issued on September 5, 2013 using
a Black Scholes model was $25,150 utilizing the closing price on the day of grant of $0.58 per share as the grant and exercise
price, a five- year term, volatility of 132.31% and a discount rate of 1.85%.
There were 15,000 employee stock options issued
to three members of management on September 6, 2013 with an exercise price of $0.59 per share which was the closing price of the
Company common stock on the day of issuance. The fair value of the stock options issued on September 6, 2013 using a Black Scholes
model was $6,906 utilizing the closing price on the day of grant of $0.59 per share as the grant and exercise price, a five year
term, volatility of 132.31% and a discount rate of 1.77%.
7. | | Commitments and Contingencies |
Patent and Know-How Royalty License Agreement
The Company is the holder of an exclusive
license to use certain “know-how” developed by one of the founders of a predecessor to the Company and licensed to
the Company by the Lawrence Family Trust, a Company shareholder. The terms of this license agreement require the payment of a
royalty based on the Net Factory Sales Price, as defined in the agreement, of licensed product sales. Because the licensor’s
patent application was ultimately abandoned, only a 1% “know-how” royalty based on Net Factory Sales Price, as defined
in the agreement, remains applicable. To date, management believes that there have been no product sales incorporating the “know-how”
and therefore no royalty is due pursuant to the terms of the agreement. Management believes that ultimately no royalties should
be paid under this agreement as there is no intent to use this “know-how” in the future.
The licensor of the “know-how”
has disputed management’s contention that it is not using this “know-how”. On September 25, 2007 and again on
October 31, 2007, the Company participated in nonbinding mediation regarding this matter; however, no settlement was reached with
the Lawrence Family Trust. After additional settlement discussions, which ended in April 2008, the parties failed to reach a settlement.
The parties may demand binding arbitration at any time.
| 8. | Fair Value Measurements |
The table below sets forth the Company’s
financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2014 and June 30,
2014, respectively, and the fair value calculation input hierarchy level the Company has determined applies to each asset and
liability category.
| |
Balance at | | |
Balance at | | |
Input |
Description | |
December 31, 2014 | | |
June 30, 2014 | | |
Hierarchy Level |
Assets: | |
| | | |
| | | |
|
Cash and cash equivalents | |
$ | 1,336,853 | | |
$ | 7,680,073 | | |
Level 1 |
Restricted cash | |
| 181,235 | | |
| 181,208 | | |
Level 1 |
| |
| | | |
| | | |
|
Liabilities: | |
| | | |
| | | |
|
Warrant derivative liability | |
$ | 209,000 | | |
$ | 573,000 | | |
Level 2 |
On December 17, 2014, the Board of Directors declared a dividend
on the Series B Preferred Stock of all currently payable and accrued outstanding and cumulative dividends through December 31,
2014 in the amount of $10,632. Dividends on the Series B Preferred Stock were last declared by the Board of Directors on December
19, 2013 in the amount of $10,632. The dividends outstanding and cumulative through December 31, 2014 of $10,632 and through December
31, 2013 of $10,632 were paid as of those dates.
Common and preferred stock transactions
On August 29, 2013, the Company entered into
an agreement to sell 3,800,985 common units, each consisting of 1 share of common stock and a warrant to purchase 0.816 shares
of common stock (the Common Units), and 1,670 preferred units, each consisting of 1 share of Series D Convertible Preferred Stock
and a warrant to purchase 1,525.23 shares of common stock (the Preferred Units) on a firm commitment underwritten basis. The Common
Units were sold at an initial per unit purchase price of $0.535 and the Preferred Units were sold at an initial per unit purchase
price of $1,000. The warrants were all exercisable at $0.72 per share and had a twenty-four month term. Each share of the Series
D Convertible Preferred Stock was convertible into 1,869.15 shares of common stock at any time at the option of the holder, subject
to adjustment. The Series D Preferred Shares which were convertible into shares of common stock contain a beneficial conversion
feature of $726,378 which was recognized as a deemed dividend to the Series D preferred shareholders on the date of issuance.
This public offering resulted in gross proceeds of $3.7 million. The offering yielded approximately $3,279,292 in cash after expenses.
Gross proceeds from public offering | |
$ | 3,703,527 | |
Underwriting discount | |
| (185,176 | ) |
Legal and accounting expense | |
| (184,514 | ) |
Listing expense | |
| (48,500 | ) |
Other expense | |
| (6,045 | ) |
Net proceeds | |
$ | 3,279,292 | |
Warrant liability and related offering
cost deferral
Based on the guidance contained in ASC 815
“Derivatives and Hedging”, management has concluded that the warrants issued in the October 13, 2011 underwritten
registered offering of 2,500,000 shares of common stock should be classified as a derivative liability and has recorded a liability
at fair value. The Company determined the fair value of the warrants using the Black-Scholes fair value model. The Company determined
the fair value of the warrants on the date of the offering to be as disclosed in the tables below. The Company has recognized
a change in fair value as described in the table below:
Change in fair value of the derivative warrant
liability for the three months ended December 31, 2014 and 2013, respectively.
| |
Three months ended | | |
Three months ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
Change in fair value | |
$ | (41,000 | ) | |
$ | (117,000 | ) |
Purchaser warrants and underwriter warrants
issued in October 2011 and December 2011:
| |
Three months ended | | |
Three months ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
Quantity1 | | |
Amount | | |
Quantity1 | | |
Amount | |
Balance, beginning of period | |
| 229,861 | | |
$ | 250,000 | | |
| 713,601 | | |
$ | 140,000 | |
Change in fair value | |
| | | |
| (41,000 | ) | |
| | | |
| (117,000 | ) |
Balance, end of period | |
| 229,861 | | |
$ | 209,000 | | |
| 713,601 | | |
$ | 23,000 | |
Change in fair value of the derivative warrant
liability for the six months ended December 31, 2014 and 2013, respectively.
