Filed
pursuant to
Rule
424(b)(5)
File No.
333-162694
PROSPECTUS
SUPPLEMENT
(To
Prospectus dated November 13, 2009)
Up
to $4,000,000
Common
Stock
We have
entered into a sales agreement with C. K. Cooper & Company, Inc. ("CKCC"),
relating to shares of our common stock offered by this prospectus supplement and
the accompanying prospectus. In accordance with the terms of the sales
agreement, we may offer and sell up to $4,000,000 in aggregate amount of our
shares from time to time through CKCC, as our sales agent. CKCC is not required
to sell any specific number or dollar amount of shares of our common stock but
will use its commercially reasonable efforts, as our agent and subject to the
terms of the sales agreement, to sell the shares offered by this prospectus
supplement and the accompanying prospectus. Sales of the shares, if any, may be
made by any means permitted by law and deemed to be an "at the market" offering
as defined in Rule 415 of the Securities Act of 1933, as amended, including
sales made directly on The NYSE Amex Stock Exchange, or the NYSE Amex, at market
prices, and such other sales as agreed upon by CKCC and us.
CKCC will
receive from us a commission of 2.0% based on the gross sales price per share
for any shares sold through it as agent under the sales
agreement. After payment of the commission to CKCC, and the payment
of expenses of the offering which we estimate to be approximately $120,000, the
net proceeds to us of the offering will be approximately
$3,800,000. See “Plan of Distribution” in this prospectus
supplement.
Our
common stock is traded on the NYSE Amex under the symbol "ISR." On April 16,
2010, the last reported sales price of our common stock on the NYSE Amex was
$1.15 per share. As of March 26, 2010, the aggregate market value of
our outstanding common stock held by non-affiliates was approximately
$28,130,299, based on 22,945,421 shares of outstanding common stock, of
which 22,504,239 shares were held by non-affiliates, and a per share price
of $1.25 based on the closing price of our common stock as quoted on the NYSE
Amex on March 26, 2010. As of the date hereof and excluding this
offering, we have not offered any securities pursuant to General Instruction
I.B.6. of Form S-3 during the prior twelve calendar month period that ends on,
and includes, the date of this prospectus supplement.
Investing in our securities involves
a high degree of risk. Before buying any securities, you should read the
discussion of material risks of investing in our common stock referred to under
the heading "Risk Factors" beginning on page S-5 of this prospectus
supplement.
Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or passed upon the adequacy or accuracy of this prospectus
supplement or the accompanying prospectus. Any representation to the contrary is
a criminal offense.
The date
of this prospectus supplement is April 23, 2010.
TABLE
OF CONTENTS
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Prospectus
Supplement
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ABOUT
THIS PROSPECTUS SUPPLEMENT
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i
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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ii
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INDUSTRY
AND MARKET DATA
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iii
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PROSPECTUS
SUPPLEMENT SUMMARY
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S-1
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RISK
FACTORS
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S-5
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USE
OF PROCEEDS
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S-13
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DILUTION
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S-13
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DESCRIPTION
OF THE SECURITIES WE ARE OFFERING
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S-14
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PLAN
OF DISTRIBUTION
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S-14
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LEGAL
MATTERS
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S-15
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EXPERTS
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S-16
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WHERE
YOU CAN FIND MORE INFORMATION
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S-16
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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S-16
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Prospectus
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ABOUT
THIS PROSPECTUS
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3
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ABOUT
ISORAY
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3
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RISK
FACTORS
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4
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NOTE
REGARDING FORWARD-LOOKING STATEMENTS
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5
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USE
OF PROCEEDS
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5
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GENERAL
DESCRIPTION OF SECURITIES
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6
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DESCRIPTION
OF CAPITAL STOCK
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6
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DESCRIPTION
OF THE WARRANTS
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9
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DESCRIPTION
OF UNITS
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11
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PLAN
OF DISTRIBUTION
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12
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LEGAL
MATTERS
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14
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EXPERTS
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14
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
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15
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MATERIAL
CHANGES
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15
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION
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15
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INCORPORATION
BY REFERENCE
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15
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COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
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16
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ABOUT
THIS PROSPECTUS SUPPLEMENT
A
registration statement on Form S-3 (File No. 333-162694) utilizing a shelf
registration process relating to the securities described in this prospectus
supplement has been filed with the Securities and Exchange Commission, or the
SEC, and was declared effective on November 13, 2009. Under this shelf
registration process, of which this offering is a part, we may, from time to
time, sell up to $15,000,000 of common stock and other
securities.
This
document is in two parts. The first part is this prospectus supplement, which
describes the specific terms of this offering of our common stock and also adds,
updates and changes information contained in the accompanying prospectus and the
documents incorporated by reference. The second part is the accompanying base
prospectus, which gives more general information, some of which may not apply to
this offering of our common stock. To the extent the information contained in
this prospectus supplement differs or varies from the information contained in
the accompanying prospectus or any document filed prior to the date of this
prospectus supplement and incorporated by reference, the information in this
prospectus supplement will control. Generally, when we refer to this
"prospectus," we are referring to both documents
combined.
i
You
should rely only on the information contained in or incorporated by reference
into this prospectus supplement and the accompanying prospectus. We have not,
and the sales agent has not, authorized anyone to provide you with information
that is different. This prospectus supplement is not an offer to sell or
solicitation of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful. You should not
assume that the information we have included in this prospectus supplement or
the accompanying prospectus is accurate as of any date other than the date of
this prospectus supplement or the accompanying prospectus, respectively, or that
any information we have incorporated by reference is accurate as of any date
other than the date of the document incorporated by reference, regardless of the
time of delivery of this prospectus supplement or of any shares of
our common stock. It is important for you to read and consider all
information contained in this prospectus supplement and the accompanying
prospectus, including the documents incorporated by reference herein and
therein, in making your investment decision. You should also read and consider
the information in the documents we have referred you to in "Incorporation of
Certain Documents by Reference" and "Where You Can Find More Information" in
this prospectus supplement.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
All
statements contained in this prospectus supplement, the accompanying prospectus
and the documents incorporated by reference herein and therein, other than
statements of historical facts, that address future activities, events or
developments are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, which we refer to as the Securities Act,
and Section 21E of the Securities Exchange Act of 1934, as amended, which we
refer to as the Exchange Act. These statements often contain the words “may,”
“will,” "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions, although not all forward-looking statements
contain these words. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including statements relating but not limited to:
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projections of earnings, revenues
or other financial items;
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plans and objectives of
management for future
operations;
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proposed new products or
services;
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future operations, plans,
regulatory filings or
approvals;
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•
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proposed new products or
services, any statements regarding pending or future mergers or
acquisitions; and
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future economic conditions or
performance, and any statement of assumptions underlying any of the
foregoing.
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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 that may cause actual results to differ
materially.
You
should not place undue reliance on our forward-looking statements because the
matters they describe are subject to known and unknown risks, uncertainties and
other unpredictable factors, many of which are beyond our control. Our
forward-looking statements are based on the information currently available to
us and speak only as of the date of this prospectus supplement, the date on the
cover of the accompanying prospectus, or, in the case of forward-looking
statements incorporated by reference, as of the date of the filing that includes
the statement. New risks and uncertainties arise from time to time, and it is
impossible for us to predict these matters or how they may affect us. Over time,
our actual results, performance or achievements will likely differ from the
anticipated results, performance or achievements that are expressed or implied
by our forward-looking statements, and such difference might be significant and
materially adverse to our security holders. We do not undertake and specifically
decline any obligation to update any forward-looking statements or to publicly
announce the results of any revisions to any statements to reflect new
information or future events or developments.
ii
We have
identified some of the important factors that could cause future events to
differ from our current expectations and they are described in this prospectus
supplement and the accompanying prospectus under the caption "Risk Factors" as
well as in our most recent Annual Report on Form 10-K, including without
limitation under the captions "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and in other
documents that we may file with the SEC, all of which you should review
carefully. Please consider our forward-looking statements in light of those
risks as you read this prospectus supplement and the accompanying
prospectus.
INDUSTRY
AND MARKET DATA
This prospectus supplement and the
accompanying prospectus contain and incorporate by reference market data,
industry statistics and other data that have been obtained from, or compiled
from, information made available by third parties. Although we believe these
third-party sources are reliable, we have not independently verified the
information. Except as may otherwise be noted, none of the sources
cited in this prospectus supplement or the accompanying prospectus has consented
to the inclusion of any data from its reports, nor have we sought their consent.
In addition, some data are based on our good faith estimates. Such estimates are
derived from publicly available information released by independent industry
analysts and third-party sources, as well as our own management’s experience in
the industry, and are based on assumptions made by us based on such data and our
knowledge of such industry and markets, which we believe to be reasonable.
However, none of our estimates have been verified by any independent
source. See “Special Note Regarding Forward-Looking Statements”
above.
iii
PROSPECTUS SUPPLEMENT
SUMMARY
This
summary highlights selected information appearing elsewhere or incorporated by
reference in this prospectus supplement and accompanying prospectus and may not
contain all of the information that is important to you. This prospectus
supplement and the accompanying prospectus include or incorporate by reference
information about the shares we are offering as well as information regarding
our business and detailed financial data. After you read this summary, you
should read this prospectus supplement and the accompanying prospectus in their
entirety, including the information incorporated by reference in this prospectus
supplement and the accompanying prospectus, especially the section entitled
"Risk Factors." If you invest in our securities, you are assuming a high degree
of risk.
Unless
the context requires otherwise, in this prospectus, the terms "IsoRay," the
"Company," "we," "us," "our" and similar terms refer to IsoRay, Inc. and its
operating subsidiary IsoRay Medical, Inc., and, to the extent applicable, its
non-operating subsidiary, IsoRay International LLC.
BUSINESS
OVERVIEW
In 2003,
we obtained clearance from the Food and Drug Administration, or FDA, for
treatment for all solid tumor applications using Cesium-131
(Cs-131). Such applications include prostate cancer; ocular melanoma;
head, neck and lung tumors; and breast, liver, brain and pancreatic
cancer. The seed may be used in surface, interstital and intracavity
applications for tumors with known radio sensitivity. Management
believes its Cs-131 technology will allow it to become a leader in the
brachytherapy market. Management believes that the IsoRay Proxcelan
Cesium-131 brachytherapy seed represents the first major advancement in
brachytherapy technology in over 21 years with attributes that could make it the
long-term "seed of choice" for internal radiation therapy
procedures.
IsoRay
began production and sales of Proxcelan Cesium-131 brachytherapy seeds in
October 2004 for the treatment of prostate cancer after clearance of its
premarket notification (510(k)) by the FDA. In December 2007, IsoRay
began selling its Proxcelan Cs-131 seeds for the treatment of ocular
melanoma. On June 1, 2009, the Company again expanded its application
of Cs-131 with the treatment of a head and neck tumor that could not be accessed
by other treatment modalities. More recently the Company has focused
on other applications which require revising the delivery system from those
historically used by the Company.
In August
2009, IsoRay Medical received clearance from the FDA for its Premarket
Notification (510(k)) for Proxcelan™ Cesium-131 brachytherapy seeds that are
preloaded into bioabsorbable braided strands. This clearance permits the product
to be commercially distributed for treatment of lung, head and neck tumors as
well as tumors in other organs. While Cs-131 brachytherapy seeds
themselves have been cleared for treatment in all organs since 2003, this 510(k)
allows Cs-131 seeds to be delivered in a convenient and sterile format that can
be implanted without additional seed loading by the facility. The
510(k) also clears the application of braided strands onto a bioabsorbable mesh
matrix to further facilitate the implant procedure.
Brachytherapy
seeds are small devices used in an interstital radiation
procedure. The procedure has become one of the primary treatments for
prostate cancer. The brachytherapy procedure places radioactive seeds
as close as possible to (in or near) the cancerous tumor (the word
"brachytherapy" means close therapy). The seeds deliver therapeutic
radiation thereby killing the cancerous tumor cells while minimizing exposure to
adjacent healthy tissue. This procedure allows doctors to administer
a higher dose of radiation directly to the tumor. Each seed contains
a radioisotope sealed within a welded titanium capsule. When
brachytherapy is the only treatment (monotherapy), approximately 70 to 120 seeds
are permanently implanted in the prostate in an outpatient procedure lasting
less than one hour. The number of seeds used varies based on the size
of the prostate and the activity level specified by the physician. When
brachytherapy is combined with external beam radiation or intensity modulated
radiation therapy (dual therapy), then approximately 40-80 seeds are used in the
procedure. The isotope decays over time and eventually the seeds
become inert. The seeds may be used as a primary treatment or in
conjunction with other treatment modalities, such as chemotherapy, or as
treatment for residual disease after excision of primary tumors. The
number of seeds for other treatment sites will vary from as few as 10-12 to as
many at 80-100 depending on the location of the tumor being
treated.
