What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-09-27 compared with 2020-09-25 · 69 added, 76 removed, 151 unchanged (49% of the section changed)

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The Company typically recognizes revenue at the time of shipment, at which time the title passes to the customer, and there are no further performance obligations.

Stock-Based Compensation

Share-Based Compensation

The Company measures and recognizes expense for all share-based payments at fair value.

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For stock options that vest over time, the Company recognizes compensation cost on a straight-line basis over the requisite service period for the entire award.

The Company recognizes forfeitures as they occur.

Research and Development Costs

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Financial presentation

The following sets forth a discussion and analysis of the Company’s financial condition and results of operations for the fiscal years 2020, 2019, and 2018.

The following sets forth a discussion and analysis of the Company’s financial condition and results of operations for the fiscal years ended 2021, 2020, and 2019.

This discussion and analysis should be read in conjunction with our consolidated financial statements appearing elsewhere in this Report.

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Change in estimate of asset retirement obligation

Gain on equipment disposal

Loss (gain) on equipment disposal

Total operating expenses

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Fiscal 2021 sales, net increased 4% compared to fiscal 2020.

The main driver of this growth was a 68% increase in other sales primarily due to increased treatments for brain cancer, including GammaTile™.

In addition, part of the sales growth was due to moderate price increases that were implemented in January 2020.

These increases were partially offset by a reduction in prostate cancer treatments that we believe was due to the impacts of the COVID-19 pandemic from stay-at-home orders in various states as well as hospitals' focus on treating COVID-19 patients.

Fiscal 2020 sales, net increased 32% compared to fiscal 2019.

The Company’s sales personnel continued to bring on new accounts while also working with existing customers to increase their order volumes.

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In addition, part of the sales growth was due to moderate price increases that were implemented during the middle of fiscal year 2020.

Fiscal 2019 sales, net increased 23% compared to fiscal 2018.

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 helped to increase revenues during fiscal 2019.

For the years ended June 30,

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Prostate Brachytherapy.

Prostate sales growth of approximately 29% in fiscal 2020 was mainly achieved due to increased sales volumes due to sales and marketing’s 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.

The moderate price increase that occurred in the middle of fiscal year 2020 also contributed to a small part of the increase.

While in a limited market release for most of the fiscal year, the Blu Build™ loader also contributed to prostate revenue growth as it was sold to new customers that desired the intraoperative loader system.

The Company continues to update its website and other marketing collateral as well as attending tradeshows to acquire new leads for our sales personnel.

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 but there is no assurance as to the timing in a resurgence of use of brachytherapy as a whole.

Prostate sales were down approximately 6% in fiscal 2021.

We believe that due to stay-at-home orders in various states and hospitals' focus on COVID-19, patients' brachytherapy procedures were either delayed or cancelled.

This led to a decrease in sales for prostate treatments during fiscal year 2021 when compared to fiscal year 2020.

The decrease in sales volume was partially offset by a price increase that occurred in January 2020.

The American Cancer Society estimates that nearly 250,000 new prostate cancer cases will be diagnosed in calendar year 2021, which represents an increase of approximately 30% over the calendar year 2020 estimate (American Cancer Society, 2021).

This increase is due to patients being unable to access treatment or putting treatment off due to the COVID pandemic, but there is no assurance that this will occur and if it occurs that it will have a positive impact on the Company's performance.

We believe the trend to use brachytherapy in lieu of other options is starting to improve our performance but there is no assurance as to how long this trend will continue.

Management believes increased pressure to deliver effective healthcare in both terms of outcome and cost drove treatment options in fiscal 2021 with prostate brachytherapy receiving more consideration than in previous years.

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GammaTile™ Therapy was in a limited market release beginning in January 2019 and in a full market release beginning in January 2020.

Total revenues from sales to GT Med Tech have been less than ten percent of total revenues.

Total revenues from sales to GT Med Tech in fiscal 2021 were slightly more than ten percent of total revenues.

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.

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

The fiscal 2021 increase was primarily the result of increased labor and materials costs.

