ISORAY, INC.

 

Table of Contents

 

PART I	FINANCIAL INFORMATION
Item 1	Consolidated Unaudited Financial Statements	1
	Consolidated Balance Sheets (Unaudited)	1
	Consolidated Statements of Operations (Unaudited)	2
	Consolidated Statements of Cash Flows (Unaudited)	3
	Consolidated Statement of Changes in Shareholders' Equity (Unaudited)	4
	Notes to the Consolidated Unaudited Financial Statements	5
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4	Controls and Procedures	23
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	23
Item 1A	Risk Factors	23
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	24
Item 3	Defaults Upon Senior Securities	25
Item 4	Mine Safety Disclosures	25
Item 5	Other Information	25
Item 6	Exhibits	25
Signatures		27

 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – FINANCIAL STATEMENTS 

Isoray, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

(In thousands, except shares)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

Isoray, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

(Dollars and shares in thousands, except for per-share amounts)

   

  

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Isoray, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

Isoray, Inc. and Subsidiaries

Consolidated Statement of Changes in Shareholders' Equity (Unaudited)

(In thousands, except shares)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

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 revenue, economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing. These statements are based on certain assumptions and analyses made by us in light of our experience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risks and uncertainties described under Item 1A - Risk Factors beginning on page 23 below 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 GAAP. 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, derivative 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 SEC on September 27, 2019 are those that depend most heavily on these judgments and estimates. As of March 31, 2020, there had been no material changes to any of the critical accounting policies contained therein.

 

Overview

 

Isoray is a brachytherapy device manufacturer with FDA clearance for a single medical device that can be delivered to the physician in multiple configurations as prescribed for the treatment of cancers in multiple body sites. The Company manufactures and sells this product as the Cesium-131 brachytherapy seed or Cesium Blu.

 

The brachytherapy seed utilizes Cesium-131, a 9.7 day half-life, 30.4 keV energy isotope as its radiation source. The Company believes that it is the unique combination of the short half-life and the energy of the Cesium-131 isotope that are yielding the beneficial treatment results that have been published in peer reviewed journal articles and presented in various forms at conferences and tradeshows.

 

The Company has distribution agreements outside of the United States. These distributors are responsible for obtaining regulatory clearance to sell the Company’s products in their territories, with the support of the Company. As of the date of this Report, the Company has distributors in the Russian Federation, Peru and India with no reported revenues in these locations during the nine months ended March 31, 2020.

 

The Company has a supply agreement with The Open Joint Stock Company <<Isotope>>, a Russian company, for the supply of Cesium-131 for a term of August 2019 to December 2020. Our source of supply of Cesium-131 from Russia is historically produced using one of two nuclear reactors which supply the irradiation needed for Cesium-131 production. One of the Russian nuclear reactors was shut down from December 2017 until August 2018, and the other Russian nuclear reactor shut down in August 2019 and continues to be shut down in 2020 for an indeterminate period. As a result of these scheduled shutdowns only one of the Company's historic Russian suppliers of Cesium-131 is available during these periods. The Company also has a consignment inventory agreement with MedikorPharma-Ural LLC (“Medikor”) to process the Company’s enriched barium at another nuclear reactor in Russia. The term of this consignment agreement began in November 2017 and is for 10 years.

 

Results of Operations

 

Three months ended March 31, 2020 and 2019 (in thousands):

 

		Three months ended March 31,
		2020								2019								2020 - 2019
		Amount				% (a)				Amount				% (a)				% Change
Sales, net		$	2,880				100			$	1,924				100				50
Cost of sales			1,174				41				1,045				54				12
Gross profit / (loss)			1,706				59				879				46				94
Operating expenses:
Research and development expenses - proprietary			294				10				299				16				(2	)
Sales and marketing expenses			805				28				645				34				25
(Gain) on equipment disposal			-				-				(1	)			(0	)			100
General and administrative expenses			1,155				40				1,099				57				5
Total operating expenses			2,254				78				2,042				106				10
Operating loss			(548	)			(19	)			(1,163	)			(60	)			(53	)