S-1
Our Strategy
The key
elements of IsoRay's strategy for the remainder of fiscal and calendar year 2010
include:
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§
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Increase utilization of Cs-131
in treatment of other solid tumor applications such as head and neck and
lung cancers. IsoRay Medical has received clearance from
the FDA for its Premarket Notification, (510(k)) for Proxcelan™
brachytherapy seeds that are preloaded into bioabsorbable braided strands.
This order clears the product for commercial distribution for treatment of
lung and head and neck tumors as well as tumors in other
organs. IsoRay has received interest from some physicians who
wish to use Cs-131 for other tumor sites including lung, and head and
neck, due to the short half life that may potentially help reduce the
migration of the radioactivity to the other parts of the body before the
treatment dose has been delivered to the tumor. While Cs-131
brachytherapy seeds themselves have been cleared for these applications
since 2003, this current 510(k) allows Cesium-131 seeds to be delivered in
a convenient and sterile format that can be implanted without additional
seed loading by the facility. The 510(k) also permits the
application of the braided strands onto a bioabsorbable mesh matrix to
further facilitate the implant procedure. The material (mesh)
used to hold the flexible suture material in place dissolves within 45
days. With the treatment dose from Cs-131 being delivered in 33
days, many physicians feel confident that the treatment dose needed to
treat the tumor will be delivered prior to the mesh
dissolving. IsoRay will continue to explore joint ventures with
other companies to develop the appropriate technologies and therapeutic
delivery systems for treatment of other solid tumors such as breast,
liver, pancreas, and brain cancers.
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§
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Continue to introduce the
Proxcelan Cs-131 brachytherapy seed into the U.S.
market. Utilizing our direct sales organization, IsoRay
intends to continue expanding the use of Proxcelan Cs-131 seeds in
brachytherapy procedures for prostate cancer by increasing the number of
treatment centers offering Cs-131 and increasing the number of patients
treated at each center using Cs-131. IsoRay hopes to capture
much of the incremental market growth in seed implant brachytherapy and
take market share from existing
competitors.
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Support clinical research and
sustained product development. The Company plans to
structure and support clinical studies on the therapeutic benefits of
Cs-131 for the treatment of solid tumors and other patient
benefits. We are and will continue to support clinical studies
with several leading radiation oncologists to clinically document patient
outcomes, provide support for our product claims, and compare the
performance of our seeds to competing seeds. IsoRay plans to
sustain long-term growth by implementing research and development programs
with leading medical institutions in the U.S. and other countries to
identify and develop other applications for IsoRay's core radioisotope
technology.
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Introduce Proxcelan Cesium-131
brachytherapy seeds to the Canadian and Russian
markets. Health Canada's Therapeutic Products
Directorate has approved IsoRay's Class 3 Medical Device License
Applications for Model CS-1 Proxcelan ™ (Cesium-131) brachytherapy seeds
and the Proxcelan™ Sterile Implant Devices containing Model CS-1
Seeds. This allows IsoRay to market its brachytherapy seeds and
related preloaded brachytherapy seeds throughout Canada. IsoRay
will conduct a search to look for a viable distribution partner in
Canada. Approval to market Cesium-131 seeds in Russia was also
obtained in 2009; however, the economic downturn in Russia has slowed the
Company's market penetration
efforts.
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Maintain ISO 13485
certification. In August 2008, the Company obtained its
ISO 13485 certification. This was an important step to allow
the Company to register and eventually sell its Proxcelan Cs-131
brachytherapy seeds in Canada and Russia. The Company completed
its registrations of Proxcelan Cs-131 brachytherapy seeds in Canada and
Russia during fiscal year 2009.
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S-2
OUR CORPORATE
INFORMATION
Our
principal executive offices are located at 350 Hills Street, Suite 106,
Richland, Washington 99354, and our telephone number is (509) 375-1202. We
maintain an Internet website at www.isoray.com. We have not
incorporated by reference into this prospectus supplement or the accompanying
prospectus the information in, or that can be accessed through, our website, and
you should not consider it to be a part of this prospectus supplement or the
accompanying prospectus.
Although
our predecessor operating company was organized in 1998, IsoRay, Inc. was
incorporated in 1983 in Minnesota and operated under the name Century Park
Pictures Corporation until the merger with IsoRay Medical, Inc. on July 28,
2005.
S-3
THE OFFERING
The
following is a brief summary of some of the terms of the offering and is
qualified in its entirety by reference to the more detailed information
appearing elsewhere in this prospectus supplement and the accompanying
prospectus. For a more complete description of the terms of our common stock,
see the "Description of the Securities We Are Offering" section in this
prospectus supplement.
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Securities
We Are Offering
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Shares
of our common stock, par value $0.001 per share, having an aggregate gross
offering price of up to $4,000,000
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Common
Stock Outstanding Before This Offering
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22,945,421
shares
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Manner
of Offering
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Commercially
reasonable efforts "at the market" offering that may be made from time to
time through our sales agent, C.K. Cooper & Company,
Inc. See "Plan of Distribution" in this prospectus
supplement.
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Use
of Proceeds
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We
estimate that the net proceeds to us from this offering after expenses and
commissions will be approximately $3,800,000. We intend to use the net
proceeds from the sale of our shares of common stock offered by this
prospectus supplement for general corporate purposes, including without
limitation, capital expenditures and working capital needs. See "Use of
Proceeds."
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Risk
Factors
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See
"Risk Factors" and other information included in this prospectus
supplement, or incorporated herein by reference, for a discussion of
factors you should carefully consider before deciding to invest in the
common stock.
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NYSE
Amex Symbol
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ISR
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Except as
otherwise provided for herein, the information contained in this prospectus
supplement assumes the sale of all of the shares offered
hereby.
The
number of shares of our common stock outstanding before this offering is based
on approximately 22,945,421 shares outstanding as of April 16, 2010 and
excludes:
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3,216,644
shares of common stock issuable upon the exercise of warrants outstanding
at April 16, 2010 at a weighted average exercise price of $5.55 per
share;
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59,065
shares of common stock issuable upon the conversion of preferred stock
outstanding at April 16, 2010;
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2,317,237
shares of common stock issuable upon the exercise of options outstanding
at April 16, 2010 at a weighted average exercise price of $1.91 per share;
and
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1,612,647
shares of common stock reserved for future stock option grants as of April
16, 2010 under our equity compensation
plans.
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S-4
RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider
the risks listed below and other information included and incorporated by
reference in this prospectus supplement and accompanying prospectus. There may
also be risks of which we are currently unaware, or that we currently regard as
immaterial based on the information available to us that later prove to be
material. If any of these risks occur, our business, operating results and
financial condition could be seriously harmed, the trading price of our common
stock could decline, and you could lose some or all of your
investment.
Risks
Related to this Offering
Our Stock Price Is Likely To Be
Volatile, And The Value Of An Investment In Our Common Stock May
Decline. There is generally significant volatility in the
market prices and limited liquidity of securities of early stage companies, and
particularly of early stage medical product companies. Contributing
to this volatility are various events that can affect our stock price in a
positive or negative manner. These events include, but are not
limited to: governmental approvals of or refusals to approve regulations or
actions; market acceptance and sales growth of our products; litigation
involving the Company or our industry; developments or disputes concerning our
patents or other proprietary rights; changes in the structure of healthcare
payment systems; departure of key personnel; future sales of our securities;
fluctuations in our financial results or those of companies that are perceived
to be similar to us; swings in seasonal demands of purchasers; investors'
general perception of us; and general economic, industry and market
conditions. If any of these events occur, it could cause our stock
price to fall.
The Price Of Our Common Stock May Be
Adversely Affected By The Future Issuance And Sale Of Shares Of Our Common Stock
Or Other Equity Securities, Including Pursuant To The Sales agreement, Or By Our
Announcement That Such Issuances And Sales May Occur. We
cannot predict the size of future issuances or sales of our common stock or
other equity securities, including those made pursuant to the sales agreement
with CKCC, future acquisitions or capital raising activities, or the effect, if
any, that such issuances or sales may have on the market price of our common
stock. In addition, CKCC, as agent for sales under the sales agreement, will not
engage in any transactions that stabilize the price of our common stock. The
issuance and sale of substantial amounts of common stock or other equity
securities, including the issuances and sales pursuant to the sales agreement,
or announcement that such issuances and sales may occur, could adversely affect
the market price of our common stock.
Our Reduced Stock Price May
Adversely Affect Our Liquidity. Our common stock has been
trading at less than $1.00 per share periodically in the past. Many
market makers are reluctant to make a market in stock with a trading price of
less than $1.00 per share. To the extent that we have fewer market
makers for our common stock, our volume and liquidity will likely decline, which
could further depress our stock price.
Failure to Comply with NYSE Amex
Listing Standards And Any Resulting Delisting Could Adversely Affect The Market
For Our Common Stock. Our common stock is presently listed on
the NYSE Amex. The NYSE Amex will consider delisting a company's securities if,
among other things, the company fails to maintain minimum stockholder's equity
or the company has sustained losses which are so substantial in relation to its
overall operations or its existing financial resources, or its financial
condition has become so impaired that it appears questionable, in the opinion of
the NYSE Amex, as to whether such issuer will be able to continue operations
and/or meet its obligations as they mature. There can be no assurance that we
will be able to maintain our listing on the NYSE Amex indefinitely. In the event
that our common stock is delisted from the NYSE Amex, 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.
Future Sales By Shareholders, Or The
Perception That Such Sales May Occur, May Depress The Price Of Our Common
Stock. The sale or availability for sale of substantial
amounts of our shares in the public market, including shares issuable upon
conversion of outstanding preferred stock or exercise of common stock warrants
and options, or the perception that such sales could occur, could adversely
affect the market price of our common stock and also could impair our ability to
raise capital through future offerings of our shares. As of April 16,
2010, we had 22,945,421 outstanding shares of common stock, and the following
additional shares were reserved for issuance: 2,317,237 shares upon exercise of
outstanding options, 3,216,644 shares upon exercise of outstanding warrants, and
59,065 shares upon conversion of preferred stock. Any decline in the
price of our common stock may encourage short sales, which could place further
downward pressure on the price of our common stock and may impair our ability to
raise additional capital through the sale of equity securities.
S-5
The Issuance Of Shares Upon Exercise
Of Derivative Securities May Cause Immediate And Substantial Dilution To Our
Existing Shareholders. The issuance of shares upon conversion
of the preferred stock and the exercise of common stock warrants and options may
result in substantial dilution to the interests of other shareholders since
these selling shareholders may ultimately convert or exercise and sell all or a
portion of the full amount issuable upon exercise. If all derivative
securities were converted or exercised into shares of common stock, there would
be approximately an additional 5,592,946 shares of common stock outstanding as a
result. The issuance of these shares will have the effect of further
diluting the proportionate equity interest and voting power of holders of our
common stock.
Since We Have Broad Discretion In
How We Use The Proceeds From This Offering, We May Use The Proceeds In Ways In
Which You Disagree. Our management will have significant flexibility in
applying the net proceeds of this offering. You will be relying on the judgment
of our management with regard to the use of these net proceeds, and you will not
have the opportunity, as part of your investment decision, to assess whether the
proceeds are being used appropriately. It is possible that the net proceeds will
be invested in a way that does not yield a favorable, or any, return for our
company. The failure of our management to use such funds effectively could have
a material adverse effect on our business, financial condition, operating
results and cash flow.
Purchasers Of The Shares Will Incur
Immediate Dilution. Purchasers of shares of common stock in this offering
will experience immediate and substantial dilution because the purchase price of
the common stock will be higher than the net tangible book value per share of
the outstanding common stock immediately after this offering. In addition,
purchasers will experience dilution, which may be substantial, when we issue
additional shares of common stock that we are permitted or required to issue
under options, warrants, our stock option plans or other employee or director
compensation plans.
We Do Not Expect To Pay Any
Dividends For The Foreseeable Future. We do not anticipate
paying any dividends to our shareholders for the foreseeable
future. The terms of certain of our and our subsidiary's outstanding
indebtedness substantially restrict the ability of either company to pay
dividends. Accordingly, shareholders must be prepared to rely on
sales of their common stock after price appreciation to earn an investment
return, which may never occur. Any determination to pay dividends in
the future will be made at the discretion of our Board of Directors and will
depend on our results of operations, financial conditions, contractual
restrictions, restrictions imposed by applicable laws and other factors our
Board deems relevant.
