UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 |
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 | (I.R.S. Employer |
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350 Hills St., Suite 106, Richland, Washington | 99354 |
(Address of principal executive offices) | (Zip Code) |
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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 | ☒ |
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| 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 |
Common stock, $0.001 par value | 67,650,547 |
ISORAY, INC.
PART I |
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Item 1 | 1 | |
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| Consolidated Statement of Changes in Shareholders' Equity (Unaudited) | 4 | |
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Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 |
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Item 3 |
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Item 4 |
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PART II |
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Item 1 | ||
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Item 1A |
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Item 2 |
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Item 3 |
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Item 4 |
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Item 5 |
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Item 6 |
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ITEM 1 – FINANCIAL STATEMENTS
Consolidated Balance Sheets (Unaudited) |
(In thousands, except shares) |
December 31, | June 30, | March 31, | June 30, | |||||||||||||
2019 | 2019 | 2020 | 2019 | |||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 3,180 | $ | 5,326 | $ | 2,405 | $ | 5,326 | ||||||||
Accounts receivable, net | 1,409 | 1,154 | 2,147 | 1,154 | ||||||||||||
Inventory | 545 | 530 | 580 | 530 | ||||||||||||
Prepaid expenses and other current assets | 497 | 305 | 587 | 305 | ||||||||||||
Total current assets | 5,631 | 7,315 | 5,719 | 7,315 | ||||||||||||
Property and equipment, net | 1,736 | 1,609 | 1,744 | 1,609 | ||||||||||||
| Right of use asset, net (Note 9) | 1,116 | - | ||||||||||||||
| Right of use asset, net (Note 8) | 1,059 | - | ||||||||||||||
Restricted cash | 181 | 181 | 181 | 181 | ||||||||||||
Inventory, non-current | 127 | 155 | 126 | 155 | ||||||||||||
Other assets, net of accumulated amortization | 142 | 162 | 133 | 162 | ||||||||||||
Total assets | $ | 8,933 | $ | 9,422 | $ | 8,962 | $ | 9,422 | ||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable and accrued expenses | $ | 632 | $ | 683 | $ | 937 | $ | 683 | ||||||||
| Lease liability (Note 9) | 229 | - | ||||||||||||||
| Lease liability (Note 8) | 232 | - | ||||||||||||||
Accrued protocol expense | 24 | 133 | 45 | 133 | ||||||||||||
Accrued radioactive waste disposal | 89 | 74 | 87 | 74 | ||||||||||||
Accrued payroll and related taxes | 203 | 89 | 260 | 89 | ||||||||||||
Accrued vacation | 163 | 142 | 183 | 142 | ||||||||||||
Total current liabilities | 1,340 | 1,121 | 1,744 | 1,121 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
| Lease liability, non-current (Note 9) | 889 | - | ||||||||||||||
| Lease liability, non-current (Note 8) | 830 | - | ||||||||||||||
Asset retirement obligation | 563 | 621 | 570 | 621 | ||||||||||||
Total liabilities | 2,792 | 1,742 | 3,144 | 1,742 | ||||||||||||
Commitments and contingencies (Note 7) | ||||||||||||||||
Shareholders' equity: | ||||||||||||||||
Preferred stock, $.001 par value; 7,000,000 shares authorized: | ||||||||||||||||
Series B: 5,000,000 shares allocated; 59,065 shares issued and outstanding | - | - | - | - | ||||||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; 67,388,047 shares issued and outstanding | 67 | 67 | ||||||||||||||
Common stock, $.001 par value; 200,000,000 shares authorized; 67,650,547 and 67,388,047 shares issued and outstanding | 68 | 67 | ||||||||||||||
Additional paid-in capital | 92,279 | 92,105 | 92,500 | 92,105 | ||||||||||||
Accumulated deficit | (86,205 | ) | (84,492 | ) | (86,750 | ) | (84,492 | ) | ||||||||
Total shareholders' equity | 6,141 | 7,680 | 5,818 | 7,680 | ||||||||||||
Total liabilities and shareholders' equity | $ | 8,933 | $ | 9,422 | $ | 8,962 | $ | 9,422 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
Consolidated Statements of Operations (Unaudited)
(Dollars and shares in thousands, except for per-share amounts)
Three months ended | Nine months ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Sales, net | $ | 2,880 | $ | 1,924 | $ | 7,401 | $ | 5,390 | ||||||||
Cost of sales | 1,174 | 1,045 | 3,348 | 3,222 | ||||||||||||
Gross profit | 1,706 | 879 | 4,053 | 2,168 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development: | ||||||||||||||||
Proprietary research and development | 294 | 299 | 804 | 1,088 | ||||||||||||
Collaboration arrangement, net of reimbursement | - | - | - | 45 | ||||||||||||
Total research and development | 294 | 299 | 804 | 1,133 | ||||||||||||
Sales and marketing | 805 | 645 | 2,286 | 1,996 | ||||||||||||
| Gain on equipment disposal | - | (1 | ) | - | (24 | ) | ||||||||||
General and administrative | 1,155 | 1,099 | 3,323 | 3,173 | ||||||||||||
| Gain on change in estimate of asset retirement obligation | - |
| - | (73 | ) | - | ||||||||||
Total operating expenses | 2,254 | 2,042 | 6,340 | 6,278 | ||||||||||||
Operating loss | (548 | ) | (1,163 | ) | (2,287 | ) | (4,110 | ) | ||||||||
Non-operating income: | ||||||||||||||||
Interest income, net | 3 | 34 | 29 | 59 | ||||||||||||
Other income | - | 2 | - | 2 | ||||||||||||
Non-operating income | 3 | 36 | 29 | 61 | ||||||||||||
Net loss | (545 | ) | (1,127 | ) | (2,258 | ) | (4,049 | ) | ||||||||
Preferred stock dividends | (3 | ) | (3 | ) | (8 | ) | (8 | ) | ||||||||
Net loss applicable to common shareholders | $ | (548 | ) | $ | (1,130 | ) | $ | (2,266 | ) | $ | (4,057 | ) | ||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.06 | ) | ||||
Weighted average shares used in computing net loss per share: | ||||||||||||||||
Basic and diluted | 67,558 | 67,333 | 67,444 | 66,937 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
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Three months ended | Six months ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Sales, net | $ | 2,206 | $ | 1,904 | $ | 4,521 | $ | 3,466 | ||||||||
Cost of sales | 1,095 | 1,139 | 2,174 | 2,177 | ||||||||||||
Gross profit | 1,111 | 765 | 2,347 | 1,289 | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development: | ||||||||||||||||
Proprietary research and development | 277 | 395 | 510 | 789 | ||||||||||||
Collaboration arrangement, net of reimbursement | - | 19 | - | 45 | ||||||||||||
Total research and development | 277 | 414 | 510 | 834 | ||||||||||||
Sales and marketing | 666 | 702 | 1,481 | 1,351 | ||||||||||||
(Gain) on equipment disposal | - | (23 | ) | - | (23 | ) | ||||||||||
General and administrative | 1,071 | 1,101 | 2,168 | 2,074 | ||||||||||||
| (Gain) on change in estimate of asset retirement obligation (Note 9) | - | - | (73 | ) | - | |||||||||||
Total operating expenses | 2,014 | 2,194 | 4,086 | 4,236 | ||||||||||||
Operating loss | (903 | ) | (1,429 | ) | (1,739 | ) | (2,947 | ) | ||||||||
Non-operating income: | ||||||||||||||||
Interest income, net | 6 | 15 | 26 | 25 | ||||||||||||
Non-operating income | 6 | 15 | 26 | 25 | ||||||||||||
Net loss | (897 | ) | (1,414 | ) | (1,713 | ) | (2,922 | ) | ||||||||
Preferred stock dividends | (2 | ) | (2 | ) | (5 | ) | (5 | ) | ||||||||
Net loss applicable to common shareholders | $ | (899 | ) | $ | (1,416 | ) | $ | (1,718 | ) | $ | (2,927 | ) | ||||
Basic and diluted loss per share | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.03 | ) | $ | (0.04 | ) | ||||
Weighted average shares used in computing net loss per share: | ||||||||||||||||
Basic and diluted | 67,388 | 67,331 | 67,388 | 66,743 | ||||||||||||
Consolidated Statements of Cash Flows (Unaudited) (In thousands)
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Six months ended December 31, | ||||||||
2019 | 2018 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (1,713 | ) | $ | (2,922 | ) | ||
Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
Depreciation expense | 77 | 65 | ||||||
Gain on equipment disposals | - | (23 | ) | |||||
Amortization of other assets | 20 | 25 | ||||||
Accretion of asset retirement obligation | 15 | 16 | ||||||
| Gain on change in estimate of asset retirement obligation | (73 | ) | - | |||||
Share-based compensation | 185 | 190 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable, net | (255 | ) | 85 | |||||
Inventory | 13 | 53 | ||||||
Prepaid expenses and other current assets | (190 | ) | (20 | ) | ||||
Accounts payable and accrued expenses | (51 | ) | (195 | ) | ||||
Accrued protocol expense | (109 | ) | 36 | |||||
Accrued radioactive waste disposal | 15 | 18 | ||||||
Accrued payroll and related taxes | 114 | (35 | ) | |||||
Accrued vacation | 21 | (19 | ) | |||||
Net cash used by operating activities | (1,931 | ) | (2,726 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Additions to property and equipment | (204 | ) | (225 | ) | ||||
Proceeds from sale of equipment | - | 23 | ||||||
Proceeds from maturity of certificates of deposit | - | 4,418 | ||||||
Purchases of and interest from U.S. Treasury Securities | - | (8,259 | ) | |||||
