UNITED
        STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-QSB/A




**Amendment
      No. 1**


Quarterly
      Report of Small Business Issuers under Section 13 or 15(d) of the Securities
      Exchange Act of


1934
      for
      the quarterly period ended September 30, 2005




Commission
      File No. 000-14247




**IsoRay,
      Inc.**


(Exact
      name of registrant as specified in its charter)







Minnesota
              (State
                or other jurisdiction of incorporation or organization)
            41-1458152
              (I.R.S.
                Employer Identification No.)350
                Hills St., Suite 106
              Richland,
                Washington
              (Address
                of principal executive offices)
            99354
              (Zip
                Code)Issuer's
                telephone number, including area code:(509)
                375-1202The
                issuer has (1) filed all reports required to be filed by Section
                13 or
                15(d) of the Exchange Act during the past 12 months (or for such
                shorter
                period that the registrant was required to file such reports), and
                (2)
                been subject to such filing requirements for the past 90
                days.
              
              The
                registrant is not a shell company (as defined in Rule 12b-2 of the
                Exchange Act).Number
                of shares outstanding of each of the issuer's classes of common
                equity:Class
            Outstanding
                as of May 11, 2006Common
                stock, $0.001 par value
            14,722,686The
                issuer is not using the Transitional Small Business Disclosure
                format.











**ISORAY,
      INC.**





**Table
      of Contents**


Page





PART
                I FINANCIAL INFORMATION
            1Item
                1. Consolidated Unaudited Financial Statements
            1Consolidated
                Unaudited Balance Sheet
            1Consolidated
                Unaudited Statements of Operations
            2Consolidated
                Unaudited Statements of Cash Flows
            3Notes
                to Consolidated Unaudited Financial Statements
            4Item
                2. Management's Discussion and Analysis of Financial Conditionand
                Results of Operations
            7Item
                3. Controls and Procedures
            12PART
                II OTHER INFORMATION
            13Item
                6. Exhibits and Reports on Form 8-K
            13SIGNATURES
            14






i





**PART
      I.**  **FINANCIAL
      INFORMATION**





**Item
      1.** **Financial
      Statements**


**IsoRay,
                  Inc. and Subsidiary****Consolidated
                  Balance Sheets****September
                  30, 2005 and June 30, 2005****September
                  30,**
              
              **June
                  30,****2005**
              
              **2005****(Unaudited)**
              
              **(Audited)****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              211,642
              
              $
              1,653,144Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $17,075
              
              
              136,025
              
              
              49,969Inventory
              
              
              120,152
              
              
              81,926Prepaid
                  expenses
              
              
              242,724
              
              
              181,266Total
                  current assets
              
              
              710,543
              
              
              1,966,305Fixed
                  assets, net of accumulated depreciation and amortization
              
              
              1,050,195
              
              
              842,323Other
                  assets, net of accumulated amortization
              
              
              792,622
              
              
              793,756Total
                  assets
              
              $
              2,553,360
              
              $
              3,602,384**LIABILITIES
                  AND SHAREHOLDERS' EQUITY (DEFICIT)**Current
                  liabilities:Accounts
                  payable
              
              $
              468,712
              
              $
              695,588Accrued
                  payroll and related taxes
              
              
              248,101
              
              
              157,924Accrued
                  interest payable
              
              
              93,817
              
              
              41,325Notes
                  payable, due within one year
              
              
              43,748
              
              
              43,116Capital
                  lease obligations, due within one year
              
              
              8,820
              
              
              9,604Total
                  current liabilities
              
              
              863,198
              
              
              947,557Notes
                  payable, due after one year
              
              
              542,156
              
              
              562,224Capital
                  lease obligations, due after one year
              
              
              15,960
              
              
              19,584Convertible
                  debentures payable, due after one year
              
              
              4,137,875
              
              
              3,587,875Total
                  liabilities
              
              
              5,559,189
              
              
              5,117,240Commitments
                  and contingenciesShareholders'
                  equity (deficit):Preferred
                  stock, $.001 par value, 6,000,000 shares authorized:Series
                  A: 1,000,000 shares allocated; no shares issued and outstanding
              
              
              —
              
              
              —Series
                  B: 5,000,000 shares allocated; 1,260,732 and 1,588,589 sharesissued
                  and outstanding
              
              
              1,261
              
              
              1,589Common
                  stock, $.001 par value; 194,000,000 shares authorized;9,060,221
                  and 7,317,073 shares issued and outstanding
              
              
              9,060
              
              
              7,317Additional
                  paid-in capital
              
              
              4,271,671
              
              
              3,804,369Accumulated
                  deficit
              
              
              (7,287,821
              )
              
              (5,328,131
              )Total
                  shareholders' equity (deficit)
              
              
              (3,005,829
              )
              
              (1,514,856
              )Total
                  liabilities and shareholders' equity (deficit)
              
              $
              2,553,360
              
              $
              3,602,384





*The
      accompanying notes are an integral part of the financial
      statements.*






1




**IsoRay,
                  Inc. and Subsidiary****Consolidated
                  Statements of Operations****Three
                  Months Ended September 30, 2005 and 2004****2005**
              
              **2004****(Unaudited)**
              
              **(Unaudited)**Product
                  sales
              
              $
              210,915
              
              $
              —Cost
                  of product sales
              
              
              720,166
              
              
              —Gross
                  profit (loss)
              
              
              (509,251
              )
              
              —Operating
                  expenses:Research
                  and development
              
              
              25,782
              
              
              15,515Sales
                  and marketing expenses
              
              
              315,039
              
              
              61,093General
                  and administrative expenses
              
              
              960,949
              
              
              613,716Total
                  operating expenses
              
              
              1,301,770
              
              
              690,324Operating
                  loss
              
              
              (1,811,021
              )
              
              (690,324
              )Non-operating
                  income (expense):Interest
                  income
              
