UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




FORM
      10-QSB




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 November 14, 2005Common
                stock, $0.001 par value
            9,767,026The
                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 Condition
                  and Results
                  of Operations
              7Item
                  3. Controls and Procedures
              13PART
                  II OTHER INFORMATION
              15Item
                  2. Unregistered Sales of Equity Securities
              15Item
                  5. Other Information
              15Item
                  6. Exhibits and Reports on Form 8-K
              15SIGNATURES
              17

















i





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





**Item
      1.**   **Financial
      Statements (Unaudited)**




**IsoRay,
                  Inc. and Subsidiary****Consolidated
                  Balance Sheet (Unaudited)****September
                  30, 2005****ASSETS**Current
                  assets:Cash
                  and cash equivalents
              
              $
              211,642Accounts
                  receivable, net of allowance for doubtfulaccounts
                  of $17,075
              
              
              136,025Inventory
              
              
              120,152Prepaid
                  expenses
              
              
              242,724Total
                  current assets
              
              
              710,543Fixed
                  assets, net of accumulated depreciation and amortization
              
              
              1,050,195Other
                  assets, net of accumulated amortization
              
              
              792,622Total
                  assets
              
              $
              2,553,360**LIABILITIES
                  AND SHAREHOLDERS' (DEFICIT)**Current
                  liabilities:Accounts
                  payable
              
              $
              468,712Accrued
                  payroll and related taxes
              
              
              248,101Accrued
                  interest payable
              
              
              93,818Notes
                  payable, due within one year
              
              
              43,748Capital
                  lease obligations, due within one year
              
              
              8,820Total
                  current liabilities
              
              
              863,199Notes
                  payable, due after one year
              
              
              542,156Capital
                  lease obligations, due after one year
              
              
              15,960Convertible
                  debentures payable, due after one year
              
              
              4,137,875Total
                  liabilities
              
              
              5,559,190Shareholders'
                  (deficit):Preferred
                  stock, $.001 par value, 6,000,000 shares authorized:1,000,000
                  shares allocated to Series A: No shares issued and outstanding5,000,000
                  shares allocated to Series B: 1,260,732 shares issued and outstanding
              
              
              1,261IsoRay,
                  Inc. common stock , $.001 par value; 194,000,000 shares authorized;9,060,221shares
                  issued and outstanding
              
              
              9,060Additional
                  paid-in capital
              
              
              4,271,671Accumulated
                  deficit
              
              
              (7,287,821
              )Total
                  shareholders' (deficit)
              
              
              (3,005,829
              )Total
                  liabilities and shareholders' (deficit)
              
              $
              2,553,360




*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 (Unaudited)****2005**
              
              **2004**Product
                  sales
              
              $
              210,915
              
              $
              -Cost
                  of product sales
              
              
              720,166
              
              
              -Gross
                  profit (loss)
              
              
              (509,251
              )
              
              -Operating
                  expenses:Research
                  and development
              
              
              25,782
              
              
              -Sales
                  and marketing expenses
              
              
              315,039
              
              
              -General
                  and administrative expenses
              
              
              960,949
              
              
              4,169Total
                  operating expenses
              
              
              1,301,770
              
              
              4,169Operating
                  loss
              
              
              (1,811,021
              )
              
              (4,169
              )Non-operating
                  income (expense):Interest
                  income
              
              
              6,959
              
              
              -Financing
                  expense
              
              
              (155,628
              )
              
              -Non-operating
                  income (expense), net
              
              
              (148,669
              )
              
              -Net
                  loss
              
              $
              (1,959,690
              )
              $
              (4,169
              )Net
                  loss per weighted-average share of common stock
              
              $
              (0.22
              )
              $
              NilBasic
                  weighted average shares outstanding
              
              
              8,830,965
              
              
              2,415,215





*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 (Unaudited)****2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (1,959,690
              )
              $
              (4,169
              )Adjustments
                  to reconcile net loss to net cash used by operating activities:Depreciation
                  and amortization of fixed assets
              
              
              45,961
              
              
              -Amortization
                  of deferred financing costs and other assets
              
              
              55,592
              
              
              -Compensation
                  recorded in connection with issuance of common stock
              
              
              330,000
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              (86,056
              )
              
              -Inventory
              
              
              (38,226
              )
              
              -Prepaid
                  expenses
              
              
              (61,458
              )
              
              -Accounts
                  payable
              
              
              (248,232
              )
              
              395Accrued
                  payroll and related taxes
              
              
              90,177
              
              
              -Accrued
                  interest payable
              
              
              52,493
              
              
              -Net
                  cash used by operating activities
              
              
              (1,819,439
              )
              