Labor expenses increased by $156,000 due to additional headcount as well as annual merit increases.

Materials isotope costs increased by $126,000.

Higher freight costs for isotope resulted from the use of cargo flights rather than passenger flights to transport isotope from Russia to our facility due to the COVID-19 pandemic's impact on passenger flights.

In addition, due to lower than anticipated sales volumes, we had excess isotope on hand which went unused.

Non-isotope materials costs increased $63,000 due to increased ordering of some items in an effort to mitigate any potential supply chain issues due to the COVID-19 pandemic as well as price increases from some of our suppliers.

The fiscal 2020 increase was primarily due to higher sales volumes that led to increased labor expenses and non-isotope materials costs offset by decreased isotope costs.

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These changes led to a $165,000 decrease in isotope cost during fiscal 2020 compared to fiscal 2019 despite increased sales volumes.

The fiscal 2019 increase was primarily due to higher sales volumes that led to increased labor expenses and non-isotope materials costs offset by decreased isotope costs.

Labor expenses increased by $103,000 as the Company had more production volume due to higher sales.

Non-isotope materials also increased by $141,000 due to increased sales volume and an increase in the ratio of preloaded seeds (stranded, Blu Build™, etc.) compared to loose seeds sold.

The reduction of the amount of Cesium-131 provided by the MURR reactor referred to above in January 2019 led to a $98,000 decrease in isotope cost during fiscal 2019 compared to fiscal 2018 despite increased sales volumes.

In addition, depreciation increased by $48,000 due to completed automation projects placed into service at the end of fiscal 2018 and for which depreciation expense was recognized throughout fiscal 2019.

During both fiscal 2020 and 2021, the Company purchased isotope in excess of known customer orders to provide enough isotope to fill anticipated orders which may or may not materialize.

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Any loss of isotope to decay is also included as a cost of production during the current period.

Management anticipates an increase in costs of goods sold for the six-month period ended December 31, 2021 resulting from an increased volume of isotope purchases related to its initial set up of a second nuclear reactor associated with its consignment of enriched barium and purchase of enriched barium carbonate needed for Cesium-131 production at the RIAR facility.

Research and development expenses

Research and development consisted primarily of the costs related to employee and third-party research and development activities.

The fiscal 2021 increase was due mainly to increases in protocol, payroll, and consulting expenses.

The Company conducted new research which contributed to a $122,000 increase in protocol expenses.

Payroll expenses increased by $184,000 due to the expansion of our research and development team through reallocating existing resources and adding additional headcount as well as annual merit increases.

Consulting expenses relating to market research increased by $124,000.

The decrease in fiscal 2020 compared to fiscal 2019 was mainly due to reduced expenses related to developmental costs for the Blu Build™ loader and decrease in protocol expenses as existing protocols were completed and new ones had not yet started.

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This decrease was offset by an increase in payroll costs as the company shifted some internal resources to spend more time on research and development activities.

The decrease in fiscal 2019 compared to fiscal 2018 was mainly due to reduced expenses related to the Collaborative Development Agreement with GT Med Tech offset by increased spending on the Blu Build™ loader development.

Beginning in April 2018, costs were no longer shared equally as had been done historically and GT Med Tech was responsible for more than 50% of the costs.

The Company stopped sharing costs with GT Med Tech related to the development of GammaTile™ in December 2018 when the product entered a limited market release.

These factors led to a decrease of $350,000 in fiscal 2019.

Costs related to the development of the Blu Build™ loader and associated equipment increased by $106,000 during fiscal 2019 as the development continued throughout the limited market release of the product.

Contributing to the fiscal 2018 increase were re-allocating resources from cost of sales to assist with research and development projects, payroll, benefits, and share-based compensation expense, costs associated with the development of Blu-Build™ delivery system for real-time prostate brachytherapy, protocol expense, as well as an increase related to the collaborative agreement with GT Med Tech.

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 division.