              
              6,959
              
              
              225Financing
                  expense
              
              
              (155,628
              )
              
              (8,825
              )Non-operating
                  income (expense), net
              
              
              (148,669
              )
              
              (8,600
              )Net
                  loss
              
              $
              (1,959,690
              )
              $
              (698,924
              )Net
                  loss per share of common stock
              
              $
              (0.22
              )
              $
              (0.12
              )







*The
      accompanying notes are an integral part of the financial
      statements.*




2




**IsoRay,
                  Inc. and Subsidiary****Consolidated
                  Statements of Cash Flows****Three
                  Months Ended September 30, 2005 and 2004****2005**
              
              **2004****(Unaudited)**
              
              **(Unaudited)****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (1,959,690
              )
              $
              (298,946
              )Adjustments
                  to reconcile net loss to net cash used by operatingactivities:Depreciation
                  and amortization of fixed assets
              
              
              45,961
              
              
              23,822Amortization
                  of deferred financing costs and other assets
              
              
              55,592
              
              
              2,070Compensation
                  recorded in connection with issuance of common stock
              
              
              330,000
              
              
              —Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (86,056
              )
              
              —Inventory
              
              
              (38,226
              )
              
              (23,022
              )Prepaid
                  expenses
              
              
              (61,458
              )
              
              (62,719
              )Accounts
                  payable
              
              
              (248,232
              )
              
              (127,271
              )Accrued
                  payroll and related taxes
              
              
              90,177
              
              
              (33,245
              )Accrued
                  interest payable
              
              
              52,493
              
              
              (8,235
              )Other
                  current liabilities
              
              
              —
              
              
              39,127Net
                  cash used by operating activities
              
              
              (1,819,439
              )
              
              (488,419
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of fixed assets
              
              
              (253,833
              )
              
              (141,126
              )Reductions
                  of (additions to) other assets
              
              
              (54,458
              )
              
              78,586Net
                  cash used by investing activities
              
              
              (308,291
              )
              
              (62,540
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Borrowings
                  under notes payable
              
              
              —
              
              
              25,000Proceeds
                  from sales of convertible debentures payable
              
              
              550,000
              
              
              —Principal
                  payments on notes payable
              
              
              (19,436
              )
              
              —Principal
                  payments on capital lease obligations
              
              
              (4,408
              )
              
              —Proceeds
                  from sales of shares, net of offering costs
              
              
              —
              
              
              78,434Proceeds
                  from sales of common stock, pursuant to exercise of warrants
              
              
              56,937
              
              
              —Proceeds
                  from sales of common stock, pursuant to exercise of options
              
              
              70,548
              
              
              —Net
                  cash provided by financing activities
              
              
              653,641
              
              
              103,434Net
                  increase in cash and cash equivalents
              
              
              (1,474,089
              )
              
              (447,525
              )Cash
                  and cash equivalents, beginning of period
              
              
              1,685,731
              
              
              470,439**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              211,642
              
              $
              22,914Supplemental
                  disclosures of cash flow information:Cash
                  paid for interest
              
              $
              57,657
              
              $
              —





*The
      accompanying notes are an integral part of the financial
      statements.*






3




***NOTE
      1— ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES:***





*Organization:*




The
      accompanying consolidated financial statements are those of IsoRay, Inc. (“the
      Company”), formerly known as Century Park Pictures Corporation, and its
      subsidiary operating company, IsoRay Medical, Inc. (“IsoRay Medical”). Both
      companies are headquartered in Richland, Washington.





The
      accompanying consolidated financial statements should be read in conjunction
      with the Company’s audited financial statements and the notes thereto as of June
      30, 2005, and for the nine months then ended, as contained in the Company’s
      transitional report on Form 10-KSB, as amended, and with the audited financial
      statements of IsoRay Medical as of June 30, 2005 and 2004, and for the years
      then ended, filed on Form 8-K.




*Segment
      Reporting and Major Customers:*




IsoRay
      Medical operates in a single segment: isotope-based medical devices. IsoRay
      Medical began production and sales of its initial FDA approved product, the
      IsoRay 131 Cs
      brachytherapy seed, in October 2004 for the treatment of prostate cancer. Sales
      of the 131 Cs
      brachytherapy seed comprise all operating revenues of both companies. Three
      customers individually comprised more than 10% of product sales for the three
      month period ended September 30, 2005: Chicago Prostate Cancer Center, Texas
      Cancer Clinic, and Warren General Hospital.





*Summary
      of Significant Accounting Policies:*





*Basis
      of presentation* - The
      accompanying unaudited consolidated financial statements have been prepared
      in
      conformity with accounting principles generally accepted in the United States
      of
      America and reflect all normal recurring adjustments which, in the opinion
      of
      management of the Company, are necessary for a fair presentation of the results
      for the periods presented. The results of operations for such periods are not
      necessarily indicative of the results expected for the full fiscal year or
      for
      any future period.





The
      accompanying consolidated financial statements should be read in conjunction
      with the Company’s audited financial statements and the notes thereto as of June
      30, 2005, and for the nine months then ended, as contained in the Company’s
      transitional report on Form 10-KSB, as amended, and with the audited financial
      statements of IsoRay Medical as of June 30, 2005 and 2004, and for the years
      then ended, filed on Form 8-K.





*Basis
      of consolidation* -
      The
      accompanying unaudited consolidated financial statements reflect the balance
      sheets of IsoRay, Inc. and its subsidiary as of September 30, 2005, and the
      results of operation and statements of cash flows for the three months then
      ended net of all adjustments for inter-company transactions.





*Use
      of estimates* - The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions that affect the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenue and expenses during
      the reporting period. Actual results could differ from those estimates and
      assumptions.