 

(a)

Expressed as a percentage of sales, net

 

 

Nine months ended March 31, 2020 and 2019 (in thousands):

 

		Nine months ended March 31,
		2020								2019								2020 - 2019
		Amount				% (a)				Amount				% (a)				% Change
Sales, net		$	7,401				100			$	5,390				100				37
Cost of sales			3,348				45				3,222				60				4
Gross profit / (loss)			4,053				55				2,168				40				87
Operating expenses:
Research and development expenses - proprietary			804				11				1,088				20				(26	)
Research and development expenses – collaboration agreement, net of reimbursement			-				-				45				1				(100	)
Sales and marketing expenses			2,286				31				1,996				37				15
(Gain) on equipment Disposal			-				-				(24	)			(0	)			100
General and administrative expenses			3,323				45				3,173				59				5
(Gain) on change in estimate of asset retirement obligation			(73	)			(1	)			-				-				(100	)
Total operating expenses			6,340				86				6,278				116				1
Operating loss			(2,287	)			(31	)			(4,110	)			(76	)			(44	)

 

(a)

Expressed as a percentage of sales, net

 

Sales

 

Sales, net for the three months ended March 31, 2020 increased 50% compared to the three months ended March 31, 2019. Sales, net for the nine months ended March 31, 2020 increased 37% compared to the nine months ended March 31, 2019. The Company’s sales personnel continued to bring on new accounts while also working with existing customers to increase their order volumes. The Blu Build™ loader, while in a limited market release, also contributed nominally to revenues during the three and nine months ended March 31, 2020. 

 

The sales breakdown between prostate and non-prostate applications is set forth below.

 

Three months ended March 31, 2020 and 2019 (in thousands):

 

		Three months ended March 31,
		2020								2019								2020 - 2019
		Amount				% (a)				Amount				% (a)				% Change
Prostate brachytherapy		$	2,406				84			$	1,690				88				42
Other sales			474				16				234				12				103
Sales, net			2,880				100				1,924				100				50

 

(a) Expressed as a percentage of sales, net

 

Nine months ended March 31, 2020 and 2019 (in thousands):

 

		Nine months ended March 31,
		2020								2019								2020 - 2019
		Amount				% (a)				Amount				% (a)				% Change
Prostate brachytherapy		$	6,443				87			$	4,761				88				35
Other sales			958				13				629				12				52
Sales, net			7,401				100				5,390				100				37

 

(a) Expressed as a percentage of sales, net

 

 

Prostate Brachytherapy

 

Prostate sales growth of approximately 42% during the three months ended March 31, 2020 compared to the three months ended March 31, 2019 and approximately 35% during the nine months ended March 31, 2020 compared to the nine months ended March 31, 2019 was achieved due to a sustained focus on acquiring new accounts through physician training programs and marketing campaigns along with continued support of existing customers to help them grow their business. In addition, the Company instituted a price increase in January 2020 for certain of its products which accounted for about 30% and 15% of the increase in the three months and nine months ended March 31, 2020, respectively. While in a limited market release, the Blu Build™ loader also contributed to prostate revenue growth as it was sold to new customers that desired the intraoperative loader system. Management believes that the product's design is now complete and ready for broader market release but there is no assurance as to the exact timing of release. The COVID-19 pandemic has impacted the sourcing of parts associated with the assembly of our proprietary disposable delivery device, Blu Build™.  Management believes we have enough inventory to support our current customers and new customers in the pipeline until our parts manufacturer is back online. As a result we now anticipate Blu Build™ will see a slower than expected release through the remainder of fiscal 2020 with the expectation that Blu Build™ will continue contributing revenue in the fiscal fourth quarter of 2020 and gain traction in fiscal 2021, but there is no assurance that further delays in parts supply may in turn delay the anticipated commercial sale of Blu Build™.

 

As a result of COVID-19, during March 2020, the Company incurred more cancellations than we have historically experienced, which negatively impacted our revenue for the three months ended March 31, 2020. April 2020 revenue declined approximately 20% compared to April 2019 as a result of COVID-19. The Company continues to update its website and other marketing collateral as well as attending tradeshows to acquire new leads for our sales personnel. Some tradeshows have been postponed or cancelled and we do not know the extent and impact COVID-19 will have on future tradeshows. Also, the website along with some social media campaigns have been used to educate patients about the availability of Cesium-131 as a treatment option.

 

Management believes continued growth in prostate brachytherapy revenues will be the result of physicians, payors, and patients increasingly considering overall treatment advantages including costs compared with non-brachytherapy treatments, better treatment outcomes and improvement in the quality of life for patients.

 

Management believes increased pressure to deliver effective healthcare in both terms of outcome and cost drove treatment options, and accordingly drove the Company’s prostate revenues, during the three and nine months ended March 31, 2020.

 

Other Sales

 

Other sales includes, but is not limited to, brain, lung, head/neck, gynecological treatments, and services. Other sales, net increased by approximately 103% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, and approximately 52% for the nine months ended March 31, 2020 compared to the nine months ended March 31, 2019. The increases are a result of an increase in revenue from brain as well as a price increase in January 2020. Initial applications for these other brachytherapy treatments are primarily used in recurrent cancer treatments or salvage cases that are generally difficult to treat aggressive cancers where other treatment options are either ineffective or unavailable.

 

Other brachytherapy treatments are subject to the influence of a small pool of innovative physicians who are the early adopters of the technology who also tend to be faculty at teaching hospitals training the next generation of physicians. This causes the revenue created by these types of treatment applications to be more volatile and vary significantly from year to year. Additionally, with other brachytherapy surgical procedures there remains inconsistency and uncertainty regarding reimbursement for the procedures. This uncertain reimbursement for these new procedures will remain until specific coding and coverage policies are established, which could take years. Individual centers weigh the value of the procedure with their other treatment priorities on a patient by patient basis. Isoray believes that additional clinical data will begin to build a compelling argument to support reimbursement and increased adoption of its procedures; however, any growth will be inconsistent in the near term.

 

GammaTile™

 

For several years the Company has focused on many different applications of its Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of brain cancer. Most recently, the Company has focused on using braided strand configurations and on being a contract manufacturer of GammaTile™ Therapy which is owned by GT Medical Technologies, Inc. (GT Med Tech). GammaTile™ Therapy uses biodegradable “tiles” to deliver Cesium-131 brachytherapy seeds into contact with cancerous tumors in the brain.

 

GammaTile™ Therapy was originally cleared for treating recurrent brain cancers. GT Med Tech filed a 510k with the FDA on an expanded indication of GammaTile™ Therapy to include treatment of newly diagnosed brain tumors with an application of Cesium-131. On January 27, 2020, GT Med Tech announced that it had received clearance from the FDA for an expanded indication that will allow patients of newly diagnosed malignant brain tumors to be treated by GammaTile™ Therapy. For the three and nine months ended March 31, 2020, total revenues from sales to GT Med Tech were nominal. Sales to GT Med Tech for the three and nine months ended March 31, 2019 were nominal as GT Med Tech began the limited market release of GammaTile™ Therapy in January 2019. While GT Med Tech continues to assure Isoray that its sales and marketing efforts will show steady improvements in sales there is no assurance this will occur.

 

 

Cost of sales

 

Cost of sales consists primarily of the costs of manufacturing and distributing the Company’s products.

 

Contributing to the three and nine months ended March 31, 2020 and 2019 comparison were increased other direct materials purchases as well as increased labor to meet production demand due to improved sales. Although sales improved dramatically, the increase in cost of sales was only nominal primarily as a result of cost savings in isotope due to the termination of our domestic isotope supplier that occurred at the end of calendar year 2018 which resulted in lower isotope unit costs compared to the three and nine months ended March 31, 2020 and more efficient isotope usage driven by the increased revenue that led to lower losses of isotope due to decay.

 

Gross Profit

 

Gross profit increased 94% for the three month period ended March 31, 2020 when compared to the three month period ended March 31, 2019. Contributing to the three and nine months ended March 31, 2020 and 2019 gross profit comparison were increased sales and significantly lower isotope unit costs compared to the prior year comparable period, continued leverage of the fixed cost components within costs of sales, and more efficient isotope usage. The lower isotope unit costs are related to the previously discussed change in our supply chain made at the end of calendar year 2018.

 

Research and development

 

Research and development – proprietary

 

Proprietary research and development consists primarily of employee and third-party costs related to research and development activities.

 

Contributing to the three and nine months ended March 31, 2020 and 2019 proprietary research and development comparison were a decrease in protocol expense primarily relating to a mutually-agreed termination of a grant agreement which resulted in a reversal of the accrual and a reduction in investment in the development of the Blu Build™ delivery system for real-time prostate brachytherapy.

 

Going forward, we continue to expect proprietary R&D expense to increase back to or above levels in prior recent quarters or to roughly $300,000 to $400,000 per quarter, as we are continuing to have discussions with institutions looking at the expanded use of Cesium-131.

 

Research and development – collaborative arrangement

 

Collaboration arrangement related costs are incurred, shared, and separately stated in connection with a collaborative research and development project with GT Medical Technologies, Inc. (formerly known as GammaTile, LLC).

 

 

Contributing to the three and nine months ended March 31, 2020 and 2019 comparison were decreased costs due to the fact that payments being made pursuant to the collaborative arrangement with GT Med Tech were no longer necessary at the same level, as the collaborative arrangement primarily related to work involved in obtaining 510(k) clearance, which has now been obtained.

 

Sales and marketing expenses

 

Sales and marketing expenses consist primarily of the costs related to the internal and external activities of the Company’s sales, marketing and customer service functions of the Company. As the Company increasingly focuses on improving sales, the cost associated with marketing and greater staffing continues to increase.

 

Contributing to the three months ended March 31, 2020 and 2019 comparison was an increase in incentive compensation for the quarter ended March 31, 2020 in connection with the increase in revenue as well as an increase in physician-led training expenses. These increases were offset by a decrease in travel costs due to COVID-19.

 

Contributing to the nine months ended March 31, 2020 and 2019 comparison was increased incentive compensation in connection with the increase in revenue and an increase in physician-led training expenses.

 

General and administrative expenses

 

General and administrative expenses consist primarily of the costs related to the executive, human resources/training, quality assurance/regulatory affairs, finance, and information technology functions of the Company.

 

General and administrative expenses increased 5% to $1.16 million in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019. Contributing to the three months ended March 31, 2020 and 2019 comparison were increases associated with payroll due to increased headcount and incentive compensation, insurance premiums, and public company related expenses. These costs were partially offset in the three months ended March 31, 2020 by decreases to State of Washington Hazardous Substance Tax, legal fees, travel, and employee hiring expense.

 

Contributing to the nine months ended March 31, 2020 and 2019 comparison were cost increases associated with payroll due to increased headcount and incentive compensation, insurance premiums, and employee hiring expense. These costs were partially offset in the nine months ended March 31, 2020 by decreases in legal fees and proxy solicitation fees associated with redomiciling the Company to Delaware in December 2018, State of Washington Hazardous Substance Tax, and travel.

 

Impact of COVID-19

 

From the onset of the COVID-19 global health pandemic we have been proactive in implementing plans to ensure the health and well-being of our employees, while remaining focused on providing uninterrupted product flow to the physicians and patients who count on us. We seamlessly transitioned many employees to work from home and made other adjustments to ensure the continuity of our business through this time. At the beginning of the pandemic, we moved quickly to ensure that our inventory of non-isotope supplies were appropriate in case our supply chain was disrupted.  In addition, we set in motion our strategy to maintain a continuous and uninterrupted supply of isotope from our suppliers in Russia.

 

As COVID-19 began to spread, many states implemented new guidelines in an attempt to mitigate the spread of the virus and to conserve certain medical supplies. Those guidelines led to the cancellation or postponement of elective and non-emergency surgical procedures, including prostate brachytherapy procedures.  Consequently, at the very end of March, we saw some procedures begin to be postponed in many markets we serve.  This resulted in a drop in revenue for the month of April as preliminary revenue declined about 20% compared to April of 2019. 

 

In the recent weeks as states began to lift restrictions on non-essential surgeries we have received an increasing amount of customer feedback that those implants that had been canceled in March were beginning to be rescheduled. Thus, our order growth has been accelerating since the last week of April. We firmly believe that most, if not all, treatments in process prior to the outbreak will take place over the next few months but there is no assurance this will occur.  In the meantime, we continue to tightly manage our expenses and make fluid adjustments to isotope orders to meet potential increased treatment demands as restrictions lift.

 

Liquidity and capital resources

 

The Company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company has historically financed its operations through selling equity to investors. During the nine months ended March 31, 2020 and 2019, the Company used existing cash reserves to fund its operations and capital expenditures (in thousands except current ratio):

 

		Nine months
		ended March 31,
		2020				2019
Net cash used by operating activities		$	(2,793	)		$	(4,064	)
Net cash used by investing activities			(248	)			(1,838	)
Net cash provided by financing activities			120				7,361
Net (decrease) increase in cash and cash equivalents		$	(2,921	)		$	1,459

 

 

		As of
		March 31, 2020				June 30, 2019
Working capital		$	3,975			$	6,194
Current ratio			3.28				6.53

 

Cash flows from operating activities

 

Net cash used by operating activities in the nine months ended March 31, 2020 was primarily due to a net loss of approximately $2.26 million, net of approximately $367,000 in adjustments for non-cash activity such as depreciation and amortization expense, asset retirement obligation accretion, change in estimate of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities used approximately $904,000 to fund operating activities; increases in accounts receivable, prepaid expenses and other current assets, and inventory and decreases in accrued protocol expense were partially offset by increases in accounts payable and accrued expenses, accrued payroll and related taxes, accrued vacation, and accrued radioactive waste disposal.

 

Net cash used by operating activities in the nine months ended March 31, 2019 was primarily due to a net loss of approximately $4.05 million, net of approximately $405,000 in adjustments for non-cash activity such as depreciation and amortization expense, gain on equipment disposal, ARO accretion, and share-based compensation. Changes in operating assets and liabilities used approximately $420,000 to fund operating activities; decreases in accounts payable and accrued expenses, accrued payroll and related taxes, accrued vacation and an increase in prepaid expenses and other current assets were partially offset by decreases in accounts receivable and inventory and increases in accrued protocol expense and accrued radioactive waste disposal.

 

Cash flows from investing activities

 

Investing activities for the nine months ended March 31, 2020 consisted of transactions related to the purchase of fixed assets, including automation of production processes.

 

Investing activities for the nine months ended March 31, 2019 consisted of transactions related to the purchase and sale of fixed assets, including automation of production processes, as well as the purchase and subsequent maturity of U.S. Treasury bills. 

 

Management will continue to invest in technology and machinery that improves and streamlines production processes and to invest in low-risk investment opportunities that safeguard assets and provide greater assurance those resources will be liquid and available for business needs as they arise. 

 

Cash flows from financing activities

 

Financing activities in the nine months ended March 31, 2020 included payment of preferred dividends and proceeds from sale of common stock, pursuant to exercise of options.

 

Financing activities in the nine months ended March 31, 2019 included payment of preferred dividends and proceeds from sale of common stock, pursuant to registered direct offering, net (see note 9 to the financial statements) and proceeds from sale of common stock, pursuant to exercise of options.

 

Projected 2020 Liquidity and Capital Resources

 

Operating activities

 

Assuming no extraordinary expenses occur (whether operating or capital), if management is successful at implementing its strategy of renewed emphasis on driving the consumer to the prostate market, meets or exceeds its annual growth targets of twenty-five percent increase in revenue in fiscal 2020 and this annual growth continues, the Company anticipates reaching cash flow break-even in about three years. The Company exceeded that target of twenty-five percent increased revenue in the nine months ended March 31, 2020. There is no assurance that targeted sales growth will continue over the next three years. However, management is encouraged by the results for the nine months ended March 31, 2020.

 

Capital expenditures

 

Management has completed the design of a future production and administration facility but has not determined when or if it will move ahead with construction. If financing is obtained and the facility constructed, it is believed that the new facility will have non-cash depreciation cost equal to or greater than the monthly rental cost of the current facility.

 

Management is reviewing and implementing changes in all aspects of production operations (including process automation), research and development, sales and marketing, and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems, and personnel are available to support and drive sales.

 

During the nine months ended March 31, 2020, the Company invested approximately $221,000 in the automation production processes. Beginning in fiscal 2017 and continuing through March 31, 2020, the Company has invested approximately $1,061,000 in the automation of five production processes, four of which have been placed in service as of the end of March 31, 2020. Management expects to invest approximately $10,000 more over the next three months on the remaining automation projects, but there is no assurance that this amount will not be revised. This investment is designed to allow the Company to significantly increase the output of Cesium-131 brachytherapy seeds, while allowing the Company to decrease the labor costs related to seed production and also improving the overall safety of our operations.

 

 

Financing activities

 

On January 22, 2020, the Company filed a Form S-3 registration which became effective on February 4, 2020, with the potential to register up to $80 million of equity securities. On March 31, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co., Inc. (“Oppenheimer”). The common stock sold pursuant to the Agreement will be distributed at the market prices prevailing at the time of sale. The Agreement provides that Oppenheimer will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of March 31, 2020, the Company has not sold any shares.

 

On July 11, 2018, the Company sold 11,000,000 shares of its common stock at a price of $0.75 per share, for aggregate gross proceeds of $8.25 million, pursuant to the registration statement on Form S-3 that became effective on November 23, 2015. There was no material change in the use of proceeds from our public offering as described in our prospectus supplement filed with the SEC pursuant to Rule 424(b) on July 11, 2018. Through March 31, 2020, the Company had used the net proceeds raised through the July 11, 2018 offering as described in the prospectus supplement. 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.

 

Additionally, the Company issued to the purchasers unregistered warrants to purchase up to 5,500,000 shares of common stock. The warrants have an exercise price of $0.75 per share common stock, are exercisable commencing six months following the issuance date, and expire five and one-half years from the issuance date. If exercised for cash, future exercises of these warrants will provide additional capital to the Company. 

 

On October 19, 2018, the Company filed a Form S-1 registration statement for the registration of 5,830,000 shares of common stock to be received by the investors and representatives of Wainwright on exercise of warrants issued in connection with the registered direct offering completed on July 11, 2018. The Company may receive up to $4,434,375 in gross proceeds solely to the extent the warrants are exercised for cash. The registration statement became effective on December 14, 2018, and the SEC file number assigned to the registration statement is 333-207909.

As of March 31, 2020, the Company had cash and cash equivalents that totaled $2.41 million compared to $5.33 million at the end of fiscal 2019 ended June 30, 2019. The Company has zero long-term debt. Management remains comfortable that our cash reserves are sufficient to fund operating activities through the remainder of calendar year 2020. Shareholders’ equity at the end of fiscal third quarter 2020 totaled $5.82 million versus $7.68 million at the end of fiscal 2019 ended June 30, 2019.

 

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 outside of the Equity Distribution Agreement with Oppenheimer that it will be at a discount to the market price and it will be dilutive to shareholders.

 

Other Commitments and Contingencies

 

The Company presented its other commitments and contingencies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. There have been no material changes outside of the ordinary course of business in those obligations during the quarter ended March 31, 2020 other than those previously disclosed in Note 7 of the interim financial statements contained in this Form 10-Q.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. The Company evaluates its estimates and judgments on an ongoing basis. The Company bases its estimates on historical experience and on various other factors the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions.

 

 

During the quarter ended March 31, 2020, there have been no changes to the critical accounting policies and estimates, as discussed in Part II, Item 7 of our Form 10-K for the year ended June 30, 2019.

  

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not Applicable

 

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 co-principal financial officers, 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 March 31, 2020. Based on that evaluation, our principal executive officer and our co-principal financial officers 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 are 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 1 – LEGAL PROCEEDINGS

 

Nothing to disclose.

