**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**Form
      10-KSB/A**


**Amendment
      No. 2**








(Mark
      one)





o **Annual
      Report Under Section 13 or 15(d) of The Securities Exchange Act of
      1934**





For
      the
      fiscal year ended _________________





x  **Transition
      Report Under Section 13 or 15(d) of The Securities Exchange Act of
      1934**





For
      the transition period from October 1, 2004 to June 30, 2005











Commission
      File Number: 0-14247





**IsoRay,
      Inc.**


(Exact
      name of small business issuer as specified in its charter)





Minnesota
            
            41-1458152(State of incorporation)
            
            (IRS
                Employer ID
                Number)






350
      Hills Street, Suite 106, Richland, WA 99354


(Address
      of principal executive offices)





(509)
      375-1202


(Issuer’s
      telephone number)








Securities
      registered under Section 12 (b) of the Exchange Act - None





Securities
      registered under Section 12(g) of the Exchange Act - Common Stock - $0.001
      par
      value







Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. o






Check
      whether the 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 the Company was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No
o




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of Company’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. o






Indicate
      by check mark whether the Registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act):











Yes
o No
      x








The
      issuer’s revenues for the nine month transitional period ended June 30, 2005
      were $-0-.




The
      aggregate market value of voting common equity held by non-affiliates as of
      September 30, 2005 was approximately $34,372,217.




As
      of
      September 30, 2005, there were 9,060,221 shares of Common Stock issued and
      outstanding.




Transitional
      Small Business Disclosure Format: Yes o No x




2


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Transitional
      Report on Form 10-KSB**


**for
      the period from October 1, 2004 through June 30, 2005**





**Table
      of Contents**







Page**Part
                  I**Item
                  1
              Description
                  of Business
              1Item
                  2
              Description
                  of Property
              29Item
                  3
              Legal
                  Proceedings
              29Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              29**Part
                  II**Item
                  5
              Market
                  for Common Equity, Related Stockholders’ Matters,and
                  Small Business Issuer Purchases of Equity Securities
              29Item
                  6
              Management’s
                  Discussion and Analysis or Plan of Operation
              31Item
                  7
              Financial
                  Statements
              34Item
                  8
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosures
              34Item
                  8A
              Controls
                  and Procedures
              34**Part
                  III**Item
                  9
              Directors,
                  Executive Officers, Promoters and Control Persons;Compliance
                  with Section 16(a) of the Exchange Act
              34Item
                  10
              Executive
                  Compensation
              38Item
                  11
              Security
                  Ownership of Certain Beneficial Owners andManagement
                  and Related Stockholder Matters
              40Item
                  12
              Certain
                  Relationships and Related Transactions
              42Item
                  13
              Exhibits
                  and Reports on Form 8-K
              44Item
                  14
              Principal
                  Accountant’s Fees and Services
              48**Signatures**
              
              49










**Caution
      Regarding Forward-Looking Information**






All
      statements contained in this Form 10-KSB, other than statements of historical
      facts, that address future activities, events or developments are
      forward-looking statements, including, but not limited to, statements containing
      the words “believe,” “anticipate,” “expect” and words of similar import. These
      statements are based on certain assumptions and analyses made by us in light
      of
      our experience and our assessment of historical trends, current conditions
      and
      expected future developments as well as other factors we believe are appropriate
      under the circumstances. However, whether actual results will conform to the
      expectations and predictions of management is subject to a number of risks
      and
      uncertainties that may cause actual results to differ materially.




Such
      risks include, among others, the following: international, national and local
      general economic and market conditions: our ability to sustain, manage or
      forecast our growth; raw material costs and availability; new product
      development and introduction; existing government regulations and changes in,
      or
      the failure to comply with, government regulations; adverse publicity;
      competition; the loss of significant customers or suppliers; fluctuations and
      difficulty in forecasting operating results; changes in business strategy or
      development plans; business disruptions; the ability to attract and retain
      qualified personnel; the ability to protect technology; and other factors
      referenced in this and previous filings.




Consequently,
      all of the forward-looking statements made in this Form 10-KSB are qualified
      by
      these cautionary statements and there can be no assurance that the actual
      results anticipated by management will be realized or, even if substantially
      realized, that they will have the expected consequences to or effects on our
      business operations.




As
      used
      in this Form 10-KSB, unless the context requires otherwise, “we” or “us” or the
“Company” means IsoRay, Inc. (formerly Century Park Pictures
      Corporation).




**PART
      I**




**ITEM
      1 - DESCRIPTION OF BUSINESS**




General




The
      Company was organized under Minnesota law in 1983.




The
      Company had no operations, assets or liabilities since its fiscal year ended
      September 30, 1999 through June 30, 2005.




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., a Delaware
      corporation entered into a Merger Agreement (“Merger”). On July 28, 2005, the
      Merger closed. As a result of the Merger, IsoRay Medical, Inc. became a
      wholly-owned subsidiary of the Company. The Company concurrently changed its
      name to IsoRay, Inc. In the Merger, the IsoRay stockholders received
      approximately 82% of the then outstanding securities of the Company, as
      described below.




The
      Company issued shares of its common stock and shares of its preferred stock
      to
      holders of common and preferred stock of IsoRay Medical, Inc. at a rate of
      0.842362 share of the Company’s common stock for each share of IsoRay Medical,
      Inc. stock. Options and warrants to purchase common and preferred stock of
      IsoRay Medical, Inc. were also converted at the same rate into options and
      warrants to purchase common and preferred stock of the Company. At the time
      of
      the Merger and following its recent 1:30 reverse stock split, the Company had
      2,498,319 shares of common stock outstanding. Following the Merger, the Company
      had 10,237,797 shares of common and preferred stock outstanding. The total
      amount of shares outstanding, on a fully-diluted basis, post merger was
      13,880,822, which included 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, Inc. owned
      approximately 82% of the Company’s outstanding securities.







Description
      of Former Business Operations




**Certain
      Defined Terms**




The
      technical terms defined below are important to understand as they are used
      throughout this report and particularly in this discussion of the business
      of
      IsoRay Medical. When used in this report, unless the context requires
      otherwise:




**“Brachytherapy”** refers
      to the process of placing therapeutic radiation sources in, or near, diseased
      tissue. Brachytherapy is derived from a Greek term meaning “short distance”
therapy.




**“Cesium-131”** or **“** **131** **Cs”** is an
      isotope of the element Cesium that gives off low energy, “soft” x-rays as it
      decays. Cesium-131 decays to 50% of its original activity every 9.7 days,
      becoming essentially inert after 100 days.




**“EBRT”** (external beam radiation therapy) is the external treatment of prostate cancer
      using an x-ray-like machine that targets a beam of radiation at the cancer
      site.
      The treatment damages genetic material within the cancer cells, which prevents
      the cells from growing and the affected cells eventually die. Treatments are
      generally performed at an outpatient center five days a week for seven or eight
      weeks.




**“Half-life”** means
      the time required for a radioisotope to decay to one-half of its previous
      activity. The amount of radiation emitted thus decreases to 25% of original
      activity in two half-lives, 12.5% in three half-lives, and so on.




**“Isotope”** refers
      to atoms of the same element that have different atomic masses. The word
“isotope” means “same place,” referring to the fact that isotopes of a given
      element have the same atomic number and hence occupy the same place in the
      Periodic Table of the Elements. Thus, they are very similar in their chemical
      behavior.




**“** **131** **Cs
      seed”** is the
      name by which IsoRay Medical’s first product, the Cesium-131-based brachytherapy
      seed, is currently known.




**“Pure-beta
      particle emitter”** is a
      radioisotope whose only emissions during radioactive decay are beta particles
      (electrons). Beta particles can travel several millimeters in
      tissue.




**“RP”** (radical
      prostatectomy or prostatectomy) is the complete surgical removal of the
      prostate, under significant anesthesia. Two main types of surgery have evolved:
      nerve-sparing and non nerve-sparing. The nerve-sparing surgery is designed
      to
      minimize damage to the nerves that control penile erection.




**“Radiobiologic”** is
      characteristic of the effects of radiation on organisms or tissues, most
      commonly the effectiveness of therapeutic radiation in interrupting cell growth
      and replication.




**“Radioisotope”** is a
      natural or man-made isotope of an element that spontaneously decays while
      emitting ionizing radiation.




**“Seed”** is a
      common term for small radiation sources consisting of a radioisotope sealed
      within a biocompatible capsule such as gold or titanium, suitable for temporary
      or permanent brachytherapy implantation.




**“Therapeutic
      radiation”** refers
      to
      ionizing radiation with sufficient energy to disrupt basic biological processes
      of cells.




**“Yttrium-90”** or **“** **90** **Y”** is a
      radioisotope that emits high energy beta particles with a half-life of 2.67
      days.




**“Zirconium-90”** is a
      stable (non-radioactive) decay product of Yttrium-90.





2






**Overview**




IsoRay
      Medical, Inc. was formed on June 15, 2004 as a corporation in the State of
      Delaware, and in October 2004 it merged with two predecessor companies to
      combine all of the IsoRay operations into one company.




IsoRay
      Medical intends to utilize its patented radioisotope technology, experienced
      chemists and engineers, and management team to create a major therapeutic
      medical isotope and medical device company with a 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 Food and Drug
      Administration (“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 more clinically beneficial
      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
      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.




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.




The 131 Cs
      isotope appears to have specific clinical advantages for treating cancer over
      Iodine-125 (I-125 or 125 I)
      and
      Palladium-103 (Pd-103 or 103 Pd),
      the
      other isotopes commonly used in brachytherapy procedures. IsoRay Medical
      believes that the short half-life and higher dose rate characteristics of 131 Cs
      will
      expand industry applications and facilitate meaningful penetration into the
      treatment of other forms of cancer tumors such as breast cancer. The shorter
      half-life of 9.7 days for 131 Cs
      (versus 17.5 days for 103 Pd
      and 60
      days for 125 I)
      mitigates negative effects of long radiation periods on healthy tissue and
      is
      believed to reduce the duration of certain side effects. The higher initial
      dose
      rate is believed to be more effective on fast growing cancers by aggressively
      attacking cancer cells and disrupting cancer cell re-population cycles. The
      characteristics of 131 Cs  may
      result in the use of 10-30% fewer seeds per procedure thereby reducing the
      total
      physical radiation dose to the patient and reducing the costs of the procedure
      for both third party payers and the patient.




IsoRay
      Medical’s second product, Yttrium-90, is also a short-lived (half-life of 64
      hrs) radioisotope that is already used in the treatment of non-Hodgkin’s
      lymphoma, leukemia, ovarian cancer, prostate cancer, osteosarcomas, and tumors
      of the breast, lung, kidney, colon and brain. These applications apply primarily
      to metastasized, or spread through the body, cancers. Currently more than 20
      clinical trials using 90 Y
      are
      underway in the U.S. Yttrium-90 is also used at multiple treatment centers
      in
      Europe. Several members of the current IsoRay Medical team developed a process
      to produce high-purity 90 Y  for
      medical applications during the mid-1990s. Currently over 90 percent of the 90 Y  used
      in
      the U.S. is imported. IsoRay Medical’s management believes there is an immediate
      market opportunity for a highly purified 90 Y.




3


IsoRay
      Medical and its predecessor companies have accomplished the following key
      milestones:




·
            Opened
                a new manufacturing and production facility (October
                2005);




·
            Deployed
                a direct sales force to the market (July 2004 - July
                2005);




·
            Developed
                a treatment protocol for prostate cancer with a leading oncologist
                (January 2005);




·
            Treated
                the first patient (October 2004);




·
            Commenced
                production of the131Cs
                seed (August 2004);




·
            Filed
                five additional patent applications for131Cs
                and90Y
                processes (November 2003 - August
                2004);




·
            Obtained
                a Nuclear Regulatory Commission Sealed Source and Device Registration
                required by the Washington State Department of Health and the FDA
                (September 2004);




·
            Received
                a Radioactive Materials License from the Washington State Department
                of
                Health (July 2004);




·
            Implemented
                an ISO-9000 Quality Management System and production operating procedures
                (under continuing development);




·
            Signed
                a Commercial Work for Others Agreement between Battelle (manager
                of the
                Pacific Northwest National Laboratory or PNNL) and IsoRay Medical,
                allowing initial production of seeds through 2006****at
                PNNL (April 2004);




·
            Raised
                over $10.3 M in debt and equity funding (September 2003 - July 2005)




·
            Obtained
                favorable Medicare reimbursement codes for the Cs-131 brachytherapy
                seed
                (November 2003);




·
            Obtained
                FDA 510(k) approval to market the first product: the131Cs
                brachytherapy seed (March 2003);




·
            Completed
                initial radioactive seed production, design verification, computer
                modeling of the radiation profile, and actual dosimetric data compiled
                by
                the National Institute of Standards and Technology and PNNL (October
                2002); and




·
            Obtained
                initial patent for131Cs
                isotope separation and purification (May 2000).




**Industry
      Information**




*Incidence
      of Prostate Cancer*




Excluding
      skin cancer, prostate cancer is the most common form of cancer, and the second
      leading cause of cancer deaths in men. The American Cancer Society estimated
      there will be about 232,090 new cases of prostate cancer diagnosed and an
      estimated 30,350 deaths associated with the disease in the United States during
      2005. Because of early detection techniques (e.g., screening for prostate
      specific antigen, or PSA) approximately 70% (162,400) of these cases are
      potentially treatable with seed brachytherapy, when the cancers are still
      locally confined within the prostate.




The
      prostate is a walnut-sized gland surrounding the male urethra, located below
      the
      bladder and adjacent to the rectum. The two most prevalent prostate diseases
      are
      benign prostatic hyperplasia (BPH) and prostate cancer. BPH is a non-cancerous
      enlargement of the innermost part of the prostate. Prostate cancer is a
      malignant tumor that begins most often in the periphery of the gland and, like
      other forms of cancer, may spread beyond the prostate to other parts of the
      body.




4


Prostate
      cancer incidence and mortality increase with age. Prostate cancer is found
      most
      often in men who are over the age of 50. More than seven out of ten men
      diagnosed with prostate cancer are over the age of 65. According to the American
      Cancer Society, approximately one man in six will be diagnosed with prostate
      cancer during his lifetime, although only one man in thirty-three will die
      of
      this disease.




In
      addition to age, other risk factors are linked to prostate cancer, such as
      genetics. Men who have relatives that have been affected, especially if the
      relatives were young at the time of diagnosis, have an even higher risk of
      contracting the disease. Researchers have discovered that changes in certain
      genes, influenced by DNA mutations inherited from a parent, may cause some
      men
      to be more inclined to develop prostate cancer. It has also been suggested
      that
      environmental factors such as exposure to cancer-causing chemicals or radiation
      may cause DNA mutations in many organs, but this theory has not been confirmed.
      Another factor that may contribute to prostate cancer is diet, with diets high
      in fat and high in calcium possibly increasing the risk of prostate cancer.




The
      American Cancer Society recommends that men without symptoms, risk factors
      and
      who have a life expectancy of at least ten years, should begin regular annual
      medical exams at the age of 50, and believes that health care providers should
      offer as part of the exam the prostate-specific antigen (PSA) blood test and
      a
      digital rectal examination. The PSA blood test determines the amount of prostate
      specific antigen present in the blood. PSA is found in a protein secreted by
      the
      prostate, and elevated levels of PSA can be associated with either prostatitis
      (a noncancerous inflammatory condition) or a proliferation of cancer cells
      in
      the prostate. Transrectal ultrasound tests and biopsies are typically performed
      on patients with elevated PSA readings to confirm the existence of cancer.




A
      tumor
      found by a prostate biopsy is usually assigned a grade by a pathologist. The
      most common prostate cancer grading system is called the Gleason grading system.
      A Gleason score, which ranges from 2 to 10, usually is used to estimate the
      tumor’s growth rate. Typically, the lower the score, the slower the cancer
      grows. Most localized cancers of the prostate gland are associated with an
      intermediate score ranging from Gleason scores 4 through 6.




Staging
      is the process of determining how far the cancer has spread. The treatment
      and
      recovery outlook depend on the stage of the cancer. The TNM system is the
      staging process used most often. The TNM system describes the extent of the
      primary tumor (T stage), whether the cancer has spread to nearby lymph nodes
      (N
      stage), and the absence or presence of distant metastasis (M stage). The TNM
      descriptions can be grouped together with stages labeled 0 through IV (0-4).
      The
      higher the number, the further the cancer has spread. The following table
      summarizes the various stages of prostate cancer.




Stages
            
            Characteristics
                of prostate cancerT1
                or T2
            
            Localized
                in the prostateT3
                or T4
            
            Locally
                advancedN+
                or M+
            
            Spread
                to pelvic lymph nodes (N+)or distant organs
                (M+)




*Treatment
      Options and Protocol*




In
      addition to brachytherapy, localized prostate cancer is commonly treated with
      radical prostatectomy (RP) and external beam radiation therapy (EBRT). Recently,
      intensity modulated radiation therapy (IMRT) has seen increased application,
      particularly in combination with brachytherapy for cancers that have begun
      to
      spread beyond the prostate. Other treatments include cryosurgery, hormone
      therapy, watchful waiting, and finasteride, a drug commonly prescribed to treat
      benign enlargement of the prostate and male baldness. Some of these therapies
      may be combined in special cases to address a specific cancer stage or patient
      need. When the cancerous tissue is not completely eliminated, the cancer
      typically returns to the primary site, often with metastases to other areas.




*Radical
      Prostatectomy.* Historically
      the most common treatment option for prostate cancer, radical prostatectomy
      is
      an invasive surgical procedure in which the entire prostate gland is removed.
      RP
      is performed under general anesthesia and typically involves a hospital stay
      of
      several days for patient observation and recovery. This procedure is often
      associated with relatively high rates of impotence and incontinence. For
      instance, a study published in the *Journal
      of the*  *American
      Medical Association* in
      January 2000 reported that approximately 60% of men who had received RP
      reported erectile dysfunction as a result of surgery. The same report found
      that
      approximately 40% of the patients studied reported at least occasional
      incontinence. New bilateral nerve-sparing techniques are currently being used
      more frequently in order to address these side effects, but these techniques
      require a high degree of surgical skill. RP is typically more expensive than
      other common treatment modalities.




5


*External
      Beam Radiation Therapy.* EBRT
      allows patients to receive treatment on an outpatient basis and at a lower
      cost
      than RP. EBRT involves directing a beam of radiation from outside the body
      at
      the prostate gland in order to destroy cancerous tissue. The course of treatment
      usually takes seven to eight weeks to deliver the total dose of radiation
      prescribed to kill the tumor. Studies have shown, however, that the ten-year
      disease free survival rates with treatment through EBRT are less than the
      disease free survival rates after RP or brachytherapy treatment. In addition,
      because the radiation beam travels through the body to reach the prostate,
      normal tissue lying in the path of the radiation beam is also damaged. Other
      side effects are associated with EBRT. For instance, rectal wall damage caused
      by the radiation beam is a noted negative side effect. Data suggests that
      between 30% and 40% of the patients who undergo EBRT suffer problems with
      erectile dysfunction after treatment.




*Intensity
      Modulated Radiation Therapy.* IMRT
      is a
      newer, more advanced form of EBRT in which sophisticated computer control is
      used to aim the beam at the target volume from multiple different angles and
      to
      vary the intensity of the beam. Thus, damage to normal tissue and critical
      structures is minimized by distributing the unwanted radiation over a larger
      geometric area. The course of treatment is similar to EBRT and requires daily
      doses over a period of seven to eight weeks to deliver the total dose of
      radiation prescribed to kill the tumor. IMRT is relatively new and thus not
      widely available for use as a treatment modality. As a result fewer clinical
      data regarding treatment effectiveness and the incidence of side effects are
      available. One advantage of IMRT, and to some extent EBRT, is the ability to
      treat cancers that have begun to spread from the tumor site. An increasingly
      popular therapy for patients with more advanced prostate cancer is a combination
      of IMRT with seed implant brachytherapy (which until protocols are developed,
      does not include the Cesium-131 seed).




*Cryosurgery.* Cryosurgery,
      a procedure in which tissue is frozen to destroy tumors, is another treatment
      option for prostate cancer. Currently, this procedure is less widely used,
      although promising treatment outcomes have been reported. Cryosurgery typically
      requires a one to two day hospital stay and is associated with higher rates
      of
      impotence and other side effects than brachytherapy.




*Other
      Treatments.* Other
      treatments include hormone therapy and chemotherapy, which may be used to reduce
      the size of cancerous tumors. However, these treatments are not intended to
      ultimately cure a patient of prostate cancer. Instead, such treatment choices
      are made by physicians in an attempt to extend patients’ lives if the cancer has
      reached an advanced stage or as ancillary treatment methods used in conjunction
      with other treatment modalities. Common side effects of hormone therapy are
      impotence, decreased libido and development of breasts, and common side effects
      of chemotherapy are nausea, hair loss and fatigue.




“Watchful
      waiting,” while not a treatment, is recommended by some physicians in extreme
      circumstances based on the severity and growth rate of the disease, as well
      as
      the age and life expectancy of the patient. Physicians and patients who choose
      watchful waiting are frequently seeking to avoid the negative side effects
      associated with RP or other treatment modalities. Through careful monitoring
      of
      PSA levels and close examination for advancing symptoms of prostate cancer,
      physicians may choose more active treatments at a later date.




*Treatment
      Protocol.* Prostate
      cancer patients electing seed therapy first undergo an ultrasound test or CT
      scan, which generates a two-dimensional image of the prostate. With the
      assistance of a computer program, a three-dimensional treatment plan is created
      that calculates the number and placement of the seeds required for the best
      possible distribution of radiation to the prostate. Once the implant model
      has
      been constructed, the procedure is scheduled and the seeds are ordered. The
      number of seeds implanted normally ranges from 85 to 135, with the number of
      seeds varying with the size of the prostate. The procedure is usually performed
      under local anesthesia in an outpatient setting. The seeds are implanted using
      needles inserted into the prostate. When all seeds have been inserted, seed
      placement is verified through an ultrasound image, CT scan, fluoroscope or
      MRI.
      An experienced practitioner typically performs the procedure in approximately
      45
      minutes, with the patient normally returning home the same day. Most patients
      are able to return to their normal activities within one or two days following
      the procedure.




6


*Origin
      of Brachytherapy seeds*




One
      of
      the first reports in the medical literature regarding brachytherapy seeds that
      deliver “soft x-ray” radiation directly to tumors by permanent implantation
      appeared in 1965, authored by Donald C. Lawrence and Dr. Ulrich K.
      Henschke. Don Lawrence later developed and patented the titanium-encapsulated 125 I
      brachytherapy seed. His company, Lawrence Soft Ray Inc., provided the world’s
      supply of seeds from 1967 to 1978 until the 3M Corporation purchased the
      technology. Eventually 3M sold the business to Amersham PLC, which spun off
      this
      business to its division ONCURA ,
      today
      the market leader in Iodine-125 seeds. All commercially available seeds trace
      their origin to Mr. Lawrence’s invention. Don Lawrence was a founder of
      IsoRay, LLC, the first predecessor company to IsoRay Medical.




Brachytherapy
      has been used as a treatment for prostate cancer for more than 30 years.
      Formerly, seeds containing the radioactive isotope Iodine-125 were implanted
      in
      prostate tumors through open surgery. However, this technique fell into disfavor
      because the seeds were often haphazardly arranged resulting in radiation not
      reaching all of the targeted cancerous tissue. Compounding this was the fact
      that often an unintended radiation dose was delivered to healthy surrounding
      tissues, particularly the urethra and rectum. Originally, brachytherapy earned
      an unfavorable reputation because the early adopters did not have the imaging
      technologies needed for accurate placement of the seeds. This resulted in poor
      tumor control and greater damage to surrounding healthy tissue. Since the
      introduction of the ultrasound-guided, transperineal implantation technique
      in
      the late 1980’s, brachytherapy has become a treatment that not only provides
      excellent therapeutic value but is very convenient and economical for the
      patient. The benefits of the advancements in imaging, computer dose planning,
      and the actual implant procedure are borne by the improved clinical results
      achieved using modern brachytherapy techniques.




The
      introduction of Palladium-103 in the mid-1980s represented a major technology
      advancement in brachytherapy and played a significant role in the dramatic
      increase in the number of brachytherapy procedures performed. Within a
      relatively short period of time, 103 Pd
      captured 40% of the growing brachytherapy market.




Cesium-131  represents  the
      first
      major advancement in brachytherapy technology in over 18 years with attributes
      that management believes could make it the long term “seed of choice” for
      internal radiation procedures. Management believes that the 131 Cs
      seed has specific
      clinical advantages for
      treating cancer over 125 I
      and 103 Pd.




There
      is
      a large and growing potential market for the Company’s products. Several
      significant clinical and market factors are contributing to the increasing
      popularity of the brachytherapy procedure. In Europe brachytherapy is growing
      in
      excess of 20% per year and it is expected that market growth in the U.S. will
      also increase dramatically. In 1996 only 4% of prostate cancer cases were
      treated with brachytherapy, or about 8,000 procedures. In 2005, it is estimated
      that over 60,000 brachytherapy procedures will be performed for prostate cancer.
      Brachytherapy as a treatment is now more common than radical prostatectomy
      and
      has become the treatment of choice for early-stage prostate cancer. Considerable
      attention is now being given to high risk and faster growing prostrate cancers
      as well. Brachytherapy has significant advantages over competing treatments
      including lower cost, better survival data, fewer side effects, a faster
      recovery time and the convenience of a single outpatient procedure that
      generally lasts 45 minutes (Merrick, et al., *Techniques
      in Urology* ,
      Vol. 7,
      2001; Potters, et al., *Journal
      of Urology* ,
      May
      2005; Sharkey, et al., *Current
      Urology Reports* ,
      2002). ****




*Clinical
      Results*




Long
      term
      survival data are now available for brachytherapy with 103 Pd
      and 125 I,
      which
      support the efficacy of brachytherapy. Clinical data indicate that brachytherapy
      offers success rates for early-stage prostate cancer treatment that are equal
      to
      or better than those of RP or EBRT. While clinical studies of brachytherapy
      to
      date have focused on results from brachytherapy with Pd-103 and I-125,
      management believes that this data will be relevant for brachytherapy with
      Cs-131, and Cs-131 may offer improved clinical outcomes over Pd-103 and I-125,
      given its shorter half-life and higher energy.




*Improved
      patient outcomes.* A number
      of published studies on the use of 103 Pd
      and 125 I
      brachytherapy in the treatment of early-stage prostate cancer have been very
      positive. We have not obtained consent to cite the studies listed below.




7


·
            A
                twelve-year clinical study published in the 2004 Supplement of the*International
                Journal of Radiation Oncology, Biology and Physics*,
                reported that the relative survival rate is 84% for low risk cancer
                patients, 78% for intermediate risk cancer patients and 68% for high
                risk
                cancer patients. The study was conducted by Dr. Lou Potters, et al.
                of the New York Prostate Institute and included 1,504 patients treated
                with brachytherapy between 1992 and 2000.




·
            A
                study published in the January 2004 issue of the*International
                Journal of Radiation Oncology, Biology and Physics*,
                reported that brachytherapy, radical prostatectomy, high-dose external
                beam radiation therapy and combined therapies produced similar cure
                rates.
                The study was conducted by Dr. Patrick Kupelian, Dr. Louis
                Potters, et al. and included 2,991 patients with Stage T1 or T2
                prostate cancer. Of these patients, 35% of patients underwent surgery,
                16%
                received low-dose EBRT, 10% received high-dose EBRT, 7% received
                combination therapy and 32% received brachytherapy. After five years,
                the
                biochemical relapse-free survival rate was 83% for brachytherapy,
                81% for
                radical prostatectomy, 81% for high-dose EBRT, 77% for combination
                therapy
                and 51% for low-dose EBRT.




·
            A
                nine-year clinical study published in the March 2000 issue of the*International
                Journal of Radiation Oncology, Biology and Physics*,
                reported that 83.5% of patients treated with the Pd-103 device were
                cancer-free at nine years. The study was conducted by Dr. John Blasko
                of the Seattle Prostate Institute and included 230 patients with
                clinical
                stage T1 and T2 prostate cancer. Only 3% experienced cancer recurrence
                in
                the prostate.




·
            Results
                from a 10-year study conducted by Dr. Datolli and Dr. Wallner
                published in the*International
                Journal of Radiation Oncology, Biology and Physics*in
                September 2002, were presented at the October 2002 American Society
                for
                Therapeutic Radiology and Oncology (ASTRO) conference confirming
                the
                effectiveness of the Pd-103 seed in patients with aggressive cancer
                who
                previously were considered poor candidates for brachytherapy. The
                10-year
                study was comprised of 175 patients with Stage T2-T3 prostate cancer
                treated from 1991 through 1995. Of these patients, 79 percent remained
                completely free of cancer without the use of hormonal therapy or
                chemotherapy.




·
            A
                study by the Northwest Prostate Institute in Seattle, Washington
                reported
                79% disease-free survival at 12 years for brachytherapy in combination
                with external beam radiation (Ragde,*et
                al*.,*Cancer,*July 2000). The chance of cure from brachytherapy is nearly 50%
                higher than for other therapies for men with large cancers (PSA 10-20)
                and
                over twice as high as other therapies for men with the largest cancers
                (PSA 20+) (K. Wallner,*Prostate
                Cancer: A Non-Surgical Perspective,*Smart Medicine Press, 2000).