Certain Provisions of Minnesota Law
and Our Charter Documents Have an Anti-Takeover Effect. There
exist certain mechanisms under Minnesota law and our charter documents that may
delay, defer or prevent a change of control. Anti-takeover provisions
of our articles of incorporation, bylaws and Minnesota law could diminish the
opportunity for shareholders to participate in acquisition proposals at a price
above the then-current market price of our common stock. For example,
while we have no present plans to issue any preferred stock, our Board of
Directors, without further shareholder approval, may issue shares of
undesignated preferred stock and fix the powers, preferences, rights and
limitations of such class or series, which could adversely affect the voting
power of the common shares. In addition, our bylaws provide for an
advance notice procedure for nomination of candidates to our Board of Directors
that could have the effect of delaying, deterring or preventing a change in
control. Further, as a Minnesota corporation, we are subject to
provisions of the Minnesota Business Corporation Act, or MBCA, regarding
"business combinations," which can deter attempted takeovers in certain
situations. Pursuant to the terms of a shareholder rights plan
adopted in February 2007, each outstanding share of common stock has one
attached right. The rights will cause substantial dilution of the
ownership of a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors and may have the effect of deterring hostile
takeover attempts. The effect of these anti-takeover provisions may
be to deter business combination transactions not approved by our Board of
Directors, including acquisitions that may offer a premium over the market price
to some or all shareholders. We may, in the future, consider adopting
additional anti-takeover measures. The authority of our Board to
issue undesignated preferred or other capital stock and the anti-takeover
provisions of the MBCA, as well as other current and any future anti-takeover
measures adopted by us, may, in certain circumstances, delay, deter or prevent
takeover attempts and other changes in control of the Company not approved by
our Board of Directors.
S-6
Risks
Related To Our Business
Our Revenues Depend Upon One
Product. Until such time as we develop additional products,
our revenues depend upon the successful production, marketing, and sales of the
Proxcelan Cs-131 brachytherapy seed. The rate and level of market
acceptance of this product may vary depending on the perception by physicians
and other members of the healthcare community of its safety and efficacy as
compared to that of competing products, if any; the clinical outcomes of the
patients treated; the effectiveness of our sales and marketing efforts in the
United States, Canada, and Russia; any unfavorable publicity concerning our
product or similar products; our product's price relative to other products or
competing treatments; any decrease in current reimbursement rates from the
Centers for Medicare and Medicaid Services or third-party payers; regulatory
developments related to the manufacture or continued use of the product;
availability of sufficient supplies of enriched barium (now coming from Russia)
for Cs-131 seed production; ability to produce sufficient quantities of this
product; and the ability of physicians to properly utilize the device and avoid
excessive levels of radiation to patients. Because of our reliance on
this product as the sole source of our revenue, any material adverse
developments with respect to the commercialization of this product may cause us
to continue to incur losses rather than profits in the future.
Although Cleared To Treat Any
Malignant Tissue, Our Sole Product Is Currently Used To Treat Two Types Of
Cancer. Currently, the Proxcelan Cs-131 seed is used
exclusively for the treatment of prostate cancer (over ninety-nine percent of
our sales) and ocular melanoma (less than one percent of our
sales). We believe the Proxcelan Cs-131 seed will be used to treat
other types of cancers (and have treated four head and neck tumor cases, eleven
lung tumor cases and one colorectal tumor case to date), as is currently the
case with our competitors' I-125 and Pd-103 seeds. However, we
believe that clinical data gathered by select groups of physicians under
treatment protocols specific to other organs will be needed prior to widespread
acceptance of our product for treating other cancer sites. If our
current and future products do not become accepted in treating cancers of other
sites, our sales will depend solely on treatment of prostate cancer and will
require ever increasing market share to increase revenues.
We Have Increasing Cash
Requirements. IsoRay has generated
material operating losses since inception. We expect to continue to
experience significant net operating losses. Due to previous capital
investments and substantial cost reductions, management believes cash and cash
equivalents on hand at April 16, 2010 will be sufficient to meet our anticipated
cash requirements for operations, debt service, and capital expenditure
requirements through at least the next twelve months. If operating
costs expand proportionately with revenue increases, other applications are
pursued for seed usage outside the prostate market, protocols are expanded to
support the integrity of our product, and marketing expenses increase,
management believes approximately $1.0 million in monthly revenue will be needed
to reach break-even. However, there is no assurance as to when
break-even will occur, if ever. If we are unable to generate profits
and unable to obtain additional financing to meet our working capital
requirements, we may have to curtail our business.
We Rely Heavily On A Limited Number
Of Suppliers. Some materials used in our products are
currently available only from a limited number of suppliers. In
fiscal 2009, approximately sixty-five percent (65%) of our Cs-131 was supplied
through UralDial from reactors located in Russia. Unless the Company
substantially increases its purchase requirements resulting from significant
increases in demand for its product, the cost of Cs-131 in Russia could increase
from current pricing. Our current contract with UralDial terminates
in December 2010 and will have to be renegotiated. Management will
seek to negotiate favorable pricing but there is no assurance as to the outcome
of these negotiations.
If the
development of barium enrichment capabilities is successful, the Company plans
to expand Cs-131 manufacturing capability at the MURR reactor in the United
States. Reliance on any single supplier increases the risks associated with
concentrating isotope production at a single reactor facility which can be
subject to unanticipated shutdowns. Failure to obtain deliveries of Cs-131 from
multiple sources could have a material adverse effect on seed production and
there may be a delay before we could locate alternative suppliers beyond the
three currently used.
S-7
We may
not be able to locate additional suppliers outside of Russia capable of
producing the level of output of cesium at the quality standards we require.
Additional factors that could cause interruptions or delays in our source of
materials include limitations on the availability of raw materials or
manufacturing performance experienced by our suppliers and a breakdown in our
commercial relations with one or more suppliers. Some of these
factors may be completely out of our and our suppliers' control.
Virtually
all titanium tubing used in brachytherapy seed manufacture comes from a single
source, Accellent Corporation. We currently obtain a key component of
our seed core from another single supplier. We do not have formal
written agreements with Accellent Corporation. Any interruption or
delay in the supply of materials required to produce our products could harm our
business if we were unable to obtain an alternative supplier or substitute
equivalent materials in a cost-effective and timely manner. To
mitigate any potential interruptions, the Company continually evaluates its
inventory levels and management believes that the Company maintains a sufficient
quantity on hand to alleviate any potential disruptions.
Consumer Spending Has Decreased For
All Procedures Except IMRT Due To A Recessionary Environment And Medical Expert
Advice Resulting In Fewer PSA Tests.
Several factors which occurred in fiscal 2009 caused our revenues to
significantly decline and these factors are still contributing to our failure to
improve sales in the prostate market. Beginning in the Fall of 2008,
U.S. consumers significantly curtailed all spending (even for life saving
medical procedures) which impacted the brachytherapy industry as a
whole. In February of 2009 noted urologists announced at a medical
conference that PSA testing was not as necessary as previously
believed. Their statements were widely
publicized. Management believes that many people have been influenced
by these statements to cut back on PSA testing thereby decreasing in the short
term the number of procedures performed. The final factor which
occurred was the emergence of IMRT as the preferred treatment alternative as a
result of a much higher reimbursement rate to physicians compared to
brachytherapy treatments. Each of these factors is continuing to
impact the performance of the Company in the prostate market and the industry as
a whole during fiscal 2010 and there is no assurance that they will not continue
to impact sales of the Company.
Future Production Increases Will
Depend on Our Ability to Acquire Larger Quantities of Cs-131 and Hire More
Employees. IsoRay currently
obtains Cs-131 through its contract with UralDial and through reactor
irradiation of natural barium and subsequent separation of Cs-131 from the
irradiated barium targets. The amount of Cs-131 that can be produced
from a given reactor source is limited by the power level and volume available
within the reactor for irradiating targets. This limitation can be
overcome by utilizing barium feedstock that is enriched in the stable isotope
Ba-130. However, the number of suppliers of enriched barium is
limited and they may be unable to produce this material in sufficient quantities
at a reasonable price.
IsoRay
has entered into an exclusive agreement (effective through December 31, 2010)
with UralDial in Russia to provide Cs-131 in quantities sufficient to supply a
significant percentage of future demand for this isotope. Due to the
purchase of enriched barium in June 2007, IsoRay has access to sufficient
quantities of enriched barium that may be recycled to increase the production of
Cs-131. Although the UralDial agreement provides for supplying Cs-131
in significant quantities, there is no assurance that this will result in IsoRay
gaining access to a continuing sufficient supply of enriched barium
feedstock. If we were unable to obtain supplies of isotopes from
Russia in the future, our overall supply of Cs-131 would be reduced
significantly unless the Company has a source of enriched barium for utilization
in domestic reactors.
We Have Entered Into An Agreement
With A Single Distributor For Our Cesium-131 From Russia. We
previously obtained the majority of our Cs-131 from either the Institute of
Nuclear Materials (INM) or the Russian Research Institute of Atomic Reactors
(RIAR), both of which are located in Russia. In December 2009, we
entered into an agreement with UralDial to purchase Cs-131 directly from
UralDial instead of from INM and RIAR. As a result, we now rely on
UralDial to obtain Cs-131 from Russian sources. UralDial has agreed
to maintain at least two Russian sources of its Cs-131, and our agreement with
UralDial has lower minimum purchase requirements than our prior agreements with
INM and RIAR, and these lower minimum purchase requirements are being met at
this time. Through the UralDial agreement, we have obtained set
pricing for our Russian Cs-131 through the end of 2010. There can be
no guarantee that UralDial will always be able to supply us with sufficient
Cs-131, which could be due in part to risks associated with foreign operations
and beyond our and UralDial's control, and if we were unable to obtain supplies
of isotopes from Russia in the future, our overall supply of Cs-131 would be
reduced significantly unless we have a source of enriched barium for utilization
in domestic reactors.
S-8
We Are Subject To Uncertainties
Regarding Reimbursement For Use Of Our Products. Hospitals and
freestanding clinics may be less likely to purchase our products if they cannot
be assured of receiving favorable reimbursement for treatments using our
products from third-party payers, such as Medicare and private health insurance
plans. Currently, Medicare reimburses hospitals, clinics and
physicians for the cost of seeds used in brachytherapy procedures on a per case
basis, and intends to continue this method of reimbursement through December 31,
2010. Historically, private insurers have followed Medicare
guidelines in establishing reimbursement rates. However, third-party
payers are increasingly challenging the pricing of certain medical services or
devices, and we cannot be sure that they will reimburse our customers at levels
sufficient for us to maintain favorable sales and price levels for our
products. There is no uniform policy on reimbursement among
third-party payers, and we can provide no assurance that our products will
continue to qualify for reimbursement from all third-party payers or that
reimbursement rates will not be reduced. A reduction in or
elimination of third-party reimbursement for treatments using our products would
likely have a material adverse effect on our revenues.
In 2003,
we applied to the Centers for Medicare and Medicaid Services (CMS), the federal
agency responsible for administering the Medicare program, and received a
reimbursement code for use of our Cs-131 seed. As of July 1, 2007,
CMS revised the coding system for brachytherapy seeds and separated the single
code into two codes – one code for loose seeds and a second code for stranded
seeds. This methodology was applied to all companies manufacturing
and distributing brachytherapy seeds. Reimbursement amounts are
reviewed and revised annually. Adjustments could be made to these
reimbursement amounts or policies, which could result in reduced reimbursement
for brachytherapy services, which could negatively affect market demand for our
products.
Furthermore,
any federal and state efforts to reform government and private healthcare
insurance programs could significantly affect the purchase of healthcare
services and products in general and demand for our products in
particular. Medicare is the payer in approximately 65% of all U.S.
prostate brachytherapy cases and management anticipates this percentage to
increase annually. We are unable to predict whether potential
healthcare reforms will be enacted, whether other healthcare legislation or
regulations affecting the business may be proposed or enacted in the future or
what effect any such legislation or regulations would have on our business,
financial condition or results of operations.
Our Operating Results Will Be
Subject To Significant Fluctuations. Our quarterly revenues,
expenses, and operating results are likely to fluctuate significantly in the
future. Fluctuation may result from a variety of factors, which are
discussed in detail throughout this "RISK FACTORS" section,
including:
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our
achievement of product development objectives and
milestones;
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demand
and pricing for the Company's
products;
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effects
of aggressive competitors;
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hospital,
clinic and physician buying
decisions;
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research
and development and manufacturing
expenses;
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patient
outcomes from our therapy;
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physician
acceptance of our products;
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government
or private healthcare reimbursement
policies;
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our
manufacturing performance and
capacity;
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incidents,
if any, that could cause temporary shutdown of our manufacturing
facility;
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the
amount and timing of sales orders;
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rate
and success of future product
approvals;
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timing
of FDA clearance, if any, of competitive products and the rate of market
penetration of competing products;
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seasonality
of purchasing behavior in our
market;
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S-9
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overall
economic conditions; and
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the
successful introduction or market penetration of alternative
therapies.
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We Have Limited Data on the Clinical
Performance of Cs-131. As of February 28, 2010, the Proxcelan
Cs-131 seed has been implanted in over 5,200 patients and research
papers are being published on the use of the Proxcelan seed. However,
we have less statistical data than is available for I-125 and Pd-103
seeds. While this limited data may prevent us from drawing
statistically significant conclusions, the side effects experienced by these
patients were less severe than side effects observed in seed brachytherapy with
I-125 and Pd-103 and in other forms of treatment such as radical
prostatectomy. These early results indicate that the onset of side
effects generally occurs between one and three weeks post-implant, and the side
effects are resolved between five and eight weeks post-implant, more quickly
than the resolution of side effects that occur with competing seeds or with
other forms of treatment. These limited findings support management's
belief that the Cs-131 seed will result in less severe side effects than
competing treatments, but we may have to gather data on outcomes from additional
patients before we can establish statistically valid conclusions regarding the
incidence of side effects from our seeds.
