Mail Stop 6010
December 7, 2005
Roger Girard, CEO
IsoRay, Inc.
350 Hills Street, Suite 106
Richland, WA 99354
Re: Isoray, Inc.
Registration Statement on Form SB-2
Filed November 10, 2005
File No. 333-129646
Dear Mr. Girard:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Registration Statement on Form SB-2
Prospectus Summary, page 1
1. Please expand the summary to briefly discuss your going concern
opinion and that you expect to continue to experience net
operating
losses.
2. Please clarify the reference to technical terms, such as
Palladium
103 and Iodine-125. As example, we note the first sentence on
page
8 and the references to Zirconium-90 and Strontium-90 on page 27
Unaudited Pro Forma Condensed Consolidated Financial Statements as
of
June 30, 2004, page 3
3. Since the July 2005 transaction is a recapitalization and is
not a
business combination, Item 310(d) of Regulation S-B does not
require
you to present pro forma financial statements. Accordingly,
please
delete the pro forma balance sheet and statement of operations
from
the filing. Also, please delete the pro forma information for the
transaction included in your September 30, 2005 Form 10-QSB.
Risk Factors, page 5
4. Avoid introducing unfamiliar abbreviations such as 131Cs before
they are explained.
5. Please revise the titles to highlight the risk. For example,
we
note the last risk factor on page 10.
Risks Related to our Business, page 5
6. Please revise the first risk factor to clarify that your
auditors
have expressed doubt about your ability to continue as a going
concern.
We Rely Heavily on a Limited Number of Suppliers, page 7
7. Please clarify whether you have a written agreement with your
sole
supplier of a key component. Also, expand the appropriate section
to
discuss the material terms of the agreement and your other
supplier
agreements, such as the exclusive agreements discussed in the last
sentence on page 8.
Future Production Increases will Depend .... Hire More Employees,
page 8
8. Please clarify the reference to "if the rate of demand for our
products continues to dramatically increase."
Our Business Involves Environmental Risks, page 10
9. Please expand the appropriate section to discuss the material
terms of your agreement with Battelle. Also, clarify whether you
have entered into any written agreements with commercial disposal
contractors. Also, quantify the costs related to the disposal of
the
materials.
We Rely upon Key Personnel, page 10
10. Please clarify whether you have employment agreements with
your
key personnel.
There is a Limited Market for our Common Stock, page 11
11. Please quantify the limited trading of your common stock.
Management`s Plan of Operations, page 13
12. We note that IsoRay Medical, Inc. (now IsoRay, Inc.) had
revenues
in its fiscal year ended June 30, 2005. Accordingly, please
revise
the filing to also include the information required by Item 303
(b)
of Regulation S-B.
13. The reference on page 13 to $1.9 million in approved loans
appears to conflict with the disclosure on page 14, such as the
total
amount and whether the loans have received only preliminary
approval.
Please advise or revise.
14. Please provide us a copy of the "October 17, 2005 Private
Placement Memorandum." Please confirm that none of the
securities
offered or sold pursuant to that Memorandum are included in this
registration statement.
15. Please provide us with your analysis concerning the exemption
from registration for the securities related to the private
placement.
16. We note that you discuss several agreements in the first two
paragraphs on page 14. Please tell us whether you intend to file
any
of the agreements, other than the first two loans, as exhibits to
the
registration statement.
17. Please discuss the extent to which you are in compliance with
your loan covenants.
18. The conversion rate of $4.15 per share conflicts with the
conversion rate of $3.50 per share on page F-33. Please advise or
revise.
19. Please explain the terms "glove box" and "hot cell" when first
introduced.
20. You state that you have "no material commitments for capital
expenditures." Elsewhere you refer to opening a new manufacturing
facility. Please revise as appropriate.
Business, page 16
21. Please disclose the basis for your disclosed beliefs, such as
the
belief in the last full paragraph on page 16, the first and third
paragraphs on page 17, the last paragraph on page 21, the first
paragraph on page 25 and the second and third paragraphs on page
27.
22. Please provide us with support for the disclosed industry
data,
such as the first paragraph on page 19, the second paragraph on
page
20, the fifth paragraph on page 21, the first paragraph on page
22,
the last paragraph on page 23, the first paragraph on page 24, the
first paragraph on page 25, the last paragraph on page 29, the
second
paragraph on page 32 and the first and fourth paragraphs on page
36.
Clinical Results, page 22
23. Please provide us with support for the five bullets on pages
22,
the tables on page 23 and the studies on page 26. Also, confirm
that
the parties have consented to use of their names and data. In
addition, expand page 23 to disclose when the comparisons were
made.
Products, page 25
24. We note the disclosure concerning "significant advantages" on
page 25 and "competitive advantages" on page 26. Please present
the
disclosure in a balanced manner, such as discuss any
disadvantages.
25. Please enlarge the printed matter in the Figure 1 illustration
for readability.