| |
Six months ended | | |
Six months ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
Change in fair value | |
$ | (347,000 | ) | |
$ | (81,000 | ) |
Purchaser warrants and underwriter warrants
issued in October 2011 and December 2011:
| |
Six months ended | | |
Six months ended | |
| |
December 31, 2014 | | |
December 31, 2013 | |
| |
Quantity1 | | |
Amount | | |
Quantity1 | | |
Amount | |
Balance, beginning of period | |
| 238,296 | | |
$ | 573,000 | | |
| 713,601 | | |
$ | 104,000 | |
Change in fair value | |
| | | |
| (347,000 | ) | |
| | | |
| (81,000 | ) |
Warrants exercised | |
| (8,435 | ) | |
| (17,000 | ) | |
| - | | |
| - | |
Balance, end of period | |
| 229,861 | | |
$ | 209,000 | | |
| 713,601 | | |
$ | 23,000 | |
1 The quantity of warrants either
exercised or outstanding as of the date of valuation.
Warrants
The following table summarizes the warrants
outstanding as of the beginning of the fiscal year, warrants exercised and warrants issued during the period and weighted average
prices for each category.
| |
| | |
Weighted average | |
| |
Warrants | | |
exercise price | |
Outstanding as of June 30, 2014 | |
| 444,747 | | |
$ | 1.43 | |
Warrants exercised | |
| (48,173 | ) | |
| 1.45 | |
Outstanding as of December 31, 2014 | |
| 396,574 | | |
$ | 1.22 | |
Warrants outstanding as of December 31,
2014
Quantity | | |
Expiration date | |
Exercise price1 | |
| 6,000 | | |
June 8, 2015 | |
$ | 1.18 | |
| 25,000 | | |
July 27, 2015 | |
| 2.00 | |
| 130,713 | | |
November 21, 2015 | |
| 1.56 | |
| 204,211 | | |
October 19, 2016 | |
| 0.94 | |
| 25,650 | | |
December 7, 2016 | |
| 0.94 | |
| 5,000 | | |
June 27, 2017 | |
| 0.98 | |
| 396,574 | | |
| |
$ | 1.22 | |
1 – Amounts are rounded to
the nearest whole cent
| 11. | Related Party Transaction |
During the six months ended December 31, 2014
and 2013, the Company continued to engage the services of APEX Data Systems, Inc., owned by Dwight Babcock, the Company’s
Chairman and Chief Executive Officer, to modify and maintain the Company’s web interfaced data collection application to
aggregate patient data in a controlled environment. The Audit Committee and Board of Directors approved the use of the ongoing
services of APEX Data Systems. Mr. Babcock recused himself from the Board vote due to his conflict of interest. The cost recorded
during the six months ended December 31, 2014 and 2013 from APEX Data Systems, Inc. for the maintenance of the web interfaced
data collection application was $6,000 and $9,720. An additional $6,000 was spent on the implementation and maintenance of Customer
Relationship Management software during the six months ended December 31, 2014 and 2013, respectively.
ITEM 2 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Caution Regarding Forward-Looking Information
In addition to historical information,
this Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation
Reform Act of 1995 (PSLRA). This statement is included for the express purpose of availing IsoRay, Inc. of the protections of
the safe harbor provisions of the PSLRA.
All statements contained in this Form 10-Q,
other than statements of historical facts, that address future activities, events or developments are forward-looking statements,
including, but not limited to, statements containing the words "believe," "expect," "anticipate,"
"intends," "estimate," "forecast," "project," and similar expressions. All statements
other than statements of historical fact are statements that could be deemed forward-looking statements, including any statements
of the plans, strategies and objectives of management for future operations; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future economic conditions or performance; any statements
of belief; and any statements of assumptions underlying any of the foregoing. These statements are based on certain assumptions
and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will
conform to the expectations and predictions of management is subject to a number of risks and uncertainties described under “Risk
Factors” under Part II, Item 1A below and in the “Risk Factors” section of our Form 10-K for the fiscal year
ended June 30, 2014 that may cause actual results to differ materially.
Consequently, all of the forward-looking
statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results
anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to
or effects on our business operations. Readers are cautioned not to place undue reliance on such forward-looking statements as
they speak only of the Company's views as of the date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Critical Accounting Policies and Estimates
The discussion and
analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates
past judgments and estimates, including those related to bad debts, inventories, accrued liabilities, and contingencies. Management
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting
policies and related risks described in the Company’s annual report on Form 10-K as filed with the Securities and Exchange
Commission on September 29, 2014 are those that depend most heavily on these judgments and estimates. As of December 31,
2014, there had been no material changes to any of the critical accounting policies contained therein.
Cash Management
Company
management has determined the appropriate amount of cash that is to be maintained for operational use and has determined that
the remainder should be invested in certificates of deposit with varying maturities up to three years in order to balance return
and risk. At December 31, 2014, the Company had $1.34 million of operating cash on hand, $10.05 million of cash invested in certificates
of deposit which mature within the current operating cycle and $10.1 million of cash invested in certificates of deposit which
mature beyond the current operating cycle. Cash and cash equivalents and the cash invested in certificates of deposit totaled
approximately $21.5 million at December 31, 2014.