*Cash
      and cash equivalents* - Such
      assets consist of demand deposits, including interest-bearing money market
      accounts, held in one financial institution. These amounts are potentially
      subject to concentration of credit risk. The accounts are guaranteed by the
      Federal Deposit Insurance Corporation (FDIC) up to $100,000. At September 30,
      2005, uninsured cash balances totaled $166,973.




4





*Inventory
      -* Inventory
      is reported at the lower of cost, determined using the weighted average method,
      or net realizable value.




*Revenue
      recognition -* The
      Company applies the provisions of SEC Staff Accounting Bulletin (“SAB”)
      No. 104, “Revenue Recognition.” SAB No. 104, which supersedes SAB
      No. 101, “Revenue Recognition in Financial Statements”, provides guidance
      on the recognition, presentation and disclosure of revenue in financial
      statements. SAB No. 104 outlines the basic criteria that must be met to
      recognize revenue and provides guidance for the disclosure of revenue
      recognition policies. The Company recognizes revenue related to product sales
      when (i) persuasive evidence of an arrangement exists, (ii) shipment
      has occurred, (iii) the fee is fixed or determinable, and
      (iv) collectibility is reasonably assured.




Revenue
      for the three months ended September 30, 2005 was derived solely from sales
      of
      the 131 Cs
      brachytherapy seed, which is used in the treatment of cancer. The Company
      recognizes revenue once an order has been received and 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 related
      products are shipped, the amount recorded as deferred revenue is recognized
      as
      revenue. The Company accrues for sales returns and other allowances at the
      time
      of shipment.




*Stock-based
      compensation -* SFAS
      No.
      123, *Accounting
      for Stock-Based Compensation* ,
      as
      amended by SFAS No. 148, requires companies to recognize stock-based expense
      based on the estimated fair value of employee stock options. Alternatively,
      SFAS
      No. 123 allows companies to retain the current approach set forth in Accounting
      Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (APB
      25),
      provided that expanded footnote disclosure is presented. The Company has not
      adopted the fair value method of accounting for stock-based compensation under
      SFAS No. 123, but provides the pro forma disclosure required when appropriate.




*Income
      tax* -
      Deferred taxes are provided, when material, on a liability method whereby
      deferred tax assets are recognized for deductible temporary differences and
      deferred tax liabilities are recognized for taxable temporary differences.
      Temporary differences are the differences between the reported amounts of assets
      and liabilities and their tax bases. There were no material temporary
      differences for the periods presented. Deferred tax assets, subject to a
      valuation allowance, are recognized for future benefits of net operating losses
      being carried forward.




*Earnings
      per share*  - Statement
      of Financial Accounting Standards No. 128, “Earnings per Share,” requires dual
      presentation of basic earnings per share (“EPS”) and diluted EPS on the face of
      all income statements issued after December 15, 1997 for all entities with
      complex capital structures. Basic EPS is computed as net income divided by
      the
      weighted average number of common shares outstanding for the period. Diluted
      EPS
      reflects the potential dilution that could occur from common shares issuable
      through stock options, warrants, and other convertible securities. For the
      periods ended September 30, 2005 and 2004, the effect of the Company’s
      outstanding options and common stock equivalents would have been anti-dilutive.
      Accordingly, only basic EPS is presented, and is computed
      on the basis of the weighted-average number of common shares outstanding during
      the period presented. At September 30, 2005, the Company had 1,260,732 shares
      of
      preferred stock which are exchangeable, on a one-to-one basis, with common
      stock, debentures which could be converted into 995,882 shares of common stock,
      options and warrants to purchase 2,939,682 shares of common stock, and warrants
      to purchase 224,305 shares of preferred stock (which could be exchanged to
      common stock) issued and outstanding. If the Company had been profitable as
      of
      the end of the period, these 5,420,601 shares of common stock that are issuable
      upon conversion, exercise or exchange of the debentures, options, warrants,
      and
      preferred stock would have been included in a separate calculation for diluted
      EPS.




5




***NOTE
      2 — RELATED-PARTY TRANSACTIONS:***





On
      July
      28, 2005, the Board of Directors granted 100,000 options to purchase common
      stock to each of three independent Directors: Thomas Lavoy, Stephen Boatwright,
      and Robert Kauffman. The requisite Form 4 has been filed with the SEC for each
      grantee. Additionally, the Board voted to compensate each of the independent
      Directors $1,000 per meeting for their attendance at the Board meetings.
      Directors who are also serving as management of the Company were not granted
      stock options for Director service, and will not be paid for attendance at
      Board
      meetings.




Mr.
      Boatwright is a member of Keller Rohrback, PLC, which provides legal services
      to
      the Company and IsoRay Medical. During the three-month period ended September
      30, 2005, IsoRay Medical paid Keller Rohrback, PLC approximately $140,000 for
      legal services.




***NOTE
      3 - INCOME TAX:***





As
      of
      September 30, 2005, the deferred tax asset related to the Company’s net
      operating loss carryforward is fully reserved. Due to the provisions of Internal
      Revenue Code Section 338, the Company may have limited net operating loss
      carryforwards available to offset financial statement or tax return taxable
      income in future periods as a result of the July 28, 2005 merger which involved
      a change in control of more than 50 percentage points of the issued and
      outstanding securities of the Company.





***NOTE
      4 - GOING CONCERN:***





The
      financial statements have been prepared assuming that the Company will continue
      as a going concern. Certain conditions indicate that the Company may be unable
      to continue as a going concern. These conditions include the Company’s cash
      balance of $211,642 at September 30, 2005, coupled with the cash expenditure
      rate of approximately $500,000 per month. Management has implemented plans
      to
      obtain additional cash for the Company (see Note 6). However, there is no
      assurance these plans will be successful in providing the Company with the
      cash
      it needs on a timely basis through the end of the current fiscal year. The
      accompanying financial statements do not include any adjustments that might
      be
      necessary should the Company be unable to continue as a going
      concern.





