isr20180930_10q.htm
 
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington , DC 20549
 
FORM 10-Q
 
  ☑
QUARTERLY Report PURSUANT TO Section 13 or 15( d ) of the Securities Exchange Act of 1934
    For the quarterly period ended December 31, 2021
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)
 
Delaware
41-1458152
(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer
Identification No.)
 
 
350 Hills St., Suite 106 , Richland , Washington
99354
(Address of principal executive offices)
(Zip Code)
 
 
Registrant's telephone number, including area code: ( 509 ) 375-1202
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 par value
ISR
NYSE American
 
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  ☒ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
☐
 
Accelerated filer
☐
Non-accelerated filer
☒  
Smaller reporting company
☒
 
 
 
Emerging growth company
☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes  ☐ No ☒
 
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  7 , 2022
Common stock, $0.001 par value
142,040,266
 
 
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ISORAY, INC.
 
Table of Contents
 
PART I
FINANCIAL INFORMATION
 
 
 
 
Item 1
Consolidated Financial Statements   (Unaudited)
1
 
 
 
 
Consolidated Balance Sheets (Unaudited)
1
 
 
 
 
Consolidated Statements of Operations (Unaudited)
2
 
 
 
 
Consolidated Statements of Cash Flows (Unaudited)
3
 
 
 
 
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
4
 
 
 
 
Notes to the Consolidated Financial Statements (Unaudited)
5
 
 
 
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
13
 
 
 
Item 3
Quantitative and Qualitative Disclosures About Market Risk
18
 
 
 
Item 4
Controls and Procedures
18
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
Item 1
Legal Proceedings
19
 
 
 
Item 1A
Risk Factors
19
 
 
 
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
20
 
 
 
Item 3
Defaults Upon Senior Securities
20
 
 
 
Item 4
Mine Safety Disclosures
20
 
 
 
Item 5
Other Information
20
 
 
 
Item 6
Exhibits
21
 
 
 
Signatures
 
22
 
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PART I - FINANCIAL INFORMATION
 
ITEM 1 - CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
Isoray, Inc. and Subsidiaries 
Consolidated Balance Sheets  (Unaudited)
(In thousands, except shares) 
 
    December 31,
    June 30,
 
    2021
    2021
 
ASSETS
               
Current assets:
               
Cash and cash equivalents
  $ 60,354     $ 63,828  
Accounts receivable, net
    1,647       2,013  
Inventory
    1,068       980  
Prepaid expenses and other current assets
    535       481  
                 
Total current assets
    63,604       67,302  
                 
Property and equipment, net
    1,973       1,958  
Right of use asset, net (Note 8)     642       768  
Restricted cash
    182       182  
Inventory, non-current
    741       76  
Other assets, net
    110       130  
                 
Total assets
  $ 67,252     $ 70,416  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
               
                 
Current liabilities:
               
Accounts payable and accrued expenses
  $ 847     $ 730  
Lease liability (Note 8)     260       252  
Accrued protocol expense
    153       98  
Accrued radioactive waste disposal
    103       100  
Accrued payroll and related taxes
    223       362  
Accrued vacation
    259       259  
                 
Total current liabilities
    1,845       1,801  
Non-current liabilities:
               
Lease liability, non-current (Note 8)     392       524  
Accrued payroll and related taxes, non-current     -       77  
Asset retirement obligation
    624       608  
                 
Total liabilities
    2,861       3,010  
Commitments and contingencies (Note 7)
                   
                 
Stockholders' equity:
               
Common stock, $.001 par value; 200,000,000 shares authorized; 142,040,266 and 141,915,266  shares issued and outstanding
    142       142  
Additional paid-in capital
    159,421       158,589  
Accumulated deficit
    ( 95,172 )     ( 91,325 )
                 
Total stockholders' equity
    64,391       67,406  
                 
Total liabilities and stockholders' equity
  $ 67,252     $ 70,416  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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Isoray, Inc. and Subsidiaries 
Consolidated Statements of Operations  (Unaudited) 
(Dollars and shares in thousands, except for per-share amounts) 
 
    Three months ended
    Six months ended
 
    December 31,
    December 31,
 
    2021
    2020
    2021
    2020
 
                                 
Sales, net
  $ 2,816     $ 2,359     $ 5,380     $ 4,743  
Cost of sales
    1,596       1,192       3,131       2,330  
Gross profit
    1,220       1,167       2,249       2,413  
                                 
Operating expenses:
                               
Research and development
    535       285       1,237       597  
Sales and marketing
    702       619       1,463       1,200  
General and administrative
    1,618       1,129       3,458       2,196  
Loss on equipment disposal
    -       7       -       7  
Total operating expenses
    2,855       2,040       6,158       4,000  
                                 
Operating loss
    ( 1,635 )
    ( 873 )
    ( 3,909 )
    ( 1,587 )
                                 
Non-operating income:
                               
Interest income, net
    31       5       62       6  
Non-operating income
    31       5       62       6  
                                 
Net loss
    ( 1,604 )
    ( 868 )
    ( 3,847 )
    ( 1,581 )
Preferred stock dividends
    -       -  
    -  
    ( 3 )
                                 
Net loss applicable to common shareholders
  $ ( 1,604 )
  $ ( 868 )
  $ ( 3,847 )
  $ ( 1,584 )
                                 
Basic and diluted loss per share
  $ ( 0.01 )
  $ ( 0.01 )
  $ ( 0.03 )
  $ ( 0.02 )
                                 
Weighted average shares used in computing net loss per share:
                               
Basic and diluted
    141,955       83,047       141,935       75,972  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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Isoray, Inc. and Subsidiaries 
Consolidated Statements of Cash Flows  (Unaudited) 
(In thousands) 
 
    Six months ended December 31,
 
    2021
    2020
 
                 
CASH FLOWS FROM OPERATING ACTIVITIES:
               