*Reduced
      Incidence of Side Effects.* Sexual
      potency and urinary incontinence are two major concerns men face when choosing
      among various forms of treatment for prostate cancer. Because the IsoRay 131 Cs
      seed
      delivers a highly concentrated and confined dose of radiation directly to the
      prostate, healthy surrounding tissues and organs typically experience less
      radiation exposure. Management believes, and initial results appear to support,
      that this should result in lower incidence of side effects and complications
      than may be incurred with other conventional therapies, and when side effects
      do
      occur, they should resolve more rapidly than those experienced with I-125 and
      Pd-103 isotopes.




*Favorable
      Market Factors*




*Lower
      Treatment Cost* .
      The
      total one-time cost of brachytherapy ranges from $10,000 to $17,000 per
      procedure. This is less than the cost of a radical prostatectomy or RP, which
      ranges from $17,000 to $20,000, excluding treatment for side effects and
      post-operative complications. Brachytherapy cost is comparable to the cost
      of
      EBRT (external beam radiation), which is approximately $14,000 up to $35,000
      for
      a seven to nine week course of treatment.




*Favorable
      Demographics* .
      Prostate cancer incidence and mortality increase with age. Prostate cancer
      is
      found most often in men who are over the age of 50. The National Cancer
      Institute has reported that the incidence of prostate cancer increases
      dramatically in men over the age of 55. Currently, one out of every six men
      is
      at lifetime risk of developing prostate cancer. More than seven out of ten
      men
      diagnosed with prostate cancer are over the age of 65. At the age of 70, the
      chance of having prostate cancer is 12 times greater than at age 50. According
      to the American Cancer Society, prostate cancer incidence rates increased
      between 1988 and 1992 due to earlier diagnosis in men who otherwise had no
      sign
      of symptoms. Early screening has fostered a decline in the prostate cancer
      death
      rate since 1990.




8


The
      number of prostate cancer cases in the U.S. is expected to increase due to
      the
      expanding population of men over the age of 55. The U.S. Census Bureau estimates
      this segment of the population will increase from 25.9 million men in 2000
      to 32
      million men by 2008 - a 24% increase. Extrapolating that data, management
      believes that the U.S. will provide over 180,000 candidates annually for
      prostate brachytherapy by 2008.




*Increased
      PSA Screening* .
      Early
      PSA screening and testing leads to early diagnosis. The American Cancer Society
      recommends that men without symptoms or risk factors and who have a life
      expectancy of at least ten years, should begin regular annual medical exams
      at
      the age of 50, and believes that health care providers should offer as part
      of
      the exam the prostate-specific antigen blood test. The PSA blood test determines
      the amount of prostate specific antigen present in the blood. PSA is found
      in a
      protein secreted by the prostate, and elevated levels of PSA can be associated
      with either prostatitis (a noncancerous inflammatory condition) or a
      proliferation of cancer cells in the prostate. Industry studies have shown
      that
      the PSA test can detect prostate cancer up to five years earlier than the
      digital rectal exam. Ultrasound tests and biopsies are typically performed
      on
      patients with elevated PSA readings to confirm the existence of cancer.




**Our
      Strategy**




The
      key
      elements of IsoRay Medical’s strategy include:




·
            *Continue
                to introduce the IsoRay**131**Cs
                seed into the U.S. brachytherapy market*.
                Utilizing a direct sales organization and selected channel partners,
                IsoRay Medical intends to capture a leadership position by expanding
                overall use of the brachytherapy procedure for prostate cancer, capturing
                much of the incremental market growth and taking market share from
                existing competitors.




·
            *Create
                a state-of-the-art manufacturing process*.
                IsoRay Medical has constructed a state-of- the-art manufacturing
                facility
                in Richland, Washington in its newly leased facility, to implement
                our
                proprietary manufacturing process which is designed to improve profit
                margins and provide adequate manufacturing capacity to support future
                growth and ensure quality control. If Initiative 297 presents a strategic
                roadblock to the Company, IsoRay plans to construct a permanent
                manufacturing facility in another state. Working with leading scientists,
                IsoRay Medical intends to design and create a proprietary separation
                process to manufacture enriched barium, a key source material for131Cs,
                to ensure adequate supply and greater manufacturing efficiencies.
                Also
                planned is a value-added repackaging service to supply pre-loaded
                needles,
                stranded seeds and pre-loaded cartridges used in the implant procedure.
                IsoRay Medical plans to enter into a long-term program with a leading
                brachytherapy seed automation design and engineering company to design
                and
                build a highly automated manufacturing process to help ensure consistent
                quality and improve profitability.




·
            *Introduce
                Cesium-131 therapies for other solid cancer tumors*.
                IsoRay Medical intends to partner with other companies to develop
                the
                appropriate delivery technology and therapeutic delivery systems
                for
                treatment of other solid cancer tumors such as breast, lung, liver,
                pancreas, neck, and brain cancer. IsoRay Medical’s management believes
                that the first major opportunities may be for the use of Cesium-131
                in
                adjunct therapy for the treatment of residual lung and breast cancers.




·
            *Introduce
                other isotope products to the U.S. market*.
                IsoRay Medical plans to introduce its Yttrium-90 radioisotope in
                2006.
                Currently, FDA approved90Y
                manufactured by other suppliers is used in the treatment of non-Hodgkin’s
                lymphoma and is in clinical trials for other applications. Other
                products
                may be added in the future as they are developed. IsoRay Medical
                has the
                ability to make several different isotopes for multiple medical and
                industrial applications. During 2005 the Company has identified and
                prioritized additional market opportunities for these isotopes.




·
            *Support
                clinical research and sustained product development*.
                The Company plans to structureand
                support clinical studies on the therapeutic benefits of Cs-131 for
                the
                treatment of solid tumors and other patient benefits. We are and
                will
                continue to support clinical studies with several leading radiation
                oncologists to clinically document patient outcomes, provide support
                for
                our product claims and compare the performance of our seeds to competing
                seeds. IsoRay Medical plans to sustain long-term growth by implementing
                research and development programs with leading medical institutions
                in the
                U.S. to identify and develop other applications for IsoRay Medical’s core
                radioisotope technology.




9


Management
      believes there is a large and growing addressable market for IsoRay Medical’s
      products. Several factors appear to contribute to the increasing popularity
      of
      the brachytherapy procedure. Long-term survival data are now available for
      brachytherapy (other than with respect to treatment from Cs-131 seeds).
      Brachytherapy has become the treatment of choice for not only early-stage
      prostate cancer but is now being considered for treatment of fast growing,
      aggressive tumors. Brachytherapy is now more common than surgery
      (prostatectomy). Brachytherapy has significant advantages over competing
      treatments including lower cost, better survival data, fewer side effects,
      a
      faster recovery time and the convenience of an outpatient procedure that
      generally lasts 45 minutes. Over 60,000 procedures were forecasted to occur
      in
      the U.S. in 2005. At the October 6, 2005 Cs-131 seed price of $55, this
      represents a potential $330 million seed market that is forecast to grow
      substantially by 2009 according to a recent market survey performed by Frost
      & Sullivan, a nationally recognized market research firm. IsoRay Medical’s
      management believes that the 131 Cs
      seed
      will add incremental growth to the existing brachytherapy seed market as
      physicians who are currently reluctant to recommend brachytherapy for their
      prostate patients due, in part, to side effects caused by longer-lived isotopes,
      become comfortable with the shorter half-life of 131 Cs,
      and
      the anticipated reduction of side effects.




**Products**




IsoRay
      Medical markets the Cesium-131  seed
      and
      intends to market Yttrium-90 and other radioactive isotopes in the future.
      Additionally, it will attempt to create a market, primarily in clinical trials,
      for the liquid Cs-131 isotope, which is created in the production of IsoRay
      Medical’s 131 Cs
      seed.




*Cs-131
      Seed Product Description and Use in Cancer Treatment*




Brachytherapy
      seeds are small devices that deliver therapeutic radiation directly to tumors.
      Each seed contains a radioisotope sealed within a welded titanium case. In
      prostate cancer procedures, approximately 85 to 135 seeds are permanently
      implanted 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.




Significant
      advantages of brachytherapy over competing treatments include: fewer side
      effects (the likelihood of impotence and incontinence is reduced when seeds
      are
      used to treat prostate cancer); short, convenient outpatient procedure
      (typically 45 minutes); faster recovery time (days vs. weeks); lower cost than
      other treatment modalities; higher cure rates for solid tumors; less pain;
      and
      overall considerably better quality of life. The primary disadvantage of
      brachytherapy is subjecting the human body to radiation and the side effects
      of
      radiation. Physician errors in seed placement and the number of seeds implanted
      may also result in the failure to eradicate the cancer or in negative side
      effects from over-radiation of certain tissues in the body.




A
      diagram
      of the IsoRay seed appears in Figure 1. The
      seed
      contains an x-ray opaque marker surrounded by a ceramic substrate to which
      the
      isotope is chemically attached. The seed core is placed in a titanium tube
      and
      precision laser welded to form a hermetically sealed source of therapeutic
      radiation suitable for permanent implantation. The x-ray marker allows the
      physician to accurately determine seed placement within the tumor.




10







*Figure
      1: Cross section of* *131* *Cs
      seed*




*Competitive
      Advantages of Cs-131*




131 Cs
      has specific
      clinical advantages for
      treating cancer over
      I-125 and Pd-103, the other isotopes currently used in brachytherapy seeds.
      The
      table below highlights the key differences of the three seeds. The Company
      believes that the short half-life, high-energy characteristics of 131 Cs
      will
      increase industry growth and facilitate meaningful penetration into the
      treatment of other forms of cancer such as breast cancer.




**Brachytherapy
      Isotope Comparison**




**Cesium-131**
            **Palladium-103**
            **Iodine-125****Half
                Life**
            9.7
                Days
            17.5
                days
            60
                days**Energy**
            29
                KeV+
            22
                KeV+
            28
                KeV+**Dose
                Delivery**
            90%
                in 33 days
            90%
                in 58 days
            90%
                in 204 days**Total
                Dose**
            100
                Gy
            125
                Gy
            145
                Gy**Anisotropy
                Factor*******
            .969
            .877
                (TheraSeed® 2000)
            .930
                (OncoSeed® 6711)*Degree
                of symmetry of therapeutic dose, a factor of 1.00 indicates symmetry.****
              +KeV
                = kiloelectron volt, a standard unit of measurement for electrical
                energy.




*Shorter
      half-life* . ** The
      Company believes that Cesium-131’s shorter half-life of 9.7 days will prove to
      have greater biological effectiveness, will mitigate the negative effects of
      long radiation periods on healthy tissue and will reduce the duration of any
      side effects. A shorter half-life produces more intense therapeutic radiation
      over a shorter period of time and may reduce the potential for cancer cell
      survival and tumor recurrence. Radiobiological studies indicate that
      shorter-lived isotopes are more effective against faster growing tumors (Dicker,
      et. al., *Semin.
      Urol. Onc.* 18:2,
      May 2000). Other researchers conclude that “half-lives in the approximate range
      4-17 days are likely to be significantly better for a wide range of tumor types
      for which the radiobiologic characteristics may not be precisely known in
      advance.” (Armpilia CI, et. al., *Int.
      J. Rad. Oncol. Biol. Phys.* 55:2,
      February 2003).




*High
      energy* .
      The
      Cs-131 isotope decay energy of 29 KeV (versus 22 KeV for Pd-103 and 28 KeV
      for
      I-125) generates a therapeutic radiation field that extends beyond the current
      dosimetry reference point of 1 cm. Pd-103 seeds emit radiation that does not
      penetrate as far in tissue (up to 40% lower than Cs-131). To compensate for
      this
      more Pd-103 seeds are required to attain the equivalent dose as if Cs-131 seeds
      were used. This increase in the number of seeds implanted increases the time
      and
      cost required to perform Pd-103-based procedures. The lower
      energy from 103 Pd
      seeds
      may also result in greater non-uniformity of the implant dose as dose rates
      near
      the surface of each seed must be higher to compensate for lower doses at greater
      distances from each seed. The high energy of Cs-131 can result in radiation
      toxicity if the dosage is not properly calculated by the implanting physician
      and staff.




*Reduced
      side effects* . ** Because
      the IsoRay 131 Cs
      seed
      device delivers a highly concentrated and confined dose of radiation directly
      to
      the prostate, healthy surrounding tissues and organs are exposed to less
      radiation than with other treatments. This should result in fewer and less
      severe side effects and complications than may be incurred
      with other conventional therapies.







*Figure
        2. Cs-131 seed Autoradiograph*
  11
 *Shape
      of radiation field* . ** The
      shape
      of the radiation field generated by a 131 Cs
      seed
      is uniform, and this uniformity may result in better radiation dose coverage
      and
      improved therapeutic effectiveness. The adjacent picture is an autoradiograph
      (film exposed by radiation from the seed itself) of an IsoRay seed, which shows
      this uniformity of the radiation field that is expected to result in better
      radiation dose coverage. IsoRay Medical has conducted extensive computer
      modeling and testing of the seed design. The IsoRay seed has passed all Nuclear
      Regulatory Commission (“NRC”) requirements for sealed radioactive sources. Dose
      uniformity was tested and the results compared well to those predicted by
      industry standard computer modeling techniques. In the third quarter of 2002,
      seeds were sent to the National Institute for Standards and Technology for
      calibration, and have undergone dosimetry testing according to American
      Association of Physicists in Medicine (“AAPM”) protocols. The results of these
      tests were compiled in IsoRay Medical’s 510(k) submission to the FDA and were
      subsequently published in the June 2004 issue of *Medical
      Physics* .
      The
      results of these tests showed superior dose characteristics relative to the
      leading I-125 and Pd-103 seeds.




*Reduced
      costs* .
      The
      characteristics of 131 Cs
      seeds
      described above may result in the use of 10%-30% less seeds per procedure,
      compared to other isotopes, thereby reducing the total physical radiation dose
      to the patient and reducing the costs of the procedure for the third party
      payers and the patient.




*Yttrium-90*




Y-90
      and
      Cs-131 are short-lived isotopes that are well suited to treatment of tumors
      by
      cell-directed therapy. The Company plans to introduce its second product,
      Yttrium-90, in 2006. Y-90 is already available from other companies. When used
      in combination with molecular targeting agents, Y-90 is proving to be an ideal
      isotope to provide localized radiation therapy for various types of cancer,
      such
      as non-Hodgkin’s lymphoma, leukemia, ovarian and prostate cancers,
      osteosarcomas, and tumors of the breast, lung, kidney, colon, and brain. Y-90’s
      properties of short half-life, high specific activity, high energy and pure
      beta-emissions can be chemically attached to targeting agents that are highly
      selective for specific tumors. These targeting agents may include monoclonal
      antibodies, molecules derived from antibodies, peptides, or other tumor-specific
      molecules. Most Y-90 currently used in the U.S. is imported with varying degrees
      of quality. IsoRay Medical has developed a proprietary separation process that
      produces Y-90 that management believes will meet or exceed the purity and
      quality required for clinical trials and medical applications.




Y-90
      is a
      significant component of several commercially available products. These products
      use radiopharmaceutical grade Y-90 derived using manufacturing methods and
      techniques that conform to current cGMP (current Good Manufacturing Practices),
      allowing them to be used invasively in commercially available healthcare
      products.




We
      intend
      to initially target the clinical trial market. Currently there are several
      clinical trials and medical applications involving Y-90 underway around the
      world that represent a potential market for Y-90. These customers hold
      significant growth potential, as products undergoing successful trials become
      approved for general use. Our strategy will be to attempt to develop exclusive
      sales arrangements with companies that are close to FDA approval or foreign
      companies authorized to commercially sell their products in various overseas
      markets.




Y-90
      is a
      pure-beta particle emitter with a physical half-life of 64.1 hours (2.7 days)
      that decays to stable Zirconium-90. The average energy of the beta emissions
      from Y-90 is 2.37 MeV, with an effective path-length in tissue of 5.3 mm. This
      means that 90% of the energy is absorbed within a 5.3-mm radius.




Y-90
      is
      manufactured by chemical separation from a long-lived Strontium-90 (Sr-90)
      generator stock. We intend to purchase or lease the Sr-90 feedstock from the
      U.S. DOE and international suppliers. Due to the radiological characteristics
      of
      Sr-90, initial processing will occur under stringent radiological controls
      in a
      highly shielded isolator or “hot cell” using remote manipulators. Following
      preliminary separation, the Y-90 may be further purified and converted to
      pharmaceutical grade material in a shielded environmentally-controlled glove
      box. After completing the separation process every two weeks (e.g., collecting
      or “milking” the therapeutic Y-90), the residual Sr-90 generator is recycled for
      subsequent separations. In theory, the Sr-90 generator can continue to generate
      Y-90 for decades. However, the process periodically requires infusion of new
      Sr-90. In addition to acquiring Sr-90, we will need to acquire equipment and
      develop manufacturing procedures for the Y-90 isotope that meet cGMP criteria.
      While we initially plan to produce solely radiochemical purity Y-90, which
      does
      not need to meet the more stringent manufacturing standards required for
      radiopharmaceutical purity Y-90, we intend to develop our manufacturing methods
      to this higher level and produce radiopharmaceutical purity Y-90 in the
      future.




12


IsoRay
      Medical has identified four principal suppliers of Y-90: MDS Nordion (a division
      of MDS, Inc.), Perkin-Elmer, Inc., Amersham (part of General Electric Company)
      and Iso-Tex Diagnostics, Inc. If we begin marketing Y-90, these companies will
      be our principal competitors within this market.




**Cs-131
      Manufacturing Process**




Cs-131
      is
      a radioactive isotope that can be produced by the neutron bombardment of
      Barium-130. When Ba-130 is put into a nuclear reactor it becomes Ba-131, the
      radioactive material that is the parent of Cs-131. The process includes the
      following:




·
            *Isotope
                Generation*.****The
                radioactive isotope Cs-131 is normally produced by placing a quantity
                of
                stable non-radioactive barium (ideally pure Ba-130) into the neutron
                flux
                of a nuclear reactor. The irradiation process converts a small fraction
                of
                this material into a radioactive form of barium (Ba-131). The Ba-131
                decays by electron capture to the radioactive isotope of interest
                (Cs-131). IsoRay Medical has evaluated several international nuclear
                reactors and a few potential facilities in the United States. Due
                to the
                short half-life of both the Ba-131 and Cs-131 isotopes, these facilities
                must be capable of removing irradiated materials from the reactor
                core on
                a routine (e.g. weekly) basis. Reactor personnel will ship the irradiated
                barium on a pre-determined schedule to our facilities for subsequent
                separation, purification and seed assembly. The Company has identified
                more than five reactors in the U.S., Europe and the former Soviet
                Union
                that are capable of meeting these requirements. This routine isotope
                generation cycle at supplier reactors will allow significant quantities
                of
                Ba-131 to be on hand at our facilities for the completion of the
                rest of
                the manufacturing process. To ensure reliability of supply, we intend
                to
                seek agreements with multiple facilities to produce Ba-131. As of
                the date
                of this report, IsoRay Medical has agreements in place with two suppliers
                of irradiated Ba-131. The Company’s agreement with Russia’s Institute of
                Nuclear Materials for irradiated Ba-131 has a seven year term (ending
                August 25, 2012) and allows the Company to purchase irradiated Ba-131
                for
                $300.00 per Curie of the isotope. The projected value of the agreement
                over its term is $30,000,000, with $300,000 worth of irradiated Ba-131
                projected to be delivered in the first year. In addition, the Company
                is
                engaged in the development of a barium enrichment device that, if
                successful, should reduce the cost of producing Cs-131 while maintaining
                the purity and consistency required in the end product.****




·
            *Isotope
                Separation and Purification*.****Upon
                irradiation of the barium feedstock, the Ba-131 begins decaying to
                Cs-131.
                At pre-determined intervals the Cs-131 produced is separated from
                the
                barium feedstock and purified using a proprietary radiochemical
                separations process (patent applied for). Due to the high-energy
                decay of
                Ba-131, this process is performed under stringent radiological controls
                in
                a highly shielded isolator or “hot cell” using remote manipulators. After
                separating Cs-131 from the energetic Ba-131, subsequent seed processing
                may be performed in locally shielded fume hoods or glove boxes. If
                enriched barium feedstock is used, the residual barium remaining
                after
                subsequent Cs-131 separation cycles (“milkings”) will be recycled back to
                the reactor facility for re-irradiation. This material will be recycled
                as
                many times as economically feasible, which should make the process
                more
                cost effective. As an alternative to performing the Cs-131 separation
                in
                our own facilities, IsoRay may enter into agreements with other entities
                to supply “raw” Cs-131 by performing the initial barium/cesium separation
                at their facilities, followed by final purification at IsoRay’s facility.




**·**
            *Internal
                Seed Core Technology*.****The
                purified Cs-131 isotope will be incorporated into an internal assembly
                that contains a binder, spacer and X-ray marker. This internal core
                assembly is subsequently inserted into a titanium case. The dimensional
                tolerance for each material is extremely important. Several carrier
                materials and placement methods have been evaluated, and through
                a process
                of elimination, we have developed favored materials and methods during
                our
                laboratory testing. The equipment necessary to produce the internal
                core
                includes accurate cutting and gauging devices, isotope incorporation
                vessels, reaction condition stabilization and monitoring systems,
                and
                tools for placing the core into the titanium tubing prior to seed
                welding*.*




13


***·***
            *Seed
                Welding.*******Following
                production of the internal core and placement into the titanium capsule,
                a
                seed is hermetically sealed to produce a sealed radioactive source
                and
                biocompatible medical device. This manufacturing technology requires:
                accurate placement of seed components with respect to the welding
                head,
                accurate control of welding parameters to ensure uniform temperature
                and
                depth control of the weld, quality control assessment of the weld
                integrity, and removal of the finished product for downstream processing
                or rejection of unacceptable materials to waste. Inspection systems
                will
                be capable of identifying and classifying these variations for quality
                control ensuring a minimal amount of material is wasted. Finally,
                the
                rapid placement and removal of components from the welding zone will
                affect overall product throughput.




***·***
            *Quality
                Control*.****We
                have established procedures and controls to meet all FDA and ISO
                9001:2000
                Quality Standards. Product quality and reliability will be secured
                by
                utilizing multiple sources of irradiation services, feedstock material,
                and other seed manufacturing components. An intensive production
                line
                preventive maintenance and spare parts program will be implemented.
                Also,
                an ongoing training program will be established for customer service
                to
                ensure that all regulatory requirements for the FDA, DOT and applicable
                nuclear radiation and health authorities are fulfilled.




The
      Company intends to implement a just-in-time production capability that is keenly
      responsive to customer input and orders to ensure that individual customers
      receive a higher level of customer service from us than from existing seed
      suppliers who have the luxury of longer lead times due to longer half-life
      products. Time from order to completion of product manufacture can be reduced
      to
      three to five days, including receipt of irradiated barium (from a supplier’s
      reactor), separation of Cs-131 (at our facilities), isotope labeling of the
      core, and loading of cores into pre-welded titanium “cans” for final welding,
      testing, quality assurance and shipping.




It
      is up
      to each physician to determine the dosage necessary for implants and acceptable
      dosages vary among physicians. Many of the physicians who order our seeds order
      more seeds than necessary but wish to assure themselves that they have a
      sufficient amount. Upon receipt of an order, the Company either delivers the
      seeds from its facility directly to the physician using Federal Express or
      sends
      the order to an independent third party with expertise in seed delivery who
      delivers the seeds prior to implant. If the implant is postponed or rescheduled,
      the short half-life of the seeds makes them unsuitable for use and therefore
      they must be re-ordered. The Company's historical profit margin on seeds has
      been sufficient to justify unusable inventory and management has monitored
      the
      amount of unused inventory carefully to review its calculations of wastage
      in
      its business plans.




*Automated
      Manufacturing Process*




IsoRay
      Medical has begun discussions with a leading designer and manufacturer of
      automated seed manufacturing equipment that developed an automated line in
      the
      US for manufacturing Iodine-125 that was sold to a competitor in early 2003.
      In
      addition, IsoRay Medical is engaged in preliminary discussions with another
      seed
      manufacturer regarding obtaining an existing automated production line. An
      automated production line may benefit IsoRay because of potentially reduced
      labor costs, and help ensure consistent manufacturing quality.




*Manufacturing
      Facility*




The
      initial production of the IsoRay Cs-131 brachytherapy seed commenced at PNNL
      in
      2004. IsoRay Medical has signed a lease agreement and completed construction
      (tenant improvements) of a new interim production facility in Richland,
      Washington that received final regulatory approval on October 6, 2005 and
      will begin radioactive production operations shortly thereafter. The Company
      is
      also considering another state as a location for a future facility, either
      as
      the Company’s sole manufacturing facility or as a secondary facility. No
      agreements have been reached for any possible facilities outside of
      Washington.




*Repackaging
      Services*




Most
      brachytherapy manufacturers offer their seed product to the end user packaged
      in
      four principal packing configurations provided in a sterile or non-sterile
      package depending on the customer’s preference. These include:




14


*·*
            *Loose
                seeds*




·
            *Pre-loaded
                needles*(loaded with 3 to 5 seeds and
                spacers)




·
            *Strands
                of seeds*(consists of seeds and spacers in a biocompatible “shrink wrap”)




·
            *Pre-loaded
                Mick cartridges*(fits the Mick applicator - seed manufacturers usually load and sterilize
                Mick cartridges in their own manufacturing
                facilities)




No
      single
      package configuration dominates the market at this point. Market share
      estimates, based on internal management studies of the market, for each of
      the
      four packaging types are: loose seeds (negligible amount) Mick cartridges (30%),
      pre-loaded needles (20%) and strands (50%). Market trends indicate significant
      movement toward the stranded configuration, as there are some clinical data
      suggesting less potential for post-implant seed migration when a stranded
      configuration is used




The
      role
      of the repackaging service is to package, assay and certify the contents of
      the
      final product configuration shipped to the customer. A commonly used method
      of
      providing this service is through independent radiopharmacies such as Anazao
      Healthcare and Advanced Care Pharmacy. Manufacturers send loose seeds along
      with
      the physician’s instructions to the radiopharmacy who, in turn, loads needles
      and/or strands the seeds according to the doctor’s instructions. These
      pharmacies then sterilize the product and certify the final packaging prior
      to
      shipping directly to the end user.




IsoRay
      Medical has held discussions with the major independent radiopharmacies and
      determined the shortest achievable turnaround time from delivery of loose seeds
      to the radiopharmacy to delivery of the final assayed and packaged seeds to
      the
      end user is 3 - 4 days. Because of the short half-life of Cs-131, management
      believes adding 3 - 4 days to the product delivery schedule is prohibitive
      on a
      long-term basis. However, to increase sales in the near-term we are using one
      of
      these services on an interim basis until our own custom preloading operation
      comes on-line late in 2005. The Company intends to market its seeds to the
      end
      user in all four of the commonly used packaging configurations, and has retained
      an experienced consultant to assist in the development of this value-added
      repacking service.




Prior
      to
      the establishment of a custom preloading service, IsoRay Medical is offering
      loose seeds which will require the implant center to load the seeds into their
      preferred implant configuration. IsoRay is currently loading Mick cartridges
      in
      its new facility for those implant centers using the Mick applicator as their
      method of injecting the seeds into the prostate. The Company currently offers
      non-sterile, pre-loaded Mick cartridges. As soon as the Company acquires the
      proper sterilization equipment, loose seeds and pre-loaded Mick cartridges
      will
      be offered in a sterile package. When the custom preloading service is
      operational, the Company will add pre-loaded needles and strands in sterile
      and
      non-sterile package configurations. Management believes the custom preloading
      service will be operational by the end of 2005.




Independent
      radiopharmacies usually provide the final packaging of the product delivered
      to
      the end user. This reduces an opportunity for reinforcing the “branding” of the
      seed product. By providing its own repackaging service, the Company preserves
      the product branding opportunity and eliminates any concerns related to the
      handling of its product by a third party prior to delivery to the end
      user.




Providing
      different packaging configurations adds significant value to the product while
      providing an additional revenue stream and incremental margins to the Company
      through the pricing premiums that can be charged. The end users of these
      packaging options are willing to pay a premium because of the savings realized
      by eliminating the need for loose seed handling and loading capabilities on
      site, eliminating the need for additional staffing to load and sterilize seeds
      and needles, and eliminating the expense of additional assaying of the seeds.




Management
      estimates the cost of establishing a custom preloading service in its new,
      leased facility to be approximately $250,000. Space for this custom preloading
      operation has been reserved in the facility and most of the necessary equipment
      has been delivered and installed. Preloading procedures have been drafted,
      staff
      are being trained, and process validation activities are scheduled for the
      4 th quarter
      of 2005. One or more technicians will be added to the staff to handle the seed
      loading, stranding and assaying operations. Our customer service staff will
      provide assistance with shipping, documentation and tracking of all orders
      from
      the repackaging service to the end user.




