ISORAY, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)


Caution Regarding Forward-Looking Information

In addition to historical information, this Form 10-Q contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). This statement is included for the express purpose of benefiting Isoray, Inc. protections of the safe harbor provisions of the PSLRA.



All statements contained in this Form 10-Q, other than statements of historical
facts, that address future activities, events or developments are
forward-looking statements, including, but not limited to, statements containing
the words "believe," "expect," "anticipate," "intends," "estimate," "forecast,"
"project," and similar expressions. All statements other than statements of
historical fact are statements that could be deemed forward-looking statements,
including any statements of the plans, strategies and objectives of management
for future operations; any statements concerning proposed new products,
services, developments or industry rankings; any statements regarding future
revenue, economic conditions or performance; any statements of belief; and any
statements of assumptions underlying any of the foregoing. These statements are
based on certain assumptions and analyses made by us in light of our experience
and our assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the
circumstances. However, whether actual results will conform to the expectations
and predictions of management is subject to a number of risks and uncertainties
described under Item 1A - Risk Factors beginning on page 21 below that may cause
actual results to differ materially.



Consequently, all of the forward-looking statements made in this Form 10-Q are
qualified by these cautionary statements and there can be no assurance that the
actual results anticipated by management will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on our business operations. Readers are cautioned not to place undue
reliance on such forward-looking statements as they speak only of the Company's
views as of the date the statement was made. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.



Significant Accounting Policies and Estimates



The discussion and analysis of the Company's financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent liabilities. On an on-going basis, management evaluates past
judgments and estimates, including those related to bad debts, inventories,
accrued liabilities, derivative liabilities and contingencies. Management bases
its estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions. The accounting
policies and related risks described in the Company's annual report on Form 10-K
as filed with the SEC on September 27, 2021 are those that depend most heavily
on these judgments and estimates. As of March 31, 2022, there had been no
material changes to any of the critical accounting policies contained therein.



Overview



Isoray is a brachytherapy device manufacturer with FDA clearance for a single
medical device that can be delivered to the physician in multiple configurations
as prescribed for the treatment of cancers in multiple body sites. The Company
manufactures and sells this product as the Cesium-131 brachytherapy seed or
Cesium Blu.



The brachytherapy seed utilizes Cesium-131, with a 9.7 day half-life, as its
radiation source. The Company believes that it is the unique combination of the
short half-life and the energy of the Cesium-131 isotope that are yielding the
beneficial treatment results that have been published in peer reviewed journal
articles and presented in various forms at conferences and tradeshows.



The Company has distribution agreements outside of the United States. These
distributors are responsible for obtaining regulatory clearance to sell the
Company's products in their territories, with the support of the Company. As of
the date of this Report, the Company has distributors in the Russian Federation,
Peru and India with no reported revenues in these locations during the three
months ended March 31, 2022.



The Company has a supply agreement with The Open Joint Stock Company <>
("JSC Isotope"), a Russian company, for the supply of Cesium-131 for a term of
August 2020 to December 2021. On March 18, 2021, the Company entered into a new
supply contract (the "New Agreement") with JSC Isotope pursuant to which the
Company will purchase Cesium-131 for a term from March 18, 2021 through March
31, 2023. Our source of supply of Cesium-131 from Russia is historically
produced using one of two nuclear reactors which supply the irradiation needed
for Cesium-131 production. As a result of scheduled shutdowns in 2021 and prior
years, only one of the Company's historic Russian suppliers of Cesium-131
was available during these periods.



The Company has entered into two consignment inventory agreements with MedikorPharma-Ural LLC
(“Medikor”) to process the Company’s enriched barium in one of the reactors mentioned above. The duration of the first enriched barium consignment agreement began in November 2017 and is for 10 years at a fixed price per curie of cesium used.

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On September 9, 2021, the Company entered into a second Consignment Agreement
with Medikor. Pursuant to this second Consignment Agreement, the Company
purchased 6,000 mg of enriched barium carbonate for $720,000 and consigned
this inventory to Medikor. Beginning in October 2021, Medikor started to use the
barium carbonate consigned by the Company (along with barium carbonate consigned
under the original agreement) and contract with a third-party manufacturer to
produce Cesium-131. Pursuant to this second Consignment Agreement, Medikor pays
the Company varying US dollar amounts per curie of Cesium-131 the Company
purchases. The amount varies based on how many curies of Cesium-131 the
Company purchases. The consignment agreements are expected to minimize the
impact on the Company of the temporary shutdown of one of the nuclear reactors
that serves as its source of Cesium-131 from Russia.

The Company's affiliate Medical also has a services agreement with Medikor
originally entered into in August 2017 in conjunction with the first consignment
agreement, which was superseded by a new services agreement dated December 13,
2021, to perform qualitative and quantitative chemical analysis of Cesium-131
through December 31, 2022.



On March 31, 2022, the Company entered into two agreements with Medikor to
purchase enriched barium carbonate. Under the first agreement, the Company
purchased 5746.6 mg of enriched barium carbonate for $876,357. Under the second
agreement, the Company purchased 6310.4 mg of enriched barium carbonate for
$957,608. The Company expects to receive delivery of the enriched barium
carbonate by June 30, 2022. The Company estimates that this enriched barium will
result in approximately 6,000 curies of Cesium-131. There is no assurance as to
whether the Company will obtain this full amount of Cesium-131, nor is there
assurance that the third-party reactor which relies on this enriched barium will
be used by the Cesium-131 supplier under contract with the Company.



The Company continues to explore how our proprietary isotope may be effective in
the treatment of additional cancers. We recently entered into a research grant
agreement with a leading cancer center to study the treatment of metastatic
melanoma. In this immuno-oncology study, Cesium-131 will be used in combination
with an immune checkpoint inhibitor. Metastatic melanoma is the most virulent
form of skin cancer, often spreading to lymph nodes, the lungs, liver, brain,
and tissue under the skin. We also have an agreement with the University of
Cincinnati to study the combination of Cesium-131 with the immunotherapy drug
Keytruda® in recurrent head and neck cancers.



The Company recently filed a nonprovisional patent application for a device
designed to achieve directional dosing using our Cesium-131 seeds. This device
is a bed that holds the Cesium-131 seeds to focus the radiation to a specific
treatment area. The device is fixed to a directional mesh that can be used to
treat pancreatic cancers as well as retroperitoneal sarcomas. We see
unidirectional brachytherapy utilizing Cesium-131 as a highly attractive
potential therapy for advanced abdominal cancers as well. In this practical
application, the device will be aimed at cancers of the abdomen that invade the
abdominal wall and pelvic floor, such as advanced cancers of the colon and
rectum and advanced GYN cancers such as ovarian and uterine cancers. The
directional dosing device will likely be used initially with the recurrent
cancers mentioned above where our competitors' external beam radiation therapy
has previously been administered.



Results of Operations


Three months completed March 31, 2022 and 2021 (in thousands):


                                                      Three months ended March 31,
                                            2022                           2021               2022 - 2021
                                    Amount            % (a)        Amount        % (a)         % Change
Sales, net                     $          2,910           100     $  2,600           100                12
Cost of sales                             1,469            50        1,238            48                19
Gross profit                              1,441            50        1,362            52                 6

Operating expenses:
Research and development
expenses                                    549            19          362            14                52
Sales and marketing expenses                687            24          581            22                18
General and administrative
expenses                                  1,581            54        1,183            46                34
Loss on equipment disposal                    -             -            2 
           -              (100 )

Total operating expenses                  2,817            97        2,128            82                32
Operating loss                 $         (1,376 )         (47 )   $   (766 )         (29 )              80


(a) Expressed as a percentage of sales, net

End of nine months March 31, 2022 and 2021 (in thousands):


                                                            Nine months ended March 31,
                                                2022                         2021                2022 - 2021
                                       Amount         % (a)         Amount         % (a)          % Change
Sales, net                            $   8,290            100     $   7,343            100                13
Cost of sales                             4,600             55         3,568             49                29
Gross profit                              3,690             45         3,775             51                (2 )

Operating expenses:
Research and development expenses         1,786             22           959             13                86
Sales and marketing expenses              2,150             26         1,781             24                21
General and administrative expenses       5,039             61         3,379             46                49
Loss on equipment disposal                    -              -             9              -              (100 )

Total operating expenses                  8,975            109         6,128             83                46
Operating loss                        $  (5,285 )          (64 )   $  (2,353 )          (32 )             125




  (a) Expressed as a percentage of sales, net




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Sales



Sales, net for the three and nine months ended March 31, 2022 increased 12% and
13% respectively compared to the three and nine months ended March 31, 2021. The
Company's sales personnel continue to focus on bringing in new accounts while
also working with existing customers to increase their order volumes. Hospitals'
focus on COVID-19 during the three months ended March 31, 2022 has waned
slightly in some areas but has continued in other areas and this has continued
to impact patients' brachytherapy procedures. Further, we believe that hospitals
are continuing to have a difficult time staffing nurses needed to support the
procedures our products are utilized in.



The breakdown of sales between prostate and non-prostate applications is shown below.

Three months completed March 31, 2022 and 2021 (in thousands):


                                        Three months ended March 31,
                                2022                   2021             2022 - 2021
                         Amount      % (a)      Amount      % (a)        % Change
Prostate brachytherapy   $ 2,187         75     $ 2,033         78                 8
Other sales                  723         25         567         22                28
Sales, net               $ 2,910        100       2,600        100                12



  (a) Expressed as a percentage of sales, net




End of nine months March 31, 2022 and 2021 (in thousands):


                                         Nine months ended March 31,
                                2022                   2021             2022 - 2021
                         Amount      % (a)      Amount      % (a)        % Change

Prostate brachytherapy $6,299 76 $5,818 79

       8
Other sales                1,991         24       1,525         21                31
Sales, net               $ 8,290        100       7,343        100                13






  (a) Expressed as a percentage of sales, net






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Prostate Brachytherapy



Prostate sales increased by approximately 8% during the three and nine months
ended March 31, 2022 compared to the three and nine months ended March 31, 2021.
We believe that due to hospitals' focus on COVID-19 including the Delta and
Omicron variants during the nine months ended March 31, 2022 in various states,
patients' brachytherapy procedures continued to be delayed or cancelled. Despite
these delays and cancellations, revenues increased over the prior year three
months mainly due to a price increase instituted by the Company along with
slightly higher number of cases, and revenues increased over the prior year
nine months due to a combination of an increased number of seeds being sold and
a price increase instituted by the Company. The sales volume increase was
primarily related to increased utilization at existing accounts as well as sales
to new accounts. The Company raised seed prices in November 2021 to help offset
its increases in raw materials and other costs as a result of the ongoing global
COVID-19 pandemic.



Management believes continued growth in prostate brachytherapy revenues will be
the result of physicians, payors, and patients increasingly considering overall
treatment advantages including costs compared with non-brachytherapy treatments,
better treatment outcomes and improvement in the quality of life for
patients. In January 2022, the American Cancer Society estimated that nearly
270,000 new prostate cancer cases will be diagnosed in calendar year 2022, which
represents an increase of approximately 8% over the calendar year 2021 estimate
(American Cancer Society, 2022). This increase is due to patients being unable
to access treatment or putting treatment off due to the COVID pandemic, but
there is no assurance that this will occur and if it occurs that it will have a
positive impact on the Company's performance. We believe the trend to use
brachytherapy in lieu of other options is starting to improve our performance
but there is no assurance as to how long this trend will continue.



Other Sales



Other sales includes, but is not limited to, brain, lung, head/neck,
gynecological, and pelvis treatments, as well as services. Other sales, net
increased by 28% for the three months ended March 31, 2022 and 31% for the nine
months ended March 31, 2022 compared to the three and nine months ended March
31, 2021. The main driver of this growth was treatments for pelvic and brain
cancers as well as increased services. The increase in services was mainly due
to an increase in the minimum order fee due from GT Medical Technologies as its
forecast was greater than its actual orders during the three and nine months
ended March 31, 2022. Initial applications for these other brachytherapy
treatments are primarily used in recurrent cancer treatments or salvage cases
that are generally difficult to treat aggressive cancers where other treatment
options are either ineffective or unavailable.



Other brachytherapy treatments are subject to the influence of a small pool of
innovative physicians who are the early adopters of the technology who also tend
to be faculty at teaching hospitals training the next generation of physicians.
This causes the revenue created by these types of treatment applications to be
more volatile and varies significantly from year to year. Individual centers
weigh the value of the procedure with their other treatment priorities on a
patient by patient basis.



Other brachytherapy treatments, such as brain, lung, and head/neck are typically
performed in the in-patient setting using the DRG or diagnostic related
groups. DRGs are designed for Medicare to set payment levels for hospital
in-patient services. Other health insurers may follow Medicare reimbursement
when setting their payment rates. When these other types of brachytherapy are
performed in the out-patient setting, existing codes for Cesium-131 that are
also used for prostate brachytherapy are used to bill for these procedures.



GammaTile™



For several years the Company has focused on many different applications of its
Cesium-131 brachytherapy seeds in the cranial cavity to target many forms of
brain cancer. Most recently, the Company has focused on using braided strand
configurations and supplying Cesium-131 brachytherapy seeds to GT Medical
Technologies, Inc. ("GT Med Tech") which manufactures GammaTile™ Therapy. On
November 17, 2021, Medical entered into Amendment No. 3 to its Amended and
Restated Manufacturing and Supply Agreement with GT Med Tech to change the
nature of the services provided by Medical from preparation of GammaTiles™
containing Cesium-131 seeds to instead only supplying Cesium-131 seeds to GT Med
Tech so that GT Med Tech may handle the assembly of GammaTiles™ in house.
GammaTile™ Therapy uses biodegradable "tiles" to deliver Cesium-131
brachytherapy seeds into contact with cancerous tumors in the brain.



GammaTile™ Therapy was originally cleared for treating recurrent brain
cancers. GT Med Tech filed a 510k with the FDA on an expanded indication of
GammaTile™ Therapy to include treatment of newly diagnosed brain tumors with an
application of Cesium-131. On January 27, 2020, GT Med Tech announced that it
had received clearance from the FDA for an expanded indication allowing patients
of newly diagnosed malignant brain tumors to be treated by GammaTile™
Therapy. For the three and nine months ended March 31, 2022, total revenues from
sales including minimum order fees to GT Med Tech were approximately 13% and 13%
of sales respectively.



Cost of sales



Cost of sales consists primarily of the costs of manufacturing and distributing
the Company's products and for the three and nine months ended March 31,
2022 increased 19% and 29% respectively compared to the three and nine months
ended March 31, 2021.



Contributing to the increase in the three and nine months ended March 31,
2022 and 2021 comparison were increases in isotope and other materials costs as
well as increases in labor and depreciation. Due to lower than forecasted levels
of sales volumes, we had excess isotope on hand which went unused. Other
materials costs increased due to supplier price increases. Labor costs increased
due to annual merit increases for production personnel as well as additional
headcount and depreciation increased due to completion of production automation
projects and the purchase of other production equipment.



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Gross Profit



Contributing to the three months ended March 31, 2022 versus three months ended
March 31, 2021 gross profit increase were higher sales offset by increased costs
of production including isotope supply due to ordering additional supply and
payroll due to merit increases. Contributing to the nine months ended March
31, 2022 versus the nine months ended March 31, 2021 gross profit decline were
increases in isotope costs due to lower than forecasted sales volumes which led
to excess isotope on hand which went unused along with ordering additional
isotope as part of the initial setup of a second reactor, and increases in
payroll due to annual merit increases and additional headcount. Additionally,
material costs increased compared to the three and nine months ended March 31,
2021.



Research and development


Research and development primarily includes employee and third party costs related to research and development activities.



Contributing to the three and nine months ended March 31, 2022 and
2021 comparison was an increase in payroll due to annual merit increase as well
as additional headcount and an increase in consulting expenses relating to
market research. This increase was partially offset by a reduction in investment
in the development of the Blu Build™ delivery system for real-time prostate
brachytherapy.



On December 31, 2020, the Company received FDA 510k clearance for use of C4
Imaging's Sirius® positive-signal MRI (Magnetic Resonance Imaging) markers with
the Company's Cesium-131 brachytherapy seeds. Sirius® is implanted during the
treatment of prostate cancer with the Cesium-131 seeds and is used to facilitate
seed localization within the prostate utilizing a single post-implant MRI
procedure. We finished our premarket activities related to the Sirius® marker
during the first quarter of fiscal 2022 and we started a product performance
evaluation (formerly referred to as a limited market release) on this technology
in the second quarter of fiscal 2022 and expect it to be available for full
market release later in fiscal year 2022 but there is no assurance this timing
will occur.


Management expects research and development spending to remain at this level as we continue to explore new projects and collaborations.


Sales and marketing expenses


Selling and marketing expenses consist primarily of costs related to the internal and external activities of the Company’s sales, marketing and customer service functions. We plan to increase the number of Territory Managers from 7 to 10 over the next 12 months, but there is no guarantee that this will happen.



Contributing to the three and nine months ended March 31, 2022 and
2021 comparison was an increase in travel and tradeshow costs due to some
COVID-19 restrictions being eased as well as increased payroll expenses
resulting from annual merit increases, new hires and an increase in incentive
compensation due to the increase in sales. These increases were partially offset
by a reduction in consulting expenses due to reclassification of reimbursement
consulting to general and administrative expenses.



General and administrative expenses



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



Contributing to the three and nine months ended March 31, 2022 and
2021 comparison were increased payroll due to annual merit increases and new
hires, employment hiring expenses, IT consulting expenses, director and officer
insurance expense, public company related expenses, increased audit and legal
fees, severance, and increased travel due to the easing of some COVID-19
restrictions. In addition, the majority of annual employee and director stock
grants have historically been granted in the fiscal fourth quarter, however
awards for performance in fiscal 2021 were granted in July 2021 thereby
increasing share-based stock compensation expense in the nine months ended March
31, 2022 compared to the nine months ended March 31, 2021.



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Impact of conflict in Ukraine



In February of 2022, Russia invaded Ukraine and is still engaged in active armed
conflict against the country. As a result, governments in the United States, the
European Union, the United Kingdom, Switzerland, and other countries have
enacted sanctions against Russia and Russian interests, and in turn Russia has
implemented some retaliatory sanctions and currency controls as well. These
sanctions include controls on the export, re-export, and in-country transfer in
Russia of certain goods, supplies, and technologies and the imposition of
restrictions on doing business with certain state-owned Russian customers and
other investments and business activities in Russia. Certain Russian banks have
been impacted as well through restrictions on money transfers. Our local bank
implemented its own policies which ultimately resulted in our inability to make
wire transfers to Russia and we are in the process of establishing other banking
relationships so that we can continue to make these wire transfers for our
supply of isotope.  Because of the armed conflict, we have also adjusted the
transportation of our medical isotope from Russia due to the cancellation of
many flights in and out of Russia. To date, the Company has not experienced any
missed shipments of medical isotope. The Company retained legal counsel to
assist in its review of our medical isotope and other Russian suppliers to
ensure none of them have been sanctioned, including the Russian banks that our
suppliers use. Currently there are no sanctions on our suppliers nor their
banks, but there can be no assurance this will not change in the future. We
continue to monitor the situation.



Impact of COVID-19



From the onset of the COVID-19 global pandemic we have been proactive in
implementing plans to ensure the health and well-being of our employees, while
remaining focused on providing uninterrupted product flow to the physicians and
patients who count on us. We transitioned many employees to work from home and
made other adjustments to ensure the continuity of our business through this
time. At the beginning of the pandemic, we moved quickly to ensure that our
inventory of non-isotope supplies were appropriate in case our supply chain was
disrupted. In addition, we set in motion a strategy to maintain a continuous and
uninterrupted supply of isotope from our suppliers in Russia including the
review and use of alternative freight services due to the cancellation of many
international flights.



As COVID-19 spread, many states implemented new guidelines in an attempt to
mitigate the spread of the virus and to conserve certain medical supplies. Those
guidelines led to the cancellation or postponement of elective and non-emergency
surgical procedures, including prostate brachytherapy procedures.  Although
during the first nine months of fiscal 2022, our sales revenues increased
13% compared to the first nine months of fiscal 2021, we were still below the
average monthly prostate revenues attained in our third quarter of fiscal 2020
prior to the outset of COVID-19's impact on our operations. We believe this is
due to hospitals' focus on COVID-19 including variants, resulting in a delay or
cancellation of patients scheduled to be seen by physicians. In addition, we
believe that hospitals are having a difficult time staffing nurses needed to
support the procedures our products are utilized in. This resulted in fewer or
delayed urology referrals for prostate brachytherapy treatment.



In the first nine months of fiscal 2022, we forecasted an increase in cases,
particularly prostate cases, which did not occur to the extent we expected due
to an increase in the Delta and Omicron variants of COVID-19 as well as
increased physician vacations and staffing shortages in hospitals. We plan to
continue to manage our expenses and make adjustments to isotope orders, as
permitted by our suppliers, to meet potential increased treatment demands.



Cash and capital resources



The Company assesses its liquidity in terms of its ability to generate cash to
fund its operating, investing and financing activities. The Company has
historically financed its operations through selling equity to investors. During
the nine months ended March 31, 2022 and 2021, the Company used existing cash
reserves to fund its operations and capital expenditures (in thousands except
current ratio):



                                                            Nine months
                                                          ended March 31,
                                                         2022         2021
Net cash (used) by operating activities                $ (4,819 )   $ (1,719 )
Net cash (used) by investing activities                    (161 )       (272 )
Net cash provided  by financing activities                   56       

64,441

Net increase (decrease) in cash and cash equivalents   $ (4,924 )   $ 62,450




                                  As of
                    March 31, 2022       June 30, 2021
Working capital   $         60,802     $        65,501
Current ratio                32.08               37.37




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Cash flow from operating activities



Net cash used by operating activities in the nine months ended March 31,
2022 was primarily due to a net loss of approximately $5.19 million net of
approximately $1,171,000 in adjustments for non-cash activity such as
share-based compensation, depreciation and amortization expense, and accretion
of asset retirement obligation. Changes in operating assets and liabilities
contributed approximately $796,000 to the cash used by operating activities;
increases in inventory, mainly due to the purchase of enriched barium
carbonate, increase in accounts receivable, and increases in prepaid expenses
and other current assets were partially offset by increases in accrued payroll
and related taxes, increases in accounts payable and accrued expenses, and
accrued protocol expenses.



Net cash used by operating activities in the nine months ended March 31,
2021 was primarily due to a net loss of approximately $2.33 million net of
approximately $428,000 in adjustments for non-cash activity such as share-based
compensation, depreciation and amortization expense, accretion of asset
retirement obligation, and loss on equipment disposal. Changes in operating
assets and liabilities provided approximately $179,000 from operating
activities; increases in accounts payable, accrued protocol expense, accrued
vacation, and accrued radioactive waste disposal, and decreases in accounts
receivable due to increased collection efforts and decreased sales,  were
partially offset by increases in inventory and prepaid expenses and other
current assets, and a decrease in accrued payroll and related taxes.



Cash flow from investing activities



Investing activities for the nine months ended March 31, 2022 and
2021 respectively, consisted of transactions related to the purchase of fixed
assets. Management will continue to invest in technology and machinery that
improves and streamlines production processes and to invest in low-risk
investment opportunities that safeguard assets and provide greater assurance
those resources will be liquid and available for business needs as they arise.



Cash flows from financing activities



Financing activities in the nine months ended March 31, 2022 included proceeds
of approximately $56,000 pursuant to the exercise of options to purchase common
stock.



Financing activities in the nine months ended March 31, 2021, included payment
of preferred dividends and net proceeds of approximately $56,375,000 from the
sale of 59,669,230 shares of common stock pursuant to two underwritten
offerings. Also included are net proceeds of approximately $7,784,000 pursuant
to exercise of the 12,318,877 warrants to purchase common stock as well as net
proceeds of approximately $291,000 pursuant to the exercise of 520,315 options
to purchase common stock.


Liquidity and capital resources projected for the financial year 2022


Operating activities



Management forecasts that fiscal 2022 cash requirements will increase compared
to previous years and that current cash and cash equivalents will be sufficient
to meet projected operating cash needs for the next twelve months. Monthly
operating expenses are budgeted to increase for sales and marketing, research
and development and general and administrative expenses in fiscal 2022 as
management works to implement its strategy. Assuming no extraordinary expenses
occur (whether operating or capital), if management is successful at
implementing its strategy to focus on renewed emphasis to drive the consumer to
the prostate market and meets or exceeds its growth targets of twenty-five
percent increase in revenue in fiscal 2022 and this annual growth continues, the
Company anticipates reaching cashflow break-even in three to four years. These
assumptions do assume that GammaTile™ will contribute to total revenue but do
not incorporate any significant growth in the other non-prostate applications as
they generate nominal revenues today but if they show significant improvement,
cashflow break-even could occur sooner. There is no assurance that the targeted
sales growth will materialize but management is encouraged by the depth and
experience of its sales team and its track record of growth during the last
three fiscal years despite the ongoing COVID-19 pandemic. The Company missed its
target of twenty-five percent increased revenue in the first nine months of
fiscal 2022 and there is no assurance that targeted sales growth will
continue over the next three to four years.



Capital expenditures



Management has completed the design of a future production and administration
facility but has not determined when or if it will move ahead with construction.
If financing is obtained and the facility constructed, it is believed that the
new facility will have non-cash depreciation cost equal to or greater than the
monthly rental cost of the current facility. The Company has limited additional
space at this time and may need more office space in the future.



Management is reviewing all aspects of production operations (including process
automation), research and development, sales and marketing, and general and
administrative functions to evaluate the most efficient deployment of capital to
ensure that the appropriate materials, systems, and personnel are available to
support and drive sales.



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Financing activities



When it does require capital in the future, the Company expects to finance its
future cash needs through sales of equity, possible strategic collaborations,
debt financing or through other sources that may be dilutive to existing
stockholders, management anticipates that if it raises additional financing that
it will be at a discount to the market price and it will be dilutive to
stockholders.



Other commitments and contingencies



The Company presented its other commitments and contingencies in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2021. There have been no
material changes outside of the ordinary course of business in those obligations
during the nine months ended March 31, 2022 other than those previously
disclosed in note 7 of the financial statements contained in this filing.



Off-balance sheet arrangements

The Company has no off-balance sheet arrangements.

Significant Accounting Policies and Estimates



The discussion and analysis of our financial condition and results of operations
are based on our consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these consolidated financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, as well as
revenue and expenses during the reporting periods. The Company evaluates its
estimates and judgments on an ongoing basis. The Company bases its estimates on
historical experience and on various other factors the Company believes are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities. Actual
results could therefore differ materially from those estimates if actual
conditions differ from our assumptions.



During the nine months ended March 31, 2022, there have been no changes to the
critical accounting policies and estimates discussed in Part II, Item 7 of our
Form 10-K for the year ended June 30, 2021.

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