Net loss
  $ ( 3,847 )   $ ( 1,581 )
Adjustments to reconcile net loss to net cash used by operating activities:
               
Depreciation expense
    119       71  
Loss on equipment disposals     -       7  
Amortization of other assets
    21       19  
Accretion of asset retirement obligation
    16       16  
Share-based compensation
    776       166  
Changes in operating assets and liabilities:
               
Accounts receivable, net
    366       306  
Inventory
    ( 753 )     ( 85 )
Prepaid expenses and other current assets
    ( 54 )     125  
Accounts payable and accrued expenses
    117       ( 158 )
Accrued protocol expense
    55       31  
Accrued radioactive waste disposal
    3       7  
Accrued payroll and related taxes
    ( 216 )     ( 36 )
Accrued vacation
    -       14  
                 
Net cash used by operating activities
    ( 3,397 )     ( 1,098 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to property and equipment
    ( 135 )     ( 173 )
                 
Net cash used by investing activities
    ( 135 )     ( 173 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Preferred dividends paid     -       ( 9 )
Proceeds from sales of common stock, pursuant to underwritten offering, net     -       8,471  
Proceeds from sales of common stock, pursuant to exercise of options     56       3  
                 
Net cash provided (used) by financing activities     56       8,465  
                 
Net increase (decrease) in cash, cash equivalents, and restricted cash
    ( 3,476 )     7,194  
Cash, cash equivalents, and restricted cash beginning of period
    64,010       2,573  
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH END OF PERIOD
  $ 60,534     $ 9,767  
                 
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets:
               
Cash and cash equivalents
  $ 60,354     $ 9,585  
Restricted cash
    182       182  
Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cashflows
  $ 60,536     $ 9,767  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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  Isoray, Inc. and Subsidiaries 
 Consolidated Statement of Changes in Stockholders' Equity  (Unaudited) 
 (In thousands, except shares) 
 
    Series B
Preferred Stock
    Common Stock
                         
    Shares
    Amount
    Shares
    Amount
    Additional Paid-in Capital
    Accumulated Deficit
    Total
 
                                                         
                                                         
Balances at June 30, 2020
    59,065     $ -       68,897,779     $ 69     $ 93,592     $ ( 87,938 )
  $ 5,723  
                                                         
Share-based compensation
                                85             85  
Net loss
                                      ( 713 )
    ( 713 )
                                                         
Balances at September 30, 2020
    59,065     $ -       68,897,779     $ 69     $ 93,677     $ ( 88,651 )
  $ 5,095  
                                                         
Conversion of preferred stock to common stock
    ( 59,065 )
            59,065                               -  
Issuance of common stock pursuant to underwritten offering, net
                18,269,230       18       8,453             8,471  
Issuance of common stock pursuant to exercise of options
                6,250             3             3  
Payment of dividend to preferred stockholders
                                ( 9 )
          ( 9 )
Share-based compensation
                                81             81  
Net loss
                                      ( 868 )
    ( 868 )
                                                         
Balances at December 31, 2020
    -     $ -       87,232,324     $ 87     $ 102,205     $ ( 89,519 )
  $ 12,773  
 
 
    Series B
Preferred Stock
    Common Stock
                         
    Shares
    Amount
    Shares
    Amount
    Additional Paid-in Capital
    Accumulated Deficit
    Total
 
                                                         
                                                         
Balances at June 30, 2021
    -     $ -       141,915,266     $ 142     $ 158,589     $ ( 91,325 )   $ 67,406  
                                                         
Share-based compensation
                                596             596  
Net loss
                                      ( 2,243 )     ( 2,243 )
                                                         
Balances at September 30, 2021
    -     $ -       141,915,266     $ 142     $ 159,185     $ ( 93,568 )   $ 65,759  
                                                         
Issuance of common stock pursuant to exercise of options                 125,000             56             56  
Share-based compensation                                 180             180  
Net loss                                       ( 1,604 )     ( 1,604 )
                                                         
Balances at December 31, 2021     -     $ -       142,040,266     $ 142     $ 159,421     $ ( 95,172 )   $ 64,391  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
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Isoray, Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
For the quarter  ended December 31 , 2021  and 2020
 
 
1.
Basis of Presentation
 
The accompanying unaudited interim consolidated financial statements are those of Isoray, Inc., and its wholly-owned subsidiaries, referred to herein as “Isoray” or the “Company”. All significant intercompany accounts and transactions have been eliminated in the consolidation. In the opinion of management, all adjustments necessary for the fair statement of the consolidated financial statements have been included. These unaudited interim consolidated financial statements should be read in conjunction with our audited consolidated financial statements and related notes as set forth in the Company’s annual report filed on Form 10 -K for the year ended June 30, 2021.
 
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and note 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 Company anticipates that as the result of continuing operating losses and the significant net operating losses available from prior fiscal years, its effective income tax rate for fiscal year 2022  will be 0 %.
 