Results of Operations
Three months ended December 31, 2014 compared
to three months ended December 31, 2013.
Revenues.
During the three months ended December 31, 2014, total revenue decreased from the three months ended December 31, 2013.
Prostate revenue generated by the
top five customers continues to make up a significant portion of the total revenue. These customers increased their overall contribution
to 62% of total revenue during the three months ended December 31, 2014 compared to 52% of total revenue during the three months
ended December 31, 2013. Revenue created by the top 15 customers remains materially unchanged in the three months ended December
31, 2014 when compared to the three months ended December 31, 2013. The application of seed brachytherapy to non-prostate body
sites increased approximately 13% during the three months ended December 31, 2014 when compared to the three months ended December
31, 2013 but continues to represent the same proportion of total revenue in each three month period. GliaSite®
Radiation Therapy System (GliaSite® RTS) revenue, which decreased by approximately 30%, was significantly impacted
by the reduction in the purchasing volume of a distributor and partially offset by purchases made by new customers purchasing
an inventory of catheters required for these new customers to be positioned to treat cases using the GliaSite®
RTS.
Seed brachytherapy treatments classified
as Product Sales (Other) when combined with the revenue generated by the GliaSite® RTS product line represent more
developmental applications of our product which may not lead to either a long-term revenue source or a significant product line
and therefore revenue fluctuation in this segment is expected to be subject to more significant variation from quarter to quarter.
Company management is actively pursuing alternative uses for the Company’s brachytherapy seeds in treatments consistent
with the FDA clearance granted permitting the Company to utilize other FDA cleared application methods as a means of administering
the treatments. New treatments such as those being initiated by the Company can be expected to experience a staged entry to market
in which primary adopters demonstrate the suitability of a treatment, after which wider adoption is possible. The products being
implemented by the Company are very dependent on first adopters as a source of revenue to partially offset some of the developmental
cost, and there is initially a significant change in revenue period over period that will reach a plateau due to treatment capacity
and quantity of cases available to the first adopters until the mainstream adoption occurs, when and if there is favorable publication
of the experiences and treatment outcomes of the first adopters. However, to date the Company has only experienced minimal sales
to first adopters.
Management believes that the overall
market for prostate brachytherapy has continued to receive increased pressure from other treatment options with higher reimbursement
rates such as intensity modulated radiation therapy (IMRT) and robotics but management believes that combining treatments incorporating
brachytherapy with other modalities in the prostate, the addition of new treatment facilities, and treatment of other body sites
with brachytherapy have the potential to continue to increase revenue.
During the three months ended December
31, 2014 and 2013, respectively, all product sales were generated by the brachytherapy seeds and the related methods of application
except for the revenue generated by the sales of GliaSite® RTS which include the sale of the Cesitrex®
solution, Iotrex® solution, catheter trays and access trays. The conversion of prospects to new GliaSite®
RTS customers has been a longer process than originally anticipated by the Company. The Company has experienced lengthy
timelines in the internal processes of the medical facilities in reviewing and approving the use of the product at the request
of their physician(s). These longer than anticipated internal processes are compounded by uncertain timelines and delays in receiving
the approval for the requested modification of each facility's nuclear materials license, which is required to begin using GliaSite®
RTS and is dependent on external government regulators.
Key operating factors
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Product Sales (Prostate) | |
$ | 916,694 | | |
$ | 936,806 | | |
$ | (20,112 | ) | |
| (2 | )% |
Product Sales (Other) | |
| 148,891 | | |
| 148,602 | | |
| 289 | | |
| 0 | % |
Total product sales | |
$ | 1,065,585 | | |
$ | 1,085,408 | | |
$ | (19,823 | ) | |
| (2 | )% |
Cost of product sales.
Cost of product sales nominally
decreased during the three months ended December 31, 2014 compared to the three months ended December 31, 2013.
Cost of product sales related to
brachytherapy seed production increased by one percent during the three months ended December 31, 2014 when compared to the three
months ended December 31, 2014. No summary line item within cost of product sales changed by greater than one percent
as a percentage of total cost of product sales during the three months ended December 31, 2014 when compared to the three months
ended December 31, 2013, except depreciation and amortization expense which decreased by four percent as fixed assets
continue to reach the end of their depreciable lives. Cost of product sales related to GliaSite® RTS decreased
by 72% during the three months ended December 31, 2014 when compared to the three months ended December 31, 2013 primarily as
the result of recovering a portion of the minimum royalty payment due on a licensing agreement and the lack of an inventory impairment
during the three months ended December 31, 2014 compared to the three months ended December 31, 2014.
Key operating factors
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Depreciation and amortization | |
| 131,585 | | |
| 169,054 | | |
| (37,469 | ) | |
| (22 | )% |
Other cost of product sales (Seeds) | |
| 961,254 | | |
| 912,078 | | |
| 49,176 | | |
| 5 | % |
GliaSite®
RTS | |
| 10,710 | | |
| 38,182 | | |
| (27,472 | ) | |
| (72 | )% |
Total cost of product sales | |
$ | 1,103,549 | | |
$ | 1,119,314 | | |
$ | (15,765 | ) | |
| (1 | )% |
Gross loss. Gross
loss for the three months ended December 31, 2014 increased compared to the three month period ended December 31, 2013 as a result
of decreased revenue from product sales partially offset by decreased cost of product sales.