***NOTE
      5 -AMENDMENT OF PRIOR FILINGS:***





This
      consolidated financial report as of, and for the three months ended September
      30, 2005 replaces the previous report filed on Form 10-QSB on November 21,
      2005.
      The Company previously used the historical financial statements of IsoRay,
      Inc.
      (formerly Century Park Pictures Corporation) to compare to the current financial
      statements. The SEC requested these comparative historical statements be
      replaced by historical statements of IsoRay Medical, Inc., the accounting
      acquirer to the merger between IsoRay, Inc. and IsoRay Medical, Inc., completed
      on July 28, 2005. No changes are made to the balance sheet of September 30,
      2005
      or the statements of operations and cash flows for the three months then ended.
      Only the comparative historical information has changed, and as appropriate,
      changes were made in the Management’s Discussion and Analysis of Financial
      Condition and Results of Operations as they make comparisons to the newly
      replaced historical financial statements.





***NOTE
      6 - SUBSEQUENT EVENTS:***





On
      October 14, 2005, a shareholder provided the Company a short-term loan in the
      amount of $250,000. This note bears interest at ten percent and matures on
      December 1, 2005. In connection with the loan, the Company granted a warrant
      to
      purchase 12,500 shares of common stock at an aggregate exercise price of $10
      per
      share.





On
      October 17, 2005, the Company commenced an offering of Investment Units
      (“Units”) for sale, pursuant to a Private Placement Offering (the “Offering”).
      The Offering consists of a maximum of 200 Units, each Unit consisting of 5,000
      shares of common stock and a warrant to purchase 5,000 shares of common stock
      at
      an exercise price of $6.00 per share. This maximum can be increased, at the
      sole
      discretion of the Company, to a maximum of 300 Units. The Units are being sold
      for $20,000 per Unit, and as of November 11, 2005, a total of 51.1 Units had
      been sold for $1,022,000.




6




**ITEM
      2.**  **MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




IsoRay,
      Inc. (formerly known as Century Park Pictures Corporation) was incorporated
      on
      July 13, 1983 in accordance with the laws of the State of
      Minnesota.




**Prior
      operations.** In
      prior
      periods, the Company developed, produced and marketed various intellectual
      products of entities engaged in the motion picture, television, and theatrical
      stage industries, such as creative writers, producers and directors, for the
      motion picture, pay/cable and commercial television markets.




The
      Company had no operations, and minimal assets and liabilities since its fiscal
      year ended September 30, 1999 through May 27, 2005.




**Merger
      with IsoRay Medical, Inc.** On May
      27, 2005, the Company; a newly-formed, wholly-owned subsidiary, Century Park
      Transitory Subsidiary, Inc., a Delaware corporation; Thomas Scallen and Anthony
      Silverman, shareholders of the Company; and IsoRay Medical, Inc. entered into
      a
      Merger Agreement.




On
      July
      28, 2005, the Merger contemplated by the Merger Agreement dated May 27, 2005
      was
      completed with the filing of a Certificate of Merger with the Secretary of
      State
      of Delaware, merging Century Park Transitory Subsidiary, Inc. into IsoRay
      Medical, Inc. As a result of the Merger and pursuant to the Merger Agreement,
      IsoRay Medical became a wholly-owned subsidiary of the Company.




Following
      the Merger, the Company had approximately 10,237,797 shares of common and
      preferred stock outstanding. The total amount of shares outstanding, on a
      fully-diluted basis, at the time of the merger was 13,880,822, which includes
      not only shares of common stock, but also shares of preferred stock, warrants,
      options and convertible debentures that could be exercised or converted into
      shares of common stock. Following the Merger, on a fully diluted basis, the
      shareholders of IsoRay Medical owned approximately 82% of the Company’s
      outstanding securities.




The
      acquisition of IsoRay Medical by the Company on July 28, 2005 effected a change
      in control and was accounted for as a “reverse acquisition” whereby IsoRay
      Medical is the accounting acquirer for financial statement purposes. From an
      accounting perspective, the merger was treated as a recapitalization rather
      than
      a purchase. Accordingly, assets acquired were minimal and non-material, no
      liabilities were assumed, no goodwill was recognized, no research and
      development assets were acquired and written off, and there are no contingent
      payments to be made.




**Current
      and Planned Operations.** IsoRay
      Medical intends to utilize its patented radioisotope technology, chemists,
      engineers and management team to create a major therapeutic medical isotope
      and
      medical device company with the goal of providing improved patient outcomes
      in
      the treatment of prostate cancer and other solid cancer tumors. IsoRay Medical
      began production and sales of its initial FDA approved product, the IsoRay 131 Cs
      brachytherapy seed, in October 2004 for the treatment of prostate cancer.
      Management believes its technology will allow it to capture a leadership
      position in an expanded brachytherapy market. The physical characteristics
      of
      the Cesium-131 (Cs-131 or 131 Cs)
      isotope are expected to decrease radiation exposure to the patient and reduce
      the severity and duration of side effects, while treating cancer cells as
      effectively, if not more so than, other isotopes used in seed brachytherapy.
      Cesium-131 could also enable meaningful penetration in other solid tumor
      applications such as breast, lung, liver, brain and pancreatic cancer, expanding
      the total available market opportunity. The second radioisotope, Yttrium-90
      (Y-90 or 90 Y),
      is
      currently being used in the treatment of non-Hodgkin's lymphoma and is in
      clinical trials for other applications. Other manufacturers have received FDA
      approval for 90 Y
      and
      IsoRay Medical believes production will not require clinical trials or an
      extensive FDA application process. Production is expected to begin in 2006.




Brachytherapy
      seeds are small devices used in an internal radiation therapy procedure. In
      recent years the procedure has become one of the primary treatments for prostate
      cancer and is now used more often than surgical removal of the prostate. The
      seed brachytherapy procedure places radioactive seeds as close as possible
      to
      (in or near) the cancer tumor (the word "brachytherapy" means close therapy).
      The seeds deliver therapeutic radiation by killing
      the tumor cells and cells located in the immediate vicinity of the tumor while
      minimizing exposure to adjacent healthy tissue. This
      allows doctors to administer a higher dose of radiation at one time than is
      possible with external beam radiation. Each seed contains a radioisotope sealed
      within a welded titanium capsule. Approximately 85 to 135 seeds are permanently
      implanted in the prostate in a 45-minute outpatient procedure. The isotope
      decays over time and the seeds become inert. The seeds may be used as a primary
      treatment or in conjunction with other treatment modalities such as external
      beam radiation therapy, chemotherapy, or as treatment for residual disease
      after
      excision of primary tumors.




7




Management
      believes that the IsoRay 131 Cs
      seed
      represents  the
      first
      major advancement in brachytherapy technology in over 18 years with attributes
      that could make it the long term "seed of choice" for internal radiation
      procedures. The 131 Cs
      seed
      has FDA approval for treatment of malignant disease (e.g. cancers of the head
      and neck, brain, liver, lung, breast, prostate, etc.) and may be used in
      surface, interstitial, and intracavity applications for tumors with known
      radiosensitivity.




**Results
      of Operations.**




**Three
      month periods ended September 30, 2005 and 2004.**





**Revenues.** During
      the three months ended September 30, 2005, the Company generated $210,915 in
      sales of its 131 Cs
      seed.
      IsoRay Medical, Inc. began sales of its 131 Cs
      seed
      on October 26, 2004 with one medical center customer. We began the three month
      period ended September 30, 2005 with seven customers who had ordered the 131 Cs
      seed
      from us. At November 11, 2005 the number of medical center customers who have
      ordered the 131 Cs
      seed
      had grown to thirteen. We believe revenue in the subsequent period should
      reflect this growth in customers. The Company had no sales in the three months
      ended September 30, 2004, as sales of the Company’s initial product commenced in
      October, 2004.




**Gross
      loss.** Gross
      loss was $509,251 for the three months ended September 30, 2005. Of the cost
      of
      product sales of $720,166, approximately $235,000 was paid to Pacific Northwest
      National Laboratory (PNNL) for use of their facilities and personnel, which
      are
      provided under contract in support of our current production. In the three-month
      period, we also recorded approximately $28,000 in depreciation expense of tenant
      improvements we made to the production facilities at PNNL prior to inception
      of
      production. The tenant improvements will be fully depreciated in the three-month
      period ending December 31, 2005, and no further PNNL tenant improvement
      depreciation will be recorded after that time. Additionally, in the three month
      period ended September 30, 2005, we spent in excess of $100,000 for production
      materials and small tools, none of which individually exceeded the $2,500
      threshold we use in determining whether to capitalize production equipment.
      These materials and small tools are needed to commence production in our
      independent production facility, PEcoS-IsoRay Radiological Laboratory (PIRL).
      Most are long-lived items, and will not need replacing in the current fiscal
      year. The $720,166 cost of product sales for the period also includes
      approximately $7,750 for accrued vacation expense for production personnel.
      We
      anticipate moving production operations to our independent production facility
      PIRL in the three-month period ending December 31, 2005, and once production
      operations are transitioned from PNNL to PIRL we will no longer have expenses
      for use of PNNL facilities and personnel. **** As
      sales
      had not yet commenced as of September 30, 2004, no gross margin was
      realized.





**Research
      and development.** Research
      and development expenses for the three-month period ended September 30, 2005
      were approximately $25,782. Of this amount, $3,200 was paid in conjunction
      with
      development of a protocol study on the results of 100 patients included in
      the
      protocol. The balance was paid for on-going research and development on the
      yttrium-90 project. Research and development costs for the three months ended
      September 30, 2005 increased over the comparable three months ended September
      30, 2004 by $10,267, or 66%.




8





**Sales
      and marketing expenses.** Sales
      and
      marketing expenses were $315,039 for the three-month period ended September
      30,
      2005. Of this amount, approximately $219,000 was paid for wages, including
      payroll-related taxes, travel, office and other support expenses on behalf
      of
      our sales and marketing and customer service staff, and includes an estimate
      of
      $4,750 for accrued vacation expense for sales and marketing and customer service
      personnel. The balance was spent on advertising, market research, and trade
      shows and conferences. Sales and marketing costs for the three months ended
      September 30, 2005 increased over the comparable three months ended September
      30, 2004 by $253,946 or 416%.




**General
      and administrative expenses.** General
      and administrative expenses for the three months ended September 30, 2005
      amounted to $960,949. During this period, and in conjunction with the merger
      of
      the Company and IsoRay Medical, we recognized a one-time compensation expense
      of
      $330,000, representing the value of 200,000 shares of IsoRay Medical common
      stock issued to an individual as a finder’s fee. The valuation was based on the
      most recent sales of IsoRay Medical common stock in conjunction with a Private
      Placement Memorandum which commenced in October, 2004. In the three month period
      ended September 30, 2005, these 200,000 shares of IsoRay Medical were canceled
      and replaced pursuant to the merger agreement of May 27, 2005 with 168,472
      shares of IsoRay, Inc. common stock. Approximately $255,000 was paid in wages
      and related benefits and taxes during the period. Legal expenses were
      approximately $161,000 for the period, and included approximately $56,000 spent
      in conjunction with a successful out-of-court settlement of an employment
      dispute initiated by a competitor company, whose employee we recently recruited.
      General and administrative expenses for the period also included an estimate
      of
      approximately of $12,500 for accrued vacation expense. General and
      administrative expenses for the three months ended September 30, 2005 increased
      over the comparable three months ended September 30, 2004 by $347,233, or 57%.





**Operating
      loss.** In the
      quarter ended September 30, 2005, the Company had an operating loss of
      $1,811,021. This was an increased loss of $1,120,697, or 163%, over the
      comparable three month period ended September 30, 2004.




**Non-operating
      income (expense).** During
      the three-month period ended September 30, 2005, the Company earned $6,959
      interest income on funds held in certain near-liquid accounts. During this
      period, financing expense was $155,628. Of this amount, approximately $104,000
      was paid as interest on loans, notes and convertible debentures outstanding.
      The
      balance of the financing expense was amortization of pre-paid financing expense,
      primarily the January 2005 issuance of common stock to guarantors of certain
      loans made to the Company, and commissions and legal costs paid in conjunction
      with the issuance of convertible debentures. Total non-operating expense was
      $148,669 for the three month period ended September 30, 2005, an increase of
      $140,069 or 1,629% over the comparable three month period ended September 30,
      2004.




**Net
      loss.** Net
      loss
      for the three month period ended September 30, 2005 was $1,959,690, an increase
      of $1,260,766 or 180% over the comparable three month period ended September
      30,
      2004.




**Liquidity
      and capital resources** .
      Due to
      our significant research and development expenditures and nominal product
      revenues, we have not been profitable and have generated operating losses since
      our inception. The Company had approximately $500,000 cash on hand as of
      November 14, 2005. At the Company's current monthly required operating cash
      expenditures of approximately $500,000 per month, cash on hand would fund the
      Company's operations through December 15, 2005, not including $1.9 million
      in
      approved loans to fund operations for a longer period of time. In addition,
      we
      are raising funds through our Private Placement Memorandum dated October 17,
      2005. As of November 11, 2005, we had received cash proceeds of $1,022,000
      from
      the issuance of units, consisting of common stock and warrants to purchase
      common stock, pursuant to this Private Placement Memorandum.




Our
      growth plan for 2006 includes expanding sales to existing customers, continuing
      a trend that has improved in the last half of 2005; discontinuing production
      efforts at Pacific Northwest National Laboratory, which should decrease
      operating costs; enhancing efforts to reduce the internal cost of goods; and
      expanding the base of suppliers of direct materials and value added services
      to
      direct materials.




9




IsoRay
      Medical has five outstanding loans. The first, from Tri-City Industrial
      Development Council, with an original principal amount of $40,000, was funded
      in
      2001 and requires a final principal only payment of $10,000 in August 2006.
      It
      is non-interest bearing and unsecured. The second loan is from the
      Benton-Franklin Economic Development District in an original principal amount
      of
      $230,000 and was funded in December 2004. It bears interest at eight percent
      and
      has a sixty month term with a final balloon payment. As of November 7, 2005,
      the
      principal balance owed was $215,795. This loan is secured by certain equipment,
      materials and inventory of IsoRay Medical, and also required personal
      guarantees, for which the guarantors have been issued approximately 70,455
      shares of our common stock. The third loan is a line of credit from Columbia
      River Bank, which provides credit in the amount of $395,000. It bears interest
      at a floating prime plus two percent rate, and is secured by certain accounts
      receivable and inventory and personal guarantees, for which the guarantors
      have
      been issued approximately 107,401 shares of our common stock. As of November
      7,
      2005, $200,000 was owed on the line of credit. The fourth loan is with Columbia
      River Bank in the amount of $150,000, of which $50,000 was funded as of October
      31, 2005. This loan is to be used for equipment purchases only and is secured
      by
      the equipment purchased with the borrowed funds. It bears interest at seven
      percent for thirty-six months. As of November 7, 2005, the principal balance
      owed was approximately $35,925. The fifth loan is with Albert Smith in the
      amount of $250,000, and was funded on October 14, 2005. This loan bears interest
      at ten percent and matures on December 1, 2005. In connection with the loan
      by
      Mr. Smith, IsoRay, Inc. granted a warrant to purchase 12,500 shares of common
      stock at an aggregate exercise price of $10.00 to Mr. Smith. IsoRay Medical
      applied to the Hanford Area Economic Investment Fund Committee (HAEIFC) for
      a
      $1,400,000 loan to fund equipment for IsoRay's leased production facility.
      The
      HAEIFC Board has preliminarily approved this loan with an interest rate of
      prime
      plus 2% and a ten year amortization period. The loan will be secured in part
      by
      the equipment acquired as well as personal guarantees. These guarantors will
      be
      issued approximately one share of our common stock for every $12.00 of the
      loan
      guaranteed.




The
      BFEDD
      has granted IsoRay Medical a waiver from enforcing violations of paying officers
      in excess of $100,000 per year and maintaining a certain current asset
      ratio. **** The
      waiver, effective from March 31, 2005 through June 30, 2006, also excuses
      non-compliance with covenants prohibiting fixed asset or lease obligations
      in
      excess of $24,000 per year, covenants prohibiting mergers, and covenants
      requiring maintenance of a certain long-term debt to equity ratio. However,
      IsoRay Medical is currently in default of a covenant requiring that it pay
      no
      greater than forty-five thousand dollars ($45,000) annually for lease payments
      during the life of the loan. Management believes that if the BFEDD accelerates
      repayment that is has sufficient cash resources to satisfy this
      obligation.




IsoRay
      Medical also had $4,132,948 in principal amount of convertible debentures
      outstanding as of November 7, 2005, which were issued between February and
      June
      2005. These debentures could be converted into 995,891 shares of common stock
      at
      a conversion rate of $4.15 per share. Each debenture bears interest at an annual
      rate of eight percent (not compounded), and has a twenty-four month term with
      accrued interest paid quarterly.




On
      April
      4, 2005 a capital lease agreement was executed by IsoRay Medical with Nationwide
      Funding LLC, whereby the lessor funded the $75,000 acquisition of a glove box
      being built to the Company's specifications by Premier Technology, Inc. of
      Pocatello, ID. This is a 48 month agreement with minimum monthly lease payments
      of $2,475.38.