 
2.
New Accounting Standards
 
Accounting Standards Updates to Become Effective in Future Periods
 
Accounting standards that have been issued or proposed by the Financial Accounting Standards Board or “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. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
 
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3.
Loss per Share
 
Basic and diluted earnings (loss) per share are calculated by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding and does not include the impact of any potentially dilutive common stock equivalents. At December 31, 2021 and 2020, the calculation of diluted weighted average shares did not include 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, but that could be dilutive in the future as of December 31, 2021 and  2020, were as follows (in thousands):
 
 
 
December 31,
 
 
 
2021
 
 
2020
 
Common stock warrants
 
 
2,646
 
 
 
14,965
 
Common stock options
 
 
7,268
 
 
 
5,532
 
Total potential dilutive securities
 
 
9,914
 
 
 
20,497
 
 
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4.
Inventory
 
Inventory consisted of the following at December 31, 2021  and June 30, 2021 ( in thousands):
 
 
 
December 31,
 
 
June 30,
 
 
 
2021
 
 
2021
 
Raw materials
 
$
751
 
 
$
645
 
Work in process
 
 
288
 
 
 
286
 
Finished goods
 
 
29
 
 
 
49
 
Total inventory, current
 
$
1,068
 
 
$
980
 
 
 
 
December 31,
 
 
June 30,
 
 
 
2021
 
 
2021
 
Enriched barium, non-current
 
$
671
 
 
$
-
 
Raw materials, non-current
 
 
70
 
 
 
76
 
Total inventory, non-current
 
$
741
 
 
$
76
 
 
Inventory, non-current represents raw materials that were ordered in quantities to obtain volume cost discounts which based on current and anticipated sales volumes will not be consumed within an operating cycle. On  August 25, 2017,  the Company entered into a Consignment Agreement and related Services Agreement with MedikorPharma-Ural LLC to begin utilizing our enriched barium- 130  carbonate inventory. On December 13, 2021, a new Service Agreement was signed that supersedes the one signed in August 2017 to extend the term to December 31, 2022. At June 30, 2021, the Company estimated that this remaining enriched barium would result in 894 curies, which is included in the raw materials current inventory.
 
On September 9, 2021, the Company entered into another Consignment Agreement with MedikorPharma-Ural LLC. Pursuant to the September 2021 Consignment Agreement, the Company purchased 6000 mg of enriched barium carbonate for $ 720,000 during September 2021, which is needed for the manufacture of Cesium- 131, and consigned this inventory to Medikor. During the six months ended December 31,  2021, the Company obtained 257  curies of Cesium- 131 under these agreements. At December 31, 2021, the Company estimates that the remaining enriched barium will result in 5,637  curies; approximately 1,040  of which will be obtained in the next twelve months and 4,597  will be obtained after December  31, 2022. The 1,040 curies is included in raw materials current inventory. There is  no  assurance as to whether the Service Agreement will be terminated before this full amount is obtained and other supply sources are used, nor is there assurance that the  third -party reactor which relies on these Consignment Agreements will be used by the Cesium- 131 supplier under contract with the Company.
 
 
5.
Property and Equipment
 
Property and equipment consisted of the following at December  31, 2021  and June 30, 2021 ( in thousands):
 
    December 31,
    June 30,
 
    2021
    2021
 
Land
  $ 366     $ 366  
Equipment
    4,368       4,202  
Leasehold improvements
    4,143       4,143  
Other 1
    463       495  
Property and equipment
    9,340       9,206  
Less accumulated depreciation
    ( 7,367 )
    ( 7,248 )
Property and equipment, net
  $ 1,973     $ 1,958  
 
1  Plant and equipment, not placed in service are items that meet the capitalization threshold or which management believes will meet the threshold at the time of completion and which have yet to be placed into service as of the date of the balance sheet, and therefore, no depreciation expense has been recognized. Also included at December 31, 2021  and June 30, 2021  are costs associated with advance planning and design work on the Company’s new production facility of approximately $ 207,000 . The advance planning and design work was primarily incurred in fiscal year 2017. The new production facility is currently on hold as the Company has sufficient production capacity to meet future demands and while the Company focuses its resources on revenue growth. It is anticipated that the Company will continue work on the new production facility in the next three to five years.
 
 
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6.
Share-Based Compensation
 
The weighted average fair value of stock option awards granted and the key assumptions used in the Black-Scholes valuation model to calculate the fair value are as follows:
 
      For the Six Months Ended December 31,
 
      2021
    2020
     
Weighted average fair value
      $ 0.58
        $ 0.46
       
Options issued
      3,064,100
        40,000
       
Exercise price
    $ 0.49
to
$ 0.79
    $ 0.64
to
$ 0.74
     
Expected term (in years)
      5
        5
       
Risk-free rate
    0.73 %
to
1.33 %
    0.22 %
to
0.29 %
     
Volatility
     
99 %  
     
83 %
 
     
 
The following table presents the share-based compensation expense recognized for stock-based options during the three months ended December 31, 2021 and 2020  (in thousands): 
 
    Three Months
ended December 31,
 
    2021
    2020
 
Cost of sales
  $ 12     $ 2  
Research and development expenses
    41       12  
Sales and marketing expenses
    15       16  
General and administrative expenses
    112       51  
Total share-based compensation
  $ 180     $ 81  
 
The following table presents the share-based compensation expense recognized for stock-based options during the six  months ended December 31, 2021 and 2020  (in thousands): 
 
    Six Months
ended December 31,
 
    2021
    2020
 
Cost of sales
  $ 56     $ 5  
Research and development expenses
    171       24  
Sales and marketing expenses
    64       34  
General and administrative expenses
    485       103  
Total share-based compensation
  $ 776     $ 166  
 
 
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As of December 31, 2021, total unrecognized compensation expense related to stock-based options was approximately $ 1,433,000 and the related weighted-average period over which it is expected to be recognized is approximately 1 .21  years.
 
A summary of stock options within the Company’s share-based compensation plans as of December 31, 2021  was as follows (in thousands except for exercise prices and terms):
 
                    Weighted
         
            Weighted
    Average
         
    Number of
    Exercise
    Contractual
    Intrinsic
 
As of December 31, 2021
  Options
    Price
    Term (Years)
    Value
 
Outstanding
    7,268     $ .72       7.87     $ -  
Vested and expected to vest
    7,268     $ .72       7.87     $ -  
Vested and exercisable
    4,060     $ .68       6.75     $ -  
 
There were 125,000 and 6,250 options exercised, with approximately $ 3,000 and $ 1,000 of intrinsic value associated with these exercises, during the three months ended December 31, 2021  and 2020, respectively. The Company’s current policy is to issue new shares to satisfy stock option exercises.
 