Key operating factor
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Gross loss | |
$ | (37,964 | ) | |
$ | (33,906 | ) | |
$ | (4,058 | ) | |
| 12 | % |
| |
| | | |
| | | |
| | | |
| | |
Gross loss percentage | |
| (4 | )% | |
| (3 | )% | |
| | | |
| | |
Research and development. Research
and development costs decreased during the three months ended December 31, 2014 compared to the three months ended December 31,
2013. The single category which changed significantly was protocol expense. The Company continues to invest in aggregating data
regarding the performance of its products. During the three months ended December 31, 2014, the Company did not incur a one-time
payment for initiating a protocol which it did incur during the three months ended December 31, 2013.
Key operating factors
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Protocol expense | |
$ | 28,084 | | |
$ | 53,792 | | |
$ | (25,708 | ) | |
| (48 | )% |
Other research-development expense | |
| 112,543 | | |
| 116,238 | | |
| (3,695 | ) | |
| (3 | )% |
Total research and development | |
$ | 140,627 | | |
$ | 170,030 | | |
$ | (29,403 | ) | |
| (17 | )% |
Sales and marketing expenses.
Sales and marketing expenses were reduced during the three months ended December 31, 2014
compared to the three months ended December 31, 2013. The single category which changed nominally was payroll, taxes, benefits
and share-based compensation expense, primarily as a function of the Company having fewer sales personnel during the three months
ended December 31, 2014 when compared to the three months ended December 31, 2013.
Key operating factors
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Payroll, taxes, benefits and | |
| | | |
| | | |
| | | |
| | |
share-based compensation | |
$ | 198,430 | | |
$ | 215,079 | | |
$ | (16,649 | ) | |
| (8 | )% |
Other sales and marketing expense | |
| 105,353 | | |
| 111,388 | | |
| (6,035 | ) | |
| (5 | )% |
Total sales and marketing | |
$ | 303,783 | | |
$ | 326,467 | | |
$ | (22,684 | ) | |
| (7 | )% |
General
and administrative expenses. General and administrative expenses increased in the three months ended December 31, 2014
compared to the three months ended December 31, 2013. The
single operating factor that changed materially was public company expense, which was partially offset by a combination of nominal
changes in other cost categories. This increase in estimate of allowance for doubtful accounts resulted in an unusually
large expense being recognized in the statement of operations during the three months ended December 31, 2014. Public company
expense was reduced during the three months ended December 31, 2014, as the Company had two independent directors compared to
three independent directors during the three months ended December 31, 2013, and had reduced costs related to investor relations
and SEC filing fees.
Key operating factors
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Public company expense | |
| 46,380 | | |
| 69,273 | | |
| (22,893 | ) | |
| (33 | )% |
General and administrative (Other) | |
| 491,560 | | |
| 444,691 | | |
| 46,869 | | |
| 11 | % |
Total general and administrative | |
$ | 537,940 | | |
$ | 513,964 | | |
$ | 23,976 | | |
| 5 | % |
Operating
loss. Operating loss for the three months ended December 31, 2014 increased compared to the three months ended December
31, 2013 primarily as the result of the decrease in product sales coupled with an increase in operating expenses which were partially
reduced by a decrease in cost of product sales.
Key operating factor
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Operating loss | |
$ | (1,069,874 | ) | |
$ | (1,044,367 | ) | |
$ | (25,507 | ) | |
| 2 | % |
Interest income. Interest
income increased during the three months ended December 31, 2014 when compared to the three months ended December 31, 2013 as
the result of the investment of excess cash in laddered certificates of deposit in amounts that are fully FDIC insured.
Key operating factor
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Interest income | |
$ | 72,360 | | |
$ | 481 | | |
$ | 71,879 | | |
| 14,944 | % |
Change in fair value of warrant
liability. During the three months ended December 31, 2011, there was a warrant derivative liability established upon issuance
of warrants during 2011 to purchasers in the Company’s registered offering. The warrant liability
requires periodic evaluation for changes in fair value. As required at December 31, 2014 and December 31, 2013, the Company evaluated
the fair value of the warrant derivative liability using the Black-Scholes option pricing model and applied updated inputs as
of those dates. The resulting change in fair value was recorded as of December 31, 2014 and December 31, 2013.
Key operating factor
| |
Three months | | |
Three months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Change in fair value of warrant liability | |
$ | 41,000 | | |
$ | 117,000 | | |
$ | (76,000 | ) | |
| (65 | )% |
Six months ended December 31, 2014 compared
to six months ended December 31, 2013.
Revenues.
Revenue decreased by a nominal amount during the six months ended December 31, 2014 when compared to the six months
ended December 31, 2013. The overall decrease in revenue was the direct result of the decrease in revenue from product sales –
other during the six months ended December 31, 2014 when compared to the six months ended December 31, 2013. Revenue generated
by prostate brachytherapy experienced a nominal increase while the industry continued to experience a decrease as a whole. The
revenue increase is primarily the result of increased purchases by the five highest volume users during the six months ended December
31, 2014 when compared with the six months ended December 31, 2013. This increase in the five highest volume users increased their
percentage of the total revenue from 57% to 59% during the six months ended December 31, 2014 and 2013, respectively.