Net cash used by investing activities | (204 | ) | (4,043 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Preferred dividends paid | (11 | ) | (11 | ) | ||||
Proceeds from sales of common stock, pursuant to registered direct offering, net | - | 7,381 | ||||||
Net cash (used) provided by financing activities | (11 | ) | 7,370 | |||||
Net increase (decrease) in cash, cash equivalents, and restricted cash | (2,146 | ) | 601 | |||||
Cash, cash equivalents, and restricted cash beginning of period | 5,507 | 2,781 | ||||||
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH END OF PERIOD | $ | 3,361 | $ | 3,382 | ||||
Reconciliation of cash, cash equivalents, and restricted cash to the consolidated balance sheets: | ||||||||
Cash and cash equivalents | $ | 3,180 | $ | 3,201 | ||||
Restricted cash | $ | 181 | $ | 181 | ||||
Total cash, cash equivalents, and restricted cash shown on the consolidated statements of cash flows | $ | 3,361 | $ | 3,382 | ||||
Non-cash investing and financing activities: | ||||||||
| Recognition of operating lease liability and right of use asset | $ | 1,228 | $ | - | ||||
Warrants issued to placement agent of registered direct offering | $ | - | $ | 163 | ||||
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Consolidated Statement of Changes in Shareholders' Equity (Unaudited) |
(In thousands, except shares) |
Series B | Common Stock | Series B | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2018 | 59,065 | $ | - | 56,331,147 | $ | 56 | $ | 84,322 | $ | (79,348 | ) | $ | 5,030 | 59,065 | $ | - | 56,331,147 | $ | 56 | $ | 84,322 | $ | (79,348 | ) | $ | 5,030 | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to registered direct offering, net | 11,000,000 | 11 | 7,483 | 7,494 | 11,000,000 | 11 | 7,483 | 7,494 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 93 | 93 | 93 | 93 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | (1,508 | ) | (1,508 | ) | (1,508 | ) | (1,508 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at September 30, 2018 | 59,065 | $ | - | 67,331,147 | $ | 67 | $ | 91,898 | $ | (80,856 | ) | $ | 11,109 | 59,065 | $ | - | 67,331,147 | $ | 67 | $ | 91,898 | $ | (80,856 | ) | $ | 11,109 | ||||||||||||||||||||||||||||||
| Offering costs pursuant to registered direct offering, net | (116 | ) | (116 | ) | (116 | ) | (116 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Payment of dividend to preferred shareholders | (11 | ) | (11 | ) | (11 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 97 | 97 | 97 | 97 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | (1,414 | ) | (1,414 | ) | (1,414 | ) | (1,414 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at December 31, 2018 | 59,065 | $ | - | 67,331,147 | $ | 67 | $ | 91,868 | $ | (82,270 | ) | $ | 9,665 | 59,065 | $ | - | 67,331,147 | $ | 67 | $ | 91,868 | $ | (82,270 | ) | $ | 9,665 | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of options | 6,900 | - | 2 | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Offering costs pursuant to registered direct offering, net | (8 | ) | (8 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 79 | 79 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | (1,127 | ) | (1,127 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| �� | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2019 | 59,065 | $ | - | 67,338,047 | $ | 67 | $ | 91,941 | $ | (83,397 | ) | $ | 8,611 | |||||||||||||||||||||||||||||||||||||||||||
Series B | Common Stock |
Series B | Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||
Balances at June 30, 2019 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,105 | $ | (84,492 | ) | $ | 7,680 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,105 | $ | (84,492 | ) | $ | 7,680 | ||||||||||||||||||||||||||||||
Share-based compensation | 91 | 91 | 91 | 91 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (816 | ) | (816 | ) | (816 | ) | (816 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances at September 30, 2019 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,196 | $ | (85,308 | ) | $ | 6,955 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,196 | $ | (85,308 | ) | $ | 6,955 | ||||||||||||||||||||||||||||||
Payment of dividend to preferred shareholders | (11 | ) | (11 | ) | (11 | ) | (11 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation | 94 | 94 | 94 | 94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | (897 | ) | (897 | ) | (897 | ) | (897 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2019 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,279 | $ | (86,205 | ) | $ | 6,141 | 59,065 | $ | - | 67,388,047 | $ | 67 | $ | 92,279 | $ | (86,205 | ) | $ | 6,141 | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of options | 262,500 | 1 | 130 | 131 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-based compensation | 91 | 91 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | (545 | ) | (545 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances at March 31, 2020 | 59,065 | $ | - | 67,650,547 | $ | 68 | $ | 92,500 | $ | (86,750 | ) | $ | 5,818 | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements. |
Notes to the Unaudited Consolidated Financial Statements
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 presentation 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 footnotes as set forth in the Company’s annual report filed on Form 10-K for the year ended June 30, 2019.
The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (GAAP) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures are adequate for the information not to be misleading.
Certain prior period amounts have been reclassified to conform to the current period’s presentation. The results of operations for the periods presented may not be indicative of those which may be expected for a full year. 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 2020 will be 0%.
2. |
Accounting Standards Updates Adopted
In February 2016, the FASB issued ASU 2016-02 Leases (Subtopic 842), which requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by most leases. The update was effective for annual and interim reporting periods beginning after December 15, 2018 and early adoption was permitted. The ASU became effective for, and was adopted by, the Company in the first quarter of the fiscal year ending June 30, 2020. The Company elected the transition option to apply the new guidance at the effective date without adjusting comparative periods presented.
Accounting Standards Updates to Become Effective in Future Periods
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. 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.
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. 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.
3. | Loss per Share |
Basic and diluted earnings (loss) per share are calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding and does not include the impact of any potentially dilutive common stock equivalents. At MarchDecember 31, 20192020 and 2018,2019, the calculation of diluted weighted average shares did not include convertible preferred stock, common stock warrants, or options that are potentially convertible into common stock as those would be antidilutive due to the Company’s net loss position.
Securities not considered in the calculation of diluted weighted average shares, but that could be dilutive in the future as of DecemberMarch 31, 20192020 and 2018,2019, were as follows (in thousands):
December 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Series B preferred stock | 59 | 59 | 59 | 59 | ||||||||||||
Common stock warrants | 6,080 | 6,080 | 6,080 | 6,080 | ||||||||||||
Common stock options | 4,651 | 3,917 | 4,367 | 3,925 | ||||||||||||
Total potential dilutive securities | 10,790 | 10,056 | 10,506 | 10,064 | ||||||||||||
4. | Inventory |
Inventory consisted of the following at DecemberMarch 31, 20192020 and June 30, 2019 (in thousands):
December 31, | June 30, | March 31, | June 30, | |||||||||||||
2019 | 2019 | 2020 | 2019 | |||||||||||||
Raw materials | $ | 372 | $ | 333 | $ | 369 | $ | 333 | ||||||||
Work in process | 166 | 166 | 198 | 166 | ||||||||||||
Finished goods | 7 | 31 | 13 | 31 | ||||||||||||
Total inventory, current | $ | 545 | $ | 530 | $ | 580 | $ | 530 | ||||||||
December 31, | June 30, | March 31, | June 30, | |||||||||||||
2019 | 2019 | 2020 | 2019 | |||||||||||||
Enriched barium, non-current | $ | 116 | $ | 117 | $ | 116 | $ | 117 | ||||||||
Raw materials, non-current | 11 | 38 | 10 | 38 | ||||||||||||
Total inventory, non-current | $ | 127 | $ | 155 | $ | 126 | $ | 155 | ||||||||
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. The Company originally anticipated obtaining enough Cesium-131 under this arrangement to obtain over 4,000 curies of Cesium-131. During the three and sixnine months ended DecemberMarch 31, 2019,2020, the Company obtained no and 31 curies, respectively, of Cesium-131 under this agreement which has been used in production. At DecemberMarch 31, 2019,2020, the Company estimates that the remaining enriched barium will result in 894 curies; approximately 60 of which will be obtained in the next twelve months and 834 will be obtained after DecemberMarch 31, 2020.2021. There is no assurance as to whether the agreement will be terminated before this full amount is obtained andobtained. If terminated, other supply sources arewill be used.