There were 112,500 and no option awards granted with a fair value of approximately $ 51,000  and $ 0 , during the three months ended December 31, 2021  and 2020, respectively.
 
There were 22,000  and no stock option awards which expired during the three months ended December 31, 2021  and 2020, respectively.
 
There were 23,725  and 625 stock option awards forfeited during the three months ended December 31, 2021  and 2020, respectively.
 
There were 125,000 and  6,250 stock options exercised, with approximately $ 3,000 and $ 1,000 of intrinsic value associated with these exercises, during the  six months ended December 31, 2021  and 2020, respectively.
 
There were 3,064,100  and 40,000 option awards granted with a fair value of approximately $ 1,763,000 and $ 18,000 during the six months ended December 31, 2021  and 2020, respectively.
 
There were 29,500  and 2,000  stock option awards which expired during the six months ended December 31, 2021  and 2020, respectively.
 
There were 156,225  and 3,125  stock option awards forfeited during the six months ended December 31, 2021  and 2020, respectively
 
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7.
Commitments and Contingencies
 
Isotope Purchase Agreement  
 
On August 26, 2020, a new supply contract was signed with The Open Joint Stock Company for a term of August 2020 to December 2021 as the Company had purchased the maximum amount of Cesium- 131 permitted under the prior agreement. On February 10, 2021, an addendum was signed updating delivery locations. On March 18, 2021, the Company entered into a new supply contract with JSC Isotope pursuant to which the Company will purchase Cesium- 131 for a term from March 18, 2021  through March 31, 2023. On July 29, 2021, an addendum was signed that adds a manufacturer, adds a shipper of goods, and increases the amount of Cesium- 131 the Company can purchase. On August 19, 2021, an addendum was signed that adds MedikorPharma-Ural LLC, a company incorporated in accordance with the laws of Russia (“Medikor”), as a supplier to supply enriched barium carbonate for the manufacture of Cesium- 131 to JSC Isotope on behalf of the Company. 
 
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8.
Leases
 
For the three months ended December 31, 2021  and  2020  our operating lease expense was approximately $ 79,000 and $ 76,000 respectively. For the three months ended December 31, 2021  and  2020  our operating lease expense recognized in cost of sales was approximately $ 50,000 and $ 49,000 respectively and our lease expense recognized in general and administrative expense was approximately $ 29,000 and $ 27,000 respectively. 
 
For the six months ended December 31, 2021  and  2020  our operating lease expense was approximately $ 156,000 and $ 152,000  respectively, and is recognized in the statement of operations in cost of sales and general and administrative expenses. For the six  months ended December 31, 2021  and  2020  our operating lease expense recognized in cost of sales was approximately $ 99,000 and $ 98,000 respectively and our lease expense recognized in general and administrative expense was approximately $ 57,000 and $ 54,000 respectively. The weighted average remaining term and discount rate as of December 31, 2021  was 2.3  years and 6 %, respectively.
 
The following table presents the future operating lease payments and lease liability included on the consolidated balance sheet related to the Company’s operating lease as of December 31, 2021 ( in thousands):
 
Year Ending June 30,        
2022 (remaining six months)     146  
2023     292  
2024     264  
Total     702  
Less: imputed interest     ( 50 )
Total lease liability     652
 
Less current portion     ( 260 )
Non-current lease liability   $ 392  
 
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9.
Contracts with Customers
 
Sources of Revenue
 
We have identified the following revenues disaggregated by revenue source:
 
  1.
Domestic – direct sales of products and services.
 
  2.
International – direct sales of products and services.
 
During the three months ended December 31,  2021  and  2020, the Company had  no , and nominal international revenue, respectively. For the three months ended December 31,  2021, prostate brachytherapy comprised 76 % of our revenue, while other revenue, which includes but is not limited to brain, lung, head/neck, gynecological, and pelvic treatments, and services, comprised 24 % compared to 80 % and 20 %, respectively, in the three months ended December 31,  2020.
 
During the six months ended December 31,  2021  and  2020, the Company had no , and nominal international revenue, respectively. For the six  months ended December 31,  2021, prostate brachytherapy comprised 76 % of our revenue while other revenue comprised 24 % compared to 80 % and 20 %, respectively, in the six  months ended December 31,  2020.
 
Concentration of Customers
 
The following are the Company's top customers, facilities, or physician practices that utilize multiple surgical facilities shown as a percentage of total sales:
 
    Six Months Ended December 31,
Facility
  2021
% of
total
revenue
    2020
% of
total
revenue
   
El Camino, Los Gatos, & other facilities
    25.2 %
    24.9 %
 
GT Medical Technologies     13.9 %     <10.0 %  
 
As of December 31, 2021, one individual customer made up 10.1 % of our accounts receivable. As of December 31, 2020, no individual customers, or facilities, or physician practices made up greater than 10% of our accounts receivable.
 
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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 21  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, 2021 are those that depend most heavily on these judgments and estimates. As of December 31, 2021, 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, with a 9.7 day half-life, 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 three months ended December 31, 2021.
 
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 2020 to December 2021. On March 18, 2021, the Company entered into a new supply contract (the “New Agreement”) with JSC Isotope pursuant to which the Company will purchase Cesium-131 for a term from March 18, 2021 through March 31, 2023. 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 for much of 2019, 2020 and 2021. As a result of these scheduled shutdowns only one of the Company's historic Russian suppliers of Cesium-131 was available during these periods. The Company 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. The Company also has a Service Agreement with Medikor whereby the Company’s wholly-owned subsidiary Isoray Medical, Inc. (“Medical”) will perform certain qualitative and quantitative chemical analyses on Cesium-131 through December 31, 2022.
 