The fiscal 2021 decrease was due to reduced payroll of $334,000 resulting from lower sales growth when compared to fiscal 2020 and the reversal of share based compensation expense upon separation of our former Executive Vice President of Sales and Marketing, as well as reduced travel of $132,000 and conventions and tradeshow expense of $28,000 as a result of the COVID-19 pandemic.

The fiscal 2020 increase was due to increased payroll of $423,000 due to incentive compensation related to the increase in sales.

This increase was offset by a reduction of $130,000 in travel due to reduced travel as a result of the COVID-19 global health pandemic.

The fiscal 2019 increase is primarily due to increased payroll, benefits, and share-based compensation and travel for sales activities.

General and administrative expenses

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

The increase in fiscal 2021 is due to a payroll increase of $145,000 resulting from increased headcount and annual merit increases, increased insurance premiums primarily relating to D&O insurance of $74,000, increased consulting expenses primarily from information technology consulting of $56,000, employment hiring expense increased by $45,000, and software costs increased by $27,000.

These were partially offset by decreased public company related expenses of $109,000, reduced legal fees of $56,000, and fewer travel expenses of $56,000 due to the COVID-19 pandemic.

In addition, the majority of annual employee and director stock grants have historically been granted in the fiscal fourth quarter, however this year’s awards were granted in July 2021, subsequent to the close of the fiscal fourth quarter 2021, thus reducing share-based stock compensation expense in the full-year fiscal year-end 2021 compared to the prior fiscal year.

The increase in fiscal 2020 is primarily the result of higher payroll of $458,000 due to incentive compensation and promotions, increased insurance premiums of $68,000 primarily relating to D&O insurance (which increased industry-wide), other expense of $50,000 primarily related to employee relations and hiring expense, and public company expense of $50,000 mostly relating to the at the market offering, and overhead recovery of $38,000 due to no shared costs with GT Medical Technologies.

These were partially offset by decreased legal fees of $107,000, materials of $92,000, and travel of $64,000.

During fiscal 2019 general and administrative expenses increased only slightly over fiscal 2018.

Items that increased included QA/RA materials and supplies expense by about $93,000 mainly due to increased production volumes, legal fees by approximately $30,000 primarily related to review of Company agreements, commercial insurance expense by about $38,000 primarily related to increased D&O insurance premiums, other taxes by almost $80,000 from an accrual relating to an audit of the State of Washington Hazardous Substance Tax, other expenses by about $50,000 relating to an accrual based on negotiations with a former consultant, and proxy solicitation fees of about $80,000 associated with redomiciling the Company to Delaware.

These increases were offset by decreases in public company expenses of approximately $274,000 (of which $204,000 was non-cash warrant expense) as a result of changing some investor and media relation vendors which lead to significant savings and lower board fees of almost $24,000 due to fewer meetings.

Impact of COVID-19

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In addition, we set in motion our strategy to maintain a continuous and uninterrupted supply of isotope from our suppliers in Russia including the review of alternative freight services due to the cancellation of many international flights.

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.

As COVID-19 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.

As some markets began to open back up slowly beginning in May 2020, revenues in May and June increased above the revenues of May and June 2019, but they were still below the average monthly revenues attained in our third quarter of fiscal 2020.

As more states gradually lift restrictions on non-essential surgeries and other activities we have received customer feedback of anticipated increases in implant volumes as patients begin returning from quarantines for office visits and consultations but there is no assurance this will occur or be sustained.

During fiscal year 2021, our sales revenues increased 4% compared to the fiscal year 2020, but we were still below the average monthly prostate revenues attained in our third quarter of fiscal year 2020 prior to the onset of COVID-19's impact on our operations.

We believe this is due to stay-at-home orders and hospitals’ focus on COVID-19, resulting in a delay or cancellation of patients scheduled to be seen by physicians.

This resulted in fewer or delayed urology referrals for prostate brachytherapy treatment.

As more states gradually lift restrictions on non-essential surgeries and other activities, we have received customer feedback of anticipated increases in implant volumes as patients begin returning from quarantines for office visits and consultations but there is no assurance this will occur or be sustained or what impact variants such as the Delta variant might cause to our operations.