5. | Property and Equipment |
Property and equipment consisted of the following at DecemberMarch 31, 20192020 and June 30, 2019 (in thousands):
December 31, | June 30, | March 31, | June 30, | |||||||||||||
2019 | 2019 | 2020 | 2019 | |||||||||||||
Land | $ | 366 | $ | 366 | $ | 366 | $ | 366 | ||||||||
Equipment | 3,873 | 3,825 | 3,878 | 3,825 | ||||||||||||
Leasehold improvements | 4,143 | 4,143 | 4,143 | 4,143 | ||||||||||||
Other1 | 801 | 645 | 841 | 645 | ||||||||||||
Property and equipment | 9,183 | 8,979 | 9,228 | 8,979 | ||||||||||||
Less accumulated depreciation | (7,447 | ) | (7,370 | ) | (7,484 | ) | (7,370 | ) | ||||||||
Property and equipment, net | $ | 1,736 | $ | 1,609 | $ | 1,744 | $ | 1,609 | ||||||||
1 Includes plant and equipment not placed in service which 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 DecemberMarch 31, 20192020 and June 30, 2019 are costs associated with advance planning and design work on the Company’s new production facility of $207,000.
6. | Share-Based Compensation |
The following table presents the share-based compensation expense recognized for stock-basedstock options during the three months ended DecemberMarch 31, 2019 2020 and 20182019 (in thousands):
Three Months | ||||||||
2019 | 2018 | |||||||
Cost of sales | $ | 8 | $ | 10 | ||||
Research and development expenses | 19 | 18 | ||||||
Sales and marketing expenses | 24 | 22 | ||||||
General and administrative expenses | 43 | 47 | ||||||
Total share-based compensation | $ | 94 | $ | 97 | ||||
Three Months | ||||||||
2020 | 2019 | |||||||
Cost of sales | $ | 8 | $ | 9 | ||||
Research and development expenses | 18 | 18 | ||||||
Sales and marketing expenses | 24 | 22 | ||||||
General and administrative expenses | 41 | 30 | ||||||
Total share-based compensation | $ | 91 | $ | 79 | ||||
The following table presents the share-based compensation expense recognized for stock-basedstock options during the sixnine months ended DecemberMarch 31, 2019 2020 and 20182019 (in thousands):
Six Months | Nine Months | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Cost of sales | $ | 16 | $ | 20 | $ | 24 | $ | 30 | ||||||||
Research and development expenses | 38 | 36 | 56 | 54 | ||||||||||||
Sales and marketing expenses | 49 | 44 | 73 | 65 | ||||||||||||
General and administrative expenses | 82 | 90 | 123 | 120 | ||||||||||||
Total share-based compensation | $ | 185 | $ | 190 | $ | 276 | $ | 269 | ||||||||
As of DecemberMarch 31, 2019, 2020, total unrecognized compensation expense related to stock-basedstock options was approximately $454,000362,000 and the related weighted-average period over which it is expected to be recognized is approximately .91.85 years.
A summary of stock options within the Company’s share-based compensation plans as of DecemberMarch 31, 2019 2020 was as follows (in thousands except for exercise prices and terms):
Weighted | Weighted | |||||||||||||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||||||||||||
Number of | Exercise | Contractual | Intrinsic | Number of | Exercise | Contractual | Intrinsic | |||||||||||||||||||||||||
As of December 31, 2019 | Options | Price | Term (Years) | Value | ||||||||||||||||||||||||||||
As of March 31, 2020 | Options | Price | Term (Years) | Value | ||||||||||||||||||||||||||||
Outstanding | 4,651 | $ | .64 | 7.46 | $ | 418 | 4,367 | $ | .65 | 7.18 | $ | 172 | ||||||||||||||||||||
Vested and expected to vest | 4,651 | $ | .64 | 7.46 | $ | 418 | 4,367 | $ | .65 | 7.18 | $ | 172 | ||||||||||||||||||||
Vested and exercisable | 2,956 | $ | .74 | 6.71 | $ | 172 | 2,800 | $ | .75 | 6.42 | $ | 63 | ||||||||||||||||||||
There were no262,500 and 6,900 stock options exercised, with approximately $83,000 and $1,000 of intrinsic value associated with these exercises during the three months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively. The Company’s current policy is to issue new shares to satisfy stock option exercises.
There were 30,000no and 155,00025,000 option awards granted with a fair value of approximately $11,000$0 and $52,000$7,000 during the three months ended DecemberMarch 31, 2020 and 2019, and 2018,respectively.
There were no21,250 and 10,000 stock option awards which expired during the three months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively.
There were no and 32,000 stock option awards forfeited during the three months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively.
There were no262,500 and 6,900 stock options exercised, with approximately $83,000 and $1,000 of intrinsic value associated with these exercises during the sixnine months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively. The Company’s current policy is to issue new shares to satisfy stock option exercises.
There were 40,000 and 237,500262,500 option awards granted with a fair value of approximately $14,000$14,000 and $87,000$94,000 during the sixnine months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively.
There were 8,25029,500 and 10,00020,000 stock option awards which expired during the sixnine months ended DecemberMarch 31, 2019 2020 and 2018,2019, respectively.
There were 26,250 and 70,750 stock option awards forfeited during the sixnine months ended DecemberMarch 31, 2020 and 2019, and 2018,respectively.
7. | Commitments and Contingencies |
Isotope Purchase Agreement
In December 2015, the Company completed negotiations with The Open Joint Stock Company (located in Russia) for the purchase of Cesium-131 manufactured by the Institute of Nuclear Materials. The purchase agreement provided the Company with one year’s supply of Cesium-131. The original agreement was due to expire on March 31, 2017, but in December 2016 an addendum was signed extending it until December 31, 2017. On October 23, 2017, the Company, together with The Open Joint Stock Company, signed an addendum to the contract to include Cesium-131 manufactured at RIAR and extending it until December 31, 2018. On December 24, 2018, an addendum was signed extending the term of the supply contract through December 31, 2019 and modifying the volume of additional shipments of Cesium-131. Under the addendum, current pricing and volumes for Cesium-131 purchases remained in place until May 31, 2019. On July 11, 2019, another addendum was signed extending the pricing terms until August 4, 2019. On July 30, 2019, a new supply contract was signed with The Open Joint Stock Company for a term of August 2019 to December 2020 as the Company had purchased the maximum amount of Cesium-131 permitted under the prior agreement.
8. |
|
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement (in thousands):
Fair Value at December 31, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash and cash equivalents | $ | 3,180 | $ | 3,180 | $ | - | $ | - | ||||||||
Fair Value at June 30, 2019 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash and cash equivalents | $ | 5,326 | $ | 5,326 | $ | - | $ | - | ||||||||
The Company’s cash and cash equivalent instruments are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.
| Leases |
The Company maintains a production facility located at Applied Process Engineering Laboratory (APEL) in Richland, Washington. The APEL facility became operational in September 2007. The production facility has over 15,000 square feet and includes space for isotope separation, seed production, order dispensing, a clean room for assembly of our product offerings, and a dedicated shipping area. In 2015, the Company entered into a modification to the production facility lease that modified the requirement to return the facility to ground at the time of exit at Company discretion, exercised an extension in 2017 to increase the lease term to April 30, 2021, and reduced the required notice to terminate the lease early from twelve months to six months. In July 2019, the Company entered into another modification of the production facility lease that extends the term to April 20, 2026, maintains the current rental rate through April 2020, and provides for an eighteen month termination notice with an early termination penalty of up to $40,000 which decreases in the future beginning May 1, 2022.
Upon the adoption of Topic 842 on July 1, 2019, the Company recognized a right-of-use asset and lease liability of approximately $1.2 million. In determining the amount of the right-of-use asset and lease liability, we assumed the termination of the lease in April 2024 and incurring a termination penalty of $20,000. As of the date of adoption, the operating lease is included on the balance sheet at the present value of the future base payments discounted at a 6% discount rate using the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment as the lease does not provide an implicit discount rate. The weighted average remaining term and discount rate as of DecemberMarch 31, 20192020 was 4.34.1 years and 6%, respectively.