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On September 9, 2021, the Company entered into another Consignment Agreement with MedikorPharma-Ural LLC. Pursuant to this Consignment Agreement, the Company purchased 6,000 mg of enriched barium carbonate for $720,000, which is needed for the manufacture of Cesium-131, and consigned this inventory to Medikor. Beginning in October 2021, Medikor started to use the barium carbonate consigned by the Company and contract with a third-party manufacturer to produce Cesium-131. Pursuant to this Consignment Agreement, Medikor pays the Company varying US dollar amounts per curie of Cesium-131 the Company purchases. The amount varies based on how many curies of Cesium-131 the Company purchases. This arrangement is expected to minimize the impact on the Company of the temporary shutdown of one of the nuclear reactors that serves as its source of Cesium-131 from Russia.
 
The Company continues to explore how our proprietary isotope may be effective in the treatment of additional cancers. We recently entered into a research grant agreement with a leading cancer center to study the treatment of metastatic melanoma. In this immuno-oncology study, Cesium-131 will be used in combination with an immune checkpoint inhibitor. Metastatic melanoma is the most virulent form of skin cancer, often spreading to lymph nodes, the lungs, liver, brain, and tissue under the skin. We also have an agreement with the University of Cincinnati to study the combination of Cesium-131 with the immunotherapy drug Keytruda® in recurrent head and neck cancers.
 
The Company recently filed a provisional patent application for a device designed to achieve directional dosing using our Cesium-131 seeds. This device is a bed that holds the Cesium-131 seeds to focus the radiation to a specific treatment area. The device is fixed to a directional mesh that can be used to treat pancreatic cancers as well as retroperitoneal sarcomas. We see unidirectional brachytherapy utilizing Cesium-131 as a highly attractive potential therapy for advanced abdominal cancers as well. In this practical application, the device will be aimed at cancers of the abdomen that invade the abdominal wall and pelvic floor, such as advanced cancers of the colon and rectum and advanced GYN cancers such as ovarian and uterine cancers. The directional dosing device will likely be used initially with the recurrent cancers mentioned above where our competitors’ external beam radiation therapy has previously been administered.
 
The Company recently attended the annual meeting of the American Society for Therapeutic Radiation Oncology (“ASTRO”) held in Chicago in October 2021. There were several presentations on Cesium-131 that continue to support the use of Cesium-131 for recurrent brain metastases and high grade meningiomas both with the GammaTile™ and the Company's legacy product with braided strands.
 
Results of Operations
 
Three months ended December 31, 2021  and 2020  (in thousands):
 
 
 
Three months ended December 31,
 
 
 
2021
 
 
2020
 
 
2021 - 2020
 
 
 
Amount
 
 
% (a)
 
 
Amount
 
 
% (a)
 
 
% Change
 
Sales, net
 
$
2,816
 
 
 
100
 
 
$
2,359
 
 
 
100
 
 
 
19
 
Cost of sales
 
 
1,596
 
 
 
57
 
 
 
1,192
 
 
 
51
 
 
 
34
 
Gross profit
 
 
1,220
 
 
 
43
 
 
 
1,167
 
 
 
49
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development expenses
 
 
535
 
 
 
19
 
 
 
285
 
 
 
12
 
 
 
88
 
Sales and marketing expenses
 
 
702
 
 
 
25
 
 
 
619
 
 
 
26
 
 
 
13
 
General and administrative expenses
 
 
1,618
 
 
 
57
 
 
 
1,129
 
 
 
48
 
 
 
43
 
Loss on equipment disposal
 
 
-
 
 
 
-
 
 
 
7
 
 
 
-
 
 
 
(100
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
 
2,855
 
 
 
101
 
 
 
2,040
 
 
 
86
 
 
 
40
 
Operating loss
 
$
(1,635
)
 
 
(58
)
 
$
(873
)
 
 
(37
)
 
 
87
 
 
 
(a)
Expressed as a percentage of sales, net
  
Six months ended December, 2021 and 2020 (in thousands):
 
 
 
Six months ended December 31,
 
 
 
2021
 
 
2020
 
 
2021 - 2020
 
 
 
Amount
 
 
% (a)
 
 
Amount
 
 
% (a)
 
 
% Change
 
Sales, net
 
$
5,380
 
 
 
100
 
 
$
4,743
 
 
 
100
 
 
 
13
 
Cost of sales
 
 
3,131
 
 
 
58
 
 
 
2,330
 
 
 
49
 
 
 
34
 
Gross profit
 
 
2,249
 
 
 
42
 
 
 
2,413
 
 
 
51
 
 
 
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Research and development expenses
 
 
1,237
 
 
 
23
 
 
 
597
 
 
 
13
 
 
 
107
 
Sales and marketing expenses
 
 
1,463
 
 
 
27
 
 
 
1,200
 
 
 
25
 
 
 
22
 
General and administrative expenses
 
 
3,458
 
 
 
64
 
 
 
2,196
 
 
 
46
 
 
 
57
 
Loss on equipment disposal
 
 
-
 
 
 
-
 
 
 
7
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total operating expenses
 
 
6,158
 
 
 
114
 
 
 
4,000
 
 
 
84
 
 
 
54
 
Operating loss
 
$
(3,909
)
 
 
(73
)
 
$
(1,587
)
 
 
(33
)
 
 
146
 
 
 
(a)
Expressed as a percentage of sales, net
 
Sales
 
Sales, net for the three and six months ended December 31, 2021 increased 19% and 13% respectively compared to the three and six months ended December 31, 2020. The Company’s sales personnel continue to focus on bringing in new accounts while also working with existing customers to increase their order volumes. We believe that due to hospitals’ renewed focus on COVID-19 due to the Delta and Omicron variants during the three months ended December 31, 2021 in various states, patients’ brachytherapy procedures continued to be delayed or cancelled. Further, we believe that hospitals are having a difficult time staffing nurses needed to support the procedures our products are utilized in. 
 