In the meantime, we continue to tightly manage our expenses and make fluid adjustments to isotope orders to meet potential increased treatment demands.

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The Company has historically financed its operations through selling equity to investors.

During fiscal 2020, the Company raised approximately $880,000 from an at the market offering.

These funds were not used in fiscal 2020.

Funds raised in July 2018 by selling equity to investors as well as existing cash reserves from prior capital raises were used to fund the Company's operations and capital expenditures during fiscal 2020 and 2019 respectively.

During fiscal 2021, the Company raised approximately $56,375,000 pursuant to two underwritten offerings, approximately $7,784,000 pursuant to the exercise of warrants to purchase common stock, and approximately $534,000 pursuant to the exercise of options to purchase common stock.

Some of these funds were used in fiscal 2021 and existing cash reserves from prior capital raises were used to fund the Company's operations and capital expenditures during fiscal 2021 and 2020 respectively.

Our cash flows for fiscal 2021, 2020, and 2019 respectively, are summarized as follows (in thousands):

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Net cash used by operating activities in fiscal 2019 was primarily due to a net loss of $5.14 million net of approximately $613,000 in adjustments for non-cash activity such as depreciation and amortization expense, the accretion of asset retirement obligation, and share-based compensation.

Changes in operating assets and liabilities contributed approximately $221,000 in the cash used by operating activities.

Changes in operating assets and liabilities contributed approximately $518,000 to the cash used by operating activities.

Cash flows from investing activities

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Financing activities for all years are presented by primary transaction category.

Financing activities in fiscal 2020, 2019, and 2018 were primarily due to sales of common stock through a registered direct offering, net, at the market offerings, net, and warrant and option exercises net of preferred dividends paid.

Financing activities were significantly increased in fiscal 2019 compared to 2020 and 2018 due to the registered direct offering, net.

Financing activities in fiscal 2021, 2020, and 2019 were primarily due to sales of common stock through an underwritten offering, net, a registered direct offering, net, at the market offerings, net, and warrant and option exercises each net of preferred dividends paid.

Financing activities were significantly increased in fiscal 2021 compared to 2020 and 2019 due to the underwritten offerings, net.

Projected FY 2022 L iquidity and C apital R esources

Operating activities

Management forecasts that fiscal 2021 cash requirements will be similar to previous years and that current cash and cash equivalents will be sufficient to meet projected operating cash needs for the next nine to twelve months .

While monthly operating expenses are budgeted to increase for sales and marketing, research and development and general and administrative expenses, management believes the total monthly expense amount will not substantially change.

Management forecasts that fiscal 2022 cash requirements will be similar to previous years and that current cash and cash equivalents will be sufficient to meet projected operating cash needs for the next twelve months.

Monthly operating expenses are budgeted to increase for sales and marketing, research and development and general and administrative expenses in fiscal 2022 as management works to implement its strategy.

Assuming no extraordinary expenses occur (whether operating or capital), if management is successful at implementing its strategy to focus on renewed emphasis to drive the consumer to the prostate market and meets or exceeds its growth targets of twenty-five percent increase in revenue in fiscal 2022 and this annual growth continues, the Company anticipates reaching cashflow break-even in three to four years.

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Management has completed the design of a future production and administration facility.

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.

If suitable construction 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 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 fiscal 2020, the Company invested approximately $221,000 in the automation of production processes.

Beginning in fiscal 2017 and continuing through fiscal 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 fiscal 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.

During fiscal 2021, the Company made only nominal investment in the automation of production processes.

Beginning in fiscal 2017 and continuing through fiscal 2021, the Company has invested approximately $1,064,000 in the automation of five production processes.

The equipment developed for all five processes have been placed in service as of the end of fiscal 2021.

This investment was implemented 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

There was no material change in the use of proceeds from our public offering as described in our final prospectus supplement filed with the SEC pursuant to Rule 424(b) on March 24, 2014.