On
      May
      16, 2005 a capital lease agreement was executed by IsoRay Medical with Vencore
      Solutions LLC. This is a capital lease for a hot cell with a lease line in
      the
      amount of $430,000. This is a 36 month lease, with a purchase option at fair
      market value, defined in the lease agreement as not more than 15% of the initial
      fair value purchase price. Based on this amount, for the first five months,
      the
      minimum monthly lease payment will be $8,348.50. The minimum monthly lease
      payment increases to $17,500 for the remaining 31 months, based on the entire
      value of the $430,000 lease line. In connection with the lease agreement, IsoRay
      Medical granted warrants to purchase 6,757 shares of its common stock at
      $3.50/share.




At
        September 30, 2005, cash and cash equivalents amounted to $211,642. During
        the
        three months ended September 30, 2005, the Company issued 97,917 shares of
        common stock pursuant to the exercise of warrants to purchase common stock
        and
        warrants to purchase preferred stock, which were exchanged for common stock
        immediately upon exercise. This exercise of warrants provided the Company
        with
        approximately $56,937. Also during the three months ended September 30, 2005,
        the Company issued 56,284 shares of common stock pursuant to the exercise
        of
        options to purchase common stock. This exercise of options provided the Company
        with approximately $70,548.




10




Management
      believes the Company will also need to draw down on the $1.4 million loan that
      has been preliminarily approved by the Hanford Area Economic Investment Fund
      Committee to provide cash for operations and acquisition of capital equipment
      needed for the balance of the fiscal year ending June 30, 2006.




We
      expect
      to finance our future cash needs through the sale of equity securities and
      possibly strategic collaborations or debt financing or through other sources
      that may be dilutive to existing shareholders. If we need to raise additional
      money to fund our operations, funding may not be available to us on acceptable
      terms, or at all. If we are unable to raise additional funds when needed, we
      may
      not be able to market our products as planned or continue development and
      regulatory approval of our future products. If we raise additional funds through
      equity sales, these sales may be dilutive to existing investors.




We
      have
      no material commitments for capital expenditures and no off-balance sheet
      arrangements.




**CAUTIONARY
      NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS**




*The
      Company's Form 10-KSB, any Form 10-QSB or any Form 8-K of the Company or any
      other written or oral statements made by or on behalf of the Company may contain
      "forward-looking statements" within the meaning of Section 27A of the Securities
      Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
      1934,
      as amended, and subject to the safe harbor created by the Private Securities
      Litigation Reform Act of 1995, which reflect the Company's current views with
      respect to future events and financial performance. The words "believe,"
      "expect," "anticipate," "intends," "estimate," "forecast," "project," and
      similar expressions identify forward-looking statements. 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 economic conditions or performance; any statements
      of belief; and any statements of assumptions underlying any of the
      foregoing.*  *Such
      "forward-looking statements" are subject to risks and uncertainties set forth
      from time to time in the Company's SEC reports and are generally set forth
      below
      and particularly discussed in the Company's Form 10-KSB for the transition
      period ended June 30, 2005 and in the Company's Registration Statement on Form
      SB-2 filed on November 10, 2005, as amended.*




*Readers
      are cautioned not to place undue reliance on such forward-looking statements
      as
      they speak only of the Company's views as of the date the statement was made.
      The Company undertakes no obligation to publicly update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise.*




**Risk
      Factors**




**You
      should consider the following discussion of risks as well as other information
      regarding our operations. The risks and uncertainties described below are not
      the only ones. Additional risks and uncertainties not presently known to us
      or
      that we currently deem immaterial also may impair our business operations.**




·
            Our
                independent accountants have expressed uncertainty about our ability
                to
                continue as a going concern.




·
            Our
                revenues depend upon one product, our131Cs
                brachytherapy seed, which is used to treat only one type of cancer
                as of
                the date of this report, although it is approved to treat any malignant
                tissue.




·
            We
                have limited data on the clinical performance of the131Cs
                seed.




·
            We
                will need to raise additional capital to fund our operations through
                2006.




11




·
            The
                passage of Initiative 297, which may in the future impose restrictions
                on
                sites generating certain types of radioactive wastes in Washington,
                may
                result in the relocation of our manufacturing
                operations.




·
            We
                have limited manufacturing experience and may not be able to meet
                future
                demand without increasing our supply of the isotopes used to manufacture
                our product and also increasing our level of
                staffing.




·
            We
                have limited specific experience with the sales and marketing of
                the131Cs
                seed.




·
            Our
                quarterly operating results will be subject to significant
                fluctuations.




·
            We
                rely heavily on a limited number of
                suppliers.




·
            We
                are subject to uncertainties regarding reimbursement for use of our
                product.




·
            It
                is possible that other treatments may be deemed superior to brachytherapy
                for the treatment of cancer and if this were to occur, demand for
                our
                product would decline.




·
            Our
                industry is intensely competitive, and many of our competitors are
                larger
                than we are and possess greater
                resources.




·
            We
                may be unable to adequately protect or enforce our intellectual property
                rights or secure rights to third-party patents, the value of our
                granted
                patent and our patents pending is uncertain, and one of our licensed
                patents may be terminated under certain
                conditions.




·
            Failure
                to comply with government regulations, which are quite complex, could
                harm
                our business.




·
            Our
                business exposes us to product liability claims and also involves
                environmental risks.




·
            We
                rely upon our executive officers and key scientific
                personnel.




·
            Our
                ability to expand into foreign markets is
                uncertain.




·
            Our
                ability to successfully commercialize our product is
                uncertain.




·
            Our
                reporting obligations as a public company are
                costly.




·
            There
                is a limited market for our common stock, and our stock price is
                likely to
                be volatile.




·
            Our
                common stock may be subject to penny stock regulation.