The sales breakdown between prostate and non-prostate applications is set forth below.
 
Three months ended December 31, 2021  and 2020  (in thousands):
 
 
 
Three months ended December 31,
 
 
 
2021
 
 
2020
 
 
2021 - 2020
 
 
 
Amount
 
 
% (a)
 
 
Amount
 
 
% (a)
 
 
% Change
 
Prostate brachytherapy
 
$
2,139
 
 
 
76
 
 
$
1,894
 
 
 
80
 
 
 
13
 
Other sales
 
 
677
 
 
 
24
 
 
 
465
 
 
 
20
 
 
 
46
 
Sales, net
 
$
2,816
 
 
 
100
 
 
 
2,359
 
 
 
100
 
 
 
19
 
 
 
(a)
Expressed as a percentage of sales, net
 
Six months ended December, 2021 and 2020 (in thousands):
 
 
 
Six months ended December 31,
 
 
 
2021
 
 
2020
 
 
2021 - 2020
 
 
 
Amount
 
 
% (a)
 
 
Amount
 
 
% (a)
 
 
% Change
 
Prostate brachytherapy
 
$
4,112
 
 
 
76
 
 
$
3,784
 
 
 
80
 
 
 
9
 
Other sales
 
 
1,268
 
 
 
24
 
 
 
959
 
 
 
20
 
 
 
32
 
Sales, net
 
$
5,380
 
 
 
100
 
 
 
4,743
 
 
 
100
 
 
 
13
 
 
 
 
(a)
Expressed as a percentage of sales, net
 
 
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Prostate Brachytherapy
 
Prostate sales increased by approximately 13% and 9% during the three and six months ended December 31, 2021 respectively compared to the three and six months ended December 31, 2020. We believe that due to hospitals’ focus on COVID-19 including the Delta and Omicron variants during the three months ended December 31, 2021 in various states, patients’ brachytherapy procedures continued to be delayed or cancelled. Despite these delays and cancellations, revenues increased over the prior year three and six months due to an increased number of seeds being sold and a price increase instituted by the Company.  The sales volume increase was primarily related to increased utilization at existing accounts as well as sales to new accounts.  The Company raised seed prices in November 2021 to help offset its increases in raw materials and other costs as a result of the ongoing global COVID-19 pandemic.
 
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. The American Cancer Society estimated that nearly 250,000 new prostate cancer cases would be diagnosed in calendar year 2021, which represents an increase of approximately 30% over the calendar year 2020 estimate (American Cancer Society, 2021). In January 2022, the American Cancer Society released the 2022 Cancer Facts and Figures report that estimates nearly 270,000 new prostate cancer cases will be diagnosed in calendar year 2022, which represents an increase of approximately 8% over the calendar year 2021 estimate (American Cancer Society, 2022). 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.
 
Other Sales
 
Other sales includes, but is not limited to, brain, lung, head/neck, gynecological, and pelvis treatments, as well as services. Other sales, net increased by 46% for the three months ended December 31, 2021 and 32% for the six months ended December 31, 2021 compared to the three and six months ended December 31, 2020. The main driver of this growth was treatments for pelvic and brain cancers as well as increased services. The increase in services was mainly due to an increase in the minimum order fee due from GT Medical Technologies as its forecast was greater than its actual orders during the three and six months ended December 31, 2021. 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 varies significantly from year to year. Individual centers weigh the value of the procedure with their other treatment priorities on a patient by patient basis. 
 
Other brachytherapy treatments, such as brain, lung, and head/neck are typically performed in the in-patient setting using the DRG or diagnostic related groups. DRGs are designed for Medicare to set payment levels for hospital in-patient services. Other health insurers may follow Medicare reimbursement when setting their payment rates. When these other types of brachytherapy are performed in the out-patient setting, existing codes for Cesium-131 that are also used for prostate brachytherapy are used to bill for these procedures.
 
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 supplying Cesium-131 brachytherapy seeds to GT Medical Technologies, Inc. (“GT Med Tech”) which manufactures GammaTile™ Therapy. On November 17, 2021, Medical entered into Amendment No. 3 to its Amended and Restated Manufacturing and Supply Agreement with GT Med Tech to change the nature of the services provided by Medical from preparation of GammaTiles™ containing Cesium-131 seeds to instead only supplying Cesium-131 seeds to GT Med Tech so that GT Med Tech may handle the assembly of GammaTiles™ in house. 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 allowing patients of newly diagnosed malignant brain tumors to be treated by GammaTile™ Therapy. For the three and six months ended December 31, 2021, total revenues from sales including minimum order fees to GT Med Tech were approximately 13% and 14% of sales respectively. 
 
Cost of sales
 
Cost of sales consists primarily of the costs of manufacturing and distributing the Company’s products and increased 34% for the period ended December 31, 2021 over the period ended December 31, 2020.
 
Contributing to the increase in the three and six months ended December 31, 2021 and 2020 comparison were increases in isotope and other materials costs as well as increases in labor and depreciation. Due to lower than forecasted levels of sales volumes, we had excess isotope on hand which went unused.  In addition, beginning in October 2021 we began ordering additional isotope as part of the initial setup of a second reactor.  This was done to account for the variability in isotope supply during the reactor startup phase. Other materials costs increased due to supplier price increases. Labor costs increased due to annual merit increases for production personnel as well as additional headcount and depreciation increased due to completion of production automation projects.
 