15


*Barium
      Enrichment Device*




Barium-130
      is the original source material for Cs-131. When Ba-130 is put into a nuclear
      reactor it becomes Ba-131, the radioactive material that is the parent of
      Cs-131. Barium metal found in nature contains only 0.1% of Ba-130 with six
      other
      isotopes making up the other 99.9%. As part of its manufacturing process the
      Company intends to develop a barium enrichment device that should create
“enriched barium” with a higher concentration of the Ba-130 isotope than is
      found in naturally occurring barium. In addition to creating a higher purity
      Ba-130, which translates into higher purity Cs-131, a barium enrichment device
      will result in higher yields of Cs-131. The Company has identified sources
      of
      enriched barium, including in the former Soviet Union, that we believe we can
      use until the barium enrichment device is developed. ****




**Marketing
      and Sales**




*Marketing
      Strategy*




The
      Company intends to position Cs-131 as the isotope of choice for prostate
      brachytherapy. Management believes there is no apparent clinical reason to
      use
      other isotopes when Cesium-131 is available. The advantages associated with
      a
      high energy and short half-life isotope are generally accepted within the
      clinical community and the Company intends to help educate potential patients
      about the clinical benefits a patient would experience from the use of Cs-131
      for his brachytherapy seed treatment. The potential negative effects of the
      prolonged radiation times associated with the long half-life of Iodine-125
      make
      this isotope less attractive than Cesium-131.




We
      intend
      to target these competing isotopes as our principal competition rather than
      the
      various manufacturers and distributors of these products. In this way, the
      choice of brachytherapy isotopes will be less dependent on the name and
      distribution strengths of the various Iodine and Palladium manufacturers and
      distributors and more dependent on the therapeutic benefits of Cs-131. The
      Company will focus the purchasing decision on the advantages and functionality
      of the Cs-131 isotope while seeking to educate the prostate cancer patient
      about
      these clinical benefits.




The
      professional and patient market segments each play a unique and important role
      in the ultimate choice of prostate cancer treatment and the specific isotope
      chosen for seed brachytherapy treatment. The Company will tailor its marketing
      message to each audience. IsoRay Medical has retained an advertising agency
      in
      the Seattle area to assist with its marketing communication program. The agency
      will coordinate the creation and distribution of all advertising material and
      work with the print and visual media.




The
      advantages of Cs-131’s unique combination of high energy and short half-life
      will be heavily promoted within the clinical market. Because we believe there
      is
      no apparent clinical reason to choose other isotopes over Cesium, we have and
      will continue to target those high volume users of other isotopes as our first
      implant sites. We will also emphasize the prolonged radiation times and the
      high
      doses of radiation given to the patient by the Iodine isotope and the possible
      negative effects of this prolonged radiation to the adjacent healthy tissues.
      We
      believe that this is an important marketing message because clinicians generally
      agree the radiation given by Iodine has little or no clinical benefit after
      120
      to 150 days.




To
      promote our products to the clinical and professional audience, we will use
      a
      combination of marketing messages to appear in print and visual media. Planned
      marketing activities include: attendance at the major brachytherapy-related
      clinical conferences to exhibit our products and provide marketing information
      for annual meetings, conferences and other forums of the various professional
      societies; print advertising in brachytherapy clinical journals; and promoting
      clinical presentations by experts in the field at major
      conferences.




In
      today’s U.S. health care market patients are more informed and involved in the
      management of their health and any treatments required. Many physicians relate
      incidents of their patients coming for consultations armed with articles
      researched on the Internet and other sources describing new treatments and
      medications. In many cases, these patients are demanding a certain therapy
      or
      drug and the physicians are complying when medically appropriate.




Because
      of this market factor, we will also promote our products directly to the general
      population. The audience targeted will be the prostate cancer patient, his
      spouse, family and care givers. The marketing message to this segment of the
      market will emphasize the specific advantages of Cs-131, including fewer side
      effects, less total radiation, and shorter period of radiation. The Company
      plans to reach this market through its website, located at www.isoray.com ,
      advertising in magazines read by prostate cancer patients and their care givers,
      and through patient advocacy efforts.




16


Another
      key element of our strategy will be to validate and support all product claims
      with well-designed and executed clinical studies that support the efficacy
      and
      positive patient outcomes of our Cs-131 seed. We intend to sponsor
      physician-directed studies that will compare the performance of our seeds to
      Pd-103 and I-125 seeds. During the remainder of 2005 and into 2006, IsoRay
      Medical plans to continue its collaboration with leading physicians to develop
      clinical data on the efficacy of Cs-131 seeds. Noted contributors from the
      medical physics community will be consulted regarding the benefits of
      brachytherapy using shorter half-life, improved dosimetry, and higher decay
      energy seeds. Articles will be submitted to professional journals such as *Medical
      Physics* and the *International
      Journal of Radiation*  *Oncology,
      Biology, and Physics* .




*Sales
      and Distribution*




According
      to a recent industry survey, approximately 2,000 hospitals and free standing
      clinics are currently offering radiation oncology services in the United States.
      Not all of these facilities offer seed brachytherapy services. These
      institutions are staffed with radiation oncologists and medical physicists
      who
      provide expertise in radiation therapy treatments and serve as consultants
      for
      urologists and prostate cancer patients. We will target the radiation
      oncologists and the medical physicists as well as urologists as key clinical
      decision makers in the type of radiation therapy offered to prostate cancer
      patients.




IsoRay
      Medical has started to build a direct sales organization to introduce Cs-131
      to
      radiation oncologists and medical physicists. In August 2004 IsoRay Medical
      hired two highly successful sales professionals from the brachytherapy industry
      that bring well established relationships with key radiation oncologists and
      medical physicists, and in 2005, IsoRay Medical expanded its sales force to
      four
      experienced individuals. By hiring experienced and successful brachytherapy
      sales people, the Company reduces the risk of delay in penetrating the market
      due to a lack of knowledge of the industry or unfamiliarity with the key members
      of the brachytherapy community.




The
      initial response to our new isotope from prominent radiation oncologists,
      medical physicists and urologists in the US has been very positive. As of
      October 6, 2006, the Company had supplied the 131 Cs
      seed
      to thirteen well-known implant centers strategically located throughout the
      U.S.
      Implant centers are currently located in the states of Arizona, California,
      Illinois, Pennsylvania, Tennessee, New York, Texas, Washington and Wisconsin,
      which have implanted our seed into 75 patients as of October 6, 2005. As
      production increases, additional centers will be added. Clinical results from
      the patients implanted through October 6, 2005, while perhaps not a large enough
      group to draw statistically significant conclusions, have been consistent with
      the reduced side effects expected from the shorter half-life of Cs-131.




The
      Company will expand its U.S. sales force as it increases production capacity
      and
      expands the customer base. If the Company expands outside the U.S. market,
      it
      plans to use established distributors in the key markets in these other
      countries. This strategy should reduce the time and expense required to
      identify, train and penetrate the key implant centers and establish
      relationships with the key opinion leaders in these markets. Using established
      distributors also should reduce the time spent acquiring the proper radiation
      handling licenses and other regulatory requirements of these
      markets.




*Pricing*




Payment
      for IsoRay Medical products comes from third-party payers including
      Medicare/Medicaid and private insurance groups. These payers reimburse the
      hospitals and clinics via well-established payment procedures. On October 31,
      2003, as a result of IsoRay Medical’s predecessor’s filing for an Additional
      Device Category, CMS (Centers for Medicare and Medicaid Services) approved
      a
      HCPCS/CPT code for Cs-131 brachytherapy seeds of $44.67 per seed. This is the
      same price as awarded to Pd-103 seeds, and compares favorably to the $37.34
      price granted to I-125 seeds. Medicare is the most significant U.S. payor for
      prostate brachytherapy services, and is the payor in close to 70% of all U.S.
      prostate brachytherapy cases. CMS reviews and adjusts outpatient reimbursement
      on a periodic and ad hoc basis, but no changes are expected for 2006. As of
      July
      31, 2005, the price for our loose seeds was $55 per seed.




17


Prostate
      brachytherapy is typically performed in the outpatient setting, and as such,
      is
      covered by the CMS Outpatient Prospective Payment System. In January 2004,
      brachytherapy procedure prices were unbundled by CMS, allowing itemized
      invoicing for seeds with no limit on the number of seeds used per procedure,
      and
      CMS currently reimburses hospitals and clinics for their seed purchases on
      a
      cost basis. Other insurance companies have followed these CMS changes. With
      the
      new reimbursement structure and industry consolidation, prices of brachytherapy
      seeds are expected to stabilize and increase over the next few years.




Pricing
      premiums for pre-loaded needles, strands and pre-loaded Mick cartridges will
      be
      added as these packaging alternatives are offered to our customers. When charges
      for the seeds are correctly submitted in the appropriate format to CMS, 100%
      of
      the total cost of the seeds is reimbursed to the hospital or clinic by CMS.




**Other
      Information**




*Customers*




Customers
      representing ten percent or more of total Company sales for the twelve months
      ended June 30, 2005 include:




Chicago Prostate Cancer
              Center
            Westmont, IL
            18.5%
              of revenueWestern Cancer Center
            San
              Diego, CA
            30.6% of revenueTexas Cancer Center
            San Antonio, TX
            21.8% of
              revenue





The
      loss
      of any of these significant customers would have a temporary adverse effect
      on
      the Company’s revenues, which would continue until the Company located new
      customers to replace them.




*Proprietary
      Rights*




The
      Company relies on a combination of patent, copyright and trademark laws, trade
      secrets, software security measures, license agreements and nondisclosure
      agreements to protect its proprietary rights. Some of the Company’s proprietary
      information may not be patentable.




The
      Company intends to vigorously defend its proprietary technologies, trademarks,
      and trade secrets. Members of management, employees, and certain equity holders
      have previously signed non-disclosure, non-compete agreements, and future
      employees, consultants, advisors, with whom the Company engages, and who are
      privy to this information, will be required to do the same. A patent for the
      Cesium separation and purification process has been granted on May 23, 2000
      by
      the U.S. Patent and Trademark Office (USPTO) under Patent Number 6,066,302,
      with
      an expiration date of May 23, 2020. The process was developed by Lane Bray,
      a
      shareholder of the Company, and has been assigned exclusively to IsoRay Medical.
      IsoRay’s predecessor also filed for patent protection in four European countries
      under the Patent Cooperation Treaty. Those patents have been assigned to IsoRay
      Medical.




Our
      management believes that certain aspects of the IsoRay seed design and
      construction techniques are patentable innovations. These innovations have
      been
      documented in IsoRay laboratory records, and a patent application was filed
      with
      the USPTO on November 12, 2003. Certain methodologies regarding isotope
      production, separation, and seed manufacture are retained as trade secrets
      and
      are embodied in IsoRay Medical’s procedures and documentation. In June and July
      of 2004, three patent applications were filed relating to methods of deriving
      Cs-131 and Y-90 developed by IsoRay Medical employees. The Company is currently
      working on developing and patenting additional methods of deriving Cs-131 and
      Y-90, and other isotopes.




There
      are
      specific conditions attached to the assignment of the Cs-131 patent from Lane
      Bray. In particular, the associated Royalty Agreement provides for 1% of gross
      profit payment from seed sales (gross seed sales price minus direct production
      cost) to Lane Bray and 1% of gross profit from any use of the Cs-131 process
      patent for non-seed products. If IsoRay Medical reassigns the Royalty Agreement
      to another company, these royalties increase to 2%. The Royalty Agreement has
      an
      anti-shelving clause which requires IsoRay Medical to return the patent if
      IsoRay Medical permanently abandons sales of products using the invention.




18


Effective
      August 1, 1998, Pacific Management Associates Corporation (PMAC) transferred
      its
      entire right, title and interest in an exclusive license agreement with Donald
      Lawrence to IsoRay, LLC in exchange for a membership interest. The license
      agreement was transferred to IsoRay, Inc. (WA domiciled) effective May 1, 2002
      in connection with the tax-free reorganization.




The
      terms
      of the license agreement require the payment of a royalty based on the Net
      Factory Sales Price, as defined in the agreement, of licensed product sales.
      Because the licensor’s patent application was ultimately abandoned, only a 1%
“know-how” royalty based on Net Factory Sales Price, as defined, remains
      applicable. To date, there have been no product sales incorporating the licensed
      technology and there is no royalty due pursuant to the terms of the agreement.
      Management believes that because this technology is not presently being used
      and
      believes it will not be used in the future that no royalties will be paid under
      this agreement.




*Research
      And Development*




From
      inception (December 17, 2001) through June 30, 2005, IsoRay Medical and its
      predecessor companies incurred more than $1.8 million in costs related to
      research and development activities. The Company expects to continue to have
      employees working on activities that will be classified as research or
      development for the foreseeable future.




*Government
      Regulation*




The
      Company's present and future intended activities in the development, manufacture
      and sale of cancer therapy products are subject to extensive laws, regulations,
      regulatory approvals and guidelines. Within the United States, the Company's
      therapeutic radiological devices must comply with the U.S. Federal Food, Drug
      and Cosmetic Act, which is enforced by the FDA. The Company is also required
      to
      adhere to applicable FDA regulations for Good Manufacturing Practices, including
      extensive record keeping and periodic inspections of manufacturing facilities.
      IsoRay Medical's predecessor obtained FDA 510(k) clearance in March 2003 to
      market the IsoRay 131 Cs
      seed
      for the treatment of localized solid tumors. The Company has not applied for
      clearance from the FDA to market its second product (currently in development),
      Yttrium-90, but management believes that it will not be difficult to obtain
      clearance for Y-90, since other manufacturers of this product have already
      obtained clearance for it.




Specifically,
      in the United States, the FDA regulates, among other things, new product
      clearances and approvals to establish the safety and efficacy of these products.
      We are also subject to other federal and state laws and regulations, including
      the Occupational Safety and Health Act and the Environmental Protection Act.




The
      Federal Food, Drug, and Cosmetic Act and other federal statutes and regulations
      govern or influence the research, testing, manufacture, safety, labeling,
      storage, record keeping, approval, distribution, use, reporting, advertising
      and
      promotion of such products. Noncompliance with applicable requirements can
      result in civil penalties, recall, injunction or seizure of products, refusal
      of
      the government to approve or clear product approval applications,
      disqualification from sponsoring, or conducting clinical investigations, prevent
      us from entering into government supply contracts, withdrawal of previously
      approved applications and criminal prosecution.




Approval
      of new medical devices is a lengthy procedure and can take a number of years
      and
      the expenditure of significant resources. There is a shorter FDA review and
      clearance process, the premarket notification process, or the 510(k) process,
      whereby a company can market certain medical devices that can be shown to be
      substantially equivalent to other legally marketed devices. We have been able
      to
      achieve market clearance for our 131 Cs
      seed
      using the 510(k) process.




In
      the
      United States, medical devices are classified into three different categories
      over which FDA applies increasing levels of regulation: Class I,
      Class II and Class III. Most Class I devices are exempt from
      premarket notification (510(k)); most Class II devices require premarket
      notification (510(k)) and most Class III devices require premarket
      approval. Our 131 Cs
      seed
      is a Class II device and has received 510(k) clearance.




As
      a
      registered medical device manufacturer with the FDA, we are subject to
      inspection to ensure compliance with their current Good Manufacturing Practices,
      or cGMP. These regulations require that we and any of our contract
      manufacturers’ design, manufacture and service products and maintain documents
      in a prescribed manner with respect to manufacturing, testing, distribution,
      storage, design control and service activities. Modifications or enhancements
      that could significantly affect the safety or effectiveness of a device or
      that
      constitute a major change to the intended use of the device require a new 510(k)
      notice for any product modification. We may be prohibited from marketing the
      modified product until the 510(k) notice is cleared by the FDA.




19


The
      Medical Device Reporting regulation requires that we provide information to
      the
      FDA on deaths or serious injuries alleged to be associated with the use of
      our
      devices, as well as product malfunctions that are likely to cause or contribute
      to death or serious injury if the malfunction were to recur. Labeling and
      promotional activities are regulated by the FDA and, in some circumstances,
      by
      the Federal Trade Commission.




As
      a
      medical device manufacturer, we are also subject to laws and regulations
      administered by governmental entities at the federal, state and local levels.
      For example, our facility is licensed as a medical product manufacturing
      facility in the State of Washington and is subject to periodic state regulatory
      inspections. Our customers are also subject to a wide variety of laws and
      regulations that could affect the nature and scope of their relationships with
      us.




In
      the
      United States, as a manufacturer of medical devices and devices utilizing
      radioactive by product material, we are subject to extensive regulation by
      not
      only federal governmental authorities, such as the FDA, but also by state and
      local governmental authorities, such as the Washington State Department of
      Health, **** to
      ensure
      such devices are safe and effective. In Washington State, the Department of
      Health, by agreement with the federal Nuclear Regulatory Commission ("NRC"),
      regulates the possession, use, and disposal of radioactive byproduct material
      as
      well as the manufacture of radioactive sealed sources to ensure compliance
      with
      state and federal laws and regulations. Our 131 Cs
      brachytherapy seeds constitute both medical devices and radioactive sealed
      sources and are subject to these regulations.




Moreover,
      our use, management and disposal of certain radioactive substances and wastes
      are subject to regulation by several federal and state agencies depending on
      the
      nature of the substance or waste material. We believe that we are in compliance
      with all federal and state regulations for this purpose.




Washington
      voters approved Initiative 297 in late 2004, which may impose additional
      restrictions on sites at which mixed radioactive and hazardous wastes are
      generated and stored, including PNNL, as it prohibits additional mixed
      radioactive and hazardous waste from being brought to sites, such as PNNL,
      until
      the existing on-site waste conforms to all state and federal environment laws.
      The constitutionality of this initiative has been challenged, but if it were
      enforced it could impact our ability to manufacture our seeds, whether at PNNL
      or elsewhere in the State of Washington.




*Seasonality*




The
      Company is not aware of any significant seasonal influences on its business.
      The
      composition of certain products and services changes modestly with shifts in
      weather with no material impact on total revenues.




*Employees*




As
      of
      September 30, 2005, IsoRay Medical employed twenty-four full-time individuals,
      one occasional individual and one part-time individual. The Company's future
      success will depend, in part, on its ability to attract, retain, and motivate
      highly qualified technical and management personnel. From time to time, the
      Company may employ independent consultants or contractors to support its
      research and development, marketing, sales and support and administrative
      organizations. Neither the Company's nor IsoRay Medical's employees are
      represented by any collective bargaining unit. IsoRay Medical estimates that
      successful implementation of its growth plan would result in up to 30 additional
      employees by the end of 2006.




*Competition*




The
      Company competes in a market characterized by technological innovation,
      extensive research efforts and significant competition. In general, the IsoRay
      seed competes with conventional methods of treating localized cancer, including,
      but not limited to, radical prostatectomy and external beam radiation therapy
      which includes intensity modulated radiation therapy, as well as competing
      permanent brachytherapy devices. RP has historically represented the most common
      medical treatment for early-stage, localized prostate cancer. EBRT is also
      a
      well-established method of treatment and is widely accepted for patients who
      represent a poor surgical risk or whose prostate cancer has advanced beyond
      the
      stage for which surgical treatment is indicated. Management believes that if
      general conversion from these treatment options (or other established or
      conventional procedures) to the IsoRay seed does occur, such conversion will
      likely be the result of a combination of equivalent or better efficacy, reduced
      incidence of side effects and complications, lower cost, quality of life issues
      and pressure by health care providers and patients.




20


History
      has shown the advantage of being the first to market a new brachytherapy
      product. For example, ONCURA, now part of General Electric Company, currently
      claims nearly 50% of the market with the original I-125 seed. Theragenics Corp.,
      which introduced the original Pd-103 seed, is second with a nearly 30% market
      share. The Company believes it will obtain a similar and significant advantage
      by being the first to introduce a Cs-131 seed.




The
      Company’s patented Cs-131 separation process is likely to provide us a
      sustainable competitive advantage in this area. Production of Cs-131 also
      requires specialized facilities (hot cells) that represent high cost and long
      lead time if not readily available. In addition, a competitor would need to
      develop a method for isotope attachment and seed assembly, would need to conduct
      testing to meet NRC and FDA requirements, and would need to obtain regulatory
      approvals before marketing a competing device.




Several
      companies have obtained regulatory approval to produce and distribute
      Palladium-103 and Iodine-125 seeds, which compete directly with our seed. Ten
      of
      those companies represent nearly 100% of annual brachytherapy seed sales
      worldwide: ONCURA
      ( part
      of
      General Electric Company), Theragenics Corp., North American Scientific, Inc.,
      Mentor Corp., Implant Sciences Corp., International Brachytherapy S.A., Cardinal
      Health, Inc., C.R. Bard, Inc., DRAXIMAGE (a
      division of DRAXIS Health,
      Inc.) and Best Medical International, Inc. The top three - ONCURA, Theragenics,
      and North American Scientific - currently garner nearly 90% of annual sales.




It
      is
      possible that three or four of the current I-125 or Pd-103 seed manufacturers
      (i.e., ONCURA, Theragenics, North American Scientific, etc.) are capable of
      producing and marketing a Cs-131 seed, but none have reported efforts to do
      so.
      Best Medical obtained a seed core patent in 1992 that named 10 different
      isotopes, including Cs-131, for use in their seeds. Best Medical received FDA
      510(k) approval to market a Cs-131 seed on June 6, 1993 but has failed to
      produce any products for sale.




*Additional
      Growth Opportunities*




The
      Cs-131 isotope has the performance characteristics to be a technological
      platform for sustained long-term growth. The most immediate opportunities are
      introducing Cs-131 to Canada, Europe and other international markets,
      introducing Cs-131-based therapies for other forms of solid tumors focusing
      first on breast tumors, and through the marketing of other radioactive isotopes.
      These growth initiatives are in the early stages of planning and appear to
      be
      significant incremental opportunities.




The
      Company plans to introduce Cs-131  initially
      into Europe and later into other international markets through partnerships
      and
      strategic alliances with channel partners for manufacturing and distribution.
      Another advantage of the Cs-131 isotope is its potential applicability to other
      cancers and other diseases. Cs-131 has FDA approval to be used for treatments
      for a broad spectrum of cancers including breast, brain, lung, and liver cancer,
      and the Company believes that a major opportunity exists as an adjunct therapy
      for the treatment of breast cancer. Preliminary discussions have begun with
      prominent physicians regarding the use of Cs-131-based therapies for the
      treatment of lung, pancreatic and brain cancer. In addition to Y-90, there
      is
      the opportunity to develop and market other radioactive isotopes to the US
      market, and to market the Cs-131 isotope itself, separate from its use in our
      seeds. The Company is also in the preliminary stages of exploring alternate
      methods of delivering our isotopes to various organs of the body, as it may
      be
      advantageous to use delivery methods other than a titanium-encapsulated seed
      to
      deliver radiation to certain organs.




**Risk
      Factors**




*Our
      Subsidiary’s Independent Accountants Have Expressed Doubt About Its Ability To
      Continue As A Going Concern* .
      IsoRay
      Medical has generated material operating losses since inception and has a
      shareholders’ deficit. We expect to continue to experience net operating losses.
      Our ability to continue as a going concern is subject to our ability to obtain
      necessary funding from outside sources, including obtaining additional funding
      from the sale of our securities or obtaining loans and grants from various
      financial institutions where possible. The doubt expressed by IsoRay Medical’s
      auditors about its ability to continue as a going concern increases the
      difficulty in meeting such goals. IsoRay Medical began generating revenue in
      October 2004, has generated revenue of approximately $410,000 through September
      30, 2005, and is in the early stages of marketing its IsoRay 131 Cs
      seed.
      IsoRay Medical and the Company have limited historical, operating or financial
      information upon which to evaluate their performance. There can be no assurance
      that the Company will attain profitability.




21


*Our
      Revenues Depend Upon One Product* *.* Until
      such time as we develop additional products, our revenues depend upon the
      successful production, marketing, and sales of the IsoRay 131 Cs
      seed.
      The rate and level of market acceptance of this product may vary depending
      on
      the perception by physicians and other members of the healthcare community
      of
      its safety and efficacy as compared to that of competing products, if any;
      the
      clinical outcomes of the patients treated; the effectiveness of our sales and
      marketing efforts in the United States and Europe; any unfavorable publicity
      concerning our product or similar products; our product’s price relative to
      other products or competing treatments; any decrease in current reimbursement
      rates from the Centers for Medicare and Medicaid Services or third party payers;
      regulatory developments related to the manufacture or continued use of the
      product; availability of sufficient supplies of enriched barium for 131 Cs
      seed
      production; ability to produce sufficient quantities of this product; and the
      ability of physicians to properly utilize the device and avoid excessive levels
      of radiation to patients. Because of our reliance on this product as the sole
      source of our revenue, any material adverse developments with respect to the
      commercialization of this product may cause us to continue to incur losses
      rather than profits in the future.




*Although
      Approved To Treat Any Malignant Tissue, Our Sole Product Is Currently Used
      To
      Treat One Type Of Cancer.* Currently,
      the IsoRay 131 Cs
      seed
      is used exclusively for the treatment of prostate cancer. We believe the 131 Cs
      seed
      will be used to treat cancers of other sites as well, as is currently the case
      with our competitors’ 125 I
      and 103 Pd
      seeds.
      However, we believe that clinical data gathered by select groups of physicians
      under treatment protocols specific to other organs, will be needed prior to
      widespread acceptance of our product for treating other cancer sites. If our
      current and future products do not become accepted in treating cancers of other
      sites, our sales will depend solely on treatment of prostate cancer and will
      require ever increasing market share to increase revenues.




*We
      Have Limited Data On The Clinical Performance Of* *131* *Cs* .
      As of
      October 6, 2005, the IsoRay 131 Cs
      seed
      has been implanted in 75 **** patients.
      While this limited number of patients may prevent us from drawing statistically
      significant conclusions, the side effects experienced by these patients were
      less severe than side effects observed in seed brachytherapy with 125 I
      and 103 Pd
      and in
      other forms of treatment such as radical prostatectomy These early results
      indicate that the onset of side effects generally occurs between one and three
      weeks post-implant, and the side effects are resolved between five and eight
      weeks post-implant, indicating that, at least for these initial patients, side
      effects resolved more quickly than the side effects that occur with competing
      seeds or with other forms of treatment. These limited findings support
      management’s belief that the 131 Cs
      seed
      will result in less severe side effects than competing treatments, but we may
      have to gather data on outcomes from additional patients before we can establish
      statistically valid conclusions regarding the incidence of side effects from
      our
      seeds.




*We
      Will Need To Raise Additional Capital* .
      The
      hiring of upper level sales executives, entry into capital lease agreements
      for
      a glove box and a hot cell, and entry into executive contracts requiring
      payments upon reaching certain milestones significantly increased IsoRay
      Medical’s monthly cash requirements since August 2004. Monthly operating cash
      requirements as of the date of this filing were approximately $500,000,
      excluding capitalized items. Capital expenditures typically include the purchase
      or capital lease of equipment, with a life-expectancy of more than 12 months,
      costing in excess of $2,500, which would include among other things: analytical
      systems, improved packaging for final products and, new production systems
      which
      increase manufacturing throughput. Ongoing requirements to meet greater payroll
      obligations coupled with legal and accounting fees related to completing the
      recent merger with IsoRay, Inc. and public reporting status have resulted in
      greater amounts of short-term cash demands. IsoRay Medical was actively raising
      capital prior to the merger and we will need to continue to raise
      capital.




We
      will
      also need substantial funds to complete the development, manufacturing, and
      marketing of our current and future products. Consequently, we will seek to
      raise additional capital through not only public and private offerings of equity
      and debt securities, but also collaborative arrangements, strategic alliances,
      or from other sources. We will need to raise at least $5.5 million of additional
      capital to fund working capital needs through the end of 2006. IsoRay Medical
      has entered into a lease agreement and has constructed a manufacturing and
      production facility located in Richland, Washington that its management believes
      will provide adequate space to manufacture the 131 Cs
      seed
      product for the prostate and other organ cancer markets until late 2007.




22


We
      may be
      unable to raise additional capital on commercially acceptable terms, if at
      all,
      and if we raise capital through additional equity financing, existing
      shareholders may have their ownership interests diluted. Our failure to be
      able
      to generate adequate funds from operations or from additional sources would
      harm
      our business.




*The
      Passage Of Initiative 297 In Washington May Result In The Relocation Of Our
      Manufacturing Operations* *.* Washington
      voters approved Initiative 297 in late 2004, which may impose restrictions
      on
      sites at which mixed radioactive and hazardous wastes are generated and stored,
      including the PNNL, which is where our 131 Cs
      seed
      product has been manufactured to date. We are currently in the process of
      transitioning from PNNL to full production in our new, leased facility outside
      of PNNL. IsoRay has been assured by the Attorney General’s office of the State
      of Washington that medical isotopes are not included in Initiative 297 and
      that
      manufacturing in IsoRay’s new production facility would not be interrupted, but
      there is no assurance that this interpretation of Initiative 297 by the Attorney
      General’s Office will continue to exclude medical isotopes. The U.S. Secretary
      of Energy is a party to litigation challenging the constitutionality of
      Initiative 297 in U.S. District Court. Due to this litigation, the State of
      Washington and the U.S. Justice Department have agreed to delay any
      implementation of Initiative 297 for an indefinite period of time. Thus, we
      have
      the ability to continue manufacturing seeds at PNNL for some period of time
      if
      needed as a back-up to our new IsoRay production facility, or to conduct further
      development activities there. If the State of Washington begins enforcement
      of
      the initiative, we may be unable to conduct any future activities at PNNL that
      would generate mixed radioactive and hazardous wastes.




Management
      believes that we will be able to continue our manufacturing operations in the
      State of Washington for the foreseeable future, whether at PNNL or at our new
      leased facility, which is now operational. In the event Initiative 297 is
      enforced against us, management may consider establishing an alternate
      manufacturing facility outside of Washington, and we may consider moving all
      or
      part of our operations to another state even if Initiative 297 is not enforced
      against us. ****




*We
      Have Limited Manufacturing Experience And May Not Be Able To Meet
      Demand* .
      The
      existing management team and staff of IsoRay Medical and the Company have
      experience primarily in research and development of products and our experience
      in commercial-scale manufacturing is limited. IsoRay Medical began commercial
      production of the 131 Cs
      seed
      in the fourth quarter of 2004 and has completed 45 production-scale 131 Cs
      separation runs as of October 3, 2005. IsoRay Medical recently demonstrated
      production of 90 Y
      using a
      process suitable for weekly production of commercial-scale quantities of this
      isotope. Although IsoRay Medical’s management team has significant
      radiochemistry experience, there is a possibility that production demands may
      result in challenges that may be too difficult or expensive to overcome. IsoRay
      Medical has developed and deployed semi-automated laser welding equipment that
      can produce seeds faster than a certain fully-automated line of equipment the
      Company has reviewed that would cost several million dollars to design and
      fabricate. IsoRay Medical believes it will continually find more efficient
      means
      of welding the titanium seeds; however, there is a possibility that future
      demand will outstrip our ability to produce seeds using the semi-automated
      process. We cannot ensure that either IsoRay Medical’s manufacturing processes
      or its ability to sustain ongoing production of its products will be able to
      meet demand.




*Sales
      And Marketing Experience* *.* IsoRay
      Medical’s sales and marketing team has extensive experience in successfully
      establishing and training domestic and international sales forces as well as
      successfully introducing new medical devices to the market, but we have limited
      specific experience with commercial sales and marketing of the Cesium-131
      radioisotope. IsoRay Medical has employed marketing professionals with extensive
      experience selling medical devices, including radioisotopes for large,
      international companies. Our initial marketing activities have been targeted
      to
      a limited number of physicians and treatment centers, and we will need to
      recruit additional employees to assist in expanding our customer base. We have
      developed in-house customer service, order entry, shipping, billing, and sales
      support. In addition, the Company has engaged a nationally recognized
      reimbursement specialist Kathy Francisco, of the Pinnacle Health Group, with
      over 25 years of healthcare reimbursement experience, to assist with
      reimbursement questions and to provide reimbursement guidelines and appropriate
      insurance coding numbers needed to obtain reimbursement for seed costs and
      the
      implant procedure by our customers. This consulting project was completed by
      the
      spring of 2005 and cost IsoRay approximately $7,500 plus travel-related
      expenses. Although, this group and other consultants continue to be available
      to
      support the Company in its reimbursement and marketing programs, we cannot
      be
      certain that our products will be marketed and distributed in accordance with
      our expectations or that our market research will be accurate. We also cannot
      be
      certain that we will be able to develop our own sales and marketing capabilities
      to the extent anticipated by management. We may choose to add third-party
      distribution channels, but we may not be able to maintain satisfactory
      arrangements with the third parties upon whom we rely. ****




23


*We
      Are Subject To The Risk That Certain Third Parties May Mishandle Our Product.* We
      rely
      on third parties, such as Federal Express, to deliver our 131 Cs
      seed,
      and on other third parties, including various radiopharmacies, to package our 131 Cs
      seed
      in certain specialized packaging forms that, as of the date of this report,
      we
      do not provide at our own facilities. We are subject to the risk that these
      third parties may mishandle our product, which could result in adverse effects,
      particularly given the radioactive nature of our product.




*Our
      Operating Results Will Be Subject To Significant Fluctuations* *.* Our
      quarterly revenues, expenses, and operating results are likely to fluctuate
      significantly in the future. Fluctuation may result from a variety of factors,
      which are discussed in detail throughout this “RISK FACTORS” section,
      including:




·
            our
                achievement of product development objectives and milestones;




·
            demand
                and pricing for the Company’s products;




·
            effects
                of aggressive competitors;




·
            hospital,
                clinic and physician buying decisions;




·
            research
                and development and manufacturing expenses;




·
            patient
                outcomes from our therapy;




·
            physician
                acceptance of our products;




·
            government
                or private healthcare reimbursement policies;




·
            our
                manufacturing performance and capacity;




·
            incidents,
                if any, that could cause temporary shutdown of our manufacturing
                facilities;




·
            the
                amount and timing of sales orders;




·
            rate
                and success of future product approvals;




·
            timing
                of FDA approval, if any, of competitive products and the rate of
                market
                penetration of competing products;




·
            seasonality
                of purchasing behavior in our market;




·
            overall
                economic conditions; and




·
            the
                successful introduction or market penetration of alternative therapies.




*We
      Rely Heavily On A Limited Number Of Suppliers* *.* Some
      materials used in our products are currently available only from a limited
      number of suppliers. For example, virtually all titanium tubing used in
      brachytherapy seed manufacture comes from a single source, Accellent
      Corporation. We currently obtain a key component of our seed core from a single
      supplier. We do not have formal written agreements with either this key supplier
      or with Accellent Corporation. Any interruption or delay in the supply of
      materials required to produce our products could harm our business if we were
      unable to obtain an alternative supplier or substitute equivalent materials
      in a
      cost-effective and timely manner. Additional factors that could cause
      interruptions or delays in our source of materials include limitations on the
      availability of raw materials or manufacturing performance experienced by our
      suppliers and a breakdown in our commercial relations with one or more
      suppliers. Some of these factors may be completely out of our control and our
      suppliers’ control.




24


*Future
      Production Increases Will Depend on Our Ability to Acquire Larger Quantities
      of* *131* *Cs
      and Hire More Employees.* IsoRay
      currently obtains 131 Cs
      through reactor irradiation of natural barium and subsequent separation of
      cesium from the irradiated barium targets. The amount of 131 Cs
      that
      can be produced from a given reactor source is limited by the power level and
      volume available within the reactor for irradiating targets. This limitation
      can
      be overcome by utilizing barium feedstock that is enriched in the stable isotope 130 Ba.
      However, the number of suppliers of enriched barium is limited and they may
      be
      unable to produce this material in sufficient quantities at a reasonable price.




IsoRay
      has entered into an exclusive agreement with the Institute of Nuclear Materials
      in the former Soviet Union to provide irradiated barium and 131 Cs
      in
      quantities sufficient to supply a significant percentage of future demand for 131 Cs.
      IsoRay believes this supplier may also provide access to sufficient quantities
      of enriched barium that may be recycled for use in other reactors to increase
      the production of 131 Cs.
      Although the agreement provides for supplying 131 Cs
      in
      significant quantities, there is no assurance that this will result in IsoRay
      gaining access to a sufficient supply of enriched barium feedstock and if
      sufficient supplies are attained we will need to increase our manufacturing
      staff.




*We
      Are Subject To Uncertainties Regarding Reimbursement* *For
      Use Of Our Products.* Hospitals
      and freestanding clinics may be less likely to purchase our products if they
      cannot be assured of receiving favorable reimbursement for treatments using
      our
      products from third-party payers, such as Medicare, Medicaid and private health
      insurance plans. Currently, Medicare reimburses hospitals, clinics and
      physicians for the cost of seeds used in brachytherapy procedures on a per
      seed
      basis. Historically, private insurers have followed Medicare guidelines in
      establishing reimbursement rates. However, third-party payers are increasingly
      challenging the pricing of certain medical services or devices, and we cannot
      be
      sure that they will reimburse our customers at levels sufficient for us to
      maintain favorable sales and price levels for our products. There is no uniform
      policy on reimbursement among third-party payers, and we can provide no
      assurance that our products will continue to qualify for reimbursement from
      all
      third-party payers or that reimbursement rates will not be reduced. A reduction
      in or elimination of third-party reimbursement for treatments using our products
      would likely have a material adverse effect on our revenues.




In
      2003,
      IsoRay applied to the Centers for Medicare and Medicaid Services (CMS) and
      received reimbursement codes for use of our 131 Cs
      seed
      (HCPCS code C2633 and APC code 2633). However, since January 1, 2004 hospitals
      and clinics ordering brachytherapy seeds have been reimbursed for the cost
      of
      the seeds plus a fixed mark-up at a rate prescribed by CMS. Reimbursement
      amounts are reviewed and revised periodically, and on an ad hoc basis. Although
      the Company is not currently aware of any changes to CMS reimbursement rates
      that would have a material effect on our ability to maintain our pricing
      structure, adjustments could be made to these reimbursement amounts or policies,
      which could result in reduced reimbursement for brachytherapy services, which
      could negatively affect market demand for our products.




Furthermore,
      any federal and state efforts to reform government and private healthcare
      insurance programs could significantly affect the purchase of healthcare
      services and products in general and demand for our products in particular.
      We
      are unable to predict whether potential healthcare reforms will be enacted,
      whether other healthcare legislation or regulations affecting the business
      may
      be proposed or enacted in the future or what effect any such legislation or
      regulations would have on our business, financial condition or results of
      operations.




*It
      Is
      Possible That Other Treatments May Be Deemed Superior To Brachytherapy.* Our 131 Cs
      seed
      faces competition not only from companies that sell other radiation therapy
      products, but also from companies that are developing alternative therapies
      for
      the treatment of cancers. It is possible that advances in the pharmaceutical,
      biomedical, or gene therapy fields could render some or all radiation therapies,
      whether conventional or brachytherapy, obsolete. If alternative therapies are
      proven or even perceived to offer treatment options that are superior to
      brachytherapy, physician adoption of our product could be negatively affected
      and our revenues from our product could decline.




*Our
      Industry Is Intensely Competitive.* The
      medical products industry is intensely competitive. We compete with both public
      and private medical device, biotechnology and pharmaceutical companies that
      have
      been established longer than we have, have a greater number of products on
      the
      market, have greater financial and other resources, and have other technological
      or competitive advantages. We also compete with academic institutions,
      government agencies, and private research organizations in the development
      of
      technologies and processes and in acquiring key personnel. Although we have
      patents granted and patents applied for to protect our isotope separation
      processes and 131 Cs
      seed
      manufacturing technology, we cannot be certain that one or more of our
      competitors will not attempt to obtain patent protection that blocks or
      adversely affects our product development efforts. To minimize this potential,
      we have entered into exclusive agreements with key suppliers of isotopes and
      isotope precursors.




25


*We
      May Be Unable To Adequately Protect Or Enforce Our Intellectual Property Rights
      Or Secure Rights To Third-Party Patents.* Our
      ability and the abilities of our partners to obtain and maintain patent and
      other protection for our products will affect our success. We are assigned,
      have
      rights to, or have exclusive licenses to patents and patents pending in the
      U.S.
      and numerous foreign countries. The patent positions of medical device companies
      can be highly uncertain and involve complex legal and factual questions. Our
      patent rights may not be upheld in a court of law if challenged. Our patent
      rights may not provide competitive advantages for our products and may be
      challenged, infringed upon or circumvented by our competitors. We cannot patent
      our products in all countries or afford to litigate every potential violation
      worldwide.




Because
      of the large number of patent filings in the medical device and biotechnology
      field, our competitors may have filed applications or been issued patents and
      may obtain additional patents and proprietary rights relating to products or
      processes competitive with or similar to ours. We cannot be certain that U.S.
      or
      foreign patents do not exist or will not be issued that would harm our ability
      to commercialize our products and product candidates.




*One
      Of Our Licensed Patents May Be Terminated Under Certain
      Conditions* .
      Our 131 Cs
      separation patent is essential for the production of Cesium-131. The owner
      of
      the patent, Lane Bray, a shareholder of the Company and Chief Chemist of IsoRay
      Medical, has the right to terminate the license agreement that allows the
      Company to use this patent if we discontinue production for any consecutive
      18
      month period. The Company has no plans to discontinue production, and management
      considers it highly unlikely that production will be discontinued for any
      significant period at any time in the future.




*Failure
      To Comply With Government Regulations Could Harm Our Business* .
      As a
      medical device and medical isotope manufacturer, we are subject to extensive,
      complex, costly, and evolving governmental rules, regulations and restrictions
      administered by the FDA, by other federal and state agencies, and by
      governmental authorities in other countries. Compliance with these laws and
      regulations is expensive and time-consuming, and changes to or failure to comply
      with these laws and regulations, or adoption of new laws and regulations, could
      adversely affect our business.




In
      the
      United States, as a manufacturer of medical devices and devices utilizing
      radioactive by-product material, we are subject to extensive regulation by
      federal, state, and local governmental authorities, such as the FDA and the
      Washington State Department of Health, **** to
      ensure
      such devices are safe and effective. Regulations promulgated by the FDA under
      the U.S. Food, Drug and Cosmetic Act, or the FDC Act, govern the design,
      development, testing, manufacturing, packaging, labeling, distribution,
      marketing and sale, post-market surveillance, repairs, replacements, and recalls
      of medical devices. In Washington State, the Department of Health, by agreement
      with the federal Nuclear Regulatory Commission ("NRC"), regulates the
      possession, use, and disposal of radioactive byproduct material as well as
      the
      manufacture of radioactive sealed sources to ensure compliance with state and
      federal laws and regulations. Our 131 Cs
      brachytherapy seeds constitute both medical devices and radioactive sealed
      sources and are subject to these regulations.




Under
      the
      FDC Act, medical devices are classified into three different categories, over
      which the FDA applies increasing levels of regulation: Class I,
      Class II, and Class III. Our 131 Cs
      seed
      has been classified as a Class II device and has received clearance from the
      FDA
      through the 510(k) pre-market notification process. Although not anticipated,
      any modifications to the device that would significantly affect safety or
      effectiveness, or constitute a major change in intended use, would require
      a new
      510(k) submission. As with any submittal to the FDA, there is no assurance
      that
      a 510(k) clearance would be granted.




In
      addition to FDA-required market clearances and approvals for our products,
      our
      manufacturing operations are required to comply with the FDA's Quality System
      Regulation, or QSR, which addresses requirements for a company's quality program
      such as management responsibility, good manufacturing practices, product and
      process design controls, and quality controls used in manufacturing. Compliance
      with applicable regulatory requirements is monitored through periodic
      inspections by the FDA Office of Regulatory Affairs ("ORA"). We anticipate
      both
      announced and unannounced inspections by the FDA. Such inspections could result
      in non-compliance reports (Form 483) which, if not adequately responded to,
      could lead to enforcement actions. The FDA can institute a wide variety of
      enforcement actions, ranging from public warning letters to more severe
      sanctions such as fines, injunctions, civil penalties, recall of our products,
      operating restrictions, suspension of production, non-approval or withdrawal
      of
      pre-market clearances for new products or existing products, and criminal
      prosecution. There can be no assurance that we will not incur significant costs
      to comply with these regulations in the future or that the regulations will
      not
      have a material adverse effect on our business, financial condition and results
      of operations.




26


The
      marketing of our products in foreign countries will, in general, be regulated
      by
      foreign governmental agencies similar to the FDA. Foreign regulatory
      requirements vary from country to country. The time and cost required to obtain
      regulatory approvals could be longer than that required for FDA clearance in
      the
      United States and the requirements for licensing a product in another country
      may differ significantly from FDA requirements. We will rely, in part, on
      foreign distributors to assist us in complying with foreign regulatory
      requirements. We may not be able to obtain these approvals without incurring
      significant expenses or at all, and the failure to obtain these approvals would
      prevent us from selling our products in the applicable countries. This could
      limit our sales and growth.




*Our
      Business Exposes Us To Product Liability Claims* *.* Our
      design, testing, development, manufacture, and marketing of products involve
      an
      inherent risk of exposure to product liability claims and related adverse
      publicity. Insurance coverage is expensive and difficult to obtain, and,
      although we currently have a five million dollar policy, in the future we may
      be
      unable to obtain or renew coverage on acceptable terms, if at all. If we are
      unable to obtain or renew sufficient insurance at an acceptable cost or if
      a
      successful product liability claim is made against us, whether fully covered
      by
      insurance or not, our business could be harmed.




*Our
      Business Involves Environmental Risks* *.* Our
      business involves the controlled use of hazardous materials, chemicals,
      biologics, and radioactive compounds. Manufacturing is extremely susceptible
      to
      product loss due to radioactive, microbial, or viral contamination; material
      or
      equipment failure; vendor or operator error; or due to the very nature of the
      product’s short half-life. Although we believe that our safety procedures for
      handling and disposing of such materials comply with state and federal standards
      there will always be the risk of accidental contamination or injury. In
      addition, radioactive, microbial, or viral contamination may cause the closure
      of the respective manufacturing facility for an extended period of time. By
      law,
      radioactive materials may only be disposed of at state-approved facilities.
      We
      currently dispose of our radioactive waste through the Battelle managed PNNL
      site under a one year renewable agreement. At our new, leased facility we intend
      to use commercial disposal contractors. We may incur substantial costs related
      to the disposal of these materials. If we were to become liable for an accident,
      or if we were to suffer an extended facility shutdown, we could incur
      significant costs, damages, and penalties that could harm our business.




*We
      Rely Upon Key Personnel* *.* Our
      success will depend, to a great extent, upon the experience, abilities and
      continued services of our executive officers and key scientific personnel.
      IsoRay, Inc. has an employment agreement with Roger Girard, its Chief Executive
      Officer, and IsoRay Medical has employment agreements with most of its executive
      officers and key scientific personnel. If we lose the services of several of
      these officers or key scientific personnel, our business could be harmed. Our
      success also will depend upon our ability to attract and retain other highly
      qualified scientific, managerial, sales, and manufacturing personnel and their
      ability to develop and maintain relationships with key individuals in the
      industry. Competition for these personnel and relationships is intense and
      we
      compete with numerous pharmaceutical and biotechnology companies as well as
      with
      universities and non-profit research organizations. We may not be able to
      continue to attract and retain qualified personnel.




*The
      Value Of Our Granted Patent, and Our Patents Pending, Is
      Uncertain* *.* Although
      our management strongly believes that our patent on the process for producing 131 Cs,
      our
      patent pending on the manufacture of the brachytherapy seed, our patent
      applications on additional methods for producing 131 Cs
      and 90 Y
      which
      have been filed, and anticipated future patent applications, which have not
      yet
      been filed, have significant value, we cannot be certain that other like-kind
      processes may not exist or be discovered, that any of these patents is
      enforceable, or that any of our patent applications will result in issued
      patents.




*Our
      Ability To Expand Into Foreign Markets Is Uncertain.* Our
      future growth will depend in part on our ability to establish, grow and maintain
      product sales in foreign markets, particularly in Europe and Asia. However,
      we
      have limited experience in marketing and distributing products in other
      countries. Any foreign operations would subject us to additional risks and
      uncertainties, including our customers’ ability to obtain reimbursement for
      procedures using our products in foreign markets; the burden of complying with
      complex and changing foreign regulatory requirements; language barriers and
      other difficulties in providing long-range customer service; potentially longer
      accounts receivable collection times; significant currency fluctuations, which
      could cause third party distributors to reduce the number of products they
      purchase from us because the cost of our products to them could fluctuate
      relative to the price they can charge their customers; reduced protection of
      intellectual property rights in some foreign countries; and the possibility
      that
      contractual provisions governed by foreign laws would be interpreted differently
      than intended in the event of a contract dispute. Any future foreign sales
      of
      our products could also be adversely affected by export license requirements,
      the imposition of governmental controls, political and economic instability,
      trade restrictions, changes in tariffs and difficulties in staffing and managing
      foreign operations. Many of these factors may also affect our ability to import
      enriched barium from Russia under our contract with the Institute of Nuclear
      Materials. ****




27


*Our
      Ability To Initiate Operations And Manage Growth Is Uncertain* *.* Our
      efforts to commercialize our medical products will result in new and increased
      responsibilities for management personnel and will place a strain upon the
      entire company. To compete effectively and to accommodate growth, if any, we
      may
      be required to continue to implement and to improve our management,
      manufacturing, sales and marketing, operating and financial systems, procedures
      and controls on a timely basis and to expand, train, motivate and manage our
      employees. There can be no assurance that our personnel, systems, procedures,
      and controls will be adequate to support our future operations. If the IsoRay 131 Cs
      seed
      were to rapidly become the “seed of choice,” it is unlikely that we could meet
      demand. We could experience significant cash flow difficulties and may have
      difficulty obtaining the working capital required to manufacture our products
      and meet demand. This would cause customer discontent and invite competition.




*Our
      Reporting Obligations As A Public Company Are Costly.* Operating
      a public company involves substantial costs to comply with reporting obligations
      under federal securities laws that are continuing to increase as provisions
      of
      the Sarbanes Oxley Act of 2002 are implemented. These reporting obligations
      will
      increase our operating costs. We may not reach sufficient business volume to
      justify our public reporting status.




*There
      Is A Limited Market For Our Common Stock.* Currently
      only a limited trading market exists for our common stock. Our common stock
      currently trades on the Pink Sheets, a market with very limited liquidity and
      minimal listing standards, under the symbol “ISRY.PK.” Any broker/dealer that
      makes a market in our stock or other person that buys or sells our stock could
      have a significant influence over its price at any given time, and quotations
      are limited and sporadic. We have applied for a listing on the Over-the Counter
      Bulletin Board, but there can be no assurance that such a listing will be
      obtained. Even if we are listed on the Over-the-Counter Bulletin Board,
      shareholders may experience more difficulty in attempting to sell their shares
      than if the shares were listed on a national stock exchange or quoted on the
      NASDAQ Stock Market. We cannot assure our shareholders that a market of our
      stock will be sustained. There is no assurance that our shares will have any
      greater liquidity than shares that do not trade on a public market.




*Our
      Stock Price Is Likely To Be Volatile.* There
      is
      generally significant volatility in the market prices and limited liquidity
      of
      securities of early stage companies, and particularly of early stage medical
      product companies. Contributing to this volatility are various events that
      can
      affect our stock price in a positive or negative manner. These events include,
      but are not limited to: governmental approvals, refusals to approve, regulations
      or actions; market acceptance and sales growth of our products; litigation
      involving the Company or our industry; developments or disputes concerning
      our
      patents or other proprietary rights; changes in the structure of healthcare
      payment systems; departure of key personnel; future sales of our securities;
      fluctuations in our financial results or those of companies that are perceived
      to be similar to us; investors’ general perception of us; and general economic,
      industry and market conditions. If any of these events occur, it could cause
      our
      stock price to fall.




*Our
      Common Stock May Be Subject To Penny Stock Regulation.* If
      the
      market price of our shares declines below $5.00 per share, our shares would
      be
      subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities
      Exchange Act of 1934, as amended, commonly referred to as the “penny stock”
rule. Section 15(g) sets forth certain requirements for transactions in penny
      stocks and Rule 15g-9(d)(1) incorporates the definition of penny stock as that
      used in Rule 3a51-1 of the Exchange Act. The SEC generally defines penny stock
      to be any equity security that has a market price less than $5.00 per share,
      subject to certain exceptions. Rule 3a51-1 provides that any equity security
      is
      considered to be penny stock unless that security is: registered and traded
      on a
      national securities exchange meeting specified criteria set by the SEC;
      authorized for quotation on The NASDAQ Stock Market; issued by a registered
      investment company; excluded from the definition on the basis of price (at
      least
      $5.00 per share) or the registrant’s net tangible assets; or exempted from the
      definition by the SEC. If our shares were deemed to be “penny stocks”, trading
      in the shares would be subject to additional sales practice requirements on
      broker-dealers who sell penny stocks to persons other than established customers
      and accredited investors.




28


**ITEM
      2 - DESCRIPTION OF PROPERTY**




The
      Company leased, prior to July 2005, approximately 1,941 square feet of office
      space at 4701 IDS Center, Minneapolis, Minnesota 55402. This space was
      sub-leased to a separate company owned by the Company’s then-CEO. The Company
      incurred no expense related to this lease during any period reflected in this
      Transitional Report on Form 10-KSB.




Subsequent
      to June 2005, the Company’s executive offices are now located at 350 Hills
      Street, Suite 106, Richland, WA 99354, (509) 375-1202, where IsoRay Medical
      currently leases approximately 3,100 square feet of office and laboratory space
      for $4,196 per month from Energy Northwest. The lease expires December 31,
      2005,
      but is renewable. The Company is not affiliated with its lessor. Additional
      office space will be needed as employees are hired, and is currently available
      at this location. The Company believes that its current facilities will be
      adequate until the end of 2005, but it will need additional facilities at that
      time. In the future, due to business growth, the Company may elect to combine
      administrative services and production in one building which the Company may
      lease or build depending on market conditions.




In
      April
      2004, IsoRay Medical’s predecessor signed a contract with PNNL, permitting
      IsoRay Medical to subcontract certain of its manufacturing needs to PNNL, use
      PNNL facilities to produce the Cs-131 brachytherapy seeds, and ship them to
      customers from the PNNL facilities. Using PNNL’s facilities has reduced the
      immediate need for IsoRay Medical to purchase specialized capital-intensive
      equipment. The contract allows it to manufacture Cs-131 seeds in PNNL until
      it
      expires in December 2006. Management believes that IsoRay will have sufficient
      time prior to this contract’s expiration to shift production to IsoRay’s new
      facility, described below.




We
      have
      entered into a lease, which commenced as of regulatory licensing approval on
      October 6, 2005, for a facility located in Richland, Washington that
      management believes will provide adequate space to manufacture the Cs-131
      product for the prostate cancer markets until late 2007. The lease is for a
      term
      of twelve months following regulatory licensing approval, and payment for the
      lease term is the issuance of 25,800 shares of IsoRay Medical (pre-merger)
      common stock. The lease may be extended on a month-to-month basis by mutual
      agreement of the parties. The lessor is Pacific EcoSolutions Incorporated,
      and
      the Company is not affiliated with this lessor.




The
      Company’s management believes that all facilities occupied by the Company are
      adequate for present requirements, and that the Company’s current equipment is
      in good condition and is suitable for the operations involved.




**ITEM
      3 - LEGAL PROCEEDINGS**




The
      Company is not involved in any material legal proceedings.




**ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**




No
      matter
      was submitted to a vote of the Company’s security holders during the fourth
      quarter of the fiscal year covered by this Transitional Report.




**PART
      II**




**ITEM
      5 - MARKET FOR COMMON EQUITY, RELATED STOCKHOLDERS’ MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES**




The
      Company’s Articles of Incorporation provide that the Company has the authority
      to issue 200,000,000 shares of capital stock, which are currently divided into
      two classes as follows: 194,000,000 shares of common stock, par value of $0.001
      per share; and 6,000,000 shares of preferred stock, par value of $0.001 per
      share. Immediately prior to the Merger, and following its recent 30:1 reverse
      stock split, the Company had approximately 2,498,000 shares of common stock
      outstanding, and no shares of preferred stock outstanding.




29


Our
      common stock is quoted on the Pink Sheets under the symbol “ISRY.PK.” We resumed
      trading on the Pink Sheets on August 18, 2005, after a period of no trading
      activity (under our prior symbol “CPPC.PK”) from February 18, 2005 until August
      18, 2005. We also had a period of no trading activity from July 2003 until
      February 7, 2005. Prior to August 18, 2005, there was an absence of an
      established trading marking for the Company’s common stock, the market was very
      limited and sporadic, and no quotations from October 1, 2003 through July 2005
      exceeded $0.01 per share.




On
      October 3, 2005, the last reported bid price of our common stock as reported
      on
      the Pink Sheets was $5.50 per share. This quotation represents an inter-dealer
      price without retail mark-up, mark-down or commissions, and may not necessarily
      represent an actual transaction.




As
      of
      September 30, 2005, we had approximately 811 shareholders of record, exclusive
      of shares held in street name.




Equity
      Compensation Plans




On
      May
      27, 2005, the Company adopted the 2005 Stock Option Plan (the “Option Plan”) and
      the 2005 Employee Stock Option Plan (the “Employee Plan”), pursuant to which it
      may grant equity awards to eligible persons. The Option Plan allows the Board
      of
      Directors to grant options to purchase up to 1,500,000 shares of common stock
      to
      directors, officers, key employees and service providers of the Company, and
      the
      Employee Plan allows the Board of Directors to grant options to purchase up
      to
      1,500,000 shares of common stock to officers and key employees of the Company.
      Options granted under either Plan have a ten year maximum term, an exercise
      price equal to at least the fair market value of the Company’s common stock
      (based on the trading price on the Pink Sheets or OTC Bulletin Board) on the
      date of the grant, and with varying vesting periods as determined by the Board.
      IsoRay Medical, Inc.’s option plans were cancelled and replaced in the merger
      with the Plans described above, and new options were issued without any change
      in the material terms of the options, other than acceleration of all unvested
      options (other than those issued to Mr. Griffiths, Mr. Hrobsky and Mr.
      Hutchinson which retained their original vesting terms). As of June 30,
      2005, no options had been granted under either plan.




**Plan
                Category**
            
            Number
                of securities to be issued on exercise of outstanding options, warrants
                and rights
              #
            
            Weighted-average
                exercise price of outstanding options, warrants, and rights
              $
            
            Number
                of securities remaining available for future issuance under equity
                compensation plansEquity
                compensation plans
              approved
                by shareholders
            
            
            N/A
            
            
            N/A
            
            
            N/AEquity
                compensation plans
              not
                approved by shareholders
            
            
            N/A
            
            
            N/A
            
            
            3,000,000Total
            
            
            N/A
            
            
            N/A
            
            
            3,000,000




The
      Company has never paid any cash dividends on its Common Stock and does not
      plan
      to pay any cash dividends in the foreseeable future.




Pursuant
      to the Merger Agreement, all rights and privileges granted to IsoRay
      shareholders owning common and preferred stock were converted into substantially
      similar rights and privileges when the shareholders received IsoRay, Inc. shares
      of common and preferred stock subject solely to the differences between Delaware
      (IsoRay Medical) and Minnesota (IsoRay) laws.




Preferred
      Stock




30


On
      May
      27, 2005, the Company’s Board of Directors created two series of shares of
      Preferred Stock designated as Series A Convertible Preferred Stock and Series
      B
      Convertible Preferred Stock. The Series A Convertible Preferred Stock (the
      Series A Stock) consists of an aggregate of 1,000,000 shares, $0.001 par value,
      and the Series B Convertible Preferred Stock (Series B Stock) consists 5,000,000
      shares, $0.001 par value (collectively, “Preferred Stock”). The Preferred Stock
      has preferences, limitations and relative rights in preference to the holders
      of
      any other stock of the Company. The Preferred Stock may be converted into common
      stock at a rate of one share of common stock for each one share of Preferred
      Stock being converted. Holders of Preferred Stock are also entitled to receive
      certain annual dividends, and no dividends of any type may be paid on the common
      stock unless all dividends to which the holders of Preferred Stock shall have
      been entitled shall have been paid or declared and a sum of money sufficient
      for
      the payment thereof set apart.




Sales
      of Unregistered Securities




During
      the nine months ended June 30, 2005 the following sales of unregistered
      securities were completed by IsoRay Medical, Inc.:




·
            Between
                January 31, 2005 and July 10, 2005, IsoRay Medical, Inc. sold
                approximately $4,137,875 in principal amount of 8% convertible debentures
                (less commissions of ten percent (10%) on securities placed by
                broker/dealers), in reliance on the exemption from registration provided
                by Rule 506 of Regulation D of the Securities Act, that subsequent
                to the
                merger between the Registrant and IsoRay Medical, Inc. were convertible
                into 995,882 shares of common stock of the Registrant.





·
            On
                March 31, 2005, IsoRay Medical, Inc. issued, in reliance on the exemption
                from registration provided by Section 4(2) of the Securities Act,
                30,303
                shares of its common stock and paid $40,000 of cash to Intellegration
                LLC
                in full satisfaction of the $90,000 purchase price of three laser
                welding
                stations. Pursuant to the merger with the Registrant, these 30,303
                shares
                were converted into 25,526 shares of the Registrant’s common
                stock.





·
            In
                January 2005 IsoRay Medical, Inc. issued, in reliance on the exemption
                from registration provided by Section 4(2) of the Securities Act,
                211,140
                shares of its common stock under §83(b) (subject to a substantial risk of
                forfeiture) to certain shareholders as an inducement for their guarantee
                of the Columbia River Bank line of credit and the note payable to
                Benton-Franklin Economic Development District. The transactions were
                recorded at the fair value of the shares, estimated to be $348,381.
                Pursuant to the merger with the Registrant, these 211,140 shares
                were
                converted into 177,854 shares of the Registrant’s common
                stock.





·
            Between
                October 15, 2004 and January 21, 2005, IsoRay Medical, Inc. sold
                765,500
                shares of common stock and issued 229,650 warrants to purchase shares
                of
                common stock for $.50 per share, for a total of $1,531,000 to accredited
                individual investors, (less commissions of ten percent (10%) on securities
                placed by broker/dealers), in reliance on Rule 506 of Regulation
                D of the
                Securities Act. All 229,650 warrants were subsequently exercised
                prior to
                the completion of the merger on July 28, 2005. Pursuant to the merger,
                all
                995,150 shares of IsoRay Medical, Inc. were converted into 838,230
                shares
                of the Registrant.




·
            In
                connection with the October 15, 2004 private placement, IsoRay Medical,
                Inc. granted, in reliance on the exemption from registration provided
                by
                Section 4(2) of the Securities Act, the selling broker-dealers warrants
                to
                purchase 4.23 units at $20,000 per unit. These units represented
                42,300
                shares of IsoRay Medical, Inc. common stock to purchase 12,690 common
                shares at $.50 per share. These units were converted into 35,631
                shares of
                the Registrant’s common stock and warrants to purchase 10,689 shares of
                the Registrant’s common stock at $.59 per
                share.




**ITEM
      6 - MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**




**Results
      of Operations**




31


We
      have
      had no revenue for the nine months ended June 30, 2005 or for either of the
      years ended September 30, 2004 and 2003.




Nine
      months ended June 30, 2005 compared to the Year ended September 30,
      2004




On
      July
      28, 2005, the Company entered into a reverse merger transaction with IsoRay
      Medical, Inc. whereby IsoRay Medical, Inc. became a wholly-owned subsidiary
      of
      the Company.




The
      acquisition of IsoRay Medical on July 28, 2005 by the Company effected a change
      in control and was accounted for as a “reverse acquisition” whereby IsoRay is
      the accounting acquirer for financial statement purposes. Accordingly, for
      all
      periods subsequent to July 28, 2005, the financial statements of the Company
      reflect the historical financial statements of IsoRay from the inception of
      each
      respective entity composing IsoRay Medical, Inc. at the July 28, 2005 change
      in
      control transaction and the operations of the Company subsequent to the July
      28,
      2005 transaction.




The
      Company originally had a September 30 year end. As a result of the July 28,
      2005
      reverse acquisition transaction, the Company’s Board of Directors changed
      IsoRay, Inc.’s (formerly Century Park Pictures Corporation) year-end to
      June 30 to correspond to the year end of its newly acquired subsidiary,
      IsoRay Medical, Inc.




Accordingly,
      the reported financial results of the Company in this Transitional Report on
      Form 10-KSB will not be representative of the reported (and/or anticipated)
      results of operations in future periods.




General
      and administrative expense for the nine months ended June 30, 2005 and the
      year
      ended September 30, 2003 were $30,128 and $9,095, respectively. The increase
      was
      directly related to various professional fees incurred in the consummation
      of
      the July 2005 business combination transaction with IsoRay Medical, Inc. Net
      loss for the nine months ended June 30, 2005 was ($30,128) as compared to net
      income of $75,757 for the year ended September 30, 2004. The $75,757 income
      in
      the year ended 2004 was primarily the result of the statutory cancellation
      of
      notes payable and accrued interest of $86,956.




In
      conjunction with a May 2005 sale of equity securities for approximately $85,000,
      the Company, the Company’s then-CEO and the purchasing shareholders negotiated a
      settlement whereby all outstanding debt owed to the then-CEO in the form of
      accrued compensation and working capital advances was settled in full for
      approximately $50,000. The Company recognized a reversal of accrued compensation
      of approximately $304,500 as a result of this negotiation. This reversal was
      included in “additional paid-in-capital” for the nine months ended June 30,
      2005.




Year
      ended September 30, 2004 compared to Year ended September 30,
      2003




General
      and administrative expenses for the years ended September 30, 2004 and September
      30, 2003 were $9,095 and $19,022, respectively. Net income for the year ended
      September 30, 2004 was $75,757 as compared to a net loss of ($60,027) for the
      year ended September 30, 2003. The principal components of the loss for the
      year
      ended September 30, 2004 were the accrual of interest expense of $41,005 on
      outstanding notes payable and operating expenses of $19,022 related to
      maintaining the Company’s compliance with the Securities Exchange Act of 1934.
      Included in interest expense for fiscal 2004 and 2003 is approximately $2,100
      and $41,000, respectively, in imputed interest charged to operations as a
      component of interest expense with an offset to contributed additional paid-in
      capital to recognize the economic effect of the suspended and forgiven interest
      on certain notes payable. This accounting is the result of the respective
      noteholders agreeing to discontinue their rights to interest subsequent to
      July
      31, 2002.




The
      Company’s expenditures consist solely of items necessary to comply with the
      Company’s periodic reporting obligations under the Securities Exchange Act of
      1934 and are not necessarily reflective of what may be expected in future
      periods when the Company either commences more extensive business operations
      or
      acquires another operating entity through either acquisition or
      merger.




Year
      ended September 30, 2003 compared to Year ended September 30,
      2002




32


General
      and administrative expenses for the years ended September 30, 2002 and 2001
      were
      approximately $60,000 and $59,000, respectively. The principal component of
      these expenditures was the accrual of interest on $400,000 in outstanding notes
      payable. Interest expense for the years ended September 30, 2003 and 2002 was
      approximately $41,000 and $51,500, respectively. Included in interest expense
      is
      approximately $41,000 and $8,585 in imputed interest calculated as a result
      of
      the respective noteholders agreeing to discontinue their rights to interest
      subsequent to July 31, 2002.




The
      Company’s expenditures consist solely of items necessary to comply with the
      Company’s periodic reporting obligations under the Securities Exchange Act of
      1934 and are not necessarily reflective of what may be expected in future
      periods when the Company either commences more extensive business operations
      or
      acquires another operating entity through either acquisition or
      merger.




**Liquidity
      and Capital Resources**




On
      or
      about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
      shares of unregistered, restricted common stock (2,500,000 pre-reverse split
      shares) for cash proceeds of approximately $85,000 to three (3) separate
      individuals, including 4,933 post-reverse split shares to the Company’s former
      President. The Company relied upon Section 4(2) of the Securities Act of 1933,
      as amended, for an exemption from registration of these shares and no
      underwriter was used in this transaction. The Company granted “piggy-back”
registration rights to the holders of the shares of common stock which would
      entitle a holder to request that the Company register the common stock if the
      Company files a registration statement at any time prior to three years from
      the
      date the Company sold such shares of common stock. The Company has agreed to
      keep such registration statement current for up to 270 days. The Company has
      agreed to pay all expenses associated with any registration of the common stock
      except any underwriter’s commissions or fees or any fees of others employed by a
      selling shareholder, including attorneys' fees, which shall be the
      responsibility of the selling shareholder.




Cash
      used
      by operating activities for the nine months ended June 30, 2005 and for each
      of
      the respective years ended September 30, 2004 and 2003 was approximately
      $59,000, $9,800 and $19,000, respectively. These cash requirements have been
      provided by either the proceeds from the May 2005 stock sale or advances from
      the Company’s former Chief Executive Officer. For all periods prior to October
      1, 2001, these advances have been treated as additional paid-in capital.
      Commencing October 1, 2001, the Company’s former Chief Executive Officer made
      these advances as working capital advances which were repayable upon demand
      at
      some undesignated future date and were non-interest bearing. In June 2005,
      concurrent with the May 2005 equity sale transaction and the July 2005 reverse
      acquisition transaction with IsoRay Medical, the Company’s former Chief
      Executive Officer forgave the repayment of these advances and the Company
      recognized the forgiveness as additional contributed capital in the Company’s
      financial statements.




**Going
      Concern Issues**




IsoRay
      Medical, Inc., on the date of the reverse acquisition transaction was classified
      as a development stage enterprise, which was in the process of implementing
      its
      respective business plan to achieve a sustainable revenue stream. As of the
      date
      of the reverse merger transaction, IsoRay Medical, Inc. had a limited operating
      history and its future success was subject to the expenses, risks and
      uncertainties frequently encountered by companies in similar stages of
      development. These potential risks include failure to acquire adequate financing
      to fund further development of its products; failure to obtain and operate
      a
      production facility; failure to successfully create a market for its products;
      and other risks and uncertainties.




Management’s
      plans to raise additional financing include the sale of additional equity or
      borrowings. Management expects to obtain the necessary financing; however,
      no
      assurance can be given that such financing will be completed on terms acceptable
      to the Company. If the Company is not able to obtain additional financing,
      the
      development of the Company’s products could be delayed or suspended.




33


**Inflation**




Inflation
      and changing prices are not anticipated to have a significant impact on the
      future operations of the Company.




**ITEM
      7 - FINANCIAL STATEMENTS**




The
      required accompanying financial statements begin on page F-1 of this
      document.




**ITEM
      8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**




None.




**ITEM
      8A - CONTROLS AND PROCEDURES**




As
      required by Rule 13a-15 under the Exchange Act, within the 90 days prior to
      the
      filing date of this report, the Company carried out an evaluation of the
      effectiveness of the design and operation of the Company’s disclosure controls
      and procedures. This evaluation was carried out under the supervision and with
      the participation of the Company’s management, including the Company’s Chief
      Executive Officer and Chief Financial Officer. Based upon that evaluation,
      the
      Company’s Chief Executive Officer and Chief Financial Officer concluded that the
      Company’s disclosure controls and procedures are effective. There have been no
      significant changes in the Company’s internal control over financial reporting
      or in other factors, which could significantly affect internal control over
      financial reporting subsequent to the date the Company carried out its
      evaluation.




Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed in Company reports filed or
      submitted under the Exchange Act is recorded, processed, summarized and
      reported, within the time periods specified in the Securities and Exchange
      Commission’s rules and forms. Disclosure controls and procedures include,
      without limitation, controls and procedures designed to ensure that information
      required to be disclosed in Company reports filed under the Exchange Act is
      accumulated and communicated to management, including the Company’s Chief
      Executive Officer and Chief Financial Officer as appropriate, to allow timely
      decisions regarding required disclosure.




**PART
      III**




**ITEM
      9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
      WITH SECTION 16(a) OF THE EXCHANGE ACT**




In
      conjunction with the Merger, and effective as of July 28, 2005 (the closing
      date
      of the Merger), Thomas Scallen resigned from his positions as Chief Executive
      Officer and Chairman of the Board, Philip Rogers resigned from his position
      as
      President and a director, and Wally Bietak resigned from his position as a
      director of the Registrant.






Effective
      as of July 28, 2005, Roger Girard and David Swanberg were appointed as directors
      by the resigning Board, and, also effective as of July 28, 2005, they appointed
      Robert Kauffman, Thomas LaVoy and Stephen Boatwright to fill the remaining
      three
      vacant Board positions. The Board has established an Audit Committee consisting
      of Thomas LaVoy (Chairman) and Robert Kauffman. No other committees have been
      formed.




The
      Audit
      Committee is responsible for assisting the Board of Directors in monitoring
      and
      oversight of (1) the integrity of the Company’s financial statements and its
      systems of internal accounting and financial controls and (2) the independence
      and performance of the Company’s independent auditors. The Board of Directors
      has determined that Mr. LaVoy and Mr. Kauffman are each an “audit
      committee financial expert” as defined in Item 401 of Regulation S-B promulgated
      by the Securities and Exchange Commission, and are each independent. The Board’s
      conclusions regarding the qualifications of Mr. LaVoy as an audit committee
      financial expert were based on his service as a chief financial officer of
      a
      public company, his experience as a certified public accountant and his degree
      in accounting. The Board’s conclusions regarding the qualifications of
      Mr. Kauffman as an audit committee financial expert were based on his
      service as a chief executive officer of multiple public companies, his active
      supervision of the principal financial and accounting officers of the public
      companies for which he served as chief executive officer, and his M.B.A. in
      Finance.




34


Further
      information about the new Board members may be found below.




Effective
      as of July 28, 2005, Roger Girard was appointed as Chief Executive Officer
      and
      President of the Registrant and Michael Dunlop was appointed as Chief Financial
      Officer and Treasurer of the Company. Also effective July 28, 2005, John Hrobsky
      was appointed Vice President, Sales and Marketing and David Swanberg was
      appointed Secretary and Vice President-Operations. Further information about
      these officers may be found below.




The
      Company entered into an employment agreement with Roger Girard, its Chief
      Executive Officer, effective October 6, 2005 (the “Girard Agreement”). The term
      of the Girard Agreement is through October 6, 2009, and will automatically
      extend for an additional one year term on each anniversary date unless the
      term
      is modified or terminated in accordance with the terms of the Girard Agreement
      at least ninety days prior to a given anniversary date. The Girard Agreement
      provides for a base salary of $180,000, an automatic increase to $220,000
      effective January 1, 2006, and an increase to $300,000 effective July 1, 2006
      if
      certain performance goals set by the Board of Directors are met. Mr. Girard
      is also entitled to participate in any benefit plans provided to key executives
      of the Company, and to a bonus if certain performance goals set by the Board
      of
      Directors are met. These performance goals have not yet been set by the Board.
      The Registrant has not entered into employment agreements with any other
      officers as of the date of this filing.




The
      directors and executive officers serving the Company as of October 11, 2005
      were
      as follows:




Name
            
            Age
            
            Position
                HeldRoger
                Girard
            
            62
            
            Chairman,
                President, CEOJohn
                Hrobsky
            
            58
            
            Vice
                President-MarketingMichael
                Dunlop
            
            53
            
            Chief
                Financial Officer-TreasurerDavid
                J. Swanberg
            
            49
            
            Vice
                President-Operations
              Corporate
                Secretary, DirectorRobert
                Kauffman
            
            64
            
            DirectorThomas
                LaVoy
            
            45
            
            DirectorStephen
                Boatwright
            
            41
            
            Director




Roger
      E.
      Girard- In addition to serving as President, Chairman and CEO for the Company,
      Mr. Girard is also the CEO, President and Chairman of the Board of IsoRay
      Medical, Inc., and has served in these positions since the formation of IsoRay
      Medical, Inc. Mr. Girard was CEO and Chairman of IsoRay Medical's predecessor
      company from August of 2003 until October 1, 2004. Mr. Girard has been actively
      involved in the management and the development of the management team at IsoRay
      Medical, and his experienced leadership has helped drive IsoRay's development
      to
      date. From June 1998 until August of 2003, Mr. Girard served as President of
      Strategic Financial Services, a business consulting company based in Seattle,
      Washington designed to help wealthy individuals and companies with strategic
      planning and financial strategy. Strategic Financial Services previously
      provided its services to a medical device company. Mr. Girard served as its
      sole
      employee. Mr. Girard also served as the managing partner for the Northwest
      office of Capital Consortium, another business consulting company based in
      Seattle, during this time. Capital Consortium employed four people and analyzed
      business market potential for start-ups and early stage companies. Mr. Girard
      has knowledge, experience and connections to private,
      institutional and public sources of capital and is experienced in
      managing and designing capital structures for business organizations as well
      as
      organizing and managing the manufacturing process, distribution, sales, and
      marketing, based on his 35 years of experience.




John
      Hrobsky - Prior to joining IsoRay’s predecessor company as Executive Vice
      President of Sales and Marketing in 2004, Mr. Hrobsky was President, CEO
      and a director of Advanced Cochlear Systems, positions he held beginning in
      2001. From 1999 to 2001, Mr. Hrobsky served as President, CEO and a
      director of Zaxis International, Inc., a biotechnology company. Prior to 1999,
      Mr. Hrobsky served as a senior executive with a number of biotech and
      medical device companies. Mr. Hrobsky’s sales and marketing experience with
      medical devices includes a device for restoring neuro-control after spinal
      cord
      injury, the worldwide leading cochlear implant as well as various radiology,
      imaging and diagnostic equipment products. Notably, Mr. Hrobsky served as
      Vice President of Sales for Cochlear Corporation, the U.S. subsidiary of
      Cochlear Ltd., an Australian based manufacturer of cochlear implants where
      he
      was responsible for its introduction to the markets in the US, Canada and South
      America. Cochlear Ltd. is the world’s leading provider of cochlear implants
      commanding approximately 60% of the market. Mr. Hrobsky earned a Bachelor
      of Science in Medical Technology in 1971 from the University of Wisconsin - Eau
      Claire, and has earned credits toward an MBA from Regis University, Denver,
      CO.




35


Michael
      Dunlop - Mr. Dunlop has been responsible for IsoRay Medical and its
      predecessor companies’ financial and accounting operations and administrative
      services in his position as CFO since April 2001. Mr. Dunlop has over 18
      years of financial and administrative experience in the healthcare industry.
      As
      Director of Contracting and Marketing for Community Choice, PHCO, an organized
      healthcare delivery system, from October 1997 to December 2003, he assisted
      in
      developing the strategic direction and business plan of the PHCO, negotiated
      and
      maintained contractual relations with state-wide major health insurance plans,
      increased compensation for 80+ independent providers and 6 area hospitals,
      and
      enhanced PHCO provider membership through development of programs that lowered
      clinic and hospital operating costs. He was granted the Pentad Industry Council,
      Chelan-Douglas Counties’ ’Employer of the Year’ award in 1996, while
      administrator of Lake Chelan Clinic. Mr. Dunlop holds an M.B.A. from
      California State University and B.M. Education from Walla Walla
      College.




David
      J.
      Swanberg - Mr. Swanberg has more than 22 years experience in engineering
      and materials science, nuclear waste and chemical processing, aerospace
      materials and processes, and environmental technology development and
      environmental compliance. Until January 2004, Mr. Swanberg was employed
      full time as Sr. Chemical/Environmental Engineer for Science Applications
      International Corporation working on a variety of projects including nuclear
      waste research and development. Mr. Swanberg joined IsoRay Medical’s
      predecessor company in March of 1999 and has held management positions in the
      IsoRay companies since 2000. He has been instrumental in development of IsoRay
      Medical’s initial product, the Cs-131 brachytherapy seed, including interfaces
      with technical, regulatory, and quality assurance requirements. With IsoRay
      Medical and its predecessor companies, he has managed the development and
      production of radioactive seeds to support testing to meet NRC and FDA
      requirements, provided technical guidance for characterization of the IsoRay
      seed to meet AAPM Task Group 43 protocols, and coordinated production and
      testing of non-radioactive seeds to conform to ISO standards for brachytherapy
      devices. He is President of the Nuclear Medicine Research Council. He holds
      an
      MS in Chemical Engineering, is a licensed Chemical Engineer, and a certified
      Level II Radiation Worker.




Robert
      Kauffman - Mr. Kauffman has served as Chief Executive Officer and Chairman
      of the Board of Alanco Technologies, Inc. (NASDAQ: ALAN), an Arizona-based
      information technology company, since July 1, 1998. Mr. Kauffman was
      formerly President and Chief Executive Officer of NASDAQ-listed Photocomm,
      Inc.,
      from 1988 until 1997 (since renamed Kyocera Solar, Inc.). Photocomm was the
      nation’s largest publicly owned manufacturer and marketer of wireless solar
      electric power systems with annual revenues in excess of $35 million. Prior
      to
      Photocomm, Mr. Kauffman was a senior executive of the Atlantic Richfield
      Company (ARCO) whose varied responsibilities included Senior Vice President
      of
      ARCO Solar, Inc., President of ARCO Plastics Company and Vice President of
      ARCO
      Chemical Company. Mr. Kauffman earned an M.B.A. in Finance at the Wharton
      School of the University of Pennsylvania, and holds a B.S. in Chemical
      Engineering from Lafayette College, Easton, Pennsylvania.




Thomas
      C.
      Lavoy - Mr. Lavoy has served as Chief Financial Officer of SuperShuttle
      International, Inc., since July 1997 and as Secretary since March 1998.
      SuperShuttle is one of the largest providers of shuttle services in major cities
      throughout the West and Southwest regions of the United States. He has also
      served as a director of Alanco Technologies, Inc. (NASDAQ: ALAN) since 1998.
      From September 1987 to February 1997, Mr. Lavoy served as Chief Financial
      Officer of NASDAQ-listed Photocomm, Inc. Mr. Lavoy was a Certified Public
      Accountant with the firm of KPMG Peat Marwick from 1980 to 1983. Mr. Lavoy
      has a
      Bachelor of Science degree in Accounting from St. Cloud University, Minnesota,
      and is a Certified Public Accountant.




36


Stephen
      Boatwright - Mr. Boatwright has been a member of Keller Rohrback, PLC in
      Phoenix, Arizona since January 2005. From 1997 through January 2005,
      Mr. Boatwright was a partner at Gammage & Burnham, PLC, also in
      Phoenix, Arizona. Throughout his career, he has provided legal counsel to both
      private and public companies in many diverse industries. In recent years,
      Mr. Boatwright’s legal practice has focused on representing technology,
      biotechnology, life science and medical device companies for their securities,
      corporate and intellectual property licensing needs. Mr. Boatwright earned
      both a J.D. and an M.B.A. from the University of Texas at Austin, and holds
      a
      B.A. in Philosophy from Wheaton College.




Significant
      Employees




Certain
      significant employees of our subsidiary, IsoRay Medical, Inc., and their
      respective ages as of the date of this report are set forth in the table below.
      Also provided is a brief description of the experience of each significant
      employee during the past five years.




Name
            
            Age
            
            Position
                Held and TenureLane
                Bray
            
            77
            
            ChemistGarrett
                Brown
            
            42
            
            Chief
                Technology OfficerKeith
                Welsch
            
            58
            
            Chief
                Quality Officer




Lane
      Bray
      - Mr. Bray is known nationally and internationally as a technical expert in
      separations, recovery, and purification of isotopes and is a noted authority
      in
      the use of cesium and strontium ion exchange for Department of Energy’s West
      Valley and Hanford nuclear waste cleanup efforts. In 2000, Mr. Bray
      received the ’Radiation Science and Technology’ award from the American Nuclear
      Society. Mr. Bray has authored or co-authored over 110 research
      publications, 12 articles for 9 technical books, and holds 24 U.S. and foreign
      patents. Mr. Bray patented the USDOE/PNNL process for purifying medical
      grade Yttrium-90 that was successfully commercialized in 1999. Mr. Bray
      also recently invented and patented the proprietary isotope separation and
      purification process that is assigned to IsoRay. Mr. Bray was elected
’Tri-Citian of the Year’ in 1988, nominated for ’Engineer of the Year’ by the
      American Nuclear Society in 1995, and was elected ’Chemist of the Year for 1997’
by the American Chemical Society, Eastern Washington Section. Mr. Bray
      retired from the Pacific Northwest National Laboratory in 1998. Since retiring
      in 1998, Mr. Bray worked part time for PNNL on special projects until
      devoting all of his efforts to IsoRay in 2004. Mr. Bray has been a
      Washington State Legislator, a Richland City Councilman, and a Mayor of
      Richland. Mr. Bray has a B.A. in Chemistry from Lake Forest
      College.




Garrett
      Brown - Dr. Brown was Manager of Radiochemistry - Hot Cell Operations for
      International Isotopes, Inc., a major radiopharmaceutical and medical device
      startup company, from January 1998 until May 1999 and was instrumental in
      bringing a new brachytherapy seed implant device to commercialization.
      Dr. Brown’s responsibilities included hands-on radiological work in fume
      hoods, glove boxes and remote manipulator hot cells, process definition,
      research, development, installation, optimization, waste minimization, procedure
      documentation, facility design and training. Dr. Brown also served as the
      technical interface to executive management for business development,
      shipping/receiving, QA/QC, facilities and marketing/sales. Prior to that,
      Dr. Brown, as a Senior Research Scientist at the Pacific Northwest National
      Laboratory, was responsible for the weekly production of multi-Curie quantities
      of medical grade Y-90, and research programs to develop high tech sorbents
      for
      separation of Cs-137, Sr-90 and Tc-99 from high-level radioactive wastes stored
      at the Hanford Nuclear Reservation. From May 1999 to the present, Dr. Brown
      has been a technical consultant with GNB Technical Consultants. Dr. Brown
      has co-authored numerous technical publications in the field. Dr. Brown has
      a Ph.D. in Analytical Chemistry and BS in Chemistry, cum laude. He has served
      as
      IsoRay Medical’s Chief Technical Officer since May of 2000. In March 2004,
      Dr. Brown was certified as a Radiological Safety Officer.




Keith
      Welsch - Mr. Welsch is a quality control professional with experience in a
      wide range of organizations and disciplines including the nuclear, aerospace,
      environmental restoration, construction, tubing, steel and aluminum industries.
      Mr. Welsch managed the registration of a plant to ISO 9002:1994 and
      subsequently transitioned the facility to ISO 9001:2000 and conducted continuous
      improvement actions. These included statistical process control, six sigma,
      lean
      manufacturing, and total preventive maintenance programs. Mr. Welsch’s
      other significant achievements include facilitation of quality improvement
      and
      stand down teams, innovative education training manager, management of records
      review for two nuclear sites, management of audit programs and corrective-action
      systems, and teaching safety, technical, and quality courses. He has earned
      the
      Certified Quality Auditor, Certified Quality Technician and Certified Quality
      Improvement Associate certifications from the American Society for Quality.
      Prior to joining IsoRay in 2004, Mr. Welsch served as Quality Assurance
      Manager for Kaiser Aluminum Products of Richland, Washington since 1997.
      Mr. Welsch received a BA in Business Administration from Washington State
      University.




37


The
      Company’s Directors, as named above, will serve until the next annual meeting of
      the Company’s stockholders or until their successors are duly elected and have
      qualified. Directors will be elected for one-year terms at the annual
      stockholders meeting. Officers will hold their positions at the pleasure of
      the
      board of directors, absent any employment agreement, of which none currently
      exists or is contemplated. There is no arrangement or understanding between
      any
      of the directors or officers of the Company and any other person pursuant to
      which any director or officer was or is to be selected as a director or officer,
      and there is no arrangement, plan or understanding as to whether non-management
      shareholders will exercise their voting rights to continue to elect the current
      directors to the Company’s board. There are also no arrangements, agreements or
      understandings between non-management shareholders that may directly or
      indirectly participate in or influence the management of the Company’s
      affairs.




There
      are
      no agreements or understandings for any officer or director to resign at the
      request of another person, and none of the officers or directors are acting
      on
      behalf of, or will act at the direction of, any other person.




Section
      16(a) Beneficial Ownership Reporting Compliance




Section
      16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the
      Company’s directors and executive officers, and persons who beneficially own
      more than ten percent of a registered class of our equity securities, to file
      with the Securities and Exchange Commission (the “Commission”) initial reports
      of beneficial ownership and reports of changes in beneficial ownership of our
      Common Stock. The rules promulgated by the Commission under Section 16(a) of
      the
      Exchange Act require those persons to furnish us with copies of all reports
      filed with the Commission pursuant to Section 16(a). The information in this
      section is based solely upon a review of Forms 3, Forms 4, and Forms 5 received
      by us.




During
      the transition period ended June 30, 2005, Philip Rogers, our former President
      and a former director, failed to file one Form 4. To our knowledge, we believe
      that no other reports were required and not filed during the transition period
      ended June 30, 2005.




Code
      of Ethics




We
      have
      adopted a Code of Conduct and Ethics that applies to all of our officers,
      directors and employees and a separate Code of Ethics for Chief Executive
      Officer and Senior Financial Officers that supplements our Code of Conduct
      and
      Ethics. The Code of Conduct and Ethics was previously filed as Exhibit 14.1
      to
      this Transition Report, and the Code of Ethics for Chief Executive Officer
      and
      Senior Financial Officers was previously filed as Exhibit 14.2 to this
      Transition Report. Each of these policies comprises written standards that
      are
      reasonably designed to deter wrongdoing and to promote the behavior described
      in
      Item 406 of Regulation S-B promulgated by the Securities and Exchange
      Commission. Each of these policies was adopted after the end of the transition
      period ended June 30, 2005.




**ITEM
      10 - EXECUTIVE COMPENSATION**




The
      following summary compensation table sets forth information concerning
      compensation for services rendered in all capacities during our past three
      fiscal years awarded to, earned by or paid to each of the following executive
      officers (the “Executive Officers”). None of the Company’s executive officers,
      other than those listed below, received compensation in fiscal year 2005, in
      excess of $100,000.




38


**Long-Term
                Compensation Awards****Name
                and Principal Position**
            
            **Fiscal
                Year****(1)**
            
            **Annual
                Compensation Salary**
            
            **Restricted
                Stock Awards**
            
            **Securities
                Underlying Options**
            
            **All
                Other Compensation**Thomas
                Scallen, Former Chief Executive Officer(2)
            
            
            2005
            
            
            --
            
            
            --
            
            
            --
            
            $
            50,000(3
            )2004
            
            
            --
            
            $
            7,871(4
            )
            
            --
            
            
            --2003
            
            
            --
            
            
            --
            
            
            --
            
            
            --Roger
                Girard, Chief Executive Officer(5)
            
            
            2005
            
            $
            113,958
            
            
            --
            
            
            --
            
            
            --2004
            
            $
            71,031
            
            $
            9,900
            
            
            513,840
            
            
            --2003
            
            $
            4,000
            
            $
            49,900
            
            
            --
            
            
            --





(1)
            Fiscal
                year 2005 consisted of the period from October 1, 2004 through June
                30,
                2005; fiscal year 2004 consisted of the year ended September 20,
                3004; and
                fiscal year 2003 consisted of the year ended September 30,
                2003.


(2)
            Mr. Scallen
                served as our Chief Executive Officer during the listed fiscal years
                and
                until his resignation effective July 28,
                2005.


(3)
            Represents
                a $50,000 cash payment in June 2005 to Mr. Scallen in settlement of
                all accrued but unpaid
                compensation.


(4)
            Represents
                the issuance of 787,100 shares of restricted common stock as compensation
                associated with the conversion of the outstanding notes payable and
                accrued interest payable. This transaction was valued at approximately
                $7,781, which was equal to the “fair value” of the Company’s common stock
                on the conversion date. The Company relied upon Section 4(2) of the
                Securities Act of 1933, as amended, for an exemption from registration
                for
                this issuance.


(5)
            Mr.
                Girard did not begin serving as our CEO until July 28, 2005, but
                he has
                served as CEO of our subsidiary and its predecessor company since
                August
                2003. The compensation listed was paid to Mr. Girard by IsoRay Medical
                or
                its predecessor company.




Aggregated
      Option Exercises in Last Fiscal Year and Fiscal Year End Option
      Values


The
      following table sets forth the number of shares covered by unexercised stock
      options held by the Executive Officers as of June 30, 2005, and the value of
      "in-the-money" stock options, which represents the positive spread between
      the
      exercise price of a stock option or warrant and the market price of the shares
      subject to such option or warrant as of June 30, 2005 **.**


Number
                of Securities Underlying Unexercised Options at Fiscal
                Year-End(#)
            
            Value
                of Unexercised In-the-Money Options at Fiscal Year-End($)Name
            
            Number
                of Shares Acquired on Exercise (#)
            
            Value
                Realized ($)
            
            Exercisable
            
            Unexercisable
            
            Exercisable
            
            UnexercisableRoger
                Girard(1)
            
            
            0
            
            
            0
            
            
            513,841
            
            
            0
            
            $
            39,650
            
            
            Nn/aThomas
                Scallen
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            nn/a
            
            
            nn/a




(1) Mr.
      Girard held options to acquire 513,841 IsoRay Medical, Inc. shares at June
      30,
      2005. He held no options in the Registrant at June 30, 2005.




***Employment
      Agreements*** ******




The
      Company entered into an employment agreement with Roger Girard, its Chief
      Executive Officer, effective October 6, 2005 (the "Girard Agreement"). The
      term
      of the Girard Agreement is through October 6, 2009, and will automatically
      extend for an additional one year term on each anniversary date unless the
      term
      is modified or terminated in accordance with the terms of the Girard Agreement
      at least ninety days prior to a given anniversary date. The Girard Agreement
      provides for a base salary of $180,000, an automatic increase to $220,000
      effective January 1, 2006, and an increase to $300,000 effective July 1, 2006
      at
      the discretion of the Board of Directors. Mr. Girard is also entitled to
      participate in any benefit plans provided to key executives of the Company,
      and
      to a bonus at the discretion of the Board of Directors.




39


Director
      Compensation




The
      Company’s Directors have not received any cash compensation during the nine
      months ended June 30, 2005 or either of the respective years ended September
      30,
      2004 or 2003.




Since
      July 28, 2005, we have paid our directors who are not employees of the Company
      a
      director’s fee of $1,000 per meeting attended, plus expenses. We have also
      granted each non-employee director immediately exercisable options to purchase
      100,000 shares of our common stock. For the current non-employee members of
      the
      Board, these options were granted on July 28, 2005 with an exercise price of
      $2.00 per share. Our non-employee directors as of the date of this filing were
      Robert Kauffman, Thomas LaVoy and Stephen Boatwright.




**ITEM
      11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT**




The
      following tables set forth certain information regarding the beneficial
      ownership of the Company’s common stock and preferred stock as of September 30,
      2005 for (a) each person known by the Company to be a beneficial owner of five
      percent or more of the outstanding common or preferred stock of the Company,
      (b)
      each executive officer, director and nominee for director of the Company, and
      (c) directors and executive officers of the Company as a group. As of September
      30, 2005, the Company had 9,060,221 shares of common stock and 1,260,732 shares
      of preferred stock outstanding.




40




**Common
      Stock Share Ownership as of September 30, 2005**




Name
                and Address of Beneficial Owner(1)
            
            Amount
                of Common Shares Owned
            
            Derivative
                Securities Exercisable or Convertible Within 60 Days of September
                30,
                2005
            
            Total
                Common Shares Beneficially Owned
            
            Percent
                of Common Shares Owned(2)Roger
                Girard
              Chief
                Executive Officer,
              President
                and Chairman
            
            
            338,462
            
            
            513,841
            
            
            852,303
            
            
            8.90
            %Michael
                Dunlop
              Chief
                Financial Officer
            
            
            136,619
            
            
            150,000
            
            
            286,619
            
            
            3.11
            %John
                Hrobsky
              Vice
                President
            
            
            4,296
            
            
            281,349
            
            
            285,645
            
            
            3.06
            %David
                Swanberg
              Vice
                President and Director
            
            
            284,609
            
            
            150,000
            
            
            434,609
            
            
            4.72
            %Robert
                Kauffman
              Director
            
            
            43,802
            
            
            100,000
            
            
            143,802
            
            
            1.57
            %Thomas
                LaVoy
              Director
            
            
            8,423
            
            
            100,000
            
            
            108,423
            
            
            1.18
            %Stephen
                Boatwright
              Director
            
            
            -
            
            
            184,236
            
            
            184,236
            
            
            1.99
            %Thomas
                K. Scallen
              Former
                Chief Executive
              Officer(3)
            
            
            329,942
            
            
            -
            
            
            329,942
            
            
            3.64
            %Lawrence
                Family Trust(4)
            
            
            888,529
            
            
            -
            
            
            888,529
            
            
            9.81
            %Donald
                Segna
            
            
            511,214
            
            
            -
            
            
            511,214
            
            
            5.64
            %Anthony
                Silverman(5)
            
            
            594,771
            
            
            139,391
            
            
            734,162
            
            
            7.98
            %All
                Officers and Directors
              as
                a group (7 persons)
            
            
            816,213
            
            
            1,478,726
            
            
            2,294,939
            
            
            25.54
            %


(1)
            Except
                as otherwise noted, the address for each of these individuals is
                c/o
                IsoRay, Inc., 350 Hills St., Suite 106, Richland, Washington
                99354.


(2)
            Percentage
                ownership is based on 9,060,211 shares of Common Stock outstanding
                on
                September 30, 2005. Shares of Common Stock subject to stock options,
                warrants or convertible debentures which are currently
                exercisable/convertible or will become exercisable/convertible within
                60
                days after September 30, 2005 are deemed outstanding for computing
                the
                percentage ownership of the person or group holding such options,
                but are
                not deemed outstanding for computing the percentage ownership of
                any other
                person or group.


(3)
            Mr. Scallen’s
                address is 4701 IDS Center, Minneapolis, MN
                55402.


(4)
            The
                address of the Lawrence Family Trust is 285 Dondero Way, San Jose,
                California 95119.


(5)
            Mr. Silverman’s
                address is 2747 Paradise Road, #903, Las Vegas, Nevada 98109. 27,376
                of
                the shares of common stock and 24,067 of the derivative securities
                beneficially owned by Mr. Silverman are held of record by Katsinam
                Partners, LP, an entity of which Mr. Silverman is a member of the
                general partner.




41




**Preferred
      Stock Share Ownership as of September 30, 2005**




Name
                and Address of Beneficial Owner(1)
            
            Amount
                of Preferred Shares Owned
            
            Options
                or Warrants Exercisable Within 60 Days of September 30,
                2005
            
            Total
                Preferred Shares Beneficially Owned
            
            Percent
                of Preferred Shares Owned(2)Lebowitz
                Living Trust(3)
            
            
            142,819
            
            
            -
            
            
            142,819
            
            
            11.33
            %David
                Swanberg
              Vice
                President and Director
            
            
            14,218
            
            
            -
            
            
            14,218
            
            
            1.13
            %All
                Officers and Directors
              as
                a group (7 persons)(4)
            
            
            14,218
            
            
            -
            
            
            14,218
            
            
            1.13
            %




(1)
            Except
                as otherwise noted, the address for each of these individuals is
                c/o
                IsoRay, Inc., 350 Hills St., Suite 106, Richland, Washington
                99354.


(2)
            Percentage
                ownership is based on 1,260,732 shares of Preferred Stock outstanding
                on
                September 30, 2005. Shares of Preferred Stock subject to stock options
                or
                warrants which are currently exercisable or will become exercisable
                within
                60 days after September 30, 2005 are deemed outstanding for computing
                the
                percentage ownership of the person or group holding such options,
                but are
                not deemed outstanding for computing the percentage ownership of
                any other
                person or group.


(3)
            The
                address of the Lebowitz Living Trust is 16123 Greenwood Road; Monte
                Sereno, California 95030.


(4)
            No
                officers or directors other than Mr. Swanberg beneficially own shares
                of Preferred Stock.




**ITEM
      12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




Through
      June 30, 2005, the Company’s former Chief Executive Officer, Thomas K. Scallen,
      advanced the Company an aggregate of approximately $44,500 to support
      operations, settle outstanding trade accounts payable and provide working
      capital. The advance was repayable upon demand and is non-interest bearing
      and
      is unsecured. Effective June 30, 2005, with the anticipation of the consummation
      of the reverse acquisition transaction with IsoRay Medical, Inc., as previously
      discussed, these advances were forgiven and reclassified as additional paid-in
      capital in the accompanying financial statements as of that date.




Through
      December 31, 2004, the Company owed the Company’s Chief Executive Officer,
      Thomas K. Scallen, approximately $354,500 for cumulative accrued salary. During
      the quarter ended March 31, 2005, the Company’s former Chief Executive Officer
      forgave approximately $304,500 in accrued salary for prior periods.




Mr. Stephen
      Boatwright, a Company director, has been actively involved in providing various
      legal services to the Company, IsoRay Medical and IsoRay Medical’s predecessors
      through the law firms of Gammage and Burnham and Keller Rohrback, PLC. From
      September 2004 until January 2005, Gammage and Burnham received approximately
      $141,000 as payment for legal services performed for IsoRay Medical and its
      predecessors. From February 2005 though June 30, 2005, IsoRay Medical, Inc.
      paid
      Keller Rohrback, PLC approximately $144,000 for legal services. In exchange
      for
      consulting services including providing advice to IsoRay Medical as to the
      structure of organization and compensation arrangements with employees and
      also
      in connection with developing various policies and procedures, Quatash Ventures,
      LLC, an entity controlled by Stephen Boatwight, one of the Company’s directors,
      received options to purchase 84,236 shares of our common stock in 2004.




IsoRay
      Medical’s patent rights to its Cesium-131 process were acquired from Lane Bray,
      a shareholder of the Company, and are subject to a 1% royalty on gross profits
      and certain contractual restrictions.




On
      January 16, 2005, in addition to certain other shareholders, the following
      officers and directors of the Company were awarded shares of common stock for
      guaranteeing a loan with the Benton Franklin Economic Development District
      (“BFEDD”) in the amount of $230,000, which was funded in December 2004, and a
      line of credit with Columbia River Bank in the amount of $395,000: Michael
      Dunlop guaranteed $15,000 of the BFEDD loan and $30,000 of the Columbia River
      Bank line of credit, for which he received 12,888 post-merger shares; Roger
      Girard guaranteed $20,000 of the BFEDD loan, for which he received 5,728
      post-merger shares; John Hrobsky guaranteed $15,000 of the Columbia River Bank
      line of credit, for which he received 4,296 post-merger shares; and David
      Swanberg guaranteed $30,000 of the Columbia River Bank line of credit, for
      which
      he received 8,592 post-merger shares.




42


On
      May
      27, 2005, the Company, Century Park Transitory Subsidiary, Inc., a Delaware
      corporation, Thomas Scallen and Anthony Silverman (shareholders of the Company),
      and IsoRay Medical, Inc., a Delaware corporation, entered into a Merger
      Agreement. Pursuant to the Merger Agreement, Century Park Transitory Subsidiary,
      Inc. was merged with and into IsoRay Medical, Inc. and IsoRay Medical, Inc.
      became a wholly-owned subsidiary of the Company. The Merger Agreement was
      subject to the satisfaction of certain conditions, including the granting of
      certain "piggy-back" and demand registration rights to the purchasers of certain
      convertible debentures of IsoRay Medical, Anthony Silverman and certain other
      affiliates of the Company; the agreements of the officers and directors of
      IsoRay Medical, Inc. to lock-up the shares of common stock of the Company they
      received in the merger for a period of one year from the closing of the merger;
      the agreements of Thomas Scallen and Anthony Silverman to escrow certain shares
      of common stock of the Company; and the receipt by IsoRay Medical from Anthony
      Silverman or his associates of one million dollars as the purchase price of
      certain securities of IsoRay Medical before the closing. These conditions were
      satisfied prior to the closing of the merger, which occurred on July 28,
      2005.





On
      July
      28, 2005, the Registrant’s Board of Directors granted 100,000 options to
      purchase common stock to each of its three independent Directors: Thomas Lavoy,
      Stephen Boatwright, and Robert Kauffman. Additionally, the Board voted on July
      28, 2005 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.





During
      2005, IsoRay Medical, Inc. paid or accrued $5,600 for accounting services
      performed by a company owned by a member of the Board of Directors of IsoRay
      Medical, Inc.





In
      September 2003, IsoRay Products LLC issued 100,000 of its Class B member shares,
      for services rendered, to Roger Girard, the IsoRay, Inc. President, who was
      also
      a Director of IsoRay, Inc. Based on an estimate of the fair value of the Class
      B
      shares, as determined by reference to cash sales of Class A member shares,
      IsoRay Products LLC recorded $50,000 of compensation expense in connection
      with
      the issuance of these shares. The 100,000 Class B member shares were exchanged
      for 168,798 IsoRay Medical, Inc. common shares in connection with the merger
      transaction, which were subsequently exchanged for 142,189 shares of IsoRay,
      Inc. common stock.





In
      June
      2004, IsoRay Medical, Inc. issued 10,000 of its common shares to Mr. Girard
      for
      services rendered and $100 cash. The Company recorded $9,900 of compensation
      expense in connection with the issuance of these shares. These shares were
      subsequently exchanged for 8,423 shares of IsoRay, Inc. common
      stock.





During
      2003, IsoRay Products LLC granted warrants for the purchase of 100,000 of its
      Class A member shares to a financial services company for consulting services.
      These warrants were exercisable at $1.00 per share and are set to expire on
      October 30, 2006. The financial services company was a shareholder of IsoRay
      Products LLC. Because the exercise price was equal to the estimated fair value
      at the date of grant, no compensation was recognized associated with these
      warrants. In connection with the business combination of the IsoRay companies,
      IsoRay Medical, Inc. granted warrants for the purchase of 168,799 of its Series
      B Preferred shares, exercisable at $.59 per share, in exchange for the warrants
      granted by IsoRay Products LLC. Subsequent to the merger with the Registrant,
      these shares were exchanged for 142,189 shares of IsoRay, Inc. common
      stock.





During
      2003 and 2002, IsoRay, Inc. (WA domiciled) contracted with a consultant. Under
      the terms of the agreement, the consultant, who was a director of IsoRay, Inc.
      (WA domiciled), was paid a monthly retainer of $1,500 plus out-of-pocket
      expenses. During 2003 and 2002, IsoRay, Inc. (WA domiciled) paid the consultant
      $15,398 and $12,681, respectively.





During
      2003, IsoRay, Inc. (WA domiciled) paid or accrued $17,500 to a consultant,
      who
      was also an officer of IsoRay, Inc. (WA domiciled), for certain consulting
      services.





During
      2003, IsoRay, Inc. (WA domiciled) paid or accrued $23,000 to a financial
      services company, which has owned by an officer of IsoRay, Inc. (WA domiciled),
      for financial consulting services.





43


During
      2002, IsoRay, Inc. (WA domiciled) issued 35,200 shares of its common stock
      to
      certain shareholders, including five directors of that predecessor entity,
      as
      compensation for their guarantee of notes payable to Benton-Franklin Economic
      Development District. The transaction was recorded at the fair value of the
      shares, estimated to be $35,200, as management considered it to be more readily
      determinable than the value of the guarantees. The following directors of
      IsoRay, Inc. (WA domiciled) received shares of common stock, which have been
      exchanged for shares of the Company’s common stock: Lane Bray, 4,936 Company
      shares; Michael Dunlop, 5,265 Company shares; Karen Thompson, 5,265 Company
      shares; Donald Segna, 5,265 Company shares; and David Swanberg, 3,291 Company
      shares.





Effective
      July 12, 1999, Lane Bray, a Member of IsoRay, LLC (and also a shareholder and
      Director of IsoRay, Inc.), assigned his right, title and interest in an
      invention (including the U.S. patent application therefore and any associated
      patent rights) to IsoRay, LLC in exchange for a royalty equal to 1% of the
      Gross
      Profit, as defined, from the sale of “seeds” incorporating the technology.
      IsoRay, LLC also agreed to pay all remaining costs associated with obtaining
      the
      patent. In January 2000, IsoRay, LLC applied for the patent, which was
      subsequently granted effective May 23, 2000. The patent and associated royalty
      obligation were transferred to IsoRay, Inc. (WA domiciled) effective May 1,
      2002
      in connection with a tax-free reorganization whereby IsoRay LLC ceased
      operations, and assigned all assets and liabilities to IsoRay, Inc. (WA
      domiciled).





IsoRay
      Inc. assigned this patent to IsoRay Products LLC, who assigned the patent to
      IsoRay Medical, Inc. who, pursuant to the royalty agreement must also pay a
      royalty of 2% of Gross Sales, as defined, for any sub-assignments of the
      aforesaid patented process to any third parties. The royalty agreement will
      remain in force until the expiration of the patents on the assigned technology,
      unless earlier terminated in accordance with the terms of the underlying
      agreement. To date, there have been no product sales incorporating the
      technology and there is no royalty due pursuant to the terms of the
      agreement.





Patent
      and Know-How Royalty License Agreement





Effective
      August 1, 1998, Pacific Management Associates Corporation (PMAC) transferred
      its
      entire right, title and interest in an exclusive license agreement with Donald
      Lawrence to IsoRay, LLC in exchange for a membership interest. The license
      agreement was transferred to IsoRay, Inc. (WA domiciled) effective May 1, 2002
      in connection with the tax-free reorganization.





The
      terms
      of the license agreement require the payment of a royalty based on the Net
      Factory Sales Price, as defined in the agreement, of licensed product sales.
      Because the licensor’s patent application was ultimately abandoned, only a 1%
“know-how” royalty based on Net Factory Sales Price, as defined, remains
      applicable. To date, there have been no product sales incorporating the licensed
      technology and there is no royalty due pursuant to the terms of the agreement.
      Management believes that because this technology is not presently being used
      and
      believes it will not be used in the future that no royalties will be paid under
      this agreement.




**ITEM
      13 - EXHIBITS AND REPORTS ON FORM 8-K**




**(except
      as otherwise indicated, all exhibits were previously filed)**




**Exhibit #**
            
            **Description**2.1
            
            Merger
                Agreement dated as of May 27, 2005, by and among Century Park Pictures
                Corporation, Century Park Transitory Subsidiary, Inc., certain
                shareholders and IsoRay Medical, Inc. incorporated by reference to
                the
                Form 8-K filed on August 3, 2005.2.2
            
            Certificate
                of Merger, filed with the Delaware Secretary of State on July 28,
                2005
                incorporated by reference to the Form 8-K filed on August 3, 2005.3.1
            
            Articles
                of Incorporation and By-Laws are incorporated by reference to the
                Exhibits
                to the Registrant's Registration Statement of September 15,
                1983.




44


3.2
            
            Certificate
                of Designation of Rights, Preferences and Privileges of Series A
                and B
                Convertible Preferred Stock, filed with the Minnesota Secretary of
                State
                on June 29, 2005 incorporated by reference to the Form 8-K filed
                on August
                3, 2005.3.3
            
            Restated
                and Amended Articles of Incorporation incorporated by reference to
                the
                Form 10-KSB filed on October 11, 2005.4.2
            
            Form
                of Lock-Up Agreement for Certain IsoRay Medical, Inc. Shareholders
                incorporated by reference to the Form 8-K filed on August 3,
                2005.4.3
            
            Form
                of Lock-Up Agreement for Anthony Silverman incorporated by reference
                to
                the Form 8-K filed on August 3, 2005.4.4
            
            Form
                of Registration Rights Agreement among IsoRay Medical, Inc., Century
                Park
                Pictures Corporation and the other signatories thereto incorporated
                by
                reference to the Form 8-K filed on August 3, 2005.4.5
            
            Form
                of Escrow Agreement among Century Park Pictures Corporation, IsoRay
                Medical, Inc. and Anthony Silverman incorporated by reference to
                the Form
                8-K filed on August 3, 2005.4.6
            
            Form
                of Escrow Agreement among Century Park Pictures Corporation, IsoRay
                Medical, Inc. and Thomas Scallen incorporated by reference to the
                Form 8-K
                filed on August 3, 2005.4.7
            
            Amended
                and Restated 2005 Stock Option Plan incorporated by reference to
                the Form
                S-8 filed on August 19, 2005.4.8
            
            Amended
                and Restated 2005 Employee Stock Option Plan incorporated by reference
                to
                the Form S-8 filed on August 19, 2005.4.9
            
            Form
                of Registration Right Agreement among IsoRay Medical, Inc., Meyers
                Associates, L.P. and the other signatories thereto, dated October
                15,
                2004, incorporated by reference to the Form SB-2 filed on November
                10,
                2005.4.10
            
            Form
                of Registration Rights Agreement among IsoRay, Inc., Meyers Associates,
                L.P. and the other signatories thereto, dated February 1, 2006,
                incorporated by reference to the Form SB-2/A1 filed on March 24,
                2006.4.11
            
            Form
                of IsoRay, Inc. Common Stock Purchase Warrant, incorporated by reference
                to the Form SB-2/A1 filed on March 24, 2006.10.2
            
            Universal
                License Agreement, dated November 26, 1997 between Donald C. Lawrence
                and
                William J. Stokes of Pacific Management Associates Corporation,
                incorporated by reference to the Form SB-2 filed on November 10,
                2005.10.3
            
            Royalty
                Agreement of Invention and Patent Application, dated July 12, 1999
                between
                Lane A. Bray and IsoRay LLC, incorporated by reference to the Form
                SB-2
                filed on November 10, 2005.10.4
            
            Tri-City
                Industrial Development Council Promissory Note, dated July 22, 2002,
                incorporated by reference to the Form SB-2/A2 filed on April 27,
                2006.10.5
            
            Section
                510(k) Clearance from the Food and Drug Administration to market
                Lawrence
                CSERION Model CS-1, dated March 28, 2003, incorporated by reference
                to the
                Form SB-2 filed on November 10, 2005.10.6
            
            Battelle
                Project No. 45836 dated June 20, 2003, incorporated by reference
                to the
                Form SB-2/A2 filed on April 27,
                2006.




45


10.7
            
            Applied
                Process Engineering Laboratory Apel Tenant Lease Agreement, dated
                April
                23, 2001 between Energy Northwest and IsoRay, LLC, incorporated by
                reference to the Form SB-2/A2 filed on April 27, 2006.10.8
            
            Work
                for Others Agreement No. 45658, R2, dated April 27, 2004 between
                Battelle
                Memorial Institute, Pacific Northwest Division and IsoRay Products
                LLC,
                incorporated by reference to the Form SB-2/A2 filed on April 27,
                2006.10.9
            
            Development
                Loan Agreement for $230,000, dated September 15, 2004 between
                Benton-Franklin Economic Development District and IsoRay Medical,
                Inc.,
                incorporated by reference to the Form SB-2/A2 filed on April 27,
                2006.10.10
            
            Registry
                of Radioactive Sealed Sources and Devices Safety Evaluation of Sealed
                Source, dated September 17, 2004, incorporated by reference to the
                Form
                SB-2/A2 filed on April 27, 2006.10.11
            
            CRADA
                PNNL/245, "Y-90 Process Testing for IsoRay", dated December 22, 2004
                between Pacific Northwest National Laboratory and IsoRay Medical
                Inc.,
                including Amendment No. 1, incorporated by reference to the Form
                SB-2/A2
                filed on April 27, 2006.10.12
            
            Intentionally
                Omitted10.13
            
            Amendment
                1 to Agreement 45658, dated February 23, 2005 between Battelle Memorial
                Institute Pacific Northwest Division and IsoRay Medical, Inc.,
                incorporated by reference to the Form SB-2/A2 filed on April 27,
                2006.10.14
            
            Equipment
                Lease Agreement dated April 14, 2005 between IsoRay Medical, Inc.
                and
                Nationwide Funding, LLC, incorporated by reference to the Form SB-2/A2
                filed on April 27, 2006.10.15
            
            Lease
                Agreement, Rev. 2, dated November 1, 2005 between Pacific EcoSolutions,
                Inc. and IsoRay Medical, Inc., incorporated by reference to the Form
                SB-2/A2 filed on April 27, 2006.10.16
            
            Master
                Lease Agreement Number 5209, dated May 7, 2005 between VenCore Solutions
                LLC and IsoRay Medical, Inc., incorporated by reference to the Form
                SB-2/A2 filed on April 27, 2006.10.17
            
            Contract
                #840/08624332/04031 dated August 25, 2005 between IsoRay, Inc. and
                the
                Federal State Unitary Enterprise << Institute of Nuclear Materials
                >>, Russia, incorporated by reference to the Form SB-2 filed on
                November 10, 2005.10.18
            
            State
                of Washington Radioactive Materials License dated October 6, 2005,
                incorporated by reference to the Form SB-2 filed on November 10,
                2005.10.19
            
            Express
                Pricing Agreement Number 219889, dated October 5, 2005 between FedEx
                and
                IsoRay Medical, Inc., incorporated by reference to the Form 10-QSB
                filed
                on November 21, 2005.10.20
            
            Girard
                Employment Agreement, dated October 6, 2005 between Roger E. Girard
                and
                IsoRay, Inc., incorporated by reference to the Form 10-QSB filed
                on
                November 21, 2005.10.21
            
            Contract
                Modification Quality Class G, dated October 25, 2005 to Contract
                Number
                X40224 between Energy Northwest and IsoRay, Inc., incorporated by
                reference to the Form 10-QSB filed on November 21,
                2005.10.22
            
            Agreement
                dated August 9, 2005 between the Curators of the University of Missouri
                and IsoRay Medical, Inc., incorporated by reference to the Form SB-2/A2
                filed on April 27, 2006 (confidential treatment
                requested).




46


10.23
            
            SICAV
                ONE Securities Purchase Agreement, dated December 7, 2005, by and
                between
                IsoRay, Inc. and Mercatus & Partners, Ltd., incorporated by reference
                to the Form 8-K filed on December 12, 2005.10.24
            
            SICAV
                TWO Securities Purchase Agreement, dated December 7, 2005, by and
                between
                IsoRay, Inc. and Mercatus & Partners, Ltd., incorporated by reference
                to the Form 8-K filed on December 12, 2005.10.25
            
            Economic
                Development Agreement, dated December 14, 2005, by and between IsoRay,
                Inc. and the Pocatello Development Authority, incorporated by reference
                to
                the Form 8-K filed on December 20, 2005.10.26
            
            License
                Agreement, dated February 2, 2006, by and between IsoRay Medical,
                Inc. and
                IBt SA, incorporated by reference to the Form 8-K filed on March
                24, 2006
                (confidential treatment requested).10.27
            
            Benton
                  Franklin Economic Development District Loan Covenant Waiver Letter,
                  dated
                  as of March 31, 2005, incorporated by reference to the Form SB-2/A3
                  filed
                  on May 12, 2006.10.28
            
            Service
                Agreement between IsoRay, Inc. and Advanced Care Medical, Inc., dated
                March 1, 2006, incorporated by reference to the Form SB-2/A2 filed
                on
                April 27, 2006.10.29
            
            Business
                Loan Agreement between IsoRay Medical, Inc. and Columbia River Bank,
                dated
                March 1, 2006, incorporated by reference to the Form SB-2/A4 filed
                on May
                26, 2006.10.30
            
            Letter
                from HAEIFC to IsoRay Medical, Inc. dated April 26, 2006, incorporated
                by
                reference to the Form SB-2/A5 filed on June 6, 2006.10.31
            
            Loan
                Agreement, dated June 15, 2006, by and between IsoRay Medical, Inc.
                and
                the Hanford Area Economic Investment Fund Committee, incorporated
                by
                reference to the Form 8-K filed on June 21, 2006.10.32
            
            Commercial
                Security Agreement, dated June 15, 2006, by and between IsoRay Medical,
                Inc. and the Hanford Area Economic Investment Fund Committee, incorporated
                by reference to the Form 8-K filed on June 21,
                2006.16.1
            
            Letter
                from S.W. Hatfield, CPA to the SEC dated December 13, 2005, incorporated
                by reference to the Form 8-K filed on December 14,
                2005.21.1
            
            Subsidiaries
                of the Registrant, incorporated by reference to the Form 10-KSB filed
                on
                October 11, 2005.31.1
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
                Executive Officer, filed herewith.31.2
            
            Certification
                Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief
                Financial Officer, filed herewith.32.1
            
            Certifications
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed
                herewith.




Reports
      on Form 8-K




On
      June
      6, 2005, the Company filed a Current Report on Form 8-K announcing its entry
      into a Merger Agreement, dated May 27, 2005, by and among the Company, Century
      Park Transitory Subsidiary, Inc., IsoRay Medical, Inc., Thomas Scallen and
      Anthony Silverman.




On
      June
      15, 2005, the Company filed a Current Report on Form 8-K announcing the April
      29, 2005 reverse stock split of the Company’s common stock.




On
      August
      3, 2005, the Company filed a Current Report on Form 8-K announcing the closing
      of the merger between the Company’s wholly-owned subsidiary, Century Park
      Transitory Subsidiary, Inc. and IsoRay Medical, Inc.




On
      August
      15, 2005, the Company filed an amended Current Report on Form 8-K/A amending
      the
      Current Report filed on August 3, 2005.




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




**ITEM
      14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      Company paid or accrued the following fees in each of the prior two fiscal
      years
      to its principal accountant, S. W. Hatfield, CPA of Dallas, Texas:




47


Nine
                months ended
              June
                30, 2005
            
            Year
                ended
              September
                30, 2004
            
            Year
                ended September 30, 20031.Audit
                fees
            
            $
            4,663
            
            $
            5,512
            
            $
            8,0942.Audit-related
                fees
            
            
            -
            
            
            -
            
            
            -3.Tax
                fees
            
            
            -
            
            
            -
            
            
            -4.All
                other fees
            
            
            -
            
            
            -
            
            
            -Totals
            
            $
            4,663
            
            $
            5,512
            
            $
            8,094




Through
      the July 2005 reverse acquisition transaction date, the Company had no formal
      audit committee. However, as defined in Sarbanes-Oxley Act of 2002, the entire
      Board of Directors was the Company’s defacto audit committee.




In
      discharging its oversight responsibility as to the audit process, the Board
      obtained from the independent auditors a formal written statement describing
      all
      relationships between the auditors and the Company that might bear on the
      auditors’ independence. The Board discussed with the auditors any relationships
      that may impact their objectivity and independence, including fees for non-audit
      services, and satisfied itself as to the auditors’ independence. The Board also
      discussed with management and the independent auditors the quality and adequacy
      of the Company’s internal controls.




The
      Board
      and, solely for the period ended June 30, 2005, the recently formed Audit
      Committee, reviewed the audited financial statements of the Company as of and
      for the respective periods ended June 30, 2005, September 30, 2004 and
      2003 with management and the independent auditors. Management has the sole
      ultimate responsibility for the preparation of the Company’s financial
      statements and the independent auditors have the responsibility for their
      examination of those statements.




Based
      on
      the above-mentioned review and discussions with the independent auditors and
      management, the Board of Directors and Audit Committee approved the Company’s
      audited financial statements and recommended that they be included in its
      Transitional Annual Report on Form 10-KSB for the nine months ended June 30,
      2005, for filing with the Securities and Exchange Commission.




The
      Company’s principal accountant, S. W. Hatfield, CPA did not engage any other
      persons or firms other than the principal accountant’s full-time, permanent
      employees.




(Remainder
      of this page left blank intentionally)




48




**SIGNATURES**






In
      accord
      with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
      the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.




**ISORAY,
                INC.**
              (formerly Century Park Pictures
                Corporation)Dated:
              June
              26, 2006
            By:
            /s/ Roger
              E.
              GirardRoger
              E. GirardChief
              Executive Officer Dated:
              June
              26, 2006
            By:
            /s/ Michael
              DunlopMichael
              DunlopChief
              Financial Officer




In
      accordance with the Securities Exchange Act of 1934, as amended, this report
      has
      been signed below by the following persons on behalf of the registrant and
      in
      the capacities and on the dates indicated.




Dated:
              June
              26, 2006
            By:
            /s/ Roger
              E.
              GirardRoger
              E. GirardChief
              Executive Officer Dated:
              June
              26, 2006
            By:
            /s/ Michael
              DunlopMichael
              DunlopChief
              Financial Officer and Treasurer









**REPORT
      OF REGISTERED INDEPENDENT CERTIFIED PUBLIC ACCOUNTING
      FIRM**






Board
      of
      Directors and Stockholders


IsoRay,
      Inc.


(formerly
      Century Park Pictures Corporation)




We
      have
      audited the accompanying balance sheets of IsoRay, Inc. (formerly Century Park
      Pictures Corporation) (a Minnesota corporation) as of June 30, 2005, September
      30, 2004 and 2003 and the related statements of operations and comprehensive
      loss, changes in shareholders' equity and cash flows for the nine months ended
      June 30, 2005 and for each of the years ended September 30, 2004 and 2003,
      respectively. These financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.




In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of IsoRay, Inc. (formerly Century
      Park
      Pictures Corporation) as of June 30, 2005, September 30, 2004 and 2003 and
      the
      results of its operations and its cash flows for the nine months ended June
      30,
      2005 and for each of the years ended September 30, 2004 and 2003, respectively,
      in conformity with accounting principles generally accepted in the United States
      of America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note C to the financial
      statements, the Company completed a reverse acquisition transaction in July
      2005. At the commencement of the reverse acquisition transaction, the target
      enterprise was in the process of implementing its respective business plan
      to
      achieve a sustainable revenue stream. Due to the uncertainty of the ultimate
      success of the target enterprise, this circumstance creates substantial doubt
      about the Company’s ability to continue as a going concern. The financial
      statements do not contain any adjustments that might result from the outcome
      of
      these uncertainties.




/s/
                  S. W. Hatfield, CPAS.W.
                  HATFIELD, CPA




Dallas,
      Texas


September
      16, 2005


F-1


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)


**Balance
      Sheets**


June
      30,
      2005, September 30, 2004 and 2003





(Restated)
              June
                30,
              2005
            
            September
                30,
              2004
            
            September
                30,2003**Assets****Current
                Assets**Cash
                on hand and in bank
            
            $
            32,587
            
            $
            -
            
            $
            -**Total current assets**
            
            
            32,587
            
            
            -
            
            
            -**Other
                Assets**
            
            
            -
            
            
            926
            
            
            926Rent
                deposits**Total
                Assets**
            
            $
            32,587
            
            $
            926
            
            $
            926


**Liabilities
                and Shareholders' Equity
                (Deficit)****Current
                Liabilities**Notes
                payable
            
            $
            -
            
            $
            -
            
            $
            100,000Accounts
                payable - trade
            
            
            21,355
            
            
            395
            
            
            -Accrued
                officer compensation
            
            
            -
            
            
            354,500
            
            
            354,500Accrued
                interest payable
            
            
            -
            
            
            -
            
            
            73,714Other
                accrued expenses
            
            
            -
            
            
            -
            
            
            9,027Advances
                from shareholder
            
            
            -
            
            
            37,744
            
            
            27,887**Total
                current liabilities**
            
            
            21,355
            
            
            392,639
            
            
            565,128


**Commitments
              and contingencies****Shareholders'
                Equity (Deficit)**Preferred
                stock - $0.001 par value6,000,000
                shares authorized1,000,000
                shares allocated to Series A
            
            
            -
            
            
            -
            
            
            -5,000,000
                shares allocated to Series B
            
            
            -
            
            
            -
            
            
            -Common
                stock - $0.001 par value.194,000,000
                shares authorized.2,498,319,
                2,414,985 and 2,099,554 sharesissued
                and outstanding, respectively
            
            
            2,498
            
            
            2,415
            
            
            2,099Additional
                paid-in capital
            
            
            7,307,600
            
            
            6,874,610
            
            
            6,778,194Accumulated
                deficit
            
            
            (7,298,866
            )
            
            (7,268,738
            )
            
            (7,344,495
            )**Total
                shareholders' equity (deficit)**
            
            
            11,232
            
            
            (391,713
            )
            
            (564,202
            )**Total
                Liabilities and****Shareholders'
                Equity (Deficit)**
            
            $
            32,587
            
            $
            926
            
            $
            926





The
      accompanying notes are an integral part of these financial
      statements.


F-2


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)


**Statements
      of Operations and Comprehensive Loss**


Nine
      months ended June 30, 2005 and


Years
      ended September 30, 2004 and 2003





(Restated)
              Nine
                months
              ended
              June
                30,
              2005
            
            (Restated)
              Year
              ended
              September
                30,
              2004
            
            Year
              ended
              September
                30,
              2003**Revenues**
            
            $
            -
            
            $
            -
            
            $
            -**Expenses**General
                and administrative expenses
            
            
            30,128
            
            
            9,095
            
            
            19,022Statutory
                cancellation of notes payable and accrued interest
            
            
            -
            
            
            (86,956
            )
            
            -**Total
                expenses**
            
            
            30,128
            
            
            (77,861
            )
            
            19,022**Income
                (Loss) from operations**
            
            
            (30,128
            )
            
            77,861
            
            
            (19,022
            )**Other
                Expense**Interest
                expense
            
            
            -
            
            
            (2,104
            )
            
            (41,005
            )**Income
                (Loss) before provision**
              **for
                income taxes**
            
            
            (30,128
            )
            
            75,757
            
            
            (60,027
            )**Provision
                for income taxes**
            
            
            -
            
            
            -
            
            
            -**Net
                Income (Loss)**
            
            
            (30,128
            )
            
            75,757
            
            
            (60,027
            )**Other
                Comprehensive Income**
            
            
            -
            
            
            -
            
            
            -**Comprehensive
                Income (Loss)**
            
            $
            (30,128
            )
            $
            75,757
            
            $
            (60,027
            )


Income
                (Loss) per weighted-average
              share
                of common stock outstanding,
              computed
                on Net Loss - basic and fullydiluted
            
            $
            (0.01
            )
            $
            (0.03
            )
            $
            (0.07
            )


Weighted-average
                number of shares
              of
                common stock outstanding
            
            
            2,429,027
            
            
            2,360,690
            
            
            804,619




The
      accompanying notes are an integral part of these financial
      statements.




F-3


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)


**Statement
      of Changes in Shareholders' Equity**


Nine
      months ended June 30, 2005 and


Years
      ended September 30, 2004 and 2003





Common
                StockShares
            
            Amount
            
            Additional
              paid-in
              capital
            
            Accumulateddeficit
            
            Total**Balances
                at October 1, 2002**
            
            
            9,886,641
            
            $
            9,887
            
            $
            6,191,566
            
            $
            (7,284,468
            )
            $
            (1,083,015
            )Effect
                of April 29, 2005
              1-for-30
                reverse stock split
            
            
            (9,557,317
            )
            
            (9,558
            )
            
            9,558
            
            
            -
            
            
            -**Balances
                at**
              **October
                1, 2002, as reset**
            
            
            329,324
            
            
            329
            
            
            6,201,124
            
            
            (7,284,468
            )
            
            (1,083,015
            )Conversion
                of notes payable
              and
                accrued interest payable
              to
                common stock
            
            
            1,770,230
            
            
            1,770
            
            
            529,299
            
            
            -
            
            
            531,069Forgiveness
                of accrued interest
            
            
            -
            
            
            -
            
            
            6,766
            
            
            -
            
            
            6,766Contribution
                of imputed interest
              on
                suspended interest on
              notes
                payable
            
            
            -
            
            
            -
            
            
            41,005
            
            
            -
            
            
            41,005Net
                loss for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (60,027
            )
            
            (60,027
            )**Balances
                at**
              **September
                30, 2003**
            
            
            2,099,554
            
            
            2,099
            
            
            6,778,194
            
            
            (7,344,495
            )
            
            (564,202
            )Conversion
                of notes payable
              and
                accrued interest payable
              to
                common stock
            
            
            289,194
            
            
            290
            
            
            86,468
            
            
            -
            
            
            86,758Contribution
                of imputed interest on
              suspended
                interest on notes
              payable
            
            
            -
            
            
            -
            
            
            2,104
            
            
            -
            
            
            2,104Common
                stock issued for
              debt
                conversion services
            
            
            26,237
            
            
            26
            
            
            7,844
            
            
            -
            
            
            7,870Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            75,757
            
            
            75,757**Balances
                at**
              **September
                30, 2004**
            
            
            2,414,985
            
            
            2,415
            
            
            6,874,610
            
            
            (7,268,738
            )
            
            (391,713
            )Sale
                of common stock
              for
                cash
            
            
            83,334
            
            
            83
            
            
            84,917
            
            
            -
            
            
            85,000Contributed
                capital
            
            
            -
            
            
            -
            
            
            43,573
            
            
            -
            
            
            43,573Contribution
                of forgiven
              accrued
                officer's compensation
            
            
            -
            
            
            -
            
            
            304,500
            
            
            -
            
            
            304,500Net
                income for the nine months
            
            
            -
            
            
            -
            
            
            -
            
            
            (30,128
            )
            
            (30,128
            )**Balances
                at**
              **June
                30, 2005**
            
            
            2,498,319
            
            $
            2,498
            
            $
            7,307,600
            
            $
            (7,298,866
            )
            $
            11,232




The
      accompanying notes are an integral part of these financial
      statements.





F-4


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)


**Statements
      of Cash Flows**


Nine
      months ended June 30, 2005 and


Years
      ended September 30, 2004 and 2003




(Restated)
              Nine
                months
              ended
              June
                30,
              2005
            
            Year
              ended
              September
                30,2004
            
            Year
              ended
                September 30,2003**Cash
                Flows from Operating Activities**Net
                Income (Loss)
            
            $
            (30,128
            )
            $
            75,757
            
            $
            (60,027
            )Adjustments
                to reconcile net income to net cash
              provided
                by operating activities****Extinguishment
                of notes payable and accrued interest
            
            
            -
            
            
            (86,956
            )
            
            -****Consulting
                fees paid with common stock
            
            
            -
            
            
            7,870
            
            
            -****Contribution
                of interest expense related to
              suspended
                interest payable on notes payable
            
            
            -
            
            
            2,104
            
            
            41,005****Increase
                (Decrease) in
              Accounts
                payable and other accrued expenses
            
            
            (29,040
            )
            
            (8,632
            )
            
            -**Net
                cash used in operating activities**
            
            
            (59,168
            )
            
            (9,857
            )
            
            (19,022
            )**Cash
                Flows from Investing Activities**
            
            
            -
            
            
            -
            
            
            -**Cash
                Flows from Financing Activities**Proceeds
                from sale of common stock
            
            
            85,000
            
            
            -
            
            
            -Funds
                advanced by officer/shareholder
            
            
            6,735
            
            
            9,857
            
            
            19,022**Net
                cash provided by financing activities**
            
            
            91,755
            
            
            9,857
            
            
            19,022**Increase
                (Decrease) in Cash and Cash Equivalents**
            
            
            32,587
            
            
            -
            
            
            -Cash
                and cash equivalents at beginning of period
            
            
            -
            
            
            -
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            32,587
            
            $
            -
            
            $
            -**Supplemental
                Disclosures of Interest and Income**
              **Taxes
                Paid**Interest
                paid during the period
            
            $
            -
            
            $
            -
            
            $
            -Income
                taxes paid (refunded)
            
            $
            -
            
            $
            -
            
            $
            -**Supplemental
                Disclosure of Non-cash Investing**
              **and
                Financing Activities**Conversion
                of forgiven unpaid accrued officers
              compensation
                to accrued capital
            
            $
            304,500
            
            $
            -
            
            $
            -Conversion
                of advances from shareholder to contributed  capital
            
            $
            44,500
            
            $
            -
            
            $
            -




The
      accompanying notes are an integral part of these financial
      statements.




F-5


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements**







**Note
      A - Organization and Description of Business**





Century
      Park Pictures Corporation (Company) was incorporated in 1983 in accordance
      with
      the Laws of the State of Minnesota.





In
      prior
      periods, the Company developed, produced and marketed various entertainment
      properties, including without limitation, the intellectual product(s) of
      entities engaged in the motion picture, television, and theatrical state
      productions, such as creative writers, producers and directors, for the motion
      picture, pay/cable and commercial television markets.





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





On
      May
      27, 2005, the Company's Board of Directors reallocated the Company's authorized
      capital stock into 2 categories with the designation of preferred stock. The
      effect of this action was to allocate the authorized aggregate 200,000,000
      shares of capital stock into 194,000,000 shares of $0.001 par value Common
      Stock
      and 6,000,000 shares of $0.001 par value Preferred Stock. As filed with the
      State of Minnesota on June 29, 2005, the Board of Directors allocated the
      6,000,000 shares of Preferred Stock as follows: 1,000,000 shares as $0.001
      par
      value Class A Convertible Preferred Stock and 5,000,000 shares as $0.001 par
      value Class B Convertible Preferred Stock. The effect of this action is
      reflected in the accompanying financial statements as of the first day of the
      first period presented.





On
      May
      27, 2005, the Company; a newly-formed, wholly-owned subsidiary, Century Park
      Transitory Subsidiary, Inc., a Delaware corporation (Merger Subsidiary) , Thomas
      Scallen and Anthony Silverman, shareholders of the Company, and IsoRay Medical,
      Inc., a Delaware corporation (IsoRay) entered into a Merger Agreement. Pursuant
      to the Merger Agreement, the Merger Subsidiary will be merged with and into
      IsoRay and IsoRay will become a wholly-owned subsidiary of the Company (Merger).
      In the Merger, the IsoRay stockholders are entitled to receive approximately
      82%
      of the then outstanding shares of common stock of the Company. The Merger
      Agreement is subject to the satisfaction of certain conditions, including the
      approval of the Merger by stockholders of IsoRay representing a majority of
      the
      outstanding shares of common stock of IsoRay entitled to vote, which occurred
      on
      June 28, 2005, the granting of certain "piggy-back" and demand registration
      rights to the purchasers of the certain debentures of IsoRay, Anthony Silverman
      and certain other affiliates of the Company, the agreements of the officers
      and
      directors of IsoRay to lock-up the shares of the Company received in the Merger
      for a period of one year from the closing of the Merger, the agreements of
      Thomas Scallen and Anthony Silverman to escrow certain shares of common stock
      of
      the Company, and the receipt by IsoRay from Anthony Silverman or his associates
      of One Million Dollars as the purchase price of certain securities of IsoRay
      before the closing.




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, Inc. became a wholly-owned subsidiary of the Company. The
      Company concurrently changed its name to IsoRay, Inc.




F-6


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**




**Note
      A - Organization and Description of Business - Continued**





The
      Company issued shares of its common stock and shares of its preferred stock
      to
      holders of common and preferred stock of IsoRay Medical, Inc. at a rate of
      0.842362 share of the Company's common stock for each share of IsoRay Medical,
      Inc. stock. Options and warrants to purchase common and preferred stock of
      IsoRay Medical, Inc. will also be converted at the same rate into options and
      warrants to purchase common and preferred stock of the Company. At the time
      of
      the Merger and following its recent 1:30 reverse stock split, the Company had
      2,498,319 shares of common stock outstanding. Following the Merger, the Company
      has approximately 10,237,797 shares of common and preferred stock outstanding.
      The total amount of shares outstanding, on a fully-diluted basis, post merger
      will be 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, Inc.
      own
      82% of the Company's outstanding securities.





**Note
      B - Preparation of Financial Statements**





The
      acquisition of IsoRay on July 28, 2005, by the Company effected a change in
      control and was accounted for as a "reverse acquisition" whereby IsoRay is
      the
      accounting acquirer for financial statement purposes. Accordingly, for all
      periods subsequent to July 28, 2005, the financial statements of the Company
      reflect the historical financial statements of IsoRay from the inception of
      each
      respective entity composing IsoRay Medical, Inc. at the July 28, 2005 change
      in
      control transaction and the operations of the Company subsequent to the July
      28,
      2005 transaction.





The
      Company originally had a September 30 year-end. As a result of the July 28,
      2005
      reverse acquisition transaction, the Company's Board of Directors changed
      IsoRay, Inc.'s (formerly Century Park Pictures Corporation) year-end to
      June 30 to correspond to the year end of its then-newly acquired
      subsidiary, IsoRay Medical, Inc.





The
      Company and its subsidiaries follow the accrual basis of accounting in
      accordance with accounting principles generally accepted in the United States
      of
      America.





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 revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





Management
      further acknowledges that it is solely responsible for adopting sound accounting
      practices, establishing and maintaining a system of internal accounting control
      and preventing and detecting fraud. The Company's system of internal accounting
      control is designed to assure, among other items, that 1) recorded transactions
      are valid; 2) valid transactions are recorded; and 3) transactions are recorded
      in the proper period in a timely manner to produce financial statements which
      present fairly the financial condition, results of operations and cash flows
      of
      the Company for the respective periods being presented.





For
      segment reporting purposes, the Company operated in only one industry segment
      during the periods represented in the accompanying financial statements and
      makes all operating decisions and allocates resources based on the best benefit
      to the Company as a whole.





**Note
      C - Going Concern Uncertainty**





The
      Company has effectively had no operations, assets or liabilities since its
      fiscal year ended September 30, 1999.


F-7


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      C - Going Concern Uncertainty - Continued**





The
      Company had no operations, assets or liabilities since its fiscal year ended
      September 30, 1999 through June 28, 2005.





The
      Company formed a new wholly-owned subsidiary, Century Park Transitory
      Subsidiary, Inc., (a Delaware corporation) (Merger Corporation) to function
      as a
      merger subsidiary for the reverse acquisition of IsoRay Medical, Inc., a
      Delaware corporation (IsoRay). On May 27, 2005, the Company, the Merger
      Subsidiary and IsoRay entered into a Merger Agreement, dated May 27, 2005.
      On
      July 28, 2005, the May 27, 2005 Merger Agreement was consummated 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, Inc. became
      a wholly-owned subsidiary of the Company.





IsoRay
      Medical, Inc., on the date of the reverse acquisition transaction was classified
      as a development stage enterprise which was in the process of implementing
      its
      respective business plan to achieve a sustainable revenue stream. At the date
      of
      the reverse merger transaction, IsoRay Medical, Inc. has a limited operating
      history and its future success was subject to the expenses, risks and
      uncertainties frequently encountered by companies in similar stages of
      development. These potential risks include failure to acquire adequate financing
      to fund further development of its products; failure to obtain and operate
      a
      production facility; failure to successfully create a market for its products;
      and other risks and uncertainties.





Management's
      plans to raise additional financing include the sale of additional equity or
      borrowings. Management expects to obtain the necessary financing, however,
      no
      assurance can be given that such financing will be completed on terms acceptable
      to the Company. If the Company is not able to obtain additional financing,
      the
      development of the Company's products could be delayed or suspended.





**Note
      D - Summary of Significant Accounting Policies**





1.  Cash
      and cash equivalents





For
      Statement of Cash Flows purposes, the Company considers all cash on hand and
      in
      banks, certificates of deposit and other highly-liquid investments with
      maturities of three months or less, when purchased, to be cash and cash
      equivalents.





2.  Property
      and equipment





Property
      and equipment consists of furniture and fixtures and is stated at the lower
      of
      depreciated cost or net realizable value.





3.  Income
      Taxes





The
      Company uses the asset and liability method of accounting for income taxes.
      At
      June 30, 2005, September 30, 2004 and 2003, respectively, the deferred tax
      asset
      and deferred tax liability accounts, as recorded when material to the financial
      statements, are entirely the result of temporary differences. Temporary
      differences represent differences in the recognition of assets and liabilities
      for tax and financial reporting purposes, primarily accumulated depreciation
      and
      amortization, allowance for doubtful accounts and vacation
      accruals.





F-8


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      D - Summary of Significant Accounting Policies - Continued**





As
      of
      June 30, 2005, September 30, 2004 and 2003, 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 any future change in
      control involving 50 percentage points or more of the issued and outstanding
      securities of the Company.





4.  Income
      (Loss) per share





Basic
      earnings (loss) per share is computed by dividing the net income (loss)
      available to common shareholders by the weighted-average number of common shares
      outstanding during the respective period presented in our accompanying financial
      statements.





Fully
      diluted earnings (loss) per share is computed similar to basic income (loss)
      per
      share except that the denominator is increased to include the number of common
      stock equivalents (primarily outstanding options and warrants).





Common
      stock equivalents represent the dilutive effect of the assumed exercise of
      the
      outstanding stock options and warrants, using the treasury stock method, at
      either the beginning of the respective period presented or the date of issuance,
      whichever is later, and only if the common stock equivalents are considered
      dilutive based upon the Company's net income (loss) position at the calculation
      date.





At
      June
      30, 2005, September 30, 2004 and 2003, the Company has no outstanding stock
      warrants, options or convertible securities which could be considered as
      dilutive for purposes of the loss per share calculation.





**Note
      E - Correction of an Error**  **and
      Financial Statement Restatement**





In
      April
      2002, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standards No. 145 “Rescission of FASB Statements No. 4, 44,
      and 64, Amendment of FASB Statement No. 13, and Technical Corrections(SFAS
      145”). FAS 145 amended Accounting Principles Board Opinion No. 30, Reporting the
      Results of Operations - Reporting the Effects of Disposal of a Segment of a
      Business, and Extraordinary, Unusual and Infrequently Occurring Events and
      Transactions (APB 30), by deleting the phrase, “(1) Classifications of gains or
      losses from extinguishment of debt pursuant to paragraph 8 of FASB Statement
      No.
      4, Reporting Gains and Losses from Extinguishment of Debt. In deleting this
      phrase, the FASB obviated the customary classification of material aggregations
      of extinguishment of debt as extraordinary items. However Paragraph 4 of the
      SFAS 145 Summary, leaves open the possibility of classifying the extinguishment
      of debt as an extraordinary item if these items meet the criteria in APB
      30.





During
      the three-month period ended December 31, 2003, the Company was in the process
      of converting all outstanding debt into shares of the Company's common stock,
      and had continually attempted to contact specific noteholders. Certain specific
      noteholders were unresponsive to the Company's continued inquiries related
      to
      the conversion of the debts into common stock, as discussed in detail in the
      Company's contemporaneously filed financial statements, and the Company’s Board
      of Directors, relying on legal counsel, at the time, acted to create a
“technical forgiveness” of the notes and accrued interest. It was the
      then-management's position and interpretation, after reviewing the requirements
      of both APB 30 and FAS 145 that the failure to timely convert or post a timely
      claim for repayment by these specific noteholders, with concurrence of the
      Company's then-legal counsel, and independent auditor, met both of the required
      criteria of “unusual nature” (it is extraordinary that a note holder


F-9


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      E - Correction of an Error**  **and
      Financial Statement Restatement - Continued**





would
      not
      respond to numerous requests to change the nature of an investment), and
“infrequency of occurrence (as no similar event had occurred previously, and
      none has occurred subsequently, including the redirection of the Company with
      the July 28, 2005 aforementioned reverse merger transaction) and should be
      stated as an “extraordinary item.”





The
      SEC
      staff has taken recent exception to former management's interpretation, and
      requested reclassification of this item from “extraordinary item” to a component
      of operating income, and the Company is restating the accompanying financial
      statements to comply with that request.





Additionally,
      we have also revised our treatment of the forgiveness of debt owed to our former
      CEO in the amount of $304,500 revising it from a reduction of operating expenses
      to a contribution of capital.





The
      effect of any and all changes are reflected in the accompanying restated
      financial statements as of the respective date of the transaction and the effect
      of the corrections are summarized below by fiscal period and cumulatively.





Nine
                months
            
            Year
            
            Yearended
            
            ended
            
            ended
            
            CumulativeJune
                30,
            
            September
                30,
            
            September
                30,
            
            effect
                of2005
            
            2004
            
            2003
            
            changesNet
                Income (Loss),*as
                previously reported*
            
            $
            274,372
            
            $
            75,757
            
            $
            (60,027
            )*Effect
                of the correction of an error*Reclassification
                of statutorycancellation
                of notes payableand
                accrued interest fromextraordinary
                item to“ordinary”
                expense
            
            
            -
            
            
            -
            
            
            -
            
            
            -Contribution
                of forgivenaccrued
                officer’s compensationas
                contributed capital
            
            
            (304,500
            )
            
            -
            
            
            -
            
            
            (304,500
            )Total
                effect of changeson
                Income (Loss) fromOperations
                and NetIncome
                (Loss)
            
            
            (304,500
            )
            
            -
            
            
            -
            
            $
            (304,500
            )Net
                Income (Loss), as restated
            
            $
            (30,128
            )
            $
            75,757
            
            $
            (60,027
            )





F-10





**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      E - Correction of an Error**  **and
      Financial Statement Restatement - Continued**





Nine
                months
            
            Year
            
            Yearended
            
            ended
            
            ended
            
            CumulativeJune
                30,
            
            September
                30,
            
            September
                30,
            
            effect
                of2005
            
            2004
            
            2003
            
            changesEarnings
                per share,as
                previously reported
            
            $
            (0.11
            )
            $
            0.03
            
            $
            (0.07
            )Total
                effect of changes
            
            
            0.10
            
            
            -
            
            
            -Earnings
                per share, as restated
            
            $
            (0.01
            )
            $
            0.03
            
            $
            (0.07
            )





**Note
      F - Fair Value of Financial Instruments**





The
      carrying amount of cash, accounts receivable, accounts payable and notes
      payable, as applicable, approximates fair value due to the short term nature
      of
      these items and/or the current interest rates payable in relation to current
      market conditions.





Interest
      rate risk is the risk that the Company's earnings are subject to fluctuations
      in
      interest rates on either investments or on debt and is fully dependent upon
      the
      volatility of these rates. The Company does not use derivative instruments
      to
      moderate its exposure to interest rate risk, if any.





Financial
      risk is the risk that the Company's earnings are subject to fluctuations in
      interest rates or foreign exchange rates and are fully dependent upon the
      volatility of these rates. The company does not use derivative instruments
      to
      moderate its exposure to financial risk, if any.





**Note
      G - Notes Payable**





On
      July
      31, 2002, the Company's Board of Directors and the respective noteholders
      approved the extension of the ultimate maturity date of the notes through
      December 3, 2003. In conjunction with the extension, the noteholders agreed
      to
      discontinue the accrual of interest subsequent to July 31, 2002.





The
      effect of the discontinuance of interest accruals subsequent to July 31, 2002
      will be charged to operations as a component of interest expense with an offset
      to contributed additional paid-in capital to recognize the economic effect
      of
      the suspended and forgiven interest on these notes in the respective future
      period.





On
      June
      25, 2003, noteholders aggregating $300,000 in outstanding principal and $231,900
      in accrued interest payable exercised their respective conversion rights and
      received an aggregate 53,106,900 pre-reverse split shares of restricted, common
      stock upon conversion.





On
      December 3, 2003, the final ultimate maturity date, one remaining noteholder
      exercised his conversion rights and converted approximately $50,000 in principal
      and $36,758 in accrued interest payable into 8,675,800 pre-reverse split shares
      of restricted, unregistered common stock.





On
      December 3, 2003, upon the failure to timely convert or post a timely claim
      for
      repayment, the Company's Board of Directors, acting upon the advice of legal
      counsel, voided the remaining outstanding unconverted notes payable of
      approximately $50,000 and the associated accrued interest of approximately
      $36,956 and recognized a one-time gain on the technical cancellation of these
      debts.





For
      the
      respective years ended September 30, 2004 and 2003, the Company has recognized
      approximately $2,104 and $41,005 in additional paid-in capital for imputation
      of
      suspended interest on these notes.


F-11


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      H - Related Party Transactions**





Through
      June 30, 2005, the Company's former Chief Executive Officer advanced the Company
      approximately $44,500 to support operations, settle outstanding trade accounts
      payable and provide working capital. The advance


was
      repayable upon demand and is non-interest bearing and is unsecured. Effective
      June 30, 2005, with the anticipation of the consummation of the reverse
      acquisition transaction with IsoRay Medical, Inc., as previously discussed,
      these advances were forgiven and reclassified as additional paid-in capital
      in
      the accompanying financial statements as of that date.





Through
      December 31, 2004, the Company owed the Company's Chief Executive Officer
      approximately $354,500 for accrued salary incurred during the Company’s
      operational periods prior to September 30, 1999. In periods subsequent to
      September 30, 1999, management of the Company required significantly less time
      than in prior periods due to a lessening of the Company's operations. As the
      Company's officer and directors did not devote a significant portion of their
      time to the Company, no officer or director compensation was accrued subsequent
      to September 30, 1999.





During
      the quarter ended March 31, 2005, the Company's former Chief Executive Officer
      forgave approximately $304,500 in accrued salary for prior periods and this
      forgiveness was credited as "additional paid-in capital" to reflect the
      contribution effect of this action.





**Note
      I - Income Taxes**





The
      components of income tax (benefit) expense for the nine months ended June 30,
      2005 and for each of the years ended September 30, 2004 and 2003, respectively,
      are as follows:





Nine
                months
              ended
                June 30,
              2005
            
            Year
                ended
              September
                30,
              2004
            
            Year
                ended
              September
                30,
              2003Federal:Current
            
            $
            -
            
            $
            -
            
            $
            -Deferred
            
            
            -
            
            
            -
            
            
            --
            
            
            -
            
            
            -State:Current
            
            $
            -
            
            $
            -
            
            $
            -Deferred
            
            
            -
            
            
            -
            
            
            --
            
            
            -
            
            
            -Total
            
            $
            -
            
            $
            -
            
            $
            -





As
      of
      June 30, 2005, the Company has a Federal net operating loss carryforward of
      approximately $3,900,000 and a State net operating loss carryforward of
      approximately $1,200,000 to offset future taxable income. Subject to current
      regulations, these carryforwards expire, if unused, through 2015. Due to the
      July 2005 business combination transaction, the utilization of these
      carryforwards, if any, will be governed by the appropriate Federal and State
      statutes.





F-12


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      I - Income Taxes - Continued**





The
      Company's income tax expense (benefit) for the nine months ended June 30, 2005
      and for each of the years ended September 30, 2004 and 2003, respectively,
      differed from the statutory federal rate of 34 percent as follows:





Nine
                months
              ended
                June 30,
              2005
            
            Year
                ended
              September
                30,
              2004
            
            Year
                ended
              September
                30,
              2003Statutory
                rate applied to earnings (loss) before income taxes
            
            $
            10,200
            
            $
            25,750
            
            $
            (20,400
            )Increase
                (decrease) in income taxes resulting from:State
                income taxes
            
            
            -
            
            
            -
            
            
            -Other,
                including reserve for deferred tax asset
            
            
            (10,200
            )
            
            (25,750
            )
            
            20,400Income
                tax expense
            
            $
            -
            
            $
            -
            
            $
            -





Temporary
      differences, consisting primarily of statutory differences between the financial
      statement carrying amounts and tax bases of assets and liabilities give rise
      to
      deferred tax assets and liabilities as of the nine months ended June 30, 2005
      and each of the respective years ended September 30, 2004 and 2003.





Nine
                months ended June 30, 2005Federal
            
            State
            
            TotalDeferred
                tax assets:Other
                (current)
            
            $
            96,000
            
            $
            35,000
            
            $
            131,000Net
                operating loss carryforwards (non-current)
            
            
            932,000
            
            
            77,000
            
            
            1,009,0001,028,000
            
            
            112,000
            
            
            1,140,000Valuation
                allowance
            
            
            (1,028,000
            )
            
            (112,000
            )
            
            (1,140,000
            )Net
                Deferred tax asset
            
            $
            -
            
            $
            -
            
            $
            -Deferred
                tax liabilities
            
            $
            -
            
            $
            -
            
            $
            -Year
                ended September 30, 2004Federal
            
            
            State
            
            
            TotalDeferred
                tax assets:Other
                (current)
            
            $
            96,000
            
            $
            35,000
            
            $
            131,000Net
                operating loss carryforwards (non-current)
            
            
            932,000
            
            
            77,000
            
            
            1,009,0001,028,000
            
            
            112,000
            
            
            1,140,000Valuation
                allowance
            
            
            (1,028,000
            )
            
            (112,000
            )
            
            (1,140,000
            )Net
                Deferred tax asset
            
            $
            -
            
            $
            -
            
            $
            -Deferred
                tax liabilities
            
            $
            -
            
            $
            -
            
            $
            -





Year
                ended September 30, 2003Federal
            
            State
            
            TotalDeferred
                tax assets:Other
                (current)
            
            $
            96,000
            
            $
            35,000
            
            $
            131,000Net
                operating loss carryforwards (non-current)
            
            
            932,000
            
            
            77,000
            
            
            1,009,0001,028,000
            
            
            112,000
            
            
            1,140,000Valuation
                allowance
            
            
            (1,028,000
            )
            
            (112,000
            )
            
            (1,140,000
            )Net
                Deferred tax asset
            
            $
            -
            
            $
            -
            
            $
            -Deferred
                tax liabilities
            
            $
            -
            
            $
            -
            
            $
            -





F-13





**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      I - Income Taxes - Continued**





During
      the nine months ended June 30, 2005 and for each of the years ended September
      30, 2004 and 2003, respectively, the valuation allowance increased (decreased)
      by approximately $-0-, $-0- and $-0-. Realization of deferred tax assets is
      dependent upon sufficient future taxable income during the period that
      deductible temporary differences and carryforwards are expected to be available
      to reduce taxable income.





**Note
      J - Preferred Stock Transactions**





On
      May
      27, 2005, and filed with the State of Minnesota on July 27, 2005, the Company's
      Board of Directors created two series of shares of Preferred Stock designated
      as
      Series A Convertible Preferred Stock and Series B Convertible Preferred Stock.
      The Series A Convertible Preferred Stock (the Series A Stock) consists of an
      aggregate of 1,000,000 shares, $0.001 par value, and the Series B Convertible
      Preferred Stock (Series B Stock) consists 5,000,000 shares, $0.001 par value
      (collectively, Preferred Stock). The Preferred Stock has preferences,
      limitations and relative rights in preference to the holders of any other stock
      of the Company (Junior Stock).





Dividends





Dividends
      shall be paid, out of funds legally available for that purpose, with respect
      to
      all outstanding shares of Series A Stock in an amount equal to ten percent
      (10%)
      per annum of the stated value per share of the Series A Stock, which shall
      be
      $1.20 per share. Such dividends shall only be paid or accrue through March
      31,
      2007. Beginning April 1, 2007, no dividends shall be paid with respect to the
      outstanding shares of Series A Stock.





Dividends
      shall be paid, out of funds legally available for that purpose, with respect
      to
      all outstanding shares of Series B Stock in an amount equal to fifteen percent
      (15%) per annum of the stated value per share of the Series B Stock, which
      shall
      be $1.20 per share (Dividend Payment Amount). Such dividends shall be payable
      in
      full on or before December 31st of each year the Series B Stock is outstanding
      (Dividend Payment Date). Each such dividend shall be paid to the holders of
      record of the Series B Stock as their names appear on the share register of
      the
      Company on the date which is fifty (50) days preceding December 31 st of each
      year (Record Date). If, on the Dividend Payment Date, the holders of the Series
      B Stock shall not have received the full dividends provided for, then such
      dividends shall cumulate, at the rate of 15% per annum on the Dividend Payment
      Amount, beginning to accrue on the Dividend Payment Date whether or not earned
      or declared, with additional dividends thereon for each succeeding year during
      which dividends shall remain unpaid. Unpaid dividends for any period less than
      a
      full year shall cumulate on a day-to-day basis and shall be computed on the
      basis of a 360-day year.





The
      Company shall not declare or pay on any Junior Stock any dividend whatsoever,
      whether in cash, property or otherwise (other than dividends payable in shares
      of the class or series upon which such dividends are declared or paid), nor
      shall the Company make any distribution on any Junior Stock, unless all
      dividends to which the holders of Preferred Stock shall have been entitled
      shall
      have been paid or declared and a sum of money sufficient for the payment thereof
      set apart.





F-14


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      J - Preferred Stock Transactions - Continued**





Voting
      Rights




Except
      as
      otherwise provided herein or by contract, or as required by law, the Preferred
      Stock shall be voted equally with the shares of the Common Stock and not as
      a
      separate class, at any annual or special meeting of stockholders of the Company,
      and may act by written consent in the same manner as the Common Stock, in either
      case upon the following basis: each share of Preferred Stock shall be entitled
      to such number of votes as shall be equal to the voting power of one (1) share
      of Common Stock at the time of the vote.





Notwithstanding
      anything to the contrary in the Company's Articles of Incorporation or Bylaws,
      for so long as any shares of Preferred Stock remain outstanding, in addition
      to
      any other vote or consent required herein or by law, the


vote
      or
      written consent of the holders of at least fifty percent (50%) of the
      outstanding Preferred Stock shall be necessary for effecting or validating
      the
      following actions:





(i)  Any
      amendment, alteration, waiver or repeal of any provision of the Articles of
      Incorporation or the Bylaws of the Company (including any filing of a
      Certificate of Designation); or


(ii)  Any
      bankruptcy, insolvency, dissolution or liquidation of the Company.





In
      addition to the vote or consent required above, the Company may not amend,
      alter, waive or repeal any provisions of the Articles of Incorporation or
      Certificate of Designation which would have a material adverse effect on the
      rights, privileges or preferences granted to either the Series A Stock or the
      Series B Stock without the vote or written consent of the holders of at least
      fifty percent (50%) of the outstanding affected shares.





Liquidation
      Rights





Upon
      any
      liquidation, dissolution, or winding up of the Company, whether voluntary or
      involuntary, the assets of the Company legally available for distribution,
      if
      any, shall be distributed ratably first, to the holders of the Series A Stock,
      second, to the holders of the Series B Stock and third, to the holders of the
      Common Stock.





The
      following events shall be considered a liquidation under this
      Section:





(i)  any
      consolidation or merger of the Company with or into any other corporation or
      other entity or person, or any other corporate reorganization, in which the
      stockholders of the Company immediately prior to such consolidation, merger
      or
      reorganization, own less than 50% of the Company's voting power immediately
      after such consolidation, merger or reorganization, or any transaction or series
      of related transactions to which the Company is a party in which in excess
      of
      fifty percent (50%) of the Company's voting power is transferred, excluding
      any
      consolidation or merger effected exclusively to change the domicile of the
      Company (Acquisition); or


(ii)  a
      sale,
      lease or other disposition of all or substantially all of the assets of the
      Company (Asset Transfer).





In
      the
      event of any liquidation event as defined, if the consideration received by
      the
      Company is other than cash, its value will be deemed its fair market value
      as
      determined in good faith by the Board. Any securities shall be valued as
      follows:





(i)  Securities
      not subject to investment letter or other similar restrictions on free
      marketability:


(A)  If
      traded
      on a securities exchange or through the NASDAQ National Market, the value shall
      be deemed to be the average closing price of the securities on such quotation
      system for the ten days prior to and including the date of closing;


(B)  If
      actively traded over-the-counter, the value shall be deemed to be the closing
      bid or sale price (whichever is applicable) as of the date of closing;
      and





F-15


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      J - Preferred Stock Transactions - Continued**





(C)  If
      there
      is no active public market, the value shall be the fair market value thereof,
      as
      determined by the Board.





(ii)  The
      method of valuation of securities subject to investment letter or other
      restrictions on free marketability (other than restrictions arising solely
      by
      virtue of a stockholder's status as an affiliate or former affiliate) shall
      be
      to make an appropriate discount from the market value determined, as defined
      above, to reflect the approximate fair market value thereof, as determined
      by
      the Board.





Conversion


The
      holders of the Preferred Stock shall have the following rights with respect
      to
      the conversion of the Preferred Stock into shares of Common Stock (Conversion
      Rights):





Optional
      Conversion





Any
      outstanding shares of Preferred Stock may, at the option of the holder, be
      converted at any time into fully-paid and nonassessable shares of Common Stock.
      The number of shares of Common Stock to which a holder of Preferred Stock shall
      be entitled upon conversion shall be one (1) share of Common Stock for each
      share of Preferred Stock being converted (Preferred Stock Conversion Rate).
      Such
      initial Preferred Stock Conversion Rate shall be adjusted from time to time
      as
      defined in the Certificate of Designation.





Automatic
      Conversion





Each
      share of Preferred Stock shall automatically be converted into shares of Common
      Stock, based on the then-effective Preferred Stock Conversion Rate, immediately
      upon the closing of a firmly underwritten public offering pursuant to an
      effective registration statement under the Securities Act of 1933, as amended,
      covering the offer and sale of Common Stock for the account of the Company
      in
      which the gross proceeds to the Company are at least $4,000,000. Upon such
      automatic conversion, any declared and unpaid dividends shall be paid in
      accordance with the appropriate provisions of Certificate of
      Designation.





No
      fractional shares of Common Stock shall be issued upon conversion of Preferred
      Stock. All shares of Common Stock (including fractions thereof) issuable upon
      conversion of more than one share of Preferred Stock by a holder thereof shall
      be aggregated for purposes of determining whether the conversion would result
      in
      the issuance of any fractional share. If, after the aforementioned aggregation,
      the conversion would result in the issuance of any fractional share, the Company
      shall, in lieu of issuing any fractional share, pay cash equal to the product
      of
      such fraction multiplied by the Common Stock's fair market value (as determined
      by the Board) on the date of conversion.





Reservation
      of Stock Issuable Upon Conversion





The
      Company shall at all times reserve and keep available out of its authorized
      but
      unissued shares of Common Stock, solely for the purpose of effecting the
      conversion of the shares of the Preferred Stock, such number of its shares
      of
      Common Stock as shall from time to time be sufficient to effect the conversion
      of all outstanding shares of the Preferred Stock. If at any time the number
      of
      authorized but unissued shares of Common Stock shall not be sufficient to effect
      the conversion of all then outstanding shares of the Preferred Stock, the
      Company will take such corporate action as may, in the opinion of its counsel,
      be necessary to increase its authorized but unissued shares of Common Stock
      to
      such number of shares as shall be sufficient for such purpose.




F-16


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      J - Preferred Stock Transactions - Continued**





Adjustment
      for Stock Splits and Combinations




If
      the
      Company shall at any time or from time to time after the filing date of the
      Certificate of Designation (the Original Issue Date) effect a subdivision of
      the
      outstanding Common Stock without a corresponding subdivision of the Preferred
      Stock, the Preferred Stock Conversion Rate in effect immediately before that
      subdivision shall be proportionately adjusted. Conversely, if the Company shall
      at any time or from time to time after the Original Issue Date combine the
      outstanding shares of Common Stock into a smaller number of shares without
      a
      corresponding combination of the Preferred Stock, the Preferred Stock Conversion
      Rate in effect immediately before the combination shall be proportionately
      adjusted. Any adjustment shall become effective at the close of business on
      the
      date the subdivision or combination becomes effective.





Adjustment
      for Reclassification, Exchange and Substitution





If
      at any
      time or from time to time after the Original Issue Date, the Common Stock
      issuable upon the conversion of the Preferred Stock is changed into the same
      or
      a different number of shares of any class or classes of stock, whether by
      recapitalization, reclassification or otherwise (other than an Acquisition
      or
      Asset Transfer as defined or a subdivision or combination of shares or stock
      dividend or a reorganization, merger, consolidation or sale of assets as
      otherwise provided for), in any such event each holder of Preferred Stock shall
      have the right thereafter to convert such stock into the kind and amount of
      stock and other securities and property receivable upon such recapitalization,
      reclassification or other change by holders of the maximum number of shares
      of
      Common Stock into which such shares of Preferred Stock could have been converted
      immediately prior to such recapitalization, reclassification or change, all
      subject to further adjustment as provided herein or with respect to such other
      securities or property by the terms thereof.





Reorganizations,
      Mergers or Consolidations





If
      at any
      time or from time to time after the Original Issue Date, there is a capital
      reorganization of the Common Stock or the merger or consolidation of the Company
      with or into another corporation or another entity or person (other than an
      Acquisition or Asset Transfer or a recapitalization, subdivision, combination,
      reclassification, exchange or substitution of shares as otherwise provided
      for),
      as a part of such capital reorganization, provision shall be made so that the
      holders of the Preferred Stock shall thereafter be entitled to receive upon
      conversion of the Preferred Stock the number of shares of stock or other
      securities or property of the Company to which a holder of the number of shares
      of Common Stock deliverable upon conversion would have been entitled on such
      capital reorganization, subject to adjustment in respect of such stock or
      securities by the terms thereof. In any such case, appropriate adjustment shall
      be made in the application of the appropriate provisions with respect to the
      rights of the holders of Preferred Stock after the capital reorganization to
      the
      end that the various conversion provisions (including adjustment of the
      Preferred Stock Conversion Rate then in effect and the number of shares issuable
      upon conversion of the Preferred Stock) shall be applicable after that event
      and
      be as nearly equivalent as practicable.





Certificate
      of Adjustment


In
      each
      case of an adjustment or readjustment of the Preferred Stock Conversion Rate
      or
      the number of shares of Common Stock or other securities issuable upon
      conversion of the Preferred Stock, if the Preferred Stock is then convertible,
      as previously defined, the Company, at its expense, shall compute such
      adjustment or readjustment in accordance with the provisions hereof and prepare
      a certificate showing such adjustment or readjustment, and shall mail such
      certificate, by first class mail, postage prepaid, to each registered holder
      of
      Preferred Stock at the holder's address as shown in the Company's books. The
      certificate shall set forth such adjustment or readjustment, showing in detail
      the facts upon which such adjustment or readjustment is based, including a
      statement of (I) the Preferred Stock Conversion Rate at the time in effect,
      and
      (ii) the type and amount, if any, of other property which at the time would
      be
      received upon conversion of the Preferred Stock.


F-17


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      J - Preferred Stock Transactions - Continued**





Notices
      of Record Date





Upon
      (i)
      any taking by the Company of a record of the holders of any class of securities
      for the purpose of determining the holders thereof who are entitled to receive
      any dividend or other distribution, or (ii) any Acquisition (as defined) or
      other capital reorganization of the Company, any reclassification or
      recapitalization of the capital stock of the Company, any merger or
      consolidation of the Company with or into any other corporation, or any Asset
      Transfer (as defined), or any voluntary or involuntary dissolution, liquidation
      or winding up of the Company, the Company shall mail to each holder of Preferred
      Stock at least ten (10) days prior to the record date specified therein (or
      such
      shorter period approved by a majority of the outstanding Preferred Stock) a
      notice specifying (A) the date on which any such record is to be taken for
      the
      purpose of such dividend or distribution and a description of such dividend
      or
      distribution, (B) the date on which any such Acquisition, reorganization,
      reclassification, transfer, consolidation, merger, Asset Transfer, dissolution,
      liquidation or winding up is expected to become effective, and (C) the date,
      if
      any, that is to be fixed as to when the holders of record of Common Stock (or
      other securities) shall be entitled to exchange their shares of Common Stock
      (or
      other securities) for securities or other property deliverable upon such
      Acquisition, reorganization, reclassification, transfer, consolidation, merger,
      Asset Transfer, dissolution, liquidation or winding up.





No
      Dilution or Impairment





Without
      the consent of the holders of then outstanding Preferred Stock, as required,
      the
      Company shall not amend its Articles of Incorporation or participate in any
      reorganization, transfer of assets, consolidation, merger, dissolution, issue
      or
      sale of securities or take any other voluntary action, for the purpose of
      avoiding or seeking to avoid the observance or performance of any of the terms
      to be observed or performed hereunder by the Company, but shall at all times
      in
      good faith assist in carrying out all such action as may be reasonably necessary
      or appropriate in order to protect the conversion rights of the holders of
      the
      Preferred Stock against dilution or other impairment.





**Note
      K - Common Stock Transactions**





On
      April
      29, 2005, the Company's Board of Directors approved and authorized a 1-for-30
      reverse split of the then issued and outstanding common stock of the Company.
      The reverse stock split did not change the number of authorized shares of common
      stock or the par value of the Company's common stock. Except for any changes
      as
      a result of the treatment of fractional shares, each shareholder holds the
      same
      percentage of common stock outstanding immediately following the reverse stock
      split as such shareholder did immediately prior to the reverse stock split.
      The
      effect of this action is reflected in the accompanying financial statements
      as
      of the first day of the first period presented.





On
      June
      25, 2003, the Company issued an aggregate 1,770,230 post-reverse split shares
      of
      restricted, unregistered common stock (53,106,900 pre-reverse split shares)
      in
      redemption of various outstanding notes payable in the face amount of
      approximately $300,000 and accrued interest payable of approximately $237,835,
      pursuant to the conversion terms of the respective notes. The valuation of
      this
      transaction was equal to the "fair value" of the Company's common stock on
      the
      conversion date.





F-18


**IsoRay,
      Inc.**


(formerly
      Century Park Pictures Corporation)





**Notes
      to Financial Statements - Continued**





**Note
      K - Common Stock Transactions - Continued**





On
      December 3, 2003, the Company issued 289,194 post-reverse split shares of
      restricted, unregistered common stock (8,675,800 pre-reverse split shares)
      in
      redemption of two (2) notes payable in the face amount of approximately $50,000
      and accrued interest payable of approximately $36,758, pursuant to the
      conversion terms of the respective notes. The valuation of this transaction
      was
      equal to the "fair value" of the Company's common stock on the conversion date.
      The Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
      for an exemption from registration of these shares and no underwriter was used
      in this transaction.





On
      December 3, 2003, the Company issued 26,237 post-reverse split shares of
      restricted, unregistered common stock (787,100 pre-reverse split shares) as
      compensation for fees associated with the conversion of the outstanding notes
      payable and accrued interest payable. This transaction was valued at
      approximately $7,871, which was equal to the "fair value" of the Company's
      common stock on the conversion date. The Company relied upon Section 4(2) of
      The
      Securities Act of 1933, as amended, for an exemption from registration of these
      shares and no underwriter was used in this transaction.





On
      or
      about May 2, 2005, the Company sold an aggregate 83,334 post-reverse split
      shares of unregistered, restricted common stock (2,500,000 pre-reverse split
      shares) for cash proceeds of approximately $85,000 to three (3) separate
      individuals, including 148,000 shares to the Company's former President. The
      Company relied upon Section 4(2) of The Securities Act of 1933, as amended,
      for
      an exemption from registration of these shares and no underwriter was used
      in
      this transaction. The Company granted "piggy-back" registration rights to the
      holders of the shares of common stock which would entitle a holder to request
      that the Company register the common stock if the Company files a registration
      statement at any time prior to three years from the date the Company sold such
      shares of common stock. The Company has agreed to keep such registration
      statement current for up to 270 days. The Company has agreed to pay all expenses
      associated with any registration of the common stock except any underwriter's
      commissions or fees or any fees of others employed by a selling shareholder,
      including attorneys' fees; which shall be the responsibility of the selling
      shareholder.





On
      July
      28, 2005, the Company issued approximately 7,739,478 post-reverse split shares
      of restricted, unregistered common stock for 100.0% of the issued and
      outstanding shares of IsoRay Medical, Inc. This transaction made IsoRay a
      wholly-owned subsidiary of the Company.





**Note
      L - Commitments and Contingencies**





The
      Company, prior to the July 2005 change in control transaction, leased office
      space under a noncancellable operating lease that expired on August 31, 2002.
      The space was sub-leased to a separate company owned by the Company's then-CEO.
      The Company incurred no expense related to this lease during any period
      reflected in the accompanying financial statements.








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      of this page left blank intentionally)








F-19