We Are Subject To The Risk That
Certain Third Parties May Mishandle Our Product. We rely on
third parties, such as Federal Express, to deliver our Proxcelan Cs-131 seed,
and on other third parties, including various radiopharmacies, to package our
Proxcelan Cs-131 seed in certain specialized packaging forms requested by
customers. We are subject to the risk that these third parties may
mishandle our product, which could result in adverse effects on our business,
particularly given the radioactive nature of our product.
It Is Possible That Other Treatments
May Be Deemed Superior To Brachytherapy. Our Proxcelan Cs-131
seed faces competition not only from companies that sell other radiation therapy
products, but also from companies that are developing alternative therapies for
the treatment of cancers. It is possible that advances in the
pharmaceutical, biomedical, or gene therapy fields could render some or all
radiation therapies, whether conventional or brachytherapy,
obsolete. If alternative therapies are proven or even perceived to
offer treatment options that are superior to brachytherapy, physician adoption
of our product could be negatively affected and our revenues from our product
could decline.
Our Industry Is Intensely
Competitive. The medical device industry is intensely
competitive. We compete with both public and private medical device,
biotechnology and pharmaceutical companies that have been in existence longer
than we have, have a greater number of products on the market, have greater
financial and other resources, and have other technological or competitive
advantages. In addition, centers that wish to offer the Proxcelan
Cs-131 seed must comply with licensing requirements specific to the state in
which they do business and these licensing requirements may take a considerable
amount of time to comply with. Certain centers may choose to not
offer our Proxcelan Cs-131 seed due to the time required to obtain necessary
license amendments. We also compete with academic institutions,
government agencies, and private research organizations in the development of
technologies and processes and in acquiring key personnel. Although
we have patents granted and patents applied for to protect our isotope
separation processes and Cs-131 seed manufacturing technology, we cannot be
certain that one or more of our competitors will not attempt to obtain patent
protection that blocks or adversely affects our product development
efforts. To minimize this potential, we have entered into exclusive
agreements with key suppliers of isotopes and isotope precursors, which are
subject to becoming non-exclusive as we have failed to meet minimum purchase
requirements.
We May Be Unable To Adequately
Protect Or Enforce Our Intellectual Property Rights Or Secure Rights To
Third-Party Patents. Our ability and the abilities of our
partners to obtain and maintain patent and other protection for our products
will affect our success. We are assigned, have rights to, or have
exclusive licenses to patents and patents pending in the U.S. and numerous
foreign countries. The patent positions of medical device companies
can be highly uncertain and involve complex legal and factual
questions. Our patent rights may not be upheld in a court of law if
challenged. Our patent rights may not provide competitive advantages
for our products and may be challenged, infringed upon or circumvented by our
competitors. We cannot patent our products in all countries or afford
to litigate every potential violation worldwide.
S-10
Because
of the large number of patent filings in the medical device and biotechnology
field, our competitors may have filed applications or been issued patents and
may obtain additional patents and proprietary rights relating to products or
processes competitive with or similar to ours. We cannot be certain
that U.S. or foreign patents do not exist or will not be issued that would harm
our ability to commercialize our products and product candidates.
The Value Of Our Granted Patents,
and Our Patents Pending, Is Uncertain. Although our management
strongly believes that our patent on the process for producing Cs-131, our
patents on additional methods for producing Cs-131 and other isotopes, our
patent pending on the manufacture of the brachytherapy seed, and anticipated
future patent applications, which have not yet been filed, have significant
value, we cannot be certain that other like-kind processes may not exist or be
discovered, that any of these patents is enforceable, or that any of our patent
applications will result in issued patents.
Failure To Comply With Government
Regulations Could Harm Our Business. As a medical device and
medical isotope manufacturer, we are subject to extensive, complex, costly, and
evolving governmental rules, regulations and restrictions administered by the
FDA, by other federal and state agencies, and by governmental authorities in
other countries. Compliance with these laws and regulations is
expensive and time-consuming, and changes to or failure to comply with these
laws and regulations, or adoption of new laws and regulations, could adversely
affect our business.
In the
United States, as a manufacturer of medical devices and devices utilizing
radioactive by-product material, we are subject to extensive regulation by
federal, state, and local governmental authorities, such as the FDA and the
Washington State Department of Health, to ensure such devices
are safe and effective. Regulations promulgated by the FDA under the
U.S. Food, Drug and Cosmetic Act, or the FDC Act, govern the design,
development, testing, manufacturing, packaging, labeling, distribution,
marketing and sale, post-market surveillance, repairs, replacements, and recalls
of medical devices. In Washington State, the Department of Health, by
agreement with the federal Nuclear Regulatory Commission (NRC), regulates the
possession, use, and disposal of radioactive byproduct material as well as the
manufacture of radioactive sealed sources to ensure compliance with state and
federal laws and regulations. Our Proxcelan Cs-131 brachytherapy
seeds constitute both medical devices and radioactive sealed sources and are
subject to these regulations.
Under the
FDC Act, medical devices are classified into three different categories, over
which the FDA applies increasing levels of regulation: Class I, Class II, and
Class III. Our Proxcelan Cs-131 seed has been classified as a Class
II device and has received clearance from the FDA through the 510(k) pre-market
notification process. Any modifications to the device that would
significantly affect safety or effectiveness, or constitute a major change in
intended use, would require a new 510(k) submission. As with any
submittal to the FDA, there is no assurance that a 510(k) clearance would be
granted to the Company.
In
addition to FDA-required market clearances and approvals for our products, our
manufacturing operations are required to comply with the FDA's Quality System
Regulation, or QSR, which addresses requirements for a company's quality program
such as management responsibility, good manufacturing practices, product and
process design controls, and quality controls used in
manufacturing. Compliance with applicable regulatory requirements is
monitored through periodic inspections by the FDA Office of Regulatory Affairs
(ORA). We anticipate both announced and unannounced inspections by
the FDA. Such inspections could result in non-compliance reports
(Form 483) which, if not adequately responded to, could lead to enforcement
actions. The FDA can institute a wide variety of enforcement actions,
ranging from public warning letters to more severe sanctions such as fines,
injunctions, civil penalties, recall of our products, operating restrictions,
suspension of production, non-approval or withdrawal of pre-market clearances
for new products or existing products, and criminal
prosecution. There can be no assurance that we will not incur
significant costs to comply with these regulations in the future or that the
regulations will not have a material adverse effect on our business, financial
condition and results of operations.
The
marketing of our products in foreign countries will, in general, be regulated by
foreign governmental agencies similar to the FDA. Foreign regulatory
requirements vary from country to country. The time and cost required
to obtain regulatory approvals could be longer than that required for FDA
clearance in the United States and the requirements for licensing a product in
another country may differ significantly from FDA requirements. We
will rely, in part, on foreign distributors to assist us in complying with
foreign regulatory requirements. We may not be able to obtain these
approvals without incurring significant expenses or at all, and the failure to
obtain these approvals would prevent us from selling our products in the
applicable countries. This could limit our sales and
growth.
S-11
Our Business Exposes Us To Product
Liability Claims. Our design, testing, development,
manufacture, and marketing of products involve an inherent risk of exposure to
product liability claims and related adverse publicity. Insurance
coverage is expensive and difficult to obtain, and, although we currently have a
five million dollar policy, in the future we may be unable to obtain or renew
coverage on acceptable terms, if at all. If we are unable to obtain
or renew sufficient insurance at an acceptable cost or if a successful product
liability claim is made against us, whether fully covered by insurance or not,
our business could be harmed.
Our Business Involves Environmental
Risks. Our business involves the controlled use of hazardous
materials, chemicals, biologics, and radioactive
compounds. Manufacturing is extremely susceptible to product loss due
to radioactive, microbial, or viral contamination; material or equipment
failure; vendor or operator error; or due to the very nature of the product's
short half-life. Although we believe that our safety procedures for
handling and disposing of such materials comply with state and federal standards
there will always be the risk of accidental contamination or
injury. In addition, radioactive, microbial, or viral contamination
may cause the closure of the respective manufacturing facility for an extended
period of time. By law, radioactive materials may only be disposed of
at state-approved facilities. At our leased facility we use
commercial disposal contractors. We may incur substantial costs
related to the disposal of these materials. If we were to become
liable for an accident, or if we were to suffer an extended facility shutdown,
we could incur significant costs, damages, and penalties that could harm our
business.
We Rely Upon Key
Personnel. Our success will
depend, to a great extent, upon the experience, abilities and continued services
of our executive officers, sales staff and key scientific
personnel. If we lose the services of several officers, sales
personnel, or key scientific personnel, our business could be
harmed. Our success also will depend upon our ability to attract and
retain other highly qualified scientific, managerial, sales, and manufacturing
personnel and their ability to develop and maintain relationships with key
individuals in the industry. Competition for these personnel and
relationships is intense and we compete with numerous pharmaceutical and
biotechnology companies as well as with universities and non-profit research
organizations. We may not be able to continue to attract and retain
qualified personnel.
Our Ability To Operate In Foreign
Markets Is Uncertain. Our future growth will depend in part on
our ability to establish, grow and maintain product sales in foreign markets,
particularly in Canada and Russia. However, we have limited
experience in marketing and distributing products in other
countries. Any foreign operations would subject us to additional
risks and uncertainties, including our customers' ability to obtain
reimbursement for procedures using our products in foreign markets; the burden
of complying with complex and changing foreign regulatory requirements; speedy
delivery requirements due to the short half-life of our product; language
barriers and other difficulties in providing long-range customer service;
potentially longer accounts receivable collection times; significant currency
fluctuations, which could cause third-party distributors to reduce the number of
products they purchase from us because the cost of our products to them could
fluctuate relative to the price they can charge their customers; reduced
protection of intellectual property rights in some foreign countries; and the
possibility that contractual provisions governed by foreign laws would be
interpreted differently than intended in the event of a contract
dispute. Any future foreign sales of our products could also be
adversely affected by export license requirements, the imposition of
governmental controls, political and economic instability, trade restrictions,
changes in tariffs, and difficulties in staffing and managing foreign
operations. Many of these factors may also affect our ability to
import Cs-131 from Russia under our contract with UralDial.
Our Ability To Expand Operations And
Manage Growth Is Uncertain. Our efforts to expand our
operations will result in new and increased responsibilities for management
personnel and will place a strain upon the entire company. To compete
effectively and to accommodate growth, if any, we may be required to continue to
implement and to improve our management, manufacturing, sales and marketing,
operating and financial systems, procedures and controls on a timely basis and
to expand, train, motivate and manage our employees. There can be no
assurance that our personnel, systems, procedures, and controls will be adequate
to support our future operations. If the Proxcelan Cs-131 seed were
to rapidly become the "seed of choice," it is unlikely that we could meet
demand. We could experience significant cash flow difficulties and
may have difficulty obtaining the working capital required to manufacture our
products and meet demand. This would cause customer discontent and
invite competition.
Our Reporting Obligations As A
Public Company Are Costly. Operating a public company involves
substantial costs to comply with reporting obligations under federal securities
laws that are continuing to increase as provisions of the Sarbanes Oxley Act of
2002 are implemented. As a smaller reporting company, the Company
needs to implement additional provisions of the Sarbanes Oxley Act during the
remainder of fiscal year 2010 and into fiscal year 2011. These
reporting obligations will increase our operating costs.
S-12
USE
OF PROCEEDS
We
estimate that the net proceeds from the sale of the shares of common stock we
are offering will be approximately $3,800,000, after deducting sales agent fees
and the estimated offering expenses payable by us and assuming that we sell all
of the shares offered hereunder.
We intend
to use the net proceeds from the sale of our shares of common stock offered by
this prospectus supplement for general corporate purposes, including without
limitation capital expenditures and working capital needs, as described
below:
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Salaries,
fees and expenses
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$ | 500,000 | ||
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Sales,
marketing and advertising
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1,000,000 | |||
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Licensing
and acquisitions of new products or business units
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1,000,000 | |||
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Research
and development
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500,000 | |||
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Working
capital
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800,000 | |||
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Total
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$ | 3,800,000 |
Although
we have identified some of the potential uses of the proceeds from this
offering, we have and reserve broad discretion in the application of these
proceeds. Accordingly, we reserve the right to use these proceeds for different
purposes or uses which we have not listed above, particularly if there is a
change in demand for certain applications of our Cesium-131 seed product which
may require increased investment in protocols and research studies and the
hiring of additional sales staff. See "Risk Factors –
Since We Have Broad Discretion
In How We Use The Proceeds From This Offering, We May Use The Proceeds In Ways
In Which You Disagree."