Gross Profit
 
Contributing to the three months ended December 31, 2021 versus three months ended December 31, 2020 gross profit increase resulted from higher sales offset by increased costs of production including isotope supply due to ordering additional supply to account for the initial startup of a second reactor and payroll due to merit increases. Contributing to the six months ended December 31, 2021 versus the six months ended December 31, 2020 gross profit decline was lower than anticipated sales as a result of orders being cancelled or postponed due to COVID-19 particularly in the first quarter of fiscal year 2021, increases in isotope costs due to lower than forecasted sales volumes which led to excess isotope on hand which went unused along with ordering additional isotope as part of the initial setup of a second reactor, and increases in payroll due to annual merit increases and additional headcount. Additionally, material costs increased compared to the three and six months ended December 31, 2020. 
 
Research and development
 
Research and development consists primarily of employee and third party costs related to research and development activities.
 
Contributing to the three and six months ended December 31, 2021 compared to the three and six months ended December 31, 2020 research and development comparison was an increase in payroll due to annual merit increase as well as additional headcount and an increase in consulting expenses relating to market research. This increase was partially offset by a reduction in investment in the development of the Blu Build™ delivery system for real-time prostate brachytherapy.
 
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On December 31, 2020, the Company received FDA 510k clearance for use of C4 Imaging's Sirius® positive-signal MRI (Magnetic Resonance Imaging) markers with the Company's Cesium-131 brachytherapy seeds. Sirius® is implanted during the treatment of prostate cancer with the Cesium-131 seeds and is used to facilitate seed localization within the prostate utilizing a single post-implant MRI procedure. We finished our premarket activities related to the Sirius® marker during the first quarter of fiscal 2022 and we started a product performance evaluation (formerly referred to as a limited market release) on this technology in the second quarter of fiscal 2022 and expect it to be available for full market release later in fiscal year 2022 but there is no assurance this timing will occur. Management believes this Sirius® MRI procedure may permit more accurate implant of seeds and avoid potential collateral damage to sites not impacted by a cancerous tumor but is still in the process of validating this understanding.
 
Management believes that research and development expenses will continue at this level as we continue to explore new projects and collaborations.
 
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. We anticipate increasing the number of territory managers from 7 to 10 over the next 12 months but there is no assurance this will occur.
 
Contributing to the three and six months ended December 31, 2021 and 2020 comparison was an increase in travel and tradeshow costs due to some COVID-19 restrictions being eased as well as increased payroll expenses resulting from annual merit increases, new hires and an increase in incentive compensation due to the increase in sales. These increases were partially offset by a reduction in consulting expenses due to reclassification of reimbursement consulting to general and administrative 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.
 
Contributing to the three and six months ended December 31, 2021 and 2020 comparison were increased payroll due to annual merit increases and new hires, employment hiring expenses, IT consulting expenses, director and officer insurance expense, public company related expenses, increased audit and legal fees, and increased travel due to the easing of some COVID-19 restrictions. In addition, the majority of annual employee and director stock grants have historically been granted in the fiscal fourth quarter, however awards for performance in fiscal 2021 were granted in July 2021 thereby increasing share-based stock compensation expense in the six months ended December 31, 2021 compared to the six months ended December 31, 2020.
 
Impact of COVID-19
 
From the onset of the COVID-19 global 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 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 a strategy to maintain a continuous and uninterrupted supply of isotope from our suppliers in Russia including the review and use of alternative freight services due to the cancellation of many international flights.
 
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.  Although during the first six months of fiscal 2022, our sales revenues increased 13% compared to the first six months of fiscal 2021, we were still below the average monthly prostate revenues attained in our third quarter of fiscal 2020 prior to the outset of COVID-19's impact on our operations. We believe this is due to hospitals’ focus on COVID-19 including variants, resulting in a delay or cancellation of patients scheduled to be seen by physicians. In addition, we believe that hospitals are having a difficult time staffing nurses needed to support the procedures our products are utilized in. This resulted in fewer or delayed urology referrals for prostate brachytherapy treatment.
 
In the first six months of fiscal 2022, we forecasted an increase in cases, particularly prostate cases, which did not occur to the extent we expected due to an increase in the Delta and Omicron variants of COVID-19 as well as increased physician vacations and staffing shortages in hospitals. We plan to continue to manage our expenses and make adjustments to isotope orders, as permitted by our suppliers, to meet potential increased treatment demands.
 
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 six months ended December 31, 2021 and 2020, the Company used existing cash reserves to fund its operations and capital expenditures (in thousands except current ratio):
 
 
 
Six months
 
 
 
ended December 31,
 
 
 
2021
 
 
2020
 
Net cash (used) by operating activities
 
$
(3,397
)
 
$
(1,098
)
Net cash (used) by investing activities
 
 
(135
)
 
 
(173
)
Net cash provided  by financing activities
 
 
56
 
 
 
8,465
 
Net increase (decrease) in cash and cash equivalents
 
$
(3,476
)
 
$
7,194
 
 
 
 
 
As of
 
 
 
 
December 31, 2021
 
 
 
June 30, 2021
 
Working capital
 
$
61,759
 
 
$
65,501
 
Current ratio
 
 
34.47
 
 
 
37.37
 
 
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Cash flows from operating activities
 
Net cash used by operating activities in the six months ended December 31, 2021 was primarily due to a net loss of approximately $3.85 million net of approximately $933,000 in adjustments for non-cash activity such as share-based compensation, depreciation and amortization expense, and accretion of asset retirement obligation. Changes in operating assets and liabilities contributed approximately $481,000 to the cash used by operating activities; increases in inventory, mainly due to the purchase of enriched barium carbonate, and decreases in accrued payroll and related taxes, were partially offset by decrease in accounts receivable due to increased collection efforts, and increases in accounts payable and accrued expenses, accrued protocol expenses, and accrued radioactive waste disposal.
 