 

ITEM 1A – RISK FACTORS

 

A description of the risk factors associated with our business is included under “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended June 30, 2019, and is incorporated herein by reference. There have been no material changes in our risk factors since such filing, except for the following:

 

We Rely Heavily On Three Customers

 

For the nine months ended March 31, 2020 approximately 40% of the Company’s revenues were dependent on three customers with approximately 25% being generated by one customer. The loss of any of these customers would have a material adverse effect on the Company’s revenues which may not be replaced by other customers particularly as these customers are in the prostate sector which is facing substantial competition from other treatments. 

 

We May Need Additional Capital In The Future To Maintain Our NYSE American Listing.

 

Our Common Stock is currently listed on the NYSE American stock exchange which will consider delisting a company’s securities if, among other things, the company fails to maintain minimum stockholder’s equity. With our stockholder's equity below $6 million for the quarter ended March 31, 2020, we may not be able to maintain our listing on the NYSE American unless we raise capital in the next twelve to eighteen months in order to bring our stockholder's equity above the NYSE American's $6 million threshold. In the event that our common stock is delisted from the NYSE American, trading, if any, in the common stock would be conducted in the over-the-counter market. As a result, our shareholders would likely find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock.

 

The Recent Novel Coronavirus (COVID-19) Outbreak Could Materially Adversely Affect Our Financial Condition and Results of Operations.

 

COVID-19 may impact supply chain and product sales. Our Cesium supply comes from Russia and while at this time we are not aware of any shutdowns of nuclear facilities in Russia or limited staffing due to ongoing risk of virus transmission this may occur in the future. We also depend on overseas flights which have been curtailed and any further flight cancellations may impact our supply chain. While our surgeries are not considered elective, in areas where hospitals are devoted to COVID-19 or other chronic conditions, surgeries required to implant our seeds may be postponed or cancelled, as occurred in late March and continued through much of April at numerous locations. If conditions worsen with the COVID-19 pandemic this may have a material adverse effect on our business.

 

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

 

These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. In addition, quarantines, stay-at-home, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.

 

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

 

The ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, the effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.

 

 

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

 

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4 - MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5 – OTHER INFORMATION

 

None

 

ITEM 6. EXHIBITS

 

(Except as otherwise indicated (a) all exhibits were previously filed, (b) all omitted exhibits are intentionally omitted, and (c) all documents referenced below were filed under SEC file number 001-33407.)

 

Exhibits:
3(i)		Certificate of Incorporation, incorporated by reference to Exhibit A of the Form Def 14A filed on November 9, 2018.
3(ii)		Bylaws, incorporated by reference to Exhibit C of the Form Def 14A filed on November 9, 2018.
10.1		Amendment to Exhibit A and Amendment No. 2 to Exhibit B of Amended and Restated Manufacturing and Supply Agreement, dated effective January 13, 2020, between Isoray Medical, Inc. and GT Medical Technologies, Inc. (confidential portions of the exhibit have been omitted), incorporated by reference to Exhibit 10.1 of the Form 8-K filed on January 16, 2020.
10.2		Form of Indemnification Agreement, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on February 19, 2020.
10.3		Equity Distribution Agreement between Isoray, Inc. and Oppenheimer & Co. Inc., dated March 31, 2020, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on April 6, 2020.
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 Co-Principal Financial Officer
31.3*		Rule 13a-14(a)/15d-14(a) Certification of Co-Principal Financial Officer
32.1**		Section 1350 Certifications

 

 

101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema 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

 

* Filed herewith.

** 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: May 13, 2020
		ISORAY, INC., a Delaware corporation
		/s/ Lori A. Woods
		Lori A. Woods
		Chief Executive Officer (Principal Executive Officer)
		/s/ Jonathan Hunt
		Jonathan Hunt
		Chief Financial Officer (Co-Principal Financial Officer)
		/s/ Mark J. Austin
		Mark J. Austin Controller (Co-Principal Financial Officer and Principal Accounting Officer)

 

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