Pending
any ultimate use of any portion of the proceeds from this offering, we intend to
invest the proceeds in short – and medium – term interest-bearing obligations,
investment-grade instruments, certificates of deposit or direct or guaranteed
obligations of the U.S. government.
DILUTION
Our net
tangible book value on December 31, 2009 was approximately $7,864,346, or
approximately $0.34 per share. "Net tangible book value" is total assets minus
the sum of liabilities and intangible assets. "Net tangible book value per
share" is net tangible book value divided by the total number of shares of
common stock outstanding at December 31, 2009.
Net
tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of our common
stock immediately after completion of this offering. After giving effect to the
sale of our common stock in the aggregate amount of $4,000,000, representing
3,478,261 shares of our common stock offered at an assumed public offering price
of $1.15 (the last reported sale price of our common stock on April 16, 2010),
our as adjusted net tangible book value as of December 31, 2009 would have been
$0.44 per share. This amount represents an immediate increase in net tangible
book value of $0.10 per share to existing shareholders and an immediate dilution
of $0.71 per share to purchasers of common stock in this offering, as
illustrated in the following table:
S-13
|
Public
offering price per share
|
$ | 1.15 | ||
|
Net
tangible book value per share as of December 31, 2009
|
$ | 0.34 | ||
|
Increase
in net tangible book value per share attributable to this
offering
|
$ | 0.10 | ||
|
Pro
forma net tangible book value per share as of December 31, 2009 after
giving effect to this offering
|
$ | 0.44 | ||
|
Dilution
per share to new investors in this offering
|
$ | 0.71 |
The table
above excludes, as of December 31, 2009, the following securities:
|
|
·
|
3,216,644
shares of common stock issuable upon the exercise of warrants with a
weighted average exercise price of
$5.55;
|
|
|
·
|
59,065
shares of common stock issuable upon the conversion of preferred
stock;
|
|
|
·
|
2,317,237
shares of common stock issuable upon the exercise of options with a
weighted average exercise price of $1.91;
and
|
|
|
·
|
1,612,647
shares of common stock reserved for future stock option grants under our
equity compensation plans.
|
To the
extent that any of these options, warrants and convertible securities are
exercised or converted, there may be further dilution to new
investors.
DESCRIPTION
OF THE SECURITIES WE ARE OFFERING
In this
offering, we are offering a maximum of $4,000,000 in aggregate value of shares
of our common stock, sold at market prices.
Common
Stock
A
description of the common stock we are offering pursuant to this prospectus
supplement is set forth under the heading "Description of Capital Stock,"
starting on page 7 of the accompanying prospectus. As of April 16, 2010, we had
22,945,421 shares of common stock outstanding.
PLAN
OF DISTRIBUTION
We have
entered into a sales agreement with C. K. Cooper & Company, Inc., or CKCC,
under which we may issue and sell up to $4,000,000 of shares of our common stock
from time to time through CKCC as our sales agent. Sales of the shares of common
stock, if any, may be made by any means of permitted by law and deemed to be an
"at the market" offering as defined in Rule 415 of the Securities Act of 1933,
as amended, including sales made directly on the NYSE AMEX at market prices and
such other sales as agreed upon by us and CKCC. As agent, CKCC will not engage
in any transactions that stabilize our common stock.
CKCC, as
agent, will use commercially reasonable efforts to solicit offers to purchase
shares of our common stock upon receipt of a notice from us specifying the
number of shares to be sold and such other matters as may be agreed upon by us
and CKCC. Subject to the terms and conditions of the sales agreement, CKCC will
use commercially reasonable efforts to sell on our behalf all of the designated
shares of common stock pursuant to the terms agreed to with us, including any
minimum price below which sales may not be made. We or CKCC may suspend the
offering of shares of common stock by notifying the other. The obligation of
CKCC under the sales agreement to sell shares pursuant to any notice is subject
to a number of conditions, which CKCC reserves the right to waive in its sole
discretion.
S-14
CKCC, in
its capacity as agent, may arrange for or make sales in privately negotiated
transactions, at the market in the existing trading market for our common stock,
including sales made to or through a market maker or through an electronic
communications network, or in any other manner that is intended to be deemed to
be an "at the market" offering as defined in Rule 415 promulgated under the
Securities Act and/or any other method permitted by law.
We will
pay CKCC a commission equal to 2.0% of the gross sales price of any such shares
sold, through it as agent, as set forth in the sales agreement. We have also
agreed to reimburse CKCC for certain of its out-of-pocket expenses, including
reasonable and documented fees and expenses of its outside counsel, in
connection with the sales agreement, up to a maximum of $29,000 in the
aggregate. The remaining sales proceeds, after deducting any expenses payable by
us, will equal our net proceeds for the sale of the shares.
Settlement
for sales of common stock will occur on the third business day following the
date on which any sales are made in return for payment of the net proceeds to
us. There is no arrangement for funds to be received in an escrow, trust or
similar arrangement.
We will
report at least quarterly the number of shares of common stock sold through
CKCC, as agent, in at-the-market offerings, the net proceeds to us and the
compensation paid by us to CKCC in connection with such sales of common
stock.
During
each period beginning with the date of any notice by us to sell shares of our
common stock and ending after the close of business on the purchase date for the
shares referenced in the notice, we will notify CKCC before we offer to sell,
contract to sell, sell, grant any option to sell or otherwise dispose of any
shares of common stock (other than shares offered under the sales agreement) or
securities convertible into or exchangeable for common stock, warrants or any
rights to purchase or acquire common stock, subject to limited
exceptions.
The
offering of common stock pursuant to the sales agreement will terminate upon the
earliest of (i) June 30, 2010, as such date may be extended by up to an
additional 30 days by mutual agreement between us and CKCC, (ii) the sale of all
shares of common stock subject to the sales agreement, and (iii) the termination
of the sales agreement in accordance with its terms by either CKCC or
us.
In
connection with the sale of the common stock hereunder, CKCC may be deemed to be
an "underwriter'" within the meaning of the Securities Act of 1933, as amended,
and the compensation paid to CKCC may be deemed to be underwriting commissions
or discounts. We have agreed to provide indemnification and contribution to CKCC
against certain civil liabilities, including liabilities under the Securities
Act.
CKCC may
engage in transactions with, or perform other services for, us in the ordinary
course of business. To the extent prohibited by Regulation M, CKCC will not
engage in any market making activities involving our common stock while the
offering is ongoing under this prospectus supplement.
The
transfer agent for our shares of common stock to be issued in this offering is
Computershare Trust Company.
Our
common stock is traded on the NYSE Amex under the symbol "ISR."
LEGAL
MATTERS
The
validity of the issuance of the securities offered by this prospectus supplement
and the accompanying prospectus will be passed upon for us by Keller Rohrback,
PLC, Phoenix, Arizona. Certain members of Keller Rohrback, PLC hold
common stock of the Company, which in the aggregate equal less than one-quarter
of a percent (0.25%) of the total issued and outstanding shares of our common
stock. K&L Gates LLP, Irvine, CA is acting as counsel for the
sales agent in connection with various matters related to the securities offered
hereby.
S-15
EXPERTS
The
financial statements incorporated by reference in this prospectus supplement
have been so incorporated by reference in reliance upon the report of DeCoria,
Maichel & Teague, P.S., independent registered public accountants, upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus supplement and accompanying prospectus constitute a part of a
registration statement on Form S-3 that we filed with the SEC under the
Securities Act of 1933, as amended. We refer you to this registration statement
for further information about us and the common stock to purchase our common
stock offered hereby.
We file
annual, quarterly and special reports and other information with the SEC
(Commission File Number 001-33407). These filings contain important information
that does not appear in this prospectus supplement or the accompanying
prospectus. For further information about us, you may read and copy any reports,
statements and other information filed by us at the SEC's Public Reference Room
at 100 F Street, N.E., Room 1580, Washington, D.C. 20549-0102. You may obtain
further information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. Our SEC filings are also available on the SEC Internet
site at http://www.sec.gov,
which contains periodic reports and other information regarding issuers that
file electronically.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC
allows us to "incorporate by reference" into this prospectus the information we
file with it. This means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be a part of this prospectus, and later information we file with
the SEC will automatically update and supersede this information. The following
documents filed with the SEC (in each case, under our Commission File No.
001-33407) are incorporated by reference in this prospectus:
(a) Our
Annual Report on Form 10-K for the fiscal year ended June 30, 2009 (filed
September 23, 2009), which contains audited financial statements for our latest
fiscal year for which such statements have been filed.
(b) Our
Quarterly Reports on Forms 10-Q and 10-Q/A for the fiscal quarters ended
September 30, 2009 (filed November 16, 2009 and amended on March 25, 2010) and
December 31, 2009 (filed February 16, 2010).
(c) Our
Current Reports on Form 8-K filed on October 2, 2009, November 18, 2009,
December 3, 2009, December 7, 2009, and January 15, 2010.
(d) The
portions of our definitive proxy statement that are deemed "filed" with the SEC
under the Securities Exchange Act of 1934, as amended, filed on October 26,
2009.
(e) The
description of our common stock contained in our Registration Statement on Form
8-A, filed with the Commission on April 12, 2007, including any amendments or
reports filed for the purpose of updating such description.
We are
also incorporating by reference any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is
completed, including those made between the date of filing of the initial
registration statement and prior to effectiveness of the registration statement,
except for information furnished under Item 2.02 or Item 7.01 of our Current
Reports on Form 8-K which is not deemed to be filed and not incorporated by
reference herein.
S-16
We will
provide, without charge, to each person to whom a copy of this prospectus has
been delivered, upon written or oral request of such person, a copy of any or
all of the documents incorporated by reference herein (other than certain
exhibits to such documents not specifically incorporated by
reference). Requests for such copies should be directed to: IsoRay,
Inc., 350 Hills Street, Suite 106, Richland, Washington 99354, telephone number
(509) 375-1202, Attention: Brien Ragle, Controller.
S-17
ISORAY,
INC.
$15,000,000
Common
Stock
Warrants
This
prospectus is part of a registration statement that we filed with the Securities
and Exchange Commission using a "shelf" registration process. We may offer and
sell any combination of our common stock and warrants described in this
prospectus, separately or as units, in one or more offerings from time to time
and at prices and on terms to be determined at or prior to the time of the
applicable offering. The aggregate initial offering price of all securities sold
under this prospectus by us will not exceed $15,000,000. We may offer and sell
these securities to or through one or more underwriters, dealers, and agents, or
directly to purchasers, on a continuous or delayed basis. If any agents or
underwriters are involved in the sale of any of these securities, the applicable
prospectus supplement will provide the names of the agents and underwriters and
any applicable fees, commissions or discounts.
This
prospectus describes the general terms of these securities. We will provide the
specific terms of these securities in supplements to this prospectus. The
prospectus supplement may also add, update or change information in this
prospectus. You should read this prospectus and any prospectus supplement, as
well as the documents incorporated by reference or deemed to be incorporated by
reference into this prospectus, carefully before you invest. This prospectus may not be used to
offer or sell securities unless accompanied by a prospectus
supplement.
Our
principal executive offices are located at 350 Hills Street, Suite 106,
Richland, Washington 99354, and our telephone number is (509)
375-1202.
Our
common stock is listed on the NYSE Amex Stock Exchange under the symbol "ISR."
As of October 15, 2009, the aggregate market value of our outstanding Common
Stock held by non-affiliates was approximately $25,198,765, based on 22,942,088
shares of outstanding Common Stock, of which 22,500,906 shares were held by
non-affiliates, and a per share price of $1.1199 based on the closing price of
our Common Stock as quoted on the NYSE Amex on October 15, 2009. As
of the date hereof, we have not offered any securities pursuant to General
Instruction I.B.6. of Form S-3 during the prior twelve calendar month period
that ends on, and includes, the date of this prospectus. Each
prospectus supplement will contain information, where applicable, as to any
listing on the NYSE Amex or any other securities exchange of the securities
covered by the prospectus supplement.
Investing in the
securities we may offer involves various risks. See the sections entitled
"Risk
Factors" on page 2 and "Note Regarding Forward-Looking Statements" on page 3.
Additional risks associated with an investment in us as well as with the
particular types of securities will be described in the related prospectus
supplement and certain of our filings with the Securities and Exchange
Commission.
Neither the
Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The date
of this prospectus is October __, 2009.
1
TABLE
OF CONTENTS
|
Page
|
||
|
ABOUT
THIS PROSPECTUS
|
3
|
|
|
ABOUT
ISORAY
|
3
|
|
|
RISK
FACTORS
|
4
|
|
|
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
|
5
|
|
|
USE
OF PROCEEDS
|
5
|
|
|
GENERAL
DESCRIPTION OF SECURITIES
|
6
|
|
|
DESCRIPTION
OF CAPITAL STOCK
|
6
|
|
|
DESCRIPTION
OF THE WARRANTS
|
9
|
|
|
DESCRIPTION
OF UNITS
|
11
|
|
|
PLAN
OF DISTRIBUTION
|
12
|
|
|
LEGAL
MATTERS
|
14
|
|
|
EXPERTS
|
14
|
|
|
INTERESTS
OF NAMED EXPERTS AND COUNSEL
|
15
|
|
|
MATERIAL
CHANGES
|
15
|
|
|
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
|
15
|
|
|
INCORPORATION
BY REFERENCE
|
15
|
|
|
COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
|
16
|
The
registration statement, including the exhibits and the documents incorporated
herein by reference, can be read on the Securities and Exchange Commission
website are at the Securities and Exchange Commission offices mentioned under
the heading "Where You Can Find More Information."
Until
____________, all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
2
ABOUT
THIS PROSPECTUS
You
should rely only on the information contained or incorporated by reference in
this prospectus. We have not authorized anyone to provide you with
different information. If anyone provides you with different or
inconsistent information, you should not rely on it. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. You
should not assume that the information in this prospectus is accurate as of any
date other than the date on the front cover of this prospectus. You
should not assume that the information incorporated by reference in this
prospectus is accurate as of any date other than the date the respective
information was filed with the Securities and Exchange
Commission. Our business, financial condition, results of operations
and prospects may have changed since those dates.
This
prospectus is part of a registration statement that we have filed with the
Securities and Exchange Commission, or the SEC, using a "shelf" registration
process. Under this shelf registration process, we may offer from time to time
up to $15,000,000 in the aggregate, inclusive of any exercise price thereof, of
the following securities:
|
|
•
|
shares of our common
stock;
|
|
|
•
|
warrants to purchase shares of
our common stock; or
|
|
|
•
|
any combination of the foregoing,
separately or as units.
|
This
prospectus provides you with a general description of the securities we may
offer. Each time we offer securities, we will provide you with a prospectus
supplement that describes the specific amounts, prices and terms of the
securities we may offer. The prospectus supplement also may add, update or
change information contained in this prospectus. You should read carefully both
this prospectus and any prospectus supplement together with additional
information described below under "Information Incorporated By
Reference."
This
prospectus does not contain all the information provided in the registration
statement we filed with the SEC. For further information about us or the
securities offered hereby, you should refer to that registration statement,
which you can obtain from the SEC as described below under "Where You Can Find
More Information."
Pursuant
to General Instruction I.B.6. of Form S-3, we are permitted to use the
registration statement of which this prospectus forms a part to sell, via a
primary offering, a maximum amount of securities equal to one-third of the
aggregate market value of our outstanding voting and non-voting common equity
held by non-affiliates of our company in any twelve month period.
We may
sell the securities to or through underwriters, dealers or agents or directly to
purchasers. We and our agents reserve the sole right to accept or reject in
whole or in part any proposed purchase of securities. The prospectus supplement,
which we will provide to you each time we offer securities, will set forth the
names of any underwriters, dealers or agents involved in the sale of the
securities, and any applicable fee, commission or discount arrangements with
them. See "Plan of Distribution."
ABOUT
ISORAY
In this
prospectus, the terms "IsoRay," the "Company," "we," "us," "our" and similar
terms refer to IsoRay, Inc. and its operating subsidiary IsoRay, Medical, Inc. ,
and, to the extent applicable, its non-operating subsidiary, IsoRay
International LLC.
3
In 2003,
IsoRay obtained clearance from the FDA for treatment for all solid tumor
applications using Cesium-131 (Cs-131). Such applications include
prostate cancer; ocular melanoma; head, neck and lung tumors; and breast, liver,
brain and pancreatic cancer. The seed may be used in surface,
interstital and intracavity applications for tumors with known radio
sensitivity. Management believes its Cs-131 technology will allow it
to become a leader in the brachytherapy market. Management believes
that the IsoRay Proxcelan Cesium-131 brachytherapy seed represents the first
major advancement in brachytherapy technology in over 21 years with attributes
that could make it the long-term "seed of choice" for internal radiation therapy
procedures.
IsoRay
began production and sales of Proxcelan Cesium-131 brachytherapy seeds in
October 2004 for the treatment of prostate cancer after clearance of its
premarket notification (510(k)) by the Food and Drug Administration
(FDA). In December 2007, IsoRay began selling its Proxcelan Cs-131
seeds for the treatment of ocular melanoma. On June 1, 2009, the
Company again expanded its application of Cs-131 with the treatment of a head
and neck tumor that could not be accessed by other treatment
modalities. More recently the Company has focused on other
applications which require revising the delivery system from those historically
used by the Company.
In August
2009, IsoRay Medical received clearance from the FDA for its Premarket
Notification (510(k)) for Proxcelan™ Cesium-131 brachytherapy seeds that are
preloaded into bioabsorbable braided strands. This clearance permits the product
to be commercially distributed for treatment of lung, head and neck tumors as
well as tumors in other organs. While Cs-131 brachytherapy seeds
themselves have been cleared for treatment in all organs since 2003, this 510(k)
allows Cs-131 seeds to be delivered in a convenient and sterile format that can
be implanted without additional seed loading by the facility. The
510(k) also clears the application of braided strands onto a bioabsorbable mesh
matrix to further facilitate the implant procedure.
Brachytherapy
seeds are small devices used in an interstital radiation
procedure. The procedure has become one of the primary treatments for
prostate cancer. The brachytherapy procedure places radioactive seeds
as close as possible to (in or near) the cancerous tumor (the word
"brachytherapy" means close therapy). The seeds deliver therapeutic
radiation thereby killing the cancerous tumor cells while minimizing exposure to
adjacent healthy tissue. This procedure allows doctors to administer
a higher dose of radiation directly to the tumor. Each seed contains
a radioisotope sealed within a welded titanium capsule. When
brachytherapy is the only treatment (monotherapy), approximately 70 to 120 seeds
are permanently implanted in the prostate in an outpatient procedure lasting
less than one hour. The number of seeds used varies based on the size
of the prostate and the activity level specified by the physician. When
brachytherapy is combined with external beam radiation or intensity modulated
radiation therapy (dual therapy), then approximately 40-80 seeds are used in the
procedure. The isotope decays over time and eventually the seeds
become inert. The seeds may be used as a primary treatment or in
conjunction with other treatment modalities, such as chemotherapy, or as
treatment for residual disease after excision of primary tumors. The
number of seeds for other treatment sites will vary from as few as 10-12 to as
many at 80-100 depending on the location of the tumor being
treated.
More
comprehensive information about us is available through our Internet website at
http://www.isoray.com. The
information on our website is not incorporated by reference into this
prospectus. Our executive offices are located at 350 Hills Street, Suite 106,
Richland, Washington 99354, and our telephone number is (509)
375-1202.
RISK
FACTORS
An
investment in our securities involves a high degree of risk. Before
making an investment decision, you should carefully consider the risks described
under "Risk Factors" in the applicable prospectus supplement and in our most
recent Annual Report on Form 10-K, or any updates in our Quarterly Reports on
Form 10-Q, together with all of the other information appearing in this
prospectus or incorporated by reference into this prospectus and any applicable
prospectus supplement, in light of your particular investment objectives and
financial circumstances. The risks so described are not the only risks facing
our company. Additional risks not presently known to us or that we currently
deem immaterial may also impair our business operations. Our business, financial
condition or results of operations could be materially adversely affected by any
of these risks. The trading price of our securities could decline due to any of
these risks, and you may lose all or part of your investment.
4
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
In
addition to historical information, this prospectus, any prospectus supplement
and the documents incorporated by reference herein contain 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
prospectus, any prospectus supplement and the documents incorporated by
reference herein, 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 that may cause actual results to differ
materially.
You
should not place undue reliance on our forward-looking statements because the
matters they describe are subject to known and unknown risks, uncertainties and
other unpredictable factors, many of which are beyond our control. Our
forward-looking statements are based on the information currently available to
us and speak only as of the date on the cover of this prospectus, the date of
any prospectus supplement, or, in the case of forward-looking statements
incorporated by reference, as of the date of the filing that includes the
statement. New risks and uncertainties arise from time to time, and it is
impossible for us to predict these matters or how they may affect us. Over time,
our actual results, performance or achievements will likely differ from the
anticipated results, performance or achievements that are expressed or implied
by our forward-looking statements, and such difference might be significant and
materially adverse to our security holders. We do not undertake and specifically
decline any obligation to update any forward-looking statements or to publicly
announce the results of any revisions to any statements to reflect new
information or future events or developments.
We have
identified some of the important factors that could cause future events to
differ from our current expectations and they are described in this prospectus
and supplements to this prospectus under the caption "Risk Factors" as well as
in our most recent Annual Report on Form 10-K, including without limitation
under the captions "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in other documents that we
may file with the SEC, all of which you should review carefully. Please consider
our forward-looking statements in light of those risks as you read this
prospectus and any prospectus supplement.
USE
OF PROCEEDS
We will
retain broad discretion over the use of the net proceeds from the sale of our
securities offered by us hereby. Except as described in any prospectus
supplement, we currently intend to use the net proceeds from the sale of
securities offered by us pursuant to this prospectus for working capital,
capital expenditures, investments in our subsidiaries, and other general
corporate purposes. We may also use such proceeds to fund acquisitions of
businesses, technologies or product lines that complement our current business.
However, we currently have no commitments or agreements for any specific
acquisitions. Pending application of the net proceeds, we intend to invest the
net proceeds of the offering of securities by us in investment-grade,
interest-bearing securities.
5
GENERAL
DESCRIPTION OF SECURITIES
We,
directly or through agents, dealers or underwriters designated from time to
time, may offer, issue and sell, together or separately, in one or more
offerings, up to $15,000,000 in the aggregate, inclusive of any exercise price
thereof, of:
|
|
•
|
shares of our common stock, par
value $0.001 per share;
|
|
|
•
|
warrants to purchase shares of
our common stock; or
|
|
|
•
|
any combination of the foregoing,
either individually or as units consisting of one or more of the
foregoing, each on terms to be determined at the time of
sale.
|
The
common stock and the warrants, whether issued individually or as units, are
collectively referred to herein as the securities. This prospectus provides you
with a general description of the securities we may offer. Each time we offer
securities, we will provide you with a prospectus supplement that describes the
specific amounts, prices and terms of the securities we offer. The securities
involve various risks that we will describe in the section entitled "Risk
Factors" that will be included in each prospectus supplement.
DESCRIPTION
OF CAPITAL STOCK
The
following is a summary description of the rights of our common stock and related
provisions of our amended Articles of Incorporation and our Bylaws. The
following description of our capital stock is intended as a summary only and is
qualified in its entirety by reference to our amended Articles of Incorporation
and our Bylaws, which are filed as exhibits to the registration statement of
which this prospectus forms a part, and to the applicable provisions of
Minnesota law.
Common
Stock
Our common shares are listed on the
NYSE Amex under the symbol "ISR". As of October 15, 2009, 22,942,088
shares of common stock were issued and outstanding.
The
Company's Articles of Incorporation provide that the Company has the authority
to issue 200 million shares of capital stock, which are currently divided into
two classes as follows: 194 million shares of common stock, par value of $0.001
per share; and 6 million shares of preferred stock, also with a par value of
$0.001 per share.
The
holders of our common stock have no preemptive or other subscription rights, and
there are no conversion rights or redemption or sinking fund provisions with
respect to such shares. All of the outstanding shares of our common stock are,
and the shares of our common stock when issued will be, fully paid and
nonassessable.
Voting. Holders of
the common stock are entitled to one vote per share on all matters to be voted
on by the Company's shareholders. The Company's bylaws provide that a
majority of the outstanding shares of the corporation entitled to vote
constitute a quorum at a meeting of the shareholders.
Dividends. The
Company's Board of Directors, in its sole discretion, may declare and pay
dividends on the common stock, payable in cash or other consideration, out of
funds legally available, if all dividends due on the preferred stock have been
declared and paid. The Company has not paid any cash dividends on its
common stock and does not plan to pay any cash dividends on its common stock for
the foreseeable future.
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Liquidation, Subdivision, or
Combination. In the event of any liquidation, dissolution or
winding up of the Company or upon the distribution of its assets, all assets and
funds remaining after payment in full of the Company's debts and liabilities,
and after the payment to holders of any then outstanding preferred stock of the
full preferential amounts to which they were entitled, would be divided and
distributed among holders of the common stock.
Anti-Takeover Effects Of Provisions
Of The Articles Of Incorporation. The authorized but unissued
shares of our common and preferred stock are available for future issuance
without our shareholders' approval. These additional shares may be
utilized for a variety of corporate purposes including but not limited to future
public or direct offerings to raise additional capital, corporate acquisitions
and employee incentive plans. The issuance of such shares may also be
used to deter a potential takeover of IsoRay that may otherwise be beneficial to
shareholders by diluting the shares held by a potential suitor or issuing shares
to a shareholder that will vote in accordance with IsoRay's Board of Directors'
desires. A takeover may be beneficial to shareholders because, among
other reasons, a potential suitor may offer shareholders a premium for their
shares of stock compared to the then-existing market price.