Net cash used by operating activities in the six months ended December 31, 2020 was primarily due to a net loss of approximately $1.58 million net of approximately $279,000 in adjustments for non-cash activity such as share-based compensation, depreciation and amortization expense, accretion of asset retirement obligation, and loss on equipment disposal. Changes in operating assets and liabilities provided approximately $204,000 from operating activities; decreases to accounts receivable due to increased collection efforts and prepaid expenses, and increases in accrued protocol expense, accrued vacation, and accrued radioactive waste disposal were partially offset by a decrease in account payable and accrued payroll and related taxes and increased inventory purchases.
 
Cash flows from investing activities
 
Investing activities for the six months ended December 31, 2021 and 2020 respectively, consisted of transactions related to the purchase of fixed assets. 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 six months ended December 31, 2021 included proceeds pursuant to the exercise of options to purchase common stock.
 
Financing activities in the six months ended December 31, 2020 included payment of preferred dividends, and net proceeds from sale of common stock of approximately $8,500,000 from sale of 18,269,230 shares of common stock.
 
Projected fiscal  2022  liquidity and capital resources
 
Operating activities
 
Management forecasts that fiscal 2022 cash requirements will increase compared 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. These assumptions do assume that GammaTile™ will contribute to total revenue but do not incorporate any significant growth in the other non-prostate applications as they generate nominal revenues today but if they show significant improvement, cashflow break-even could occur sooner. There is no assurance that the targeted sales growth will materialize but management is encouraged by the depth and experience of its sales team and its track record of growth during the last three fiscal years despite the ongoing COVID-19 pandemic. The Company missed its target of twenty-five percent increased revenue in the first six months of fiscal 2022 and there is no assurance that targeted sales growth will continue over the next three to four years.
  
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. The Company has limited additional space at this time and may need more office space in the future.
 
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.
 
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Financing activities
 
When it does require capital in the future, 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 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.
 
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, 2021. There have been no material changes outside of the ordinary course of business in those obligations during the six months ended December 31, 2021 other than those previously disclosed in note 7 of the financial statements contained in this filing.
 
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 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 six months ended December 31, 2021, there have been no changes to the critical accounting policies and estimates discussed in Part II, Item 7 of our Form 10-K for the year ended June 30, 2021.
  
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) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of December 31, 2021. 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.
 
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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 annual report on Form 10-K for the year ended June 30, 2021. 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 six months ended December 31, 2021 approximately 45% of the Company’s revenues were dependent on three customers, with approximately 25% being generated by one group of customers. The loss of any of these customers would have a material adverse effect on the Company’s revenues that may not be replaced by other customers, particularly as these customers are in the prostate sector which is facing substantial competition from other treatments.
 
The Uncertainty Regarding Reimbursement for Use of Our Product Has Been Resolved .
 
Hospitals and freestanding clinics may be less likely to purchase our product if they cannot be assured of receiving favorable reimbursement for treatments using our product from third-party payers, such as Medicare and private health insurance plans. Currently, Medicare reimburses hospitals under the fee-for-service (FFS) model that cover the cost of stranded and loose seeds. Clinics and physicians performing procedures in a free-standing center are reimbursed at the actual cost of the seeds. 
 
In July 2019, CMS proposed a significant change to the way Medicare pays for radiation services in an out-patient setting. The Radiation Oncology Alternative Payment Model (RO APM) proposed a single, bundled payment for a 90-day episode of radiation therapy including LDR brachytherapy, IMRT, SBRT, proton therapy, and HDR brachytherapy. The RO APM proposal applied the same payment levels to services provided in physician offices, free-standing centers, and hospital outpatients. In addition, certain surgical codes were proposed to be included in the bundled payment such as those for gynecological treatments. This CMS proposal for a revised payment included brachytherapy sources.
 
The final rule was published on September 18, 2020 with an initial effective date of January 1, 2021; however, CMS subsequently delayed the effective date to July 1, 2021.
 
In July 2021, CMS proposed changes to the RO APM which included removing brachytherapy from the list of included modalities under the RO Model so that brachytherapy would still be paid under the current fee-for-service (FFS) model. In the proposed rule, CMS explained the exclusion of brachytherapy from the RO APM was to ensure that providers would not be incentivized to forego brachytherapy in situations where a combination of brachytherapy and EBRT is clinically indicated. Additionally, the proposed rule included a five year performance period for select zip codes of January 1, 2022 through December 31, 2026.
 
Effective November 2, 2021, CMS finalized the proposed rule from July 2021 and determined to keep all brachytherapy and sources on a fee-for-service model and removed it from the list of included modalities in the RO APM. While management believes that permitting billing for the Company's Cesium-131 product on a fee-for-service model remains favorable to the Company, there is no assurance as to when a new proposal will be proposed for an alternative billing method such as the bundled payment going into effect for many other treatment modalities under RO APM. Brachytherapy and sources or seeds will continue to be paid separately. 
 
In December 2021, Congress delayed the start of the RO APM, now starting on January 1, 2023.
 
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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.
 
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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 No. 3, dated November 17, 2021, to the Amended and Restated Manufacturing and Supply Agreement dated April 26, 2019, between Isoray Medical, Inc. and GT Medical Technologies, Inc., incorporated by reference to Exhibit 10.1 of the Form 8-K filed on November 23, 2021.
 
 
 
10.2
 
Service Agreement, dated December 13, 2021, between Isoray Medical, Inc. and MedikorPharma-Ural LLC, incorporated by reference to Exhibit 10.1 of the Form 8-K filed on December 17, 2021.
 
 
 
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*
 
Inline XBRL Instance Document
 
 
 
101.SCH*
 
Inline XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL*
 
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF*
 
Inline XBRL Taxonomy Extension Definition Linkbase Document
 
101.LAB*
 
Inline XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE*
 
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 
 
 
104
 
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
 
* Filed herewith
** Furnished herewith
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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 9, 2022
 
 
 
 
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
 
 
Vice President of Finance and Corporate Controller
(Co-Principal Financial, Principal Accounting Officer, Corporate Secretary)
 
 
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.