For the three and sixnine months ended DecemberMarch 31, 2019,2020, our operating lease expense was approximately $73,000 and $147,000,$220,000, respectively. Operating right-of-use asset amortization was approximately $56,000 and $111,000 during the three and six months ended December 31, 2019, respectively. Due to lease expense in excess of payments made, the lease liability decreased approximately $55,000 and $109,000 for the three and six months ended December 31, 2019.
The following table presents the future operating lease payments and lease liability included on the condensed balance sheet related to the Company’s operating lease as of DecemberMarch 31, 20192020 (in thousands):
| Year Ending June 30, | ||||
| 2020 (remaining nine months of the year) | $ | 145 | ||
| 2021 | 290 | |||
| 2022 | 290 | |||
| 2023 | 290 | |||
| 2024 | 237 | |||
| Total | 1,252 | |||
| Less: Imputed Interest | (134 | ) | ||
| Total Lease Liability | 1,118 | |||
| Less current portion | (229 | ) | ||
| Non-current Lease Liability | $ | 889 |
| Year Ending June 30, | ||||
| 2020 (remaining three months of the year) | $ | 72 | ||
| 2021 | 290 | |||
| 2022 | 290 | |||
| 2023 | 290 | |||
| 2024 | 237 | |||
| Total | 1,179 | |||
| Less: Imputed Interest | (117 | ) | ||
| Total Lease Liability | 1,062 | |||
| Less current portion | (232 | ) | ||
| Non-current Lease Liability | $ | 830 |
Asset Retirement Obligation
The Company has an asset retirement obligation (ARO) associated with the facility it currently leases. In connection with the lease modification executed in July 2019, the ARO changed as follows (in thousands):
| Six months ended December 31, | Nine months ended March 31, | |||||||||||||||
| 2019 | 2018 | 2020 | 2019 | |||||||||||||
| Beginning balance | $ | 621 | $ | 590 | $ | 621 | $ | 590 | ||||||||
| Accretion of discount | 15 | 16 | 22 | 23 | ||||||||||||
| Gain on change in ARO estimate due to lease modification | (73 | ) | - | (73 | ) | - | ||||||||||
| Ending Balance | $ | 563 | $ | 606 | $ | 570 | $ | 613 | ||||||||
The original facility lease was scheduled to expire in the fourth quarter of fiscal year 2016. Upon the end of the original lease term, the initial asset retirement estimate was fully accreted and the related ARO asset was fully amortized. During the six months ended December 31,In July 2019, the Company extended the lease term an additional five years thus extending the time before asset retirement costs would be incurred. This resulted inThe Company estimated retirement costs to be $704,000, which was discounted utilizing an interest rate of 5.1% for a decrease in thenew ARO balance to a fair valueliability of $555,000, anda reduction of $73,000. At the time of extension, the asset retirement asset had been fully amortized, thus the Company recognized a gain on change in the estimate of $73,000 during the six months ended December 31, 2019. At the time$73,000.
| Shareholders’ Equity |
On March 31, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co., Inc. (“Oppenheimer”). The common stock sold pursuant to the Agreement will be distributed at the market prices prevailing at the time of sale. The Agreement provides that Oppenheimer will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of March 31, 2020, the Company has not sold any shares.
On July 11, 2018, the Company completed the closing of a registered direct offering with several institutional and accredited investors (each an “Investor”) for the sale of a total of 11,000,000 shares of common stock of the Company (“Shares”) at a price per share of $0.75, for aggregate gross proceeds to the Company of $8.25 million. Cash expenses relating to this offering were approximately $0.75 million.
In a concurrent private placement, the Company sold to each Investor, at no additional consideration, unregistered warrants to purchase up to the number of shares of common stock of the Company equal to 50% of such Investor’s Shares or a total of 5,500,000 shares, with an exercise price of $0.75 per share, exercisable from January 11, 2019 until January 11, 2024 (the “Investor Warrants”). The Company also issued warrants to purchase up to 330,000 shares of common stock of the Company, at an exercise price of $0.9375, exercisable from January 11, 2019 until July 10, 2023, to representatives of H.C. Wainwright & Co., LLC (“Wainwright”), the placement agent for the registered direct offering, as part of its compensation (the “Placement Agent Warrants” and together with the Investor Warrants, the “Warrants”).
The aggregate number of shares of our common stock issuable upon the exercise of the Warrants is 5,830,000 shares relating to this offering. We will receive gross proceeds from this offering solely to the extent any Warrants are exercised for cash.
| Contracts with Customers |
We routinely enter into agreements with customers that include general commercial terms and conditions, notification requirements for price increases, shipping terms, and in most cases, prices for the products that we offer. However, these agreements do not obligate us to provide goods to the customer and there is no consideration promised to us at the onset of these arrangements. For customers without separate agreements, we have a standard list price established for all products and our invoices contain standard terms and conditions that are applicable to those customers where a separate agreement is not controlling. Our performance obligations are established when a customer submits a purchase order or e-mail notification (in writing, electronically or verbally) for goods, and we accept the order. We identify performance obligations as the sale of our products and services as requested from our customers. We generally recognize revenue upon the satisfaction of these criteria when control of the product has been transferred to the customer at which time we have an unconditional right to receive payment. Our prices are fixed and are not affected by contingent events that could impact the transaction price. We do not offer price concessions and do not accept payment that is less than the price stated when we accept the purchase order, except in rare credit related circumstances. We do not have any material performance obligations where we are acting as an agent for another entity.
Revenues for all products are typically recognized at the time the product is shipped, at which time the title passes to the customer, and there are no further performance obligations.
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 DecemberMarch 31, 2020 and 2019, the Company did not have any international revenue.
During the nine months ended March 31, 2020, the Company did not have any international revenue and had a nominal amount during the threenine months ended DecemberMarch 31, 2018.
During the six months ended December 31, 2019, the Company did not have any international revenue and had a nominal amount during the six months ended December 31, 2018.2019.
For the three months ended DecemberMarch 31, 2019 and 2018, respectively,2020 prostate brachytherapy comprised 89%84% of our revenue while other revenue comprised 11%.16% compared to 88% and 12%, respectively, for the three months ended March 31, 2019.
For the sixnine months ended DecemberMarch 31, 2019 and 2018, respectively,2020 prostate brachytherapy comprised 89%87% of our revenue while other revenue comprised 11%.13% compared to 88% and 12%, respectively, for the nine months ended March 31, 2019.
Contract Balances
We incur obligations on general customer purchase orders and e-mails that have been accepted but unfulfilled. Due to the short duration of time between order acceptance and delivery of the related product, we have determined that the balance related to these obligations is generally immaterial at any point in time. We monitor the value of orders accepted but unfulfilled at the close of each reporting period to determine if disclosure is appropriate.
Warranty
Our general product warranties do not extend beyond an assurance that the product delivered will be consistent with stated specifications and do not include separate performance obligations.
Returns
Generally, we allow returns if not implanted and we are notified within a few weeks after satisfying our performance obligations of a return. Returns after shipment may result in a 50% restocking fee.
Significant Judgments in the Application of the Guidance in ASC 606
There are no significant judgments associated with the satisfaction of our performance obligations. We generally satisfy performance obligations upon shipment of the product to the customer. This is consistent with the time in which the customer obtains control of the products. Therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally immaterial. We use historical information along with an analysis of the expected value to properly calculate and to consider the need to constrain estimates of variable consideration. Such amounts are included as a reduction to revenue from the sale of products in the periods in which the related revenue is recognized and adjusted in future periods as necessary.
Commissions and Contract Costs
We expense commissions on orders to our sales team upon satisfaction of our performance obligations. We generally do not incur incremental charges associated with securing agreements with customers which would require capitalization and recovery over the life of the agreement.
Practical Expedients
Our payment terms for sales direct to customers and distributors are substantially less than the one year collection period that falls within the practical expedient in determination of whether a significant financing component exists.
Shipping and Handling Charges
Fees charged to customers for shipping and handling of products are included as revenue and the costs for shipping and handling of products are included as a component of cost of sales.
Taxes Collected from Customers
As our products are used in another service and are exempt, to this point we have not collected taxes. If we were to collect taxes they would be on the value of transaction revenue and would be excluded from revenues and cost of sales and would be accrued in current liabilities until remitted to governmental authorities.