On
February 1, 2007, the Board of Directors of IsoRay, Inc. declared a dividend of
one preferred share purchase right (a "Right") for each outstanding Common Share
of the par value of $.001 per share (the "Common Shares") of the
Company. The dividend is payable on February 16, 2007 (the "Record
Date") to shareholders of record on that date.
Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a Series C Junior Participating Preferred Share of the par
value of $.001 per share (the "Preferred Shares") of the Company at a price of
$25 per one one-hundredth of a Preferred Share (the "Purchase Price"), subject
to adjustment. The description and terms of the Rights are set forth
in a Rights Agreement (the "Rights Agreement"), dated as of February 1, 2007,
between the Company and Computershare Trust Company N.A., as Rights Agent (the
"Rights Agent").
Initially,
the Rights will attach to all certificates representing Common Shares then
outstanding and no separate Right Certificates will be
distributed. The Rights will separate from the Common Shares and a
Distribution Date for the Rights will occur upon the earlier of:
(i) the
close of business on the fifteenth day following a public announcement that a
person or group of affiliated or associated persons has become an "Acquiring
Person" (i.e., has become, subject to certain exceptions, the beneficial owner
of 15% or more of the voting power of the outstanding shares of voting capital
stock of the Company in the election of directors), or
(ii) the
close of business on the fifteenth day following the first public announcement
relating to a tender offer or exchange offer the consummation of which would
result in a person or group of affiliated or associated persons becoming,
subject to certain exceptions, the beneficial owner of 15% or more of the voting
power of the outstanding shares of voting capital stock of the Company in the
election of directors (or such later date as may be determined by the Board of
Directors of the Company prior to a person or group of affiliated or associated
persons becoming an Acquiring Person).
Until the
Distribution Date,
(i) the
Rights will be evidenced by the Common Share certificates and will be
transferred with and only with the Common Shares,
(ii) new
Common Share certificates issued after the Record Date upon transfer or new
issuance of the Common Shares will contain a notation incorporating the Rights
Agreement by reference, and
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(iii) the
surrender for transfer of any Common Share certificate, even without such
notation or a copy of this Summary of Rights attached thereto, will also
constitute the transfer of the Rights associated with the Common Shares
represented by such certificate.
As
promptly as practicable following the Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The
Rights are not exercisable until the Distribution Date. The Rights
will expire on February 16, 2017, unless extended or earlier redeemed or
exchanged by the Company as described below.
The
Purchase Price payable, and the number of Preferred Shares or other securities
or property issuable, upon exercise of the Rights are subject to adjustment from
time to time to prevent dilution:
(i) in
the event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Shares,
(ii) upon
the grant to holders of the Preferred Shares of certain rights, options or
warrants to subscribe for or purchase Preferred Shares or convertible securities
at less than the then current market price of the Preferred Shares,
or
(iii) upon
the distribution to holders of the Preferred Shares of evidences of indebtedness
or assets (excluding regular periodic cash dividends or dividends payable in
Preferred Shares) or of subscription rights or warrants (other than those
described in clause (ii) hereof).
The
number of Preferred Shares issuable upon the exercise of a Right is also subject
to adjustment in the event of a dividend on Common Shares payable in Common
Shares, or a subdivision, combination or consolidation of the Common
Shares.
With
certain exceptions, no adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in the Purchase
Price. No fractional Preferred Shares will be issued (other than
fractional shares which are integral multiples of one one-hundredth (subject to
adjustment) of a Preferred Share, which may, at the election of the Company, be
evidenced by depositary receipts) if in lieu thereof a payment in cash is made
based on the closing price (pro-rated for the fraction) of the Preferred Shares
on the last trading date prior to the date of exercise.
In the
event that any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights that are or were beneficially owned by the Acquiring Person
(which will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price of the Right that number of
Common Shares having a market value of two times the exercise price of the
Right, subject to certain possible adjustments.
In the
event that, after the Distribution Date or within 15 days prior thereto, the
Company is acquired in certain mergers or other business combination
transactions or 50% or more of the assets or earning power of the Company and
its subsidiaries (taken as a whole) are sold after the Distribution Date or
within 15 days prior thereto, each holder of a Right (other than Rights which
have become void under the terms of the Rights Agreement) will thereafter have
the right to receive, upon exercise thereof at the then current exercise price
of the Right, that number of common shares of the acquiring company (or, in
certain cases, one of its affiliates) having a market value of two times the
exercise price of the Right.
In
certain events specified in the Rights Agreement, the Company is permitted to
temporarily suspend the exercisability of the Rights.
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At any
time after a person or group of affiliated or associated persons becomes an
Acquiring Person (subject to certain exceptions) and prior to the acquisition by
a person or group of affiliated or associated persons of 50% or more of the
voting power of the outstanding shares of voting capital stock of the Company in
the election of directors, the Board of Directors of the Company may exchange
all or part of the Rights (other than Rights which have become void under the
terms of the Rights Agreement) for Common Shares or equivalent securities at an
exchange ratio per Right equal to the result obtained by dividing the exercise
price of a Right by the current per share market price of the Common Shares,
subject to adjustment.
At any
time prior to such time as a person or group of affiliated or associated persons
becomes an Acquiring Person, the Board of Directors of the Company may redeem
the Rights in whole, but not in part, at a price of $.001 per Right, subject to
adjustment (the "Redemption Price"), payable in cash. The period of
time during which the Rights may be redeemed may be extended by the Board of
Directors of the Company if no person has become an Acquiring
Person. The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board of Directors in its
sole discretion may establish. The Board of Directors and the Company
shall not have any liability to any person as a result of the redemption or
exchange of the Rights pursuant to the provisions of the Rights
Agreement.
The terms
of the Rights may be amended by the Board of Directors of the Company, subject
to certain limitations after such time as a person or group of affiliated or
associated persons becomes an Acquiring Person, without the consent of the
holders of the Rights, including an amendment prior to the date a person or
group of affiliated or associated persons becomes an Acquiring Person to lower
the 15% threshold for exercisability of the Rights to not less than the greater
of (i) the sum of .001% and the largest percentage of the outstanding shares of
voting capital stock of the Company with voting power in the election of
directors then known by the Company to be beneficially owned by any person or
group of affiliated or associated persons (subject to certain exceptions) or
(ii) 10%.
Until a
Right is exercised, the holder thereof, as such, will have no rights as a
shareholder of the Company, including, without limitation, the right to vote or
to receive dividends.
The
foregoing description of the Rights Agreement is qualified in its entirety by
reference to the full text of the Rights Agreement.
Transfer Agent and
Registrar. The transfer agent and registrar for our common
stock is Computershare Trust Company, N.A. The transfer agent's
address is 350 Indiana Street, Golden, CO 80401, and its telephone
number is (303) 262-0600.
DESCRIPTION
OF THE WARRANTS
Terms
of Prospective Warrant Issuances
We may
issue warrants to purchase shares of our common stock in one or more series. The
warrants may be issued independently or together with shares of our common stock
and may be attached to or separate from the shares of our common stock. The
warrants may be issued by us directly or under warrant agreements to be entered
into between us and a bank or trust company, as warrant agent, all as shall be
set forth in the prospectus supplement relating to warrants being offered
pursuant to such prospectus supplement. The following description of the
warrants will apply to the warrants offered by this prospectus unless we provide
otherwise in the applicable prospectus supplement. The applicable prospectus
supplement for a particular series of warrants may specify different or
additional terms.
A copy of
the form of warrant agreement, including the form of warrant certificate
representing a series of warrants, will be filed with the SEC in connection with
the offering of a particular series of warrants. The following
summaries of material provisions of the warrants and the warrant agreements are
subject to, and qualified in their entirety by reference to, all the provisions
of the warrant agreement and warrant certificate applicable to the particular
series of warrants that we may offer under this prospectus. We urge
you to read the applicable prospectus supplement(s) related to the particular
series of warrants that we may offer under this prospectus, as well as any
prospectus supplement, and the complete warrant agreements and warrant
certificates that contain the terms of the warrants.
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The
applicable prospectus supplement will describe the following terms of warrants
offered:
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the offering price and aggregate
number of warrants offered;
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if applicable, the number of
warrants issued with each share of common
stock;
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if applicable, the date on and
after which the warrants and the related common stock will be separately
transferable;
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the number of shares of common
stock purchasable upon the exercise of one warrant and the price at which
these shares may be purchased upon such
exercise;
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the effect of any merger,
consolidation, sale or other disposition of our business on the warrant
agreements and the warrants;
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the terms of any rights to redeem
or call the warrants;
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any provisions for changes to or
adjustments in the exercise price or number of shares of common stock
issuable upon exercise of the
warrants;
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the dates on which the right to
exercise the warrants will commence and
expire;
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the manner in which the warrant
agreements and warrants may be
modified;
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the anti-dilutive protections
given to the holders of such
warrants;
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a discussion of any material or
special U.S. federal income tax consequences of holding or exercising the
warrants; and
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any other specific terms,
preferences, rights or limitations of or restrictions on the
warrants.
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Holders
of warrants will not be entitled, by virtue of being such holders, to vote,
consent, receive dividends, receive notice as stockholders with respect to any
meeting of stockholders for the election of our directors or any other matter,
or to exercise any rights whatsoever as our stockholders.
The
exercise price payable and the number of shares of our common stock purchasable
upon the exercise of each warrant will be subject to adjustment in certain
events, including the issuance of a stock dividend to holders of our common
stock or a stock split, reverse stock split, combination, subdivision or
reclassification of our common stock. In lieu of adjusting the number of shares
of our common stock purchasable upon exercise of each warrant, we may elect to
adjust the number of warrants. No fractional shares will be issued upon exercise
of the warrants, but we will pay the cash value of any fractional shares
otherwise issuable. Notwithstanding the foregoing, in case of any consolidation,
merger, or sale or conveyance of our property as an entirety or substantially as
an entirety, the holder of each outstanding warrant shall have the right to the
kind and amount of shares of stock and other securities and property, including
cash, receivable by a holder of the number of shares of our common stock into
which the warrant was exercisable immediately prior to such
transaction.
Each
warrant will entitle the holder to purchase for cash such shares of our common
stock at such exercise price as shall in each case be set forth in, or be
determinable as set forth in, the prospectus supplement relating to the warrants
offered thereby. Warrants may be exercised at any time up to the close of
business on the expiration date set forth in the prospectus supplement relating
to the warrants offered thereby. After the close of business on the expiration
date, unexercised warrants will become void.
The
warrants may be exercised as set forth in the prospectus supplement relating to
the warrants offered. Upon receipt of payment and the warrant certificate
properly completed and duly executed at the corporate trust office of the
warrant agent or any other office indicated in the prospectus supplement, we
will, as soon as practicable, forward the shares of our common stock purchasable
upon such exercise. If less than all of the warrants represented by such warrant
certificate are exercised, a new warrant certificate will be issued for the
remaining warrants.
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Governing
Law
Unless we
provide otherwise in the applicable prospectus supplement, the warrants and
warrant agreements will be governed by and construed in accordance with the laws
of the State of Minnesota.
Enforceability
of Rights by Holders of Warrants
Each
warrant agent (if any) will act solely as our agent under the applicable warrant
agreement and will not assume any obligation or relationship of agency or trust
with any holder of any warrant. A single bank or trust company may act as
warrant agent for more than one issue of warrants. A warrant agent will have no
duty or responsibility in case of any default by us under the applicable warrant
agreement or warrant, including any duty or responsibility to initiate any
proceedings at law or otherwise, or to make any demand upon us. Any holder of a
warrant may, without the consent of the related warrant agent or the holder of
any other warrant, enforce by appropriate legal action its right to exercise,
and receive the securities purchasable upon exercise of, its
warrants.
DESCRIPTION
OF UNITS
The
following description, together with the additional information we may include
in any applicable prospectus supplement, summarizes the material terms and
provisions of the units that we may offer under this prospectus. While the terms
we have summarized below will apply generally to any units that we may offer
under this prospectus, we will describe the particular terms of any series of
units in more detail in the applicable prospectus supplement. The terms of any
units offered under a prospectus supplement may differ from the terms described
below. However, no prospectus supplement will fundamentally change the terms
that are set forth in this prospectus or offer a security that is not registered
and described in this prospectus at the time of its effectiveness.
We will
file with the SEC the form of unit agreement that describes the terms of the
series of units we are offering, and any supplemental agreements, before the
issuance of the related series of units. The following summaries of material
terms and provisions of the units are subject to, and qualified in their
entirety by reference to, all the provisions of the unit agreement and any
supplemental agreements applicable to a particular series of units. We urge you
to read the applicable prospectus supplements related to the particular series
of units that we sell under this prospectus, as well as the complete unit
agreement and any supplemental agreements that contain the terms of the
units.
We may
issue units comprised of one or more shares of common stock and warrants in any
combination. Each unit will be issued so that the holder of the unit is also the
holder of each security included in the unit. Thus, the holder of a unit will
have the rights and obligations of a holder of each included security. The unit
agreement under which a unit is issued may provide that the securities included
in the unit may not be held or transferred separately, at any time or at any
time before a specified date.