26. Please explain the term "KeV."
Cs-131 Manufacturing Process, page 28
27. Please revise to clarify how you ensure delivery of proper
potency of seeds in view of their short half life. For example,
describe the "just-in-time" process you plan to implement. If
timing
if imprecise does this result in unusable inventory and other
business risks?
Customers, page 33
28. The reference to customers representing ten percent or more of
your sales appears to conflict with the ten customers disclosed on
page 33.
Government Regulation, page 34
29. Please clarify the regulatory status of your proposed Yttrium-
90
product.
30. Please clarify the extent to which Initiative 297 imposes
additional restrictions. We note the reference to "may impose
additional restrictions."
31. Please expand this section to discuss the government
regulation
highlighted in the sixth paragraph on page 9.
Description of Property, page 37
32. Please provide greater detail regarding your new manufacturing
facility such as square footage, manufacturing equipment, and
other
indicators of productive capacity for its intended purpose.
33. We note press releases regarding potential expansion with a
facility in Idaho. If material, please describe these plans.
Directors, Executive Officers, page 37
34. Please expand the disclosure on page 38 concerning Mr. Girard
to
briefly explain the business of Capital Consortium and Strategic
Financial Services when Mr. Girard served as managing partner and
president, such as describe the size and scope of operations.
35. Please revise the disclosure about Mr. Dunlop to explain the
term
"PHCO."
36. Please expand the disclosure about Mr. Hrobsky to describe the
nature of business and size of operations of Advanced Cochlear
Systems.
37. Please expand the disclosure about Mr. LaVoy to describe the
nature of business and size of operations of SuperShuttle
International, Inc.
Significant Employees, page 39
38. Please provide us with support for the awards that Mr. Bray
has
received.
Executive Compensation, page 40
39. Please provide the information required by Reg. S-B Item
402(c)
and (d) or explain why disclosure is not necessary.
40. Please revise to describe all stock option plans for currently
outstanding options or available for future grants. Provide
similar
information for other securities compensation plans for employees
and
officers such as stock appreciation rights stock bonus, and stock
purchase plans. In this regard we note references to various
plans
in Note 13 to IsoRay Medical, Inc.`s financial statements.
41. Please expand page 41 to discuss in greater detail the
"certain
performance goals."
Certain Relationships and Related Transaction, page 43
42. Please revise to include transactions among the company and
the
control parties and affiliates of the various predecessor entities
in
connection with the 2005 merger. We note, for example, several
transactions described in fifth paragraph of Note A to the
financial
statements of IsoRay, Inc.
43. Please provide the disclosure required by Item 404 of
Regulation
S-B, including transactions with affiliates prior to the merger.
For
example, see Note 15 to the IsoRay Medical Inc. financial
statements.
44. Please expand the last paragraph on page 43 to briefly
describe
the consulting services.
Selling Shareholders, page 44
45. Please tell us about the transaction(s) that resulted in
distribution of the shares registered hereby, including securities
issued by all pre-merger entities.
46. Please identify the natural person who beneficially owns or
has
voting control over the entities named, e.g. Intellegration LLP
and
Bavispe Limited Partnership.
47. Please tell us whether any of the selling shareholders are
broker-dealers or affiliates of broker-dealers.
Description of Securities, page 50
48. Please revise to briefly describe the rights and preferences
of
the Class A and Class B Convertible Preferred stock.
49. Please revise to disclose provisions regarding issuance of
additional series of preferred stock.
50. Please tell us why you did not file proxy materials for the
1:30
reverse stock split and merger. Also tell us why you have not
filed
any proxy materials since 1994.
Financial Statements
General
51. Please note the following:
* Unless the same accountant reported on the most recent financial
statements of both the registrant and the accounting acquirer, a
recapitalization always results in a change in accountants. A Form
8-
K filed in connection with a reverse acquisition/recapitalization
should provide the disclosures required by Item 304 of Regulation
S-B
under Item 4 of Form 8-K for the change in independent
accountants,
treating the accountant that no longer will be associated with
your
financial statements as the predecessor accountant.
* The disclosures required by Item 304 with respect to any changes
in
the accounting acquirer`s auditor which occurred within 24 months
prior to, or in any period subsequent to, the date of the
acquirer`s
financial statements must be provided in the first filing
containing
the accounting acquirer`s financial statements.
We note that it does not appear you filed an Item 4 Form 8-K to
disclose a change in auditors. Please clarify for us who your
auditors are following the recapitalization transaction, file any
Item 4 Form 8-K`s and revise your filings to include any
disclosures
required by Item 304 of Regulation S-B. Also, please confirm that
your current auditors are registered with the PCAOB and those
auditors reviewed your Form 10-QSB for the period ended September
30,
2005.
52. Please update all the financial statements and related
sections
of the filing to comply with Rule 310(g) of Regulation S-B.
53. Please revise your periodic reports, including Form`s 8-K,
Form
10-KSB and Form 10-QSB, as necessary based on our comments.
IsoRay, Inc. Financial Statements, page F-1
Statements of Operations and Comprehensive Loss, page F-4
54. Note the presentation of debt extinguishment gains as an
extraordinary item does not comply with SFAS 145. Please revise
this
financial statement and related disclosures therein to comply with
SFAS 145.
Note C - Going Concern Uncertainty, page F-8
55. We see disclosures herein which indicate you are a development
stage company. If so, please revise the filing to include all
disclosures required by SFAS 7 and revise the auditors` report to
opinion on the required cumulative from inception data.
Alternatively, if the referenced disclosure is not correct, remove
them from the filing.
Note G - Related Party Transactions, page F-11
56. We note that in the nine months ended June 30, 2005 you
reversed
accrued salaries totaling $304,500 due to your former CEO. If
officers contributed their time, it appears that the contribution
of
services should be valued and recorded. Please tell us why your
accounting for the referenced transaction was appropriate and
revise
the filing as necessary to include all expenses incurred during
the
periods presented in your financial statements.
IsoRay Medical, Inc. Financial Statements, page F-19
Report of Independent Auditor, page F-20
57. Note that going concern opinions that do not use the words
"substantial doubt" when referencing a going concern matter do not
comply with generally accepted auditing standards (GAAS). Please
revise this and all other auditor reports`, as necessary, to
comply
with GAAS with respect to the referenced matter.
Item 26, page II-1
58. Please revise to describe all unregistered securities issued
within the past three years by all predecessor entities,
identifying
them. For example, it appears that IsoRay Medical and its
predecessors IsoRay, Inc. and IsoRay Products LLC issued
securities
during the applicable period that are not reflected in this table.
See Notes 4, 12, 13 and 17 to the IsoRay Medical, Inc. financial
statements. We also note that sale of $1 million of Isoray
securities to Anthony Silverman was a condition of the merger.
Exhibits
59. We note that you intend to file additional exhibits in an
amendment. Please be advised that we may have additional comments
after you file the exhibits.
Exhibit 5.1
60. Please revise to delete the phrase "and in accordance with the
federal securities laws and securities laws of the various states
in
which the Common Stock may be issued."
Signatures
61. Please revise the first paragraph. For example, you need to
refer to reasonable grounds concerning the filing on Form SB-2.
Form 8-K/A dated August 12, 2005
Exhibit 99.1
IsoRay Medical, Inc. Financial Statements, page 1
General
62. We noted you included 2003 and 2002 calendar year financial
statements for IsoRay, Inc. herein. Based on the fact you
included
results for the nine month period ended March 31, 2005 for IsoRay
Medical, Inc. herein and IsoRay Medical, Inc. financial statements
in
your Form SB-2 indicate your fiscal year end is June 30, it is
unclear why no audited financial statement results are necessary
for
the period beginning January 1 through June 30, 2004. Please tell
us
why you believe your Item 9.01 Form 8-K filings include all
required
financial statements for IsoRay Medical, Inc. and why they were
made
on a timely basis. We may have further comments after reviewing
your
response. Revise the filing as necessary based on our comment.
Note 1, Organization, page 6
63. We see you indicate herein that "the Company initiated a
merger
transaction effective October 1, 2004, in which IsoRay, Inc. and
its
subsidiary, IsoRay Products LLC, two companies that shared common
ownership and management with the Company, merged with and into
the
Company. The merger between the companies was considered to be a
capital transaction in substance, rather than a business
combination." We also see the disclosures in Note 1 of IsoRay
Medical, Inc.`s financial statements at page F-25 in your Form SB-
2
indicate the transaction was accounted for as a "transfer of net
assets or exchanges of shares between entities under common
control".
Please tell us how you accounted for the October 2004 transaction
and
why. Support your response with references to applicable
authoritative generally accepted accounting principles that
support
your conclusions. Also, please revise the disclosures in your
filings as to how you accounted for this transaction to be
consistent. We may have further comments after reviewing your
response.
Form 10-QSB for the quarter ended September 30, 2005
Item 3. Controls and Procedures, page 13
64. We note disclosures herein that your auditor identified
certain
significant internal control deficiencies that they consider to be
material weaknesses. Tell us the specific nature of the material
weaknesses identified and the specific steps the company has taken
to
remediate the weakness. Also, tell us how your officers were able
to
conclude that the controls and procedures were nonetheless
effective
as of September 30, 2005.
************
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
* should the Commission or the staff, acting pursuant to delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
* the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
* the company may not assert staff comments and the declaration of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Julie Sherman at (202) 551-3640 or Jay Webb
at
(202) 551-3603 if you have questions regarding comments on the
financial statements and related matters. Please contact Alan
Morris
at (202) 551-3601 or me at (202) 551-3602 with any other
questions.
Sincerely,
Thomas Jones
Senior Counsel
cc. Stephen R. Boatwright
via FAX at (602) 248-2822
Roger Girard, CEO
IsoRay, Inc.
December 7, 2005
Page 12