Concentration of Customers
One group of customers, facilities or physician practices has revenues that aggregate to greater than 10% of total Company sales. While the aggregate members of the group aggregate to more than 10% of total Company sales, no single member of the group has revenues greater than 10% of total Company sales. These facilities are serviced by the same physician group, one of whom is our Medical Director:
Six Months Ended December 31, | Nine Months Ended March 31, | |||||||||||||||
Facility | 2019 revenue | 2018 revenue | 2020 revenue | 2019 revenue | ||||||||||||
El Camino, Los Gatos, & other facilities | 23.60 | % | 22.26 | 25.00 | % | 20.97 | ||||||||||
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 22 23 below that may cause actual results to differ materially.
Consequently, all of the forward-looking statements made in this Form 10-Q are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to or effects on our business operations. Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of the Company’s views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. On an on-going basis, management evaluates past judgments and estimates, including those related to bad debts, inventories, accrued liabilities, derivative liabilities and contingencies. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies and related risks described in the Company’s annual report on Form 10-K as filed with the SEC on September 27, 2019 are those that depend most heavily on these judgments and estimates. As of DecemberMarch 31, 2019,2020, there had been no material changes to any of the critical accounting policies contained therein.
Overview
Isoray is a brachytherapy device manufacturer with FDA clearance for a single medical device that can be delivered to the physician in multiple configurations as prescribed for the treatment of cancers in multiple body sites. The Company manufactures and sells this product as the Cesium-131 brachytherapy seed.seed or Cesium Blu.
The brachytherapy seed utilizes Cesium-131, with a 9.7 day half-life, 30.4 keV energy isotope as its radiation source. The Company believes that it is the unique combination of the short half-life and the energy of the Cesium-131 isotope that are yielding the beneficial treatment results that have been published in peer reviewed journal articles and presented in various forms at conferences and tradeshows.
The Company has distribution agreements outside of the United States. These distributors are responsible for obtaining regulatory clearance to sell the Company’s products in their territories, with the support of the Company. As of the date of this Report, the Company has distributors in the Russian Federation, Peru and PeruIndia with no reported revenues in these locations during the sixnine months ended DecemberMarch 31, 2019.2020.
The Company has a supply agreement with The Open Joint Stock Company <<Isotope>>, a Russian company, for the supply of Cesium-131 which was extended by an addendum through December 31, 2019 and the volume was also modified. Under the addendum, current pricing and volumes for Cesium-131 purchases remained in place until May 31, 2019. On July 11, 2019, another addendum was signed extending the pricing terms until August 4, 2019. On July 30, 2019, a new supply contract was signed with The Open Joint Stock Company for a term of August 2019 to December 2020 as the Company had purchased the maximum amount of Cesium-131 permitted under the prior agreement. The Company also has a consignment inventory agreement with MedikorPharma-Ural LLC (“Medikor”) to process the Company’s enriched barium at another nuclear reactor in Russia. The term of this consignment agreement began in November 2017 and is for 10 years.2020. Our source of supply of Cesium-131 from Russia is historically produced using one of two nuclear reactors which supply the irradiation needed for Cesium-131 production. One of the Russian nuclear reactors was shut down from December 2017 until August 2018, and the other Russian nuclear reactor shut down in August 2019 and continues to be shut down in 2020 for an indeterminate period. As a result of these scheduled shutdowns only one of the Company's historic Russian suppliers of Cesium-131 is available during these periods. The Company also has a consignment inventory agreement with MedikorPharma-Ural LLC (“Medikor”) to process the Company’s enriched barium at another nuclear reactor in Russia. The term of this consignment agreement began in November 2017 and is for 10 years.
Results of Operations
Three months ended MarchDecember 31, 20192020 and 20182019 (in thousands):
Three months ended December 31, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 - 2018 | 2020 | 2019 | 2020 - 2019 | |||||||||||||||||||||||||||||||||||
Amount | % (a) | Amount | % (a) | % Change | Amount | % (a) | Amount | % (a) | % Change | |||||||||||||||||||||||||||||||
Sales, net | $ | 2,206 | 100 | $ | 1,904 | 100 | 16 | $ | 2,880 | 100 | $ | 1,924 | 100 | 50 | ||||||||||||||||||||||||||
Cost of sales | 1,095 | 50 | 1,139 | 60 | (4 | ) | 1,174 | 41 | 1,045 | 54 | 12 | |||||||||||||||||||||||||||||
Gross profit / (loss) | 1,111 | 50 | 765 | 40 | 45 | 1,706 | 59 | 879 | 46 | 94 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Research and development expenses - proprietary | 277 | 12 | 395 | 21 | (30 | ) | 294 | 10 | 299 | 16 | (2 | ) | ||||||||||||||||||||||||||||
Research and development expenses – collaboration agreement, net of reimbursement | - | - | 19 | 1 | (100 | ) | ||||||||||||||||||||||||||||||||||
Sales and marketing expenses | 666 | 30 | 702 | 37 | (5 | ) | 805 | 28 | 645 | 34 | 25 | |||||||||||||||||||||||||||||
(Gain) on equipment disposal | - |
| - |
| (23 | ) | (1 | ) | 100 | - |
| - |
| (1 | ) | (0 | ) | 100 | ||||||||||||||||||||||
General and administrative expenses | 1,071 | 49 | 1,101 | 58 | (3 | ) | 1,155 | 40 | 1,099 | 57 | 5 | |||||||||||||||||||||||||||||
Total operating expenses | 2,014 | 91 | 2,194 | 115 | (8 | ) | 2,254 | 78 | 2,042 | 106 | 10 | |||||||||||||||||||||||||||||
Operating loss | (903 | ) | (41 | ) | (1,429 | ) | (75 | ) | (37 | ) | (548 | ) | (19 | ) | (1,163 | ) | (60 | ) | (53 | ) | ||||||||||||||||||||
(a) | Expressed as a percentage of sales, net |
SixNine months ended DecemberMarch 31, 20192020 and 20182019 (in thousands):
Six months ended December 31, | Nine months ended March 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 - 2018 | 2020 | 2019 | 2020 - 2019 | |||||||||||||||||||||||||||||||||||
Amount | % (a) | Amount | % (a) | % Change | Amount | % (a) | Amount | % (a) | % Change | |||||||||||||||||||||||||||||||
Sales, net | $ | 4,521 | 100 | $ | 3,466 | 100 | 30 | $ | 7,401 | 100 | $ | 5,390 | 100 | 37 | ||||||||||||||||||||||||||
Cost of sales | 2,174 | 48 | 2,177 | 63 | 0 | 3,348 | 45 | 3,222 | 60 | 4 | ||||||||||||||||||||||||||||||
Gross profit / (loss) | 2,347 | 52 | 1,289 | 37 | 82 | 4,053 | 55 | 2,168 | 40 | 87 | ||||||||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||||||||||
Research and development expenses - proprietary | 510 | 11 | 789 | 23 | (35 | ) | 804 | 11 | 1,088 | 20 | (26 | ) | ||||||||||||||||||||||||||||
Research and development expenses – collaboration agreement, net of reimbursement | - | - | 45 | 1 | (100 | ) | - | - | 45 | 1 | (100 | ) | ||||||||||||||||||||||||||||
Sales and marketing expenses | 1,481 | 33 | 1,351 | 39 | 10 | 2,286 | 31 | 1,996 | 37 | 15 | ||||||||||||||||||||||||||||||
(Gain) on equipment Disposal | - |
| - |
| (23 | ) | (1 | ) | 100 | - |
| - |
| (24 | ) | (0 | ) | 100 | ||||||||||||||||||||||
General and administrative expenses | 2,168 | 48 | 2,074 | 60 | 5 | 3,323 | 45 | 3,173 | 59 | 5 | ||||||||||||||||||||||||||||||
| (Gain) on change in estimate of asset retirement obligation | (73 | ) | (2 | ) | - | - | (100 | ) | (73 | ) | (1 | ) | - | - | (100 | ) | ||||||||||||||||||||||||
Total operating expenses | 4,086 | 90 | 4,236 | 122 | (4 | ) | 6,340 | 86 | 6,278 | 116 | 1 | |||||||||||||||||||||||||||||
Operating loss | (1,739 | ) | (38 | ) | (2,947 | ) | (85 | ) | (41 | ) | (2,287 | ) | (31 | ) | (4,110 | ) | (76 | ) | (44 | ) | ||||||||||||||||||||
(a) | Expressed as a percentage of sales, net |
Sales
Sales, net for the three months ended DecemberMarch 31, 20192020 increased 16%50% compared to the three months ended DecemberMarch 31, 2018.2019. Sales, net for the sixnine months ended DecemberMarch 31, 20192020 increased 30%37% compared to the sixnine months ended DecemberMarch 31, 2018.2019. The Company’s sales personnel continued to bring on new accounts while also working with existing customers to increase their order volumes. The Blu Build™ loader, while in a limited market release, also contributed nominally to revenues during the three and sixnine months ended DecemberMarch 31, 2019.2020.
The sales breakdown between prostate and non-prostate applications is set forth below.
Three months ended DecemberMarch 31, 20192020 and 20182019 (in thousands):
Three months ended December 31, | Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 - 2018 | 2020 | 2019 | 2020 - 2019 | |||||||||||||||||||||||||||||||||||
Amount | % (a) | Amount | % (a) | % Change | Amount | % (a) | Amount | % (a) | % Change | |||||||||||||||||||||||||||||||
Prostate brachytherapy | $ | 1,964 | 89 | $ | 1,695 | 89 | 16 | $ | 2,406 | 84 | $ | 1,690 | 88 | 42 | ||||||||||||||||||||||||||
Other sales | 242 | 11 | 209 | 11 | 16 |
| 474 | 16 | 234 | 12 | 103 |
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Sales, net | 2,206 | 100 | 1,904 | 100 | 16 | 2,880 | 100 | 1,924 | 100 | 50 | ||||||||||||||||||||||||||||||
(a) Expressed as a percentage of sales, net
SixNine months ended DecemberMarch 31, 20192020 and 20182019 (in thousands):
Six months ended December 31, | Nine months ended March 31, | |||||||||||||||||||||||||||||||||||||||
2019 | 2018 | 2019 - 2018 | 2020 | 2019 | 2020 - 2019 | |||||||||||||||||||||||||||||||||||
Amount | % (a) | Amount | % (a) | % Change | Amount | % (a) | Amount | % (a) | % Change | |||||||||||||||||||||||||||||||
Prostate brachytherapy | $ | 4,037 | 89 | $ | 3,071 | 89 | 31 | $ | 6,443 | 87 | $ | 4,761 | 88 | 35 | ||||||||||||||||||||||||||
Other sales | 484 | 11 | 395 | 11 | 23 | 958 | 13 | 629 | 12 | 52 | ||||||||||||||||||||||||||||||
Sales, net | 4,521 | 100 | 3,466 | 100 | 30 | 7,401 | 100 | 5,390 | 100 | 37 | ||||||||||||||||||||||||||||||
(a) Expressed as a percentage of sales, net
Prostate Brachytherapy
Prostate sales growth of approximately 16%42% during the three months ended DecemberMarch 31, 20192020 compared to the three months ended DecemberMarch 31, 20182019 and approximately 31%35% during the sixnine months ended DecemberMarch 31, 20192020 compared to the sixnine months ended DecemberMarch 31, 20182019 was achieved due to a sustained focus on acquiring new accounts through physician training programs and marketing campaigns along with continued support of existing customers to help them grow their business. In addition, the Company instituted a price increase in January 2020 for certain of its products which accounted for about 30% and 15% of the increase in the three months and nine months ended March 31, 2020, respectively. While in a limited market release, the Blu Build™ loader also contributed to prostate revenue growth as it was sold to new customers that desired the intraoperative loader system. Management believes that the product's design is now complete and ready for broader market release but there is no assurance as to the exact timing of release. This broader marketThe COVID-19 pandemic has impacted the sourcing of parts associated with the assembly of our proprietary disposable delivery device, Blu Build™. Management believes we have enough inventory to support our current customers and new customers in the pipeline until our parts manufacturer is back online. As a result we now anticipate Blu Build™ will see a slower than expected release should contribute tothrough the remainder of fiscal 2020 with the expectation that Blu Build™ will continue contributing revenue in a more meaningful waythe fiscal fourth quarter of 2020 and gain traction in the second half of fiscal 20202021, but there is no assurance that this will occur. Management believesfurther delays in parts supply may in turn delay the timinganticipated commercial sale of Blu Build™.
As a result of COVID-19, during March 2020, the holidays in November and particularly in December resulted in fewer salesCompany incurred more cancellations than we have historically experienced, which negatively impacted our revenue for the three months ended March 31, 2020. April 2020 revenue declined approximately 20% compared to April 2019 as many customers failed to order our product for use during the last two weeksa result of December.COVID-19. The Company continues to update its website and other marketing collateral as well as attending tradeshows to acquire new leads for our sales personnel. Some tradeshows have been postponed or cancelled and we do not know the extent and impact COVID-19 will have on future tradeshows. Also, the website along with some social media campaigns have been used to educate patients about the availability of Cesium-131 as a treatment option.
Management believes continued growth in prostate brachytherapy revenues will be the result of physicians, payors, and patients increasingly considering overall treatment advantages including costs compared with non-brachytherapy treatments, better treatment outcomes and improvement in the quality of life for patients. We believe the trend to use brachytherapy in lieu of other options is starting to improve our performance as for the twelve month period ended December 31, 2019 the net new physician customer count increased 39% over the same period ended December 31, 2018 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, and accordingly drove the Company’s prostate revenues, during the three and sixnine months ended DecemberMarch 31, 2019.2020.
Other Sales
Other sales includes, but is not limited to, brain, lung, head/neck, gynecological treatments, and services. Other sales, net increased by approximately 16%103% for the three months ended DecemberMarch 31, 20192020 compared to the three months ended DecemberMarch 31, 2018,2019, and approximately 23%52% for the sixnine months ended DecemberMarch 31, 20192020 compared to the sixnine months ended DecemberMarch 31, 2018.2019. The increases are a result of an increase in revenue from brain as well as a price increase in January 2020. Initial applications for these other brachytherapy treatments are primarily used in recurrent cancer treatments or salvage cases that are generally difficult to treat aggressive cancers where other treatment options are either ineffective or unavailable.
Other brachytherapy treatments are subject to the influence of a small pool of innovative physicians who are the early adopters of the technology who also tend to be faculty at teaching hospitals training the next generation of physicians. This causes the revenue created by these types of treatment applications to be more volatile and vary significantly from year to year. Additionally, with other brachytherapy surgical procedures there remains inconsistency and uncertainty regarding reimbursement for the procedures. This uncertain reimbursement for these new procedures will remain until specific coding and coverage policies are established, which could take years. Individual centers weigh the value of the procedure with their other treatment priorities on a patient by patient basis. Isoray believes that additional clinical data will begin to build a compelling argument to support reimbursement and increased adoption of its procedures; however, any growth will be inconsistent in the near term.
GammaTile™
For several years the Company has focused on many different applications of its Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of brain cancer. Most recently, the Company has focused on using braided strand configurations and on being a contract manufacturer of GammaTile™ Therapy which is owned by GT Medical Technologies, Inc. (GT Med Tech). GammaTile™ Therapy uses biodegradable “tiles” to deliver Cesium-131 brachytherapy seeds into contact with cancerous tumors in the brain.
GammaTile™ Therapy was originally cleared for treating recurrent brain cancers. GT Med Tech filed a 510k with the FDA on an expanded indication of GammaTile™ Therapy to include treatment of newly diagnosed brain tumors with an application of Cesium-131. On January 27, 2020, GT Med Tech announced that it had received clearance from the FDA for an expanded indication that will allow patients of newly diagnosed malignant brain tumors to be treated by GammaTile™ Therapy. For the three and sixnine months ended DecemberMarch 31, 2019,2020, total revenues from sales to GT Med Tech were nominal. There were no salesnominal. Sales to GT Med Tech for the three and sixnine months ended DecemberMarch 31, 20182019 were nominal as GT Med Tech began the limited market release of GammaTile™ Therapy in January 2019. While GT Med Tech continues to assure Isoray that its sales and marketing efforts will show steady improvements in sales there is no assurance this will occur.
Cost of sales
Cost of sales consists primarily of the costs of manufacturing and distributing the Company’s products.
Contributing to the three and sixnine months ended DecemberMarch 31, 20192020 and 20182019 comparison were increased other direct materials purchases as well as increased labor to meet production demand due to improved sales. Although sales improved dramatically, the increase in cost of sales was only nominal primarily as a result of cost savings in isotope due to the termination of our domestic isotope supplier that occurred in fiscalat the end of calendar year 20192018 which resulted in lower isotope unit costs compared to the three and sixnine months ended DecemberMarch 31, 20182020 and more efficient isotope usage driven by the increased revenue that led to lower losses of isotope due to decay.
Gross Profit
Gross profit increased 45%94% for the three month period ended DecemberMarch 31, 20192020 when compared to the three month period ended DecemberMarch 31, 2018.2019. Contributing to the three and sixnine months ended DecemberMarch 31, 20192020 and 20182019 gross profit comparison were increased sales and significantly lower isotope unit costs compared to the prior year comparable period, continued leverage of the fixed cost components within costs of sales, and more efficient isotope usage. The lower isotope unit costs are related to the previously discussed change in our supply chain made at the end of calendar year 2018.
Research and development
Research and development – proprietary
Proprietary research and development consists primarily of employee and third-party costs related to research and development activities.
Contributing to the three and sixnine months ended DecemberMarch 31, 20192020 and 20182019 proprietary research and development comparison were a decrease in protocol expense primarily relating to a mutually-agreed termination of a grant agreement which resulted in a reversal of the accrual and a reduction in investment in the development of the Blu Build™ delivery system for real-time prostate brachytherapy.
Going forward, we continue to expect proprietary R&D expense to increase back to or above levels in prior recent quarters or to roughly $300,000 to $400,000 per quarter, as we are continuing to have discussions with institutions looking at the expanded use of Cesium-131.
Research and development – collaborative arrangement
Collaboration arrangement related costs are incurred, shared, and separately stated in connection with a collaborative research and development project with
GT Medical Technologies, Inc. (formerly known as GammaTile, LLC).
Contributing to the three and sixnine months ended DecemberMarch 31, 20192020 and 20182019 comparison were decreased costs due to the fact that payments being made pursuant to the collaborative arrangement with GT Med Tech were no longer necessary at the same level, as the collaborative arrangement primarily related to work involved in obtaining 510(k) clearance, which has now been obtained.
Sales and marketing expenses consist primarily of the costs related to the internal and external activities of the Company’s sales, marketing and customer service functions of the Company. As the Company increasingly focuses on improving sales, the cost associated with marketing and greater staffing continues to increase.
Contributing to the three months ended DecemberMarch 31, 20192020 and 20182019 comparison was a decreasean increase in travel costs as a tradeshow that occurred in October 2018 occurred in September 2019. Incentiveincentive compensation increased for the quarter ended DecemberMarch 31, 20192020 in connection with the increase in revenue.revenue as well as an increase in physician-led training expenses. These increases were offset by a decrease in travel costs due to COVID-19.
Contributing to the sixnine months ended DecemberMarch 31, 2020 and 2019 and 2018 comparison werewas increased incentive compensation in connection with the increase in revenue.revenue and an increase in physician-led training expenses.
General and administrative expenses
General and administrative expenses consist primarily of the costs related to the executive, human resources/training, quality assurance/regulatory affairs, finance, and information technology functions of the Company.
General and administrative expenses decreased 3%increased 5% to $1.07$1.16 million in the secondthird quarter of fiscal 2020 compared to the secondthird quarter of fiscal 2019. Contributing to the three months ended DecemberMarch 31, 20192020 and 20182019 comparison were increases associated with payroll due to increased headcount and incentive compensation, insurance premiums, and public company related expenses. These costs were partially offset in the three months ended March 31, 2020 by decreases to State of Washington Hazardous Substance Tax, legal fees, travel, and employee hiring expense.
Contributing to the nine months ended March 31, 2020 and 2019 comparison were cost increases associated with payroll due to increased headcount and incentive compensation, insurance premiums, and employee hiring expense. These costs were partially offset in the nine months ended March 31, 2020 by decreases in legal fees and proxy solicitation fees associated with redomiciling the Company to Delaware in December 2018, State of Washington Hazardous Substance Tax, and renewal feestravel.
Impact of COVID-19
From the onset of the COVID-19 global health pandemic we have been proactive in implementing plans to ensure the health and well-being of our CE Mark. These cost decreasesemployees, while remaining focused on providing uninterrupted product flow to the physicians and patients who count on us. We seamlessly transitioned many employees to work from home and made other adjustments to ensure the continuity of our business through this time. At the beginning of the pandemic, we moved quickly to ensure that our inventory of non-isotope supplies were partially offsetappropriate in the three months ended December 31, 2019 by increases associated with payroll duecase our supply chain was disrupted. In addition, we set in motion our strategy to increased headcountmaintain a continuous and insurance premiums.uninterrupted supply of isotope from our suppliers in Russia.
ContributingAs COVID-19 began to spread, many states implemented new guidelines in an attempt to mitigate the spread of the virus and to conserve certain medical supplies. Those guidelines led to the sixcancellation or postponement of elective and non-emergency surgical procedures, including prostate brachytherapy procedures. Consequently, at the very end of March, we saw some procedures begin to be postponed in many markets we serve. This resulted in a drop in revenue for the month of April as preliminary revenue declined about 20% compared to April of 2019.
In the recent weeks as states began to lift restrictions on non-essential surgeries we have received an increasing amount of customer feedback that those implants that had been canceled in March were beginning to be rescheduled. Thus, our order growth has been accelerating since the last week of April. We firmly believe that most, if not all, treatments in process prior to the outbreak will take place over the next few months ended December 31, 2019but there is no assurance this will occur. In the meantime, we continue to tightly manage our expenses and 2018 comparison were cost increases associated with payroll duemake fluid adjustments to isotope orders to meet potential increased headcount, insurance premiums, and employee hiring expense. These costs were partially offset in the six months ended December 31, 2019 by decreases in legal fees and proxy solicitation fees associated with redomiciling the Company to Delaware in December 2018.treatment demands as restrictions lift.
Liquidity and capital resources
The Company assesses its liquidity in terms of its ability to generate cash to fund its operating, investing and financing activities. The Company has historically financed its operations through selling equity to investors. During the sixnine months ended DecemberMarch 31, 20192020 and 2018,2019, the Company used existing cash reserves to fund its operations and capital expenditures (in thousands except current ratio):
Six months | Nine months | |||||||||||||||
ended December 31, | ended March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Net cash used by operating activities | $ | (1,931 | ) | $ | (2,726 | ) | $ | (2,793 | ) | $ | (4,064 | ) | ||||
Net cash used by investing activities | (204 | ) | (4,043 | ) | (248 | ) | (1,838 | ) | ||||||||
Net cash (used) provided by financing activities | (11 | ) | 7,370 | |||||||||||||
Net cash provided by financing activities | 120 | 7,361 | ||||||||||||||
Net (decrease) increase in cash and cash equivalents | $ | (2,146 | ) | $ | 601 |
| $ | (2,921 | ) | $ | 1,459 |
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As of | As of | |||||||||||||||
December 31, 2019 | June 30, 2019 | March 31, 2020 | June 30, 2019 | |||||||||||||
Working capital | $ | 4,291 | $ | 6,194 | $ | 3,975 | $ | 6,194 | ||||||||
Current ratio | 4.20 | 6.53 | 3.28 | 6.53 | ||||||||||||
Cash flows from operating activities
Net cash used by operating activities in the sixnine months ended DecemberMarch 31, 20192020 was primarily due to a net loss of approximately $1.71$2.26 million, net of approximately $224,000$367,000 in adjustments for non-cash activity such as depreciation and amortization expense, asset retirement obligation accretion, change in estimate of asset retirement obligation, and share-based compensation. Changes in operating assets and liabilities used approximately $442,000$904,000 to fund operating activities; increases in accounts receivable, and prepaid expenses and other current assets, and inventory and decreases in accounts payable and other accrued expenses and accrued protocol expense were partially offset by increases in accounts payable and accrued expenses, accrued payroll and related taxes, accrued vacation, and accrued radioactive waste disposal, and inventory.disposal.
Net cash used by operating activities in the sixnine months ended DecemberMarch 31, 20182019 was primarily due to a net loss of approximately $2.92$4.05 million, net of approximately $273,000$405,000 in adjustments for non-cash activity such as depreciation and amortization expense, gain on equipment disposal, asset retirement obligationARO accretion, and share-based compensation. Changes in operating assets and liabilities used approximately $77,000$420,000 to fund operating activities; decreases in accounts payable and accrued expenses, accrued payroll and related taxes, accrued vacation and an increase in prepaid expenses and other current assets were partially offset by decreases in accounts receivable and inventory and increases in accrued protocol expense and accrued radioactive waste disposal.
Cash flows from investing activities
Investing activities for the sixnine months ended DecemberMarch 31, 20192020 consisted of transactions related to the purchase of fixed assets, including automation of production processes.
Investing activities for the sixnine months ended DecemberMarch 31, 20182019 consisted of transactions related to the purchase and sale of fixed assets, including automation of production processes, as well as the purchase and subsequent maturity of U.S. Treasury Bills.bills.
Management will continue to invest in technology and machinery that improves and streamlines production processes and to invest maturing U.S. Treasury Bills 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 sixnine months ended DecemberMarch 31, 20192020 included payment of preferred dividends.dividends and proceeds from sale of common stock, pursuant to exercise of options.
Financing activities in the sixnine months ended DecemberMarch 31, 20182019 included payment of preferred dividends and proceeds from sale of common stock, pursuant to registered direct offering, net (see note 109 to the financial statements). and proceeds from sale of common stock, pursuant to exercise of options.
Projected 2020 Liquidity and Capital Resources
Operating activities
Assuming no extraordinary expenses occur (whether operating or capital), if management is successful at implementing its strategy of renewed emphasis on driving the consumer to the prostate market, meets or exceeds its annual growth targets of twenty-five percent increase in revenue in fiscal 2020 and this annual growth continues, the Company anticipates reaching cash flow break-even in about three to four years. years. The Company exceeded that target of twenty-five percent increased revenue in the sixnine months ended DecemberMarch 31, 2019.2020. There is no assurance that targeted sales growth will continue over the next three to four years.years. However, management is encouraged by the results for the sixnine months ended DecemberMarch 31, 2019. 2020.
Capital expenditures
Management has completed the design of a future production and administration facility but has not determined when or if it will move ahead with construction. If financing is obtained and the facility constructed, it is believed that the new facility will have non-cash depreciation cost equal to or greater than the monthly rental cost of the current facility.
Management is reviewing and implementing changes in all aspects of production operations (including process automation), research and development, sales and marketing, and general and administrative functions to evaluate the most efficient deployment of capital to ensure that the appropriate materials, systems, and personnel are available to support and drive sales.
During the sixnine months ended DecemberMarch 31, 2019,2020, the Company invested approximately $187,000$221,000 in the automation production processes. Beginning in fiscal 2017 and continuing through DecemberMarch 31, 2019,2020, the Company has invested approximately $1,027,000$1,061,000 in the automation of five production processes, four of which have been placed in service as of the end of DecemberMarch 31, 2019. 2020. Management expects to invest approximately $30,000$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.revised. This investment is designed to allow the Company to significantly increase the output of Cesium-131 brachytherapy seeds, while allowing the Company to decrease the labor costs related to seed production and also improving the overall safety of our operations.
Financing activities
On January 22, 2020, the Company filed a Form S-3 registration which became effective on February 4, 2020, with the potential to register up to $80 million of equity securities. On March 31, 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co., Inc. (“Oppenheimer”). The common stock sold pursuant to the Agreement will be distributed at the market prices prevailing at the time of sale. The Agreement provides that Oppenheimer will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold plus reimbursement of certain expenses. As of March 31, 2020, the Company has not sold any shares.
On July 11, 2018, the Company sold 11,000,000 shares of its common stock at a price of $0.75 per share, for aggregate gross proceeds of $8.25 million, pursuant to the registration statement on Form S-3 that became effective on November 23, 2015. There was no material change in the use of proceeds from our public offering as described in our prospectus supplement filed with the SEC pursuant to Rule 424(b) on July 11, 2018. Through DecemberMarch 31, 2019,2020, the Company had used the net proceeds raised through the July 11, 2018 offering as described in the prospectus supplement. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or more of any class of our equity securities or to any other affiliates.
Additionally, the Company issued to the purchasers unregistered warrants to purchase up to 5,500,000 shares of common stock. The warrants have an exercise price of $0.75 per share common stock, are exercisable commencing six months following the issuance date, and expire five and one-half years from the issuance date. If exercised for cash, future exercises of these warrants will provide additional capital to the Company.
On October 19, 2018, the Company filed a Form S-1 registration statement for the registration of 5,830,000 shares of common stock to be received by the investors and representatives of Wainwright on exercise of warrants issued in connection with the registered direct offering completed on July 11, 2018. The Company may receive up to $4,434,375 in gross proceeds solely to the extent the warrants are exercised for cash. The registration statement became effective on December 14, 2018, and the SEC file number assigned to the registration statement is 333-207909.
On January 22, 2020, the Company filed a Form S-3 registration which became effective on February 4, 2020, with the potential to register up to $80 million of equity securities.
As of DecemberMarch 31, 2019,2020, the Company had cash and cash equivalents that totaled $3.18$2.41 million compared to $5.33 million at the end of fiscal 2019 ended June 30, 2019. The Company has zero long-term debt. The relatively larger decrease in cash, cash equivalents, and certificates of deposit this quarter compared to recent quarters was attributed to an increase in prepaid expenses in the quarter primarily related to premium payments for Director & Officer insurance as well as a large decrease in accounts payable compared to the prior quarter due to the timing of payments made. Management remains comfortable that our cash reserves are sufficient to fund operating activities through the remainder of calendar year 2020. Shareholders’ equity at the end of fiscal secondthird quarter 2020 totaled $6.14$5.82 million versus $7.68 million at the end of fiscal 2019 ended June 30, 2019.
The Company expects to finance its future cash needs through sales of equity, possible strategic collaborations, debt financing or through other sources that may be dilutive to existing shareholders. Management anticipates that if it raises additional financing outside of the Equity Distribution Agreement with Oppenheimer that it will be at a discount to the market price and it will be dilutive to shareholders.
Other Commitments and Contingencies
The Company presented its other commitments and contingencies in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019. There have been no material changes outside of the ordinary course of business in those obligations during the quarter ended DecemberMarch 31, 20192020 other than those previously disclosed in Note 7 of the interim financial statements contained in this Form 10-Q.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as revenue and expenses during the reporting periods. The Company evaluates its estimates and judgments on an ongoing basis. The Company bases its estimates on historical experience and on various other factors the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results could therefore differ materially from those estimates if actual conditions differ from our assumptions.
During the quarter ended DecemberMarch 31, 2019,2020, there have been no changes to the critical accounting policies and estimates, as discussed in Part II, Item 7 of our Form 10-K for the year ended June 30, 2019.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
ITEM 4 – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and co-principal financial officers, we conducted an evaluation of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of DecemberMarch 31, 2019.2020. Based on that evaluation, our principal executive officer and our co-principal financial officers concluded that the design and operation of our disclosure controls and procedures were effective. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, management believes that our system of disclosure controls and procedures are designed to provide a reasonable level of assurance that the objectives of the system will be met.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Nothing to disclose.
A description of the risk factors associated with our business is included under “Risk Factors” contained in Part I, Item 1A of our Form 10-K for the year ended June 30, 2019, and is incorporated herein by reference. There have been no material changes in our risk factors since such filing, except for the following:
We Rely Heavily On Three Customers
For the sixnine months ended DecemberMarch 31, 20192020 approximately 40% of the Company’s revenues were dependent on three customers with approximately 24%25% being generated by one customer. The loss of any of these customers would have a material adverse effect on the Company’s revenues which may not be replaced by other customers particularly as these customers are in the prostate sector which is facing substantial competition from other treatments.
We May Need Additional Capital In The Future To Maintain Our NYSE American Listing.
Our Common Stock is currently listed on the NYSE American stock exchange which will consider delisting a company’s securities if, among other things, the company fails to maintain minimum stockholder’s equity. With our stockholder's equity anticipated to fall below $6 million for the quarter ended March 31, 2020, we may not be able to maintain our listing on the NYSE American unless we raise capital in the next threetwelve to six months. eighteen months in order to bring our stockholder's equity above the NYSE American's $6 million threshold. In the event that our common stock is delisted from the NYSE American, trading, if any, in the common stock would be conducted in the over-the-counter market. As a result, our shareholders would likely find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our common stock.
COVID-19 may impact supply chain and product sales. Our Cesium supply comes from Russia and while at this time we are not aware of any shutdowns of nuclear facilities in Russia or limited staffing due to ongoing risk of virus transmission this may occur in the future. We also depend on overseas flights which have been curtailed and any further flight cancellations may impact our supply chain. While our surgeries are not considered elective, in areas where hospitals are devoted to COVID-19 or other chronic conditions, surgeries required to implant our seeds may be postponed or cancelled, as occurred in late March and continued through much of April at numerous locations. If conditions worsen with the COVID-19 pandemic this may have a material adverse effect on our business.
The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.
These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. In addition, quarantines, stay-at-home, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials, which would disrupt our supply chain.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, it has significantly disrupted global financial markets, and may limit our ability to access capital, which could in the future negatively affect our liquidity. A recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.
The ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. However, the effects could have a material impact on our operations, and we will continue to monitor the COVID-19 situation closely.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 – DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
None
(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.)
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* Filed herewith.
** Furnished herewith
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.
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| ISORAY, INC., a Delaware corporation
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| /s/ Lori A. Woods |
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| Lori A. Woods |
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| Jonathan Hunt |
|
| Chief Financial Officer (Co-Principal Financial Officer) |
| /s/ Mark J. Austin | ||
Mark J. Austin Controller | ||
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