Through June 30, 2020, the Company had used the net proceeds raised through the March 2014 offering as described in the public offering.

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.

On May 8, 2018, the Company entered into a Sales Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”).

The common stock sold in the Sales Agreement was distributed at the market prices prevailing at the time of sale.

As of June 30, 2018, the Company had sold an aggregate of 980,918 shares under the Sales Agreement at an average price of approximately $0.515 per common share for gross proceeds of approximately $505,000, pursuant to the registration statement on Form S-3 that became effective on November 23, 2015.

Net proceeds from this raise totaled approximately $478,000.

No additional sales were made in July 2018 and this offering was suspended on July 9, 2018.

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 June 30, 2020, the Company had used the net proceeds raised through the July 11 th offering as described in the prospectus supplement.

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 Form S-1 registration statement became effective on December 14, 2018.

On January 23, 2020, the Company filed a Form S-3 registration statement 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.

Net proceeds from the sale of the shares will be used for general corporate purposes.

As of June 30, 2020, the Company had sold an aggregate of 1,247,232 shares under the distribution agreement at an average price of approximately $0.738 per common share for gross proceeds of approximately $920,000 and net proceeds of approximately $874,000, pursuant to the registration statement on Form S-3 that became effective on January 23, 2020.

The common stock sold pursuant to the Agreement was distributed at the market prices prevailing at the time of sale.

The Agreement provided that Oppenheimer would 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 June 30, 2020, the Company had sold an aggregate of 1,247,232 shares under the Agreement at an average price of approximately $0.738 per common share for gross proceeds of approximately $920,000 and net proceeds of approximately $874,000.

No shares were sold under this Agreement during fiscal year 2021.

On October 19, 2020, the Company terminated the Agreement, effective on the same date.

On October 22, 2020, the Company sold 18,269,230 shares of its common stock at a price of $0.52 per share, for aggregate gross proceeds of $9,500,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020.

The net proceeds from the offering were approximately $8,471,000.

Additionally, the Company issued to the purchasers warrants to purchase up to 9,134,615 shares of common stock.

The warrants have an exercise price of $0.57 per share of common stock, are exercisable immediately, and expire five years from the date of issuance.

If exercised for cash, future exercises of these warrants will provide additional capital to the Company.

On February 8, 2021, the Company sold 36,000,000 shares of its common stock at a price of $1.25 per share for aggregate gross proceeds of approximately $45,000,000, pursuant to the registration statement on Form S-3 that became effective on February 4, 2020.

Additionally, the Company granted the underwriters an option to purchase an additional 5,400,000 shares of common stock at a purchase price of $1.25 per share for the purpose of covering overallotments, which was exercised on February 8, 2021 and generated gross proceeds of approximately $6,750,000.

Total gross proceeds from the offering were approximately $51,750,000 and total net proceeds were approximately $47,904,000.

During fiscal 2021, the Company received approximately $7.8 million as a result of the exercise of 12,318,877 warrants to purchase common stock and $0.5 million as a result of the exercise of 970,315 options to purchase common stock.

When it does require capital in the future, the Company expects to finance its cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing stockholders, 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 stockholders.

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Impact of Inflation

Inflation had minimal impact on our net sales and revenues or on loss from continuing operations.

New Accoun ting Standards

In February 2016, the FASB issued ASU 2016-02 Leases (Subtopic 842), which will require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases.

The update is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.

The modified retrospective transition approach is required.

The Company adopted the new standard in the first quarter of fiscal year 2020 and the most significant effects of this ASU relate to the recognition of a new right-of-use asset and corresponding lease liability.

Inflation had minimal impact on our net sales and revenues or on loss from continuing operation s.

Recent Accounting Pronouncements

Accounting Standards Updates Adopted

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

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The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

The Company is in the process of evaluating the impact the standard will have on its financial statements.

The standard was adopted on July 1, 2020 and had no effect on the consolidated financial statements.

Accounting Standards Updates to Become Effective in Future Periods

Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis