IsoRay, Inc.
Annual Report 2015

Plain-text annual report

Morningstar® Document Research℠ FORM 10-KIsoRay, Inc. - ISRFiled: September 14, 2015 (period: June 30, 2015)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xxAnnual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended June 30, 2015 or ¨¨Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from __________ to ____________ Commission File No. 001-33407 ISORAY, INC(Exact name of registrant as specified in its charter) Minnesota 41-1458152(State of incorporation) (I.R.S. Employer Identification No.) 350 Hills St., Suite 106 Richland, Washington 99354(Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (509) 375-1202 Securities registered pursuant to Section 12(b) of the Exchange Act – Common Stock – $0.001 par value(NYSE MKT) Securities registered pursuant to Section 12(g) of the Exchange Act – Series C Preferred Share Purchase Rights Number of shares outstanding of each of the issuer's classes of common equity: Class Outstanding as of September 11, 2015Common stock, $0.001 par value 55,013,553 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934 DURING THEPRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FORthe past 90 days. Yes x No ¨ INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS SUBMITTED ELECTRONICALLY AND POSTED ON ITS CORPORATE WEB SITE, IF ANY, EVERY INTERACTIVE DATA FILE REQUIRED TObe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes x No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestOF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM10-K. ¨ INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS A LARGE ACCELERATED FILER, AN ACCELERATED FILER, A NON-ACCELERATED FILER, OR A SMALLER REPORTING COMPANY. SEE THEdefinitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨ Smaller reporting company ¨ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act): Yes ¨ No x STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON EQUITY HELD BY NON-AFFILIATES COMPUTED BY REFERENCE TO THE PRICE AT WHICH THECOMMON EQUITY WAS LAST SOLD, OR THE AVERAGE BID AND ASKED PRICE OF SUCH COMMON EQUITY, AS OF THE LAST BUSINESS DAY OF THE REGISTRANT'S MOST RECENTLYcompleted second fiscal quarter – $79,783,105 as of December 31, 2014. Documents incorporated by reference – none. Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ISORAY, INC. Table of Contents Page ITEM 1 –BUSINESS1ITEM 1A –RISK FACTORS23ITEM 1B –UNRESOLVED STAFF COMMENTS38ITEM 2 –PROPERTIES38ITEM 3 –LEGAL PROCEEDINGS39ITEM 4 –MINE SAFETY DISCLOSURES39ITEM 5 –MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERPURCHASES OF EQUITY SECURITIES39ITEM 6 –SELECTED FINANCIAL DATA41ITEM 7 –MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS42ITEM 7A –QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK57ITEM 8 –FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA57ITEM 9 –CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE57ITEM 9A – CONTROLS AND PROCEDURES57ITEM 9B –OTHER INFORMATION59ITEM 10 –DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE60ITEM 11 –EXECUTIVE COMPENSATION63ITEM 12 –SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS70ITEM 13 –CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE72ITEM 14 –PRINCIPAL ACCOUNTANT FEES AND SERVICES72ITEM 15 –EXHIBITS AND FINANCIAL STATEMENT SCHEDULES73 SIGNATURES75 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Caution Regarding Forward-Looking Information In addition to historical information, this Form 10-K contains certain "forward-looking statements" within the meaning of the Private Securities LitigationReform Act of 1995 (PSLRA). This statement is included for the express purpose of availing IsoRay, Inc. of the protections of the safe harbor provisions ofthe PSLRA. All statements contained in this Form 10-K, 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; andany statements of assumptions underlying any of the foregoing. These statements are based on certain assumptions and analyses made by us in light of ourexperience and our assessment of historical trends, current conditions and expected future developments as well as other factors we believe are appropriateunder the circumstances. However, whether actual results will conform to the expectations and predictions of management is subject to a number of risksand uncertainties described under Item 1A – Risk Factors beginning on page 23 below that may cause actual results to differ materially. Consequently, all of the forward-looking statements made in this Form 10-K are qualified by these cautionary statements and there can be no assurancethat the actual results anticipated by management will be realized or, even if substantially realized, that they will have the expected consequences to oreffects on our business operations. Readers are cautioned not to place undue reliance on such forward-looking statements as they speak only of theCompany's views as of the date the statement was made. The Company undertakes no obligation to publicly update or revise any forward-lookingstatements, whether as a result of new information, future events or otherwise. PART I As used in this Form 10-K, unless the context requires otherwise, "we" or "us" or the "Company" means IsoRay, Inc. and its subsidiaries. ITEM 1 – BUSINESS General CENTURY PARK PICTURES CORPORATION (CENTURY) WAS ORGANIZED UNDER MINNESOTA LAW IN 1983. CENTURY HAD NO OPERATIONS SINCE ITS FISCAL YEAR ENDED SEPTEMBER30, 1999 through June 30, 2005. ON JULY 28, 2005, ISORAY MEDICAL, INC. (MEDICAL) BECAME A WHOLLY-OWNED SUBSIDIARY OF CENTURY PURSUANT TO A MERGER. CENTURY CHANGED ITS NAME TO ISORAY,Inc. (IsoRay or the Company). In the merger, the Medical stockholders received approximately 82% of the then outstanding securities of the Company. MEDICAL, A DELAWARE CORPORATION, DEVELOPS, MANUFACTURES AND SELLS ISOTOPE-BASED MEDICAL PRODUCTS AND DEVICES FOR THE TREATMENT OF CANCER AND OTHERmalignant diseases. Medical is headquartered in Richland, Washington. MEDICAL WAS FORMED UNDER DELAWARE LAW ON JUNE 15, 2004 AND MERGED WITH ISORAY PRODUCTS LLC AND ISORAY, INC., EACH FORMED UNDER WASHINGTON LAW, ONOCTOBER 1, 2004. THE FIRST ISORAY ENTITY WAS ORIGINALLY ORGANIZED IN 1998 AS A WASHINGTON LIMITED LIABILITY COMPANY, ISORAY, LLC, TO DEVELOP A MEDICALDEVICE USING THE CESIUM-131 SEED TECHNOLOGY AND LATER TRANSFERRED ITS OPERATIONS TO ISORAY, INC. A WASHINGTON CORPORATION ON MAY 1, 2002. ISORAY PRODUCTSLLC WAS FORMED IN SEPTEMBER 2003 TO RAISE CAPITAL TO FUND THE OPERATIONS OF ISORAY, INC. BOTH ISORAY, INC. AND ISORAY PRODUCTS LLC MERGED WITH MEDICALon October 1, 2004. ISORAY INTERNATIONAL LLC (INTERNATIONAL), A WASHINGTON LIMITED LIABILITY COMPANY, WAS FORMED ON NOVEMBER 27, 2007 AND IS A WHOLLY-OWNED SUBSIDIARY OFthe Company. International has entered into various international distribution agreements. 1 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Available Information OUR INTERNET WEBSITE ADDRESS IS WWW.ISORAY.COM. INFORMATION ON THIS WEBSITE IS NOT A PART OF THIS REPORT. WE MAKE OUR ANNUAL REPORT ON FORM 10-K, QUARTERLYREPORTS ON FORM 10-Q, CURRENT REPORTS ON FORM 8-K, FORMS 3, 4, AND 5 FILED ON BEHALF OF DIRECTORS AND EXECUTIVE OFFICERS, AND ANY AMENDMENTS TO THOSE REPORTSFILED OR FURNISHED PURSUANT TO SECTION 13(A) OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, OR THE EXCHANGE ACT, AVAILABLE FREE OF CHARGE ON OUR WEBSITE ASSOON AS REASONABLY PRACTICABLE AFTER WE ELECTRONICALLY FILE SUCH MATERIAL WITH, OR FURNISH IT TO, THE SECURITIES AND EXCHANGE COMMISSION, OR THE SEC. YOU CANALSO READ AND COPY ANY MATERIALS WE FILE WITH THE SEC AT THE SEC’S PUBLIC REFERENCE ROOM AT 100 F STREET, NE, WASHINGTON, DC 20549. YOU CAN OBTAINADDITIONAL INFORMATION ABOUT THE OPERATION OF THE PUBLIC REFERENCE ROOM BY CALLING THE SEC AT 1-800-SEC-0330. IN ADDITION, THE SEC MAINTAINS AN INTERNETSITE (WWW.SEC.GOV) THAT CONTAINS REPORTS, PROXY AND INFORMATION STATEMENTS, AND OTHER INFORMATION REGARDING ISSUERS THAT FILE ELECTRONICALLY WITH THE SEC,including us. INFORMATION REGARDING OUR CORPORATE GOVERNANCE, INCLUDING THE CHARTERS OF OUR AUDIT COMMITTEE, OUR NOMINATIONS AND CORPORATE GOVERNANCE COMMITTEE ANDOUR COMPENSATION COMMITTEE, AND OUR CODE OF CONDUCT AND ETHICS, IS AVAILABLE ON OUR INTERNET SITE (WWW.ISORAY.COM). WE WILL PROVIDE ANY OF THE FOREGOINGinformation without charge upon request to Brien Ragle, 350 Hills Street, Suite 106, Richland, WA, 99354. Business Operations Overview IN 2003, ISORAY OBTAINED CLEARANCE FROM THE FDA FOR TREATMENT FOR ALL SOLID TUMOR APPLICATIONS USING CESIUM-131. AS OF THE DATE OF THIS REPORT, SUCHAPPLICATIONS INCLUDE PROSTATE CANCER; OCULAR MELANOMA; HEAD, NECK AND LUNG TUMORS; BREAST CANCER; LIVER CANCER; BRAIN CANCER; COLORECTAL CANCER;GYNECOLOGICAL CANCER; ESOPHAGEAL CANCER; AND PANCREATIC CANCER. THE BRACHYTHERAPY SEED FORM OF CESIUM-131 MAY BE USED IN SURFACE, INTERSTITIAL ANDINTRACAVITY APPLICATIONS FOR TUMORS WITH KNOWN RADIO SENSITIVITY. MANAGEMENT BELIEVES ITS CS-131 TECHNOLOGY WILL ALLOW IT TO BECOME A LEADER IN THEBRACHYTHERAPY MARKET. MANAGEMENT BELIEVES THAT THE ISORAY PROXCELAN® CESIUM-131 BRACHYTHERAPY SEED REPRESENTS THE FIRST MAJOR ADVANCEMENT INBRACHYTHERAPY TECHNOLOGY IN APPROXIMATELY 30 YEARS WITH ATTRIBUTES THAT COULD MAKE IT THE LONG-TERM "SEED OF CHOICE" FOR INTERNAL RADIATION THERAPYprocedures. BRACHYTHERAPY SEEDS ARE SMALL DEVICES USED IN AN INTERSTITIAL 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 CLOSETHERAPY). THE SEEDS DELIVER THERAPEUTIC RADIATION THEREBY KILLING THE CANCEROUS TUMOR CELLS WHILE MINIMIZING EXPOSURE TO ADJACENT HEALTHY TISSUE. THISPROCEDURE ALLOWS DOCTORS TO ADMINISTER A HIGHER DOSE OF RADIATION DIRECTLY TO THE TUMOR. EACH SEED CONTAINS A RADIOISOTOPE SEALED WITHIN A TITANIUM CAPSULE.WHEN BRACHYTHERAPY IS THE ONLY TREATMENT (MONOTHERAPY) USED IN THE PROSTATE, APPROXIMATELY 70 TO 120 SEEDS ARE PERMANENTLY IMPLANTED IN THE PROSTATE IN ANoutpatient procedure. The number of seeds used varies based on the size of the prostate and the activity level specified by the physician. When brachytherapyIS COMBINED WITH EXTERNAL BEAM RADIATION OR INTENSITY MODULATED RADIATION THERAPY (DUAL THERAPY), THEN APPROXIMATELY 40 TO 80 SEEDS ARE USED IN THEPROCEDURE. THE ISOTOPE DECAYS OVER TIME AND EVENTUALLY THE SEEDS BECOME INERT. THE SEEDS MAY BE USED AS A PRIMARY TREATMENT OR AS AN ADJUNCT THERAPY WITHOTHER TREATMENT MODALITIES, SUCH AS CHEMOTHERAPY, OR AS TREATMENT FOR RESIDUAL DISEASE AFTER EXCISION OF PRIMARY TUMORS. THE NUMBER OF SEEDS FOR OTHERTREATMENT SITES COMMONLY VARY FROM AS FEW AS 8 SEEDS TO MORE THAN 100 SEEDS DEPENDING ON THE TYPE OF CANCER, THE LOCATION OF THE TUMOR BEING TREATED AND THEtype of therapy being utilized. ISORAY BEGAN PRODUCTION AND SALES OF PROXCELAN® CESIUM-131 BRACHYTHERAPY SEEDS IN OCTOBER 2004 FOR THE TREATMENT OF PROSTATE CANCER AFTER CLEARANCE OF ITSPREMARKET NOTIFICATION (510(K)) BY THE FOOD AND DRUG ADMINISTRATION (FDA). IN DECEMBER 2007, ISORAY BEGAN SELLING ITS PROXCELAN® CS-131 SEEDS FOR THETREATMENT OF OCULAR MELANOMA, HOWEVER, THE MARKET FOR THE TREATMENT HAS BEEN LIMITED GENERATING A MINIMAL AMOUNT OF REVENUE FOR THE COMPANY. THECOMPANY CONTINUES TO MAKE THE TREATMENT AVAILABLE TO INTERESTED PHYSICIANS AND MEDICAL FACILITIES. IN JUNE 2009, THE COMPANY BEGAN SELLING ITS PROXCELAN®CS-131 SEEDS FOR TREATMENT OF HEAD AND NECK TUMORS, COMMENCING WITH TREATMENT OF A TUMOR THAT COULD NOT BE ACCESSED BY OTHER TREATMENT MODALITIES. THECOMPANY OBTAINED CLEARANCE IN AUGUST 2009 FROM THE FDA TO PERMIT LOADING CESIUM-131 INTO BIOABSORBABLE BRAIDED SUTURES WHICH ARE COMMONLY REFERREDto in the industry as braided strands, facilitating treatment of brain, lung, and head and neck tumors as well as tumors in other organs with Proxcelan® Cs-131.DURING THE FISCAL YEAR ENDED JUNE 30, 2010, THE COMPANY EXPANDED THE NUMBER OF AREAS OF THE BODY IN WHICH THE PROXCELAN® CS-131 SEEDS WERE BEINGUTILIZED FOR TREATMENT BY ADDING LUNG CANCER IN AUGUST 2009, COLORECTAL CANCER IN OCTOBER 2009, AND CHEST WALL CANCER IN DECEMBER 2009. DURING THE FISCALYEAR ENDED JUNE 30, 2011, THE COMPANY CONTINUED THE EXPANSION IN THE NUMBER OF AREAS OF THE BODY IN WHICH THE PROXCELAN® CS-131 SEEDS WERE BEINGutilized through the addition of the treatment of brain cancer in September 2010 and the treatment of gynecological cancer in December 2010. 2 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN MARCH 2011, THE COMPANY RECEIVED CLEARANCE TO COMMERCIALLY DELIVER PROXCELAN® CESIUM-131 BRACHYTHERAPY SEEDS THAT ARE PRELOADED INTO BIOABSORBABLEBRAIDED SUTURES INTO EUROPE. THIS CLEARANCE PERMITS THE PRODUCT TO BE COMMERCIALLY DISTRIBUTED FOR TREATMENT OF BRAIN, LUNG, AND HEAD AND NECK TUMORS AS WELLas tumors in other organs in Europe. IN AUGUST 2011, MEDICAL RECEIVED CLEARANCE FROM THE FDA FOR ITS PREMARKET NOTIFICATION (510(K)) FOR THE GliaSite® RADIATION THERAPY SYSTEM (GLIASITE®RTS). The GliaSite® RTS is the only FDA-cleared balloon catheter device used in the treatment of brain cancer. IN MAY 2012, MEDICAL RECEIVED A CE MARK FOR THE GLIASITE® RTS WHICH STATES THAT THE COMPANY CONFORMS WITH THE PRODUCT REQUIREMENTS OF THE EUROPEANCOUNCIL DIRECTIVE 93/42/EEC. THE CE MARK ALLOWS THE GLIASITE® RTS TO BE SOLD IN 31 EUROPEAN COUNTRIES AND TO BE MARKETED IN THE EUROPEAN FREE TRADEASSOCIATE MEMBER STATES AND THE EUROPEAN UNION. IN JUNE 2012, THE FIRST CESIUM-131 BRACHYTHERAPY SEED SUTURED MESH WAS IMPLANTED ON A PATIENT SUFFERINGfrom a recurring meningioma tumor. MANAGEMENT FOCUSED IN FISCAL 2012 AND 2013 ON OBTAINING ITS REGULATORY CLEARANCES AND FINAL RESEARCH AND DEVELOPMENT OF ITS GLIASITE® RTS, ENTERING INTOinternational distribution agreements to sell the product in Europe and Australia, and marketing its brain and lung products. The GliaSite® RTS IS THE WORLD’SONLY SYSTEM THAT ENABLES DOCTORS TO USE LIQUID RADIATION IN AREAS WHERE THE CANCER IS MOST LIKELY TO REMAIN AFTER BRAIN SURGERY AND TUMOR REMOVAL. IN FISCAL2013, THE COMPANY BEGAN SUPPORTING THE USE OF A SYSTEM DEVELOPED AT THE BARROW NEUROLOGICAL INSTITUTE TO DELIVER DOSES OF CESIUM-131 TO TREAT MALIGNANTMENINGIOMA, BRAIN METASTASES, AND PRIMARY CANCERS OF THE BRAIN. A MULTI-INSTITUTIONAL STUDY WAS CONDUCTED TO EXPLORE THE USE OF BRAIDED SUTURES CONTAININGProxcelan® Cs-131 seeds placed directly into the cavity following surgical resection of brain metastases. IN AUGUST 2013, MEDICAL RECEIVED AN APPROVAL FOR AN EXTENSION TO THE SCOPE OF THE CE MARK FOR THE GLIASITE® RTS. THIS APPROVAL ALLOWS MEDICAL TOimplement certain product improvements that management believes will enhance GliaSite® RTS’s acceptance by customers in the European market. IN DECEMBER 2013, THE COMPANY RECEIVED CLEARANCE FOR CESITREX™ FROM THE US FOOD AND DRUG ADMINISTRATION. CESITREX™ IS THE LIQUID FORM OF CESIUM-131AND CAN BE USED IN PLACE OF IOTREX®, THE LIQUID FORM OF IODINE-125, IN THE COMPANY’S GLIASITE® RTS. IN MAY 2014, THE COMPANY RECEIVED CLEARANCE FORCesitrex™ from the Washington Department of Health. In June 2014, the Company delivered its first order of Cesitrex™ for use in treating a patient. IN OCTOBER 2014, ISORAY ANNOUNCED EARLY SUCCESS FOR A YOUNG PERUVIAN GIRL UTILIZING CESIUM-131 IN THE FIRST STEREOTACTIC IMPLANT FOR INOPERABLE BRAIN CANCER.THIS 7 YEAR OLD GIRL IS BACK IN SCHOOL AS OF AUGUST 2015 WITH NO RESTRICTIONS AND NORMAL ACTIVITIES. IN DECEMBER 2014, BARROW NEUROLOGICAL INSTITUTE RELEASEDits findings that IsoRay’s Cesium-131 therapy stops brain cancers from recurring in treated locations where previous conventional treatments failed. Also, in December 2014, Cesium-131 was used in the world’s first veterinary implant in a horse with cancer. IN JANUARY 2015, THE FIRST CESIUM-131 PROSTATE CANCER TREATMENT WAS PERFORMED IN RUSSIA AT THE NEFTYANIK HOSPITAL, A CENTER PROVIDING CUTTING EDGE CANCERTREATMENTS. IN MAY 2015, THE FIVE-YEAR 96% SUCCESS IN LOCAL CONTROL AND 100% SURVIVAL RATES FOR LUNG CANCER TREATMENT USING CESIUM-131 WERE RELEASED IN Apeer-reviewed study. 3 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In June 2015, Cesium-131 was selected by Chicago Prostate Cancer Center for use in the launch of a study of focal treatment of prostate cancer. WHILE MANAGEMENT HAS NOT IDENTIFIED ADDITIONAL OPPORTUNITIES TO EXPAND TREATMENT TO OTHER SITES IN THE BODY, WE CONTINUE TO INVESTIGATE POTENTIAL NEWOPPORTUNITIES WITH INTERESTED PHYSICIANS AND MEDICAL FACILITIES. MANAGEMENT IS NOW FOCUSING PRIMARILY ON THE BRAIN AND GYNECOLOGICAL MARKETS WHILE THECompany continues to research delivery systems other than those historically used by the Company. Industry Information Prostate Cancer Treatment ACCORDING TO THE AMERICAN CANCER SOCIETY, APPROXIMATELY ONE MAN IN SEVEN WILL BE DIAGNOSED WITH PROSTATE CANCER DURING HIS LIFETIME AND ONE MAN IN THIRTY-EIGHT WILL DIE OF PROSTATE CANCER. IT IS THE MOST COMMON FORM OF CANCER IN MEN AFTER SKIN CANCER, AND THE SECOND LEADING CAUSE OF CANCER DEATHS IN MENFOLLOWING LUNG CANCER. THE AMERICAN CANCER SOCIETY ESTIMATES THERE WILL BE ABOUT 220,800 NEW CASES OF PROSTATE CANCER DIAGNOSED AND AN ESTIMATED 27,540deaths associated with the disease in the United States in 2015. (American Cancer Society, 2015) PROSTATE CANCER TREATMENT REMAINS A KEY FOCUS OF THE COMPANY. MOST DOCTORS USE THE AMERICAN JOINT COMMITTEE ON CANCER (AJCC) TNM SYSTEM TO STAGEprostate cancer. This system is based on five key pieces of information.§The extent of the main tumor (T category)§Whether the cancer has spread to nearby lymph nodes (N category)§Whether the cancer has metastasized (spread) to other parts of the body (M category)§The PSA level at the time of diagnosis§The Gleason score, based on the prostate biopsy or surgery THESE FACTORS ARE COMBINED TO DETERMINE AN OVERALL STAGE, USING ROMAN NUMERALS I THROUGH IV (1-4). THE LOWER THE NUMBER, THE LESS THE CANCER HAS SPREAD. Ahigher number, such as stage IV (4), means a more advanced cancer. ONCE DIAGNOSED, PROSTATE CANCER CAN GENERALLY BE DIVIDED INTO ONE OF THE THREE “RISK GROUPS”: LOW, INTERMEDIATE AND HIGH RISK. AS RISK INCREASES SO DOES THEprobability of advanced cancer at diagnosis and the probability of failing treatment with cancer progression or recurrence. IsoRay’s Proxcelan® CESIUM-131 SOURCES ARE AN OPTION IN THE TREATMENT OF PROSTATE CANCERS OF ALL RISK LEVELS, BUT LIKE MOST OTHER PROSTATE CANCER TREATMENTS AREMOST SUCCESSFUL IN THE MORE PREVALENT LOW RISK CATEGORY. THE DIAGNOSIS OF PROSTATE CANCER – AND ESPECIALLY LOW RISK PROSTATE CANCER – HAS BEEN POTENTIALLYREDUCED WITH THE INTRODUCTION OF GUIDELINES DISSUADING THE USE OF SERUM PSA SCREENING AT THE GENERAL PRACTITIONER LEVEL AS A MEANS TO DETECT PROSTATE CANCERearly in men with no symptoms of prostate cancer. EFFECTIVE JULY 2012, THE U.S PREVENTATIVE SERVICES TASK FORCE (USPSTF) RECOMMENDS AGAINST THE USE OF THEPSA test. FURTHERMORE, THE DEFERRAL OF CANCER-ERADICATING (DEFINITIVE) PROSTATE CANCER TREATMENTS SUCH AS SURGERY AND RADIATION THERAPY HAS BECOME MORE POPULAR AS SOMEmen with prostate cancer have decided to “watch” the cancer using a variety of diagnostic tools – a trend known as “active surveillance”. AS SUCH, THE INDUSTRY HAS EXPERIENCED AN OVERALL DECREASE IN THE NUMBER OF LOW RISK CASES OF PROSTATE CANCER DIAGNOSED DUE TO REDUCED PSA SCREENING, AS WELLAS A LARGER NUMBER OF MEN WHO ARE DEFERRING TREATMENT ALTOGETHER AT A HIGHER RATE THAN SEEN HISTORICALLY. INTENSE COMPETITION IN THE SPACE DUE TO NUMEROUSestablished treatment options along with recently added entrants has further eroded existing market share. STILL, MINIMALLY INVASIVE BRACHYTHERAPY SUCH AS THAT PROVIDED BY COMPANY’S PROXCELAN® CESIUM-131 BRACHYTHERAPY PRODUCTS PROVIDES SIGNIFICANTADVANTAGES OVER COMPETING TREATMENTS INCLUDING LOWER COST, EQUAL OR BETTER SURVIVAL DATA, FEWER SIDE EFFECTS, FASTER RECOVERY TIME AND THE CONVENIENCE OF ASINGLE OUTPATIENT IMPLANT PROCEDURE THAT GENERALLY LASTS LESS THAN ONE HOUR (GRIMM, ET AL., BRITISH JOURNAL OF UROLOGY INTERNATIONAL, VOL. 109 (SUPPL 1), 2012;Merrick, et al., Techniques in Urology, Vol. 7, 2001; Potters, et al., Journal of Urology, May 2005; Sharkey, et al., Current Urology Reports, 2002). 4 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In addition to permanent, low-dose rate (LDR) brachytherapy, such as Proxcelan®, LOCALIZED PROSTATE CANCER CAN BE TREATED WITH PROSTATECTOMY SURGERY (RP FORRADICAL PROSTATECTOMY), EXTERNAL BEAM RADIATION THERAPY (EBRT), THREE-DIMENSIONAL CONFORMAL RADIATION THERAPY (3D-CRT), INTENSITY MODULATED RADIATIONTHERAPY (IMRT), DUAL OR COMBINATION THERAPY, PERMANENT, HIGH DOSE RATE BRACHYTHERAPY (HDR), CRYOSURGERY, HORMONE THERAPY, AND WATCHFUL WAITING. THESUCCESS OF ANY TREATMENT IS MEASURED BY THE FEASIBILITY OF THE PROCEDURE FOR THE PATIENT, MORBIDITIES ASSOCIATED WITH THE TREATMENT, OVERALL SURVIVAL, AND COST.When the cancerous tissue is not completely eliminated, the cancer typically returns to the primary site, often with metastases to other areas of the body. THE NATIONAL CANCER DATA BASE (NCDB) CONTAINS A TOTAL OF 1,547,941 PATIENTS WITH LOCALIZED PROSTATE CANCER THAT WERE IDENTIFIED FROM 1998 TO 2010. OVERALL,13.4% OF PATIENTS WERE TREATED WITH BRACHYTHERAPY, WITH AN ADDITIONAL 2.6% TREATED WITH BRACHYTHERAPY BOOST, WHICH IS THE ADDITION OF A BRACHYTHERAPYIMPLANT IN ADDITION TO EXTERNAL BEAM RADIATION THERAPY, COMPARED WITH 49.8% TREATED WITH SURGERY, 26.3% WITH NON-BRACHYTHERAPY RADIOTHERAPY, 24.1% WHORECEIVED HORMONE THERAPY, AND 7.8% WHO RECEIVED NO TREATMENT. (MARTIN JM, HANDORF EA, KUTIKOV A, ET AL. (2014) The rise and fall of prostatebrachytherapy: Use of brachytherapy for the treatment of localized prostate cancer in the National Cancer Data Base. Cancer 120:2114–2121) Prostatectomy Surgery Options. IN THE RADICAL PROSTATECTOMY OPERATION, A SURGEON WILL REMOVE THE ENTIRE PROSTATE GLAND PLUS SOME OF THE TISSUE AROUND IT,INCLUDING THE SEMINAL VESICLES. NEW METHODS SUCH AS LAPAROSCOPIC AND ROBOTIC PROSTATECTOMY SURGERIES ARE CURRENTLY BEING USED MORE FREQUENTLY IN ORDER TOMINIMIZE THE NERVE DAMAGE THAT LEADS TO IMPOTENCE AND INCONTINENCE, BUT THESE TECHNIQUES REQUIRE A HIGH DEGREE OF SURGICAL SKILL. (AMERICAN CANCER SOCIETY,2015) SURGICAL RESECTION ACCOUNTED FOR APPROXIMATELY 44% OF TREATMENTS BEFORE THE INTRODUCTION OF ROBOTIC PROSTATECTOMY IN THE EARLY 2000S AND THEN ROSE TO60% IN 2010. (MARTIN JM, HANDORF EA, KUTIKOV A, ET AL. (2014) The rise and fall of prostate brachytherapy: Use of brachytherapy for the treatment oflocalized prostate cancer in the National Cancer Data Base. Cancer 120:2114–2121) External Radiation Therapy. PRIMARY EXTERNAL BEAM RADIATION THERAPY (EBRT), THREE-DIMENSIONAL CONFORMAL RADIATION THERAPY (3D-CRT), STEREOTACTICRADIOTHERAPY (SBRT) AND INTENSITY MODULATED RADIATION THERAPY (IMRT) ALL INVOLVE DIRECTING A BEAM OF RADIATION FROM OUTSIDE THE BODY AT THE PROSTATEGLAND TO DESTROY CANCEROUS TISSUE. TREATMENTS ARE RECEIVED ON AN OUTPATIENT BASIS WITH THE PATIENT USUALLY RECEIVING FIVE TREATMENTS PER WEEK OVER A PERIOD OFSEVEN TO NINE WEEKS. THE USE OF EBRT AS A WHOLE DOUBLED FROM 11.6% IN 2004 TO 24% IN 2009. THE INCREASE IN THE NUMBER OF CASES BEING TREATED WITH EBRTDURING 2004 TO 2008 WERE CASES THAT HISTORICALLY WOULD HAVE BEEN TREATED WITH BRACHYTHERAPY. DURING THAT PERIOD THERE WAS A NEW COMPLETE TRANSITION TOIMRT AS THE PREDOMINANT METHOD WITH IMRT TREATMENT INCREASING FROM 0.15% TO 95.9% OF EBRT TREATMENTS FROM 2000 TO 2008. (MAHMOOD U, PUGH T,FRANK S, ET AL. (2014) Declining use of brachytherapy for the treatment of prostate cancer. Brachytherapy 13:157–162) SIDE EFFECTS OF THESE TREATMENTS CANinclude bowel problems, bladder problems, urinary incontinence, impotence, fatigue, lymphedema, and urethral stricture. (American Cancer Society, 2015) Dual or Combination Therapy. DUAL THERAPY IS THE COMBINATION OF IMRT OR 3-DIMENSIONAL CONFORMAL EXTERNAL BEAM RADIATION AND SEED BRACHYTHERAPY TOTREAT EXTRA-PROSTATIC EXTENSIONS OR HIGH RISK PROSTATE CANCERS THAT HAVE METASTASIZED OR GROWN OUTSIDE THE PROSTATE. COMBINATION THERAPY TREATS HIGH RISKPATIENTS WITH A FULL COURSE OF IMRT OR EBRT OVER A PERIOD OF SEVERAL WEEKS. WHEN THIS INITIAL TREATMENT IS COMPLETED, THE PATIENT MUST THEN WAIT FOR SEVERALMORE WEEKS TO MONTHS TO HAVE THE PROSTATE SEED IMPLANT. (AMERICAN CANCER SOCIETY, 2015) MANAGEMENT ESTIMATES THAT AT LEAST 25% OF ALL U.S. PROSTATEimplants are now dual therapy cases. High Dose Rate Temporary Brachytherapy (HDR). HDR TEMPORARY BRACHYTHERAPY INVOLVES PLACING VERY TINY PLASTIC CATHETERS INTO THE PROSTATE GLAND, ANDTHEN GIVING A SERIES OF RADIATION TREATMENTS THROUGH THESE CATHETERS. THE CATHETERS ARE THEN REMOVED, AND NO RADIOACTIVE MATERIAL IS LEFT IN THE PROSTATE GLAND. ACOMPUTER-CONTROLLED MACHINE INSERTS A SINGLE HIGHLY RADIOACTIVE IRIDIUM-192 SEED INTO THE CATHETERS ONE BY ONE. THIS PROCEDURE IS TYPICALLY REPEATED AT LEASTthree times while the patient is hospitalized for at least 24 hours. (American Cancer Society, 2015) Additional Treatments. Additional, less frequently used, treatments include cryotherapy, hormone therapy, vaccine treatment and chemotherapy. 5 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Watchful Waiting and Active Surveillance. BECAUSE PROSTATE CANCER OFTEN GROWS VERY SLOWLY, SOME MEN (ESPECIALLY THOSE WHO ARE OLDER OR WHO HAVE OTHERmajor health problems) may never need treatment for their cancer. Instead, their doctor may suggest watchful waiting or active surveillance. Some doctors use these terms to mean the same thing. For other doctors the terms mean something slightly different: §Active SURVEILLANCE IS OFTEN USED TO MEAN WATCHING THE CANCER CLOSELY WITH PSA BLOOD TESTS, DIGITAL RECTAL EXAMS (DRES), AND ULTRASOUNDS AT REGULARINTERVALS TO SEE IF THE CANCER IS GROWING. PROSTATE BIOPSIES MAY BE DONE AS WELL TO SEE IF THE CANCER IS STARTING TO GROW FASTER. IF THERE IS A CHANGE IN Apatient’s test results, the doctor would then talk to the patient about treatment options. §Watchful waiting (observation) is sometimes used to describe a less intense type of follow-up that may mean fewer tests and relying more on changesin a man’s symptoms to decide if treatment is needed. IF THE CANCER SEEMS TO BE GROWING OR GETTING WORSE, THE DOCTOR MAY SUGGEST STARTING TREATMENT. SOME EARLY STUDIES HAVE SHOWN THAT AMONG MEN WHO CHOOSEactive surveillance, those who elect not to be treated do as well as those who decide to start treatment right away. (American Cancer Society, 2015) Low Dose Rate Permanent Brachytherapy (LDR). LDR PERMANENT BRACHYTHERAPY INVOLVES PLACING PELLETS OR SEEDS OF RADIOACTIVE MATERIAL DIRECTLY IN THEPROSTATE. THE PELLETS/SEEDS ARE LEFT IN PLACE AND EMIT LOW DOSE RATE RADIATION FOR WEEKS OR MONTHS. THE PELLETS/SEEDS CAN DELIVER A LARGE DOSE OF RADIATION TO Asmall area of the body thereby reducing the damage done to healthy tissue that is close to the prostate. (American Cancer Society, 2015) IODINE-125 (I-125) AND PALLADIUM-103 (PD-103) ARE TWO ISOTOPES, OTHER THAN CESIUM-131, THAT ARE CURRENTLY USED FOR LDR PERMANENT BRACHYTHERAPY. A NUMBEROF PUBLISHED STUDIES DESCRIBING THE USE OF I-125 AND PD-103 BRACHYTHERAPY IN THE TREATMENT OF EARLY-STAGE PROSTATE CANCER HAVE BEEN VERY POSITIVE WHENCOMPARED TO OTHER TREATMENT OPTIONS. A STUDY OF 2,963 PROSTATE CANCER PATIENTS WHO UNDERWENT BRACHYTHERAPY AS THEIR SOLE THERAPEUTIC MODALITY AT 11INSTITUTIONS ACROSS THE U.S. CONCLUDED THAT LOW-RISK PATIENTS (WHO MAKE UP THE MAJORITY OF LOCALIZED CASES) WHO UNDERWENT ADEQUATE IMPLANTS EXPERIENCEDRATES OF PSA RELAPSE SURVIVAL OF GREATER THAN 90% BETWEEN EIGHT AND TEN YEARS (ZELEFSKY MJ, ET AL, "MULTI-INSTITUTIONAL ANALYSIS OF LONG-TERM OUTCOME FORSTAGES T1-T2 PROSTATE CANCER TREATED WITH PERMANENT SEED IMPLANTATION" International Journal of Radiation Oncology Biology Physics, VOLUME 67, ISSUE 2,2007, 327-333). OTHER STUDIES HAVE DEMONSTRATED SIMILAR, DURABLY HIGH RATES OF CONTROL FOLLOWING BRACHYTHERAPY FOR LOCALIZED PROSTATE CANCER OUT TO 15 YEARS POST-TREATMENT(SYLVESTER J, ET AL. "15-YEAR BIOCHEMICAL RELAPSE FREE SURVIVAL IN CLINICAL STAGE T1-T3 PROSTATE CANCER FOLLOWING COMBINED EXTERNAL BEAM RADIOTHERAPY ANDBRACHYTHERAPY; SEATTLE EXPERIENCE", International Journal of Radiation Oncology Biology Physics, VOL. 67, ISSUE 1, 2007, 57-64). THE CUMULATIVE EFFECT OFTHESE STUDIES HAS BEEN THE CONCLUSION BY LEADERS IN THE FIELD THAT BRACHYTHERAPY OFFERS A DISEASE CONTROL RATE AS HIGH AS SURGERY, THOUGH WITH A LESSER SIDE-EFFECTprofile than surgery (Ciezki JP. "Prostate brachytherapy for localized prostate cancer" Current Treatment Options in Oncology, Volume 6, 2005, 389-393). LONG-TERM SURVIVAL DATA IS NOW AVAILABLE FOR BRACHYTHERAPY WITH I-125 AND PD-103, WHICH SUPPORT THE EFFICACY OF BRACHYTHERAPY IN THE TREATMENT OF CLINICALLYLOCALIZED CANCER OF THE PROSTATE GLAND. CLINICAL DATA INDICATE THAT BRACHYTHERAPY OFFERS SUCCESS RATES FOR EARLY-STAGE PROSTATE CANCER TREATMENT THAT ARE EQUAL TOOR BETTER THAN THOSE OF RP OR EBRT. WHILE HISTORICALLY CLINICAL STUDIES OF BRACHYTHERAPY HAVE FOCUSED PRIMARILY ON RESULTS FROM BRACHYTHERAPY WITH I-125 ANDPD-103, MANAGEMENT BELIEVES THAT THESE DATA ARE ALSO RELEVANT FOR BRACHYTHERAPY WITH CESIUM-131. IN FACT, IT APPEARS THAT CESIUM-131 OFFERS IMPROVEDclinical outcomes over I-125 and Pd-103, perhaps due to its shorter half-life. SEXUAL IMPOTENCE AND URINARY INCONTINENCE ARE TWO MAJOR CONCERNS MEN FACE WHEN CHOOSING AMONG VARIOUS FORMS OF TREATMENT FOR PROSTATE CANCER. STUDIESHAVE SHOWN THAT BRACHYTHERAPY WITH EXISTING SOURCES RESULTS IN LOWER RATES OF IMPOTENCE AND INCONTINENCE THAN SURGERY (BURON C, ET AL. "BRACHYTHERAPYVERSUS PROSTATECTOMY IN LOCALIZED PROSTATE CANCER: RESULTS OF A FRENCH MULTICENTER PROSPECTIVE MEDICO-ECONOMIC STUDY". International Journal of RadiationOncology, Biology, Physics, VOLUME 67, 2007, 812-822). COMBINED WITH THE HIGH DISEASE CONTROL RATES DESCRIBED IN MANY STUDIES, THESE FINDINGS HAVE DRIVENthe adoption of brachytherapy as a front-line therapy for localized prostate cancer. 6 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Comparing Cesium-131 to I-125 and Pd-103 Clinical Results THE COMPANY’S PROXCELAN® CESIUM-131 - BASED PERMANENT BRACHYTHERAPY TREATMENT WAS INTRODUCED IN 2004, AS COMPARED TO THE OTHER PERMANENTBRACHYTHERAPY SOURCES - IODINE-125 (INTRODUCED 1965) AND PALLADIUM-103 (INTRODUCED 1986). THUS, IT HAS ONLY BEEN RECENTLY THAT THE ACHIEVEMENT OFsignificant follow-up in patient studies has occurred for the Company’s Cesium-131 product (introduced 2004). MANAGEMENT BELIEVES THAT THE PROXCELAN® CESIUM-131 BRACHYTHERAPY SEED HAS SPECIFIC CLINICAL ADVANTAGES FOR TREATING CANCER OVER I-125 AND PD-103, THEOTHER ISOTOPES CURRENTLY USED IN BRACHYTHERAPY SEEDS. THE TABLE BELOW HIGHLIGHTS THE KEY DIFFERENCES OF THE THREE SEEDS. THE COMPANY BELIEVES THAT THE SHORTHALF-LIFE, HIGH-ENERGY CHARACTERISTICS OF CESIUM-131 WILL INCREASE INDUSTRY GROWTH AND FACILITATE MEANINGFUL PENETRATION INTO THE TREATMENT OF OTHER FORMS OFcancer such as lung cancer. Isotope Delivery Over Time IsotopeHalf-LifeEnergy90% DoseTotal DoseCs-1319.7 days30.4 KeV33 days115 GyPd-10317 days20.8 KeV58 days125 GyI-12560 days28.5 KeV204 days145 Gy AS STATED EARLIER, COMPANY MANAGEMENT BELIEVES THAT THE LONG-TERM RESULTS ALREADY REPORTED FOR IODINE-125 AND PALLADIUM-103 BASED PROSTATE BRACHYTHERAPYCONFIRM THE VALIDITY OF PERMANENT PROSTATE BRACHYTHERAPY, AND AT LEAST COMPARABLE LONG-TERM OUTCOMES ARE LIKELY WITH CESIUM-131 TREATMENT. A RECENTCLINICAL REPORT SUPPORTS THIS CONTENTION (BENOIT RM, ET AL. “FIVE YEAR PROSTATE-SPECIFIC ANTIGEN OUTCOMES AFTER CAESIUM PROSTATE BRACHYTHERAPY. CLINICALOncology, Volume 26, 2014, 776-780). HOWEVER, MANAGEMENT ALSO BELIEVES THAT CESIUM-131 WILL ULTIMATELY PROVE TO POSSESS CLINICAL ADVANTAGES OVER THE TWO OTHER PERMANENTLY IMPLANTABLEISOTOPES. THESE ADVANTAGES INCLUDE BETTER PERFORMANCE IN ELEVATED RISK CASES (ESPECIALLY INTERMEDIATE RISK LOCALIZED PROSTATE CANCERS) AND A MORE RAPIDresolution of side effects. Both advantages are related to the shorter half-life of Cesium-131 as compared to the other two isotopes. THE MOST RECENT CLINICAL DATA WAS PRESENTED AT THE ANNUAL MEETING OF THE AMERICAN BRACHYTHERAPY SOCIETY IN APRIL 2014. DR. BRIAN MORAN OF THE CHICAGOPROSTATE CENTER REPORTED A 92.6% RATE OF SUCCESS AT FIVE YEARS AFTER TREATMENT FOR 69 PATIENTS WITH PROSTATE CANCER FOLLOWING TREATMENT WITH CESIUM-131BRACHYTHERAPY (MORAN BJ, BRACCIOFORTE MH. PSA OUTCOMES IN A SINGLE INSTITUTION, PROSPECTIVE RANDOMIZED 131CS/125I PROSTATE BRACHYTHERAPY TRIAL.(Brachytherapy 2014 13(S1)S34). AT THE SAME MEETING, DR. RAJAGOPALAN OF THE UNIVERSITY OF PITTSBURGH MEDICAL CENTER REPORTED A SIX YEAR SUCCESS RATE OF95.4% IN 243 CESIUM-131 TREATED PATIENTS (SIX-YEAR BIOCHEMICAL OUTCOME IN PATIENTS TREATED WITH CS-131 BRACHYTHERAPY AS MONOTHERAPY FOR PROSTATE CANCER.Brachytherapy 2014 13(S1)S38). WHEN TAKEN TOGETHER WITH THE MULTI-INSTITUTIONAL 5 YEAR OUTCOME PRESENTATION BY PRESTIDGE AND OTHERS, WHERE A GROUP OF 100 PATIENTS FROM MULTIPLEINSTITUTIONS EXHIBITED A PSA DISEASE-FREE RATE OF 98% AT FIVE YEARS (PRESTIDGE B. ET AL. FIVE-YEAR BIOCHEMICAL CONTROL FOLLOWING CESIUM-131 PERMANENT PROSTATEBRACHYTHERAPY IN A MULTI-INSTITUTIONAL TRIAL. Brachytherapy 2011 10(3S1)S27.), A STRONG CASE FOR AN OUTSTANDING RATE OF DURABLE PSA (BIOCHEMICAL) SUCCESScan be made. FURTHERMORE, IN ALL THREE REPORTS A SIGNIFICANT PROPORTION OF “INTERMEDIATE RISK” PATIENTS (WHO ARE AT GREATER RISK OF FAILURE FOLLOWING ANY TREATMENT COMPARED TOMOST PROSTATE CANCER PATIENTS) WERE INCLUDED IN THE STUDIES. DESPITE THIS ADDED RISK – 37% OF PATIENTS ACROSS ALL THREE STUDIES WERE INTERMEDIATE RISK — THEthree studies together average a 95% rate of success at five years and beyond for a total of 412 patients under study. 7 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Improved side-effect profile. IN ADDITION TO THE CANCER-RELATED OUTCOMES DESCRIBED FOR PROSTATE BRACHYTHERAPY, A SIGNIFICANT PROPORTION OF PATIENTS WHO UNDERGO I-125 OR PD-103BRACHYTHERAPY EXPERIENCE ACUTE URINARY IRRITATIVE SYMPTOMS FOLLOWING TREATMENT – MORE SO THAN WITH SURGERY OR EXTERNAL BEAM RADIATION THERAPY (FRANK SJ, ETAL, "AN ASSESSMENT OF QUALITY OF LIFE FOLLOWING RADICAL PROSTATECTOMY, HIGH DOSE EXTERNAL BEAM RADIATION THERAPY, AND BRACHYTHERAPY IODINE IMPLANTATION ASMONOTHERAPIES FOR LOCALIZED PROSTATE CANCER" Journal of Urology, VOLUME 177, 2007, 2151-2156). THESE IRRITATIVE SYMPTOMS CAN RANGE FROM AN INCREASEDFREQUENCY OF URINATION TO SIGNIFICANT PAIN UPON URINATION. BECAUSE THE PORTION OF THE URETHRA THAT RUNS THROUGH THE PROSTATE TAKES HIGH DOSES FROM THE IMPLANT,these side effects are fairly common following prostate brachytherapy. RECENT COMPLETED STUDIES SHOW THAT CESIUM-131, WITH THE SHORTEST AVAILABLE HALF-LIFE OF THE COMMONLY USED IMPLANTABLE ISOTOPES, RESULTS IN A QUICKERRESOLUTION OF THESE IRRITATIVE SYMPTOMS BASED ON THE SHORTER TIME INTERVAL OVER WHICH NORMAL TISSUE RECEIVES RADIATION FROM THE IMPLANTED SOURCES THAN FORLONGER LIVED ISOTOPES SUCH AS I-125. (SHAH H, ET AL. A COMPARISON OF AUA SYMPTOM SCORES FOLLOWING PERMANENT LOW-DOSE-RATE PROSTATE BRACHYTHERAPY WITHiodine-125 and cesium-131. Brachytherapy 2013:12(SI)S64)). A CESIUM-131 MONOTHERAPY TRIAL FOR THE TREATMENT OF PROSTATE CANCER WAS FULLY ENROLLED IN FEBRUARY 2007. THE TRIAL WAS A 100 PATIENT MULTI-INSTITUTIONALSTUDY THAT SOUGHT TO (1) DOCUMENT THE DOSIMETRIC CHARACTERISTICS OF CESIUM-131, (2) SUMMARIZE THE SIDE EFFECT PROFILE OF CESIUM-131 TREATMENT, AND (3) TRACKbiochemical (PSA) results in patients following Cesium-131 therapy. Some of the significant and specific findings were as follows: 1. PATIENT REPORTED IRRITATIVE URINARY SYMPTOMS (IPSS SCORES) WERE MILD TO MODERATE WITH RELATIVELY RAPID RESOLUTION WITHIN 4-6 MONTHS. (PRESTIDGE BR,BICE WS, "CLINICAL OUTCOMES OF A PHASE II, MULTI-INSTITUTIONAL CESIUM-131 PERMANENT PROSTATE BRACHYTHERAPY TRIAL". Brachytherapy, VOLUME 6, ISSUE 2, APRIL-June 2007, Page 78). 2. GLAND COVERAGE WAS EXCELLENT AND THE DOSE DELIVERED TO CRITICAL STRUCTURES OUTSIDE THE PROSTATE WAS WELL WITHIN ACCEPTABLE LIMITS. (BICE WS, PRESTIDGEBR, "Cesium-131 permanent prostate brachytherapy: The dosimetric analysis of a multi-institutional Phase II trial". Brachytherapy 2007(6); 88-89.). 3. AN ABSTRACT DETAILING THE OUTCOMES OF THE 100 PATIENT MULTI-INSTITUTIONAL CESIUM-131 STUDY WAS PREPARED FOR THE 32nd ANNUAL MEETING OF THEAMERICAN BRACHYTHERAPY SOCIETY (APRIL 2011), NOTABLY, THE PSA CONTROL RATE AT 5 YEARS WAS REPORTED AS 98%. NO OTHER STUDY OF BRACHYTHERAPY UTILIZING THEcompeting isotopes Iodine-125 and Palladium-103 has reported five year rates as high as 98%. THE RESOLUTION OF URINARY SIDE EFFECTS ADVANTAGE OF COMPANY’S PROXCELAN CESIUM-131 PRODUCT AS PICTURED IN THE GRAPHIC BELOW HAS BEEN OBSERVED IN A SECONDSTUDY, PRESENTED AT THE 2013 ANNUAL MEETING OF THE AMERICAN BRACHYTHERAPY SOCIETY (SHAH AB, SHAH AA, FORTIER GA. A COMPARISON OF AUA SYMPTOM SCORESfollowing permanent low dose rate prostate brachytherapy with iodine-125 and cesium-131. Brachytherapy 2013 12(Suppl. 1)S64). 8 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AS SEEN IN THE PLOT OF THESE AUA SCORES, THE DURATION OF AN ELEVATED SIDE EFFECT (AUA) SCORE PROFILE RESOLVED TO PRE-TREATMENT LEVELS MORE QUICKLY WITH THECESIUM-131 GROUP THAN WITH THE IODINE-125 GROUP. ALL PATIENTS WERE TREATED AT THE SAME INSTITUTION BY THE SAME PHYSICIANS, AND THE DIFFERENCE IN THE TIME TOresolution was considered significant. Non-Prostate Product Offerings Brain Cancer Treatment Options AN ESTIMATED 22,850 NEW CASES OF MALIGNANT PRIMARY TUMORS OF THE BRAIN OR SPINAL CORD ARE EXPECTED IN 2015. ABOUT 15,320 PEOPLE ARE EXPECTED TO DIE FROMBRAIN AND SPINAL CORD TUMORS IN 2015 AND OVERALL A PERSON HAS A LESS THAN 1% CHANCE OF DEVELOPING A MALIGNANT TUMOR. THE CHANCE THAT A MAN WILL DEVELOP AMALIGNANT TUMOR OF THE BRAIN OR SPINAL CORD IS ABOUT 1 IN 140 AND FOR A WOMAN IS 1 IN 180. THESE NUMBERS WOULD BE MUCH HIGHER IF BENIGN TUMORS WERE ALSOincluded. (American Cancer Society, 2015). MOST BRAIN AND SPINAL CORD TUMORS ARE DIFFICULT TO TREAT AND REQUIRE SEVERAL SPECIALISTS. THE MOST COMMON FORMS OF TREATMENT ARE RESECTION AT SURGERY(CRANIOTOMY); RADIATION THERAPY WHICH MAY INCLUDE EXTERNAL BEAM RADIATION THERAPY (EBRT), THREE-DIMENSIONAL CONFORMAL RADIATION THERAPY (3D-CRT),INTENSITY MODULATED RADIATION THERAPY (IMRT), CONFORMAL PROTON BEAM RADIATION THERAPY, STEREOTACTIC RADIOSURGERY, AND BRACHYTHERAPY; CHEMOTHERAPY;targeted therapy; other types of drugs (including corticosteroids and anti-seizure drugs); or a combination of therapies. (American Cancer Society, 2015) THE TREATMENT OF BRAIN CANCER WITH CESIUM-131 NOW HAS SEVERAL DELIVERY METHODS, INCLUDING THE USE OF BIOABSORBABLE MESH TO APPLY THE PROXCELAN® CESIUM-131 BRACHYTHERAPY SEEDS WHICH GENERALLY DISSOLVES AFTER ABOUT 45 DAYS. CESIUM-131 DELIVERS 90% OF ITS DOSE IN 33 DAYS AND IS THEREFORE WELL-SUITED TO USEwith bioabsorbable mesh, SINGLE SEED APPLICATIONS, IMPLANTABLE STRANDS, AND BY IMPLANTABLE DEVICE, INCLUDING THE GLIASITE® RTS (WHICH NOW USES IOTREX®, AFORM OF LIQUID IODINE 125, AND CESITREX™, A FORM OF LIQUID CESIUM-131), THE WORLD’S ONLY LIQUID RADIATION BALLOON CATHETER DEVICE USED IN THE TREATMENT OFbrain cancer. During the year ended June 30, 2015, there were sixty-six patients treated with Company products for brain cancer. Lung Cancer Treatment Options AN ESTIMATED 221,200 NEW CASES OF LUNG CANCER ARE EXPECTED IN 2015, ACCOUNTING FOR 13% OF ALL CANCER DIAGNOSES IN THE UNITED STATES. APPROXIMATELY 27% OFALL CANCER DEATHS ARE FROM LUNG CANCER AND IT ACCOUNTS FOR THE MOST CANCER RELATED DEATHS IN BOTH MEN AND WOMEN IN THE UNITED STATES. AN ESTIMATED 158,040DEATHS WILL RESULT FROM LUNG CANCER IN 2015. APPROXIMATELY 2 OF 3 PEOPLE DIAGNOSED WITH LUNG CANCER WILL BE OLDER THAN 65 AND FEWER THAN 2% WILL BEYOUNGER THAN 45 YEARS OLD. OVERALL, THE CHANCE OF DEVELOPING LUNG CANCER IS 1 IN 13 FOR A WOMAN AND 1 IN 16 FOR A MAN (COMBINED FOR BOTH SMOKERS AND NON-smokers). Naturally, the risk for smokers is much higher and for non-smokers the risk is lower. (American Cancer Society 2015) 9 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. LUNG CANCER HAS HISTORICALLY BEEN TREATED UTILIZING SURGERY, RADIOFREQUENCY ABLATION (RFA), RADIATION THERAPY, OTHER LOCAL TREATMENTS, CHEMOTHERAPY ANDTARGETED THERAPY INCLUDING LDR BRACHYTHERAPY. MORE THAN ONE KIND OF TREATMENT MAY BE USED, DEPENDING ON THE STAGE OF THE PATIENT'S CANCER AND OTHERfactors. (American Cancer Society, 2015) THE COMPANY BELIEVES THAT CESIUM-131, WITH ITS SHORTER HALF-LIFE (FASTER RATE OF DECAY) AND RELATIVELY HIGH ENERGY, IS BETTER SUITED FOR TREATING LUNG CANCER INSTAGES I AND II THAN I-125. THE BIOABSORBABLE MESH USED IN THIS PROCEDURE TO APPLY THE PROXCELAN® CESIUM-131 BRACHYTHERAPY SEEDS GENERALLY DISSOLVES AFTERABOUT 45 DAYS. CESIUM-131 DELIVERS 90% OF ITS DOSE IN 33 DAYS AND IS THEREFORE WELL-SUITED TO USE WITH BIOABSORBABLE MESH. A REPORT WAS PUBLISHED INNOVEMBER 2011 DESCRIBING THE MORE TECHNICAL DETAILS APPLICABLE TO CESIUM-131 IMPLANTS (PARASHAR B, ET AL. CESIUM-131 PERMANENT SEED BRACHYTHERAPY:Dosimetric Evaluation and Radiation Exposure to Surgeons, Radiation Oncology, and Staff. Brachytherapy 10(6):508-513, 2011). IN APRIL 2012, THE COMPANY INITIATED A 100 PATIENT STUDY OF CESIUM-131 BRACHYTHERAPY IN THE TREATMENT OF EARLY STAGE NON-SMALL CELL LUNG CANCER (NSCLC).IN THIS STUDY, PATIENTS WHO ARE POOR CANDIDATES FOR LARGE SURGICAL RESECTIONS UNDERGO A LIMITED (SUB-LOBAR) RESECTION FOLLOWED BY CESIUM-131 MESHBRACHYTHERAPY. THIS STUDY IS BASED UPON STRONG EVIDENCE COLLECTED TO DATE SUGGESTING THAT IODINE-125 MESH IMPLANTS UTILIZED IN A SIMILAR WAY ASSIST THELIMITED SURGICAL RESECTION IN ACHIEVING HIGH RATES OF LOCAL CANCER CONTROL. (SEE COLONIAS, ET AL. MATURE FOLLOW-UP FOR HIGH RISK STAGE I NON-SMALL CELL LUNGCARCINOMA TREATED WITH SUB-LOBAR RESECTION AND INTRA-OPERATIVE IODINE-125 BRACHYTHERAPY. INTERNATIONAL JOURNAL OF RADIATION ONCOLOGY BIOLOGY PHYSICS2011, 79(1), 105.) AS OF JUNE 30, 2015, EIGHTY-NINE PATIENTS WERE ENROLLED IN THE STUDY. DURING THE YEAR ENDED JUNE 30, 2015, THERE WERE EIGHTEEN PATIENTStreated with Company products for lung cancer. Head and Neck Cancer Treatment Options An estimated 56,480 new cases of head and neck cancer are expected to be diagnosed in the United States in 2015. (American Cancer Society, 2015) SURGERY IS THE MOST COMMON OPTION TO TREAT HEAD AND NECK CANCERS. CHEMOTHERAPY IS OFTEN USED IN CONJUNCTION WITH SURGERY OR RADIATION THERAPY DEPENDINGON THE TYPE AND STAGE OF THE CANCER. EXTERNAL BEAM RADIATION THERAPY AND BRACHYTHERAPY HAVE BEEN USED TOGETHER OR IN COMBINATION WITH SURGERY ORchemotherapy. (American Cancer Society, 2015) MANAGEMENT BELIEVES PROXCELAN® CESIUM-131 CONTINUES TO REPRESENT AN IMPROVED APPROACH TO BRACHYTHERAPY TREATMENT OF SPECIFIC HEAD AND NECK CANCERS.During the year ended June 30, 2015, there were seven patients that were treated with Company products for head and neck cancers. Gynecological Cancer Treatment Options (Vaginal and Vulvar Cancer) AN ESTIMATED 22,120 NEW CASES OF CERVICAL (12,900), VAGINAL (4,070) AND VULVAR (5,150) CANCERS ARE EXPECTED TO BE DIAGNOSED IN THE UNITED STATES IN 2015.(AMERICAN CANCER SOCIETY, 2015). IN ADDITION TO BRACHYTHERAPY TO TREAT GYNECOLOGICAL CANCERS SUCH AS CERVICAL, VAGINAL AND VULVAR CANCERS, OTHER TREATMENToptions include surgery, laser surgery, radiation therapy, chemotherapy, and topical treatments. (American Cancer Society, 2015) During the year ended June 30, 2015, there were eight patients treated with Company products for gynecological cancers. Colorectal Treatment Options AN ESTIMATED 132,700 NEW CASES OF COLORECTAL CANCER ARE EXPECTED IN THE UNITED STATES IN 2015 (AMERICAN CANCER SOCIETY, 2015). COLORECTAL CANCER HAShistorically been treated using surgery, radiation therapy, chemotherapy, immunotherapy and other targeted therapies. (American Cancer Society, 2015) 10 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FOR THE TREATMENT OF EARLY STAGE COLON AND RECTAL CANCERS, SURGERY IS OFTEN THE MAIN TREATMENT. FOR THE TREATMENT OF COLORECTAL CANCERS BEYOND EARLY STAGE, OTHERsurgery treatments, radiation therapy, chemotherapy, and targeted therapies can be used. (American Cancer Society, 2015) LOW-DOSE RATE (LDR) BRACHYTHERAPY, INCLUDING PROXCELAN® CESIUM-131, IS TYPICALLY UTILIZED IN TREATING INDIVIDUALS WITH RECTAL CANCER WHO ARE NOT HEALTHYENOUGH TO TOLERATE CURATIVE SURGERY. THIS IS GENERALLY A ONE-TIME ONLY PROCEDURE AND DOES NOT REQUIRE ONGOING VISITS AS IS COMMON WITH OTHER TYPES OFRADIATION THERAPY. MANAGEMENT BELIEVES THAT THE ADVANTAGES PROVIDED BY CESIUM-131 SHOWN THROUGH THE TREATMENT OF OTHER CANCERS WILL BENEFIT PATIENTSUTILIZING PROXCELAN® CESIUM-131 BRACHYTHERAPY SEEDS IN THE TREATMENT OF THEIR COLORECTAL CANCERS WITH LOW-DOSE RATE BRACHYTHERAPY. THE TREATMENT OFCOLORECTAL CANCER IS AN ADDITIONAL NON-PROSTATE APPLICATION OF THE COMPANY’S PRODUCT WHICH BY ITSELF IS NOT A SIGNIFICANT PORTION OF THE COMPANY’S BUSINESS.However, when aggregated with the other non-prostate applications, it contributes to the overall growth in the Company’s non-prostate applications. Ocular Melanoma Treatment Options THE AMERICAN CANCER SOCIETY ESTIMATES THAT 2,580 NEW CASES OF CANCERS OF THE EYE AND ORBIT (PRIMARILY MELANOMA) WILL BE DIAGNOSED IN 2015 (AMERICANCANCER SOCIETY, 2015). IN ADDITION TO BRACHYTHERAPY TO TREAT OCULAR MELANOMA, OTHER TREATMENT OPTIONS INCLUDE SURGERY, EXTERNAL BEAM RADIATION,chemotherapy, and laser therapy. BRACHYTHERAPY HAS BECOME THE MOST COMMONLY USED RADIATION TREATMENT FOR MOST EYE MELANOMAS. STUDIES HAVE SHOWN THAT IN MANY CASES IT IS AS EFFECTIVE ASsurgery (enucleation). Brachytherapy using Cesium-131, I-125, or Pd-103 is done by placing the seeds in a plaque (shaped like a small cap) that is attached toTHE EYEBALL WITH MINUTE STITCHES IN A PROCEDURE THAT LASTS 1 TO 2 HOURS AND IS USUALLY KEPT IN PLACE FOR 4 TO 7 DAYS. THE PATIENT GENERALLY STAYS IN THE HOSPITALUNTIL THE PLAQUE IS REMOVED FROM THE EYE DURING A PROCEDURE THAT TAKES LESS THAN 1 HOUR. BRACHYTHERAPY CURES APPROXIMATELY 9 OUT OF 10 SMALL TUMORS AND CANpreserve the vision of some patients. (American Cancer Society, 2014) Management believes that while Cesium-131 provides the best treatment alternative, itIS AT A DISADVANTAGE TO I-125 OR PD-103 AS A RESULT OF CS-131'S SHORT HALF-LIFE, WHICH REQUIRES IT TO BE ORDERED AND MANUFACTURED FOR EACH PROCEDURE AND UNABLETO BE INVENTORIED. MOST PATIENTS ARE UNWILLING TO WAIT FOR IT TO BE ORDERED WHEN THE OTHER PRODUCTS ARE OFTEN AVAILABLE IMMEDIATELY. THE TREATMENT OF OCULARMELANOMA WAS THE FIRST OPPORTUNITY FOR THE COMPANY TO UTILIZE THE CS-131 BRACHYTHERAPY SEED IN A TREATMENT OTHER THAN A PROSTATE APPLICATION BUT DOES NOTcomprise a significant portion of the Company’s business. Financial Information About Segments THE COMPANY HAS DETERMINED THAT IT OPERATES IN ONLY ONE SEGMENT, AS IT ONLY REPORTS PROFIT AND LOSS INFORMATION ON AN AGGREGATE BASIS TO ITS CHIEF OPERATINGdecision maker. Financial Information About Geographic Areas ALL OF THE LONG-LIVED ASSETS ARE LOCATED IN THE UNITED STATES. REVENUE BY GEOGRAPHIC REGION IS BASED ON THE SHIPPING ADDRESSES OF THE COMPANY'S CUSTOMERS.The following summarizes revenue by geographic region: For the year ended June 30, 2015 2014 2013 United States 99.57% 96.88% 98.20%Europe 0.13% 3.06% 1.80%Russia 0.14% 0.00% 0.00%South America 0.16% 0.07% 0.00%Total 100.00% 100.00% 100.00% Our Strategy The key elements of IsoRay's strategy for fiscal year 2016 include: Continue to introduce the Proxcelan® Cesium-131 brachytherapy seed into the U.S. market for prostate cancer. PROSTATE CANCER TREATMENT REPRESENTS THEORIGINAL AND CORE BUSINESS FOR THE COMPANY'S PROXCELAN® CESIUM-131 PRODUCT. WITH FIVE YEAR DATA RELATING TO BIOCHEMICAL (PSA) CONTROL OF PROSTATE CANCERnow presented to the prostate cancer field, IsoRay intends to continue to seek to increase the number of centers using Proxcelan® through its direct sales forceAND THROUGH ITS INTERNATIONAL DISTRIBUTORS. BECAUSE INTERMEDIATE- TO LONG-TERM FOLLOW-UP DATA IS REQUIRED TO CONVINCE CLINICIANS AND PATIENTS TO CONSIDER ANYPARTICULAR THERAPY FOR LOCALIZED PROSTATE CANCER, THE AVAILABILITY OF FIVE-YEAR DATA WITH PROXCELAN® IN THE TREATMENT OF PROSTATE CANCER REPRESENTS A SIGNIFICANTMILESTONE. ISORAY HOPES TO CAPTURE MUCH OF THE INCREMENTAL MARKET GROWTH IF AND WHEN SEED IMPLANT BRACHYTHERAPY RECOVERS MARKET SHARE FROM OTHERtreatments, take market share from existing competitors, and expand the use of Cesium-131 as a dual therapy option where it has experienced success. 11 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Improve distribution of the GliaSite® RTS in the United States and European Union (EU). IN JUNE OF 2010, THE COMPANY ACQUIRED EXCLUSIVE WORLDWIDEdistribution rights to the GliaSite® RTS, THE ONLY FDA-CLEARED BALLOON CATHETER DEVICE USED IN THE TREATMENT OF BRAIN CANCER, FROM HOLOGIC INC. THE COMPANYRECEIVED A CE MARK IN MAY 2012 ALLOWING DISTRIBUTION IN 31 COUNTRIES. THE COMPANY DISTRIBUTES THE PRODUCT USING A GERMAN DISTRIBUTOR TO GERMANY (THELOCATION OF THE FIRST EUROPEAN SALE IN JULY 2012) AND OTHER EUROPEAN NATIONS. To date, FIFTEEN CASES IN EUROPE AND THIRTEEN CASES IN THE U.S. HAVE BEEN TREATEDwith GliaSite® RTS SOLD BY THE COMPANY DIRECTLY OR THROUGH A DISTRIBUTOR. IN FISCAL 2014, THE COMPANY ENTERED INTO AN INTERNATIONAL DISTRIBUTION AGREEMENTWITH AN INDEPENDENT DISTRIBUTOR IN RUSSIA. ADDITIONALLY IN FISCAL YEAR 2014, THE COMPANY ANNOUNCED THAT GREEK GOVERNMENTAL APPROVAL WAS OBTAINED FOR ITSENTIRE PRODUCT LINE. THE GREEK DISTRIBUTORSHIP WAS TERMINATED IN 2015 WHEN SALES FAILED TO MATERIALIZE. THE COMPANY PLANS TO CONTACT PREVIOUS USERS OF THEPRODUCT AND LEVERAGE SIGNIFICANT EXISTING CLINICAL DATA RELATED TO THE SAFETY AND EFFECTIVENESS OF THE GLIASITE® RTS IN ORDER TO RESTORE THE GLIASITE® RTS AS Astrong treatment option for patients suffering from primary and metastatic brain cancers. Increase utilization of Cesium-131 in treatment of other solid tumor applications such as lung, brain, head and neck, and colorectal cancers. IsoRayMEDICAL HAS CLEARANCE FROM THE FDA FOR ITS PREMARKET NOTIFICATION (510(K)) FOR PROXCELAN® BRACHYTHERAPY SEEDS THAT ARE PRELOADED INTO BIOABSORBABLE BRAIDEDSUTURES AND BIOABSORBABLE BRAIDED SUTURES ATTACHED TO BIOABSORBABLE MESH. THIS FDA CLEARANCE ALLOWED COMMERCIAL DISTRIBUTION FOR TREATMENT OF LUNG ANDHEAD AND NECK TUMORS AS WELL AS TUMORS IN OTHER ORGANS. ISORAY HAS SUCCESSFULLY LAUNCHED AN INITIATIVE TO MARKET ITS PROXCELAN® SOURCE IN BIOABSORBABLECARRIER MATERIAL AS A LUNG CANCER TREATMENT. IT HAS BEGUN SELLING ITS LUNG CANCER TREATMENT PRODUCT BUT HAS NOT BEEN IN THE MARKET LONG ENOUGH TO DETERMINELONG-TERM SUCCESS OF THE PRODUCT. THE COMPANY CONTINUES TO SELL PRODUCT TO PHYSICIANS TREATING LUNG CANCER WHILE CONTINUING TO COMPILE TREATMENT OUTCOMESFOR PUBLICATION. ISORAY WILL CONTINUE TO EXPLORE LICENSES OR JOINT VENTURES WITH OTHER COMPANIES TO DEVELOP THE APPROPRIATE TECHNOLOGIES AND THERAPEUTICdelivery systems for treatment of other solid tumors. EARLY CLINICAL DATA SUPPORT MANAGEMENT’S INITIATIVES INTO BRAIN CANCERS AND EARLY STAGE NON-SMALL CELL LUNG CANCERS. LOCAL CONTROL – DEFINED AS SUCCESS INpreventing the re-growth of cancer in the immediate vicinity of the treatment area – has been excellent to date. Support clinical research and sustained product development. THE PUBLICATION AND PRESENTATION OF SPECULATIVE AND REAL-WORLD DATA CONTRIBUTE TO THEACCEPTABILITY OF CESIUM-131 IN THE ONCOLOGIC MARKETPLACE, AND DISCUSSION IN THE MEDICO-SCIENTIFIC COMMUNITY OF ESTABLISHED AND NOVEL CESIUM-131APPLICATIONS IS CONSIDERED A PREREQUISITE TO EXPANSION INTO UNTAPPED MARKETS. THE COMPANY STRUCTURES AND SUPPORTS CLINICAL STUDIES ON THE THERAPEUTICBENEFITS OF CESIUM-131 FOR THE TREATMENT OF SOLID TUMORS AND OTHER PATIENT BENEFITS. WE ARE AND WILL CONTINUE TO SUPPORT CLINICAL STUDIES WITH SEVERAL LEADINGRADIATION ONCOLOGISTS TO CLINICALLY DOCUMENT PATIENT OUTCOMES, PROVIDE SUPPORT FOR OUR PRODUCT CLAIMS, AND COMPARE THE PERFORMANCE OF OUR SEEDS TOCOMPETING SEEDS. ISORAY PLANS TO SUSTAIN LONG-TERM GROWTH BY IMPLEMENTING RESEARCH AND DEVELOPMENT PROGRAMS WITH LEADING MEDICAL INSTITUTIONS IN THEU.S. AND OTHER COUNTRIES TO IDENTIFY AND DEVELOP OTHER APPLICATIONS FOR ISORAY'S CORE RADIOISOTOPE TECHNOLOGY. THE COMPANY HAS DEPLOYED A SECURE,regulatory environment compliant, online information system capable of large usable databases to participating investigators. OVER FISCAL YEAR 2015, FOUR PRESENTATIONS WERE ACCEPTED BY AND PRESENTED AT THE ANNUAL MEETING OF THE AMERICAN BRACHYTHERAPY SOCIETY DESCRIBING CESIUM-131 TREATMENT OF PROSTATE AND OCULAR CANCERS. FIVE PRESENTATIONS WERE ACCEPTED BY AND PRESENTED AT THE ANNUAL MEETING OF THE AMERICAN SOCIETY FOR RADIATIONONCOLOGY (ASTRO). THE COMPANY WILL CONTINUE TO SEEK TO INCREASE THE NUMBER OF REPORTS MADE TO SOCIETY MEETINGS AND THE PEER REVIEWED LITERATURE IN ORDERto seek to enhance the standing of its products in the scientific community. Maintain ISO 13485:2003 certification. IN AUGUST 2008, THE COMPANY OBTAINED ITS INITIAL ISO 13485:2003 CERTIFICATION. THIS PERMITTED THE COMPANY TOREGISTER ITS PRODUCTS IN EUROPE IN 2008 AND IN CANADA AND RUSSIA DURING FISCAL YEAR 2009. THE ISO 13485:2003 CERTIFICATION DEMONSTRATES THAT THE COMPANYIS IN COMPLIANCE WITH THIS INTERNATIONALLY RECOGNIZED QUALITY STANDARD AND THE INITIAL CERTIFICATION WAS VALID FOR A THREE YEAR PERIOD. IN JUNE 2012, THECompany received a recertification to ISO 13485:2003 for an additional three year period, which was affirmed through a surveillance audit in June 2013. 12 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN MAY 2015, ISORAY COMPLETED AN ANNUAL ISO13485:2003 AUDIT FROM BSI (BRITISH STANDARDS INSTITUTION) WITH NO NONCONFORMITIES. THE COMPANY IS SUBJECTTO A RECERTFICATION AUDIT EVERY THREE YEARS, TWO ANNUAL MAINTENANCE AUDITS AND ONE ADDITIONAL UNANNOUNCED AUDIT DURING EACH THREE YEAR PERIOD FOR A TOTAL OFFOUR AUDITS DURING EACH THREE YEAR PERIOD. THE SUCCESSFUL AUDIT CONFIRMS THE COMPANY’S SUCCESS IN MEETING THE STANDARDS OF MANUFACTURING AND QUALITYsystems required for the Company to continue to market its products in Canada and Europe. Products Proxcelan® Cesium-131 ISORAY MARKETS THE PROXCELAN® Cesium-131 BRACHYTHERAPY SEED FOR THE TREATMENT OF PROSTATE CANCER; BRAIN CANCER; LUNG CANCER; HEAD AND NECK CANCERS;GYNECOLOGICAL CANCER: PELVIC/ABDOMINAL CANCER; COLORECTAL CANCER, AND OCULAR MELANOMA. THE COMPANY INTENDS TO MARKET CESIUM-131 FOR THE TREATMENT OFOTHER MALIGNANT DISEASES AS OPPORTUNITIES ARE IDENTIFIED IN THE FUTURE THROUGH THE USE OF EXISTING PROVEN TECHNOLOGIES THAT HAVE RECEIVED FDA-CLEARANCE. THESTRATEGY OF UTILIZING EXISTING FDA-CLEARED TECHNOLOGIES REDUCES THE TIME AND COST REQUIRED TO DEVELOP NEW APPLICATIONS OF CESIUM-131 AND DELIVER THEM TOmarket. Cesium-131 Manufacturing Process and Suppliers Product Overview CESIUM-131 IS A RADIOACTIVE ISOTOPE THAT CAN BE PRODUCED BY THE NEUTRON BOMBARDMENT OF BARIUM-130 (BA-130). TO PRODUCE THE PROXCELAN® SEED, THEPURIFIED CESIUM-131 ISOTOPE IS ADSORBED ONTO A CERAMIC CORE CONTAINING A GOLD X-RAY MARKER. THIS INTERNAL CORE ASSEMBLY IS SUBSEQUENTLY INSERTED INTO Atitanium capsule that is then welded shut and becomes a sealed radioactive source and a biocompatible medical device. Isotope Suppliers THE COMPANY HAS IDENTIFIED KEY REACTOR FACILITIES IN THE U.S. AND RUSSIA THAT ARE CAPABLE OF MEETING THE SPECIFIC REQUIREMENTS OF CESIUM-131 PRODUCTION. ONJUNE 23, 2014, AND AGAIN ON JANUARY 12, 2015, MEDICAL ENTERED INTO A SUPPLY CONTRACT (THE INM AGREEMENT) WITH THE OPEN JOINT STOCK COMPANY, INSTITUTE OFTHE NUCLEAR MATERIALS, A RUSSIAN COMPANY (JSC INM). WITH THE CURRENT INM AGREEMENT, MEDICAL CAN PURCHASE CESIUM-131 FROM THE INSTITUTE OF NUCLEARMaterials within the quality standards and within the time periods specified, through January 31, 2016. THE COMPANY ALSO RECEIVES IRRADIATED BARIUM FROM THE MURR REACTOR LOCATED IN THE UNITED STATES. FOR THE FISCAL YEAR ENDED JUNE 30, 2015, APPROXIMATELYEIGHTY-THREE PERCENT (83%) OF OUR CESIUM-131 WAS SUPPLIED BY OUR RUSSIAN SUPPLIER AND APPROXIMATELY SEVENTEEN PERCENT (17%) OF CESIUM-131 WASGENERATED BY THE IRRADIATED BARIUM FROM MURR. THE COMPANY HAS DEMONSTRATED THE CAPABILITY TO EXPAND CESIUM-131 MANUFACTURING CAPABILITY AT THEMURR REACTOR IN A COST EFFECTIVE MANNER TO MEET THE CURRENT NEEDS OF THE COMPANY, HOWEVER, THE COMPANY INTENDS TO CONTINUE TO OBTAIN CESIUM-131 FROMits foreign supplier to mitigate the risk of reliance on a single source. IN THE PAST, MANAGEMENT BELIEVED THAT FAILURE TO OBTAIN DELIVERIES OF CESIUM-131 FROM ITS RUSSIAN SUPPLIER (JSC INM) WOULD HAVE A MATERIAL ADVERSE EFFECT ONSEED PRODUCTION. MANAGEMENT NOW BELIEVES THAT ITS EXISTING DOMESTIC SUPPLIER CAN MEET THE COMPANY'S ISOTOPE REQUIREMENTS FOR THE NEAR FUTURE AND CANMITIGATE THE PERIODIC REQUIRED SHUTDOWNS AT THE FOREIGN FACILITY. THE COMPANY ALSO HAS A STOCK OF ENRICHED BARIUM THAT COULD BE UTILIZED TO MEET ISOTOPErequirements. Quality Controls IN JULY 2008, ISORAY HAD ITS BASELINE INSPECTION BY THE FDA AT ITS MANUFACTURING AND ADMINISTRATIVE OFFICES IN RICHLAND, WA. THIS INSPECTION WAS CARRIED OUTOVER A FIVE DAY PERIOD DURING WHICH THE INVESTIGATOR PERFORMED A COMPLETE INSPECTION FOLLOWING QUALITY SYSTEMS INSPECTION TECHNIQUES (QSIT). AT THE END OFTHE INSPECTION, NO REPORT OF DEVIATIONS FROM GOOD MANUFACTURING PRACTICES OR LIST OF OBSERVATIONS (FDA FORM 483) WAS ISSUED TO ISORAY. AN ADDITIONALINSPECTION OF ISORAY WAS CONDUCTED BY FDA IN APRIL 2013. AGAIN THE FDA REPORTED NO DEVIATIONS FROM GOOD MANUFACTURING PRACTICES AND DID NOT LIST ANYobservations (FDA Form 483). 13 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN MAY 2015, ISORAY COMPLETED AN ANNUAL ISO13485:2003 AUDIT FROM BSI (BRITISH STANDARDS INSTITUTION) WITH NO NONCONFORMITIES. THE COMPANY IS SUBJECTTO A RECERTFICATION AUDIT EVERY THREE YEARS, TWO ANNUAL MAINTENANCE AUDITS AND ONE ADDITIONAL UNANNOUNCED AUDIT DURING EACH THREE YEAR PERIOD FOR A TOTAL OFFOUR AUDITS DURING EACH THREE YEAR PERIOD. THE SUCCESSFUL AUDIT CONFIRMS THE COMPANY’S SUCCESS IN MEETING THE STANDARDS OF MANUFACTURING AND QUALITYsystems required for the Company to continue to market its products in Canada and Europe. Order Processing THE COMPANY HAS IMPLEMENTED A JUST-IN-TIME PRODUCTION PROCESS THAT IS RESPONSIVE TO CUSTOMER INPUT AND ORDERS TO ENSURE THAT INDIVIDUAL CUSTOMERS RECEIVEA HIGHER LEVEL OF CUSTOMER SERVICE THAN RECEIVED FROM OUR COMPETITORS WHO HAVE THE LUXURY OF LONGER LEAD TIMES DUE TO LONGER HALF-LIFE PRODUCTS. TIME FROMORDER CONFIRMATION TO COMPLETION OF PRODUCT MANUFACTURE IS REDUCED TO SEVERAL WORKING DAYS, INCLUDING RECEIPT OF IRRADIATED BARIUM (FROM THE DOMESTICSUPPLIER'S REACTOR) OR UNPURIFIED CESIUM-131 (FROM THE INTERNATIONAL SUPPLIER'S REACTOR), SEPARATION AND PURIFICATION OF CESIUM-131, ISOTOPE LABELING OF THEcore, loading of cores into pre-welded titanium "cans" for final welding, testing, quality assurance and shipping. IT IS UP TO EACH PHYSICIAN TO DETERMINE THE DOSAGE NECESSARY FOR IMPLANTS AND ACCEPTABLE DOSAGES VARY AMONG PHYSICIANS. MANY OF THE PHYSICIANS ORDER MOREseeds than necessary to assure themselves that they have a sufficient quantity. Upon receipt of an order, the Company either delivers the seeds from its facilityDIRECTLY TO THE PHYSICIAN IN EITHER LOOSE OR PRELOADED FORM OR SENDS THE ORDER TO AN INDEPENDENT PRELOADING SERVICE THAT DELIVERS THE SEEDS PRELOADED INTONEEDLES OR CARTRIDGES JUST PRIOR TO IMPLANT. IF THE IMPLANT IS POSTPONED OR RESCHEDULED, THE SHORT HALF-LIFE OF THE SEEDS MAKES THEM UNSUITABLE FOR USE ANDtherefore they must be re-ordered. DUE TO THE LEAD TIME FOR OBTAINING AND PROCESSING THE CESIUM-131 ISOTOPE AND ITS SHORT HALF-LIFE, THE COMPANY RELIES ON SALES FORECASTS AND HISTORICALKNOWLEDGE TO ESTIMATE THE PROPER INVENTORY LEVELS OF ISOTOPE NEEDED TO FULFILL ALL CUSTOMER ORDERS. CONSEQUENTLY, SOME PORTION OF THE ISOTOPE IS LOST THROUGHDECAY AND IS NOT USED IN AN END PRODUCT. MANAGEMENT CONTINUES TO REDUCE THE VARIANCES BETWEEN ORDERED ISOTOPE AND ISOTOPE DELIVERIES AND IS CONTINUALLYIMPROVING ITS ORDERING PROCESS EFFICIENCIES. THE NON-PROSTATE APPLICATIONS HAVE RESULTED IN A GREATER LOSS OF ISOTOPE AS CANCELLATIONS ARE MORE FREQUENT DUE TOFACTORS BEYOND THE CONTROL OF THE PHYSICIANS. THESE CANCELLATIONS BOTH INCREASE THE COSTS OF THE COMPANY FOR SEEDS AND DECREASE THE REVENUE AS THESE SEEDS AREnot sold. Pre-loading Services IN ADDITION TO PROVIDING LOOSE SEEDS TO CUSTOMERS, MOST BRACHYTHERAPY MANUFACTURERS OFFER THEIR SEED PRODUCT TO THE END USER PACKAGED IN VARIOUSconfigurations provided in a sterile or non-sterile package depending on the customer's preference. These include: §Pre-loaded needles (loaded typically with three to five seeds and spacers)§Pre-loaded Mick™ cartridges (fits the Mick™ applicator)§Strands of seeds (consists of seeds and spacers in a bioabsorbable rigid "carrier sleeve")§Preloaded strands (strands of seeds loaded into a needle)§Pre-loaded braided strands (seeds loaded into a flexible bioabsorbable braided suture)§Pre-loaded braided strands attached to bioabsorbable mesh (creates planar implants out of braided sutures and bioabsorbable mesh) IN FISCAL YEAR 2015, THE COMPANY DELIVERED APPROXIMATELY 53% OF ITS PROXCELAN® SEEDS TO CUSTOMERS CONFIGURED IN MICK® CARTRIDGES, APPROXIMATELY 29% OFTHE PROXCELAN® SEEDS CONFIGURED IN STRANDED AND PRE-LOADED IN A NEEDLE FORM, 9% OF THE PROXCELAN® SEEDS CONFIGURED IN A BRAIDED STRAND FORM, 5% OF THEProxcelan® seeds sold in a loose configuration and the remaining 4% are configured in either a pre-loaded in a needle or stranded form. 14 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE ROLE OF THE PRE-LOADING SERVICE IS TO PACKAGE, ASSAY AND CERTIFY THE CONTENTS OF THE FINAL PRODUCT CONFIGURATION SHIPPED TO THE CUSTOMER. A COMMONLY USEDMETHOD OF PROVIDING THIS SERVICE IS THROUGH INDEPENDENT RADIOPHARMACIES. MANUFACTURERS SEND LOOSE SEEDS ALONG WITH THE PHYSICIAN'S INSTRUCTIONS TO THERADIOPHARMACY WHICH, IN TURN, LOADS NEEDLES AND/OR STRANDS THE SEEDS ACCORDING TO THE DOCTOR'S INSTRUCTIONS. THESE RADIOPHARMACIES THEN STERILIZE THE PRODUCTand certify the final packaging prior to shipping directly to the end user. AS OF JUNE 30, 2015, ISORAY HAD TWO ENTITIES THAT HANDLED RADIOPHARMACY SERVICES AT THE REQUEST OF CERTAIN INDIVIDUAL CUSTOMERS THAT WERE ABLE TO ASSAY,PRELOAD, AND STERILIZE LOOSE SEEDS. SHIPPING CS-131 BRACHYTHERAPY SEEDS TO INDEPENDENT RADIOPHARMACIES REQUIRES LOADING THE SEEDS WITH ADDITIONAL VOLUMEOF ISOTOPE ACTIVITY THAN WOULD BE REQUIRED IF THE SEEDS WERE TO BE PRELOADED UTILIZING OUR IN-HOUSE LOADING FACILITY, WHICH CAUSES THE COMPANY TO INCURadditional isotope cost to allow for the additional isotope decay created by the additional processing time. The Company pre-loaded 94% and 97% of the Cs-131 BRACHYTHERAPY SEEDS THAT IT SOLD TO CUSTOMERS DURING THE FISCAL YEARS ENDED JUNE 30, 2015 AND 2014, RESPECTIVELY. THE COMPANY ANTICIPATES CONTINUINGTO LOAD A SIGNIFICANT MAJORITY OF ITS CUSTOMER ORDERS DURING FISCAL YEAR 2016 UNLESS THERE IS A SPECIFIC CUSTOMER REQUIREMENT FOR WHICH THE COMPANY DOES NOThave the loading capability or capacity. INDEPENDENT RADIOPHARMACIES TRADITIONALLY PROVIDE THE FINAL PACKAGING OF THE PRODUCT DELIVERED TO THE END USER THEREBY ELIMINATING THE OPPORTUNITY FORREINFORCING THE "BRANDING" OF OUR SEED PRODUCT. BY PROVIDING OUR OWN REPACKAGING SERVICE, WE ARE ABLE TO PRESERVE THE PRODUCT BRANDING OPPORTUNITY, REDUCEISOTOPE DECAY LOSS, CONTROL OVERALL PRODUCT QUALITY AND ELIMINATE ANY CONCERNS RELATED TO THE HANDLING OF OUR PRODUCT BY A THIRD PARTY PRIOR TO RECEIPT BY THEend user. IN FISCAL YEAR 2012, ISORAY OBTAINED A CE MARK WHICH ALLOWS SHIPMENT OF SEEDS LOADED INTO FLEXIBLE BRAIDED STRANDS AND FLEXIBLE STRANDS ATTACHED TObioabsorbable mesh into the European Union. GliaSite® Radiation Therapy System ISORAY MARKETS THE GLIASITE® RTS FOR THE TREATMENT OF BRAIN CANCER, I.E. PRIMARY AND RECURRENT GLIOMAS AND METASTIC BRAIN TUMORS. SPECIFICALLY, THE INTENDEDUSE OF GLIASITE® RTS IS THE MANAGEMENT OF SURGICALLY RESECTABLE BRAIN TUMORS WHERE ADJUVANT RADIATION THERAPY OF THE POST-RESECTION TISSUE BED IS INDICATED.In August 2013, the Company successfully amended its CE mark on the GliaSite® RTS WHICH INCORPORATED FIVE CHANGES. THESE CHANGES INCLUDED A CHANGE INTHE STERILIZATION METHOD OF THE RIGHT ANGLE CLIP; A CHANGE IN THE PACKAGING OF THE RIGHT ANGLE CLIP; AN EXTENSION OF THE GLIASITE® RTS CATHETER TRAY EXPIRATIONdate to 3 years; the qualification of a second manufacturer of the Iotrex® solution and the extension of the shelf life of Iotrex® from 19 days to 30 days. Product Overview GliaSite® RTS is the only FDA cleared balloon catheter device used in the treatment of brain cancer. The main components included in the GliaSite® RTS arethe GliaSite® Catheter Tray, GliaSite® Access Tray, Iotrex® Solidifier and either Iotrex® or Cesitrex™ AS THE RADIOTHERAPY SOLUTION. THE CATHETER TRAY INCLUDESa GliaSite® RTS CATHETER, TWO NON-CORING NEEDLES, AND TWO RIGHT ANCHORING CLIPS. ON ONE END OF THE CATHETER SUBASSEMBLY IS A BALLOON DEVICE WHICH IS FILLEDWITH RADIOTHERAPY SOLUTION AND ON THE OTHER END IS AN INFUSION PORT WHICH IS ATTACHED TO THE SKULL AND PUNCTURED BY A NEEDLE TO GET THE SOLUTION TO THE BALLOONat the end of the catheter. Manufacturing Process and Key Suppliers A DUAL BALLOON CONFIGURATION IS USED TO ACT AS A PRIMARY AND SECONDARY RESERVOIR FOR THE RADIOTHERAPY SOLUTION WITHIN THE RESECTION CAVITY IN THE BRAIN. THEballoon catheter is manufactured by Vesta, Inc. and conforms to the applicable required IsoRay quality standards. THE INFUSION PORT CONSISTS OF A PORT BODY, RESERVOIR BASE, AND A SELF-SEALING SEPTUM. THE INFUSION PORT IS PRODUCED BY SMITH MEDICAL, A SUBSIDIARY OF SMITHSGroup plc., and conforms to the applicable required IsoRay quality standards. It is attached to the catheter subassembly and is bonded in place. THE RADIOTHERAPY SOLUTION IS INSERTED IN THE BALLOON CATHETER THROUGH THE INFUSION PORT USING A NEEDLE. IOTREX® IS ONE FORM OF THE RADIATION SOURCE USED WITHTHE GLIASITE® RTS CATHETER TO DELIVER THE INTRACRANIAL RADIATION THERAPY. THE KEY SUPPLIERS OF THE IOTREX® RADIOTHERAPY SOLUTION ARE ISO-TEX AND ANAZAO.ANOTHER RELATIVELY NEW RADIATION SOURCE TO DELIVER THE INTRACRANIAL RADIATION THERAPY IS LIQUID CESIUM-131 OR CESITREX™. Cesitrex™ WAS APPROVED FOR THE USEin the GliaSite® RTS CATHETER TO DELIVER THE INTRACRANIAL RADIATION THERAPY STARTING IN MAY 2014 WITH THE FIRST CASE USING CESITREX™ IN JUNE 2014. THE DOSAGEof the Cesitrex™ is dependent on the strength at implant and is made to order. 15 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. OTHER ACCESSORIES SOLD AND PACKAGED WITH THE GLIASITE® RTS CATHETER TRAYS INCLUDE ACCESS TRAYS AND SOLIDIFIER. THESE ACCESSORIES ASSIST IN THE DELIVERY OF BOTHCESITREX™ AND IOTREX® AND SUBSEQUENT REMOVAL AFTER COMPLETION OF THE RADIOTHERAPY TREATMENT. ALL ACCESSORIES ARE OBTAINED FROM DISTRIBUTORS AND AREsterilized and tested by the Company to ensure compliance with quality standards. FROM START TO FINISH, INCLUDING THE CREATION OF THE GLIASITE® RTS CATHETER SUBASSEMBLIES, THE MANUFACTURE OF THE DEVICE TAKES APPROXIMATELY 4 WEEKS. THECOMPANY MAINTAINS ON HAND A NUMBER OF SUBASSEMBLIES THAT REDUCE THE MANUFACTURE TIME TO 2 WEEKS, WHICH INCLUDES STERILIZATION OF THE FINAL PRODUCT. THESUBASSEMBLIES ARE MAINTAINED IN A CLEAN ROOM FACILITY AND ARE NOT DATED UNTIL THE ENTIRE GLIASITE® RTS MEDICAL DEVICE IS GAMMA STERILIZED. MANAGEMENTPERIODICALLY EVALUATES THE APPROPRIATE LOT SIZES IN WHICH TO MANUFACTURE THE GLIASITE® RTS PRODUCT TO ENSURE THAT STERILIZATION CAPACITY IS OPTIMIZED, ENOUGHproduct is on hand to meet customer needs, and to manage the risk of expired product utilizing historical information and sales forecasts. Order Processing THE COMPANY IMPLEMENTS A JUST-IN-TIME ORDER PROCESS FOR THE IOTREX® RADIOTHERAPY SOLUTION. THE IODINE-125 STOCK IS ORDERED BY THE COMPANY AND DROPSHIPPED TO ISO-TEX OR ANAZAO, THE COMPANY’S CONTRACTED MANUFACTURERS OF IOTREX®. THE IODINE-125 IS TESTED BY THE MANUFACTURER AND IF ACCEPTED, IS USED TOmanufacture the Iotrex® radiotherapy solution which has a 30 day shelf life once manufactured. Once manufacture is completed by Iso-Tex or Anazao, testingIS PERFORMED ON THE PRODUCT AND THE TEST RESULTS ARE SENT TO ISORAY ALONG WITH THE BATCH RECORD FOR REVIEW AND ACCEPTANCE. FACILITIES PERFORMING THE IMPLANTScan choose to receive the isotope in vials or the vials can be preloaded into dose-specific vials. DUE TO THE LEAD TIME FOR OBTAINING AND PROCESSING THE IODINE-125 BY ISO-TEX, THE COMPANY RELIES ON SALES FORECASTS AND HISTORICAL INFORMATION TO ESTIMATE THEPROPER INVENTORY LEVELS OF CATHETERS AS WELL AS IOTREX® GIVEN THE 1 YEAR AND 30 DAY SHELF LIFE, RESPECTIVELY. CONSEQUENTLY, SOME PORTIONS OF THE PRODUCTincluding the Iotrex® or the GliaSite® RTS device itself are lost through decay and are subsequently destroyed. SINCE MAY 2014, ANOTHER OPTION FOR THE RADIOTHERAPY SOLUTION IS THE LIQUID FORM OF CESIUM-131 OR CESITREX™, WHICH IS MANUFACTURED BY THE COMPANY.SIMILAR TO IOTREX®, THE COMPANY IMPLEMENTS A JUST-IN-TIME ORDER PROCESS AND PRODUCES THE CESITREX™ AT THE TIME AN ORDER IS PLACED AND IT CAN TAKE UP TO AWEEK TO MANUFACTURE AND DELIVER. CESITREX™ IS MANUFACTURED BY THE COMPANY IN ITS RICHLAND, WASHINGTON MANUFACTURING PLANT, THEN SHIPPED TO ANAZAO ASthe radiopharmacy which loads the isotope into a syringe and tests it prior to shipment to the end user. Consequently, some portion of the Cesitrex™ IS LOST TODECAY DURING THE PROCESS. THE COMPANY ENSURES THAT THE CUSTOMER RECEIVES THE DOSAGE SPECIFIED FOR THE PATIENT TREATMENT BY CALCULATING FOR THE DECAY DURINGshipping and processing at Anazao. Manufacturing Facility THE COMPANY MAINTAINS A PRODUCTION FACILITY LOCATED AT APPLIED PROCESS ENGINEERING LABORATORY (APEL) IN RICHLAND, WASHINGTON. THE APEL FACILITYBECAME OPERATIONAL IN SEPTEMBER 2007. THE PRODUCTION FACILITY HAS OVER 15,000 SQUARE FEET AND INCLUDES SPACE FOR ISOTOPE SEPARATION, SEED PRODUCTION, ORDERDISPENSING, A CLEAN ROOM FOR RADIOPHARMACY WORK, AND A DEDICATED SHIPPING AREA. A DESCRIPTION OF THE LEASE TERMS FOR THE APEL FACILITY IS LOCATED IN THECOMMITMENTS AND CONTINGENCIES NOTE INCLUDED IN ITEM 8 BELOW. MANAGEMENT HAS EXERCISED THE SECOND OF THREE THREE-YEAR RENEWAL OPTIONS TO EXTEND THEAPEL facility lease through April 2016. THE COMPANY HAS NEGOTIATED AND AGREED TO A SUBSEQUENT MODIFICATION TO THE LEASE MODIFICATION THAT IS AWAITING THE SIGNATURES OF BOTH PARTIES THAT PROVIDESmodifications to the requirement to return the facility to ground at the time of exit at Company discretion, exercises the additional three year term to April 30,2019 AND MODIFIES THE REQUIRED NOTICE TO TERMINATE EARLY FROM TWELVE MONTHS TO SIX MONTHS. THIS LEASE MODIFICATION PROVIDES THE FLEXIBILITY REQUIRED FOR THECOMPANY TO PLAN, DESIGN AND CONSTRUCT ITS OWN PRODUCTION FACILITY WHICH IS EXPECTED TO REDUCE OPERATIONAL CASHFLOW REQUIREMENTS AND PROVIDE FOR LONG-TERMsecurity of production capabilities for the Company. 16 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE COMPANY HAS REACHED AGREEMENT WITH THE OWNER OF A PROPERTY ADJACENT TO ITS LEASED FACILITY WITH THE EXPECTATION OF PLANNING, DESIGNING AND CONSTRUCTINGA NEW PRODUCTION FACILITY WHICH WILL ACCOMMODATE THE FACILITY REQUIREMENTS FOR PRODUCTION, LABORATORY, AND ADMINISTRATIVE OFFICES. THE NEW FACILITY ISanticipated to be a similar size to the current facility. The property also provides for additional future building as needed or subdivision, if required. Marketing and Sales Marketing Strategy ISORAY HAS CHOSEN TO IDENTIFY ITS PROPRIETARY CESIUM-131 SEED WITH THE “PROXCELAN®” BRAND AND ITS LIQUID CESIUM-131 WITH THE BRAND “CESITREX™”.Management is using these brands to differentiate Cesium-131 from competing isotopes. THE MARKET FOR TREATMENTS FOR LOCALIZED PROSTATE CANCER TREATMENT IS VERY COMPETITIVE AND LARGELY HINGES UPON THE DEMONSTRATION OF LONG TERM FOLLOW-UP DATATHAT HAS BEEN PRESENTED TO THE PROSTATE CANCER TREATMENT PROFESSION. THE FACT THAT PROXCELAN® CESIUM-131 WAS INTRODUCED TO THE PROSTATE CANCER MARKETPLACEMORE THAN A DECADE AFTER IODINE-125 AND PALLADIUM-103, AND THE RESULTING TIME FOR MATURE CLINICAL DATA TO BE DEVELOPED, HAS PROVEN AN OBSTACLE TO WIDESPREADMARKET ACCEPTANCE. THE TIME TO PUBLISH THESE RESULTS IS LENGTHY AND INCLUDES THE TIME TO ENROLL PATIENTS IN PROTOCOLS WHICH MAY TAKE MULTIPLE YEARS DEPENDINGON THE SIZE OF THE ENROLLMENT POPULATION; TIME TO AGGREGATE THE RESULTS AT FIVE YEARS FROM THE FINAL PATIENT TREATMENT; TIME TO ANALYZE THE DATA AND AUTHOR THEARTICLE FOLLOWED BY THE TIME FOR PEER REVIEW AND PUBLICATION IN A MEDICAL JOURNAL. THE TOTAL TIME FOR THIS PROCESS MAY APPROACH A DECADE IN LENGTH FROM START TOPUBLICATION. MANAGEMENT BELIEVES THAT THE IMPRESSIVE RESULTS ACHIEVED FOR TREATMENT WITH CESIUM-131 AT THE FIVE-YEAR MARK SHOULD CREATE FURTHER SCIENTIFICSUPPORT FOR CESIUM-131 AS AN ATTRACTIVE TREATMENT FOR LOCALIZED PROSTATE CANCER, OVERCOMING AT LEAST SOME OF THE INITIAL RESISTANCE PREDICATED ON THE LACK OFlong-term follow-up reports. The data that was published in fiscal year 2015 is discussed in the section titled Industry Information, Prostate Cancer Treatment,“Comparing Cesium-131 to I-125 and Pd-103 Clinical Results”. THE PROFESSIONAL AND PATIENT MARKET SEGMENTS EACH PLAY A ROLE IN THE ULTIMATE CHOICE OF CANCER TREATMENT AND THE SPECIFIC ISOTOPE CHOSEN FOR SEEDbrachytherapy treatment. The Company has developed a customized brand message for each audience. The Company's website (www.isoray.com) delivers theMESSAGE THAT CESIUM-131 IS FOR THE TREATMENT OF CANCERS THROUGHOUT THE BODY. ISORAY ALSO MAINTAINS PRINT AND VISUAL MEDIA (INCLUDING PHYSICIAN BROCHURESDISCUSSING THE CLINICAL ADVANTAGES OF CESIUM-131, CLINICAL INFORMATION BINDERS, INFORMATIONAL DVDS, SINGLE SHEET GLOSSIES WITH TARGETED CLINICAL DATA, ETC.),and advertisements in leading medical journals. In addition, the Company attends national professional meetings, including the following: §American Brachytherapy Society (ABS);§American Society for Therapeutic Radiation and Oncology (ASTRO);§Association of American Physicists in Medicine (AAPM);§Society for Neuro-Oncology (SNO);§American Association of Neurological Surgeons (AANS);§American Association for Thoracic Surgery (STS);§various local chapter meetings. THE COMPANY ALSO CONTINUES TO CONSULT WITH NOTED CONTRIBUTORS FROM THE MEDICAL PHYSICS COMMUNITY AND EXPECTS ARTICLES FOR PROFESSIONAL JOURNALS REGARDINGthe benefits of and clinical trials involving Cesium-131 will continue to be submitted. IN ADDITION, THE COMPANY CONTINUES TO PROMOTE THE CLINICAL FINDINGS OF THE VARIOUS PROTOCOLS THROUGH PRESENTATIONS BY RESPECTED THOUGHT LEADERS. THECompany will continually review and update all marketing materials as more clinical information is gathered from the protocols and studies. APART FROM CLINICAL STUDIES AND PAPERS SPONSORED BY THE COMPANY, SEVERAL PHYSICIANS ACROSS THE COUNTRY HAVE INDEPENDENTLY PUBLISHED PAPERS AND STUDIES ONthe benefits of Cesium-131. IN TODAY'S U.S. HEALTH CARE MARKET, PATIENTS ARE MORE INFORMED AND INVOLVED IN THE MANAGEMENT OF THEIR HEALTH THAN IN THE PAST. MANY PHYSICIANS RELATEINCIDENTS OF THEIR PATIENTS COMING FOR CONSULTATIONS ARMED WITH ARTICLES RESEARCHED ON THE INTERNET AND OTHER SOURCES DESCRIBING NEW TREATMENTS ANDmedications. In many cases, these patients are demanding a certain therapy or drug and the physicians are complying when medically appropriate. 17 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. BECAUSE OF THIS CONSUMER-DRIVEN MARKET FACTOR, WE ALSO PROMOTE OUR PRODUCTS DIRECTLY TO THE GENERAL PUBLIC. WE TARGET THE PROSTATE CANCER PATIENT, HIS SPOUSE,FAMILY AND CARE GIVERS. WE EMPHASIZE TO THESE SEGMENTS THE SPECIFIC ADVANTAGES OF THE PROXCELAN® CESIUM-131 BRACHYTHERAPY SEED THROUGH OUR WEBSITES(LOCATED AT WWW.ISORAY.COM AND WWW.PROXCELAN.COM), PATIENT ADVOCACY EFFORTS, INFORMATIONAL PATIENT BROCHURES AND DVDS WITH PATIENT TESTIMONIALS, PATIENTFOCUSED INFORMATIONAL WEBSITE (WWW.PROXCELAN.COM), AND ADVERTISEMENTS IN SPECIFIC MARKETS SUPPORTING BRACHYTHERAPY. NONE OF OUR WEBSITES SHOULD BEconsidered a part of this Report. THE COMPANY’S MARKETING PLAN WITH REGARD TO NON-PROSTATE SEGMENTS INCLUDES IDENTIFYING AND EXHIBITING AT SCIENTIFIC MEETINGS ATTENDED BY SPECIALTYPHYSICIANS WHO PERFORM PROCEDURES RELATED TO COMPANY’S PRODUCT OFFERINGS; DIRECT SALES CONTACT WITH SUCH PHYSICIANS (FOR EXAMPLE THORACIC SURGEONS ANDNEURO-SURGEONS); AND THE DEVELOPMENT AND DISSEMINATION OF TRAINING VIDEOS AND OTHER MEDIA THAT OUTLINE THE COMPANY’S PRODUCTS. THE COMPANY ALSOCONTINUES TO WORK WITH ITS EXISTING RADIATION ONCOLOGY PHYSICIAN CUSTOMERS AND TO EDUCATE THEM AS TO ADDITIONAL OR NEW COMPANY PRODUCTS. THE COMPANY’SSALES MANAGERS CALL ON EXISTING RADIATION ONCOLOGY PHYSICIANS AND OTHER KEY DECISION MAKERS WITHIN AN ORGANIZATION TO DISCUSS THE RESULTS FROM OTHERORGANIZATIONS IN COORDINATION WITH KEY COMPANY SCIENTIFIC PERSONNEL TO ENGAGE THE CUSTOMER REPRESENTATIVES IN DISCUSSIONS ON PERCEPTIONS ABOUT CESIUM-131 and comparisons to competing treatments. Sales and Distribution IN THE PROSTATE CANCER MARKET, WE TARGET RADIATION ONCOLOGISTS AND MEDICAL PHYSICISTS AS WELL AS UROLOGISTS AS KEY CLINICAL DECISION-MAKERS IN THE TYPE OFradiation therapy offered to prostate cancer patients. WITH RESPECT TO NON-PROSTATE APPLICATIONS, THE COMPANY TARGETS NEUROSURGEONS AND THORACIC SURGEONS IN ADDITION TO RADIATION ONCOLOGISTS. AFTER THESEDECISION MAKERS DETERMINE TO USE THE COMPANY'S RADIATION THERAPY, THE COMPANY THEN NEEDS APPROVAL FOR THE PROCEDURE FROM THE MEDICAL PHYSICISTS ON STAFF.THE SALES CYCLE FOR NON-PROSTATE APPLICATIONS HAS PROVED A LONGER PROCESS THAN PROSTATE AND OFTEN TAKES NINE MONTHS BEFORE THE COMPANY IS LICENSED IN A NEWhospital and can make its first sale. ISORAY HAS A DIRECT SALES ORGANIZATION CONSISTING OF FIVE TERRITORY SALES MANAGERS, WHO ARE BEING MANAGED AND DEVELOPED BY DWIGHT BABCOCK, THE COMPANY’SCHAIRMAN AND CHIEF EXECUTIVE OFFICER. ALL OF THE COMPANY'S TERRITORY SALES MANAGERS SOLICIT POTENTIAL SPECIALIST PHYSICIANS IN ALL AREAS OF THE BODY. THISapproach allows our territory sales managers to call on a single location for all applications of our products, resulting in a more efficient sales approach. WITH THE ASSISTANCE OF AN EXECUTIVE SEARCH FIRM, THE COMPANY IS CURRENTLY ACTIVELY RECRUITING ADDITIONAL TERRITORY SALES MANAGERS WITH PREVIOUS EXPERIENCE INRADIATION ONCOLOGY AND SPECIFICALLY WITH BRACHYTHERAPY SALES FOR SALES TERRITORIES THAT CURRENTLY DO NOT HAVE A FULL-TIME TERRITORY SALES MANAGER. THE COMPANYis also actively recruiting a new national sales director to lead and mentor the direct sales organization as the former director recently resigned. THE COMPANY EXPECTS TO CONTINUE TO EXPAND ITS CUSTOMER BASE OUTSIDE THE U.S. MARKET THROUGH USE OF ESTABLISHED DISTRIBUTORS IN THE KEY MARKETS OF OTHERCOUNTRIES. AS OF SEPTEMBER 14, 2015, THE COMPANY HAD INDEPENDENT DISTRIBUTORS IN AUSTRALIA AND NEW ZEALAND, GERMANY (WITH A TERRITORY COVERING GERMANY,Austria, Switzerland, and Luxembourg), Italy, and Russia. Reimbursement REIMBURSEMENT BY THIRD PARTY PAYERS IS THE PRIMARY MEANS OF PAYMENT FOR ALL ISORAY PRODUCTS. THE CENTERS FOR MEDICARE AND MEDICAID SERVICES (CMS) IS THEPRIMARY PAYER, PROVIDING COVERAGE FOR APPROXIMATELY 65% OF ALL PROSTATE BRACHYTHERAPY CASES. WELL ESTABLISHED BRACHYTHERAPY COVERAGE AND PAYMENTPOLICIES ARE CURRENTLY IN PLACE BY CMS AND OTHER NON-GOVERNMENTAL PAYERS. IN 2003, CMS ESTABLISHED A UNIQUE HCPCS CODE FOR CESIUM-131 BRACHYTHERAPYSEEDS THAT PERMITTED PROVIDERS TO REPORT THE USE OF CESIUM-131 DIRECTLY TO PAYERS. IN JULY 2007, CMS ESTABLISHED TWO SEPARATE CESIUM-131 CODES FORPROVIDERS TO REPORT LOOSE SEEDS AND STRANDED SEEDS DUE TO THE COST DIFFERENTIAL OF THESE TWO PRODUCTS. REIMBURSEMENT FOR PROSTATE BRACHYTHERAPY SERVICES ANDSOURCES IS WELL ESTABLISHED IN THE US AND MOST PROVIDERS (HOSPITALS AND PHYSICIANS) ARE NOT FACED WITH REIMBURSEMENT CHALLENGES WHEN PROVIDING THIStreatment option to patients. 18 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PROSTATE BRACHYTHERAPY IS TYPICALLY PERFORMED IN AN OUTPATIENT SETTING, AND AS SUCH, IS COVERED BY THE CMS OUTPATIENT PROSPECTIVE PAYMENT SYSTEM, WHICHSINCE 2010 HAS PROVIDED A FIXED REIMBURSEMENT PER SEED FOR STRANDED AND LOOSE SEEDS. IODINE, PALLADIUM AND CESIUM EACH HAVE THEIR OWN REIMBURSEMENTVALUES FOR STRANDED AND LOOSE SEEDS. IF REPORTED CORRECTLY WHEN SEEDS ARE SUBMITTED FOR PAYMENT TO CMS, PROVIDERS ARE REIMBURSED AT A FLAT RATE THAT ISEQUIVALENT TO THE COST OF THE SEEDS. IT IS EXPECTED THAT THIS REIMBURSEMENT SYSTEM ESTABLISHED IN JANUARY 2010 WILL CONTINUE AS CURRENTLY SCHEDULED THROUGHCALENDAR 2016 BUT THERE IS NO ASSURANCE THAT THIS WILL OCCUR. CMS HAS GENERALLY CONTINUED ITS HISTORICAL TREND OF DECLINING YEAR OVER YEAR REIMBURSEMENT WITHFEW EXCEPTIONS. PRIVATE INSURANCE COMPANIES HAVE HISTORICALLY FOLLOWED THE CMS REIMBURSEMENT POLICIES. THE COMPANY EXPECTS THAT CMS WILL CONTINUE ITSANNUAL REVIEW OF PAYMENTS PROVIDED AS REIMBURSEMENT FOR OUR VARIOUS PRODUCTS AND THAT CMS WILL CONTINUE TO PROVIDE FAVORABLE REIMBURSEMENT RATES FOR OURCESIUM-131 BRACHYTHERAPY SEEDS. AT THIS TIME, THE COSTS OF OUR LOOSE SEEDS (WHICH SOMETIMES IS THE PREFERRED CONFIGURATION FOR THE PHYSICIAN) IS LESS THAN THEAMOUNT REIMBURSED BY CMS. HOWEVER, TYPICALLY PHYSICIANS ORDER SO FEW LOOSE SEEDS THAT IT DOES NOT APPEAR TO BE A SIGNIFICANT IMPAIRMENT TO THE SALESprocess. UNLIKE PROSTATE BRACHYTHERAPY IMPLANTS, LUNG AND BRAIN PROCEDURES UTILIZING EITHER SEED BRACHYTHERAPY OR THE GLIASITE® RTS ARE PERFORMED WHEN THE PATIENTHAS BEEN ADMITTED TO THE HOSPITAL. IN-PATIENT PROCEDURES, AS THEY ARE KNOWN, ARE COVERED BY CMS WHICH REMITS A SET AMOUNT DEPENDING ON THE KIND OF SURGERYBEING PERFORMED AND THE STATUS OF THE PATIENT. UNDER THIS DIAGNOSTIC RELATED GROUP OR “DRG” SYSTEM, THE HOSPITAL PAYS FOR ALL THE ITEMS INVOLVED IN THE CAREOF THE PATIENT EXCLUDING PHYSICIAN FEES. THE BRACHYTHERAPY SEEDS OR THE GLIASITE® RTS IN THESE IN-PATIENT CASES ARE NOT PAID FOR SEPARATELY BY CMS, BUT RATHERthe hospital pays for the seeds out of the DRG payments from CMS. Because the Company's seeds may be more expensive than the cost incurred by a hospitalfor a competing treatment, this reimbursement method can sometimes result in greater difficulty convincing the hospitals to use the Company's products. Other Information Customers THE FOLLOWING TOP FIVE CUSTOMERS, FACILITIES OR PHYSICIAN PRACTICES THAT UTILIZE MULTIPLE SURGICAL FACILITIES AT WHICH PRIMARILY PROSTATE BRACHYTHERAPYprocedures are performed accounted for approximately 49.50% of the total Company product sales for the twelve months ended June 30, 2015: Facility Location % of revenue El Camino, Los Gatos, & other facilities Northern CA (1) 24.16%Bon Secours DePaul and Maryview Medical Center MD 11.72%University of Pittsburg Medical Center – Mercy PA 5.10%Advanced Radiation Centers of New York NY 4.53%Candler Hospital & other facilities (Savannah, GA) GA 4.49%Total 49.50% (1)The head of the single largest physician practice also serves as the Company's medical director. As the medical director, this physician is a memberOF THE MEDICAL ADVISORY BOARD; ADVISES THE COMPANY BOARD OF DIRECTORS AND MANAGEMENT; PROVIDES TECHNICAL ADVICE RELATED TO PRODUCTDEVELOPMENT AND RESEARCH AND DEVELOPMENT; AND PROVIDES INTERNAL TRAINING TO THE COMPANY SALES STAFF AND PROFESSIONAL TRAINING TO OUR SALES STAFFAND TO OTHER PHYSICIANS. REVENUE FROM THIS PRACTICE DECREASED BY $15,887 IN THE YEAR ENDED JUNE 30, 2015 WHEN COMPARED TO THE YEAR ENDED JUNE30, 2014. THE LOSS OF EITHER THE SINGLE LARGEST PHYSICIAN PRACTICE OR A COMBINATION OF THE OTHER SIGNIFICANT FACILITIES AND CUSTOMERS COULD HAVE A MATERIAL ADVERSE EFFECTON THE COMPANY'S REVENUES, WHICH WOULD CONTINUE UNTIL THE COMPANY LOCATED NEW CUSTOMERS TO REPLACE THEM AND THERE CAN BE NO ASSURANCE THIS WOULD OCCURin a timely manner or at all. 19 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Proprietary Rights THE COMPANY RELIES ON A COMBINATION OF PATENT, COPYRIGHT AND TRADEMARK LAWS, TRADE SECRETS, SOFTWARE SECURITY MEASURES, LICENSE AGREEMENTS ANDNONDISCLOSURE AGREEMENTS TO PROTECT ITS PROPRIETARY RIGHTS. SOME OF THE COMPANY'S PROPRIETARY INFORMATION MAY NOT BE PATENTABLE. THE COMPANY HAS Aregistered U.S. trademark for Proxcelan® and a pending application for Cesitrex™. THE COMPANY INTENDS TO VIGOROUSLY DEFEND ITS PROPRIETARY TECHNOLOGIES, TRADEMARKS, AND TRADE SECRETS. MEMBERS OF MANAGEMENT, EMPLOYEES, AND CERTAINEQUITY HOLDERS HAVE PREVIOUSLY SIGNED NON-DISCLOSURE, NON-COMPETE AGREEMENTS, AND FUTURE EMPLOYEES, CONSULTANTS, ADVISORS, WITH WHOM THE COMPANYENGAGES, AND WHO ARE PRIVY TO THIS INFORMATION, WILL BE REQUIRED TO DO THE SAME. A PATENT FOR THE CESIUM SEPARATION AND PURIFICATION PROCESS WAS GRANTED ONMAY 23, 2000 BY THE U.S. PATENT AND TRADEMARK OFFICE (USPTO) UNDER PATENT NUMBER 6,066,302, WITH AN EXPIRATION DATE OF APRIL 28, 2019. THE PROCESS WASDEVELOPED BY LANE BRAY, OUR CHIEF CHEMIST UNTIL HIS RECENT PASSING AND A SHAREHOLDER OF THE COMPANY, AND HAS BEEN ASSIGNED EXCLUSIVELY TO ISORAY.ISORAY'S PREDECESSOR ALSO OBTAINED PATENT PROTECTION IN FOUR EUROPEAN COUNTRIES UNDER THE PATENT COOPERATION TREATY. THOSE PATENTS HAVE BEEN ASSIGNED TOIsoRay. OUR MANAGEMENT BELIEVES THAT CERTAIN ASPECTS OF THE ISORAY SEED DESIGN AND CONSTRUCTION TECHNIQUES ARE PATENTABLE INNOVATIONS. THESE INNOVATIONS RESULTEDIN A PATENT GRANTED BY THE USPTO UNDER PATENT NUMBER 7,410,458, IN AUGUST 2008 WITH AN EXPIRATION DATE OF DECEMBER 5, 2025. CERTAIN METHODOLOGIESREGARDING ISOTOPE PRODUCTION, SEPARATION, AND SEED MANUFACTURE ARE RETAINED AS TRADE SECRETS AND ARE EMBODIED IN ISORAY'S PROCEDURES AND DOCUMENTATION.FIVE PATENTS HAVE BEEN GRANTED BY THE USPTO RELATING TO METHODS OF DERIVING CESIUM-131 DEVELOPED BY ISORAY EMPLOYEES: PATENT NUMBER 7,479,261 WITHAN EXPIRATION DATE OF APRIL 6, 2027; PATENT NUMBER 7,517,508 WITH AN EXPIRATION DATE OF JULY 19, 2027; PATENT NUMBER 7,531,150 WITH AN EXPIRATION DATE OFJULY 13, 2027; PATENT NUMBER 7,316,644 WITH AN EXPIRATION DATE OF AUGUST 5, 2025; AND PATENT NUMBER 7,510,691 WITH AN EXPIRATION DATE OF JULY 19, 2027.THE COMPANY HAS TWO PATENTS ALLOWED IN CANADA WHICH WILL BECOME EFFECTIVE AT THE TIME OF THEIR USE IN CANADA. THE COMPANY HAS PATENTS GRANTED IN THERUSSIAN FEDERATION WHICH EXPIRE AT VARIOUS TIMES IN 2024 AND 2025. THE COMPANY HAS A SINGLE PATENT GRANTED IN THE NETHERLANDS AND INDIA THAT EACH EXPIREON JUNE 22, 2025. THE COMPANY HAS A SINGLE PATENT PENDING IN THE EU AND HONG KONG. THE COMPANY IS CONTINUING ITS EFFORTS ON DEVELOPING AND PATENTINGadditional methods of deriving Cesium-131 and other isotopes. THERE ARE SPECIFIC CONDITIONS ATTACHED TO THE ASSIGNMENT OF THE CESIUM-131 PATENT FROM LANE BRAY. IN PARTICULAR, THE ASSOCIATED ROYALTY AGREEMENT PROVIDESFOR 1% OF GROSS PROFIT PAYMENT FROM SEED SALES TO LANE BRAY AND 1% OF GROSS PROFIT FROM ANY USE OF THE CESIUM-131 PROCESS PATENT FOR NON-SEED PRODUCTS. IFISORAY REASSIGNS THE ROYALTY AGREEMENT TO ANOTHER COMPANY, THESE ROYALTIES INCREASE TO 2%. THE ROYALTY AGREEMENT HAS AN ANTI-SHELVING CLAUSE WHICHREQUIRES ISORAY TO RETURN THE PATENT IF ISORAY PERMANENTLY ABANDONS SALES OF PRODUCTS USING THE INVENTION. DURING FISCAL YEARS 2015 AND 2014, THE COMPANYrecorded royalty expense of $14,448 and $10,106, respectively, related to this patent. THE TERMS OF A LICENSE AGREEMENT WITH THE LAWRENCE FAMILY TRUST (SUCCESSOR TO DON LAWRENCE) FOR A PATENT APPLICATION AND RELATED "KNOW-HOW" REQUIRE THEPAYMENT OF A ROYALTY BASED ON THE NET FACTORY SALES PRICE, AS DEFINED IN THE AGREEMENT, OF LICENSED PRODUCT SALES. BECAUSE THE LICENSOR'S PATENT APPLICATIONWAS ULTIMATELY ABANDONED, ONLY A 1% "KNOW-HOW" ROYALTY REMAINS APPLICABLE. TO DATE, MANAGEMENT BELIEVES THAT THERE HAVE BEEN NO PRODUCT SALESINCORPORATING THE "KNOW-HOW;" AND THEREFORE BELIEVES NO ROYALTY IS DUE PURSUANT TO THE TERMS OF THE AGREEMENT. MANAGEMENT BELIEVES THAT ULTIMATELY NOroyalties should be paid under this agreement as there is no intent to use this "know-how" in the future. THE LAWRENCE FAMILY TRUST HAS DISPUTED MANAGEMENT'S CONTENTION THAT IT IS NOT USING THIS "KNOW-HOW". ON SEPTEMBER 25, 2007 AND AGAIN ON OCTOBER 31,2007, THE COMPANY PARTICIPATED IN NONBINDING MEDIATION REGARDING THIS MATTER; HOWEVER, NO SETTLEMENT WAS REACHED WITH THE LAWRENCE FAMILY TRUST. AFTERADDITIONAL SETTLEMENT DISCUSSIONS, WHICH ENDED IN APRIL 2008, THE PARTIES FAILED TO REACH A SETTLEMENT. THE PARTIES MAY DEMAND BINDING ARBITRATION AT ANYtime. Research and Development DURING THE THREE-YEAR PERIOD ENDED JUNE 30, 2015, ISORAY AND ITS SUBSIDIARIES INCURRED APPROXIMATELY $0.62 MILLION IN COSTS RELATED TO RESEARCH ANDdevelopment activities. The Company expects to continue ongoing research and development activities for the foreseeable future. 20 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Government Regulation THE COMPANY'S PRESENT AND FUTURE INTENDED ACTIVITIES IN THE DEVELOPMENT, MANUFACTURE AND SALE OF CANCER THERAPY PRODUCTS ARE SUBJECT TO EXTENSIVE LAWS,REGULATIONS, REGULATORY APPROVALS AND GUIDELINES. WITHIN THE UNITED STATES, THE COMPANY'S THERAPEUTIC RADIOLOGICAL DEVICES MUST COMPLY WITH THE U.S.Federal Food, Drug and Cosmetic Act, which is enforced by the FDA. The Company is also required to adhere to applicable FDA Quality System Regulations,ALSO KNOWN AS THE GOOD MANUFACTURING PRACTICES, WHICH INCLUDE EXTENSIVE RECORD KEEPING AND PERIODIC INSPECTIONS OF MANUFACTURING FACILITIES. THECOMPANY'S PREDECESSOR OBTAINED FDA 510(K) CLEARANCE IN MARCH 2003 TO MARKET THE PROXCELAN® CESIUM-131 SEED FOR THE TREATMENT OF LOCALIZED SOLID TUMORSAND OTHER MALIGNANT DISEASE AND ISORAY OBTAINED FDA 510(K) CLEARANCE IN NOVEMBER 2006 TO MARKET PRELOADED BRACHYTHERAPY SEEDS AND IN AUGUST 2009 FORpreloading flexible braided strands and bioabsorbable mesh. IN THE UNITED STATES, THE FDA REGULATES, AMONG OTHER THINGS, NEW PRODUCT CLEARANCES AND APPROVALS TO ESTABLISH THE SAFETY AND EFFICACY OF THESE PRODUCTS. WEare also subject to other federal and state laws and regulations, including the Occupational Safety and Health Act and the Environmental Protection Act. THE FEDERAL FOOD, DRUG, AND COSMETIC ACT AND OTHER FEDERAL STATUTES AND REGULATIONS GOVERN OR INFLUENCE THE RESEARCH, TESTING, MANUFACTURE, SAFETY, LABELING,STORAGE, RECORD KEEPING, APPROVAL, DISTRIBUTION, USE, REPORTING, ADVERTISING AND PROMOTION OF SUCH PRODUCTS. NONCOMPLIANCE WITH APPLICABLE REQUIREMENTS CANRESULT IN CIVIL PENALTIES, RECALL, INJUNCTION OR SEIZURE OF PRODUCTS, REFUSAL OF THE GOVERNMENT TO APPROVE OR CLEAR PRODUCT APPROVAL APPLICATIONS, DISQUALIFICATIONFROM SPONSORING OR CONDUCTING CLINICAL INVESTIGATIONS, PREVENTING US FROM ENTERING INTO GOVERNMENT SUPPLY CONTRACTS, WITHDRAWAL OF PREVIOUSLY APPROVEDapplications, and criminal prosecution. IN THE UNITED STATES, MEDICAL DEVICES ARE CLASSIFIED INTO THREE DIFFERENT CATEGORIES OVER WHICH THE FDA APPLIES INCREASING LEVELS OF REGULATION: CLASS I, CLASS II,AND CLASS III. MOST CLASS I DEVICES ARE EXEMPT FROM PREMARKET NOTIFICATION (510(K)); MOST CLASS II DEVICES REQUIRE PREMARKET NOTIFICATION (510(K)); AND MOSTClass III devices require premarket approval. Our Proxcelan® Cesium-131 seed is a Class II device and received 510(k) clearance in March 2003. APPROVAL OF NEW CLASS III MEDICAL DEVICES IS A LENGTHY PROCEDURE AND CAN TAKE A NUMBER OF YEARS AND REQUIRE THE EXPENDITURE OF SIGNIFICANT RESOURCES. THERE ISA SHORTER FDA REVIEW AND CLEARANCE PROCESS FOR CLASS II MEDICAL DEVICES, THE PREMARKET NOTIFICATION OR 510(K) PROCESS, WHEREBY A COMPANY CAN MARKET CERTAINCLASS II MEDICAL DEVICES THAT CAN BE SHOWN TO BE SUBSTANTIALLY EQUIVALENT TO OTHER LEGALLY MARKETED DEVICES. SINCE BRACHYTHERAPY SEEDS HAVE BEEN CLASSIFIEDby the FDA as a Class II device, we have been able to achieve market clearance for our Cesium-131 seed using the 510(k) process. In August 2011, IsoRay Medical received clearance from the FDA for its premarket notification (510(k)) for the GliaSite® RTS. The GliaSite® RTS IS THE ONLYFDA-cleared balloon catheter device used in the treatment of brain cancer. IN MAY 2014, THE COMPANY RECEIVED CLEARANCE FROM THE FDA FOR ITS PRE-MARKET NOTIFICATION (510K) FOR THE RADIOTHERAPY SOLUTION CESITREX™ (LIQUID CESIUM-131) for use with the GliaSite® RTS. AS A REGISTERED MEDICAL DEVICE MANUFACTURER WITH THE FDA, WE ARE SUBJECT TO INSPECTION TO ENSURE COMPLIANCE WITH ITS CURRENT GOOD MANUFACTURING PRACTICES,OR CGMP. THESE REGULATIONS REQUIRE THAT WE AND ANY OF OUR CONTRACT MANUFACTURERS DESIGN, MANUFACTURE AND SERVICE PRODUCTS, AND MAINTAIN DOCUMENTS IN APRESCRIBED MANNER WITH RESPECT TO MANUFACTURING, TESTING, DISTRIBUTION, STORAGE, DESIGN CONTROL, AND SERVICE ACTIVITIES. MODIFICATIONS OR ENHANCEMENTS THATCOULD SIGNIFICANTLY AFFECT THE SAFETY OR EFFECTIVENESS OF A DEVICE OR THAT CONSTITUTE A MAJOR CHANGE TO THE INTENDED USE OF THE DEVICE REQUIRE A NEW 510(K)premarket notification for any significant product modification. THE MEDICAL DEVICE REPORTING REGULATION REQUIRES THAT WE PROVIDE INFORMATION TO THE FDA ON DEATHS OR SERIOUS INJURIES ALLEGED TO BE ASSOCIATED WITH THE USEOF OUR DEVICES, AS WELL AS PRODUCT MALFUNCTIONS THAT ARE LIKELY TO CAUSE OR CONTRIBUTE TO DEATH OR SERIOUS INJURY IF THE MALFUNCTION WERE TO RECUR. LABELING ANDpromotional activities are regulated by the FDA and, in some circumstances, by the Federal Trade Commission. AS A MEDICAL DEVICE MANUFACTURER, WE ARE ALSO SUBJECT TO LAWS AND REGULATIONS ADMINISTERED BY GOVERNMENTAL ENTITIES AT THE FEDERAL, STATE AND LOCAL LEVELS. FOREXAMPLE, OUR FACILITY IS LICENSED AS A MEDICAL DEVICE MANUFACTURING FACILITY IN THE STATE OF WASHINGTON AND IS SUBJECT TO PERIODIC STATE REGULATORY INSPECTIONS.Our customers are also subject to a wide variety of laws and regulations that could affect the nature and scope of their relationships with us. 21 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN SUPPORT OF ISORAY'S GLOBAL STRATEGY TO EXPAND MARKETING TO CANADA, THE EUROPEAN UNION (EU) AND RUSSIA, WE INITIATED THE PROCESS IN FISCAL YEAR 2008 TOOBTAIN THE EUROPEAN CE MARK, CANADIAN REGISTRATION, AND CERTIFICATION TO ISO 13485:2003, AN INTERNATIONALLY RECOGNIZED QUALITY SYSTEM. DURING THE FISCALYEAR ENDED JUNE 30, 2014, THE CE MARK WAS RENEWED FOR AN ADDITIONAL FIVE YEARS. EUROPEAN LAW REQUIRES THAT MEDICAL DEVICES SOLD IN ANY EU MEMBER STATECOMPLY WITH THE REQUIREMENTS OF THE EUROPEAN MEDICAL DEVICE DIRECTIVE (MDD) OR THE ACTIVE IMPLANTABLE MEDICAL DEVICE DIRECTIVE (AIMDD). ISORAY'SBRACHYTHERAPY SEEDS ARE CLASSIFIED IN EUROPE AS AN ACTIVE IMPLANTABLE AND ARE SUBJECT TO THE AIMDD AND GLIASITE® RTS IS AN EU CLASS 3 DEVICE SUBJECT TO THEMDD. COMPLIANCE WITH THE AIMDD, MDD, AND OBTAINING A CE MARK INVOLVES BEING CERTIFIED TO ISO 13485:2003 AND OBTAINING APPROVAL OF THE PRODUCTTECHNICAL FILE BY A NOTIFIED BODY THAT IS RECOGNIZED BY COMPETENT AUTHORITIES OF A MEMBER STATE. COMPLIANCE WITH ISO 13485:2003 IS ALSO REQUIRED FORregistration of a company for sale of its products in Canada. Many of the recognized EU Notified Bodies are also recognized by Health Canada to conduct theISO 13485:2003 INSPECTIONS FOR CANADIAN REGISTRATION. DURING FISCAL YEAR 2009, THE COMPANY RECEIVED ITS CERTIFICATION TO ISO 13485:2003 AND OBTAINEDAPPROVAL FROM HEALTH CANADA FOR ITS CANADIAN REGISTRATION. THE COMPANY HAS HAD NO SUCCESS IN SELLING THE PRODUCT IN THE CANADIAN MARKET AND THROUGH ITSDISTRIBUTORS IS CURRENTLY FOCUSING ON THE MARKETS IN GERMANY, AUSTRIA, SWITZERLAND, LUXEMBOURG, ITALY, AND THE RUSSIAN FEDERATION. ON JUNE 18, 2014, THECOMPANY ENTERED INTO AN AGREEMENT WITH MEDIKORPHARMA-URAL LLC AS THE DISTRIBUTOR IN THE RUSSIAN FEDERATION. THE AGREEMENT PROVIDES THE DISTRIBUTOR WITHTHE ABILITY TO SELL THE ENTIRE PRODUCT LINE WITH EXCEPTION OF THE CESITREX™ WHICH DOES NOT CARRY THE CE MARK. THE COMPANY HAS EXTENDED ITS AGREEMENT TOAUGUST 31, 2016 WITH ONE MODIFICATION THAT REMOVES ITALY FROM THE TERRITORY WITH THE GERMAN DISTRIBUTOR WHOSE MARKET INCLUDES GERMANY, AUSTRIA,SWITZERLAND AND LUXEMBOURG. THE COMPANY REACHED AGREEMENT WITH A DISTRIBUTOR FOR GREECE DURING THE FISCAL YEAR ENDED JUNE 30, 2013 AND HAS ACTIVELYSUPPORTED THIS DISTRIBUTOR IN ACHIEVING REGULATORY CLEARANCE IN ITS DISTRIBUTION MARKET. THE AGREEMENT WITH THE DISTRIBUTOR FOR GREECE WAS EFFECTIVE ON MAY 1,2013 but has now expired with no sales. IN APRIL 2012, ISORAY MEDICAL RECEIVED A CE MARK FOR THE GLIASITE® RTS WHICH STATES THAT THE COMPANY CONFORMS TO THE PRODUCT REQUIREMENTS OF THEEuropean Council Directive 93/42/EEC. The CE mark allows the GliaSite® RTS TO BE SOLD IN 31 EUROPEAN COUNTRIES AND TO BE MARKETED IN THE EUROPEAN FREETRADE ASSOCIATE MEMBER STATES AND THE EUROPEAN UNION. IN AUGUST 2013, THE COMPANY SUCCESSFULLY AMENDED ITS CE MARK ON THE GLIASITE® RTS WHICHincorporated five changes. IN THE UNITED STATES, AS A MANUFACTURER OF MEDICAL DEVICES AND DEVICES UTILIZING RADIOACTIVE BYPRODUCT MATERIAL, WE ARE SUBJECT TO EXTENSIVE REGULATION BY NOTONLY FEDERAL GOVERNMENTAL AUTHORITIES, SUCH AS THE FDA, BUT ALSO BY STATE AND LOCAL GOVERNMENTAL AUTHORITIES, SUCH AS THE WASHINGTON STATE DEPARTMENT OFHealth, TO ENSURE SUCH DEVICES ARE SAFE AND EFFECTIVE. IN WASHINGTON STATE, THE DEPARTMENT OF HEALTH, BY AGREEMENT WITH THE FEDERAL NUCLEAR REGULATORYCOMMISSION (NRC), REGULATES THE POSSESSION, USE, AND DISPOSAL OF RADIOACTIVE BYPRODUCT MATERIAL AS WELL AS THE MANUFACTURE OF RADIOACTIVE SEALED SOURCES TOENSURE COMPLIANCE WITH STATE AND FEDERAL LAWS AND REGULATIONS. OUR CESIUM-131 BRACHYTHERAPY SEEDS AND THE GLIASITE® RTS CONSTITUTE BOTH MEDICAL DEVICESAND RADIOACTIVE SEALED SOURCES AND ARE SUBJECT TO THESE REGULATIONS. THE COMPANY HAS RECEIVED SEALED SOURCE DEVICE APPROVAL FROM THE STATE OF WASHINGTONDepartment of Health for the GliaSite® RTS, components of which are manufactured at our Richland facility. MOREOVER, OUR USE, MANAGEMENT, AND DISPOSAL OF CERTAIN RADIOACTIVE SUBSTANCES AND WASTES ARE SUBJECT TO REGULATION BY SEVERAL FEDERAL AND STATE AGENCIESdepending on the nature of the substance or waste material. We believe that we are in compliance with all federal and state regulations for this purpose. Seasonality THE COMPANY BELIEVES THAT SOME SEED IMPLANTATION PROCEDURES ARE DEFERRED AROUND PHYSICIAN VACATIONS (PARTICULARLY IN THE SUMMER MONTHS), HOLIDAYS, ANDMEDICAL CONVENTIONS AND CONFERENCES RESULTING IN A SEASONAL INFLUENCE ON THE COMPANY'S BUSINESS. THESE FACTORS CAUSE A MOMENTARY DECLINE IN REVENUEwhich management believes is ultimately realized later. Because approximately 49.50% of the Company's business is dependent on five customers, physicianPRACTICES OR FACILITIES, SIMULTANEOUS OR EXTENDED VACATIONS BY THE PHYSICIANS AT THESE FACILITIES OR BY OUR SINGLE LARGEST PHYSICIAN WHO ACCOUNTS FORapproximately 24% of total revenue could cause significant drops in the Company's productivity during those reporting periods. 22 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Employees As of September 11, 2015, IsoRay employed thirty-five full-time individuals and one part-time individual. The Company's future success will depend, in part,ON ITS ABILITY TO ATTRACT, RETAIN, AND MOTIVATE HIGHLY QUALIFIED SALES, TECHNICAL AND MANAGEMENT PERSONNEL. FROM TIME TO TIME, THE COMPANY MAY EMPLOYINDEPENDENT CONSULTANTS OR CONTRACTORS TO SUPPORT ITS RESEARCH AND DEVELOPMENT, MARKETING, SALES, ACCOUNTING AND ADMINISTRATIVE ORGANIZATIONS. NONE OF THECompany's employees are represented by any collective bargaining unit. At June 30, 2015, the Company employed seven direct sales people. Competition THE COMPANY COMPETES IN A MARKET CHARACTERIZED BY TECHNOLOGICAL INNOVATION, EXTENSIVE RESEARCH EFFORTS, AND SIGNIFICANT COMPETITION. IN GENERAL, THEProxcelan® CESIUM-131 BRACHYTHERAPY SEED COMPETES WITH CONVENTIONAL METHODS OF TREATING LOCALIZED CANCER, INCLUDING, BUT NOT LIMITED TO, ALL FORMS OFPROSTATECTOMY SURGERY AND EXTERNAL BEAM RADIATION THERAPY WHICH INCLUDES INTENSITY MODULATED RADIATION THERAPY, AS WELL AS COMPETING PERMANENTbrachytherapy devices. THE COMPANY'S PATENTED CESIUM-131 SEPARATION PROCESS IS LIKELY TO PROVIDE A SUSTAINABLE COMPETITIVE ADVANTAGE. PRODUCTION OF CESIUM-131 ALSO REQUIRESSPECIALIZED FACILITIES THAT REPRESENT HIGH COST AND LONG LEAD TIME IF NOT READILY AVAILABLE. IN ADDITION, A COMPETITOR WOULD NEED TO DEVELOP A METHOD FORISOTOPE ATTACHMENT AND SEED ASSEMBLY, WOULD NEED TO CONDUCT TESTING TO MEET NRC AND FDA REQUIREMENTS, AND WOULD NEED TO OBTAIN REGULATORY CLEARANCESBEFORE MARKETING A COMPETING DEVICE. BEST MEDICAL RECEIVED FDA 510(K) CLEARANCE TO MARKET A CESIUM-131 SEED ON JUNE 6, 1993 BUT TO DATE HAS NOTproduced any products for sale. THE GLIASITE® RTS AND THE COMPANY’S BRACHYTHERAPY PRODUCTS USED IN NON-PROSTATE APPLICATIONS TYPICALLY COMPETE WITH EXTERNAL BEAM RADIATION THERAPY(EBRT), WHICH CAN BE PROVIDED AS CONVENTIONAL OR INTENSITY MODULATED RADIATION THERAPY, OR AS STEREOTACTIC RADIOSURGERY, A TECHNIQUE THAT DELIVERS HIGH DOSESof radiation to a target in a much lower number of sessions than other forms of EBRT. Manufacturers of EBRT equipment include Varian Medical Systems, Siemens Healthcare, Elekta AB, and Accuray Incorporated, among others. IN THE CASES OF LUNG AND BRAIN TUMORS (AND OTHER SOLID TUMORS), A SURGEON WILL REMOVE THE TUMOR IF IT IS MEDICALLY PRUDENT AND THIS OFFERS THE PATIENT SOMEBENEFIT IN TERMS OF CONTROLLING THE GROWTH OF THE CANCER OR ITS SYMPTOMS. IN MANY CASES, RADIATION THERAPY IS ADDED FOLLOWING THE SURGERY; THIS IS KNOWN AS“ADJUVANT” RADIATION THERAPY. THE COMPANY BELIEVES THAT ITS FORM OF ADJUVANT RADIATION THERAPY DEPLOYABLE IN SUCH CASES OFFERS ADVANTAGES OVER EXTERNALbeam methods. However, external beam holds the vast majority of the market for adjuvant radiation therapy. ITEM 1A – RISK FACTORS You should carefully consider the following factors regarding information included in this Annual Report. The risks and uncertainties described below arenot the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our businessoperations. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected. Risks Related to Our Industry and Operations Our Revenues Depend Upon One Product. WITH THE EXCEPTION OF THE GLIASITE® RTS WHICH THE COMPANY BEGAN SELLING IN THE 2012 FISCAL YEAR, OUR REVENUESDEPEND SOLELY UPON THE SUCCESSFUL PRODUCTION, MARKETING, AND SALES OF THE PROXCELAN® CESIUM-131 BRACHYTHERAPY SEED. THE RATE AND LEVEL OF MARKETACCEPTANCE OF THIS PRODUCT VARIES DEPENDING ON THE PERCEPTION BY PHYSICIANS AND OTHER MEMBERS OF THE HEALTHCARE COMMUNITY OF ITS SAFETY AND EFFICACY ASCOMPARED TO THAT OF COMPETING PRODUCTS, IF ANY; THE CLINICAL OUTCOMES OF THE PATIENTS TREATED; THE EFFECTIVENESS OF OUR SALES AND MARKETING EFFORTS OR THOSE OFOUR DISTRIBUTORS IN THE UNITED STATES, THE EUROPEAN UNION (EU), GERMANY, AUSTRALIA, NEW ZEALAND AND THE RUSSIAN FEDERATION; ANY UNFAVORABLE PUBLICITYCONCERNING OUR PRODUCT OR SIMILAR PRODUCTS; OUR PRODUCT'S PRICE RELATIVE TO OTHER PRODUCTS OR COMPETING TREATMENTS; ANY DECREASE IN CURRENT REIMBURSEMENTRATES FROM THE CENTERS FOR MEDICARE AND MEDICAID SERVICES OR THIRD-PARTY PAYERS; REGULATORY DEVELOPMENTS RELATED TO THE MANUFACTURE OR CONTINUED USE OF THEPRODUCT; AVAILABILITY OF SUFFICIENT SUPPLIES OF BARIUM FOR CESIUM-131 SEED PRODUCTION; ABILITY TO PRODUCE SUFFICIENT QUANTITIES OF CESIUM-131; THE ABILITY OFPHYSICIANS TO APPLY THE CORRECT DOSAGE OF SEEDS AND AVOID EXCESSIVE LEVELS OF RADIATION TO PATIENTS; AND THE ABILITY TO USE THIS PRODUCT TO TREAT MULTIPLE TYPESOF CANCERS IN VARIOUS ORGANS. BECAUSE OF OUR RELIANCE ON THIS PRODUCT AS THE PRIMARY SOURCE OF OUR REVENUE, ANY MATERIAL ADVERSE DEVELOPMENTS WITH RESPECT TOthe commercialization of this product may cause us to continue to incur losses rather than profits in the future. 23 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Although Cleared To Treat Any Malignant Tissue, Our Principal Product Is Primarily Used To Treat A Single Type Of Cancer. CURRENTLY, THE PROXCELAN®CESIUM-131 SEED IS USED ALMOST EXCLUSIVELY FOR THE TREATMENT OF PROSTATE CANCER (APPROXIMATELY EIGHTY-SEVEN PERCENT (87%) OF OUR SALES). WE HAVE BEENTREATING BRAIN CANCER WHICH AMOUNTED TO APPROXIMATELY 7% OF OUR PRODUCT SALES, LUNG CANCER WHICH AMOUNTED TO APPROXIMATELY 2% AND OTHER CANCERSINCLUDING HEAD AND NECK; COLORECTAL; GYNECOLOGICAL AND BRAIN THAT COMBINED CONSTITUTED APPROXIMATELY 2% OF OUR PRODUCT SALES IN FISCAL YEAR 2015. THEGliaSite® RTS CONTRIBUTED 2% OF OUR PRODUCT SALES IN FISCAL YEAR 2015. MANAGEMENT BELIEVES THE PROXCELAN® CESIUM-131 SEED WILL CONTINUE TO BE USED TOTREAT OTHER TYPES OF CANCERS AS THE COMPANY IDENTIFIES EXISTING DELIVERY SYSTEMS THAT CAN BE UTILIZED OR DEVELOPS NEW DELIVERY METHODS FOR THE PRODUCT,HOWEVER THESE DELIVERY SYSTEMS MAY NOT PROVE AS EFFECTIVE AS ANTICIPATED. MANAGEMENT BELIEVES THAT CLINICAL DATA GATHERED BY SELECT GROUPS OF PHYSICIANSUNDER TREATMENT PROTOCOLS SPECIFIC TO OTHER ORGANS WILL BE NEEDED PRIOR TO WIDESPREAD ACCEPTANCE OF OUR PRODUCT FOR TREATING OTHER CANCER SITES. IF OUR CURRENTAND FUTURE PRODUCTS DO NOT BECOME ACCEPTED IN TREATING CANCERS OF OTHER SITES, OUR SALES WILL DEPEND PRIMARILY ON TREATMENT OF PROSTATE CANCER, A MARKET WITHINCREASING COMPETITION AND ONGOING LOSS OF MARKET SHARE BY ALL BRACHYTHERAPY PRODUCTS EXCEPT FOR THIS FISCAL YEAR WHEN THE COMPANY’S PROSTATE CANCERrevenue increased by 13% compared to the fiscal year 2014 and revenue overall increased by 9% in fiscal year 2015 compared to fiscal year 2014. We Rely Heavily On Five Customers. APPROXIMATELY FIFTY PERCENT (50%) OF THE COMPANY’S REVENUES ARE DEPENDENT ON FIVE CUSTOMERS AND APPROXIMATELYTWENTY-FOUR PERCENT (24%) ON ONE CUSTOMER. THE LOSS OF ANY OF THESE CUSTOMERS WOULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY’S REVENUES WHICH MAYnot be replaced by other customers particularly as these customers are in the prostate sector which is facing substantial competition from other treatments. 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. INFISCAL 2015, APPROXIMATELY EIGHTY-THREE PERCENT (83%) OF OUR CESIUM-131 WAS SUPPLIED THROUGH JSC INM FROM A REACTOR LOCATED IN RUSSIA. OUR CURRENTCONTRACT WITH JSC INM TERMINATES ON JANUARY 31, 2016 AND WILL HAVE TO BE RENEGOTIATED. MANAGEMENT WILL SEEK TO NEGOTIATE FAVORABLE PRICING BUT THERE IS NOASSURANCE AS TO THE OUTCOME OF THESE NEGOTIATIONS. MANAGEMENT IS EVALUATING OTHER REACTORS THAT MEET CURRENT SPECIFICATIONS TO YIELD CESIUM-131 OF THE PURITYthat the Company requires for use in its products but thus far has only confirmed such availability from MURR. RELIANCE ON ANY SINGLE SUPPLIER INCREASES THE RISKS ASSOCIATED WITH CONCENTRATING ISOTOPE PRODUCTION AT A SINGLE REACTOR FACILITY WHICH CAN BE SUBJECT TOUNANTICIPATED SHUTDOWNS AND POLITICAL OR CIVIL UNREST. FAILURE TO OBTAIN DELIVERIES OF CESIUM-131 FROM MULTIPLE SOURCES COULD HAVE A MATERIAL ADVERSE EFFECTon seed production and there may be a delay before we could locate alternative suppliers beyond the two currently used. WE MAY NOT BE ABLE TO LOCATE ADDITIONAL SUPPLIERS OUTSIDE OF RUSSIA, OTHER THAN MURR, CAPABLE OF PRODUCING THE LEVEL OF OUTPUT OF CESIUM AT THE QUALITYSTANDARDS WE REQUIRE. ADDITIONAL FACTORS THAT COULD CAUSE INTERRUPTIONS OR DELAYS IN OUR SOURCE OF MATERIALS INCLUDE LIMITATIONS ON THE AVAILABILITY OF RAWMATERIALS OR MANUFACTURING PERFORMANCE EXPERIENCED BY OUR SUPPLIERS AND A BREAKDOWN IN OUR COMMERCIAL RELATIONS WITH ONE OR MORE SUPPLIERS. SOME OF THESEfactors 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 KEYCOMPONENT OF OUR SEED CORE FROM ANOTHER SINGLE SUPPLIER, C5 MEDICAL WERKS, LLC. WE DO NOT HAVE FORMAL WRITTEN AGREEMENTS WITH ACCELLENT CORPORATION.WE DO HAVE A PURCHASE AGREEMENT WITH C5 MEDICAL WERKS, LLC WHICH CALLS FOR FIXED QUANTITY OF SEED CORES TO BE SHIPPED OVER A 36 MONTH PERIOD AT A FIXEDUNIT PRICE. ANY INTERRUPTION OR DELAY IN THE SUPPLY OF MATERIALS REQUIRED TO PRODUCE OUR PRODUCTS COULD CAUSE HARM TO OUR BUSINESS IF WE WERE UNABLE TO OBTAINAN ALTERNATIVE SUPPLIER OR SUBSTITUTE EQUIVALENT MATERIALS IN A COST-EFFECTIVE AND TIMELY MANNER. TO MITIGATE ANY POTENTIAL INTERRUPTIONS, THE COMPANYCONTINUALLY EVALUATES ITS INVENTORY LEVELS AND MANAGEMENT BELIEVES THAT THE COMPANY MAINTAINS A SUFFICIENT QUANTITY ON HAND TO ALLEVIATE ANY POTENTIALdisruptions. 24 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. VIRTUALLY ALL OF THE COMPONENTS USED IN THE PRODUCTION OF THE GLIASITE® RTS ARE FROM SINGLE SOURCES. WE DO NOT HAVE FORMAL WRITTEN AGREEMENTS WITH THOSESUPPLIERS. ANY INTERRUPTION OR DELAY IN THE SUPPLY OF THESE COMPONENTS COULD CAUSE HARM TO OUR BUSINESS AS THE COST AND / OR TIME REQUIRED TO MEET THEREGULATORY REQUIREMENTS OF THE FOOD AND DRUG ADMINISTRATION FOR THE UNITED STATES AND OUR NOTIFIED BODY FOR OUR CE MARK (BRITISH STANDARDS INSTITUTE) IN THEEuropean Union may be prohibitive. WHILE WE WORK CLOSELY WITH SUPPLIERS TO ASSURE CONTINUITY OF SUPPLY AND MAINTAIN HIGH QUALITY AND RELIABILITY, THESE EFFORTS MAY NOT BE SUCCESSFUL.MANUFACTURING DISRUPTIONS EXPERIENCED BY OUR SUPPLIERS MAY JEOPARDIZE OUR SUPPLY OF COMPONENTS. THE LOSS OR DISRUPTION OF OUR RELATIONSHIPS WITH OUTSIDEVENDORS COULD SUBJECT US TO SUBSTANTIAL DELAYS IN THE DELIVERY OF OUR PRODUCTS TO CUSTOMERS. SIGNIFICANT DELAYS IN THE DELIVERY OF OUR PRODUCTS COULD RESULT INpossible cancellation of orders and the loss of customers. DUE TO THE STRINGENT REGULATIONS AND REQUIREMENTS OF THE FDA AND OTHER SIMILAR NON-U.S. REGULATORY AGENCIES REGARDING THE MANUFACTURE OF OUR PRODUCTS, WEMAY NOT BE ABLE TO QUICKLY ESTABLISH ADDITIONAL OR REPLACEMENT SOURCES FOR CERTAIN COMPONENTS OR MATERIALS. A CHANGE IN SUPPLIERS COULD REQUIRE SIGNIFICANTEFFORT OR INVESTMENT IN CIRCUMSTANCES WHERE THE ITEMS SUPPLIED ARE INTEGRAL TO PRODUCT PERFORMANCE OR INCORPORATE UNIQUE TECHNOLOGY. A REDUCTION ORINTERRUPTION IN MANUFACTURING, OR AN INABILITY TO SECURE ALTERNATIVE SOURCES OF RAW MATERIALS OR COMPONENTS, COULD HAVE A MATERIAL EFFECT ON OUR BUSINESS,results of operations, financial condition and cash flows. ANY CASUALTY, NATURAL DISASTER OR OTHER SIGNIFICANT DISRUPTION OF ANY OF OUR SOLE-SOURCE SUPPLIERS’ OPERATIONS, OR ANY UNEXPECTED LOSS OF ANY EXISTING EXCLUSIVEsupply contract could have a material adverse effect on our business. ALTHOUGH WE EXPECT OUR SUPPLIERS TO COMPLY WITH OUR CONTRACT TERMS, WE DO NOT HAVE CONTROL OVER THESE SUPPLIERS. OUR INABILITY TO PROVIDE A PRODUCT THATMEETS DELIVERY SCHEDULES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR REPUTATION IN THE INDUSTRY, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIALcondition and results of operations. FURTHER, ANY SINGLE SOURCE SUPPLIERS OR CONTRACT MANUFACTURERS MAY OPERATE THROUGH A SINGLE FACILITY. IF AN EVENT OCCURRED THAT RESULTED IN MATERIAL DAMAGE TOTHIS MANUFACTURING FACILITY OR OUR SUPPLIER/MANUFACTURING CONTRACTOR LACKED SUFFICIENT LABOR TO FULLY OPERATE THE FACILITY, WE MAY BE UNABLE TO TRANSFER THEMANUFACTURE OF OUR PRODUCT OR SUPPLY OF THE COMPONENT TO ANOTHER FACILITY OR LOCATION IN A COST-EFFECTIVE OR TIMELY MANNER, IF AT ALL. THIS POTENTIAL INABILITY TOTRANSFER PRODUCTION COULD OCCUR FOR A NUMBER OF REASONS, INCLUDING BUT NOT LIMITED TO A LACK OF NECESSARY RELEVANT MANUFACTURING CAPABILITY AT ANOTHER FACILITY,OR THE REGULATORY REQUIREMENTS OF THE FDA OR OTHER GOVERNMENTAL REGULATORY BODIES. EVEN IF THERE ARE MANY QUALIFIED SUPPLIERS OR CONTRACT MANUFACTURERSAVAILABLE AROUND THE COUNTRY AND OUR PRODUCT OR ITS COMPONENTS ARE RELATIVELY EASY TO MANUFACTURE, SUCH AN EVENT COULD HAVE A MATERIAL ADVERSE EFFECT ON OURfinancial condition and results of operations. Unfavorable Industry Trends in the Prostate Market. SEVERAL FACTORS WHICH BEGAN IN FISCAL 2009 HAVE CAUSED OUR REVENUES TO SIGNIFICANTLY DECLINE. THESEFACTORS CONTINUED INTO FISCAL YEAR 2014 CONTRIBUTING TO OUR FAILURE TO IMPROVE SALES IN THE PROSTATE MARKET UNTIL THIS FISCAL YEAR WHEN WE EXPERIENCED ANINCREASE IN SALES OVER FISCAL YEAR 2014, BUT THIS IMPROVEMENT WAS NOT BACK TO THE AMOUNT OF REVENUES WE HAD IN FISCAL 2011 OR 2012. BEGINNING IN THE FALL OF2008, U.S. CONSUMERS SIGNIFICANTLY CURTAILED ALL SPENDING (EVEN FOR LIFE SAVING MEDICAL PROCEDURES) WHICH IMPACTED THE BRACHYTHERAPY INDUSTRY AS A WHOLE. INFEBRUARY OF 2009 NOTED UROLOGISTS ANNOUNCED AT A MEDICAL CONFERENCE THAT PROSTATE SPECIFIC ANTIGEN (PSA) TESTING WAS NOT AS NECESSARY AS PREVIOUSLYBELIEVED. THEIR STATEMENTS WERE WIDELY PUBLICIZED. IN MAY 2012, THE U.S. PREVENTIVE SERVICES TASK FORCE RECOMMENDED AGAINST ROUTINE PSA SCREENINGS FORHEALTHY MEN WITHOUT SYMPTOMS. WE BELIEVE THIS RECOMMENDATION HAS LED TO A RENEWED DECLINE IN PSA SCREENINGS. IN ADDITION, WE BELIEVE THERE HAS BEEN ANINCREASE IN “ACTIVE SURVEILLANCE”, A PRACTICE WHERE NO IMMEDIATE MEDICAL TREATMENT IS PROVIDED; BUT THE PHYSICIAN AND PATIENT CLOSELY MONITOR THE PATIENT’SCANCER FOR SIGNS THAT THE CANCER IS GROWING. WE BELIEVE THAT DECLINES IN PSA SCREENINGS HAVE LED TO A DECLINE IN THE NUMBER OF MEN DIAGNOSED WITH PROSTATECANCER. A DECLINE IN THE NUMBER OF PSA SCREENINGS WOULD IN TURN LEAD TO A DECLINE IN THE NUMBER OF PROCEDURES TO TREAT PROSTATE CANCER, INCLUDINGBRACHYTHERAPY PROCEDURES. AN INCREASE IN THE PROPORTION OF MEN DIAGNOSED WITH PROSTATE CANCER BUT NOT SEEKING IMMEDIATE MEDICAL TREATMENT WOULD ALSO LEADto a decline in the number of procedures to treat prostate cancer. AS OF THE END OF FISCAL 2015, THE AMERICAN CANCER SOCIETY HAS NOT FURTHER REVISED ITS ADVICE REGARDING PSA TESTING, CONTINUING TO ADVISE THAT THE DECISION TOBE SCREENED FOR PROSTATE CANCER SHOULD BE MADE AFTER GETTING INFORMATION ABOUT THE UNCERTAINTIES, RISKS, AND POTENTIAL BENEFITS OF PROSTATE CANCER SCREENING.This advice has led to an increased number of men electing to forgo PSA testing. 25 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ALSO THE EMERGENCE OF IMRT AS THE PREFERRED TREATMENT ALTERNATIVE AS A RESULT OF A MUCH HIGHER REIMBURSEMENT RATE TO PHYSICIANS COMPARED TO BRACHYTHERAPYTREATMENTS HAS RESULTED IN DECLINING MARKET SHARE FOR BRACHYTHERAPY TREATMENT. IN FISCAL 2015, EACH OF THESE FACTORS CONTINUED TO IMPACT THE PERFORMANCE OF THECOMPANY IN THE PROSTATE MARKET AND THE INDUSTRY AS A WHOLE AND THERE IS NO ASSURANCE THAT THEY WILL NOT CONTINUE TO IMPACT SALES OF THE COMPANY IN THEprostate market through fiscal 2016. Doctors And Hospitals May Not Adopt Our Products And Technologies At Levels Sufficient To Sustain Our Business Or To Achieve Our Desired GrowthRate. TO DATE, WE HAVE ATTAINED VERY LIMITED PENETRATION OF THE TOTAL POTENTIAL MARKET FOR MOST OF OUR PRODUCTS, PARTICULARLY OUR NON-PROSTATE APPLICATIONS. OURFUTURE GROWTH AND SUCCESS DEPENDS UPON CREATING BROAD AWARENESS AND ACCEPTANCE OF OUR PRODUCTS BY DOCTORS, HOSPITALS AND FREESTANDING CLINICS, AS WELL ASPATIENTS. THIS WILL REQUIRE SUBSTANTIAL MARKETING AND EDUCATIONAL EFFORTS, WHICH WILL BE COSTLY AND MAY NOT BE SUCCESSFUL. THE TARGET CUSTOMERS FOR OURPRODUCTS MAY NOT ADOPT THESE TECHNOLOGIES OR MAY ADOPT THEM AT A RATE THAT IS SLOWER THAN DESIRED. WE DEPEND EXTENSIVELY ON LONG TERM PROTOCOL RESULTS ANDPUBLICATIONS BY INDEPENDENT PHYSICIANS. UNFAVORABLE PROTOCOL RESULTS OR PUBLICATIONS WOULD HAVE AN IMPACT ON THE SUCCESS OF OUR PRODUCTS. IN ADDITION,POTENTIAL CUSTOMERS WHO DECIDE TO UTILIZE ANY OF OUR DEVICES MAY LATER CHOOSE TO PURCHASE COMPETITORS’ PRODUCTS. IMPORTANT FACTORS THAT WILL AFFECT OUR ABILITYto attain broad market acceptance of our products include: ·doctor and/or patient awareness and acceptance of our products;·the real or perceived effectiveness and safety of our products;·the relationship between the cost of our products and the real or perceived medical benefits of our products;·the relationship between the cost of our products and the financial benefits to our customers using our products, which will be greatly affected by thecoverage of, and reimbursement for, our products by governmental and private third-party payors; and·market perception of our ability to continue to grow our business and develop enhanced products. We must promote our products effectively. Factors that could affect our success in marketing our products include: ·the adequacy and effectiveness of our sales force and that of any distributor’s sales force;·the adequacy and effectiveness of our production, distribution and marketing capabilities and those of our distributors;·the success of competing treatments or products; and·the availability and extent of reimbursement from third-party payors for our products. IF ANY OF OUR PRODUCTS FAILS TO ACHIEVE MARKET ACCEPTANCE, WE MAY NOT BE ABLE TO MARKET AND SELL THE PRODUCTS SUCCESSFULLY, WHICH WOULD LIMIT OUR ABILITY TOgenerate revenue and could harm our business. The Single Russian Supplier For Our Cesium-131. IN JUNE 2014 AND AGAIN IN JANUARY 2015, THE COMPANY ENTERED INTO AN AGREEMENT WITH THE OPEN JOINTSTOCK COMPANY <> (JSC INM) TO PURCHASE CESIUM-131 DIRECTLY FROM INSTITUTE OF NUCLEAR MATERIALS (INM). AS A RESULT, THECOMPANY RELIES ON JSC INM TO OBTAIN CESIUM-131 FROM ITS SINGLE RUSSIAN REACTOR SOURCE. THROUGH THE INM AGREEMENT, WE HAVE OBTAINED FIXED PRICING FOROUR RUSSIAN CESIUM-131 THROUGH THE TERMINATION OF THE CONTRACT ON JANUARY 31, 2016. THERE CAN BE NO GUARANTEE THAT JSC INM WILL ALWAYS BE ABLE TO SUPPLYUS WITH SUFFICIENT CESIUM-131 OR WILL RENEW OUR EXISTING CONTRACT ON FAVORABLE TERMS IN JANUARY 2016, WHICH COULD BE DUE IN PART TO RISKS ASSOCIATED WITHFOREIGN OPERATIONS AND BEYOND EITHER OUR OR JSC INM'S CONTROL. IF WE WERE UNABLE TO OBTAIN SUPPLIES OF ISOTOPES FROM RUSSIA IN THE FUTURE, OUR OVERALL SUPPLYOF CESIUM-131 COULD BE REDUCED SIGNIFICANTLY UNLESS WE HAVE A SOURCE OF ENRICHED BARIUM FOR UTILIZATION IN DOMESTIC REACTORS BEYOND THE QUANTITY THAT WEALREADY OWN. THE COMPANY HAS PERFORMED A SEARCH FOR ENRICHED BARIUM AS PART OF ITS ANNUAL IMPAIRMENT TESTING FOR ITS EXISTING INVENTORY OF ENRICHED BARIUMAND HAS FOUND NO OTHER ENTITY THAT COULD SUPPLY THE REQUIRED QUANTITIES OF ENRICHED BARIUM. WHILE RECENT TESTING OF REGIONS WITHIN THE REACTOR AT MURR HASFOUND THAT CESIUM-131 CAN BE PRODUCED IN ECONOMICALLY VIABLE QUANTITIES AT A VIABLE PRICE, THERE IS NO ASSURANCE THAT WE CAN OBTAIN THE INCREASED QUANTITY OFISOTOPE AT THE PRICING AND QUANTITIES THAT THE COMPANY REQUIRES IN THE LONG TERM. MANAGEMENT ESTIMATES THAT THE SUPPLY OF ENRICHED BARIUM THAT IT CURRENTLYOWNS SHOULD LAST FROM 24 TO 36 MONTHS WHICH WOULD ALLOW TIME TO EXPAND INTO OTHER IRRADIATION SITES WITHIN MURR OR AT ANOTHER REACTOR TO SUPPLEMENT ITSsupply of Cs-131. 26 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Increased Prices For, Or Unavailability Of, Raw Materials Used In Our Products Could Adversely Affect Our Revenues. OUR REVENUES ARE AFFECTED BY THEPRICES OF THE RAW MATERIALS AND SUB-ASSEMBLIES USED IN THE MANUFACTURE OF OUR PRODUCTS. THESE PRICES MAY FLUCTUATE BASED ON A NUMBER OF FACTORS BEYOND OURCONTROL, INCLUDING CHANGES IN SUPPLY AND DEMAND, GENERAL ECONOMIC CONDITIONS, LABOR COSTS, FUEL RELATED DELIVERY COSTS, COMPETITION, IMPORT DUTIES, TARIFFS,CURRENCY EXCHANGE RATES, AND GOVERNMENT REGULATION. DUE TO THE HIGHLY COMPETITIVE NATURE OF THE HEALTHCARE INDUSTRY AND THE COST CONTAINMENT EFFORTS OF OURCUSTOMERS AND THIRD-PARTY PAYERS, WE MAY BE UNABLE TO PASS ALONG COST INCREASES FOR KEY COMPONENTS OR RAW MATERIALS THROUGH HIGHER PRICES TO OUR CUSTOMERS.IF THE COST OF KEY COMPONENTS OR RAW MATERIALS INCREASES, AND WE ARE UNABLE FULLY TO RECOVER THESE INCREASED COSTS THROUGH PRICE INCREASES OR OFFSET THESEINCREASES THROUGH OTHER COST REDUCTIONS, WE COULD EXPERIENCE LOWER MARGINS AND PROFITABILITY. SIGNIFICANT INCREASES IN THE PRICES OF RAW MATERIALS OR SUB-assemblies that cannot be recovered through productivity gains, price increases or other methods could adversely affect our results of operations. We Are Subject To Uncertainties Regarding Reimbursement For Use Of Our Products. HOSPITALS AND FREESTANDING CLINICS MAY BE LESS LIKELY TO PURCHASE OURPRODUCTS IF THEY CANNOT BE ASSURED OF RECEIVING FAVORABLE REIMBURSEMENT FOR TREATMENTS USING OUR PRODUCTS FROM THIRD-PARTY PAYERS, SUCH AS MEDICARE ANDPRIVATE HEALTH INSURANCE PLANS. CURRENTLY, MEDICARE REIMBURSES HOSPITALS AT FIXED RATES THAT COVER THE COST OF STRANDED AND LOOSE SEEDS. CLINICS AND PHYSICIANSPERFORMING PROCEDURES IN A FREE STANDING CENTER ARE REIMBURSED AT THE ACTUAL COST OF THE SEEDS. IT IS EXPECTED THAT CMS WILL CONTINUE TO REIMBURSE PROVIDERSusing this same methodology in 2016 but there is no assurance this will occur. BRACHYTHERAPY SEEDS HAVE TWO CMS CODES – ONE CODE FOR LOOSE SEEDS AND A SECOND CODE FOR STRANDED SEEDS. REIMBURSEMENT AMOUNTS ARE REVIEWED ANDREVISED ANNUALLY BASED UPON INFORMATION SUBMITTED TO CMS ON CLAIMS BY PROVIDERS. CHANGES IN REIMBURSEMENT CAN POSITIVELY OR NEGATIVELY AFFECT MARKETdemand for our products. We monitor these changes and provide comments, as permitted, when changes are proposed, prior to implementation. IN 2011, ISORAY INTRODUCED THE GLIASITE® RTS, WHICH HAD AN EXISTING REIMBURSEMENT CODE. AS AN IN-PATIENT PROCEDURE COVERED BY CMS, HOSPITALS ARE PAIDBASED ON THE TYPE OF SURGERY AND THE STATUS OF THE PATIENT. THESE PROCEDURES ARE DONE AS PART OF A DIAGNOSTIC RELATED GROUP OR “DRG” SYSTEM UNDER WHICH THEHOSPITAL PAYS FOR ALL ITEMS INVOLVED IN THE CARE OF THE PATIENT EXCLUSIVE OF THE PHYSICIAN FEES. HOSPITALS ARE LESS RECEPTIVE TO TREATMENTS WHICH REQUIRE OUT OFpocket costs. HISTORICALLY, PRIVATE INSURERS HAVE FOLLOWED MEDICARE GUIDELINES IN ESTABLISHING REIMBURSEMENT RATES. HOWEVER, THIRD-PARTY PAYERS ARE INCREASINGLYCHALLENGING THE PRICING OF CERTAIN MEDICAL SERVICES OR DEVICES, AND WE CANNOT BE SURE THAT THEY WILL REIMBURSE OUR CUSTOMERS AT LEVELS SUFFICIENT FOR US TOMAINTAIN FAVORABLE SALES AND PRICE LEVELS FOR OUR PRODUCTS. THERE IS NO UNIFORM POLICY ON REIMBURSEMENT AMONG THIRD-PARTY PAYERS, AND WE CAN PROVIDE NOASSURANCE THAT OUR PRODUCTS WILL CONTINUE TO QUALIFY FOR REIMBURSEMENT FROM ALL THIRD-PARTY PAYERS OR THAT REIMBURSEMENT RATES WILL NOT BE REDUCED. A REDUCTIONin or elimination of third-party reimbursement for treatments using our products would likely have a material adverse effect on our revenues. OUR SUCCESS IN INTERNATIONAL MARKETS ALSO DEPENDS UPON THE ELIGIBILITY OF OUR PRODUCTS FOR COVERAGE AND REIMBURSEMENT THROUGH GOVERNMENT-SPONSORED HEALTHCARE PAYMENT SYSTEMS AND THIRD-PARTY PAYORS. REIMBURSEMENT PRACTICES VARY SIGNIFICANTLY BY COUNTRY. MANY INTERNATIONAL MARKETS HAVE GOVERNMENT-MANAGEDINSURANCE SYSTEMS THAT CONTROL REIMBURSEMENT FOR NEW PRODUCTS AND PROCEDURES. OTHER FOREIGN MARKETS HAVE BOTH PRIVATE INSURANCE SYSTEMS AND GOVERNMENT-MANAGED SYSTEMS THAT CONTROL REIMBURSEMENT FOR NEW PRODUCTS AND PROCEDURES. MARKET ACCEPTANCE OF OUR PRODUCTS MAY DEPEND ON THE AVAILABILITY AND LEVELOF COVERAGE AND REIMBURSEMENT IN ANY COUNTRY WITHIN A PARTICULAR TIME. IN ADDITION, HEALTH CARE COST CONTAINMENT EFFORTS SIMILAR TO THOSE WE FACE IN THE UNITEDStates are prevalent in many of the other countries in which we intend to sell our products and these efforts are expected to continue. FURTHERMORE, ANY FEDERAL AND STATE EFFORTS TO REFORM GOVERNMENT AND PRIVATE HEALTHCARE INSURANCE PROGRAMS, SUCH AS THOSE PASSED BY THE FEDERAL GOVERNMENT IN2010, COULD SIGNIFICANTLY AFFECT THE PURCHASE OF HEALTHCARE SERVICES AND PRODUCTS IN GENERAL AND DEMAND FOR OUR PRODUCTS IN PARTICULAR. MEDICARE IS THE PAYERIN APPROXIMATELY 65% OF ALL U.S. PROSTATE BRACHYTHERAPY CASES. WE ARE UNABLE TO PREDICT THE ULTIMATE IMPACT OF THE HEALTHCARE REFORM PASSED IN 2010, THOSEREFORMS THAT MAY BE ENACTED IN THE FUTURE BOTH IN THE UNITED STATES AND IN OTHER COUNTRIES, WHETHER OTHER HEALTHCARE LEGISLATION OR REGULATIONS AFFECTING THEbusiness may be proposed or enacted in the future or what effect any such legislation or regulations would have on our business, financial condition or resultsof operations. 27 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Operating Results Will Be Subject To Significant Fluctuations. OUR QUARTERLY REVENUES, EXPENSES, AND OPERATING RESULTS ARE LIKELY TO FLUCTUATESIGNIFICANTLY IN THE FUTURE. FLUCTUATION MAY RESULT FROM A VARIETY OF FACTORS, WHICH ARE DISCUSSED IN DETAIL THROUGHOUT THIS "RISK FACTORS" SECTION,including: ·demand and pricing for the Company's products;·effects of aggressive competitors;·hospital, clinic and physician purchasing decisions;·research and development and manufacturing expenses;·patient outcomes from our products;·physician acceptance of our products;·government or private healthcare reimbursement policies;·healthcare reform;·our manufacturing performance and capacity;·incidents, if any, that could cause temporary shutdown of our manufacturing facility;·the amount and timing of sales orders;·rate and success of future product approvals;·timing of FDA clearance, if any, of competitive products and the rate of market penetration of competingproducts;·seasonality of purchasing behavior in our market;·overall economic conditions;·the 2.3% excise tax on medical devices which began in January 2013;·the successful introduction or market penetration of alternative therapies; and·the outcome of the FDA's evaluation of the clearance process for class II devices. 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 OURProxcelan® CESIUM-131 SEED AND ALL COMPONENTS OF OUR GLIASITE® RTS INCLUDING IOTREX® AND CESITREX™, AND ON OTHER THIRD PARTIES, INCLUDING VARIOUSRADIOPHARMACIES, TO PACKAGE OUR PRODUCTS IN CERTAIN SPECIALIZED PACKAGING FORMS REQUESTED BY CUSTOMERS. WE ARE SUBJECT TO THE RISK THAT THESE THIRD PARTIESmay mishandle our product, which could result in adverse effects, particularly given the radioactive nature of our products. We May Encounter Manufacturing Problems Or Delays That Could Result In Lost Revenue. MANUFACTURING OUR PRODUCTS IS A COMPLEX PROCESS. WE (OR OURcritical suppliers) may encounter difficulties in scaling up or maintaining production of our products, including: ·problems involving production yields;·quality control and assurance;·component supply shortages;·import or export restrictions on components, materials or technology;·shortages of qualified personnel; and·compliance with state, federal and foreign regulations. IF DEMAND FOR OUR PRODUCTS EXCEEDS OUR MANUFACTURING CAPACITY, WE COULD DEVELOP A SUBSTANTIAL BACKLOG OF CUSTOMER ORDERS. IF WE ARE UNABLE TO MAINTAINlarger-scale manufacturing capabilities, our ability to generate revenues will be limited and our reputation in the marketplace could be damaged. 28 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Failure Of Any Clinical Studies Or Third-Party Assessments To Demonstrate Desired Outcomes In Proposed Endpoints May Reduce Physician Usage OrResult In Pricing Pressures That Could Have A Negative Impact On Business Performance. WE MAY DIRECTLY CONDUCT OR SUPPORT THIRD PARTY CLINICAL STUDIESDESIGNED TO TEST A VARIETY OF ENDPOINTS ASSOCIATED WITH PRODUCT PERFORMANCE AND USE ACROSS A NUMBER OF APPLICATIONS. IF, AS A RESULT OF POOR DESIGN,IMPLEMENTATION OR OTHERWISE, A CLINICAL STUDY CONDUCTED BY US OR OTHERS FAILS TO DEMONSTRATE STATISTICALLY SIGNIFICANT RESULTS SUPPORTING PERFORMANCE OR USEBENEFITS OR COMPARATIVE OR COST EFFECTIVENESS OF OUR PRODUCTS, PHYSICIANS MAY ELECT NOT TO USE OUR PRODUCTS AS A TREATMENT FOR CONDITIONS THAT MAY BENEFIT FROMTHEM. FURTHERMORE, IN THE EVENT OF AN ADVERSE CLINICAL STUDY OUTCOME, OUR PRODUCTS MAY NOT ACHIEVE “STANDARD-OF-CARE” DESIGNATIONS, WHERE THEY EXIST, FOR THECONDITIONS IN QUESTION, WHICH COULD DETER THE ADOPTION OF OUR PRODUCTS. ALSO, IF SERIOUS DEVICE-RELATED ADVERSE EVENTS ARE REPORTED DURING THE CONDUCT OF ASTUDY IT COULD AFFECT CONTINUATION OF THE STUDY, PRODUCT APPROVAL AND PRODUCT ADOPTION. IF WE ARE UNABLE TO DEVELOP A BODY OF STATISTICALLY SIGNIFICANTEVIDENCE FROM OUR CLINICAL STUDY PROGRAM, WHETHER DUE TO ADVERSE RESULTS OR THE INABILITY TO COMPLETE PROPERLY DESIGNED STUDIES, DOMESTIC AND INTERNATIONALPUBLIC AND PRIVATE PAYERS COULD REFUSE TO COVER OUR PRODUCTS, LIMIT THE MANNER IN WHICH THEY COVER OUR PRODUCTS, OR REDUCE THE PRICE THEY ARE WILLING TO PAY ORREIMBURSE FOR OUR PRODUCTS. IN THE CASE OF A PRE-APPROVAL STUDY OR A STUDY REQUIRED BY A REGULATORY BODY AS A CONDITION OF CLEARANCE OR APPROVAL, A REGULATORYbody can revoke, modify or deny clearance or approval of the study and/or the product in question. It Is Possible That Other Treatments May Be Deemed Superior To Brachytherapy. Our Proxcelan® CESIUM-131 SEED AND GLIASITE® RTS FACE COMPETITION NOTONLY 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 ORBRACHYTHERAPY, OBSOLETE. IF ALTERNATIVE THERAPIES ARE PROVEN OR EVEN PERCEIVED TO OFFER TREATMENT OPTIONS THAT ARE SUPERIOR TO BRACHYTHERAPY, PHYSICIANadoption of our brachytherapy product could be negatively affected and our revenues from our brachytherapy 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 greaterFINANCIAL AND OTHER RESOURCES, AND HAVE OTHER TECHNOLOGICAL OR COMPETITIVE ADVANTAGES. AS PHYSICIANS MIGRATE TO MEDICAL DEVICES SUCH AS EXTERNAL BEAMRADIATION AND ROBOTIC SURGERY THAT HAVE A MUCH HIGHER CAPITAL COST TO REPAY AND HIGHER PROFIT MARGINS, THIS PUTS INCREASING PRESSURE ON ALL BRACHYTHERAPYPRODUCTS TO COMPETE REGARDLESS OF THEIR SUPERIOR TREATMENT RESULTS. THE MARKET SHARE FOR BRACHYTHERAPY CONTINUES TO DECLINE AS A RESULT OF THIS PRESSURE FROMINCREASING USAGE BY ONCOLOGISTS OF EXTERNAL BEAM RADIATION. IN ADDITION, CENTERS THAT WISH TO OFFER THE PROXCELAN® Cesium-131 seed or the GliaSite® RTS MUSTCOMPLY WITH LICENSING REQUIREMENTS SPECIFIC TO THE STATE, PROVINCE, AND/OR COUNTRY IN WHICH THEY DO BUSINESS AND THESE LICENSING REQUIREMENTS MAY TAKE ACONSIDERABLE AMOUNT OF TIME TO COMPLY WITH. CERTAIN CENTERS MAY CHOOSE NOT TO OFFER OUR PROXCELAN® CESIUM-131 SEED OR THE GLIASITE® RTS DUE TO THE TIMEREQUIRED TO OBTAIN NECESSARY LICENSE AMENDMENTS. WE ALSO COMPETE WITH ACADEMIC INSTITUTIONS, GOVERNMENT AGENCIES, AND PRIVATE RESEARCH ORGANIZATIONS INTHE DEVELOPMENT OF TECHNOLOGIES AND PROCESSES AND IN ACQUIRING KEY PERSONNEL. ALTHOUGH WE HAVE PATENTS GRANTED AND PATENTS APPLIED FOR TO PROTECT OURISOTOPE SEPARATION PROCESSES AND CESIUM-131 SEED MANUFACTURING TECHNOLOGY, WE CANNOT BE CERTAIN THAT ONE OR MORE OF OUR COMPETITORS WILL NOT ATTEMPT TOOBTAIN PATENT PROTECTION THAT BLOCKS OR ADVERSELY AFFECTS OUR PRODUCT DEVELOPMENT EFFORTS. THE COMPANY’S GLIASITE® RTS BRACHYTHERAPY PRODUCTS TYPICALLYCOMPETE WITH EXTERNAL BEAM RADIATION THERAPY (EBRT), WHICH CAN BE PROVIDED AS CONVENTIONAL OR INTENSITY MODULATED RADIATION THERAPY, OR AS STEREOTACTICRADIOSURGERY, A TECHNIQUE THAT DELIVERS HIGH DOSES OF RADIATION TO A TARGET IN A MUCH FEWER NUMBER OF SESSIONS THAN OTHER FORMS OF EBRT. MANUFACTURERS OFEBRT EQUIPMENT INCLUDE VARIAN MEDICAL SYSTEMS, SIEMENS HEALTHCARE, ELEKTA AB, AND ACCURAY INCORPORATED, AMONG OTHERS. IN THE CASE OF BRAIN TUMORS, ASURGEON WILL REMOVE THE TUMOR AND RADIATION THERAPY IS ADDED FOLLOWING THE SURGERY; THIS IS KNOWN AS “ADJUVANT” RADIATION THERAPY. THE COMPANY BELIEVESTHAT ITS FORM OF ADJUVANT RADIATION THERAPY DEPLOYABLE IN SUCH CASES OFFERS ADVANTAGES OVER EXTERNAL BEAM METHODS. HOWEVER, EXTERNAL BEAM HOLDS THE VASTMAJORITY OF THE MARKET FOR ADJUVANT RADIATION THERAPY. UNTIL THE FISCAL YEAR ENDED JUNE 30, 2015, WHEN THE COMPANY EXPERIENCED 13% GROWTH IN PROSTATEBRACHYTHERAPY AND 9% OVERALL GROWTH IN PRODUCT SALES, REVENUES HAD DECLINED IN EACH OF THE PRIOR FOUR FISCAL YEARS. REVENUES IN THE FISCAL YEAR ENDED JUNE 30,2015 rebounded to similar levels as the fiscal year ended June 30, 2013. Cost-Containment Efforts Of Our Customers, Purchasing Groups, Third-Party Payers And Governmental Organizations Could Adversely Affect Our SalesAnd Profitability. THE CONTINUING EFFORTS OF GOVERNMENTS, INSURANCE COMPANIES AND OTHER PAYORS OF HEALTHCARE COSTS TO CONTAIN OR REDUCE THESE COSTS,COMBINED WITH CLOSER SCRUTINY OF SUCH COSTS, COULD LEAD TO PATIENTS BEING UNABLE TO OBTAIN APPROVAL FOR PAYMENT FROM THESE THIRD-PARTY PAYORS. THE COSTCONTAINMENT MEASURES THAT HEALTHCARE PROVIDERS ARE INSTITUTING BOTH IN THE U.S. AND INTERNATIONALLY COULD HARM OUR BUSINESS. SOME HEALTHCARE PROVIDERS IN THEU.S. HAVE ADOPTED OR ARE CONSIDERING A MANAGED CARE SYSTEM IN WHICH THE PROVIDERS CONTRACT TO PROVIDE COMPREHENSIVE HEALTHCARE FOR A FIXED COST PER PERSON.HEALTHCARE PROVIDERS MAY ATTEMPT TO CONTROL COSTS BY AUTHORIZING FEWER ELECTIVE SURGICAL PROCEDURES OR BY REQUIRING THE USE OF THE LEAST EXPENSIVE DEVICESPOSSIBLE, WHICH COULD ADVERSELY AFFECT THE DEMAND FOR OUR PRODUCTS OR THE PRICE AT WHICH WE CAN SELL OUR PRODUCTS. SOME HEALTHCARE PROVIDERS HAVE SOUGHT TOCONSOLIDATE AND CREATE NEW COMPANIES WITH GREATER MARKET POWER, INCLUDING HOSPITALS. AS THE HEALTHCARE INDUSTRY CONSOLIDATES, COMPETITION TO PROVIDEPRODUCTS AND SERVICES HAS BECOME AND WILL CONTINUE TO BECOME MORE INTENSE. THIS HAS RESULTED AND LIKELY WILL CONTINUE TO RESULT IN GREATER PRICING PRESSURESand the exclusion of certain suppliers from important marketing segments. 29 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. OUTSIDE THE UNITED STATES, WE EXPECT TO EXPERIENCE PRICING PRESSURE FROM CENTRALIZED GOVERNMENTAL HEALTHCARE AUTHORITIES DUE TO EFFORTS BY SUCH AUTHORITIES TOLOWER HEALTHCARE COSTS. IMPLEMENTATION OF HEALTHCARE REFORMS AND COMPETITIVE BIDDING CONTRACT TENDERS MAY LIMIT THE PRICE OR THE LEVEL AT WHICHREIMBURSEMENT IS PROVIDED FOR OUR PRODUCTS AND ADVERSELY AFFECT BOTH OUR PRICING FLEXIBILITY AND THE DEMAND FOR OUR PRODUCTS. HEALTHCARE PROVIDERS MAYRESPOND TO SUCH COST-CONTAINMENT PRESSURES BY SUBSTITUTING LOWER COST PRODUCTS OR OTHER THERAPIES FOR OUR PRODUCTS. WE MAY BE REQUIRED TO ENGAGE INCOMPETITIVE BIDDING FOR THE SALE OF OUR PRODUCTS TO GOVERNMENTAL PURCHASING AGENTS AND HOSPITAL GROUPS. OUR FAILURE TO OFFER ACCEPTABLE PRICES TO THESECUSTOMERS COULD ADVERSELY AFFECT OUR SALES AND PROFITABILITY IN THESE MARKETS. DISTRIBUTORS OF OUR PRODUCTS MAY ALSO NEGOTIATE TERMS OF SALE MORE AGGRESSIVELYTO INCREASE THEIR PROFITABILITY. FAILURE TO NEGOTIATE DISTRIBUTION ARRANGEMENTS HAVING ADVANTAGEOUS PRICING AND OTHER TERMS OF SALE COULD CAUSE US TO LOSEmarket share and would adversely affect our business, results of operations, financial condition and cash flows. If We Fail To Comply With Applicable Healthcare Regulations, We Could Face Substantial Penalties And Our Business, Operations And FinancialCondition Could Be Adversely Affected. CERTAIN FEDERAL AND STATE HEALTHCARE LAWS AND REGULATIONS PERTAINING TO FRAUD AND ABUSE AND PATIENTS' RIGHTS MAY BEAPPLICABLE TO OUR BUSINESS. WE COULD BE SUBJECT TO HEALTHCARE FRAUD AND ABUSE AND PATIENT PRIVACY REGULATION BY BOTH THE FEDERAL GOVERNMENT AND THE STATES INwhich we conduct our business, without limitation. The laws that may affect our ability to operate include, but are not limited to: ·THE FEDERAL ANTI-KICKBACK STATUTE, WHICH PROHIBITS, AMONG OTHER THINGS, KNOWINGLY AND WILLFULLY SOLICITING, RECEIVING, OFFERING OR PAYING ANYREMUNERATION (INCLUDING ANY KICKBACK, BRIBE OR REBATE), DIRECTLY OR INDIRECTLY, OVERTLY OR COVERTLY, IN CASH OR IN KIND, TO INDUCE, OR IN RETURN FOR,THE REFERRAL OF AN INDIVIDUAL FOR THE FURNISHING OR ARRANGING FOR THE FURNISHING OF ANY ITEM OR SERVICE, OR THE PURCHASE, LEASE, ORDER, ARRANGEMENTFOR, OR RECOMMENDATION OF THE PURCHASE, LEASE, OR ORDER OF ANY GOOD, FACILITY, ITEM OR SERVICE FOR WHICH PAYMENT MAY BE MADE, IN WHOLE OR IN PART,under a federal healthcare program, such as the Medicare and Medicaid programs;·THE CIVIL FEDERAL FALSE CLAIMS ACT, WHICH IMPOSES CIVIL PENALTIES, INCLUDING THROUGH CIVIL WHISTLEBLOWER OR QUI TAM ACTIONS, AGAINST INDIVIDUALSOR ENTITIES FOR, AMONG OTHER THINGS, KNOWINGLY PRESENTING, OR CAUSING TO BE PRESENTED, TO THE FEDERAL GOVERNMENT, CLAIMS FOR PAYMENT THAT AREFALSE OR FRAUDULENT; KNOWINGLY MAKING, USING OR CAUSING TO BE MADE OR USED, A FALSE RECORD OR STATEMENT TO GET A FALSE OR FRAUDULENT CLAIM PAID ORAPPROVED BY THE GOVERNMENT; CONSPIRING TO DEFRAUD THE GOVERNMENT BY GETTING A FALSE OR FRAUDULENT CLAIM PAID OR APPROVED BY THE GOVERNMENT;OR KNOWINGLY MAKING, USING OR CAUSING TO BE MADE OR USED A FALSE RECORD OR STATEMENT TO AVOID, DECREASE OR CONCEAL AN OBLIGATION TO PAY MONEYto the federal government;·THE CRIMINAL FEDERAL FALSE CLAIMS ACT, WHICH IMPOSES CRIMINAL FINES OR IMPRISONMENT AGAINST INDIVIDUALS OR ENTITIES WHO MAKE OR PRESENT A CLAIMto the government knowing such claim to be false, fictitious or fraudulent;·THE CIVIL MONETARY PENALTIES STATUTE, WHICH IMPOSES PENALTIES AGAINST ANY PERSON OR ENTITY WHO, AMONG OTHER THINGS, IS DETERMINED TO HAVEPRESENTED OR CAUSED TO BE PRESENTED A CLAIM TO A FEDERAL HEALTH PROGRAM THAT THE PERSON KNOWS OR SHOULD KNOW IS FOR AN ITEM OR SERVICE THAT WASnot provided as claimed or is false or fraudulent;·THE VETERANS HEALTH CARE ACT OF 1992 THAT REQUIRES MANUFACTURERS OF “COVERED DRUGS” TO OFFER THEM FOR SALE TO CERTAIN FEDERAL AGENCIES, INCLUDINGBUT NOT LIMITED TO, THE DEPARTMENT OF VETERANS AFFAIRS, ON THE FEDERAL SUPPLY SCHEDULE, WHICH REQUIRES COMPLIANCE WITH APPLICABLE FEDERALprocurement laws and regulations and subjects manufacturers to contractual remedies as well as administrative, civil and criminal sanctions;·THE FEDERAL HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996 (HIPAA), WHICH CREATED NEW FEDERAL CRIMINAL STATUTES THAT PROHIBITKNOWINGLY AND WILLFULLY EXECUTING, OR ATTEMPTING TO EXECUTE, A SCHEME TO DEFRAUD ANY HEALTHCARE BENEFIT PROGRAM OR OBTAIN, BY MEANS OF FALSE ORFRAUDULENT PRETENSES, REPRESENTATIONS OR PROMISES, ANY OF THE MONEY OR PROPERTY OWNED BY, OR UNDER THE CUSTODY OR CONTROL OF, ANY HEALTHCAREBENEFIT PROGRAM, REGARDLESS OF THE PAYOR (E.G., PUBLIC OR PRIVATE), KNOWINGLY AND WILLFULLY EMBEZZLING OR STEALING FROM A HEALTH CARE BENEFITPROGRAM, WILLFULLY OBSTRUCTING A CRIMINAL INVESTIGATION OF A HEALTH CARE OFFENSE AND KNOWINGLY AND WILLFULLY FALSIFYING, CONCEALING OR COVERINGUP BY ANY TRICK OR DEVICE A MATERIAL FACT OR MAKING ANY MATERIALLY FALSE STATEMENTS IN CONNECTION WITH THE DELIVERY OF, OR PAYMENT FOR, HEALTHCAREbenefits, items or services relating to healthcare matters; 30 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·HIPAA, AS AMENDED BY THE HEALTH INFORMATION TECHNOLOGY FOR ECONOMIC AND CLINICAL HEALTH ACT OF 2009, AND THEIR RESPECTIVE IMPLEMENTINGREGULATIONS, WHICH IMPOSE REQUIREMENTS ON CERTAIN COVERED HEALTHCARE PROVIDERS, HEALTH PLANS AND HEALTHCARE CLEARINGHOUSES AS WELL AS THEIRRESPECTIVE BUSINESS ASSOCIATES THAT PERFORM SERVICES FOR THEM THAT INVOLVE INDIVIDUALLY IDENTIFIABLE HEALTH INFORMATION, RELATING TO THE PRIVACY,SECURITY AND TRANSMISSION OF INDIVIDUALLY IDENTIFIABLE HEALTH INFORMATION WITHOUT APPROPRIATE AUTHORIZATION, INCLUDING MANDATORY CONTRACTUALterms as well as directly applicable privacy and security standards and requirements;·THE FEDERAL PHYSICIAN PAYMENT SUNSHINE ACT, CREATED UNDER THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (THE ACA), AND ITS IMPLEMENTINGREGULATIONS REQUIRES MANUFACTURERS OF DRUGS, DEVICES, BIOLOGICALS AND MEDICAL SUPPLIES FOR WHICH PAYMENT IS AVAILABLE UNDER MEDICARE,MEDICAID OR THE CHILDREN’S HEALTH INSURANCE PROGRAM (WITH CERTAIN EXCEPTIONS) TO REPORT ANNUALLY TO THE UNITED STATES DEPARTMENT OF HEALTH ANDHUMAN SERVICES INFORMATION RELATED TO PAYMENTS OR OTHER TRANSFERS OF VALUE MADE TO PHYSICIANS (DEFINED TO INCLUDE DOCTORS, DENTISTS,OPTOMETRISTS, PODIATRISTS AND CHIROPRACTORS) AND TEACHING HOSPITALS, AS WELL AS OWNERSHIP AND INVESTMENT INTERESTS HELD BY PHYSICIANS AND THEIRimmediate family members, with data collection required reporting to CMS by the 90th day following each calendar year;·FEDERAL CONSUMER PROTECTION AND UNFAIR COMPETITION LAWS, WHICH BROADLY REGULATE MARKETPLACE ACTIVITIES AND ACTIVITIES THAT POTENTIALLY HARMconsumers;·THE FOREIGN CORRUPT PRACTICES ACT, A U.S. LAW WHICH REGULATES CERTAIN FINANCIAL RELATIONSHIPS WITH FOREIGN GOVERNMENT OFFICIALS (WHICH COULDinclude, for example, certain medical professionals); and·STATE LAW EQUIVALENTS OF EACH OF THE ABOVE FEDERAL LAWS, SUCH AS ANTI-KICKBACK, FALSE CLAIMS, CONSUMER PROTECTION AND UNFAIR COMPETITION LAWSWHICH MAY APPLY TO OUR BUSINESS PRACTICES, INCLUDING BUT NOT LIMITED TO, RESEARCH, DISTRIBUTION, SALES AND MARKETING ARRANGEMENTS AS WELL ASSUBMITTING CLAIMS INVOLVING HEALTHCARE ITEMS OR SERVICES REIMBURSED BY ANY THIRD-PARTY PAYORS, INCLUDING COMMERCIAL INSURERS, AND STATE LAWSGOVERNING THE PRIVACY AND SECURITY OF HEALTH INFORMATION IN CERTAIN CIRCUMSTANCES MANY OF WHICH DIFFER FROM EACH OTHER IN SIGNIFICANT WAYS, WITHdiffering effect. ADDITIONALLY, THE COMPLIANCE ENVIRONMENT IS CHANGING, WITH MORE STATES, SUCH AS CALIFORNIA AND MASSACHUSETTS, MANDATING IMPLEMENTATION OF COMPLIANCEPROGRAMS, COMPLIANCE WITH INDUSTRY ETHICS CODES, AND SPENDING LIMITS, AND OTHER STATES, SUCH AS VERMONT, MAINE, AND MINNESOTA, REQUIRING REPORTING TO STATEGOVERNMENTS OF GIFTS, COMPENSATION, AND OTHER REMUNERATION TO PHYSICIANS. THESE LAWS ALL PROVIDE FOR PENALTIES FOR NON-COMPLIANCE. THE SHIFTING REGULATORYENVIRONMENT, ALONG WITH THE REQUIREMENT TO COMPLY WITH MULTIPLE JURISDICTIONS WITH DIFFERENT COMPLIANCE AND/OR REPORTING REQUIREMENTS, INCREASES THEpossibility that a company may inadvertently run afoul of one or more laws. IF OUR PAST OR PRESENT OPERATIONS ARE FOUND TO BE IN VIOLATION OF ANY OF THE LAWS DESCRIBED ABOVE OR THE OTHER GOVERNMENTAL REGULATIONS TO WHICH WE, OURDISTRIBUTORS OR OUR CUSTOMERS ARE SUBJECT, WE MAY BE SUBJECT TO THE APPLICABLE PENALTY ASSOCIATED WITH THE VIOLATION, INCLUDING CIVIL AND CRIMINAL PENALTIES,DAMAGES, FINES, EXCLUSION FROM MEDICARE, MEDICAID AND OTHER GOVERNMENT PROGRAMS AND THE CURTAILMENT OR RESTRUCTURING OF OUR OPERATIONS. IF WE ARE REQUIREDto obtain permits or licensure under these laws that we do not already possess, we may become subject to substantial additional regulation or incur significantEXPENSE. ANY PENALTIES, DAMAGES, FINES, CURTAILMENT OR RESTRUCTURING OF OUR OPERATIONS WOULD ADVERSELY AFFECT OUR ABILITY TO OPERATE OUR BUSINESS AND OURFINANCIAL RESULTS. THE RISK OF OUR BEING FOUND IN VIOLATION OF THESE LAWS IS INCREASED BY THE FACT THAT MANY OF THEM HAVE NOT BEEN FULLY OR CLEARLY INTERPRETED BYTHE REGULATORY AUTHORITIES OR THE COURTS, AND THEIR PROVISIONS ARE SUBJECT TO A VARIETY OF INTERPRETATIONS AND ADDITIONAL LEGAL OR REGULATORY CHANGE. ANY ACTIONAGAINST US FOR VIOLATION OF THESE LAWS, EVEN IF WE SUCCESSFULLY DEFEND AGAINST IT, COULD CAUSE US TO INCUR SIGNIFICANT LEGAL EXPENSES, DIVERT OUR MANAGEMENT’SATTENTION FROM THE OPERATION OF OUR BUSINESS AND DAMAGE OUR REPUTATION. MOREOVER, ACHIEVING AND SUSTAINING COMPLIANCE WITH APPLICABLE FEDERAL AND STATEprivacy, security and fraud laws may prove costly. Medical Device Tax. SIGNIFICANT REFORMS TO THE HEALTHCARE SYSTEM WERE ADOPTED IN THE FORM OF THE ACA. THE ACA INCLUDES PROVISIONS THAT, AMONG OTHERTHINGS, REQUIRE THE MEDICAL DEVICE INDUSTRY TO SUBSIDIZE HEALTHCARE REFORM IN THE FORM OF A 2.3% EXCISE TAX (THE MEDICAL DEVICE TAX) ON THE U.S. SALES OF MOSTMEDICAL DEVICES BEGINNING IN 2013. WE BELIEVE THIS TAX IS ASSESSED ON 100% OF OUR PRODUCT SALES THAT ARE SOLD IN THE UNITED STATES. THIS TAX IS SUBJECT TOCHANGE DUE TO, AMONG OTHER THINGS, FUTURE IRS GUIDANCE AND INTERPRETATIONS OF THE MEDICAL DEVICE TAX REGULATIONS, AND CHANGES IN OUR PRODUCT MIX. THISrevenue-based tax will have a material impact on our consolidated results of operations, cash flows, and financial condition. 31 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In the year ended June 30, the Company’s medical device tax expense was: Amount 2015 $99,203 2014 $96,115 Healthcare Reform Measures Could Hinder Our Products' Commercial Success. IN BOTH THE UNITED STATES AND CERTAIN FOREIGN JURISDICTIONS THERE HAVE BEEN,AND WE ANTICIPATE THERE WILL CONTINUE TO BE, A NUMBER OF LEGISLATIVE AND REGULATORY CHANGES TO THE HEALTHCARE SYSTEM THAT COULD IMPACT OUR ABILITY TO SELL ANYOF OUR PRODUCTS PROFITABLY. IN THE UNITED STATES, THE FEDERAL GOVERNMENT PASSED HEALTHCARE REFORM LEGISLATION, THE ACA. THE PROVISIONS OF THE ACA HAVEBECOME OR WILL BECOME EFFECTIVE ON VARIOUS DATES. WHILE MANY OF THE DETAILS REGARDING THE IMPLEMENTATION OF THE ACA ARE YET TO BE DETERMINED, WE BELIEVEthere will be continuing trends towards expanding coverage to more individuals, containing health care costs and improving quality. THE CONTINUING EFFORTS OF THE GOVERNMENT, INSURANCE COMPANIES, MANAGED CARE ORGANIZATIONS AND OTHER PAYORS OF HEALTHCARE SERVICES TO MAKE AND IMPLEMENThealthcare reforms may adversely affect: ·our ability to set a price we believe is fair for our products;·our ability to generate revenues and achieve or maintain profitability;·the availability of capital; and·our ability to obtain timely approval of any future product modifications. CMS HAS PUBLISHED FINAL REGULATIONS THAT IMPLEMENT PROVISIONS IN ACA RELATED TO DISCLOSURE OF PAYMENTS MADE BY MANUFACTURERS TO PHYSICIANS AND TEACHINGHOSPITALS, EFFECTIVE APRIL 2013. BECAUSE WE MANUFACTURE DEVICES THAT ARE COVERED BY THE REGULATIONS, ALL PAYMENTS THAT WE MAKE TO PHYSICIANS AND TEACHINGHOSPITALS WOULD BE SUBJECT TO THIS REPORTING REQUIREMENT EVEN IF THE PAYMENT RELATES TO A DEVICE THAT IS NOT CONSIDERED A COVERED DEVICE. THE TRACKING ANDREPORTING OF THESE PAYMENTS COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS AND/OR CONSOLIDATED RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND ON OURrelationships with customers and potential customers. We May Be Unable To Adequately Protect Or Enforce Our Intellectual Property Rights Or Secure Rights To Third-Party Patents. OUR ABILITY AND THE ABILITIESOF OUR DISTRIBUTORS TO OBTAIN AND MAINTAIN PATENT AND OTHER PROTECTION FOR OUR PRODUCTS WILL AFFECT OUR SUCCESS. WE ARE ASSIGNED, HAVE RIGHTS TO, OR HAVEEXCLUSIVE LICENSES TO PATENTS AND PATENTS PENDING IN THE U.S. AND NUMEROUS FOREIGN COUNTRIES. THE PATENT POSITIONS OF MEDICAL DEVICE COMPANIES CAN BEHIGHLY 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 MAYNOT PROVIDE COMPETITIVE ADVANTAGES FOR OUR PRODUCTS AND MAY BE CHALLENGED, INFRINGED UPON OR CIRCUMVENTED BY OUR COMPETITORS. WE CANNOT PATENT OURproducts in all countries or afford to litigate every potential violation worldwide. BECAUSE OF THE LARGE NUMBER OF PATENT FILINGS IN THE MEDICAL DEVICE AND BIOTECHNOLOGY FIELD, OUR COMPETITORS MAY HAVE FILED APPLICATIONS OR BEEN ISSUEDPATENTS AND MAY OBTAIN ADDITIONAL PATENTS AND PROPRIETARY RIGHTS RELATING TO PRODUCTS OR PROCESSES COMPETITIVE WITH OR SIMILAR TO OURS. WE CANNOT BE CERTAINthat 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. Pending And Future Patent Litigation Could Be Costly And Disruptive And May Have An Adverse Effect On Our Financial Condition And Results OfOperations. WE OPERATE IN AN INDUSTRY CHARACTERIZED BY EXTENSIVE PATENT LITIGATION. POTENTIAL PATENT CLAIMS INCLUDE CHALLENGES TO THE COVERAGE AND VALIDITY OFthe Company’s patents on products or processes as well as allegations that the Company’s products infringe patents held by competitors or other third parties.A LOSS IN ANY OF THESE TYPES OF CASES COULD RESULT IN A LOSS OF PATENT PROTECTION OR THE ABILITY TO MARKET PRODUCTS, WHICH COULD LEAD TO A SIGNIFICANT LOSS OF SALES,or otherwise materially affect future results of operations. 32 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE COMPANY’S COMMERCIAL SUCCESS WILL DEPEND IN PART ON NOT INFRINGING THE PATENTS OR VIOLATING THE OTHER PROPRIETARY RIGHTS OF THIRD PARTIES. INTELLECTUALPROPERTY LITIGATION IS EXPENSIVE AND COMPLEX AND OUTCOMES ARE DIFFICULT TO PREDICT. ANY PENDING OR FUTURE PATENT LITIGATION MAY RESULT IN SIGNIFICANT DAMAGEAWARDS, INCLUDING TREBLE DAMAGES UNDER CERTAIN CIRCUMSTANCES, AND INJUNCTIONS THAT COULD PREVENT THE MANUFACTURE AND SALE OF AFFECTED PRODUCTS OR FORCE US TOMAKE SIGNIFICANT ROYALTY PAYMENTS IN ORDER TO CONTINUE SELLING THE AFFECTED PRODUCTS. AT ANY GIVEN TIME, WE MAY BE INVOLVED AS EITHER A PLAINTIFF OR ADEFENDANT IN A NUMBER OF PATENT INFRINGEMENT ACTIONS, THE OUTCOMES OF WHICH MAY NOT BE KNOWN FOR PROLONGED PERIODS OF TIME. AS A HEALTHCARE SUPPLIER, WECAN EXPECT TO FACE ADDITIONAL CLAIMS OF PATENT INFRINGEMENT IN THE FUTURE. A SUCCESSFUL CLAIM OF PATENT OR OTHER INTELLECTUAL PROPERTY INFRINGEMENT AGAINST UScould adversely affect our results of operations and financial condition. The Value Of Our Granted Patents, and Our Patents Pending, Is Uncertain. ALTHOUGH OUR MANAGEMENT STRONGLY BELIEVES THAT OUR PATENT ON THE PROCESS FORPRODUCING CESIUM-131, OUR PATENTS ON ADDITIONAL METHODS FOR PRODUCING CESIUM-131 AND OTHER ISOTOPES, OUR PATENT ON THE MANUFACTURE OF THE BRACHYTHERAPYSEED, AND ANTICIPATED FUTURE PATENT APPLICATIONS, WHICH HAVE NOT YET BEEN FILED, HAVE SIGNIFICANT VALUE, WE CANNOT BE CERTAIN THAT OTHER LIKE-KIND PROCESSESmay 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 TOEXTENSIVE, COMPLEX, COSTLY, AND EVOLVING GOVERNMENTAL RULES, REGULATIONS AND RESTRICTIONS ADMINISTERED BY THE FDA, BY OTHER FEDERAL AND STATE AGENCIES, ANDBY GOVERNMENTAL AUTHORITIES IN OTHER COUNTRIES. COMPLIANCE WITH THESE LAWS AND REGULATIONS IS EXPENSIVE AND TIME-CONSUMING, AND CHANGES TO OR FAILURE TOcomply 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 BYFEDERAL, STATE, AND LOCAL GOVERNMENTAL AUTHORITIES, SUCH AS THE FDA AND THE WASHINGTON STATE DEPARTMENT OF HEALTH, TO ENSURE SUCH DEVICES ARE SAFE ANDEFFECTIVE. 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. INWASHINGTON STATE, THE DEPARTMENT OF HEALTH, BY AGREEMENT WITH THE FEDERAL NUCLEAR REGULATORY COMMISSION (NRC), REGULATES THE POSSESSION, USE, ANDDISPOSAL OF RADIOACTIVE BYPRODUCT MATERIAL AS WELL AS THE MANUFACTURE OF RADIOACTIVE SEALED SOURCES TO ENSURE COMPLIANCE WITH STATE AND FEDERAL LAWS ANDregulations. Our Proxcelan® CESIUM-131 BRACHYTHERAPY SEEDS AND THE GLIASITE® RTS CONSTITUTE BOTH MEDICAL DEVICES AND RADIOACTIVE SEALED SOURCES AND AREsubject 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® CESIUM-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 INTENDEDUSE, 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 THECompany. THE FDA HAS BEEN CONSIDERING LEGISLATIVE, REGULATORY AND/OR ADMINISTRATIVE CHANGES TO THE FDA’S 510(K) PROGRAM. VARIOUS COMMITTEES OF THE U.S. CONGRESSHAVE ALSO INDICATED THAT THEY MAY CONSIDER INVESTIGATING THE FDA’S 510(K) PROCESS. UNDER THE CURRENT 510(K) RULES, CERTAIN TYPES OF MEDICAL DEVICES CANOBTAIN FDA APPROVAL WITHOUT LENGTHY AND EXPENSIVE CLINICAL TRIALS. AMONG OUR PRODUCT OFFERINGS, THOSE PRODUCTS THAT REQUIRE FDA APPROVAL HAVE RECEIVEDSUCH APPROVAL UNDER THE 510(K) RULES. OUR R&D PROGRAMS AND NEW PRODUCT PROGRAMS CONTEMPLATE OBTAINING ANY REQUIRED FDA APPROVALS UNDER THE CURRENT510(K) RULES. ANY CHANGES TO THE CURRENT 510(K) OR RELATED FDA RULES THAT MAKE SUCH RULES MORE STRINGENT OR REQUIRE MORE CLINICAL DATA CAN SIGNIFICANTLYINCREASE THE TIME AND COSTS ASSOCIATED WITH BRINGING NEW PRODUCTS OR PRODUCT MODIFICATIONS TO MARKET. THIS MAY HAVE A MATERIAL ADVERSE EFFECT ON OURbusiness, financial condition and results of operations. IN ADDITION TO FDA-REQUIRED MARKET CLEARANCES AND APPROVALS FOR OUR PRODUCTS, OUR MANUFACTURING OPERATIONS ARE REQUIRED TO COMPLY WITH THE FDA'S QUALITYSYSTEM REGULATION, OR QSR, WHICH ADDRESSES REQUIREMENTS FOR A COMPANY'S QUALITY PROGRAM SUCH AS MANAGEMENT RESPONSIBILITY, GOOD MANUFACTURINGPRACTICES, PRODUCT AND PROCESS DESIGN CONTROLS, AND QUALITY CONTROLS USED IN MANUFACTURING. COMPLIANCE WITH APPLICABLE REGULATORY REQUIREMENTS IS MONITOREDTHROUGH PERIODIC INSPECTIONS BY THE FDA OFFICE OF REGULATORY AFFAIRS (ORA). WE ANTICIPATE BOTH ANNOUNCED AND UNANNOUNCED INSPECTIONS BY THE FDA. SUCHINSPECTIONS COULD RESULT IN NON-COMPLIANCE REPORTS (FORM 483) WHICH, IF NOT ADEQUATELY RESPONDED TO, COULD LEAD TO ENFORCEMENT ACTIONS. THE FDA CANINSTITUTE A WIDE VARIETY OF ENFORCEMENT ACTIONS RANGING FROM PUBLIC WARNING LETTERS TO MORE SEVERE SANCTIONS SUCH AS FINES; INJUNCTIONS; CIVIL PENALTIES; RECALLOF OUR PRODUCTS; OPERATING RESTRICTIONS; SUSPENSION OF PRODUCTION; NON-APPROVAL OR WITHDRAWAL OF PRE-MARKET CLEARANCES FOR NEW PRODUCTS OR EXISTING PRODUCTSAND CRIMINAL PROSECUTION. THERE CAN BE NO ASSURANCE THAT WE WILL NOT INCUR SIGNIFICANT COSTS TO COMPLY WITH THESE REGULATIONS IN THE FUTURE OR THAT THEregulations will not have a material adverse effect on our business, financial condition and results of operations. 33 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN ADDITION TO THE ACA, VARIOUS HEALTHCARE REFORM PROPOSALS HAVE ALSO EMERGED AT THE STATE LEVEL. LIKE THE ACA, THESE PROPOSALS COULD REDUCE MEDICALPROCEDURE VOLUMES AND IMPACT THE DEMAND FOR OUR PRODUCTS OR THE PRICES AT WHICH WE SELL OUR PRODUCTS. THE IMPACT OF THESE PROPOSALS COULD HAVE A MATERIALadverse effect on our business and/or consolidated results of operations and financial condition. THE AUTOMATIC SPENDING CUTS OF NEARLY $1 TRILLION OVER THE NEXT 10 YEARS THAT WERE INCLUDED UNDER THE BUDGET CONTROL ACT OF 2011, INCLUDING A 2% CUT TOMEDICARE PROVIDERS AND SUPPLIERS, TOOK EFFECT IN 2013. MEDICAID IS EXEMPT FROM THESE CUTS. ANY CUTS TO MEDICARE REIMBURSEMENT WHICH AFFECT OUR PRODUCTScould have a material adverse effect on our business and/or our consolidated results of operations and financial condition. THE MARKETING OF OUR PRODUCTS IN FOREIGN COUNTRIES WILL, IN GENERAL, BE REGULATED BY FOREIGN GOVERNMENTAL AGENCIES SIMILAR TO THE FDA. FOREIGN REGULATORYREQUIREMENTS VARY FROM COUNTRY TO COUNTRY. THE TIME AND COST REQUIRED TO OBTAIN REGULATORY APPROVALS COULD BE LONGER THAN THAT REQUIRED FOR FDA CLEARANCE INTHE UNITED STATES AND THE REQUIREMENTS FOR LICENSING A PRODUCT IN ANOTHER COUNTRY MAY DIFFER SIGNIFICANTLY FROM FDA REQUIREMENTS. WE WILL RELY, IN PART, ONFOREIGN DISTRIBUTORS TO ASSIST US IN COMPLYING WITH FOREIGN REGULATORY REQUIREMENTS. WE MAY NOT BE ABLE TO OBTAIN THESE APPROVALS WITHOUT INCURRINGSIGNIFICANT EXPENSES OR AT ALL, AND THE FAILURE TO OBTAIN THESE APPROVALS WOULD PREVENT US FROM SELLING OUR PRODUCTS IN THE APPLICABLE COUNTRIES. THIS COULDlimit our sales and growth. Quality Problems With Our Products Could Harm Our Reputation For Producing High-Quality Products And Erode Our Competitive Advantage, Sales, AndMarket Share. QUALITY IS EXTREMELY IMPORTANT TO US AND OUR CUSTOMERS DUE TO THE SERIOUS AND COSTLY CONSEQUENCES OF PRODUCT FAILURE, WHICH CAN INCLUDEPATIENT HARM. OUR OPERATING RESULTS DEPEND IN PART ON OUR ABILITY TO SUSTAIN AN EFFECTIVE QUALITY CONTROL SYSTEM AND EFFECTIVELY TRAIN AND MANAGE OUR EMPLOYEEBASE WITH RESPECT TO OUR QUALITY SYSTEM. OUR QUALITY SYSTEM PLAYS AN ESSENTIAL ROLE IN DETERMINING AND MEETING CUSTOMER REQUIREMENTS, PREVENTING DEFECTS ANDIMPROVING OUR PRODUCTS AND SERVICES. WHILE WE HAVE A NETWORK OF QUALITY SYSTEMS THROUGHOUT OUR BUSINESS LINES AND FACILITIES, QUALITY AND SAFETY ISSUES MAYOCCUR WITH RESPECT TO ANY OF OUR PRODUCTS. A QUALITY OR SAFETY ISSUE MAY RESULT IN A PUBLIC WARNING LETTER FROM THE FDA, PRODUCT RECALLS OR SEIZURES, MONETARYSANCTIONS, INJUNCTIONS TO HALT MANUFACTURING AND DISTRIBUTION OF PRODUCTS, CIVIL OR CRIMINAL SANCTIONS, REFUSAL OF A GOVERNMENT TO GRANT CLEARANCES OR APPROVALSOR DELAYS IN GRANTING SUCH CLEARANCES OR APPROVALS, IMPORT DETENTIONS OF ANY FUTURE PRODUCTS MADE OUTSIDE THE UNITED STATES, RESTRICTIONS ON OPERATIONS ORWITHDRAWAL OR SUSPENSION OF EXISTING APPROVALS. NEGATIVE PUBLICITY REGARDING A QUALITY ISSUE COULD DAMAGE OUR REPUTATION, CAUSE US TO LOSE CUSTOMERS, ORDECREASE DEMAND FOR OUR PRODUCTS. ANY OF THE FOREGOING EVENTS COULD DISRUPT OUR BUSINESS AND HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS ANDfinancial condition. Our Business Exposes Us To Product Liability Claims. OUR DESIGN, TESTING, DEVELOPMENT, MANUFACTURE, AND MARKETING OF PRODUCTS INVOLVE AN INHERENT RISK OFEXPOSURE TO PRODUCT LIABILITY CLAIMS AND RELATED ADVERSE PUBLICITY. OUR BRACHYTHERAPY SEED PRODUCTS DELIVER A HIGHLY CONCENTRATED AND CONFINED DOSE OFRADIATION DIRECTLY TO THE ORGAN IN WHICH IT IS IMPLANTED FROM WITHIN THE PATIENT’S BODY. SURROUNDING TISSUES AND ORGANS ARE TYPICALLY SPARED EXCESSIVERADIATION EXPOSURE. IT IS AN INHERENT RISK OF THE INDUSTRIES IN WHICH WE OPERATE THAT WE MIGHT BE SUED IN A SITUATION WHERE ONE OF OUR PRODUCTS RESULTS IN, OR ISALLEGED TO RESULT IN, A PERSONAL INJURY TO A PATIENT, HEALTH CARE PROVIDER, OR OTHER USER. ALTHOUGH WE BELIEVE THAT AS OF THE DATE OF THIS REPORT, WE HAVE ADEQUATEINSURANCE TO ADDRESS ANTICIPATED POTENTIAL LIABILITIES ASSOCIATED WITH PRODUCT LIABILITY, ANY UNFORESEEN PRODUCT LIABILITY EXPOSURE IN EXCESS OF, OR OUTSIDE THESCOPE OF, SUCH INSURANCE COVERAGE COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND OPERATING RESULTS. ANY SUCH CLAIM BROUGHT AGAINST US, WITH OR WITHOUTMERIT, COULD RESULT IN SIGNIFICANT DAMAGE TO OUR BUSINESS. INSURANCE COVERAGE IS EXPENSIVE AND DIFFICULT TO OBTAIN, AND, ALTHOUGH WE CURRENTLY HAVE A FIVEMILLION 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 SUFFICIENTINSURANCE 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 BEHARMED. THE FDA’S MEDICAL DEVICE REPORTING REGULATIONS REQUIRE US TO REPORT ANY INCIDENT IN WHICH OUR PRODUCTS MAY HAVE CAUSED OR CONTRIBUTED TO A DEATH ORSERIOUS INJURY, OR IN WHICH OUR PRODUCTS MALFUNCTIONED IN A WAY THAT WOULD BE LIKELY TO CAUSE OR CONTRIBUTE TO A DEATH OR SERIOUS INJURY IF THE MALFUNCTIONREOCCURRED. ANY REQUIRED FILING COULD RESULT IN AN INVESTIGATION OF OUR PRODUCTS AND POSSIBLY SUBSEQUENT REGULATORY ACTION AGAINST US IF IT IS FOUND THAT ONE OFour products caused the death or serious injury of a patient. 34 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Business Involves Environmental Risks. OUR BUSINESS INVOLVES THE CONTROLLED USE OF HAZARDOUS MATERIALS, CHEMICALS, BIOLOGICS, AND RADIOACTIVECOMPOUNDS. 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 DISPOSINGOF 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 MANUFACTURING FACILITY FOR AN EXTENDED PERIOD OF TIME. BY LAW, RADIOACTIVE MATERIALS MAY ONLYBE DISPOSED OF AT STATE-APPROVED FACILITIES. AT OUR LEASED FACILITY WE USE COMMERCIAL DISPOSAL CONTRACTORS. WE ARE IN THE PLANNING PROCESS OF SHUTTING DOWN OURLEASED MANUFACTURING AND OFFICE FACILITY, PLANNING THE CONSTRUCTION OF A NEW MANUFACTURING AND OFFICE FACILITY TO BE OWNED BY THE COMPANY ON AN ADJACENTPROPERTY AND MOVING TO THE NEW MANUFACTURING FACILITY. ONCE IT IS CONSTRUCTED AND LICENSED, WE WILL INCUR COSTS RELATED TO THE CLEAN-UP AND DISPOSAL OFHAZARDOUS MATERIALS, CHEMICALS AND RADIOACTIVE COMPONENTS OF THE LEASED FACILITY. WHILE MANAGEMENT BELIEVES IT HAS RESERVED A SUFFICIENT AMOUNT OF FUNDS FORTHIS PROCESS, THE COMPANY MAY NEED MORE THAN THE AMOUNT OF THE ASSET RETIREMENT OBLIGATION TO MEET THE LEASE REQUIREMENTS AND TO RECEIVE CLEARANCE FROM THEWASHINGTON STATE DEPARTMENT OF HEALTH. 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, SALESSTAFF AND KEY SCIENTIFIC PERSONNEL. IF WE LOSE THE SERVICES OF SEVERAL OFFICERS, SALES PERSONNEL, OR KEY SCIENTIFIC PERSONNEL, OUR BUSINESS COULD BE HARMED. OURSUCCESS ALSO WILL DEPEND UPON OUR ABILITY TO ATTRACT AND RETAIN OTHER HIGHLY QUALIFIED SCIENTIFIC, MANAGERIAL, SALES, AND MANUFACTURING PERSONNEL AND THEIRABILITY TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH KEY INDIVIDUALS IN THE INDUSTRY. COMPETITION FOR THESE PERSONNEL AND RELATIONSHIPS IS INTENSE AND WECOMPETE WITH NUMEROUS PHARMACEUTICAL AND BIOTECHNOLOGY COMPANIES AS WELL AS WITH UNIVERSITIES AND NON-PROFIT RESEARCH ORGANIZATIONS. WE ARE HIGHLYDEPENDENT ON OUR DIRECT SALES ORGANIZATION WHO PROMOTE AND SUPPORT OUR BRACHYTHERAPY PRODUCTS. THERE IS INTENSE COMPETITION FOR SKILLED SALES ANDMARKETING EMPLOYEES, PARTICULARLY FOR PEOPLE WHO HAVE EXPERIENCE IN THE RADIATION ONCOLOGY MARKET. ACCORDINGLY, WE COULD FIND IT DIFFICULT TO HIRE OR RETAINSKILLED INDIVIDUALS TO SELL OUR PRODUCTS. FAILURE TO RETAIN OUR DIRECT SALES FORCE COULD ADVERSELY AFFECT OUR GROWTH AND OUR ABILITY TO MEET OUR REVENUE GOALS.THERE CAN BE NO ASSURANCE THAT OUR DIRECT SALES AND MARKETING EFFORTS WILL BE SUCCESSFUL. IF WE ARE NOT SUCCESSFUL IN OUR DIRECT SALES AND MARKETING, OUR SALESrevenue and results of operations are likely to be materially adversely affected. 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 AND THE ABILITY OF OUR DISTRIBUTORS TO ESTABLISH,GROW AND MAINTAIN PRODUCT SALES IN FOREIGN MARKETS, PARTICULARLY IN THE EUROPEAN UNION (EU), AND THROUGH THE GERMAN DISTRIBUTOR IN ITS TERRITORY WHICHINCLUDES GERMANY, AUSTRIA, SWITZERLAND, AND LUXEMBOURG. HOWEVER, WE HAVE LIMITED EXPERIENCE IN MARKETING AND DISTRIBUTING PRODUCTS IN OTHER COUNTRIES.FOREIGN OPERATIONS SUBJECT US TO ADDITIONAL RISKS AND UNCERTAINTIES, INCLUDING OUR CUSTOMERS' ABILITY TO OBTAIN REIMBURSEMENT FOR PROCEDURES USING OURPRODUCTS IN FOREIGN MARKETS; THE BURDEN OF COMPLYING WITH COMPLEX AND CHANGING FOREIGN REGULATORY REQUIREMENTS; TIME-SENSITIVE DELIVERY REQUIREMENTS DUETO THE SHORT HALF-LIFE OF OUR PRODUCT; LANGUAGE BARRIERS AND OTHER DIFFICULTIES IN PROVIDING LONG-DISTANCE CUSTOMER SERVICE; POTENTIALLY INCREASED TIME TO COLLECTACCOUNTS RECEIVABLE; SIGNIFICANT CURRENCY FLUCTUATIONS, WHICH COULD CAUSE THIRD-PARTY DISTRIBUTORS TO REDUCE THE NUMBER OF PRODUCTS THEY PURCHASE FROM USBECAUSE THE COST OF OUR PRODUCTS TO THEM COULD FLUCTUATE RELATIVE TO THE PRICE THEY CAN CHARGE THEIR CUSTOMERS; REDUCED PROTECTION OF INTELLECTUAL PROPERTYRIGHTS IN SOME FOREIGN COUNTRIES; AND THE POSSIBILITY THAT CONTRACTUAL PROVISIONS GOVERNED BY FOREIGN LAWS WOULD BE INTERPRETED DIFFERENTLY THAN INTENDED INTHE EVENT OF A CONTRACT DISPUTE. IN ADDITION, THE SIGNIFICANT APPRECIATION OF THE U.S. DOLLAR DURING THE PAST YEAR HAS MADE OUR PRODUCTS MUCH MORE EXPENSIVE INOVERSEAS MARKETS. ANY FUTURE FOREIGN SALES OF OUR PRODUCTS COULD ALSO BE ADVERSELY AFFECTED BY EXPORT LICENSE REQUIREMENTS, THE IMPOSITION OF GOVERNMENTALCONTROLS, POLITICAL AND ECONOMIC INSTABILITY, TRADE RESTRICTIONS, CHANGES IN TARIFFS, AND DIFFICULTIES IN STAFFING AND MANAGING FOREIGN OPERATIONS. MANY OF THESEFACTORS MAY ALSO AFFECT OUR ABILITY TO IMPORT CESIUM-131 FROM RUSSIA UNDER OUR CONTRACT WITH JSC INM. SANCTIONS PLACED ON FINANCIAL TRANSACTIONS WITHRussian banking institutions may interfere with the Company’s ability to transact business in Russia on a temporary or other basis resulting in an interruptionof the Cs-131 supply which could have a temporary material adverse effect on the Company’s business, operating results and financial condition. 35 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Ability To Expand Operations And Manage Growth Is Uncertain. OUR EFFORTS TO EXPAND OUR OPERATIONS WILL RESULT IN NEW AND INCREASED RESPONSIBILITIESFOR MANAGEMENT PERSONNEL AND WILL PLACE A STRAIN UPON THE ENTIRE COMPANY. TO COMPETE EFFECTIVELY AND TO ACCOMMODATE GROWTH, IF ANY, WE MAY BE REQUIREDTO CONTINUE TO IMPLEMENT AND TO IMPROVE OUR MANAGEMENT, MANUFACTURING, SALES AND MARKETING, OPERATING AND FINANCIAL SYSTEMS, PROCEDURES AND CONTROLS ONA TIMELY BASIS AND TO EXPAND, TRAIN, MOTIVATE AND MANAGE OUR EMPLOYEES. THERE CAN BE NO ASSURANCE THAT OUR PERSONNEL, SYSTEMS, PROCEDURES, AND CONTROLS WILLBE ADEQUATE TO SUPPORT OUR FUTURE OPERATIONS. IF THE PROXCELAN® CESIUM-131 SEED WERE TO RAPIDLY BECOME THE "SEED OF CHOICE," IT IS UNLIKELY THAT WE COULDIMMEDIATELY MEET DEMAND. THIS COULD CAUSE CUSTOMER DISCONTENT AND INVITE COMPETITION. THERE CAN BE NO ASSURANCE THAT OUR PERSONNEL, SYSTEMS, PROCEDURES,and controls will be adequate to immediately react to that growth. We Rely On The Performance Of Our Information Technology Systems, The Failure Of Which Could Have An Adverse Effect On Our Business AndPerformance. OUR BUSINESS REQUIRES THE CONTINUED OPERATION OF SOPHISTICATED INFORMATION TECHNOLOGY SYSTEMS AND NETWORK INFRASTRUCTURE. THESE SYSTEMS AREVULNERABLE TO INTERRUPTION BY FIRE, POWER LOSS, SYSTEM MALFUNCTION, COMPUTER VIRUSES, CYBER-ATTACKS AND OTHER EVENTS, WHICH MAY BE BEYOND OUR CONTROL.SYSTEMS INTERRUPTIONS COULD REDUCE OUR ABILITY TO ACCEPT CUSTOMER ORDERS, MANUFACTURE OUR PRODUCTS, OR PROVIDE SERVICE FOR OUR CUSTOMERS, AND COULD HAVE ANADVERSE EFFECT ON OUR OPERATIONS AND FINANCIAL PERFORMANCE. THE LEVEL OF PROTECTION AND DISASTER-RECOVERY CAPABILITY VARIES FROM SITE TO SITE, AND THERE CAN BENO GUARANTEE THAT ANY SUCH PLANS, TO THE EXTENT THEY ARE IN PLACE, WILL BE TOTALLY EFFECTIVE. IN ADDITION, SECURITY BREACHES OF OUR INFORMATION TECHNOLOGYSYSTEMS COULD RESULT IN THE MISAPPROPRIATION OR UNAUTHORIZED DISCLOSURE OF CONFIDENTIAL INFORMATION BELONGING TO US, OUR EMPLOYEES, PARTNERS, CUSTOMERS, OROUR SUPPLIERS, WHICH MAY RESULT IN SIGNIFICANT COSTS AND POTENTIAL GOVERNMENT SANCTIONS. IN PARTICULAR, IF WE ARE UNABLE TO ADEQUATELY SAFEGUARD INDIVIDUALLYIDENTIFIABLE HEALTH INFORMATION, WE MAY BE SUBJECT TO ADDITIONAL LIABILITY UNDER DOMESTIC AND INTERNATIONAL LAWS RESPECTING THE PRIVACY AND SECURITY OF HEALTHinformation. Fluctuations In Insurance Cost And Availability Could Adversely Affect Our Profitability Or Our Risk Management Profile. WE HOLD A NUMBER OF INSURANCEPOLICIES, INCLUDING PRODUCT LIABILITY INSURANCE, DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE, AND WORKERS’ COMPENSATION INSURANCE. IF THE COSTS OF MAINTAININGADEQUATE INSURANCE COVERAGE INCREASE SIGNIFICANTLY IN THE FUTURE, OUR OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. LIKEWISE, IF ANY OF OUR CURRENTINSURANCE COVERAGE SHOULD BECOME UNAVAILABLE TO US OR BECOME ECONOMICALLY IMPRACTICAL, WE WOULD BE REQUIRED TO OPERATE OUR BUSINESS WITHOUT INDEMNITYFROM COMMERCIAL INSURANCE PROVIDERS. IF WE OPERATE OUR BUSINESS WITHOUT INSURANCE, WE COULD BE RESPONSIBLE FOR PAYING CLAIMS OR JUDGMENTS AGAINST US THATwould have otherwise been covered by insurance, which could adversely affect our results of operations or financial condition. Risks Of Ongoing Litigation. ON MAY 22, 2015, THE FIRST OF MULTIPLE CLASS ACTION COMPLAINTS FOR VIOLATION OF THE FEDERAL SECURITIES LAWS WERE FILED IN U.S.DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA AND IN THE EASTERN DISTRICT OF WASHINGTON AGAINST ISORAY, INC., DWIGHT BABCOCK (CEO AND CHAIRMAN OF THEBOARD) AND BRIEN RAGLE (CFO). THE COMPLAINT, PURPORTEDLY BROUGHT ON BEHALF OF ALL PURCHASERS OF ISORAY, INC. COMMON STOCK FROM MAY 20, 2015 THROUGH ANDINCLUDING MAY 21, 2015, ASSERTS CLAIMS RELATED TO A PRESS RELEASE ON MAY 20, 2015 REGARDING A MAY 19 ONLINE PUBLICATION OF THE PEER-REVIEWED ARTICLE IN THEJOURNAL BRACHYTHERAPY TITLED “ANALYSIS OF STEREOTACTIC RADIATION VS. WEDGE RESECTION VS. WEDGE RESECTION PLUS CESIUM-131 BRACHYTHERAPY IN EARLY-STAGELUNG CANCER” BY DR. BHUPESH PARASHAR, ET AL. AND SEEKS, AMONG OTHER THINGS, DAMAGES AND COSTS AND EXPENSES. AN ORDER DATED AUGUST 17, 2015 WAS FILED INTHE U.S. DISTRICT COURT FOR THE EASTERN DISTRICT OF WASHINGTON IN WHICH THE MULTIPLE COMPLAINTS WERE CONSOLIDATED INTO A SINGLE ACTION IN THAT DISTRICT,APPOINTING A GROUP OF LEAD PLAINTIFFS AND APPOINTING THEIR CHOICE OF LEAD COUNSEL. THE ORDER PROVIDED THE PLAINTIFFS WITH THE OPPORTUNITY TO AMEND THECOMPLAINT. WE CANNOT PREDICT THE OUTCOME OF SUCH PROCEEDINGS OR PROVIDE AN ESTIMATE OF DAMAGES, IF ANY. WE BELIEVE THAT THESE CLAIMS ARE WITHOUT MERIT ANDINTEND TO DEFEND THEM VIGOROUSLY. WHILE MANAGEMENT BELIEVES THAT ITS INSURANCE WILL ADEQUATELY COVER COSTS TO DEFEND, SETTLEMENT AND DAMAGES, IF ANY, IT IStoo early to determine what those amounts may ultimately be and there is no assurance as to the total costs and outcome of this lawsuit. We Have Incurred Significant Losses To Date, And There Is No Guarantee That We Will Ever Become Profitable. WE INCURRED NET LOSSES OF $3,681,050 AND$5,959,122 IN THE FISCAL YEARS ENDED 2015 AND 2014, RESPECTIVELY. IN ADDITION, WE HAVE ACCUMULATED DEFICIT FROM THE INCEPTION OF BUSINESS THROUGH JUNE 30,2015 OF $61,731,506. THE COSTS FOR RESEARCH AND PRODUCT DEVELOPMENT OF OUR PRODUCTS ALONG WITH MARKETING AND SELLING EXPENSES AND GENERAL ANDADMINISTRATIVE EXPENSES HAVE BEEN THE PRINCIPAL CAUSES OF OUR LOSSES. WE MAY NOT EVER BECOME PROFITABLE AND IF WE DO NOT BECOME PROFITABLE YOUR INVESTMENTcould be harmed. 36 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We May Need Additional Capital In The Future For Acquisitions And Expansion Into Other Markets. AT JUNE 30, 2015, WE HAD CASH AND CERTIFICATES OFDEPOSIT OF $19,696,089. THE COMBINATION OF OUR CURRENT CASH AND CERTIFICATES OF DEPOSIT BOTH CURRENT AND NON-CURRENT BALANCE AND PROJECTED PRODUCT SALESSHOULD PROVIDE US WITH SUFFICIENT FUNDS TO SUPPORT OPERATIONS AT CURRENT LEVELS OF EXPENSES AND REVENUES FOR 5 YEARS. HOWEVER, WE MAY NEED TO RAISE CAPITAL FORstrategic acquisitions or expansion into other markets and there is no assurance management will not pursue this additional capital if available. Risks Related to Our Stock and Reporting Requirements Our Reporting Obligations As A Public Company Are Costly. OPERATING A PUBLIC COMPANY INVOLVES SUBSTANTIAL COSTS TO COMPLY WITH REPORTING OBLIGATIONSUNDER FEDERAL SECURITIES LAWS THAT HAVE CONTINUED TO INCREASE AS PROVISIONS OF THE SARBANES OXLEY ACT OF 2002 HAVE BEEN IMPLEMENTED AND MAY INCREASE AGAINAS A RESULT OF THE COMPANY BECOMING SUBJECT TO THE ACCELERATED FILER REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION AS OF THE YEAR ENDED JUNE 30,2015. THE ACCELERATED FILING TIMELINES AND REQUIREMENT FOR THE AUDITOR TO OPINE ON INTERNAL CONTROL EFFECTIVENESS MAY INCREASE THE COST OF THE QUARTERLY REVIEWSand annual audit and may require additional employees or technology investment to meet these requirements. Our Stock Price Is Likely To Be Volatile. THE MARKET PRICE OF OUR COMMON STOCK HAS EXPERIENCED FLUCTUATIONS AND IS LIKELY TO FLUCTUATE SIGNIFICANTLY IN THEFUTURE. FOR EXAMPLE, DURING FISCAL 2015 THE CLOSING PRICE OF ONE SHARE OF OUR COMMON STOCK REACHED A HIGH OF $3.79 AND A LOW OF $1.22. THERE IS GENERALLYSIGNIFICANT VOLATILITY IN THE MARKET PRICES AND LIMITED LIQUIDITY OF SECURITIES OF EARLY STAGE COMPANIES, AND PARTICULARLY OF EARLY STAGE MEDICAL PRODUCTCOMPANIES. CONTRIBUTING TO THIS VOLATILITY ARE VARIOUS EVENTS THAT CAN AFFECT OUR STOCK PRICE IN A POSITIVE OR NEGATIVE MANNER. THESE EVENTS INCLUDE, BUT ARE NOTLIMITED TO: GOVERNMENTAL APPROVALS OF OR REFUSALS TO APPROVE REGULATIONS OR ACTIONS; MARKET ACCEPTANCE AND SALES GROWTH OF OUR PRODUCTS; LITIGATION INVOLVINGTHE COMPANY OR OUR INDUSTRY; DEVELOPMENTS OR DISPUTES CONCERNING OUR PATENTS OR OTHER PROPRIETARY RIGHTS; CHANGES IN THE STRUCTURE OF HEALTHCARE PAYMENTsystems; departure of key personnel; future sales of our securities; fluctuations in our financial results or those of companies that are perceived to be similar toUS; SWINGS IN SEASONAL DEMANDS OF PURCHASERS; INVESTORS' GENERAL PERCEPTION OF US; AND GENERAL ECONOMIC, INDUSTRY AND MARKET CONDITIONS. IN ADDITION, THESECURITIES OF MANY MEDICAL DEVICE COMPANIES, INCLUDING US, HAVE HISTORICALLY BEEN SUBJECT TO EXTENSIVE PRICE AND VOLUME FLUCTUATIONS THAT MAY AFFECT THEmarket price of their common stock. 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.WE CANNOT PREDICT THE SIZE OF FUTURE ISSUANCES OR SALES OF OUR COMMON STOCK OR OTHER EQUITY SECURITIES FOR FUTURE ACQUISITIONS OR CAPITAL RAISING ACTIVITIES, OR THEEFFECT, IF ANY, THAT SUCH ISSUANCES OR SALES MAY HAVE ON THE MARKET PRICE OF OUR COMMON STOCK. THE ISSUANCE AND SALE OF SUBSTANTIAL AMOUNTS OF COMMON STOCKor other equity securities or announcement that such issuances and sales may occur, could adversely affect the market price of our common stock. The Issuance Of Shares Upon Exercise Of Derivative Securities May Cause Immediate And Substantial Dilution To Our Existing Shareholders. THE ISSUANCEOF SHARES UPON CONVERSION OF THE PREFERRED STOCK AND THE EXERCISE OF COMMON STOCK WARRANTS AND OPTIONS MAY RESULT IN SUBSTANTIAL DILUTION TO THE INTERESTS OFOTHER SHAREHOLDERS SINCE THESE SELLING SHAREHOLDERS MAY ULTIMATELY CONVERT OR EXERCISE AND SELL ALL OR A PORTION OF THE FULL AMOUNT ISSUABLE UPON EXERCISE. IF ALLDERIVATIVE SECURITIES OUTSTANDING AS OF SEPTEMBER 11, 2015 WERE CONVERTED OR EXERCISED INTO SHARES OF COMMON STOCK, THERE WOULD BE APPROXIMATELY ANADDITIONAL 2,817,153 SHARES OF COMMON STOCK OUTSTANDING AS A RESULT. THE ISSUANCE OF THESE SHARES WILL HAVE THE EFFECT OF FURTHER DILUTING THE PROPORTIONATEequity interest and voting power of holders of our common stock. We Do Not Expect To Pay Any Dividends For The Foreseeable Future. WE DO NOT ANTICIPATE PAYING ANY DIVIDENDS TO OUR SHAREHOLDERS FOR THE FORESEEABLEFUTURE EXCEPT FOR DIVIDENDS ON THE SERIES B PREFERRED STOCK WHICH WE INTEND TO PAY ON OR BEFORE DECEMBER 31, 2015. SHAREHOLDERS MUST BE PREPARED TO RELY ONSALES OF THEIR COMMON STOCK AFTER PRICE APPRECIATION TO EARN AN INVESTMENT RETURN, WHICH MAY NEVER OCCUR. ANY DETERMINATION TO PAY DIVIDENDS IN THE FUTUREWILL BE MADE AT THE DISCRETION OF OUR BOARD OF DIRECTORS AND WILL DEPEND ON OUR RESULTS OF OPERATIONS, FINANCIAL CONDITIONS, CONTRACTUAL RESTRICTIONS, RESTRICTIONSimposed by applicable laws and other factors that our Board deems relevant. 37 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Certain Provisions of Minnesota Law and Our Charter Documents Have an Anti-Takeover Effect. THERE EXIST CERTAIN MECHANISMS UNDER MINNESOTA LAW ANDOUR CHARTER DOCUMENTS THAT MAY DELAY, DEFER OR PREVENT A CHANGE OF CONTROL. ANTI-TAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION, BYLAWS AND MINNESOTALAW COULD DIMINISH THE OPPORTUNITY FOR SHAREHOLDERS TO PARTICIPATE IN ACQUISITION PROPOSALS AT A PRICE ABOVE THE THEN-CURRENT MARKET PRICE OF OUR COMMONSTOCK. FOR EXAMPLE, WHILE WE HAVE NO PRESENT PLANS TO ISSUE ANY PREFERRED STOCK, OUR BOARD OF DIRECTORS, WITHOUT FURTHER SHAREHOLDER APPROVAL, MAY ISSUESHARES OF UNDESIGNATED PREFERRED STOCK AND FIX THE POWERS, PREFERENCES, RIGHTS AND LIMITATIONS OF SUCH CLASS OR SERIES, WHICH COULD ADVERSELY AFFECT THE VOTINGPOWER OF THE COMMON SHARES. IN ADDITION, OUR BYLAWS PROVIDE FOR AN ADVANCE NOTICE PROCEDURE FOR NOMINATION OF CANDIDATES TO OUR BOARD OF DIRECTORS THATCOULD HAVE THE EFFECT OF DELAYING, DETERRING OR PREVENTING A CHANGE IN CONTROL. FURTHER, AS A MINNESOTA CORPORATION, WE ARE SUBJECT TO PROVISIONS OF THEMINNESOTA BUSINESS CORPORATION ACT, OR MBCA, REGARDING "BUSINESS COMBINATIONS," WHICH CAN DETER ATTEMPTED TAKEOVERS IN CERTAIN SITUATIONS. PURSUANT TOTHE TERMS OF A SHAREHOLDER RIGHTS PLAN ADOPTED IN FEBRUARY 2007, EACH OUTSTANDING SHARE OF COMMON STOCK HAS ONE ATTACHED RIGHT. THE RIGHTS WILL CAUSESUBSTANTIAL 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 MAYHAVE THE EFFECT OF DETERRING HOSTILE TAKEOVER ATTEMPTS. THE EFFECT OF THESE ANTI-TAKEOVER PROVISIONS MAY BE TO DETER BUSINESS COMBINATION TRANSACTIONS NOTAPPROVED 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-TAKEOVERPROVISIONS OF THE MBCA, AS WELL AS OTHER CURRENT AND ANY FUTURE ANTI-TAKEOVER MEASURES ADOPTED BY US, MAY, IN CERTAIN CIRCUMSTANCES, DELAY, DETER OR PREVENTtakeover attempts and other changes in control of the Company not approved by our Board of Directors. ITEM 1B – UNRESOLVED STAFF COMMENTS We have no unresolved written comments from the SEC staff regarding our filings under the Exchange Act. ITEM 2 – PROPERTIES THE COMPANY'S EXECUTIVE OFFICES ARE LOCATED AT 350 HILLS STREET, SUITE 106, RICHLAND, WA 99354, (509) 375-1202, WHERE ISORAY CURRENTLY LEASESAPPROXIMATELY 15,300 SQUARE FEET OF OFFICE AND LABORATORY SPACE FOR APPROXIMATELY $22,850 PER MONTH PLUS JANITORIAL EXPENSES OF APPROXIMATELY $400 PERMONTH FROM ENERGY NORTHWEST, THE OWNER OF THE APPLIED PROCESS ENGINEERING LABORATORY (THE APEL FACILITY). THE COMPANY IS NOT AFFILIATED WITH THIS LESSOR.THE MONTHLY RENT IS SUBJECT TO ANNUAL INCREASES BASED ON THE CONSUMER PRICE INDEX. THE CURRENT LEASE WAS ENTERED INTO IN MAY 2013, AND EXPIRES ON APRIL 30,2016. THE LEASE MODIFICATION AND RENEWAL ENTERED INTO IN MAY 2013 ADDED ONE ADDITIONAL THREE-YEAR RENEWAL OPTION, GIVING THE COMPANY THE ABILITY TOextend the lease through April 2019. THE COMPANY HAS NEGOTIATED AND AGREED TO A SUBSEQUENT MODIFICATION TO THE LEASE MODIFICATION THAT IS AWAITING THE SIGNATURES OF BOTH PARTIES THAT PROVIDESmodifications to the requirement to return the facility to ground at the time of exit at Company discretion, exercises the additional three year term to April 30,2019 AND MODIFIES THE REQUIRED NOTICE TO TERMINATE EARLY FROM TWELVE MONTHS TO SIX MONTHS. THIS LEASE MODIFICATION PROVIDES THE FLEXIBILITY REQUIRED FOR THECOMPANY TO PLAN, DESIGN AND CONSTRUCT ITS OWN PRODUCTION FACILITY WHICH IS EXPECTED TO REDUCE OPERATIONAL CASHFLOW REQUIREMENTS AND PROVIDE FOR LONG-TERMsecurity of production capabilities for the Company THE COMPANY HAS ENTERED INTO AN AGREEMENT WITH THE OWNER OF A PROPERTY ADJACENT TO ITS LEASED FACILITY WITH THE EXPECTATION OF PLANNING, DESIGNING ANDCONSTRUCTING A NEW PRODUCTION FACILITY WHICH WILL ACCOMMODATE THE FACILITY REQUIREMENTS FOR PRODUCTION, LABORATORY, AND ADMINISTRATIVE OFFICES. THE NEWfacility is anticipated to be a similar size to the current facility. The property also provides for additional future building as needed or subdivision, if required.THE PROPERTY IS APPROXIMATELY 4.2 ACRES LOCATED WITHIN THE TECHNOLOGY & BUSINESS CAMPUS OF THE PORT OF BENTON. THE AGREEMENT PROVIDES FOR A 60 DAY“FEASIBILITY PERIOD” TO DETERMINE THAT THE PROPERTY IS ACCEPTABLE FOR ITS INTENDED USE AND IN WHICH THE COMPANY AT ITS SOLE DISCRETION MAY TERMINATE THEagreement. The closing date is to be no later than October 30, 2015. THE COMPANY'S MANAGEMENT BELIEVES THAT ALL FACILITIES OCCUPIED BY THE COMPANY ARE ADEQUATE FOR PRESENT REQUIREMENTS, AND THAT THE COMPANY'S CURRENTequipment is in good condition and is suitable for the operations involved. 38 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 3 – LEGAL PROCEEDINGS ON MAY 22, 2015, THE FIRST OF MULTIPLE CLASS ACTION COMPLAINTS ALLEGING VIOLATIONS OF THE FEDERAL SECURITIES LAWS WERE FILED IN U.S. DISTRICT COURT FOR THE CENTRALDISTRICT OF CALIFORNIA AND IN THE EASTERN DISTRICT OF WASHINGTON AGAINST ISORAY, INC., DWIGHT BABCOCK (CEO AND CHAIRMAN OF THE BOARD) AND BRIEN RAGLE(CFO). THE COMPLAINTS, PURPORTEDLY BROUGHT ON BEHALF OF ALL PURCHASERS OF ISORAY, INC. COMMON STOCK FROM MAY 20, 2015 THROUGH AND INCLUDING MAY 21,2015, ASSERTS CLAIMS RELATED TO A PRESS RELEASE ON MAY 20, 2015 REGARDING A MAY 19 ONLINE PUBLICATION OF THE PEER-REVIEWED ARTICLE IN THE JOURNALBRACHYTHERAPY TITLED “ANALYSIS OF STEREOTACTIC RADIATION VS. WEDGE RESECTION VS. WEDGE RESECTION PLUS CESIUM-131 BRACHYTHERAPY IN EARLY-STAGE LUNGCancer” by Dr. Bhupesh Parashar, et al. and seeks, among other things, damages and costs and expenses. An order dated August 17, 2015 was filed in the U.S.DISTRICT COURT FOR THE EASTERN DISTRICT OF WASHINGTON IN WHICH THE MULTIPLE COMPLAINTS WERE CONSOLIDATED INTO A SINGLE ACTION IN THAT DISTRICT, APPOINTING AGROUP OF LEAD PLAINTIFFS AND APPOINTING THEIR CHOICE OF LEAD COUNSEL. THE ORDER PROVIDED THE PLAINTIFFS WITH THE OPPORTUNITY TO AMEND THE COMPLAINT. WECANNOT PREDICT THE OUTCOME OF SUCH PROCEEDINGS OR PROVIDE AN ESTIMATE OF DAMAGES, IF ANY. WE BELIEVE THAT THESE CLAIMS ARE WITHOUT MERIT AND INTEND TOdefend them vigorously. ITEM 4 –MINE SAFETY DISCLOSURES Not applicable PART II ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES THE COMPANY'S ARTICLES OF INCORPORATION PROVIDE THAT THE COMPANY HAS THE AUTHORITY TO ISSUE 200,000,000 SHARES OF CAPITAL STOCK, WHICH ARE CURRENTLYDIVIDED INTO TWO CLASSES AS FOLLOWS: 192,998,329 SHARES OF COMMON STOCK, PAR VALUE OF $0.001 PER SHARE; AND 7,001,671 SHARES OF PREFERRED STOCK, PAR VALUE OF$0.001 PER SHARE. AS OF SEPTEMBER 11, 2015, WE HAD 55,013,553 OUTSTANDING SHARES OF COMMON STOCK AND 59,065 OUTSTANDING SHARES OF SERIES B PREFERREDStock. On April 19, 2007, our common stock began trading on the American Stock Exchange (now the NYSE MKT) under the symbol "ISR." 39 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table sets forth, for the fiscal quarters indicated, the high and low sales prices for our common stock as reported on the NYSE MKT. Year ended June 30, 2015 High Low First quarter $3.24 $1.35 Second quarter 2.18 1.22 Third quarter 1.86 1.27 Fourth quarter 3.79 1.42 Year ended June 30, 2014 High Low First quarter $0.82 $0.52 Second quarter 0.65 0.46 Third quarter 3.30 0.50 Fourth quarter 3.18 1.86 THE COMPANY HAS NEVER PAID ANY CASH DIVIDENDS ON ITS COMMON STOCK AND DOES NOT PLAN TO PAY ANY CASH DIVIDENDS IN THE FORESEEABLE FUTURE. ON DECEMBER17, 2014, THE BOARD OF DIRECTORS DECLARED A DIVIDEND ON THE SERIES B PREFERRED STOCK OF ALL OUTSTANDING AND CUMULATIVE DIVIDENDS THROUGH DECEMBER 31,2014. THE TOTAL SERIES B ACCRUED DIVIDENDS OF $10,632 WERE PAID AS OF DECEMBER 31, 2014. AT JUNE 30, 2015, THERE WERE 59,065 SERIES B PREFERRED SHARESOUTSTANDING AND CUMULATIVE DIVIDENDS IN ARREARS WERE $5,316. THERE ARE NO SERIES A, SERIES C OR SERIES D SHARES OF PREFERRED STOCK OUTSTANDING AS OF THE DATEof this Report. AS OF SEPTEMBER 11, 2015, WE HAD APPROXIMATELY 234 SHAREHOLDERS OF RECORD, EXCLUSIVE OF SHARES HELD IN STREET NAME. THE CLOSING PRICE OF OUR COMMON STOCKwas $1.46 on September 11, 2015. Equity Compensation Plans ON MAY 27, 2005, THE COMPANY ADOPTED THE 2005 STOCK OPTION PLAN (THE OPTION PLAN) AND THE 2005 EMPLOYEE STOCK OPTION PLAN (THE 2005 EMPLOYEEPLAN). THE OPTION PLAN AND THE 2005 EMPLOYEE PLAN TERMINATED ON MAY 27, 2015 AND NO FURTHER OPTIONS MAY BE GRANTED UNDER EITHER PLAN. ON AUGUST 15,2006, THE COMPANY ADOPTED THE 2006 DIRECTOR STOCK OPTION PLAN (THE DIRECTOR PLAN) PURSUANT TO WHICH IT MAY GRANT EQUITY AWARDS TO ELIGIBLE PERSONS. EACHOF THE PLANS HAS SUBSEQUENTLY BEEN AMENDED. ON MAY 15, 2014, THE COMPANY ADOPTED THE 2014 EMPLOYEE STOCK OPTION PLAN (THE 2014 EMPLOYEE PLAN)PURSUANT TO WHICH IT MAY GRANT EQUITY AWARDS TO ELIGIBLE PERSONS. THE 2014 EMPLOYEE PLAN ALLOWS THE BOARD OF DIRECTORS TO GRANT OPTIONS TO PURCHASE UP TO2,000,000 SHARES OF COMMON STOCK TO OFFICERS AND KEY EMPLOYEES OF THE COMPANY. THE DIRECTOR PLAN ALLOWS THE BOARD OF DIRECTORS TO GRANT OPTIONS TOPURCHASE UP TO 1,000,000 SHARES OF COMMON STOCK TO DIRECTORS OF THE COMPANY. OPTIONS GRANTED UNDER ALL OF THE PLANS HAVE A TEN YEAR MAXIMUM TERM, ANEXERCISE PRICE EQUAL TO AT LEAST THE FAIR MARKET VALUE OF THE COMPANY'S COMMON STOCK (BASED ON THE TRADING PRICE ON THE NYSE MKT) ON THE DATE OF THE GRANT,and with varying vesting periods as determined by the Board. As of June 30, 2015, the following options had been granted under the option plans. Number of Weighted- Number of securities to average securities be issued on exercise remaining exercise of price of available for outstanding outstanding future options, options, issuance warrants, warrants, under equity and rights and rights compensation Plan Category # $ plans Equity compensation plans approved by shareholders 270,000 $1.47 1,730,000 Equity compensation plans not approved by shareholders 2,148,282 $1.96 133,334 Total 2,418,282 $1.91 1,863,334 40 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Performance Graph THE GRAPH BELOW MATCHES ISORAY, INC.'S CUMULATIVE 5-YEAR TOTAL SHAREHOLDER RETURN ON COMMON STOCK WITH THE CUMULATIVE TOTAL RETURNS OF THE NYSE MKTCOMPOSITE INDEX AND THE RUSSELL MICROCAP® INDEX. THE GRAPH TRACKS THE PERFORMANCE OF A $100 INVESTMENT IN OUR COMMON STOCK AND IN EACH INDEX (WITH THEreinvestment of all dividends) from June 30, 2010 to June 30, 2015. The stock price performance included in this graph is not necessarily indicative of future stock price performance. The performance graph is furnishedsolely to accompany this Form 10-K annual report and is not being filed for purposes of the Securities Exchange Act of 1934, as amended, and is not to beincorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation languagein such filing. Sales of Unregistered Securities All sales of unregistered securities during the 2015 fiscal year were previously reported. ITEM 6 – SELECTED FINANCIAL DATA THE FOLLOWING TABLE SETS FORTH OUR SELECTED CONSOLIDATED FINANCIAL DATA FOR THE PERIODS INDICATED, DERIVED FROM CONSOLIDATED FINANCIAL STATEMENTS PREPARED INaccordance with United States generally accepted accounting principles. 41 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Consolidated Statement of Operations Data Year Ended June 30, 2015 2014 2013 2012 2011 Product Sales, net $4,606,539 $4,219,158 $4,525,233 $5,071,088 $5,238,973 Cost of product sales 4,439,146 4,415,629 4,375,057 4,367,884 4,081,556 Gross income/(loss) 167,393 (196,471) 150,176 703,204 1,157,417 Operating expenses: Research and development 614,771 668,803 627,107 780,579 981,186 Research and development reimbursement - - - (50,000) (515,853)Sales and marketing 1,488,456 1,234,725 1,296,149 1,215,580 1,232,188 General and administrative 2,400,353 2,488,219 2,294,173 2,355,015 2,422,884 Total operating expenses 4,503,580 4,391,747 4,217,429 4,301,174 4,120,405 Operating loss (4,336,187) (4,588,218) (4,067,253) (3,597,970) (2,962,988) Non-operating income (select items) Interest income 282,745 12,113 664 747 3,381 Change in fair value 374,605 (1,382,134) 210,000 170,000 334,000 Net loss applicable to common shareholders $(3,691,683) $(6,696,132) $(3,867,228) $(3,499,537) $(2,852,845) Basic and diluted loss per share $(0.07) $(0.16) $(0.11) $(0.12) $(0.11) Weighted average common Shares used incomputing loss per shares 54,900,828 42,675,158 34,423,420 28,621,831 25,131,563 Consolidated Balance Sheet Data As of June 30, 2015 2014 2013 2012 2011 Cash and cash equivalents $5,226,740 $7,680,073 $2,899,927 $2,672,711 $2,112,254 Certificates of deposit 9,362,574 10,002,912 - - - Working capital 15,233,328 18,060,973 3,650,792 3,487,161 3,447,795 Certificates of deposit, non-current 5,106,775 5,401,398 - - - Total assets 23,003,284 26,549,255 7,055,356 7,505,482 7,888,895 Long-term liabilities 1,128,849 1,439,560 896,242 1,038,298 662,181 Total shareholders’ equity 20,782,241 23,955,768 5,366,246 5,818,192 6,452,516 ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Estimates MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS IS BASED UPON ITS CONSOLIDATED FINANCIAL STATEMENTS,WHICH HAVE BEEN PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA. THE PREPARATION OF THESE FINANCIALSTATEMENTS REQUIRES MANAGEMENT TO MAKE ESTIMATES AND JUDGMENTS THAT AFFECT THE REPORTED AMOUNTS OF ASSETS, LIABILITIES, REVENUES AND EXPENSES, AND RELATEDDISCLOSURES OF CONTINGENT LIABILITIES. ON AN ON-GOING BASIS, MANAGEMENT EVALUATES PAST JUDGMENTS AND ESTIMATES, INCLUDING THOSE RELATED TO BAD DEBTS,INVENTORIES, ACCRUED LIABILITIES, AND CONTINGENCIES. MANAGEMENT BASES ITS ESTIMATES ON HISTORICAL EXPERIENCE AND ON VARIOUS OTHER ASSUMPTIONS THAT AREBELIEVED TO BE REASONABLE UNDER THE CIRCUMSTANCES, THE RESULTS OF WHICH FORM THE BASIS FOR MAKING JUDGMENTS ABOUT THE CARRYING VALUES OF ASSETS AND LIABILITIESthat are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 42 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE COMPANY BELIEVES THE FOLLOWING CRITICAL ACCOUNTING POLICIES AFFECT ITS MORE SIGNIFICANT JUDGMENTS AND ESTIMATES USED IN THE PREPARATION OF ITSconsolidated financial statements. Accounts Receivable ACCOUNTS RECEIVABLE ARE STATED AT THE AMOUNT THAT MANAGEMENT OF THE COMPANY EXPECTS TO COLLECT FROM OUTSTANDING BALANCES. MANAGEMENT PROVIDES FORPROBABLE UNCOLLECTIBLE AMOUNTS THROUGH AN ALLOWANCE FOR DOUBTFUL ACCOUNTS. ADDITIONS TO THE ALLOWANCE FOR DOUBTFUL ACCOUNTS ARE BASED ON MANAGEMENT'SJUDGMENT, CONSIDERING HISTORICAL WRITE-OFFS, COLLECTIONS AND CURRENT CREDIT CONDITIONS. BALANCES WHICH REMAIN OUTSTANDING AFTER MANAGEMENT HAS USEDREASONABLE COLLECTION EFFORTS ARE WRITTEN OFF THROUGH A CHARGE TO THE ALLOWANCE FOR DOUBTFUL ACCOUNTS AND A CREDIT TO THE APPLICABLE ACCOUNTS RECEIVABLE.Payments received subsequent to the time that an account is written off are considered bad debt recoveries. Inventory INVENTORY IS REPORTED AT THE LOWER OF COST OR MARKET. COST OF RAW MATERIALS IS DETERMINED USING THE WEIGHTED AVERAGE METHOD. COST OF WORK IN PROCESS ANDfinished goods is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. Licenses Amortization of licenses is computed using the straight-line method over the estimated economic useful lives of the assets. Amortization expense of licenses for each fiscal year was: For the Year Ended June 30, 2015 2014 2013 Licenses amortization expense $11,721 $11,721 $11,721 BASED ON THE LICENSES RECORDED AT JUNE 30, 2015, AND ASSUMING NO SUBSEQUENT IMPAIRMENT OF THE UNDERLYING ASSETS, THE ANNUAL AMORTIZATION EXPENSE FOR EACHfiscal year ending June 30 is expected to be as follows: Fiscal Year Amount 2016 $15,628 All years thereafter $- Revenue Recognition THE COMPANY APPLIES THE PROVISIONS OF ASC TOPIC 605, Revenue Recognition. ASC 605 PROVIDES GUIDANCE ON THE RECOGNITION, PRESENTATION AND DISCLOSUREOF REVENUE IN FINANCIAL STATEMENTS. ASC 605 OUTLINES THE BASIC CRITERIA THAT MUST BE MET TO RECOGNIZE REVENUE AND PROVIDES GUIDANCE FOR THE DISCLOSURE OFREVENUE RECOGNITION POLICIES. THE COMPANY RECOGNIZES REVENUE RELATED TO PRODUCT SALES WHEN (I) PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS, (II) SHIPMENThas occurred, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. REVENUE FOR THE FISCAL YEARS ENDED JUNE 30, 2015, 2014 AND 2013, RESPECTIVELY, WAS DERIVED PRIMARILY FROM SALES OF THE PROXCELAN® CS-131 BRACHYTHERAPYSEED, WHICH IS USED IN THE TREATMENT OF CANCER. THE COMPANY ALSO HAD SALES FROM THE GLIASITE® RTS, WHICH IS USED IN THE TREATMENT OF BRAIN CANCER, IN THEFISCAL YEARS ENDED JUNE 30, 2015, 2014 AND 2013, RESPECTIVELY. THE COMPANY RECOGNIZES REVENUE ONCE THE PRODUCT HAS BEEN SHIPPED TO THE CUSTOMER.PREPAYMENTS, IF ANY, RECEIVED FROM CUSTOMERS PRIOR TO THE TIME THAT PRODUCTS ARE SHIPPED ARE RECORDED AS DEFERRED REVENUE. IN THESE CASES, WHEN THE RELATEDPRODUCTS ARE SHIPPED, THE AMOUNT RECORDED AS DEFERRED REVENUE IS THEN RECOGNIZED AS REVENUE. THE COMPANY ACCRUES FOR SALES RETURNS AND OTHER ALLOWANCES ATTHE TIME OF SHIPMENT. ALTHOUGH THE COMPANY DOES NOT HAVE AN EXTENSIVE OPERATING HISTORY UPON WHICH TO DEVELOP SALES RETURNS ESTIMATES, WE HAVE USED THEexpertise of our management team, particularly those with extensive industry experience and knowledge, to develop a proper methodology. 43 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Product Returns and Allowances THE COMPANY AS PART OF NORMAL OPERATIONS ALLOWS FOR CUSTOMERS TO RECEIVE CREDIT FOR PATIENT PROCEDURES CANCELLED AFTER SHIPPING TO THE CUSTOMER FOR A VARIETYof criteria. These criteria include but are not limited to a physical symptom on the date of procedure that interferes with the patient's ability to go forward withthe procedure, discovery that a patient's condition is beyond treatment during surgery and other criteria as determined acceptable by management. Stock-Based Compensation THE COMPANY MEASURES AND RECOGNIZES EXPENSE FOR ALL SHARE-BASED PAYMENTS AT FAIR VALUE. THE COMPANY USES THE BLACK-SCHOLES OPTION VALUATION MODEL TOESTIMATE FAIR VALUE FOR ALL STOCK OPTIONS ON THE DATE OF GRANT. FOR STOCK OPTIONS THAT VEST OVER TIME, THE COMPANY RECOGNIZES COMPENSATION COST ON A STRAIGHT-line basis over the requisite service period for the entire award. Research and Development Costs RESEARCH AND DEVELOPMENT COSTS, INCLUDING SALARIES, RESEARCH MATERIALS, ADMINISTRATIVE EXPENSES AND CONTRACTOR FEES, ARE CHARGED TO OPERATIONS AS INCURRED.THE COST OF EQUIPMENT USED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS ALTERNATIVE USES IS CAPITALIZED AS PART OF FIXED ASSETS AND NOT TREATED AS ANEXPENSE IN THE PERIOD ACQUIRED. DEPRECIATION OF CAPITALIZED EQUIPMENT USED TO PERFORM RESEARCH AND DEVELOPMENT IS CLASSIFIED AS RESEARCH AND DEVELOPMENTexpense in the year recognized. Legal Contingencies IN THE ORDINARY COURSE OF BUSINESS, THE COMPANY IS INVOLVED IN LEGAL PROCEEDINGS INVOLVING SECURITIES, CONTRACTUAL AND EMPLOYMENT RELATIONSHIPS, PRODUCTLIABILITY CLAIMS, PATENT RIGHTS, ENVIRONMENTAL MATTERS, AND A VARIETY OF OTHER MATTERS. THE COMPANY IS ALSO SUBJECT TO VARIOUS LOCAL, STATE, AND FEDERALENVIRONMENTAL REGULATIONS AND LAWS DUE TO THE ISOTOPES USED TO PRODUCE THE COMPANY'S PRODUCT. AS PART OF NORMAL OPERATIONS, AMOUNTS ARE EXPENDED TOENSURE THAT THE COMPANY IS IN COMPLIANCE WITH THESE LAWS AND REGULATIONS. WHILE THERE HAVE BEEN NO REPORTABLE INCIDENTS OR COMPLIANCE ISSUES, THE COMPANYBELIEVES THAT IF IT RELOCATES ITS CURRENT PRODUCTION FACILITIES THEN CERTAIN DECOMMISSIONING EXPENSES WILL BE INCURRED AND HAS RECORDED AN ASSET RETIREMENTobligation for these expenses. THE COMPANY RECORDS CONTINGENT LIABILITIES RESULTING FROM ASSERTED AND UNASSERTED CLAIMS AGAINST IT, WHEN IT IS PROBABLE THAT A LIABILITY HAS BEEN INCURRED ANDTHE AMOUNT OF THE LOSS IS REASONABLY ESTIMABLE. ESTIMATING PROBABLE LOSSES REQUIRES ANALYSIS OF MULTIPLE FACTORS, IN SOME CASES INCLUDING JUDGMENTS ABOUT THEPOTENTIAL ACTIONS OF THIRD-PARTY CLAIMANTS AND COURTS. THEREFORE, ACTUAL LOSSES IN ANY FUTURE PERIOD ARE INHERENTLY UNCERTAIN. CURRENTLY, THE COMPANY DOES NOTBELIEVE ANY PROBABLE LEGAL PROCEEDINGS OR CLAIMS WILL HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL POSITION OR RESULTS OF OPERATIONS. HOWEVER, IF ACTUAL ORESTIMATED PROBABLE FUTURE LOSSES EXCEED THE COMPANY'S RECORDED LIABILITY FOR SUCH CLAIMS, IT WOULD RECORD ADDITIONAL CHARGES AS OTHER EXPENSE DURING THEperiod in which the actual loss or change in estimate occurred. Income Taxes INCOME TAXES ARE ACCOUNTED FOR UNDER THE LIABILITY METHOD. UNDER THIS METHOD, THE COMPANY PROVIDES DEFERRED INCOME TAXES FOR TEMPORARY DIFFERENCES THATWILL RESULT IN TAXABLE OR DEDUCTIBLE AMOUNTS IN FUTURE YEARS BASED ON THE REPORTING OF CERTAIN COSTS IN DIFFERENT PERIODS FOR FINANCIAL STATEMENT AND INCOME TAXPURPOSES. THIS METHOD ALSO REQUIRES THE RECOGNITION OF FUTURE TAX BENEFITS SUCH AS NET OPERATING LOSS CARRY-FORWARDS, TO THE EXTENT THAT REALIZATION OF SUCHBENEFITS IS MORE LIKELY THAN NOT. DEFERRED TAX ASSETS AND LIABILITIES ARE MEASURED USING ENACTED TAX RATES EXPECTED TO APPLY TO TAXABLE INCOME IN THE YEARS INWHICH THOSE TEMPORARY DIFFERENCES ARE EXPECTED TO BE RECOVERED OR SETTLED. THE EFFECT ON DEFERRED TAX ASSETS AND LIABILITIES OF A CHANGE IN TAX RATES ISRECOGNIZED IN OPERATIONS IN THE PERIOD THAT INCLUDES THE ENACTMENT OF THE CHANGE. MANAGEMENT HAS DETERMINED THAT THE COMPANY, ITS SUBSIDIARY MEDICAL, ANDITS SUBSIDIARY INTERNATIONAL ARE SUBJECT TO EXAMINATION OF THEIR INCOME TAX FILINGS IN THE UNITED STATES AND STATE JURISDICTIONS FOR THE 2012 THROUGH 2015 TAXYEARS. IN THE EVENT THAT THE COMPANY IS ASSESSED PENALTIES AND/OR INTEREST, PENALTIES WILL BE CHARGED TO OTHER OPERATING EXPENSE AND INTEREST WILL BE CHARGED TOinterest expense. 44 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Income (Loss) Per Common Share BASIC EARNINGS PER SHARE IS CALCULATED BY DIVIDING NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARESOUTSTANDING, AND DOES NOT INCLUDE THE IMPACT OF ANY POTENTIALLY DILUTIVE COMMON STOCK EQUIVALENTS, INCLUDING PREFERRED STOCK, COMMON STOCK WARRANTS ORoptions that are potentially convertible into common stock as those would be anti-dilutive due to the Company's net loss position. Securities that could be dilutive in the future as of June 30, 2015, 2014 and 2013 were as follows: 2015 2014 2013 Preferred stock 59,065 59,065 59,065 Common stock warrants 385,800 444,747 1,957,033 Common stock options 2,418,282 2,314,422 2,305,072 Total potential dilutive securities 2,863,147 2,818,234 4,321,170 Subsequent Events EFFECTIVE APRIL 1, 2009, THE COMPANY ADOPTED ASC 855 Subsequent Events. THIS STATEMENT ESTABLISHES THE ACCOUNTING FOR, AND DISCLOSURE OF, MATERIAL EVENTSTHAT OCCUR AFTER THE BALANCE SHEET DATE, BUT BEFORE THE FINANCIAL STATEMENTS ARE ISSUED. IN GENERAL, THESE EVENTS WILL BE RECOGNIZED IF THE CONDITION EXISTED AT THEDATE OF THE BALANCE SHEET, AND WILL NOT BE RECOGNIZED IF THE CONDITION DID NOT EXIST AT THE BALANCE SHEET DATE. DISCLOSURE IS REQUIRED FOR NON-RECOGNIZED EVENTSIF REQUIRED TO KEEP THE FINANCIAL STATEMENTS FROM BEING MISLEADING. SUBSEQUENT EVENTS HAVE BEEN EVALUATED THROUGH THE DATE OUR FINANCIAL STATEMENTS WEREissued—the filing time and date of our 2015 Annual Report on Form 10-K. Use of Estimates THE PREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA REQUIRES MANAGEMENT OFTHE COMPANY TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE AMOUNTS REPORTED IN THE FINANCIAL STATEMENTS AND ACCOMPANYING NOTES. ACCORDINGLY, ACTUALresults could differ from those estimates and affect the amounts reported in the financial statements. Results of Operations Financial Presentation THE FOLLOWING SETS FORTH A DISCUSSION AND ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JUNE 30, 2015,2014 AND 2013. THIS DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS ANNUALREPORT ON FORM 10-K. THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED INSUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "ITEM 1A —Risk Factors," beginning on page 23 of this Annual Report on Form 10-K. 45 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Fiscal 2015 Results Compared to 2014 Year Ended June 30, 2015 2014 2015-2014 Amount % (a) Amount % (a) % Change Product sales, net 4,606,539 100% 4,219,158 100% 9%Gross profit / (loss) 167,393 4% (196,471) -5% 185% Research and development 614,771 13% 668,803 16% -8%Sales and marketing 1,488,456 32% 1,234,725 29% 21%General and administrative 2,400,353 52% 2,488,219 59% -4% Non-operating income (Select items) Interest income 282,745 6% 12,113 0% 2234%Change in fair value of warrant derivative liability 374,605 8% (1,382,134) -33% 127% Net loss (3,681,051) -80% (5,959,122) -141% 38% Preferred stock deemed dividends - 0% (726,378) -17% 100% Net loss applicable to common shareholders (3,691,683) -80% (6,696,132) -159% 45% (a) calculated as a percentage of product sales, net Product sales. Product Sales TOTAL REVENUE FROM PRODUCT SALES INCREASED $0.39 MILLION IN FISCAL YEAR 2015 WHEN COMPARED TO FISCAL YEAR 2014. THE 9% YEAR OVER YEAR GROWTH WAS THE RESULTOF 13% OVERALL GROWTH IN SEED BRACHYTHERAPY TREATMENTS WHICH MORE THAN OFFSET THE 57% DECREASE IN GLIASITE® REVENUES YEAR OVER YEAR. THE GROWTH INREVENUE OF 9% YEAR OVER YEAR WAS SIGNIFICANTLY IMPACTED BY THE 41% GROWTH IN THE FOURTH QUARTER RESULTS YEAR OVER YEAR. IN THE FOURTH QUARTER, PROSTATE SEEDBRACHYTHERAPY TREATMENTS INCREASED BY 44%, WHILE OTHER SEED BRACHYTHERAPY TREATMENTS GREW BY 49% AND COMBINED TO MORE THAN OFFSET THE DECREASE INrevenue from GliaSite® RTS of 24%. Prostate Brachytherapy.DURING THE YEAR ENDED JUNE 30, 2015 PROSTATE BRACHYTHERAPY INCREASED TO 87% OF TOTAL REVENUE COMPARED TO 84% OF TOTAL REVENUE DURING THE YEAR ENDED JUNE30, 2014. THE GROWTH IN REVENUE WAS THE RESULT OF AN 8% INCREASE IN THE NUMBER OF CASES TREATED AND THE LOADING CONFIGURATIONS SELECTED BY THE PHYSICIANS.Physicians in fiscal year 2015 utilized approximately 38% more seeds configured into stranded and pre-loaded in needles. MANAGEMENT BELIEVES THAT THE DECLINES IN THE PROSTATE BRACHYTHERAPY MARKET PRIOR TO FISCAL YEAR 2015 HAVE NOW ENDED AND THAT INCREASED PRESSURE TO DELIVEREFFECTIVE HEALTHCARE IN BOTH TERMS OF OUTCOME AND COST IS BEGINNING TO DRIVE SOME TREATMENT DECISIONS. WHILE MARKET TRENDS CAN SHIFT RAPIDLY AND WE REMAINHEAVILY DEPENDENT ON FIVE OR FEWER PHYSICIANS FOR OUR PROSTATE REVENUE, MANAGEMENT BELIEVES THAT THE KNOWLEDGE BEING SHARED WITH PHYSICIANS IS REACHING Astage of moving beyond the innovating physician and into a broader market acceptance but there is no assurance these trends will continue. 46 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WHILE THERE IS STILL OVERALL MARKET PRESSURE TO USE OTHER TREATMENT OPTIONS WITH HIGHER REIMBURSEMENT RATES SUCH AS INTENSITY–MODULATED RADIATION THERAPY(IMRT) AND ROBOTIC-ASSISTED SURGERY, MANAGEMENT BELIEVES THAT THE IDEA OF FOCAL THERAPY IN TREATING PROSTATE CANCER USING CESIUM-131 SEEDS COMBINED WITHCONVERSION OF PHYSICIANS IN PART OR IN WHOLE FROM OTHER COMPETING ISOTOPES BASED ON THE DATA PUBLISHED IN PEER REVIEWED ARTICLES ON THE PERFORMANCE OFCESIUM-131 WHEN COMPARED TO OTHER ISOTOPES USED IN SEED BRACHYTHERAPY, IS ASSISTING THE COMPANY WITH BETTER PROSTATE REVENUE. ADDITIONALLY, THE ROLE OFBRACHYTHERAPY IN TREATING LOW–RISK PROSTATE CANCER IS BEGINNING TO BE CHALLENGED WITHIN THE PHYSICIAN COMMUNITY IN JOURNAL PUBLICATION ADDRESSING THEOVERALL COST EFFECTIVENESS OF TREATING LOW-RISK PROSTATE CANCER IN THE AFFORDABLE CARE ACT (ACA) ERA WITH LOW DOSE RATE (LDR) BRACHYTHERAPY INSTEAD OF HIGH-DOSE RATE (HDR) BRACHYTHERAPY, OR IMRT. THE ANALYSIS PROJECTS AN ADDITIONAL 70,000 CASES IN THE NEXT TEN YEARS FROM THE IMPLEMENTATION OF THE ACA OF EARLYPROSTATE CANCERS, PROVIDING FAVORABLE COMPARISONS FOR OUR PRODUCT. THE COST OF USING HDR WILL BE APPROXIMATELY 175% OF LDR AND THE COST OF USING IMRTwill be approximately 295% of LDR. Other Brachytherapy. THE STRATEGY IMPLEMENTED BY MANAGEMENT IN DIVERSIFYING THE NUMBER OF BODY SITES BEING ACTIVELY TREATED WITH THE PROXCELAN® CS-131 BRACHYTHERAPY SEEDHAS CONTINUED TO PROVIDE APPROXIMATELY 11% OF TOTAL REVENUE. THESE TREATMENTS CONTINUE TO BE SUBJECT TO THE INFLUENCE OF A SMALL POOL OF INNOVATIVEPHYSICIANS WHO ARE THE EARLY ADOPTERS OF THE TECHNOLOGY WHO ALSO TEND TO BE FACULTY AT TEACHING HOSPITALS WHICH PROVIDE THE NEXT GENERATION OF PHYSICIANS TOLEARN FROM THE INNOVATIVE PHYSICIAN. THIS ALSO CAUSES THE REVENUE CREATED BY THESE TYPES OF TREATMENT APPLICATION TO BE MORE VOLATILE AND VARY SIGNIFICANTLYfrom quarter to quarter and year to year. GliaSite® Radiation Therapy System. ALL PRODUCT SALES ARE GENERATED BY THE BRACHYTHERAPY SEEDS AND THE RELATED METHODS OF APPLICATION EXCEPT FOR THE REVENUE GENERATED BY THE SALES OF GLIASITE®RTS WHICH COME FROM SALE OF THE LIQUID ISOTOPE, CATHETER TRAYS AND ACCESS TRAYS. PRODUCT SALES FROM GLIASITE ® RTS DECREASED 57% IN THE YEAR ENDED JUNE 30,2015 when compared to 2014. GliaSite® RTS CONTRIBUTED 2% OF TOTAL REVENUE IN THE YEAR ENDED JUNE 2015 COMPARED TO 5% IN THE YEAR ENDED JUNE 30, 2014.THE DECREASE IN PRODUCT SALES FROM GLIASITE ® RTS WAS THE DIRECT RESULT OF DECREASED SALES TO OUR DISTRIBUTOR IN GERMANY AND IS ATTRIBUTED TO THE CHANGE IN THEEXCHANGE RATE BETWEEN THE US DOLLAR AND THE EURO AS THE DOLLAR STRENGTHENED DURING FISCAL YEAR 2015 WHICH EFFECTIVELY INCREASED THE COST TO EUROPEANcustomers as all the transactions are conducted in the US dollar. THE CONVERSION OF PROSPECTS TO NEW GLIASITE® RTS CUSTOMERS HAS BEEN A LONGER PROCESS THAN ORIGINALLY ANTICIPATED BY THE COMPANY. THE COMPANY HASEXPERIENCED LENGTHY TIMELINES IN THE INTERNAL PROCESSES OF THE MEDICAL FACILITIES IN REVIEWING AND APPROVING THE USE OF THE PRODUCT AT THE REQUEST OF THEIRPHYSICIAN(S). THESE LONGER THAN ANTICIPATED INTERNAL PROCESSES ARE COMPOUNDED BY UNCERTAIN TIMELINES AND DELAYS IN RECEIVING THE APPROVAL FOR THE REQUESTEDmodification of each facility's nuclear materials license, which is required to begin using GliaSite® RTS and is dependent on external government regulators. Cost of product sales. TOTAL COST OF PRODUCT SALES OVERALL HAVE REMAINED MATERIALLY UNCHANGED WITH AN APPROXIMATE 1% INCREASE DURING THE FISCAL YEAR ENDED JUNE 30, 2015COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014. COST OF PRODUCT SALES RELATED TO SEED PRODUCTION INCREASED BY 3% DURING THE FISCAL YEAR ENDED JUNE 30, 2015WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014. COST OF PRODUCT SALES RELATED TO GLIASITE® RTS DECREASED BY 67% IN THE YEAR ENDED JUNE 30, 2015compared to the fiscal year ended June 30, 2014 due to the significant decrease in the sales of this product. DURING THE YEAR ENDED JUNE 30, 2015 COMPARED TO THE YEAR ENDED JUNE 30, 2014, THE TOTAL COST OF PRODUCT SALES RELATED TO SEED PRODUCTION INCREASED BY 3%.THIS INCREASE WAS THE NET RESULT OF INCREASES IN PAYROLL, TAXES, EMPLOYEE BENEFITS AND SHARE-BASED COMPENSATION WHICH INCLUDED COST OF LIVING PAYROLLINCREASES GRANTED TO EMPLOYEES AT THE BEGINNING OF THE FISCAL YEAR ALONG WITH THE ASSOCIATED INCREASED PAYROLL TAXES, INCREASED COST OF ACCRUED PAID VACATIONAND THE INCREASE IN SHARE-BASED COMPENSATION FOR OPTIONS GRANTED TO PRODUCTION EMPLOYEES. THE INCREASE IN PRE-LOADING EXPENSE WAS A FUNCTION OF THEINCREASED MATERIALS COST. SPECIFICALLY, THE INCREASED NUMBER OF SEEDS BEING ORDERED IN A STRANDED AND PRE-LOADED NEEDLE CONFIGURATION RESULTED IN AN INCREASEIN THE VOLUME OF ORDERS AND THE INCREASED COST OF THIRD-PARTY LOADING FOR A CERTAIN NEW CONFIGURATION THAT REQUIRE A PARTICULAR TYPE OF STERILIZATION THAT THECOMPANY DOES NOT HAVE THE CAPABILITY TO PERFORM (THE CAPITAL INVESTMENT IN THAT CAPABILITY IS NOT YET WARRANTED BY THE CURRENT VOLUME). THESE COST INCREASESWERE PARTIALLY OFFSET BY THE DECREASED DEPRECIATION EXPENSE AS PRODUCTION EQUIPMENT HAS REACHED THE END OF DEPRECIABLE LIVES. THE COST OF PRODUCT SALESrelated to GliaSite® RTS DECREASED SIGNIFICANTLY PRIMARILY AS THE RESULT OF DECREASED PRODUCT SALES. THIS REDUCTION WAS THE RESULT OF REDUCED ISOTOPE PURCHASESand lack of an inventory impairment expense which was a non-recurring cost that occurred in the year ended June 30, 2014. 47 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Gross margin. GROSS MARGIN FOR THE FISCAL YEAR ENDED JUNE 30, 2015 INCREASED SUBSTANTIALLY WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014 AS THE DIRECT RESULT OF THEINCREASED REVENUE PRIMARILY FROM THE INCREASED SALES OF BRACHYTHERAPY SEEDS FOR THE TREATMENT OF PROSTATE CANCER ON SIMILAR COST OF GOODS SOLD. THE ADDITIONALSEEDS SOLD WERE ABLE TO BE PRODUCED USING ISOTOPE THAT WAS PURCHASED AND PREVIOUSLY WOULD HAVE BEEN EXPENSED AS IT DECAYED, THUS THE SIMILAR COST OF GOODSsold year over year. Research and development expenses. RESEARCH AND DEVELOPMENT COSTS FOR FISCAL YEAR ENDED JUNE 30, 2015 COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014 WERE DECREASED BY THE NET OF ANINCREASED LEGAL EXPENSE PARTIALLY OFFSET BY DECREASED OTHER ORGAN RESEARCH EXPENSE AND PROTOCOL EXPENSE. LEGAL EXPENSE INCREASED AS THE RESULT OF LEGAL COSTSRELATED TO THE MAINTENANCE OF US AND EUROPEAN PATENTS THAT HAVE BEEN GRANTED. OTHER ORGAN RESEARCH EXPENSE DECREASED AS A RESULT OF THE COMPLETION OF THECESITREX™ PROJECT WITH THE FDA CLEARANCE AND MANAGEMENT FOCUSING ON PROJECTS THAT HAVE THE BEST OPPORTUNITY FOR A RETURN WITH AN ENGAGED PARTNER WHO ISFOCUSED ON DEVELOPING THEIR OWN PRODUCT THAT UTILIZE OUR BRACHYTHERAPY SEEDS. PROTOCOL EXPENSE DECREASED AS THE RESULT OF THE REINSTATEMENT OF THE BRAIN STUDYat Weill Medical College which temporarily increased the cost related to the reinstatement in fiscal year 2014 and did not reoccur in fiscal year 2015. Sales and marketing expenses. SALES AND MARKETING EXPENSES INCREASED DURING THE FISCAL YEAR ENDED JUNE 30, 2015 WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014. CONVENTIONS ANDTRADESHOW EXPENSE INCREASED AS THERE WAS INCREASED INVESTMENT IN THE COMPANY PRESENCE AT THE AMERICAN SOCIETY FOR RADIATION ONCOLOGY ANNUAL MEETING,GENERAL ATTENDANCE AT VARIOUS OTHER TRADESHOWS AND CONDUCTING A NATIONAL SALES MEETING TO REFINE THE INFORMATION BEING PRESENTED TO PHYSICIANS. PAYROLL,BENEFITS AND SHARE-BASED COMPENSATION INCREASED PRIMARILY AS THE RESULT OF INCREASED COMMISSION COMPENSATION BASED ON TERRITORY SALES MANAGERS REACHINGCERTAIN TARGETS IN THE FINAL FOUR MONTHS OF THE FISCAL YEAR ENDED JUNE 30, 2015, AND INCREASED PAYROLL AND RELATED TAXES AND INSURANCE EXPENSES AS THE RESULT OFHAVING AN INCREASED NUMBER OF TEAM MEMBERS IN THE YEAR ENDED JUNE 30, 2015. TRAVEL EXPENSE INCREASED AS A FUNCTION OF HAVING ADDITIONAL TERRITORY SALESMANAGERS IN THE FIELD WHICH INCREASED THE COMPANY COST OF TRAVEL, INCLUDING GENERAL GROUND TRANSPORTATION, INCLUDING MILEAGE REIMBURSEMENT, AUTO RENTALS,cabs and parking. General and administrative expenses. GENERAL AND ADMINISTRATIVE EXPENSES DECREASED BY 4% DURING THE FISCAL YEAR ENDED JUNE 30, 2015 WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2014.Costs were reduced related to legal services and public company expense while there were increases to insurance expense and occupancy expense. THE INCREASED COST OF INSURANCE EXPENSE WAS THE RESULT OF A CHANGED INSURANCE MARKET IN THE DIRECTORS AND OFFICERS SEGMENT IN AUGUST OF 2014 WHICH RESULTEDIN AN 84% INCREASE IN COST DUE TO THE OVERALL DIRECTORS AND OFFICERS INSURANCE MARKET ADJUSTING ITS RISK TOLERANCE IN THE SUMMER OF 2014. THE COMPANYRENEWED ITS DIRECTORS AND OFFICERS INSURANCE FOR FISCAL YEAR 2016 DURING AUGUST 2015 WITH ONLY A MODERATE INCREASE IN COST AND INCREASED COVERAGE. COSTS FROMLEGAL COUNSEL DECREASED BY 13% IN THE YEAR ENDED JUNE 30, 2015 AS THE RESULT OF NO LEGAL INPUT NEEDED FOR CAPITAL RAISES WHICH WAS REQUIRED IN THE YEAR ENDED2014 AND PUBLIC COMPANY EXPENSE DECREASED BY 12% AS A DIRECT RESULT OF A TEMPORARY REDUCTION IN THE NUMBER OF INDEPENDENT BOARD MEMBERS FROM 3 TO 2serving on the board of directors. Operating loss. OPERATING LOSS FOR THE YEAR ENDED JUNE 30, 2015 COMPARED TO THE YEAR ENDED JUNE 30, 2014 DECREASED AS A RESULT OF INCREASED REVENUE GENERATED FROM THE SALESOF BRACHYTHERAPY SEEDS FOR THE TREATMENT OF PROSTATE CANCER; INCREASES IN PRODUCT SALES FROM OTHER SEED BRACHYTHERAPY PARTIALLY REDUCED BY A DECREASE IN THEsales of GliaSite® RTS and a minimal increase in cost of product sales. 48 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Change in fair value of warrant derivative liabilities. During the years ended June 30, 2015 and June 30, 2014, there were changes in the fair value of the warrant derivative liabilities established upon issuance ofTHE WARRANTS DURING OCTOBER 2011 AND DECEMBER 2011 TO THE PURCHASERS AND UNDERWRITERS IN THE COMPANY’S REGISTERED PUBLIC OFFERING. PER ASC 820, THEwarrant derivative liability requires periodic evaluation for changes in fair value. As required at June 30, 2015 and June 30, 2014, the Company evaluated theFAIR VALUE OF THE WARRANT DERIVATIVE LIABILITY USING THE BLACK-SCHOLES OPTION PRICING MODEL ON WHICH THE ORIGINAL WARRANT DERIVATIVE LIABILITY WAS BASED ANDapplied updated inputs as of those dates. The resulting change in fair value was recorded as of June 30, 2015 and 2014, respectively. Fiscal 2014 Results Compared to 2013 Year Ended June 30, 2014 2013 2014 - 2013 Amount % (a) Amount % (a) % Change Product sales, net 4,219,158 100% 4,525,233 100% -7%Gross profit / (loss) (196,471) -5% 150,176 3% -231% Research and development 668,803 16% 627,107 14% 7%Sales and marketing 1,234,725 29% 1,296,149 29% -5%General and administrative 2,488,219 59% 2,294,173 51% 8% Non-operating income (Select items) Interest income 12,113 0% 664 0% 1724%Change in fair value of warrant derivative liability (1,382,134) -33% 210,000 5% -758% Net loss (5,959,122) -141% (3,856,596) -85% -55% Preferred stock deemed dividends (726,378) -17% - 0% -100% Net loss applicable to common shareholders (6,696,132) -159% (3,867,228) -85% -73% (a) calculated as a percentage of product sales, net Product sales. Prostate Brachytherapy. REVENUE GENERATED FROM TREATMENT WITH PROSTATE BRACHYTHERAPY INCREASED FROM 82% OF TOTAL REVENUE IN THE FISCAL YEAR ENDED JUNE 30, 2013 TO 84% OF TOTALREVENUE IN THE FISCAL YEAR ENDED JUNE 30, 2014. PROSTATE BRACHYTHERAPY REVENUE DECREASED AT A SLOWER RATE THAN REVENUE CLASSIFIED AS OTHER PRODUCT SALES WHICHRESULTED IN THE INCREASE FROM 82% TO 84% OF THE DECREASED TOTAL REVENUE DURING FISCAL YEAR 2014 COMPARED TO FISCAL YEAR 2013. MANAGEMENT BELIEVES THAT THECONTINUING DECREASE IN SALES FOR NON-PROSTATE APPLICATIONS HAS RESULTED FROM KEY PHYSICIANS BEING ASSIGNED TO NEW ROLES WITHIN THEIR FACILITIES, MOVING TO NEWFACILITIES THAT ARE NOT LICENSED FOR CESIUM-131 AND THE ONGOING INCENTIVE TO RECOVER CAPITAL INVESTMENTS IN TREATMENT EQUIPMENT AND THE REQUIRED FACILITIES TOHOUSE THE EQUIPMENT FOR COMPETING TREATMENT METHODS BY THOSE FACILITIES. MANAGEMENT BELIEVES THAT THE OVERALL MARKET FOR PROSTATE BRACHYTHERAPY HASCONTINUED TO RECEIVE INCREASED PRESSURE FROM OTHER TREATMENT OPTIONS WITH HIGHER REIMBURSEMENT RATES SUCH AS INTENSITY–MODULATED RADIATION THERAPY(IMRT) AND ROBOTIC-ASSISTED SURGERY. ALTHOUGH COMBINATION TREATMENTS INCORPORATING BRACHYTHERAPY WITH OTHER MODALITIES IN THE PROSTATE AND TREATMENT OFother body sites with brachytherapy have increased, these increases are insufficient to offset the overall decrease in use of prostate brachytherapy. 49 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other Brachytherapy. THE STRATEGY IMPLEMENTED BY MANAGEMENT IN THE PRIOR YEAR IN DIVERSIFYING THE NUMBER OF BODY SITES BEING ACTIVELY TREATED WITH THE PROXCELAN® CS-131BRACHYTHERAPY SEED HAS CONTINUED TO PARTIALLY MITIGATE THE LOST REVENUE FROM THE PROSTATE BRACHYTHERAPY SEGMENT. THE TIMELINE OF DEVELOPING AND BRINGINGNEW PRODUCTS FROM CONCEPT TO REVENUE PRODUCTION IN THE PHARMACEUTICAL/MEDICAL DEVICE SEGMENT IS LENGTHY AND IS TYPICALLY MEASURED IN YEARS. THEprobability of any new cancer treatment product reaching the stage at which it produces revenue is very low. COMPANY MANAGEMENT HAS BEEN INVESTING IN DEVELOPMENT OF ALTERNATIVE USES FOR THE COMPANY’S BRACHYTHERAPY SEED THAT MANAGEMENT BELIEVES HAVE THEABILITY TO GENERATE REVENUE IN THE NEAR-TERM TO OFFSET DEVELOPMENT COSTS. NEW TREATMENTS SUCH AS THOSE BEING INITIATED BY THE COMPANY TYPICALLY EXPERIENCE ASTAGED ENTRY TO MARKET IN WHICH PRIMARY ADOPTERS DEMONSTRATE THE SUITABILITY OF A TREATMENT, AFTER WHICH WIDER ADOPTION IS POSSIBLE. THE NON-PROSTATE PRODUCTSARE VERY DEPENDENT ON FIRST ADOPTERS AS A SOURCE OF REVENUE. WHILE THERE MAY BE A STEEP GROWTH IN REVENUE, IT OFTEN PLATEAUS DUE TO CAPACITY CONSTRAINTS UNTILTHE MAINSTREAM ADOPTION OCCURS, WHEN AND IF THERE IS FAVORABLE PUBLICATION OF THE EXPERIENCES AND TREATMENT OUTCOMES OF THE FIRST ADOPTERS. THROUGH JUNE 30,2014, the Company had only experienced minimal sales to first adopters. DURING THE FISCAL YEAR ENDED JUNE 30, 2014, THERE WERE OVER SEVEN HUNDRED AND EIGHTY CASES TREATED WITH THE COMPANY’S CS-131 BRACHYTHERAPY SEEDS, WITHAPPROXIMATELY 12% OF THE CASES BEING NON-PROSTATE APPLICATIONS. MANAGEMENT’S STRATEGY INCLUDES SOLICITING THE USE OF OTHER APPLICATIONS FOR THE COMPANY'SBRACHYTHERAPY SEEDS AT MAJOR MEDICAL INSTITUTIONS THAT ARE MORE LIKELY TO PUBLISH THEIR OUTCOMES AND THAT ARE TRAINING THE NEXT GENERATION OF DECISION MAKERS.COMPANY MANAGEMENT INTENDS TO ACTIVELY PURSUE ALTERNATIVE USES FOR THE COMPANY’S BRACHYTHERAPY SEEDS IN TREATMENTS CONSISTENT WITH THE FDA CLEARANCEgranted permitting the Company to utilize other FDA cleared application methods as a means of administering the treatments. DURING THE YEAR ENDED JUNE 30, 2014, THE REVENUE FROM OTHER BRACHYTHERAPY TREATMENTS DECREASED 13% OVER THE YEAR ENDED JUNE 30, 2013. WHILE REVENUE FORthe GliaSite® RTS INCREASED 33%, GYNECOLOGICAL INCREASED 70% AND HEAD AND NECK INCREASED 56%, THESE AREAS OF GROWTH WERE OFFSET BY A 15% DECREASE INREVENUE FROM THE TREATMENT OF BRAIN CANCER AND A 41% DECREASE IN REVENUE FROM THE TREATMENT OF LUNG CANCER. MANAGEMENT BELIEVES THE DECREASE IN BRAIN ANDlung treatments were caused by two physicians that were significant early adopters who were on extended leave during the 2014 fiscal year. GliaSite® Radiation Therapy System. DURING THE FISCAL YEAR ENDED JUNE 30, 2014, REVENUE FROM THE GLIASITE® RTS INCREASED BY APPROXIMATELY 33% OR $57,000 COMPARED TO THE FISCAL YEAR ENDEDJUNE 30, 2013. ALL PRODUCT SALES ARE GENERATED BY THE BRACHYTHERAPY SEEDS AND THE RELATED METHODS OF APPLICATION EXCEPT FOR THE REVENUE GENERATED BY THEsales of GliaSite® RTS which come from sale of the liquid isotope, catheter trays and access trays. THE CONVERSION OF PROSPECTS TO NEW GLIASITE® RTS CUSTOMERS HAS BEEN A LONGER PROCESS THAN ORIGINALLY ANTICIPATED BY THE COMPANY. THE COMPANY HASEXPERIENCED LENGTHY TIMELINES IN THE INTERNAL PROCESSES OF THE MEDICAL FACILITIES IN REVIEWING AND APPROVING THE USE OF THE PRODUCT AT THE REQUEST OF THEIRPHYSICIAN(S). THESE LONGER THAN ANTICIPATED INTERNAL PROCESSES ARE COMPOUNDED BY UNCERTAIN TIMELINES AND DELAYS IN RECEIVING THE APPROVAL FOR THE REQUESTEDMODIFICATION OF EACH FACILITY'S NUCLEAR MATERIALS LICENSE, WHICH IS REQUIRED TO BEGIN USING GLIASITE® RTS AND IS DEPENDENT ON EXTERNAL GOVERNMENT REGULATORS.ON DECEMBER 17, 2013, THE COMPANY RECEIVED CLEARANCE FROM THE US FOOD AND DRUG ADMINISTRATION TO MARKET CESITREX™ (CS-131 IN LIQUID FORM) WITH THEGliaSite® RTS. Cost of product sales. COST OF PRODUCT SALES OVERALL HAVE REMAINED MATERIALLY UNCHANGED DURING THE FISCAL YEAR ENDED JUNE 30, 2014 COMPARED TO THE FISCAL YEAR ENDED JUNE 30,2013 WITH THE EXCEPTION OF TWO CATEGORIES OF COST, THE MEDICAL DEVICE TAX EXPENSE WHICH INCREASED BY 76% AND GLIASITE® RTS COST OF PRODUCT SOLD INCREASEDBY 31%. THE ADDITIONAL MEDICAL DEVICE TAX OF APPROXIMATELY $0.04 MILLION DURING THE TWELVE MONTHS ENDED JUNE 30, 2014 WAS THE RESULT OF THE MEDICALDEVICE TAX BEING APPLICABLE TO ONLY TWO QUARTERS DURING THE FISCAL YEAR ENDED JUNE 30, 2013 AS COMPARED TO ALL FOUR QUARTERS DURING THE FISCAL YEAR ENDED JUNE30, 2014. THE ADDITIONAL COST OF PRODUCT SALES RELATED TO THE GLIASITE® RTS OF APPROXIMATELY $0.034 MILLION WERE FROM THE ADDITIONAL COST OF THE IOTREX®SOLUTION ORDERED AND PRODUCED TO SATISFY THE INCREASED VOLUME ORDERS OF APPROXIMATELY $0.014 MILLION AND A MINIMUM ROYALTY OBLIGATION RELATED TO THElicensing of intellectual property utilized in the GliaSite® RTS system of approximately $0.015 million. 50 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Gross margin. GROSS MARGIN FOR THE FISCAL YEAR ENDED JUNE 30, 2014 DECREASED 231% WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2013. THE CHANGE IN GROSS MARGIN WASPRIMARILY AS A RESULT OF THE PREVIOUSLY DISCUSSED REDUCTION IN SALES IN THE PROSTATE MARKET WHEN COMBINED WITH THE ADDITIONAL COST OF THE MEDICAL DEVICE TAX,INCREASED COST OF ISOTOPE TO MEET THE INCREASED NUMBER OF GLIASITE® RTS ORDERS AND FIXED CONTRACTUAL MINIMUMS RELATED TO ISOTOPE PURCHASES THAT WERE LOST TOdecay, partially offset by cost savings in other areas during the fiscal year ended June 30, 2014 when compared to June 30, 2013. Research and development expenses. RESEARCH AND DEVELOPMENT COSTS FOR FISCAL YEAR ENDED JUNE 30, 2014 WERE INCREASED DUE TO THE PROTOCOL EXPENSE INCREASED BY 53% AS THE COMPANY REINSTATEDAN INVESTMENT IN THE BRAIN STUDY AT WEILL MEDICAL COLLEGE. THE COMPANY CONTINUED TO INVEST IN PROTOCOLS IN SUPPORT OF PRODUCTS THAT HAVE BEEN DEVELOPEDAND SALES HAVE BEGUN IN SUPPORT OF GAINING GENERAL ACCEPTANCE IN THE MARKET. DURING THE FISCAL YEAR ENDED JUNE 30, 2014, THE COMPANY ACCRUED PROTOCOLcosts in accordance with its agreements with participating facilities. Sales and marketing expenses. SALES AND MARKETING EXPENSES DECREASED DURING THE FISCAL YEAR ENDED JUNE 30, 2014 WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2013 PRIMARILY AS ARESULT OF THE DECREASED HIRING COSTS DUE TO THE REDUCTION IN THE USE OF OUTSIDE AGENCIES TO HIRE ADDITIONAL SALES STAFF OF 92% AND THE REDUCTION IN COSTSassociated with travel expense of 15% and specifically a reduction in meals expense. General and administrative expenses. GENERAL AND ADMINISTRATIVE EXPENSES INCREASED BY 8% DURING THE FISCAL YEAR ENDED JUNE 30, 2014 WHEN COMPARED TO THE FISCAL YEAR ENDED JUNE 30, 2013PRIMARILY AS THE RESULT OF INCREASED LEGAL COSTS OF 42% YEAR OVER YEAR AND INCREASED SHARE-BASED COMPENSATION OF 367%, WHICH WAS THE RESULT OF FULLY VESTEDoptions to purchase 100,000 shares of common stock awarded to Dwight Babcock, CEO, valued at $0.116 million at various grant dates. Operating loss. OPERATING LOSS FOR THE YEAR ENDED JUNE 30, 2014 COMPARED TO THE YEAR ENDED JUNE 30, 2013 INCREASED BY 13% AS A RESULT OF DECREASED REVENUE GENERATED FROMTHE SALES OF BRACHYTHERAPY SEEDS FOR THE TREATMENT OF PROSTATE CANCER; WHICH WAS NOT OFFSET BY A SUFFICIENT INCREASE IN PRODUCT SALES FROM OTHER SEEDbrachytherapy and sales of GliaSite® RTS; coupled with cost of product sales which failed to decrease commensurate with the decrease in revenues. Change in fair value of warrant derivative liabilities. During the years ended June 30, 2014 and June 30, 2013, there were changes in the fair value of the warrant derivative liabilities established upon issuance ofTHE WARRANTS DURING OCTOBER 2011 AND DECEMBER 2011 TO THE PURCHASERS AND UNDERWRITERS IN THE COMPANY’S REGISTERED PUBLIC OFFERING. PER ASC 820, THEwarrant derivative liability requires periodic evaluation for changes in fair value. As required at June 30, 2014 and June 30, 2013, the Company evaluated theFAIR VALUE OF THE WARRANT DERIVATIVE LIABILITY USING THE BLACK-SCHOLES OPTION PRICING MODEL ON WHICH THE ORIGINAL WARRANT DERIVATIVE LIABILITY WAS BASED ANDapplied updated inputs as of those dates. The resulting increase of 758% in fair value was recorded as of June 30, 2014 and 2013, respectively. 51 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Liquidity and capital resources. AT JUNE 30, 2015, WE HAD $5.23 MILLION IN CASH AND CASH EQUIVALENTS AND $14.48 MILLION IN INVESTMENTS. CASH FROM OPERATIONS COULD BE AFFECTED BY VARIOUSRISKS AND UNCERTAINTIES, INCLUDING, BUT NOT LIMITED TO, THE RISKS INCLUDED IN PART I, ITEM 1A TITLED "RISK FACTORS." BASED ON OUR CURRENT BUSINESS PLAN ANDREVENUE PROSPECTS, WE BELIEVE THAT WE WILL HAVE SUFFICIENT CASH RESOURCES AND ANTICIPATED CASH FLOWS TO FUND OUR OPERATIONS FOR AT LEAST THE NEXT 12 MONTHSand, at current levels of revenue and expense, for the next five years. THE COMPANY HAS HISTORICALLY FINANCED ITS OPERATIONS THROUGH THE SALE OF COMMON STOCK AND THE ISSUANCE OF RELATED COMMON STOCK WARRANTS. DURING FISCALYEARS 2015 AND 2014, THE COMPANY USED EXISTING CASH RESERVES AND CASH RECEIVED THROUGH SALES OF COMMON STOCK OF APPROXIMATELY $3.66 MILLION AND $3.27million, respectively, to fund operations and capital expenditures. Cash flows For the years ended June 30, 2015 2014 2013 Net cash used in operating activities $(3,521,858) $(3,228,221) $(3,056,267)Net cash provided by (used in) investing activities 783,660 (15,441,156) (12,816)Net cash provided by financing activities 284,865 23,449,523 3,296,299 Net increase (decrease) in cash and cash equivalents $(2,453,333) $4,780,146 $227,216 Cash flows from operating activities NET CASH USED IN OPERATING ACTIVITIES WAS $3.52 MILLION IN FISCAL 2015 AS COMPARED TO NET CASH USED IN OPERATING ACTIVITIES OF $3.23 MILLION IN FISCAL 2014. NETcash used in operating activities in fiscal 2015 was primarily related to: ·Net loss of $3.68 million·NET LOSS OFFSET BY NON-CASH ITEMS OF $0.52 MILLION RELATED TO ALLOWANCE FOR DOUBTFUL ACCOUNTS; DEPRECIATION OF FIXED ASSETS; AMORTIZATION OF OTHERassets; change in fair value of warrant derivative liability; accretion of asset retirement obligation and share-based compensation.·Increase in accounts receivable of $0.13 related to the significant increase of product sales in the fourth quarter.·INCREASE IN INVENTORY OF $0.14 MILLION AS THE RESULT OF A PURCHASE OF A QUANTITY OF INVENTORY ITEMS THAT THE COMPANY WAS ABLE TO OBTAIN A VOLUMEdiscount by purchasing a supply that will last beyond the current operating cycle and some of which has been reclassified as inventory, non-current.·INCREASE IN PREPAID EXPENSES AND OTHER CURRENT ASSETS OF $0.06 MILLION, THE RESULT OF PREPAYMENT OF CERTAIN INSURANCE POLICIES AT RENEWAL FOR FISCAL YEAR2016.·Decrease in accounts payable of $0.08 million as a result of the timing of payments being issued.·Increase in accrued protocol expense of $0.04 million as a result of the timing of facilities billing for their expenses incurred.·DECREASE IN ACCRUED RADIOACTIVE WASTE DISPOSAL OF $0.01 MILLION AS THE COMPANY ACCRUED $0.05 MILLION OF COST DURING THE YEAR AND INCURRED $0.06million of actual disposal cost during the fiscal year. NET CASH USED IN OPERATING ACTIVITIES WAS $3.23 MILLION IN FISCAL 2014 AS COMPARED TO NET CASH USED IN OPERATING ACTIVITIES OF $3.06 MILLION IN FISCAL 2013. NETcash used in operating activities in fiscal 2014 was primarily related to: ·Net loss of $5.96 million·NET LOSS OFFSET BY NON-CASH ITEMS OF $2.34 MILLION RELATED TO ALLOWANCE FOR DOUBTFUL ACCOUNTS; DEPRECIATION OF FIXED ASSETS; AMORTIZATION OF OTHERassets; change in fair value of warrant derivative liability; accretion of asset retirement obligation and share-based compensation.·Increase in inventory of $0.05 million as the result of the timing of purchases during the fourth quarter.·INCREASE IN PREPAID EXPENSES AND OTHER CURRENT ASSETS OF $0.06 MILLION, THE RESULT OF PREPAYMENT OF CERTAIN INSURANCE POLICIES AT RENEWAL FOR FISCAL YEAR2016.·Increase in accounts payable of $0.14 million as a result of the timing of payments being issued. 52 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ·Increase in accrued protocol expense of $0.06 million as a result of the timing of facilities billing for their expenses incurred.·INCREASE IN ACCRUED RADIOACTIVE WASTE DISPOSAL AS THE COMPANY ACCRUED $0.05 MILLION OF COST DURING THE YEAR AND INCURRED $0.01 MILLION OF ACTUALdisposal cost during the fiscal year.·INCREASE IN ACCRUED PAYROLL AND RELATED TAXES OF $0.11 MILLION AS THE RESULT OF FEDERAL WITHHOLDING TAXES AND FICA TAXES PAYABLE OF $0.91 MILLIONRELATED TO THE EXERCISE OF NON-QUALIFIED EMPLOYEE STOCK OPTIONS AND TIMING DIFFERENCES IN THE TIMING OF THE AMOUNT OF PAYROLL ACCRUAL OF $0.20million. Cash flows from investing activities Net cash provided by investing activities was $0.78 million in fiscal 2015, which primarily consisted of maturities of certificates of deposit of $15.87 million,OFFSET BY PURCHASES OF CERTIFICATES OF DEPOSIT OF $10.15 MILLION, OFFSET BY PURCHASES OF CERTIFICATES OF DEPOSIT, NON-CURRENT OF $4.8 MILLION, AND OFFSET BYpurchases of fixed assets of $0.13 million. NET CASH USED IN INVESTING ACTIVITIES WAS $15.44 MILLION IN FISCAL 2014, WHICH PRIMARILY CONSISTED OF PURCHASES OF CERTIFICATES OF DEPOSIT OF $10.0 MILLION ANDpurchases of certificates of deposit, non-current of $5.4 million. Cash flows from financing activities NET CASH PROVIDED BY FINANCING ACTIVITIES DURING FISCAL 2015 WAS $0.29 MILLION, ATTRIBUTABLE TO $0.21 MILLION FROM PROCEEDS FROM EMPLOYEE STOCK OPTIONexercises and $0.08 million from proceeds from warrant exercises. NET CASH PROVIDED BY FINANCING ACTIVITIES DURING FISCAL 2014 WAS $23.45 MILLION, ATTRIBUTABLE TO $1.48 MILLION FROM THE SALE OF CONVERTIBLE PREFERRED STOCK INAN UNDERWRITTEN OFFERING, $1.8 MILLION FROM THE SALE OF COMMON STOCK IN AN UNDERWRITTEN OFFERING, $13.82 MILLION FROM THE SALE OF COMMON STOCK IN Aregistered public offering, to $0.27 million from proceeds from employee stock option exercises and $6.1 million from proceeds from warrant exercises. Projected 2016 Liquidity and Capital Resources Operating Capital and Capital Expenditure Requirements AS OF JUNE 30, 2015, THE COMPANY HAD WORKING CAPITAL OF $15.24 MILLION AND CERTIFICATES OF DEPOSIT, NON-CURRENT OF $5.11 MILLION THAT COULD EITHER BEliquidated with an early withdraw penalty or used as security against a debt facility if required. Our future capital requirements depend on numerous factors. These factors include but are not limited to the following:·Purchase of land and construction of a new manufacturing and office facility on this property.·Inability to expand international markets due to the strength of the U.S. dollar.·Facilities, equipment and IT systems required to support current and future operations.·OUR ABILITY TO CONTINUE TO ADAPT OUR PRODUCT WITHIN OUR CURRENT REGULATORY CLEARANCES OR TO OBTAIN REGULATORY CLEARANCES FOR AN ADAPTATION OF OURproduct to meet the treatment needs of physicians.·Stability of costs associated with our manufacturing processes including isotope and other components with a limited number of manufacturers.·Costs of marketing initiatives.·Maintaining a quality system that meets the requirements of the FDA and the British Standards Institute, our notified body, to maintain our CE mark.·Effects of competing products in our markets and changes in the markets as a whole.·Number and timing of acquisitions. MANAGEMENT BELIEVES THAT OUR CURRENT CASH AND CASH EQUIVALENTS AND INVESTMENTS WILL BE SUFFICIENT TO MEET OUR ANTICIPATED CASH NEEDS FOR WORKING CAPITALAND CAPITAL EXPENDITURES FOR AT LEAST 12 MONTHS AND, AT OUR PRESENT LEVELS OF REVENUE AND EXPENSES, FOR THE NEXT FIVE YEARS. IF THESE SOURCES OF CASH, CASHEQUIVALENTS AND INVESTMENTS ARE INSUFFICIENT TO SATISFY OUR LIQUIDITY REQUIREMENTS, WE MAY SEEK TO SELL ADDITIONAL EQUITY, DEBT SECURITIES OR OBTAIN CREDITFACILITIES. THE SALE OF ADDITIONAL EQUITY OR CONVERTIBLE DEBT SECURITIES COULD RESULT IN DILUTION TO OUR STOCKHOLDERS. IF ADDITIONAL FUNDS ARE RAISED THROUGH THEISSUANCE OF DEBT SECURITIES, THESE SECURITIES COULD HAVE RIGHTS SENIOR TO THOSE ASSOCIATED WITH OUR COMMON STOCK AND COULD CONTAIN COVENANTS THAT WOULDRESTRICT OUR OPERATIONS. ADDITIONAL FINANCING MAY NOT BE AVAILABLE AT ALL, OR IN AMOUNTS OR ON TERMS ACCEPTABLE TO US. IF WE ARE UNABLE TO OBTAIN THIS ADDITIONALfinancing, we may be required to reduce the scope of our planned product development and marketing efforts. 53 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. DURING FISCAL YEAR 2016, THE COMPANY INTENDS TO CONTINUE ITS EXISTING PROTOCOL STUDIES AND TO BEGIN NEW PROTOCOL STUDIES ON LUNG AND INTER-CRANIAL CANCERTREATMENTS USING CESIUM-131 BRACHYTHERAPY SEEDS AND THE GLIASITE® RTS. THE COMPANY BELIEVES THAT NO MORE THAN $250,000 IN EXPENSE WILL BE INCURREDDURING FISCAL YEAR 2015 RELATED TO PROTOCOL EXPENSES RELATING TO LUNG CANCER, INTER-CRANIAL CANCER AND BOTH DUAL THERAPY AND MONO THERAPY PROSTATE CANCERprotocols but there is no assurance that these protocols will not cost more than anticipated. MANAGEMENT PLANS TO ATTAIN BREAKEVEN AND GENERATE ADDITIONAL CASH FLOWS BY INCREASING REVENUES FROM THE COMPANY'S EXISTING TREATMENT APPLICATIONS OF THECS-131 BRACHYTHERAPY SEED TO BOTH NEW AND EXISTING CUSTOMERS (THROUGH OUR DIRECT SALES CHANNELS AND THROUGH OUR DISTRIBUTORS), WHILE EXPANDING INTO NEWmarket applications for Cs-131 and continuing to maintain the Company's focus on cost control. ADDITIONALLY, MANAGEMENT PLANS TO INCREASE REVENUE THROUGH EXPANDING THE SALE OF THE FDA CLEARED AND ISO 13845:2003 CERTIFIED GLIASITE® RTS TO CURRENTCUSTOMERS, ADDING NEW CUSTOMERS IN THE UNITED STATES THROUGH THE COMPANY’S DIRECT SALES FORCE, THROUGH INTERNATIONAL SALES WITH THE EXISTING DISTRIBUTIONAGREEMENTS WHICH COVER GERMANY, AUSTRIA, SWITZERLAND, ITALY, LUXEMBOURG, RUSSIA, AUSTRALIA AND NEW ZEALAND, AND THE ADDITION OF OTHER DISTRIBUTIONCHANNELS TO EUROPEAN UNION COUNTRIES COVERED BY THE ISO CERTIFICATIONS. IN THE PAST YEAR, THE STRENGTHENING OF THE US DOLLAR AGAINST OTHER CURRENCIES HAS MADEexpansion of international sales difficult. MANAGEMENT BELIEVES THE COMPANY WILL REACH BREAKEVEN WITH REVENUES OF APPROXIMATELY $750,000 PER MONTH WITH CASH FLOW BREAKEVEN FROM OPERATIONSBEING REACHED AT APPROXIMATELY $700,000. HOWEVER, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL ATTAIN PROFITABILITY OR THAT THE COMPANY WILL BE ABLE TOATTAIN ITS REVENUE TARGETS. SALES IN THE PROSTATE MARKET HAVE SHRUNK DURING THREE OF THE PAST FOUR YEARS, WHICH HAS NOT ALLOWED BREAKEVEN TO BE REACHED DURINGTHE PAST FOUR FISCAL YEARS. THE MOST RECENT FISCAL YEAR EXPERIENCED AN INCREASE OF 13% IN PROSTATE BRACHYTHERAPY REVENUE COMPARED TO THE YEAR ENDED JUNE 30,2014 BUT THERE IS NO ASSURANCE THIS TREND WILL CONTINUE. SALES OF OTHER APPLICATIONS AND OF THE GLIASITE® RTS HAVE BEEN NOMINAL AND HISTORICALLY HAVE NOTbeen a substantial contributor to total revenue. ON MARCH 21, 2014, THE COMPANY ENTERED INTO A SECURITIES PURCHASE AGREEMENT WITH CERTAIN INVESTORS PROVIDING FOR THE SALE OF A TOTAL OF 5,644,300 SHARES OFCOMMON STOCK FOR AN AGGREGATE PURCHASE PRICE OF $14,675,180 AT A PRICE PER SHARE OF $2.60 (THE REGISTERED DIRECT OFFERING). THE COMPANY RECEIVED NETPROCEEDS FROM THE OFFERING OF APPROXIMATELY $13,814,742 FROM THE REGISTERED DIRECT OFFERING WHICH WILL BE USED TO MEET THE COMPANY’S WORKING CAPITALneeds and general corporate purposes. ON AUGUST 29, 2013, THE COMPANY ENTERED INTO AN AGREEMENT TO SELL 3,800,985 COMMON UNITS, EACH CONSISTING OF 1 SHARE OF THE COMPANY’S COMMON STOCKAND A WARRANT TO PURCHASE 0.816 SHARES OF COMMON STOCK (THE COMMON UNITS), AND 1,670 PREFERRED UNITS, EACH CONSISTING OF 1 SHARE OF SERIES D CONVERTIBLEPREFERRED STOCK AND A WARRANT TO PURCHASE 1,525.23 SHARES OF COMMON STOCK (THE PREFERRED UNITS) ON A FIRM COMMITMENT UNDERWRITTEN BASIS. THE COMMONUNITS WERE SOLD AT AN INITIAL PER UNIT PURCHASE PRICE OF $0.535 AND THE PREFERRED UNITS WERE SOLD AT AN INITIAL PER UNIT PURCHASE PRICE OF $1,000. THE WARRANTS AREALL EXERCISABLE AT $0.72 PER SHARE AND HAVE A TWENTY-FOUR MONTH TERM. EACH SHARE OF THE SERIES D CONVERTIBLE PREFERRED STOCK IS CONVERTIBLE INTO 1,869.15SHARES OF COMMON STOCK AT ANY TIME AT THE OPTION OF THE HOLDER, SUBJECT TO ADJUSTMENT, PROVIDED THAT THE HOLDER WILL BE PROHIBITED FROM CONVERTING SERIES DCONVERTIBLE PREFERRED STOCK INTO SHARES OF THE COMPANY’S COMMON STOCK IF, AS A RESULT OF SUCH CONVERSION, THE HOLDER, TOGETHER WITH AFFILIATES, WOULD OWNMORE THAN 9.99% OF THE TOTAL SHARES OF THE COMPANY’S COMMON STOCK THEN ISSUED AND OUTSTANDING. THE OFFERING YIELDED APPROXIMATELY $3,279,292 IN CASHafter expenses. The Company also received over $6 million from warrant and option exercises in fiscal year 2014. THERE WAS NO MATERIAL CHANGE IN THE USE OF PROCEEDS FROM OUR PUBLIC OFFERINGS AS DESCRIBED IN OUR FINAL PROSPECTUS SUPPLEMENTS FILED WITH THE SEC PURSUANT TORULE 424(B) ON AUGUST 29, 2013 AND MARCH 24, 2014. THROUGH JUNE 30, 2014, THE COMPANY HAD USED THE NET PROCEEDS RAISED THROUGH THE AUGUST 2013 ANDMARCH 2014 OFFERINGS AS DESCRIBED IN THE TABLE BELOW AND HELD THE REMAINING NET PROCEEDS IN CASH AND CASH EQUIVALENTS, SHORT-TERM INVESTMENTS ANDinvestments. No offering expenses were paid directly or indirectly to any of our directors or officers (or their associates) or persons owning ten percent or moreof any class of our equity securities or to any other affiliates. 54 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Offering description Period Net proceeds Remaining net proceeds Underwritten offering August 2013 3,279,292 - Registered direct offering March 2014 13,814,742 13,814,742 Total $17,094,034 $13,814,742 Proceeds used in the year ended June 30, 2015: Indirect payments to directors and officers for database development $24,000 Direct payments for services to directors 80,867 Direct payments of salaries to officers 569,836 Working capital 3,004,778 Total proceeds used in the year ended June 30, 2015 $3,679,481 AS A RESULT OF THESE RECENT CAPITAL RAISES, MANAGEMENT DOES NOT NEED TO RAISE FINANCING DURING FISCAL 2016 BUT MAY ELECT TO DO SO IN ITS SOLE DISCRETION. IFfinancing is obtained, it may be dilutive to shareholders. Of course, funding may not be available to the Company on acceptable terms, or at all. Other Commitments and Contingencies IN APRIL 2013, MEDICAL EXERCISED THE SECOND OF TWO OPTIONS TO RENEW THE ORIGINAL LEASE THAT WAS ENTERED INTO ON MAY 2, 2007 WITH ENERGY NORTHWEST, THEOWNER OF THE APPLIED PROCESS ENGINEERING LABORATORY (THE APEL LEASE), FOR AN ADDITIONAL 3 YEARS WITH A NEW LEASE EXPIRATION DATE OF APRIL 30, 2016. THECOMPANY AGREED TO MODIFICATION NUMBER 14 WHICH BECAME EFFECTIVE ON MAY 1, 2014. THE LEASE MODIFICATION PROVIDED FOR A CONTRACTUALLY PERMITTED RENTINCREASE BASED ON A CPI INDEX WHICH WAS 1.1%. THE MODIFICATION ALSO PROVIDED THE COMPANY WITH AN ADDITIONAL (THIRD) THREE YEAR OPTION TO EXTEND ITStenancy beyond the current expiration date of April 30, 2016. The rent contained in lease modification number 15 beginning on May 1, 2014 is $22,850. TheCOMPANY IS PLANNING TO EXERCISE THE OPTION TO EXTEND THE LEASE TO APRIL 30, 2019 AND IS IN THE PROCESS OF EXERCISING THAT OPTION ALONG WITH CERTAINMODIFICATIONS THAT HAVE BEEN NEGOTIATED BETWEEN MANAGEMENT AND THE LANDLORD RELATED TO THE FUTURE CONSTRUCTION OF A NEW MANUFACTURING AND OFFICE FACILITYbetween now and the expiration of the lease extension on April 30, 2019. Future minimum lease payments under operating leases, including the one remaining three-year renewal of the APEL lease, are as follows: Year ending June 30, 2016 $278,855 2017 278,855 2018 278,855 2019 232,380 $1,068,045 THE COMPANY IS SUBJECT TO VARIOUS LOCAL, STATE, AND FEDERAL ENVIRONMENTAL REGULATIONS AND LAWS DUE TO THE ISOTOPES USED TO PRODUCE THE COMPANY'S PRODUCTS.AS PART OF NORMAL OPERATIONS, AMOUNTS ARE EXPENDED TO ENSURE THAT THE COMPANY IS IN COMPLIANCE WITH THESE LAWS AND REGULATIONS. WHILE THERE HAVE BEEN NOREPORTABLE INCIDENTS OR COMPLIANCE ISSUES, THE COMPANY BELIEVES THAT IF IT RELOCATES ITS CURRENT PRODUCTION FACILITIES THEN CERTAIN DECOMMISSIONING EXPENSESWILL BE INCURRED. AN ASSET RETIREMENT OBLIGATION WAS ESTABLISHED IN THE FIRST QUARTER OF FISCAL YEAR 2008 FOR THE COMPANY'S OBLIGATIONS AT ITS NEW PRODUCTIONfacility. This asset retirement obligation will be for obligations to remove any residual radioactive materials and to remove all leasehold improvements. THE INDUSTRY THAT THE COMPANY OPERATES IN IS SUBJECT TO PRODUCT LIABILITY LITIGATION. THROUGH ITS PRODUCTION AND QUALITY ASSURANCE PROCEDURES, THE COMPANYworks to mitigate the risk of any lawsuits concerning its products. The Company also carries product liability insurance to help protect it from this risk. 55 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE COMPANY RECEIVED A QUALIFYING THERAPEUTIC DISCOVERY PROJECT (QTDP) GRANT IN LIEU OF A QTDP CREDIT FOR THE COMPANY TAX YEARS 2010 AND 2011. THECOSTS OF THE COMPANY ASSOCIATED WITH THESE GRANTS ARE SUBJECT TO EXAMINATION AS ARE THE TAX RETURNS OF THE COMPANY. WHILE THERE IS NO INDICATION THAT THEINTERNAL REVENUE SERVICE INTENDS TO EXAMINE THESE RETURNS OR THE COSTS UTILIZED AS THE UNDERLYING BASIS FOR THE RECEIPT OF THE GRANT FUNDS, THESE GRANT FUNDS AREsubject to recapture if the associated costs are determined by the Service to not meet the definition of a "Qualified Investment" during an examination. Off Balance Sheet Arrangements The Company has no off-balance sheet arrangements. Contractual Obligations and Commitments The following is a schedule summarizing our obligations to make future payments under contractual obligations as of June 30, 2015: Less than 1 – 3 3 – 5 More than 5 Contractual obligations Total 1 year years years years Operating lease obligations $1,068,045 $278,855 $790,090 $- $- Seed core purchase obligation 228,256 114,128 114,128 - - Asset retirement obligation 1,036,764 - - 1,036,764 - OUR PURCHASE COMMITMENTS AND OBLIGATIONS INCLUDE ALL OPEN PURCHASE ORDERS AND CONTRACTUAL OBLIGATIONS IN THE ORDINARY COURSE OF BUSINESS, INCLUDINGCOMMITMENTS WITH CONTRACT MANUFACTURERS AND SUPPLIERS, FOR WHICH WE HAVE NOT RECEIVED THE GOODS OR SERVICES AND ACQUISITION AND LICENSING OF INTELLECTUALPROPERTY. A MAJORITY OF THESE PURCHASE OBLIGATIONS ARE DUE WITHIN A YEAR. ALTHOUGH OPEN PURCHASE ORDERS ARE CONSIDERED ENFORCEABLE AND LEGALLY BINDING, THETERMS GENERALLY ALLOW US THE OPTION TO CANCEL, RESCHEDULE, AND ADJUST OUR REQUIREMENTS BASED ON OUR BUSINESS NEEDS PRIOR TO THE DELIVERY OF GOODS ORperformance of services, and hence, have not been included in the table above. Inflation MANAGEMENT DOES NOT BELIEVE THAT THE CURRENT LEVELS OF INFLATION IN THE UNITED STATES HAVE HAD A SIGNIFICANT IMPACT ON THE OPERATIONS OF THE COMPANY. IFcurrent levels of inflation hold steady, management does not believe future operations will be negatively impacted. New Accounting Standards IN MAY 2014, THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) ISSUED ACCOUNTING STANDARDS UPDATE (ASU) 2014-09, "REVENUE FROM CONTRACTS WITHCustomers" (ASU 2014-09), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification (ASC) Topic 605, "RevenueRECOGNITION". THE GUIDANCE REQUIRES THAT AN ENTITY RECOGNIZE REVENUE IN A WAY THAT DEPICTS THE TRANSFER OF PROMISED GOODS OR SERVICES TO CUSTOMERS IN THEAMOUNT THAT REFLECTS THE CONSIDERATION TO WHICH THE ENTITY EXPECTS TO BE ENTITLED TO IN EXCHANGE FOR THOSE GOODS AND SERVICES. THE GUIDANCE WILL BE EFFECTIVEFOR ANNUAL REPORTING PERIODS BEGINNING AFTER DECEMBER 15, 2017, INCLUDING INTERIM PERIODS WITHIN THAT REPORTING PERIOD AND IS TO BE APPLIED RETROSPECTIVELY,WITH EARLY APPLICATION NOT PERMITTED. THE COMPANY IS CURRENTLY EVALUATING THE NEW STANDARD AND ITS IMPACT ON THE COMPANY'S CONSOLIDATED FINANCIALstatements. 56 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions. Interest Rate Risk MARKET RISK REPRESENTS THE RISK OF LOSS THAT MAY IMPACT OUR CONSOLIDATED FINANCIAL POSITION, RESULTS OF OPERATIONS OR CASH FLOWS DUE TO ADVERSE CHANGES INFINANCIAL AND COMMODITY MARKET PRICES AND RATES. WE ARE EXPOSED TO MARKET RISK PRIMARILY IN THE AREA OF CHANGES IN UNITED STATES TREASURY INTEREST RATES. ALLinvestments are in certificates of deposit of varying terms and in FDIC insured amounts. TO MINIMIZE MARKET RISK, WE HAVE IN THE PAST AND, TO THE EXTENT POSSIBLE, WILL CONTINUE IN THE FUTURE, TO HOLD DEBT SECURITIES TO MATURITY AT WHICH TIME THE DEBTsecurity will be redeemed at its stated or face value. Fair Value Measurements WE ACCOUNT FOR OUR COMMON STOCK WARRANTS PURSUANT TO THE AUTHORITATIVE GUIDANCE ON ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, ANDPOTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK, ON THE UNDERSTANDING THAT IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS, THE REGISTERED WARRANTS REQUIRE THEISSUANCE OF REGISTERED SECURITIES UPON EXERCISE AND DO NOT SUFFICIENTLY PRECLUDE AN IMPLIED RIGHT TO NET CASH SETTLEMENT. WE CLASSIFY WARRANTS ON THEconsolidated balance sheet as a long-term liability that is revalued at each balance sheet date subsequent to the initial issuance. Foreign Currency Risk ALL OF OUR MANUFACTURING OPERATIONS ARE CONDUCTED IN THE UNITED STATES AND ALL TRANSACTIONS DURING THE YEAR ENDED JUNE 30, 2015 HAVE BEEN MADE IN UNITEDStates dollars. Accordingly, we have not had any material exposure to foreign currency rate fluctuations. ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA THE INFORMATION REQUIRED BY THIS ITEM 8 IS INCORPORATED BY REFERENCE TO OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE REPORT OF INDEPENDENT REGISTEREDPublic Accounting Firm beginning at page F-1 of this report. ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements or reportable events with DeCoria, Maichel & Teague, P.S. ITEM 9A – CONTROLS AND PROCEDURES Disclosure Controls and Procedures UNDER THE SUPERVISION AND WITH THE PARTICIPATION OF OUR MANAGEMENT, INCLUDING OUR PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER, WE CONDUCTEDAN EVALUATION OF THE DESIGN AND OPERATION OF OUR DISCLOSURE CONTROLS AND PROCEDURES, AS SUCH TERM IS DEFINED UNDER RULES 13A-14(C) AND 15D-14(C)PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AS OF JUNE 30, 2015. BASED ON THAT EVALUATION, OUR PRINCIPALEXECUTIVE OFFICER AND OUR PRINCIPAL FINANCIAL OFFICER CONCLUDED THAT THE DESIGN AND OPERATION OF OUR DISCLOSURE CONTROLS AND PROCEDURES WERE EFFECTIVE. THEDESIGN OF ANY SYSTEM OF CONTROLS IS BASED IN PART UPON CERTAIN ASSUMPTIONS ABOUT THE LIKELIHOOD OF FUTURE EVENTS, AND THERE CAN BE NO ASSURANCE THAT ANYDESIGN WILL SUCCEED IN ACHIEVING ITS STATED GOALS UNDER ALL POTENTIAL FUTURE CONDITIONS, REGARDLESS OF HOW REMOTE. HOWEVER, MANAGEMENT BELIEVES THAT OURsystem of disclosure controls and procedures is designed to provide a reasonable level of assurance that the objectives of the system will be met. 57 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Management's Annual Report on Internal Control over Financial Reporting MANAGEMENT IS RESPONSIBLE FOR ESTABLISHING AND MAINTAINING ADEQUATE INTERNAL CONTROL OVER FINANCIAL REPORTING AS DEFINED IN RULES 13A-15(F) AND 15D-15(F) OFTHE EXCHANGE ACT. OUR INTERNAL CONTROL OVER FINANCIAL REPORTING IS DESIGNED TO PROVIDE REASONABLE ASSURANCE CONCERNING BOTH THE RELIABILITY OF OUR FINANCIALREPORTING AND THE PREPARATION OF OUR FINANCIAL STATEMENTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. THIS CONTROL INCLUDES POLICIES ANDprocedures that obligate us to maintain reasonably detailed records that accurately and fairly reflect our transactions and the disposition of our assets, provideASSURANCE THAT OUR TRANSACTIONS ARE PROPERLY RECORDED, ENSURE THAT OUR RECEIPTS AND EXPENDITURES ARE AUTHORIZED BY MANAGEMENT AND, WHERE APPLICABLE, OURboard of directors, and prevent or allow us to timely detect material unauthorized acquisitions, uses or dispositions of our assets. WE HAVE EVALUATED THE EFFECTIVENESS OF OUR INTERNAL CONTROL OVER FINANCIAL REPORTING AS DEFINED IN RULES 13A-15(F) AND 15D-15(F) OF THE EXCHANGE ACT USINGTHE CRITERIA SET FORTH BY THE COMMITTEE OF SPONSORING ORGANIZATIONS OF THE TREADWAY COMMISSION IN INTERNAL CONTROL INTEGRATED FRAMEWORK (2013). THISEVALUATION WAS PERFORMED UNDER THE SUPERVISION AND WITH THE PARTICIPATION OF OUR MANAGEMENT, INCLUDING OUR CHIEF EXECUTIVE OFFICER AND OUR CHIEF FINANCIALOFFICER, BOTH OF WHOM CONCLUDED THAT OUR INTERNAL CONTROL OVER FINANCIAL REPORTING WAS EFFECTIVE AS OF JUNE 30, 2015. OUR EVALUATION OF THE EFFECTIVENESS OF OURINTERNAL CONTROL OVER FINANCIAL REPORTING IN FUTURE PERIODS MAY DIFFER DUE TO CHANGING CONDITIONS OR NON-COMPLIANCE WITH THE POLICIES AND PROCEDURES WE HAVEestablished. Attestation Report of Independent Registered Public Accounting Firm THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM THAT AUDITED THE CONSOLIDATED FINANCIAL STATEMENTS THAT ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-Khas issued an audit report on the effectiveness of our internal control over financial reporting as of June 30, 2015. The report appears below. Report of Independent Registered Public Accounting Firm Board of Directors and StockholdersIsoRay, Inc. and SubsidiariesRichland, Washington WE HAVE AUDITED ISORAY, INC. AND SUBSIDIARIES’ INTERNAL CONTROL OVER FINANCIAL REPORTING AS OF JUNE 30, 2015, BASED ON CRITERIA ESTABLISHED IN INTERNAL CONTROL -INTEGRATED FRAMEWORK (2013) ISSUED BY THE COMMITTEE OF SPONSORING ORGANIZATIONS OF THE TREADWAY COMMISSION (THE COSO CRITERIA). ISORAY, INC. ANDSUBSIDIARIES’ MANAGEMENT IS RESPONSIBLE FOR MAINTAINING EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING AND FOR ITS ASSESSMENT OF THE EFFECTIVENESS OFINTERNAL CONTROL OVER FINANCIAL REPORTING, INCLUDED IN THE ACCOMPANYING ITEM 9A, MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIALReporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit. 58 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WE CONDUCTED OUR AUDIT IN ACCORDANCE WITH THE STANDARDS OF THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES). THOSE STANDARDS REQUIRE THATWE PLAN AND PERFORM THE AUDIT TO OBTAIN REASONABLE ASSURANCE ABOUT WHETHER EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING WAS MAINTAINED IN ALL MATERIALRESPECTS. OUR AUDIT INCLUDED OBTAINING AN UNDERSTANDING OF INTERNAL CONTROL OVER FINANCIAL REPORTING, ASSESSING THE RISK THAT A MATERIAL WEAKNESS EXISTS, ANDTESTING AND EVALUATING THE DESIGN AND OPERATING EFFECTIVENESS OF INTERNAL CONTROL BASED ON THE ASSESSED RISK. OUR AUDIT ALSO INCLUDED PERFORMING SUCH OTHERprocedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A COMPANY’S INTERNAL CONTROL OVER FINANCIAL REPORTING IS A PROCESS DESIGNED TO PROVIDE REASONABLE ASSURANCE REGARDING THE RELIABILITY OF FINANCIAL REPORTINGAND THE PREPARATION OF FINANCIAL STATEMENTS FOR EXTERNAL PURPOSES IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. A COMPANY’S INTERNAL CONTROLOVER FINANCIAL REPORTING INCLUDES THOSE POLICIES AND PROCEDURES THAT (1) PERTAIN TO THE MAINTENANCE OF RECORDS THAT, IN REASONABLE DETAIL, ACCURATELY AND FAIRLYREFLECT THE TRANSACTIONS AND DISPOSITIONS OF THE ASSETS OF THE COMPANY; (2) PROVIDE REASONABLE ASSURANCE THAT TRANSACTIONS ARE RECORDED AS NECESSARY TO PERMITPREPARATION OF FINANCIAL STATEMENTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES, AND THAT RECEIPTS AND EXPENDITURES OF THE COMPANY ARE BEINGMADE ONLY IN ACCORDANCE WITH AUTHORIZATIONS OF MANAGEMENT AND DIRECTORS OF THE COMPANY; AND (3) PROVIDE REASONABLE ASSURANCE REGARDING PREVENTION ORtimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. BECAUSE OF ITS INHERENT LIMITATIONS, INTERNAL CONTROL OVER FINANCIAL REPORTING MAY NOT PREVENT OR DETECT MISSTATEMENTS. ALSO, PROJECTIONS OF ANY EVALUATION OFEFFECTIVENESS TO FUTURE PERIODS ARE SUBJECT TO THE RISK THAT CONTROLS MAY BECOME INADEQUATE BECAUSE OF CHANGES IN CONDITIONS, OR THAT THE DEGREE OF COMPLIANCEwith the policies or procedures may deteriorate. IN OUR OPINION, ISORAY, INC. AND SUBSIDIARIES MAINTAINED, IN ALL MATERIAL RESPECTS, EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING AS OF JUNE 30, 2015, BASEDon the COSO criteria. WE ALSO HAVE AUDITED, IN ACCORDANCE WITH THE STANDARDS OF THE PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD (UNITED STATES), THE CONSOLIDATED BALANCE SHEETSOF ISORAY, INC. AND SUBSIDIARIES AS OF JUNE 30, 2015 AND 2014, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS, CHANGES IN SHAREHOLDERS’ EQUITY, ANDcash flows for each of the three years in the period ended June 30, 2015 and our report dated September 11, 2015 expressed an unqualified opinion thereon. /s/ DeCoria, Maichel & Teague, P.S.Spokane, WashingtonSeptember 11, 2015 Changes in Internal Control over Financial Reporting THERE HAVE NOT BEEN ANY CHANGES IN OUR INTERNAL CONTROL OVER FINANCIAL REPORTING (AS SUCH TERM IS DEFINED IN RULES 13A-15(E) AND 15D-15(E) UNDER THEEXCHANGE ACT) DURING THE MOST RECENT FISCAL QUARTER THAT HAVE MATERIALLY AFFECTED, OR ARE REASONABLY LIKELY TO MATERIALLY AFFECT, OUR INTERNAL CONTROL OVERfinancial reporting. ITEM 9B – OTHER INFORMATION THERE WERE NO ITEMS REQUIRED TO BE DISCLOSED IN A REPORT ON FORM 8-K DURING THE FOURTH QUARTER OF THE FISCAL YEAR ENDED JUNE 30, 2015 THAT HAVE NOT BEENALREADY DISCLOSED ON A FORM 8-K FILED WITH THE SEC. THE FOLLOWING IS BEING REPORTED IN LIEU OF FILING A FORM 8-K DUE TO THE TIMING OF THE REPORTABLE EVENToccurring just prior to the filing of this report: Item 1.01 Entry into a Material Definitive Agreement ON SEPTEMBER 10, 2015, THE COMPANY’S OPERATING SUBSIDIARY, ISORAY MEDICAL, INC. (“IM”) ENTERED INTO A REAL ESTATE PURCHASE AND SALE AGREEMENTWITH THE PORT OF BENTON, A MUNICIPAL CORPORATION OF THE STATE OF WASHINGTON. THE AGREEMENT IS FOR THE SALE OF UNDEVELOPED REAL PROPERTY OF APPROXIMATELY4.2 ACRES LOCATED ADJACENT TO THE COMPANY’S EXISTING MANUFACTURING FACILITY AND CORPORATE OFFICES. THE PURCHASE PRICE FOR THE PROPERTY IS ONE HUNDRED SIXTY-Eight Thousand Dollars ($168,000) which is payable on October 30, 2015, the expected date of closing. IN ADDITION TO THE FEASIBILITY STUDIES REQUIRED ON ALL ASPECTS OF THE PROPERTY REQUIRED BY IM TO CLOSE, IM IS ALSO BOUND TO COMPLY WITH A DEVELOPMENTPlan for a ten year period which requirements include but are not limited to the following: (1)CERTAIN SPECIFIED SITE CONFIGURATIONS AND DESIGN WITH A MINIMUM OF 12,000 SQUARE FEET OF WAREHOUSE AND PRODUCTION SPACE AND 4,000 SQUAREfeet of office space; (2)Completion of all construction in two years; (3)Use of facility as primary production facility for ten (10) years; and (4)Provision of jobs for not less than 25 full time employees. Failure to comply with these covenants will result in a breach of the Agreement and if not cured, will obligate IM to pay the Port the difference in thesales price and the appraised value of the property at the time of default. 59 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PART III ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Each member of the Board of Directors serves a one-year term and is subject to reelection at the Company's Annual Meeting of Shareholders held each year. Board Committees THE BOARD HAS ESTABLISHED AN AUDIT COMMITTEE CONSISTING OF THOMAS LAVOY (CHAIRMAN), MICHAEL MCCORMICK AND PHILIP VITALE, MD; A COMPENSATIONCOMMITTEE CONSISTING OF THOMAS LAVOY, MICHAEL MCCORMICK AND PHILIP VITALE, MD (CHAIRMAN); AND A NOMINATING COMMITTEE CONSISTING OF THOMASLaVoy, Michael McCormick (Chairman), and Philip Vitale, MD. No other committees have been formed. Audit Committee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function, if any, and independent auditor. THE BOARD OF DIRECTORS HAS DETERMINED THAT MR. LAVOY IS AN "AUDIT COMMITTEE FINANCIAL EXPERT" AS DEFINED IN ITEM 407(D)(5) OF REGULATION S-K PROMULGATEDBY THE SECURITIES AND EXCHANGE COMMISSION, AND EACH AUDIT COMMITTEE MEMBER IS INDEPENDENT UNDER APPLICABLE NYSE MKT STANDARDS. THE BOARD'SCONCLUSIONS REGARDING THE QUALIFICATIONS OF MR. LAVOY AS AN AUDIT COMMITTEE FINANCIAL EXPERT WERE BASED ON HIS SERVICE AS A CHIEF FINANCIAL OFFICER OF A PUBLICcompany, his experience as a certified public accountant and his degree in accounting. Executive Officers and Directors The executive officers and directors serving the Company as of June 30, 2015 were as follows: Name Age Position Held Term*Dwight Babcock 67 Chairman, Chief Executive Officer AnnualBrien Ragle 46 Chief Financial Officer Thomas LaVoy 55 Director AnnualMichael McCormick 52 Director AnnualPhilip Vitale, MD 68 Director AnnualWilliam Cavanagh III 49 Vice President, Research and Development * For directors only DWIGHT BABCOCK – MR. BABCOCK WAS APPOINTED CEO OF THE COMPANY ON FEBRUARY 18, 2009. HE WAS PREVIOUSLY APPOINTED CHAIRMAN AND INTERIM CEO OF THECOMPANY ON FEBRUARY 26, 2008 AND HAS SERVED AS A DIRECTOR OF THE COMPANY SINCE 2006. MR. BABCOCK HAS SERVED AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER OFApex Data Systems, Inc., an information technology company, since 1975. Apex Data Systems automates the administration and claims adjudication needs ofINSURANCE COMPANIES BOTH NATIONALLY AND INTERNATIONALLY. MR. BABCOCK WAS FORMERLY PRESIDENT AND CEO OF BABCOCK INSURANCE CORPORATION (BIC) FROM 1974UNTIL 1985. BIC WAS A NATIONALLY RECOGNIZED THIRD PARTY ADMINISTRATOR OPERATING WITHIN 35 STATES. MR. BABCOCK HAS KNOWLEDGE AND EXPERIENCE IN THE EQUITYARENA AND HAS PARTICIPATED IN VARIOUS ACTIVITIES WITHIN THE VENTURE CAPITAL, PRIVATE AND INSTITUTIONAL CAPITAL MARKETS. MR. BABCOCK STUDIED MARKETING ANDECONOMICS AT THE UNIVERSITY OF ARIZONA WHERE HE CURRENTLY SERVES ON THE UNIVERSITY OF ARIZONA ASTRONOMY BOARD. MR. BABCOCK BRINGS OVER 35 YEARS OF CEO-level experience to his service on the Company's Board. Brien Ragle – Mr. Ragle has over 15 years of finance and accounting experience, including SEC reporting, financial reporting, cost, project, and managementACCOUNTING IN ADDITION TO PERFORMING OPERATIONAL ANALYSIS. MR. RAGLE BECAME ISORAY'S CHIEF FINANCIAL OFFICER ON OCTOBER 1, 2013. MR. RAGLE WAS ISORAY'SCONTROLLER – PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER FROM OCTOBER 2009 TO SEPTEMBER 2013. MR. RAGLE WAS ISORAY’S COST ACCOUNTING MANAGER FROMJANUARY 2007 UNTIL OCTOBER 2009. BEFORE JOINING ISORAY IN JANUARY 2007 AS COST ACCOUNTING MANAGER, MR. RAGLE WAS EMPLOYED BY BNG AMERICA, LLC, AWHOLLY-OWNED SUBSIDIARY OF ENERGY SOLUTIONS, LLC (ES), FROM 2005 TO 2006 AS PROJECT ACCOUNTING MANAGER FOR ALL PROJECTS LOCATED IN THE WESTERN UNITEDSTATES AND FROM 2000 TO 2004 AS A BUSINESS UNIT CONTROLLER BY SCM CONSULTANTS, INC, A WHOLLY-OWNED SUBSIDIARY OF TETRA TECH, INC (TTEK). MR. RAGLE HOLDSBACHELOR OF ARTS DEGREES IN BUSINESS ADMINISTRATION, WITH AN EMPHASIS IN ACCOUNTING, AND IN HOSPITALITY MANAGEMENT FROM WASHINGTON STATE UNIVERSITY. MR.RAGLE IS A CERTIFIED PUBLIC ACCOUNTANT IN THE STATE OF WASHINGTON AND DESIGNATED AS A CHARTERED GLOBAL MANAGEMENT ACCOUNTANT BY THE AMERICAN INSTITUTEof Certified Public Accountants. Mr. Ragle filed for personal bankruptcy under Chapter 13 of the U.S. Bankruptcy Code on January 26, 2011. 60 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THOMAS LAVOY – MR. LAVOY HAS BEEN A DIRECTOR OF THE COMPANY SINCE 2005. MR. LAVOY PRESENTLY SERVES AS DEPUTY CHIEF OPERATIONS OFFICER AND PRESIDENT OFCORPORATE SERVICES OF VEOLIA TRANSPORTATION ON DEMAND (VTOD), THE PARENT COMPANY OF SUPER SHUTTLE INTERNATIONAL INC. AND ITS SUBSIDIARIES, SINCE JANUARY2014. He concurrently serves as Chief Financial Officer of SuperShuttle International, Inc. and its subsidiaries as he has since July 1997 and as Secretary sinceMARCH 1998. VTOD THROUGH SUPERSHUTTLE IS THE LARGEST SHUTTLE TRANSPORTATION COMPANY IN THE US IN ADDITION TO OPERATING BUS AND CAB SERVICES THROUGHOUTTHE US. HE HAS ALSO SERVED AS A DIRECTOR OF ALANCO TECHNOLOGIES, INC. (OTCBB: ALAN) SINCE 1998 AND PRESENTLY SERVES ON ITS AUDIT COMMITTEE. FROMSEPTEMBER 1987 TO FEBRUARY 1997, MR. LAVOY SERVED AS CHIEF FINANCIAL OFFICER OF NASDAQ-LISTED PHOTOCOMM, INC. MR. LAVOY WAS A CERTIFIED PUBLICACCOUNTANT WITH THE FIRM OF KPMG PEAT MARWICK FROM 1980 TO 1983. MR. LAVOY HAS A BACHELOR OF SCIENCE DEGREE IN ACCOUNTING FROM ST. CLOUD UNIVERSITY,MINNESOTA, AND IS A CERTIFIED PUBLIC ACCOUNTANT (INACTIVE) IN THE STATE OF MINNESOTA. MR. LAVOY BRINGS OVER 25 YEARS OF CFO EXPERIENCE FOR PROGRESSIVELYgrowing companies in multiple industries to his service on the Company's Board. MICHAEL MCCORMICK – MR. MCCORMICK HAS BEEN A DIRECTOR OF THE COMPANY SINCE JUNE 2015 AND BRINGS OVER 25 YEARS OF SENIOR EXECUTIVE POSITIONS IN GLOBALMANAGEMENT, SALES, AND MARKETING TO THE COMPANY. HE IS CURRENTLY THE CEO OF GLUKOS, ONE OF THE FASTEST GROWING FOOD ENERGY PRODUCTS IN THE U.S. HE ALSOSERVES AS A FOUNDER AND PARTNER OF GO INTELLECTUAL CAPITAL, AN ADVISORY FIRM SPECIALIZING IN MEDICAL, AVIATION, AND FINANCIAL SERVICES. GO INTELLECTUAL CAPITALRECENTLY PROVIDED CONSULTING SERVICES TO DJO GLOBAL, A MEDICAL DEVICE AND SERVICES COMPANY, TO EXPAND ITS PRODUCT ASSORTMENT, ADD NEW CHANNELS OFDISTRIBUTION, AND MARKET NEW CATEGORY OPPORTUNITIES. PREVIOUS TO HIS SERVICE WITH GLUKOS AND GO, MR. MCCORMICK SERVED AS EXECUTIVE VICE PRESIDENT OFGLOBAL SALES AND MARKETING FOR COLUMBIA SPORTSWEAR FROM 2006-2012, WHERE HIS TEAM SUCCESSFULLY LAUNCHED SEVERAL NEW PATENTED TECHNOLOGIES, INCLUDINGOMNI-HEAT® REFLECTIVE AND OMNI-FREEZE® ZERO. DURING MR. MCCORMICK’S TENURE, COLUMBIA BUILT AN INTELLECTUAL PROPERTY PORTFOLIO WITH OVER 200 PATENTS.MR. MCCORMICK STARTED HIS CAREER WITH NIKE, WORKING IN SEVERAL SENIOR MANAGEMENT ROLES AND ULTIMATELY BECOMING THE DIRECTOR OF NATIONAL SALES, US, PRIOR TOhis departure in 1999. He also served as Chief Marketing Officer of Golf Galaxy from 2003-2006 and Executive Vice President of Global Sales and MarketingOF CALLAWAY GOLF FROM 2000-2003. MR. MCCORMICK BRINGS OVER 25 YEARS OF MARKETING EXPERIENCE IN A DIVERSE GROUP OF INDUSTRIES TO HIS SERVICE ON THECompany’s Board. PHILIP VITALE, MD – DR. VITALE HAS BEEN A DIRECTOR OF THE COMPANY SINCE 2014 AND IS A BOARD CERTIFIED UROLOGIST. HE PRACTICED UROLOGY FROM 1978 TO 2005 ATLOVELACE HEALTH SYSTEMS IN ALBUQUERQUE. HE ALSO SERVED ON THE BOARD OF GOVERNORS FOR 9 YEARS AND HELD VARIOUS ADMINISTRATIVE POSITIONS INCLUDING CHIEFMEDICAL OFFICER AND SENIOR VICE PRESIDENT AT LOVELACE. HE WAS A STAFF UROLOGIST AT ALBUQUERQUE VA MEDICAL CENTER FROM 2005 UNTIL HIS RETIREMENT INNOVEMBER 2014. HE SERVED AS CHIEF OF THE UROLOGY SECTION FROM 2008 TO NOVEMBER 2013. DR. VITALE WAS ALSO AN ASSISTANT PROFESSOR AT THE UNIVERSITY OF NEWMEXICO, DIVISION OF UROLOGY. HE IS A MEMBER OF THE AMERICAN UROLOGICAL ASSOCIATION AND THE SOUTH CENTRAL SECTION OF THE AMERICAN UROLOGICAL ASSOCIATION.PRIOR TO HIS RETIREMENT, DR. VITALE’S CLINICAL TRIALS INCLUDED: CHEMOTHERAPY AFTER PROSTATECTOMY (CAP); A PHASE III RANDOMIZED STUDY FOR HIGH RISK PROSTATECARCINOMA; RTOG 0415 A PHASE III RANDOMIZED STUDY OF HYPOFRACTIONATED 3D-CRT/IMRT VERSUS CONVENTIONALLY FRACTIONATED 3D-CRT/IMRT IN PATIENTS WITHFAVORABLE-RISK PROSTATE CANCER; RTOG 0815 A PHASE III PROSPECTIVE RANDOMIZED TRIAL OF DOSE-ESCALATED RADIOTHERAPY WITH OR WITHOUT SHORT-TERM ANDROGENDEPRIVATION THERAPY FOR PATIENTS WITH INTERMEDIATE-RISK PROSTATE CANCER; AND YP19A1 GENE AND PHARMACOGENETICS OF RESPONSE TO TESTOSTERONE THERAPY. DR.VITALE HOLDS A BA IN BIOLOGY FROM LASALLE COLLEGE AND OBTAINED HIS M.D. FROM THE NEW JERSEY COLLEGE OF MEDICINE AND DENTISTRY. HE RECEIVED HIS M.S. INHealth Services Administration from the College of St. Francis. Dr. Vitale brings to the Board medical expertise in the industries the Company is targeting. 61 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. WILLIAM CAVANAGH III – MR. CAVANAGH JOINED ISORAY MEDICAL IN JANUARY 2010 AND SERVES AS VICE PRESIDENT, RESEARCH AND DEVELOPMENT. IMMEDIATELY PRIOR TOJOINING ISORAY MEDICAL, MR. CAVANAGH WAS ENGAGED IN THE RESEARCH AND DEVELOPMENT OF DENDRITIC CELL THERAPIES FOR CANCER AND INFECTIOUS DISEASES. HE SERVEDAS CHIEF SCIENTIFIC OFFICER FOR SANGRETECH BIOMEDICAL, LLC FOR THE SIX YEARS PRIOR TO JOINING ISORAY MEDICAL. AT SANGRETECH, HE OVERSAW THE DESIGN ANDIMPLEMENTATION OF A NOVEL CANCER THERAPY. MR. CAVANAGH BEGAN HIS EXTENSIVE CAREER IN CANCER TREATMENT TECHNOLOGIES IN THE EARLY 1990S, WHEN HE HELPEDLEAD RESEARCH AND DEVELOPMENT OF A THERAPY INVOLVING THE INSERTION OF RADIOACTIVE SOURCES DIRECTLY INTO THE PROSTATE FOR THE TREATMENT OF PROSTATE CANCER(PROSTATE BRACHYTHERAPY). HE HAS DESIGNED SEVERAL CANCER TREATMENT-RELATED STUDIES, IS LISTED AS AN AUTHOR ON 34 PEER-REVIEWED PUBLICATIONS, AND IS THE LISTEDINVENTOR ON A U.S. PATENT APPLICATION DETAILING A NOVEL TREATMENT FOR CANCER. MR. CAVANAGH HAS ALSO SERVED AS DIRECTOR OF THE HAAKON RAGDE FOUNDATION FORADVANCED CANCER STUDIES IN SEATTLE, WASHINGTON, WHERE HE LED THE RESEARCH FOUNDATION IN THE SELECTION OF VIABLE RESEARCH PROJECTS DIRECTED AT TREATINGADVANCED CANCERS. MR. CAVANAGH HOLDS A B.S. IN BIOLOGY FROM THE UNIVERSITY OF PORTLAND (OREGON) AND COMPLETED TWO YEARS OF MEDICAL SCHOOL BEFOREbeginning his career in research management. THE COMPANY'S DIRECTORS, AS NAMED ABOVE, WILL SERVE UNTIL THE NEXT ANNUAL MEETING OF THE COMPANY'S SHAREHOLDERS OR UNTIL THEIR SUCCESSORS ARE DULY ELECTEDAND HAVE QUALIFIED. DIRECTORS WILL BE ELECTED FOR ONE-YEAR TERMS AT THE ANNUAL SHAREHOLDERS MEETING. THERE IS NO ARRANGEMENT OR UNDERSTANDING BETWEEN ANY OFTHE DIRECTORS OR OFFICERS OF THE COMPANY AND ANY OTHER PERSON PURSUANT TO WHICH ANY DIRECTOR OR OFFICER WAS OR IS TO BE SELECTED AS A DIRECTOR OR OFFICER, ANDTHERE IS NO ARRANGEMENT, PLAN OR UNDERSTANDING AS TO WHETHER NON-MANAGEMENT SHAREHOLDERS WILL EXERCISE THEIR VOTING RIGHTS TO CONTINUE TO ELECT THE CURRENTDIRECTORS TO THE COMPANY'S BOARD. THERE ARE ALSO NO ARRANGEMENTS, AGREEMENTS OR UNDERSTANDINGS BETWEEN NON-MANAGEMENT SHAREHOLDERS THAT MAY DIRECTLY ORindirectly participate in or influence the management of the Company's affairs. THERE ARE NO AGREEMENTS OR UNDERSTANDINGS FOR ANY OFFICER OR DIRECTOR TO RESIGN AT THE REQUEST OF ANOTHER PERSON, AND NONE OF THE OFFICERS OR DIRECTORS IS ACTINGon behalf of, or will act at the direction of, any other person. There are no family relationships among our executive officers and directors. Section 16(a) Beneficial Ownership Reporting Compliance SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934 (THE EXCHANGE ACT) REQUIRES THE COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS, AND PERSONS WHOBENEFICIALLY OWN MORE THAN TEN PERCENT OF A REGISTERED CLASS OF OUR EQUITY SECURITIES, TO FILE WITH THE SECURITIES AND EXCHANGE COMMISSION (THE COMMISSION)INITIAL REPORTS OF BENEFICIAL OWNERSHIP AND REPORTS OF CHANGES IN BENEFICIAL OWNERSHIP OF OUR COMMON STOCK. THE RULES PROMULGATED BY THE COMMISSION UNDERSECTION 16(A) OF THE EXCHANGE ACT REQUIRE THOSE PERSONS TO FURNISH US WITH COPIES OF ALL REPORTS FILED WITH THE COMMISSION PURSUANT TO SECTION 16(A). THEinformation in this section is based solely upon a review of Forms 3, Forms 4, and Forms 5 received by us. WE BELIEVE THAT ISORAY'S EXECUTIVE OFFICERS, DIRECTORS AND 10% SHAREHOLDERS TIMELY COMPLIED WITH THEIR FILING REQUIREMENTS DURING THE YEAR ENDED JUNE 30,2015, EXCEPT AS FOLLOWS – FREDRIC SWINDLER (ONE FORM 4) WITH ONE TRANSACTION; WILLIAM CAVANAGH (TWO FORM 4S) EACH WITH ONE TRANSACTION; BRIEN RAGLE (ONEForm 4) with one transaction and Thomas LaVoy (one Form 4) with one transaction. Each of these Form 4s was filed late. Code of Ethics WE HAVE ADOPTED A CODE OF CONDUCT AND ETHICS THAT APPLIES TO ALL OF OUR OFFICERS, DIRECTORS AND EMPLOYEES AND A SEPARATE CODE OF ETHICS FOR CHIEF EXECUTIVEOfficer and Senior Financial Officers that supplements our Code of Conduct and Ethics. THE CODE OF CONDUCT AND ETHICS WAS PREVIOUSLY FILED AS EXHIBIT 14.1 TO OUR FORM 10-KSB FOR THE PERIOD ENDED JUNE 30, 2005, AND THE CODE OF ETHICS FORCHIEF EXECUTIVE OFFICER AND SENIOR FINANCIAL OFFICERS WAS PREVIOUSLY FILED AS EXHIBIT 14.2 TO THIS SAME REPORT. THE CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICERAND SENIOR FINANCIAL OFFICERS IS ALSO AVAILABLE TO THE PUBLIC ON OUR WEBSITE AT HTTP://WWW.ISORAY.COM/CORPORATE_GOVERNANCE. EACH OF THESE POLICIES COMPRISESWRITTEN STANDARDS THAT ARE REASONABLY DESIGNED TO DETER WRONGDOING AND TO PROMOTE THE BEHAVIOR DESCRIBED IN ITEM 406 OF REGULATION S-K PROMULGATED BY THESECURITIES AND EXCHANGE COMMISSION. ANY AMENDMENTS TO OR WAIVERS OF THE CODES WILL BE PROMPTLY POSTED ON OUR WEBSITE AT www.IsoRay.com OR IN A REPORTon Form 8-K, as required by applicable laws. Nominating Procedures THERE HAVE BEEN NO MATERIAL CHANGES TO THE PROCEDURES BY WHICH OUR SHAREHOLDERS MAY RECOMMEND NOMINEES TO THE BOARD OF DIRECTORS DURING OUR LAST FISCALyear. 62 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 11 – EXECUTIVE COMPENSATION THE FOLLOWING SUMMARY COMPENSATION TABLE SETS FORTH INFORMATION CONCERNING COMPENSATION FOR SERVICES RENDERED IN ALL CAPACITIES DURING OUR PAST THREE FISCALYEARS AWARDED TO, EARNED BY OR PAID TO EACH OF THE FOLLOWING INDIVIDUALS. SALARY AND OTHER COMPENSATION FOR THESE OFFICERS ARE SET OR RECOMMENDED TO THEBoard by the Compensation Committee. No other executive officer received total compensation of over $100,000 during fiscal year 2015. Summary Compensation Table Nonqualified Non-equity deferred Stock Option incentive plan compensation All other Salary Bonus awards awards compensation earnings compensation Total Name and principal position Year ($) ($) ($) ($) (1) ($) ($) ($) ($) Dwight Babcock 2015 291,554 - - 57,095 - - - 348,650 Chairman and CEO 2014 284,712 50,000 116,095 - - - 450,807 2013 284,394 - - - - - - 284,394 Brien Ragle 2015 119,620 - - 20,554 - - - 140,174 CFO 2014 117,834 - - 39,401 - - - 157,235 2013 99,215 - - - - - - 99,215 William Cavanagh 2015 158,020 - - 20,554 - - - 178,574 VP – R&D 2014 154,500 - - 37,099 - - - 191,599 2013 154,327 - - - - - - 154,327 1.AMOUNTS REPRESENT THE ASC 718, Compensation – Stock Compensation VALUATION FOR THE FISCAL YEARS ENDED JUNE 30, 2015, 2014 AND 2013,RESPECTIVELY. ALL SUCH OPTIONS WERE AWARDED UNDER ONE OF THE COMPANY'S FOUR STOCK OPTION PLANS. ALL OPTIONS AWARDED (WITH THE EXCEPTION OF MR.BABCOCK'S STOCK OPTION GRANTS THAT WERE IMMEDIATELY VESTED ON THE GRANT DATE) VEST IN THREE EQUAL ANNUAL INSTALLMENTS BEGINNING WITH THE FIRSTANNIVERSARY FROM THE DATE OF GRANT AND EXPIRE TEN YEARS AFTER THE DATE OF GRANT. ALL OPTIONS WERE GRANTED AT THE FAIR MARKET VALUE OF THE COMPANY'SSTOCK ON THE DATE OF GRANT AND THE COMPANY USED A BLACK-SCHOLES METHODOLOGY AS DISCUSSED IN THE FOOTNOTES TO THE FINANCIAL STATEMENTS TO VALUE THEoptions. Grants of Plan-Based Awards THE FOLLOWING TABLE SETS FORTH CERTAIN INFORMATION WITH RESPECT TO STOCK AND OPTION AWARDS AND OTHER PLAN-BASED AWARDS GRANTED TO OUR NAMED EXECUTIVEofficers during fiscal 2015. All other Grant option Exercise date fair awards: or base value of Number of price of of stock securities option and Grant underlying awards optionName Date options (#) ($/Sh) awardsDwight BabcockChairman/CEO 617/2015 50,000 $1.47 $57,095Brien RagleCFO 617/2015 20,000 1.47 20,554William Cavanagh Vice-President of Research and Development 617/2015 20,000 1.47 20,554 63 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Outstanding Equity Awards at Fiscal Year-End Option awards Equity Incentive plan awards: Number of Number of Number of securities securities securities underlying underlying underlying unexercised unexercised unexercised Option Options options unearned exercise Option (#) (#) options price expirationName exercisable unexercisable (#) ($) dateDwight Babcock, 50,000(1) - - 6.30 03/31/2016Chairman and CEO 50,000(1) - - 3.80 06/23/2016 50,000(1) - - 3.11 08/15/2016 100,000(1) - - 0.75 05/13/2018 200,000(1) - - 0.26 06/01/2019 100,000(1) - - 1.43 06/30/2020 100,000(1) - - 0.99 06/07/2021 50,000(1) - - 0.98 06/27/2022 50,000(1) - - 0.58 09/05/2023 50,000(1) - - 2.17 05/20/2024 50,000(1) - - 1.47 06/17/2025 Brien Ragle 5,000(2) - - 4.40 03/02/2017CFO 2,000(3) - - 4.14 06/01/2017 20,000(4) - - 1.43 06/30/2020 20,000(5) - - 0.99 06/07/2021 1,666(7) 3,334 - 0.59 09/06/2023 -(8) 20,000 - 2.46 06/17/2024 -(9) 20,000 - 1.47 06/17/2025 William Cavanagh 6,660(6) - - 0.98 06/27/2022Vice-President, Research -(8) 20,000 - 2.46 06/17/2024And Development -(9) 20,000 - 1.47 06/17/2025 1)REPRESENTS OPTIONS ISSUED TO MR. BABCOCK WHICH WERE ALL IMMEDIATELY VESTED AND EXERCISABLE. THE GRANT DATES ARE 10 YEARS PRIOR TO THEexpiration date in the table above.2)Represents the March 2, 2007 grant, all of which were exercisable as of March 2, 2010.3)Represents the June 1, 2007 grant, all of which were exercisable as of June 1, 2010.4)Represents a June 30, 2010 grant, all of which were exercisable as of June 30, 2013.5)Represents a June 7, 2011 grant, all of which were exercisable as of June 30, 2014.6)Represents a June 27, 2012 grant, all of which were exercisable as of June 27, 2015.7)REPRESENTS A SEPTEMBER 6, 2013 GRANT, ONE-THIRD OF WHICH BECAME EXERCISABLE ON SEPTEMBER 6, 2014, ONE-THIRD OF WHICH BECAME EXERCISABLE ONSeptember 6, 2015, and the final third will become exercisable on September 6, 2016.8)REPRESENTS A JUNE 17, 2014 GRANT, ONE-THIRD OF WHICH BECAME EXERCISABLE ON JUNE 17, 2015, ONE-THIRD OF WHICH WILL BECOME EXERCISABLE ON JUNE17, 2016, and the final third will become exercisable on June 17, 2017.9)REPRESENTS A JUNE 17, 2015 GRANT, ONE-THIRD OF WHICH WILL BECOME EXERCISABLE ON JUNE 17, 2016, ONE-THIRD OF WHICH WILL BECOME EXERCISABLE ONJune 17, 2017, and the final third will become exercisable on June 17, 2018. Option Exercises and Stock Vested Option Awards Stock Awards Number of shares Value Number of shares Value acquired on exercise realized on exercise acquired on vesting realized on vesting Name (#) ($) (#) ($) Dwight BabcockChairman/CEO - - - - Brien RagleCFO - - - - William CavanaghVice-President of Research and Development 13,340 7,337 - - THE COMPANY HAS A 401(K) PLAN THAT COVERS ALL ELIGIBLE FULL-TIME EMPLOYEES OF THE COMPANY. CONTRIBUTIONS TO THE 401(K) PLAN ARE MADE BY PARTICIPANTS TOTHEIR INDIVIDUAL ACCOUNTS THROUGH PAYROLL WITHHOLDING. ADDITIONALLY, THE 401(K) PLAN PROVIDES FOR THE COMPANY TO MAKE CONTRIBUTIONS TO THE 401(K) PLAN INAMOUNTS AT THE DISCRETION OF MANAGEMENT. THE COMPANY HAS NOT MADE ANY CONTRIBUTIONS TO THE 401(K) PLAN AND DOES NOT MAINTAIN ANY OTHER RETIREMENT PLANSfor its executives or employees. Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 64 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Director Compensation Fees earned Non-equity Non-qualified or paid in Stock Option incentive plan deferred All other cash awards awards compensation compensation compensation Total Name ($) ($) ($) ($) ($) ($) ($) Thomas LaVoy (1) 52,000 - - - - - 52,000 Michael McCormick (2) 433 - 28,548 - - - 28,981 Philip Vitale MD 28,433 - - - - - 28,433 (1) Mr. LaVoy received an additional $2,000 per month for serving as Audit Committee Chairman.(2) MR. MCCORMICK RECEIVED PAYMENT FOR HIS SERVICE AS A NON-EMPLOYEE DIRECTOR BEGINNING WHEN HIS BOARD SERVICE AND SERVICE ON COMMITTEES OF THE BOARDcommenced on June 18, 2015. DURING FISCAL YEAR 2015, EACH NON-EMPLOYEE DIRECTOR RECEIVED CASH COMPENSATION OF $2,000 PER MONTH. IN ADDITION, EACH NON-EMPLOYEE DIRECTOR RECEIVED$1,000 per Board meeting attended in person or $500 per Board meeting attended via telephone and $500 per committee meeting attended. EACH NON-EMPLOYEE DIRECTOR HAD STOCK OPTIONS TO PURCHASE SHARES OF THE COMPANY'S COMMON STOCK OUTSTANDING AS OF JUNE 30, 2015 AS FOLLOWS - MR. LAVOYHAD STOCK OPTIONS TO PURCHASE 150,000 SHARES OF COMMON STOCK, MR. MCCORMICK HAD STOCK OPTIONS TO PURCHASE 25,000 SHARES OF COMMON STOCK, AND DR.Vitale had stock options to purchase 25,000 shares of common stock. EFFECTIVE JUNE 18, 2015, THE BOARD, ON THE RECOMMENDATION OF THE COMPENSATION COMMITTEE, CHANGED ITS COMPENSATION. SINCE THAT DATE, THE INDEPENDENTDIRECTORS RECEIVE $3,000 PER MONTH FOR THEIR SERVICE, AND THE CHAIR OF THE AUDIT COMMITTEE RECEIVES AN ADDITIONAL $1,000 PER MONTH. THE PER MEETING FEES ASdisclosed above were not changed. Any employee directors do not receive any compensation for their service on the Board. Compensation Committee Interlocks and Insider Participation NO MEMBER OF THE COMPENSATION COMMITTEE IS OR WAS DURING FISCAL YEAR 2015 AN EMPLOYEE, OR IS OR EVER HAS BEEN AN OFFICER OF OUR COMPANY. NONE OF OURexecutive officers has served during fiscal year 2015 as a director or a member of the Compensation Committee of another company. Compensation Discussion & Analysis Overview of Our Compensation Process WE DESIGN OUR NAMED EXECUTIVE OFFICER COMPENSATION PROGRAMS TO ATTRACT, MOTIVATE AND RETAIN THE KEY EXECUTIVES WHO DRIVE OUR SUCCESS AND HELP US MAINTAINA STRONG POSITION IN OUR INDUSTRY. WE ARE COMMITTED TO INDUSTRY STANDARDS FOR THE REGION IN WHICH WE OPERATE FOR BASE PAY, AND EQUITY PAYABLE TO OUR NAMEDEXECUTIVE OFFICERS BASED ON OUR ABILITY TO RAISE CAPITAL AND CUT COSTS. IN ADDITION, WE DESIGN OUR NAMED EXECUTIVE COMPENSATION TO ENCOURAGE LONG-TERMcommitment by our named executive officers to IsoRay. PLEASE READ THE "EXECUTIVE COMPENSATION" SECTION OF THIS ANNUAL REPORT, BEGINNING ON PAGE 63. THAT SECTION OF THE ANNUAL REPORT, WHICH INCLUDES OUR NAMEDEXECUTIVE OFFICER COMPENSATION TABLES AND RELATED NARRATIVE DISCUSSION, PROVIDES HISTORICAL DETAILS ON OUR COMPENSATION PROGRAMS AND POLICIES FOR OUR NAMEDEXECUTIVE OFFICERS. THE EXECUTIVE OFFICERS NAMED IN THE SUMMARY COMPENSATION TABLE AND DEEMED TO BE A "NAMED EXECUTIVE OFFICER" ARE DWIGHT BABCOCK,Brien Ragle, and William Cavanagh. THE COMPENSATION PAID TO THE COMPANY'S NAMED EXECUTIVE OFFICERS IS INTENDED TO ALIGN THEIR INTERESTS WITH THE LONG TERM INTERESTS OF THE COMPANY'SSHAREHOLDERS AND IS BASED ON A PAY-FOR-PERFORMANCE PHILOSOPHY. IT IS STRAIGHTFORWARD, CONSISTING PRINCIPALLY OF SALARY, WHICH MUST BE COMPETITIVE TO RETAIN THESKILLS AND EXPERIENCE OF EXCELLENT EMPLOYEES, AND EQUITY COMPENSATION TO ENCOURAGE LONG TERM COMMITMENT AND TEAM PERFORMANCE. NOT ALL ELEMENTS OF OURcompensation package may be provided every year, depending on the performance of the Company and the executive. 65 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. At our 2014 annual meeting, our shareholders approved our executive compensation program, and the next advisory vote will be held in 2017. Highlights of our named executive officer compensation programs and policies are as follows: ·WE GENERALLY DO NOT ENTER INTO EMPLOYMENT AGREEMENTS WITH OUR NAMED EXECUTIVE OFFICERS, WHICH RESULTS IN A LACK OF SEVERANCE PAYOBLIGATIONS, LACK OF CHANGE IN CONTROL PAYMENTS, AND THE ABILITY OF THE BOARD AND THE CEO TO DISMISS NAMED EXECUTIVE OFFICERS AT WILL, ALL OFWHICH THE BOARD BELIEVES ULTIMATELY CAN SAVE THE COMPANY ONGOING SEVERANCE OBLIGATIONS AND ENCOURAGE PERFORMANCE BY THE NAMEDexecutive officers. ·THE DISCRETIONARY OPTION GRANTS AVAILABLE TO OUR CEO ARE LINKED TO THE SUCCESS OF THE COMPANY IN OVERSEEING AND SELECTING INVESTMENTbanking firms in raising capital and reducing costs. ·THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS IS NOT LINKED TO THE PERFORMANCE OF THE COMPANY, EXCEPT FOR DISCRETIONARY BONUSES ANDOPTION GRANTS, BUT IS INSTEAD BASED ON OUR ABILITY TO OBTAIN EXECUTIVES WITH THE EXPERIENCE NECESSARY AND WILLINGNESS TO WORK FOR A COMPANYlocated in a small community with limited access to a major metropolitan center. ·The compensation of our CFO is less than the industry norm for a CFO, as our CFO does not have past CFO experience. ·WE PROVIDE NAMED EXECUTIVE OFFICERS WITH LONG-TERM INCENTIVES IN THE FORM OF STOCK OPTIONS. THESE EQUITY-BASED AWARDS, WHICH GENERALLYVEST OVER A PERIOD OF THREE YEARS (EXCEPT FOR GRANTS TO OUR CEO WHICH VEST IMMEDIATELY), LINK COMPENSATION WITH THE LONG-TERM PRICEperformance of our stock, and also provide a substantial retention incentive. ·We do not provide perquisites to our named executive officers. Company Background HISTORICALLY, OUR REVENUE HAS BEEN DIFFICULT TO PREDICT AND WE HAVE NOT SHOWN A PROFIT FOR ANY QUARTER SINCE THE INCEPTION OF OUR COMPANY. WHEN THE ENTIREPROSTATE CANCER BRACHYTHERAPY INDUSTRY BEGAN TO EXPERIENCE ANNUAL DECEASES IN DEMAND, OUR BUSINESS ALSO SUFFERED DECLINES. THESE DECLINES WERE EXACERBATEDby the emergence of alternative radiation therapies which provided greater remuneration to the physician than our brachytherapy solution. OUR CEO, WITH THE ASSISTANCE OF OUR MANAGEMENT TEAM, HAD THE FORESIGHT TO EXPAND THE USE OF THE COMPANY’S PRODUCTS TO ALSO INCLUDE TREATING BRAIN,GYNECOLOGIC, LUNG AND OTHER CANCERS WITH OUR BRACHYTHERAPY PRODUCTS. THESE NON-PROSTATE TREATMENTS REQUIRED SIGNIFICANT CAPITAL FOR RESEARCH ANDdevelopment, protocols and studies. Acceptance by medical professionals unfamiliar with our products is a long term process. As a consequence of the combination of (i) a decline in the prostate market due to macro-economic factors; and (ii) the need to deploy significant resources inNON-PROSTATE APPLICATIONS, OUR COMPENSATION PROGRAMS HAVE NOT BEEN STRUCTURED TO AWARD PAY INCREASES, BONUSES, OR STOCK OPTIONS BASED ON REVENUES ORPROFITS. INSTEAD, OUR COMPENSATION HAS REWARDED CAPITAL RAISES AND CUTTING COSTS. CAPITAL IS CRITICAL TO FUND NEW APPLICATIONS. COST CUTTING IS IMPORTANT AS WEface a declining prostate market. THIS COMPENSATION DISCUSSION AND ANALYSIS DESCRIBES OUR COMPENSATION OBJECTIVES, OUR EXECUTIVE COMPENSATION PROCESS AND OUR POLICIES AND ACTIONS WITHRESPECT TO EACH COMPENSATION ELEMENT. WE DESCRIBE THE RATIONALE FOR COMPENSATION DECISIONS MADE IN FISCAL YEAR 2015 WITH RESPECT TO OUR PRESIDENT AND CHIEFExecutive Officer, our Chief Financial Officer and our Vice-President of Research and Development, whom we refer to as our named executive officers. 66 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Our Executive Compensation Program Program Objectives We design our executive compensation program to achieve the following objectives: ·Motivate and reward executives whose knowledge, skills and performance are essential to our success; ·Align the performance of our executives and the interests of our shareholders; ·Recruit and retain executive talent; and ·Support the corporate business strategy by rewarding cost control measures and capital raising results. Compensation Process THE COMPENSATION COMMITTEE OF OUR BOARD HAS THE PRIMARY RESPONSIBILITY FOR DETERMINING COMPENSATION OF OUR EXECUTIVES. OUR BOARD HAS DETERMINED THATEACH MEMBER OF OUR COMPENSATION COMMITTEE IS “INDEPENDENT” AS THAT TERM IS DEFINED BY APPLICABLE NYSE MKT RULES, IS AN “OUTSIDE DIRECTOR” AS DEFINED INSection 162(m) of the Internal Revenue Code, or the Code, and a “non-employee” director as defined under Section 16 of the Exchange Act. OUR COMPENSATION COMMITTEE DETERMINES ALL COMPENSATION MATTERS FOR OUR NAMED EXECUTIVE OFFICERS, INCLUDING BASE SALARY, BONUSES, AND EQUITYCOMPENSATION. UTILIZING INPUT FROM OUR CHIEF EXECUTIVE OFFICER, THE COMPENSATION COMMITTEE MAKES AN INDEPENDENT DECISION ON COMPENSATION FOR EACHEXECUTIVE OTHER THAN THE CEO. THE COMPENSATION COMMITTEE ALSO PRIMARILY RELIES ON THE JUDGMENT OF THE CHIEF EXECUTIVE OFFICER IN MAKING COMPENSATIONDETERMINATIONS OF OUR NON-EXECUTIVE STAFF. THE PRIMARY GOAL OF OUR COMPENSATION COMMITTEE IS TO CLOSELY ALIGN THE INTERESTS OF OUR NAMED EXECUTIVE OFFICERSand staff with those of our shareholders. The Compensation Committee assesses performance on a number of subjective and objective factors. In making decisions regarding executive compensation, our Compensation Committee considers, among other things: ·Past compensation levels of each executive and the executives as a group; ·Consistency of current compensation with previous compensation decisions and benchmarks; ·EXISTING LEVELS OF STOCK AND STOCK OPTION OWNERSHIP AMONG OUR EXECUTIVES, PREVIOUS STOCK OPTION GRANTS AND VESTING SCHEDULES TO ENSUREexecutive retention and alignment with shareholder interests; ·Management recommendations; ·General trends in executive compensation; and ·Meeting ongoing cost control and capital raise objectives. THE COMPENSATION COMMITTEE CONDUCTS AN ANNUAL REVIEW OF THE CHIEF EXECUTIVE OFFICER’S PERFORMANCE AND REPORTS ITS EVALUATION TO THE BOARD. THE BOARDREVIEWS THE COMPENSATION COMMITTEE’S EVALUATION AND RECOMMENDATION AND ALSO EVALUATES THE CHIEF EXECUTIVE OFFICER’S PERFORMANCE ACCORDING TO THE GOALSAND OBJECTIVES ESTABLISHED PERIODICALLY BY THE FULL BOARD. THIS REVIEW SERVES AS THE BASIS FOR THE RECOMMENDATION OF THE COMPENSATION COMMITTEE ON CHIEFExecutive Officer compensation. THE COMPENSATION COMMITTEE DID NOT ENGAGE AN INDEPENDENT COMPENSATION CONSULTANT TO EVALUATE EXECUTIVE COMPENSATION. IT DID NOT SURVEY HEALTHCAREindustry data or complete a peer group comparison. Compensation Components Our executive compensation primarily consists of base salary, bonuses and long-term equity-based compensation. 67 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The factors our Compensation Committee considered for each of our executives in fiscal 2015 included: ·Overall corporate performance during fiscal 2015 in achieving certain non-financial milestones; ·The roles and responsibilities of our executives in helping the Company meet these milestones; ·The additional roles and responsibilities of our executives; ·The individual experience and skills of our executives; and ·The location of the Company in a small city and the fact that we are a much smaller company than any of our competitors. WE HAVE AN EXECUTIVE COMPENSATION PHILOSOPHY AND GOALS BASED ON ATTRACTING, RETAINING AND REWARDING OUR EXECUTIVE OFFICERS. IN ADDITION, WE BELIEVE THATEXECUTIVE COMPENSATION SHOULD BE LINKED TO CORPORATE PERFORMANCE AND ACCOMPLISHMENTS THAT INCREASE SHAREHOLDER VALUE. AS SUCH, OUR EXECUTIVECOMPENSATION POLICY FOCUSES ON ALIGNING THE INTERESTS OF OUR EXECUTIVE OFFICERS WITH THE LONG-TERM INTERESTS OF OUR SHAREHOLDERS AND WITH OUR CORPORATEstrategies and goals. BASE SALARIES OF EXECUTIVE OFFICERS ARE REVIEWED AND APPROVED ANNUALLY BY OUR COMPENSATION COMMITTEE AND ADJUSTMENTS ARE MADE BASED ON (I) SALARYRECOMMENDATIONS FROM OUR CHIEF EXECUTIVE OFFICER, (II) INDIVIDUAL PERFORMANCE OF EXECUTIVE OFFICERS FOR THE PREVIOUS FISCAL YEAR, AND (III) HISTORICAL PAY. INADDITION, IN ESTABLISHING THE TOTAL COMPENSATION PACKAGE FOR OUR CHIEF EXECUTIVE OFFICER, THE COMPENSATION COMMITTEE PURSUES THE SAME OBJECTIVES ANDpolicies that apply for our other executive officers. Base Salary BASE SALARY REFLECTS JOB RESPONSIBILITIES, VALUE TO US AND INDIVIDUAL PERFORMANCE, TAKING INTO CONSIDERATION THE NEED TO ATTRACT AND RETAIN OUR EXECUTIVES. WEDETERMINE SALARIES FOR OUR NAMED EXECUTIVE OFFICERS INITIALLY BY REFERENCE TO EACH EXECUTIVE’S PREVIOUS YEAR’S SALARY. THE COMPENSATION COMMITTEEDETERMINES ANY INCREASE OVER THESE SALARIES BASED UPON RECOMMENDATIONS OF OUR CHIEF EXECUTIVE OFFICER, EXCEPT IN THE CASE OF THE CHIEF EXECUTIVE OFFICER’SOWN COMPENSATION. THE COMPENSATION COMMITTEE GENERALLY REVIEWS BASE SALARIES OF OUR EXECUTIVES ANNUALLY AND ADJUSTS SALARIES FROM TIME TO TIME TO REALIGNsalaries with perceived market increases and individual performance. ACHIEVEMENT OF INDIVIDUAL AND CORPORATE ACCOMPLISHMENTS ALONG WITH THE EXECUTIVE OFFICER’S LEVEL OF RESPONSIBILITY, COMPETITIVE FACTORS AND OUR INTERNALpolicies regarding salary increases were considered regarding fiscal 2015 salary increases. MERIT-BASED SALARY INCREASES FOR FISCAL 2015 WERE TWO AND ONE-HALF PERCENT (2.5%) FOR DWIGHT BABCOCK, BRIEN RAGLE AND WILLIAM CAVANAGH. IN JUNE 2015, WESET THE ANNUAL BASE SALARY FOR FISCAL 2016 FOR DWIGHT BABCOCK, OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER, AT $301,000, FOR BRIEN RAGLE, OUR CHIEF FINANCIALOfficer, at $130,000, and for William Cavanagh, our Vice President of Research and Development, at $163,116. Performance-Based Annual Bonus WE PROVIDE FOR AN ANNUAL CASH INCENTIVE THAT REINFORCES OUR PAY-FOR-PERFORMANCE APPROACH. THIS INCENTIVE COMPENSATION IS A SHORT-TERM INCENTIVE PROGRAMTHAT REWARDS ACHIEVEMENT. ANNUAL INCENTIVE AWARDS ARE AWARDED AT THE SOLE DETERMINATION OF THE COMPENSATION COMMITTEE (ON BEHALF OF THE BOARD) BASED ONthe actual and measurable performance of the Company based on a set of corporate objectives for the previous year. THIS PAST YEAR WE DID NOT AWARD ANY CASH INCENTIVES AND BONUSES. INSTEAD, THE COMPENSATION COMMITTEE REQUESTED THE CEO TO PROVIDE SOME SUGGESTEDOBJECTIVE QUARTERLY PERFORMANCE GOALS SO THAT A BONUS PLAN COULD BE STRUCTURED. THE COMPENSATION COMMITTEE NOW BELIEVES THAT THE COMPANY HAS FINALLYREACHED THE STAGE WHERE IT CAN BASE BONUSES ON REVENUE INCREASES. EFFECTIVE FOR THE QUARTER ENDING SEPTEMBER 30, 2015, EACH NAMED OFFICER WILL EARN A BONUSOF THREE PERCENT (3%) OF THEIR ANNUAL BASE SALARY FOR A FIFTEEN PERCENT (15%) OR GREATER INCREASE IN REVENUE FROM THE PRIOR FISCAL YEAR’S COMPARABLE QUARTER. ALSO,EFFECTIVE FOR THE YEAR ENDING JUNE 30, 2016, EACH NAMED OFFICER WILL EARN A BONUS OF THREE PERCENT (3%) OF THEIR ANNUAL BASE SALARY FOR A FIFTEEN PERCENT (15%)OR GREATER INCREASE IN REVENUE OVER THE PRIOR FISCAL YEAR. THE COMPENSATION COMMITTEE WILL CLOSELY MONITOR THE RESULTS OF THIS INCENTIVE PLAN THIS YEAR TOdetermine if it provides a better incentive than the subjective bonuses paid historically from time to time. 68 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FISCAL 2014 AND 2015 ACCOMPLISHMENTS TAKEN INTO ACCOUNT BY THE COMPENSATION COMMITTEE TO DETERMINE OVERALL CORPORATE PERFORMANCE INCLUDED THEfollowing: 1.Maintained controls over expenses.2.Achieved annual revenue growth.3.Received FDA clearance for our liquid Cesium-131.4.Performed the first GliaSite case utilizing Cs-131.5.Selected for the Russell Microcap Index.6.First patient ever was implanted with Cs-131 combined with the C-4 spacer.7.First veterinary case performed on a horse.8.Several first ever peer reviewed publications were issued.9.2 new focal prostate studies initiated (Moran and UPMC).10.Established new Italian distributor.11.Received Greek license to ship products.12.Introduced Cs-131 in Russia in new cancer medical center grand opening.13.CE Mark audit completed with no warnings.14.Upgraded manufacturing and enterprise systems with redundancy.15.Participated in 6 industry shows. Long-Term Equity-Based Incentive Compensation OUR LONG-TERM INCENTIVE PROGRAM PROVIDES AN ANNUAL AWARD, WITH THE POTENTIAL FOR PERIODIC AWARDS, WHICH IS PERFORMANCE BASED. THE OBJECTIVE OF THE PROGRAMIS TO ALIGN COMPENSATION FOR NAMED EXECUTIVE OFFICERS OVER A MULTI-YEAR PERIOD DIRECTLY WITH THE INTERESTS OF OUR SHAREHOLDERS BY MOTIVATING AND REWARDINGCREATION AND PRESERVATION OF LONG-TERM SHAREHOLDER VALUE. WE BELIEVE THAT WE CAN MAXIMIZE OUR LONG-TERM PERFORMANCE BEST IF WE TIE THE VALUE OF THE LONG-term benefits our executives receive to our long-term performance. THE SOLE FORM OF EQUITY COMPENSATION TO OUR EXECUTIVE OFFICERS ARE STOCK OPTIONS. OUR COMPENSATION COMMITTEE RECEIVES PRELIMINARY RECOMMENDATIONS FOREQUITY-BASED AWARDS FROM OUR CHIEF EXECUTIVE OFFICER. OUR COMPENSATION COMMITTEE THEN REVIEWS THE RECOMMENDATIONS AND RECOMMENDS EQUITY-BASEDawards for all of our officers, including our Chief Executive Officer and the other named executive officers, to our Board for approval. STOCK OPTION AWARDS PROVIDE OUR EXECUTIVE OFFICERS WITH THE RIGHT TO PURCHASE SHARES OF OUR COMMON STOCK AT A FIXED EXERCISE PRICE TYPICALLY FOR A PERIOD OF UPTO TEN YEARS, SUBJECT TO CONTINUED SERVICE WITH US IN ACCORDANCE WITH THE TERMS OF OUR EQUITY INCENTIVE PLANS, AND GENERALLY VEST OVER THREE YEARS (OTHER THANFOR THE CEO WHOSE OPTIONS VEST IMMEDIATELY). WE DO NOT GRANT STOCK OPTIONS THAT HAVE EXERCISE PRICES BELOW THE FAIR MARKET VALUE OF OUR COMMON STOCK ONTHE DATE OF GRANT. WE DO NOT REDUCE THE EXERCISE PRICE OF STOCK OPTIONS IF THE PRICE OF OUR COMMON STOCK SUBSEQUENTLY DECLINES BELOW THE EXERCISE PRICE UNLESSWE FIRST OBTAIN SHAREHOLDER APPROVAL. HOWEVER, WE DO ADJUST THE EXERCISE PRICE OF PREVIOUSLY GRANTED STOCK OPTIONS TO REFLECT RECAPITALIZATIONS, STOCK SPLITS,mergers, and similar events as permitted by the applicable stock plans. WE TYPICALLY GRANT STOCK OPTIONS ON AN ANNUAL BASIS AS PART OF ANNUAL PERFORMANCE REVIEWS OF OUR EMPLOYEES. WE GRANT EQUITY INCENTIVE COMPENSATION TO OURexecutive officers because we believe doing so will motivate our executives by aligning their interest more closely with the interest of our shareholders. ON JUNE 18, 2015, WE GRANTED STOCK OPTIONS TO PURCHASE 50,000 SHARES, 20,000 SHARES, AND 20,000 SHARES OF OUR COMMON STOCK TO DWIGHT BABCOCK, BRIENRagle, and William Cavanagh, respectively, at an exercise price of $1.47 per share. 69 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other Aspects of Our Compensation Philosophy Other Benefits WE PROVIDE OUR NAMED EXECUTIVE OFFICERS WITH THE SAME EMPLOYEE BENEFITS THAT ALL OF OUR OTHER EMPLOYEES RECEIVE UNDER OUR BROAD-BASED BENEFIT PLANS. THESEplans provide for health benefits, life insurance and other welfare benefits. Perquisites We do not provide our named executive officers with any retirement or welfare plan benefits that we do not provide to all of our other employees. Risks Related to Compensation Policies and Practices THE COMPENSATION COMMITTEE HAS CONSIDERED WHETHER OUR OVERALL COMPENSATION PROGRAM FOR EMPLOYEES IN 2015 CREATES INCENTIVES FOR EMPLOYEES TO TAKEEXCESSIVE OR UNREASONABLE RISKS THAT COULD MATERIALLY HARM OUR COMPANY. WE BELIEVE THAT SEVERAL FEATURES OF OUR COMPENSATION POLICIES FOR MANAGEMENTEMPLOYEES APPROPRIATELY MITIGATE SUCH RISKS, INCLUDING A MIX OF LONG- AND SHORT-TERM COMPENSATION INCENTIVES THAT WE BELIEVE IS PROPERLY WEIGHTED, AND THEUNIFORMITY OF COMPENSATION PRACTICES ACROSS OUR COMPANY, WHICH THE COMPENSATION COMMITTEE REGARDS AS SETTING AN APPROPRIATE LEVEL OF RISK TAKING FOR US.WE ALSO BELIEVE OUR INTERNAL LEGAL AND FINANCIAL CONTROLS APPROPRIATELY MITIGATE THE PROBABILITY AND POTENTIAL IMPACT OF AN INDIVIDUAL EMPLOYEE COMMITTINGus to a harmful long-term business transaction in exchange for short-term compensation benefits. Recoupment Policy IN ORDER TO ALIGN FURTHER MANAGEMENT’S INTERESTS WITH THE INTERESTS OF OUR SHAREHOLDERS AND TO SUPPORT GOOD CORPORATE GOVERNANCE PRACTICES, THE BOARD HASADOPTED A RECOUPMENT POLICY. SUBJECT TO RULES OF THE SEC AND NYSE MKT, IN THE EVENT THAT WE ARE REQUIRED TO PREPARE AN ACCOUNTING RESTATEMENT DUE TO THEMATERIAL NONCOMPLIANCE WITH ANY FINANCIAL REPORTING REQUIREMENT UNDER THE FEDERAL SECURITIES LAWS, WE WILL FORM A COMMITTEE OF THE NON-MANAGEMENTDIRECTORS TO DETERMINE WHETHER WE WILL RECOVER FROM ANY OF OUR CURRENT OR FORMER EXECUTIVE OFFICERS, AS DETERMINED IN ACCORDANCE WITH SUCH RULES, WHO RECEIVEDPERFORMANCE-BASED COMPENSATION (INCLUDING STOCK OPTIONS AWARDED AS COMPENSATION) DURING THE PERIOD FOR WHICH WE ARE REQUIRED TO PREPARE AN ACCOUNTINGRESTATEMENT, BASED ON THE ERRONEOUS DATA, IN EXCESS OF WHAT WOULD HAVE BEEN PAID TO THE EXECUTIVE OFFICER UNDER THE ACCOUNTING RESTATEMENT. THE COMMITTEEmay also take any other actions authorized by our Executive Compensation Clawback Policy. Compensation Committee Report THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS HAS REVIEWED AND DISCUSSED THE MATTERS CONTAINED UNDER THE TITLE COMPENSATION DISCUSSION ANDANALYSIS OF THIS REPORT WITH OUR MANAGEMENT AND, BASED ON SUCH REVIEW AND DISCUSSIONS WE RECOMMENDED TO THE BOARD THAT THE COMPENSATION DISCUSSIONand Analysis be included in this Annual Report on Form 10-K for the Company’s fiscal year ended June 30, 2015. Respectfully submitted, Philip Vitale, MD (Chair)Thomas LaVoyMichael McCormick ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The following tables set forth certain information regarding the beneficial ownership of the Company's common stock and preferred stock as of September 11,2015 FOR (A) EACH PERSON KNOWN BY THE COMPANY TO BE A BENEFICIAL OWNER OF FIVE PERCENT OR MORE OF THE OUTSTANDING COMMON OR PREFERRED STOCK OF THECOMPANY, (B) EACH EXECUTIVE OFFICER, DIRECTOR AND NOMINEE FOR DIRECTOR OF THE COMPANY, AND (C) DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AS A GROUP.AS OF SEPTEMBER 11, 2015, THE COMPANY HAD 55,013,553 SHARES OF COMMON STOCK AND 59,065 SHARES OF SERIES B PREFERRED STOCK OUTSTANDING. EXCEPT ASotherwise indicated below, the address for each listed beneficial owner is c/o IsoRay, Inc., 350 Hills Street, Suite 106, Richland, Washington 99354. 70 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Common Stock Share Ownership Name of Beneficial Owner Common SharesOwned Common StockOptions(1) Percent of Class (2) Dwight Babcock(3) 304,097 850,000 2.00%Brien Ragle - 56,999 0.02%Thomas LaVoy 93,523 150,000 0.44%Michael McCormick 25,000 0.05%Philip Vitale M.D. 10,000 25,000 0.06%William Cavanagh III 13,326 0.02%Directors and Executive Officers as a group 407,620 1,120,325 0.02% 1)Only includes those common stock options that could be exercised for common stock within 60 days after September 11, 2015.2)PERCENTAGE OWNERSHIP IS BASED ON 55,013,553 SHARES OF COMMON STOCK OUTSTANDING ON SEPTEMBER 11, 2015. SHARES OF COMMON STOCKSUBJECT TO STOCK OPTIONS WHICH ARE CURRENTLY EXERCISABLE OR WILL BECOME EXERCISABLE WITHIN 60 DAYS AFTER SEPTEMBER 11, 2015 ARE DEEMEDOUTSTANDING FOR COMPUTING THE PERCENTAGE OWNERSHIP OF THE PERSON OR GROUP HOLDING SUCH OPTIONS BUT ARE NOT DEEMED OUTSTANDING FORcomputing the percentage ownership of any other person or group.3)Mr. Babcock's common shares owned include 2,695 shares owned by his spouse. Series B Preferred Stock Share Ownership Series B Preferred Shares Percent of Name of Beneficial Owner Owned Class (1) Aissata Sidibe (2) 20,000 33.86%William and Karen Thompson Trust (3) 14,218 24.07%Jamie Granger (4) 10,529 17.83%Hostetler Living Trust (5) 9,479 16.05%Leslie Fernandez (6) 3,688 6.24% (1)Percentage ownership is based on 59,065 shares of Series B Preferred Stock outstanding on September 11, 2015.(2)The address of Aissata Sidibe is 99302 E Sidibe PR SE, Kennewick, WA 99338.(3)The address of the William and Karen Thompson Trust is 285 Dondero Way, San Jose, CA 95119.(4)The address of Jamie Granger is 53709 South Nine Canyon Road, Kennewick, WA 99337.(5)The address of the Hostetler Living Trust is 9327 NE 175th Street, Bothell, WA 98011.(6)The address of Leslie Fernandez is 2615 Scottsdale Place, Richland, WA 99352. No officers or directors beneficially own shares of any class of Preferred Stock. 71 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Certain Relationships and Related Party Transactions None requiring disclosure under Reg. S-K Item 404. Review and Approval of Related Party Transactions THE COMPANY'S CODE OF ETHICS EMPHASIZES THE IMPORTANCE OF AVOIDING SITUATIONS OR TRANSACTIONS IN WHICH PERSONAL INTERESTS MAY INTERFERE WITH THE BESTINTERESTS OF THE COMPANY OR ITS SHAREHOLDERS. IN ADDITION, THE COMPANY'S GENERAL CORPORATE GOVERNANCE PRACTICE INCLUDES BOARD-LEVEL DISCUSSION ANDassessment of procedures for discussing and assessing relationships, including business, financial, familial and nonprofit, among the Company and its officersAND DIRECTORS OR THEIR IMMEDIATE FAMILY MEMBERS, TO THE EXTENT THAT THEY MAY ARISE. THE BOARD AND EITHER THE AUDIT COMMITTEE OR THE NOMINATIONS ANDCORPORATE GOVERNANCE COMMITTEE REVIEW ANY TRANSACTION WITH AN OFFICER OR DIRECTOR OR THEIR IMMEDIATE FAMILY MEMBERS TO DETERMINE, ON A CASE-BY-CASE BASIS,WHETHER A CONFLICT OF INTEREST EXISTS. THE BOARD ENSURES THAT ALL DIRECTORS VOTING ON SUCH A MATTER HAVE NO INTEREST IN THE MATTER AND DISCUSSES THE TRANSACTIONWITH COUNSEL AS THE BOARD DEEMS NECESSARY. THE BOARD WILL GENERALLY DELEGATE THE TASK OF DISCUSSING, REVIEWING AND APPROVING TRANSACTIONS BETWEEN THECompany and any related persons to either the Audit Committee or the Nominations and Corporate Governance Committee. AS REQUIRED UNDER SEC RULES, TRANSACTIONS THAT ARE DETERMINED TO BE DIRECTLY OR INDIRECTLY MATERIAL TO THE COMPANY OR A RELATED PARTY WOULD BE DISCLOSED IN OURANNUAL REPORT; HOWEVER, DURING OUR FISCAL YEAR ENDED JUNE 30, 2015, WE DID NOT HAVE ANY RELATED PARTY TRANSACTIONS REQUIRING DISCLOSURE UNDER REG. S-K ITEM404. Director Independence USING THE STANDARDS OF THE NYSE MKT, THE COMPANY'S BOARD HAS DETERMINED THAT MR. LAVOY, MR. MCCORMICK AND DR. VITALE EACH QUALIFY UNDER SUCHSTANDARDS AS AN INDEPENDENT DIRECTOR. MR. LAVOY, MR. MCCORMICK AND DR. VITALE EACH MEET THE NYSE MKT LISTING STANDARDS FOR INDEPENDENCE BOTH AS ADIRECTOR AND AS A MEMBER OF BOTH THE AUDIT COMMITTEE AND THE COMPENSATION COMMITTEE. NO OTHER DIRECTORS ARE INDEPENDENT UNDER THESE STANDARDS. THECOMPANY DID NOT CONSIDER ANY RELATIONSHIP OR TRANSACTION BETWEEN ITSELF AND THESE INDEPENDENT DIRECTORS NOT ALREADY DISCLOSED IN THIS REPORT IN MAKING THISdetermination. ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES The Company paid or accrued the following fees in each of the prior three fiscal years to its principal accountant, DeCoria, Maichel & Teague, P.S.: For the Year Ended June 30, 2015 2014 2013 1. Audit fees $76,566 $63,471 $60,372 2. Audit-related fees - - 2,733 3. Tax fees 11,988 9,000 8,250 4. All other fees - - 3,750 Totals $88,554 $72,471 $75,105 AUDIT FEES INCLUDE FEES FOR THE AUDIT OF OUR ANNUAL FINANCIAL STATEMENTS, REVIEWS OF OUR QUARTERLY FINANCIAL STATEMENTS, AND RELATED CONSENTS FOR DOCUMENTS FILEDWITH THE SEC, AS WELL AS, IN FISCAL 2015, THE FEES FOR THE AUDIT OF OUR INTERNAL CONTROL OVER FINANCIAL REPORTING. AUDIT-RELATED FEES INCLUDE COST OF ATTENDANCE ATTHE ANNUAL SHAREHOLDER MEETING. TAX FEES INCLUDE FEES FOR THE PREPARATION OF OUR FEDERAL AND STATE INCOME TAX RETURNS. ALL OTHER FEES ARE RELATED TO CONSULTINGcosts related to the review of documents related to equity offerings. 72 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AS PART OF ITS RESPONSIBILITY FOR OVERSIGHT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS, THE AUDIT COMMITTEE HAS ESTABLISHED A PRE-APPROVAL POLICY FORENGAGING AUDIT AND PERMITTED NON-AUDIT SERVICES PROVIDED BY OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS, DECORIA, MAICHEL & TEAGUE, P.S. IN ACCORDANCEWITH THIS POLICY, EACH TYPE OF AUDIT, AUDIT-RELATED, TAX AND OTHER PERMITTED SERVICE TO BE PROVIDED BY THE INDEPENDENT AUDITORS IS SPECIFICALLY DESCRIBED ANDEACH SUCH SERVICE, TOGETHER WITH A FEE LEVEL OR BUDGETED AMOUNT FOR SUCH SERVICE, IS PRE-APPROVED BY THE AUDIT COMMITTEE. THE AUDIT COMMITTEE HASDELEGATED AUTHORITY TO ITS CHAIRMAN TO PRE-APPROVE ADDITIONAL NON-AUDIT SERVICES (PROVIDED SUCH SERVICES ARE NOT PROHIBITED BY APPLICABLE LAW) UP TO A PRE-ESTABLISHED AGGREGATE DOLLAR LIMIT. ALL SERVICES PRE-APPROVED BY THE CHAIRMAN OF THE AUDIT COMMITTEE MUST BE PRESENTED AT THE NEXT AUDIT COMMITTEEMEETING FOR REVIEW AND RATIFICATION. ALL OF THE SERVICES PROVIDED BY DECORIA, MAICHEL & TEAGUE, P.S. DESCRIBED ABOVE WERE APPROVED BY OUR AUDITCommittee. THE COMPANY'S PRINCIPAL ACCOUNTANT, DECORIA, MAICHEL & TEAGUE P.S., DID NOT ENGAGE ANY OTHER PERSONS OR FIRMS OTHER THAN THE PRINCIPAL ACCOUNTANT'S FULL-time, permanent employees. ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES EXHIBIT INDEX (Except as otherwise indicated, all exhibits were previously filed and all omitted exhibits are intentionally omitted) Exhibit # Description 3.2 CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES A AND B CONVERTIBLE PREFERRED STOCK, FILED WITH THEMinnesota Secretary of State on June 29, 2005 incorporated by reference to the Form 8-K filed on August 3, 2005.3.3 Restated and Amended Articles of Incorporation incorporated by reference to the Form 10-KSB filed on October 11, 2005.3.4 CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK, INCORPORATED BYreference to the Company's Registration Statement on Form 8-A filed February 7, 2007.3.5 AMENDED AND RESTATED BY-LAWS OF THE COMPANY DATED AS OF JANUARY 8, 2008, INCORPORATED BY REFERENCE TO THE FORM 8-K FILED ONJanuary 14, 2008.3.6 CERTIFICATE OF DESIGNATION AND PREFERENCES, RIGHTS AND LIMITATIONS OF SERIES D CONVERTIBLE PREFERRED STOCK DATED AUGUST 29, 2013 OFIsoRay, Inc., incorporated by reference to the Form 8-K filed on August 29, 2013.4.16 Amended and Restated 2006 Director Stock Option Plan, incorporated by reference to the Form S-8/A1 filed on December 18, 2006.4.19 RIGHTS AGREEMENT, DATED AS OF FEBRUARY 1, 2007, BETWEEN THE COMPUTERSHARE TRUST COMPANY N.A., AS RIGHTS AGENT, INCORPORATED BYreference to the Company's Registration Statement on Form 8-A filed on February 7, 2007.4.20 CERTIFICATE OF DESIGNATION OF RIGHTS, PREFERENCES AND PRIVILEGES OF SERIES C JUNIOR PARTICIPATING PREFERRED STOCK, INCORPORATED BYreference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed February 7, 2007.4.26 Form of Common Stock Purchase Warrant, incorporated by reference to the Form 8-K filed on October 13, 2011.4.32 2014 Employee Stock Option Plan incorporated by reference to the Form 10-Q filed on March 15, 2014.4.33 Form of Stock Option Agreement of IsoRay, Inc., incorporated by reference to the Form 10-Q filed on March 15, 2014.10.2 Universal License Agreement, dated November 26, 1997 between Donald C. Lawrence and William J. Stokes of Pacific ManagementAssociates Corporation, incorporated by reference to the Form SB-2 filed on November 10, 2005.10.3 ROYALTY AGREEMENT OF INVENTION AND PATENT APPLICATION, DATED JULY 12, 1999 BETWEEN LANE A. BRAY AND ISORAY LLC, INCORPORATEDby reference to the Form SB-2 filed on November 10, 2005.10.5 SECTION 510(K) CLEARANCE FROM THE FOOD AND DRUG ADMINISTRATION TO MARKET LAWRENCE CSERION MODEL CS-1, DATED MARCH 28,2003, incorporated by reference to the Form SB-2 filed on November 10, 2005.10.10 Registry of Radioactive Sealed Sources and Devices Safety Evaluation of Sealed Source, dated September 17, 2004, incorporated byreference to the Form SB-2/A2 filed on April 27, 2006.10.18 STATE OF WASHINGTON RADIOACTIVE MATERIALS LICENSE DATED OCTOBER 6, 2005, INCORPORATED BY REFERENCE TO THE FORM SB-2 FILED ONNovember 10, 2005.10.22 AGREEMENT DATED AUGUST 9, 2005 BETWEEN THE CURATORS OF THE UNIVERSITY OF MISSOURI AND ISORAY MEDICAL, INC., INCORPORATED BYreference to the Form SB-2/A2 filed on April 27, 2006 (confidential treatment granted for redacted portions).10.35 FORM OF OFFICER AND DIRECTOR INDEMNIFICATION AGREEMENT, INCORPORATED BY REFERENCE TO THE FORM SB-2 POST EFFECTIVE AMENDMENT NO.2 filed on October 13, 2006.10.59 LICENSE AGREEMENT, DATED EFFECTIVE JUNE 14, 2010, BY AND BETWEEN ISORAY MEDICAL, INC. AND HOLOGIC INC., INCORPORATED BY REFERENCEto the Form 8-K filed on June 23, 2010 (confidential treatment granted for redacted portions).10.66 LICENSE AGREEMENT DATED AS OF JUNE 1, 2011, BY AND BETWEEN DR. REDDY'S LABORATORIES (EU) LTD. AND ISORAY MEDICAL, INC.,incorporated by reference to the Form 8-K/A filed on August 19, 2011 (confidential treatment granted for redacted portions). 73 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.68 INTERNATIONAL DISTRIBUTION AGREEMENT, DATED OCTOBER 31, 2011, BY AND BETWEEN ISORAY MEDICAL, INC. AND KARLHEINZ GOEHL-MEDIZINTECHNIK GÖHL, INCORPORATED BY REFERENCE TO THE FORM 8-K FILED ON NOVEMBER 3, 2011 (CONFIDENTIAL TREATMENT GRANTED FORredacted portions).10.74 LETTER AGREEMENT, DATED AUGUST 27, 2013, BETWEEN ISORAY MEDICAL, INC. AND KARLHEINZ GOEHL-MEDIZINTECHNIK GÖHL, INCORPORATEDby reference to the Form 10-K filed on September 30, 2013.10.76 SECURITIES PURCHASE AGREEMENT DATED AS OF MARCH 1, 2014, BETWEEN ISORAY, INC., AND EACH PURCHASER IDENTIFIED ON THE SIGNATUREpages thereto, incorporated by reference to the Form 8-K filed on March 21, 2014.10.77 LETTER AGREEMENT DATED MARCH 21, 2014, BETWEEN MAXIM GROUP LLC AND ISORAY, INC., INCORPORATED BY REFERENCE TO THE FORM 8-Kfiled on March 21, 2014.10.78 CONTRACT DATED JUNE 23, 2014, BY AND BETWEEN ISORAY MEDICAL, INC. AND THE OPEN JOINT STOCK COMPANY ‹‹ INSTITUTE OF THE NUCLEARMATERIALS ›› (CONFIDENTIAL TREATMENT GRANTED FOR REDACTED PORTIONS), INCORPORATED HEREIN BY REFERENCE TO THE FORM 8-K FILED JUNE 25,2014.10.79 ADDENDUM NO. 1 TO CONTRACT NO. 840/08624332/1609-14 DATED JULY 31, 2014, BY AND BETWEEN OPEN JOINT STOCK COMPANY ‹‹INSTITUTE OF THE NUCLEAR MATERIALS ›› (JSC ‹‹INM››) AND ISORAY MEDICAL, INC., INCORPORATED BY REFERENCE TO THE FORM 8-K FILED ONAugust 7, 2014.10.81 LETTER AGREEMENT DATED AUGUST 28, 2014, BY AND BETWEEN ISORAY MEDICAL, INC. AND KARLHEINZ GOEHL-MEDIZINTECHNIK GÖHL(confidential treatment granted for redacted portions), incorporated herein by reference to the Form 10-K filed September 29, 2014.10.82 CONTRACT, DATED JANUARY 12, 2015, BY AND BETWEEN ISORAY MEDICAL, INC. AND JOINT STOCK COMPANY “INSTITUTE OF NUCLEAR MATERIALS”(confidential treatment granted for redacted portions); incorporated herein by reference to the Form 10-Q filed May 15, 2015.10.83* Letter Agreement dated August 31, 2015, by and between IsoRay Medical, Inc. and Karlheinz Goehl - Medizintechnik Göhl.10.84* Real Estate Purchase and Sale Agreement, dated September 10, 2015, by and between IsoRay Medical, Inc. and The Port of Benton.14.1 Code of Conduct and Ethics, incorporated by reference to the Form 10-KSB filed on October 11, 2005.14.2 CODE OF ETHICS FOR CHIEF EXECUTIVE OFFICER & SENIOR FINANCIAL OFFICERS, INCORPORATED BY REFERENCE TO THE FORM 10-KSB FILED ONOctober 11, 2005.21.1* Subsidiaries of the Company.23.1* Consent of DeCoria, Maichel & Teague, P.S.31.1* Rule 13a-14(a)/15d-14(a) Certification - Chief Executive Officer.31.2* Rule 13a-14(a)/15d-14(a) Certification – Principal Financial Officer.32.1** Section 1350 Certifications.101.INS* XBRL Instance Document.101.SCH* XBRL Taxonomy Extension Schema Document.101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document.101.DEF* XBRL Taxonomy Extension Definition Linkbase Document.101.LAB* XBRL Taxonomy Extension Label Linkbase Document.101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document. * Filed herewith. ** Furnished herewith. Reports on Form 8-K On May 18, 2015, the Company filed a Current Report on Form 8-K announcing its financial results for the quarter and nine months ended March 31, 2015. ON JUNE 22, 2015, THE COMPANY FILED A CURRENT REPORT ON FORM 8-K ANNOUNCING THE APPOINTMENT OF MICHAEL (MICK) MCCORMICK TO THE BOARD; AND A CHANGEto the Board’s compensation. ON SEPTEMBER 2, 2015, THE COMPANY FILED A CURRENT REPORT ON FORM 8-K ANNOUNCING THE EXTENSION AND AMENDMENT OF ISORAY MEDICAL, INC.’S INTERNATIONALDistribution Agreement with Karlheinz Goehl-Medizintechnik Göhl. 74 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Report of Independent Registered Public Accounting Firm Board of Directors and StockholdersIsoRay, Inc. and SubsidiariesRichland, Washington We have audited the accompanying consolidated balance sheets of IsoRay, Inc. and Subsidiaries as of June 30, 2015 and 2014 and the related consolidatedstatements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2015. These financialstatements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of IsoRay, Inc. andSubsidiaries at June 30, 2015 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2015, inconformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), IsoRay, Inc. and Subsidiaries’internal control over financial reporting as of June 30, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated September 11, 2015 expressed an unqualified opinionthereon. /s/ DeCoria, Maichel & Teague, P.S. Spokane, WashingtonSeptember 11, 2015 F-1 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IsoRay, Inc. and SubsidiariesConsolidated Balance Sheets June 30, 2015 June 30, 2014 ASSETS Current assets: Cash and cash equivalents $5,226,740 $7,680,073 Certificates of deposit (Note 3) 9,362,574 10,002,912 Accounts receivable, net of allowance for doubtful accounts of $30,000 and $38,607, respectively 1,049,041 913,049 Inventory 403,955 359,737 Other receivables 19,615 53,082 Prepaid expenses and other current assets 263,597 206,047 Total current assets 16,325,522 19,214,900 Fixed assets, net of accumulated depreciation 574,840 1,017,915 Certificates of deposit, non-current (Note 3) 5,106,775 5,401,398 Restricted cash 181,262 181,208 Inventory, non-current 569,854 469,758 Other assets, net of accumulated amortization 245,031 264,076 Total assets $23,003,284 $26,549,255 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $498,253 $574,855 Accrued protocol expense 124,131 80,433 Accrued radioactive waste disposal 129,500 141,592 Accrued payroll and related taxes 212,795 236,282 Accrued vacation 127,515 120,765 Total current liabilities 1,092,194 1,153,927 Long-term liabilities: Warrant derivative liability 181,000 573,000 Asset retirement obligation 947,849 866,560 Total liabilities 2,221,043 2,593,487 Commitments and contingencies (Note 16) Shareholders' equity: Preferred stock, $.001 par value; 7,001,671 shares authorized: Series A: 1,000,000 shares allocated; no shares issued and outstanding - - Series B: 5,000,000 shares allocated; 59,065 shares issued and outstanding 59 59 Series C: 1,000,000 shares allocated; no shares issued and outstanding - - Series D: 1,671 and 0 shares allocated; no shares issued and outstanding - - Common stock, $.001 par value; 192,998,329 shares authorized; 54,967,559 and 54,701,708 shares issuedand outstanding 54,968 54,702 Treasury stock, at cost, 13,200 shares (8,390) (8,390)Additional paid-in capital 82,467,111 81,959,853 Accumulated deficit (61,731,507) (58,050,456) Total shareholders' equity 20,782,241 23,955,768 Total liabilities and shareholders' equity $23,003,284 $26,549,255 The accompanying notes are an integral part of these financial statements. F-2 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IsoRay, Inc. and SubsidiariesConsolidated Statements of Operations Year Ended June 30, 2015 2014 2013 Product sales, net $4,606,539 $4,219,158 $4,525,233 Cost of product sales 4,439,146 4,415,629 4,375,057 Gross profit / (loss) 167,393 (196,471) 150,176 Operating expenses: Research and development 614,771 668,803 627,107 Sales and marketing 1,488,456 1,234,725 1,296,149 General and administrative 2,400,353 2,488,219 2,294,173 Total operating expenses 4,503,580 4,391,747 4,217,429 Operating loss (4,336,187) (4,588,218) (4,067,253) Non-operating income (expense): Interest income 282,745 12,113 664 Change in fair value of warrant derivative liability 374,605 (1,382,134) 210,000 Financing and interest expense (2,214) (883) (7) Non-operating income (expense) , net 655,136 (1,370,904) 210,657 Net loss (3,681,051) (5,959,122) (3,856,596)Preferred stock deemed dividends (Note 11) - (726,378) - Preferred stock dividends (10,632) (10,632) (10,632) Net loss applicable to common shareholders $(3,691,683) $(6,696,132) $(3,867,228) Basic and diluted loss per share $(0.07) $(0.16) $(0.11) Weighted average shares used in computing net loss per share: Basic and diluted 54,882,350 42,675,158 34,423,420 The accompanying notes are an integral part of these financial statements. F-3 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IsoRay, Inc. and SubsidiariesConsolidated Statement of Changes in Shareholders' Equity Series B Preferred Stock Series D Preferred Stock Common Stock Treasury Stock Additional Paid- Accumulated Shares Amount Shares Amount Shares Amount Shares Amount in Capital Deficit Total Balances at June 30, 2012 59,065 $59 - $- 30,950,108 $30,950 13,200 $(8,390) $54,030,311 $(48,234,738) $5,818,192 Issuance of common stock pursuant toregistered public offering, net 3,626,943 3,627 3,288,350 3,291,977 Issuance of common stock pursuant toexercise of warrants, net 2,766 3 1,822 1,825 Issuance of common stock pursuant toexercise of options 38,700 38 13,091 13,129 Payment of dividend to preferredshareholders (10,632) (10,632)Share-based compensation 108,351 108,351 Net loss (3,856,596) (3,856,596) Balances at June 30, 2013 59,065 $59 - $- 34,618,517 $34,618 13,200 $(8,390) $57,431,293 $(52,091,334) $5,366,246 Issuance of preferred stock pursuant tounderwritten public offering, net 1,670 2 1,478,701 1,478,703 Issuance of common stock pursuant tounderwritten public offering, net 3,800,985 3,801 1,796,788 1,800,589 Conversion of Series D preferred stockto common stock (1,670) (2) 3,121,480 3,121 (3,119) - Issuance of common stock pursuant toexercise of warrants, net 7,165,443 7,166 7,005,775 7,012,941 Issuance of common stock pursuant toexercise of options 350,983 351 265,963 266,314 Issuance of common stock pursuant toregistered public offering, net 5,644,300 5,645 13,809,097 13,814,742 Payment of dividend to preferredshareholders (10,632) (10,632)Share-based compensation 185,987 185,987 Net loss (5,959,122) (5,959,122) Balances at June 30, 2014 59,065 $59 - $- 54,701,708 $54,702 13,200 $(8,390) $81,959,853 $(58,050,456) $23,955,768 Issuance of common stock pursuant toexercise of warrants, net 58,947 59 99,585 99,644 Issuance of common stock pursuant toexercise of options 206,904 207 213,041 213,248 Payment of dividend to preferredshareholders (10,632) (10,632)Share-based compensation 205,264 205,264 Net loss (3,681,051) (3,681,051) Balances at June 30, 2015 59,065 $59 - $- 54,967,559 $54,968 13,200 $(8,390) $82,467,111 $(61,731,507) $20,782,241 The accompanying notes are an integral part of these financial statements. F-4 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IsoRay, Inc. and SubsidiariesConsolidated Statements of Cash Flows Year Ended June 30, 2015 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,681,051) $(5,959,122) $(3,856,596)Adjustments to reconcile net loss to net cash used by operating activities: Allowance for doubtful accounts (8,607) (13,992) (5,006)Depreciation of fixed assets 576,380 685,396 739,147 Amortization of other assets 36,987 30,189 31,302 Change in fair value of derivative warrant liabilities (374,605) 1,382,134 (210,000)Accretion of asset retirement obligation 81,289 74,318 67,944 Share-based compensation 205,264 185,987 108,351 Changes in operating assets and liabilities: Accounts receivable (127,385) 24,723 (53,718)Inventory (144,314) 45,834 38,774 Other receivables 33,467 (41,580) (1,577)Prepaid expenses and other current assets (57,550) (3,167) (58,764)Accounts payable and accrued expenses (76,602) 142,289 43,461 Accrued protocol expense 43,698 55,128 25,305 Accrued radioactive waste disposal (12,092) 41,592 48,000 Accrued payroll and related taxes (23,487) 108,863 7,538 Accrued vacation 6,750 13,187 19,572 Net cash used by operating activities (3,521,858) (3,228,221) (3,056,267) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of fixed assets (133,305) (19,029) (6,576)Additions to licenses and other assets (17,942) (17,758) (6,118)Proceeds from the maturity of certificates of deposit 15,873,376 - - Purchases of certificates of deposit (10,143,741) (10,002,912) - Purchases of certificates of deposit - non-current (4,794,674) (5,401,398) - Change in restricted cash (54) (59) (122) Net cash provided by (used in) investing activities 783,660 (15,441,156) (12,816) CASH FLOWS FROM FINANCING ACTIVITIES: Preferred dividends paid (10,632) (10,632) (10,632)Proceeds from sales of preferred stock, pursuant to underwritten offering, net - 1,478,703 - Proceeds from sales of common stock, pursuant to underwritten offering, net - 1,800,589 - Proceeds from sales of common stock, pursuant to registered public offering, net - 13,814,742 3,291,977 Proceeds from sales of common stock, pursuant to exercise of warrants 82,249 6,099,807 1,825 Proceeds from sales of common stock, pursuant to exercise of options 213,248 266,314 13,129 Net cash provided by financing activities 284,865 23,449,523 3,296,299 Net increase (decrease) in cash and cash equivalents (2,453,333) 4,780,146 227,216 Cash and cash equivalents, beginning of year 7,680,073 2,899,927 2,672,711 CASH AND CASH EQUIVALENTS, END OF YEAR $5,226,740 $7,680,073 $2,899,927 Supplemental disclosures of cash flow information: Cash paid for interest $2,214 $748 $7 Non-cash investing and financing activities: Preferred stock deemed dividends (Note 11) $- $(726,378) $- Reclassification of derivative warrant liability to equity upon exercise (17,395) (913,134) - Reclassification of convertible preferred stock to common stock upon conversion - (1,478,703) - The accompanying notes are an integral part of these financial statements. F-5 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IsoRay, Inc.Notes to Consolidated Financial StatementsFor the years ended June 30, 2015, 2014 and 2013 1.Organization CENTURY PARK PICTURES CORPORATION (CENTURY) WAS ORGANIZED UNDER MINNESOTA LAW IN 1983. CENTURY HAD NO OPERATIONS DURING THE PERIOD FROM SEPTEMBER 30,1999 through June 30, 2005. ON JULY 28, 2005, ISORAY MEDICAL, INC. (MEDICAL) BECAME A WHOLLY-OWNED SUBSIDIARY OF CENTURY PURSUANT TO A MERGER. CENTURY CHANGED ITS NAME TO ISORAY,Inc. (IsoRay or the Company). In the merger, the Medical stockholders received approximately 82% of the then outstanding securities of the Company. MEDICAL, A DELAWARE CORPORATION, WAS INCORPORATED EFFECTIVE JUNE 15, 2004 TO DEVELOP, MANUFACTURE AND SELL ISOTOPE-BASED MEDICAL PRODUCTS AND DEVICES FORthe treatment of cancer and other malignant diseases. ISORAY INTERNATIONAL LLC, A WASHINGTON LIMITED LIABILITY COMPANY, WHICH IS WHOLLY-OWNED BY ISORAY INC. WAS FORMED ON NOVEMBER 27, 2007 TO SERVE AS ANOWNER IN A RUSSIAN LLC THAT PLANNED TO DISTRIBUTE THE COMPANY’S PRODUCTS TO THE RUSSIAN MARKET AND ALSO LICENSE THE COMPANY’S TECHNOLOGY FOR USE INMANUFACTURING CS-131 BRACHYTHERAPY SEEDS IN RUSSIA. DURING FISCAL YEAR 2009, THE COMPANY DIVESTED ITS OWNERSHIP IN THE RUSSIAN LLC. ISORAYInternational, LLC is now used to conduct business with the international distributors of Medical’s products. IsoRay, Inc., together with its subsidiaries, (“IsoRay” or the “Company”), are headquartered in Richland, Washington. 2.Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation The accompanying consolidated financial statements have been prepared in accordance with US GAAP, pursuant to the rules and regulations of the SecuritiesAND EXCHANGE COMMISSION, OR SEC. THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE THE ACCOUNTS OF THE COMPANY AND ITS WHOLLY-OWNED SUBSIDIARIES(collectively the Company). All significant inter-company transactions and balances have been eliminated in consolidation. Cash Equivalents THE COMPANY CONSIDERS CURRENCY ON HAND, DEMAND DEPOSITS, TIME DEPOSITS, AND ALL HIGHLY LIQUID INVESTMENTS WITH AN ORIGINAL MATURITY OF THREE MONTHS ORless at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the United States. Certificates of Deposit CERTIFICATES OF DEPOSIT WITH ORIGINAL MATURITIES GREATER THAN THREE MONTHS AND REMAINING MATURITIES LESS THAN ONE YEAR ARE CLASSIFIED AS "CERTIFICATES OF DEPOSIT"AND INCLUDED IN CURRENT ASSETS. CERTIFICATES OF DEPOSIT WITH REMAINING MATURITIES GREATER THAN ONE YEAR ARE CLASSIFIED AS ”CERTIFICATES OF DEPOSIT, NON-CURRENT”and are included in noncurrent assets. Accounts Receivable ACCOUNTS RECEIVABLE ARE STATED AT THE AMOUNT THAT MANAGEMENT OF THE COMPANY EXPECTS TO COLLECT FROM OUTSTANDING BALANCES. MANAGEMENT PROVIDES FORPROBABLE UNCOLLECTIBLE AMOUNTS THROUGH AN ALLOWANCE FOR DOUBTFUL ACCOUNTS. ADDITIONS TO THE ALLOWANCE FOR DOUBTFUL ACCOUNTS ARE BASED ON MANAGEMENT'SJUDGMENT, CONSIDERING HISTORICAL EXPERIENCE WITH WRITE-OFFS, COLLECTIONS AND CURRENT CREDIT CONDITIONS. BALANCES WHICH REMAIN OUTSTANDING AFTER MANAGEMENTHAS USED REASONABLE COLLECTION EFFORTS ARE WRITTEN OFF THROUGH A CHARGE TO THE ALLOWANCE FOR DOUBTFUL ACCOUNTS AND A CREDIT TO THE APPLICABLE ACCOUNTSreceivable. Payments received subsequent to the time that an account is written off are treated as bad debt recoveries. F-6 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Inventory INVENTORY IS REPORTED AT THE LOWER OF COST OR MARKET. COST OF RAW MATERIALS IS DETERMINED USING THE WEIGHTED AVERAGE METHOD. COST OF WORK IN PROCESS ANDfinished goods is computed using standard cost, which approximates actual cost, on a first-in, first-out basis. THE COST OF MATERIALS AND PRODUCTION COSTS CONTAINED IN INVENTORY THAT ARE NOT USEABLE DUE TO THE PASSAGE OF TIME, AND RESULTING LOSS OF BIO-EFFECTIVENESS, AREwritten off to cost of product sales at the time it is determined that the product is no longer useable. Fixed Assets FIXED ASSETS ARE CAPITALIZED AND CARRIED AT THE LOWER OF COST OR NET REALIZABLE VALUE. NORMAL MAINTENANCE AND REPAIRS ARE CHARGED TO EXPENSE AS INCURRED. WHENANY ASSETS ARE SOLD OR OTHERWISE DISPOSED OF, THE COST AND ACCUMULATED DEPRECIATION ARE REVERSED WITH ANY RESULTING GAIN OR LOSS BEING RECOGNIZED IN THE NON-operating income / (expense) section of the consolidated statement of operations. Depreciation is computed using the straight-line method over the following estimated useful lives: Production equipment3 to 7 years Office equipment2 to 5 years Furniture and fixtures2 to 5 years Leasehold improvements and capital lease assets are amortized over the shorter of the lease term or the estimated useful life of the asset. MANAGEMENT OF THE COMPANY PERIODICALLY REVIEWS THE NET CARRYING VALUE OF ALL OF ITS LONG-LIVED ASSETS ON AN ASSET BY ASSET BASIS. THESE REVIEWS CONSIDER THENET REALIZABLE VALUE OF EACH ASSET TO DETERMINE WHETHER THERE IS IMPAIRMENT IN THE VALUE OF AN ASSET WHICH HAS OCCURRED, AND THERE IS A NEED FOR ANY ASSETimpairment write-down. ALTHOUGH MANAGEMENT HAS MADE ITS BEST ESTIMATE OF THE FACTORS THAT AFFECT THE CARRYING VALUE BASED ON CURRENT CONDITIONS, IT IS REASONABLY POSSIBLE THATCHANGES COULD OCCUR WHICH COULD ADVERSELY AFFECT MANAGEMENT'S ESTIMATE OF NET CASH FLOWS EXPECTED TO BE GENERATED FROM ITS ASSETS THAT COULD RESULT IN ANimpairment adjustment. Prepaid Expenses and Other Assets PREPAID EXPENSES AND OTHER ASSETS, WHICH INCLUDE DEFERRED CHARGES, PATENTS AND LICENSES, ARE STATED AT COST, LESS ACCUMULATED AMORTIZATION. AMORTIZATION OFPATENTS IS COMPUTED USING THE STRAIGHT-LINE METHOD OVER THE ESTIMATED ECONOMIC USEFUL LIVES OF THE ASSETS. LICENSES INCLUDE COSTS RELATED TO LICENSESPERTAINING TO THE USE OF TECHNOLOGY OR OPERATIONAL LICENSES. THESE LICENSES ARE RECORDED AT STATED COST, LESS ACCUMULATED AMORTIZATION. AMORTIZATION OF LICENSESIS COMPUTED USING THE STRAIGHT-LINE METHOD OVER THE ESTIMATED ECONOMIC USEFUL LIVES OF THE ASSETS. THE COMPANY PERIODICALLY REVIEWS THE CARRYING VALUES OFlicenses and evaluates the recorded basis for any impairment. Any impairment is recognized when the expected future operating cash flows to be derived fromTHE LICENSES ARE LESS THAN THEIR CARRYING VALUE. THE COMPANY PERIODICALLY REVIEWS THE CARRYING VALUES OF PATENTS AND ANY RELATED IMPAIRMENTS ARE RECOGNIZEDwhen the expected future operating cash flows to be derived from such assets are less than their carrying value. F-7 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Asset Retirement Obligation THE ESTIMATED FAIR VALUE OF THE FUTURE RETIREMENT COSTS OF THE COMPANY'S LEASED ASSETS AND THE COSTS FOR THE DECONTAMINATION AND RECLAMATION OF EQUIPMENTLOCATED WITHIN THE FOOTPRINT LEASED ASSET ARE RECORDED AS A LIABILITY ON A DISCOUNTED BASIS WHEN A CONTRACTUAL OBLIGATION EXISTS; AN EQUIVALENT AMOUNT ISCAPITALIZED TO FIXED ASSETS. THE INITIAL RECORDED OBLIGATION IS DISCOUNTED USING THE COMPANY'S CREDIT-ADJUSTED RISK-FREE RATE AND IS REVIEWED PERIODICALLY FORCHANGES IN THE ESTIMATED FUTURE COSTS UNDERLYING THE OBLIGATION. THE COMPANY AMORTIZES THE INITIAL AMOUNT CAPITALIZED TO PROPERTY AND EQUIPMENT ANDrecognizes accretion expense in connection with the discounted liability over the estimated remaining useful life of the leased assets. Financial Instruments AT JUNE 30, 2015 AND 2014, THE CARRYING VALUE OF FINANCIAL INSTRUMENTS SUCH AS CERTIFICATES OF DEPOSIT APPROXIMATED FAIR VALUE BASED ON THE SHORT-TERMMATURITIES OF THESE INSTRUMENTS. THE COMPANY DISCLOSES THE FAIR VALUE OF FINANCIAL INSTRUMENTS, BOTH ASSETS AND LIABILITIES, RECOGNIZED AND NOT RECOGNIZED INTHE BALANCE SHEET, FOR WHICH IT IS PRACTICABLE TO ESTIMATE THE FAIR VALUE. THE FAIR VALUE OF A FINANCIAL INSTRUMENT IS THE AMOUNT AT WHICH THE INSTRUMENT COULD BEexchanged in a current transaction between willing parties, other than a forced liquidation sale. Fair Value Measurement ASC TOPIC 820, Fair Value Measurements, ESTABLISHES A FAIR VALUE HIERARCHY FOR THOSE ASSETS AND LIABILITIES MEASURED AT FAIR VALUE WHICH DISTINGUISHESBETWEEN ASSUMPTIONS BASED ON MARKET DATA (OBSERVABLE INPUTS). THE HIERARCHY CONSISTS OF: LEVEL 1 – QUOTED MARKET PRICES IN ACTIVE MARKETS FOR IDENTICALINSTRUMENTS; LEVEL 2 – INPUTS OTHER THAN LEVEL 1 INPUTS THAT ARE OBSERVABLE; AND LEVEL 3 – UNOBSERVABLE INPUTS DEVELOPED USING ESTIMATES AND ASSUMPTIONSdetermined by the Company. AT JUNE 30, 2015 AND 2014, THERE WERE NO ASSETS OR LIABILITIES MEASURED AT FAIR-VALUE ON A RECURRING BASIS WHICH WERE MEASURED USING LEVEL 3 INPUTS. THECOMPANY HAD A SINGLE LIABILITY, THE DERIVATIVE WARRANT LIABILITY, THAT WAS MEASURED AT FAIR VALUE ON A RECURRING BASIS USING LEVEL 2 INPUTS DURING THE YEARSENDED JUNE 30, 2015 AND 2014. CERTAIN ASSETS AND LIABILITIES ARE MEASURED AT FAIR VALUE ON A NON-RECURRING BASIS; THAT IS, THE INSTRUMENTS ARE NOT MEASURED ATFAIR VALUE ON AN ONGOING BASIS, BUT ARE SUBJECT TO FAIR VALUE ADJUSTMENTS ONLY IN CERTAIN CIRCUMSTANCES (FOR EXAMPLE, WHEN THERE IS EVIDENCE OF IMPAIRMENT).The Company had no assets or liabilities measured at fair value on a nonrecurring basis during the years ended June 30, 2015 and 2014. THE FOLLOWING TABLE SETS FORTH THE COMPANY’S FINANCIAL ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS BY LEVEL WITHIN THE FAIR VALUEhierarchy. Assets and liabilities are classified in their entirety base on the lowest level of input that is significant to the fair value measurement. Fair value at June 30, 2015 Total Level 1 Level 2 Level 3 Cash and cash equivalents $5,226,740 $5,226,740 $- $- Warrant derivative liability 181,000 - 181,000 - F-8 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Fair value at June 30, 2014 Total Level 1 Level 2 Level 3 Cash and cash equivalents $7,680,073 $7,680,073 $- $- Warrant derivative liability 573,000 - 573,000 - THE COMPANY’S CASH AND CASH EQUIVALENT INSTRUMENTS ARE CLASSIFIED WITHIN LEVEL 1 OF THE FAIR VALUE HIERARCHY BECAUSE THEY ARE VALUED USING QUOTED MARKETprices. THE COMPANY’S WARRANT DERIVATIVE LIABILITY IS VALUED USING THE BLACK-SCHOLES OPTION PRICING MODEL WHICH REQUIRES A VARIETY OF INPUTS AS DESCRIBED IN NOTE11. Such instruments are typically included in Level 2. Warrant Derivative Liabilities FOR THE WARRANT DERIVATIVE LIABILITIES WHICH ARE MEASURED AT FAIR VALUE ON A RECURRING BASIS, THE COMPANY USES THE BLACK-SCHOLES VALUATION MODEL AS DESCRIBEDin Note 11. Revenue Recognition THE COMPANY RECOGNIZES REVENUE RELATED TO PRODUCT SALES WHEN (I) PERSUASIVE EVIDENCE OF AN ARRANGEMENT EXISTS, (II) SHIPMENT HAS OCCURRED, (III) THE FEE ISfixed or determinable, and (iv) collectability is reasonably assured. THE COMPANY RECOGNIZES REVENUE ONCE THE PRODUCT HAS BEEN SHIPPED TO THE CUSTOMER. PREPAYMENTS, IF ANY, RECEIVED FROM CUSTOMERS PRIOR TO THE TIME THATPRODUCTS ARE SHIPPED ARE RECORDED AS DEFERRED REVENUE. IN THESE CASES, WHEN THE RELATED PRODUCTS ARE SHIPPED, THE AMOUNT RECORDED AS DEFERRED REVENUE IS THENrecognized as revenue. The Company accrues for sales returns and other allowances at the time of shipment. Shipping and Handling Costs SHIPPING AND HANDLING COSTS INCLUDE CHARGES ASSOCIATED WITH DELIVERY OF GOODS FROM THE COMPANY'S FACILITIES TO ITS CUSTOMERS AND ARE REFLECTED IN COST OFproduct sales. Shipping and handling costs paid to the Company by its customers are classified as product sales. Share-Based Compensation THE COMPANY MEASURES AND RECOGNIZES EXPENSE FOR ALL SHARE-BASED PAYMENTS AT FAIR VALUE. THE COMPANY USES THE BLACK-SCHOLES OPTION VALUATION MODEL TOESTIMATE FAIR VALUE FOR ALL STOCK OPTIONS ON THE DATE OF GRANT. FOR STOCK OPTIONS THAT VEST OVER TIME, THE COMPANY RECOGNIZES COMPENSATION COST ON A STRAIGHT-line basis over the requisite service period for the entire award. F-9 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Research and Development Costs RESEARCH AND DEVELOPMENT COSTS, INCLUDING SALARIES, RESEARCH MATERIALS, ADMINISTRATIVE EXPENSES AND CONTRACTOR FEES, ARE CHARGED TO OPERATIONS AS INCURRED.THE COST OF EQUIPMENT USED IN RESEARCH AND DEVELOPMENT ACTIVITIES WHICH HAS ALTERNATIVE USES IS CAPITALIZED AS PART OF FIXED ASSETS AND NOT TREATED AS ANEXPENSE IN THE PERIOD ACQUIRED. DEPRECIATION OF CAPITALIZED EQUIPMENT USED TO PERFORM RESEARCH AND DEVELOPMENT IS CLASSIFIED AS RESEARCH AND DEVELOPMENTexpense in the year recognized. Advertising and Marketing Costs Advertising costs are expensed as incurred except for the cost of tradeshows and related marketing materials which are deferred until the tradeshow occurs. For the Year Ended June 30, 2015 2014 2013 Advertising and marketing costs expensed (includingtradeshows) $151,197 $114,313 $86,705 At June 30, 2015 2014 PREPAID MARKETING EXPENSES DEFERRED UNTIL EVENToccurs $9,600 $14,124 Legal Contingencies THE COMPANY RECORDS CONTINGENT LIABILITIES RESULTING FROM ASSERTED AND UNASSERTED CLAIMS AGAINST IT, WHEN IT IS PROBABLE THAT A LIABILITY HAS BEEN INCURRED ANDTHE AMOUNT OF THE LOSS IS REASONABLY ESTIMABLE. ESTIMATING PROBABLE LOSSES REQUIRES ANALYSIS OF MULTIPLE FACTORS, IN SOME CASES INCLUDING JUDGMENTS ABOUT THEPOTENTIAL ACTIONS OF THIRD-PARTY CLAIMANTS AND COURTS. THEREFORE, ACTUAL LOSSES IN ANY FUTURE PERIOD ARE INHERENTLY UNCERTAIN. CURRENTLY, THE COMPANY DOES NOTBELIEVE ANY PROBABLE LEGAL PROCEEDINGS OR CLAIMS WILL HAVE A MATERIAL ADVERSE EFFECT ON ITS FINANCIAL POSITION OR RESULTS OF OPERATIONS. HOWEVER, IF ACTUAL ORESTIMATED PROBABLE FUTURE LOSSES EXCEED THE COMPANY'S RECORDED LIABILITY FOR SUCH CLAIMS, IT WOULD RECORD ADDITIONAL CHARGES AS OTHER EXPENSE DURING THEperiod in which the actual loss or change in estimate occurred. Income Taxes INCOME TAXES ARE ACCOUNTED FOR UNDER THE LIABILITY METHOD. UNDER THIS METHOD, THE COMPANY PROVIDES DEFERRED INCOME TAXES FOR TEMPORARY DIFFERENCES THATWILL RESULT IN TAXABLE OR DEDUCTIBLE AMOUNTS IN FUTURE YEARS BASED ON THE REPORTING OF CERTAIN COSTS IN DIFFERENT PERIODS FOR FINANCIAL STATEMENT AND INCOME TAXPURPOSES. THIS METHOD ALSO REQUIRES THE RECOGNITION OF FUTURE TAX BENEFITS SUCH AS NET OPERATING LOSS CARRY-FORWARDS, TO THE EXTENT THAT REALIZATION OF SUCHBENEFITS IS MORE LIKELY THAN NOT. DEFERRED TAX ASSETS AND LIABILITIES ARE MEASURED USING ENACTED TAX RATES EXPECTED TO APPLY TO TAXABLE INCOME IN THE YEARS INWHICH THOSE TEMPORARY DIFFERENCES ARE EXPECTED TO BE RECOVERED OR SETTLED. THE EFFECT ON DEFERRED TAX ASSETS AND LIABILITIES OF A CHANGE IN TAX RATES ISrecognized in operations in the period that includes the enactment of the change. Management has determined that the Company and its subsidiaries MedicalAND INTERNATIONAL ARE SUBJECT TO EXAMINATION OF THEIR INCOME TAX FILINGS IN THE UNITED STATES AND STATE JURISDICTIONS FOR THE 2012 THROUGH 2015 TAX YEARS. IN THEEVENT THAT THE COMPANY IS ASSESSED PENALTIES AND OR INTEREST, PENALTIES WILL BE CHARGED TO OTHER OPERATING EXPENSE AND INTEREST WILL BE CHARGED TO INTERESTexpense in the period that they are assessed. F-10 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Income (Loss) Per Common Share BASIC EARNINGS PER SHARE IS CALCULATED BY DIVIDING NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS BY THE WEIGHTED AVERAGE NUMBER OF COMMON SHARESOUTSTANDING, AND DOES NOT INCLUDE THE IMPACT OF ANY POTENTIALLY DILUTIVE COMMON STOCK EQUIVALENTS, INCLUDING PREFERRED STOCK, COMMON STOCK WARRANTS ORoptions that are potentially convertible into common stock, as those would be antidilutive due to the Company's net loss position. Securities that could be dilutive in the future are as follows: June 30, 2015 2014 2013 Preferred stock 59,065 59,065 59,065 Common stock warrants 385,800 444,747 1,957,033 Common stock options 2,418,282 2,314,422 2,305,072 Total potential dilutive securities 2,863,147 2,818,234 4,321,170 Use of Estimates THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA REQUIRESMANAGEMENT OF THE COMPANY TO MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE AMOUNTS REPORTED IN THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYINGNOTES OF THE COMPANY INCLUDING THE ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE; NET REALIZABLE VALUE OF THE ENRICHED BARIUM INVENTORY; THE ESTIMATED USEFULLIVES USED IN CALCULATING DEPRECIATION AND AMORTIZATION ON THE COMPANY'S FIXED ASSETS, PATENTS, TRADEMARKS AND OTHER ASSETS; ESTIMATED AMOUNT AND FAIR VALUEOF THE ASSET RETIREMENT OBLIGATION RELATED TO THE COMPANY'S PRODUCTION FACILITIES; INPUTS USED IN THE CALCULATION OF EXPENSE RELATED TO SHARE-BASEDCOMPENSATION INCLUDING VOLATILITY, ESTIMATED LIVES AND FORFEITURE RATES OF OPTIONS GRANTED; AND THE INPUTS TO THE BLACK-SCHOLES CALCULATION TO ESTIMATE THE FAIRVALUE OF THE DERIVATIVE WARRANT LIABILITY AND THE RELATED GAIN OR LOSS. ACCORDINGLY, ACTUAL RESULTS COULD DIFFER FROM THOSE ESTIMATES AND AFFECT THE AMOUNTSreported in the financial statements. Recent Accounting Pronouncements IN MAY 2014, THE FINANCIAL ACCOUNTING STANDARDS BOARD (FASB) ISSUED ACCOUNTING STANDARDS UPDATE (ASU) 2014-09, "REVENUE FROM CONTRACTS WITHCustomers" (ASU 2014-09), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification (ASC) Topic 605, "RevenueRECOGNITION". THE GUIDANCE REQUIRES THAT AN ENTITY RECOGNIZE REVENUE IN A WAY THAT DEPICTS THE TRANSFER OF PROMISED GOODS OR SERVICES TO CUSTOMERS IN THEAMOUNT THAT REFLECTS THE CONSIDERATION TO WHICH THE ENTITY EXPECTS TO BE ENTITLED TO IN EXCHANGE FOR THOSE GOODS AND SERVICES. THE GUIDANCE WILL BE EFFECTIVEFOR ANNUAL REPORTING PERIODS BEGINNING AFTER DECEMBER 15, 2017, INCLUDING INTERIM PERIODS WITHIN THAT REPORTING PERIOD AND IS TO BE APPLIED RETROSPECTIVELY,WITH EARLY APPLICATION NOT PERMITTED. THE COMPANY IS CURRENTLY EVALUATING THE NEW STANDARD AND ITS IMPACT ON THE COMPANY'S CONSOLIDATED FINANCIALstatements. 3. Certificates of deposit As of June 30, 2015 Under 90 91 days to Six months to Greater Days six months 1 year than 1 year CDARS $3,523,167 $500,064 $5,339,343 $5,106,775 As of June 30, 2014 Under 90 91 days to Six months to Greater Days six months 1 year than 1 year CDARS $- $5,000,902 $5,002,010 $5,401,398 F-11 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICE (CDARS) IS A SYSTEM THAT ALLOWS THE COMPANY TO INVEST IN CERTIFICATES OF DEPOSIT THROUGH A SINGLE FINANCIALINSTITUTION THAT EXCEED THE $250,000 LIMIT TO BE FULLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC). THAT INSTITUTION UTILIZES THE CDARSSYSTEM TO PURCHASE CERTIFICATES OF DEPOSIT AT OTHER FINANCIAL INSTITUTIONS WHILE KEEPING THE INVESTMENT AT EACH INSTITUTION FULLY INSURED BY THE FEDERAL DEPOSITInsurance Corporation (FDIC). 4.Inventory Inventory consisted of the following: June 30, 2015 2014 Raw materials $143,669 $173,417 Work in process 204,760 151,321 Finished goods 55,526 34,999 Total inventory $403,955 $359,737 June 30, 2015 2014 Enriched barium, non-current $469,758 $469,758 Raw materials, non-current 100,096 - Total inventory, non-current $569,854 $469,758 INVENTORY, NON-CURRENT IS RAW MATERIALS THAT WERE ORDERED IN QUANTITIES TO OBTAIN VOLUME COST DISCOUNTS WHICH BASED ON CURRENT AND ANTICIPATED SALES VOLUMESWILL NOT BE CONSUMED WITHIN AN OPERATING CYCLE AND THE ENRICHED BARIUM WHICH IS CLASSIFIED AS NON-CURRENT IS ONLY EXPECTED TO BE UTILIZED IF REQUIRED TOOBTAIN VOLUMES OF ISOTOPE THAT IS NOT ABLE TO BE PURCHASED FROM AN EXISTING SOURCE IN THE SHORT OR LONG-TERM. MANAGEMENT DOES NOT ANTICIPATE THE NEED TOutilize the enriched barium within the current operating cycle. 5.Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consisted of the following: June 30, 2015 2014 Prepaid insurance $30,578 $24,763 Prepaid rent - 22,701 Other prepaid expenses 206,326 131,890 Other current assets 26,693 26,693 $263,597 $206,047 6.Fixed Assets, net June 30, 2015 2014 Production equipment $3,180,933 $3,120,782 Office equipment 224,576 167,706 Furniture and fixtures 148,265 148,265 Leasehold improvements 4,129,977 4,129,977 Capitalized assets, not in service1 5,925 - 7,689,676 7,566,730 Less accumulated depreciation (7,114,836) (6,548,815) Fixed assets, net $574,840 $1,017,915 F-12 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 1 – CAPITALIZED ASSETS, NOT PLACED IN SERVICE ARE ITEMS THAT MEET THE CAPITALIZATION THRESHOLD OR WHICH MANAGEMENT BELIEVES WILL MEET THE THRESHOLD AT THE TIMEof completion and which have yet to be placed into service as of the date of the balance sheet. Year Ended June 30, 2015 2014 2013 Depreciation expense $576,380 $685,396 $739,147 DURING THE FISCAL YEAR ENDED JUNE 30, 2015, THE COMPANY DISPOSED OF CERTAIN PRODUCTION EQUIPMENT THAT WERE FULLY DEPRECIATED IN THE AMOUNT OF $10,359WHICH WERE BEYOND THEIR USEFUL LIVES. DURING THE FISCAL YEAR ENDED JUNE 30, 2014, THE COMPANY DISPOSED OF CERTAIN INFORMATION TECHNOLOGY ASSETS THAT WEREFULLY DEPRECIATED IN THE AMOUNT OF $59,723 THAT WERE BEYOND THEIR DEPRECIABLE LIVES. NO GAIN OR LOSS WAS RECOGNIZED ON THESE ASSETS AS THEY WERE FULLYdepreciated and had no salvage value. In the year ended June 30, 2013, no disposal of assets occurred. 7.Restricted Cash THE WASHINGTON DEPARTMENT OF HEALTH REQUIRES THE COMPANY TO PROVIDE COLLATERAL FOR THE DECOMMISSIONING OF ITS FACILITY. TO SATISFY THIS REQUIREMENT, THECOMPANY FUNDED TWO CERTIFICATES OF DEPOSITS (CDS) TOTALING $172,500 IN SEPARATE BANKS. THE CDS BOTH HAVE ORIGINAL MATURITIES OF THREE MONTHS BUT ARETERMED RESTRICTED CASH AND CLASSIFIED AS A LONG-TERM ASSET AS THE COMPANY DOES NOT ANTICIPATE DECOMMISSIONING THE FACILITY UNTIL THE END OF THE CURRENT LEASEPLUS THE ONE REMAINING THREE-YEAR LEASE OPTION PERIOD. THE END DATE OF THE CURRENT LEASE INCLUDING THE ONE REMAINING THREE-YEAR RENEWAL OPTION IS APRIL 2019.INTEREST EARNED ON THE CDS IS ROLLED-OVER AT THE MATURITY OF EACH CD AND BECOMES PART OF THE RESTRICTED CASH BALANCE. THESE FUNDS WILL BE USED TO SETTLE Aportion of the Company's remaining asset retirement obligations (See Note 9). 8.Other Assets, net Other assets, net of accumulated amortization consisted of the following: June 30, 2015 2014 Deferred charges $46,541 $40,320 Patents and trademarks, net of accumulated amortization of$134,559 and $109,292 198,490 223,756 $245,031 $264,076 Year Ended June 30, 2015 2014 2013 Amortization expense on patents and trademarks $25,226 $18,468 $19,581 F-13 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Future amortization is expected to be as follows: FY2016 $17,160 FY2017 17,133 FY2018 17,005 FY2019 15,919 FY2020 15,390 Thereafter 115,883 $198,490 9.Asset Retirement Obligation The asset retirement obligations changed as follows: Year Ended June 30, 2015 2014 Beginning balance $866,560 $792,242 Accretion of discount 81,289 74,318 Ending balance $947,849 $866,560 10.Share-Based Compensation THE COMPANY CURRENTLY PROVIDES SHARE-BASED COMPENSATION UNDER FOUR EQUITY INCENTIVE PLANS APPROVED BY THE BOARD OF DIRECTORS: THE AMENDED ANDRESTATED 2005 STOCK OPTION PLAN (THE OPTION PLAN), THE AMENDED AND RESTATED 2005 EMPLOYEE STOCK OPTION PLAN (THE 2005 EMPLOYEE PLAN), THE AMENDEDAND RESTATED 2006 DIRECTOR STOCK OPTION PLAN (THE DIRECTOR PLAN) AND 2014 EMPLOYEE STOCK OPTION PLAN (THE 2014 EMPLOYEE PLAN). THE OPTION PLANALLOWED THE BOARD OF DIRECTORS TO GRANT OPTIONS TO PURCHASE UP TO 1,800,000 SHARES OF COMMON STOCK TO DIRECTORS, OFFICERS, KEY EMPLOYEES AND SERVICEPROVIDERS OF THE COMPANY UNTIL IT EXPIRED IN MAY 2015. THE 2005 EMPLOYEE PLAN AND 2014 EMPLOYEE PLAN EACH ALLOW THE BOARD OF DIRECTORS TO GRANTOPTIONS TO PURCHASE UP TO 2,000,000 SHARES OF COMMON STOCK TO OFFICERS AND KEY EMPLOYEES OF THE COMPANY. THE 2005 EMPLOYEE PLAN EXPIRED IN MAY 2015.THE DIRECTOR PLAN ALLOWS THE BOARD OF DIRECTORS TO GRANT OPTIONS TO PURCHASE UP TO 1,000,000 SHARES OF COMMON STOCK TO DIRECTORS OF THE COMPANY. OPTIONSGRANTED UNDER ALL OF THE PLANS HAVE A TEN YEAR MAXIMUM TERM, AN EXERCISE PRICE EQUAL TO AT LEAST THE FAIR MARKET VALUE OF THE COMPANY'S COMMON STOCK ON THEDATE OF THE GRANT, AND VARYING VESTING PERIODS AS DETERMINED BY THE BOARD. FOR STOCK OPTIONS WITH GRADED VESTING TERMS, THE COMPANY RECOGNIZEScompensation cost on a straight-line basis over the requisite service period for the entire award. THE BLACK-SCHOLES OPTION VALUATION MODEL WAS DEVELOPED FOR USE IN ESTIMATING THE FAIR VALUE OF TRADED OPTIONS WHICH HAVE NO VESTING RESTRICTIONS AND AREFULLY TRANSFERABLE. IN ADDITION, OPTION VALUATION MODELS REQUIRE THE INPUT OF HIGHLY SUBJECTIVE ASSUMPTIONS, INCLUDING THE EXPECTED STOCK PRICE VOLATILITY. THECOMPANY USES THE BLACK-SCHOLES OPTION VALUATION MODEL BECAUSE MANAGEMENT BELIEVES THE MODEL IS APPROPRIATE FOR THE COMPANY. HOWEVER, MANAGEMENTUNDERSTANDS THAT BECAUSE CHANGES IN THE SUBJECTIVE INPUT ASSUMPTIONS CAN MATERIALLY AFFECT THE FAIR VALUE ESTIMATE, THIS VALUATION MODEL DOES NOT NECESSARILYPROVIDE A RELIABLE SINGLE MEASURE OF THE FAIR VALUE OF ITS STOCK OPTIONS. THE RISK-FREE INTEREST RATE IS BASED ON THE U.S. TREASURY SECURITY RATE WITH AN EQUIVALENTterm in effect as of the date of grant. The expected option lives, volatility, and forfeiture assumptions are based on historical data of the Company. The weighted average fair value of stock option awards granted and the key assumptions used in the Black-Scholes valuation model to calculate the fairvalue are as follows: F-14 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended June 30, 2015 2014 2013 Weighted average fair value of options granted $1.11 $1.28 $0.80 Key assumptions used in determining fair value Weighted average risk-free interest rate 1.56% 1.66% 0.71%Weighted average life of the option (in years) 4.63 4.79 4.77 Weighted average historical stock price volatility 106.75% 120.89% 132.47%Expected dividend yield 0.00% 0.00% 0.00% The following table presents the share-based compensation expense: For the Year Ended June 30, 2015 2014 2013 Cost of product sales $44,798 $17,818 $38,729 Research and development expense 17,107 13,486 30,350 Sales and marketing expense 11,608 3,588 6,943 General and administrative expense 131,751 151,095 32,329 Total share-based compensation $205,264 $185,987 $108,351 THE TOTAL VALUE OF THE STOCK OPTIONS AWARDS IS EXPENSED RATABLY OVER THE VESTING PERIOD OF THE EMPLOYEES RECEIVING THE AWARDS. AS OF JUNE 30, 2015, TOTALUNRECOGNIZED COMPENSATION COST RELATED TO STOCK-BASED OPTIONS AND AWARDS WAS $408,424 AND THE WEIGHTED-AVERAGE PERIOD OVER WHICH IT IS EXPECTED TO BErecognized is approximately 1.35 years. A summary of stock option information within the Company's share-based compensation plans during the fiscal years is presented below: Options Outstanding Price (a) Life (b) Value (c) Balance at June 30, 2012 2,381,306 $1.82 5.64 $473,951 Expired/Forfeited (37,534) 2.58 Exercised (38,700) 0.34 Balance at June 30, 2013 2,305,072 $1.83 4.93 $115,302 Granted (d) 430,000 1.81 Expired/Forfeited (19,667) 0.61 Exercised (350,983) 0.76 Balance at June 30, 2014 2,314,422 $2.00 4.69 $3,186,916 Granted (d) 395,000 1.41 Expired/Forfeited (84,236) 4.15 Exercised (206,904) 1.03 Balance at June 30, 2015 2,418,282 $1.91 4.71 $691,789 Vested and expected to vest at June 30, 2015 2,318,741 $1.93 4.58 $666,081 Exercisable at June 30, 2015 2,015,926 $1.94 3.73 $680,238 (a)Weighted average exercise price per share.(b)Weighted average remaining contractual life.(c)Aggregate intrinsic value. F-15 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (d)ALL OPTIONS GRANTED HAD EXERCISE PRICES EQUAL TO OR GREATER THAN THE ENDING CLOSING MARKET PRICE OF THE COMPANY'S COMMON STOCK ON THE GRANT DATE. THEoptions were granted to employees and management by the Board of Directors and had vesting periods from immediate to three years. For the Year Ended June 30, 2015 2014 2013 Aggregate intrinsic value of options exercised $306,620 $548,928 $16,246 The Company's current policy is to issue new shares to satisfy option exercises. 11.Shareholders’ Equity The authorized capital structure of the Company consists of $.001 par value preferred stock and $.001 par value common stock. Preferred Stock THE COMPANY'S ARTICLES OF INCORPORATION AUTHORIZE 7,001,671 SHARES OF $0.001 PAR VALUE PREFERRED STOCK AVAILABLE FOR ISSUANCE WITH SUCH RIGHTS ANDpreferences, including liquidation, dividend, conversion, and voting rights, as described below. Series A SERIES A PREFERRED SHARES ARE ENTITLED TO A 10% DIVIDEND ANNUALLY ON THE STATED PAR VALUE PER SHARE. THESE SHARES ARE CONVERTIBLE INTO SHARES OF COMMON STOCKAT THE RATE OF ONE SHARE OF COMMON STOCK FOR EACH SHARE OF SERIES A PREFERRED STOCK, AND ARE SUBJECT TO AUTOMATIC CONVERSION INTO COMMON STOCK UPON THECLOSING OF AN UNDERWRITTEN PUBLIC OFFERING PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 COVERING THE OFFER AND SALE OFCOMMON STOCK IN WHICH THE GROSS PROCEEDS TO THE COMPANY ARE AT LEAST $4 MILLION. SERIES A PREFERRED SHAREHOLDERS HAVE VOTING RIGHTS EQUAL TO THE VOTINGRIGHTS OF COMMON STOCK, EXCEPT THAT THE VOTE OR WRITTEN CONSENT OF A MAJORITY OF THE OUTSTANDING PREFERRED SHARES IS REQUIRED FOR ANY CHANGES TO THE COMPANY'SARTICLES OF INCORPORATION, BYLAWS OR CERTIFICATE OF DESIGNATION, OR FOR ANY BANKRUPTCY, INSOLVENCY, DISSOLUTION OR LIQUIDATION OF THE COMPANY. UPONLIQUIDATION OF THE COMPANY, THE COMPANY'S ASSETS ARE FIRST DISTRIBUTED RATABLY TO THE SERIES A PREFERRED SHAREHOLDERS, SECOND, TO THE SERIES B PREFERREDSHAREHOLDERS, THIRD, TO THE SERIES C PREFERRED SHAREHOLDERS, AND FOURTH, TO THE SERIES D CONVERTIBLE PREFERRED SHAREHOLDERS ON AN “AS CONVERTED” BASIS ON PARITYwith the holders of the Common Stock. At June 30, 2015 and 2014, there were no shares of Series A preferred stock outstanding. Series B SERIES B PREFERRED SHARES ARE ENTITLED TO A CUMULATIVE 15% DIVIDEND ANNUALLY ON THE STATED PAR VALUE PER SHARE. THESE SHARES ARE CONVERTIBLE INTO SHARES OFCOMMON STOCK AT THE RATE OF ONE SHARE OF COMMON STOCK FOR EACH SHARE OF SERIES B PREFERRED STOCK, AND ARE SUBJECT TO AUTOMATIC CONVERSION INTO COMMON STOCKupon the closing of an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933 covering the offer and saleOF COMMON STOCK IN WHICH THE GROSS PROCEEDS TO THE COMPANY ARE AT LEAST $4 MILLION. SERIES B PREFERRED SHAREHOLDERS HAVE VOTING RIGHTS EQUAL TO THE VOTINGRIGHTS OF COMMON STOCK, EXCEPT THAT THE VOTE OR WRITTEN CONSENT OF A MAJORITY OF THE OUTSTANDING PREFERRED SHARES IS REQUIRED FOR ANY CHANGES TO THE COMPANY'SARTICLES OF INCORPORATION, BYLAWS OR CERTIFICATE OF DESIGNATION, OR FOR ANY BANKRUPTCY, INSOLVENCY, DISSOLUTION OR LIQUIDATION OF THE COMPANY. UPONLIQUIDATION OF THE COMPANY, THE COMPANY'S ASSETS ARE FIRST DISTRIBUTED RATABLY TO THE SERIES A PREFERRED SHAREHOLDERS, SECOND, TO THE SERIES B PREFERREDSHAREHOLDERS, THIRD, TO THE SERIES C PREFERRED SHAREHOLDERS, AND FOURTH, TO THE SERIES D CONVERTIBLE PREFERRED SHAREHOLDERS ON AN “AS CONVERTED” BASIS ON PARITYwith the holders of the Common Stock. F-16 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ON DECEMBER 17, 2014, THE BOARD OF DIRECTORS DECLARED A DIVIDEND ON THE SERIES B PREFERRED STOCK OF ALL OUTSTANDING AND CUMULATIVE DIVIDENDS THROUGHDECEMBER 31, 2014. THE TOTAL DIVIDENDS OF $10,632 WERE PAID AS OF DECEMBER 31, 2014. AT JUNE 30, 2015, THERE WERE 59,065 SERIES B PREFERRED SHARESOUTSTANDING AND CUMULATIVE DIVIDENDS IN ARREARS WERE $5,316 AND UPON ANY LIQUIDATION, DISSOLUTION, OR WINDING UP OF THE COMPANY, WHETHER VOLUNTARY ORINVOLUNTARY, THE ASSETS OF THE COMPANY LEGALLY AVAILABLE FOR DISTRIBUTION, IF ANY, SHALL BE DISTRIBUTED RATABLY FIRST, TO THE HOLDERS OF THE SERIES A PREFERREDSTOCK, SECOND, TO THE HOLDERS OF THE SERIES B PREFERRED STOCK, THIRD, TO THE SERIES C PREFERRED SHAREHOLDERS, AND FOURTH, TO THE SERIES D PREFERRED SHAREHOLDERS ONan “as converted” basis on parity with the holders of the Common Stock. Series C Series C preferred shares are entitled to a quarterly dividend equal, per share, equal to the greater of $1.00 or 100 times the dividends declared on the commonSTOCK IN SUCH QUARTER. EACH SHARE OF SERIES C PREFERRED STOCK HAS VOTING RIGHTS EQUAL TO THE VOTING RIGHTS OF 100 SHARES OF COMMON STOCK. THE SERIES C PREFERREDSTOCK WAS CREATED UPON ADOPTION OF THE COMPANY'S SHARE RIGHTS PLAN IN 2007. UPON LIQUIDATION OF THE COMPANY, THE COMPANY'S ASSETS ARE FIRST, DISTRIBUTED TOthe holders of the Series A Preferred Stock, second, to the holders of the Series B Preferred Stock and third, to the Series C preferred shareholders and fourth, toTHE SERIES D PREFERRED SHAREHOLDERS ON AN “AS CONVERTED” BASIS ON PARITY WITH THE HOLDERS OF THE COMMON STOCK. AT JUNE 30, 2015 AND 2014, THERE WERE NOshares of Series C preferred stock outstanding. Series D ESTABLISHED IN AUGUST 2013, SERIES D PREFERRED SHARES ARE ENTITLED TO DIVIDENDS IN THE SAME FORM AS DIVIDENDS ACTUALLY PAID ON SHARES OF COMMON STOCK.ADDITIONALLY, THE COMPANY SHALL NOT PAY ANY DIVIDENDS ON SHARES OF COMMON STOCK (OTHER THAN DIVIDENDS IN THE FORM OF COMMON STOCK) UNLESS THE HOLDERS OFSERIES D CONVERTIBLE PREFERRED STOCK SHALL FIRST RECEIVE DIVIDENDS ON SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK HELD BY THEM (ON AN AS-IF-CONVERTED-TO-COMMON-STOCK-BASIS) IN AN AMOUNT EQUAL TO AND IN THE SAME FORM AS ANY SUCH DIVIDENDS (OTHER THAN DIVIDENDS IN THE FORM OF COMMON STOCK) TO BE PAID ONSHARES OF COMMON STOCK. EXCEPT AS REQUIRED BY LAW, SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK SHALL NOT HAVE THE RIGHT TO VOTE ON ANY MATTER OTHER THANTHOSE SET FORTH IN THE CERTIFICATE OF DESIGNATION WITH THE POTENTIAL TO SPECIFICALLY ADVERSELY AFFECT THE SERIES D CONVERTIBLE PREFERRED STOCK. SERIES DCONVERTIBLE PREFERRED SHARES ARE CONVERTIBLE INTO SHARES OF COMMON STOCK AT THE RATE OF 1,869.15 SHARES OF COMMON STOCK FOR EACH SHARE OF SERIES DCONVERTIBLE PREFERRED STOCK AT ANY TIME AT THE OPTION OF THE HOLDER, PROVIDED THAT THE HOLDER WILL BE PROHIBITED FROM CONVERTING SHARES OF SERIES D CONVERTIBLEPREFERRED STOCK INTO SHARES OF OUR COMMON STOCK IF, AS A RESULT OF THE CONVERSION, THE HOLDER, TOGETHER WITH ITS AFFILIATES, WOULD BENEFICIALLY OWN MORE THAN9.99% OF THE TOTAL NUMBER OF SHARES OF OUR COMMON STOCK THEN ISSUED AND OUTSTANDING, WHICH IS REFERRED TO HEREIN AS THE “BENEFICIAL OWNERSHIP LIMITATION”.AT JUNE 30, 2015 AND 2014, RESPECTIVELY, THERE WERE NO SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK OUTSTANDING. IN ADDITION TO THE PREVIOUSLY OUTSTANDINGSHARES OF COMMON STOCK AND SERIES B PREFERRED STOCK, THE COMPANY HAD THE FOLLOWING TRANSACTIONS THAT AFFECTED SHAREHOLDERS' EQUITY DURING THE YEARS ENDEDJune 30, 2015 and 2014. Common and Preferred Stock Transactions Series D Preferred ON AUGUST 29, 2013, THE COMPANY ENTERED INTO AN AGREEMENT TO SELL 3,800,985 COMMON UNITS, EACH CONSISTING OF 1 SHARE OF COMMON STOCK AND A WARRANT TOpurchase 0.816 shares of common stock (the Common Units), and 1,670 preferred units, each consisting of 1 share of Series D Convertible Preferred Stock andA WARRANT TO PURCHASE 1,525.23 SHARES OF COMMON STOCK (THE PREFERRED UNITS) ON A FIRM COMMITMENT UNDERWRITTEN BASIS. THE COMMON UNITS WERE SOLD AT ANINITIAL PER UNIT PURCHASE PRICE OF $0.535 AND THE PREFERRED UNITS WERE SOLD AT AN INITIAL PER UNIT PURCHASE PRICE OF $1,000. THE WARRANTS WERE ALL EXERCISABLE AT$0.72 PER SHARE AND HAD A TWENTY-FOUR MONTH TERM. EACH SHARE OF THE SERIES D CONVERTIBLE PREFERRED STOCK WAS CONVERTIBLE INTO 1,869.15 SHARES OF COMMONSTOCK AT ANY TIME AT THE OPTION OF THE HOLDER, SUBJECT TO ADJUSTMENT AND CERTAIN OWNERSHIP PERCENTAGE RESTRICTIONS. THE PREFERRED SHARES WHICH WERE CONVERTIBLEINTO SHARES OF COMMON STOCK CONTAINED A BENEFICIAL CONVERSION FEATURE OF $726,378 WHICH WAS RECOGNIZED AS A DEEMED DIVIDEND TO THE SERIES D PREFERREDSHAREHOLDERS ON THE DATE OF ISSUANCE. THIS PUBLIC OFFERING RESULTED IN GROSS PROCEEDS OF $3.7 MILLION. THE OFFERING YIELDED APPROXIMATELY $3,279,292 IN CASHafter expenses. F-17 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. DURING JANUARY 2014, THE HOLDER OF THE 1,670 SHARES OF SERIES D CONVERTIBLE PREFERRED STOCK FULLY EXERCISED ITS RIGHT TO CONVERT THE 1,670 SHARES OF SERIES DCONVERTIBLE PREFERRED STOCK INTO 3,121,480 SHARES OF COMMON STOCK WHICH AT THE TIME OF CONVERSION RESULTED IN AN INCREASE IN SHARES OF COMMON STOCKoutstanding from 38,419,502 to 41,540,982. Subsequent to the conversion, no shares of Series D convertible preferred stock remain outstanding. Common Stock ON MARCH 21, 2014, THE COMPANY ENTERED INTO A SECURITIES PURCHASE AGREEMENT WITH CERTAIN INVESTORS PROVIDING FOR THE SALE OF A TOTAL OF 5,644,300 SHARES OFCOMMON STOCK FOR AN AGGREGATE PURCHASE PRICE OF $14,675,180 AT A PRICE PER SHARE OF $2.60. THE COMPANY RECEIVED NET PROCEEDS FROM THE OFFERING OFapproximately $13,814,742 which will be used to meet the Company’s working capital needs and general corporate purposes. F-18 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Warrant derivative liability BASED ON THE GUIDANCE CONTAINED IN ASC 815 “DERIVATIVES AND HEDGING”, MANAGEMENT HAS CONCLUDED THAT THE WARRANTS ISSUED IN THE 2011 OFFERING SHOULD BEclassified as a derivative liability and has recorded a liability at fair value. Change in fair value of the warrant derivative liability is as follows. For the Year Ended June 30, 2015 2014 2013 Change in fair value of the warrant derivative liability $374,605 $(1,382,134) $210,000 A summary of the change in fair value of derivative warrant liability is as follows for the fiscal years presented. Quantity1 Amount Balance at June 30, 2012 713,601 $314,000 Change in fair value (210,000)Balance at June 30, 2013 713,601 $104,000 Change in fair value 1,382,000 Warrants corrected 10,869 - Warrants redeemed in cashless exercise (22,072) - Warrants exercised (463,702) (913,000)Balance at June 30, 2014 238,696 $573,000 Change in fair value (374,605)Warrants exercised (13,209) (17,395)Balance at June 30, 2015 225,087 $181,000 1 Quantity of derivative warrants issued and/or outstanding as of the date of valuation. Warrants THE FOLLOWING TABLE SUMMARIZES THE ACTIVITY OF ALL STOCK AND WEIGHTED AVERAGE EXERCISE PRICES FOR EACH CATEGORY. NO WARRANTS EXPIRED DURING ANY OF THEperiods. Warrants Price (a) Balance at June 30, 2012 1,959,799 $1.38 Warrants exercised (2,766) 0.66 Balance at June 30, 2013 1,957,033 $1.38 Corrections 26,939 1.31 Warrants redeemed in cashless exercise (22,520) 0.96 Warrants exercised (7,165,443) 0.86 Warrants granted 5,648,738 0.72 Balance at June 30, 2014 444,747 $1.43 Warrants exercised (58,947) 1.38 Balance at June 30, 2015 385,800 $1.22 (a) Weighted average exercise price per share. F-19 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The following table summarizes additional information about the Company’s common warrants outstanding as of June 30, 2015: Number of Range of ExpirationWarrants Exercise Prices1 Date 25,000 $2.00 July 2015 130,713 1.56 November 2015 199,437 0.94 October 2016 25,650 0.94 December 2016 5,000 0.98 June 2017 385,800 1 – Exercise prices have been rounded to the nearest whole cent. 12. Income Taxes Due to net losses, the Company did not record an income tax provision or benefit for the years ending June 30, 2015, 2014 and 2013. The significant deferred tax components using a 35% federal income tax rate for the years ended June 30, 2015 and 2014 are as follows: As of June 30, 2015 2014 Fixed assets $649,350 $473,859 Share-based compensation 443,200 371,358 Reserves 10,500 13,512 Other accruals 85,784 67,446 Asset retirement obligation 331,747 303,296 Net operating loss carryforwards 17,405,312 16,305,768 Total deferred tax assets 18,925,893 17,535,239 Valuation allowance (18,925,893) (17,535,239)Total $- $- AS MANAGEMENT OF THE COMPANY CANNOT DETERMINE THAT IT IS MORE LIKELY THAN NOT THAT THE COMPANY WILL REALIZE THE BENEFIT OF THE NET DEFERRED TAX ASSET, Avaluation allowance equal to 100% of the net deferred tax asset has been recorded at both June 30, 2015 and 2014. THE COMPANY HAS FEDERAL NET OPERATING LOSS CARRYFORWARDS OF APPROXIMATELY $49.7 MILLION AT JUNE 30, 2015 THAT CAN BE USED TO OFFSET FUTURE REGULAR TAXABLEincome. These net operating loss carryforwards expire at various times through the years 2026 to 2034. F-20 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The Company's statutory rate reconciliation is as follows: For the year ended June 30, 2015 2014 2013 Expected income tax benefit base on statutory rate of 35% $(1,288,368) $(2,085,693) $(1,349,809)Meals and entertainment 10,129 10,130 17,966 Non-deductible penalties 18,697 9,122 849 Warrant derivative liability (131,112) 483,747 (73,500)Valuation allowance 1,390,654 1,582,694 1,257,494 Income tax expense (benefit) $- $- $- The Company has reviewed the tax positions taken and concluded that it does not have to book a liability for uncertain tax positions. MANAGEMENT HAS DETERMINED THAT THE COMPANY AND ITS SUBSIDIARIES MEDICAL AND INTERNATIONAL ARE SUBJECT TO EXAMINATION OF THEIR INCOME TAX FILINGS IN THEUNITED STATES AND STATE JURISDICTIONS FOR THE 2012 THROUGH 2015 TAX YEARS. IN THE EVENT THAT THE COMPANY IS ASSESSED PENALTIES AND/OR INTEREST, PENALTIES WILL BEcharged to other operating expense and interest will be charged to interest expense. 13. 401(k) and Profit Sharing Plan THE COMPANY HAS A 401(K) PLAN, WHICH COMMENCED IN FISCAL YEAR 2007, COVERING ALL ELIGIBLE FULL-TIME EMPLOYEES OF THE COMPANY. CONTRIBUTIONS TO THE401(K) PLAN ARE MADE BY THE PARTICIPANTS TO THEIR INDIVIDUAL ACCOUNTS THROUGH PAYROLL WITHHOLDING. THE 401(K) PLAN ALSO ALLOWS THE COMPANY TO MAKEcontributions at the discretion of management. To date, the Company has not made any contributions to the 401(k) plan. 14. Foreign Isotope Supply IN JANUARY 2015, THE COMPANY COMPLETED NEGOTIATIONS ON A CONTRACT TO PURCHASE CS-131 FROM THE OPEN JOINT STOCK COMPANY ‹‹INSTITUTE OF NUCLEARMATERIALS››, LOCATED IN RUSSIA. UNDER THE CONTRACT, THE COMPANY WILL PURCHASE CS-131 FROM THE OPEN JOINT STOCK COMPANY ‹‹INSTITUTE OF NUCLEAR MATERIALS››.The contract provides for the supply of Cs-131 from a single reactor at the Institute of Nuclear Materials. The agreement expires on January 31, 2016. 15. Distribution Agreements IN JUNE 2014, THE COMPANY ENTERED INTO AN EXCLUSIVE DISTRIBUTION AGREEMENT THROUGH THE WHOLLY-OWNED SUBSIDIARY ISORAY INTERNATIONAL, LLC WITHMEDIKORPHARMA-URAL LLC FOR THE RIGHTS TO DISTRIBUTE ALL OF THE COMPANY’S PRODUCTS IN RUSSIA. THE AGREEMENT TERMINATES ON DECEMBER 31, 2015 UNLESSTERMINATED EARLIER AS PROVIDED IN THE AGREEMENT. THE AGREEMENT IS RENEWABLE FROM YEAR TO YEAR BEYOND THE INITIAL TERM UPON MUTUAL WRITTEN CONSENT OF THEparties. The distributor is responsible for obtaining regulatory clearance in Russia. 16. Commitments and Contingencies Royalty Agreement for Invention and Patent Application A SHAREHOLDER OF THE COMPANY PREVIOUSLY ASSIGNED HIS RIGHTS, TITLE AND INTEREST IN AN INVENTION TO ISORAY PRODUCTS LLC (A PREDECESSOR COMPANY) IN EXCHANGEFOR A ROYALTY EQUAL TO 1% OF THE GROSS PROFIT, AS DEFINED, FROM THE SALE OF "SEEDS" INCORPORATING THE TECHNOLOGY. THE PATENT AND ASSOCIATED ROYALTY OBLIGATIONSwere transferred to the Company in connection with the merger transaction. F-21 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. THE COMPANY MUST ALSO PAY A ROYALTY OF 2% OF GROSS SALES, AS DEFINED, FOR ANY SUB-ASSIGNMENTS OF THE AFORESAID PATENTED PROCESS TO ANY THIRD PARTIES. THEROYALTY AGREEMENT WILL REMAIN IN FORCE UNTIL THE EXPIRATION OF THE PATENTS ON THE ASSIGNED TECHNOLOGY, UNLESS EARLIER TERMINATED IN ACCORDANCE WITH THE TERMSof the underlying agreement. During fiscal years 2015, 2014 and 2013, the Company recorded royalty expenses of $14,448, $10,106 and 14,168, respectively. Patent and Know-How Royalty License Agreement THE COMPANY IS THE HOLDER OF AN EXCLUSIVE LICENSE TO USE CERTAIN "KNOW-HOW" DEVELOPED BY ONE OF THE FOUNDERS OF A PREDECESSOR TO THE COMPANY ANDLICENSED TO THE COMPANY BY THE LAWRENCE FAMILY TRUST, A COMPANY SHAREHOLDER. THE TERMS OF THIS LICENSE AGREEMENT REQUIRE THE PAYMENT OF A ROYALTY BASEDON THE NET FACTORY SALES PRICE, AS DEFINED IN THE AGREEMENT, OF LICENSED PRODUCT SALES. BECAUSE THE LICENSOR'S PATENT APPLICATION WAS ULTIMATELY ABANDONED,ONLY A 1% "KNOWHOW" ROYALTY BASED ON NET FACTORY SALES PRICE, AS DEFINED IN THE AGREEMENT, REMAINS APPLICABLE. TO DATE, MANAGEMENT BELIEVES THAT THEREHAVE BEEN NO PRODUCT SALES INCORPORATING THE "KNOW-HOW" AND THEREFORE NO ROYALTY IS DUE PURSUANT TO THE TERMS OF THE AGREEMENT. MANAGEMENT BELIEVES THATthe possibility of a negative outcome in this matter is remote. THE LICENSOR OF THE "KNOW-HOW" HAS DISPUTED MANAGEMENT'S CONTENTION THAT IT IS NOT USING THIS "KNOW-HOW". ON SEPTEMBER 25, 2007 AND AGAIN ON OCTOBER 31,2007, THE COMPANY PARTICIPATED IN NONBINDING MEDIATION REGARDING THIS MATTER; HOWEVER, NO SETTLEMENT WAS REACHED WITH THE LAWRENCE FAMILY TRUST. AFTERADDITIONAL SETTLEMENT DISCUSSIONS, WHICH ENDED IN APRIL 2008, THE PARTIES FAILED TO REACH A SETTLEMENT. THE PARTIES MAY DEMAND BINDING ARBITRATION AT ANYtime. Operating Lease Agreements THE COMPANY LEASES OFFICE AND LABORATORY SPACE AND PRODUCTION AND OFFICE EQUIPMENT UNDER NON-CANCELABLE OPERATING LEASES. THE LEASE AGREEMENTS REQUIREMONTHLY LEASE PAYMENTS AND EXPIRE ON VARIOUS DATES THROUGH APRIL 2019 (INCLUDING RENEWAL DATES). IN MAY 2015, THE COMPANY AGREED TO A MODIFICATIONWHICH WAS RETROACTIVELY EFFECTIVE ON JANUARY 1, 2015. THE LEASE MODIFICATION INCLUDED A CONTRACTUALLY PERMITTED RENT INCREASE WHICH IS BASED ON A CPI INDEXWHICH WAS 1.1%. THE COMPANY, AT ITS SOLE OPTION, MAY EXERCISE A REMAINING THREE YEAR OPTION TO EXTEND ITS TENANCY BEYOND THE CURRENT EXPIRATION DATE OFApril 30, 2016, to April 30, 2019. The Company's significant lease is described below. Future minimum lease payments including the one three year option to extend remaining under operating leases are as follows: Year ending June 30 Amount 2016 $278,855 2017 278,855 2018 278,855 2019 232,380 $1,068,945 F-22 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. For the Year Ended June 30, 2015 2014 2013 Rental expense $280,007 $276,395 $284,097 Royalty Agreements for Licensed Intellectual Property related to the GliaSite® RTS THE COMPANY IS REQUIRED TO PAY A ROYALTY TO DR. REDDY’S LABORATORY LTD FOR THE EXCLUSIVE USE OF ITS INTELLECTUAL PROPERTY IN THE FIELD OF TREATING BRAIN CANCERRELATED TO THE PRODUCTION OF IOTREX®, WHICH IS A COMPONENT OF THE GLIASITE® RTS. THE TERM OF THE ROYALTY AGREEMENT IS FROM THE DATE OF FIRST SALE UNTIL THEEXPIRATION OF THE LAST PATENT. THE AGREEMENT PROVIDES FOR CERTAIN MINIMUM PAYMENTS, AS PRESENTED BELOW BASED ON CALENDAR YEAR PERIODS AND A RATE OF 2.75%of net sales as defined in the agreement. The initial royalty year began on January 1, 2012. Royalty Period Amount Calendar Year 2015 $25,000 Calendar Year 2016 and beyond $30,000 The Company recorded royalty expenses related to the licensed intellectual property utilized in the manufacture and sale of the Iotrex®. For the Year Ended June 30, 2015 2014 2013 Royalty expense $20,138 $20,366 $5,440 The amount recorded for fiscal year 2015 includes an accrual for the first six months of calendar year 2015 contractual minimum royalty amount of $25,000. THE COMPANY IS REQUIRED TO PAY A ROYALTY TO HOLOGIC, INC. FOR THE EXCLUSIVE WORLDWIDE USE OF INTELLECTUAL PROPERTY ASSOCIATED WITH THE GLIASITE® RTS IN THEFIELD OF INTRACAVITY RADIATION THERAPY OF THE BRAIN EXCLUSIVE OF THE RADIOISOTOPE. THE TERM OF THE ROYALTY AGREEMENT IS FROM THE EFFECTIVE DATE OF THE AGREEMENT(JANUARY 1, 2012) AND CONTINUES THEREAFTER UNLESS TERMINATED EARLIER AS DEFINED IN THE AGREEMENT. THE AGREEMENT PROVIDES FOR A ROYALTY PAYMENT BASED ON Arate of 5% of net sales as defined in the agreement. The Company recorded royalty expenses related to the licensed intellectual property utilized in the manufacture and sale of the GliaSite® RTS. For the Year Ended June 30, 2015 2014 2013 Royalty expense $898 $2,214 $2,394 Class Action Lawsuit Related to Press Release ON MAY 22, 2015, A CLASS ACTION COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS WERE FILED IN U.S. DISTRICT COURT AGAINST ISORAY, INC. AND CERTAIN OF OUROFFICERS, ONE OF WHOM IS ALSO A DIRECTOR. THE COMPLAINT RELATED TO A PRESS RELEASE ISSUED BY THE COMPANY ON MAY 20, 2015 AND IS PURPORTEDLY BROUGHT ONBEHALF OF ALL PURCHASERS OF ISORAY, INC COMMON STOCK FROM MAY 20, 2015 THROUGH AND INCLUDING MAY 21, 2015. THE COMPLAINT ASSERTS THAT THE PURCHASERSWERE MISLED BY THE PRESS RELEASE, AND SEEKS, AMONG OTHER THINGS, DAMAGES AND COSTS AND EXPENSES. WE CANNOT PREDICT THE OUTCOME OF SUCH PROCEEDINGS OR ANestimate of damages, if any. We believe that these claims are without merit and intend to defend them vigorously. F-23 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 17. Concentrations of Credit and Other Risks THE COMPANY'S FINANCIAL INSTRUMENTS THAT WERE EXPOSED TO CONCENTRATIONS OF CREDIT RISK CONSIST PRIMARILY OF CASH AND CASH EQUIVALENTS, CERTIFICATES OF DEPOSIT,accounts receivable and certificates of deposit, non-current. THE COMPANY'S CERTIFICATES OF DEPOSIT AND CERTIFICATES OF DEPOSIT, NON-CURRENT ARE MAINTAINED IN THE CERTIFICATE OF DEPOSIT ACCOUNT REGISTRY SERVICE(CDARS®) THROUGH ALLIANCE BANK OF ARIZONA AND AT COLUMBIA STATE BANK AT JUNE 30, 2015. THE CDARS SYSTEM PROVIDES THE COMPANY ACCESS TO FEDERALDeposit Insurance Corporation (FDIC) guarantees on multi-million dollar CD deposits through a single financial institution. THE COMPANY'S CASH AND CASH EQUIVALENTS WERE MAINTAINED WITH HIGH-QUALITY FINANCIAL INSTITUTIONS AT JUNE 30, 2015 AND 2014, RESPECTIVELY. THE ACCOUNTS AREguaranteed by the (FDIC) up to $250,000. At June 30, 2015 and 2014, respectively, all cash balances were guaranteed by the FDIC. Two groups of customers, facilities or physician practices have revenues that aggregate to greater than 10% of total Company product sales: Fiscal Year 2015 Fiscal Year 2014 Fiscal Year 2013 Facility % of total revenue % of total revenue % of total revenue El Camino, Los Gatos, & other facilities1 24.16% 26.75% 25.31%Bon Secours DePaul and Maryview Medical Center2 11.72% 6.51% 0.00% 1 – THIS GROUP OF FACILITIES INDIVIDUALLY DO NOT AGGREGATE TO MORE THAN 10% OF TOTAL COMPANY PRODUCT SALES. THEY ARE SERVICED BY THE SAME PHYSICIAN GROUP,one of whom is our Medical Director.2 – THESE TWO FACILITIES ARE PART OF THE SAME NETWORK AND CURRENTLY SHARE ONE PHYSICIAN WHO PERFORMS PROCEDURES IN BOTH FACILITIES. INDIVIDUALLY, THESEfacilities would not meet the 10% criteria, however, in aggregate, they do. The Company routinely assesses the financial strength of its customers and provides an allowance for doubtful accounts as necessary. Inventories MOST COMPONENTS USED IN THE COMPANY'S PRODUCT ARE PURCHASED FROM OUTSIDE SOURCES. CERTAIN COMPONENTS ARE PURCHASED FROM SINGLE SUPPLIERS. THE FAILURE OFANY SUCH SUPPLIER TO MEET ITS COMMITMENT ON SCHEDULE COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIALCONDITION. IF A SOLE-SOURCE SUPPLIER, A SUPPLIER OF CS-131 OR A SUPPLIER OF IRRADIATED BARIUM WERE TO GO OUT OF BUSINESS OR OTHERWISE BECOME UNABLE TO MEET ITSSUPPLY COMMITMENTS, THE PROCESS OF LOCATING AND QUALIFYING ALTERNATE SOURCES COULD REQUIRE UP TO SEVERAL MONTHS, DURING WHICH TIME THE COMPANY'SPRODUCTION COULD BE DELAYED. SUCH DELAYS COULD HAVE A MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION.SANCTIONS PLACED ON FINANCIAL TRANSACTIONS WITH RUSSIAN BANKING INSTITUTIONS MAY INTERFERE WITH THE COMPANY’S ABILITY TO TRANSACT BUSINESS IN RUSSIA ON ATEMPORARY OR OTHER BASIS RESULTING IN AN INTERRUPTION OF THE CS-131 SUPPLY WHICH COULD HAVE A TEMPORARY MATERIAL ADVERSE EFFECT ON THE COMPANY’S BUSINESS,operating results and financial condition. VIRTUALLY ALL OF THE COMPONENTS USED IN THE PRODUCTION OF THE GLIASITE® RTS ARE FROM SINGLE SOURCES. WE DO NOT HAVE FORMAL WRITTEN AGREEMENTS WITH THOSESUPPLIERS. ANY INTERRUPTION OR DELAY IN THE SUPPLY OF THESE COMPONENTS COULD HARM OUR BUSINESS AS THE COST AND/OR TIME REQUIRED MEET THE REGULATORYREQUIREMENTS OF THE FOOD AND DRUG ADMINISTRATION FOR THE UNITED STATES AND OUR NOTIFIED BODY FOR OUR CE MARK (THE BRITISH STANDARDS INSTITUTE) IN THEEuropean Union may be prohibitive. 18. Related Party Transaction DURING THE FISCAL YEARS ENDED JUNE 30, 2015, 2014 AND 2013, THE COMPANY ENGAGED THE SERVICES OF APEX DATA SYSTEMS, INC., OWNED BY DWIGHT BABCOCK,CHAIRMAN AND CHIEF EXECUTIVE OFFICER, TO BUILD AND MAINTAIN A WEB INTERFACED DATA COLLECTION APPLICATION TO AGGREGATE PATIENT DATA IN A CONTROLLEDENVIRONMENT. FOR THE FISCAL YEAR 2015, THE COMPANY INCURRED COSTS FOR WEBSITE MODIFICATIONS AND MAINTENANCE OF $12,000 (2014 - $12,000 AND 2013 -$13,000); AND MAINTENANCE SUPPORT FOR A CRM SYSTEM OF $12,000 (2014 - $12,000 AND 2013 - $1,000); AND MAINTENANCE COSTS RELATED TO THE REGISTRIES OF $0(2014 - $3,720 and 2013 - $1,960). The amount accrued for payment to APEX Data Systems, Inc. was $2,000 at June 30, 2015 and 2014, respectively. F-24 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 19. Quarterly Financial Data (unaudited) The following table provides the selected quarterly financial data for fiscal years 2015 and 2014: Quarters ended September 30, December 31, March 31, June 30, 2014 2014 2015 2015 Net revenue $1,042,101 $1,065,585 $1,158,109 $1,340,744 Gross profit/(loss) $(54,802) $(37,964) $55,197 $204,962 Net loss $(785,862) $(906,954) $(953,553) $(1,034,682)Net loss per share – basic and diluted $(0.01) $(0.02) $(0.02) $(0.02)Shares used in basic and diluted per share calculation 54,868,053 54,883,445 54,883,551 54,900,828 Quarters ended September 30, December 31, March 31, June 30, 2013 2013 2014 2014 Net revenue $1,049,915 $1,085,408 $1,134,319 $949,516 Gross profit/(loss) $(77,308) $(33,906) $50,906 $(136,163)Net loss $(1,270,906) $(926,972) $(2,083,439) $(1,677,805)Net loss per share – basic and diluted $(0.06) $(0.02) $(0.05) $(0.04) Shares used in basic and diluted per share calculation 35,921,712 38,419,502 42,506,077 54,435,706 20. Subsequent Events ON SEPTEMBER 10, 2015, THE COMPANY’S OPERATING SUBSIDIARY, MEDICAL, ENTERED INTO A REAL ESTATE PURCHASE AND SALE AGREEMENT WITH THE PORT OF BENTON, AMUNICIPAL CORPORATION OF THE STATE OF WASHINGTON. THE AGREEMENT IS FOR THE SALE OF UNDEVELOPED REAL PROPERTY OF APPROXIMATELY 4.2 ACRES LOCATED ADJACENT TOTHE COMPANY’S EXISTING MANUFACTURING FACILITY AND CORPORATE OFFICES. THE PURCHASE PRICE FOR THE PROPERTY IS ONE HUNDRED SIXTY-EIGHT THOUSAND DOLLARS($168,000) which is payable on October 30, 2015, the expected date of closing. IN ADDITION TO THE FEASIBILITY STUDIES REQUIRED ON ALL ASPECTS OF THE PROPERTY REQUIRED BY MEDICAL TO CLOSE, MEDICAL IS ALSO BOUND TO COMPLY WITH ADevelopment Plan for a ten year period which requirements include but are not limited to the following: (1)CERTAIN SPECIFIED SITE CONFIGURATIONS AND DESIGN WITH A MINIMUM OF 12,000 SQUARE FEET OF WAREHOUSE AND PRODUCTION SPACE AND 4,000 SQUAREfeet of office space; (2)Completion of all construction in two years; (3)Use of facility as primary production facility for ten (10) years; and (4)Provision of jobs for not less than 25 full time employees. FAILURE TO COMPLY WITH THESE COVENANTS WILL RESULT IN A BREACH OF THE AGREEMENT AND IF NOT CURED, WILL OBLIGATE MEDICAL TO PAY THE PORT THE DIFFERENCE IN THEsales price and the appraised value of the property at the time of default. F-25 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BEsigned on its behalf by the undersigned, thereunto duly authorized. Dated: September 14, 2015 ISORAY, INC., a Minnesota corporation By/s/ Dwight Babcock Dwight Babcock, Chief Executive Officer and Chairman By/s/ Brien L. Ragle Brien L. Ragle, Chief Financial Officer, Principal Financial and Accounting Officer PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALFof the registrant and in the capacities and on the dates indicated. Dated: September 14, 2015 /s/ Dwight Babcock Dwight Babcock, Chief Executive Officer and Chairman /s/ Brien L. Ragle Brien L. Ragle, Chief Financial Officer, Principal Financial and Accounting Officer /s/ Thomas LaVoy Thomas LaVoy, Director /s/ Michael McCormick Michael McCormick, Director /s/ Philip Vitale Philip Vitale, Director 75 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 10.83 August 31, 2015 Karlheinz Goehl-Medizintechnik GöhlNoerdlinger Weg 365931 Frankfurt, GermanyAttn: Charly Goehl, CEO Re:Extension of Term of the International Distribution Agreement Dear Mr. Goehl: The purpose of this letter is to confirm the extension of the term of, and changes to the Territory as defined in, the International DistributionAgreement entered into between IsoRay Medical, Inc., a Delaware corporation (“IsoRay”), and Karlheinz Goehl-Medizintechnik Göhl (“Distributor”), datedas of October 31, 2011 (collectively, the “Agreement”). Under the Agreement, the Agreement’s current term, as extended by letter agreement dated August 28, 2014, expires on August 31, 2015. IsoRay andDistributor now agree to extend the term to August 31, 2016. IsoRay and Distributor also agree to replace Section 1.1 of the Agreement with the following: “Territory” shall include all of and be limited toGermany, Austria, Switzerland and Luxembourg. Except as set forth herein, all terms and conditions of the Agreement, as amended in the letter agreement dated August 28, 2014, shall remain in fullforce and effect. Each party hereto hereby expressly ratifies and affirms all such terms and conditions as of the effective date hereof. IsoRay and Distributor each represent and acknowledge that it has the power and authority to enter into this letter. This letter may be executed inany number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IsoRay Medical, Inc. By/s/ Dwight Babcock Dwight Babcock, CEO Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The foregoing is accepted and agreed to on and as of the date first shown above. Karlheinz Goehl-Medizintechnik Göhl By/s/ Charly Goehl Charly Goehl, CEO Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 10.84 REAL ESTATE PURCHASE AND SALE AGREEMENT THIS AGREEMENT is made on the 10th day of September, 2015, by and between: SELLER: THE PORT OF BENTON, a municipal corporation of the State of Washington, hereinafter (“Seller”). PURCHASER: ISORAY MEDICAL, INC, a Delaware corporation, hereafter (“Purchaser”). The Seller agrees to sell, and the Purchaser agrees to purchase, upon the terms and conditions herein specified, the Property in Richland, BentonCounty, State of Washington, more particularly described on Exhibit 1, hereafter referred to as the “Property”, containing 4.20 acres (182,903 square feet),more or less, including rights appurtenant thereto. 1. PURCHASE PRICE. The Purchase Price is One Hundred Sixty Eight Thousand Dollars ($168,000.00) payable in cash at the time of Closing,as defined below. 2. EARNEST MONEY. Upon the execution of this Agreement, the Purchaser shall deliver to the Seller a cashier’s check in the amount of$25,000.00 payable to Tri-City Title & Escrow Co. (the “Closing Agent”) as Earnest Money to be applied to the Purchase Price at the time of Closing. At thetime of the Closing the Earnest Money shall be applied to the Purchase Price. In the event, the Purchaser elects to terminate this Agreement prior to theexpiration of the Contingency Period provided in Section 3 below, then the Earnest Money shall be refunded to the Purchaser less any costs paid by theSeller pursuant to the terms of this Agreement. If the Purchaser fails to close the purchase of the Property for any other reason, other than a breach of thisAgreement by the Seller, the Earnest Money shall be retained by the Seller. 3. FEASIBILITY CONTINGENCY. After Purchaser receives written notice of the formal approval of this sale by the Port of Benton Commission,the Purchaser shall have sixty (60) days to complete a feasibility study of all aspects of the Property, including the feasibility of the Property for thePurchaser’s purposes (“Feasibility Period”). In the event the Purchaser shall determine, in Purchaser’s sole discretion, not to proceed with the purchase of theProperty, this Agreement shall terminate upon the delivery of written notice to the Seller. If the Purchaser does not deliver a written notice of termination tothe Seller on or before the expiration of the Feasibility Period, this contingency shall be deemed to have been waived. 3.1 Purchaser may conduct such investigations, studies and tests as it deems necessary or appropriate for Purchaser’s proposed development anduse of the Property. The Seller shall cooperate with the Purchaser in the performance of the investigations, studies and tests. Purchaser shall repair any damageto the Property and shall restore the Property to its original condition after any investigations, studies or tests caused by the Purchaser or its agents orindependent contractor. The Purchaser shall indemnify and hold the Seller harmless from and against any costs, expenses, losses, damages, liabilities,attorney fees, including any mechanics liens incurred or sustained by the Seller as a result of the Purchaser’s activities or the actions of its agents. 4. CONDITION OF TITLE. Title is to be free of all encumbrances or defects. Rights reserved in federal patents or state deed, building or userestrictions general to the area, existing easements not inconsistent with Purchaser’s intended use, and building or zoning regulations or provisions shall notbe deemed encumbrances or defects. Encumbrances to be discharged by Seller may be paid out of purchase money at date of Closing. 1 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. This conveyance is also subject to the following covenants and restrictions, and these covenants and restrictions shall run with the land and shall bebinding upon the Grantees, their transferees, successors and assigns. A. The Purchaser has submitted to the Seller a Development Plan for the Property, a copy of which is attached hereto as Exhibit 2. TheDevelopment Plan specifies the Purchaser’s development and use the Property, for ten (10) years after the date of Closing. The provisions of the DevelopmentPlan will be incorporated into the Deed and will survive the Closing. The requirements of the Development Plan will expire ten (10) years from date ofClosing. B. Form of Conveyance. Conveyance shall be by Statutory Warranty Deed, in the form attached hereto as Exhibit 3. C. This conveyance will be subject to the Protective Covenants for the Port of Benton Technology and Business Campus, a copy ofwhich are attached hereto as Exhibit 4. D. The conveyance is subject to the Permitted Exceptions. 5. TITLE INSURANCE. Within thirty (30) days after the date this Agreement is signed by the parties, Seller, at Seller’s expense, shall causethe title insurance company to deliver to Purchaser a preliminary commitment for title insurance (“Preliminary Report”) showing the condition of the title tothe Property, together with copies of all Exceptions listed therein. 5.1 Purchaser shall have ten (10) days after its receipt of the Preliminary Report to review the report and to notify the Seller, in writing, ofPurchaser’s objections to any Exceptions shown in the Preliminary Report. Those special exceptions not objected to by Purchaser within ten days will bedeemed to be acceptable to the Purchaser (the “Permitted Exceptions”). 5.2 If the Purchaser notifies Seller of its objections to any Exceptions, Seller will have seven (7) days after receiving such notice to givePurchaser a written notice stating whether Seller will remove any or all of the Exceptions which have been objected to by Purchaser. If Seller fails to provide awritten notice to Purchaser within seven days, the Seller will be deemed to have elected not to remove the objectionable Exceptions. 5.3 Within five (5) days after receiving the Seller’s written notice or within five (5) days after the expiration of the seven day period if the Sellerdoes not respond, Purchaser shall by written notice to the Seller, elect whether to purchase the Property subject to the objectionable Exceptions that will notbe removed by the Seller. If the Purchaser elects not to purchase the Property subject to the objectionable Exceptions, this Agreement shall terminate and theEarnest Money shall be repaid to the Purchaser. If the Purchaser elects to proceed with the purchase, the objectionable Exceptions shall be deemed to havebeen accepted by the Purchaser and shall become Permitted Exceptions. 5.4 In the event that, after the date of the Preliminary Report, any new items appear of record, Closing Agent shall cause the title company todeliver to the Purchas a supplemental Preliminary Report (“Supplemental Report”) together with copies of all title exceptions described therein. Purchasershall have ten (10) Business Days or until the Closing Date, whichever occurs first, to give written notice to the Seller (“Objection Notice”) disapproving anyitems contained in the Supplemental Report and identifying items disapproved in Purchaser’s sole discretion. If Purchaser delivers an Objection Notice,Seller may remove the disapproved items on or before Closing. If the Seller does not remove the disapproved items, then the Purchaser may elect not to closethe purchase and the Earnest Money shall be returned to the Purchaser. 2 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5.5 At Closing, Seller shall furnish to Purchaser an American Land Title Association standard form Owner’s or Purchaser’s Policy of TitleInsurance in the amount of the Purchase Price. The title policy to be issued shall contain no exceptions other than those provided in said standard form plusthe Permitted Exceptions. If title is not insurable as above provided and cannot be made so insurable by Termination Date set forth in Section 6.9, thisAgreement shall terminate; provided however, that Purchaser may waive defects in writing and elect to purchase the Property. 6. SELLER’S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Purchaser, which representations and warrantiesshall survive the Closing, the following: (a) Seller is the owner of marketable title to the Property or is otherwise duly authorized to enter into this transaction. (b) Seller has received no notice of any condemnation proceedings affecting the Property, or of proceedings to change the zoning, useor occupancy of the Property. (c) Except for the representations and warranties contained in this Agreement, the Property is being sold in its present conditions, “asis”. (d) Seller’s Property is not represented by any real estate brokers or representative; therefore no commission or fee for this transactionshall be paid by Seller. 7. CLOSING OF SALE. (a) Time of Closing - Termination Date. After this sale has been approved by the Port of Benton Commission, the sale shall be closed(the “Closing”) in the office of the Closing Agent, within sixty (60) days after preliminary commitment for title insurance policy is delivered showing titleinsurable, as above provided, but in any event not later than October 30, 2015 upon which date this agreement shall terminate. (b) Closing Agent. For purposes of this Agreement, “Closing Agent” shall be Tri-City Title & Escrow Company, or such other partywhich is mutually acceptable to the parties. (c) Responsibilities of Parties. The Purchaser and Seller shall deposit with the Closing Agent all instruments, documents and moniesnecessary to complete the sale in accordance with this Agreement. (d) Allocation of Closing Costs. Seller shall pay the real estate excise tax, if any, the title insurance premium, and one-half of theClosing escrow fees. The Purchaser shall pay one-half of the Closing escrow fees and recording costs. Each party shall pay its own attorney fees. (e) Items to be Prorated. Taxes for the current year and assessments shall be prorated as of date of Closing. 8. POSSESSION. Seller shall deliver possession to Purchaser on the date of Closing. 9. DEFAULT. If either party defaults (that is, fails to timely perform the acts required of it) in its contractual performance herein, the non-defaulting party may seek specific performance pursuant to the terms of this Agreement, damages, or rescission. 3 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10. ATTORNEYS’ FEES. If either party hereto is required to retain an attorney to enforce any provision of this Agreement, the non-defaultingparty shall be entitled to reasonable attorneys’ fees regardless of whether the matter proceeds to judgment or is resolved by defaulting party curing default. 11. INTEGRATION/TIME/MODIFICATION. There are no other verbal or other agreements which modify or affect this Agreement. Time is ofthe essence of this Agreement. All subsequent modifications or waivers of any condition of this Agreement shall be in writing and signed by the appropriateparties. 12. EFFECTIVE DATE - TERMINATION. This Agreement shall be effective on the date last executed by the parties hereto. In the event allparties have not executed this Agreement on or before September 9, 2015, this agreement shall automatically terminate and any earnest money or fees shallbe promptly refunded to Purchaser. 13. EXHIBITS. The following exhibits are attached hereto and made a part of this Agreement by reference. a.Exhibit 1 — Legal Description of Propertyb.Exhibit 2 — Development Planc.Exhibit 3 — Warranty Deedd.Exhibit 4 — TBC Protective Covenants SELLER: PORT OF BENTON Dated:9/10/2015 By:/s/ Scott D. Keller SCOTT D. KELLER Executive Director 3250 Port of Benton Boulevard Richland, WA 99354 509-375-3060 PURCHASER: ISORAY MEDICAL, INC. Dated:9/10/2015 By:/s/ Dwight Babcock DWIGHT BABCOCK CHIEF EXECUTIVE OFFICER 350 Hills Street #106 Richland, WA 99354 4 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 1Legal Description TECHNOLOGY & BUSINESS CAMPUS4.20 Acres SECTION 23, TOWNSHIP 10 NORTH, RANGE 28 EAST, QUARTER NE: SHORT PLAT #3453, LOT 1 RECORDED IN VOLUME 1 OF SHORT PLATS, AT PAGE 3453, RECORDS OF BENTON COUNTY, WASHINGTON UNDERAUDITOR’S FILE NUMBER 2014-033549, DATED DECEMBER 30, 2014. CONSISTING OF 4.20 ACRES (182,903 SQUARE FEET) TOGETHER WITH AND SUBJECT TO EASEMENTS, RIGHTS-OF-WAY, COVENANTS, RESERVATIONS AND RESTRICTIONS OF RECORD AND INVIEW. 5 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 2IsoRay Medical Inc.Development Plan Isoray Medical, Inc., a Delaware corporation, (hereinafter “Isoray”) proposes to purchase approximately 4.20 acres of real property described on Exhibit 1 tothe Real Estate Purchase and Sale Agreement (hereafter “Property”) currently owned by the Port of Benton, a Washington municipal corporation (hereafter“Port”). This document sets forth the manner in which the property will be utilized and developed by Isoray. Isoray agrees this Development Plan will be binding upon Isoray and its successors in title for a period of ten (10) years following the conveyance of theProperty to Isoray by the Port and will be a covenant running with the land. 1.Isoray will construct improvements on the Property in approximately the site configuration and design specifications as depicted on Exhibit 2to this Plan. The building constructed by Isoray will contain not less than 12,000 square feet of warehouse and production space and up to4,000 square feet of office space. 2.Isoray will commence construction of the improvements within one hundred eighty (180) days after the conveyance of the Property and willcomplete the construction of the improvements within eighteen (18) months after the commencement of construction. 3.Isoray will use the Property for its primary production facility location for ten (10) years following the conveyance of the Property to Isoray bythe Port. 4.During the ten (10) years following the conveyance of the Property from the Port, Isoray will provide jobs at this location for at least 25 full timeequivalent employees. 5.The Port has agreed to sell the Property to Isoray partially in consideration of this Development Plan and the sales price for the Property hasbeen adjusted to reflect the covenants to which Isoray is bound under the provisions of this Development Plan. 6.In the event Isoray fails to comply with the provisions of the Development Plan related to the construction of improvements, the use of thefacility or the employment levels, the Port will provide written notice of the breach to Isoray and Isoray shall have ninety (90) days from itsreceipt of the notice to cure the breach. If Isoray does not cure the breach within the cure period, then Isoray will pay to the Port the differencebetween the sales price and the appraised value of the Property of this Property without the covenants contained in this Development Plan. ThePort will have the Property appraised at the time of the default without taking into account the improvements constructed by Isoray, to value theunimproved Property at the time of the default. Payment shall be made within thirty (30) days after the date the Port delivers the appraisal toIsoray. 7.The Port may approve amendments to this Development Plan. Any amendments must be in writing and must be approved by the PortCommission before the amendment will be effective. 8.It is Isoray’s intent to be a business partner with the Port of Benton and the City of Richland. As such, Isoray will work to make sure the Propertyis used compliance with applicable laws, regulations, and the general intent and purpose of this Development Plan. 6 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PURCHASER: ISORAY MEDICAL, INC. Dated: 9/10/2015By:/s/ Dwight Babcock DWIGHT BABCOCK CHIEF EXECUTIVE OFFICER 350 Hills Street #106 Richland, WA 99354 7 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 4Technology & Business CampusProtective Covenants 8 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. PROTECTIVE COVENANTS FOR THE PORT OF BENTON TECHNOLOGY AND BUSINESS CAMPUS THE PORT OF BENTON, a municipal corporation of the State of Washington, hereafter referred to as “Port” is the owner of the Technology andBusiness Campus situated in the City of Richland, Benton County, Washington, legally described in Exhibit 1, hereafter referred to as the“Property”. The Port hereby adopts the following Protective Covenants for the Property. 1.The Port has designated the Property as the “Technology and Business Campus”. The Port may change the designation of the Property from time totime without amending these Protective Covenants and without affecting the applicability of the Protective Covenants to the Property. 2.These Covenants shall run with the Property and shall be binding upon all portions of the Property and upon all persons holding any interest in theProperty whether as owners, successors, assigns, grantees, lessees or holders of lesser interests, all such parties hereafter referred to as “Occupants”. 3.The Purpose of the Covenants is to establish limitations, restrictions and uses to which any portion of the Property or any lots or tracts within theProperty may be put to insure: 3.1the proper use and appropriate development and improvement of each building site; 3.2to protect Occupants of the Property against uses which may depreciate the value of the Property; 3.3to guard against improvements constructed of improper or unsuitable materials; 3.4to encourage construction of properly-situated, attractive improvements on the Property; 3.5to prevent inappropriate and improper improvements to the Property; 3.6to secure and maintain proper setbacks from streets and lot lines; 3.7to provide for adequate open areas; 3.8to protect the health and safety of the Occupants and other users of the Property; and 3.9to provide for safe and normal circulation of traffic. 4.Portions of the Property may be dedicated for public use or may be restricted to mitigate for environmental conditions. The remaining portions of theProperty may only be used for commercial, light industrial, warehouse, research and development purposes, residential and other uses permitted bylocal zoning regulations, hereafter “Permitted Uses”, and those administrative and retail uses associated with or used in conjunction with thePermitted Uses. 4.1No portion of the Property shall be used for the manufacture, storage, distribution or sale of any products or materials which are dangerous,unsafe, or a nuisance to the other Occupants or to the public at large by reason of odor, dust, fumes, smoke, noise or vibration. 9 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 4.2All Occupants shall comply with the zoning, use or building restrictions applicable to the Property. No portion of the Property shall be usedfor any purpose which is in violation of any laws or regulations applicable to the Property. 4.3The written approval of the Port must be obtained before the commencement of any particular use. 5.The minimum setbacks at the Richland Technology and Business Campus shall be as follows: 5.1Buildings facing George Washington Way must be at least 100 feet from the center line of George Washington Way. 5.2Buildings facing an interior road must be at least 80 feet from the center line of George Washington Way. 5.3Buildings must be at least 35 feet from the side line of any lot. 5.3Buildings must be at least 35 feet from any rear line of any lot. 5.4In the event any set back area is used for parking or as a loading zone, then the Port may adjust the set back requirements to take intoaccount the use of the set back area for other purposes. 6.The maximum height for buildings in the Technology and Business Campus shall be 38 feet. The Port may grant variances of the height restrictionswhen necessary to accommodate special equipment or special uses. 7.The construction or the alteration of any improvements at the Technology and Business Campus shall comply with the following minimumstandards: 7.1No building shall be constructed of wood framing or use wood for the exterior except for the use of wood for decoration. 7.2All exterior walls shall be finished with masonry or brick face. 7.3Other exterior finish materials may be permitted by the Port, if the proposed materials are equal in quality to those specified in thesecovenants and are compatible with the materials in use through out the Property. 8.Before any construction, reconstruction or alteration of the improvements in the Property is commenced and before any building materials havebeen delivered in connection with such construction, reconstruction or alteration authority, the occupant shall comply with all the followingconditions or procure Port’s written waiver of the following conditions: 8.1The Occupant shall deliver to Port, for its approval, two sets of preliminary construction plans and specifications prepared by an architect orengineer licensed to practice as such in the State of Washington including, but not limited to, preliminary grading utility connections,locations of ingress and egress to and from public thoroughfares, curbs, gutters, parkways, street lighting, designs and locations for outdoorsigns, storage areas, and landscaping, all sufficient to enable Port to make an informed judgment about the design and quality ofconstruction. All improvements shall be constructed within the exterior set back lines of the Property provided that required work beyondthe Property on utilities, access, and conditional use requirements will not violate this provision. The Occupant shall permit Port to use theplans without payment for purposes relevant to and consistent with these Covenants. 10 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 8.2The Port shall examine the plans and specifications for the purpose of determining reasonable compliance with the terms and conditions ofthe Protective Covenants and compatibility with the overall design and use of the Technology and Business Campus. Approval ordisapproval shall be communicated to the Occupant, and disapproval shall be accompanied by specification in reasonable detail of thegrounds for disapproval; provided that Port’s failure to disapprove the initial construction plans or subsequent construction plans withinThirty (30) days after delivery to Port shall be considered to be approval. 8.3Occupant shall prepare final working plans and specifications substantially conforming to preliminary plans previously approved by thePort, submit them to the appropriate governmental agencies for approval, and deliver to Port one complete set as approved by thegovernmental agencies. 8.4Once work is begun, the Occupant shall, with reasonable diligence, complete construction of improvements. Construction shall becompleted and ready for use within twelve (12) months after commencement of construction, provided that the time for completion may beextended for so long as the Occupant is prevented from completing the construction due to delays beyond the Occupant’s control, or forother good cause. All work shall be performed in a workmanlike manner, substantially comply with the plans and specifications required,and comply with all applicable governmental permits, laws, ordinances, and regulations. 9.In the front set back area for each parcel from the frontage road to the buildings and the side set back areas, except those portions of the side yardswhich are covered by parking lots or sidewalks shall be landscaped with grass lawns or other landscaping materials approved by the Port. The Portmay grant exceptions to these requirements provided the general aesthetic quality of the Property is not adversely affected. 10.Outside storage of materials will be permitted only in areas approved for this purpose by the Port of Benton. The Port may require that any outsidestorage areas are visually screened in a manner acceptable to the Port. 11.The Occupant shall at all times keep its grounds, buildings and improvements in a safe and clean condition. Each Occupant, at its own expense, willremove all trash, waste or rubbish, which may accumulate on the Property. Solid waste receptacles shall be screened by sight obscuring fences fromview from the streets within the Property. 12.All exterior lighting shall be installed with concealed wiring. No blinking or exposed neon lights are permitted within the Property. 13.Each Occupant shall provide and maintain adequate, on-site parking facilities for employees and visitors. Parking lots and driveways must be pavedwith asphalt or concrete and shall be maintained in good condition. The Occupant shall provide one parking space for each three thousand squarefeet of building space or one space for each employee per shift. On street parking for Occupants, employees, or trucks serving the Occupant’sbusiness is prohibited. 11 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 14.No wells shall be drilled within the Property except with the prior written permission of the Port of Benton. The Port and/or the City of Richland mayrequire pretreatment of wastewater and may impose limitations on discharge volumes of water flowing into the waste water system. 15.In the event an Occupant fails to maintain the exterior appearance of the property and improvements in accordance with these covenants and thestandards issued by the Port of Benton from time to time, after the Port provides the Occupant with seven days written notice of the default, the Portmay undertake to maintain the Property to meet the applicable standards and charge the costs to the Occupant. The charge shall be lien upon theOccupants property in the Property and the Port shall be entitled to recover from the Occupant all of the costs incurred in maintaining theOccupant’s property. 16.Hazardous materials require special handling and pose unusual risks to the Occupants and Tenants of the Park and to the public. The purpose of thisSection is to control hazardous materials which are brought into the Property, to provide timely information concerning the nature and location ofthe hazardous materials in the Property, and to provide the persons to be contacted in the event of an emergency. 16.1Hazardous Materials shall mean any substance or material in a quantity or form which may pose an unreasonable risk to health, safety orproperty and includes, but is not limited to, explosives, radioactive materials, etiologic agents, flammable liquids or solids, combustibleliquids or solids, poisons, oxidizing or corrosive materials and compressed gases, and it further includes those materials described inWashington Administrative Code 173-303-9905 and 446-50-000, as those sections may be hereafter amended or supplemented. In theevent these sections are superseded, the reference shall be deemed to refer to the superseding sections. 16.2Each Occupant transporting any hazardous materials into or across any portion of the Property, shall give written notice to the Port prior toany such transportation or storage. Each Occupant shall file a copy of the written notice to the fire department or fire protection districtwhich has responsibility for providing fire protection for the Property. 16.3The written notice to the Port shall contain the following: A.The name and address of the Occupant. B.The specific hazardous material which is being transported or stored. C.The date upon which the material will be transported and the portion of the Property over which the material will be transported. D.The specific portion of the Property where the material will be stored or used. E.The names and phone numbers of the person or persons to be contacted with regard to the hazardous materials and in the event ofan emergency. 16.4These covenants shall not be construed as an approval of the transportation, storage or use of hazardous materials upon the Property. In theevent the Port determines that any hazardous material causes an increased risk to the Occupants or the public, or if the hazardous materialsincrease the insurance cost of the Port or Occupants, the Port may deny or revoke the permission to transport, store or use hazardousmaterials within the Property. In the event the transportation, storage or use of hazardous materials on the Property increases the risk ofpersonal injury or property damage, or increases the cost of insurance, the Port may require the Occupant to obtain additional insurancecoverage. 12 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 16.5All hazardous materials shall be handled, transported, stored, used and disposed of in accordance with all applicable federal, state andmunicipal laws, ordinances and regulations. 17.These protective covenants shall be deemed to be contracts between the Port of Benton and each Occupant, and as contracts among the Occupants.The Port and the Occupants shall have the right to enforce the covenants in a court of law, subject to the right of the Port to grant variances inparticular cases and upon reasonable grounds, to meet the objectives of the planned development of the property. 18.Occupants of the Property prior to an amendment of these Protective Covenants shall not be required to modify or alter their improvements in orderto comply with an amendment and they shall be required to comply with the Protective Covenants prior to the effective date of an amendment. Anyalteration, modification or addition to any improvement after the effective date of an amendment shall comply with the Protective Covenants asamended. IN WITNESS WHEREOF, the Port of Benton has adopted these Protective Covenants on this 19th day of March, 2003. PORT OF BENTON /s/ Jane F. Hagarty JANE F. HAGARTY, Commissioner /s/ Harold B. Lindberg HAROLD B. LINDBERG, Commissioner /s/ Robert D. Larson ROBERT D. LARSON, Commissioner 13 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 21.1 Subsidiaries of the Company IsoRay Medical, Inc.IsoRay International, LLC Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the registration statements Nos. 333-127717, 333-136728 and 333-195988 on Form S-8 and Nos.333-194733, 333-188579, 333-184868, and 333-206559 on Form S-3 of our report dated September 11, 2015, with respect to the consolidated balancesheets of IsoRay, Inc. and Subsidiaries as of June 30, 2015 and 2014, and the related consolidated statements of operations, changes in shareholders’ equityand cash flows for the three years in the period ended June 30, 2015, which report appears in the Form 10-K filing for IsoRay, Inc. to be filed on or aboutSeptember 14, 2015. We also consent to the reference to us under the heading "Experts" in such registration statements on Form S-3. /s/ DeCoria, Maichel & Teague, P.S. Spokane, Washington September 11, 2015 Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.1 CERTIFICATION I, Dwight Babcock, certify that: 1. I have reviewed this annual report on Form 10-K of IsoRay, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respectsthe financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: September 14, 2015 /s/ Dwight Babcock Dwight Babcock Chief Executive Officer Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 31.2 CERTIFICATION I, Brien L Ragle, certify that: 1. I have reviewed this annual report on Form 10-K of IsoRay, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to makethe statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under oursupervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed underour supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's mostrecent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internalcontrol over financial reporting. Date: September 14, 2015 /s/ Brien L. Ragle Brien L. Ragle Chief Financial Officer Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Exhibit 32 Section 1350 Certifications Pursuant to 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers ofIsoRay, Inc., a Minnesota corporation (the Company), hereby certify that: To my knowledge, the Annual Report on Form 10-K of the Company for the annual period ended June 30, 2015 (the Report) fully complieswith the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents,in all material respects, the financial condition and results of operations of the Company. Dated: September 14, 2015 /s/ Dwight Babcock Dwight Babcock Chief Executive Officer (Principal Executive Officer) Dated: September 14, 2015 /s/ Brien L. Ragle Brien l. ragle Chief Financial Officer (Principal Financial and Accounting Officer) Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.Source: IsoRay, Inc., 10-K, September 14, 2015Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.

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