Product sales - other include the
revenue generated from the sale of brachytherapy seeds for non-prostate applications including the treatment of brain, lung, head
and neck and other cancers as well as the revenue from the sale of the GliaSite® RTS. Product sales - other decreased
during the six months ended December 31, 2014 when compared with the six months ended December 31, 2013. The decrease in the revenue
from product sales - other is due to decreased sales of the GliaSite® RTS. Revenues for the non-prostate applications
of the Company’s brachytherapy seeds decreased by an insignificant amount during the six months ended December 31, 2014
when compared with the six months ended December 31, 2013. The decrease in revenue from the sale of the GliaSite®
RTS came from the decrease in revenue generated from sales to foreign distributors during the six months ended December 31, 2014
when compared with the six months ended December 31, 2013. Revenues from domestic sales remained unchanged. Company management
is actively pursuing alternative uses for the Company’s brachytherapy seeds in treatments consistent with the FDA clearance
granted permitting the Company to utilize other FDA cleared application methods as a means of administering the treatments as
previously identified and management continues to due diligence new applications in coordination with physicians.
Management believes that the overall
market for prostate brachytherapy has continued to receive increased pressure from other treatment options with higher reimbursement
rates such as IMRT and robotics but that combination treatments incorporating brachytherapy with other modalities in the prostate
and treatment of other body sites with brachytherapy have the potential to continue to increase.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Product Sales (Prostate) | |
$ | 1,832,321 | | |
$ | 1,789,559 | | |
$ | 42,762 | | |
| 2 | % |
Product Sales (Other) | |
| 275,365 | | |
| 345,764 | | |
| (70,399 | ) | |
| (20 | )% |
Total product sales | |
$ | 2,107,686 | | |
$ | 2,135,323 | | |
$ | (27,637 | ) | |
| (1 | )% |
Cost of product sales. Cost
of product sales related to brachytherapy seed sales decreased by a nominal amount during the six months ended December 31, 2014
compared to the six months ended December 31, 2013 as the result of a combination of individually nominal cost increases which
are described as other cost of product sales (seeds) and an increase in pre-loading expense, which were partially offset by the
decrease in depreciation and amortization expense. The increase in pre-loading expense was the result of being required to use
a third-party loader for a specific customer until such time as it is cost effective to proceed through the 510(k) process to
be able to load seeds with the C4 markers in our own facility, combined with the increase in the cost of certain materials such
as needles and stranding materials, an increase in repairs and maintenance to equipment and an increased cost of product testing
in the sterilization process. Depreciation and amortization expense decreased as equipment continues to reach the end of its depreciable
lives without requiring replacement. Cost of product sales related to GliaSite® RTS decreased as a function of
the decreased volume of revenue.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Depreciation and amortization expense | |
$ | 297,964 | | |
$ | 341,369 | | |
$ | (43,405 | ) | |
| (13 | )% |
Pre-loading expense | |
| 173,312 | | |
| 138,316 | | |
| 34,996 | | |
| 25 | % |
GliaSite® RTS | |
| 22,614 | | |
| 81,071 | | |
| (58,457 | ) | |
| (72 | )% |
Other cost of product sales (Seeds) | |
| 1,706,562 | | |
| 1,685,781 | | |
| 20,781 | | |
| 1 | % |
Total cost of product sales | |
$ | 2,200,452 | | |
$ | 2,246,537 | | |
$ | (46,085 | ) | |
| (2 | )% |
Gross loss. Gross
loss for the six month period ended December 31, 2014 decreased compared to the six month period ended December 31, 2013 primarily
as a result of the decreased product sales offset by a greater reduction in cost of product sales.
Key operating factor
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Gross loss | |
$ | (92,766 | ) | |
$ | (111,214 | ) | |
$ | 18,448 | | |
| (17 | )% |
| |
| | | |
| | | |
| | | |
| | |
Gross loss percentage | |
| (4 | )% | |
| (5 | )% | |
| | | |
| | |
Research
and development. Research and development costs increased by a nominal amount in the six months ended December 31,
2014 compared to the six months ended December 31, 2013. Two
operating factors changed in research and development expense which net to an insignificant change overall. Protocol expense decreased
during the six months ended December 31, 2014, as the Company did not incur a one-time payment initiating a protocol which it
did incur during the six months ended December 31, 2013. Legal expense related to intellectual property increased during the six
months ended December 31, 2014 when compared to the six months ended December 31, 2013.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Protocol expense | |
$ | 58,888 | | |
$ | 87,613 | | |
$ | (28,725 | ) | |
| (33 | )% |
Legal expense | |
| 33,057 | | |
| 1,032 | | |
| 32,025 | | |
| 3,103 | % |
Research and development (Other) | |
| 225,292 | | |
| 228,375 | | |
| (3,083 | ) | |
| (1 | )% |
Total research and development | |
$ | 317,237 | | |
$ | 317,020 | | |
$ | 217 | | |
| 0 | % |
Sales
and marketing expenses. Sales and marketing expenses decreased during the
six months ended December 31, 2014 compared to the six months ended December 31, 2013. Payroll, benefits and share-based compensation
increased partially as a function of a decreased number of sales employees in the field and also as a function of decreased auto
allowance expense as the Company transitioned to primarily a mileage reimbursement model. Travel expense increased as the result
of the Company transitioning to a mileage reimbursement model from an auto allowance model of reimbursement which was approximately
cost neutral without factoring in payroll tax savings. Tradeshows and convention expense increased primarily as the result of
increased attendance at society meetings, conventions and tradeshows as the Company works to develop additional revenue sources.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Travel expense | |
$ | 121,821 | | |
$ | 113,627 | | |
$ | 8,194 | | |
| 7 | % |
Payroll, benefits and share-based compensation | |
| 421,254 | | |
| 452,137 | | |
| (30,883 | ) | |
| (7 | )% |
Convention and tradeshow expense | |
| 58,638 | | |
| 46,492 | | |
| 12,146 | | |
| 26 | % |
Sales and marketing (Other) | |
| 55,813 | | |
| 73,396 | | |
| (17,583 | ) | |
| (24 | )% |
Total sales and marketing | |
$ | 657,526 | | |
$ | 685,652 | | |
$ | (28,126 | ) | |
| (4 | )% |
General
and administrative expenses. General
and administrative expenses decreased nominally in the six months ended December 31, 2014 compared to the six months ended December
31, 2013 primarily as a result of three operating factors. As of December 31, 2014, there was a significant increase in the amounts
classified by management for inclusion in the allowance for doubtful accounts when compared to the balance as of June 30, 2014.
This increase in estimate of allowance for doubtful accounts resulted in an unusually large expense being recognized in the statement
of operations during the six months ended December 31, 2014. Public company expense was reduced during the six months ended December
31, 2014, as the Company had two independent directors compared to three independent directors during the six months ended December
31, 2013, along with reduced costs related to investor relations which were partially offset by increased SEC filing fees related
to the registration statement for the Employee Stock Option Plan approved by the shareholders at the fiscal year 2014 annual shareholder
meeting. Payroll, benefits and share-based compensation expense decreased partially as the
result of no option grants being made in the six months ended December 31, 2014 compared to the six months ended December 31,
2013 during which options were granted to purchase 65,000 shares of common stock, of which 50,000 were immediately vested and
the full expense recognized in that period. The remaining 15,000 options were subject to a 3-year vesting schedule and the expense
will be recognized proportionally throughout the vesting period. The additional savings were the result of a favorable renewal
of the Company’s medical insurance coverage which reduced both the employee and employer cost of coverage prior to the complete
implementation of the Affordable Care Act in combination with certain employees retiring, and employees or their dependents gaining
coverage elsewhere.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Payroll, taxes, benefits and share-based compensation | |
| 526,626 | | |
| 569,526 | | |
| (42,900 | ) | |
| (8 | )% |
Public company expense | |
| 107,181 | | |
| 140,854 | | |
| (33,673 | ) | |
| (24 | )% |
General and administrative (Other) | |
| 488,692 | | |
| 474,603 | | |
| 25,464 | | |
| 6 | % |
Total general and administrative | |
$ | 1,113,891 | | |
$ | 1,165,000 | | |
$ | (51,109 | ) | |
| (4 | )% |
Operating
loss. Operating loss for the six months ended December 31, 2014 decreased compared to the six months ended December
31, 2013 primarily as a result of a decrease in the cost of product sales which exceeded the decreased revenue and the overall
decrease in operating expenses which was primarily from the decreases associated with sales and marketing.
Key operating factor
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Operating loss | |
$ | (2,181,420 | ) | |
$ | (2,278,886 | ) | |
$ | 97,466 | | |
| (4 | )% |
Interest income. Interest
income increased during the six months ended December 31, 2014 when compared to the six months ended December 31, 2013 as the
result of the investment of excess cash in laddered certificates of deposit in amounts that are fully insured by the FDIC.
Key operating factor
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Interest income | |
$ | 145,055 | | |
$ | 835 | | |
$ | 144,220 | | |
| 17,272 | % |
Change in fair value of warrant
liability. During the three months ended December 31, 2011, there were warrant liabilities established upon issuance of warrants
to the purchasers and underwriters in the Company’s registered offering during 2011. Per ASC 820,
the warrant liability requires periodic evaluation for changes in fair value. As required at December 31, 2014 and December 31,
2013, the Company evaluated the fair value of the warrant liability using the Black-Scholes option pricing model on which the
original warrant liability was based and applied updated inputs as of those dates. The resulting change in fair value was recorded
as of December 31, 2014 and December 31, 2013.
Key operating factor
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Change in fair value of warrant liability | |
$ | 347,000 | | |
$ | 81,000 | | |
$ | 266,000 | | |
| 328 | % |
Liquidity
and capital resources. The Company has historically financed its operations through cash investments from shareholders.
During the six months ended December 31, 2014 and December 31, 2013, the Company primarily used existing cash reserves to fund
its operations and capital expenditures.
Cash flows from operating activities
The net loss was adjusted by a net decrease
in the non-cash items and a net increase in non-cash changes in operating assets and liabilities, which resulted in an overall
increase in net cash used by operating activities for the six months ended December 31, 2014 when compared to the six months ended
December 31, 2013. The decreased net loss during the six months ended December 31, 2014 when compared to the six months ended
December 31, 2013 was primarily the result of the non-cash change in fair value of derivative warrant liabilities. The change
in the fair value of the warrant liability is a model driven item contained in the statement of operations which is primarily
impacted by the market price of the stock, the volatility of the market price and the remaining life of the warrant derivative
liability. Cash used by operating activities adjusted for the change in the fair value of the derivative warrant liability increased
during the six months ended December 31, 2014 compared to the six months ended December 31, 2013. The items that created the increased
use of cash in operating activities were the changes in gross accounts receivable, accounts payable and accrued expenses and accrued
payroll and related taxes during the six months ended December 31, 2014 compared to the six months ended December 31, 2013.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Net loss | |
$ | (1,742,375 | ) | |
$ | (2,197,878 | ) | |
$ | 455,503 | | |
| (21 | )% |
Non-cash items | |
| 97,209 | | |
| 351,632 | | |
| (254,423 | ) | |
| (72 | )% |
Non-cash changes in operating assets and
liabilities | |
| (112,459 | ) | |
| 108,244 | | |
| (220,703 | ) | |
| (204 | )% |
Net cash used by operating activities | |
$ | (1,757,625 | ) | |
$ | (1,738,002 | ) | |
$ | (19,623 | ) | |
| 1 | % |
Cash flows from investing activities
Cash used by investing activities during the
six months ended December 31, 2014 was primarily related to the addition of capitalized equipment, purchases of certificates of
deposit and purchases of certificates of deposit – non-current and was partially reduced by the proceeds from the maturity
of certificates of deposit. During the six months ended December 31, 2013, cash used by investing activities was primarily related
to the addition of capitalized equipment. The amounts recorded as change in restricted cash in both periods are the accrual of
interest earned on certificates of deposit with two financial institutions that are a requirement of the Washington State Department
of Health.
Key operating factors
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Purchases of fixed assets | |
$ | (48,657 | ) | |
$ | (14,419 | ) | |
$ | (34,238 | ) | |
| 237 | % |
Additions to licenses and other assets | |
| (2,296 | ) | |
| (1,562 | ) | |
| (734 | ) | |
| 47 | % |
Proceeds from the maturity of certificates of deposit | |
| 5,013,694 | | |
| - | | |
| 5,103,694 | | |
| (100 | )% |
Purchases of certificates of deposit | |
| (5,058,080 | ) | |
| - | | |
| (5,058,080 | ) | |
| 100 | % |
Purchases of certificates of Deposit – non-current | |
| (4,695,282 | ) | |
| - | | |
| (4,695,282 | ) | |
| 100 | % |
Change in restricted cash | |
| (27 | ) | |
| (32 | ) | |
| 5 | | |
| (16 | )% |
Net cash used by investing activities | |
$ | (4,790,648 | ) | |
$ | (16,013 | ) | |
$ | (4,774,635 | ) | |
| 29,817 | % |
Cash flows from financing activities
Cash provided by financing activities in the
six months ended December 31, 2014 was provided by proceeds from the exercise of warrants and the exercise of employee stock options.
During the six months ended December 31, 2013, cash provided by financing activities was the result of the sales of common stock
through registered direct and underwritten offerings. Cash used during the six months ended December 31, 2014 and 2013 was the
result of dividend payments to the Series B preferred shareholders.
Key operating factor
| |
Six months | | |
Six months | | |
| | |
| |
Description | |
ended 12-31-14 | | |
ended 12-31-13 | | |
Variance ($) | | |
Variance (%) | |
Preferred dividend payments | |
$ | (10,632 | ) | |
$ | (10,632 | ) | |
$ | - | | |
| - | % |
Proceeds from sale of preferred stock pursuant to underwritten offering, net | |
| - | | |
| 1,478,712 | | |
| (1,478,712 | ) | |
| (100 | )% |
Proceeds from sale of common stock pursuant to underwritten offering, net | |
| - | | |
| 1,800,580 | | |
| (1,800,580 | ) | |
| (100 | )% |
Proceeds from sale of common stock pursuant to exercise of warrants | |
| 70,411 | | |
| - | | |
| 70,411 | | |
| 100 | % |
Proceeds from sale of common stock pursuant to exercises of options | |
| 145,274 | | |
| | | |
| 145,274 | | |
| 100 | % |
Net cash provided by financing activities | |
$ | 205,053 | | |
$ | 3,268,660 | | |
$ | (3,063,607 | ) | |
| (94 | )% |
Projected Fiscal Year 2015 Liquidity and
Capital Resources
At December 31, 2014, the Company held cash
and cash equivalents of $1,336,852 as compared to $7,680,073 of cash and cash equivalents at June 30, 2014.
The Company had approximately $1.06 million
of cash and cash equivalents as of January 23, 2015, and had certificates of deposit in the amount of $5.02 million as of December
31, 2014 which will continue to earn interest from January 1, 2015 until maturity on March 19, 2015. There are additional certificates
of deposit of $5.03M as of December 31, 2014 which will continue to earn interest from January 1, 2015 to maturity on June 18,
2015. The Company had approximately $10.1 million in certificates of deposit, non-current as of December 31, 2014. The investment
of excess cash is classified on the balance sheet as certificates of deposit and certificates of deposit, non-current which are
fully insured by the FDIC.
The Company’s monthly required cash
operating expenditures were approximately $294,000 in the six months ended December 31, 2014, which represents a 1% increase or
approximately $4,000 from average monthly cash operating expenditures of $290,000 in the six months ended December 31, 2013. Management
believes that there will not be a significant requirement for capital equipment with the exception of the production of liquid
Cesium-131 for use in the GliaSite® RTS which is expected to be less than $50,000, however, there is no assurance
that unanticipated needs for capital equipment may not arise for other needs.
Management intends to continue its existing
protocol studies and to begin new protocol studies on lung and inter-cranial cancer treatments using Cesium-131 brachytherapy
seeds and the GliaSite® RTS. The Company continues to believe that approximately $180,000 in expense will be incurred
during fiscal year 2015 related to protocol expenses relating to lung cancer, intra-cranial cancer and both dual therapy and mono-therapy
prostate cancer protocols but there is no assurance that unanticipated needs for additional protocols in support of the development
of new applications of our existing products may not arise.
Based on the foregoing assumptions, management
believes that the cash and cash equivalents of approximately $1.06 million as of January 23, 2015, certificates of deposit in
the amount of $5.02 million that mature on March 19, 2015 and $5.03 million that mature on June 18, 2015, and certificates of
deposit, non-current of $10.1 million at December 31, 2014 will be sufficient to meet our anticipated cash needs, assuming both
revenue and expenses remain at current levels, for at least the next five years.
Management plans to attain breakeven and generate
additional cash flows by increasing revenues from both new and existing customers (through our direct sales channels and through
our distributors), increasing sales of the Company’s GliaSite® RTS, expanding into other market applications
which initially will include inter-cranial, head and neck, and lung implants, while maintaining the Company's focus on cost control.
However, there can be no assurance that the Company will attain profitability or that the Company will be able to attain increases
in its revenue. Sales in the prostate market have not shown the increases necessary to breakeven during the past seven fiscal
years.
For the six months ended December 31, 2014,
revenue from other treatment modalities with brachytherapy seeds has decreased by 1% when compared to the six months ended December
31, 2013. When including the revenue from the sale of GliaSite® RTS, revenue from non-prostate treatments has decreased
20% in the six months ended December 31, 2014 compared to the six months ended December 31, 2013. These non-prostate brachytherapy
treatments are in the early stages of application in the clinical setting and the purchasing patterns are subject to the influence
of a few key physicians which can significantly influence revenue from quarter to quarter. Management is focused on increasing
revenue from head and neck, colorectal, lung and brain applications of Cesium-131 brachytherapy seeds in addition to increasing
the number of cases treated with the GliaSite® RTS. Management has not been successful in doing so during the six
months ended December 31, 2014 when compared to the six months ended December 31, 2013. Management believes that the Company has
sufficient cash and cash equivalents to sustain protocols, marketing staff, production staff and production equipment as it works
to make these new applications successful.
There was no material change in the use of
proceeds from our public offerings as described in our final prospectus supplements filed with the SEC pursuant to Rule 424(b)
on August 29, 2013 and March 24, 2014. Through December 31, 2014, the Company had used the net proceeds raised through the August
2013 and March 2014 offerings as described in the table below and held the remaining net proceeds in cash and cash equivalents
and certificates of deposit. No offering expenses were paid directly or indirectly to any of our directors or officers (or their
associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
Offering description | |
Period | | |
Net proceeds | | |
Remaining net proceeds | |
Underwritten offering | |
August 2013 | | |
$ | 3,279,292 | | |
$ | 1,155,989 | |
Registered direct offering | |
March 2014 | | |
| 13,814,742 | | |
| 13,814,742 | |
Total | |
| | | |
| 17,094,034 | | |
| 14,970,731 | |
The Company expects to finance its future
cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive
to existing shareholders Management anticipates that if it raises additional financing that it will be at a discount to the market
price and it will be dilutive to shareholders.
Other Commitments and Contingencies
The Company is subject to various local; state;
and federal environmental regulations and laws due to the isotopes used to produce the Company’s products. As part of normal
operations, amounts are expended to ensure that the Company is in compliance with these laws and regulations. While there have
been no reportable incidents or compliance issues, the Company believes that if it relocates its current production facilities
then certain decommissioning expenses will be incurred. An asset retirement obligation was established in the first quarter of
fiscal year 2008 for the Company’s obligations at its current production facility. This asset retirement obligation will
be for obligations to remove any residual radioactive materials and to remove all leasehold improvements.
The industry that the Company operates in
is subject to product liability litigation. Through its production and quality assurance procedures, the Company works to mitigate
the risk of any lawsuits concerning its products.
The Company also carries product liability
insurance to help protect it from this risk. The Company has no off-balance sheet arrangements.
ITEM 3 – QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, the Company
is not required to provide Part I, Item 3 disclosure in this Quarterly Report.
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation
of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the
design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of December 31, 2014. Based
on that evaluation, our principal executive officer and our principal financial officer concluded that the design and operation
of our disclosure controls and procedures were effective. The design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote. However, management believes that our system of disclosure controls
and procedures is designed to provide a reasonable level of assurance that the objectives of the system will be met.
Changes in Internal Control over Financial
Reporting
There have not
been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1A – RISK FACTORS
There have been no material
changes for the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year
ended June 30, 2014.
ITEM 6. EXHIBITS
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 |
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Dated: February 17, 2015
|
ISORAY, INC., a Minnesota corporation |
|
|
|
|
By |
/s/ Dwight Babcock |
|
|
Dwight Babcock, Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
By |
/s/ Brien Ragle |
|
|
Brien Ragle, Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
Exhibit 31.1
CERTIFICATION
I, Dwight Babcock certify that:
1. I
have reviewed this quarterly report on Form 10-Q of IsoRay, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 17, 2015
|
/s/ Dwight Babcock |
|
|
Dwight Babcock |
|
|
Chief Executive Officer |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Brien L. Ragle certify that:
1. I
have reviewed this quarterly report on Form 10-Q of IsoRay, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The
registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
and
(d) Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or
is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the
equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;
and
(b) Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 17, 2015
|
/s/ Brien L. Ragle |
|
|
Brien L. Ragle |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
Exhibit 32
Section 1350 Certifications
Pursuant to 18 U.S.C. § 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of IsoRay, Inc., a Minnesota corporation
(the "Company"), hereby certify that:
To my knowledge, the Quarterly Report on Form
10-Q of the Company for the quarterly period ended December 31, 2014 (the "Report") fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents,
in all material respects, the financial condition and results of operations of the Company.
Dated: February 17, 2015 |
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/s/ Dwight Babcock |
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DWIGHT BABCOCK |
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CHIEF EXECUTIVE OFFICER
(Principal Executive Officer) |
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Dated: February 17, 2015 |
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/s/ Brien Ragle |
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BRIEN RAGLE |
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CHIEF FINANCIAL OFFICER
(Principal Financial and Accounting Officer) |
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