We
will describe in the applicable prospectus supplement the terms of the series of
units, including, but not limited to:
• the
designation and terms of the units and of the securities comprising the units,
including whether and under what circumstances those securities may be held or
transferred separately;
• any
provisions of the governing unit agreement that differ from those described
below; and
• any
provisions for the issuance, payment, settlement, transfer or exchange of the
units or of the securities comprising the units.
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The
provisions described in this section, as well as those described under
"Description of Capital Stock" and "Description of the Warrants" will apply to
each unit and to any common stock or warrant included in each unit,
respectively.
We may
issue units in such amounts and in numerous distinct series as we
determine.
Each unit
agent will act solely as our agent under the applicable unit agreement and will
not assume any obligation or relationship of agency or trust with any holder of
any unit. A single bank or trust company may act as unit agent for more than one
series of units. A unit agent will have no duty or responsibility in case of any
default by us under the applicable unit agreement or unit, including any duty or
responsibility to initiate any proceedings at law or otherwise, or to make any
demand upon us. Any holder of a unit may, without the consent of the related
unit agent or the holder of any other unit, enforce by appropriate legal action
its rights as holder under any security included in the unit.
We, the
unit agents and any of their agents may treat the registered holder of any unit
certificate as an absolute owner of the units evidenced by that certificate for
any purpose and as the person entitled to exercise the rights attaching to the
units so requested, despite any notice to the contrary.
PLAN
OF DISTRIBUTION
Pursuant
to General Instruction I.B.6. of Form S-3, we are permitted to use the
registration statement of which this prospectus forms a part to sell, via a
primary offering, a maximum amount of securities equal to one-third of the
aggregate market value of our outstanding voting and non-voting common equity
held by non-affiliates of our company in any twelve month period. We
may, from time to time, offer and sell the securities registered hereby up to
the lesser of this maximum amount or $15,000,000.
We may
sell the securities through underwriters or dealers, through agents, or directly
to one or more purchasers or through a combination of these methods, or through
any other method permitted by applicable law. The applicable prospectus
supplement will describe the terms of the offering of the securities,
including:
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the
name or names of any underwriters, if any, and if required, any dealers or
agents;
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the purchase price of the
securities and the proceeds we will receive from the
sale;
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any underwriting discounts and
other items constituting underwriters'
compensation;
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any discounts or concessions
allowed or reallowed or paid to dealers;
and
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any securities exchange or market
on which the securities may be
listed.
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We may
distribute the securities from time to time in one or more transactions
at:
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a fixed price or prices, which
may be changed from time to
time;
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market prices prevailing at the
time of sale;
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prices related to such prevailing
market prices; or
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negotiated
prices.
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Only
underwriters named in the prospectus supplement are underwriters of the
securities offered by that prospectus supplement. If we utilize any
underwriters in the sale of our securities in respect of which this prospectus
is delivered, we will enter into an underwriting agreement with those
underwriters at the time of sale to them. We will set forth the names
of these underwriters and the terms of the transaction in the applicable
prospectus supplement, which will be used by the underwriters to make resales of
our securities in respect of which this prospectus is delivered to the
public.
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If we use
underwriters in the sale of securities, they will acquire the securities for
their own account and may resell them from time to time in one or more
transactions at a fixed public offering price or at varying prices determined at
the time of sale. We may offer the securities to the public through underwriting
syndicates represented by managing underwriters or by underwriters without a
syndicate. Any public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may change from time to time.
If we use
a dealer in the sale of the securities being offered pursuant to this
prospectus, we will sell the securities to the dealer, as principal. The dealer
may then resell the securities to the public at varying prices to be determined
by the dealer at the time of resale.
We may
sell securities directly or through agents we designate from time to time. We
will name any agent involved in the offering and sale of securities and we will
describe any commissions we will pay the agent in the prospectus supplement.
Unless the prospectus supplement states otherwise, our agent will act on a
best-efforts basis for the period of its appointment.
We may
authorize agents or underwriters to solicit offers by institutional investors to
purchase securities from us at the public offering price set forth in the
prospectus supplement pursuant to delayed delivery contracts providing for
payment and delivery on a specified date in the future. We will describe the
conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
In
connection with the sale of the securities, underwriters, dealers or agents may
receive compensation from us, or from purchasers of the securities for whom they
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell the securities to or through dealers, and those dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters or commissions from the purchasers for whom they may act
as agents. Underwriters, dealers and agents that participate in the distribution
of the securities, and any institutional investors or others that purchase
securities directly and then resell the securities, may be deemed to be
underwriters, and any discounts or commissions received by them from us and any
profit on the resale of the securities by them may be deemed to be underwriting
discounts and commissions under the Securities Act.
We may
provide agents, underwriters and dealers with indemnification against particular
civil liabilities, including liabilities under the Securities Act, or
contribution with respect to payments that the agents, underwriters or dealers
may make with respect to such liabilities. Agents, underwriters and dealers may
engage in transactions with, or perform services for, us in the ordinary course
of business.
In
addition, we may enter into derivative transactions with third parties
(including the writing of options), or sell securities not covered by this
prospectus to third parties in privately negotiated transactions. If the
applicable prospectus supplement indicates, in connection with such a
transaction, the third parties may, pursuant to this prospectus and the
applicable prospectus supplement, sell securities covered by this prospectus and
the applicable prospectus supplement. If so, the third party may use securities
borrowed from us or others to settle such sales and may use securities received
from us to close out any related short positions. We may also loan or pledge
securities covered by this prospectus and the applicable prospectus supplement
to third parties, who may sell the loaned securities or, in an event of default
in the case of a pledge, sell the pledged securities pursuant to this prospectus
and the applicable prospectus supplement. The third party in such sale
transactions will be an underwriter and will be identified in the applicable
prospectus supplement or in a post-effective amendment.
All
securities we offer other than common stock will be new issues of securities
with no established trading market. Any underwriters may make a market in these
securities, but will not be obligated to do so and may discontinue any market
making at any time without notice. We cannot guarantee the liquidity of the
trading markets for any securities.
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To the
extent that we make sales through one or more underwriters, dealers or agents in
at-the-market offerings, we will do so pursuant to the terms of a sales agency
financing agreement or other at-the-market offering arrangement between us and
the underwriters or agents. If we engage in at-the-market sales
pursuant to any such agreement, we will issue and sell our securities through
one or more underwriters, dealers or agents, which may act on an agency basis or
on a principal basis. During the term of any such agreement, we may
sell securities on a daily basis in exchange transactions or otherwise as we
agree with the underwriters, dealers or agents. The agreement will
provide that any securities sold will be sold at prices related to the then
prevailing market prices for our securities. Therefore, exact figures
regarding the proceeds that will be raised or commissions to be paid cannot be
determined at this time. Pursuant to the terms of the agreement, we
may also agree to sell, and the relevant underwriters, dealers or agents may
agree to solicit offers to purchase, blocks of our common stock or other
securities. The terms of each such agreement will be set forth in
more detail in the applicable prospectus supplement.
Underwriters
may engage in stabilizing and syndicate covering transactions in accordance with
Rule 104 under the Exchange Act. Rule 104 permits stabilizing bids to purchase
the securities being offered as long as the stabilizing bids do not exceed a
specified maximum. Underwriters may over-allot the offered securities in
connection with the offering, thus creating a short position in their account.
Syndicate covering transactions involve purchases of the offered securities by
underwriters in the open market after the distribution has been completed in
order to cover syndicate short positions. Underwriters may also cover an
over-allotment or short position by exercising their over-allotment option, if
any. Stabilizing and syndicate covering transactions may cause the price of the
offered securities to be higher than it would otherwise be in the absence of
these transactions. These transactions, if commenced, may be discontinued at any
time.
Any
underwriters who are qualified market makers on the NYSE Amex Stock Exchange may
engage in passive market making transactions in the common stock on the NYSE
Amex Stock Exchange in accordance with Rule 103 of Regulation M, during the
business day prior to the pricing of the offering, before the commencement of
offers or sales of the common stock. Passive market makers must
comply with the applicable volume and price limitations and must be identified
as passive market makers. In general a passive market maker must
display its bid at a price not in excess of the highest independent bid for such
security – if all independent bids are lowered below the passive market maker's
bid, however, the passive market maker's bid must then be lowered when certain
purchase limits are exceeded.
Pursuant
to requirements of the Financial Industry Regulatory Authority, or FINRA, the
maximum commission or discount to be received by any FINRA member or independent
broker dealer may not be greater than 8.0% of the gross proceeds received by us
for the sale of any securities being registered pursuant to Securities Act Rule
415.
The place
and time of delivery for our securities in respect of which this prospectus is
delivered will be set forth in the applicable prospectus
supplement.
LEGAL
MATTERS
Certain
legal matters with respect to the securities being offered hereby will be passed
on by Keller Rohrback, PLC, Phoenix, Arizona. If securities are
distributed in an underwritten offering, certain legal matters will be passed
upon for the underwriters by counsel identified in the applicable prospectus
supplement.
EXPERTS
DeCoria,
Maichel & Teague, P.S., independent registered public accounting firm, has
audited our consolidated balance sheets as of June 30, 2009 and June 30, 2008,
and related consolidated statements of operations, shareholders' equity and cash
flows for the years ended June 30, 2009 and 2008, included in our Annual Report
on Form 10-K for the fiscal year ended June 30, 2009, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements are incorporated by
reference in reliance on DeCoria, Maichel & Teague, P.S.'s report, given on
the authority of said firm as experts in accounting and
auditing.
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INTERESTS
OF NAMED EXPERTS AND COUNSEL
None.
MATERIAL
CHANGES
None.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed a registration statement on Form S-3 with the SEC relating to the common
stock and the warrants offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules thereto. We have omitted parts of the registration
statement, as permitted by the rules and regulations of the SEC. Statements
contained in this prospectus as to the contents of any contract or other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference. For further information with respect to us and the common
stock, and the warrants offered hereby, reference is made to such registration
statement, exhibits and schedules.
We are
subject to the information and periodic reporting requirements of the Exchange
Act, and in accordance therewith file periodic reports, current reports, proxy
statements and other information with the SEC. Such periodic reports, current
reports, proxy statements, other information and a copy of this registration
statement on Form S-3 may be inspected by anyone without charge and copies of
these materials may be obtained upon the payment of the fees prescribed by the
SEC, at the Public Reference Room maintained by the SEC at 100 F Street, N.E.,
Washington, D.C. 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. This
registration statement on Form S-3 and the periodic reports, current reports,
proxy statements and other information filed by us are also available through
the Internet web site maintained by the SEC at the following address: http://www.sec.gov.
INCORPORATION
BY REFERENCE
The SEC
allows us to "incorporate by reference" into this prospectus the information we
file with it. This means that we can disclose important information to you by
referring you to those documents. The information we incorporate by reference is
considered to be a part of this prospectus, and later information we file with
the SEC will automatically update and supersede this information. The following
documents filed with the SEC (in each case, under our Commission File No.
001-33407) are incorporated by reference in this prospectus:
(a) Our
Annual Report on Form 10-K for the fiscal year ended June 30, 2009 (filed
September 23, 2009), which contains audited financial statements for our latest
fiscal year for which such statements have been filed.
(b) Our
Current Reports on Form 8-K filed on September 24, 2009 and October 2,
2009.
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(d) The
description of our common stock contained in our Registration Statement on Form
8-A, filed with the Commission on April 12, 2007, including any amendments or
reports filed for the purpose of updating such description.
We are
also incorporating by reference any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act until this offering is
completed, including those made between the date of filing of the initial
registration statement and prior to effectiveness of the registration statement,
except for information furnished under Item 2.02 or Item 7.01 of our Current
Reports on Form 8-K which is not deemed to be filed and not incorporated by
reference herein.
We will
provide, without charge, to each person to whom a copy of this prospectus has
been delivered, upon written or oral request of such person, a copy of any or
all of the documents incorporated by reference herein (other than certain
exhibits to such documents not specifically incorporated by
reference). Requests for such copies should be directed to: IsoRay,
Inc., 350 Hills Street, Suite 106, Richland, Washington 99354, telephone number
(509) 375-1202, Attention: Lori Woods, Chief Operating Officer.
COMMISSION
POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The
Company's Articles of Incorporation provide to directors and officers
indemnification to the full extent provided by law, and provide that, to the
extent permitted by Minnesota law, a director will not be personally liable for
monetary damages to the Company or its shareholders for breach of his or her
fiduciary duty as a director, except for liability for certain actions that may
not be limited under Minnesota law. On July 1, 2006, the Company entered into
Indemnification Agreements with each of its directors and executive officers,
and the Company intends to enter into substantially identical agreements with
any officers and directors who take office in the future. The purpose of the
Indemnification Agreements is to provide all officers and directors with
indemnification to the fullest extent permitted under the Minnesota Business
Corporations Act.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable.
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