·
            Future
                sales by shareholders of the shares available for sale in the public
                market, or the perception that such sales may occur, may depress
                the price
                of our common stock.




**ITEM
      3.**  **CONTROLS
      AND PROCEDURES**




(a)  Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the design and operation of our disclosure controls and
      procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
      promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
      Act"), as of September 30, 2005. Based on that evaluation, our principal
      executive officer and our principal financial officer concluded that the design
      and operation of our disclosure controls and procedures were effective in timely
      alerting them to material information required to be included in the Company's
      periodic reports filed with the SEC under the Exchange Act. The design of any
      system of controls is based in part upon certain assumptions about the
      likelihood of future events, and there can be no assurance that any design
      will
      succeed in achieving its stated goals under all potential future conditions,
      regardless of how remote. However, management believes that our system of
      disclosure controls and procedures is designed to provide a reasonable level
      of
      assurance that the objectives of the system will be met.




12




(b)  In
      connection with the review of our consolidated financial statements for the
      period ended September 30, 2005, our independent registered public accounting
      firm advised the Board of Directors and management of certain significant
      internal control deficiencies that they considered to be, in the aggregate,
      a
      material weakness. In particular, our independent registered public accounting
      firm identified the following weaknesses in our internal control system: (1)
      a
      lack of segregation of duties and (2) a lack of formal procedures relating
      to
      all areas of financial reporting. The independent registered public accounting
      firm indicated that they considered these deficiencies to be reportable
      conditions as that term is defined under standards established by the American
      Institute of Certified Public Accountants. A material weakness is a significant
      deficiency in one or more of the internal control components that alone or
      in
      the aggregate precludes our internal controls from reducing to an appropriately
      low level of risk that material misstatements in our financial statements will
      not be prevented or detected on a timely basis. The Company considered these
      matters in connection with the period end closing of accounts and preparation
      of
      the related consolidated financial statements and determined that no prior
      period financial statements were materially affected by such matters.
      Notwithstanding the material weaknesses identified by our independent registered
      public accountants, we believe that the financial statements, and other
      financial information included in this report, fairly present in all material
      respects, the financial condition, results of operation and cash flows of the
      Company as of, and for, the periods represented in this report.




The
      size
      of the Company has prevented us from being able to employ sufficient resources
      at this time to enable us to have an adequate level of supervision and
      segregation of duties within our internal control system. Set forth below is
      a
      discussion of the significant internal control deficiencies that had not been
      remediated as of the end of the period covered by this report.




*Lack
      of segregation of duties* .
      Our
      size has prevented us from being able to employ sufficient resources to enable
      us to have an adequate level of segregation of duties within our internal
      control system. There are one full-time and three part-time persons involved
      in
      processing of transactions. Therefore, it is difficult to effectively segregate
      accounting duties. While we strive to segregate duties as much as practicable,
      budgetary considerations have not previously allowed the additional of full
      time
      staff. We hired a controller effective May 1, 2006 to assist with segregation
      of
      duties and believe this internal control weakness will soon be
      alleviated.




*Lack
      of formal procedures relating to all areas of financial reporting including
      a
      lack of review by management* .
      Due to
      the size of our Company, and as a consequence of the lack segregation of duties,
      we do not have formal month end close procedures. As a result, there is a lack
      of timely review of the financial statements and Form 10-QSB. This significant
      internal control deficiency has not been remediated as of the end of the period
      covered by this report.




If
      we are
      unable to remediate the identified material weaknesses, there is a more than
      remote likelihood that a material misstatement to our SEC reports will not
      be
      prevented or detected, in which case investors could lose confidence in the
      accuracy and completeness of our financial reports, which could have an adverse
      effect on our ability to raise additional capital and could also have an adverse
      effect on our stock price.




**PART
      II - OTHER INFORMATION**




**ITEM
        2. UNREGISTERED SALES OF EQUITY SECURITIES**
  On
        July
        28, 2005, the Company issued warrants to purchase 25,000 shares of its common
        stock to Patrick Lambert as a consulting fee, in reliance on the exemption
        from
        registration provided by § 4(2) of the Securities Act of 1933, as
        amended.




**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**




(a)  Exhibits:




31.1  Rule
      13a-14(a)/15d-14(a) Certification of Principal Executive Officer




31.2  Rule
      13a-14(a)/15d-14(a) Certification of Principal Financial Officer




32  Section
      1350 Certifications




(b)  Reports
      on Form 8-K:




13




On
      August
      3, 2005, the Company filed a Current Report on Form 8-K announcing its
      acquisition of IsoRay Medical, Inc. as its wholly-owned subsidiary and the
      accompanying change in the Company's name to IsoRay, Inc.




On
      August
      15, 2005, the Company filed an amendment to its Current Report on Form 8-K
      filed
      on August 3, 2005, in which the Company provided audited financial statements
      and pro forma financial information for IsoRay Medical, Inc.




On
      August
      17, 2005, the Company filed a Current Report on Form 8-K announcing the new
      trading symbol, "ISRY.PK", for its common stock.




On
      November 3, 2005, the Company filed a Current Report on Form 8-K providing
      audited financial statements for IsoRay Medical, Inc. for the years ended June
      30, 2005 and 2004.




On
      November 3, 2005, the Company filed a Current Report on Form 8-K announcing
      the
      commencement of quotations of its common stock on the OTC Bulletin Board under
      the symbol "ISRY.OB" and IsoRay Medical, Inc.'s nomination for a FLC Award
      for
      Excellence in Technology Transfer.







SIGNATURES





In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





Dated:
      May 12, 2006





ISORAY,
                INC., a Minnesota corporation
              
              By/s/
                Roger E.
                Girard
              Roger
                E. Girard, Chief Executive Officer
              
              
              By/s/
                Michael K.
                Dunlop
              Michael
                K. Dunlop, Chief Financial Officer






14