              (3,774
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Purchases
                  of fixed assets
              
              
              (253,833
              )
              
              -Additions
                  to other assets
              
              
              (54,458
              )
              
              -Net
                  cash used by investing activities
              
              
              (308,291
              )
              
              -**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Funds
                  advanced by officer/shareholder
              
              
              
              
              
              3,774Proceeds
                  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 cash received on exercise of warrants
              
              
              56,937
              
              
              -Proceeds
                  from cash received on exercise of options
              
              
              70,548
              
              
              -Net
                  cash provided by financing activities
              
              
              653,641
              
              
              3,774Net
                  increase (decrease) in cash and cash equivalents
              
              
              (1,474,089
              )
              
              -Cash
                  and cash equivalents, beginning of period
              
              
              1,685,731
              
              
              -**CASH
                  AND CASH EQUIVALENTS, END OF PERIOD**
              
              $
              211,642
              
              $
              -


*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” or the
      "Subsidiary"). 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
      transition report on Form 10-KSB, and with the audited financial statements
      of
      IsoRay Medical as of June 30, 2005 and 2004, and for the years then ended,
      as
      filed with the Company's Form 8-K on November 3, 2005.




The
      Company was incorporated in Minnesota on July 13, 1983. Since 1998, and until
      the completion of the recent merger with IsoRay Medical, which became effective
      July 28, 2005 (July 1, 2005 for accounting purposes), the Company did not
      conduct any business operations and had minimal assets and liabilities. Although
      the Company formerly had a September 30 fiscal year end, pursuant to the merger,
      the Company’s year end was changed to June 30 to coincide with that of IsoRay
      Medical.




*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.




*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 operations 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.




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




4





*Revenue
      Recognition -* Revenue
      for the three months ended September 30, 2005 was derived solely from sales
      of
      the 131 Cs
      brachytherapy seed. This product is shipped FOB shipping point, and is invoiced
      and the sale recorded in accounts receivable 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 derivatives that
      are convertible, exercisable or exchangeable into common stock would have been
      included in a separate calculation for diluted EPS.







***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.




5





***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 to the cash expenditure
      rate
      of approximately $500,000 per month. Management has implemented plans to obtain
      additional cash for the Company (see Note 5). However, there is no assurance
      these plans will be successful in providing the Company 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 - SUBSEQUENT EVENTS:***





On
      October 14, 2005, a shareholder provided the Company a short-term loan in the
      amount of $250,000. This loan 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
      $10.00.




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. As permitted by Statement of Financial Accounting Standards
      (SFAS) No. 141, the effective date of the merger for accounting purposes has
      been established as July 1, 2005. In accordance with SFAS No. 141, the following
      proforma consolidated statement of operations of the Company and IsoRay Medical
      is presented as though the merger had occurred at the beginning of the three
      month period ended September 30, 2004.




7





IsoRay,
                  Inc. and SubsidiaryProforma
                  Consolidated Statement of OperationsThree
                  Months Ended September 30, 2004 (Unaudited)Product
                  sales
              
              $
              -Cost
                  of product sales
              
              
              -Gross
                  profit (loss)
              
              
              -Operating
                  expenses:Research
                  and development
              
              
              15,515Sales
                  and Marketing expenses
              
              
              9,313General
                  and administrative expenses
              
              
              669,665Total
                  operating expenses
              
              
              694,493Operating
                  loss
              
              
              (694,493
              )Non-operating
                  income (expense):Interest
                  income
              
              
              225Financing
                  expens
              
              
              (8,825
              )Net-operating
                  income (expense), net
              
              
              (8,600
              )Net
                  loss
              
              $
              (703,093
              )Net
                  loss per share of common stock
              
              $
              (0.10
              )Basic
                  weighted average shares outstanding
              
              
              7,145,883




Due
      to the fact the
      Company had no operations and minimal assets or liabilities prior
      to its merger with IsoRay Medical, Inc., management believes that comparisons
      to
      prior period financial statements do not provide meaningful information to
      users
      of the Company’s financial statements. Accordingly no comparisons to prior
      period financial statements are discussed.




**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.




8




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 period ended September 30, 2005.**





**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
      has grown to thirteen. We believe revenue in the subsequent period should
      reflect this growth in customers.




**Gross
      profit (loss).** Gross
      profit (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 new facility, the PEcoS-IsoRay Radiological
      Laboratory (PIRL). Most are long-lived items, and should not need replacing
      in the current fiscal year. The $720,166 cost of product sales for the period
      also includes an estimate of $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.




**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 the 100 patients included
      in
      this protocol. The balance was paid for ongoing research and development of
      our
      Y-90 product.




**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 approximately
      $4,750 for accrued vacation expense for sales and marketing and customer service
      personnel. The balance was spent on advertising, market research, trade shows
      and conferences.




9





**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 stock were
      canceled and exchanged as part of the recent merger 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
      an
      out-of-court settlement of an employment dispute. General and
      administrative expenses for the period also included approximately $12,500
      for
      accrued vacation expense.




**Operating
      (Loss).** In the
      quarter ended September 30, 2005, the Company had an operating loss of
      $(1,811,021).




**Non-Operating
      Income (Expense).** During
      the three-month period ended September 30, 2004, 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 cost,
      consisting primarily of 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.




**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.




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.





10





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.




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.





11





**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.*




*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.




·
            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.







12





·
            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 and our significant
                internal control deficiencies have not been
                remediated.




·
            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.




(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.





13





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 hiring of additional
      full time staff. We plan to seek, but cannot be assured that we will be able
      to
      find, a qualified person to perform month end accounting procedures. As a
      result, this significant internal control deficiency had not been remediated
      as
      of the end of the period covered by this report, nor do we know if we will
      be
      able to remediate this weakness in the foreseeable future. However, we will
      continue to monitor and assess the costs and benefits of additional
      staffing.




*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.







14




**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
      5. OTHER INFORMATION**




The Company’s
      Board of Directors engaged DeCoria, Maichel & Teague, P.S., the independent
      auditor for the Company's wholly-owned subsidiary, to be its new independent
      auditor effective November 15, 2005, which was also the effective date of S.W.
      Hatfield, CPA’s dismissal as the Company’s certifying accountant by the
      Board.




Except
      for an expression of doubt about our ability to continue as a going concern,
      S.W. Hatfield audit reports on the Company’s financial statements as of June 30,
      2005 and September 30, 2004 did not contain an adverse opinion or disclaimer
      of
      opinion, nor were they qualified or modified as to uncertainty, audit scope
      or
      accounting principles.




During
      the two fiscal years ended June 30, 2005 and September 30, 2004, and through
      November 15, 2005 there were no disagreements with S.W. Hatfield on any matter
      of accounting principles or practices, financial statement disclosure, or
      auditing scope or procedures, which disagreements, if not resolved to the
      satisfaction of S.W. Hatfield would have caused it to make a reference to the
      subject matter of the disagreements in connection with its report; and there
      were no reportable events as described in Item 304(a)(1)(iv)(B) of Regulation
      S-B promulgated by the Securities and Exchange Commission (the “SEC”) pursuant
      to the Securities Exchange Act of 1934, as amended.




The
      Company provided S.W. Hatfield with a copy of this disclosure and requested
      that
      S.W. Hatfield furnish the Company with a letter addressed to the SEC stating
      whether it agrees with the foregoing statements by the Company and, if not,
      stating the respects in which it does not agree. A copy of the letter from
      S.W.
      Hatfield is filed herewith as Exhibit 16.1.




During
      the Company’s two most recent fiscal years and through November 15, 2005, the
      Company did not consult DeCoria, Maichel & Teague with respect to the
      application of accounting principles to a specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      the Company’s financial statements, or any other matters or reportable events
      listed in Item 304(a)(2) of Regulation S-B. However, IsoRay Medical, the
      Company's wholly-owned subsidiary, has consulted with DeCoria, Maichel &
      Teague, its independent auditor, during these time periods solely in connection
      with IsoRay Medical's financial statements.




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




(a) Exhibits:




10.19
            Express
                Pricing Agreement, dated October 5, 2005 between Federal Express
                Corp. and
                IsoRay Medical, Inc.




10.20
            Girard
                Employment Agreement, dated October 6, 2005, between Roger E. Girard
                and
                IsoRay, Inc.




10.21
              Contract
                  Modification Quality Class G, dated October 25, 2005, to Contract
                  Number
                  X40224 between Energy Northwest and IsoRay,
                  Inc.
 
 16.1
              Letter from S.W. Hatfield, CPA to the SEC dated
                November
                21, 2005.




15




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:




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.




16





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:
      November 21, 2005




ISORAY,
              INC., a Minnesota corporationBy:
            /s/ Roger
              E. GirardRoger
              E. Girard, Chief Executive
              Officer




By:
            /s/ Michael
              K. DunlopMichael
              K. Dunlop, Chief Financial
              Officer

















17